[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE ANTITRUST
ENFORCEMENT AGENCIES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INTELLECTUAL PROPERTY,
COMPETITION, AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
DECEMBER 7, 2011
__________
Serial No. 112-98
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
_____
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COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania JARED POLIS, Colorado
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada
Sean McLaughlin, Majority Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------
Subcommittee on Intellectual Property, Competition, and the Internet
BOB GOODLATTE, Virginia, Chairman
BEN QUAYLE, Arizona, Vice-Chairman
F. JAMES SENSENBRENNER, Jr., MELVIN L. WATT, North Carolina
Wisconsin JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
STEVE CHABOT, Ohio JUDY CHU, California
DARRELL E. ISSA, California TED DEUTCH, Florida
MIKE PENCE, Indiana LINDA T. SANCHEZ, California
JIM JORDAN, Ohio JERROLD NADLER, New York
TED POE, Texas ZOE LOFGREN, California
JASON CHAFFETZ, Utah SHEILA JACKSON LEE, Texas
TIM GRIFFIN, Arkansas MAXINE WATERS, California
TOM MARINO, Pennsylvania HENRY C. ``HANK'' JOHNSON, Jr.,
SANDY ADAMS, Florida Georgia
MARK AMODEI, Nevada
Blaine Merritt, Chief Counsel
Stephanie Moore, Minority Counsel
C O N T E N T S
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DECEMBER 7, 2011
Page
OPENING STATEMENTS
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Subcommittee on
Intellectual Property, Competition, and the Internet........... 1
The Honorable Melvin L. Watt, a Representative in Congress from
the State of North Carolina, and Ranking Member, Subcommittee
on Intellectual Property, Competition, and the Internet........ 3
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Ranking Member, Committee on the
Judiciary, and Member, Subcommittee on Intellectual Property,
Competition, and the Internet.................................. 4
WITNESSES
Jon Leibowitz, Chairman, Federal Trade Commission
Oral Testimony................................................. 6
Prepared Statement............................................. 9
Sharis A. Pozen, Acting Assistant Attorney General, Department of
Justice Antitrust Division
Oral Testimony................................................. 27
Prepared Statement............................................. 29
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, Ranking
Member, Subcommittee on Intellectual Property, Competition, and
the Internet, and Member, Subcommittee on Intellectual
Property, Competition, and the Internet........................ 5
Prepared Statement of the Honorable Michael Grimm, a
Representative in Congress from the State of New York.......... 173
APPENDIX
Material Submitted for the Hearing Record
Response to Post-Hearing Questions from Jon Leibowitz, Chairman,
Federal Trade Commission....................................... 176
Response to Post-Hearing Questions from Sharis A. Pozen, Acting
Assistant Attorney General, Department of Justice Antitrust
Division....................................................... 179
OVERSIGHT OF THE ANTITRUST ENFORCEMENT AGENCIES
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WEDNESDAY, DECEMBER 7, 2011
House of Representatives,
Subcommittee on Intellectual Property,
Competition, and the Internet,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:04 a.m., in
room 2141, Rayburn House Office Building, the Honorable Bob
Goodlatte (Chairman of the Subcommittee) presiding.
Present: Representatives Goodlatte, Quayle, Sensenbrenner,
Coble, Chabot, Issa, Jordan, Adams, Amodei, Watt, Conyers, Chu,
Deutch, Lofgren, Jackson Lee, and Johnson.
Staff Present: (Majority) Holt Lackey, Counsel; Olivia Lee,
Clerk; and (Minority) Stephanie Moore, Counsel.
Mr. Goodlatte. Good morning. This hearing of the
Subcommittee on Intellectual Property, Competition, and the
Internet will come to order. This hearing will conduct
oversight of the two agencies that share responsibility for
enforcing America's antitrust laws, the Department of Justice
Antitrust Division and the Federal Trade Commission's Bureau of
Competition.
When applied in a predictable fashion based on sound
economic principles, the antitrust laws preserve a free and
competitive economy. Antitrust laws protect against monopolies,
cartels, and combinations that would abuse market power to
enrich themselves at the expense of competition and American
consumers. If the antitrust laws go unenforced, competition and
consumers will suffer. If they are over enforced, they can give
unfair advantage to specific competitors and thwart pro-
competitive practices that benefit consumers. But when applied
correctly, the antitrust laws protect competition rather than
competitors and intervene in our free market economy only to
the extent necessary to preserve competition.
Thanks to an improved understanding of economics and the
history of antitrust laws' original intent, antitrust case law
and enforcement has become much clearer and more predictable
over the past 40 years. Today's hearing is about Congress
ensuring that the two Federal agencies charged with enforcing
the antitrust laws, the Department of Justice and the FTC,
continue to do so in the most balanced, clear, and predictable
way as possible.
Particularly in this difficult economy, the antitrust laws
must set clear rules of the road by which job creators and
consumers can do business, and although antitrust is more
predictable than it was 40 years ago, there are still areas of
inefficiency and uncertainty that I hope to explore in today's
hearing.
I am particularly concerned that merging companies are
often uncertain about which agency will review their merger.
The two antitrust agencies share responsibility for the merger
review process and decide between themselves which agency will
review any given merger by a process known as clearance. In
many cases, clearance is reasonably clear because one agency or
the other has expertise in the industry involved. However,
jurisdiction may be hotly disputed in high profile matters or
when neither or both agencies have relevant expertise.
The process by which the agencies resolve clearance
disputes is opaque. There are stories which do not inspire
confidence of clearance disputes being settled by coin tosses,
jump ball arrows or back room deals. This uncertainty about
clearance can affect Americans' ability to predict whether a
given merger will be approved. Because of different rules that
apply to the two agencies, it is widely believed that mergers
that are reviewed by the Federal Trade Commission are less
likely to win approval than mergers that are reviewed by the
Department of Justice.
The first step in a merger challenge for both agencies is
to apply in court for a preliminary injunction blocking the
merger pending further proceedings, but courts apply a lower
standard to preliminary injunction requests by the FTC than to
the DOJ. After the preliminary injunction phase, the FTC may
challenge the merger in an administrative proceeding while the
DOJ must bring its challenge in Federal Court. This also makes
it easier for the FTC to block a merger.
These disparities harm the predictability of the merger
review system. That is why the prior Obama administration
Assistant Attorney General for Antitrust, Christine Varney,
said, and I quote, ``I don't think we want to foster a system
where the legal review, the result of your merger depends on
which agency it's in front of. I would recommend to the
Congress that they start to think about how to rationalize
that.'' I would like to accept Ms. Varney's recommendation and
invite today's witnesses to help this Committee think about how
to rationalize these disparities.
There are a number of other oversight issues respecting the
transparency, predictability, and fairness of the antitrust
system that this Committee should explore today. These issues
include but are not limited to the scope of the FTC's authority
under Section 5 of the FTC Act, how the proposed closure of DOJ
field offices will affect the budget, DOJ's increasing reliance
on conduct remedies in merger cases, and whether the agency's
recent guidance regarding the antitrust treatment of
accountable care organizations will provide clarity and
certainty to health care providers trying to adjust to the new
health care law.
All of these issues are important to creating the clear and
predictable rules for free market competition that are
necessary to grow the economy.
I look forward to today's hearing, and it's now my pleasure
to yield to the Ranking Member of the Subcommittee, the
gentleman from North Carolina, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman, and I want to thank you
for convening this hearing, and I want to enthusiastically
welcome our witnesses today.
Since the beginning of this session of Congress, this
Subcommittee and/or the full Judiciary Committee have held
hearings on pending mergers before your agencies. We have
evaluated, predicted, and sometimes second guessed how a
particular proposal should be processed and investigated by you
and your staffs. My philosophy in this context has always been
to try to participate in the process to actively educate our
constituents on complex matters that are in the process of
being analyzed beyond the public eye. I appreciate the fact
that we will never have access to all the facts and data on
which you base your determinations of whether to approve or
disapprove a given merger with or without conditions, and we
are therefore ill equipped to pass definitive judgment on any
pending proposal. So I am pleased that you are here today to
provide us with insight on your leadership, collaboration, and
approaches to enforcement of the laws within your respective
and sometimes joint jurisdiction.
Your written submissions have certainly raised specific
areas appropriate for congressional oversight. For example,
what is the effectiveness of behavioral conditions imposed on
approved mergers? Should Congress enact legislation prohibiting
pay-to-delay settlements? How should we evaluate the
intersection between patent protection and competition, and are
there policy gaps for Congress to fill in that space? What
challenges do we face in coordinating antitrust policy
internationally?
I hope that some of my colleagues will explore some or all
of these issues, but my interests are particularly dominated by
one merger in particular, not with respect to the specifics of
the merger but the debate it inspired within the FTC and in the
academic literature. That merger is the Google/DoubleClick
merger and the debate it has ignited about whether or to what
extent privacy should be an element of antitrust enforcement,
especially in the online environment. I believe that the
prospect of compromising privacy is a price consumers pay for
most online services. Simply by logging on to a computer,
consumers surrender their privacy. Personal information is
required, collected, shared, used, sold, tracked, and retained
frequently without our knowledge.
Chairman Leibowitz, as you noted in your concurring
statement approving the Google/DoubleClick merger, quote,
``This rampant tracking of our online conduct as well as the
resulting consumer profiling and targeting raises critical
issues about the sufficiency of companies' disclosure, the
depth of consumers' understanding and control of their personal
information, and the security and confidentiality of the
massive collection of sensitive personal data.'' And former
Commissioner Pamela Jones Harbour in dissent noted that while,
quote, ``A minority of consumers will share their most intimate
details with anyone on the Internet, on the radio or on
national television, privacy principles should protect the
majority of consumers who do care about their privacy and who
would prefer greater transparency about the use of their
personal information.''
Various academics have also weighed in on these issues,
posing the question whether traditional antitrust enforcement
is currently inadequate to protect privacy and whether the
Department of Justice and the FTC should expand the scope of
analysis to include privacy and other sociopolitical issues in
the competition calculus. Because I am ever more convinced that
one of the most important things we can do as policymakers is
to preserve our privacy protections online, I'm very interested
in your perspectives on the future of privacy and how it
relates to or plays out under the antitrust laws.
Just yesterday we liberalized the prospect or the manner in
which consumers can give up their privacy online, and I note
also that you recently approved a privacy settlement involving
Facebook, and if I have some time I may want to inquire into
that further.
Mr. Chairman, I thank you for convening this hearing. I
think it's a very important hearing, and I yield back the
balance of my time.
Mr. Goodlatte. I thank the gentleman, and it's now my
pleasure to recognize the Ranking Member of the Judiciary
Committee, the gentleman from Michigan, Mr. Conyers.
Mr. Conyers. Thank you, Chairman Goodlatte. We welcome the
witnesses. It's worth noting that both of your agencies have
done more to enforce our antitrust laws than in previous years,
but that doesn't give me much comfort. American and
transnational conglomerates are getting away with incredible
violations of the law. Companies--Google, Monsanto, Goldman
Sachs--have acted repeatedly with impunity, engaging in
unlawful, anticompetitive practices knowing that they can
exploit the loopholes in a government system whose antitrust
and criminal enforcement resources and commitment are not very
strong.
So it's my hope that this is the first of a series of
hearings that will go on in terms of antitrust enforcement.
Strong antitrust enforcement is critical because free markets
and competition, which are supposed to be the foundation of our
system, can only thrive when there is a strong enforcement in
this area of the law. Weak antitrust enforcement stifles job
creation and weakens the economy. The previously accepted
phrase ``too big to fail'' sums it all up. When companies like
AIG, CitiGroup, and a number of Wall Street predators become so
large that our entire economy depends on their continued
success, which may incorporate unethical or illegal activity,
then the economy has become too concentrated and too distorted.
Three years after the financial distress Wall Street has
put us in, not one Wall Street CEO has been imprisoned. In each
case when our Federal antitrust enforcers have stepped up, they
have helped restore competition to the market and protect
consumers. The challenge to block H&R Block and TaxACT merger,
the ongoing suit to block the AT&T proposed acquisition of T-
Mobile, the FTC last year settlement with Intel are all
consumer wins. We wait to see what will happen with today's
headlines, the Aetna-Blue Cross dispute in Michigan that the
Justice Department has actively intervened into, the FTC's work
on anticompetitive pay-for-delay agreements among
pharmaceutical manufacturers that have so far frequently kept
generic drugs off the market. Only action will protect American
consumers and jobs, and so I am aware of enforcement efforts
have increased over the last couple years.
This year the Federal Trade Commission challenged 17
mergers believed to be anticompetitive, but it isn't enough.
Google attempts to purchase Motorola, Verizon teams up with the
new Comcast NBC Universal on shared service ventures, and as
the whims of Wall Street investment firms wreak havoc on the
global economy, we need antitrust to become a top priority for
our law enforcement system.
I'll put the rest of my statement in the record, and I
think you get my drift. Thank you, Mr. Chairman.
[The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, Ranking Member, Committee on
the Judiciary, and Member, Subcommittee on Intellectual Property,
Competition, and the Internet
Thank you Chairman Goodlatte for convening this oversight hearing
today.
Although it is worth noting that both of your agencies have done
more to enforce our antitrust laws than the previous one, this gives me
little comfort. American and transnational conglomerates get away with
murder. Companies like Google, Monsanto, and Goldman Sachs often act
with impunity when it comes to engaging in unlawful and anti-
competitive practices because they know they can exploit gaping
loopholes and a government whose antitrust and criminal enforcement
resources and commitment are weak.
Strong antitrust enforcement is critical to our Nation. Free and
competitive markets are the foundation of our economy.
Weak antitrust enforcement stifles job creation and brings weakness
to the economy. The phrase ``Too-big-to-fail'' sums it all up: when
companies like AIG, CitiGroup, and the Wall-Street-Robber-Barrons
become so large that our entire economy depends on their success: the
economy has become too concentrated and distorted. It is shocking that
three years after Wall Street bludgeoned the US and world economy, not
one Wall Street CEO has gone to prison.
In each case when our federal antitrust enforcers have stepped up,
they have helped restore competition to the market to protect
consumers. The Justice Department's successful challenge to block the
H&R Block/TaxACT merger, ongoing suit to block AT&T's proposed
acquisition of T-Mobile, and the FTC's 2010 settlement with Intel are
wins for consumers. Promising developments may come with the Justice
Department's challenge against Blue Cross Blue Shield's conduct in
Michigan and the FTC's work on the anti-competitive pay-for-delay
agreements among pharmaceutical manufacturers that keep generic drugs
off the market.
Only action will protect American consumers and American jobs. Now
I am aware that enforcement efforts have increased over the last two
years. For example, during Fiscal Year 2011, the Federal Trade
Commission challenged 17 mergers believed to be anti-competitive.
But this is not enough. As Google attempts to purchase Motorola, as
Verizon teams up with the new Comcast-NBC-Universal on shared service
ventures, and as the whims of Wall Street Investment firms wreak havoc
on the global economy, we need consumer- and competition-oriented
antitrust to become a top priority for our government.
__________
Mr. Goodlatte. I thank the gentleman, and the opening
statements of other Members of the Committee will be placed in
the record without objection.
Before I introduce the witnesses, as is the custom of the
Committee, I would ask them to stand and be sworn.
Do you and each of you swear that the testimony you're
about to give is the truth, the whole truth, and nothing but
the truth, so help you God?
[Witnesses sworn.]
Mr. Goodlatte. Thank you very much. Our first witness today
is Federal Trade Commission Chairman Jon Leibowitz. Mr.
Leibowitz was sworn in as an FTC Commissioner in 2004 and was
designated Chairman by President Obama in 2009. Before joining
the Commission, Chairman Leibowitz served in several capacities
as Chief Counsel to Senator Herb Kohl from 1989 to 2000,
including as Democratic Chief Counsel and Staff Director of the
U.S. Senate Antitrust Subcommittee from 1997 to 2000. Leibowitz
also worked for Senator Paul Simon from 1986 to 1987. Before
joining the Commission, Mr. Leibowitz served most recently as
Vice President for Congressional Affairs for the Motion Picture
Association of America from 2000 to 2004. A Phi Beta Kappa
graduate in American history from the University of Wisconsin,
Leibowitz graduated from the New York University School of Law
in 1984.
Our second witness is Acting Assistant Attorney General for
Antitrust, Sharis Pozen. Ms. Pozen became the acting head of
the Antitrust Division in August 2011 upon the resignation of
Assistant Attorney General Christine Varney. Previously Ms.
Pozen served as Chief of Staff and Counsel to Ms. Varney.
Immediately prior to joining the Department, Ms. Pozen was a
partner in the Washington, D.C. office of Hogan & Hartson, LLP,
where she served as Director of the firm's Antitrust Practice
Group. Prior to joining Hogan & Hartson in 1995, Ms. Pozen held
several positions at the Federal Trade Commission, where she
began her professional career in 1989. Ms. Pozen received her
JD from Washington University Law School in St. Louis in 1989
and her BA from Connecticut College in 1986.
I want to welcome both of our witnesses, and Mr. Leibowitz,
we'll begin with you.
TESTIMONY OF JON LEIBOWITZ, CHAIRMAN, FEDERAL TRADE COMMISSION
Mr. Leibowitz. Thank you, Chairman Goodlatte, Ranking
Member Watt, Mr. Conyers, Mr. Sensenbrenner, Mr. Deutch, and
Ms. Lofgren for inviting me here to testify today on the FTC's
current antitrust activities, and I'm happy to be here with my
colleague Ms. Pozen.
Let me start with what I hope is modestly good news for the
economy, premerger filings are up. In fact, there were twice as
many filings this year as compared to 2 years ago. That means
companies are beginning to feel more confident about the
future, and it's also good news for consumers because the vast
majority of mergers don't raise competitive issues, and indeed
some may create benefits. Of course, we review merger filings
to determine which ones may substantially lessen competition.
That's our standard under the Clayton Act.
In fiscal year 2011 we brought, as Mr. Conyers noted, 17
merger enforcement actions. Most of the time that means we
negotiated divestiture of assets to remedy a problem, and we
let the rest of the acquisition go forward, but this year the
FTC went to Federal Court four times to stop mergers, so it has
been a busy year for us.
As this Committee knows, the FTC has jurisdiction over a
wide swath of the economy. Mr. Watt noted that we spend a lot
of time thinking about and involved in privacy issues on our
consumer protection side, and in both our consumer protection
and our competition missions, we try to focus on sectors where
our action will do the greatest good for the greatest number of
people. It's a utilitarian approach, and these include energy
technology and of course health care.
As spending on health care approaches 18 percent of our
GDP, the FTC has redoubled its efforts to combat illegal pay-
for-delay pharmaceutical settlements, prevent harmful
consolidation, and formulate policies that will support
innovative health care collaborations. One area of health care
competition that has required particular attention this year is
hospital mergers. Several years ago under Republican Chairman
Tim Muris we conducted retrospective studies of consummated
hospital mergers to examine their effects, and we found in some
instances that prices had gone up substantially. That formed
the basis of the Commission's challenge to a previously
consummated hospital merger of two hospitals serving Evanston,
Illinois. Since then the Commission has successfully challenged
an impending hospital merger in Northern Virginia, and this
year alone we have challenged three others, leading us to
believe we might be witnessing the start of a wave of
consolidation that could raise prices and reduce quality of
care for American consumers and patients. Sometimes we've
alleged these. Hospital mergers have used what we think is a
misapplication of what's known as the State action doctrine as
a fig leaf for their deals.
Another area of focus at the FTC is high tech industries.
The proper application of competition principles in the high
tech arena can be difficult, but it is critical. Antitrust
enforcement can stop illegal conduct that chokes off avenues
for new firms to challenge incumbents and that was the crux of
our case against Intel, and we resolved it in a way that's good
for consumers and also allowed Intel to continue to innovate
going forward.
Sometimes, however, market facts suggest that the FTC take
a wait-and-see approach, as we did when we determined not to
challenge Google's purchase of AdMob. I think we made the right
call here. Competition between Apple's iPhone and Google's
Android platforms has led to an explosion of mobile
applications. We will continue to pursue this balanced course,
intervening only, as you mentioned, Chairman Goodlatte, when
warranted to protect consumers and competition for the
competitive process.
Energy markets continue to demand the Commission's
attention. There's only so much that households can do to
reduce their gasoline consumption, so higher fuel prices
severely cut into a family's ability to buy other necessary
goods or save for the future. Recently we opened an
investigation when we observed unusual behavior among certain
oil refiners. Their profit margins were going up while
simultaneously their utilization rates were going down.
Let me also touch upon our authority under Section 5 to
stop unfair methods of competition. As you know, Congress
granted Section 5 authority to the FTC when it created our
agency in 1914. Section 5 is a carefully balanced tool that
allows us to go modestly beyond the ambit of the antitrust laws
to stop anticompetitive conduct, but it limits the remedies we
may apply, and it makes it more difficult to bring follow-on
private class action lawsuits. We have unanimous, bipartisan
support within the Commission to use Section 5 in appropriate
circumstances, circumstances in which competition itself is
harmed.
For example, we used Section 5 to challenge invitations to
collude most recently against U-Haul. This attempt to fix
prices in the truck rental market in Florida couldn't be
reached under the antitrust laws because there was no actual
agreement or meeting of the minds about raising prices, but it
is conduct that can and should be stopped.
Finally, let me mention our antitrust policy work. We are
in the midst of what might be called an antitrust renaissance.
The working partnership with our colleagues at the Antitrust
Division has recently produced two significant policy
documents, a revision to the horizontal merger guidelines and a
statement of enforcement policy for accountable care
organizations. These joint efforts help to bring clarity and
consistency to the law, guidance that benefits the business
community and law-abiding companies.
We look forward to continuing to work side by side with the
Department of Justice as well as with State attorneys general
to promote competition for the benefit of American consumers
and businesses.
Thank you. Happy to take questions after Ms. Pozen speaks.
[The prepared statement of Mr. Leibowitz follows:]
Prepared Statement of Jon Leibowitz, Chairman, Federal Trade Commission
__________
Mr. Goodlatte. Thank you, Mr. Leibowitz.
Ms. Pozen, welcome.
TESTIMONY OF SHARIS A. POZEN, ACTING ASSISTANT ATTORNEY
GENERAL, DEPARTMENT OF JUSTICE ANTITRUST DIVISION
Ms. Pozen. Thank you and good morning. Is this on? Thank
you and good morning, Chairman Goodlatte and Members of the
Subcommittee, and thank you for the opportunity to appear
before you. It's an honor to serve as Acting Assistant Attorney
General and to work with the Department's leadership and the
dedicated, talented division career staff, and our front office
team.
When the Attorney General announced my appointment, he said
it would be a seamless transition. That is my focus, continued,
vigorous antitrust enforcement, transparency, and certainty for
consumers and businesses.
Echoing what's been said this morning, competition drives
our economy. Vigorous antitrust enforcement preserves
competition and delivers American consumers lower prices,
higher quality goods, and more innovation. We take a measured
approach to the antitrust law enforcement and rely on sound
competition and economic principles. We evaluate each matter
carefully, thoroughly, and in light of the particular facts.
The division's major competition initiatives include civil
merger and nonmerger enforcement, criminal enforcement,
competition advocacy, and international activities. We have
focused on mergers and conduct that harm consumers and stymie
innovation in critical industries. Efficient and effective
merger review and enforcement are among our core priorities.
When reviewing mergers, we quickly identify those
transactions that raise no competitive issues and let them
proceed, and fiscal year 2011 demonstrates that. We cleared 98
percent of the transactions we reviewed without requesting more
information. For the remaining 2 percent we identified the
transactions that required enforcement. In many of these the
parties proposed remedies to resolve the competitive problems,
and we entered into consent agreements. In other cases, when
the parties did not propose effective remedies, we went to
court.
As was noted, among these is our successful lawsuit to stop
H&R Block from acquiring TaxACT, a transaction that would have
left American taxpayers with only two major digital do-it-
yourself tax preparation providers, leading to higher prices,
lower quality products, and less innovation. The court agreed
and blocked the proposed merger, which was an important victory
on behalf of the 40 million American consumers who use this
type of tax software.
We also sued AT&T regarding its proposed acquisition of T-
Mobile. While I can't provide details of the pending court
matter, I can say, as articulated in our complaint that was
filed in court, this transaction, if consummated, would
substantially reduce competition in mobile wireless
telecommunications services across the United States, resulting
in higher prices, less innovation, and lower quality services
in an industry that is important to millions of American
consumers and businesses.
In addition, we continually seek to improve our
transparency in merger enforcement. The revised horizontal
merger guidelines the Chairman referred to which were released
with the FTC last year and our updated policy guide on merger
remedies have helped achieve this goal.
Our civil, nonmerger enforcement is an important way we
vigilantly police the Nation's markets against anticompetitive
conduct. For example, we have an ongoing court challenge to
Blue Cross/Blue Shield of Michigan's use and enforcement of
most favored nations clauses in its hospital contracts, which
distort the competitive process. We also challenged a Texas
hospital's use of exclusionary contracts with health insurers
through which the hospital maintained its market power, and our
litigation against American Express concerning merchant fees
continues, and we are also investigating the electronic book
industry along with the European Commission and with States
attorneys generals.
Our criminal enforcement program continues to achieve
remarkable successes. In fiscal year 2011 the division filed 90
criminal cases, which is up from 60 cases filed in fiscal year
2010. We obtained over $520 million in criminal fines, we
charged 27 corporations and 82 individuals, and courts imposed
21 jail terms, totaling more than 10,000 days of jail time.
These cases were brought in a range of important industries,
including real estate, auto parts, financial services, and the
air transportation services.
One example is the division's ongoing international cartel
investigation into price fixing and bid rigging in the auto
parts industry. This has already resulted in one corporation
and three individual guilty pleas, a $200 million fine, and
three separate jail terms for executives. This case involved
hard core, pernicious price fixing that could only have
resulted in inflated prices on the parts found in every
American consumer's car.
Also thriving is our competition advocacy program. Our
competition advocacy efforts focus on sectors important to
Americans' everyday lives, such as health care, agriculture,
and finance.
On the international front, we remain mindful of
international issues in our day-to-day investigations and
policy work, recognizing that our decisions can affect
consumers and businesses elsewhere. We have looked to
strengthen relations with emerging economies such as China and
India. Last summer we, along with the Federal Trade Commission,
signed a memorandum of understanding with all three Chinese
competition agencies. We and the FTC expect to sign an MOU with
India in 2012. We are a leader in international competition
groups, and since 2009 we have led the global dialogue on
procedural fairness and transparency issues in these
organizations. The accomplishments I have highlighted today and
my testimony depend on the dedication of our division career
staff. I can tell you it is an honor and a privilege to serve
with them.
Chairman Goodlatte, Ranking Member Watt, and Members of the
Subcommittee and Committee, thank you again. I am pleased to
answer your questions.
[The prepared statement of Ms. Pozen follows:]
__________
Mr. Goodlatte. Thank you, Ms. Pozen. Chairman Leibowitz,
I'm going to start with a question that does not relate to your
antitrust jurisdiction but is an issue of concern to this
Subcommittee. In fact, we've held a hearing on it, and that is
related to ICANN, the Internet Corporation for Assigned Names
and Numbers, which is about to open an application window that
could result in the creation of an unlimited number of new
generic top level domains.
In the past, you have spoken about how difficult it is to
identify the true owner of domain names and how that causes
harm and hampers law enforcement efforts in the case of
Internet fraud and consumer deception. Do you have an opinion,
Mr. Chairman, about ICANN's plan to roll out hundreds, maybe
even thousands of new gTLDs, and how would that impact
consumers and the FTC's consumer protection mission?
Mr. Leibowitz. So this is an area, of course, where your
intellectual property jurisdiction and our consumer protection
jurisdiction intersect, and I would say at the Commission we
are very, very concerned that this rollout of new gTLDs has the
potential to be a disaster for consumers and for businesses,
and let me tell you briefly why we think that's true.
We bring a lot of Internet fraud cases, as do our sister
law enforcement agencies around the world, as does the Criminal
Division and CCIPS in the Department of Justice, and what we
have found is that domain names are often registered under
fraudulent or registered with using fraudulent names, using
inaccurate contact information, and if you are a criminal or a
scam artist, you want to do it that way because you want to
make it harder for us to go after malefactors. We worry that if
ICANN goes broadly and if it doesn't ensure accuracy in its
Whois database, which is terribly inaccurate, again, when
you're going after people engaged in ripping off consumers,
this is going to be exponentially worse. And then there is also
a burden on businesses.
Of course, businesses don't want to go up against phishing
sites, and think about how many different ways you can spell
the name Marriott and now multiply it by all these new domain
names, domains, but they also will have to--at I think $180,000
per new gTLD, businesses will have to defensively register all
of their names, and so our sense is it's burdensome to
businesses, it could be very harmful to businesses and their
brands as well as to consumers. We see enormous costs here to
consumers and businesses and not a lot of benefit, and so we
are working with consumer protection agencies around the world
who also have concerns, and we want to work with this
Committee. I know Senator Rockefeller and the Senate Commerce
Committee is holding a hearing tomorrow, and we want to work
with you. It's a real problem unless they make some changes and
ensure accuracy.
Mr. Goodlatte. Thank you. I have got to get some other
questions in here, but let me just ask you one follow-up.
Mr. Leibowitz. Sure.
Mr. Goodlatte. We share your concern. Have you expressed
your concerns to the Secretary of Commerce and others in the
Administration who have maybe the last chance to exercise some
influence here to get this changed?
Mr. Leibowitz. We have been talking to the Commerce
Department. We'll continue that. And I think in the not-too-
distant future, we will also be talking directly as a
Commission to ICANN about this.
Mr. Goodlatte. Thank you. And now to antitrust. The
Antitrust Modernization Commission recommended that Congress
enact legislation to require the agencies to clear all Hart-
Scott-Rodino merger cases within a short period of time to
prohibit the FTC from pursuing administrative litigation in
Hart-Scott-Rodino merger cases and to ensure that the same
standard for the grant of a preliminary injunction applies to
both agencies. Would you both agree that if the goal is to put
parties on an even footing, regardless of which agency reviews
their merger, then these are reasonable steps? Mr. Leibowitz?
Mr. Leibowitz. I would say that the system that Congress
has designed, which has some procedural differences but results
in the same standards, you have to show you're going to win on
the merits is one that works pretty well. I know back when the
Commission issued its report, which I read very closely, there
was a lot of concern about clearances fees, but particularly
about the timing of resolution of merger reviews. I don't think
those problems exist anymore, so I understand their
recommendation. I don't believe that was a unanimous
recommendation, although I will get back to you, but I think
when the heads of the FTC and the Antitrust Division act in the
best public interest we get these disputes resolved. And I
think ultimately the----
Mr. Goodlatte. Do you disagree with the principle that
companies should have equal rights regardless of whether the
merger happens to clear to the FTC----
Mr. Leibowitz. No, of course I agree with that, but I
think----
Mr. Goodlatte. FTC or the DOJ?
MR. Leibowitz. But I think that the different procedures,
which again were set up by Congress, are ones that result in
the same outcome. I don't think its outcome determinative
whether you go to the FTC or whether you go to the Antitrust
Division. We ask for a preliminary injunction and they ask for
a permanent injunction. And in one of our last preliminary
injunctions, by the way, the Commission got a preliminary
injunction to block a hospital merger in Cleveland, Ohio, and
the parties decided, as is their right, to come back and get a
full trial before the FTC. So I agree with the baseline
principle that parties deserve full, fair, and objective and
speedy resolution by both the Commission and the Antitrust
Division. They deserve the same standards. I think that they
get them.
Mr. Goodlatte. Let me ask Ms. Pozen to answer the same
questions.
Ms. Pozen. No, sure, and many experts have reviewed this
process, you know, the shared jurisdiction between our two
organizations. I think that typically in the reports you're
citing to and others, folks agree that if you had to build this
from scratch you might not build it in the same way it is
today, with the overlapping jurisdiction and the clearance.
Mr. Goodlatte. What's the impediment to rebuilding it to
attempt to achieve that kind of fairness?
Ms. Pozen. I would leave that in the hands of Congress,
sir. It is in the hands of Congress.
Mr. Goodlatte. And what would be your recommendation to us?
Ms. Pozen. Well, I don't know if I have a specific
recommendation on that. You know, we work with the system as it
exists, and we try to work efficiently and effectively to clear
transactions, to make it clear to the parties right away which
agency will be handling that review. We each have expertise.
There are times when our expertise----
Mr. Goodlatte. Well, let me get back to my specific
question at the outset. Do you think these specific
recommendations of the Antitrust Modernization Commission are
reasonable steps for the Congress to take?
Ms. Pozen. I think that there are reasonable steps that can
be taken to ensure that clearance is done in a timely manner.
We do the best we can with the system that exists. If you
determine that you want to change and Congress wants to change
that system, we would be happy to work with you on how to do
that.
Mr. Goodlatte. That's helpful, but not in terms of the
advice about the merits of the underlying question. But I'll
now turn to the gentleman from North Carolina, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman. Your questions remind
me, I sit on the Financial Services Committee, too, and there's
uniform agreement that the SEC and the CFTC should be merged,
but we've got two Committees in Congress dealing with them, and
they've got a history of existing, and nobody wants to
undertake that. We didn't try to do it in Dodd-Frank because we
knew it was a ballistic mine.
So, anyway, I raised some issues about privacy in my
opening statement, and I want to pose three questions that I
hope you will address in writing because I don't think we can
really deal with them sufficiently in the 5 or 6-minute time
frame.
First question, are the privacy concerns you, Mr.
Leibowitz, and former Commissioner Harbour expressed in the
Google/DoubleClick decision unique to online advertising or do
they apply to the Internet generally?
Second question, is the current privacy framework and
enforcement mechanism sufficient to meet the challenges online?
And, third, a similar question to the one Mr. Goodlatte
asked, how would you integrate privacy protection into
traditional antitrust analysis and help us define the role of
Congress in that space?
If you could respond to those off line and not take the
time to do it this morning because I think it's far too complex
to do, I would certainly appreciate it.
Mr. Leibowitz. We will do that.
Mr. Watt. All right. I know I can't ask Ms. Pozen this
question, but I know you have an extensive background in the
Antitrust Division also, and I was thinking maybe you could
express your opinion about whether the Department of Justice
did the right decision to proceed to litigation in AT&T/T-
Mobile merger, if you have one. I'm not trying to put you on
the spot. Yes?
Mr. Leibowitz. You know that Ms. Pozen can't talk about it.
Mr. Watt. Yeah, I know she can't talk about that, right.
Mr. Leibowitz. I'll just say this, it is a----
Mr. Watt. Either you agree with it or you don't agree with
it or you don't want to express----
Mr. Leibowitz. Well, I don't think I can say I agree, but I
certainly agree that it is a major merger, it has enormous
effect on consumers, and we are very supportive of the work and
the effort that the Antitrust Division has put into this
matter, and it will be resolved, and I don't think I can say
much more than that.
Mr. Watt. Okay. All right.
Mr. Leibowitz. So I think I'll stop there.
Mr. Watt. Well, you punted, okay. I'm interested in the
process by which you get to these policy statements such as the
horizontal merger agreement that you all have worked out. This
strikes me, and maybe I'm missing something here, as similar to
a rulemaking process. Is that the process you are going
through? Are people, is the public allowed to comment publicly
on these processes or should they be or how do you
differentiate this from a rulemaking process?
And then the last question I'll have is about some concerns
that were raised by Ms. Pozen about your hospital litigation
because one of the concerns I'm having in my local community is
that the hospitals have become pretty big operations, and they
are now excluding physicians who have all of the qualifications
to practice at, practice medicine from doing procedures in
their hospitals because they have these exclusive agreements
with a particular group of doctors, excluding all other
doctors. It's an integrated operation up and down the line, but
it seems to me that it has some policy implications. I'm
wondering if you agree and, if so, what would be the
appropriate process for a particular physician or somebody else
calling your attention to this and getting a review of a
particular situation?
So those are my questions. I'll leave the rest of the time
for you all to answer.
Mr. Leibowitz. All right. Let me take the first question on
horizontal merger guidelines. It's not a rulemaking. We do
occasionally do rulemakings, although we're more of an
enforcement agency usually on the consumer protection guide.
This is more guidance, and it's guidance to courts and
practitioners, and the reason we do it is courts like to look
at the guidelines as they go through a merger analysis, it's
helpful to them, and stakeholders, going back to the certainty
point that the Chairman mentioned, want to know how we look at
mergers. And so what we did beforehand was we went out and we
talked to all the stakeholders, including Jim Rill, who was the
head of the Antitrust Division when the 1992 guidelines were
issued, and we said is it appropriate after 18 years for us to
come back and take another look? And I think there was----
Mr. Watt. How are you defining stakeholders in that
context?
Mr. Leibowitz. Stakeholders, businesses----
Mr. Watt. Okay. All right.
Mr. Leibowitz. Consumer groups.
Mr. Watt. So you did get input?
Mr. Leibowitz. We did. And then there was a general
consensus that if we moved in an evolutionary and not a
revolutionary way, that that would be a good thing for business
certainty and a good thing for those who were involved in the
merger process and ultimately also a good thing for consumers,
and so there were some areas where there was a consensus to
make some modest changes. One was to raise the HHIs for safe
harbors because experience had told us that the old levels were
too low and took some things out of safe harbors. Another was
we wanted to have a little less emphasis on market shares.
They're important, but they're not the be-all, the end-all.
They're a starting point. And then----
Mr. Watt. I didn't want to go into the details, I was just
trying to----
Mr. Leibowitz. Right, right.
Mr. Watt. I was just trying to--I was discussing the
process more than----
Mr. Leibowitz. And then we had a vote. And then the only
other point I would make is we had a vote, it was unanimous
among Commissioners.
Ms. Pozen. Yeah, I would add that this was distinction,
this was an attempt to update guidance that had been in
existence for many years but hadn't been updated for 17 years,
so to your question we did initiate a process. Our agencies
formed a working group. We had workshops throughout the United
States. They included antitrust practitioners, corporations,
international antitrust authorities as well participated in
those. We took those comments back because our first question
was should we update these? Should we spend our resources and
time doing this? And we got a unanimous chorus from everyone
out there saying yes, they should be updated. Then it was a
careful process of updating. We did publish those actually on
the FTC Web site for comment, and then took those comments into
account to come out with what is our final 2010 Horizontal
Merger Guidelines.
I would note that the H&R Block case I talked about in the
court opinion, it's about an 80-page opinion, a thorough
analysis of that merger. The judge relied heavily on the 2010
Horizontal Merger Guidelines in her analysis.
Mr. Watt. Should you----
Ms. Pozen. Do you want me to answer your question about the
physicians?
Mr. Watt. You can do it in writing if you would prefer, if
the Chairman would prefer. I'm well over my time.
Ms. Pozen. I'm happy to--I can make it quick if that helps.
We both share jurisdiction in the health care markets. At the
Department of Justice we have a group of experts who really
know health care from both the insurance side and the provider
side. As I mentioned, the Texas case, that was a hospital
engaging in exclusive contracts with insurers. The kind of
scenario that you're describing where you have physicians and
you feel like they're being excluded, the process they would
follow is to contact the chief of our Litigation 1 section,
Josh Soven. The name is readily available on our Web site, and
he would listen to any complaint and process it accordingly. So
that's the process that someone would follow who has those
issues.
Mr. Watt. And I will follow up in writing with the first
three questions I outlined just so you don't have to try to
remember them.
Mr. Leibowitz. Thank you.
Mr. Watt. Thank you.
Mr. Goodlatte. I thank the gentleman.
Mr. Watt. Yield back.
Mr. Goodlatte. The gentleman from Arizona, Mr. Quayle, the
Vice-Chairman of the Subcommittee, is recognized for 5 minutes.
Mr. Quayle. Thank you, Mr. Chairman. Thank the witnesses
for being here. Ms. Pozen, when we had Attorney General Holder
here in May, I asked him a question regarding the jurisdiction
between the FTC and DOJ when sometimes it overlaps and there's
no clear barrier in terms of who is going to actually have that
jurisdiction, whether it be a merger, an enforcement action,
and sometimes it's actually been reported that it results in a
coin flip or trade bargains to actually see who actually has
the jurisdiction.
Ms. Pozen. Uh-huh.
Mr. Quayle. And I just wanted to see if there was an update
because Attorney General Holder said that, you know, they have
been working to try to alleviate that, and I wanted to see how
that is going. Are there a more clear path on when the FTC is
going to have jurisdiction and when the DOJ is going to have
jurisdiction, when they both have experience in that area?
Ms. Pozen. Well, and you're focused on exactly the first
step. When a merger is notified, it's notified to both of our
organizations. If it's in an industry where we do have
overlapping expertise, because that is the starting point is
expertise, we look to our staffs to try to articulate that
expertise as it relates to the particular merger as quickly as
possible. Our teams engage right away and start talking to each
other about that expertise. If it ends up that it is equal,
which is very, very rare--usually one agency has more expertise
than the other, but there are, as I said, converging industries
where just over time things have gotten blurred--I would work
with the Chairman, and we have done so in the time since I've
been Acting AAG, and we come to an agreement very quickly and
effectively. So that's at least been my experience as Acting
Assistant Attorney General.
Mr. Leibowitz. So let me just follow up on your question,
Mr. Vice Chairman, and Ms. Pozen's answer. If it comes up to
our level, we are very unhappy because they need to resolve
these issues and act like adults. We gave statistics I think
last year to the Subcommittee, but I think in well over 95
percent of the cases these are resolved on the basis of
expertise, and just going back to what Ms. Pozen said, and
we've said this before, you might not design this process from
scratch to have two antitrust agencies with some overlapping
jurisdiction on civil. We have slightly broader authority on
the antitrust unfair methods of competition, they have criminal
jurisdiction, but it's a system that Congress designed, and as
long as we're working in the public interest and we're acting
like adults, you don't see any or you don't see many problems.
I can assure you that this might have been a bigger problem in
the early oughts and the late 1990's when I worked on the
Senate Antitrust Subcommittee. You know, Congress had a lot of
questions about this and there were hearings I believe on this
topic alone. So we understand, we have to work with the system
that's been given us, but we better do a good job.
Mr. Quayle. Okay, thanks. And, Ms. Pozen, I want to talk
about the new remedy guide that was released on June 17th which
changed previous policy to one which conduct or behavioral
remedies are often used----
Ms. Pozen. Uh-huh.
Mr. Quayle [continuing]. To address merger concerns.
Ms. Pozen. Uh-huh.
Mr. Quayle. And an example of that was when DOJ approved
Comcast, the NBC Universal merger that included a requirement
that Comcast and NBC must abide by the net neutrality
principles even if the FCC's regulation was struck down in
court.
Ms. Pozen. Uh-huh.
Mr. Quayle. Do conduct or behavior remedies allow the DOJ
to shift it from being a litigating agency to actually becoming
a regulating agency, and could they require political policy or
public policy of companies in order to actually approve of the
merger?
Ms. Pozen. That's an excellent question. We still consider
ourselves a law enforcement organization, and we really are
focused on finding the most effective remedy for the case
that's before us, and so we are looking very carefully and very
thoroughly at the competitive concerns, and then the parties
typically come forward with a resolution, and we analyze
whether that will resolve those concerns. In certain mergers,
including the one that you mentioned, NBC-Comcast, there you
had what we call verticality, right? You had one company having
an input into the other company, and we wanted to ensure that
that input was available on equal terms to others so that they
couldn't be foreclosed, others wouldn't be foreclosed from that
same input. So we chose----
Mr. Quayle. Was there a history of that problem before with
these companies or were you looking for a problem that didn't
exist, solving a problem that didn't exist just because, hey,
it could theoretically happen down the road?
Ms. Pozen. We're very concerned with industries that are
evolving and changing quickly to ensure that there's an open
and fair playing field, and that was what we were concerned
about with that merger, and so we believe our remedy allowed
that. It allowed the playing field to be open and fair, it
established a process for doing that, and we felt fortunate
that the judge in that case, Judge Leon, who we went through
the Tunney Act proceeding, agreed with that.
Mr. Quayle. This actually goes to my final question, is
this is something I asked the Attorney General, and he said he
was going to get back to me, as to probably going to the
Antitrust Division. I haven't heard back, but now since you're
here I'm going to ask you the question which hopefully you can
answer. I asked him if they've actually seen any activity of
actual bottlenecks or gatekeepers on the Internet that are
actually keeping content from consumers. So it kind of
addresses a concern that you have. Have you actually seen that
occur or is this a hypothetical of maybe it can occur, and we
just want to stop it before it does?
Ms. Pozen. Well, in a technological market that is emerging
and in the Internet, as business is evolving and emerging and
using the Internet more and more, we're very conscious of
ensuring that we are diligent in reviewing whether or not there
are bottlenecks, and your question is have we found those
bottlenecks? I can't comment on any ongoing investigations at
this point, but all I can say is bottlenecks have to worry us.
If there isn't access to the Internet or to information or
products or services that are needed by other businesses and it
is being done through an exercise of market power and done in
an illegal matter through some sort of agreement, then we are
concerned and we will take action.
Mr. Quayle. But in a general sense you can't talk
specifically about a specific case, but it was just kind of
have you seen actual bottlenecks? Because that I don't think
would be violating any sort of--I mean, we're not getting into
specifics. Have you seen bottlenecks that are occurring now?
Ms. Pozen. Have I--there are bottlenecks that we have been
alerted to that do exist, and when we are alerted to such, then
we would investigate them thoroughly and carefully to
determine, you know, whether or not, again, it is in violation
of the Sherman Act, whether it's some sort of coordinated
effort to create that bottleneck or, again, whether it's an
exercise of market power in a way that violates the Sherman
Act.
Mr. Quayle. Okay, thank you very much. Thank you, Mr.
Chairman.
Mr. Goodlatte. I thank the gentleman. The gentleman from
Michigan, Mr. Conyers, is recognized for 5 minutes.
Mr. Conyers. Thank you, Mr. Chairman. Now, I've been
working with antitrust law for as long as you have or longer,
and this hearing--and I'm very pleased that the Chairman called
it and the Ranking Member, both for whom I have high regard--is
very disturbing. You know, it's almost like a little chit-chat
back and forth. Here are the top prosecutors of the Federal
antitrust law sitting before us, and we're having little
discussions, and so I'm going to be in touch with both of you
in writing and maybe in person, but I wish that I could have
sent you my statement before you wrote your statement because
we're all talking off on--we're talking past each other.
Now, the first thing I would like to know is, is it correct
for me to assume that our national and transnational
conglomerates are getting away with a great deal of
anticompetitive behavior?
Mr. Leibowitz. National and transnational companies?
Mr. Conyers. Companies.
Mr. Leibowitz. Well, I would say, I think I can speak for
both of us on this.
Mr. Conyers. Well, you----
Mr. Leibowitz. We go after----
Mr. Conyers. You speak for yourself, I will talk with her
later.
Mr. Leibowitz. Congressman, you know----
Mr. Conyers. Yes or no?
Mr. Leibowitz. When we see a problem, we go after it. Are
there companies that are getting away with antitrust
violations? I am sure there are, but we do our best to go after
malefactors wherever we find them, and we have big
investigations going on, as you know, and we have tried to push
the ball forward on behalf of consumers and competition. I
think I'll stop there.
Mr. Conyers. That's a totally unacceptable answer. I just
want you to know that between us, and we'll be getting back to
it later.
Now could I ask you the same question, ma'am.
Ms. Pozen. Sure, and I have to tell you, I am astonished,
like you, at what I see because we have a criminal antitrust
program at the Department of Justice, and as our criminal
Deputy Assistant Attorney General says whenever he is asked, we
have given corporations, international corporations one billion
reasons not to violate the antitrust laws, and yet as I
reported to you, we are still prosecuting international
cartels.
So I am astonished in the level of pernicious behavior,
because I view cartel behavior where people are still sitting
in smoke-filled rooms deciding what prices are going to be, and
the example I gave you is in the auto parts industry where we
have prosecuted Furukawa and its executives for this kind of
conduct.
Mr. Conyers. Well, today's headline in some papers was that
Aetna and BlueCross/BlueShield in Michigan are at it again, but
the Department of Justice is on the case. I want to give you
some compliment for that.
BlueCross/BlueShield has been before the courts in Michigan
for so many times across the years that it seems to me that
they regard that just as a part of doing business the way they
want to, that you have got to go to court and somebody from law
enforcement is going to tag you every now and then.
But what bothers me, Chairman Goodlatte, is the reopening
just the door a small way on a massive problem that the
Judiciary Committee has got to go into far more deeply. And I'm
hoping that this will be the Subcommittee that does it, because
this is just far too complicated and the stakes are far too
high.
Let me just close with this one question. The Trinko
decision. Is there anybody here that can justify what they did
in suggesting that--the court suggesting that antitrust law is
trumped by communications law? That decision is an impediment
to antitrust enforcement of regulated industries, and that's
something that maybe we can do something about. But do you feel
hindered to any general as a result of that?
Ms. Pozen. We are very conscious of the Trinko decision and
it causes us pause quite often. However, we have continued to
move ahead. We work very closely and effectively with the
Federal Communications Commission. The reference to our NBC-
Comcast merger review, we worked with them. We came up with a
solution that both agencies could endorse. And in the AT&T/T-
Mobile merger, again we worked--they have a different system, a
different process, but again we worked with them to ensure that
we are mindful of each other's processes and jurisdiction, but
that we can work together and that we can assert the antitrust
laws forward.
Mr. Leibowitz. And I would agree with that. I would say
taken to its logical extreme or extent, Trinko could make it
very difficult to bring antitrust cases. It is a somewhat
opaque decision, as you know, Mr. Conyers. And part of the
reasons why we have begun to use our unfair methods of
competition authority is because by its nature it is not an
antitrust statute. So it takes us out from under the
limitations on plaintiffs more clearly. And, again, you know,
we are out there trying to stop anticompetitive conduct and in
Trinko can be an impediment, but it is less of a impediment
when we use our broader jurisdiction.
Mr. Conyers. Did both of your agencies put out annual
reports of what happened and how much you have been able to
accomplish and even what some of the impediments may have been?
Mr. Leibowitz. We do, yes.
Mr. Conyers. Okay, well, I'm going to start looking at
them.
Thank you, Mr. Chairman.
Mr. Goodlatte. I thank the gentleman. And I would note that
both of the cases that Ms. Pozen referenced we have held
hearings on in this Subcommittee and we are very interested in
the aggressive enforcement of our antitrust laws. So we look
forward to working with the gentleman from Michigan on other
ideas he might have on these subjects.
And now the Chair is pleased to recognized gentlewoman from
Florida, Mrs. Adams, for 5 minutes.
Mrs. Adams. Thank you, Mr. Chair. I am going to ask some
questions and if you would be succinct, because I have a few
questions.
Chairman Leibowitz, earlier in your testimony you said
briefly about the FTC's use of Section 5 in regards to
collusion, I believe. Can you advise or share your views
regarding the use of Section 5 authority and give us a sense of
what you believe are the outer limits of Section 5.
Mr. Leibowitz. Well, we can use Section 5 to bring a
Sherman or Clayton Act case. We can go a little more broadly
than that modestly to stop unfair methods of competition. The
Congress gave us that authority in 1914 and we have used it in
a couple of instances. So one in Florida, where you're from,
where U-Haul engaged, we alleged, in an invitation to collude
on trucking routes. Its executives called up their Budget
executives and said let's raise prices and Budget said no,
we're not going to do that. If they had said yes, we would have
submitted it over to Department of Justice for criminal
prosecution. But this is the kind of activity that is hard to
bring an antitrust case on. That's why we use unfair methods of
competition.
Mrs. Adams. Outer limits?
Mr. Leibowitz. I'm sorry?
Mrs. Adams. Outer limits of Section 5?
Mr. Leibowitz. The touchstone for Section 5 is always going
to be harm to competition or harm to the competitive process.
And we try----
Mrs. Adams. Let me do this then. Do you agree that it would
improve the clarity and predictability of the law if FTC
provided guidance about the bounds of Section 5 before
investigating or proceeding against businesses on the sole
basis of your Section 5 authority.
Mr. Leibowitz. Well, we do.
Mrs. Adams. You do?
Mr. Leibowitz. And so--we do. In our Intel decision, which
was a unanimous, bipartisan decision, as are most matters of
decision in our agency, and in our U-Haul decision we put out
pretty clear guidance here. And----
Mrs. Adams. Can you provide that to me, please?
Mr. Leibowitz. Excuse me?
Mrs. Adams. Can you provide that to me, please?
Mr. Leibowitz. Of course we will.
[The information referred to follows:]
__________
Mrs. Adams. In the past the FTC has promised to promulgate
a Section 5 report clarifying the balance of your Section 5
authority. Why haven't you provided that report? And when can
we expect one?
Mr. Leibowitz. Well, we did a workshop under former
Chairman----
Mrs. Adams. No, I asked you why haven't you provided that
report and when can we expect one? I don't want--I'm just
asking very specific questions.
Mr. Leibowitz. What we have said as a Commission is that we
were going to provide guidance and we have done that in
specific cases.
Mrs. Adams. Okay. When can we expect one?
Mr. Leibowitz. Well, I think what I said again is that we
will provide guidance----
Mrs. Adams. Mr. Leibowitz, I believe that you had testified
that we were going to be expecting one. I'm just asking you
when can we expect it?
Mr. Leibowitz. At a time, if and when the Commission
decides it will issue a report, the Commission will do that.
I'm sure that will be bipartisan and consensus driven.
Mrs. Adams. So you haven't gotten a report together yet and
so----
Mr. Leibowitz. We sometimes write reports----
Mrs. Adams. I will move on.
Mr. Leibowitz. Let me just say this. We sometimes write
reports after workshops; sometimes we do not. And again it is a
decision of the Commission.
Mrs. Adams. Well, I believe that you said that you were
going to provide one in the past. So I am looking forward to
seeing one, should one ever come about.
Ms. Pozen, I was listening intently when you were asked
some questions from my colleague, Mr. Quayle, and one of them
that caught my interest because of my law enforcement
background was the whole issue of will you remain also a
Criminal Division and not just a Civil and become party to
political issues. So I guess my question to you is because
traditionally DOJ antitrust has devoted roughly equal resources
to criminal antitrust enforcement and civil antitrust
enforcement, it appears that civil enforcement has generally
been concentrated in the offices that are remaining opened
while other offices that are being closed focused primarily on
your criminal prosecution enforcement. Will the DOJ Antifrust
Division remain a 50-50 civil-criminal agency?
Ms. Pozen. Yes, we will. I can talk more about the
realignment and the office closures if you would like, but our
plan is certainly to continue a vigorous enforcement of
criminal parts of the antitrust law.
Mrs. Adams. I kind of would like that. I mean, recently you
announced a plan to close the field offices in Atlanta, Dallas,
Cleveland, and Philadelphia and transfer those positions to
divisions in Washington, New York, Chicago, and San Francisco
offices. You projected this move would save $8 million rental
costs of the closed offices. Did you calculate similar dollar
value estimates of other figures that are necessary to
determine whether this move will actually result in net
increase or decrease to the Federal deficit, such as the cost
of additional office space for transferred employees in the
high rent cities for which the division will retain those
offices, the impact of the move on the division's ability to
generate criminal fines payable to the crime victims fund, and
if not, how can we be confident that this move will not
increase the deficit?
Ms. Pozen. All questions and considerations that we have
taken into account as we made what I can only characterize as a
very difficult decision. As you said, we have seven criminal
field offices. We are proposing closing four of those offices.
There will be three remaining field offices, one in San
Francisco, Chicago, and Philadelphia. And this was as I think
about it, a three fold analysis that we undertook. First of
all, I think----
Mrs. Adams. Is it possible for me to see that analysis?
Ms. Pozen. Sure, I'm happy to provide that to you.
As I said it was a threefold analysis that we undertook.
First of all, we looked at what we all are facing here in
Washington and, in general, an economy that is requiring a
shrinking of the Federal Government, and Congress has requested
that we do that and so we have taken that very seriously. And
the Attorney General announced a number of changes to
streamline and have cost savings at the Department of Justice,
one of which was the closure of our field offices. So one was
being conscious of the budget and trying to reduce our budget
effectively.
The second----
Mrs. Adams. While maintaining your ability as a law
enforcement agency; correct?
Ms. Pozen. Exactly. That is the second one I was getting
to. Exactly. We have to maintain our program. We have had great
successes in our program trying to ensure that we are as
efficient and effective with the resources that we have.
And the third, and again of equal importance, are our
employees. The employees in those offices, the lawyers and the
support staff, are terrific and they are an asset to our
division and to the Department of Justice.
So trying to thread the needle through all of these three
we came up with the proposal to close the four field offices.
In that process, we are able to guarantee jobs for all the
employees in those offices and guarantee moving expenses.
Certainly recognize that some people are not going to be able
to move. And it ends up we can offer severance pay and
insurance for up to 1 year as well as preference for Federal
jobs in those localities.
Again, we are very mindful of our law enforcement program.
We are very mindful of the significant fines that we have
collected. I was just reporting the $520 million for last year.
Mrs. Adams. I think my time has expired. But I do have more
questions. You said you were offering a severance pay for a
year?
Ms. Pozen. Yes.
Mrs. Adams. One year's pay?
Ms. Pozen. Yes, up to one year.
Mrs. Adams. I yield back.
Mr. Quayle. [Presiding.] I thank the gentlelady. The Chair
recognizes the gentlelady from California, Ms. Lofgren, for 5
minutes.
Ms. Lofgren. Thank you, Mr. Chairman. You know, I just
wanted to make a brief comment on the ICANN issue that the
Chairman raised. Because we focus on IP, we focus on IP. I
mean, and I certainly would not discount the trademark issues
that have been raised.
On the other hand, there are broader issues which is that
China is clearly on the move to try and take over governance of
the Internet. And the concern about phishing will hopefully be
somewhat addressed by the rollout of DNSSEC that is happening
here for authentication, but it won't take care of China's
ambition to actually supplant the international effort. I'm not
defending ICANN's every decision, but it certainly in my
judgment is preferable to China running the Internet.
How as an FTC commission will--your job is antitrust; ours
is IP. How do you go about incorporating that other type of
issue that is in----
Mr. Leibowitz. That's a very good question. And I don't
mean to disparage ICANN itself. I think they do a lot of good
things and Internet governance has a lot of difference
dimensions as you point out. Our concern on our consumer
protection side is that it's going to lead, if there is a major
rollout of gTLDs without accurate information required in the--
--
Ms. Lofgren. That's not my question. There are legitimate
issues. I am not discounting that. The question is as a process
question, how do you go about incorporating the fact that we
are in a faceoff, Western world to China, on Internet
governance?
Mr. Leibowitz. Well, I think we have to be mindful of those
other atmospherics, those other variables that are important.
At the same time we are a consumer protection antitrust agency
and so we talk to all the stakeholders and we have our voice.
Ms. Lofgren. I am just thinking ahead. Consumer protection
is not going to be optimized if China controls the Internet.
Mr. Leibowitz. Certainly will not be optimized. Again, what
we are hoping is that the Internet remains under appropriate
governance. And I think that you and I agree that ICANN
generally does a good job. And two is that they tighten up
these rules.
Ms. Lofgren. Let me ask you, maybe both of you, we recently
adopted a patent bill and at the same week that happened--I
come from Silicon Valley, I mean companies are madly trying to
buy other companies, not because of what they do, just to buy
up their patent portfolios. I mean, there is a patent war that
is going on that is unbelievable. And our certainly antitrust
law is to break up monopolies; patent law is to grant
monopolies.
And the question is how do you approach these two issues
that are at odds with each other? Should antitrust law ever
constrain the use of IP rights by owners? And if so, how would
that happen? Do you ever constrain the unilateral enforcement
of valid patents or licensing agreements between two or more
companies? I think this is a huge emerging issue in the tech
sector and maybe others.
Mr. Leibowitz. Congresswoman, you are absolutely right. And
there is at some level a tension between antitrust and patents.
Now, we like to think that they can work well together in a
very complementary way. We wrote a report, before I came to the
Commission, on the patent system in 2003. It has been cited by
Members of this Committee, including Mr. Berman, as one of the
bases for the patent legislation that Congress enacted and by
the Supreme Court. So it is a complex interaction when you deal
with things like standards setting and patent pools.
Ms. Lofgren. We relied on that study very heavily in our
many years of looking at that.
Mr. Leibowitz. Right. So we try to work with stakeholders,
understand the issues, do a lot of workshops, and hopefully we
get this issue generally right.
Ms. Lofgren. Maybe Ms. Pozen can address this.
Ms. Pozen. Sure. I would only add to it this intersection,
just as you identified it, the intersection of the rights
holders versus antitrust. And I think where we find the rub is
when there is abuse. And that is the standard the courts have
applied, when there is an abuse of those patent rights,
extending them in a way or using them in a way that is
anticompetitive. We look at every case separately. We look at
every case before us carefully and try to find that right
balance. It is a challenge, I'll admit. But so far, so good.
Mr. Leibowitz. If I may just follow-up. One of the areas
where we found an abuse is in what we call pay-for-delay
pharmaceutical settlements, where--this Committee has held
hearings on it--where the brand literally makes a payment to
the generic competitor and the generic stays out longer. So
consumers are left footing the bill or holding the bag. We
estimate that that is $3.5 billion a year in harm to consumers
and to the Federal Government. I think the CBO scored the
Senate legislation at almost $5 billion in savings for the
government because the government buys generic drugs.
Ms. Lofgren. Thank you very much, Mr. Chairman. My time has
expired.
Mr. Quayle. I thank the gentlelady. The Chair now
recognizes the gentleman from North Carolina, Mr. Coble, for 5
minutes.
Mr. Coble. Thank you, Mr. Chairman. I arrived belatedly. I
had another hearing. That is why I showed up late. Good to have
you all with us.
Ms. Pozen, define bottlenecks for me.
Ms. Pozen. Define bottleneck?
Mr. Coble. Yes.
Ms. Pozen. A bottleneck is a term that is very loosely
used, but in the context in which I was talking about it
earlier was the context of the Internet where one Web site or
some type of actor in the Internet space has access into or
onto another place in the Internet and has a way of shutting
off that access to other competitors to benefit itself. So
that's how I would define a bottleneck in that context.
Mr. Coble. That probably would be anticompetitive, would it
not?
Ms. Pozen. Yes, when you--when it's an exercise of market
power, if you have dominance in a given area and you are
exercising it in a way that forecloses your competitors, that
can be a violation of the Sherman Act.
Mr. Coble. Did you want to weigh in? Looks like you were--
--
Mr. Leibowitz. Well, I generally agree that that is a
definition of--appropriate definition of bottlenecks. We see it
sometimes in generic entry in pharmaceuticals. We see it from
time to time in the broadband space. And we work our best to
try to respond to those bottlenecks if they violate the law and
in the event we see them.
Mr. Coble. I thank you both. Ms. Pozen, I want to talk
about the Google-ITA transaction a minute. As I understand it,
part of that agreement was that a Web site would be set up in
which competitors could file complaints about whether Google
was complying with the conditions of the consent decree. I was
told recently that the consent decree allows Google to
administer that Web site. Is this true?
Ms. Pozen. As part of the consent agreement in Google-ITA
we did require that they set up a Web site to obtain the
complaints that came in and then they are obligated to report
those to us. We will get our first report in April.
Mr. Coble. Well, I may be missing something here, you may
have to throw me a rescue line, but it seems to me this would
discourage smaller competitors from availing themselves of the
ability of going to the Web site. Am I right or wrong?
Ms. Pozen. Well, I would say in this instance you can
utilize that Web site that Google has set up, but we accept
complaints directly at the Justice Department. We have a
General Counsel's Office that is overseeing the implementation
of that remedy and if folks have issues that they want to call
to our attention, they should get in touch with Bob Kramer, who
is our General Counsel in the Antitrust Division. He is charged
with overseeing that remedy to ensure that it is effective.
Mr. Coble. I am not trying to gang up on Google but at
first blush that seemed a little irregular, but I guess not?
Ms. Pozen. It was what we thought was the right solution in
this instance, sir.
Mr. Coble. Good to have you both with us. I yield back, Mr.
Chairman.
Mr. Goodlatte. I thank the gentleman. The Chair now
recognizes the gentleman from Florida, Mr. Deutch, for 5
minutes.
Mr. Deutch. Thank you, Mr. Chairman. Thank you both for
being here. In my State of Florida the agriculture industry has
really been devastated by invasive insect pests that have
profound negative implications on the farmers and consumers as
well. And as you are aware, one method to protect crops from
those pests involves the development of new seeds containing
traits that are resistant to the insects. I am concerned with
the business practices in the industry. Specifically it has
been brought to my attention the lack of competition in the
generically modified seed industry. And so I would like to
commend the Department of Justice and the Antitrust Division
for investigating the business practices of Monsanto in this
area, given the dominant role that they play.
I would ask if you could speak to the actions that could be
taken to ensure that there is a strong innovation component and
competition in the generically modified seed industry.
Ms. Pozen. The industry you are referring to is actually
interesting in the sense that it is the intersection of
intellectual property, antitrust, and agriculture. And it is
something that we have taken a very hard look at. As you know,
we held workshops around the United States on agriculture,
including these specific issues that you cited to. I can't
comment on ongoing investigations but I can assure you that
your concerns have been voiced by others and we are looking
into that.
Mr. Deutch. I appreciate that. Going back to some comments
that both of you have made, Mr. Leibowitz, I think you spoke
about the importance of competition. You used the Google
Android and iPhone area. Ms. Pozen, you spoke about competition
advocacy that you do at Justice.
So the question that I have is given that the Internet
marketplace is where there is so much economic development and
growth in the coming years, we obviously want to do everything
we can to support competition and encourage start-ups. So I am
worried about market dominance in the Internet search arena.
Recently Ask.com exited the search market, cutting 130
engineering jobs, stopping work on new algorithmic technology.
The president of the company cited Google's dominance in the
market as the reason for their exit. Google, as I understand
it, controls more than 79 percent of the search market in the
U.S. and over 90 percent in Europe.
I know that the FTC, Mr. Leibowitz, is investigating these
issues and I think it is an important investigation. If you
could, to the extent that you are free to talk about this,
generally at least, if you could address the issues of market
dominance and the potential negative effect on Internet
innovation and, more broadly, what impact that will have on
future innovation in the Internet economy?
Mr. Leibowitz. Well, I guess I would say this. As you know,
we are conducting an investigation of Google. We are using both
our consumer protection and our competition authority. We are
moving forward on that mostly collecting documents and asking
questions at this point. As a general matter, putting Google
aside, whenever you see a dominant company, you wonder, if they
are engaging in types of exclusionary or bad conduct, whether
they are using that to stifle innovation and harm consumers in
violation of the antitrust laws or in a way that is an unfair
method of competition.
So it is a critically important issue in the Internet space
where there has been so much dynamism and so many benefits to
consumers and you want that to continue. It is an important
question to ask across different industries as well.
Mr. Deutch. If I could follow up on the specific issue of
exclusionary conduct in the Internet space. If you could speak
to that in a little more detail.
Mr. Leibowitz. I think I probably have gone about as far as
I should involving exclusionary conduct in the Internet space,
given our pending investigation. It is a fair question. It is
fair for me to avoid answering it.
Mr. Deutch. I was asking only in the broadest possible
terms.
Ms. Pozen. And I am happy to help if I can.
Mr. Deutch. Please do.
Ms. Pozen. Recently we reviewed Google's acquisition of
Admeld and concluded that it didn't raise competitive concerns
for a variety of reasons outlined in a statement that we
issued. I believe that was last week.
And in that statement we did say we are keeping a watchful
eye on the space you have articulated to ensure that we look at
transactions and other activities there to ensure that there is
anticompetitive conduct that we take action. And we work
extensively with the FTC on these kinds of issues.
Mr. Deutch. I guess without going into detail, then, the
idea of looking at exclusionary conduct in the Internet space
specifically, is there a history of that analysis at the FTC or
at Justice?
Ms. Pozen. Well, at the Department of Justice I would cite
you to our Microsoft case. It wasn't the Internet, but it was
technology. And there we took action alleging that Microsoft
had dominance in the operating system and was using that
dominance in a variety of predatory ways that harmed
competition.
Mr. Deutch. I appreciate it.
Mr. Leibowitz. This is an area we are constantly looking at
because we think it is so important to consumers and we have
seen so many benefits. We want to make sure that continues and
so we have other investigations and sometimes we do quick looks
when competitors come in or others come in and raise concerns.
It's what we do.
Mr. Deutch. Mr. Chairman, my time has expired. Thank you
very much.
Mr. Quayle. I thank the gentleman. The Chair now recognizes
the gentleman from Georgia, Mr. Johnson, for 5 minutes.
Mr. Johnson. Thank you, Mr. Chairman. Mr. Chairman, I'm
concerned about the fact that in this country, in this day and
time we have more and more opportunities for big business to
engage in action that actually results in higher costs to
consumers. Our free enterprise system is a system that
requires, in order for it to function most effectively,
competition. So I viewed the activities of the Department of
Justice to be critical in the maintenance of our free market
system and how it enables businesses to develop. That's one of
the things that makes our country great.
And so we must make sure that we don't have a situation
where enterprises feel like they can do a lot of price fixing,
bid rigging, territorial and customer allocation, bribery,
subverting the competitive process and other things. These
things send people to jail and people--when you start getting
in people's pocketbooks that's one thing. But when you take the
whole pocketbook from them and lock them up in jail, that is a
sobering reality that many don't want to face if we have
vigorous enforcement.
But here we are talking about closing down four of the
seven antitrust field offices throughout America, leaving the
whole Southeast without any office of enforcement. We are doing
this just simply to save money, are we not?
Ms. Pozen. We are doing this to save money and to hopefully
be more efficient in our law enforcement as well. It is
twofold.
Mr. Johnson. Well, you know in terms of efficiency, we have
got, what, 90-plus experienced attorneys and staffers who are
going to be asked to move to a new location, the other three
office, Chicago, New York, and San Francisco.
Ms. Pozen. Yes. I misspoke earlier. I said Philadelphia,
not New York. Thank you for clarifying that.
Mr. Johnson. And those locations have higher living costs
so the people who move there would have to be compensated in
accordance with those higher prices. So you're going to be
looking at, assuming that everybody actually was able to move,
relocate, you'd be looking at increased labor costs as opposed
to less labor costs; is that correct?
Ms. Pozen. When we announced----
Mr. Johnson. And if you could----
Ms. Pozen. Provide some background? Would that be helpful?
Mr. Johnson. Well, I don't want any background. I just want
you to answer yes or no if you could.
Ms. Pozen. Sure. We believe that the realignment that we've
set forth, which again was very difficult to come to--we are in
difficult budgetary times at the Department of Justice, and it
is not my preferred activities as acting AAG to do this at all,
nor anyone at the Department of Justice. But when the Attorney
General announced a number of office closures and realignments
and streamlining, we were among those and the notification
process was started for our closure.
Mr. Johnson. But the Antitrust Division is actually an
income generator; right?
Ms. Pozen. Right, we are. We are----
Mr. Johnson. So you are actually generating income for the
use of the Department--or any other department, by the way,
because it can be allocated to another department's use--we are
actually raising revenue without raising taxes?
Ms. Pozen. Right. In making this decision we considered all
that you are raising.
Mr. Johnson. So if we have got an office that is--the
Atlanta office alone--responsible over the last 10 years for
about 200--about a quarter of a billion dollars worth of fines
and forfeitures and penalties that have been collected and if
we cut that ability by cutting the office and the people who
staff the office who know the industry that are potential
targets, they know the local bar, they know the regional court
systems, if we cut that efficiency and then place it in the
hands of some newly hired lawyers that don't have the
litigation experience, the legal experience of the attorneys
and staffers who are currently working and who would not be
able to relocate, then we are cutting the efficiency of the
Department's law enforcement efforts. And that, I think, is a
tragedy.
I think at this point with the consolidation of industry
and the effect that it has on prices for consumers, I think
this is the wrong time to be shutting down for alleged cost
cutting reasons. You are cutting the nose to spite your face
really. I think it is a bad time to close down four of seven
regional offices. It seems like what we are trying to do around
here is just cut government and we are not really thinking
about the effect of the cuts.
Now, I know that big business wants to have an environment
where they would not have any regulatory control over them so
that they could make money hand over foot, quarter after
quarter, and it increases dramatically year by year, but
there's only so much that the American people can pay. And
we'll get to a point where that will ruin the capitalist
system. And so I want to protect our system. I want to protect
the capitalist system. But it requires competition. And it
requires the government to make sure that the little people are
treated fairly because we can't rely on the fox to guard the
hen house.
And so I think it is a tragedy that we would talk about
cutting antitrust enforcement. The criminal side is the first
one that would suffer the most. The regulatory side. You can
get some inexperienced lawyers to come in and having read law
books and getting a little guidance from some senior folks they
can make certain decisions but to actually prosecute.
Mr. Amodei. [Presiding.] If I might to my colleague from
Georgia, I want the record to reflect that he asked for and has
received a minute of extra time which has expired. So the
gentleman's time has expired. And I appreciate, Ms. Pozen,
please feel free to get directly with Mr. Johnson on those
things.
Mr. Johnson. I'd like to have a bipartisan inquiry. Really
a hearing.
Mr. Watt. If the gentleman would yield, Mrs. Adams actually
asked a lot of the same questions and she agreed to follow up
with some specific written guidance that they applied in this
context.
Mr. Johnson. Well, I think we need a hearing on this very
specific issue alone because it is of such gravity.
Mr. Amodei. And that will be part of our record today for
that request.
Mr. Johnson. Thank you, Mr. Chairman.
Mr. Amodei. The Chair now recognizes the lady from the
Golden State, Ms. Chu, for 5 minutes.
Ms. Chu. Thank you, Mr. Chair. I have a few questions that
I'd like you to address. First for chairman Leibowitz. My
constituents have expressed numerous concerns regarding the
competitiveness of the PBM market, the pharmacy benefit manager
market. They are concerned that the consolidation of the
current marketplace harms patients by reducing choice,
decreasing access to pharmacy services, and ultimately this
could lead to higher prescription drug costs paid by plan
sponsors and consumers. And I'm certainly concerned about
patient well being and quality pharmacy care for my
constituents as well as rising health care costs. How are you
evaluating and addressing the concerns of patients and
community pharmacies as it relates to the ongoing consolidation
of this market?
Mr. Leibowitz. Well, as you know, we are reviewing two
matters now, and I can say this publicly because the companies
have acknowledged that. One is Express Scripts-Medco, a major
merger. We're collecting documents. We are asking questions and
we will apply the law which says that if the agreement may
substantially lessen competition, then we will challenge it in
court.
The other matter that we are looking at is CVS-Caremark,
which is a consummated merger and we have an investigation
going on. And so I think I need to leave it at that. Except to
say that I have certainly met with community pharmacists and my
father-in-law was a professor of pharmacology and my mother was
a pharmacist, so I am intimately aware of the concerns of
community pharmacists who provide enormous value.
And I guess I would mention one other thing, which is that
we look at price effects when we are reviewing a merger. But
you can also look at nonprice effects like service and
convenience. So I will leave it at that.
Ms. Chu. I thank you for that. I want to turn to criminal
issues. Ms. Pozen, in your testimony you mentioned that last
year the Antitrust Division in DOJ filed 90 criminal cases, up
from 60 cases in 2010, and obtained over $520 million in
criminal fines. And you state that in those cases you charged
27 corporations, 82 individuals and the court imposed 21 jail
terms.
Can you explain the cause behind the recent rise in
criminal antitrust enforcement and give us some examples?
Ms. Pozen. Sure, we--again, the cases that come to our
attention or that we learn about we pursue vigorously on the
criminal and civil side. In particular on the criminal side we
see ebbs and flows in terms of activities and I don't know if
there is any particular reason for the uptick other than we
have continued to be vigilant and continue to prosecute where
we thought it was necessary.
We have some significant cartel matters that have been
ongoing for some time and that continue. As I mentioned in my
written statement--in my oral statement, the auto parts
industry. We have announced a prosecution of Furukawa and a
$200 million fine there. That investigation is ongoing. It is a
large and significant investigation.
We have others going in the air cargo industry, in the LCD
industry, and also in muni bonds. That is we have had several
agreements that we have reached with significant large banks
ranging from $130 million to over $200 million in fines and
restitution and we are working toward now--the trials are
starting after the first of the year--prosecuting the brokers
involved in those muni bond bid rigging and price fixing
schemes. We are just continuing to be the cop on the beat. As I
said earlier, I continue to be astonished that businesses
continue to violate the law. But we continue to work to
prosecute where we need to.
Ms. Chu. Okay. And finally I wanted to ask about the global
economy. Today we have about 120 antitrust agencies around the
world, including new agencies in China and India, and it is
becoming increasingly common and important for agencies to
investigate the same matter. I understand your Antitrust
Division has been cooperating with international counterparts
and there was some example recently with the German Federal
Cartel Office on this merger issue regarding patent
applications for Novell by CPTN.
What are you doing to form international partnerships and
coordinate your efforts on these types of matters?
Ms. Pozen. We continue to really work with our
international counterparts around the world through a variety
of means. We engage with them in international organizations
like the OECD and like the International Competition Network.
Those are great forums of different natures where we are active
participants.
We have also sought to, with the FTC, to engage with
emerging economies, as you mentioned. We signed a memorandum of
understanding with Russia first and then recently with the
Chinese antitrust authorities in July and are planning on
signing one with India in 2012. Those MOUs set out in very
simple terms efforts that both or all agencies--in China it is
a five-way agreement--are going to work together to have
regularized meetings to comment on each other's guidelines and
laws.
And in addition to, I would note, we just celebrated our
20th anniversary of our cooperation agreement with the EC. That
is an enduring relationship that we were celebrating in
Brussels in October and as part of that we updated our best
practices--our merger best practices guidelines which we use in
those forums as well. It is a variety of means that we engage.
We do it on investigations specifically, and have a great
working relationship on a number of investigations today with a
number of authorities and then more broadly as I described.
Mr. Leibowitz. Just to follow up and Ms. Pozen is exactly
right. We spend a lot of time thinking about the international
dimension. And the more you have law enforcement authorities in
other countries that work at the same time frames and where the
law has generally converged, and we encourage that convergence,
it is just better for American businesses and better really for
American consumers and consumers in those country as well. So
it is something we spend a lot of time on at both our agencies
and we work really well together on it.
Ms. Chu. Thank you. I yield back.
Mr. Amodei. Thank you. The Chair recognizes the gentlelady
from Texas, Ms. Jackson Lee.
Ms. Jackson Lee. I thank both the Chair and the Ranking
Member and I thank the witnesses as well. Let me just ask a
pointed question for both of you. I heard my colleague,
Congressman Johnson, raising a line of questioning about the
return from your agencies in terms of making dollars for the
U.S. Treasury. Tell me very quickly--to both the Chairman of
the FTC and to the Department of Justice--what major budget
cutting will do to your efforts on balancing the oversight over
necessary antitrust issues.
Mr. Chairman? And I've got a series of questions. I would
like a quick answer on that financial part.
Mr. Leibowitz. You know, knock on wood we might--we should
be okay or we may be okay in our appropriations but if we have
to cut personnel, it means that completing investigations
rapidly, which every company deserves, will be a little bit
harder. It means that other things that we do that are
important like our international work will be tougher to do.
And so an 8 percent budget cut which is what we get under
sequestration would be very, very problematic. And not for us,
but for the consumers we are supposed to protect.
Ms. Pozen. I faced a $3 million budget cut in 2012 that I
am starting to manage toward today. And part of our efforts in
anticipation of that cut was the realignment of our field
offices, trying to preserve the jobs for those 97 individuals
in those four offices. Because I'm concerned if I waited any
longer that I wouldn't be able to offer them jobs and moving
expenses. So it has an impact. We are trying to do the same
with less. We are trying to do the best that we can. We are
trying to be more efficient and effective.
Ms. Jackson Lee. We have a concept with our banks: Too big
to fail. And it draw obviously a great concern by the public.
They want to know what happened in terms of some issues that is
probably more addressed to the Criminal Division but the
question of too big to fail comes from the origins of our first
breaking up of monopolies under Teddy Roosevelt.
So let me ask these questions to both of you quickly so I
can get answers from the two of you. I don't think we should be
attacking bigness for bigness sake as much as we should be
providing oversight. And I raise that question on the merger
that has already been approved between United and Continental.
And now the growing pains are being experienced. But in
particular I'm interested in AT&T and T-Mobile. One, I'm
interested because I really want to create jobs and there is a
very strong argument that that creates jobs. And what I would
argue is that there may be a valid--this is obviously something
that is either behind us, we hear that it may be in front of
us, it maybe in some engagement. But I'm wondering is there a
concept of intense oversight while also protecting the American
brand so that we can create these jobs and we can enhance the
opportunities for a stronger entity?
I would raise that came question with Google. I want to
make sure that we have competitiveness, but I don't think we
should have a particular company under the gun simply because
it is big. I would like to give you the resources to intensify
your oversight but to recognize that there is value in
intellectual property, in inventiveness, in what largeness
brings about. We have had largeness before. We need to be able
to regulate.
So speak to me about your regulatory aspects so that we are
not killing jobs by going after companies who have innovative
ideas about mergers and can actually be effective.
And just quickly to Assistant Secretary Pozen, tell me
about the victory that you have gotten with H&R Block coming up
on the tax season by acquiring TaxACT and the regulation of
that. So if you could answer those questions so that we can
create jobs here in America.
Ms. Pozen. Sure. I will start with H&R Block. That was in
the digital do-it-yourself tax preparation software that was a
merger of H&R Block with TaxACT. I think we filed our lawsuit
in May and proceeded to court very quickly, had our trial in
September, October, and the judge issued a decision at the end
of October. That decision is an 80-page decision. And for us
antitrust wonks or nerds or whatever you want to call it, it
was incredibly written and detailed and really was an
accumulation and a great resource I think to folks going
forward of the state of the law in this circuit on merger and
merger analysis.
So we are very proud of that. It was our first successful
merger challenge since 2004. So it has been a long time so it
felt very good for lots of reasons. But I think it advanced
antitrust jurisprudence significantly.
In terms of your question about jobs, as you noted and I
agree with you, it is competition that we are focused on. And
with competition comes innovation, and with innovation comes
expansion of our economy, and with that comes jobs. And so that
is the way we analyze and look at those issues. If you build a
better mouse trap in the United States, if you did it through
legitimate means, you don't suffer antitrust consequences. It's
how you use that market power. Or if you try to build it just
that much too big that raise competitive concerns without
countervailing efficiencies where we get involved.
Mr. Leibowitz. Yes, and following up on that, being big
alone is not an antitrust violation. But the antitrust laws I
think are generally calibrated to promote job growth, to
promote innovation. So the merger standard under the Clayton
Act--Chairman Clayton was the Chairman of this Committee in
1914 when Clayton was passed--says we challenge deals when they
may substantially lessen competition. As we know, competition
drives innovation, it drives job growth, it drives a lot of
different things.
And then when you look at the conduct standards,
monopolization alone is not a violation. If you achieve a
monopoly status by virtue of your excellent work or the way you
market your product, that is not a problem. It is when you
combine that with bad acts either to get to your monopoly
status or to maintain it, that it is in violation of the law.
So it is a ready good question and it is one that we ponder
both in specific cases and at a general level all the time in
our agencies.
Ms. Jackson Lee. Well, thank you. I don't want us to be in
the business of because something is big, created major jobs--
the auto industry was big in years past and probably still
competitive, that bigness alone. I would like to have the kind
of oversight and regulation addressing the question of
competitiveness, but remember we are also competing worldwide.
And so some of these issues relate to how we can compete
worldwide and sometimes bigness requires that. As long as we
are following the rules, I would hope that that would be part
of our structure in dealing with some of the companies that are
so much larger than others.
Mr. Amodei. Would the gentlelady for Texas like to be
recognized for an additional minute for purposes of wrapping
up?
Ms. Jackson Lee. How kind of the gentleman. Yes, I would. I
would ask unanimous consent. I apologize for not----
Mr. Amodei. Without objection, so ordered. Please proceed.
Ms. Jackson Lee. The Chairman looked like he was trying to
reach out and say something. I'm not sure.
Mr. Leibowitz. I think I have said enough probably. But if
you have another question I would be happy to answer it.
Ms. Jackson Lee. I just will end on the note of the way I
framed it, is that we are in this tight job market and we are
in this tight creation market. I want to find room for
competitiveness and I also find room for bigness. My initial
premise is that people are mad at the finance industry because
they believe that it wasn't regulated, there wasn't oversight,
and I want to make sure we have oversight but we allow growth
and opportunity. Is that my sense of antitrust effectiveness?
Mr. Leibowitz. Agreed. Yes, I think that's well put.
Ms. Jackson Lee. Madam Secretary--Madam Attorney General?
Ms. Pozen. Yes, I agree that we are constantly being
vigilant in the markets that we oversee to ensure that those
companies that are large aren't abusing that dominance and
again that those companies who engage in mergers that are
legitimate and don't raise significant concerns, we let those
go forward. But if a merger does raise a competitive concern
and doesn't have countervailing efficiencies to overcome that,
we do challenge them.
Ms. Jackson Lee. I thank the Chairman for his courtesy.
Mr. Amodei. Thank you. I'd like to thank the witnesses, Mr.
Chairman, Madam Assistant Attorney General. I appreciate that
on behalf of the Ranking Member and the Chairman, neither of
which I am.
Without objection, all Members will have 5 legislative days
to submit to the Chair additional questions for witnesses,
which we will forward and ask the witnesses to respond as
promptly--I know Mr. Johnson had some other questions perhaps--
as they can and get their answers back and they will be made a
part of the record.
Also, Representative Michael Grimm has asked that his
written statement be included in the record. Without objection,
it will be made a part of the record for this hearing day.
[The prepared statement of Mr. Grimm follows:]
Prepared Statement of the Honorable Michael Grimm,
a Representative in Congress from the State of New York
The increasing consolidation of hospital markets, and the federal
antitrust response to those consolidations has been and will continue
to be an issue that not only Staten Islanders face, but is an issue
that is of significant community interest across the country. Changes
in both public and private sector reimbursement systems as state
budgets constrict, and dramatic transformation of health care markets
take place due to the recently enacted health care law, will likely
prompt unprecedented consolidation in the hospital industry and cause
Congress and the Administration to reassess exactly how they approach
hospital consolidation, and competition in the health care market.
The substantial and persistent increases in the cost of health care
services that began when Medicare was first established in the late
1960s and have continued since then, have led directly to the changing
market realities for hospitals. These market realities also call into
question exactly how hospital mergers fit into traditional antitrust
litigation, and how these mergers and acquisitions translate into a
competitive marketplace for affordable and accessible health care
services.
Between the high cost of delivering any service in New York City,
and the high cost of delivering health care services, New York hospital
systems struggle to find a stable flow of capital, and forces these
entities into an increased pace of hospital consolidation and/or
sponsorship. By any criteria, the law concerning hospital market
definition is in shambles. Common sense suggests that all health care
is local. People want to be hospitalized near their families and homes,
in hospitals in which their own--local--doctors have hospital
privileges. However, various court decisions have stretched the
geographic boundaries of markets into a fluid definition, which in many
cases fails to heed the warnings of a failed institution, and allows
the Department of Justice to pick winners and losers in the hospital
market, not based on policy or community specific logistics, but based
on the expertise of the litigators themselves.
A fluid definition of market power and geographic boundaries allows
a unique place, like Staten Island, to fall victim to the exact policy
decisions the Federal Trade Commission seeks avoid on antitrust law.
Medical antitrust law follows the same pattern as the law governing
contracts between manufacturers and distributors of branded goods in
other industries. The intricacies of the health care industry requires
industry-specific policy that takes industry and community dynamics
into context. Staten Island, as part of New York City is subject to
extensive New York City taxes, but is often treated as a separate
municipality. The ambiguous antitrust policies stemming from the
Administration have resulted in the Federal Trade Commission and the
Department of Justice to deny Staten Island a fair evaluation as a part
of New York City in total. Absent of industry-specific policy changes,
communities like Staten Island will be casualties of an anticompetitive
market and will end up paying more for services and time spent
traveling to another hospital in New York City or across state lines to
New Jersey. In the end, this costs taxpayers more money, and is
completely counter-intuitive if lawmakers plan on ensuring a vibrant,
competitive, health care industry alive in all of New York City, and
the country.
These circumstances has resulted in limited hospital access on the
Island, and forces Staten Island residents to become purchasers of high
cost, less efficient care than other New York City residents. As our
``anchor hospitals'' begin to feel the financial burden of payment cuts
from the state and federal level, institutions will likely fail,
leaving the hard working residents of Staten Island a de-facto
anticompetitive market place for essential health services. Medical
antitrust reform must be expedited in order to avoid the acceleration
of hospital mergers and acquisitions that are likely to occur as the
health care law goes into effect.
The combination of these extenuating circumstances call on the need
for federal legislators to concretely define the product market,
geographic market, and market concentration and competitive effects
based on the specific dynamics of the health care industry. By doing
so, the FTC will be forced to analyze cases on the basis of an elastic
health care industry and an evolving community-specific market rather
than outdated and inconsistent logic that has been the Achilles' heel
of medical antitrust law.
__________
Mr. Amodei. And without objection, all Members will have 5
legislative days to submit any additional materials for
inclusion in the record. And with that, again I want to thank
the witnesses and my colleagues and the hearing is adjourned.
[Whereupon, at 11:55 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Response to Post-Hearing Questions from Jon Leibowitz,
Chairman, Federal Trade Commission
Response to Post-Hearing Questions from Sharis A. Pozen, Acting
Assistant Attorney General, Department of Justice Antitrust Division