[Senate Hearing 108-190]
[From the U.S. Government Publishing Office]
S. Hrg. 108-190
CONFIRMATION HEARING ON THE NOMINATION OF R. HEWITT PATE TO BE
ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MAY 21, 2003
__________
Serial No. J-108-13
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
90-459 wASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
CHARLES E. GRASSLEY, Iowa PATRICK J. LEAHY, Vermont
ARLEN SPECTER, Pennsylvania EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina RUSSELL D. FEINGOLD, Wisconsin
LARRY E. CRAIG, Idaho CHARLES E. SCHUMER, New York
SAXBY CHAMBLISS, Georgia RICHARD J. DURBIN, Illinois
JOHN CORNYN, Texas JOHN EDWARDS, North Carolina
Bruce Artim, Chief Counsel and Staff Director
Bruce A. Cohen, Democratic Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Craig, Hon. Larry E., a U.S. Senator from the State of Iowa...... 32
DeWine, Hon. Mike, a U.S. Senator from the State of Ohio......... 44
prepared statement........................................... 132
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 1
prepared statement........................................... 134
Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin...... 3
prepared statement........................................... 136
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 31
prepared statement........................................... 138
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 31
PRESENTER
Allen, Hon. George, a U.S. Senator from the State of Virginia
presenting R. Hewitt Pate, Nominee to be Assistant Attorney
General, Antitrust Division, Department of Justice............. 2
STATEMENT OF THE NOMINEE
Pate, R. Hewitt, Nominee to be Assistant Attorney General,
Antitrust Division, Department of Justice...................... 5
Questionnaire................................................ 7
QUESTIONS AND ANSWERS
Responses of R. Hewitt Pate to questions submitted by Senator
DeWine......................................................... 50
Responses of R. Hewitt Pate to questions submitted by Senator
Leahy.......................................................... 54
Responses of R. Hewitt Pate to questions submitted by Senator
Kennedy........................................................ 59
Responses of R. Hewitt Pate to questions submitted by Senator
Kohl........................................................... 61
SUBMISSIONS FOR THE RECORD
U.S. GOVERNMENT PRINTING OFFICE
89-018 wASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
Singh, Seema, Legal Counsel, Office of Hon. Arlen Specter, May
20, 2003, memorandum........................................... 139
Specter, Hon. Arlen:
letter to Hon. Mike DeWine, April 21, 2003................... 141
letter to R. Hewitte Pate, Esq., May 13, 2003................ 143
Warner, Hon. John, a U.S. Senator from the State of Virginia,
statement of support for R. Hewitt Pate, Nominee to be
Assistant Attorney General, Antitrust Division, Department of
Justice........................................................ 144
NOMINATION OF R. HEWITT PATE, OF VIRGINIA, TO BE ASSISTANT ATTORNEY
GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE
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WEDNESDAY, MAY 21, 2003
United States Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 10:19 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Orrin G.
Hatch, Chairman of the Committee, presiding.
Present: Senators Hatch, Specter, DeWine, Craig, Leahy, and
Kohl.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
THE STATE OF UTAH
Chairman Hatch. We're happy to welcome you all out here to
this nomination hearing this morning. We are honored to have
Senator Allen here. It is our pleasure to consider the
nomination of Hugh Pate to be Assistant Attorney General for
the Antitrust Division at the United States Department of
Justice.
I would like to start by welcoming Mr. Pate to the
Committee and congratulating him for being nominated by
President Bush. Your impressive background and past government
service make me very confident that you will be a great asset
to the Department of Justice, this Committee, and, of course,
the people of our country.
Over the last decade, the position of the Assistant
Attorney General for the Antitrust Division has grown in very
great importance. The rapid transformation of our country's
economy, particularly in new technologies and international
markets, has raised public attention and policy focus on a
variety of important antitrust issues. The Assistant Attorney
General in charge of the Antitrust Division plays a crucial
role in formulating competition policy and enforcing the
existing antitrust laws to make sure that our free market
economy survives efficiently and serves the public.
Now, I think I will reserve the rest of my remarks until
later, and if could--can you reserve yours until we let Senator
Allen say his remarks? And let me just mention, Senator Warner
is managing the DOD authorization bill on the floor, and he
particularly caught me and said, Mr. Pate, he wanted to be here
and asked me if I would put his very complimentary statement
into the record because he fully supports you and believes that
you will make a great Antitrust Division chief.
So if we can do that without objection, and if you will
forgive Senator Warner, there is not much he can do. He has to
be there. So we are going to count on Senator Allen doing the
job here, and we will turn to him at this time.
PRESENTATION OF R. HEWITT PATE, NOMINEE TO BE ASSISTANT
ATTORNEY GENERAL, ANTITRUST DIVISION, U.S. DEPARTMENT OF
JUSTICE, BY HON. GEORGE ALLEN, A U.S. SENATOR FROM THE STATE OF
VIRGINIA
Senator Allen. Thank you, Mr. Chairman. And I have Senator
Warner's statement here that I would like to have put in the
record for my colleague.
Chairman Hatch. Without objection.
Senator Allen. Mr. Chairman, Senator Kohl, members of the
Committee, thank you for this hearing on Hugh Pate. I should
say Mr. R. Hewitt Pate, a fellow Virginian, to be Assistant
Attorney General of the Antitrust Division of the U.S.
Department of Justice. He is joined here by his wife, Lindsey,
and his daughters, Lizzie and Ellen. And I know they are very
proud of their father, and we are proud to have you all here
with us for this--
Chairman Hatch. We are happy to have you here, too, and,
Lizzie and Ellen, you are beautiful young women. And you blush
beautifully, too.
[Laughter.]
Senator Allen. As you said, Mr. Chairman, the enforcement
of the antitrust laws is very important and essential for the
protection of competition in our free market economy, and I
have known Mr. Pate for many years, and I can confidently say
without any reservation whatsoever that he is very well
qualified, and I am confident that he will be effective, he
will handle the job and leadership positions and decisions with
dignity and impartiality in enforcing the law.
I, when I was Governor of Virginia, appointed Mr. Pate to
the Virginia Commission on Higher Education and to the
Governor's Commission on Self-Determination and Federalism. You
may see from his record that he did get his undergraduate
degree from the University of North Carolina. I got to know
Hew--that is what we call him, ``Hew'' Pate--when he was at law
school at the University of Virginia in Charlottesville and I
was a member of the House of Delegates at that time
representing the Charlottesville area. And Mr. Pate at the
University of Virginia at the law school graduated first in his
class in 1987 and then went on to clerk for Fourth Circuit
Judge J. Harvie Wilkinson. In addition, Mr. Pate clerked for
Justice Lewis Powell and Justice Anthony Kennedy on the Supreme
Court of the United States.
After these impressive clerkships, Mr. Pate went on to
practice antitrust law for 10 years at Hunton and Williams,
which is a highly respected and one of the largest law firms in
the Commonwealth of Virginia. It is an international firm,
actually.
He also taught competition law at the University of
Virginia Law School, and since 2001, Mr. Pate has worked in the
Department of Justice's Antitrust Division and has been the
Acting Assistant Attorney General for Antitrust since November
of 2002.
In fact, there was one case that Senator Warner and I had
one position and the Justice Department and Antitrust had
another position. And Mr. Pate came and briefed us on it.
Applying the law and the facts of that situation, he said,
``Here's why we come down this way,'' contrary to the way that
Senator Warner and I were advocating. After that meeting, we
felt that that issue had been given fair consideration. He
applied the law logically and understandably, and there was no
more grousing appeals for reconsideration and all the rest.
So when you have a friend who has to tell two other friends
that applying the law in the question of a judgment call
contrary to what you desire, it is not an easy task to do. And
that is why I am confident that he will impartially adhere to
the laws, provide for proper competition in our economy, and I
ask you, Mr. Chairman and members of the Committee, to move as
swiftly as possible for the confirmation of R. Hewitt Pate,
because I know he is a man of integrity, of capability, and
with the qualifications we would want to be heading up this
important Division.
And I thank you, Mr. Chairman and members of the Committee,
for having this hearing.
Chairman Hatch. Well, thank you, Senator Allen. I worry
about a nominee, though, that doesn't hew the line for two
powerful Senators from Virginia like the two of you.
[Laughter.]
Senator Allen. Well, I am still for him, and I respected
that he argued the case very well and in a logical way in
applying the law.
Chairman Hatch. I appreciate that, and that is what we
want. We want people who are going to do what is right.
Senator Allen. And I will present to you, to the clerk,
Senator Warner's testimony or his introduction, unless you--do
you already have it, Mr. Chairman?
Chairman Hatch. We do, and thank you.
Senator Allen. You do? Good.
Chairman Hatch. You can leave it there, and we will make
sure it is in the record.
Senator Allen. I will leave it here.
Chairman Hatch. Thanks, Senator Allen. We know you are
busy, and we will excuse you. We know how busy you really are.
Senator Allen. We know how busy you are as well, Mr.
Chairman, and thank you.
Chairman Hatch. Thank you so much. We appreciate it.
Well, I will finish my opening remarks, and I will turn to
the Ranking Member of the Antitrust Subcommittee, Senator Kohl.
STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE STATE OF
WISCONSIN
Senator Kohl. Thank you so much, Mr. Chairman. We meet
today to consider the nomination of Hew Pate to be Assistant
Attorney General for Antitrust. The mission of the Justice
Department's Antitrust Division has never been more important.
In our challenging economic times, we depend on the dynamism
and competition to provide the economic growth and jobs
necessary to propel our economy forward. Only aggressive
enforcement of our Nation's antitrust laws will ensure that
competition flourishes and consumers obtain the highest quality
products and services at the lowest possible prices.
If confirmed, Mr. Pate will assume the leadership of the
Antitrust Division at a very crucial time. One example is the
ferment in the media sector. In the next few weeks, the Federal
Communications Commission is expected to adopt new rules that
will fundamentally relax the limits on media ownership that
have existed for decades. This ruling is likely to unleash a
wave of media consolidation and media acquisitions that have
the potential to reshape the way Americans receive their news,
information, and entertainment programming. Only by maintaining
diversity in media ownership can we ensure the diverse
marketplace of ideas so essential to our democracy. The
Antitrust Division will stand as our last line of defense
against excessive media concentration.
Our work in the last year has also uncovered serious
allegations of anti-competitive practices in the ways hospitals
buy the medical devices essential to delivering quality health
care to millions of Americans. Group purchasing organizations
have been accused of adopting exclusionary contract practices
which benefit dominant suppliers to the detriment of innovation
and patients.
While the Federal Trade Commission has taken the lead in
investigating this industry, the Antitrust Division's
cooperation in revising the joint FTC-DOJ health care
guidelines will be essential to restoring competition to this
vital sector.
Mr. Pate, the performance of the Antitrust Division over
the last 2 years under your predecessor's leadership does
concern me. From the defects in the Microsoft settlement, which
many believe was unnecessarily weak and riddled with loopholes,
to the general decline in the Division's enforcement
activities, we are left to wonder if the Division was truly
committed to its crucial mission of protecting competition.
It is essential that the next head of the Antitrust
Division be committed to restoring the proud tradition of
vigorous antitrust enforcement to the Justice Department. Your
impressive record of achievement and your fine reputation
demonstrate that you are well qualified to restore our
confidence and lead the Antitrust Division. I have been
impressed with your dedication since you have been the acting
head of this Division.
Mr. Pate, the position of Assistant Attorney General for
Antitrust carries with it a special burden and a special
responsibility. The companies over whom the Antitrust Division
has jurisdiction have ample resources to hire skilled and
talented counsel to represent their best interests. But no one
represents the interest of the American consumer other than the
Antitrust Division. Millions of consumers will depend on your
efforts and your judgment. It is my sincere hope and full
expectation that you will meet this challenge when you are
confirmed.
Thank you very much, Mr. Chairman.
Chairman Hatch. Well, thank you, Senator Kohl.
Mr. Pate, we will just swear you in at this point, if we
can. Do you solemnly swear to tell the truth, the whole truth,
and nothing but the truth, so help you God?
Mr. Pate. I do.
Chairman Hatch. Thank you, sir. We would be happy to take
any statement you would care to give at this time.
STATEMENT OF R. HEWITT PATE, NOMINEE TO BE ASSISTANT ATTORNEY
GENERAL, ANTITRUST DIVISION, U.S. DEPARTMENT OF JUSTICE
Mr. Pate. Thank you, Senator. I do have a brief opening
statement.
It is a great honor to me to have been nominated by the
President to serve in the Justice Department as Assistant
Attorney General for Antitrust, and I thank you, Mr. Chairman,
and the Committee for the opportunity to appear today. I would
like to thank Senator Allen and also Senator Warner for their
support and for the warm introductions that they've given.
Senator Allen mentioned my family. I would like to
recognize the support that my wife, Lindsey, and my daughters,
Ellen and Lizzie, provide me, which is valuable beyond measure,
and I thank them for that.
Chairman Hatch. We are happy to have them with you here
today.
Mr. Pate. I have with me today also my mentor as a young
lawyer, Tom Slater, from my former firm, who taught me a great
deal about antitrust litigation. And the Committee may be
interested to know that John Shenefield, whose presence I
really appreciate here today, was the head of that firm's
antitrust practice when he left in the late 1970's to become
the AAG for Antitrust during the Carter administration. Tom
Slater then succeeded him as head of the firm's antitrust
practice. I went to work for Slater, and now here some 13 years
later, if confirmed, I have the opportunity to succeed Mr.
Shenefield to be--
Chairman Hatch. That sounds like nepotism to me.
[Laughter.]
Chairman Hatch. We have one law firm controlling all the
antitrust rules in this country.
Mr. Pate. Well, in fairness, Mr. Shenefield moved on and
has had an illustrious career elsewhere, but I do appreciate
being associated with that lineage.
Chairman Hatch. We are happy to have both of you here, and,
Mr. Shenefield, we remember your term. I was here when you
served, and you did a very good job, and we just appreciate
having both of you. Both of you have done good jobs, and we are
grateful to have you in this position as well.
I am going to have to turn this over to Senator DeWine--it
looks like we have another vote--because I am in the middle of
the tax conference. I hate to leave, but I am totally in
support of your nomination. I think it is one of the best
nominations we could possibly have. But Senator DeWine, who
himself has been an Attorney General, and Senator Kohl do an
excellent job on our Antitrust Subcommittee, and I am going to
turn it over to Senator DeWine. It looks like we have a vote,
and I will tell them to hold it for you.
Mr. Pate. Well, thank you, Senator. I appreciate your being
here to open the hearing.
Chairman Hatch. Thank you so much. We are honored to have
you accept this position, and we appreciate your wife and
family, because we know the long hours that you have to put in,
and it is very, very difficult for you. So we appreciate the
service that you give as well.
Go ahead. I am sorry to interrupt you.
Senator DeWine. [Presiding.] I think what we are going to
do, since we just started a vote, I think that we will stop at
this point so we don't break the questioning.
Mr. Pate. Okay. And should I complete my brief statement at
that time when you resume?
Senator DeWine. We are going to do that. We are going to
have to just break it right now. We are going to go vote.
Senator Kohl and I will vote, and we will be back.
Thank you very much.
Mr. Pate. Thank you, Senator.
[Recess 10:33 to 10:59 a.m.]
Senator DeWine. The hearing will come to order. We
apologize for the interruption. We didn't count on--at least, I
didn't count on a second vote.
Mr. Pate, will you please continue your opening statement?
Mr. Pate. I will. Thank you, Senator. Having introduced my
family and Mr. Slater and Mr. Shenefield earlier, let me just
continue by saying this, Mr. Chairman:
The antitrust laws are truly a cornerstone of our market
economy. We in the United States rely to a great extent on
competition to ensure that citizens get the benefit of higher
quality and lower prices in the goods and services that they
need, and sound enforcement of our antitrust laws protects this
competition.
The Antitrust Division's Criminal Enforcement Program
detects, punishes, and deters price fixing and other illegal
conduct by those who conspire to cheat consumers rather than
compete to win their business. Our Merger Review Program
prevents anti-competitive combinations that can lead to higher
prices or can lead to greater opportunities for collusive
behavior. And our Civil Non-Merger Program prevents the
unlawful creation or abuse of monopoly power.
This year marks the 100th anniversary of the appointment
under President Roosevelt of the first Assistant to the
Attorney General responsible for antitrust. This organizational
step laid the foundation for the current Antitrust Division,
and the Division has a great history of vigorous enforcement of
our antitrust laws. My work at the Division for just about 2
years now has made me appreciate that it is the extraordinary
public service of our dedicated career attorneys and career
economists who make the Division's enforcement record possible.
And I am very humbled to think that, if confirmed by the
Senate, I will have the opportunity to do all that I can to
help the Division carry forward its important work.
I'd like to thank you again, Mr. Chairman, for the
opportunity to appear before the Committee, and I would be
happy to answer any questions that Senators may have.
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Senator DeWine. Let me turn to my colleague, Senator Leahy,
for any opening statement he would like to make.
STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE
STATE OF VERMONT
Senator Leahy. Thank you, Mr. Chairman. I am glad to be
here with you and with Senator Kohl. Both of you, as I have
said before, do such a superb job in handling this
Subcommittee, and I will put most of my statement in the
record. But I do worry about the geographic boundaries of our
marketplace being pushed further and further out, and many of
the competitive issues that were once only local have become
regional, national, or even global in their nature. And when
the economy is suffering and in down times, then you have a
temptation to act anti-competitively. We are in a world
dominated by high-tech information industries. Technological
change is coming at a dizzying speed. And so we have to have
fair and efficient enforcement of our antitrust laws. We think
of mergers of competitors, but more and more vertical
arrangements are entered into, and we have to look at those. It
doesn't mean they are all bad by any means, and in some cases
they can give consumers a greater range of choice. In others,
they can very much limit it. And we have to make sure in the
digital age that consumers are covered.
I have raised concern about the recent proposal by H.P.
Hood and National Dairy Holdings to join, which would have had
one entity, Dairy Farmers of America, in control of 90 percent
of the milk market in my part of the country, at a time when
milk prices are at an all-time low.
I might conclude with this, Mr. Chairman. On the question
of media concentration, I have talked before this hearing with
Mr. Pate. I sent a letter, along with Senator Jeffords, to
Chairman Powell at the FCC expressing our concerns about media
concentration. And I will arrange to give Mr. Pate a copy of
that letter because, as he has pointed out to me, there are
different rules that involve the Department of Justice and the
FCC on that, and they have different concerns, expressing it as
you do.
And the last thing I would say: it is so nice to see your
family here, and as I told you earlier, you are blessed with a
wonderful family, and I hope these two lovely 8-year-olds gain
something from this. This is not what they would normally be
doing in school, so we are delighted to have you here.
Mr. Pate. Thank you, Senator.
Senator Leahy. Thank you, Mr. Chairman.
Senator DeWine. Senator Specter.
STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE
OF PENNSYLVANIA
Senator Specter. Well, just a word or two. Welcome, Mr.
Pate. You are taking on a very major assignment here. The
modern trends on mergers and acquisitions and concentrations
really pose a very, very different economic picture for America
today than when Jefferson raised a question about whether big
was bad and Brandeis raised about the same issue. So it is a
very, very important matter.
One of the subjects that has been of continuing concern to
me has been the monopoly practices of OPEC oil, and when we
have a chance to talk about it, I would like to get your views
on what might be done on an aggressive policy, because I think
that OPEC does not qualify for any of the exclusions from the
antitrust laws under sovereign immunity, et cetera. But I will
save most of my comments for the Q and A.
Thank you, Mr. Chairman.
Senator DeWine. Senator Craig?
STATEMENT OF HON. LARRY E. CRAIG, A U.S. SENATOR FROM THE STATE
OF IDAHO
Senator Craig. Welcome before the Committee.
Mr. Pate. Thank you, Senator.
Senator Craig. Your reputation tells me that you are going
to be confirmed, and we will look forward to working with you.
I do say that I reflect some of the concerns expressed by my
colleagues here. Dominant in them is the consolidation of the
segments of the agricultural economy that have offered great
frustration to the producers in the last decade or two. And
while that frustration doesn't go away, there is ongoing study
as to whether, in fact, it affects market price and whether all
of this activity fits within the antitrust laws of our country
or does not.
My guess is that during your tenure some of those issues
will be visited, and we will look forward to working with you
on them.
Thank you.
Mr. Pate. Thank you, Senator.
Senator DeWine. Since I am presiding today on behalf of
Chairman Hatch, and since I am going to be here throughout the
hearing, I know some of my colleagues do have to leave because
they have other hearings going on. I am going to hold my
opening statement and I am going to hold my questions until the
end.
So we will start with Senator Leahy for the first round of
questions.
Senator Leahy. I would just as soon go to Senator Kohl.
Senator DeWine. That is fine. Senator Kohl? Senator Kohl is
the ranking member, as you know, of the Antitrust Subcommittee,
and Senator Kohl and I have exchanged gavels back and forth a
number of times. And I suspect we may at some time in the
future do that again, although I hope that doesn't occur too
soon.
[Laughter.]
Senator Leahy. I hope it does.
Senator DeWine. Well, we understand.
Senator Kohl?
Senator Kohl. Thank you very much, Senator DeWine.
Mr. Pate, as you know, over the last year, our Subcommittee
has investigated disturbing allegations of anti-competitive
practices among the large buying organizations that purchase
medical equipment and devices for hospitals, what are known as
group purchasing organizations or GPOs. We held a hearing last
year and received evidence of GPO contracting practices and
conflicts of interest that can effectively prevent competitive
medical device manufacturers from gaining access to hospitals
for their devices, innovative products like retractable
needles, for example, or advanced pacemakers.
As a result, it appeared that in many cases hospitals were
not getting the best products at the best prices for their
patients. The situation is quite disturbing. We cannot
tolerate, as you know, a situation in which patients and
physicians could be well denied the best medical devices
because of anti-competitive practices by these GPOs.
We are pleased that in response to our concerns, several of
the largest GPOs, including the industry leader Premier, have
now committed to voluntarily change many of their contracting
practices and end conflicts of interest. We commend Premier and
the other GPOs that have worked with us over the last year to
reform their practices. However, we also believe that vigorous
antitrust enforcement is required of this industry and that the
joint FTC-DOJ health care guidelines covering the activities of
GPOs need to be reviewed and updated in light of the industry
practice we uncovered and the consolidation that has taken
place in this industry. I have a question for you regarding
this issue and then a follow-up.
First, do you share our concern, Mr. Pate, regarding the
possibility of anti-competitive practices by GPOs which could
well result in device manufacturers' being denied access to the
hospital marketplace?
Mr. Pate. Senator, the issue you raise is one of great
importance. The ways in which hospitals can purchase medical
supplies affects not just the price of medical care but also
access to new and innovative products, as you mention. This is
an issue of concern and attention at the Division.
As you know, the Federal Trade Commission has an open
investigation in this area. It would be inappropriate for me to
make comments directly about that, but I will say that the
Division works cooperatively with the Federal Trade Commission
in this area. We have joint health care hearings, open, with
the Federal Trade Commission in which this a subject on which
we're going to be seeking evidence. And if as a result of that
we find that there is a need for changes to the health care
guidelines as they relate to GPOs particularly, then we have
pledged to work with the Federal Trade Commission on that. So
this is an area in which you can expect us to be active.
Senator Kohl. So what you are saying is that, if and when
you are confirmed, we can expect your very prompt re-
examination of the health care guidelines to begin and would
expect it to be finished in a fairly quick and effective way?
Mr. Pate. You can expect we'll be very active in this area.
I think that it would be most likely that we would try to
conclude the joint health care hearings and the collection of
evidence on health care issues before, frankly, there would be
a revision of the guidelines. But what I'm talking about there
is a period of several weeks during which those hearings are
going to continue. And after that, if there is a need to move
forward, we'll be doing that together with our colleagues at
the Federal Trade Commission.
Senator Kohl. Okay. One more question on this round. Mr.
Pate, the Federal Communications Commission is about to
conclude perhaps the most fundamental revision to its media
ownership rules that we have ever seen and expects to issue its
new rules in the next few weeks.
It has been reported in the press that the new rules will
be a major relaxation of current media ownership limits, even
though we have recently seen a great amount of consolidation in
the media. And these reports trouble many of us.
Mr. Pate, if these ownership limits are lifted, then we can
imagine an even greater wave of media mergers and acquisitions.
Indeed, the investment firm of Merrill Lynch has just released
a report predicting just such a merger and acquisition binge.
The antitrust enforcement agencies will then be our last line
of defense against excessive media concentration.
Some believe that there is nothing special about mergers
and acquisitions in the media marketplace and that they should
be treated just like any other merger. For example, when I
discussed this issue with your predecessor, Charles James, last
year, he said that the only thing that mattered in reviewing
such a media merger was the economic consequences of the
transaction.
I respectfully disagree. First, mergers in the media are
different because they affect competition in the marketplace of
ideas which are so central to our democracy, and diversity in
ownership is essential to ensuring that such competing views
are heard. Therefore, I believe that we must give media mergers
special and more exacting scrutiny than when we review mergers
in other industries which do not affect the free flow of
information. Former FTC Chairman Robert Pitofsky agrees with
this view.
What is your view, Mr. Pate? Is the conventional view of
antitrust review of media mergers focused solely on, for
example, ad rates, correct? Or do you agree with me that the
Justice Department should consider a media merger's impact on
diversity of views and information and not limit your analysis
to a merger's likely effect on economic interests such as
advertising rates?
Mr. Pate. Well, Senator, this is an important issue, one on
which I know members of the Committee have been very active.
There are different predictions as to what may follow from the
FCC's rulemaking. I recall the report you mentioned. I know
that an analyst group, I believe called the Precursor Group,
issued a report a couple of days ago, suggesting that there
would not be consolidation following the rulemaking.
We're not in the business of predicting what will happen
but dealing with transactions that do come before us. What I
would say on that front is that--I know you characterize us as
the last line of defense, but I can certainly assure you that
we will be in place, and if there are transactions that present
anti-competitive consequences, we will stop them. We have been
active in the media area in whatever size case, including big
cases such as DirecTV-EchoStar.
As to the specific diversity issue that you mentioned, it
is the case that we have a different statutory mandate than the
Federal Communications Commission, which, for example, right
now is looking at a diversity index that would look directly at
diversity of voices, to some extent at local production. Our
statute, the Sherman Act, is different and is directed
specifically at competition. But I would say that when we step
in to stop an anti-competitive transaction, that may as a by-
product also preserve diversity of voices. And that's all to
the good.
Senator Kohl. I appreciate that. And, finally, I would like
you to offer me some response that is somewhat specific to my
suggestion that media activities, because they relate to
something so central to democracy, deserve more than just an
economic review, that there is another level of review that is
proper and necessary when it comes to media diversity.
Mr. Pate. Well, certainly as a statutory mandate, the FCC
directly looks at those things. And in terms just of the
general interest in citizens, no one can deny that there is a
great interest in diversity of access to views in the media.
When we go to court, which is what we need to do to
challenge an anti-competitive transaction, we have to proceed
under the standards of the Sherman Act. And those are
specifically directed toward competition. But as I say, the
work that we try to do in protecting competition may also from
time to time help preserve diversity in the marketplace in
terms of the output of views that are accessible to consumers.
Senator Kohl. Thank you, Mr. Pate.
Thank you, Mr. Chairman.
Senator DeWine. Senator Specter?
Senator Specter. Thank you, Mr. Chairman.
Mr. Pate, at the outset, I thank you for your timely
intervention with the Department on a matter of significance in
Pennsylvania where we had a bankruptcy sale involving a company
called Carbide Graphite, and you had the matter under study and
intervened in a very timely way to forestall an antitrust
potential violation which resulted in the continuation of the
plant and the employment of some 120 people in a small town,
St. Mary's in Pennsylvania. That was, I thought, unusual, very
prompt action, and we thank you for that.
Mr. Pate. Well, thank you, Senator. That was an important
situation, one in which the Division had to act quickly. The
Division's Principal Deputy, Debbie Majoras, was in charge of
that and did a good job. We also had tremendous help from the
U.S. Attorney's Office in Pennsylvania in that case as well. So
I appreciate your comments on that.
Senator Specter. Mr. Pate, back on October 11th, I wrote to
President Clinton and, similarly--in 2000, and on April 25,
2001, wrote to President Bush concerning the energy crisis and
the high prices of OPEC oil. And, Mr. Chairman, I would like
both of these letters to be made a part of the record.
Senator DeWine. Without objection, they will be made a part
of the record.
Senator Specter. And these letters outlined the basis for
pursuing OPEC, essentially pointing out that the governmental
activity exemption did not apply and citing the case law on
commercial transactions, and even an alternative suit from the
International Court of Justice at The Hague. But the principal
idea was to move under the antitrust laws, and we have seen the
energy issue become even more complicated, difficulties in
finding sufficient fuel, costs of using fossils, coal.
I hope that you will take a very, very serious look at this
issue because we now know with certainty that the Saudis are
not our friends. And while there may have been some political
factors to ease off in the past, I think that has all changed
with 9/11 and the revelations of Saudi involvement.
This is too complicated a subject to discuss at any length
in the course of the 7 minutes allotted, so perhaps it might
just as well be left with your commitment to study it and act
if you think you have a case and can get permission from the
White House.
Mr. Pate. Well, Senator, I understand that this is a very
difficult legal area. I know that FTC Chairman Pitofsky
testified on this a few years ago and noted some of the legal
hurdles that might be in the way of such a case. I know that it
has been a subject of interest to you personally, Senator.
Let me say this: Bringing an enforcement action against
OPEC would certainly involve more than just the legal and
policy considerations ordinarily involved in an antitrust case
that the Division might bring. As the content of your question
indicates, there are inherent diplomatic and international
relations issues involved in such a case, and the issue would
be one that would involve interests broader--not only broader
than the Antitrust Division, but broader than the Department of
Justice. And I believe that in the past administrations have
pursued this issue through diplomatic and other means, but as
with any topic, I would pledge to take a look at the antitrust
law on this subject and to provide your staff with information
on that if you believe our review would be appropriate.
Senator Specter. Well, let's leave it this way: Would you
make a commitment to within 90 days give a conclusion as to
whether you think there is an antitrust violation? And if you
do, then I think others in the Congress would weigh in--I
certainly would--as a matter of policy in international
relations take it up to the Secretary of State and really up to
the President. But I think the threshold question is whether
the Assistant Attorney General in charge of the Antitrust
Division thinks there is a case.
Mr. Pate. Well, Senator, as with any issue in which
Senators seek our views, if you were to request those, I commit
to you that the Division will get a response back to you
promptly. And I certainly think 90 days is a reasonable amount
of time to do that.
Senator Specter. Okay. I am requesting it.
Let me turn now to a matter of interest to Pennsylvania.
There is a travel agency called Travelocity, which I visited
recently because they had brought to my attention a very
serious situation which appears to me to be an antitrust
violation. I had written to you about this just a week ago, on
May 13th, but the essential facts for the record at hearing are
these: that there is a competitor of Travelocity's--and we are
putting all the cards up on the table, it is a question of fair
competition, legal competition--a company called Orbitz, which
is jointly owned by five major airlines: United, American,
Delta, Continental, and Northwest. And those five airlines
together account for four of five tickets sold in the United
States. And almost all major U.S. airlines, which account for
more than 90 percent of domestic bookings, are represented to
participate in Orbitz on similar terms with the five identified
airlines.
The key concern that Travelocity has is the so-called most-
favored-nation agreement between Orbitz and air carriers which
guarantees Orbitz access to the airlines' lowest fares to the
exclusion of Travelocity.
It sounds to me on its face like a restraint of trade. What
do you think?
Mr. Pate. Well, Senator, I appreciate an opportunity to
address the Orbitz case, which I know has been one of interest
among members. For the reasons you state, the Orbitz matter has
been a subject of great concern at the Division. A joint
venture involving an MFN among five horizontal competitors with
70 percent or more of the traffic raises obvious antitrust
issues.
At the time we opened the investigation, however, the
Division determined right about the time I came to the
Division, correctly, I believe, that we should look at the
market operation of Orbitz and make a determination based on
that rather than do as some were suggesting at the time, try to
seek an injunction to prevent Orbitz from coming into operation
at all, because there were potential consumer benefits from
this new venture that were being offered.
At this point, our economists have been involved in trying
to review large volumes of market evidence, but one of the
problems we face is the post-September 11th environment in
which the airline industry has faced a situation unlike any I
am aware of. And, frankly, it has been difficult to come to a
conclusion that we can be confident about in the case.
But I assure you we are not sitting on it. We are working
hard on it, and we want to bring the case to a conclusion to
determine whether we need to try to take some action and
whether that would be justified. It is a priority matter at the
Division.
Senator Specter. You might think 90 days is too short to
come to a conclusion, unlike OPEC oil?
Mr. Pate. Well, on a non-merger investigation of that
importance, I know these things take longer than many would
think is necessary. I can assure you we are working hard on it,
but I would hesitate to put a timetable on it of that type
because it is equally important that we get the answer right as
that we act quickly in a case like this. We are working on it.
Senator Specter. Orbitz is important, but not more
important than OPEC.
Mr. Pate. I wouldn't suggest that it is.
Senator Specter. I am just jousting with you a little on
time. If not 90 days, perhaps 180, but we would appreciate a
close look.
Mr. Chairman, I have just a little more, if I might
proceed.
Senator DeWine. Sure.
Senator Specter. I am handed a note by staff reminding me
that the investigation has been ongoing since May of 2000. Now,
that is not under your watch, but I hope you will keep that
factor in mind that we are 3 years into the matter.
I note that the Department of Transportation is going to be
issuing regulations here, and I am a little perplexed as to why
the Department of Transportation has the lead role when this is
really an antitrust issue. Will the Department of Justice and
the FTC be giving the Department of Transportation your inputs
as to the potential antitrust issue and the past violation?
Mr. Pate. Senator, I believe what you are addressing there
is the CRS rulemaking that's underway at the Department of
Transportation, and, yes, we are looking right now at providing
record comments to the Department of Transportation about how
the CRS rulemaking should go forward.
We had a letter from Senator Kohl and from Senator DeWine
jointly asking about that same topic, and it's a matter that
our attorneys and economists are working on now.
Senator Specter. Why does the Department of Transportation
have what is really the lead role on a matter of this sort
which is really an antitrust issue?
Mr. Pate. Well, the rulemaking that I believe you're
referring to is really a rulemaking that occurs under the
Federal Aviation Act, and there are different aspects of
aviation competition in which the DOT takes the lead and
others, such as merger review, where the Justice Department
takes the lead. So the reason for that division as it relates
to the CRS rules is the content of the statute that they
follow.
Senator Specter. Well, I would just like to be sure that
the real antitrust experts are at work on it, and I thank you
for your assurances.
Mr. Pate, I think you are an impressive nominee. You are an
impressive witness. I look forward to supporting you and
working with you.
Mr. Pate. Thank you, Senator.
Senator Specter. Thank you, Mr. Chairman.
Senator DeWine. Thank you, Senator Specter.
Senator Kohl?
Senator Kohl. Thank you very much, Mr. Chairman.
Mr. Pate, we were pleased last year when the Justice
Department decided to block the merger between DirecTV and
EchoStar. Now the media giant News Corporation, owners of the
Fox television and cable networks, wants to acquire a
controlling interest in DirecTV. While not a direct horizontal
merger among competitors like the EchoStar-DirecTV deal, this
merger does raise important vertical issues. One of the world's
most powerful producers of news and entertainment would be
acquiring one of the most important distribution vehicles.
Mr. Pate, we recognize that you cannot comment on the
specifics of the News Corporation-DirecTV deal as it will be
reviewed by your agency when you are confirmed. But can you
tell us generally how you will analyze vertical mergers in the
media industry? Do combinations of content producers and
distribution channels pose special dangers, especially for
competitors who do not own a means of distribution?
Mr. Pate. Well, thank you for that question, Senator. I
appreciate your remarks on the DirecTV-EchoStar merger. We were
very pleased with the outcome we got there. It was actually an
instance where I was able to appear in court myself on that
case and was especially pleased at the way it turned out.
As to the transaction you mentioned, the upcoming News
Corp. transaction, as you say, it would not be appropriate for
me to comment on that. It involves obviously different
circumstances from the purchase--or the merger of two direct
horizontal competitors as we had in DirecTV-EchoStar. But we'll
be looking at it closely.
On the overall question about vertical mergers, as a
general approach, vertical mergers, as you know, generally
provide lesser concern under the antitrust laws than a merger
of horizontal competitors. Nonetheless, there are instances
where the vertical consequences of a merger can present a
sufficient impediment to competition by one of the horizontal
competitors that they do raise significant concerns.
I would mention cases since I have been at the Division:
Northrup-Grumman, TRW, we had a case called Prem Door in the
door manufacturing area. So we have in recent times looked at
vertical aspects of mergers, and we'll do that in any case that
it's called for. But beyond that, I think it would be
inappropriate to address specifically an upcoming transaction
such as the one you mentioned.
Senator Kohl. All right. In the 1996 Telecommunications
Act, Congress essentially deregulated radio station ownership,
ending national ownership caps and allowing one company to own
up to eight radio stations in large markets. As you know, an
enormous wave of consolidation followed, resulting in large
corporations such as Clear Channel now owning more than a
thousand stations across the country.
Many people have decried this gigantic wave of radio
consolidation and contend that it has homogenized radio
ownership--radio across the country with the same formats and
programming offered in every major city by the same owners.
Many stations, critics do contend, care little about their
local markets and are often programmed at one central and
oftentimes one very distant location. Local news coverage has
suffered perhaps the most. Radio stations once competed with
different city hall or courthouse reporters, for example, and
those same groups of eight stations now share one reporter and
only one perspective. Many stations have eliminated news
coverage altogether. Last Sunday's Washington Post reported,
for example, that on 9/11 several of Washington's leading FM
radio stations had nowhere to turn but to television, and they
merely fed the sound from these television broadcasts.
Does the experience of radio consolidation sound a warning
bell for media consolidation in general? Doesn't this
experience support examining a media merger's effect on the
marketplace of ideas, to which I referred before, rather than
just on the economic cost of advertising?
Mr. Pate. Well, as we discussed with your earlier question
about media consolidation, Senator, when we intervene to stop
an anti-competitive merger, it can have the effect of
preserving diversity. The specific treatment of issues such as
local content generation, local ownership, and looking directly
at the content of broadcasting is something that comes within
the Federal Communications Commission's mandate. When we act,
as I mentioned earlier, we act under the Sherman Act.
In terms of doing that with respect to your concern about
local communities, I will stress that we look at that on a
local geographic, market-by-market basis. We don't simply look
at a radio merger in a nationwide context; rather, we look from
market to market at what the effects will be on a particular
locality.
As to my experience in this field with respect to radio
mergers, the one recent transaction we've had was the
Univision-HBC transaction, and in that case radio overlaps
between HBC and a company called Entrevision, where the
specific issue in which we intervened and required a
divestiture. So these are issues that we're going to look at
closely.
Senator Kohl. Would you say you would tend to be, can we
predict more in the mold of a Charles James or a Joel Klein, in
terms of your activity? In terms of your activity. I am not
talking about your philosophy, but he was perhaps, in my
judgment, more energetic just in terms of his activity, not
necessarily his political philosophy but--
Mr. Pate. Well, Joel Klein has been, Senator, a friend of
mine for a long time, and Charles James is a friend and my
former boss, so I may be too close to the situation to comment.
I guess if I were going to try to affiliate myself with two
predecessors, I would take my friend, John Shenefield, who is
here, and then James Rill, who was in charge of the Division
and is also a good friend who served in the previous Bush
Administration.
Senator Kohl. Thank you.
Mr. Pate. Thank you.
Senator Kohl. Thank you, Mr. Chairman.
Senator DeWine. Senator Leahy.
Senator Leahy. Thank you, Mr. Chairman. I would hope you
look very carefully at the issues that Senator Kohl and others
have raised on this, and as I said, I will give you a copy of
the letter that Senator Jeffords and I sent to Chairman Powell
on this media concentration. Just from the article that Senator
Kohl referred to from the Post over the weekend, plus what many
of us who travel around the country see, I mean the
homogenization of radio is terrible. When somebody can sit in a
room in Maryland and pretend to give the traffic reports for a
West Coast radio station, you realize how much they have lost
touch. But you also find when the company, Clear Channel--I
believe they will deny this, but I believe they have done
this--actively censored different artists and others, I mean
that is wrong, or even those who have talk shows, who have
actively censored them or made sure they cannot compete with
each other. I think one of the great things I found growing up
was to find my own State having a number of radio stations that
are each different. It is bad enough that our newspapers around
the country have become very homogenized. Now if radio and
television does the same thing, we have a real problem. Plus
the public safety aspects. In my State we only have a couple,
two or three radio stations left that can do the things when
there is a flood, a massive snowstorm--and in Vermont, massive,
you have to go about 15 or 20 inches. 15 inches the schools
open an hour late. 20 inches it is possible to have some
closings, but those are newcomers to the State.
[Laughter.]
Senator Leahy. And 25 inches I am willing to open the
office three hours late, but you need these kinds of things.
The best thing about this country is to have diversity of
views, diversity of opinions, and it is not real competition if
somebody is able to say in one place what is going to be heard
all over the country. It does not help any of us. So please
look at it carefully.
I also would note that in December I wrote to you about
opposing the proposed merger between HP Hood and National Dairy
Holdings, a dairy processing company largely owned by Dairy
Farmers of America. Now, this is somewhat parochial, I will
admit, but it would have allowed them to, as I said in my
opening statement, control 90 percent of the fluid milk in New
England. The Department of Justice now has launched an
investigation of the proposed merger. HP Hood and National
Dairy announced that they would restructure their merger, I
think that because the Department of Justice was looking at it,
that they were more careful. I hope I have your commitment that
your Department will continue to look at it. I am not asking
you to prejudge it, but would you at least continue to look at
it carefully?
Mr. Pate. Thank you, Senator. You do have that commitment,
and we do not view agricultural issues as parochial ones or
unimportant ones. As you know, at the Division, we have a man
named Doug Ross, who is our special counsel full time on
agriculture. With respect to milk specifically, we recently
brought a case which was not a reported merger, but a
transaction that was below the threshold called Southern Belle,
which related to school milk markets primarily in Kentucky, in
which joint control by DFA presented a concern. We were looking
very closely at the NDH-Hood transaction when it was withdrawn,
and to the extent that or a similar transaction in that
industry comes back, you can rest assured we will be looking at
it closely.
Senator Leahy. I mention this because in 2001 Dean Foods
and Suiza Foods merged. I was concerned about that, and
expressed concern. They control about 30 percent of the milk
nationally, about 70 percent in New England. Since that merger,
what has happened is that farmers receive 25 percent less for
their milk. The price in the supermarket is virtually the same
for a gallon. It may change a cent or two, but most places it
is the same. So I hope also that your Department will look and
find out whether that merger brought about the severe drop in
prices to the producers. It certainly has not made any change
for the consumer, but whether that has anything to do with the
severe drop to the producers.
Mr. Pate. Well, just as you mentioned, Senator, in the
agricultural area, this can be somewhat unlike other areas. We
are concerned with issues of so-called monopsony power, an in
order for farmers to have a fair market in which to sell their
milk, there needs to be a choice of potential purchasers. So I
think these are legitimate issues and they're ones that we'll
continue to look at. With Respect to Suiza-Dean the Department
did insist on some divestitures there, but as with any other
case, if information comes to light about what has happened
since the merger that can help us do a better job in the
future, we would want to consider that as well.
Senator Leahy. Thank you, Mr. Pate. I will put my other
questions in the record. I do have one, if I just might, Mr.
Chairman.
Senator DeWine. Sure.
Senator Leahy. You gave a speech in February, offering
praise for a European Union initiative, whereby either the EU
or a member country could investigate an antitrust matter, but
not vote. You suggested, as I read it, the U.S. system where
many States and Federal agencies launch investigation, is too
cumbersome. But I look at things like Microsoft. That case came
about because there had been cooperative State and Federal law
enforcement officials working. Some of the things that come
eventually to the Federal level began because of aggressive
action at the State level.
So would you like to speak a little bit to your speech?
Mr. Pate. I would. I appreciate the opportunity to talk
about that.
Senator Leahy. I thought you might.
Mr. Pate. The context in which I was mentioning that is one
in which, as you know, we have from time to time been critical
of our colleagues at the European Commission. On the other
hand, the point I wanted to make there is that we need to be
open to ideas in terms of what they are doing there, and Mario
Monte, I think very ambitiously, is looking at how in a Federal
system they can work together.
With respect to what I have here, I guess I would refer you
to my remarks at the ABA antitrust meeting more recently, in
which I pointed out that one of the strengths of our antitrust
system is the decentralization of that system. The Antitrust
Division has a voice in making antitrust law. So do the courts.
So do State attorneys general. And we work cooperatively very
well with State attorneys general. We're doing that now in
terms of enforcing the Microsoft settlement, even working with
the so-called non-settling States who took a different view of
the case than we did. As long as I'm at the Division, if I'm
confirmed, you'll find that we're going to continue to
cooperate with the States.
There are situations in which having a very large number of
enforcers looking at the same case can make it difficult to
enforce in a nonduplicative way, and we want to work together
with the States on that problem when it comes up as well.
Senator Leahy. I will take a look. In fact, if you could
have somebody send me over the ABA speech, I will actually read
it.
Mr. Pate. I'll make sure you have it.
Senator Leahy. Not everybody will make that offer, but I
will read it. Thank you.
Thank you, Mr. Chairman.
Senator DeWine. Senator Kohl.
Senator Kohl. Thank you, Mr. Chairman. I have just one more
question.
Mr. Pate, the Government's landmark antitrust case against
Microsoft was settled before you assumed your current
responsibilities. As you may know, I expressed serious concerns
regarding the loopholes and limitations in the settlement when
it was announced, and I still hold some of these concerns
today.
A couple of questions. First, have you been satisfied in
the manner with which Microsoft has implemented the settlement
thus far? And can you point to any specific ways in which a
settlement has improved competition in the computer software
market today?
Mr. Pate. Well, Senator, I appreciate your comments on
Microsoft. I know there was a wide range of opinions about that
case. We at the Division were very pleased about what Judge
Kollar-Kotelly had to say about the ways in which the
settlement did track very faithfully the findings of the D.C.
Circuit Court of Appeals and did provide effective relief for
consumers.
Since that time we have worked together with the State
attorneys general's offices who have been involved in the case
to try to make sure that settlement is effective. I would say
that it's an area in which we understand the need to be
vigilant in making sure that the settlement is carried out. One
recent example in which--that I would point out, where our
lawyers who are in charge of enforcing that settlement,
obtained some improvements was in the area of the licensing
agreements that Microsoft uses. Through our efforts, together
with our State colleagues, we obtained an agreement that
Microsoft change those licensing terms, and also removed a
nondisclosure agreement, so that the terms of the agreement
could be available to the public so that we could get comment
from interested parties.
We're going to continue to do things like that, and Judge
Kollar-Kotelly has set up a procedure that is going to try to
make sure that the settlement is effective, and we're committed
to doing that.
Senator Kohl. And with respect to Microsoft, last week the
International Herald Tribune reported an allegation that
Microsoft had engaged in a number of questionable business
practices during the last year in order to dissuade governments
and large institutions from choosing cheaper alternatives to
its dominant Windows operating system. The alleged practices
include offering steep discounts for Windows or even offering
it for free if necessary. In addition, the newspaper claimed
that Microsoft representatives were attending trade fairs under
false identities and purporting to be independent computer
consultants in order to persuade customers to avoid buying
competitive products.
Do these allegations concerns you, Mr. Pate? And if true,
do they raise questions regarding Microsoft's pledges to have
undertaken reforms and obey the spirit as well as the letter of
the settlement? Do you plan, when you are confirmed, to
investigate these allegations?
Mr. Pate. Senator, with respect to the reports you mention,
our level of concern would depend on the actual facts that we
were able to verify.
With respect to discounting and other practices in Europe,
I would suggest a caution in that the laws in Europe with
respect to what sort of discounting is appropriate may differ
from ours, and there may be instances in which things that are
actually on-the-merits competition from our point of view, may
run afoul of different local rules there.
On the other hand, as to your general question, we have met
in the past repeatedly with firms who have concerns about
Microsoft. If I am confirmed, we will continue to welcome input
from those who think there are matters that need to be
addressed, and I can assure you, if we find anticompetitive
conduct, we will take appropriate action to stop it.
Senator Kohl. Thank you, Mr. Pate.
Mr. Pate. Thank you, Senator.
Senator Kohl. Thank you, Mr. Chairman. I return the floor
to you.
Senator DeWine. Senator Kohl, thank you very much.
STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM THE STATE OF
OHIO
Senator DeWine. Mr. Pate, the good news or the bad news is
you are down to me, I think, now.
[Laughter.]
Senator DeWine. Let me welcome you again to the Committee.
Mr. Pate. Thank you, Senator.
Senator DeWine. I appreciate you being here, and your wife
Lindsey, and Ellen and Lizzie are doing pretty well I think
there. I am not sure this is an improvement over school though.
[Laughter.]
Senator DeWine. School has got to be better than this, but
I will not ask them to comment. They can tell you later, but
school has got to be more exciting than this.
But we do appreciate your leadership at the Department you
provided as Acting Assistant Attorney General for Antitrust
really during a period of great transition. The transition
period has not only included the departure of your predecessor,
Charles James, but also that of two different deputy attorney
generals, deputy assistant attorney generals, one for
international enforcement and one for economics. Really I think
you are to be commended for the way that the Antitrust Division
has functioned during this transition period, and we thank you
for that.
In today's challenging economic climate, vigorous antitrust
enforcement we believe remains vitally important to ensuring
that our markets function properly, and ultimately that
American consumers get the benefit of better goods and services
at better prices. The Antitrust Division is of course an
integral part of our Nation's antitrust enforcement efforts. In
fact, it is likely that the role of Antitrust Division will
grow in importance in the near future. I am thinking in
particular of the issue of media consolidation. Of course, we
have already talked about that a little bit today. It has been
widely reported that the FCC is likely to weaken its media
ownership rules early next month. Accordingly, consumers will
look increasingly to the Antitrust Division to carefully
scrutinize potential mergers and acquisitions in the
television, the radio, the cable news and the entertainment
markets. We must take care to not allow consolidation in these
markets to harm consumers' interest.
The pending News Corp-DirecTV deal is an example of the
type of media deal that creates the need for thorough review.
Although the FCC rule-making may not directly implicate the
deal, I think the proposed acquisition is really typical of the
type of consolidation that we are seeing throughout the media
sector. Because of this, Senator Kohl and I plan to hold an
Antitrust Subcommittee hearing next month on the News Corp-
DirecTV deal, and we will closely examine the proposal at that
time. We have already begun to line up witnesses for that
hearing. I think it is going to be a lively and I think a very
positive hearing.
For today, however, there are a number of other key areas
that I think we need to examine. When your predecessor appeared
before the Antitrust Subcommittee last September I stressed the
importance of antitrust scrutiny for joint ventures. While
joint ventures differ from full-fledged mergers, they often
have significant competitive impact and require similar
vigorous scrutiny from the antitrust agencies. Joint ventures
also differ from mergers because Hart-Scott-Rodino Act does not
cover them. As a result, the Antitrust Division is not required
to examine joint ventures under the statutory merger timelines.
Despite the lack of statutory timelines, however, it is
important that the Antitrust Division review these arrangements
within reasonable time periods without of course sacrificing
careful, thorough, economically sound analysis.
We also must recognize that the Antitrust Division and
other American antitrust authorities are not the only important
antitrust authorities in the world. As business becomes more
global, and commerce flows more freely around the world,
companies that do business worldwide face nearly 100 different
antitrust enforcement agencies. Ongoing efforts to facilitate
cooperation between various antitrust agencies around the world
and efforts to coordinate procedural and substantive antitrust
standards represent important advances in antitrust
enforcement.
I know you have worked a great deal in international
coordination, and hope that those efforts continue. I look
forward to discussing with you these and other issues today. In
just a moment we are going to do that with just a few
questions, although some of these areas have been really I
think thoroughly examined by my colleagues.
I also want to discuss this along with the successes of the
Antitrust Division during your tenure as the Acting Assistant
Attorney General and the challenges that still remain. So we do
also look forward to working with you in the future, and really
again, I want to just say I appreciate your work, look forward
to your confirmation. I think you have done a very good job
thus far, and I know you are going to continue that work after
your confirmation.
[The prepared statement of Senator DeWine appears as a
submission for the record.]
Senator DeWine. Let me just start. I just have a couple
questions. First, I have expressed concern in the past about
supplier-owned joint ventures. Now, I understand that the
Antitrust Division has several ongoing investigations of these
joint ventures, and as I have said before how I have some
concerns about the length of time that some of these
investigations go on, it is certainly important to thoroughly
examine these issues, but the Orbitz investigation, for
example, does seem to be taking quite a long time. I am
particularly worried that the very existence of the
investigation is starting to have an impact on the marketplace.
I know, of course, that you cannot get into the details of an
ongoing investigation, so I am not going to ask you to do that,
but perhaps we could discuss the more general question of what
if any impact does the existence of ongoing investigations into
these joint ventures have in the market? In other words, does
the existence of these investigations deter supplier-owned
joint ventures from behaving in an anticompetitive manner, or
does the existence of these investigation discourage legitimate
precompetitive activities? How should the balance be struck,
and more importantly, how can the Antitrust Division
investigate these issues thoroughly enough to protect consumers
but quickly enough to give businesses and the marketplace the
certainty and the finality that they really need?
Mr. Pate. Thank you, Senator. Let me address your joint
ventures comment directly, but first, thank you for your
comments about the Division's operation during the interim
period since Charles James left in November. I really do
appreciate that, and would like to recognize that that has been
the result of a lot of hard work from Debbie Majoris, the
principal deputy; Connie Robinson, our Director of Operations
who stepped in; Ken Heyer, who served the function of Economics
Deputy essentially prior to our filling that slot recently. But
I appreciate your comments on that point.
With respect to joint ventures, there were really two
aspects of the importance that Charles placed on that that he
talked about with you in an earlier hearing. One is the so-
called sham joint venture, where two companies may characterize
as a joint venture something that is really nothing more than
an agreement to eliminate competition. We have been very active
in that area and have moved very fast. Our alternative
newspapers case and the case involving the Math Works, both
were situations where the Division acted quickly to bring
assets back into competition.
As to the investigations that have taken a longer time, I
am not sure that despite the long pendency of those
investigations that they are really average examples. Orbitz,
our foreign currency joint venture transaction, the music
distribution investigations, all were situations involving the
inception of brand new industries and the need on our part to
collect and evaluate huge amounts of economic data. As I said
earlier, they take a long time, but it is just as important to
get the right result as it is to move quickly in a case like
that.
As to your very specific question, there are two sides to
that coin. Some think--and this has been an opinion that has
been expressed in the context of Orbitz--that the pendency of
the investigation may have prevented anticompetitive conduct.
Others equally, with respect to that very same case, say that
the pendency of the investigation is an unfair burden on
Orbitz. So we at the Division try not to look at either side of
that coin. For an investigation to be open, we do not see
ourselves as sitting as regulators with no end in sight.
Rather, if an investigation is open, it needs to be driving
towards some potential Sherman Act claim. These things can take
some time, but we try to do them as expeditiously as possible.
So I hope that is responsive.
Senator DeWine. Good, good. Thank you very much.
Mr. Pate, in passing the Telecommunications Act of 1996,
Congress granted a role to the Antitrust Division in examining
the applications of the Bell operating companies to provide
long distance services in their local service areas, the so-
called Section 271 applications. The Antitrust Division has
adopted the standard that a regional Bell operating company
should be permitted to provide long distance service in its
local service area only when those local markets in a State
have been fully and irreversibly opened to competition. In
addition to providing a role to the Antitrust Division in
examining the Section 271 applications, Congress also expressly
included an antitrust savings clause in the 1996 Act to ensure
that the antitrust laws continued to apply.
Has the Antitrust Division undertaken any investigations of
alleged anticompetitive conduct by the Bell operating companies
in their local markets once 271 applications have been granted?
Under what circumstances do you foresee the Antitrust Division
undertaking such investigations to ensure that competition of
local markets remain fully and irreversibly opened to
competition?
Mr. Pate. Well, Senator DeWine, as you mentioned, the
Congress gave the Division a specific responsibility, a
statutory responsibility under Section 271 of the
Telecommunications Act in this field. We have been very active
in the 271 process, and as you know, the statute requires the
Federal Communications Commission to give weight to the
comments expressed in our evaluations.
We have in some cases recommended that, or concluded that
markets are fully and irreversibly open, and recommended that
the FCC grant those applications. In others we've been unable
to support the applications, and we think our work in that
field has been very important.
You're very correct in what you say with respect to the
savings clause, and since I've been at the Division we have
filed several briefs reiterating the Department's position that
the antitrust laws continue to apply. I don't think it would be
appropriate to discuss any particular case, but I would just
say generally that we hope that once we conclude that a market
is fully and irreversibly open to competition, that means that
the operating systems and other necessary attributes are
present there, that the market will function and that as a
commercial matter there will be access for local competitive
firms, but if as you say, there is an allegation of
anticompetitive conduct, we certainly believe, under the
savings clause, that it's our job to be there to evaluate it,
and we'll do that.
Senator DeWine. Thank you very much. Let me turn to the
issue that you have already discussed a little bit, and that is
the international antitrust arena, which has so fundamentally
changed really in the last decade. International antitrust
enforcement has really increased in importance over the past
few years as business has become more global and really the
number of antitrust enforcement regimes around the world have
increased. In fact, there are nearly, I believe there are
nearly 100 antitrust enforcement regimes in the world today.
This means that business has faced an array of different
antitrust standards and procedural requirements. In specific
cases this can lead to different jurisdictions reaching
different conclusions on the same transactions. This happened,
of course, in the GE-Honeywell merger case. In general it can
create a great deal of uncertainty for businesses as they
operate internationally.
I am pleased to hear about the strides that you have made
in facilitating cooperation among the different antitrust
authorities, and let me also just congratulate you--we talked
about this the other day in the office--but congratulate you on
the successes that you have had in this area. You have stated
that the U.S.-EU bilateral relationship is a good model for how
a bilateral relationship should work. Recently Senator Kohl and
I met with Mario Monte, European Commissioner for Competition,
and he mentioned the positive working relationship as well.
Let me just ask you how are we progressing with other
bilateral relationships? What is the future there, do you
think?
Mr. Pate. I think, Senator DeWine, that the future is
positive. We do have a particularly good relationship with the
EU that's borne fruit in all aspects of our work, particularly
on the criminal side, where we just this year for the first
time have had joint investigations in terms of drop-in
interviews, dawn raids, as they call those in the EC,
coordinated with the EC, Japan, Canada, some of the other
countries with whom we have a particularly strong bilateral
relationship.
On the broader front I would mention the International
Competition Network to you, and that is an organization, not an
organization composed of a number of private interests, not a
bar organization, but an organization of enforcement
authorities around the world. As you mentioned, there are about
100 countries now that do have antitrust statutes. The ICN, as
it's called, we think is a good forum for us to try to share
the view that antitrust enforcement ought to be based on
objective economics and objective law enforcement rather than
any other considerations. And the best thing we can do is have
a forum to try to discuss that. There's a meeting coming up
next month in Mexico that's going to involve the jurisdiction,
many of the jurisdictions with antitrust laws, and we think
that is a good forum that can make improvements in the area
that you mention.
Senator DeWine. Mr. Pate, again, thank you very much. Let
me just again say, as I did announce, that Senator Kohl and I
do plan on holding an Antitrust Subcommittee hearing next month
on the News Corp-DirecTV deal. We think that is a very
important hearing. We intend to spend significant time on that
hearing to thoroughly examine that issue.
Another issue that Senator Leahy raised with you is the
whole media consolidation issue. We also plan on holding a
hearing on that issue in June, and we will examine that issue
as well. I must say that I share many of the concerns that were
expressed by Senator Leahy. I understand, Mr. Pate, that your
jurisdiction, under our law, is of a limited jurisdiction. You
do have jurisdiction in these areas, but it is somewhat
limited, as you and I talked about the other day in my office.
But we have an obligation I think in this Subcommittee to have
an overview of this issue. I think from a public policy point
of view that these consolidations present some very big, big
public policy issues that frankly go beyond the economic issues
that you are limited to looking at, and some of the antitrust
issues that you are limited to looking at, and so we intend to
look at the broad issues as well.
Again, Mr. Pate, thank you very much. I think you are off
to a great start in your job, and we look forward to moving
forward on your confirmation.
Mr. Pate. Thank you very much, Senator DeWine.
Senator DeWine. Thanks for being with us.
[Whereupon, at 12:04 p.m., the Committee was adjourned.]
[Questions and answers and a submission for the record
follow.]
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