[Senate Hearing 111-993]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 111-993

           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 ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 9, 2010

                               __________

                          Serial No. J-111-97

                               __________

         Printed for the use of the Committee on the Judiciary


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                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         JON KYL, Arizona
RICHARD J. DURBIN, Illinois          LINDSEY O. GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland         JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
AL FRANKEN, Minnesota
            Bruce A. Cohen, Chief Counsel and Staff Director
               Matthew S. Miner, Republican Chief Counsel
                                 ------                                

   Subcommittee on Antitrust, Competition Policy and Consumer Rights

                     HERB KOHL, Wisconsin, Chairman
CHARLES E. SCHUMER, New York         ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island     CHARLES E. GRASSLEY, Iowa
AMY KLOBUCHAR, Minnesota             TOM COBURN, Oklahoma
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
AL FRANKEN, Minnesota
       Caroline Holland, Democratic Chief Counsel/Staff Director
                 Jace Johnson, Republican Chief Counsel











                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, 
  prepared statement.............................................    98
Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin......     1
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     2

                               WITNESSES

Leibowitz, Jonathan D., Chairman, Federal Trade Commission, 
  Washington, DC.................................................     6
Varney, Christine A., Assistant Attorney General, Antitrust 
  Division, U.S. Department of Justice, Washington, DC...........     4

                         QUESTIONS AND ANSWERS

Responses of Jonathan D. Leibowitz to questions submitted by 
  Senator Kohl, Hatch, Feingold, Grassley and Cornyn.............    40
Responses of Christine A. Varney to questions submitted by 
  Senator Hatch, Cornyn, Kohl, Feingold and Grassley.............    65

                       SUBMISSIONS FOR THE RECORD

Balto, David, Senior Fellow, Center for American Progress Action 
  Fund, Washington, DC., statement...............................    88
Leibowitz, Jonathan D., Chairman, Federal Trade Commission, 
  Washington, DC, statement......................................   100
National Community Pharmacists Association (NCPA), Alexandria, 
  Virginia, statement............................................   117
Varney, Christine A., Assistant Attorney General, Antitrust 
  Division, U.S. Department of Justice, Washington, DC, statement   123

 
           OVERSIGHT OF THE ENFORCEMENT OF THE ANTITRUST LAWS

                              ----------                              

                    WEDNESDAY, JUNE 9, 2010
                                       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 2:04 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl, 
Chairman of the Subcommittee, presiding.
    Present: Senators Kohl, Feingold, Specter, Schumer, Durbin, 
Klobuchar, Kaufman, Franken, and Hatch.

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

    Chairman Kohl. Good afternoon to one and all. Today's 
hearing is the Subcommittee's first oversight hearing to 
examine the enforcement of our Nation's antitrust laws under 
this administration.
    No topic could be more central to those who believe in the 
vital role played by antitrust policy to protect consumers. 
Vigorous and aggressive enforcement of our Nation's antitrust 
laws is essential to ensuring that consumers pay the lowest 
possible prices and gain the highest quality goods and 
services. And it is the Justice Department's Antitrust Division 
and the Federal Trade Commission whom we rely on to protect 
consumers from the excesses of monopoly, from industry 
concentration resulting from mergers, and from other 
anticompetitive road blocks to full and fair competition.
    Assistant Attorney General Varney and Federal Trade 
Commission Chairman Leibowitz, we are pleased to have you both 
with us here today so we can fulfill our oversight duties and 
discuss the pressing competition issues that have such a 
profound impact on consumers' wallets.
    Antitrust enforcement was sorely in need of revival, in my 
opinion, at the beginning of this administration. At our last 
antitrust oversight hearing in March of 2007, we observed sharp 
declines in antitrust enforcement at the Justice Department in 
both the number of investigations initiated and the number of 
merger challenges brought. Mergers among direct competitors in 
highly concentrated industries affecting millions of consumers 
were approved, and anticompetitive practices went unchallenged. 
This hastened the dangerous consolidation trend in many key 
industries. And we all saw the consequences of allowing firms 
to grow ``too big to fail'' during the financial crisis of 2008 
and 2009.
    Today we continue to hear calls from certain quarters that 
antitrust is not an appropriate tool to ensure competition in 
today's high-tech economy and that antitrust enforcement can 
chill innovation. While we must be balanced and fair in our 
approach, I believe antitrust is as essential to protect 
competition with respect to today's Internet and telecom 
sectors as it was to the railroad industry of more than a 
century ago. Without antitrust enforcement against IBM, would 
Microsoft have ever emerged? And without antitrust enforcement 
to prevent Microsoft from illegally maintaining its monopoly, 
would today's Internet and high-tech giants Goggle and Apple 
have thrived in the first place?
    Time and again, antitrust enforcement has shown itself to 
be essential to breaking up anticompetitive road blocks and 
unfetter the marketplace to allow new competitors and new 
business models to emerge, all to the benefit of consumers. So 
it is my view that the present is not the time for Government 
to take a cramped or a limited view of antitrust enforcement.
    I see no contradiction between support for antitrust 
enforcement and support for our free market capitalist economy. 
Indeed, viewed properly, antitrust is a free market alternative 
to governmental regulation. In the words of the Supreme Court, 
antitrust is ``a charter of economic liberty.''
    So we hope that both of you, Ms. Varney and Chairman 
Leibowitz, always remember that your positions carry a special 
responsibility. Your positions are a public trust to ensure 
that competition may flourish and anticompetitive abuses are 
prevented. Millions of consumers depend on your efforts and 
your judgment to ensure that the economy is sufficiently 
vibrant to keep prices low and quality high. You both have 
inherited a proud legacy at the Antitrust Division and the FTC, 
and it is my sincere hope and full expectation that you will 
always strive to uphold this legacy in the years ahead. We are 
looking forward to your testimony.
    Now I call on the Ranking Member, Senator Hatch, for his 
comments.

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

    Senator Hatch. Well, thank you, Mr. Chairman. And I welcome 
both of you. I have great fondness for both of you and 
appreciate the very difficult jobs you have. So I want to thank 
you, Mr. Chairman, for holding this hearing. I also want to 
thank our distinguished panel for coming to participate in 
these proceedings.
    Oversight of Federal agencies is one of Congress' most 
important responsibilities, and given the state of our economy, 
I would say that oversight in these agencies is particularly 
important. That being the case, I hope we can have a through 
and productive discussion of the relevant issues today.
    The Antitrust Division of the Justice Department and the 
Federal Trade Commission are charged with protecting 
competition in the American marketplace. This is a vital and 
important task. It is a fundamental American value that those 
who exercise creativity, innovation, hard work, and efficiency 
should be rewarded in the marketplace. However, these rewards 
can be reduced, stifled, or blocked altogether if there is not 
competition in a free and open market. While some of us may 
disagree as to how the agencies should go about enforcing our 
antitrust and competition laws, I think we would all agree that 
competition is essential to maintaining a strong and a vibrant 
economy.
    There are a number of issues that I hope we will get a 
chance to talk about in today's hearing. For example, the FTC 
has signaled its intention to pursue more antitrust and 
competition enforcement through Section 5 of the FTC Act rather 
than the Sherman and Clayton Acts. Quite frankly, I am 
concerned about this development. There is a long line of case 
law surrounding both the Sherman and the Clayton Acts which has 
provided businesses with substantial guidance in their efforts 
to comply with the law. Section 5 of the FTC Act, by 
comparison, has a much thinner jurisprudential record.
    Some have argued that increasing the use of Section 5 
particularly to address conduct that has traditionally fallen 
under one of the other antitrust statutes has the potential to 
create uncertainty, which is harmful to growth and innovation. 
It can also lead to abuse if it is not subjected to clear, 
specific standards and if the remedies that are sought are not 
appropriate to the conduct at issue.
    These concerns are even more relevant when we consider that 
over the past few years we have been working to ensure that 
American businesses are not disadvantaged in foreign markets by 
poorly defined competition laws and lack of due process.
    I look forward to hearing more about the agencies' efforts 
to address the problems of our Nation's businesses, and 
especially with regard to overseas markets. And in that same 
vein, I hope we can work together to ensure that our antitrust 
enforcement practices serve as a model for foreign governments 
as well.
    I also look forward to hearing more about the efforts of 
the Justice Department in the antitrust arena. Since our last 
oversight hearing, we have seen a different administration take 
the reins. Many on this panel and a number of people who are 
now working for the Obama Justice Department had no shortage of 
criticism for the efforts of the Bush Justice Department when 
it came to antitrust enforcement. In fact, in many circles, 
including among some of my colleagues here in the Senate, it 
was considered common knowledge that the Bush administration 
was too lenient in antitrust enforcement and was too eager to 
give big business a pass when it came to anticompetitive 
conduct. And while I did not really share this view at the 
time, I am interested to learn more about what has changed 
since the Antitrust Division came under new management in 2009.
    Finally, because I know that many who are present here feel 
strongly about this issue, I would like to just mention the 
issue of pay-for-delay patent settlements. There is near 
universal agreement on the need to eliminate settlements which 
are designed to harm consumers by delaying the entry of lower-
priced generic drugs. These so-called pay-for-delay settlements 
are anticompetitive and wrong. They do nothing to promote the 
best interests of consumers, and they go against the 
fundamentals of our patent system and the laws in place to 
protect innovation. But I do not believe we should be working 
to eliminate beneficial patent statements that bring 
competition to the market years before they might otherwise 
become available to consumers. Imposing undue hurdles on 
settling parties could effectively discourage pro-consumer 
statements and create uncertainty among industry participants, 
their investors, and the public. And that uncertainty as to the 
duration of patent protection, ability to resolve good-faith 
disputes, and investment in new applications for existing 
medicines will have a significant adverse effect on innovation 
and the quality of health care in the United States.
    Now, Mr. Chairman, these are just some of the issues that I 
hope to be able to discuss today. Once again, I would like to 
thank both Chairman Leibowitz and Assistant Attorney General 
Varney for being present at today's hearing. I have respect for 
both of you and will always show the utmost respect that I can. 
And I look forward to an open and honest discussion on these 
important matters.
    Thank you for holding this hearing.
    Chairman Kohl. Thank you very much, Senator Hatch.
    I would now like to introduce today's distinguished panel 
of witnesses.
    Our first witness will be Christine Varney. Ms. Varney was 
confirmed as Assistant Attorney General for the Antitrust 
Division in April 2009. Prior to her appointment, Ms. Varney 
was a partner at the law firm Hogan & Hartson and also served 
as a Federal Trade Commissioner from 1994 to 1997. Before 
becoming a Federal Trade Commissioner, Ms. Varney served as 
Assistant to the President and Secretary to the Cabinet during 
the Clinton administration.
    Next we will hear from Jon Leibowitz. Mr. Leibowitz has 
served as Chairman of the Federal Trade Commission since March 
of 2009 and as a Commissioner since 2004. Before joining the 
Commission, he was Vice President for Congressional Affairs for 
the Motion Picture Association of America. Mr. Leibowitz was my 
chief counsel from 1989 through 2000 and the Democratic counsel 
and staff director of the Antitrust Subcommittee from 1997 
through 2000.
    We thank you both for appearing here, and we are looking 
forward to taking your testimony. Ms. Varney, we will hear from 
you first.

   STATEMENT OF HON. CHRISTINE A. VARNEY, ASSISTANT ATTORNEY 
   GENERAL, ANTITRUST DIVISION, U.S. DEPARTMENT OF JUSTICE, 
                        WASHINGTON, D.C.

    Ms. Varney. Good afternoon, Chairman Kohl and members of 
the Subcommittee. It is a pleasure to be here today with my 
colleague and friend, Chairman Leibowitz, whom I think has the 
home court advantage. And I am delighted that we are going to 
be able to talk to you about our work over the last year.
    Competition is a cornerstone of our Nation's economic 
foundation. At the Antitrust Division, we use sound competition 
principles and antitrust precedent to evaluate each matter 
carefully, thoroughly, and in light of its particular facts. 
Our enforcement helps keep markets competitive, promotes 
consumer welfare, and spurs innovation. We appreciate this 
Subcommittee's active interest in--and strong support of--our 
law enforcement mission. We are particularly thankful that you 
and this Committee and Senator Reid, with the support of the 
Obama administration, led the effort to eliminate antitrust 
immunity for the health insurance industry.
    At the DOJ we have two department-wide initiatives that 
complement the Antitrust Division's work. The first is the 
Intellectual Property Task Force, which is a department-wide 
effort focusing on the protection of IP rights. The IP Task 
Force works with the White House Office of Intellectual 
Property to improve the efficiency and effectiveness of IP 
enforcement both here and abroad.
    The second effort is the Financial Fraud Enforcement Task 
Force, an interagency group led by the Justice Department with 
active participation from the SEC, Treasury, and HUD on the 
Steering Committee and the FTC as a very active partner. 
Established by Executive Order, the Financial Fraud Task Force 
seeks to strengthen the Government's efforts to combat 
financial crime.
    Merger enforcement continues to be a core priority for the 
Division. We are committed to blocking mergers that will 
substantially reduce competition. For instance, we are 
litigating a case involving the Nation's largest dairy 
processor, seeking to restore competition so that schools, 
grocery stores, and consumers in Illinois, Michigan, and 
Wisconsin will pay lower prices for milk.
    Our intent to challenge in Michigan Blue Cross/Blue 
Shield's acquisition of Physicians Health Plan led the parties 
to abandon that deal. If consummated, their proposed merger 
would have resulted in Blue Cross controlling 90 percent of 
commercial health insurance in Lansing. In both matters, we 
coordinated closely and successfully with the State Attorneys 
General.
    We have also settled cases when our competitive concerns 
can be addressed. In the Ticketmaster settlement, the merged 
company will divest more ticketing assets than it gained 
through the merger and subject itself to tough antiretaliation 
and anticompetitive bundling restrictions. At the same time, I 
want to underscore that we are committed to quickly closing 
investigations of mergers that do not threaten consumer harm, 
such as Oracle's acquisition of Sun and Microsoft's joint 
venture with Yahoo.
    In our criminal program, we continue to uncover and 
prosecute a number of cartels that inflict significant 
competitive harm. These efforts were recently enhanced by 
Congress' extension of the Antitrust Criminal Penalty 
Enhancement and Reform Act. Again, we thank you for leading the 
effort to extend that program through a 10-year 
reauthorization.
    Our recent prosecutions have resulted in significant fines 
and jail time. In 2009, the Division obtained more than $1 
billion in criminal fines.
    Our civil non-merger program remains active as well. In 
addition to our ongoing investigations, which I cannot discuss, 
let me mention just two matters that we have settled. The first 
concerns the largest seller of electricity capacity in New York 
City. In that case, we alleged that Keyspan engaged in 
anticompetitive swap transactions that likely increased 
electricity prices. That settlement, now pending, includes a 
$12 million disgorgement payment.
    The second case, which is also pending, enjoins a group of 
Idaho surgeons who organized a boycott of Idaho's workers' 
compensation system, essentially refusing to treat injured 
workers.
    The Division has stepped up its efforts to strengthen 
markets and preserve economic freedom and fairness. Promoting 
competition principles through broad advocacy efforts and 
regulatory outreach is one of our highest priorities. As a 
result of our enforcement efforts, the Antitrust Division has 
gained enormous insight into the competitive dynamics of many 
industries. The Division works actively with a broad range of 
Federal and State agencies to promote competition across a 
number of vitally important industries in our economy, 
including transportation, energy, telecommunications, 
agriculture, and finance.
    Mr. Chairman and members of the Subcommittee, my first year 
in the Department has been remarkable. Working with the Justice 
Department on Attorney General Holder's team and closely with 
the dedicated men and women of the Division, we are doing all 
we can to ensure that the competitive playing field is open and 
fair, giving consumers more and better choices. I look forward 
to year two and continuing what we have started.
    That concludes my remarks. I have also provided a written 
statement that describes some of our matters in more detail. I 
am grateful to have the opportunity to speak with you, and I 
look forward to answering your questions.
    [The prepared statement of Ms. Varney appears as a 
submission for the record.]
    Chairman Kohl. Thank you very much,
    Ms. Varney.
    Chairman Leibowitz.

  STATEMENT OF HON. JONATHAN D. LEIBOWITZ, CHAIRMAN, FEDERAL 
                TRADE COMMISSION, WASHINGTON, DC

    Mr. Leibowitz. Thank you, Chairman Kohl and Ranking Member 
Hatch and Senators Specter and Franken, for inviting me to 
testify today. As you already have my written statement, let me 
spend my allotted time talking about just a few of the 
interesting issues that we are focusing on right now.
    As a starting point, let me note that after a several-year 
losing streak, we have won a handful of merger cases in a row. 
These deals include the proposed Thoratec acquisition of 
HeartWare, which would have combined the only two producers of 
critical heart devices used by patients waiting for a heart 
transplant. By challenging this transaction--it was abandoned 
by the parties after we challenged it--we ensured that patients 
would have more choices, prices would be reduced, and 
innovation increased.
    We have been aggressive when we find mergers that we think 
will decrease competition. But just as important, we are not 
afraid to hold off when we think that a major deal is not going 
to cause consumer harm. A recent example of this is Google/
Admob, which we investigated thoroughly but unanimously decided 
not to challenge. We are not perfect, of course, but I do 
believe we are striking a pretty reasonable balance to protect 
consumers, yet still allow businesses latitude to combine, when 
appropriate.
    Right now the top competition priority at the Commission is 
to stop pay-for-delay agreements between brand name and generic 
drug makers. We estimate that these sweetheart deals cost 
consumers $3.5 billion each and every year. And by now you are 
familiar with the story. Brand name drug companies sue generic 
companies claiming that the generic is violative of their 
patent, and then they turn right around and they settle these 
cases by paying off the generic not to compete. It is win-win-
lose: win for the brand companies because they continue to get 
monopoly pricing; win for the generic companies because they 
collect a big fat paycheck from the brand; and a loss for the 
consumers because they keep paying high prices for their 
medicines. On all counts, it is a bad outcome. Since a few 
misguided court decisions in 2005, the problem has only gotten 
worse. Because of our enforcement efforts, there was not a 
single pay-for-delay agreement in 2004. Before those decisions, 
there were plenty of settlements. But last year, because of 
those decisions, there were 19 suspect settlements, as you can 
see from that chart.
    Every single FTC Commissioner going back through the Bush 
and to the Clinton administrations has supported stopping these 
unconscionable agreements, and more and more others are coming 
around to our view. Under Assistant Attorney General Varney, 
the Department of Justice position has evolved considerably, 
and it now agrees that pay-for-delay settlements are 
presumptively anticompetitive. The Second Circuit recently 
encouraged plaintiffs in a pay-for-delay case to request en 
banc review of a previous ruling that would allow these deals. 
As members of this Committee know, circuit courts do this only 
rarely, and it is often a sign that they are ready to reverse a 
previous position. We will know that soon enough. But we also 
know litigation can take a long time, and it would be much 
faster and more direct to enact legislation to end this 
extortionate practice. We greatly appreciate the leadership of 
the Judiciary Committee to support this legislation, and I 
appreciate your remarks, Senator Hatch, because I know you are 
struggling with this, and you were one of the leaders of the 
Medicare Modernization Act provision in 2003 that gave us these 
deals to review.
    Let me also discuss the Commission's increasing use of our 
Section 5 unfair methods of competition authority, which allows 
us to go beyond the ambit of the antitrust laws to protect 
consumers. Congress granted us this authority in 1914, and it 
balanced it by limiting the remedies available under Section 5. 
In recent years, Section 5 has been used sparingly since lower 
courts in the late 1970s rejected some applications of Section 
5 when the antitrust laws were viewed much more broadly and I 
would say in some ways too broadly.
    But since that time, the courts have restricted the range 
of antitrust to some extent as a result of the Chicago School, 
which, to its credit, has emphasized rigorous economic analysis 
as well as efficiencies, and to some extent in reaction to the 
costs of class actions and private treble damage litigation. 
But for whatever the reason, the result of these changes has 
been to limit Federal enforcement agencies, which have no 
treble damage authority, in our efforts to protect American 
consumers.
    Section 5, carefully applied--and it needs to be--is 
practically tailor-made for this situation. It can effectively 
protect consumers, but it is not an antitrust law so it does 
not by its own terms create treble damage liability. So we have 
broad bipartisan support within the Commission to use Section 5 
in appropriate circumstances, and we are going out and re-using 
it.
    For example, just today, the Commission filed a Section 5 
case and reached a settlement with U-Haul in an invitation-to-
collude case where a U-Haul executive asked Budget, its 
competitor, to fix prices on rental trucks, something that 
would affect everyday consumers directly and meaningfully. When 
the Commission sees conduct like this, we are going to go after 
it aggressively, and Section 5 is going to be an important tool 
in our arsenal, and our vote today was 5-0. It was unanimous 
and bipartisan.
    I would also like to talk very quickly about another issue 
that we spend a lot of time on, and that is gasoline prices. 
When the price of gasoline hit $4 a gallon in mid-2008, every 
household in the country felt the impact. Everyone in this room 
did. And we realize how important it is for American consumers 
that petroleum markets are competitive. Unfortunately, as the 
members of this Committee know all too well, much of the price 
of gas is driven by the price of crude oil, which means that 
OPEC has a lot of control and there is not much we can do about 
it. But we have added to our arsenal by adopting a rule in the 
last year that prohibits the manipulation of wholesale 
petroleum markets and allows us to find violators.
    Finally, very quickly, let me mention the revision of the 
horizontal merger guidelines. It is a very significant project. 
We work very closely with Assistant Attorney General Varney, 
who did a terrific job, to issue--and we just issued draft 
guidelines. It was a very transparent process, and we hope to 
issue final guidelines fairly soon.
    From my perspective, the changes reflect common sense, 
smart economics, and solid antitrust policy. The Commission is 
doing a lot of other important work that I would be glad to 
discuss, including an initiative on the future of news. But at 
this point I think I will stop, and I am happy to answer any 
questions. Thank you.
    [The prepared statement of Mr. Leibowitz appears as a 
submission for the record.]
    Chairman Kohl. Thank you very much, Commissioner Leibowitz.
    We will now have rounds of questions of 8 minutes.
    Ms. Varney, one matter which disappointed some advocates of 
strong antitrust enforcement was the Justice Department's 
decision to approve the Ticketmaster/Live Nation merger subject 
to conditions rather than to challenge the deal in court. Your 
critics note that this deal combined the Nation's dominant 
live-concert ticket seller with the Nation's leading owner of 
concert venues which had recently launched a competing ticket 
business. They contend that the combination of these two 
companies will make it very difficult for any new national 
ticket competitor to emerge. So the question is: Given that 
great concern, which I think was fairly legitimate, why did you 
approve the merger?
    Ms. Varney. Senator, we were equally concerned about that 
transaction, and we were absolutely prepared to litigate the 
transaction because we thought it did present potential 
anticompetitive concerns. The parties were aware fully of our 
intent to block the transactions and continually worked to 
address our concerns.
    As you may be aware, there are essentially three 
components--and I would not say we approved the merger. I would 
say we were prepared to challenge and went ahead and settled on 
terms that dramatically altered the terms of the transaction.
    First, Ticketmaster had to divest a very large ticketing 
asset. That is the Paciolan ticketing platform that will be 
going to a very large competitor that can and most likely, we 
hope, will enter the ticketing market.
    Second, Ticketmaster had to divest its technology--not 
divest but license its technology in ticketing to create 
platforms for others to compete on ticketing.
    And, finally, when it came to the venues and promoters, we 
were quite concerned that Ticketmaster might engage in 
anticompetitive bundling or retaliatory activity. When the 
parties came forward with what I believe are very tough 
divestitures, licensing, and remedies that we believed 
addressed our concerns and protected consumers, we believed the 
right thing to do was to settle the case based on what our 
concerns were.
    I hope--I think--we got a good deal for American consumers. 
We would like to see a lot of competition in that ticketing 
space.
    Chairman Kohl. All right. Ms. Varney, the Justice 
Department and the USDA have been conducting a series of 
workshops examining antitrust enforcement in agriculture, as 
you know. The next one is slated for Madison, Wisconsin, later 
this month to discuss the dairy industry, which I hope to 
attend if the Senate schedule permits. We are pleased about the 
emphasis you are placing on this issue. It is my view that we 
need increased focus on competition in agriculture to ensure 
that our farmers and our ranchers get fair prices for their 
products.
    What have you learned from the workshops so far? Is there a 
lack of free and fair competition in agriculture? And if so, 
what can the antitrust enforcers at the Justice Department do 
about it?
    Ms. Varney. Well, Senator, as you recall, this was a matter 
of great concern to many members of the Subcommittee during my 
confirmation hearing, and I committed to you that I would take 
a hard and careful and close look at that. And we have been 
doing that.
    I went to Vermont with Senator Leahy and Senator Sanders 
and looked at some of the dairy issues in Vermont. I have been 
to upstate New York with Senator Schumer to look at some of the 
issues there. I would be happy to go to any of your States with 
you should that be appropriate. We will be coming out--we have 
done a very large workshop in Iowa with Senator Grassley and 
looked at some of the issues confronting the grain and seed 
industry there. We were recently in Normal, Alabama, where we 
spent the day with poultry farmers. And we are learning a lot.
    There is a lot of consolidation in what we think of as the 
middle of the market between the farmer and the consumer. A lot 
of that has occurred over the last decade. Some of it has 
brought tremendous efficiencies to the market. At the same 
time, it may have reduced competition at the input level, at 
the production level.
    So we are continuing these workshops. We will go wherever 
they lead us. I have not reached any conclusions whatsoever 
about what may or may not be anticompetitive in a particular 
industry.
    However, as you know, we have challenged the Dean Food 
acquisition, and we believe that that was anticompetitive, and 
we will continue to challenge those practices or those 
acquisitions that we believe are anticompetitive.
    Chairman Kohl. With respect to milk, is that Dean Foods 
challenge your response to my question about dairy farmers and 
whether they are getting a fair price for their product?
    Ms. Varney. The Dean Foods is a challenge where we believe 
that the acquisition created an anticompetitive effect because 
there was too much concentration. Our view is always the more 
competition there is for farmers to deliver their milk, the 
better the pricing situation will be. So, yes, we will continue 
to challenge those either acquisitions or circumstances that we 
believe are anticompetitive.
    Chairman Kohl. Chairman Leibowitz, for nearly a century, it 
was a basic rule of antitrust law that a manufacturer could not 
set a minimum price for a retailer to sell its product. This 
rule allowed discounting to flourish and greatly enhance 
competition for dozens of consumer products on everything from 
electronics to clothes. But in 2007, a 5-4 decision of the 
Supreme Court, the Leegin case, overturned this rule and held 
that vertical price fixing was no longer banned in every case.
    I believe this decision is very dangerous to consumers' 
ability to purchase products at discount prices and it is 
harmful to retail competition. I have introduced legislation to 
overturn the Leegin case and restore the ban on vertical price 
fixing. We have ten cosponsors, and it passed the Judiciary 
Committee several weeks ago.
    Do you agree with me on the principle that manufacturers' 
setting retail prices should be banned? Do you support our 
Discount Pricing Consumer Protection Act?
    Mr. Leibowitz. Well, there are a range of views on the 
Commission, but I certainly support overturning Leegin. I 
thought that the four-person minority had the more persuasive 
view and that Dr. Miles should not have been overturned. It had 
been the law for close to 100 years, so I do support 
overturning Leegin.
    The place where we do have consensus at the FTC is that 
there is still room for RPM enforcement. We had an RPM 
investigation last year. It did not pan out. But we do support 
a higher standard, and we want to work with you going forward.
    Chairman Kohl. In your case, at your confirmation hearing 
you said that there was room under existing law that the 
Justice Department pursue retail price maintenance cases. Do 
you still feel that way? Are you intent on moving forward on 
this? Where are you on this?
    Ms. Varney. Absolutely, Senator. I believe retail price 
maintenance can be anticompetitive, and we work closely with 
the FTC, who generally takes the lead on these issues. We 
provide any support that we can to them. We work with the 
States on this. We think that absolutely RPM should continue to 
be enforced and prosecuted, and we will continue to devote the 
resources to do so.
    Chairman Kohl. Is it fair to say that you are not a fan of 
the Leegin decision?
    Ms. Varney. I tend to agree with the Chairman that I think 
the dissent was the stronger of the two positions.
    Chairman Kohl. Thank you so much.
    We turn now to Senator Hatch.
    Senator Hatch. Well, thank you, Mr. Chairman.
    Let me start with you, Mr. Leibowitz, Chairman Leibowitz. 
You mentioned in your testimony that you are actively pursuing 
two cases which you assert are pay-for-delay cases. Court 
papers recently filed by Watson Pharmaceutical's CEO--Paul 
Bisaro is his name, I believe--alleged that the FTC threatened 
to initiate an investigation of Watson if the company did not 
waive its exclusivity rights to a generic version of Provigil 
so that a foreign competitor could enter the market.
    Now, the court brief includes the following allegations: 
``That the FTC obtained confidential information from the FDA 
and shared that information with Watson and Apotex.''
    The next paragraph, ``That the FTC obtained confidential 
information from Watson and apparently shared it with Watson's 
competitor, Apotex.''
    And then one more: ``That Markus Meier, Assistant Director 
of the FTC Bureau of Competition's Health Care Division, 
asserted that FTC's `front office' would open an investigation 
of Watson if Watson did not relinquish its potential 
exclusivity rights.''
    Now, Chairman Leibowitz, what concerns me is that the FTC 
apparently did not deny any of these allegations. Were you 
aware of Mr. Meier's actions in this matter? And can you look 
into these allegations and provide me with more information 
about what happened?
    Mr. Leibowitz. We would be happy to do that, and the reason 
we have not responded to this yet is because that was a filing 
by a company, Watson, in the AndroGel case, and it is a filing 
in response to our insistence that we allow--that the CEO be 
subpoenaed. So it is one thing for a company to disagree with 
our case. You have a right to say this is not a pay-for-delay 
or a reverse payment case, and that is fine. It is another 
thing, as I understand it, not to even be deposed.
    So we are going to respond in court papers. We are going to 
take a look at this. I am going to get back to you. Markus 
Meier is a very, very good and experienced litigator. He runs 
our health care practice, and I do not believe that he would 
ever breach a confidentiality. But we are going to take a look 
at that because I think that is important.
    Senator Hatch. Well, I think you ought to take a look at 
it.
    Mr. Leibowitz. We will, absolutely, Senator.
    Senator Hatch. I do not know what the case is.
    Let me ask you, Assistant Attorney General Varney, as you 
know, many U.S. corporations have faced difficulty as they have 
interacted with foreign competition and enforcement and 
regulatory agencies. Many of these companies have expressed 
concern that the foreign agencies have used their authority 
specifically to disadvantage American businesses. And there 
have been questions as to whether the foreign agencies have 
provided adequate due process to American companies and whether 
they have applied sound antitrust principles in their 
investigations and enforcement proceedings.
    Now, you have spoken about the need for greater convergence 
and transparency in the international antitrust enforcement. 
What problems do you see on the horizon resulting from the 
diverse and often disparate antitrust approaches throughout the 
world? And do you believe the concerns that some companies have 
had regarding due process with overseas agencies are 
legitimate?
    Finally, can you tell this Subcommittee what specific steps 
the Department of Justice has taken in this area and whether 
there is a role for any other agencies in helping you to 
address these concerns?
    Ms. Varney. Certainly, Senator. I have heard the same 
concerns that you have from many global corporations 
headquartered here in the United States that do business around 
the world, and obviously it is a great disadvantage to business 
to not have certainty, predictability, and transparency as they 
are doing business around the world.
    It is something that, as you mentioned, I have spoken out 
about now quite frequently. In two international forums--the 
International Competition Network and the OECD in Paris--we, 
the United States, are leading an effort to inform 
jurisdictions around the world to create a dialog on what is 
due process, what is transparency, what is procedural fairness, 
what are the best practices so that we can create 
predictability and stability in an increasingly global world.
    I believe it has to be an administration-wide effort. We 
are coordinating with the Federal Trade Commission, obviously, 
with the State Department, with the Department of Commerce, and 
with the USTR as we continue to push forward in our dialogue 
with our international colleagues.
    As a matter of fact, Senator, at the Department of Justice 
we have, in an unprecedented move, hired a European lawyer to 
help us at the DOJ go not only to Europe but to other 
jurisdictions and work on these issues, and I think we have 
made tremendous progress in that effort. But we have a lot more 
to do.
    Senator Hatch. OK. Thank you.
    Mr. Leibowitz. If I can just add, Christine, Assistant 
Attorney General Varney, is doing a wonderful job here leading 
our effort, and we have worked together also with the business 
community in different countries, too, to try to ensure 
procedural due process, because it is obviously very, very 
important to American companies. It is very, very important to 
any company.
    Senator Hatch. Thank you. Let me go back to you, Mr. 
Chairman. As I mentioned in my opening statement, I have 
serious concerns about the FTC's decision to bring what are 
essentially antitrust cases under Section 5 of the FTC Act 
rather than under the Sherman Act. Now, you have answered that 
to a degree. You touch on this issue in your written statement 
as well.
    My concern is that there is a breadth of case law under the 
Sherman Act that gives businesses clear guidance as to what 
types of conduct are lawful or unlawful. So given the proper 
legal guidance, a company is able to operate its business with 
general assurance that its conduct is lawful under the 
antitrust laws.
    However, it does seem to me that with the FTC's decision to 
start bringing cases under Section 5 of the FTC Act, these 
companies may find themselves facing FTC complaints for conduct 
that they had good reason to believe was allowable under the 
law. Now, this is mostly due to the fact that Section 5 has an 
extraordinarily thin record of jurisprudence, giving the FTC 
extraordinary leeway to bring cases and to find on its own what 
types of competitive conduct are illegal.
    Now, is this a legitimate concern? And should we not be 
concerned----
    Mr. Leibowitz. Well, I think----
    Senator Hatch. Let me just finish the rest of it. Should we 
not be concerned that the uncertainty inherent in the FTC's use 
of Section 5 will prevent businesses from competing 
aggressively?
    Mr. Leibowitz. Well, I think it is a legitimate discussion 
for debate, and I am glad you raised it.
    If you go back and you look at Supreme Court cases--and the 
last two times the Supreme Court has opined on unfair methods 
of competition--in the Sperry & Hutchinson case in 1972 in 
which the FTC was a party, and in Indiana Federation of 
Dentists--they recognized the breadth of unfair methods of 
competition, that it is a penumbra around the antitrust laws, 
at the same time with limited remedies. And I went back and I 
pulled--I only wish Senator Grassley was here, because I pulled 
a quote from Senator Cummins, who was a Republican of Iowa and 
was the lead author of the FTC Act. This is from the debate--
and then he became the Chairman of the Judiciary Committee. And 
this is from the debate in 1914, and he said, ``What is the 
concept of unfair methods of competition? ''
    Well, unfair methods of competition--and I quote, and I 
will put this in the record with a cleaner copy--``seeks to go 
further and make some things offenses that are not now 
condemned by the antitrust law. That is the only purpose of 
Section 5--to make some things punishable, to prevent some 
things, that can not [sic] be punished or prevented under the 
antitrust law.'' \1\ Because at that time I think the Congress 
was very concerned about the enforcement of the antitrust laws 
by the courts, and they wanted to give a new agency expanded 
jurisdiction, but, again, limited remedies.
---------------------------------------------------------------------------
    \1\ 51 Cong. Rec. 11,236 (1914) (statement of Senator Cummins).
---------------------------------------------------------------------------
    I agree with you, though, that you need to have standards. 
You do not want--I mean, we have talked, and when I was on this 
Committee, we talked many times about the need for business 
certainty. So I think the conduct has to be unfair. It has to 
be something like deceptive conduct. There has to be harm to 
the competitive process.
    In cases like the U-Haul case we brought today, I think 
everyone agrees it is an important gap filler. You do not want 
invitations to collude where one company invites another 
company to fix prices.
    In cases involving other uses of unfair methods of 
competition, it can be a little dicey. I do not want to talk 
about any pending cases, of course, but we used the unfair 
methods of competition authority a couple of years ago in a 
case involving N-Data. Now, this involved a standard-setting 
case for ethernet ports. We all use ethernets when we are 
traveling and plug in our computers to go on the Internet. And 
one company had said to every company, ``You can use our 
standard or our patent and''--``You can use our patent, and we 
will not charge you any royalties.'' And everyone wrote to that 
standard. It was the new standard. They then sold the patent 
rights to another company, which then sold it to another 
company, which then said, ``Pay us money.'' And at this point 
there had already been lock-in.
    And so from our perspective, what we want to do is stop 
anticompetitive behavior. In this instance, there was not a 
monopolization claim because the monopoly power came long 
before the reneging on the commitment. And so, you know, we are 
taking this very carefully as we go forward. We have held a 
series of workshops. We are going to be writing a report on 
this issue. And we are going to use it carefully because we 
know that Congress can take away any authority it gives us. So 
we are going to try to use it judiciously. But we can keep on 
having this discussion, I think, and I look forward to it.
    Senator Hatch. Let me just mention three things I am 
concerned about. Should we not be concerned that the 
uncertainty inherent in the FTC's use of Section 5 will prevent 
businesses from competing aggressively? Also, in your opinion, 
does the FTC have the authority under Section 5 to unilaterally 
establish new competitive norms? And what are the outer limits 
of Section 5, and who ultimately decides what those limits are?
    Mr. Leibowitz. Well, of course, ultimately it will be the 
courts that decide, because if we bring a case within the FTC, 
there is an appellate court that the case will ultimately go 
to. And if we bring a Section 5 case outside of the Federal 
Trade Commission and in court, it will be the district court 
and then an appellate court that will make that determination.
    But, again, you know, we have----
    Senator Hatch. Let me just interrupt you.
    Mr. Leibowitz. Sure.
    Senator Hatch. Are you basically saying that the parties 
charged under Section 5 will have to go through a trial and 
appeal just to find out what the law is?
    Mr. Leibowitz. No, no, no. I do not think anyone--I just 
want to say this, and I know that there is some concern about 
our use of Section 5, and anyone has a right to raise that, and 
of course, when you were laying the groundwork for the 
Microsoft case, I think people were very concerned about what 
the Judiciary Committee was doing, and they had a right to do 
that, too.
    I do not think any company would be surprised, and I have 
yet to meet a company that was surprised, by our application of 
unfair methods of competition to the conduct that we believe 
violates the FTC Act. And, again, ultimately we are not the 
arbiters of this. It is going to be the courts. But we want to 
stop anticompetitive conduct that could raise prices, that 
could reduce innovation, that could reduce choices. And it is 
extraordinarily important, I think, that particularly--and, 
again, what the Chicago School did--and I want to go back to 
this, because in the 1960s and 1970s, there was no need to use 
our unfair methods of competition authority or little reason to 
use it because the antitrust laws were read so broadly. Now we 
have seen those laws circumscribed, I think for some very good 
reasons, and, again, the Chicago School's emphasis on 
efficiencies and rigorous economic analysis is a good thing. 
But having said that, you want us to stop anticompetitive 
conduct that harms consumers. That is what we are trying to do 
in an area where antitrust has been limited, particularly 
because of treble damages, which we are not able to get. It is 
appropriate, I believe, and I think the majority, a bipartisan 
majority of the Commission believes for us to use this 
authority on occasion. Not always.
    Senator Hatch. Thank you.
    Chairman Kohl. Thank you, Senator Hatch.
    I will now call on Senator Franken.
    Senator Franken. Thank you, Mr. Chairman. This is for the 
Assistant Attorney General.
    Ms. Varney, as you may know, I am very interested and 
concerned about the potential merger of Comcast and NBC 
Universal, and I know that you cannot discuss the specifics of 
the Comcast/NBC Universal merger, but I want to talk to you a 
bit about my concerns and ask a few questions about the way the 
Department of Justice analyzes antitrust actions certainly in 
this field.
    I have said this before, but I cannot say it enough. It 
matters who runs the media companies. The media are our source 
of information. They are the way we learn about the world and 
how we understand the world. So it is a problem when the same 
company--to me it is--It is a problem when the same company 
produces the programs and runs the pipes that bring us those 
programs.
    Now, I was working at NBC when Fin-Syn, the Financial 
Interests and Syndication, Rules were rescinded. Fin-syn had 
existed to prevent a conflict of interest. Networks were not 
allowed to own more than a very small number of their own 
shows.
    NBC promised at the time of the hearings about fin-syn that 
rescinding fin-syn would not change the way NBC treated other 
companies' programming. They said, ``We are not going to choose 
our own programming over someone else's programming. Why would 
we do that? Our interest is in ratings.''
    My first question to you is: Do you know what happened 
after fin-syn was rescinded on the networks?
    Ms. Varney. They relatively promptly favored their own 
programming.
    Senator Franken. Relatively promptly, like immediately. 
That is exactly right. And I say this as background so that you 
understand my inherent distrust of NBC's and Comcast's 
promises. It is just too easy for a media company that owns its 
own programming to favor that programming. That is a big 
problem for consumers who get less information and from fewer 
sources.
    My experience has been that media consolidation creates 
more media consolidation. When fin-syn was abolished, it meant 
that these networks could own their own shows, and they started 
to. By 1992, over 50 percent of the shows on NBC were owned by 
NBC. Well, what that did was the studios just started buying 
networks, because now they had a place to put their shows. So 
Disney bought ABC. Viacom, which owns Paramount, bought CBS. 
NBC and Universal merged. Fox owns Fox. And I am worried that 
if the NBC/Comcast merger goes through, AT&T and Verizon are 
going to buy their own networks and Hollywood studios. And if 
that happens, we are going to have a serious impact on 
independent programming.
    Now, independent programming is already declining. 
According to an analysis done by the Independent Film and 
Television Association, the percentage of independently 
produced fiction series on the national networks plunged from 
approximately 50 percent in 1989--these are independents, not 
Disney, not owned by the networks-50 percent in 1989 before 
fin-syn was rescinded to just 5 percent in 2008. Independent 
programming is critical. It is the way we get access to new 
information and new perspectives.
    Ms. Varney, what I want to ask you is: What can and will 
the Antitrust Division do to ensure that competition is 
restored in the entertainment industry and that the barriers to 
distributing independent programming are diminished?
    Ms. Varney. Well, let me assure you, Senator, we do not 
rely on promises. If a transaction is anticompetitive and 
violates Clayton 7s prohibition on substantially lessening of 
competition, we will block it. We will go to court and we will 
block it.
    As I understand your concerns--and I have tried to follow--
you have spoken publicly about this, and I understand your 
concerns in antitrust parlance to fall into two broad 
categories. You are concerned about the vertical integration 
that Comcast owning the pipes is going to favor its own 
programming and discriminate against other programming. And you 
are concerned about the horizontal overlaps in both instances.
    Senator Franken. Yes.
    Ms. Varney. The way we analyze those type of mergers--and 
you are absolutely right, this is a vertical integration with 
horizontal overlap--we will use all of the existing tools that 
we have to understand what the competitive marketplace will 
look like post-transaction. And should we have the evidence 
that guides us to the conclusion that this is a transaction 
that will meet the standards set by the courts and set by the 
law, we will challenge it.
    However, if the parties come back to us and adequately 
address our concerns that would be actionable, we would explore 
with them how those concerns could be addressed. They will not 
be addressed in promises. Should we get there--and I have not 
prejudged, and I would never speak on a specific investigation. 
But in any investigation, when we reach a consent with parties, 
those consents are binding orders of the court that we will 
enforce, and we will bring actions for violations of those 
orders.
    The fine for violations can be as high as $10,000 per 
occurrence. ``Occurrence'' is defined very narrowly so that you 
can have a massive number of occurrences off any particular 
transaction. So, in general, that is how we look at these 
mergers when they are both vertical and horizontal.
    Senator Franken. OK. Thank you for your answer.
    One of my other concerns about Comcast/NBC--and this 
impacts people in Minnesota and all over the country--is their 
cable bills. Now, it seems to me that the combined NBC and 
Comcast--and Comcast is the biggest cable carrier.
    Ms. Varney. That is right.
    Senator Franken. And one of the biggest Internet providers, 
too, so that is the future. And NBC owns not just NBC's 
programming, but all these other cable networks--Bravo, MSNBC, 
et cetera, et cetera, et cetera.
    Well, NBC can start charging Comcast twice as much for its 
programming, and for Bravo and for MSNBC. And then that means 
every other cable station has to pay the same fee. But with 
Comcast, it is going from one pocket to the other, with 
Comcast/NBC. But for the other cable owners, it creates a 
tremendously unfair advantage for Comcast/NBC, and it increases 
the cable cost, the cable bills of every American.
    So my question is: In a merger transaction involving cable 
companies, how do you analyze whether consumers' cable bills 
are actually likely to go up? And where does that figure into 
this?
    Ms. Varney. So, again, without commenting on a specific 
transaction, which we cannot do----
    Senator Franken. Absolutely.
    Ms. Varney. What you do, Senator, is you take all the 
documentary evidence, which will include both past pricing, 
future plans of pricing. You do econometric analysis. You run a 
number of both economic tests and look at direct evidence, and 
you attempt to determine whether or not there will be a 
significant non-transitory price increase that would be 
actionable under the antitrust laws.
    If you find that evidence, that is certainly something you 
would consider when you try to determine whether or not you 
block the merger.
    Senator Franken. Thank you.
    Thank you very much, Mr. Chairman.
    Chairman Kohl. Senator Specter.
    Senator Specter. Well, thank you, Mr. Chairman.
    Comcast, as it is well known, is a major constituent of 
mine in Pennsylvania, and I introduced the Comcast officials 
when the hearings were held on a number of occasions. I have 
known the Roberts family for decades. They have been very good 
corporate citizens, and they have been very fair and equitable 
in their dealings.
    Senator Franken has posed a number of theoretical 
questions, and I understand the propriety of your answers and 
the generalizations. You cannot deal with them until you really 
know exactly what is going on. And he postulates a concern that 
Verizon may make an acquisition, AT&T may make an acquisition, 
and I am sure that if that were to occur, the Antitrust 
Division and FTC would take a look at what is happening in the 
industry overall and would make a judgment if some additional 
factors were to occur in the future. But those would not be 
matters that you would consider now as to hypothetical 
situations which might arise in the future, but you would 
naturally await the events of the day, would you not, to 
consider what impact that would have on the overall market?
    Ms. Varney. Senator, as we discussed, speaking not about a 
transaction but speaking about merger analysis generally, you 
take the transaction in front of you at the time given the 
market conditions at the time. The hypothetical that you 
reference that Senator Franken brought up actually has happened 
in the past in drug wholesalers, which Jon may recall. There 
were a series of consolidations in the drug wholesaling 
industry, and if I recollect correctly, Chairman, I think the 
first one was allowed and then the second one there was too 
much consolidation. And at the time that the second one was 
proposed, a third one was simultaneously proposed. Both of 
those were declined by the Federal Trade Commission in that 
industry at that time based on the facts, and I believe they 
were both upheld by the district court.
    Senator Specter. So that if that were to occur in the 
future, you would have enough power and authority to deal with 
it as it did arise.
    Ms. Varney. I believe in any industry we have the authority 
to examine each transaction in the context of the industry as 
it exists, always informed by prior learning, informed by what 
has been the result of previous transactions in the industry. 
We take everything into account.
    Senator Specter. Senator Franken has postulated a 
hypothetical of gouging. If NBC raised its prices to Comcast, 
then NBC could charge other people the same amount of money 
using its market position to use the one-pocket-to-another 
analogy. Just speaking having known the Roberts and knowing 
Comcast, I do not think that is going to happen, but let us 
deal with hypotheticals. That is about all we are dealing with 
at the moment.
    If that were to happen, there would be authority under the 
antitrust laws to move in using that kind of market position in 
a flagrant way, as Senator Franken has described it to take 
some remedial action at that time, wouldn't there?
    Ms. Varney. Well, Senator, under Section 2 of the Sherman 
Act, of course, if a company enjoys market power and they are 
engaging in predatory acts, it would be actionable. I think it 
is important to recognize that there is a difference between 
the tests that you apply in a merger which looks at the ability 
of the company post-merger to inflict a significant, non-
transitory increase in price, and then perhaps post-merger, 
your word, gouging of an enterprise might be something that 
would be more actionable under the consumer protection laws 
than----
    Senator Specter. Well, in considering whether to approve 
the merger, you are not going to hypothesize dastardly conduct 
on the part of one of the parties so that in the future they 
may do something which is untoward. Wouldn't you await those 
events and exercise the power you have to deal with that as 
that kind of situation arose?
    Ms. Varney. Dastardly conduct will be prosecuted, without 
regard to whether there is a merger or not a merger, wherever 
we find it and our jurisdiction reaches. And I would invite the 
Chairman to comment on that. He has slightly broader authority 
than I do in that regard.
    Senator Specter. Well, it is good to establish the 
dastardly conduct doctrine so we----
    Mr. Leibowitz. Yes, I think we have established it here 
today, but it may not leave this Committee.
    I would say this: When we look at an area in the context of 
a merger--say, for example, Google/Admob, which we recently 
approved--we do not just walk away. You know, we have acquired 
some expertise. We think about these marketplaces and we think 
about other--and sometimes it leads us to other problems within 
the marketplace. So I guess I would add--that is the only 
comment I would add to Christine's----
    Senator Specter. So what you are saying, Mr. Chairman, is 
that if that occurs, you have adequate power to protect 
consumers in futurum?
    Mr. Leibowitz. We do. Perhaps not under the dastardly 
conduct doctrine, but under the antitrust laws, yes.
    Ms. Varney. You could combine that with Section 5.
    Senator Specter. Moving to another subject, I want to 
associate myself with the comments that Senator Hatch has made 
about the generic issue and discouraging the settlements. 
Chairman Leibowitz, my question is: When a matter is in 
litigation and you have a settlement which is proposed and you 
have a concern about whether the consumers are being adequately 
protected, isn't it sufficient to have that settlement subject 
to court approval to see to it that the consumers are protected 
without having the FTC intervene?
    Mr. Leibowitz. Well, I would say this: You know, we 
certainly believe in settlements, and in the period before the 
2005 cases that threw this area into some uncertainty, there 
were many, many settlements. They just did not involve money 
between the parties. And so, you know, at one level, if----
    Senator Specter. I only have a minute left. Is it 
sufficient to have the court which has jurisdiction of the case 
protect the consumers interests in approving or disapproving 
the settlement?
    Mr. Leibowitz. Well, I think that can happen sometimes, but 
here both parties have an interest in making--if there is a 
pay-for-delay deal, both parties have an interest in making a 
settlement, but the consumers are not at the table. And I think 
in the Judge Newman decision--Newman, Parker, and Pooler 
decision in the Second Circuit in Cipro just a few weeks ago, I 
think that was one of the points they made in calling for an en 
banc review in the Second Circuit, is that the----
    Senator Specter. Well, can't the court involve the consumer 
interests and hear those interests in making a determination as 
to whether to approve the settlement?
    Mr. Leibowitz. It is certainly conceivable, but I also 
think you want the FTC engaged in this issue so that if, in 
fact, there is a settlement that violates the antitrust laws, 
we can try to stop them subject to a court's determination----
    Senator Specter. Well, I would like to have the FTC 
involved if they are needed. But if a court can protect the 
interests and has the case--let me move on to another point. I 
have just a short amount of time left.
    There has been a concern raised by a constituent of mine, 
Cephalon, with respect to whether the FTC provided information 
to Apotex, which was confidential and impacted on Cephalon's 
ability to deal with its sleep drug, Provigil. Is there any 
factual basis to that?
    Mr. Leibowitz. Well, we know that there is a filing and a 
court case to which we will be responding, and Mr. Levitas over 
here, a former Committee staffer, is going to be involved in 
taking a look at this. But we do not believe there was a 
breach. I think that these companies talk amongst themselves 
all the time, sometimes, we believe, for dastardly reasons. But 
we will get to the bottom of this, and we will be responding in 
court very shortly.
    Senator Specter. So we will be hearing more about that?
    Mr. Leibowitz. You will.
    Senator Specter. One last comment. Chairman Kohl has raised 
the issue of Dean Foods, and I would like to associate myself 
with his questions. The profit margins, as I understand it, 
have gone for Dean from some $30 million in 2008 to $72 million 
plus in 2009, a time period when farmers experienced record-low 
prices for raw milk and consumers saw little or no decline in 
retail prices. I would urge you, General Varney, to take a look 
at that. That touches a very sore subject with my dairy farm 
industry. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Kohl. Thank you, Senator Specter.
    Senator Schumer.
    Senator Schumer. Thank you, Mr. Chairman. I thank both of 
you for coming. Attorney General Varney, thank you for coming 
to upstate New York, Genesee County, Batavia, where we actually 
talked about the issue of Dean Foods, and she heard testimony 
from farmers about that problem. I, too, associate myself with 
your good questions, Mr. Chairman, and I thank you, Chairman 
Leibowitz, for the good work you have done most recently on 
subprime lending. Countrywide was excellent work, excellent 
settlement, which I have been very interested in.
    First I would like to talk to Chairman Leibowitz about 
privacy issues and social networking. As you know, a number of 
us on this Committee--Senator Franken, myself, as well as 
others, Senator Bennett, Senator Begich--have talked about our 
concerns about privacy and social networking, and particularly 
Facebook sort of changing the rules in midstream. I cannot ask 
you to comment on Facebook in particular, but I do want to get 
some general concepts and general thoughts out on this issue.
    Now, in 2004, the FTC's Director of Criminal Protection 
said, ``It is simple. If you collect information and promise 
not to share, you cannot share until the consumer agrees. You 
can change the rules, but not after the game was played.''
    Do you agree with that statement?
    Mr. Leibowitz. Without respect to any particular case, I 
absolutely do. And, in fact, last year, in 2009----
    Senator Schumer. I am just going to write you down as a 
``yes'' so I can----
    Mr. Leibowitz. Write me down as a ``yes.'' Go ahead.
    Senator Schumer. OK. To put it in slightly different terms, 
do you agree that when a company changes its terms of use or 
privacy policies, it would be best to require consumers to opt 
in to any new information sharing?
    Mr. Leibowitz. Yes, and that is precisely the public 
guidance that we have made as a Commission last year.
    Senator Schumer. Good. In what circumstances is consent 
necessary before the sharing of information with third parties? 
When should consent be necessary?
    Mr. Leibowitz. Well, I think the best practice is always to 
get consumers' consent, and this is a roiling issue, you know, 
in the work that we do. And we have tried to take a two-track 
approach here. One track is we prosecute malefactors, people 
who engage in unfair or deceptive acts or practices. We had a 
major case last year against Sears for data mining. They did 
not do anything with the data, but they were taking data 
without consumers knowing. And the other thing we were doing is 
we set up a process to think through these issues, because 
obviously it is a complicated marketplace. We are going to 
write a report in the fall, and we will have something to say 
there.
    Senator Schumer. Good, because that was my next question. 
Generally, I guess, then you agree there is currently not 
sufficient guidance and regulation about how consumer data 
should be protected on social networks. That is a fair thing, 
and I guess you are saying you are going to come out with some 
guidance maybe in the fall.
    Mr. Leibowitz. I mean, there is the guidance in the sense 
that you cannot engage in unfair or deceptive acts or 
practices, but we have certainly found companies that have gone 
beyond what we think is appropriate, and then in this area, we 
really do think that there is a lot of uncertainty, and we can 
try to help push companies in the right direction. And social 
networking is----
    Senator Schumer. Right, and you are having these 
roundtables now to sort of flesh this out.
    Mr. Leibowitz. That is exactly right.
    Senator Schumer. But the guidelines that you will issue 
will not be binding or enforceable against social networking 
sites, they are just guidance. Right?
    Mr. Leibowitz. They are just guidance. That is exactly 
right.
    Senator Schumer. So if these guidelines will not be 
enforceable, what tools does the FTC have to pursue social 
networking sites that are not adequately protecting their 
users' data?
    Mr. Leibowitz. Well, I would say that we have the 
enforcement authority that Congress has given us----
    Senator Schumer. Section 5?
    Mr. Leibowitz. Section 5. It is unfair or deceptive acts or 
practices, and we will not hesitate to use this. Obviously, we 
have your very good letter in the Facebook context. We have a 
petition about Facebook. So without confirming an 
investigation--we do not do that--we are taking a look at all 
of this, both at the micro and macro level.
    Senator Schumer. Is Section 5 sufficient or might you need 
other authority to deal with this issue, which is a----
    Mr. Leibowitz. I think in this issue, in this area, I would 
say that our statute is sufficient. I would say this: As you 
know, and as I know Senator Durbin knows, and Senator Kohl, 
right now in the financial reform legislation, there is a 
debate--the House has given us expanded fining authority, which 
is something that the bipartisan majority of Commissioners 
support and Caspar Weinberger, when he was the Chairman of the 
FTC, supported. I do think in cases involving identity theft or 
spyware, you know, expanding fining authority would be very, 
very helpful. But for this particular area, this discrete area, 
I think we have the authority we need.
    Senator Schumer. Good. So get to work. You have the 
authority, get to work.
    Next is on debt settlement, a different issue. Senator 
McCaskill and I introduced the Debt Settlement Consumer 
Protection Act in April. It is the first comprehensive proposal 
introduced in Congress to address these abuses. I am also aware 
and commend you for the efforts the FTC has had to combat 
deceptive and abusive practices in this industry.
    One thing missing, though--the FTC has some proposed rules. 
That is good. One thing missing from the FTC's proposed rules, 
however, is a cap on fees that debt settlement companies can 
charge. I understand that under current law the FTC's hands are 
tied. But given your extensive work on this issue, I want to 
get your opinion, not criticize you for not putting it out.
    Our bill provides a strict cap on fees, 5 percent of the 
amount the consumer saves as a result of any settlement 
negotiated by a debt settlement provider. They have been just 
taking people to the cleaners on this. They come in and say, 
``We will settle your debts,'' and then they charge such a 
fortune that you wish they had not even helped you some of the 
time. And so we also ask that the debt settlement provider can 
only collect its fee actually after it settles the debt. They 
are busy collecting now ahead of time, and then they do not 
settle the debt. And these are poor people often who are preyed 
upon.
    So the questions are two. First, would you agree that a fee 
cap is a vital tool that would help stop dishonest and 
predatory debt settlement companies from ripping off consumers? 
And do you support prohibiting a debt settlement company from 
receiving any debt settlement fee from a consumer until the 
company has provided the consumer with documentation that a 
debt has, in fact, been settled?
    Mr. Leibowitz. So let me answer your second question first, 
if I may. We have a pending rulemaking. The proposed rule would 
ban advance fees because, as you point out, this is an industry 
that is just riddled with deceit, and there are callous 
instances--and, of course, this is true, and you have done such 
great work in the mortgage area. This is true in the 
foreclosure rescue area as well. They take the money, 95 
percent of the company is in sales, 3 percent is in re-working 
loans, and so obviously loans are not helped. And so I cannot 
comment on that except to say, you know, our pending draft 
rule, which we are in the process of finalizing, after 
consulting with the other members of the Commission, so it is 
very closely related to the solution to your second question.
    As to the first question, there are some States, as you 
know, that have placed caps. It is an idea that has been 
proffered in the context of our proposed rulemaking as well, at 
least in some of our roundtables earlier on. I want to go back 
and talk to our other Commissioners about that, but having said 
that, I commend you for your leadership here because this is an 
area that is just rife with abuse.
    And one more very quick anecdote, which is: I was driving 
with my daughter to a soccer game 2 weeks ago. She is 14 years 
old. We heard on sports radio someone saying, ``And we are a 
Government-approved debt settlement company.'' And so she said, 
``Dad, I am going to call them up,'' and she called them up, 
and she said, ``I am having problems with''--she probably 
should not do this, but she said, ``I am having problems with 
my loans. What can you do for me? '' And they said, ``Well, we 
can help you out. We have 98-percent effectiveness.'' And she 
said, ``Are you Government-approved? '' And they said, ``Yes, 
we are Government-approved.'' And she said, ``Well, what does 
that mean? '' And the person on the phone said, ``It means we 
are approved by the Government,'' which, of course, they are 
not.
    So we are well aware of these problems, and I think they 
permeate even down to teenaged children.
    Senator Schumer. It seems like you have a budding junior 
commissioner there in your car.
    [Laughter.]
    Senator Schumer. So we will put you down as in favor of--at 
least personally, in favor of----
    Mr. Leibowitz. Strongly supporting looking at that idea.
    Senator Schumer. Yes. I was going to say in favor of not 
collecting the fee before they actually solve the problem, and 
in terms of a cap, interest in checking with your 
Commissioners.
    Mr. Leibowitz. I would say on the first one, strongly in 
favor of moving through a very strong rule. You will see the 
rule very shortly, in the next month or two.
    Senator Schumer. Great.
    Thanks, Mr. Chairman.
    Chairman Kohl. Thank you, Senator Schumer.
    Senator Feingold.
    Senator Feingold. Thank you, Mr. Chairman.
    Over the past 2 years, we have seen what happens when the 
Government turns a blind eye to risky and self-serving 
activities on Wall Street. The small businesses on Main Street 
and ordinary citizens are left holding the bag. And while much 
attention has been paid to the consequences of this approach in 
the banking and the financial sectors, the hands-off regulatory 
ideology was also pervasive in other areas during the previous 
administration, such as the enforcement of antitrust laws. In 
fact, in September 2008, a majority of the FTC, including the 
current Chairman, whom I welcome here today, sightly blasted a 
DOJ antitrust report as ``a blueprint for radically weakened 
enforcement of Section 2 of the Sherman Act.''
    The FTC Commissioners further described the DOJ report as 
being ``chiefly concerned with firms that enjoy monopoly or 
near-monopoly power and prescribes a legal regime that places 
these firms' interests ahead of the interests of consumers. At 
almost every turn, the Department would place a thumb on the 
scales in favor of firms with monopoly or near-monopoly power 
and against other equally significant stakeholders.''
    Fortunately, as I urged, the current administration 
withdrew this flawed report. I have been impressed by the 
change in approach that properly makes farmers, other small 
businesses, and consumers the focus of antitrust protections, 
and I am going to focus today on competition in Agriculture, 
and especially dairy. But I want to note that I think this 
change has been seen across the board. It is particularly 
heartening that after years of hearing concerns from dairy 
farmers in my listening sessions and pressing for scrutiny of 
anticompetitive practices and enforcement of antitrust laws in 
Washington, there is finally a serious collaboration between 
the Justice Department and the Department of Agriculture as is 
shown by the upcoming joint USDA-DOJ workshop in Madison, 
Wisconsin, on June 25th. This is a great start, but the farmers 
and consumers I talk to remind me that this good policy and 
interagency cooperation needs to translate into fair 
competition and strong enforcement on the ground as well.
    So I am glad to have this opportunity to talk to both of 
you, and, Assistant Attorney General Varney, let me first take 
a moment to talk about this upcoming workshop on dairy in 
Madison. I know Senator Kohl mentioned it. I was very pleased 
when this workshop was announced, both because of the important 
topic and because you chose to hold this in our home State of 
Wisconsin. As I mentioned, at these town meetings in all 72 
counties, this is the type of feedback we get along these lines 
of encouraging public participation. I recently suggested that 
the workshop have additional sessions for public comment 
throughout the day instead of just at the end of the day, 
similar to what was done at the poultry workshop in Alabama.
    Can you confirm the Department is planning on having two 
public comment sessions?
    Ms. Varney. I can confirm that if they were not, they are 
now.
    Senator Feingold. All right. That is good to hear. One of 
the best things about these workshops is they are an 
opportunity for the Department to hear the unvarnished comments 
of farmers and cheese makers and other Wisconsinites who think 
we should be doing more to protect family farms and restore 
competition in the dairy industry. And I think it is 
frustrating sometimes for people to come from long distances 
and then just hear all of our wonderful political speeches, but 
I think you need to hear from the farmers. I think you know 
that.
    I have been a strong proponent of the need for enhanced 
Federal agency collaboration and communication with respect to 
dairy competition over the last several years. It is a very 
complex industry. It is often unclear which agency has 
jurisdiction and who should be taking the lead to resolve 
competition problems. For example, when I was a State Senator, 
I had a chart on my wall that showed the farmers' share of 
retail spending on dairy products and how the farmers' share 
had been shrinking over time. This trend seemed to roughly 
correspond to consolidation at the cooperative processor and 
retail levels. Unfortunately, the farmers' share has continued 
to shrink, and many farmers and other dairy industry observers 
suspect that someone between the farmer and the consumer is 
taking a much bigger slice of the pie than they really deserve. 
Although the Agriculture portion of the system is regulated by 
the Antitrust Division, retail distribution is controlled by 
the FTC and price discoveries at the CME, which is prone to 
manipulation and is under the jurisdiction of the CFTC.
    The bottom line is that I am encouraged by the 
collaboration between the USDA and DOJ with these Agriculture 
workshops, but I hope it is only the beginning.
    So, Ms. Varney, can you tell me what the Department is 
doing to increase outreach and collaboration with the other 
agencies on these complicated dairy and agriculture antitrust 
issues? And, Chairman Leibowitz, how is the FTC pitching in 
here? For example, is the FTC planning on being part of the 
USDA-DOJ workshop on margins where I hope many of these cross-
agency issues will be discussed? Ms. Varney.
    Ms. Varney. First, Senator, let me start with thank you for 
all the support that all of you have given us on these 
Agriculture issues. You impressed upon me how important it was 
to you during my confirmation hearing, and one of the first 
things that we did was reach out to USDA, who was extremely 
receptive to collaborating in a way that has never been done 
before.
    As you know, Attorney General Holder and Secretary Vilsack 
have both been to all the workshops and will be in your State 
next.
    It has been an unprecedented collaboration. The first thing 
that we have done is we have started up a task force of DOJ 
lawyers and USDA lawyers to look exactly at where the overlap 
is between our two jurisdictions. As you may know, the USDA 
administers the Packers and Stockyard Act, although the 
Department of Justice does some of the prosecution under that.
    So we have a group of lawyers who are now working very 
closely, who are talking to each other daily. We are creating a 
centralized office location so they can physically sit together 
and trade information as we are vigorously pursuing 
investigations that may have been dormant for several years.
    The next thing that we are doing is reaching across 
agencies and consulting with our colleagues at the CFTC. I 
would hope that the FTC will weigh in on our margins workshop. 
They have a lot of expertise there. So we are continuing to try 
and pull the Government effort together.
    At the same time, we are trying to gather as much evidence 
as we can in the field. To my knowledge, that has not been done 
before. I cannot tell you how much I learned when I went to 
Vermont and upstate New York, when I was in Normal, Alabama, 
the other day, when we were in Iowa, and I am looking forward 
to the same thing in Wisconsin.
    When you talk to the individuals who are the farmers on the 
ground and they can tell you what is happening to them on a 
day-to-day basis, you come away with an entirely different 
understanding of how the industry works, which I think makes us 
more rigorous in our analysis of what the intersection is 
between agriculture and competition policy.
    I have not prejudged anything. We have not reached any 
conclusions or any results. We are going to continue this and 
take it to wherever its logical conclusion is.
    Senator Feingold. Thank you.
    Mr. Leibowitz.
    Mr. Leibowitz. Yes, just following up, Senator Feingold, I 
am always, as you know, delighted to find any excuse to go out 
to Madison, Wisconsin, particularly during the summer. So I am 
sure that, if invited, we will be glad to have a presence 
there, and if I can do it, I absolutely will.
    You know, one of the reasons that we get along so well is 
that we work with each other and we also defer on expertise. So 
here we are happy to help out with your initiative and play a 
role. And, again, on the pay-for-delay settlement issue--and I 
apologize because now that I look at it, it does look like a 
large wheel of cheese when we say $3.5 billion a year, but 
which we do believe is costing consumers $3.5 billion. We took 
the lead on this in a brief we wrote to the Second Circuit. We 
did it jointly and collaborate together. So we will be glad to 
collaborate with you in this area as well.
    Senator Feingold. When the competition workshops were first 
announced, several farmer cooperatives expressed concern that 
the process would somehow try to demonstrate that cooperatives 
are anticompetitive. I do not think this was the intent of the 
workshops, and I have been a strong supporter of cooperatives. 
I believe they often help small farmers to negotiate better 
prices with large suppliers, middlemen, and processors. I 
realize that all cooperatives are not perfect, but, Ms. Varney, 
do you generally agree that cooperatives can have a positive 
balancing influence on agricultural markets?
    Ms. Varney. Absolutely.
    Senator Feingold. I thank you and I thank the Chair.
    Chairman Kohl. Thank you very much, and I will give Senator 
Hatch a chance to ask a question.
    Senator Hatch. I just have one further question. Then I 
have to go to the floor. I think most everybody is aware of my 
concerns about the Bowl Championship Series in college 
football. I believe that the BCS system is patently 
anticompetitive, and I believe that there are serious questions 
as to whether it is legal under the antitrust laws.
    Now, I have taken some criticism from people who believe 
that the college sports are simply too trivial to be receiving 
Government attention. Yet with just the BCS, we are talking 
about hundreds of millions of dollars every year, billions over 
time. All told, college athletics yearly is a multi-billion-
dollar enterprise for the schools, for the conferences, for 
television networks, and others. It affects students, athletes, 
and consumers throughout the country. Now, it is my 
understanding that the Justice Department is looking into the 
BCS matter, and I will not ask you to comment substantively on 
that inquiry.
    It is also my understanding that the Department is looking 
into the NCAA's rules regarding athletic scholarships. We are 
also hearing news reports about conference expansion and even 
consolidation among the bigger conferences, which could have 
enormous impact on the competitive and commercial landscape of 
college sports and could have a negative impact on the schools 
that are left out of the shuffle. Now, I would expect at the 
very least major movement in this area would get the 
Department's attention.
    Now, my question to you, General Varney: Do you believe 
that college sports are too trivial for the Antitrust 
Division's attention. To put that another way, would the fact 
that these issues revolve around college sports keep the 
Justice Department from bringing a case if the conduct was 
found to be anticompetitive? Then I would appreciate hearing 
your view on those two questions, too, Mr. Leibowitz.
    Ms. Varney. Senator, my view is that sports are business. 
They are a big business, whether they are in college or out of 
college. And so far as I know, the only enterprise that enjoys 
antitrust immunity is baseball. Other than that, all of these 
enterprises are subject to the antitrust laws.
    Senator Hatch. Right.
    Ms. Varney. We will obviously investigate, thoroughly 
pursue, and bring the appropriate action against any 
enterprise, whether it is sporting or otherwise, that is in 
violation of the antitrust laws.
    Mr. Leibowitz. I guess I would just add to this that when 
Senator DeWine and Senator Kohl took over the Antitrust 
Subcommittee in, I think, 1997 and I was one of the staff 
directors, the first hearing we did was on the BCS, the Bowl 
Alliance. And, you know, at that time it seemed to us--and you 
know this--that it was a bunch of big, large competitors who 
got together--they were universities--and excluded some of the 
little guys.
    Now, my understanding is that the rules have changed a 
little bit, I think in part thanks to prodding from this 
Committee----
    Senator Hatch. Not much. Not much.
    Mr. Leibowitz. Not much? But I know that this issue is ably 
being looked at by our sister agency.
    Senator Hatch. Well, I appreciate it because, you know, 
this is a nutty thing to me. This is very, very important, and 
what I call the preferred conferences have tremendous 
advantages in all ways over the unprivileged conferences. And 
that is just not fair in this country. And so I would 
appreciate your really giving that every thought.
    Thank you, Mr. Chairman. I thank my colleagues for letting 
me ask one more question.
    Chairman Kohl. Thank you, Senator Hatch.
    Senator Kaufman.
    Senator Kaufman. Thank you, Mr. Chairman, and thank you for 
holding this hearing. And I want to thank the two witnesses for 
their long and good service to us all. We are very much 
advantaged by your service.
    Ms. Varney, I am concerned about the language in the Senate 
financial regulatory reform bill that could eliminate in-depth 
antitrust review of certain large financial mergers. Are you 
aware of the problem? And if so, do you share my concern?
    Ms. Varney. Senator, the administration is working closely 
with the conferees as they are going into conference, and I 
believe the administration is largely committed to making sure 
that all laws are consistent with antitrust principles and 
application of the laws.
    Senator Kaufman. Can you give me any kind of formal 
assurance that the administration supports this fix? The 
conference starts next Tuesday.
    Ms. Varney. I can check for you, Senator. I do not know 
that the administration has a position on any of the specifics 
as they are going into conference.
    Senator Kaufman. OK. Could you get back to me on that?
    Ms. Varney. I will. I will report back to you. Yes, I will.
    [The information appears as a submission for the record.]
    Senator Kaufman. I am also concerned in the same bill of 
the increased concentration in the financial industry along 
with bailouts and other subsidies for banks that are too big to 
fail undermines competition by making it tougher for smaller, 
more conservative institutions to compete. What is your feeling 
about that?
    Ms. Varney. I think, Senator, that we are keenly aware of 
bottlenecks in competition in any industry, including in 
financial industries. So as we continue to look at the 
competitive forces in the industry, we will be shining a 
spotlight on barriers to competition. If there are enterprises 
that have market power that are imposing barriers to 
competition, we will certainly vigorously enforce our laws.
    Senator Kaufman. Great. The Patient Protection and 
Affordable Care Act, the health care bill, calls for the 
creation of insurance exchanges to help individuals purchase 
affordable health insurance. What role do you see for the 
Federal antitrust laws and competition policy in making sure 
that there is adequate competition among these exchanges?
    Ms. Varney. A very vigorous role, Senator. We are working 
with the administration, with HHS right now, giving our input 
into how we ensure the exchanges are designed in a way that is 
as competitive as possible.
    As you may know, we, I want to say, forced the abandonment 
of a transaction in Michigan where Blue Cross/Blue Shield was 
trying to acquire another enterprise that would have left them 
with a significant market share. And we are aware around the 
country of the significant concentration that can exist, so we 
are committed to ensuring that the exchanges foster and promote 
competition in insurance in order to expand coverage and get 
lower costs for everybody.
    Mr. Leibowitz. If I could just----
    Senator Kaufman. I was interested in your comments.
    Mr. Leibowitz. Yes, if I could just add that I agree with 
everything that the Assistant Attorney General said. You know, 
I would also say that, at least from my perspective, I am 
supportive of modification of McCarran-Ferguson.
    Senator Kaufman. Great.
    Mr. Leibowitz. And then due to a 1980 law--we like to think 
it is antiquated and someday it will be changed--we cannot even 
write a report--and we have a terrific Public Policy Office. We 
cannot even write a report on health insurers without the 
permission--I think we will get it ultimately--of the majority 
of members of the Commerce Committee. So we used to have the 
authority to write reports. Apparently, some people did not 
like--I can tell you I suspect we know who did not like some of 
the reports we wrote in the 1970s, and we no longer have that 
authority. We would love to have it back someday.
    Senator Kaufman. Great. I think that is----
    Mr. Leibowitz. And we are also working, obviously, with all 
of the entities and stakeholders to try to ensure that health 
care reform works for everybody.
    Senator Kaufman. Yes, this is really key, and I think 
competition is key, and I think what happens in the exchanges 
is key. So both of you being involved, that would really be 
helpful.
    Ms. Varney, I believe that generic competition is vital to 
many of our markets, and this includes the market for crop 
seed. Some people charge that some leading seed manufacturers 
manage evergreen or extend the patents on their products by 
asserting dubious patent claims designed to thwart generic 
competition. Is that a problem you are aware of? And if so, 
what can we do about it?
    Ms. Varney. Senator, we have confirmed publicly that we 
have an investigation into the seed industry, and we are very 
aware of your concern. Certainly any practice like that that 
was anticompetitive would be something that we would be 
interested in.
    Senator Kaufman. Chairman Leibowitz, have you run into this 
evergreening problem?
    Mr. Leibowitz. We see it to some extent in the 
pharmaceutical area where, for example, in the quintessential 
case--I do not know that this has ever happened--would be if 
you changed a pill to a tablet to extend your monopoly or your 
patent longer because you would have a patent on the new way 
to--you would not have a patent on the core substance of the 
medicine, but you would have it on the way in which it is 
disseminated into the human body. So we have some concern about 
evergreening. I think the State Attorneys General had a case 
several years ago involving evergreening of patents and got a 
settlement, and we are going to keep an eye out for this.
    Senator Kaufman. Good, and I would like to yield my time 
back to the diligent Assistant Majority Leader.
    Chairman Kohl. Senator Durbin.
    Senator Durbin. Let me thank the Senator from Delaware. I 
appreciate that. I tried to shame him into a good work.
    [Laughter.]
    Senator Kaufman. Half worked.
    Senator Durbin. Half worked. Thank you very much. And, Mr. 
Chairman, thanks for having this hearing, and because the 
Federal Trade Commission is in the loving arms of the Financial 
Services Subcommittee of Appropriations, which I chair, and we 
recently held a hearing--I am going to spare Mr. Leibowitz 
today from questions, but I would just like to direct a few to 
Ms. Varney, who is here. Thank you very much for joining us.
    Let me first ask you a hypothetical question. You remember 
these from the highly regarded Georgetown Law Center.
    Ms. Varney. I do.
    Senator Durbin. If Coca-Cola said in one of their stores 
that was selling Coke, ``You cannot offer a discount for the 
sale of Pepsi in this store,'' and Pepsi said the same thing 
about Coke, would that be a restraint of trade?
    Ms. Varney. Hypothetically speaking, Senator, if that 
existed, we would almost certainly investigate it to determine 
whether or not there was a restraint of trade that violated the 
Sherman Act; and if there were, we would prosecute.
    Senator Durbin. So right now, beyond the hypothetical into 
another area, Visa and MasterCard each sets of operating rules 
that they impose on everyone who accepts their cards for 
payment. Visa has a rule that says if a merchant accepts Visa 
cards, the merchant cannot offer a discount to encourage a 
customer to use a competing network, MasterCard. MasterCard, lo 
and behold, has a similar rule. The card companies penalize 
merchants who offer a discount in violation of these rules.
    Now, a few years back, in 1998, the Justice Department 
brought a lawsuit against Visa and MasterCard charging they had 
conspired to restrain trade by prohibiting member banks from 
issuing American Express and Discover cards. The court found 
that Visa's and MasterCard's rules were a substantial restraint 
on competition in violation of the Sherman Act. In that 
litigation, the trial court found, and the Second Circuit 
agreed, that Visa and MasterCard had market power within the 
card network services market. ``Market power'' has been defined 
by the Supreme Court to mean the power to control prices or 
exclude competition.
    In general, when companies have market power, do they 
deserve extra scrutiny to ensure they are not acting to 
diminish competition?
    Ms. Varney. In general, when companies have market power, 
they have an obligation to obey the law as laid down by the 
Supreme Court in Lorain Journal, Microsoft, Aspen Skiing, and 
any predatory acts they engage in will be investigated.
    Senator Durbin. For the record, the Visa/MasterCard duopoly 
controls about 80 percent of the credit card market. I have 
been concerned about their market dominance and the existence 
of competition within their marketplace. And I have addressed 
the interchange fee system that they have created.
    Visa and MasterCard set the interchange fee rates that 
merchants ultimately pay to card-issuing banks whenever a card 
is used or swiped. Every bank in the network receives the same 
fee rate under the system. This means that banks do not compete 
with one another to lower their fees by managing their costs 
more efficiently. It also means that merchants cannot negotiate 
with banks or comparison shop to reduce their fees.
    Now, it troubles me that we have a system where Visa fixes 
the price for a fee that a merchant must pay to a bank. You can 
see how the banks would have incentive to collude within the 
card networks to keep the fees high.
    It also troubles me that Visa and MasterCard can use their 
market power to prohibit merchants from offering certain types 
of discounts to their customers. I tell the story of going out 
to the Washington National Airport, and the lady in front of me 
at the cash register put a package of chewing gum on the 
counter and handed over a credit card. And I said, as she left, 
to the cashier, ``Now, is that the lowest amount you ever put 
on a credit card? '' She said, no, 35 cents was the lowest 
amount that she could remember.
    It goes without saying that most merchants will lose money 
on that transaction after they have paid the basic swipe fee 
and interchange fees and obviously for the cost of the product. 
But they are prohibited currently by the rules established by 
both credit card companies, both credit card giants, from 
offering discounts for cash, offering discounts for those who 
will use debit cards, or favoring one card over another, which 
I mentioned earlier.
    It has been reported in the press, Ms. Varney, that the 
Justice Department is conducting an investigation of the credit 
card networks, including Visa, to see if they are engaging in 
anticompetitive practices. Can you confirm the Justice 
Department is indeed conducting such an investigation?
    Ms. Varney. Senator, we have publicly confirmed that we 
have an open investigation into the credit card industry.
    Senator Durbin. Well, I understand your limits in speaking 
about that investigation, and I respect them very much. I might 
also tell you that in the course of having passed this 
amendment, much to the surprise and chagrin of the credit card 
companies, there is now a full-court press to try to change it, 
which is their right. But it appears to be a very coordinated 
campaign. These two great competitors coordinate in many, many 
ways. I have written to them and said that I think that it is 
permissible for companies to work together in advocacy. I was 
concerned that the advocacy is leading to conduct, and 
specifically my concern is this: Under the amendment, which 
passed the House of Representatives in financial reform, we 
provide that the interchange fees that are charged for debit 
card transactions will be judged by the Federal Reserve as to 
whether or not they are reasonable and proportional. And we 
draw a line, and the line is a financial institution issuing a 
card with assets less than $10 billion. It does not apply to 
hometown banks, smaller-city banks, or credit unions with 
assets less than $10 billion, any provision of what I am 
suggesting. And that would mean that literally three credit 
unions in the United States would be affected by my amendment 
and about 80 or 90 banks. And so now we are being told from 
reliable sources that many of these credit unions and banks are 
being warned that if the Durbin amendment is not rejected in 
conference, whatever hit they take on the interchange fees from 
the largest banks, they are going to pass along to the smaller 
banks that are not covered by the amendment. They have that 
market power. They can just do it almost unilaterally.
    This to me is way beyond free market and competition, and I 
am not going to go any further or ask you to comment because 
you have said that this matter is under investigation. But it 
is the reason I wanted to take the time, wait my turn, and come 
today so that it is a matter of record for my colleagues and 
also for these two major credit card giants that their activity 
is such that it should be carefully scrutinized considering 
their market positions.
    Thank you for being here today.
    Ms. Varney. Thank you, Senator.
    Senator Durbin. Thank you, Mr. Chairman.
    Chairman Kohl. Thank you very much, Senator Durbin.
    We now turn to Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Mr. Chairman. Thank 
you, both of you. We had a Commerce hearing, and I just came 
over from there. We got some good work done in marking up some 
bills.
    I first wanted to start, Mr. Leibowitz, with a case that I 
have asked you about before, and this really came out of a 
hearing, a Commerce hearing, when I brought to your attention a 
drug that is used to treat children's hearts, that went 
suddenly from $36 per vial to $500 per vial, and I wanted to 
talk to you about the status of that case with Ovation. I know 
that closing arguments were heard. I brought it to your 
attention. The FTC brought a lawsuit, and this came to my 
attention from doctors, children's doctors, and patients' 
families all over Minnesota. And I want to thank you again for 
taking on that case, and I wondered what the status of it is.
    Mr. Leibowitz. I think--and let me just check with my 
staff. We are awaiting decision on that, right? Yes, I think 
that we are awaiting a decision, and I have to say this was one 
of the most--I thank you for your work on this because it was 
one of the most important cases we have brought in the last 
year. For those of you who do not know about it, it involved a 
company, Ovation, that manufactured a drug, one of only two 
drugs used for infants born with premature heart conditions, 
heart defects. And then they bought--under the Hart-Scott-
Rodino threshold, they bought the only competing drug, and then 
they raised prices exactly in the manner you describe, from--we 
used a different calculus, but we can use yours. It is the 
same. From, we would say, $100 to $1,500 per use or per 
treatment, but the same at 36 to 500.
    And so we went to trial. They would not settle, and we are 
hoping to get money back to all of the people--and the 
insurers, quite frankly, but not always insurers--who paid 
skyrocketing prices. And, again, you know, the only two drugs 
used--it tells you what happens when a company has monopoly 
control over a vital product. We think it violates the Clayton 
Act, that it substantially lessens competition, and we hope 
that the judge will agree.
    Senator Klobuchar. Well, very good, and I had actually in 
another health care area asked you a question or wrote you a 
letter about this in the past, and it is the issue of pharmacy 
benefit managers and their relationships with large pharmacies. 
As you know, PBMs are involved in the reimbursement of most 
prescription drug claims, and in 2007, CVS and Caremark merged. 
Since the merger, consumers have reported difficulty accessing 
their drugs as a result of restrictive plans that steer them 
away from their local pharmacists to CVS, which may be miles 
away in another town. Consumers and non-CVS pharmacies have 
also complained that the merger has imposed harsh and unfair 
administrative requirements on the non-CVS pharmacies. In some 
cases, patients who do not elect to fill prescriptions through 
Caremark's mail-order business are charged higher co-pays.
    Could you talk about any work being done in this area and 
your reaction to this? And if you want to add anything, Ms. 
Varney.
    Mr. Leibowitz. Yes, I would be happy to. I can say this 
because the company has already acknowledged it. We have an 
open investigation of CVS/Caremark. It is one of those rare 
investigations--hopefully, it will be less rare in the future--
where we have people from both our Bureau of Competition and 
our Bureau of Consumer Protection working on this. I do not 
think I can say much more other than that we have--I have 
personally met with CVS/Caremark as well as a number of family 
pharmacists or local pharmacists, and we are in the process of 
receiving documents. We are going to work through this. Thank 
you.
    Senator Klobuchar. Thank you.
    Do you want to add anything, Ms. Varney.
    Ms. Varney. Ongoing investigation. I will leave it at that.
    Senator Klobuchar. Very good. Pay-for-delay, I know Senator 
Kohl has mentioned this, and I want to thank him for his 
leadership--I am a cosponsor--that would make these pay-for-
delay agreements between pharmaceutical companies and generic 
companies to get generic drugs to staff the market rather than 
offer low-cost alternatives that would make them presumptively 
illegal. It is a step in the right direction.
    Do you think that this will--will this be enough to halt 
these types of settlements, or is there more work to be done?
    Mr. Leibowitz. Well, if we pass the legislation that 
Senator Kohl introduced with Senator Grassley and that you are 
a cosponsor of, I think that would go a very long way to 
stopping the worst abuses. As you can see, in 2005, when there 
were a couple of decisions that allowed these--very permissive 
decisions that allowed these deals, the number went from zero 
in the previous year, and it has only continued to be the way--
not for every pharmaceutical company because some of them frown 
on this behavior, but the way that some pharmaceutical 
companies have been doing business. And, of course, it is win-
win for the companies; it is lose-lose for consumers. And you 
can see that the number has gone up from zero in 2004 to three 
right after the tamoxifen insuring decisions to 19.
    Obviously, we are hopeful that Congress can pass a 
legislative solution. The President supports it. It was part of 
his health care bill. The House has passed legislation. The 
Judiciary Committee has reported out legislation.
    And then the only other point I would make is that in a 
major decision in the Second Circuit that our agencies worked 
on together, along with the Solicitor General's office, the 
Second Circuit, which had a very permissive rule, just about 6 
weeks ago called for an en banc--said that they disagreed in an 
en banc--in a per curiam decision said that they disagreed with 
the previous standard enunciated by the Second Circuit and 
called for an en banc review. So we are hopeful that the tide 
is turning not only in Congress but also in the courts, and, 
again, for us this is a huge issue, $3.5 billion a year back to 
consumers' pockets.
    Senator Klobuchar. Ms. Varney.
    Ms. Varney. As the Chairman mentioned, that is the Cipro 
case in the Second Circuit where the United States has filed in 
favor of a presumption, a rebuttable presumption but a 
presumption, against such payments. We are anxiously awaiting 
to see if it will go en banc, and it would require the Second 
Circuit to overturn Tamoxifen, which we believe is the right 
result, but it remains to be seen whether en banc review will 
be granted and what the en banc court will do.
    Senator Klobuchar. OK. Very good. I was frustrated--I know 
many of us were--that this should have been part of the health 
care bill also. Obviously, I would have liked to have seen the 
reimportation as well as allowance for negotiating under 
Medicare Part D, and we are just going to have to keep pushing 
for that independently. I think all of those things would help 
with the pricing of pharmaceuticals.
    The last thing I just wanted to mention was just I have 
been working a lot on innovation--it is the Subcommittee I head 
up--and I really believe it is the key to bringing ourselves 
out of this economic rut and exporting. And I know that the FTC 
is involved in a lot of investigations in the high-tech area, 
and I just would like to know how you balance that with your 
mission to protect customers and consumers and the need to 
allow for innovation in our country, and then also to prevent 
anticompetitive conduct.
    And I guess I would also add to that, if a company is 
taking, even outside of the high-tech field, if they are taking 
steps to address problems that some competitors may feel are 
anticompetitive, do you take these measures into account when 
determining whether to investigate a company that is even 
beyond the high-tech area? Mr. Leibowitz.
    Mr. Leibowitz. So usually our antitrust enforcement and our 
support of innovation are complementary because one of the best 
ways to ensure innovation is to have competition. So there is 
not usually a tension. And just going back to the pay-for-delay 
issue, what we have found and what we strongly believe is that 
the companies that are most likely to pay off--the brands that 
are most likely to pay off the generic competitors are the ones 
who have the weakest patents. And so it really does discourage 
innovation if you have these payoffs that prevent people from 
innovating around patents.
    Was the question do we listen to--the second one, do we----
    Senator Klobuchar. When companies are clearly trying to do 
something about what may be perceived or is anticompetitive 
conduct, they are taking measures on their own, do you take 
that into account when you decide whether to investigate?
    Mr. Leibowitz. I think it might depend on the circumstance, 
but the answer is, you know, we always talk to stakeholders. We 
always try to survey to determine the market. We listen to 
competitors sometimes in the merger context. Sometimes they 
have self-interested things to say, and sometimes they have 
legitimate things to say, and sometimes it is both. But I would 
say just recently, you know, we did a very extensive 
investigation of Google's acquisition of Admob, and part of the 
determination from the Commission's perspective to let that 
deal go forward without challenging is--because we had been 
inclined, I think, to challenge it--was the things that Apple 
was doing on a different platform and the changes it made in 
its terms of service.
    So I think under appropriate circumstances we do look to 
see what the marketplace is doing. That is part of the way you 
determine, for instance, in a merger context, whether a deal 
may substantially lessen competition, which is the standard we 
apply and the Antitrust Division applies.
    Senator Klobuchar. Ms. Varney.
    Ms. Varney. So if I understand your question, Senator, do 
we take into account if an alleged anticompetitive action has 
ceased when we are determining whether to open an 
investigation. Generally, every matter is unique, but generally 
not in the determination as to whether or not to open. If we 
believe that there is anticompetitive action or practices that 
are restraining trade or diminishing competition and we have a 
credible basis for that belief and it has an effect on the 
economy and on consumers, generally we would open an 
investigation.
    Now, if the company in question, if it was an aberrant 
decision, if it was something done in good faith that they did 
not realize was----
    Senator Klobuchar. My question was specifically about 
taking account for measures to address it, if it was something 
that they realized they did wrong or would be perceived or have 
an effect that they did not----
    Ms. Varney. So what we would generally do as a matter of 
practice is we would look at every investigation, once we have 
opened it, and while we want to give good actors credit for 
doing the right thing, we also balance that against what I 
would call a recidivist problem. So I think we cannot give an 
absolute answer.
    Obviously, when you have good corporate citizens that are 
trying to do the right thing, that will factor in to what your 
ultimate remedy is. At the same time, you want to make sure you 
have the right ongoing protections for the American consumers. 
So it is always a balancing. It is always on the facts at hand.
    Senator Klobuchar. Exactly, and just again the promise with 
some of these innovations that we want to promote, I am sure it 
is always a balancing act. But I am hoping that you will 
consider that. You know, when I look at things like delaying 
the entry of generic drugs, that seems to me pretty obvious it 
is not a good thing. But some of these things I know are fuzzy 
lines, so I appreciate you taking that into account.
    Thank you.
    Chairman Kohl. Thank you, Senator Klobuchar.
    Ms. Varney, railroad antitrust, one of the very few 
industries to enjoy an exemption from antitrust is the freight 
railroad industry, as you know. Because of this exemption rail 
shippers have been victimized by the conduct of dominant 
railroads, and they have no antitrust remedies, as you know. 
Higher rail shipping costs are passed along to consumers which 
result in higher electricity bills, higher food prices, and 
higher prices for manufactured goods, as you know. So I have 
introduced a bill that abolishes obsolete antitrust exemptions 
for railroads. The bill has passed the Judiciary Committee by a 
14-0 vote. Companion legislation has passed the House Judiciary 
Committee.
    At your confirmation hearing, you indicated that you 
supported this legislation, and we have repeatedly asked you 
for a letter of support, and we have never received one. I 
assume you are very busy and you have not chance to read the 
letter----
    [Laughter.]
    Chairman Kohl.--and that we are going to be getting a 
letter of support from you very shortly, or do I misunderstand?
    Ms. Varney. Senator, I read your mail immediately, so I 
think we have corresponded. I am working hard inside the 
administration. They are aware of your request for a statement 
of administration position on that legislation, and I will 
continue to try and get that.
    Chairman Kohl. Is it fair to say that you do support repeal 
of that exemption and to the extent that you are in a position 
as the Assistant Attorney General to do something about it?
    Ms. Varney. Well, Senator, as you know, antitrust is 
generally allergic to exemptions, and we were very pleased to 
work with you and Senator Leahy and others trying to remove the 
exemption for insurance companies in McCarran-Ferguson. And it 
is with the same vigor that I am pursuing getting a statement 
of administration policy on your legislation.
    Chairman Kohl. All right. Mr. Leibowitz, the newspaper 
industry has been under tremendous pressure. As you well know, 
in the digital age, more and more consumers as they abandon 
traditional print newspapers in favor of online sources of 
news, advertisers have followed. Newspapers ad revenues have 
gone into a sharp decline, according to an FTC staff report 
released last week that newspaper advertising revenues have 
fallen over 45 percent in the last decade, as you know. 
Declining fortunes of the newspaper industry is distressing to 
all of us who care about newspapers and believe that the in-
depth reporting is so very important in our country.
    The Federal Trade Commission has been holding a series of 
workshops regarding the problem of the newspaper industry. Some 
have argued for, among other things, a relaxation of antitrust 
requirements so that newspapers can jointly require consumers 
to pay for access on the Internet. And there are other 
proposals that have been suggested.
    What is your view on this? How important do you think it is 
that we find a way, if we can, to allow newspapers to remain 
viable?
    Mr. Leibowitz. So let me answer the last part of that 
question first, which is, as Assistant Attorney General Varney 
noted, we have a very strong allergy toward any exemptions from 
the antitrust laws. And I would think that that would not be 
something that the Commission would endorse.
    There have been some other ideas that have been proffered 
in our workshops including taxing electronic equipment to 
subsidize newspapers. I think that is a terrible idea. But I do 
think this is a really important initiative because, you know, 
cable news, network news, and newspapers have clearly seen a 
dramatic erosion of viewership or readership. And we all know 
newspapers are absolutely vital--newspapers and news media are 
absolutely vital to our democracy and for a democracy to 
thrive.
    And so we have been examining how all this change affects 
consumers. We are going to do a roundtable next week. We are 
going to release a report, and hopefully we will have something 
for policymakers to think about in the fall.
    I will just make one other comment, which is I was in 
Chicago a couple of months ago, and I went and I visited 
something called the Chicago News Co-op. It is a startup formed 
by former Chicago Tribune reporters. It is the only startup I 
have ever visited where the average age is about 65. But it is 
a startup, nevertheless, and they are trying to develop a 
vibrant news organization. And their idea is to have three 
people covering Cook County, three people covering City Hall, 
and three people covering the State House in Springfield. If 
they do that, they will have more people in each of those 
bureaus than the Chicago Tribune will. And that was just an 
astonishing fact to me about how things have changed.
    I went back and I talked to the Small Business 
Administration because I thought here is a great startup, they 
are struggling for money, maybe the SBA can help them. And so 
it turns out they are ineligible to get SBA loans. It seems to 
me that regardless of platform--this happens to be an online 
platform. And I am speaking only for myself. We have not made 
recommendations from the Commission. You know, people who want 
to startup a news organization regardless of platform, 
regardless of, you know, their political beliefs, they ought to 
be eligible like other small businesses for loans.
    So we are looking at this. It is an interesting issue. We 
will keep this Committee involved.
    Chairman Kohl. Ms. Varney, there have been two major 
airline mergers since 2008--first Delta and Northwest and now 
the currently pending United/Continental. Merging airlines 
argue that these deals are necessary due to the poor economic 
conditions and high costs in the industry. We all recognize the 
tough times endured by the industry in the last decade, 
including things like terrorist attacks, fuel spikes, as well 
as the recession.
    Some smaller airlines, however, some competitive airlines, 
are concerned with their ability to compensate against the 
large national legacy carriers because the smaller carriers do 
not have the international route structures, huge networks, and 
the expansive frequent-flyer programs enjoyed by the legacy 
carriers. Smaller airlines are also worried about their access 
to airport slots and gets at important airports like New York 
La Guardia and Washington Reagan National.
    I know you cannot comment on the pending United/Continental 
merger, and I am not asking you to, but what are your views on 
the state of airline competition generally. Are you concerned 
at all about the challenges facing smaller and startup carriers 
trying to compete with the larger carriers?
    Ms. Varney. Absolutely, Senator, we are concerned about the 
airline industry. We are concerned about the competition in the 
airline industry which leads to lower prices for consumers 
generally.
    We have been very active, particularly with the Department 
of Transportation. As you know, we have filed twice on 
applications for global immunity when it comes to the alliances 
that they are putting together. We have been very active in the 
proposed slot swap, which is now moving through the system. And 
I think our views are fairly well known, and that is, we want 
to see competition, and we want to see competition in city 
pairs, in airport pairs. We want to see competition for slots. 
We want to see competition at the gates.
    So any merger that we are looking at, we will use our 
traditional tools to examine whether or not the merger is 
likely to substantially lessen competition, and we will seek to 
block the merger or seek appropriate remedies should the 
parties want to remedy any anticompetitive issues as they go 
forward in a merger.
    If I can comment for 1 second on the newspapers, you may 
know that recently the Associated Press came to us and asked 
for a business review letter to allow them to set up a 
collaboration consistent with the antitrust laws that would 
allow a lot of the print newspapers to effectively and 
efficiently in a pro-competitive manner license their 
copyrighted material to a variety of sources. We have worked 
closely with the AP, and we have provided them the guidance and 
approval they need. They think it is a very important step for 
them and their members to continue to compete in this changed 
world.
    We have also, under the Newspaper Preservation Act, been 
charged with enforcing the law permitting the joint operating 
agreements for newspapers around the country, and we have seen 
a lot of change in those markets, and we have worked closely 
with the enterprises in those markets to try and help them find 
solutions that can remain competitive and supportive of the 
news function as we move into a new age.
    Chairman Kohl. Thank you so much.
    Senator Klobuchar, do you have any thoughts or questions?
    Senator Klobuchar. Well, just a little follow-up. I was 
listening actually to the newspaper issue. I grew up in a 
newspaper family, and there is a similar operation in Minnesota 
called MinnPost, which is an online newspaper where it has a 
lot of retired reporters, including my Dad, Chairman Kohl, who 
wrote every Monday after each Viking game in the fall, 
reporting on, of course, Brett Favre. A detail that----
    Chairman Kohl. I am sorry. What is that?
    [Laughter.]
    Senator Klobuchar. But in any case, I have grown to 
appreciate some of the online newspapers, and also I appreciate 
what you said, Ms. Varney, because I do think that paying for 
contents, those kinds of things are going to be critical as we 
go forward. And I appreciate the Justice Department working on 
this.
    Another issue that I understand was raised when I was at 
the Commerce hearing on your agricultural competition 
workshops, so I understand you already answered that we do 
invite USDOJ and USDA personnel to come out to Minnesota. We 
are the No. 1 turkey producer in the country. You could, like I 
did, take a tour of the Jennie-O turkey processing plant, and 
half an hour later eat a turkey burrito with the CEO, if you 
can do that, if you are ready for Minnesota. But we obviously 
would like to help in any way. It is a very important industry 
in our State.
    And I just wanted to end with one question on something I 
care a lot about, and that is the cell phone marketing, Mr. 
Leibowitz, and what is going on there. I have a bill, along 
with Senators Webb and Feingold and Begich and others, to pro-
rate the early termination fees for cell phones. It has come 
out now that in a recent study two out of three Americans have 
seriously considered switching cell phone providers but 
ultimately decided to stay with their current provider because 
of a cancellation fee. Obviously, we are working with the FCC 
on that, and they have started to open that up. But I have 
found it to be not good for competition, the fact that people 
cannot move around, and there are these outrageous fees. They 
move somewhere, their cell phone service does not work. But as 
far as the FTC involvement, there is still bill shock going on. 
People do not understand what is on their bills. And I wondered 
if the FTC has involved itself at all with any of the cell 
phone advertising issues about service areas and things like 
that.
    Mr. Leibowitz. Well, it is a great question, and I actually 
had lunch with the Chairman of the Federal Communications 
Commission yesterday, Julius Genachowski, who is obviously 
working very, very hard on this bill shock issue. 
Unfortunately, those phones are considered to be common 
carrier-regulated, so we do not have jurisdiction over them. 
But I can certainly say that any efforts--and Senator Kohl had 
a pricing initiative last year on this matter. Any efforts to 
move forward on consumer protection and competitive pricing I 
think would be really appreciated by the consumers in your 
State and consumers in America.
    Senator Klobuchar. Thank you very much. I appreciate it.
    Chairman Kohl. Well, we thank you so much for being here. 
Oversight is an important part of our job, and you have been 
very forthcoming today. I think you have shed a lot of light on 
important issues, and in that sense, what you have done here is 
really important. Thank you.
    Ms. Varney. Thank you, Senator.
    Mr. Leibowitz. Thank you.
    [Whereupon, at 4:03 p.m., the Subcommittee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]

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