    [House Hearing, 110 Congress]
    [From the U.S. Government Publishing Office]

                       SMALL BUSINESS COMPETITION POLICY:
                      ARE MARKETS OPEN FOR ENTREPRENEURS?

    =======================================================================

                          COMMITTEE ON SMALL BUSINESS
                                 UNITED STATES
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  HEARING HELD
                               SEPTEMBER 25, 2008

                                   __________

                                   [GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                Small Business Committee Document Number 110-115

    Available via the GPO Website: http://www.access.gpo.gov/congress/house

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                       HOUSE COMMITTEE ON SMALL BUSINESS

                    NYDIA M. VELAZQUEZ, New York, Chairwoman

    HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
    CHARLES GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
    RICK LARSEN, Washington              SAM GRAVES, Missouri
    RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
    MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
    MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
    HENRY CUELLAR, Texas                 STEVE KING, Iowa
    DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
    GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
    JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
    BRUCE BRALEY, Iowa                   DAVID DAVIS, Tennessee
    YVETTE CLARKE, New York              MARY FALLIN, Oklahoma
    BRAD ELLSWORTH, Indiana              VERN BUCHANAN, Florida
    HANK JOHNSON, Georgia
    JOE SESTAK, Pennsylvania
    BRIAN HIGGINS, New York
    MAZIE HIRONO, Hawaii

                      Michael Day, Majority Staff Director

                          Tim Slattery, Chief Counsel

                   Kevin Fitzpatrick, Minority Staff Director

                                     ______

                             STANDING SUBCOMMITTEES

                        Subcommittee on Finance and Tax

                       MELISSA BEAN, Illinois, Chairwoman

    RAUL GRIJALVA, Arizona               VERN BUCHANAN, Florida, Ranking
    MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
    BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
    HANK JOHNSON, Georgia
    JOE SESTAK, Pennsylvania

                                     ______

                   Subcommittee on Contracting and Technology

                          BRUCE BRALEY, IOWA, Chairman

    HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
    GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
    YVETTE CLARKE, New York              SAM GRAVES, Missouri
    JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                         MARY FALLIN, Oklahoma

            .........................................................

                                      (ii)

    ?

               Subcommittee on Regulations, Health Care and Trade

                       CHARLES GONZALEZ, Texas, Chairman

    RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia,
    DAN LIPINSKI, Illinois               Ranking
    MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
    GWEN MOORE, Wisconsin                STEVE KING, Iowa
    JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
    JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                         VERN BUCHANAN, Florida

                                     ______

                Subcommittee on Rural and Urban Entrepreneurship

                     HEATH SHULER, North Carolina, Chairman

    RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska,
    MICHAEL MICHAUD, Maine               Ranking
    GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
    YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
    BRAD ELLSWORTH, Indiana              DAVID DAVIS, Tennessee
    HANK JOHNSON, Georgia

                                     ______

                  Subcommittee on Investigations and Oversight

                     JASON ALTMIRE, PENNSYLVANIA, Chairman

    CHARLES GONZALEZ, Texas              MARY FALLIN, Oklahoma, Ranking
    RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                     (iii)

    ?

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page

    Velazquez, Hon. Nydia M..........................................     1
    Chabot, Hon. Steve...............................................     2

                                   WITNESSES

    Kovacic, Hon. Willam E., Chairman, Federal Trade Commission......     3
    Hazel, Dr. William, Jr. MD, Secretary of the Board of Trustees,
      American Medical Association...................................    19
    Rubin, Dr. Jonathan, Partner, Patton Boggs, LLP., on behalf of
      the American Antitrust Institute...............................    21
    Hilal, Mr. Said, President, Applied Medical Resources Corp.,
      Rancho Santa Margarita, CA, on behalf of the Medical Devices
      Manufacturers Association......................................    23
    Lowe, Mr. Aaron, Vice President, Automotive Aftermarket Industry
      Association....................................................    24
    MacLoed, Mr. William, Partner, Kelley Drye & Warren, LLP.........    27

                                    APPENDIX

    PREPARED STATEMENTS:
    Velazquez, Hon. Nydia M..........................................    43
    Chabot, Hon. Steve...............................................    45
    Kovacic, Hon. Willam E., Chairman, Federal Trade Commission......    46
    Hazel, Dr. William, Jr. MD, Secretary of the Board of Trustees,
      American Medical Association...................................    70
    Rubin, Dr. Jonathan, Partner, Patton Boggs, LLP., on behalf of
      the American Antitrust Institute...............................    82
    Hilal, Mr. Said, President, Applied Medical Resources Corp.,
      Rancho Santa Margarita, CA, on behalf of the Medical Devices
      Manufacturers Association......................................    90
    Lowe, Mr. Aaron, Vice President, Automotive Aftermarket Industry
      Association....................................................    99
    MacLoed, Mr. William, Partner, Kelley Drye & Warren, LLP.........   106

    STATEMENTS FOR THE RECORD:
    Kolter, Mr. Bill, Vice President, Biomet, Inc., Warsaw, IN.......   113
    Balto, Mr. David, Senior Fellow, Center for American Progress and
      the Consumer Federation of America.............................   116

                                      (v)

                       SMALL BUSINESS COMPETITION POLICY:

                      ARE MARKETS OPEN FOR ENTREPRENEURS?

                                  ----------

                          Thursday, September 25, 2008

                         U.S. House of Representatives,
                                   Committee on Small Business,
                                                        Washington, DC.
        The Committee met, pursuant to call, at 10:00 a.m., in Room
    1539, Rayburn House Office Building, Hon. Nydia M. Velazquez
    [Chair of the Committee] Presiding.
        Present: Representatives Velazquez, Altmire, Cuellar,
    Hirano, Clarke, Chabot, Shuster, and Westmoreland.
        Chairwoman Velazquez. Good morning.
        I call this hearing of the House Small Business Committee
    to order. Competition is the crux of our economy. It not only
    drives innovation and development, but it also spurs invention.
    After all, you don't often see new products originating in
    unchallenged industries. Rather they come from diverse sectors
    that promote a wide range of options. In a free market economy,
    it is crucial that all businesses, large and small, have a
    level playing field. The FTC is charged with making sure that
    happens. With this in mind, it is important for the commission
    to be engaged and prevent industries from isolating themselves.
    A lack of competition does not benefit the economy and it
    certainly does not benefit the taxpayer.
        In recognizing this fact the FTC already has a number of
    antitrust provisions in place. The commission's Bureau of
    Competition for example uses both administrative and judicial
    means for enforcing regulations. In this morning's hearing we
    will discuss the FTC's efforts to promote competition and its
    role in spurring small business development.
        Competition is a powerful catalyst for financial growth.
    This is particularly true for America's entrepreneurs who
    thrive in an open economy. Competition is the key that allows
    small businesses to unlock new markets and expand existing
    industries. It lowers prices and raises the bar for quality,
    largely because it forces other companies to step up to the
    plate and elevate their standards. At the end of the day an
    entrenched business has little incentive to offer competitive
    values. Small firms, on the other hand, have every motivation
    to do so.
        On top of lowering consumer costs, competition also
    promotes invention. Startups have historically led the lion's
    share of industry innovation. From the tech boom of the mid-
    1990s to the green energy revolution of today, entrepreneurs
    are the business world's best innovators. They are always
    looking to meet emerging needs and offer fresher, better
    choices. In order to remain competitive, big brands are then
    forced to either innovate on their own or otherwise increase
    the values. Either way, consumers enjoy more choices.
        Competition does more than level the playing field. It
    stimulates the economy. This is particularly true for America's
    small businesses whose survival depends on access to an open
    marketplace. If monopolies are permitted to dominate entire
    industries, then they have little incentive to innovate or
    contribute to economic expansion. That is why it is so
    important that competition be protected for entrepreneurs.
    Without the opportunities that it affords, these small firms
    will not be able to do what they do best, drive innovation,
    create jobs and spur financial growth.
        I would like to take this opportunity to thank today's
    witnesses in advance for their testimony, and I look forward to
    hearing their thoughts on this issue.
        With that, I yield to Ranking Member Chabot for his opening
    statement.
        [The statement of Chairwoman Velazquez is included in the
    appendix at page 43.]
        Mr. Chabot. Thank you, Madam Chairman. And thank you for
    holding this important hearing examining the antitrust laws in
    the United States.
        I might note that I had the honor to be the ranking member
    of the antitrust task force of the Judiciary Committee for much
    of the past Congress, and so it is an area that I have a
    significant amount of interest in; I would like to say some
    expertise, but definitely an interest, and so I do appreciate
    having this hearing.
        Enforcement of the antitrust laws play a key role in
    maintaining open competition, an environment in which small
    businesses thrive because of their attention to customer
    service and nimbleness in making business decisions. The
    Committee has a longstanding and long interest in examining the
    competitiveness of markets and the impact of the Sherman
    Antitrust Act and Federal Trade Commission Act on small
    business. However, the Committee has not examined these matters
    in nearly two decades. And in light of the report issued last
    year by the Antitrust Modernization Commission, it seems timely
    for the Committee to turn its attention to aspects of market
    competition that fall within the confines of the antitrust
    laws. So I commend the chairwoman for doing that.
        The Supreme Court has stated that, quote, the unrestrained
    interaction of competitive forces will yield the best
    allocation of our economic resources; the lowest prices, the
    highest quality and the greatest material progress, unquote. In
    short, competitive free markets represent the cornerstones of
    American progress and the success of our democracy. The
    antitrust laws were established to protect these precious
    values.
        By providing a mechanism to ensure that competition is not
    unreasonably hindered, the antitrust laws can be seen as
    further bracing the competitive foundation of this country. The
    Antitrust Modernization Commission was created by Congress to
    examine whether laws written more than 100 years ago were
    appropriate and continue to be for the modern economy. The
    commission's conclusion that the antitrust laws are basically
    sound is one I fully support.
        That being said does not eliminate the possibility for
    improvements, either in the actual legislative language of the
    laws or more rational enforcement of the existing laws. An
    issue that may not have raised competitive concerns 20 years
    ago might be one for the agencies charged with antitrust
    enforcement to reexamine. For example, the joint guidelines
    issued by the Department of Justice and the Federal Trade
    Commission on health care have not been evaluated in nearly 20
    years. If this Committee can examine changes in the health care
    market and the impact of mergers on industry concentration,
    then it may make sense for the antitrust enforcement agencies
    to reassess their guidelines on antitrust enforcement. As with
    the Antitrust Modernization Commission, they may find that
    these guidelines are sound, but periodic review certainly may
    be warranted.
        Of course, such reevaluations need not result in any
    modifications to any antitrust law enforcement by the Federal
    Trade Commission or the Department of Justice. However, good
    management suggests that standards developed by the government
    should be reevaluated on a periodic basis; otherwise, it is
    conceivable that government enforcement of the antitrust laws
    may not serve their purpose of ensuring competition given the
    changes in market conditions. I look forward to the thoughtful
    discussion from the witnesses and their ideas on how to ensure
    that small businesses will face a free competitive market.
        And I again thank you Madam Chairwoman for holding this
    hearing, and I yield back.
        [The statement of Ranking Member Chabot is included in the
    appendix at page 45.]
        Chairwoman Velazquez. Thank you.
        And it is my pleasure to welcome the Honorable William
    Kovacic. The Honorable William Kovacic was designated Chairman
    to the Federal Trade Commission on March 30, 2008. Prior to
    this appointment, he was a commissioner with the FTC. The
    Federal Trade Commission is the only Federal agency with both
    consumer protection and competition jurisdiction in broad
    sectors of our economy.
        Welcome.

       STATEMENT OF THE HONORABLE WILLIAM E. KOVACIC, CHAIRMAN,
                        FEDERAL TRADE COMMISSION

        Mr. Kovacic. Thank you, Madam Chairwoman, Ranking Member
    Chabot, Congressman Westmoreland and Members of the Committee.
        I am very grateful for the opportunity to be here today to
    discuss the FTC's role in addressing competition policy, small
    business, and new entrepreneurship. I have submitted a
    statement on behalf of the Commission for the record, and what
    I have to say today represents my own views, not necessarily
    those of my colleagues.
        I completely share the Chairwoman's view about the
    importance of new business development and the role that new
    entrepreneurship has played in providing a uniquely powerful
    source of vitality and rejuvenation for our economy. And I
    believe it would be fair to say that if my colleagues were here
    with me today they would agree with that sentiment completely.
        What I would like to do is to highlight three ways in which
    I think our agency today and in the future will be seeking to
    preserve what Mancur Olson, the economist who served for so
    many years at the University of Maryland, in talking about new
    business development described as an enabling environment for
    new entrepreneurship. The first thing that we try to do is to
    challenge private restrictions upon behavior under the
    antitrust laws that tends to do two things: We challenge
    behavior that tends to raise the costs of key inputs on which
    small businesses and large businesses rely, inputs that have a
    uniquely significant role in the growth and development of
    small businesses. Examples include the work that we do in the
    professions to ensure that professional services are priced at
    relatively low rates and feature innovative means of delivery
    so that small and large businesses alike are able to achieve
    cost reductions.
        The second form of conduct we attack is behavior that
    unreasonably restricts access to the market. Where private
    actors and incumbent firms band together, for example, to deny
    opportunities for innovative new firms to gain access to the
    market, a number of our cases have challenged that behavior.
    Our current program which involves real estate is but one
    example of areas where we have sought to ensure the innovative
    new models of providing important services get a test in the
    marketplace on the merits.
        The second area that is a key area of our concern involves
    what I would call research and advocacy. Because Congress
    entrusted us not simply with enforcement authority but saw our
    role to be very much that of providing research, being a
    convenor of events, we take this role very seriously in
    providing advice to other public institutions, to challenge and
    force a rethink of restrictions on entry into the market that
    we regard to be unnecessary to achieve legitimate policy goals
    and that unduly restrict access to the market. That has been a
    major focus of our work involving Internet sales of wine and
    other products.
        An increasing focus of our work is to inform policy
    development. That is to focus on emerging trends and, where
    necessary, to engage in a probing reassessment of what we have
    done. That was the ranking member's comment about the
    importance of always reevaluating the wisdom of what we have
    done. And for myself, given the work that I have done in the
    area of development economics in other countries around the
    world, an increasing concern for me is why poverty persists in
    areas of severe economic disadvantage and where it might be
    possible for our programs to focus more carefully on artificial
    impediments to the market in parts of our country in which we
    see persistent, difficult, and often unsuccessful efforts by
    entrepreneurs to enter the market. I am not suggesting we will
    find precise and always successful solutions to that, but I
    think the general questions of economic disadvantage and new
    business development tend to be extremely important concerns to
    me. I will use the resources as well as I can of our agency to
    promote efforts to explore that. The last is to provide
    guidance and information to entrepreneurships. To provide
    guidance, we prepare a number of materials for small businesses
    that might not be able to afford the elegant services of a
    fairly costly law firm by which people, in relatively plain and
    simple terms--and I would like to present these for your record
    as an illustration of what we do--can understand what the
    mandates of the law are and, through consumer protection
    measures such as the franchise rule, to ensure that new
    businesses contemplating entry into the market have a better
    informed judgment of what lies ahead for them.
        This is a snapshot of our program. I welcome the
    opportunity to address your comments and questions. And I hope
    this is the first of a number of occasions in which we can
    carry on a conversation about this important area of concern.
        Thank you, Madam Chairman.
        [The statement of Mr. Kovacic is included in the appendix
    at page 70.]
        Chairwoman Velazquez. Thank you, Mr. Chairman.
        I hear you, hear you talk about agreeing with us regarding
    the importance of promoting new business through business
    development. I would like to hear from you with more
    specificity, from your perspective, how does the presence of
    small firms in the marketplace benefit consumers? And in
    particular, what steps has the FTC taken to actively work with
    the small business community on competition issues besides
    showing me the guidance that is going to be made part of the
    record?
        Mr. Kovacic. I would say one of the most important
    benefits, though not the only one, is the one that you
    highlighted in your comments before. And that is the importance
    of innovation, the significance of having the new idea, the new
    form of organization come into the marketplace. In many
    instances, it is the small entrepreneur, it is the individual
    perhaps working in a large organization who has the idea about
    how to enter. So I would underscore that as being perhaps the
    most important single benefit to consumers.
        A large number of our programs seek to make sure that there
    are not artificial obstacles placed in the way of these
    individuals. And we do work through a fairly broad program of
    consultation with a variety of groups outside our walls.
    Academics who study these circumstances, trade associations
    before whom we appear regularly to discuss our programs, and to
    learn from the convening of workshops and programs - these are
    all measures by which we seek to make sure that we understand
    what is taking place in these communities and can make
    effective policies to address these concerns.
        Chairwoman Velazquez. Enforcement of our Nation's antitrust
    laws is critical to maintaining a level playing field and, of
    course, keeping markets open for small businesses. What kind of
    anticompetitive conduct do you see as posing the biggest threat
    to small firms, and how is the FTC working to counter these
    threats to entrepreneurs?
        Mr. Kovacic. I would say the single threat that strikes me
    as most important, though not the only, is where you have
    incumbent providers of a service seeing a threat by a new
    service provider who in particular threatens to topple the
    existing structure of things by doing something new and
    innovative, where the incumbent providers either ban together
    on their own to take measures to keep that person out, or they
    go to public institutions that have the power of law through
    regulation or statute to keep these individuals out. We bring a
    number of cases that challenge the private restrictions, we use
    our advocacy program to approach public institutions and say
    that is harmful.
        But I would say at the same time, we have a similar concern
    about the capacity of a single dominant enterprise to do the
    same thing acting on its own. I put first in the hierarchy the
    collective effort to exclude. I would add to that instances in
    which a single firm, either using private means or again going
    to public authorities and saying keep the threat off my back,
    both of those are important to us.
        Chairwoman Velazquez. I understand you are going to be
    holding a series of hearings to mark the 100th anniversary of
    your agency. Are you planning to hold any hearings with the
    small business sector?
        Mr. Kovacic. In a number of instances, I expect
    representatives of small business groups or individuals who
    started small and became large to address issues associated
    with the development of small business. I expect that will be a
    perspective. And we will be seeking it not only with the
    community at home but overseas, too, to tap experiences that
    foreign jurisdictions have had in trying to promote an enabling
    environment for their firms, too.
        Chairwoman Velazquez. Why is it so difficult just to design
    one hearing to listen to small business issues as they relate
    to antitrust laws?
        Mr. Kovacic. I found that since we are having perhaps a
    total of over a dozen individual events - and I am glad to
    discuss more with you and the Committee about whether the
    structure of these programs might be reconsidered - I find it
    useful to have them as part of a larger mix of organizations to
    say, let me tell you how my own situation is similar to or
    different from the others. I welcome the opportunity to speak
    with you, your colleagues and your staff about considering
    whether this assumption is a sound one.
        Chairwoman Velazquez. I welcome that.
        The Justice Department recently issued a report on single
    firm conduct. While the FTC and the DOJ held nearly 20 joint
    hearings, the FTC refused to sign the report. The FTC's dissent
    stated the policies in the report placed the interest of
    monopolies ahead of consumers and downplaying the risk of
    under-enforcement. How do the commission's views differ from
    DOJ on monopoly policy?
        Mr. Kovacic. I had my own statement in response, but I will
    try to say what I think my colleagues might agree with to put
    my finger on one thing. My sense is that the modern path of our
    jurisprudence, especially Supreme Court jurisprudence over the
    past 30 years, has been one of giving dominant enterprises
    progressively greater freedom to make business choices as they
    wish; and that the zone of exposure that they face for
    exclusionary conduct has been shrinking progressively over
    time. For myself, I don't see dominant enterprises today with
    being faced with particularly severe risks to their behavior
    over time. And with respect not only to dominant firms but
    other areas of our jurisprudence, I think the Supreme Court's
    efforts in particular to respond to what they think are
    infirmities in private rights of action are starting to
    encumber public enforcement authorities, too.
        Chairwoman Velazquez. So that explains why you didn't
    sign--
        Mr. Kovacic. That goes to the heart of my own views. And I
    suspect my colleagues wouldn't disagree with me, in fairly
    direct terms, you have seen as well, their own more specific
    concerns about the Justice Department report.
        Chairwoman Velazquez. Last year, we held a hearing on
    health care antitrust laws in this Committee, and there has
    been a concern among small businesses regarding the lack of
    enforcement of antitrust laws by the FTC and the DOJ. While
    consolidations are up, the rate of merger challenges ranks
    among the lowest in modern history. Why have antitrust
    enforcement activities plummeted during this administration,
    and what are the consequences for entrepreneurs and consumers?
        Mr. Kovacic. I hear that comment a lot, but it doesn't
    remind me at all of the agency I work for. I think a careful
    examination, and I will speak for my own agency, with respect
    to merger policy in particular, enforcement has been every bit
    as robust as it was in the decade before. And I would be happy
    to review with you in more detail what I think the numbers
    show. But I would even go farther to say that, when you look at
    a number of measures that we have pursued in the Federal
    Courts, if anything, we have been trying to extend the zone in
    which we look at individual transactions at greater detail. So
    it doesn't really capture the agency that I am talking about,
    and I think that it is not just my intuition. Again, I would be
    delighted to have a conversation with you and the Committee
    about this.
        Chairwoman Velazquez. I guess that, in 2007, The Wall
    Street Journal disagreed totally with you when it said that the
    Federal Government has nearly stepped out of the antitrust
    enforcement business leaving companies to mate as they wish.
    Isn't it true that consolidation is up?
        Mr. Kovacic. I don't know that members of the Committee
    would agree with me completely, but I would ask you to accept
    the possibility that there are times when journalists lapse and
    perhaps don't always get it exactly right.
        Chairwoman Velazquez. Okay. Answer my question, is
    consolidation up or not?
        Mr. Kovacic. No, no, I think not - and not above levels in
    the areas that we are looking at that prevailed in the decade
    before. Now, we can have a larger conversation about whether--
        Chairwoman Velazquez. Okay. So let me ask you, in the area
    of health care insurers is consolidation up or not?
        Mr. Kovacic. I know there have been a number of
    transactions but I don't see the ultimate level of
    consolidation to be at a range that would not have been
    permitted in the previous decade too. Now, I think it is a
    valid point for discussion about whether things are at the
    right level.
        Chairwoman Velazquez. You are telling me that consolidation
    with insurers is not up in this country.
        Mr. Kovacic. I am saying the level of consolidation is up.
        Chairwoman Velazquez. What is the level of consolidation?
    Can you be more specific?
        Mr. Kovacic. The health insurer sector is not one that we
    oversee when it comes to mergers and acquisitions. I don't have
    the specific data on trends available there. But this is
    something that I would be glad to discuss in more length. The
    Department of Justice has been the agency that has looked at
    health care consolidation. But my impression from a distance is
    that they are using well accepted standards to examine
    transactions. I think a useful focal point for discussion would
    be to look. And we would be glad to engage in that discussion
    about specific areas or types of transactions that perhaps
    ought not to have been allowed. That is a valid point for
    consideration.
        Chairwoman Velazquez. Last October, the Committee held a
    hearing on how the market power of insurers is harming the
    ability of physicians to care for patients. As chairman, what
    are your plans to examine this issue?
        Mr. Kovacic. We have been having a number of workshops that
    deal with efforts of individual physicians to provide care.
    This is an issue that I expect will continue to be a focal
    point for our own research and for these public deliberations.
    So I expect that it is an issue that will remain high on our
    agenda.
        Chairwoman Velazquez. And you examine this by conducting
    workshops?
        Mr. Kovacic. We conduct workshops. It is an argument that
    is often raised in our enforcement efforts with regard to what
    we believe to be impermissible forms of collaboration among
    physicians.
        Chairwoman Velazquez. So let me ask you, can you explain to
    us why in the past 7 years have all nonmerger enforcement
    actions involved health care providers with virtually no
    enforcement involvement involving health insurers?
        Mr. Kovacic. For ourselves, the insurance portfolio itself
    is one that has been the province of the Department of Justice.
    That is in the rough distribution of authority that we have
    over matters, that--
        Chairwoman Velazquez. Isn't it true that the administration
    has focused more on antitrust enforcement activities on
    physicians but not on insurers?
        Mr. Kovacic. With our area of authority, our focal points
    have been physicians and hospitals.
        Chairwoman Velazquez. I will come back in the second round.
        And I will recognize Mr. Chabot.
        Mr. Chabot. Thank you.
        Chairman Kovacic, just a couple of questions. Are there
    procedural changes that you would recommend or that you think
    that we should consider that they be made in the antitrust laws
    that would increase competition in the marketplace, and if so,
    what type of things do you think that we should consider?
        Mr. Kovacic. One thing that I would take a careful look at,
    Congressman, is the full spectrum of exemptions that now affect
    commercial activity in our country. I think, for myself, and it
    is a fairly familiar list, I think that one of the suggestions
    of the AMC report was that exemptions that be a significant
    focus of attention. I think that would be useful. I also think
    it would be very helpful for Congress to consider eliminating
    specific curbs on our authority to act. We have recommended,
    for example, that the common carrier exemption be reconsidered.
    There are limitations in our legislation that curb our capacity
    to do certain types of studies involving insurance unless we
    have approval first from the Congress. So two focal points I
    would mention: one, exemptions generally; and second, I think
    specific limitations on our own authority to act.
        Mr. Chabot. The FTC, as you mentioned, generally doesn't
    support legislation concerning the granting of exemptions from
    the antitrust laws. Would you consider such exemption
    appropriate in a market in which either the purchaser or the
    seller already has an exemption from antitrust laws?
        Mr. Kovacic. Generally speaking, no. We would certainly
    examine and consider specific arguments, as well as the context
    in which they are offered, but we would generally not. And as I
    suggested before, in the spirit of the AMC report, we would
    like to go back and reexamine in many instances the sensibility
    of the exemptions that already exist.
        Mr. Chabot. Let me ask you about kind of a specific example
    here. And you can answer it to the degree that you feel is
    appropriate. Is the bowl, the College Bowl Championship Series
    in college football, in your opinion, does it constitute a
    contractor conspiracy to restrain trade since certain
    universities have contracts with certain bowl sponsors that
    exclude other institutions of higher education from
    participation?
        Mr. Kovacic. Owing to a very important limit on our
    jurisdiction, Congressman, that is not one that I have looked
    at a great deal. If you were to take away to a large extent the
    not-for-profit exemption that excludes our consideration of
    these issues, I would like for us to be in the position to know
    more about this and give you a fuller answer. And, in my own
    view, not-for-profit institutions are educational institutions
    but they are also large entertainment providers. The extent to
    which the not-for-profit exclusion keeps us from looking at
    that sector of the economy, I think, is unwise. That is the
    carve-out from our jurisdiction that I would applaud Congress
    reconsidering.
        Mr. Chabot. And another somewhat specific example is the
    auto manufacturers and the fact that they don't provide
    independent auto repair shops with key computer codes and other
    pertinent repair information. Would that be considered a
    reasonable restraint of trade or could you comment on that
    area?
        Mr. Kovacic. Yes, Congressman. I think the general trend in
    doctrine since the early 1990s has been one of giving original
    equipment manufacturers a greater measure of control over how
    the distribution of know-how takes place downstream with
    respect to their own retail outlets and to independents as
    well. It seemed in the early 1990s that our Supreme Court was
    giving a fairly broad charter for competition law to take a
    look more closely at these arrangements. The lower courts since
    then have backed off some of those suggestions. I would say
    that it is comparatively difficult to establish under existing
    doctrine a cause of action for those types of restrictions. I
    would say, as my predecessor mentioned I think 2 years ago in a
    hearing, we think there is a great deal of promise at a minimum
    to use the process of voluntary industry cooperation in
    negotiations that have taken place before to see if there might
    be a sensible result achieved between the original equipment
    manufacturers and the independent repair shops.
        Mr. Chabot. Thank you.
        And then, finally, related to the McCarran-Ferguson Act,
    could you comment on the imbalance in bargaining position
    relative to physicians in hospitals and their inability to
    negotiate contracts with health insurers? And the Chairwoman,
    to her credit, has been very focused on trying to do what we
    can in this Committee to improve affordable, accessible health
    care to small business folks. And that is one of the things, in
    traveling around my district, is one of the things I hear over
    and over again. One of the greatest challenges of small
    business folks is providing affordable health care for their
    employees. So could you discuss physicians in hospitals and
    their ability or inability to negotiate when it comes to the
    health care company?
        Mr. Kovacic. I know this has been a contentious point. It
    is one we look at in great detail, whether we are looking at
    hospital mergers or collaborations involving physicians. Our
    sense in many instances is that physician groups in hospitals
    in fact have strong countervailing power when they deal with
    insurance companies. My larger plea is to put us in a position
    to be able to address these phenomena more competitively. I am
    not fond at all and I speak for myself, of the McCarran-
    Ferguson exemption. I think that is very much worth a rethink
    by this body. Again, -you find in our statute a limitation
    imposed in the early 1980s that curbs our ability to do
    research and studies concerning the business of insurance
    without a fairly elaborate process of approvals, I think it
    would be time to put us in a position to examine and rethink
    some of the positions I have been suggesting to you. It would
    be helpful if that were disbanded.
        Mr. Chabot. Thank you very much.
        Madam Chair, I yield back my time.
        Chairwoman Velazquez. Ms. Hirono.
        Ms. Hirono. None at this time.
        Chairwoman Velazquez. Mr. Westmoreland.
        Mr. Westmoreland. Thank you, Madam Chair.
        Mr. Chairman, where does intellectual property rights come
    into play when you are trying to weigh competition, where does
    that come in?
        Mr. Kovacic. Increasingly the perspective of the
    competition agencies, certainly going back to the mid-1990s,
    has been to treat intellectual property as a valuable form of
    property right on a plane with other forms of valuable
    property; that is, to regard the property in ideas as being an
    extremely important asset, just as we could point to other
    forms of physical property. There has been a trend to regard
    those property rights as being extremely important and to take
    a great deal of care to see in what respects the specific
    character of property in ideas dictates any variation or
    adjustment in the way in which we enforce the laws. T000his has
    been a matter of pressing concern for both of the competition
    agencies, certainly going back a long period of time, but
    intensely since the mid-1990s when the agencies revised their
    antitrust IP guidelines.
        Mr. Westmoreland. I have got an iPod, and it quit working,
    and so I took it to where I bought it. And they told me that I
    would have to take it back to Apple to get it looked at, that
    they didn't have the ability to do it, that only an Apple store
    could do it. Would you think that when Apple sells an iPod,
    that they need to give you a manual of how you could repair it
    yourself, or is that some type of antitrust something that I
    have got to go back--there is only one place I can take it? Is
    that an antitrust--if I have a complaint with you, can I call
    you and tell you that I can only get my iPod--
        Mr. Kovacic. My phone is 202-326--(laughing) I think it
    depends from our point of view on at least two things: One is,
    with respect to that device, do you have other choices in the
    marketplace? That is, let's assume there are a number of them,
    and they chose a policy that irritated and frustrated you. I
    suspect your reaction and mine might be the next time I was
    thinking of buying things, I am not going to buy this device
    from them. In fact, I remember that producer's name, I am not
    going to buy anything from them because they made my purchasing
    experience worse.
        A second thing we would look at carefully is, why the
    limitation? One argument that would depend on a more careful
    factual evaluation, is assumptions we might make about the care
    with which individuals who would be able to do the repairs. If
    one could make a good argument that it took a highly
    specialized type of individual with a good deal of training to
    do that right, we might think that there is a greater basis for
    restricting who could do that, because if it doesn't work after
    the repair, you are going to look at the name on the device and
    you will probably remember that rather than that it was Bill's
    Repair Shop that did the work on it. That is the kind of issue
    that we would spend a great deal of time looking at in careful
    detail.
        Mr. Westmoreland. The aftermarket, which the ranking member
    mentioned, as far as automobile repairs, you mentioned an
    independent industry group, I guess, that handles some of the
    complaints that would come from an automotive repair shop or
    whatever as far as getting some of these codes or whatever for
    repair. Do you know from that group how many complaints have
    been filed in a year, and the total number of repairs done to
    automobiles once they leave that showroom floor, and what
    percentage is done by who?
        Mr. Kovacic. I don't know those numbers, Congressman.
        I know that, indirectly, one thing we track very carefully
    is how many complaints come our way. And certainly over the
    past 12 months, with respect to end users, the consumers you
    were referring to before in your other example, we have not
    received complaints of this type. Occasionally we get them. I
    am not acquainted with what the experience within the dispute
    resolution process itself has been. Certainly if the Committee,
    you or other researchers, have data on that, that we ought to
    be focusing on, I would welcome the chance to do that.
        Mr. Westmoreland. Would you be surprised if I told you that
    of 500 million post-warranty service orders are done each year,
    75 percent of those are done by independent repair services; 25
    percent by new car dealers? And I think that there was less
    than 100 complaints last year that was filed with the National
    Automotive Service Task Force. That doesn't seem like a large
    number when you think of those repairs. Do you think that you
    have any trained staff enough? Because I understand in some of
    the hearings they had last year, I didn't attend any of the
    hearings, but my understanding was they wanted your agency to
    be involved in this, do you think that you have got the staff,
    the trained personnel to investigate, respond, compile, update
    these stats and statistics and innovations that are in the
    automobile industry every year?
        Mr. Kovacic. One of the reasons that we have found it
    helpful to explore the sorts of alternative dispute resolution
    in the industry, voluntary industry cooperation mechanisms that
    you described before, is that it is a way to see if we can get
    good solutions that doesn't involve that kind of commitment of
    resources. I would add that there have been a number of areas
    in which Congress has asked us at different times by statute to
    take on demanding new challenges. We have a pretty good history
    of responding to those challenges with resources that Congress
    has generously provided us. So I wouldn't say immediately that
    it would be an easy thing for us to do. I think some of these
    other paths are certainly worthy of further exploration. But
    were the choice to be made to ask us to do it, it has been a
    highly adaptable and successful process by which we have taken
    on major challenges.
        Chairwoman Velazquez. Would the gentleman yield for a
    second?
        Mr. Westmoreland. Yes.
        Chairwoman Velazquez. I hear you when you talk to us about
    listening and voluntary agreement and workshops. He is asking
    you about complaints that have been raised. Can you talk to us
    about any specific action taken on behalf of small businesses
    regarding enforcement of antitrust laws?
        Mr. Kovacic. Many of our cases involving real estate,
    professional services, restrictions on the use of the Internet,
    has--
        Chairwoman Velazquez. And specifically on the issue that he
    raised.
        Mr. Kovacic. On the issue of auto repair, no, we haven't.
    We have done investigations.
        Chairwoman Velazquez. And?
        Mr. Kovacic. We haven't brought any cases. We do look at
    the complaints carefully. As I mentioned before, the existing
    legal framework on which an antitrust complaint would be
    premised imposes some extremely demanding standards, in my
    view, about bringing cases. But we have taken complaints that
    have come to us, Madam, with the greatest care.
        Chairwoman Velazquez. I yield back.
        Mr. Westmoreland. And I thank the Chairwoman for bringing
    that up because I think it is important to know that you have
    looked at some of these cases. And I am assuming you are saying
    that they haven't risen to the level of where you feel like
    there has been any action needed or necessary from the FTC?
        Mr. Kovacic. That is correct.
        Mr. Westmoreland. Madam Chairman, I will yield back the
    balance of my time and thank you.
        Chairwoman Velazquez. Mr. Altmire.
        Mr. Altmire. Thank you, Madam Chair.
        Mr. Chairman, thank you for being here.
        Mr. Kovacic. Thanks for the chance to do this.
        Mr. Altmire. Of course. I wanted to focus on antitrust law
    and get your opinion on something more than anything else.
    There was a recent Justice Department paper that said, and I
    quote, the fundamental reason we favor competition over
    monopoly is that competition tends to drive markets to a more
    efficient use of scarce resources. So I was wondering, in your
    opinion, given the scope of this Committee, how does
    participation of smaller firms in the market increase economic
    efficiency?
        Mr. Kovacic. I think the economy and the jurisdiction that
    provides an environment in which the best ideas get a test in
    the market is the jurisdiction that is going to be more
    prosperous than others. Quite often, the good idea, whether it
    is about a product, about how to deliver an existing product,
    how to organize a particular form of business entity, those
    ideas often come from new entrepreneurs, so that the
    competition of new entrepreneurs in a number of different
    settings is a tremendous spur to economic progress. Antitrust
    enforcement and a collection of policies that I would call
    competition policy have a tremendous contribution to make. This
    Committee's work is part of that.
        Mr. Altmire. In your opinion, do you see any correlation or
    anything you want to add about what we are dealing with as a
    Congress with a larger financial market and where smaller firms
    would fit into that?
        Mr. Kovacic. Financial services is an area where Congress
    decades ago decided that, with the most limited exceptions, the
    FTC does not participate. That is one of the major carve-outs
    from our jurisdiction. There are some areas where we act. With
    respect to the larger phenomena that this body has been
    focusing on in recent days and the upheaval in that sector,
    those are institutions, for the most part, that are beyond the
    scope of our examination.
        Mr. Altmire. Thank you.
        I have no further questions Madam Chair.
        Chairwoman Velazquez. Mr. Shuster.
        Mr. Shuster. Thank you, Madam Chair.
        And thank you for being here today. And sorry I didn't hear
    your testimony earlier and didn't hear some of the earlier
    questions, so if I ask any that are redundant, please let me
    know.
        But my colleague from Georgia mentioned intellectual
    property rights, and in full disclosure, I should say I am a
    former automobile dealer, so I know firsthand the situation
    here. And my question deals with, what are the rights of, when
    you are viewing these cases, on investment in not only the auto
    manufacturer investing huge sums of capital to develop these
    products and parts but the auto dealer, who is also investing
    thousands and millions of dollars in some cases on repair
    facilities, and that they should have that competitive
    advantage in my view. If I am spending the money, I am the one
    who has to sign a deal with the auto manufacturer to carry
    their product line, what weight is given to that and how am I
    protected to make sure my investment is protected when you come
    into a situation?
        Mr. Kovacic. Something that you have certainly observed
    from your previous life in that sector is that the automobile
    sector in North America, I think we might say, is pretty
    competitive.
        Mr. Shuster. Extremely.
        Mr. Kovacic. During my childhood growing up in southeastern
    Michigan, there were four companies you talked about; three big
    ones, American Motors on the fringe and a couple of quaint
    things called Volkswagen Beetles driving around. That is not
    the industry we see today, is it? Notice how many choices for
    original equipment consumers have. A basic assumption we would
    make as a starting point is that those manufacturers have every
    possible incentive to get things right with respect to the
    design of the distribution system. And generally speaking,
    providing incentives for them to invest in improving that
    distribution system is an important value to be recognized.
        At the same time, if I were to go back to my home at George
    Washington University where if I weren't doing this I would be
    teaching contracts in the first semester, I don't doubt that
    there are instances in which you see disagreements between the
    manufacturer and the dealer about that relationship over time.
    Perhaps you had some of those yourself.
        Mr. Shuster. Every day.
        Mr. Kovacic. Every day. And generally, in our country, with
    respect to those kinds of disagreements, that has largely been
    the province of contract law. It is not that the disappointed
    dealers invariably are marching into courtrooms to wage battles
    over time. There can be instances in which the manufacturer or
    perhaps a dealer can behalf opportunistically to exploit
    certain investments that are made. But contract law has
    generally been the province where we examine that. I think
    because our courts and our Supreme Court has been concerned
    about those incentives to invest, they have tended to impose
    fairly demanding requirements on antitrust plaintiffs,
    including us, who would want to upset or challenge activity and
    behavior that is taking place in the course of that
    relationship.
        Mr. Shuster. The notion that it is anticompetitive out
    there because the dealers or the manufacturers aren't giving
    out that information to me is a ruse I believe because, as my
    colleague stated, of the 500 million repairs, 70 to 80 percent
    of them are done by independent shops. Also, within, I am sure
    within 45 minutes of where we sit today, you can get any car
    that you--a Toyota, a Ford, a Chrysler--you can get it repaired
    by several, multiple dealerships around the area, so the
    competition is robust. Firsthand, there were 45 Chrysler
    dealers within 45 minutes of my store.
        Mr. Kovacic. Congratulations (laughing).
        Mr. Shuster. So the idea that there is not competition,
    would you agree with that? I mean, there is robust competition
    between automobile dealers.
        Mr. Kovacic. I believe there is. And I wouldn't denigrate
    the role that independents have. Sometimes independents, and I
    suspect it was your experience, too, sometimes they see a
    better way to do this. And we would be interested and we do
    examine and take seriously the examination of why they would
    not receive access. And there are instances in which we would
    be doubting of that. But generally speaking if we compare the
    automobile sector that we know today to the automobile sector
    of, well, my childhood, it has been a dramatic transformation
    in the direction of better choices for consumers.
        Mr. Shuster. And I think you make an excellent point.
    Before I was in the automobile business I worked with Good Year
    Tire and Rubber Company and spent time in their real time
    operations, which are independent operators. And many times you
    do find that they can find a better way or more efficient way
    to repair an automobile. So I have seen it from both sides, and
    I just--this legislation that I think we are talking about is,
    just seems to me it is not necessary because there is robust
    competition, there is information provided to the independent
    garages, and it is maybe not perfect information flow, but it
    gets out there. So I appreciate your time today. Thank you. And
    I yield back.
        Chairwoman Velazquez. Ms. Hirono.
        Ms. Hirono. Thank you Madam Chair.
        Mr. Chairman I don't know if you have had a chance to read
    the statement of the American Medical Association.
        Mr. Kovacic. I have, Madam.
        Ms. Hirono. You have.
        Mr. Kovacic. Yes.
        Ms. Hirono. So their concern is, in these challenging
    times, where mainly small practices, solo practices, are trying
    to figure out ways to keep going, the scrutiny on physician
    collaboration through network arrangements, their statement
    indicates that the FTC has put a very high bar on these kinds
    of arrangements to the point where most physicians are not able
    to avail themselves of these kinds of arrangements. Would you
    like to comment on that?
        Mr. Kovacic. Yes, Madam. I would disagree. We can debate
    what the high bar is. I think we have applied sensible
    standards. And I think to a degree that I would disagree with
    the very thoughtful people who put that statement together. I
    would disagree with their characterization of how carefully we
    have been reviewing and considering arguments about what kinds
    of integration of activity promote desirable marketplace
    consumer ends. We think we have been very attentive to
    arguments based on efficiencies, based on what the antitrust
    laws consider to be procompetitive justifications to arguments
    that would justify different types of collaboration.
        But let's suppose I am wrong, and I don't think I am. We
    have also been engaged in a fairly intensive effort in recent
    years to reexamine those assumptions. We have had two workshops
    that deal directly with this issue within the past 12 months.
    We are engaged in continuing conversations with the AMA. So
    while I think there is enormous flexibility and sensitivity in
    our system to the assessment of these kinds of arguments, we
    are always inclined to reassess and to continue a discussion
    with not simply the industry but with other interested groups
    to make sure we have got things right. And I look forward to
    continuing that discussion with the AMA, with other service
    providers and with others who are experts in following
    developments in the sector.
        Chairwoman Velazquez. Will the gentlelady yield for a
    second?
        Ms. Hirono. Yes.
        Chairwoman Velazquez. I would welcome your refreshing
    position about reconsidering, because in the past, people have
    said that they were not wrong and there were a lot of people
    who asked us to vote for the war based on weapons of mass
    destruction. Well, they were wrong. Maybe you are wrong. So I
    would like for you later on before you leave that you identify
    the member of your staff who will stay here to listen to the
    second panel.
        Mr. Kovacic. I would say there will be several of my
    colleagues who will be here to hear the second panel. I would
    offer one thing that I ask the Committee to think about; it is
    rare in the areas in which we enforce the responsibilities that
    you have given to us, that the people we sue, and in the
    mergers we seek to challenge, it is very rare for the parties
    in those transactions to say, "my goodness, the FTC was right."
    They almost invariably say we are wrong. If the suggestion by
    any industry group or group of parties that we are wrong was
    ever taken to be a certifying mark of the correctness of their
    position, we would be out of business.
        Chairwoman Velazquez. Well, given the track record in terms
    of enforcement and the number of cases, that is an open
    question.
        Mr. Kovacic. I don't think for this agency it is, Madam. I
    say whether you are looking at numbers of cases, whether you
    are looking at outcomes, having watched my agency for the past
    three decades, I stack it up happily against any other.
        Chairwoman Velazquez. I yield back.
        Ms. Hirono. Thank you, Madam Chair.
        I would like to continue. With regard to the physician
    collaboration of these kinds of arrangements, is FTC scrutiny
    based on Section 5 of the FTC Act or of Section 7 of the
    Clayton Act?
        Mr. Kovacic. We enforce both, Congresswoman.
        Ms. Hirono. With regard to these collaborations? Because
    Section 7 has to do with mergers and acquisitions.
        Mr. Kovacic. The framework in Section 7 also picks up
    contractual arrangements, what might be called joint ventures,
    that fall short of an actual combination of ownership. So we
    use both instruments. I would say the tendency over time has
    been for the analytical techniques used in both areas to
    converge so that, in many ways with slight variations, we are
    asking the same basic questions about likely competitive harm,
    market power, and procompetitive justifications.
        Ms. Hirono. So those are the three major issues that you
    are concerned with with these physician collaborations, because
    clearly they can't be engaging in any kind of a price fixing
    activity, is that correct?
        Mr. Kovacic. Generally speaking, there is a breathtakingly
    serious prohibition against efforts by direct rivals to set
    prices.
        Ms. Hirono. Yes, that is per se.
        Mr. Kovacic. Yes. But there are qualifications to that. And
    our antitrust jurisprudence and our policy have recognized
    them; we recognize them. There are instances in which
    restrictions which, if they were standing on their own with
    nothing else, might very well put you in front of a Grand Jury
    and send you to prison can be justified, and we take those
    justification arguments very seriously.
        Ms. Hirono. Well, having just read through the AMA
    testimony, it is a little difficult for me to understand how it
    is that a group of physicians who have to compete on the basis
    of price and other ways, that somehow these kinds of
    arrangements would not pass scrutiny. It is sort of hard for me
    to understand.
        Mr. Kovacic. But might we agree that if any group of
    service providers do nothing else but say, "let's raise our
    rates," without anything else we would be very suspicious of
    those arrangements. So the real issue is, is there something
    else going on beyond just the decision to raise rates? That is
    really the issue about which we have a disagreement with the
    AMA, but it is also precisely the focal point of the continuing
    discussion that we look forward to having with them.
        Ms. Hirono. I think with the concern that we have that the
    high cost of health care, that any reassessment on your part as
    to how you are going to enforce these kinds of arrangements I
    think is a welcome statement.
        Mr. Kovacic. I do pledge us to engage in that discussion,
    which I would say has been a characteristic of our practice for
    decades.
        I would reiterate that, at the moment, yes, to the dismay
    of the AMA's statement, we think that we have things set in the
    right place, but we are neither arrogant nor stubborn to think
    that there is not always room to continue the discussion and
    reevaluate. When facts and knowledge change, so do we.
        Ms. Hirono. Thank you.
        I yield back, Madam Chair.
        Chairwoman Velazquez. Ms. Clarke.
        Ms. Clarke. Thank you very much, Madam Chair and Ranking
    Member Chabot; and thank you, Mr. Chairman, for your insights
    today.
        I wanted to sort of turn to some of the current financial
    crisis and its impact on minority and female-owned
    disadvantaged businesses and whether the Commission is
    monitoring what impact this is having on that sector of our
    economy in terms of its capacity to compete, whether you would
    share some of your insights with us.
        Mr. Kovacic. Congresswoman, a limiting condition for us
    with respect to most of the service providers that have been
    the focal point of the upheaval in recent weeks and months is
    that these institutions are beyond our jurisdiction. Congress
    decided in roughly a century ago and in subsequent legislation
    that our jurisdiction did not include the financial services
    sector. There are limited exceptions to that. So this is
    basically a sector we do not study, being faithful to the
    limitations in our statute.
        Ms. Clarke. I think maybe my question was misunderstood.
        Mr. Kovacic. I am sorry.
        Ms. Clarke. I understand there are jurisdictional issues,
    but, within your purview, there are going to be businesses that
    are going to be impacted by this. And I wanted to know whether
    the Commission has begun to take a look at that. Because,
    ultimately, everyone outside of the financial sector is going
    to have to readjust for competition, given the credit crunch.
    And these are also the major employers of so many Americans. So
    while we are up here rushing to the rescue, I am assuming
    everyone else is looking at what the ramifications are for
    their particular domain.
        Mr. Kovacic. Let me give you one I expect will be
    significant for us in exercising our authority to look at
    mergers, at questions of dominance, at questions of agreements.
    A major source of strength in our economy historically has been
    the strength of its capital markets. It is the capacity of
    individuals to raise funds by issuing stock, by getting loans
    and issuing debt. We make major decisions in individual cases
    depending upon how readily we think new firms can enter the
    market or how existing entrepreneurs and organizations can
    expand.
        To the extent that the turmoil and recent experience may
    adjust or dictate an adjustment in those assumptions about how
    capital markets operate, that is certain to affect the way in
    which we evaluate the significance of an individual merger and
    the possibility that new firms will be able to come into the
    market and challenge them. So I see that as being a fairly
    powerful implication.
        Ms. Clarke. Mr. Chairman, the concern is who ends up at the
    end of day at the table able to participate in those
    activities, which is why I turn to the most vulnerable sector
    of our small business environment, which is that of women-
    owned, minority owned disadvantaged businesses.
        It would be helpful to make sure that, as you look at
    particularly joint ventures and globalization, where these
    companies have always been disadvantaged, that we take a look
    at what the impact is going to be or what we project what the
    impact will be so that we can look at the other vehicles we
    have through our purview to be of support to them in this time
    of financial instability.
        I was wondering whether your Commission would be in fact
    highlighting or looking at that and sort of cautioning or
    sending out a warning so that we can react as quickly as
    possible.
        Mr. Kovacic. Congresswoman, this traditionally has not been
    part, this specific set of issues, especially the range of
    concerns about which individuals are able to participate in the
    market and to what extent are historically excluded groups able
    to get access to the market has not been part of the
    traditional antitrust analysis. For myself, I find this issue
    to be a compelling one, and the question of how historically
    disadvantaged groups do get access to the market and
    participate is one that interests me intensely.
        I have in mind us doing some things that will look at these
    issues and especially the extent to which existing policies or
    programs impede the ability of people unnecessarily to get to
    the market. It is an issue that I would welcome discussing
    beyond the scope of this hearing. I would welcome the
    opportunity to discuss with you and your colleagues and with
    your staff perhaps more specifically how my own interest in
    making this a topic of research might coincide with some of
    your own concerns. I would be quite willing to do that on my
    own with you or with colleagues of yours who would like to
    explore this more fully.
        Ms. Clarke. Thank you very much.
        I yield back, Madam Chair.
        Chairwoman Velazquez. Mr. Chabot.
        Chairman, thank you so very much for being here this
    morning; and if you at least for the record name one of your
    staff persons who will be remaining in the room.
        Mr. Kovacic. Yes, I would be happy to. Would you allow me
    to glance back at them to make sure that the person I name will
    willingly nod and say yes.
        Do we have a volunteer?
        Ah, we have three: Kim Vandecar, who is with our Office of
    Congressional Relations and I think well-known to this office.
    We have David Narrow, who is from our health care group, Bureau
    of Competition. We have Neil Averitt from our Policy and
    Evaluation Office in the Bureau of Competition.
        That is an awesome contingent. Not only will they report
    faithfully on what you have to say, they will offer their own
    thoughtful interpretation, too. We will be in good hands.
        Chairwoman Velazquez. Thank you, and the gentleman is
    excused.
        Mr. Kovacic. Thank you, Madam.
        Chairwoman Velazquez. I ask the second panel to please come
    forward.
        Gentleman, welcome.

      WITNESS PANEL II: WILLIAM HAZEL, JR., M.D., JONATHAN RUBIN,
              SAID HILAL, AARON LOWE, and WILLIAM MacLEOD

        Chairwoman Velazquez. It is my pleasure to welcome Dr.
    William Hazel, Jr. Dr. Hazel is a member of the Board of
    Trustees of the American Medical Association. Dr. Hazel is an
    orthopedic surgeon in private practice from Northern Virginia.
    He is here to testify on behalf of AMA, which is an
    organization that advocates on issues vital to the Nation's
    health; and it is the United States' largest physicians group.
        Chairwoman Velazquez. Welcome. You will have 5 minutes.

      STATEMENT OF WILLIAM HAZEL, JR., M.D., SECRETARY, BOARD OF
                 TRUSTEES, AMERICAN MEDICAL ASSOCIATION

        Dr. Hazel. Good morning, Madam Chair, Ranking Member
    Chabot, members of the Small Business Committee and staff.
        I am Dr. Bill Hazel. I am an orthopedic surgeon in practice
    over in Fairfax, Virginia, and a member of the board of the
    AMA; and I appreciate having the opportunity to testify this
    morning on small business competition policy.
        The health care marketplace has changed dramatically over
    the past decade. Frankly, the FTC guidelines have not kept
    pace. Current antitrust policies are barriers that slow
    physician collaboration and hinder our ability to participate
    in a full spectrum of health care initiatives. They have also
    perpetuated an imbalance in the market so that health insurers
    are able to force physicians to accept contracts that often
    impede optimal patient care.
        The health care antitrust environment has evolved in three
    significant ways.
        Number one, current FTC policy discourages physician
    clinical integration efforts. The FTC guidelines and advisory
    opinions to date require a level of financial investment that
    is impractical for physicians in solo and small group
    practices, in other words, about 75 percent of the physicians
    in the country.
        Number two, widespread health plan consolidation has eroded
    the market and severely limited our ability to advocate for
    ourselves and our patients. In the last decade, there have been
    400 insurer mergers. Only three were challenged by the DOJ,
    only three of 400; and these mergers have benefited no one but
    executives and shareholders. And the proof is that premiums
    across the country have increased, out-of-pocket patient
    expenses have gone up, and physician payment has declined.
        The third issue is that professional market and regulatory
    developments are encouraging physicians to collaborate, to
    collaborate on the purchase and use of health information
    technology and quality improvement initiatives.
        Allowing a more flexible approach to physician joint
    contracting would address these market changes and, in fact,
    would be pro-competitive. Allowing physicians to jointly
    contract would increase competition in the insurance market.
        Creating physician panels is time consuming, and it is
    expensive. It can be a barrier to entry for new insurers
    through physician joint contracting new payers to gain access
    to panels of physicians with wide geographic and specialty
    distribution. When the physicians themselves undertake the
    initial task of the network formation, payers may substantially
    reduce their costs of entry and expansion.
        Joint contracting would also lead to more equitable,
    better-informed contracts. Most physician practices simply
    don't have the resources to analyze payers' contracts. By
    pooling resources we can spread the costs associated with
    analyzing these contracts and negotiate for improved contracts
    for our patients.
        Finally, joint contracting would allow physicians to create
    networks that would facilitate collaboration on health
    information technology and programs designed to monitor patient
    care and quality improvement that folks such as you are
    encouraging us to do even now.
        Acquiring, implementing, sustaining information technology
    requires extensive financial investments by physicians, but the
    Congressional Budget Office has documented that health insurers
    are the entities that benefit from cost savings associated with
    these systems. Allowing physicians to negotiate jointly with
    payers would help us reallocate these cost savings
    appropriately and pay for the services.
        Similarly, many physicians lack the ability to participate
    in quality improvement initiatives. By teaming up in networks,
    small and solo practices can gain the scale necessary for care
    coordination and appropriate data aggregation that allows us to
    implement these initiatives.
        Now current antitrust policy is clearly out of step with
    the changing health care marketplace. This led to overly
    aggressive enforcement against physicians in certain cases,
    limited opportunities for physicians to collaborate in other
    cases, and it has permitted unfettered, unfettered health
    insurer consolidation.
        The FTC must update these policies. As the chairman
    indicated, we are currently discussing with the FTC the
    guidelines on physician joint contracting, which we believe
    should allow small practices to collaborate on health
    information technology and health care quality improvement
    initiatives. Furthermore, the DOJ must challenge health insurer
    mergers more aggressively. These steps would restore balance to
    the health care market and ensure an innovative and efficient
    health care system.
        Thank you, Madam Chair and members.
        Chairwoman Velazquez. Thank you, Dr. Hazel.
        [The statement of Dr. Hazel is included in the appendix at
    page 70.]
        Chairwoman Velazquez. Our next witness is Dr. Jonathan
    Rubin. Dr. Rubin is a partner at the law firm Patton Boggs. Dr.
    Rubin concentrates in antitrust litigation and counseling. He
    is here to testify on behalf of the American Antitrust
    Institute. The AAI is an advocacy organization that seeks to
    increase the role of competition and assure that competition
    works and challenges abuses of concentrated economic power.
        Welcome.

      STATEMENT OF JONATHAN RUBIN, PARTNER, PATTON BOGGS LLP, ON
               BEHALF OF THE AMERICAN ANTITRUST INSTITUTE

        Mr. Rubin. Thank you, Chairwoman, Ranking Member Chabot and
    members of the Committee.
        I am Jonathan Rubin. I am an antitrust lawyer with the firm
    of Patton Boggs here in Washington, D.C., and one of about a
    hundred members of the Advisory Board of the nonprofit
    organization, the American Antitrust Institute. The AAI's Web
    site is www.antitrustinstitute.org. I appreciate the
    opportunity to testify today.
        My task is fairly limited. It is to present the major
    recommendations that appear in the upcoming report, entitled
    The Next Antitrust Agenda: The American Antitrust Institute's
    Transition Report on Competition Policy to the 44th President.
    The report will be published in October and will be provided to
    the Committee.
        My remarks today reflect solely the position of AAI and not
    that of Patton Boggs or any of its clients.
        The antitrust laws are among America's greatest
    contributions to the field of political economy. The AAI
    strongly believes that government ought to promote competition
    in free markets and that the Nation's antitrust laws can and do
    precisely that if they are aggressively and creatively
    employed.
        Believing in competitive free markets is one thing however,
    but the facts on the ground may be very different.
        Two opposing forces constantly pull on the economy. On the
    one side is the urge by the government to control the private
    sector through regulation, and on the other side is a strong
    belief that free markets and laissez faire policies foster
    efficient economic growth and protect the private sector from
    counterproductive governmental control.
        Neither path provides a complete policy prescription.
        Over-regulation protects inefficient competitors and
    operates as a drag on the economy, and complete laissez-faire
    risks a lawless jungle operating without regard for justice.
        Antitrust occupies the middle ground between these polar
    possibilities and frequently offers nuanced instruments with
    which to steer markets back to an even keel when market
    failures occur. It is in this middle ground that opportunities
    for small businesses are often created--or destroyed.
        This inherent need for balance in antitrust is reflected in
    the positions advocated in the AAI Transition Report, the most
    important recommendations of which are itemized in my written
    testimony. I will use my remaining time instead to characterize
    where we are and where we need to go in the view of AAI.
        As a general matter, the AAI applauds and encourages
    deregulation in industries in which ill-advised and overly
    intrusive regulatory structures are less efficient than an
    unregulated market. In the view of the AAI Transition Report,
    however, current antitrust policy worries too much about
    intervening incorrectly, risking false positives, and not
    enough about failing to intervene when necessary, risking false
    negatives. Antitrust is about predicting market outcomes, and
    predictions will sometimes be proven incorrect. AAI sees no
    reason to suppose a priori that false positives are inherently
    more injurious to an efficient economy than are false
    negatives.
        Current antitrust doctrine is also unabashed in its disdain
    for the capabilities of agencies, courts and lay juries to
    resolve antitrust disputes correctly, and expansive in its
    estimation of the costs of administering the resolution of such
    disputes. AAI believes that this lack of confidence in courts
    and juries is not justified. Limiting access to the courthouse
    often disadvantages private antitrust plaintiffs, who are
    frequently small and medium sized businesses.
        The AAI also believes that viewing single-firm issues
    exclusively through the lens of neoclassical price theory and
    assessing competitive injury solely in terms of its effect on
    price or quantity imposes artificial limitations on the scope
    of the antitrust enterprise. Consumer choice, variety,
    diversity, quality, convenience and innovation, these are all
    also legitimate values worthy of protection in the defense of
    competition by the operation of the antitrust laws.
        In short, current antitrust policy leads to an overly
    noninterventionist standard of contact that the AAI rejects.
        As a case-by-case form of regulation charged not with
    promoting competition but with eliminating impediments to it,
    antitrust exerts an influence on business conduct even where no
    action is taken. And the mere threat of antitrust liability
    deters anti-competitive conduct.
        No matter which party will control Congress or who the
    President will be, the AAI's advice to the next administration
    is the same:
        Antitrust analysis should be brought more in line with a
    broader body of modern economic knowledge and made better
    equipped to deal with the realities of modern markets; more
    resources and personnel should be devoted to the skillful
    deployment of antitrust enforcement as a policy instrument to
    maintain competitive markets; and the institutions, substantive
    rules and procedures of antitrust should be rejuvenated,
    particularly as they pertain to the treatment of single-firm
    conduct.
        I thank the Committee for your attention and would be
    pleased to answer any questions you may have.
        Chairwoman Velazquez. Thank you, Dr. Rubin.
        [The statement of Mr. Rubin is included in the appendix at
    page 82.]
        Chairwoman Velazquez. Our next witness is Mr. Said Hilal.
    He is the President of the Applied Medical Resources
    Corporation in Rancho Santa Margarita, California. Applied
    Medical is a company dedicated to meeting the innovative needs
    of progressive surgeons and clinicians. He is here to testify
    on behalf of the Medical Device Manufacturers Association.
    Since 1992, MDMA provides education and advocacy assistance to
    innovative and entrepreneurial medical technology companies.
        Welcome.

     STATEMENT OF SAID HILAL, PRESIDENT, APPLIED MEDICAL RESOURCES
     CORPORATION, RANCHO SANTA MARGARITA, CALIFORNIA, ON BEHALF OF
              THE MEDICAL DEVICE MANUFACTURERS ASSOCIATION

        Mr. Hilal. Thank you, Madam Chairwoman.
        Madam Chairwoman, Ranking Member Chabot and members of the
    Committee, I address this Committee on behalf of Applied
    Medical and the nearly 200 members of the Medical Device
    Manufacturers Association, as well as the countless other
    smaller medical device companies in this Nation who face
    significant challenges accessing the hospital market.
        Innovation in the medical device arena is fueled by small
    companies working with clinicians, scientists and engineers to
    enhance the quality of care. Applied develops and sells devices
    for progressive, minimally invasive surgery.
        Back in 1988, we set out to create a company that can
    improve both healthcare and the financial outcomes of new
    modalities; and we did. In the process, we invented and
    innovated many procedures and many devices that achieved these
    end targets. But clinicians do not have access to the best and
    most cost-effective innovation, mainly because of the anti-
    competitive practices of dominant suppliers and certain
    hospital group purchasing organizations, or GPOs.
        Now, originally, GPOs were established to help small
    hospitals aggregate their purchasing power by combining them
    together, by banding together; and, instead, they have become
    the marketing arm of dominant suppliers and failed to achieve
    the intended goal of lower cost.
        This is because back in 1986 Congress created a safe harbor
    from the Medicare anti-kick back statute and permitted
    suppliers to fund the GPOs. Until that time, GPOs functioned
    more like cooperatives funded by their own members. But once
    the GPOs began to rely on key suppliers, on giant suppliers for
    funding, they lost the ability to independently review products
    and, in many situations, GPOs contracted with the suppliers who
    paid the most fees, fees that are actually percentages of the
    total contract price. So the question, would a GPO go with a
    $20 million price or discounted price of say $10 million when
    they are collecting 5 percent on either? Or are we creating a
    conflict here?
        Giant suppliers very quickly picked up on this and
    manipulated this situation to lock out smaller suppliers. We at
    Applied have had the good fortune to be able to fight back. We
    had the staying power. It cost us dearly, and it took 10 years
    to break into the market, before the market even opened up a
    little bit for us to get into it. But for every Applied there
    are countless small medical technology companies that continue
    to be totally foreclosed.
        To start restoring competition in the healthcare industry,
    it is imperative that Congress repeal the GPO safe harbor and
    move GPOs back to the hospital-funded model independent of the
    large suppliers. According to Harvard's competition expert
    Michael Porter, there is no valid reason for buying groups to
    accept financing or any payment from suppliers.
        Speaking of those dominant suppliers, while ending the
    supplier kickbacks to GPOs would actually provide a better
    competitive landscape, it is but the starting step. Small
    companies in health care face monopolies and duopolies that
    engage directly in anti-competitive activities, including
    predatory pricing and bundling of related and unrelated
    products.
        We have repeatedly suffered from the predatory market
    powers of giant companies, regardless of their respective
    market share in the contested arena. But Applied and hundreds
    of companies like Applied have suffered the most from the total
    absence of oversight and enforcement in certain areas. And in
    the face of the latest predatory approaches by large monopolies
    and duopolies, our antitrust laws have been watered down or
    shelved, while the new practices and tactics have taken hold.
        At a time when the Department of Justice and the Federal
    Trade Commission should be taking a more proactive oversight
    role, the recent DOJ report takes the wrong direction and
    creates additional safe harbors, not less, for the monopolies
    at the expense of competition, consumers and innovation. This
    is not the direction the U.S. Government should be taking.
    Progressive European and Australian agencies are way ahead of
    us in these areas, and they are dealing with violators firmly.
    We can and must do better.
        In conclusion, these practices by dominant suppliers and
    some GPOs individually and collectively damage open competition
    and increase the cost of health care. By repealing the GPO's
    safe harbor and providing proper oversight and enforcement over
    maintaining monopolies and large lock-step duopolies, I believe
    we can benefit patients, hospitals, customers, healthcare and
    providers.
        Thank you very much.
        Chairwoman Velazquez. Thank you, Mr. Hilal.
        [The statement of Mr. Hilal is included in the appendix at
    page 90.]
        Chairwoman Velazquez. Our next witness is Mr. Aaron Lowe.
    He is the Vice President of Government affairs for the
    Automotive Aftermarket Industry Association.
        The motor vehicle aftermarket is a significant sector of
    the U.S. Economy, employing approximately 4.5 million people.
    The AAIA represents more than 100,000 repair shops, part stores
    and distribution outlets.
        Welcome.

     STATEMENT OF AARON LOWE, VICE PRESIDENT, GOVERNMENT AFFAIRS,
              AUTOMOTIVE AFTERMARKET INDUSTRY ASSOCIATION

        Mr. Lowe. Thank you, Madam Chair; and thank you, members of
    the Committee. I am pleased to present this testimony on this
    very important issue.
        As you said, our industry represents the independent
    aftermarket. It is everything that happens to a car once it
    leaves a new car showroom.
        Since the invention of the vehicle, the U.S. has had the
    most competitive vehicle aftermarket in the world, as has
    already been stated in this hearing. Americans currently have a
    wide array of choices in vehicle repair, whether it is going
    back to the dealer or to the thousands of independent repair
    shops that are in every community in this Nation. This
    competition has kept car owners and not the vehicle
    manufacturers in the driver's seat when it comes to making
    choices regarding vehicle repair destinations.
        While we are proud of our service to the American motoring
    public, we are extremely concerned that the dynamics are
    changing and that our independent shops are being placed at a
    competitive disadvantage. This change has nothing to do with
    the efforts that our independents are investing in servicing
    the public, but rather the attempts, whether intentional or
    not, by manufacturers to use technology to obtain a competitive
    advantage for their dealer network, an advantage that dealers
    have been unable to gain through customer service or price.
    Left unchecked, we will soon see the car companies controlling
    decisions as to where cars are repaired and not by the person
    who has spent their hard-earned money to purchase that vehicle.
        The U.S. Congress foresaw the role that technology would
    play in the repair market back in the late '80s when the Clean
    Air Act was being debated. Back then, the Act required that on-
    board diagnostic computers be put on every car to monitor the
    emission systems and to alert the car owner to an emissions
    defect. While it was anticipated these OBD systems would ensure
    that cars would operate more effectively in use regarding
    pollution, they were also concerned that car companies would
    use this technology to keep the independent aftermarket out by
    making access to these computers proprietary and forcing the
    independent service provider out of the market.
        Therefore, provisions were added in the 1990 Act that would
    require on-board computers be accessible without the need for
    proprietary tools and that any information needed to repair the
    emission system be made available to the independent
    aftermarket. While this provision did permit car companies to
    retain trade secrets, the legislation specified that no
    information may be withheld if that information was provided
    either directly or indirectly to the new car dealer.
        However, the gains made by the Act have been tempered in
    the last several years by the fact that the computers that are
    now being installed in vehicles that go well beyond emissions,
    monitoring and controlling nearly every function of the vehicle
    from safety to entertainment. Further, new technologies are
    coming quickly down the pike that could provide the vehicle
    manufacturers with even more competitive advantage when it
    comes to repairing a customer's vehicle.
        It is with this in mind that AAIA and the Coalition for
    Auto Repair Equality and a number of consumer groups are
    strongly supporting passage of the Motor Vehicle Owners Right
    to Repair Act. Introduced by Edolphus Towns, right to repair
    ensures that all information and tools provided to the new car
    dealer by the car company are also made available to the
    independent aftermarket. The information would not be free but
    would be provided at, hopefully, a fair and reasonable price.
        This bill would not prohibit new technology but rather,
    similar to the Clean Air Act, ensure that the use of technology
    on vehicles would not act to the detriment of competition in
    the aftermarket and, in the end, the consumer.
        Car companies have strongly opposed passage of right to
    repair based on two contentions: one, that all the information
    is already available and, two, that this is a veiled approach
    by the independent aftermarket to obtain the trade secrets of
    the car companies.
        AAIA and CARE do not dispute the fact that the car
    companies have done a better job in making information tools
    available to our industry. However, much of this progress does
    not come due to their willingness to ensure competition for
    customers but, instead, EPA service information rules and
    political pressure that has been brought on them by
    consideration of this right to repair legislation.
        Should Congress ultimately decide not to enact right to
    repair legislation, we have little doubt that car companies
    will be under extensive commercial pressure to cut our industry
    out of access to information.
        Why are we concerned? Car companies and dealer franchises
    are now making significantly more money on their parts and
    service industry part of the market. According to NADA, even
    though dealership parts and service department sales comprise
    11.8 percent of a typical dealer's total sales, it contributes
    48 percent of the total operating profit. New car sales make up
    60 percent of total sales, but only contribute 35 percent to
    total profit. Absent legislation, the need by car companies and
    their dealers to maximize profits from parts and service will
    override, in the long run, any current cooperation we may be
    receiving.
        As to the allegations that our industry is looking for
    access to trade secrets, one only needs to look at the
    composition of our industry to understand why this is not true.
    Many of the companies who have produced parts for our industry
    and the vehicle aftermarket are the same companies that supply
    car companies with the original equipment parts. In other
    words, the part in the aftermarket box may be the same as the
    part in the original equipment box, just the label is
    different. And, oh, yeah, the cost may be considerably less.
        Further, maybe most importantly, the bill provides
    significant protections for the car company trade secrets, only
    requiring them to make available to the aftermarket, the same
    information they make available to the dealer network. This is
    similar to the Clean Air Act provisions protecting car company
    trade secrets.
        It is important to note that since the promulgation of the
    Clean Air Act 1990 amendments, there has never been
    intellectual property dispute regarding an EPA requirements for
    emissions-related information or tools.
        Madam Chairwoman and members of the Committee, America's
    car owners are already being hit with much higher fuel costs
    which are making it more difficult to use their vehicle for
    even the most basic necessities. Should the competitive market
    disappear, car owners will find the cost of car ownership
    shooting up even further. After all, they bought the car. They
    should be able to obtain the repairs where they would like to
    get them accomplished, whether it is themselves or an
    independent shop or a dealer.
        Thank you again for the opportunity to present this
    testimony, and I am open to respond to any questions that you
    may have.
        Chairwoman Velazquez. Thank you, Mr. Lowe.
        [The statement of Mr. Lowe is included in the appendix at
    page 99.]
        Chairwoman Velazquez. Our next witness is Mr. William
    MacLeod. He is a partner at the law firm of Kelly Drye &
    Warren. His practice focuses on competition law, trade
    regulation, advertising privacy and security. He is also co-
    Chair of the Antitrust Practice Group.
        Prior to that, he held positions such as Director of the
    Bureau of Consumer Protection at the FTC and advisor to the
    Assistant Attorney General Antitrust Division in the U.S.
    Department of Justice.
        Welcome, sir.

     STATEMENT OF WILLIAM MacLEOD, PARTNER, KELLY DRYE & WARREN LLP

        Mr. MacLeod. Thank you very much, Madam Chairman.
        I am William MacLeod, and in addition to the experience you
    described I would also note that I represent many thousands of
    small businesses both directly and through their trade
    associations, but I am here today on my own. I am not speaking
    on behalf of them, which gives me the rare privilege of being
    able to say what I think on the basis of my experience, both
    inside and outside the Federal Trade Commission.
        And, Madam Chairwoman, I commend you for calling this
    hearing today. I believe this is a most important subject for
    all of the constituents and the stakeholders around the FTC to
    remember and reassess on a regular basis. And that is, does the
    FTC have the power it needs and does the FTC have the
    wherewithal to exercise that power?
        In the gist of my testimony on the first point, I believe
    that it is almost beyond dispute now that the FTC has probably
    the most powerful weapon that the government has given any
    authority to protect competition and consumers; and that is
    Section 5 of the Federal Trade Commission Act. This section is
    so broad and gives the Commission the kind of power to address
    almost any perceived anti-competitive problem, as well as any
    perceived consumer protection problem the agency might assess.
        I believe that for the Federal Trade Commission it is in
    fact often ironically a detriment, a disadvantage when the
    Commission is given a specific authority to address some narrow
    character or some narrow aspects of the jurisdiction. And the
    reason why is because this broad power of the FTC Act that
    allows the Commission to basically assess whether the costs of
    some practice it sees in the marketplace outweigh the benefits.
    If the Commission stops using that power and starts enforcing
    narrow and specific grants of authority, that broad problem
    will begin to atrophy. I can give you some examples shortly.
        I also made a point in my testimony that I think the most
    important limitation the Federal Trade Commission faces is the
    limitation of resources, and this limitation of resources is
    something that we faced when I was there. And, of course, it is
    something that any government agency is always going to face
    because our government has limited resources.
        I would add to that today, on the basis of the testimony
    that you have already heard, my concurrence with many of the
    comments that the other significant constraint the Commission
    faces is the constraint of exemptions and exclusions from its
    jurisdiction.
        I myself on behalf of small businesses have occasionally
    gone to the Commission and asked the Commission to look into
    this particular anti-competitive activity or that anti-
    competitive activity only to be told by the Commission staff
    they were concerned this activity came too close to an
    exemption that had been written into the law or an exclusion
    from the exclusion jurisdiction.
        I think that it is almost always a benefit to an industry
    and to a sector, even if it is regulated by some other
    particular agency of jurisdiction, for the Commission to have
    the ability to shine the light of its unfairness authority and
    its unfair methods of competition authority on the practices
    that may be going on in that sector.
        On another point that is related to the restraints that the
    Commission faces on its budget, when I was a Director of the
    Bureau of Consumer Protection, we were occasionally tasked with
    the assignment of writing rules and regulations to implement
    various statutory mandates that the Commission received. I
    believe the Commission, if anything, is writing more rules and
    more regulations today; and to an enforcer of the consumer
    protection and competition laws, what that tells the Commission
    is that the cops that would otherwise be on the beat are going
    to be back at their desks and they are going to be deciding how
    to address comments and how to draft rules and how to respond
    to rulemaking proposals.
        I would commend the Committee for calling the attention of
    the Commission to those areas that need attention and telling
    the Commission to get its cops out on the beat and start
    bringing the cases. I can tell you from my experience at the
    Commission and I can tell from you my experience since I have
    left the Commission that there are a number of senior and a
    number of energetic junior and a number of policymaking
    officials in between who are ready, willing and able to hear
    the complaint of a small business, of a medium-sized business,
    of an entrepreneur, of an innovator who is facing a barrier to
    compete. Those businesses will receive a very warm welcome at
    the FTC, and I believe they will also receive very warm
    welcomes if they are given the opportunity to reach outside the
    narrow scope of what the FTC may do.
        Finally, I think that it is a very easy proxy for what the
    FTC should be doing to ask the FTC again, again and again, are
    you raising or are you lowering the barriers for small
    businesses and for entrepreneurs to compete and to enter into
    businesses? If your law enforcement action lowers barriers, you
    are likely helping competition. If you are raising barriers,
    and sometimes unfortunate FTC enforcement has raised barriers,
    but if you are lowering barriers you are almost certainly
    helping competition.
        Madam Chairwoman, members of the Committee, that concludes
    my prepared testimony, I would be glad to answer any questions
    that you might have. Thank you very much.
        Chairwoman Velazquez. Thank you, Mr. MacLeod.
        [The statement of Mr. MacLeod is included in the appendix
    at page 106.]
        Chairwoman Velazquez. Thank you all for your testimony. It
    was very enlightening.
        I hope that the staff from the Commission is paying close
    attention because, apparently, we have two set of witnesses
    here, one from the Commission and the witnesses that are on the
    ground dealing with the lack of enforcement and a level playing
    field.
        Dr. Hazel, you spoke in your testimony that the health care
    marketplace has changed dramatically in the last 10 years; and
    it was exactly in 1996 when the DOJ-FTC statement of health
    care antitrust policy was last updated. As a physician, how
    have you seen the medical marketplace change in the past 12
    years? And how should enforcement policies of the DOJ and FTC
    be updated to reflect those changes?
        Dr. Hazel. Boy, how do you begin with a question like that?
        We have changed in so many ways, but I think pertinent to
    this Committee a couple of things has happened, as pointed out
    in the testimony. Number one is that the insurers have grown
    larger, and they have consolidated. And you can begin to see
    evidence in places such as New Jersey where some of that
    happens. Premiums actually go up, instead of down; and there is
    evidence out there. I can present the Committee with evidence
    about the market consolidation.
        We have seen the physicians have gone from being in a
    fairly strong position over the years to a fairly weak position
    in terms of negotiating on behalf of patients and making
    medical decisions and appealing concerns and complaints through
    processes. So we need the ability to have contractual
    discussions with plans.
        But, even more, if you look at what I believe we all think
    now and recognize are the issues of health care costs, we need
    to look at how health information technology can help us as a
    tool. We need to look at the quality improvement initiatives,
    and those take a critical mass of physicians to actually be
    effective. Could you imagine being the first one to buy a fax
    machine? Somebody was, but without others involved in it, it
    wasn't particularly useful. So in order to do that and to make
    it effective, we have to have the ability for physicians to
    organize together and deal with insurers around the issues of
    health information technology and quality improvement.
        Chairwoman Velazquez. Mr. MacLeod, I know you mentioned
    that you deal with small businesses, but can you comment about
    the statement made by Dr. Hazel that there has been 400 mergers
    and only three antitrust cases have been brought up. How does
    that compare to the previous Commission?
        Mr. MacLeod. Well, the mergers, as I believe the chairman
    of the Commission mentioned, in the insurance industry are
    monitored by the Antitrust Division. However, I have seen some
    of the material that the American Medical Association has
    provided the Commission, and some of the concentration numbers
    that the AMA has pointed out are numbers that would be giving
    the antitrust authorities some cause for further concern and
    consideration.
        A very important point to make, and this actually is part
    of my entry barrier test, I believe the American Medical
    Association makes a very good point when it notes that the
    antitrust enforcement against physicians should take into
    account the fact that if a few positions or a group of
    physicians gets together to accomplish some objective
    efficiently and it not creating any barrier to entry to other
    physicians, that should not raise serious antitrust concerns.
    There is a very good opportunity I think here for a little
    balancing of the playing field when it comes to looking at the
    physician combinations.
        Under the antitrust laws, it is sometimes forgotten in the
    drive always to find a lower price for a service or a lower
    price for a good, the antitrust laws protect the sellers into a
    marketplace as well as the buyers from a marketplace. And the
    same economic implications, the same inefficiencies and the
    same distortions occur if prices are suppressed to a level
    where we see sellers leaving a marketplace or sellers simply
    refusing or finding it impossible economically to provide their
    services.
        That is a very important part of what I heard from the
    American Medical Association, and I think that is a very
    worthwhile aspect for the antitrust agencies to consider.
        Chairwoman Velazquez. I am interested to hear from you what
    do you make of about the fact that FTC refused to sign the
    Justice Department's recent report on monopoly policy? So it is
    a clear indication that there is a split between the agencies.
    As a former bureau director at the FTC, have you ever seen this
    kind of disagreement before? And will this lead to an
    inconsistent antitrust enforcement policy between the agencies?
        Mr. MacLeod. That an a very ironic and timely question,
    Madam Chairwoman. Because when I started at the Federal Trade
    Commission, something very similar happened back in 1982 when
    the Antitrust Division first issued its merger guidelines and
    the guidelines were issued before the Federal Trade Commission
    had the chance to work out every potential disagreement that it
    might have over the substance of the guidelines. In the end,
    the agencies both were able to converge their enforcement
    policies and philosophies, and I expect we will something of
    the same thing here.
        I don't expect to see different enforcement policies coming
    out of the agencies with respect to single firm conduct.
    However, it is pretty clear that over the last few years there
    has been more activity at the Federal Trade Commission with
    respect to non-merger and non-price-fixing behavior than there
    has been at the Department of Justice, and I think the FTC is
    still the primary source for that kind of adjustment.
        Chairwoman Velazquez. Thank you.
        I will come back in a second round, so let me recognize Mr.
    Westmoreland.
        Mr. Westmoreland. I thank the Chairlady.
        Mr. Lowe, you represent the Automotive Aftermarket Industry
    Association. Do you also represent CARE?
        Mr. Lowe. I am testifying on their behalf this time. I
    don't represent them as a paid lobbyist or anything.
        Mr. Westmoreland. But you are testifying on their behalf.
    Do you know if the Automotive Aftermarket Industry Association
    or CARE has ever ran any advocacy ads against any member of
    this Committee and maybe somebody that is here today?
        Mr. Lowe. AAIA's has never done that. I could not speak for
    any other group.
        Mr. Westmoreland. You could not speak for any other group.
    We are under oath today, right?
        Chairwoman Velazquez. No.
        Mr. Westmoreland. Okay.
        How many people are on your Board of Directors?
        Mr. Lowe. I think we have 30, 35. I think it is a fairly
    large board.
        Mr. Westmoreland. How many of those are in the automotive
    repair business, are repairers?
        Mr. Lowe. On the board? We have one representative that is
    a repair shop owner, and then we have a separate division that
    just represents repair shops.
        Mr. Westmoreland. How many Board of Directors?
        Mr. Lowe. Just one.
        Mr. Westmoreland. Just one out of thirty-five?
        Mr. Lowe. We have distributors, manufacturers, reps. We
    have all different aspects of the industry. We are very
    vertically integrated.
        Mr. Westmoreland. But this is called right to repair bill
    that you are interested in and you only have one repairer on
    the board of 35; is that correct?
        Mr. Lowe. Right, but they also represent a division that
    has repair shops.
        Mr. Westmoreland. I know. I am just talking about your
    Board of Directors.
        How many independent repairers have ever been chairman of
    your board?
        Mr. Lowe. I don't believe in--we have been--I don't
    remember having one.
        Mr. Westmoreland. Do you know of any that you can recall?
        Mr. Lowe. I said I didn't--I don't think we have had one.
        Mr. Westmoreland. Let me ask you this. Do you use any
    third-party information providers? Or do you know if that one
    repairer has ever brought it up at a board meeting that they
    use any third-party information providers?
        Mr. Lowe. I couldn't tell you if that has come up at a
    board meeting. I am sure that most repair shops use third-party
    information providers.
        Mr. Westmoreland. Have you ever heard of any problems of
    them getting information from any of these third-party
    providers?
        Mr. Lowe. Yes, not from that board member but other repairs
    shops.
        Mr. Westmoreland. So other people have complained about
    being able to getting information from the third party?
        Mr. Lowe. Yeah, they said the information might be missing,
    and they have faxed them and found that that information was
    not available from the OE so it couldn't be provided to them.
        Mr. Westmoreland. Do you know if any of your members of
    your organization actually own the third providers, the third-
    party information providers?
        Mr. Lowe. On our Board of Directors?
        Mr. Westmoreland. No, anybody that belongs to your group.
        Mr. Lowe. Our membership? Yeah, I think that, definitely,
    we have memberships from all aspects of the industry.
        Mr. Westmoreland. How about AutoZone?
        Mr. Lowe. Yes, they are a member of ours.
        Mr. Westmoreland. They own Alldata?
        Mr. Lowe. Correct.
        Mr. Westmoreland. How about NAPA Auto Parts?
        Mr. Lowe. Yes, they are a member of ours.
        Mr. Westmoreland. Do they own any part of any of these
    third parties?
        Mr. Lowe. I am sorry. I can't remember.
        Mr. Westmoreland. They do.
        Mr. Lowe. Okay.
        Mr. Westmoreland. They do.
        Let me ask you this, have they ever told you that any of
    these cannot obtain information to repair vehicles?
        Mr. Lowe. They said the independent third parties have all
    run into problems obtaining information at one time or the
    other.
        Mr. Westmoreland. Well, do you realize that these
    aftermarket providers, these information providers tell
    repairers that they can get them the information that they need
    to repair the vehicles?
        Mr. Lowe. In a lot of cases they do. They provide a very
    cost-effective way for repair shops to get information. If they
    were to rely on simply purchasing information from the OEs, it
    would be way over their price level to try to compete. So,
    yeah, they do provide a very cost-effective solution for most
    independent repair shops.
        Mr. Westmoreland. For most?
        Mr. Lowe. A large--almost all of them, yeah.
        Mr. Westmoreland. But if I understand correctly, there was
    a third-party group set up to handle something where they
    couldn't get this information and out of the 500 million
    repairs, only 100 people complained to that group. Do you think
    that number is correct?
        Mr. Lowe. It is hard to know what the exact number is. I
    would say it is probably fairly low mainly because the source
    of information, the National Automotive Task Force, which is I
    guess what you are referring to, is made up or comprised of
    manufacturers. And what they do is they take information
    requests from an independent. They then funnel the request to
    the proper OE. It is up to the car company to respond to that
    independent repair shop.
        Then, once they respond, which can take weeks or months, it
    could include the information or it could be, well, we are not
    going to provide that information.
        The problem is an independent repair shop with the car in a
    bay doesn't have weeks or months, it has hours to try to repair
    that car. So I think what has happened is that there is a
    credibility issue with NASTF and they don't have time to spend
    to make that complaint to NASTF. I need to make sure the
    information is available now.
        I think NASTF, as long as there are mandatory requirements
    to have information, can serve a role of discussing these
    issues. But, without that, NASTF just is an information
    clearinghouse, but it doesn't resolve the issue of right to
    repair. It is a step in the right direction, but it doesn't
    resolve the issue.
        Mr. Westmoreland. But out of the 500 million repairs done,
    100 complaints have gone to that group. Do you know how many of
    those have not been satisfied?
        Mr. Lowe. Well, the way they count it, as I understand it,
    is that a resolution is an answer but not necessarily the
    answer that resolves the issue. We have sent complaints to
    NASTF, and it took weeks before they even acknowledged they
    even got them. And then they sent it back to us saying they
    weren't provided in the proper format, and they had to be
    reformatted.
        This is not the answer. These are companies, small
    businesses that operate in a very tight time frame. If you
    bring your car in to get it repaired, you want it back the next
    day. You don't want to wait to have it repaired.
        Mr. Westmoreland. No, I understand. I completely understand
    that, but I had that iPod that I haven't gotten repaired yet.
        Mr. Lowe. If you find a place to get iPods repaired, let me
    know.
        Mr. Westmoreland. I will, brother.
        Now, let me ask you this. I asked my staff to look into
    this because I think this is important and it is something I
    looked into, although I don't serve on the Energy and Commerce
    Committee. One of the organizations that you are testifying for
    here today ran ads against me, and I was hoping that you knew
    about it, because I was going to get some clarification on some
    of them. You do represent the parts distributor; is that
    correct?
        Mr. Lowe. Yes, that is correct.
        Mr. Westmoreland. Has any part distributor filed a
    complaint with an NASTF about not being able to get any
    information that you are aware of?
        Mr. Lowe. Not that I am aware of. But I don't see every
    complaint, so I couldn't tell you.
        Mr. Westmoreland. Has it been something brought up at the
    board meetings? Is there a big problem that you all have had?
        Mr. Lowe. Parts manufacturing is not the issue. The issue
    is at the service end. The parts distributors are concerned
    with making sure that they have a customer left at the end of
    the day.
        Mr. Westmoreland. From what I have read of your proposal,
    or at least the bill, you want the purchaser to make a decision
    at the point of sale as to who is going to repair his car. Have
    you read the bill?
        Mr. Lowe. Yes.
        Mr. Westmoreland. Is that an accurate statement?
        Mr. Lowe. At the point of sale of the car?
        Mr. Westmoreland. Yes.
        Mr. Lowe. No, that is not our intention. Our intention is
    when the car owner is on the road and he has had it for a
    while--I mean, for warranty repairs he or she will go back to
    the dealer. After that point, we want the car owner just to
    have a choice of where to go to have it repaired.
        Mr. Westmoreland. I understand. But if this computer is
    supposed to be speaking between the owner of the car and the
    dealer, I am assuming, who sold them the car, if he says you
    need a brake job, you need to call your repair agent at so-and-
    so, he's got to know where to get that information to that
    person; is that not correct?
        Mr. Lowe. Are you talking then about telematic systems; is
    that correct?
        Mr. Westmoreland. That was in your testimony.
        Mr. Lowe. Oh, okay, I am sorry. What I am referring to is
    the telematic systems. And, yeah, I guess at that point
    somewhere down the line we would like the car owner to make
    that decision, but we would like them to have the decision of
    where that information goes and not have the manufacturer
    determine that.
        Chairwoman Velazquez. Time has expired.
        Mr. Westmoreland. Thank you, Madam Chair.
        Chairwoman Velazquez. Ms. Hirono.
        Ms. Hirono. Thank you, Madam Chair.
        Mr. MacLeod, I agree with you that Section 5 of the FTC is
    a very, very broad mandate that the FTC can use. So in your
    testimony you indicated that, as we are concentrating on
    helping the small businesses, that one area that the FTC should
    really look at is focusing on barriers to entry for small
    businesses. And I think--I'll get back to you--but, Mr. Rubin,
    is that what you were referring to when you said that the AAI
    report and its emphasis on looking at vertical relationships
    and the impact that vertical relationships can pose to barriers
    to entry? Are you kind of on the same page of looking at
    barriers to entry as a way that we can--the FTC enforcement can
    really help small businesses? Are you talking about the same
    things here?
        Mr. Rubin. With the caveat that I don't think there is any
    particular concentration on which portion of the antitrust laws
    ought to be employed.
        The main thrust of the idea is that vertical relationships
    as a problem for entry, as an anti-competitive problem, have
    pretty much fallen by the wayside. Whether it is Section 5,
    Section 2, even Section 1 has traditionally been used in
    vertical problems. I don't think that matters much. The
    important thing is that vertical relationships deserve, in the
    view of the AAI report, to be revitalized as a subject.
        Ms. Hirono. And vertical relationships--to look at vertical
    relationships, that is within the purview of the FTC Act, is it
    not?
        Mr. Rubin. Certainly.
        Ms. Hirono. So with regard to small businesses both of you
    would agree that the enforcement by the FTC should focus on
    those kinds of relationships, vertical relationships as a
    barrier to entry? Mr. MacLeod?
        Mr. MacLeod. Yes, I think that a good way from a
    competitive standpoint to look at vertical relationships is to
    ask the question whether a vertical relationship begins to
    foreclose small businesses and entrants into a market from
    access to the channels of distribution. And if it does, the
    antitrust laws are very well-equipped to take care of those.
        The antitrust laws are less likely, obviously, to look at a
    vertical relationship between a small seller and a small buyer.
    There does need to be some sort of market effect of these
    things. But, beyond that, the antitrust laws and especially the
    Federal Trade Commission Act are well-equipped to investigate
    and prosecute areas where the competition is being harmed.
        Ms. Hirono. Is resale price maintenance per se a violation
    of the FTC laws?
        Mr. MacLeod. It is not a per se violation of the FTC laws.
    And, indeed, the Federal Trade Commission Act doesn't typically
    apply the pro se rule. That is typically considered under the
    Sherman Act.
        But just last month the Supreme court--a little bit longer
    ago now--in the last term the Supreme Court had decided to
    return resale price maintenance to a rule of reason approach,
    and that means that for future prosecutions and for a practical
    matter this is what the agencies have been doing for years. The
    agencies will look to see whether or not the resale price
    maintenance involved is on balance benefiting or harming
    competition.
        And the answer I think you can think of in very simple
    terms. If I were to start a small business tomorrow baking
    cookies and I had a couple of distributors to sell those
    cookies on the mall, there would not be a real issue to be
    concerned about if I were asking my distributors to charge a
    dollar a cookie. It is a very different issue if one is
    comprising virtually an entire market and is fixing for that
    entire market the price their retailers would charge.
        Ms. Hirono. So based on the competitive strength of whoever
    is imposing the resale price maintenance--basically, it would
    be, I guess, the supplier--would you agree that it should be
    pro se--once that determination is made, that resale price
    maintenance should be per se a violation? Would both you agree
    with that?
        Mr. MacLeod. No, I think at that point we are out of the
    realm of per se and we are asking ourselves, if there was a
    market effect, would we condemn the practice? And I think the
    answer there is very easily reached under the rule of reason.
        So the pro se rule, there are areas where the courts have
    adopted, modified pro se rules, and they very seldom enhance
    the antitrust analysis. It is much easier to say something is
    either always wrong or something will be wrong when we can
    identify there is a competitive harm done from it.
        Ms. Hirono. I think I am getting a little too esoteric
    here. We are talking about FTC enforcement, and I would like to
    ask the two of you, with regard to the current FTC enforcement
    that supports small businesses and lowers barriers to entry, do
    you think the kinds of actions that they have been taking over,
    say, the last 10 years promote, help small businesses because
    they are looking at barriers to entry?
        Mr. Rubin. If I may respond, Congresswoman, the key event
    with respect to resale price maintenance is the Supreme Court
    decision in Leegin of a couple months ago wherein the Court
    ruled that the correct analysis for resale price maintenance
    was under the rule of reason, rather than per se unlawful as it
    had been theretofore.
        The problem as the AAI sees it in their report is that this
    is an open-ended analysis and requires more structure. They
    advocate that there should be a presumption that resale price
    maintenance is inherently suspect. And if there is a mechanism
    to reign in the otherwise open-ended analysis of the rule of
    reason we believe that would be more helpful in ameliorating
    resale price maintenance.
        Ms. Hirono. I appreciate that discussion. Actually, my
    question was whether the current FTC enforcement addresses what
    you were talking about, Mr. MacLeod, barriers to entry. Because
    we're here to try to support and help small businesses. So is
    that the kind of enforcement that the FTC is engaging in the
    entire realm of enforcement that they can engage in? Are they
    placing enough emphasis on stopping barriers to entry and
    thereby helping small businesses?
        Mr. MacLeod. I would like to see more, and I think the
    Federal Trade Commission itself has said that it would like to
    do more as well. It has set very ambitious goals for itself in
    bringing these kinds of cases. They have a brand new director
    in charge of the Bureau of Competition branch that investigates
    these cases, and I think we can expect to see from the FTC some
    more activity in this regard.
        It is very hard--I also make this point in my statement--
    for us sitting on the outside to know exactly in any individual
    case whether the FTC got it right or got it wrong. The last
    case the FTC brought in the non-merger area, at least the last
    significant controversial one, the commissioners themselves
    disagreed. So it is sometimes difficult to know whether or not
    the FTC is following the rule to go where the harm is worse and
    try to address that harm, but that is exactly where I think
    they are trying to head.
        Chairwoman Velazquez. Time has expired.
        Mr. Shuster.
        Mr. Shuster. Thank you, Madam Chair.
        My first question to Mr. Rubin and Mr. MacLeod, the FTC
    operates under laws that, some of them, are 100 years old or
    maybe older. Is there a need for an update in these laws?
    Because society has changed. Technology has changed. Mr. Rubin,
    I am afraid you are going to give me a dissertation on it, but
    are there needs to update the rules and regulations the FTC
    operates under?
        Mr. Rubin. I didn't realize my reputation was quite that
    bad.
        Mr. Shuster. You had a doctor in front of there, so I
    figured there was a Ph.D. Behind it.
        Mr. Rubin. The AAI report and I would point out that the
    Antitrust Modernization Commission report as well does not see
    any need for textual revision of any major sort to the
    antitrust laws. It is a judicially implemented body of law.
    Because markets change, because conduct changes, the world
    changes very fast, this is an appropriate use in the view of
    the AAI.
        Mr. MacLeod. Let me see if I can make that shorter, no.
        Mr. Shuster. I appreciate that.
        The other question, Mr. MacLeod, you said, and I think this
    is accurate, that when Congress puts narrowly defining laws,
    laws that are very narrow, that is something you believe
    diminishes the FTC's ability, is that accurate?
        Mr. MacLeod. I think so. When the Commission has a strength
    that it stops using and instead becomes an agency looking at a
    narrow mandate, that strength begins to atrophy.
        Mr. Shuster. Mr. Rubin?
        Mr. Rubin. Yes, I concur with that statement.
        Mr. Shuster. I don't know how familiar you are with the
    right to repair law, but is that a law narrowly defining the
    issue for the FTC?
        Mr. Rubin. I don't believe that the AAI report specifically
    addresses that proposal. I believe that the AAI as an
    organization does support the right to repair bill as it
    stands. As far as whether that is narrow enough, I am not sure
    I can give an opinion on that.
        Mr. Shuster. Mr. MacLeod.
        Mr. MacLeod. Well, I am not familiar with that law, but the
    question I would have about the law is whether it really would
    give the Commission more power to address anti-competitive or
    unfair acts and practices than the FTC Act already gives the
    Commission.
        Mr. Shuster. Mr. Lowe, you say there is a problem out
    there, but the facts don't seem to bear that out. I am looking
    at reports that the National Automotive Service Task Force in
    2006 received 32 service information requests; in the year
    2005, 48; in 2006 of those 32, 31 were resolved. And we are
    talking about 500 million automotive service repair events.
    That doesn't seem to me that that is a big problem.
        As a former automobile dealer, it was frequent that my
    service manager would call the auto manufacturer up and say,
    hey, we need to get some information here. There is always
    information problems. But that to me seems minuscule. And yet
    you are proposing legislation you say is going to correct the
    problem that really don't seem to exist to me. Can you expound
    upon that?
        Mr. Lowe. Well, I think the discussion I had with
    Congressman Westmoreland kind of highlights the problem in that
    I really don't see that NASTF has an accurate measure of the
    repair problem out there that we are seeing when we talk to our
    members in the field.
        I think, you know, this is what we see happening right now
    in the industry. Our industry, when they run into a problem
    repairing the car, they don't want to tell their customer they
    can't fix that car. They either find some way, either a friend
    at the dealership or they have a relationship with the
    dealership over the table or under the table, but they find a
    way to repair that car.
        Our members are problem solvers. They are not people who
    like to whine. That is my job. They like to make sure they get
    that car repaired without the customer knowing. Because once
    that customer loses trust in that repair shop, they are going
    to start going to the dealer, and that is a big, big concern to
    every individual small shop. These guys they have been building
    these shops and they are family owned shops. They might be in
    it for generations. They are running into more and more
    roadblocks. They are still in there and fighting, but we are
    concerned it is going to be in the long term a losing battle.
    So we do see a problem, but we only see the problem growing in
    the future.
        Mr. Shuster. I guess that is my problem with what you are
    saying. You say that folks--and I know, many, many service
    repair operators and owners and have the greatest respect for
    them. This is not about me being against them. It is me being
    against what I think you are trying to say to us. I hear you
    are whining, but it is not coming from the automotive repair
    people. Because, in fact, you have very few members on your
    board or association who actually repair cars or automobiles.
        The Automotive Service Association is really the
    institution or association that represents the thousands and
    thousands of people who actually fix cars in this country and
    are opposed to your legislation. So I do hear whining, and I
    think it is coming from the big part manufacturers, the NAPAs
    and the AutoZones.
        And so, again, I think I know where you are coming from
    here. In fact, you--
        Chairwoman Velazquez. Time has expired.
        Mr. Lowe. Can I respond to his statement?
        Chairwoman Velazquez. The time has expired.
        Ranking Member Chabot.
        Mr. Chabot. Thank you, Madam Chair.
        I will limit my time to 5 minutes. I will let the gentleman
    continue, if he'd like to.
        Mr. Shuster. I'd appreciate that.
        AutoZone--and, again, I have to tell you I know NAPA
    distributors and have great regard for them, but I don't hear
    them requesting this. They haven't requested this to me in this
    legislation.
        But you have AutoZone which owns AllData repair, which is a
    service that you talked about with Mr. Westmoreland. And you
    have an ad here. First it says the number one OEM source of
    information--online repair information, and you have an
    automotive garage, a guy by the name of Jeff Cosand: I couldn't
    get by without AllData. I have used it for over 10 years, and
    it is rare that I can't find what I need on OEM information--
    that I need. OEM information is the gold standard. That's
    especially true for wiring designs.
        I mean, you have AutoZone out there saying, we are
    advertising. We have a system that we can provide you, the
    small repair people, with all the information you need. It is
    rare. It is successful.
        So, again, knowing many, many people in the repair business
    and someone who has owned a dealership and worked in automotive
    repair, most technicians don't want to mess with wire
    schematics. Because it is time consuming. It is not profitable.
    They would rather put brakes on. They'd rather put a muffler
    on. They would rather do those kinds of jobs that they can turn
    quick and be more efficient in their timing.
        So, again, it is pretty clear to me that you are not
    representing the repair industry. You are representing the
    manufacturers and the distributors of automotive parts.
        So, again, the facts don't bear it out. The industry that I
    know that repairs them, they don't support it. So, again, I
    think this is not a very good piece of legislation. And there
    is tremendous competition out there for this business. So I
    just don't think the facts bear out your position on this.
        Mr. Chabot. Reclaiming my time, and I will allow you to
    answer.
        Mr. Lowe. Sir, the Automotive Service Association certainly
    represents some repair shops. I think out of hundreds of
    thousands of repair shops around the country they do represent
    12,000. Six thousand of those are body shops, and so half of
    those are mechanical shops. Our membership is around 20,000
    repair shops. Most of the State groups, repair associations, a
    great many of them support right to repair. In fact, I think
    the Automotive Service Association is the only group that
    doesn't support right to repair.
        I would say that some of our members do repair, do brakes
    and mufflers, as you say. But a lot of them do very
    sophisticated repairs and are very interested in getting repair
    information, of course, so I am not sure I agree with your
    characterization of our industry.
        Mr. Chabot. Thank you.
        Dr. Hazel, I know there has been for quite some time
    criticism of the antitrust laws relative to how it has impacted
    physicians and their inability to join together and negotiate
    so that you arguably don't have the clout to negotiate with the
    health care insurance companies, et cetera. Would you like to
    comment on that or elaborate in any way?
        Dr. Hazel. Yes, sir, I would, as the representative of the
    human aftermarket industry here. I am glad that we have
    broadened this conversation again.
        Actually, sir, we are not here to talk about a change in
    the law. We are here to talk about a change in the guidelines,
    in the enforcement policy. And what we are looking for is a
    situation where there is clarity for physicians in how these
    rules are going to be enforced, when you see what happens when
    the rules are not clear as to what is okay and what is not.
        There have been two approval levels. Let's look at two
    groups that have gone to the FTC to get approval for
    collaboration. One is GRIPA in Rochester, New York. These are
    large organizations that took lots of money and a long time to
    go through their approval process, and that is not likely to
    happen most places. And where there is doubt on the part of
    physicians we are going to opt generally. And what you have
    seen, the reason there are so few of these, is we don't want
    the government in whatever capacity coming into the offices. We
    are worried about that.
        So what we are looking for is FTC to work with us to
    clarify the guidelines so that we can collaborate in getting
    health information technology and you do quality improvement,
    but we are not looking at this point for a change in the law.
        Mr. Chabot. Thank you.
        Madam Chair, I yield back.
        Chairwoman Velazquez. Mr. Hilal, for more than 20 years now
    group purchasing organizations have been exempt from the anti-
    kickback statute of the Social Security Act. How does the
    special legal status of GPOs make it difficult for
    entrepreneurs to compete for business from hospitals? And I
    will ask that Mr. MacLeod or Dr. Rubin, if you have any
    comments regarding the same question.
        Mr. Hilal. Thank you. It has distorted the purchasing
    process. Any company that has kickbacks in its decision making
    is going to miss on choosing the best product at the best
    price. This is why anti-kickback laws were there, and this is
    why they are especially needed in health care.
        So by carving this out, by introducing a third factor,
    which is how much commission is the third party going to make
    on the way of that decision, and if that commission is based on
    the volume or the size of the contract, then you can see the
    distortions that can come in.
        The example I gave in my introductory comment was $20
    million or $10 million, 5 percent on one or the other can
    distort some opinions and some decisions. And in so doing, if
    we go back to the large manufacturers and large suppliers, they
    usually have the higher market share and wider product
    offering. So if we are here to see how that impacts
    entrepreneurs and their companies, there is no doubt that they
    will be crowded out. They have been crowded out, and they
    continue to be.
        Chairwoman Velazquez. Mr. MacLeod.
        Mr. MacLeod. Yes, I think the antitrust concern is
    potentially related, but it is, of course, different as well.
    Under the antitrust laws, if a particular health care
    organization, whether it is a hospital or some other entity,
    chooses to buy one device or one drug over another drug, even
    if it is a bad decision or a mistake, there is not much the
    antitrust laws have to say about that.
        What raises concerns about GPOs, of course, is that large
    numbers potentially reaching a significant share of a market
    would make the same mistake; and we have seen many reports of
    that kind of decision thereby preventing the ability of a new
    manufacturer of a device or a company offering a new therapy or
    a new drug or a new service to be foreclosed from an entire
    market.
        I actually represented a physician in a case in which--it
    wasn't a GPO, but it was the same kind of situation--where the
    physician believed that there was a combination among the
    hospitals and physicians in an entire area that prevented him
    from providing his radiology services.
        It becomes a serious antitrust problem when the market
    begins to close down to someone who has a better mousetrap to
    offer, with apologies to the marvelous devices and other
    services that the health care industry provides.
        Chairwoman Velazquez. So do you think there is a basis for
    FTC to look into it?
        Mr. MacLeod. Oh, I would think that if there is a free road
    for the FTC to look into this area that the Commission, both
    from the commissioners down to the staff, would be delighted to
    do so. Of course, I don't speak for them, but I can tell you
    when I was there I would have loved to have had my hands on
    this.
        Chairwoman Velazquez. Dr. Rubin.
        Mr. Rubin. I don't think I have that much to add to what
    Mr. MacLeod said, other that when the government is involved in
    large purchasing decisions we don't need a competition agency
    necessarily to consider competition issues. I think that is the
    point that the AAI report makes, that competition is an
    American policy, and it deserves to be considered by everyone.
        Chairwoman Velazquez. Mr. MacLeod, I understand that you
    have experience in international antitrust policies. I would
    like to get your perspective regarding which antitrust
    regulatory regimes around the world do you think are the most
    effective to keeping markets open to entrepreneurs and what can
    we learn from them?
        Mr. MacLeod. I think the most effective one is still right
    here in the United States, Madam Chairwoman; and I think that
    it has done a remarkable service around the world. As Chairman
    Kovacic testified, he himself has been one of the ambassadors
    of the United States in explaining antitrust laws to emerging
    economies, as well as to more mature market economies. And that
    the provisions that we have under the Sherman Act, the Federal
    Trade Commission Act and our other antitrust laws are the same
    sorts of provisions that other countries can adopt very
    beneficially for their own market economies.
        Mr. Hilal. My comment on this from the trenches, please.
        Three years ago, venture capital went on notice, put us all
    on notice they are no longer going to invest in entrepreneurial
    start-up companies, if they can no longer get these companies
    to the marketplace. So, yes, we are the bastion of free
    markets. We are the bastions of entrepreneurship. But let's not
    bruise something that is really working for this Nation. We
    lead the world in medical device and innovation, but we are
    stifling it.
        Chairwoman Velazquez. Dr. Hazel, you know we are in the
    midst of a Presidential election; and health care is one area
    where both candidates are offering their vision to reform
    health care. But a particular area is IT. Everyone talks about
    how IT has the great potential to improve the quality of care
    for patients, as well as reduce costs. However, the adoption of
    health IT requires a degree of cooperation among the provider
    community. Are FTC policies discouraging physicians from
    getting together to cooperate on health IT?
        Dr. Hazel. Yes, ma'am. The answer to your question is, I
    believe, yes.
        Chairwoman Velazquez. How is that?
        Dr. Hazel. Clearly, we think that health information
    technology has a lot of promise, as mentioned earlier, as a
    tool for looking at outcomes, improving efficiencies and so
    forth. The issues that we face--I both have been president of a
    practice that has 35 physicians in Northern Virginia and also
    chair a regional health information organization in Northern
    Virginia, so I am one of the believers.
        The issue is really one of partly expense and the savings
    that accrue from the things that we are trying to do and trying
    to promote. For instance, in your Medicare budget, you have a
    3-year payment of 2 percent for e-prescribing in an effort to
    reduce medical errors. You have to have systems that work to do
    that. You have to have it on the physicians side and on the
    pharmacy's side and so forth. So the point being is they take
    some investment. They have to be maintained, updated, operated.
    And the savings accrue to payers. In the case of Medicare,
    theoretically, it is to the government. And what we don't have
    is an equivalent.
        You were kind enough to put a 2 percent kick in the
    Medicare payments for you prescribing for 3 years. We don't
    have a similar thing in the private sector side. So as we use
    some of the savings to afford the technology, we have to work
    with payers to do that.
        Does that answer your question?
        Chairwoman Velazquez. Yes.
        Mr. Chabot, do you have any other questions?
        Mr. Chabot. No further questions.
        Chairwoman Velazquez. I want to thank all of you. This has
    really been a very interesting hearing. I was pleased to see
    Mr. Westmoreland. I guess that I have to bring another witness
    that has done any kind of political campaign intervention to
    get them to come here.
        But, in any case, this antitrust issue is very important
    for this Committee, especially at a time when we see how the
    economy is struggling. And in this case we are all asking that,
    based on the law, that the agencies do what is right to make
    sure that we all have a level playing field specifically for
    small businesses that are the drivers of our economy and that
    are creating the jobs that we need to get this economy growing
    again.
        With that, I ask unanimous consent that members will have 5
    days to submit a statement and supporting materials for the
    record.
        Without objection, so ordered.
        This hearing is now adjourned. Thank you.
        [Whereupon, at 12:27 p.m., the Committee was adjourned.]

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