[Senate Hearing 110-23]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 110-23
 
           OVERSIGHT OF THE ENFORCEMENT OF THE ANTITRUST LAWS
=======================================================================




                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                 COMPETITION POLICY AND CONSUMER RIGHTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 7, 2007

                               __________

                          Serial No. J-110-17

                               __________

         Printed for the use of the Committee on the Judiciary




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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts     ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware       ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin                 CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin       JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York         LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois          JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland         SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
            Bruce A. Cohen, Chief Counsel and Staff Director
      Michael O'Neill, Republican Chief Counsel and Staff Director
                                 ------                                

   Subcommittee on Antitrust, Competition Policy and Consumer Rights

                     HERB KOHL, Wisconsin, Chairman
PATRICK J. LEAHY, Vermont            ORRIN G. HATCH, Utah
JOSEPH R. BIDEN, Jr., Delaware       ARLEN SPECTER, Pennsylvania
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         SAM BROWNBACK, Kansas
BENJAMIN L. CARDIN, Maryland         TOM COBURN, Oklahoma
                     Jeffrey Miller, Chief Counsel
                Peter Levitas, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin......     1
    prepared statement...........................................   138
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     4
Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa.     3

                               WITNESSES

Barnett, Thomas O., Assistant Attorney General, Antitrust 
  Division, Department of Justice, Washington, D.C...............     6
Majoras, Deborah Platt, Chairman, Federal Trade Commission, 
  Washington, D.C................................................     7

                         QUESTIONS AND ANSWERS

Responses of Thomas Barnett to questions submitted by Senators 
  Biden, Grassley, Kohl, Leahy and Specter.......................    26
Responses of Deborah Majoras to questions submitted by Senators 
  Leahy, Kohl, Specter and Grassley..............................    59

                       SUBMISSIONS FOR THE RECORD

American Antitrust Institute, Albert A. Foer, President, 
  Washington, D.C., statement and attachment.....................    83
American Homeowners Grassroots Alliance, Arlington, Virginia, 
  statement......................................................   104
Barnett, Thomas O., Assistant Attorney General, Antitrust 
  Division, Department of Justice, Washington, D.C., statement...   109
Harkin, Hon. Tom, a U.S. Senator from the State of Iowa, prepared 
  statement......................................................   136
Majoras, Deborah Platt, Chairman, Federal Trade Commission, 
  Washington, D.C., statement....................................   140
National Association of Exclusive Buyer Agents (NAEBA), statement   178


           OVERSIGHT OF THE ENFORCEMENT OF THE ANTITRUST LAWS

                              ----------                              


                        WEDNESDAY, MARCH 7, 2007

                               U.S. Senate,
      Subcommittee on Antitrust, Competition Policy
                                       and Consumer Rights,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 2:25 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl, 
Chairman of the Subcommittee, presiding.
    Present: Senators Kohl, Feingold, Hatch, and Grassley.

 OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE 
                       STATE OF WISCONSIN

    Chairman Kohl. Good afternoon, ladies and gentlemen. We are 
glad to have you here today.
    Today's hearing marks the first time in more than 4 years 
that we have held an oversight hearing to examine the 
enforcement of our Nation's antitrust laws. Today we will hear 
from Assistant Attorney General Barnett and FTC Chairman 
Majoras--both able and talented public servants. We commend 
Chairman Majoras for her leadership and her efforts to bring 
more competition to the prescription drug market.
    However, we are concerned with the direction that the 
Antitrust Division has taken under this administration. With 
the exception of criminal enforcement, there is an alarming 
decline in the Division's antitrust enforcement efforts across 
the board, particularly with respect to mergers. Compared to 
the last 4 years of the Clinton administration, the number of 
merger investigations initiated by the Justice Department in 
the most recent 4 years has declined by nearly 60 percent, and 
the numbers of mergers actual challenged has declined by 75 
percent.
    These are not just statistics. These are real cases 
affecting consumers in many sectors of our economy. Whether it 
is the Whirlpool-Maytag deal, AT&T's acquisition of BellSouth, 
or anticompetitive conduct in agriculture, this Division has 
simply not done enough, in our opinion, to protect consumers. 
As a result of this hands-off approach, the Division is 
encouraging even more consolidation, including companies who 
have lost their attempts to merger to try again in this 
environment. To quote the New York Times, merger policy ``often 
appears to be little more than `anything goes.' ''
    Now, while all of these issues are worthy of significant 
attention, the most important antitrust issue for me and my 
constituents in Wisconsin this year is AirTran's bid to acquire 
Midwest Airlines in a hostile takeover. Midwest Airlines, which 
is based in Milwaukee, Wisconsin, is a true extraordinary 
success story. Midwest Airlines is a unique company in the 
airline industry, home-owned and operated, an airline that 
offers the highest quality of service and is actually beloved 
by its customers. Midwest Airlines has been recognized as the 
best domestic airline more than 45 times in the past 17 years 
by a variety of industry surveys. Beyond this, Midwest Airlines 
is vital to the economy of Wisconsin and to the Greater 
Milwaukee area. It offers direct service to 33 key business 
center severy day from its hub in Milwaukee. Should AirTran 
acquire Midwest Airlines and decide in the future to reduce 
service from Milwaukee, the negative consequences for the 
Wisconsin economy would be enormous.
    Unfortunately, the business model of AirTran is very 
difficult for Midwest Airlines. It is a no-frills, discount 
airline with low ratings for quality and customer service in 
industry ratings. No one doubts that the quality of Midwest's 
stellar service offered to consumers will suffer should AirTran 
complete this acquisition. Even more worrisome is AirTran's 
history of promising high levels of service when they enter a 
market and then abruptly breaking these promises and sharply 
reducing customer service. Dallas-Fort Worth, Washington 
Dulles, and Pittsburgh arejust three examples of cities in 
which AirTran has sharply reduced service in recent years, 
contrary to optimistic promises made just a few years earlier. 
In sum, an acquisition of Midwest Airlines by AirTran would 
very likely cause a substantial injury to consumers, and also 
to business--specifically the many thousands of travelers and 
businesses throughout Wisconsin and around the Nation who rely 
on Midwest Airlines for reliable, high-quality, and 
competitively priced air travel.
    I was, therefore, very disappointed and surprised to learn 
that the Justice Department recently closed its investigation 
of the proposed AirTran-Midwest deal after only a cursory 
review lasting fewer than 30 days. Despite the obvious dangers, 
as I detailed, of this acquisition in terms of frequency of 
service and quality of service for the many thousands of 
Midwest Airlines customers, your Division off the Justice 
Department did not initiated the full ``Second request'' 
investigation that most in the industry did expect. I cannot, 
frankly, understand how the Justice Department could conclude 
after such a brief review that this deal with pose no risks to 
competition and consumers, considering the comments that I have 
made here today. So, Mr. Barnett, I will ask you about this 
very important deal and for a commitment to reopen this 
investigation to examine its impact to consumers and businesses 
in Wisconsin.
    We will discuss this essential issues and, if time permits, 
others, which include consolidation in the oil and gas 
industry; reverse payments in the pharmaceutical industry; 
mergers and investigations in the agriculture sector; the 
interpretation of the Tunney Act, among many others. We will be 
monitoring your agencies carefully, Mr. Barnett and Chairman 
Majoras, with respect to these and other issues as you carry 
out your vital responsibilities on behalf of American 
consumers.
    Senator Grassley, would you like to make a comment or two?

STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR FROM THE 
                         STATE OF IOWA

    Senator Grassley. Please, yes. First of all, with your 
comments about the airline issue and also the agriculture 
issue, I would associate myself with your remarks and probably 
extend a little bit on agriculture at this point.
    First of all, we need to ensure that the Justice Department 
and the Federal Trade Commission are being aggressive in the 
enforcement of antitrust laws. It critical that companies 
compete in a fair manner so that consumers can enjoy more 
choice as well as lower prices for goods and services. Vigorous 
of antitrust laws will help create and maintain an open, fair, 
and competitive marketplace. And, of course, if that is good 
for the American consumer--and it is--it is also good for the 
American economy. We also need to ensure that the department of 
Justice and the Federal Trade Commission have the necessary 
resources and expertise to do a good job.
    I probably will not be able to be here, so I am submitting 
some questions in writing for you to respond in writing. I 
would appreciate it if you would do that. There are a couple 
points, though, that I want to make, and they follow on one of 
the things that the Chairman said.
    First, I am concerned about the state of American 
agriculture. There is just too much concentration in the 
industry. I am concerned about reduced market opportunities, 
possible anticompetitive and predatory business practices, 
vertical integration, and fewer competitors. For example, late 
last year I wrote a letter to the Antitrust Division expressing 
my serious reservations about the proposed Smithfield Foods and 
Premium Standard Farms merger. Because of my concern about 
agriculture business consolidation, I am particularly 
interested in how the Antitrust Division and the FTC review 
agriculture culture mergers. The antitrust laws are supposed to 
protect consumers, but they are also supposed to keep the 
market fair and open for all market competitors.
    In 2003, the Judiciary Committee held a hearing on 
monopsony in agriculture culture and looked at the buying 
powers of processors in our Nation's agriculture cultural 
markets. Former Assistant Attorney General Pate agreed that 
agriculture cultural markets can be very different from other 
markets, although Mr. Pate indicated that the Justice 
Department does look at vertical concerns in specific mergers. 
I am not convinced that the Antitrust Division is considering 
all the anticompetitive effects of monopsonies and bargaining 
power. I am not sure that they are looking at all the right 
things when they review agriculture culture mergers. We should 
seriously consider whether the Antitrust Division should issue 
guide lines specific to agriculture culture, as it has done 
with specific guide lines, for instance, in the health care 
industry, or whether it should issue general monopsony guide 
lines. I hope that the Chairman of the Committee as well as the 
Chairman of the Antitrust Subcommittee will work with me to 
craft legislation to deal with the unique antitrust concerns 
facing agriculture culture today.
    In addition, I would want to compliment Commissioner 
Majoras on the FTC's efforts in ensuring that drug companies, 
both name brand and generic, play by the rules and do not stiff 
the American consumer. I would particularly like to compliment 
the Commission's proactive efforts in pursuing reverse 
payments. I am working with the FTC, Senator Kohl, Senator 
Leahy, and others to refine the legislation that recently was 
approved by the Judiciary Committee to put a stop to these 
anticompetitive deals.
    On another matter, I urge the FTC to quickly complete a 
study on the practice of authorized generics that I requested 
with Chairman Leahy and Senator Rockefeller so that we can move 
forward on these issues.
    I appreciate this opportunity, Mr. Chairman, to make a 
statement at this point.
    Chairman Kohl. Thank you, Senator Grassley.
    We also have a statement for the record from Senator 
Harkin, and now to the Ranking Member on this Committee, 
Senator Hatch.

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE 
                            OF UTAH

    Senator Hatch. Well, thank you, Mr. Chairman. I appreciate 
your leadership on this, and we welcome you two leaders to the 
Senate, and we appreciate the work that you do down there. It 
is very important stuff.
    It is a pleasure to be with you today for the first of what 
I hope will be several hearings which thoroughly explore and 
examine the vital subject of antitrust law. Today's topic is 
the Federal Government's enforcement of those laws.
    You might ask, Why is this important? Why is so 
distinguished a panel with us here today? In one word: 
competition. Competition is the corner stone of our economy. It 
ensures efficient markets which, in turn, provide consumers 
quality goods at market prices, and antitrust laws are the 
rules that ensure that the American economy maintains that 
competition or that competitive effect.
    In effect, antitrust law ensures one of the fundamental 
tenets of the American dream: If you build a better mousetrap, 
you will be successful in the American marketplace. That is why 
effective, efficient, and fair enforcement is so important.
    Today's hearing is intended to assist us in our on going 
oversight of the enforcement efforts of the two Government 
entities that are charged with enforcing these crucial laws. As 
with any endeavor, I am sure that there is some room for 
improvement with respect to current enforcement efforts, but I 
have personally been generally pleased with the enforcement 
efforts of both the Antitrust Division and the Federal Trade 
Commission.
    Now, this can be seen in the vital area of merger review. 
Assistant Attorney General Barnett has just instituted a 
revision to the Merger Review Process Initiative that holds the 
promise of moving the Division's resources more efficiently to 
those cases that truly require further review and 
consideration.
    However, we have already seen some progress. In 2006, the 
Antitrust Division brought more merger challenges than the 
previous 2 years combined. It should also be noted that during 
the same period, the Division increased the number of criminal 
fines that it obtained by 40 percent to $470 million. That is 
the second highest level in the Division's history.
    Change can also be seen in how the Antitrust Division 
analyzes mergers. No greater change can be seen than in the 
Whirlpool-Maytag merger. Under a traditional analysis, the 
Division would have placed great reliance on the market share 
that the resulting corporation would have enjoyed. However, 
these are different times when globalization and the speed of 
commerce are rapidly changing markets.
    Therefore, the Division worked with the parties to the 
merger and developed a detailed market analysis. What didthat 
show? That the merger would not have an ill effect on 
competition since overseas competitors were quickly expanding 
their market share. It also showed that appliance retailers 
could and do quickly change the appliance brands that they 
choose to carry in their stores--only further under lining the 
premise that a traditional market analys is might not be as 
effective in this situation. Equally as impressive in the 
Whirlpool-Maytag merger was the fact that the Division's 
decision was made in 6 months. The Federal Trade Commission is 
also making strong strides.
    Just as the Division has sought to create a newopenness 
about how it reaches its conclusions on merger reviews, the 
Federal Trade Commission has also issued detailed decisions in 
such cases as frustrated--``frustrated,'' I think that is a 
Freudian slip--as Federated Department Stores' acquisition of 
May Department Stores. The FTC has also sought greater 
transparency with there forms to the merger review process. 
These reforms, which generally formalize practices that the FTC 
currently uses, aim to reduce the transaction costs that are 
accrued during an investigation.
    However, most impressive is that even though pre-merger 
filings have increased by 28 percent since fiscal year 2004, 
the numbers of requests for additional information kept pace 
and increased by approximately 40 percent during the same 
period.
    I am also very interested in the role that the FTC is 
playing in maintaining competition and protecting consumers in 
energy markets. The Commission has performed admirable work in 
this by consistently monitoring the retail gasoline and diesel 
prices in 360 cities.
    Now, in closing, I would like to thank both of today's 
witnesses for being here today and for their responsiveness to 
our requests for information prior to the hearing. And while I 
am sure that we will all disagree from time to time on 
particular issues, I have been generally impressed by the 
strong commitment and leadership both of you have demonstrated 
as you have served in these very, very important positions. And 
I look forward to working with you through out the coming 
years, and I hope that this Committee will become a great help 
to antitrust enforcement in this country and the knowledge of 
antitrust and what we need to do in this country as well. And I 
am sure under Chairman Kohl's leadership we will be able to do 
that.
    Thank you, Mr. Chairman.
    Chairman Kohl. Thank you very much, Senator Hatch.
    At this time we will introduce our two witnesses. Assistant 
Attorney General Thomas Barnett was confirmed by the Senate on 
February 10, 2006. He has served within the Antitrust Division 
and other leadership positions since April 18, 2004. Prior to 
joining the Justice Department, Mr. Barnett was a partner in 
the law firm of Covington & Burling. Mr. Barnett graduated from 
Harvard Law School, received an economics degree from the 
London School of Economics, and received his B.A. from Yale.
    Our second witness will be Chairman Deborah Platt Majoras, 
who was sworn in to lead the Federal Trade Commission on August 
16, 2004. Prior to this position, she was a partner at the law 
firm Jones Day in Washington, D.C. Before that, she served in 
leadership positions in the Antitrust Division of the Justice 
Department for 3 years. Ms. Majoras graduated from Westminster 
College and received her J.D. from the University of Virginia.
    We welcome you both, and would you please stand and raise 
your right hand? Do you affirm that the testimony that you will 
give here today will be the truth, the whole truth, and nothing 
but the truth, so help you God?
    Mr. Barnett. I do.
    Ms. Majoras. I do.
    Chairman Kohl. We thank you.
    Mr. Barnett, would you please proceed with your testimony?

  STATEMENT OF THOMAS O. BARNETT, ASSISTANT ATTORNEY GENERAL, 
  ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, WASHINGTON, D.C.

    Mr. Barnett. Thank you, Mr. Chairman. It is an honorand a 
privilege to testify before this Committee, with which there is 
a long and productive working relationship. I have submitted 
written testimony, and I will confine my oral remarks to a few 
points.
    The United States economy is truly one of the great wonders 
of the world, and it is our free enterprise system and the 
antitrust laws that we have that drive the creativity, the 
innovation, and the growth that is the hallmark of that 
economy. I am proud of the efforts and the successes of the 
Antitrust Division in enforcing the antitrust laws and 
providing support for that key under pinning of our free 
enterprise system. I will touch briefly on a few areas.
    First, our cartel enforcement, our criminal enforcement 
against price fixing, customer allocation, and other naked 
agreements not to compete is clearly the world's leader ship 
program, or leads the world. As Senator Hatch acknowledged, 
last year we obtained over $400 million in fines. We continue 
to--this year we have already almost tied the record number of 
days for prison sentences imposed, and that is less than 
halfway through the year. We are well on track to continue the 
excellent record that the Antitrust Division has in the 
criminal enforcement area, and continue our leadership position 
in the United States and around the world.
    Merger enforcement is an area where we also remain very 
active. It is a fact-intensive investigation where we seek to 
apply the law, and the general principles set forth in the 
Merger Guidelines, to the facts developed in our investigation 
to make a decision or determination as to whether a merger 
threatens to harm the competitive process and consumer welfare.
    Last year the Division had 16 mergers in which we either 
filed a complaint or in which the parties modified the 
transaction in response to our investigations. That is the 
highest number of enforcement actions during the last 5 years, 
and certainly since 2001, at the end of the so-called merger 
wave. And these actions were in important basic industries, 
including steel, nickel, the newspaper industry, and school 
milk.
    At the same time, we have made progress in terms of 
improving the efficiency of our merger review process, reducing 
the average length of investigations, and reforming the second 
request process to reduce the burdens on the parties, as well 
as on the Division.
    Our non-merger civil enforcement program encompasses a 
broad range of activities. One stellar example includes the 
real estate industry where we have engaged not only in 
enforcement activity but also advocacy efforts to try to remove 
impediments to competition. This is a critically important 
industry in that it affects almost every American. It is the 
largest asset most Americans own, the largest single 
transaction most Americans engage in. That is one of the 
reasons why we focus particular attention in this area, and we 
believe that we have had some significant successes.
    No discussion of Division activities would be complete 
without addressing our extensive activities on the 
international front. It is truly a global economy and a global 
competition enforcement network. We engaged in more than 100 
jurisdictions that now have antitrust regimes on multiple 
levels. We are active in leadership positions in the 
International Competition Network which the FTC and the DOJ 
helped to found in 2001. We are active in the leadership of the 
Competition Committee of the OECD. We engage in bilateral 
discussions with many of our partners, including the European 
Commission, Canada, Mexico, Japan, Korea, Australia, and 
others. It is a truly important area of our work, and we devote 
substantial resources to it. China is another country that we 
have been paying particular attention to, given its importance.
    None of the activities and none of the accomplishments of 
the Division would be possible--and I would be remiss if I did 
not underscore this--without the talent, the dedication, and 
the experience of the many people who serve within the 
Antitrust Division. It is certainly a pleasure and an honor for 
me to be a colleague with them and to serve the United States 
economy in this manner.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Barnett appears as a 
submission for the reord.]
    Chairman Kohl. Thank you, Mr. Barnett.
    Ms. Majoras?

  STATEMENT OF DEBORAH PLATT MAJORAS, CHAIRMAN, FEDERAL TRADE 
                  COMMISSION, WASHINGTON, D.C.

    Ms. Majoras. Thank you, Chairman Kohl, Ranking Member 
Hatch, other members of the Subcommittee. I am very pleased to 
appear before you today to discuss the FTC's significant 
efforts to ensure that competition, which we have all 
acknowledged today is so critical, remains robust. We endeavor 
to focus our enforcement efforts on sectors of the economy that 
have extraordinarily significant impacts on consumers, such as 
health care, energy, real estate, and technology.
    Merger enforcement, with its increasingly global component, 
continues to consume a significant amount of our resources. 
Using the streamlined merger review procedures that I 
introduced last year, in fiscal year 2006, we identified 16 
transactions that raised concerns for competition, obtained 
relief in 9 cases, and the other 7 were abandoned or 
restructured. So far in this fiscal year, the Commission has 
issued 12 second requests, and already 10 cases have resulted 
in enforcement action or withdrawal.
    In the health care sector during the past year, the agency 
achieved substantial relief in seven mergers by obtaining 
consent decrees in the area of generic drugs, over-the-counter 
medications, injectable analgesics, and other medical devices 
and diagnostic services. Outside of mergers in health care, the 
Commission continues to be aggressive in challenging price-
fixing agreements among competing physicians, and in the 
detection and investigation of agreements between drug 
companies that delay generic entry.
    Our Federal court challenge to an alleged anticompetitive 
agreement involving Ovcon has led to the introduction of lower-
priced generic products. Under threat of preliminary 
injunction, Warner Chilcott waived the exclusionary provision 
that was preventing Barr from entering with its generic, which 
Barr almost immediately then began selling.
    Beyond enforcement, we continue to stand up against 
exclusion payment settlements by working with Congress on 
bipartisan efforts to advance a workable legislative remedy, 
and we thank the members of this Subcommittee for your 
leadership in this critical area.
    We continue to devote significant resources to the energy 
sector. During the past year, Chevron and USA Petroleum 
abandoned their proposed transaction after the FTC raised 
questions. The FTC challenged EPCO's proposed $1.1 billion 
acquisition of TEPPCO's natural gas liquids storage business, 
and we challenged a proposed $22 billion deal involving energy 
transportation storage and distribution firm Kinder Morgan.
    The Commission continues to monitor, as Senator Hatch 
noted, retail gasoline and diesel prices in 360 cities and 
wholesale prices in 20 urban areas in an effort to detect early 
any evidence of illegal conduct.
    Recognizing that purchasing a home is the most significant 
investment that most Americans will ever make, the FTC has 
actively investigated restrictive practices in the residential 
real estate industry. In the past year, the agency has brought 
eight enforcement actions against associations of realtors or 
brokers who adopted rules that with held the valuable benefits 
of the Multiple Listing Services that they control from 
consumers who chose to enter into non-traditional listing 
contracts with brokers.
    In the all-important technology area, last month the 
Commission issued a final opinion and order in the non-merger 
proceeding against technology developer Rambus. The Commission 
determined that Rambus unlawfully monopolized the markets for 
four computer memory technologies that had been incorporated 
into industry standards for DRAM chips. In addition to barring 
Rambus from making similar misrepresentations or omissions to 
organizations again in the future, the order requires Rambus to 
license there levant technology and set maximum allowable 
royalty rates.
    Our efforts to stand up for consumers and competition do 
not end with law enforcement. In the past year alone, the FTC 
has formally provided competition advice to policy makers on 
issues related to attorney matching services, contact lens 
sales, real estate services, pharmacy benefit managers, wine 
distribution, patent rules of practice, and online option 
trading assistance, to name a few. Our amicus program remains 
active, and we have aided the Antitrust Modernization 
Commission in its examination of our Nation's competition laws.
    To ensure that our knowledge remains fresh, we are actively 
engaged in market research, with recent hearings, for example, 
exploring the boundaries of impermissible conduct under Section 
2 of the Sherman Act and a recent workshop to examine broad 
band connectivity competition policy.
    In April, the FTC will host a 3 day conference entitled 
``Energy Markets in the 21st Century: Competition Policy and 
Perspective,'' bringing together leading experts from around 
the energy area.
    And, finally, because educated consumers are empowered 
consumers in the market, we recently launched a 
multidimensional outreach campaign targeting new and bigger 
audiences with a message that even as markets rapidly change, 
one thing remains the same, and that is that competition counts 
to consumers. And so we are building a library of materials, 
both in print and online, in our efforts to better reach 
consumers and educate them on the vital importance of vigorous 
competition in this economy.
    Mr. Chairman, members of the Committee, you have my 
commitment that I and the fine men and women of the Federal 
Trade Commission will continue to work tirelessly to preserve 
competition and protect consumers. And I will be happy to take 
your questions. Thank you.
    [The prepared statement of Ms. Majoras appears as a 
submission for the record.]
    Chairman Kohl. Thank you very much, Ms. Majoras.
    Now, Mr. Barnett, many questions have been raised about the 
Antitrust Division's reluctance to challenge important mergers 
and acquisitions that may harm consumers. One proposed 
acquisition that very much worries me, as you know, is 
AirTran's plans to acquire Midwest Airlines, an airline based 
in my own home State of Wisconsin. Midwest Airlines is a true 
huge success story. It is beloved by the millions of travelers, 
both travelers who personally get on the airplane as well as 
businesses, who use it every year for its high quality of 
service. Midwest Airlines has been recognized as the best 
domestic airline more than 45 times in the last 17 years by a 
variety of industry-rating surveys. The 2005 Zagat Air Travel 
Survey rated Midwest Airlines as the top-rated domestic 
airline. And, most recently, Midwest Airlines placed first 
among single-class service in the 2006 Conde Nast Traveler 
Business Travel Awards Poll.
    Now, by contrast, AirTran ranked last among the ten 
airlines rated. As a no-frills, discount airline, AirTran has a 
very different business model from Midwest Airlines, and 
acquisition of Midwest by AirTran would very likely result in a 
substantial decline in the quality of service currently 
realized by the many thousands of travelers throughout 
Wisconsin and around the Nation who use Midwest.
    Additionally, businesses in my home State have enormous 
worries regarding the consequences of such a merger. Should 
AirTran decide in the future to reduce service to the 36 major 
business centers served every day from Midwest's Milwaukee hub, 
substantial economic damage would be the result of that kind of 
a decision. The frequent and efficient service offered by 
Midwest to dozens of key business markets from Milwaukee is 
essential to the Greater Milwaukee and the overall Wisconsin 
economy.
    The history of AirTran causes me special worry in this 
regard. AirTran has a history of entering new markets, 
promising to enhance services, and then, in fact, reducing 
service, despite its promises. For example, since 2004, AirTran 
has exited 29 markets it had promised to serve, sometimes 
returning in a scaled-down version and sometimes not returning 
at all. Notably, at Dallas-Fort Worth, AirTran promised a mini-
hub with 30 flights a day to 7 destinations by the end of 2004. 
The reality was far different. AirTran never attained more than 
17 flights a day at Dallas-Fort Worth and presently has only 8 
flights a day to 2 destinations. Similarly, AirTran has reduced 
service at Washington Dulles from 16 to 7 daily departures and 
at Pittsburgh from 13 to 6 daily departures.
    I have special personal experience of what can happen when 
an out-of-town company without ties to the local community 
acquires a respected local business serving local consumers. 
Years ago, my family sold our chain of grocery stores to an 
out-of-town buyer. We were the dominant Wisconsin grocery store 
chain. We were successful mainly because of our superior 
service to customers and our dedication to serving the needs of 
the local community, which we as the founding family understood 
in a way that outsiders could not understand.
    The new owners of the Kohl's Food Stores lacked this 
commitment to the local consumer, and they eventually closed 
the local supermarkets entirely that our family had spent a 
lifetime building, much to the disappointment of thousands of 
Wisconsin consumers. This experience has taught me first hand 
how crucial local ownership can be in operating a particular 
business and what dangers can ensue and, in fact, happen when 
people from somewhere else take over a business, the success of 
which was not entirely but heavily dependent on the quality and 
the knowledge of local ownership.
    So, therefore, I was very surprised and disappointed to 
learn that the Justice Department had recently closed this 
investigation of AirTran's planned acquisition after just a 
brief review of fewer than 30 days. Despite the obvious 
competitive implications of this acquisition and its potential 
danger for reduced service for the many thousands of Midwest 
Airlines customers, your Department did not initiate the full 
second request investigation that most in the industry 
expected.
    Question: I understand that AirTran does not presently have 
many overlapping routes with Midwest Airlines, but I do not 
think that that should be the end of your inquiry. Isn't one 
important consideration in an antitrust review whether the 
merger is likely to harm the quality of service offered to 
consumers? Do we not have reason to worry that if acquired by 
AirTran, the very high quality of service Midwest currently 
offers to its customers will possibly be severely degraded? And 
isn't this a basis for investigating this merger more fully, 
Mr. Barnett?
    Mr. Barnett. Thank you, Mr. Chairman. Certainly, the air 
transportation industry is a critical and highly important part 
of our economy, and we take threats to competition in that 
industry very seriously. When we examine mergers, we look at 
the breadth of competition, which would include price 
competition as well as competition on quality. And in that 
respect, yes, that is certainly a consideration that weshould 
take into account.
    I am more than happy to take the comments that you have 
provided today as well as any other information that you, your 
staff, or any of your constituents may have to bear on this 
transaction back with me to examine it and to consider whether 
there is any appropriate antitrust concern there that we should 
pursue. And if we identify such a concern, we are certainly not 
precluded from pursuing it and will do so.
    Chairman Kohl. Well, I am really pleased to hear that. What 
you are indicating is that, you know, you are flexible and 
open-minded on this, that you want ultimately to do the right 
thing. And if we can bring additional facts to bear, you are 
indicating that your Department is willing to take another look 
and, who knows, perhaps arrive at a somewhat different 
conclusion based on evidence. Is that what you--
    Mr. Barnett. Yes, Mr. Chairman.
    Chairman Kohl. Well, I thank you so much. That makes me 
feel really good.
    Mr. Barnett, many consumer advocates and independent 
antitrust experts are concerned with what they believe is a 
significant cutback in antitrust enforcement in recent years. 
Particularly since you became the Assistant Attorney General, 
they cite several problems with antitrust enforcement on your 
watch.
    First, as I mentioned in my opening statement, there are 
the Antitrust Division's own stats which show a sharp decline 
in enforcement activity in recent years.
    Second is the fact that you refused to take any action to 
block or modify several large controversial mergers among 
direct competitors. Prominent among these was your approval of 
the Whirlpool-Maytag merger, reportedly over the objections--
reportedly--of your career staff.
    Another example was your approval of the AT&T-BellSouth 
merger last fall without placing a single merger condition on 
the deal or requiring any divestitures of any sort. Several 
weeks later, the FCC insisted on and obtained a series of pro-
competition conditions on the merger.
    And, third, many analysts believe that now is the best time 
in decades to get previously unthinkable mergers through your 
Department review process. The announcement 2 weeks ago of the 
merger of the only two satellite radio companies, XM and 
Sirius, and Monsanto's attempts to acquire the seed business of 
Delta and Pine Land, the very same deal rejected by the Justice 
Department 8 years ago under the last administration, are just 
two examples.
    To those of us who care about antitrust enforcement, Mr. 
Barnett, this adds up to a picture that causes us concern. So 
my question to you is this: Are your critics correct or are 
they incorrect that your Department has adopted too much of a 
hands-off approach to merger enforcement and that some of them 
say that now is the best time to get deals done? But, however, 
whatever your critics may suggest or say, we are interested in 
your opinions and your thoughts on this matter.
    Mr. Barnett. Thank you, Mr. Chairman.
    The short answer is that the critics are not correct. The 
Antitrust Division has consistently applied the merger 
guidelines set forth basically in the 1992 guidelines and 
subsequently amended consistently.
    What is important to remember is what those guidelines make 
quite clear is that merger review is a very fact-intensive 
analysis. We do much more than look at just the market shares 
of the companies. We look at the complete competitive process 
to try and get an understanding of what effect the merger is 
likely to have in the particular situation.
    In the instances of Whirlpool-Maytag, for example, we 
issued a closing statement, and I have previously publicly said 
the initial market shares gave all of us concern, gave us 
pause, indeed created a presumption of concern. But once we had 
conducted a very extensive 6 month investigation, we ultimately 
concluded that the competitive dynamics of the market place 
indicated there were other competitors that could, had, and 
would be in a position to expand rapidly in the face of an 
anticompetitive price increase. Based on traditional 
principles, we did not take action in that case. Similarly, in 
the other transactions.
    I would note just very briefly, if I may, that there are 
many other transactions, 16, in which we did take action that 
those critics seem to be ignoring.
    Chairman Kohl. I thank you. My time in this round is up. I 
will have questions for Ms. Majoras in the nextround, but let 
me turn to Senator Hatch.
    Senator Hatch. Well, thank you, Mr. Chairman.
    One treatise in antitrust law points out that in 1977 the 
Division boasted a staff of 421 attorneys. However, that number 
had fallen to 229 in 1989. And a further example is cited that 
during the 1980s the largest percentage of criminal indictments 
for bid-rigging contracts for roads, airports, or other 
construction projects for local government--and that is what 
they were for, and it was a particularly active time, that 
particular time. By comparison, in the 1990s criminal 
enforcement focused on international price-fixing conspiracies 
involving large firms and major industries. So it is easy to 
see why statistics do not always mean anything, but if you 
read--the initial reading of the information, you know, that 
has been provided by the Department of Justice shows that there 
maybe some standing to the argument because, for example, the 
number of investigations of mergers has fallen from 139 in 2000 
to 77 in 2006. The number of requests for additional 
information has likewise fallen from 55 in 2000 to 17 in 2006. 
But then, again, I would point out that improvements are 
occurring, too, and you cannot just rely on statistics to 
determine whether the Division is doing a great job of not.
    In 2006 alone, the Antitrust Division brought more merger 
challenges than the previous 2 years combined. And it should 
also be noted that during the same period the Division 
increased the number of criminal fines that it obtained by 40 
percent, like I say, to 470 million bucks, the highest ever--or 
I guess it is the second highest level in the Division's 
history. On the issues the Subcommittee will focus on, one of 
them involves consolidation of the agriculture cultural sector 
and recent mergers in that area. In that regard, the pending 
Monsanto, Delta, and Pine Land transaction has, as you know, 
generated some controversy. And as you know, this is Monsanto's 
second attempt to acquire Delta and Pine Land. Monsanto 
abandoned its previous proposed merger in 1989, if I recall it 
correctly--1999, I guess it was, due in part to the Division's 
opposition.
    Now, in my view, this merger raises a number of interesting 
questions that are rarely discussed in this type of forum. 
While I do not intend to ask you, you know, about the details 
of the merger review of this particular transaction, I think it 
would be appropriate for you to discuss in general terms your 
approach to analyzing the competitive aspects or effects, I 
think would be a better word, of this type of merger.
    Specifically, I am interested in how the Division views a 
company's patent portfolio with respect to assessing its market 
power. In general terms, I find myself in agreement with the 
Government's position in the Independent Ink case, which 
involved a question of whether a company's patent interest 
should result in a presumption of market power for purposes of 
antitrust tying analysis. But I really would be interested in 
hearing more about how the Division analyzes the effects of the 
patent interests and the absence of such a presumption, both 
with respect to potential strategic behavior, such as vertical 
foreclosure, and with respect to market power analysis in both 
its merger and non-merger enforcement. I would love to have you 
chat with us on that.
    And then, Chairman Majoras, I know that the FTC has been 
active in considering the competitive and strategic 
implications of patent assets as well. So I would be pleased to 
hear from you, after Mr. Barnett has responded to the first 
part of this question.
    Go ahead.
    Mr. Barnett. If I may, if I can interject at the outset, 
with respect to the overall level of merger enforcement, it is 
important to note that the number of filings, merger filings, 
in the late 1990s was well over 4,000 a year. It dropped to 
under 2,000 after that, and that is a relevant consideration.
    With respect to Monsanto, obviously, the Monsanto matter is 
a pending matter, and so I will just note that it is a pending 
investigation that we continue to look at. We have not made a 
decision on it.
    Patent portfolios, as you indicated, the Supreme Court has 
confirmed our view that the existence of a patent by itself 
does not create a presumption of market power. That does not 
mean a patent cannot create market power. To the contrary, we 
look at the particular facts and circumstances, and if a patent 
portfolio, if you will, effectively precludes any other person 
from providing a reasonably substitute product, something that 
consumers would conside ran adequate substitute, without 
infringing upon that patent port folio, then the patent owner 
may well have market power. And that is fundamentally no 
different than how we assess any other set of assets that a 
company may hold. With respect to vertical considerations, we 
do look at vertical issues. Indeed, the Department has brought 
cases that involve vertical concerns. Several years ago, the 
Division challenged a merger between Northrop Grumman and TRW 
based on a vertical concern between different components of a 
satellite system.
    So what we are looking at is whether or not essentially 
market power in a particular--one or both of the vertical 
markets at issue will create some sort of anticompetitive 
horizontal effect at one level or the other. And there are 
certainly theoretical circumstances where that can occur, and 
if the evidence substantiates that, we can and will pursue a 
challenge to the merger under those circumstances.
    We are also mindful of the fact that vertical merger scan 
create significant efficiencies, and that is an additional 
factor that we have to take into consideration.
    Senator Hatch. Well, thank you, Mr. Barnett.
    Ms. Majoras?
    Ms. Majoras. Yes, thank you, Senator Hatch. The Federal 
Trade Commission, as the Antitrust Division does, views the 
inter face between competition and intellectual property policy 
to be absolutely critical in today's economy, and we have come 
at this from a couple of different ways.
    As you are probably aware, a couple of years ago the FTC 
published a report on patent reform recommendations. What we 
learned over time in our enforcement cases is that while IP and 
competition are designed to accomplish the same goals, if one 
of the systems gets out of whack, so to speak, it can have an 
adverse impact on consumers. And here our point in that report 
is that if patents are not properly granted in the first 
instance and the patent grants some market power, then 
competition can be distorted. So we have a great interest in 
the patent system, as many others do today, including many 
Members of Congress.
    The second area, of course, is in our enforcement cases, 
Rambus being an example that I mentioned in my opening remarks, 
in which Rambus had patents and also was seeking to acquire 
more patent protection. At the same time Rambus was working 
within a standard-setting organization in which the clear 
expectation of all of the members was that if a member had 
patents and there was a discussion of technology that would be 
patented that would be incorporated into the standard, that 
needed to be disclosed because members would want to know that 
before incorporating it into the standard. Rambus did not, and 
the Commission made the decision that by not doing that, Rambus 
had illegally monopolized certain particular critical 
technology markets.
    And then, of course, in our cases in the Hatch-Waxman 
context, in which we have looked at settlements between brand 
and generic companies, obviously there, too, the issues of 
patents have been critical.
    So those are a few of the areas that highlight our work.
    Senator Hatch. Do you share Leibowitz's position that we 
should have a bright-line situation with regard to Hatch-
Waxman? Or is that debated at the FTC?
    Ms. Majoras. Well, we have had great debate within the FTC 
on that from the beginning. What I asked staff to do from the 
very beginning was to look at all options, and we have looked 
at all options.
    My view is that having, if you want to call it, a bright 
line, that is fine, that then excludes categories of 
settlements that we know would be, more often than not, pro-
competitive would probably be the best way to go here, having 
looked at all of the different possibilities, we think. And I 
would be pleased to talk to you about that further.
    Senator Hatch. Well, we would like your advice onthat. It 
is not necessarily related to this hearing, but I just wanted 
to ask you that question as a follow-on.
    My time is just about up, so I will yield. I will submit 
further questions in writing.
    Chairman Kohl. Thank you.
    Senator Feingold?
    Senator Feingold. Thank you very much, Mr. Chairman, and 
thank you for holding this hearing. During the past 6 years 
there has been far too little oversight of the two agencies 
that deal with antitrust issues. In fact, I understand that 
this is the first hearing where the Assistant Attorney General 
for the Antitrust Division has testified since September 2002, 
which, of course, was during that brief period when you, 
Senator Kohl, were the Chairman of the Subcommittee.
    Obviously, the Chairman takes his oversight 
responsibilities very seriously, and I think the public is well 
served by the Chairman's approach. The major antitrust laws of 
this country are just about a century old. They reflect the 
basic underlying principle that the public receives over 
whelming benefits from competition and that the Government has 
an important role to play in ensuring that businesses do not 
engage in anticompetitive behavior. As the Supreme Court said 
in the Topco case, ``Antitrust laws...are the Magna Carta of 
free enterprise. They are as important to the preservation of 
economic freedom and our free enterprise system as the Bill of 
Rights is to the protection of our fundamental personal 
freedoms.''
    These are lofty sentiments, but laws are just empty words 
and dusty books without enforcement. And I am becoming 
increasingly concerned that the Justice Department is not 
acting to enforce the antitrust laws in the best interests of 
the American people.
    I understand that neither the Department nor the FTC has 
challenged a merger in court since 2004. I suppose that could 
be because no one is proposing anticompetitive mergers, but I 
have my doubts. One case that was particularly surprising to 
many was the Department's failure to challenge the acquisition 
of Maytag by Whirlpool, giving the combined company a 75 
percent share of the market in some home appliances. The New 
York Times reported that the decision demoralized career 
antitrust lawyers in the Department.
    I find this very troubling, and I sincerely hope the 
Department is not relinquishing its historic responsibility to 
protect the American consumer from anticompetitive behavior.
    Mr. Barnett, based on my understanding about what happened 
earlier in the hearing, I do want to indicate that I was 
pleased to hear that you told the Chairman, Senator Kohl, that 
you will take another look at the AirTran-Midwest merger. That 
is a very big issue in our State, and I was very concerned that 
the Department concluded its inquiry so quickly.
    Let me turn to a couple of questions. Again, Mr. Barnett, 
one of the concerns I have about the apparently lax attitude of 
the Department of Justice toward merger cases is that it is 
encouraging mergers and acquisitions that perhaps the parties 
might not otherwise propose because the antitrust concerns are 
so obvious. We saw, again, as I mentioned, the Whirlpool 
acquisition of Maytag. XM Radio is proposing to merge with its 
only satellite radio competitor, Sirius. And there is even a 
company pursuing an acquisition that it had abandoned some 
years ago because the Department at that time opposed it. I am 
talking here about Monsanto, which is set to acquire cotton 
seed producer Delta and Pine Land Company, known as DPL. 
Monsanto already controls a majority of the biotech seed traits 
used in cotton, corn, and soybeans. While DPL is focused on 
cotton, many of the traits they are developing for cotton 
apparently can be applicable to corn and soybeans as well.
    My constituents in Wisconsin are very worried that the 
merger would eliminate DPL as a competitor with Monsanto in the 
development of biotech seed traits, an area that is already 
fairly concentrated. Moreover, not all farmers want to grow 
genetically modified crops, and they are concerned about this 
merger's effect on competition in the conventional and organic 
seed markets as well.
    So my question to you is do we have reason to worry that 
the Department's attitude toward mergers has changed so much 
that this particular merger might actually be cleared this time 
around? What steps is the Department of Justice prepared to 
take to protect the farmers in Wisconsin and elsewhere, whether 
they grow genetically modified crops, conventional crops, or 
organic crops, from the possible anticompetitive effects of 
this merger?
    Mr. Barnett?
    Mr. Barnett. Senator, the Monsanto matter is a pending 
investigation, and this is not an appropriate forum for me to 
go into the specifics of that matter. But I will tell you 
generally that the Antitrust Division continues to apply the 
same principles that have been applied for two decades to 
antitrust enforcement in a bipartisan manner under the Merger 
Guidelines.
    We look to whether or not the merger threatens harm to the 
competitive process and consumer welfare, and based upon the 
extensive investigations that we undertake, the interviews, the 
documents, and the other sources of information, we make an 
assessment as to whether or not a merger violates Section 7 of 
the Clayton Act.
    If we conclude that it will do so, we aggressively pursue 
relief. Now, that relief can be narrow if the threatened harm 
from the merger is relatively narrow. Indeed, in such a 
situation, we think it is beneficial to be able to carve out 
and fix that narrow part of the merger and allow the remainder 
of the merger to proceed forward, which may have efficiencies 
and bring benefits to consumers. If that is not possible, we 
will seek to block the merger in its entirety.
    Whether we end up in court or not--you cited a statistic 
about not going to court since 2004. I respectfully disagree. 
We have filed complaints in each of the fiscal years. Indeed, 
we filed ten complaints in the last fiscal year. The parties 
chose not to litigate. They chose to cave, if you will, and 
accede to the remedy that was being requested.
    Indeed, last year we were on the eve of a jury trial in the 
Southern Bell-DFA merger transaction when the parties decided 
to enter into a settlement that gave us complete relief.
    So the short answer to your question is that we will 
investigate each matter on the merits, make a call as we see 
it, and pursue aggressively whatever relief we think is 
necessary to protect consumers, and if that involves litigating 
in court, we will so do, are happy to do so. But if we can do 
it through a more efficient consent decree proceeding, we will 
happily pursue that as well.
    Senator Feingold. I understand your hesitation to talk too 
specifically, but you sort of generally talked about the way 
this is analyzed. I guess I just want you to say whether the 
concerns about the possible anticompetitive effects on farmers 
in Wisconsin will be taken into account in this Monsanto 
matter.
    Mr. Barnett. Certainly. We take into account all potential 
anticompetitive effects when we do a merger investigation. We 
attempt to be as comprehensive as possible, and we would 
certainly consider any potential anticompetitive effects on 
farmers in Wisconsin.
    Senator Feingold. What does it tell you about the 
Department's merger policy that a company is coming back 8 
years later with a merger that it could not obtain approval for 
before?
    Mr. Barnett. Well, it does not tell me necessarily much of 
anything other than that 8 years have passed, and market 
conditions can change quite rapidly. We are not evaluating this 
merger based upon the conditions that existed in 1999. We are 
looking at the proposed merger based upon the market, the 
conditions, the competitors, the customers, the intellectual 
property rights, et cetera, et cetera, that exist in 2007. They 
may or may not have changed, and that may or may not have an 
effect on the outcome.
    Senator Feingold. But you do not think it is possible that 
Monsanto thinks it has a better shot of winning now because of 
the nature of the enforcement?
    Mr. Barnett. I cannot comment on what is going on 
subjectively in somebody else's mind. What I can tell you is 
that we are consistently applying the same principles that the 
Division has applied for at least 15 or 20 years under the 
Horizontal Merger Guidelines.
    Senator Feingold. Let's talk about the Schering-Plough 
case, which, as you know, was brought by the FTC because of 
allegations that Schering-Plough made payments to two companies 
in a patent infringement case to delay their entry into the 
market for a particular potassium supplement drug. These are 
the so-called exclusion payment settlements that Senator Kohl 
is attempting to prohibit in his bill, the Preserve Access to 
Affordable Generics Act. And, I might add that bill has broad 
bipartisan support, and I am pleased to be a cosponsor of it.
    In the Schering-Plough case, the Eleventh Circuit reversed 
the FTC's action, and as I understand it, the FTC wanted to 
appeal that ruling to the Supreme Court. It has been reported 
that the Solicitor General acted on your advice in arguing to 
the Supreme Court that it should not take the case.
    Did you recommend that the Solicitor General oppose Supreme 
Court review in the case? And if so, can you explain your 
reasoning?
    Mr. Barnett. Well, Senator, I was, in fact, recused from 
that matter, so I did not participate in it. So the Solicitor 
General would not have been responding to a recommendation from 
me.
    Having read the brief, I would just observe that the brief 
did not actually go to the merits, the underlying antitrust 
merits, but addressed specifically the cert worthiness of the 
case, which is a distinct issue. So the short answer is that I 
did not participate, though.
    Senator Feingold. Commissioner, do you want to comment on 
that case?
    Ms. Majoras. Thank you, Senator. You know, at the FTC we 
believe it is an extremely important case. We believe billions 
of dollars are at stake for consumers, and it was very 
disappointing to us, obviously, that the Eleventh Circuit did 
not see it our way. I think it is possible that the Supreme 
Court may take a similar case within the next year, and we are 
hopeful that that may happen. But we are not waiting. We are 
doing two things: we are working with Congress to determine 
whether we can come up with a workable legislative fix that 
will benefit consumers; and, second, we are continuing, as we 
are obligated to do, to look at the agreements between brands 
and generics to settle patent litigation, to determine whether 
we believe that any of them are anticompetitive. And we are 
opening investigations and continuing our work in the area.
    Senator Feingold. Thanks to both the witnesses.
    Thank you, Mr. Chairman.
    Chairman Kohl. Thank you, Senator Feingold.
    Just to get a little bit more on the record on that issue, 
one of my--as well as Senator Feingold, and I am sure Senator 
Hatch also, one of the priorities we have is finding ways to 
bring more competition to the prescription drug market. And one 
of the best ways to do this is by generic drug competition, as 
you both know. Generic drugs, as you know, have the potential 
to save consumers many billions of dollars. One of the biggest 
obstacles to competition from generic drugs is the practice of 
brand-name drug manufacturers to settle patent cases by paying 
generic companies millions of dollars to simply stay off the 
market. And along with several of my colleagues, we sponsored a 
bill and now have passed it through the Judiciary Committee to 
make this practice of paying off--of disallowing companies to 
pay off generic companies and there by harming consumers in the 
process.
    In 2005, the Eleventh Circuit Court of Appeals issued a 
decision that these payoff settlements do not violate antitrust 
law, reversing a decision of the Federal Trade Commission. The 
Justice Department filed a brief opposing Supreme Court review 
and sided with the Eleventh Circuit against the FTC.
    Mr. Barnett, why did the Justice Department take that 
position?
    Mr. Barnett. Mr. Chairman, as I indicated, I did not 
personally participate in that matter, so it is difficult for 
me to answer the specific question. I can make two observations 
in an effort to try to be responsive and helpful.
    The first is that, you know, these are--well, as I 
previously indicated, the brief, upon my reading of it after it 
was filed, did not feel that the--indicated it was not 
necessarily the best vehicle for the Supreme Court to address 
the issue that was presented, the legality of these reverse 
payment settlements. It did not get to the bottom-line question 
as to what the standard ought to be in that case.
    More generally, you know, this is an area which I would 
readily agree is very important to consumers. Access to health 
care generally and to effective drug treatments that are 
affordable is also extraordinarily important.
    I would further agree that the settlement of these cases 
can be anticompetitive and can be harmful. I would also add, 
however, that there are considerations on the other side. There 
are reasons why our system encourages settlement as a general 
matter. Resolving litigation early can not only avoid out-of-
pocket costs, but the uncertainty that surrounds this set of 
assets while litigation is pending can have real costs and 
consequences as well.
    And so I have great respect for and sympathy with what 
Chairman Majoras was saying, that a complete per se approach 
here, one should think carefully about that because there are 
considerations on both sides.
    Chairman Kohl. Getting back to you, Ms. Majoras, I know 
that the FTC, as you have said, has done much good work in 
attempting to take action to prevent these payoff settlements. 
However, after the Eleventh Circuit's Schering decision, the 
ability of the FTC to enforce the antitrust laws to prevent 
these settlements is in doubt. Doesn't it make the bill that I 
have referred to, which you are very much aware of and have 
worked on, doesn't it make the bill all that much more 
necessary?
    Ms. Majoras. Well, there is no question that our ability to 
attack these settlements from an antitrust perspective has been 
hampered by the Eleventh Circuit decision. No question. And we 
think it is important enough that we should work the problem 
from several different fronts. One is we want to work with you 
on this legislation, and I do think that that is extremely 
important. And, second, as I said, we will continue in the 
meantime investigating the settlements we have before us; 
settlements with the reverse payments, not surprisingly after 
the Eleventh Circuit decision, have gone way up from where they 
were before. And while I agree whole heartedly with Mr. Barnett 
that we have to look at all aspects of this because we do not 
want unintended consequences, I just note that during the years 
in which there was great antitrust risk for entering into these 
agreements, parties still settled lots of patent litigation. 
They just did not do it by having the brand pay the generic 
consideration in exchange for staying out of the market.
    So we are not trying to prohibit settlements. We are trying 
to prohibit settlements which--as a very prominent antitrust 
law professor said last week at a conference at which we both 
spoke, if these agreements were being reached outside this 
patent settlement context, they would be subject to criminal 
enforcement under the antitrust laws. So we need to, yes, weigh 
the benefits of patent settlement, but we also have to think 
about what is really going onhere.
    Chairman Kohl. That is good.
    Mr. Barnett, many shippers who depend on railroads to 
obtain their raw materials or ship their products to market, 
such as electric utilities who need coal or farmers who are 
shipping grain, believe that they have been victimized by the 
dominance in their area of a few freight railroads that they 
must use. In many cases, these so-called captive shippers have 
only one railroad that serves them. These captive shippers 
report that they have been the victims of price gouging and 
other monopolistic and anticompetitive conduct by the one 
railroad that they have to use, leading to price increases that 
will ultimately be passed along to consumers. This problem 
exists in my own State of Wisconsin, among many States.
    Over the past 20 years, the railroad industry has 
consolidated to the point where only four Class I railroads 
provide over 90 percent of the Nation's rail capacity, and they 
rarely compete with each other. The railroad industry is 
protected by obsolete antitrust exemptions that in many cases 
exempts them from antitrust scrutiny, prevents private parties 
from availing themselves of antitrust remedies, and prevents 
the Justice Department from reviewing railroad mergers. These 
exemptions do nothing more than shield very often 
anticompetitive, monopolistic conduct by railroads.
    Yesterday I introduced a bill to repeal the railroad's 
antitrust exemptions. Do you support such a repeal of these 
antitrust exemptions? Do you recognize that in many cases the 
present situation puts these people who must use that railroad 
and have no other opportunity at a competitive disadvantage in 
a way that almost prohibits their ability to operate their 
businesses if, in fact, there is nowhere else that they can 
receive shipments except through this one railroad which enjoys 
antitrust exemption?
    Mr. Barnett. Well, Mr. Chairman, the Antitrust Division has 
a long history of promoting the view that exemptions should be 
rarely granted and, when granted, narrowly construed. Further, 
when I testified before the Antitrust Modernization Commission, 
I expressly encouraged them to recommend that Congress re-
examine existing immunities and exemptions from the antitrust 
laws to see whether they are still warranted under current 
conditions. I believe that is a view that Chairman Majoras and 
I are in complete agreement on. And so I applaud your efforts 
to introduce such a bill and to look at this issue.
    Given that it was just introduced, I do not believe that 
the administration has yet had time to form a position on it, 
but as I say I underscore that I applaud your efforts and 
commit the Division to trying to work with you on that bill as 
you examine the issues.
    Chairman Kohl. That is great.
    Are you familiar enough to make a comment, Ms. Majoras?
    Ms. Majoras. Well, like Mr. Barnett, I can tell you that I 
am almost always opposed, as I believe the rest of the Federal 
Trade Commission likely is, to exemptions to the antitrust 
laws. And I absolutely think that particularly when exemptions 
have been on the books for a long time--and in the United 
States, we have several like these that have been in existence 
for a very long time when markets were very different and, 
quite frankly, the way we thought about markets was very 
different--we should examine them.
    I am not as familiar--I looked at your bill, and I think it 
is something we would be very happy to work with you on because 
it is just so rarely the case that I think an exemption should 
continue.
    Chairman Kohl. That would be great. I thank you for your 
comments, both of you. Mr. Barnett, perhaps the biggest merger 
announcement so far this year are the plans by the only two 
satellite radio services--Sirius and XM--to merge. Many of us 
are concerned that this merger appears to create a monopoly in 
satellite radio. Many commentators cite the XM-Sirius merger as 
an example of a merger between companies that would not have 
been attempted in the past, but now feel are worth attempting 
because of your, as some people say, lax attitude towards 
merger enforcement. How do you respond to that?
    Mr. Barnett. Well, Mr. Chairman, without commenting on the 
specific pending matter, the XM-Sirius matter, I would 
reiterate that we have diligently applied the same principles 
to the evidence that was collected in each of our merger 
investigations and made a call as to whether we believed the 
merger was competitive or anticompetitive, threatened harm, as 
cognizable under Section 7 of the Clayton Act.
    Where we have found evidence to support a finding of 
aviolation, we have aggressively pursued that. That includes 
not only issues like the Mittal-Arcelor steel deal last year, 
but it includes Echo Star-DirecTV, which were two television 
direct broadcasts satellite providers that the Division 
aggressively challenged just a few years ago.
    Chairman Kohl. All right. Again, trying to get some comment 
out of you on this one--and I know you cannot make a comment on 
a merger which is not before you but likely may be before you--
can you explain how the Antitrust Division might look at this 
merger in the area of satellite radio and whether it is a 
separate market or whether satellite radio competes with 
terrestrial radio and other entertainment sources, especially 
new technologies like iPod and Internet radio, which is 
probably--which might be central to this merger. Just in 
general, do you think there are separate markets or they are 
all the same market?
    Mr. Barnett. Well, Mr. Chairman, I will do my best. It is 
frequently the case in merger review, when we are arguing with 
parties about what the proper conclusion is, that the 
definition of the relevant market is very central. Parties 
frequently put before us assertions that various other 
alternative products or services should be included in the 
relevant market, and we do our best to assess whether that is 
actually the case. And we do that through a variety of means. 
We look at the parties' own internal documents, marketing and 
sales strategies. We talk to customers. We talk to other 
suppliers. We can do statistical or econometric analyses to try 
and estimate cross-price demand elasticities or supply 
elasticities. And we make an assessment that whether or not--
even if some consumers may view a proposed alternative as an 
alternative, whether enough view it as an adequate alternative 
to discipline the pricing of the merged parties' post-
transaction, whether or not they would be able to raise price 
profitably even if they lost some customers.
    That is a very fact-intensive analysis, and it would be 
difficult for me to answer that question under any 
circumstances in a matter in which we had just started looking 
at it.
    Chairman Kohl. OK. Mr. Barnett, as you know, the Tunney Act 
requires the court to approve an antitrust consent decree to 
ensure it is in the public interest before it can go into 
effect. For several years, the Justice Department has been 
allowing mergers to close prior to the court's review of the 
settlement. This renders court review quite ineffective as the 
merger has already been consummated before the court reviews 
the settlement. The court is then left with virtually no remedy 
should it decide that the settlement is not in the public 
interest.
    How is allowing parties to close mergers prior to court 
review consistent with the intended command of the Tunney Act?
    Mr. Barnett. Well, Mr. Chairman, as an initial matter, we 
are not empowered to prevent the closing of a transaction. That 
is something a court must order the--enter a preliminary 
injunction in order to prevent it. Once the HSR waiting period 
has expired, absent an order of the court, the parties are free 
to close. We are, of course, free to continue with our 
challenge.
    We make an assessment--and it has been long standing 
Division policy across administrations--as to whether or not 
there is cause or reason to move the court for such a 
preliminary injunction. There can be substantial cost or, 
alternatively, there can be substantial lost benefits from 
preventing a transaction from moving forward. In particular, if 
you have a situation where you have a very large transaction 
and we have identified a potential competitive harm in a 
relatively small portion of that transaction, there could be 
huge efficiencies that will be delayed for however long the 
Tunney Act review takes until a closing is allowed.
    By not getting in the way of that and allowing the parties 
to close, you can allow the realization of those efficiencies 
in circumstances where we have made the determination and the 
judgment that we believe the remedy that is on the table will 
adequately address the threatened harm to competition.
    Chairman Kohl. All right. Mr. Barnett, I would like to turn 
to the issue of media consolidation. Some believe that there is 
nothing special about mergers and acquisitions in the media 
marketplace, that they should be treated just like any other 
mergers. For example, former Antitrust Chief Charles James said 
at his confirmation hearing in 2001 that the only thing that 
mattered in reviewing a media merger was ``economic 
consequences of the transaction.'' Many of us would disagree 
with that. Mergers in the media are different, in our judgment, 
because they affect competition in the marketplace of ideas so 
central to our democracy. Diversity in media ownership is 
essential to ensuring that competing views are heard. I would 
think you would agree with that. Therefore, I believe that we 
must give mergers in the media special and more exacting 
scrutiny than when we review mergers in other industries which 
do not affect the free flow of information.

    Former FTC Chairman Petofsky agrees with this view.

    What is your view, Mr. Barnett? And then I will ask you, 
Ms. Majoras. Is the conventional view of antitrust review of 
media mergers focused solely on economic factors and ad rates 
correct? Or do you agree with many that the Justice Department 
should also consider a media merger's impact on diversity of 
news and information and not limit your analysis to strictly an 
economic kind of consideration?

    Mr. Barnett. Well, Mr. Chairman, I could not agree with you 
more strongly that the marketplace of ideas is one of the core 
values of our political system and one of the fundamental 
sources of strength of our political system. And I believe that 
those First Amendment principles are just--it is impossible to 
over rate their importance. And we do look closely and take 
very seriously competition issues raised in the media industry. 
We have taken enforcement actions even recently. In the 
McClatchy-Knight Ridder transaction, for example, we required 
the divestiture of one of the daily papers in Minneapolis. We 
have other pending investigations within the industry because 
we do take it so seriously.

    Your question raises some complicated issues. I would like 
to think that by preserving competition and an effectively 
free-flowing competitive market in the media industries, to the 
extent that there is a demand for a diversity of viewpoints in 
the populace, people will be able to supply a diversity of 
viewpoints. An effectively functioning market should 
effectively meet the demands of consumers.

    I hesitate to say, however, that I as a Government official 
should be in a position of deciding that this particular 
viewpoint should be protected and that particular viewpoint 
should not be protected. And to that extent, I would be very 
hesitant to get into that kind of consideration, but would 
focus on trying to ensure that there are multiple providers in 
the marketplace and that a freely functioning marketplace can 
respond to the demand for diversity of views.

    Chairman Kohl. Ms. Majoras, do you have some opinions you 
would offer?

    Ms. Majoras. Thank you, Mr. Chairman. There is no question 
that media mergers are extremely important, and I think it is 
fair to say that we give--and I have talked to former Chairman 
Pitofsky about this extensively, and I think it is fair to say 
that we give them a certain type of heightened scrutiny because 
of their importance to our very democratic underpinnings.

    Mr. Barnett is right, though, that we have a certain method 
for reviewing mergers that has been blessed by the court, 
which, of course, has an economic tone to it; but in making 
sure that, for example, advertisers have plenty of outlets in 
which to advertise, they essentially act as surrogates, so that 
there are plenty of avenues in the media, not only, of course, 
to advertise, but, of course, you have got to have some content 
in it to provide that content.

    So I think those two view points are not so very far apart 
at all. And I also do--you know, I agreed with Mr. Barnett. We 
do have to be careful so that it does not look like Government 
is regulating speech. That you absolutely would not want. And 
the FCC, of course, has a little more leeway probably than we 
do to look at some more content-related issues, although for 
protection they have to do it really out in the open. But they 
have a public interest standard, of course, when they look at 
media mergers, mergers within their jurisdiction. And we do not 
have such a broad standard within which to review those 
mergers.

    Chairman Kohl. All right. Just to go back to the Whirlpool-
Maytag merger, which was approved about a year ago, I 
understand, shortly after that announcement it was raising 
prices up to 12 percent on its washing machines, and it also 
announced plans to cut 4,500 jobs. This all occurred within a 
matter of months after the merger was approved.

    Does this massive layoff and the sharp price increase lead 
you to have any reconsideration thoughts in your mind?

    Mr. Barnett. Mr. Chairman, I would require some additional 
information. With respect to price increases, it is important 
to note that there can, for example, be increases in input 
costs. It would be far more relevant for us to know whether or 
not the operating margins of the company had increased.

    In addition, we tend to think in slightly longer time 
frames than 1 year. It can take the market a little bit of time 
to respond, but if it does so reasonably quickly or is expected 
to do so reasonably quickly, we would still consider that not a 
sufficient threat to competition to bring a challenge. And so 
the short answer is that I would need some additional 
information.

    Chairman Kohl. All right. Mr. Barnett, we have received 
allegations of anticompetitive and monopolistic conduct by DFA, 
the Nation's leading milk marketing cooperative. One allegation 
in Florida is that independent dairy co-ops could not have 
their milk processed in plants affiliated with DFA unless the 
independent cooperative paid the processor millions of dollars 
around the cost of processing the milk. It is alleged that this 
and other anticompetitive conduct destroys the ability of 
independent co-ops to compete and ultimately results in higher 
milk prices to consumers.

    Mr. Barnett, we have been informed that the staff of the 
Antitrust Division recommended to you in September of last year 
that the Justice Department pursue an antitrust case against 
DFA, but that you allegedly have not taken any action on that 
recommendation.

    Question: Is this true? And what is the status of that 
investigation?

    Mr. Barnett. Well, Mr. Chairman, we do not generally get 
into the specifics of internal deliberations. I will go so far 
as to say your information is not entirely accurate. But it is 
a pending investigation. We are looking at the milk processing 
industry, the specific issues that you raised, and I continue 
to be very focused on it.

    Chairman Kohl. That is very good.

    Well, I thank you both for being here. I think you have 
shed a lot of light on issues that are really important to our 
society and to our consumers, and I appreciate your frankness 
and your willingness to say what is on your mind. And I think 
you have made real contributions.

    This hearing is concluded.

    [Whereupon, at 3:45 p.m., the Committee was adjourned.]

    [Questions and answers and submissions for the record 
follow.]
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