[Senate Hearing 113-803]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-803
 
           OVERSIGHT OF THE ENFORCEMENT OF THE ANTITRUST LAWS

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                 COMPETITION POLICY AND CONSUMER RIGHTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 16, 2013

                               __________

                          Serial No. J-113-13

                               __________

         Printed for the use of the Committee on the Judiciary
         
         
         
         
         
         
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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
DIANNE FEINSTEIN, California         CHUCK GRASSLEY, Iowa, Ranking 
CHUCK SCHUMER, New York                  Member
DICK DURBIN, Illinois                ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island     JEFF SESSIONS, Alabama
AMY KLOBUCHAR, Minnesota             LINDSEY GRAHAM, South Carolina
AL FRANKEN, Minnesota                JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware       MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
MAZIE HIRONO, Hawaii                 JEFF FLAKE, Arizona
            Bruce A. Cohen, Chief Counsel and Staff Director
        Kolan Davis, Republican Chief Counsel and Staff Director
                                 ------                                

   Subcommittee on Antitrust, Competition Policy and Consumer Rights

                   AMY KLOBUCHAR, Minnesota, Chairman
CHUCK SCHUMER, New York              MICHAEL S. LEE, Utah, Ranking 
AL FRANKEN, Minnesota                    Member
CHRISTOPHER A. COONS, Delaware       LINDSEY GRAHAM, South Carolina
RICHARD BLUMENTHAL, Connecticut      CHUCK GRASSLEY, Iowa
                                     JEFF FLAKE, Arizona
                 Craig Kalkut, Democratic Chief Counsel
                  Rob Porter, Republican Chief Counsel
                  
                  
                            C O N T E N T S

                              ----------                              

                       APRIL 16, 2013, 2:38 P.M.

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Franken, Hon. Al, a U.S. Senator from the State of Minnesota.....     4
Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota..     1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont,
    prepared statement...........................................    52
Lee, Hon. Michael S., a U.S. Senator from the State of Utah......     2

                               WITNESSES

Witness List.....................................................    27
Baer, Hon. William J., Assistant Attorney General, Antitrust 
  Division,
  U.S. Department of Justice, Washington, DC.....................     5
    prepared statement...........................................    28
Ramirez, Hon. Edith, Chairwoman, Federal Trade Commission,
  Washington, DC.................................................     7
    prepared statement...........................................    38

                               QUESTIONS

Questions submitted to Hon. William J. Baer by:
    Senator Blumenthal...........................................    54
    Senator Grassley.............................................    56
    Senator Klobuchar............................................    59
    Senator Leahy................................................    62
    Senator Lee..................................................    65
Questions submitted to Hon. Edith Ramirez by:
    Senator Grassley.............................................    58
    Senator Klobuchar............................................    61
    Senator Leahy................................................    63
    Senator Lee..................................................    73

                                ANSWERS

Responses of Hon. William J. Baer to questions submitted by 
  Senators Blumenthal, Grassley, Klobuchar, Leahy, and Lee.......   115
Responses of Hon. Edith Ramirez to questions submitted by 
  Senators
  Grassley, Klobuchar, Leahy, and Lee............................    82

                MISCELLANEOUS SUBMISSIONS FOR THE RECORD

American Dental Association, statement...........................   140


           OVERSIGHT OF THE ENFORCEMENT OF THE ANTITRUST LAWS

                              ----------                              


                        TUESDAY, APRIL 16, 2013

                      United States Senate,
 Subcommittee on Antitrust, Competition Policy and 
                                   Consumer Rights,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:38 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Amy 
Klobuchar, Chairman of the Subcommittee, presiding.
    Present: Senators Klobuchar, Franken, Blumenthal, and Lee.

            OPENING STATEMENT OF HON. AMY KLOBUCHAR,
           A U.S. SENATOR FROM THE STATE OF MINNESOTA

    Chairman Klobuchar. Good afternoon, everyone, and I think 
we all know before we start that all our thoughts and prayers 
are with the victims and their families in Boston. And seeing 
that last night, where I am sure everyone watched it on TV and 
saw those first responders, the police and fire and volunteers 
and just regular citizens, people who had just run 26 miles 
were not running away from that but were running toward it to 
help their fellow citizens. So our thoughts and prayers are 
with everyone in Boston.
    We have a good hearing today, and we have a good attendance 
in our hearing room, and I want to thank my colleagues that are 
here: Ranking Member Senator Lee as well as my colleague in 
Minnesota, Senator Franken.
    With us today, as you know, we have Assistant Attorney 
General Baer for his first appearance, right? Is that correct, 
except for your confirmation?
    Mr. Baer. That is correct.
    Chairman Klobuchar. Okay, good. Just to get that clear. As 
well as FTC Chairman Ramirez, we thank you so much for coming 
and being here as well, and we congratulate you on your new 
appointment.
    We are pleased to have both of you here so we can discuss 
the critical competition issues that impact consumers. We look 
forward to hearing about your priorities and what you envision 
as being the cutting-edge antitrust issues that our country 
faces, and that you believe we in Congress should be 
monitoring, focusing on, and pushing.
    The legal technicalities behind our antitrust laws will not 
be familiar to most Americans, but the fruits of effective 
antitrust enforcement are. Companies vigorously competing for 
business to offer the lowest prices and the highest quality and 
most innovative goods and services is really what competition 
is all about. And that is something I would like to highlight 
today in that vigilant antitrust enforcement means more money 
in the pockets of American consumers.
    It means identifying and preventing competitive problems 
before they occur, like stopping a merger that would allow a 
few dominant players to raise prices, or when a merger is 
allowed to move forward, putting conditions in place to protect 
competition.
    It means stopping price-fixing cartels that hurt consumers 
by artificially inflating prices for goods such as auto parts, 
TVs, and tablet computers. Last year alone, the Justice 
Department obtained more than $1 billion in criminal antitrust 
fines.
    And it means challenging anticompetitive practices like 
pay-for-delays, settlement agreements that keep cheaper generic 
drugs from coming onto the market. The FTC estimates that 
consumers and taxpayers would save billions of dollars each 
year if these anti-consumer agreements were stopped.
    Antitrust enforcement is also a boost for our economy. 
Unfettered competition spurs innovation and fosters economic 
growth, leading to more jobs and greater prosperity.
    Antitrust and competition policy are not Republican or 
Democratic issues. They are consumer issues. We can all agree 
that robust competition is essential to our free market economy 
and critical to ensuring that consumers get the best prices. In 
the words of the great Supreme Court Justice Thurgood Marshall, 
Antitrust laws in general and the Sherman Act in particular are 
the Magna Carta of free enterprise. They are as important to 
the preservation of economic freedom and our free enterprise 
system as the Bill of Rights is to the protection of our 
fundamental personal freedoms.
    As a former prosecutor, I know how important it is to have 
a good cop on the beat, ready and willing to go to court when 
necessary to enforce the law. So we hope that both of you, Mr. 
Baer and Chairman Ramirez, are mindful of that special 
responsibility that you have to consumers. And we trust but 
will also verify that you will see to it that the American 
people are well served by flourishing competition. Millions of 
consumers depend on your efforts and your judgment to ensure 
that the economy is sufficiently vibrant.
    You both have inherited a legacy at the Antitrust Division 
and the FTC, and it is my sincere hope and full expectation 
that you will strive to uphold this legacy in the years ahead. 
I look forward to your testimony, and I turn it over to my 
Ranking Member here, Senator Lee.

           OPENING STATEMENT OF HON. MICHAEL S. LEE,
             A U.S. SENATOR FROM THE STATE OF UTAH

    Senator Lee. Thank you very much, Madam Chair. Our meeting 
today marks the Subcommittee's first antitrust oversight 
hearing since President Obama's re-election last November. It 
is also the Subcommittee's first oversight hearing since 
Assistant Attorney General Baer was confirmed to lead the 
Department of Justice's Antitrust Division and Ms. Ramirez 
replaced Chairman Leibowitz as the head of the FTC. Both Mr. 
Baer and Chairwoman Ramirez are highly respected within the 
Antitrust Committee, and I thank both of them for their service 
and for being here with us today.
    Checks and balances are, of course, essential to our 
constitutional system. As James Madison wrote in Federalist No. 
51, the Constitution establishes subordinate distributions of 
power where the constant aim is to divide and arrange the 
several offices in such a manner that each may be a check on 
the other. Congressional oversight is a critical means by which 
the legislative branch may act as a check on the executive. 
Meaningful oversight ensures that the executive branch and 
enforcement agencies within that branch are accountable to the 
people not only through the election of the President every 4 
years, but also by means of democratically elected 
Representatives in Congress who seek to ensure that our laws 
are administered faithfully and impartially.
    Compared to its prolix pronouncements in other areas of the 
law, Congress has given relatively little guidance to 
enforcement agencies regarding the proper approach to 
competition law. Whether wisely or not, Congress has enacted 
statutes with broad language and significant mandates, leaving 
many of the details to be sorted out in cases brought before 
Federal courts.
    This does not, of course, mean that antitrust enforcement 
has not sometimes become political. To the contrary, industry 
participants have long sought to influence enforcement agencies 
or to apply, or even misuse, the antitrust laws to the 
detriment of their competitors.
    Others with ideological rather than business goals in mind 
have attempted to transform competition law into a vehicle for 
wealth redistribution or for other social policies.
    Fortunately, in recent decades, and particularly since the 
publication of Robert Bork's authoritative work, ``The 
Antitrust Paradox,'' antitrust enforcers have increasingly 
relied on objective metrics and rigorous economic analysis. 
Doing so provides greater transparency and certainty for the 
business community, which can rely on stable rules and know 
that decisions are usually the result of a fair and rational 
process.
    Perhaps most importantly, Bork's approach has become a 
consensus norm that the purpose of antitrust enforcement is 
neither to protect competitors from competition nor to inject 
Government regulators into the economy, but instead to maximize 
the welfare of the consumer.
    As Mr. Baer very eloquently put it during his confirmation 
hearing before this Subcommittee last summer, antitrust 
enforcement is best when it has a sound analytical foundation 
and when it focuses on behavior that poses a serious risk to 
economic harm to the American people.
    In light of these considerations, the need for 
congressional oversight of executive administration, the broad 
language of the antitrust statutes, and the risk that political 
forces will perversely seek to decouple antitrust enforcement 
from economic analysis, our Subcommittee's oversight role takes 
on particular significance. We must be vigilant in guarding 
against novel and illegitimate antitrust doctrines.
    But our duty does not end there. We have an obligation to 
help ensure that antitrust analysis is grounded in consistent, 
rational, evidence-based processes, and that antitrust 
enforcers are not swayed by political or business pressures 
extraneous to the objective task before them.
    Although it requires patience and sustained effort, 
evidence-based antitrust is the only legitimate approach 
because it provides the best results for consumers. It grounds 
our discussion in facts, and it focuses our efforts on a shared 
goal: the benefit of the American people.
    Properly limited enforcement of our antitrust laws, 
therefore, need not be partisan in nature. Antitrust law 
protects free markets, and free markets are the most effective 
means for allocating scarce resources to their highest-valued 
uses.
    I am committed to protecting free markets from both 
unnecessary Government intervention and private anticompetitive 
conduct. I hope the matters we discuss today will help 
illuminate the ways in which the Department of Justice and the 
FTC are properly, and perhaps in some cases improperly, 
carrying out the important task of faithfully and objectively 
enforcing our Nation's antitrust laws.
    Thank you, Madam Chair.
    Chairman Klobuchar. Well, thank you very much, Senator Lee.
    I note, Mr. Baer, for your first hearing you kind of have a 
leg up when the Ranking Republican quotes you and Robert Bork 
in the same statement, so this is good for you.
    [Laughter.]
    Chairman Klobuchar. Okay. We now turn to Senator Franken.

             OPENING STATEMENT OF HON. AL FRANKEN,
           A U.S. SENATOR FROM THE STATE OF MINNESOTA

    Senator Franken. I will make this short. Thank you, Madam 
Chair, for starting off today's hearing with your remarks about 
the senseless attack in Boston. All Minnesotans' and I know all 
Americans' hearts go out to the people up there.
    I want to congratulate Chairwoman Klobuchar on her new 
position as Chair of the Antitrust Subcommittee. She has big 
shoes to fill following Senator Kohl's retirement, but I know 
she is up to the task and is going to do a tremendous job as 
Chair of this very important Subcommittee.
    Mr. Baer and Ms. Ramirez, welcome. Thank you for appearing 
with us today. It has been far too long since our last 
oversight Committee hearing, and I hope these can be more 
regular going forward.
    Mr. Baer, before we get started, I want to commend the 
Department for its comments to the FCC last week on the need to 
make spectrum available to smaller wireless carriers rather 
than the big incumbent carriers. As you may know, I opposed the 
AT&T/T-Mobile merger and was pleased that the Department sued 
to block that deal. More needs to be done to make sure that 
smaller and mid-sized carriers are able to build out their 
networks and to be competitive. And I hope that you will 
continue to play an active role in pushing the FCC to promote 
competition and protect the public interest.
    With that, Madam Chair, I turn it to you.
    Chairman Klobuchar. Thank you very much, Senator.
    I would like to introduce our witnesses here today.
    The first witness, Mr. William Baer. Mr. Baer was sworn in 
as the Assistant Attorney General for the Department of Justice 
Antitrust Division on January 3, 2013. Prior to his 
appointment, he was a partner at Arnold & Porter and head of 
the firm's antitrust practice group and head of the FTC's 
Competition Bureau from 1995 to 1999.
    Our second witness is FTC Chairwoman Edith Ramirez. She was 
sworn in as a Commissioner of the FTC in April 2010 and 
designated Chairwoman by President Obama on March 4th of this 
year. Before joining the Commission, Ms. Ramirez was a partner 
in private practice in Los Angeles representing clients in 
intellectual property, antitrust, and unfair competition suits.
    Thanks to both of you for appearing at our Subcommittee 
hearing, and we are going to have you testify. I would ask you 
to rise and raise your right hand as I administer the oath. Do 
you affirm that the testimony you are about to give before the 
Committee will be the truth, the whole truth, and nothing but 
the truth, so help you God?
    Mr. Baer. I do.
    Ms. Ramirez. I do.
    Chairman Klobuchar. Thank you.
    Please go ahead, Mr. Baer. You each have 5 minutes.

        STATEMENT OF WILLIAM J. BAER, ASSISTANT ATTORNEY
        GENERAL, ANTITRUST DIVISION, U.S. DEPARTMENT OF
                    JUSTICE, WASHINGTON, DC

    Mr. Baer. Thank you, Chairwoman Klobuchar, Ranking Member 
Lee, Senator Franken. It is a privilege to be here. It is even 
more of a privilege when the microphone is on.
    [Laughter.]
    Mr. Baer. As you may be aware, Attorney General Eric Holder 
issued a statement just a few minutes ago. I want to take a 
moment to convey on behalf of the Department of Justice our 
deepest condolences to the victims and their families who have 
been affected by yesterday's tragic attack in Boston. Our 
thoughts and prayers go out to them. Attorney General Holder 
has directed the full resources of the Justice Department to be 
deployed to ensure this matter is fully investigated.
    As Chairwoman Klobuchar noted, I have been at the Antitrust 
Division for just a short time, but I am honored to be part of 
its proud and successful tradition of vigorous antitrust 
enforcement. It is a privilege as well to be sitting next to 
the new head of the Federal Trade Commission, Edith Ramirez. 
She is an exceptional public servant and a friend. We are 
looking forward to working together on behalf of American 
consumers.
    Competition is the cornerstone of our Nation's economic 
foundation. The antitrust laws serve to promote and protect a 
free-market economy by prohibiting anticompetitive agreements, 
conduct, and mergers that distort market outcomes.
    When markets are working, consumers benefit from lower 
prices and higher-quality goods and services. As Senator Lee 
noted, this is not a partisan issue. We all agree that firms 
should not be able to distort the economic choices available to 
consumers, or to sellers in upstream markets.
    The Antitrust Division focuses its enforcement efforts on 
the products consumers use every day--the items we buy at the 
grocery store, media and entertainment, communications, 
consumer electronics, and new technologies--as well as other 
goods and services that have a significant impact on our 
Nation's economy. That includes health care, agriculture, 
transportation, energy, and financial services. With your 
permission, I would like to drill down in two areas--first, 
cartel enforcement.
    Price fixers and bid riggers do serious and demonstrable 
harm to consumers. Criminal prosecution of these wrongdoers is 
critical. We target domestic and international cartels that rob 
consumers of their hard-earned dollars. In the last Fiscal Year 
alone, the Division filed 67 criminal cases; 16 corporations 
and 63 individuals were charged. We obtained, as the Chairwoman 
noted, criminal fines of well over $1 billion, and the courts 
sentenced 45 individuals to jail terms that averaged over 2 
years per defendant.
    Aggressively pursuing cartels benefits consumers in 
multiple ways. The specific price fixing is eliminated, and the 
wrongdoers are punished. Other wrongdoers are put on notice 
that they may be next, and they have a real incentive to 
discontinue yet undetected illegal conduct. And those 
contemplating price fixing realize the risk they are running 
and are deterred from committing the crime in the first 
instance.
    American consumers and taxpayers are well served by these 
efforts. In the last 5 years, we averaged criminal fines of 
almost $800 million per year, and at the same time, in that 5-
year period, our average annual net appropriation was just 
about 10 percent of that, or $80 million. These fines do not go 
to the Antitrust Division. They go to the Crime Victims Fund, 
helping those victimized by crimes, not just antitrust crimes, 
throughout the country.
    Our civil enforcement efforts at the Antitrust Division 
also produce important results for American consumers. Let me 
just give one example.
    Last year, together with 33 State Attorneys General, we 
challenged a conspiracy involving Apple and five major book 
publishers to raise prices for electronic books, e-books. The 
results tell us stories. Our State Attorney General partners 
have already obtained customer refunds of over $80 million from 
the defendant publishers. Our settlements with those publishers 
forced them to abandon going forward the agreements that had 
kept e-books' prices high, and those settlements have restored 
meaningful retail price competition for e-books. What do I 
mean? According to published reports, in just the last few 
months, the average price for the top 25 bestsellers on the New 
York Times Best Seller list dropped by over $3, from $11 a book 
to $8.
    As my statement for the record details, the Antitrust 
Division is busy doing other important work that I would be 
happy to discuss. That written statement further illustrates 
how our efforts can have a tangible and enduring impact on the 
markets that matter most to American consumers.
    Senators, Chairwoman Klobuchar, I realize that Congress and 
the American public legitimately hold its public servants to a 
high standard, and you should. I can assure you that the 
Antitrust Division's dedicated public servants are working hard 
to enforce the antitrust laws vigorously for the benefit of 
American consumers. As my testimony seeks to demonstrate, we 
are putting scarce American taxpayer dollars you entrust us 
with to good use.
    Thank you.
    [The prepared statement of Mr. Baer appears as a submission 
for the record.]
    Chairman Klobuchar. Thank you very much.
    Chairman Ramirez.

 STATEMENT OF THE HONORABLE EDITH RAMIREZ, CHAIRWOMAN, FEDERAL 
                TRADE COMMISSION, WASHINGTON, DC

    Ms. Ramirez. Thank you, Chairman Klobuchar, Ranking Member 
Lee, and Senator Franken, for inviting me to testify today 
regarding the Federal Trade Commission's current antitrust and 
competition policy efforts. Let me also thank you for all the 
support that you have given the FTC.
    The FTC works in conjunction with the Department of 
Justice's Antitrust Division to ensure that the American 
economy remains competitive through vigorous antitrust 
enforcement. I am grateful for the excellent working 
relationship we have with Assistant Attorney General Bill Baer 
and his colleagues at the Antitrust Division. We will continue 
to work closely with the Division as well as our counterparts 
in the States whenever possible to enhance antitrust 
consistency, clarity, and transparency.
    I would like to now turn to some of the FTC's recent 
highlights, beginning with the two FTC cases before the Supreme 
Court this term.
    In February, in a rare unanimous decision, the Court 
revived the FTC's suit to stop an alleged hospital merger to 
monopoly in Albany, Georgia, by ruling that the State action 
doctrine did not immunize the transaction from the antitrust 
laws.
    The second case, which I know members of this Subcommittee 
have been watching closely, involves a pay-for-delay patent 
settlement. The Court heard arguments at the end of March, and 
we are hopeful that the Court will hold that these agreements 
are presumptively unlawful.
    As both of these Supreme Court cases show, the FTC remains 
broadly focused on preserving competition in health care 
markets as a way to help contain health care costs. In recent 
years, the Commission has stopped hospital mergers in Northern 
Virginia; Toledo, Ohio; and Rockford, Illinois. We are also 
looking closely at mergers involving other health care 
providers, challenging two such deals in recent months.
    In December, the Commission, along with the Pennsylvania 
Attorney General, blocked a proposed merger between the 
dominant health care system in Reading, Pennsylvania, and a 
surgery center. Then, last month, the FTC, in conjunction with 
the Idaho Attorney General, challenged Idaho's largest health 
care system's acquisition of the State's largest physician 
practice group.
    We also continue to target efforts by brand-name drug 
companies to stifle generic competition. In addition to pay-
for-delay, we are looking at other brands' strategies to 
illegally preclude generic competition. This includes the 
potential abuse of safety protocols, known as REMs, to prevent 
generics from beginning the Hatch-Waxman process and a practice 
known as product hopping where a brand introduces a follow-on 
product with minimal additional clinical value to prevent 
generic competition.
    High-technology markets also play an increasingly important 
role in consumers' lives, and the Commission also remains 
focused on enforcement in this sector. The Commission recently 
challenged a proposed merger between Integrated Device 
Technology and PLX where there was evidence of intense head-to-
head competition and a combined market share of over 80 
percent.
    However, the Commission recognizes the important role that 
innovation plays in technology markets and takes a cautious 
approach where action is more likely to deter rather than 
promote innovation, such as in our recent investigation of 
Google's search practices which the Commission unanimously 
decided to close.
    The Commission also remains focused on preserving the 
integrity of the standard-setting process. In the Bosch and 
Google/MMI matters, we brought actions to prevent the owners of 
standard essential patents from improperly seeking injunctions 
against willing licensees to the potential detriment of 
consumers.
    The Commission will continue to engage in an ongoing 
dialogue with stakeholders in this important area and to be 
vigilant where conduct threatens to distort the standard-
setting process.
    Thank you very much, and I am happy to respond to any 
questions.
    [The prepared statement of Ms. Ramirez appears as a 
submission for the record.]
    Chairman Klobuchar. Well, thank you very much to both of 
you, and I think a lot of people who are hearing you testify 
for the first time in this oversight hearing are most focused 
on what your top priorities are. When we look at the past, we 
know that, for instance, Chairman Leibowitz was very focused on 
pay-for-delay, and I think we get some sense from your 
testimony of what you are interested in. I do not want to put 
words in your mouth, Chairwoman Ramirez, but it seems that you 
are focused on the health care work that is going on with the 
FTC, as well as the patent standards, which I was interested to 
hear you talk about because I have heard a lot about that 
lately, as well as continuing the work for pay-for-delay.
    Am I missing other things? Obviously, you have broader 
jurisdiction than that.
    Ms. Ramirez. The key priority that I have, Senator--you 
have identified some key focus areas for the FTC and for me 
personally. Generally speaking, I intend to pursue active 
enforcement where there might be harm to competition and harm 
to consumers. But you have identified the areas of emphasis.
    Chairman Klobuchar. And I think you also know that on that 
issue of pay-for-delay, I have introduced legislation to put a 
stop to these anticompetitive practices. And will you support 
this legislation? And does the FTC support this legislation?
    Ms. Ramirez. Senator, as you know, this area has been one 
of concern for many years for the FTC. I cannot speak for the 
current Commission with regard to your proposal, but I can tell 
you that I do support the bill.
    Chairman Klobuchar. Thank you very much.
    Mr. Baer, same question about your partners, and I had some 
follow-up on the cartel issue as well, which I think is really 
interesting and that not many people realize that you are 
working on.
    Mr. Baer. Thank you, Madam Chairwoman. Obviously----
    Chairman Klobuchar. Except the people you are going after, 
I guess.
    Mr. Baer. There are those.
    Cartel enforcement remains a top priority, making sure that 
we are going after not just domestic wrongdoers but wrongdoers 
overseas who enter price-fixing arrangements that end up having 
an impact on U.S. consumers.
    We intend to work as well aggressively in health care, in 
communications, broadband issues, intellectual property issues. 
Much of this we will do and have been doing jointly with the 
FTC, holding hearings to explore some of the issues that will 
help us develop a sound analytical framework and factual-based 
approaches to our law enforcement activities.
    Chairman Klobuchar. And you and I talked earlier about the 
fact that, as the world becomes more global, you have a lot of 
these international cartels that actually hurt American 
businesses. We talked about the auto part cartels, and I wanted 
to ask why you think that these types of cases are on the rise. 
Is it because your Department has devoted more resources to 
investigating them or are certain market conditions causing 
this? Or is it related to the increasing concentrated markets 
that have been more susceptible to price-fixing schemes?
    Mr. Baer. I think part of it--and perhaps most of it--is 
having the tools to begin to explore problematic behavior that 
occurs abroad with an impact on the United States. We have a 
program which encourages corporations to come in and self-
report and identify their wrongdoing. And we have been working 
with foreign enforcers around the world to urge them to develop 
similarly aggressive cartel enforcement programs. So there has 
been progress on a number of fronts. My sense is that we are 
simply uncovering things that have been under a rock for a 
while, but we have now got the help and the resources to move 
the rock.
    Chairman Klobuchar. Very good.
    Chairwoman Ramirez, you mentioned the patent issue, and I 
think what you are referring to has been a topic of 
conversation because of several cases that have been filed with 
the International Trade Commission. We can all agree that 
standardization of technology and essential patents have been 
critical to the development of the competitive market for 
smartphones and tablets, but recently, concerns have been 
raised about the practice of bringing standard essential patent 
cases to the ITC seeking an exclusion order to prevent products 
with the patent from being imported into the U.S. Some worry 
that the ITC exclusion orders related to standard essential 
patents could gravely harm competition.
    What sort of negative effects might the use of exclusion 
orders regarding standard essential patents have on competition 
and consumer welfare in general?
    Ms. Ramirez. Senator, thank you for that question. One of 
the concerns that we have is that injunctive relief generally, 
whether it be at a district court or at the ITC when it comes 
to a standard essential patent, has the ability to deter 
innovation and competition and investment in standard compliant 
products. And that is because the patent holder in this context 
has made a voluntary commitment to license patents on a FRAND 
or RAND basis. And any effort to renege on that commitment then 
raises risks for both the competitive process in the standard-
setting context and then again over time can have long-term 
impact on investment in standard compliant products.
    So as a result, the FTC has advocated and asked district 
courts to take into account when there is a FRAND commitment 
that has been made and the patent holder is asking for an 
injunction. In addition, the FTC has also advocated that the 
ITC through its public interest authority also take this into 
account as they consider whether or not it is appropriate to 
issue an exclusion order.
    Chairman Klobuchar. Another issue on patents, a recent 
study found that 56 percent of all patent lawsuits are filed by 
so-called non-practicing entities or, as they are known to 
their critics, ``patent trolls.'' These entities purchase 
patents from the original holders and often sue companies for 
patent infringement. Critics say the suits are often unfounded, 
but the companies end up having to either pay large sums in 
legal fees to defend the suits--I know this because my State 
has a lot of patents. In fact, one of our companies has a 
patent for every employee. That is 3M--or simply end up paying 
the patent trolls under a settlement or licensing fee.
    It seems to me that this practice could potentially have a 
negative effect on competition and consumer welfare, but there 
is also a concern that any efforts to address bad actors could 
have unintended consequences on our intellectual property 
system.
    So I am wondering if something should be done about this. I 
have just heard it raised repeatedly as we are seeing, even 
despite the great work we did with the America Invents Act and 
patent reform and getting rid of the backlog and doing some 
good things, that there is still this issue out there.
    Ms. Ramirez. Yes, Senator, this is another area in which 
the FTC, and also in conjunction with the Department of 
Justice, has been engaged in recently. We held a joint workshop 
in December to explore the ramifications on competition and on 
consumers of this model, patent assertion entities that are in 
the business of buying and then asserting patents. And the 
question is fundamentally whether, as some assert, patent 
assertion entities are able to assist small inventors in 
monetizing their inventions or whether this ends up being a tax 
on innovation.
    So it is an issue that we are looking at very closely. We 
have just received--the comment period, I should say, has just 
closed with regard to this workshop, and we are examining those 
comments, and we are going to be deciding and proceeding from 
there how to move forward in this area.
    We do feel that it is an area that warrants additional 
study so that we can properly evaluate the impact of patent 
assertion entities on competition.
    But let me also add that we have heard also reports of 
patent assertion entities making unsubstantiated claims 
relative to small businesses. It is an issue that causes us 
great concern, and we will be continuing to look to see whether 
it might be appropriate for the Federal Trade Commission to 
exercise its authority relative to these types of actions.
    Chairman Klobuchar. Very good.
    Did you want to add anything, Mr. Baer, before I turn it 
over to Senator Lee?
    Mr. Baer. I will defer to Senator Lee.
    Chairman Klobuchar. Very good. Okay. Senator Lee.
    Senator Lee. Thank you. Thanks again to both of you.
    Let us start with Mr. Baer. In 2008, the Department of 
Justice issued a 213-page report that sought to provide clarity 
and transparency in laying out its enforcement views and 
developing a set of objective and administrable standards for 
Section 2 analysis. Your predecessor, Ms. Varney, formally 
withdrew the report and in so doing promised especially 
vigorous Section 2 enforcement.
    During your confirmation hearing, you noted that while the 
report generally contained sound analysis, you thought that 
some of it suggested enforcement standards were more 
restrictive than warranted by the case law and could inhibit 
the effective enforcement against anticompetitive conduct.
    Given that you do not believe that the 2008 report got it 
quite right, can you please briefly describe for us the 
principles that you believe should guide Section 2 enforcement?
    Mr. Baer. Thank you, Senator. My concern, as you state, 
with the 2008 report was that it may have been going too far 
too fast in articulating what was an evolving series of 
judicial precedent as it relates to Section 2.
    I was also concerned, as was my predecessor, over the fact 
that the Federal Trade Commission had felt it inappropriate to 
join in that guidance, so we were at risk of having guidance 
out there that potentially was inconsistent or not fully 
subscribed to by both enforcement agencies. As a general 
matter, I think that is wrong.
    We have, in approaching Section 2, a series of decisions 
out of the Supreme Court and out of the Court of Appeals for 
the District of Columbia providing some guidance about various 
tests that can be applied. Those tests have tended to evolve in 
fact-specific situations, industry-specific situations, and I 
think the better way to move forward with Section 2 enforcement 
is carefully articulating what we are doing and why we are 
doing it. But I do not think we were ready to put out guidance. 
If we did so, I am afraid it would be so qualified that the 
business community would not get the benefit of it. There is a 
concept, you know, of guidance in name only that I think we 
ought to resist as antitrust enforcers if the caveats are such 
that a counselor cannot effectively advise a corporation about 
what behavior is likely to get them in trouble with the FTC or 
the Antitrust Division.
    Senator Lee. Okay. Thank you. That is helpful.
    Also during your confirmation hearing, you said, in 
response to a question about Section 2 enforcement standards, 
``I believe that coordinated statements of policy engender 
confidence in the agencies and provide clearer guidance for 
businesses and practitioner, and that is what I would strive 
for, if confirmed.''
    I agree that clearer enforcement criteria will tend to help 
the agencies identify and prove violations as they do their 
work, and will provide businesses with the information that 
they need to comply with law and to avoid violations moving 
forward.
    So my question is this: What have you done so far and what 
will you commit to do moving from to provide such needed 
Section 2 guidance?
    Mr. Baer. Senator, what I am prepared to commit to is to 
move forward cautiously. There are different forms of guidance 
that an antitrust enforcer can and should provide. It does not 
necessarily need to be in the form of a formal statement of 
principles such as in the horizontal merger guidelines, which 
the FTC and the Antitrust Division jointly issued a couple of 
years ago. We can through speeches, through statements that 
would accompany enforcement actions that are filed under the 
Tunney Act in Federal district court. We can also issue closing 
statements where we choose not to proceed with a possible 
Section 2 concern, and talk publicly about why we chose not to 
proceed in order to--it is almost a case-by-case look--help 
people understand what our thought process is, where we think 
we need to proceed, and where we do not.
    Senator Lee. Supplying data points.
    Chairwoman Ramirez, several current and past Commissioners 
have criticized the Commission for its seemingly unfettered 
views regarding Section 5 of the FTC Act, noting that the FTC's 
expansive decisions appear to lack regulatory humility, and 
some of them argue that decisions should instead be based on 
sound economic and empirical foundations.
    Commissioner Ohlhausen recently noted that it is important 
that the Government strive for transparency and predictability 
in this context, and she called for the Commission to fully 
articulate its view about what constitutes an unfair method of 
competition before invoking Section 5.
    At the ABA Antitrust Section Annual Meeting last week, you 
said that the Commission needs to apply Section 5 
``carefully.'' Do you agree with me about the importance of 
transparency and predictability in this area? And in your view, 
what are the limiting principles that can find the scope of 
unfair methods claims brought pursuant to Section 5?
    Ms. Ramirez. Senator, I do agree that it is beneficial for 
the agencies to provide clear enforcement criteria where they 
can. I do take a different view with regard to Section 5. I 
believe that this is an area where it is difficult to specify 
precisely what the outer bounds are. In my view, if you look at 
the recent past, the agency has been approaching its use of 
Section 5 in a very careful, judicious way. The statute was 
written expansively, as were the dictates of the Sherman Act, 
and that evolved incrementally on a case-by-case basis over the 
course of decades.
    In light of the elasticity of the Sherman Act, it is really 
no surprise that Section 5 as a stand-alone basis for authority 
for the FTC has not developed in that same fashion. I think 
that this is an area where the Commission ought to--it is 
authority that the Commission ought to use where there is harm 
to competition and harm to consumers, and I think those are the 
central tenets that would guide its application.
    Senator Lee. In December 1980, the FTC issued a policy 
statement on fairness, clarifying what was the scope of its 
consumer unfairness jurisdiction. Absent definitive policy 
statements, regulatory uncertainty results in additional and 
unnecessary costs to the business community, costs that are 
ultimately borne by and passed on to consumers.
    When can we expect the Commission to articulate a 
definitive policy statement on the parameters of Section 5 
authority relating to unfair methods of competition?
    Ms. Ramirez. Senator, this is an area that I will continue 
to engage in a dialogue with my fellow Commissioners. However, 
I will say that I do believe that there is guidance that is 
provided. If you look back at the recent cases in which the 
agency has taken action using Section 5 on a stand-alone basis, 
it would include cases such as invitation-to-collude cases, in 
the context of the exchange of information that can then be 
used to facilitate collusion or other unlawful practices, and 
also in the standard-setting arena.
    So it really is confined to a fairly narrow set of 
circumstances. I do differ with those--my current and former 
colleagues who think that we are applying it in a reckless 
manner. I think that, in fact, the agency has been using its 
Section 5 authority rigorously and judiciously.
    Senator Lee. Okay. Thank you.
    Thank you, Madam Chair.
    Chairman Klobuchar. Thank you very much.
    Senator Blumenthal.
    Senator Blumenthal. Thank you, Madam Chair, and thank you 
to both Assistant Attorney General Baer and Chairman Ramirez.
    Let me just say what is an obvious truth to everyone who 
has a familiarity with law enforcement, antitrust law 
enforcement these days, that we are at a critical juncture with 
the consolidation that has taken place in many of our most 
important industries, including communications, health care, 
pharmaceuticals, and financial services. And the public is 
beginning to understand the ramifications and consequences of 
consolidation in limiting their choices, potentially raising 
prices, and limiting the quality of service. And so the work 
that you do is ever more important, and I would hope that you 
would continue the resurgence of antitrust enforcement that we 
have seen over the last 3 years after a real dearth of activity 
and aggressive enforcement in some previous years. And I think 
that the solid effort that you have made to reinvigorate 
antitrust law enforcement to preserve competition and promote 
jobs--it not only preserves competition, but it also promotes 
jobs--would continue.
    Let me Chairman Ramirez, if I may, about an area that is of 
interest to me, group purchasing organizations--GPOs, as you 
know them. When I was Attorney General in Connecticut, we led 
an investigation into the Healthcare Research and Development 
Institute, also known as HRDI, which was profiting from 
anticompetitive behavior through a business model that failed 
to provide any benefit really to the hospitals and providers on 
whose behalf they were negotiating.
    Since then, the FTC and the Department of Justice have 
investigated GPOs, and both have filed lawsuits against various 
of them, but they have not taken any industry-wide actions. And 
a lot of medical device manufacturers you probably heard from, 
as I have, have demonstrated practices by GPOs that effectively 
foreclose them from entering the market. These exclusionary 
practices, some documented in the media, including kickbacks, 
sole-source contracts, bundling of products so that hospitals 
have to purchase the bulk of their supplies from a single 
vendor to qualify for a discount.
    The kickbacks are particularly problematic, I believe. They 
are paid by manufacturers to the GPOs, and these kickbacks 
deceive buyers and distort demand and, in effect, artificially 
inflate prices.
    So my question is, first of all, concerning the safe harbor 
that apparently GPOs occupy to some extent, given the 
investigations and ongoing concerns, Chairman Ramirez, do you 
believe that the safe harbor provisions relating to GPOs really 
protect the public from anticompetitive behavior? And should 
they be revisited?
    Ms. Ramirez. Senator, I think that the agency has the 
authority, notwithstanding the safe harbor, to take action in 
appropriate circumstances if warranted. I am aware and 
appreciate your concerns that you have articulated relating to 
group purchasing organizations. I will note that I think a 
number of issues such as the applicability of the anti-kickback 
laws are ones that are not related to antitrust. So I know that 
this is an issue that raises a series of complicated questions.
    What I can tell you and assure you is that we are fully 
committed to taking a look at these organizations and, if 
necessary, taking action if we find that there is a violation 
of the competition laws.
    Senator Blumenthal. So we can count on your commitment that 
you will do hearings, workshops, meetings to investigate the 
impacts of GPOs on the health care marketplace, costs and 
competition?
    Ms. Ramirez. What I can commit to you is that we will 
continue to be vigilant in this area. Given resource 
constraints, I cannot commit to particular actions, but I will 
assure you that we will continue to take a look and investigate 
complaints as appropriate and as necessary.
    Senator Blumenthal. Well, if I bring to your attention some 
of these issues, I hope that you will investigate them.
    Ms. Ramirez. Again, we will take a look at them and proceed 
as necessary. But I appreciate the concern, and I assure you 
that I will be vigilant in this area.
    Senator Blumenthal. Do you think that the FTC can better 
police this area as opposed to the specific actions that you 
brought?
    Ms. Ramirez. As a law enforcer, the way that we approach 
these issues is to look at the specific facts of a case, so 
that is what I see as being the appropriate course of action in 
this area.
    Senator Blumenthal. General Baer, let me ask you, I read 
with interest the Division's letter recently to the FCC 
concerning policies relating to spectrum and competition, and I 
was happy to see that the Division is becoming active in this 
area in the role as an advocate for competition. Having just 
reviewed a number of transactions in the wireless marketplace, 
I understand that the Division has developed some expertise in 
this area, and I would like to ask you about the future of the 
marketplace.
    Do you think that the FCC needs a policy like a spectrum 
screen or auction rules that specifically seek to encourage 
competition in the wireless marketplace?
    Mr. Baer. The answer is yes, Senator. We believe that well-
defined, competition-focused rules for putting spectrum, the 
newly available spectrum to use quickly and efficiently is the 
best way of promoting consumer welfare, and that was why we 
publicly filed the comments. In addition, we have spent a fair 
amount of time working very cooperatively, quietly with the 
Federal Communications Commission on these difficult policy 
choices.
    Senator Blumenthal. Do you think that the FCC should 
account for the differences in the quality between different 
spectrum, particularly high- and low-frequency spectrum?
    Mr. Baer. Senator, yes. I think the fact that the low-
frequency spectrum is sort of paradoxically higher quality, 
that is a factor that needs to be taken into account about how 
to allocate spectrum that is now becoming available to the 
Government, spectrum that previously was not available to be 
shared with the marketplace and market participants.
    Senator Blumenthal. Thank you. My time has expired. I thank 
both of you for your hard work in this area, and thank you for 
being here today. Thank you.
    Chairman Klobuchar. Senator Franken.
    Senator Franken. Thank you, Chairwoman.
    Chairwoman Ramirez, I want to applaud the FTC for being 
proactive on pay-for-delay agreements between brand and generic 
drug manufacturers. I am a cosponsor of Chairwoman Klobuchar's 
excellent bill on this issue, and I have also introduced 
another bill, the Fair Generics Act, which has been referred to 
the HELP Committee.
    CBO estimates that if we fix this problem, consumers could 
save $11 billion in drug costs over the next 10 years. We need 
to put an end to these anticompetitive deals--and that is what 
they are--and I hope the Supreme Court will agree with me when 
it rules on this issue in a couple months. But pay-for-delay 
agreements are just one way that pharmaceutical companies are 
delaying generic drug entry.
    You mentioned REMs and drug safety programs and product 
hopping before. Can you tell me what the Commission is doing to 
address unnecessary REMs and product hopping, which are also 
making it harder for consumers to purchase low-cost drugs?
    Ms. Ramirez. Senator, first of all, let me thank you for 
your leadership in the area of pay-for-delay and in these other 
areas.
    I cannot comment on any specific investigations, but I can 
tell you that the agency is very concerned about efforts by 
branded pharmaceutical manufacturers who employ strategies such 
as REMs and product hopping in an effort to impede or otherwise 
delay generic competition. So this is an area that we are 
looking at very closely. Again, I cannot comment on specific 
investigations, but these are areas in which we have weighed in 
publicly through the filing of amicus briefs, and it is one 
that we are looking at very closely.
    Senator Franken. Well, I certainly hope that if it is 
appropriate, you bring enforcement action, and I hope you will 
do that, again, if it is appropriate and not just file amicus 
briefs.
    Ms. Ramirez. Without question. Again, I cannot comment on 
specific cases, but I can tell you that we are looking very 
closely at this issue, and if there is a violation, we will 
take immediate action.
    Senator Franken. Thank you. Thank you.
    Mr. Baer, in early 2010, the Department collaborated with 
the USDA to hold the first-ever public workshops on competition 
in the agriculture and dairy sectors. That was 3 years ago, and 
very little has been done by the Department to address the 
competition issues that you uncovered.
    Dairy farmers in Minnesota are getting a smaller and 
smaller share of the price of a gallon of milk, and this trend 
is playing out across the country as family farmers are getting 
less and less of each dollar spent on food.
    What is the Department doing on this issue? And will you 
pledge to work closely with USDA to protect independent 
farmers?
    Mr. Baer. I can make that commitment to you, Senator, and, 
indeed, one of the benefits of those hearings that were held in 
the first term of the Obama Administration, jointly with the 
Department of Agriculture, was to educate their folks and our 
folks as to the very issues that dairymen--as you know, I am 
from Wisconsin and appreciate those unique issues--and 
cattlemen and other growers, farmers, to understand what 
challenges they face, where they believe they were subject to 
anticompetitive conduct, where mergers ran the risk of 
inflating prices to consumers and unfairly lowering the price 
to growers and to dairymen.
    We have been working closely with DOA. We are also working 
closely with State Attorneys General in farm States, and that 
will continue to be a big priority for us. We understand it is 
important to the farmers and to the American consumer.
    Senator Franken. Mr. Baer, consumers are paying a larger 
and larger percentage of their household budgets to their 
cable, wireless, and Internet providers. Families cannot afford 
to pay $200 a month for cable and Internet while also paying 
several hundred dollars a month for their mobile phones. These 
markets are very consolidated, and the Comcast/NBCUniversal 
merger and agreements like the one between Verizon and big 
cable companies are only going to make it harder for consumers 
to find affordable options.
    News reports indicate that you are investigating most-
favored-nation clauses, and I want to urge you to continue your 
work and to keep a close eye on the terms of the Comcast/
NBCUniversal deal and the agreement between Verizon, Comcast, 
and the other major cable companies.
    These agreements mean nothing if they are not promptly and 
aggressively monitored and enforced. Will you make that pledge?
    Mr. Baer. Yes, sir.
    Senator Franken. Thank you.
    I am specifically worried about the broadband market. 
Comcast previously imposed discriminatory data caps on its 
customers, and we have seen providers artificially elevating 
the price of stand-alone broadband service in order to press 
customers to buy an expensive bundle.
    Will you keep an eye on this market to make sure consumers 
have meaningful options and are able to cut the cord and watch 
online video rather than signing up for expensive pay TV 
service?
    Mr. Baer. Senator, that is a key part of our mission, and I 
can make that commitment to you.
    Senator Franken. Thank you.
    This is for both of you. I am very concerned that the 
Supreme Court may soon make it hard or much harder for small 
businesses to file private antitrust enforcement actions. 
Instead, they may be forced to arbitrate their claims. Can you 
explain why private antitrust enforcement is so important and 
why forced arbitration is not an effective remedy? This is for 
either of you.
    Ms. Ramirez. I will take that, Senator. It is our view that 
private enforcement of the antitrust laws is a very important 
complement to the enforcement by the agencies, and the position 
that we have articulated in a recently filed amicus brief on 
this issue is that an arbitration clause that eliminates the 
ability of an individual to obtain redress of the antitrust 
laws should not be enforced.
    So I believe that, again, private enforcement plays an 
important role, and we have urged that position to the Supreme 
Court.
    Mr. Baer. The Justice Department agrees with that. Indeed, 
the Solicitor General filed a brief in the American Express 
case stating the importance of allowing a private right of 
action and not allowing that to be stripped away through what 
is almost a contract of adhesion for small businesses and for 
others. We think that shared approach of public enforcement 
with the ability of private citizens to go in and recoup 
damages has worked very well, and there is no reason to change 
it.
    Senator Franken. Thank you both.
    Thank you, Madam Chair.
    Chairman Klobuchar. Thank you very much, Senator.
    Senator Lee.
    Senator Lee. Thank you very much, Madam Chair.
    Let me proceed with Mr. Baer to follow up on a line of 
questions from Senator Blumenthal a minute ago. The upcoming 
spectrum auctions hold the prospect of bringing much needed 
spectrum into the market. Consistent with competitive market 
forces, those entities with the most pressing need for 
additional spectrum will be willing to pay the most for that 
same spectrum, thus ensuring that the spectrum is put to the 
best and most efficient use in the marketplace.
    But your recent FCC filing and your written testimony today 
seem to suggest a preference to forgo competitive bidding and 
instead steer low-frequency spectrum toward smaller nationwide 
networks.
    I am concerned about any approach that might involve the 
Government meddling in the competitive bidding process, in 
effect to pick winners and losers, because antitrust laws are 
meant to protect competition and not individual competitors. So 
I am concerned with the process in which the administration 
would seek to protect and, in effect, subsidize certain 
carriers, especially those carriers--especially when those same 
carriers chose not to participate in the last major low-
frequency spectrum auction. So I would like to get your 
response to a few questions related to this.
    First, should competition laws be used to steer a scarce 
resource toward particular competitors?
    Second, are you suggesting that the parent companies of the 
smaller carriers lack the resources to bid in a competitive 
auction to determine who most values the spectrum, the scarce 
resources in question?
    And, finally, is it your position that, absent this kind of 
Government intervention, larger carriers will obtain spectrum 
they do not actually need simply to keep it from others? In 
other words, are you suggesting they have sufficient spectrum 
to meet their needs?
    Mr. Baer. Senator, all very fair and legitimate questions. 
Our comment tried to address some of those subtleties. Among 
other things, we urged the FCC, which ultimately is going to 
promulgate the rules that will govern the auction, to take a 
close look at whether some of the spectrum that is already 
available to some of the carriers is being warehoused and not 
being put to efficient use. This is a market where, because the 
input, the spectrum, is scarce, that control of that spectrum 
potentially has some ability to affect competition downstream.
    So what we were trying to say--what we were saying to the 
Federal Communications Commission is balance these factors, 
take a look at whether or not the playing field is already 
tilted in favor of big guys who may or may not--we were not 
making a factual judgment, but it ought to be examined whether 
or not they are using what they already have, and use that as a 
factor in deciding what rules to set for the auctions going 
forward.
    Senator Lee. Okay. Thank you.
    And then this next line of questions is for both of you. It 
relates to the fact that some have expressed some concern that 
the FTC and the Department of Justice face different standards 
for obtaining a preliminary injunction in merger cases. Of 
course, under Section 13(b) of the FTC Act, the FTC may obtain 
an injunction by showing that weighing the equities in action 
would be in the public interest, but some courts have 
interpreted that language and found the standard may be 
satisfied where the FTC shows that a transaction raises serious 
and difficult questions.
    The Department of Justice, on the other hand, must seek a 
preliminary injunction pursuant to Section 15 of the Clayton 
Act, which does not specify a standard for obtaining 
preliminary relief. Courts often apply such a standard using a 
version of the traditional equity test, which generally 
requires the Government to show a reasonable likelihood of 
success on the merits. So I guess I have got two interrelated 
questions, which I will pose to both of you.
    In your view, first of all, does current law provide for 
diverging standards for the FTC and Department of Justice in 
seeking preliminary injunctions in merger cases? And if so, do 
you believe there is any legitimate reason for that difference?
    The second question I have for you is: Do you believe this 
situation is problematic? And if so, is it necessary for 
Congress to act to clarify that the same standard applies to 
all preliminary injunction litigants?
    So go ahead and answer that in any order you would prefer. 
It looks like you----
    Ms. Ramirez. How about if I begin, Senator? Thank you for 
your question, and I do appreciate this concern.
    In my view, even though the words are different, at the end 
of the day I believe that the standards that are used by the 
two agencies in obtaining a preliminary injunction are, in 
fact, quite similar.
    As a practical matter, what each agency needs to do is to 
go before a judge and show and provide evidence that backs up 
the charges that are being made, and in persuading that judge. 
In my view, as a practical effect, the two standards are 
similar. And I think even though this issue has been raised, I 
believe it would be difficult to point to a specific situation 
where a case that would have led to a different outcome had it 
been handled by a different agency.
    Senator Lee. So you are not concerned about it? You are not 
asking Congress to fix that? There is not a problem to fix, in 
other words.
    Ms. Ramirez. Again, I do not see a practical difference 
between the standard as it is being applied by the courts.
    Senator Lee. Thank you.
    Mr. Baer.
    Mr. Baer. Senator, briefly, I am in the somewhat unique 
position of actually having been at the FTC as Director of the 
Bureau of Competition having to evaluate what merger challenges 
to recommend to the Commission. I am now in a somewhat 
comparable position at the Antitrust Division, and I think what 
Chairwoman Ramirez says is exactly right. At the end of the 
day, in order to succeed in a Federal district court, either 
agency needs to offer compelling facts, a story that is 
coherent, analytically sound. We share merger guideline 
analytics together, and so at the end of the day, I do not 
think there is a practical problem that Congress needs to 
address.
    Senator Lee. Not a practical problem because there is not a 
practical difference between the two standards.
    Mr. Baer. Yes.
    Senator Lee. Not something that is likely to produce 
differing outcomes either.
    Mr. Baer. To me that is exactly the right question. Are we 
at risk of different outcomes depending on which agency a 
transaction lands at? And my experience, in the private sector 
as well as in the public sector, is no.
    Senator Lee. Okay. Thank you, Madam Chair. I see my time 
has expired.
    Chairman Klobuchar. Thank you very much, Senator Lee.
    Mr. Baer, one of the very few industries to enjoy an 
exemption from antitrust law is the railroad industry. Due to 
the exemption, we have heard from a lot of shippers--we call 
them ``captive customers'' in my State--that they suffer from 
high prices due to the conduct of dominant railroads, 
especially how the pricing works on the last leg of the trip. 
This means higher shipping costs are passed along to consumers, 
resulting in higher electricity bills, higher food prices, and 
higher prices for manufactured goods.
    I have introduced a bipartisan bill, with a number of 
Republicans supporting it, to eliminate this obsolete antitrust 
exemption for railroads.
    At your confirmation hearing, you said you would study up 
on this issue. What is your view of the railroad exemption? I 
think we all see rail as a major part of our transportation 
network, especially when we have to export to the world. But at 
the same time, we want those rates to be fair. And will you 
work within the administration to make sure the rates are fair? 
And what is your view of this if you have had a chance to study 
up on it?
    Mr. Baer. Chairman, the Antitrust Division is committed to 
promoting competition in the railroad industry, and one of the 
parts of my job I have just begun to learn in the last 90 days 
is the importance of working within the administration to 
promote those competition principles as we work with the Senate 
and the House to formulate a position on legislation. And we 
will be an active voice within administration circles in favor 
of competition principles in that sector.
    Chairman Klobuchar. Thank you very much.
    As a former prosecutor, I know the importance of being 
willing and ready to file suit and go to court, and you cannot 
just put on a good poker face. You have to show you are willing 
to do it. The party you are negotiating with needs to know that 
you will do that if the case requires it--not in all cases. 
Negotiation is also important, but I think they have to know 
you are willing to go to the mat.
    Mr. Baer, some thought the Antitrust Division had gained a 
reputation for being more willing to tolerate mergers and 
cutting deals rather than going to court. Do you think the 
Division's recent suits to block the AT&T merger and the beer 
merger has put the perception to rest? By the way, that is the 
InBev/Grupo Modelo merger, which I know is still pending, 
although I did tell Senator Lee that I was hoping our first 
hearing was going to be about beer, but then the airline merger 
got in the way and your Department got in the way, so we 
decided not to have that be the hearing, as fun as it would 
have been. But could you comment about that willingness to 
litigate? And maybe you could as well, Chairman Ramirez.
    Mr. Baer. First, as a kid from Milwaukee, talking about 
beer comes quite naturally to me.
    One of the great legacies, I think, of Christine Varney and 
the people who succeeded her as Assistant Attorney General, was 
to work closely with the talented people in the Antitrust 
Division and bring in some outsiders with proven courtroom 
litigation skills and success. And I actually think that helps 
in the investigative stage. We ask tougher questions. How will 
this theory, how will these facts play out in court? But it 
also lets the people proposing a merger or involved in an 
investigation know that we are serious and prepared to go to 
court.
    I think that is the right place for the Government to be in 
a law enforcement capacity, and I hope to be able to very much 
continue that proud tradition.
    Chairman Klobuchar. Very good.
    Chairwoman Ramirez, any comment?
    Ms. Ramirez. Senator, I concur wholeheartedly. I think you 
did a very good job of identifying the reasons why it is 
important for the agencies to be ready to litigate in order to 
obtain the best possible outcome for American consumers.
    I have a litigation background, and I understand very well 
how important this is, and I think the FTC has also done a good 
job of making sure that litigation readiness is part and parcel 
of--is a top priority, and that we have litigators who are, in 
fact, ready to take a matter to trial.
    I do think there can be a danger when one is dealing day in 
and day out with antitrust experts and economists to lose sight 
of the importance of being able to tell a compelling story and 
to be able to present that to a judge in Federal court. So I do 
believe that is critical and important.
    Chairman Klobuchar. Very good. I will put some follow-up 
questions about beer on the record, although I know you cannot 
comment on it. Minnesota is the home of Schell's, Summit. Need 
I go on. But we do care that that market stays competitive.
    [The questions of Chairman Klobuchar appear as submissions 
for the record.]
    Chairman Klobuchar. Switching to airlines, last week the 
Wall Street Journal published an article about how in the wake 
of recent airline mergers we have seen price hikes on routes 
where carriers have merged and now dominate. For example, 
United Airlines and Continental Airlines used to compete for 
customers flying between Chicago and Houston. After the 2010 
merger, the combined company now carries 79 percent of the 
traffic traveling between Houston Bush Intercontinental Airport 
and O'Hare, not counting connecting passengers.
    United's average fare on that route soared 57 percent in 
the three months ending September 2012 compared to that same 
period three years ago. By comparison, United's total average 
domestic price per mile over the same three-year period went up 
only 16 percent.
    I know you cannot comment on the pending American/USAirways 
merger. We had a very good hearing on that and got a lot of 
facts out there on that, including the concerns about some of 
the slots at Reagan Airport. But we have seen remarkable 
consolidation in this industry over the past decade.
    Do you want to comment just generally about the airline 
industry and any concerns you have about consolidation? Mr. 
Baer.
    Mr. Baer. Thank you, Madam Chair. Because it is an ongoing 
matter, I need to be very careful.
    Obviously, in looking at a transaction in any sector of the 
economy, we take into account our learning from prior 
transactions, whether they were approved or challenged. We also 
do not limit ourselves to looking just backward or taking a 
snapshot of competitive conditions. In evaluating a 
transaction, we really need to look at where things are 
evolving, where is competition going. And probably the best 
example of doing that was the challenge to the AT&T/T-Mobile 
merger, where looking at the state of competition, what that 
merger would have done going forward to the state of 
competition, the Justice Department made the judgment and, 
along with the FCC, successfully blocked that transaction.
    We looked both at competition very locally, but also looked 
at national impact of the transaction. And that is part of our 
job, and we will do it with the pending matters as well.
    Chairman Klobuchar. Okay. Thank you.
    Chairman Ramirez, I would like to talk with you about 
Section 5 of the FTC Act. Everyone agrees that it has broader 
jurisdiction than the antitrust law, but with more limited 
remedies. And I was wondering--I talked a little bit to Mr. 
Baer about this, this international issue--if somehow that 
could be used to help level the competitive playing field on 
the international level.
    As you know, over the last 10 years, the United States has 
lost more than two million manufacturing jobs, representing a 
loss of billions of dollars in manufacturing wages to countries 
such as China, and even though manufacturing is coming back 
strong in our State, one of the issues that we face all the 
time is piracy. China's piracy rate exceeds 80 to 90 percent. 
Foreign manufacturers use pirated software and other stolen 
technologies to gain significant cost advantages over their 
U.S. competitors who pay for the IT and comply with 
intellectual property and try to do everything right, and 
copyright laws.
    Do you think Section 5 could be used in any way to combat 
this problem?
    Ms. Ramirez. Senator, I do appreciate the concerns that you 
have raised, and it is an area that the agency is examining at 
this time, so I really cannot comment with details. But I can 
tell you that we are looking very closely at it to see if our 
Section 5 authority permits potential action in this regard.
    Chairman Klobuchar. Okay. One last question, following up 
on what you raised earlier in your testimony. The FTC worked 
with the Justice and Health and Human Services Departments on 
guidelines for accountable care organizations. Last week, 
Secretary of Health and Human Services Kathleen Sebelius said--
and this is a quote--``there is a tight balance between a 
coordinated care strategy and a monopoly,'' and that aspects of 
the Affordable Care Act were ``in constant tension'' with 
antitrust laws.
    Do you agree with that characterization?
    Ms. Ramirez. Senator, I believe that the antitrust laws are 
very much compatible with the objectives of the Affordable Care 
Act, which are to raise the quality of health care, lower cost, 
increase choices for consumers. So I do not believe that they 
are inconsistent. I know that when we are examining 
transactions--looking at consolidation, integration, 
collaboration--we will take into account any pro-competitive 
benefits, and that would include raising quality of health care 
and any efficiencies, any efforts that succeed in lowering 
costs.
    So in my mind, they are not in tension, and I think that 
vigorous competition helps the aim and objectives of the 
Affordable Care Act.
    Chairman Klobuchar. All right. It is just interesting 
because Kathleen Sebelius has actually talked about this 
tension that I have heard about, because either some incentives 
toward consolidation and then at the same time you have the 
antitrust laws. Would you argue that those incentives just 
might create more mergers for you to look at? Or how would you 
characterize it?
    Ms. Ramirez. Our aim is to make sure that health care 
quality is improved, that costs are low. I think vigorous 
competition assists that. At the same time, we are not going to 
stand in the way of pro-competitive collaboration.
    Chairman Klobuchar. Okay. Senator Lee.
    Senator Lee. Thank you very much.
    First of all, I wanted to respond briefly to the railroad 
antitrust bill that you discussed just a moment ago. I do have 
some concerns with this legislation and just wanted to run 
through those really quickly.
    One, it would limit the doctrine of primary jurisdiction in 
antitrust cases involving railroads. I think that could have 
some troubling implications. It would also repeal antitrust 
immunity for rail rate bureaus, but not just that but also it 
would repeal certain procedural protections that facilitate 
lawful rail transportation services, and it would effectively 
lead to retroactive application of antitrust laws, allowing a 
Government agency or private plaintiff to bring a case 
attacking past railroad activities that were expressly 
immunized from antitrust laws. So I do have some concerns about 
that. We will address that on a different day, but I wanted to 
mention that briefly.
    Chairwoman Ramirez, I wanted to ask you a question about 
something that concerned me recently. I was concerned by the 
FTC's decision to accept a series of voluntary commitments from 
Google in lieu of a consent order, and I worry a little bit 
about the precedent that that decision might set, if, in fact, 
it is setting a precedent. Accepting such voluntary commitments 
may represent a break from decades of Commission practice.
    Typically, if there is problematic behavior, as three 
Commissioners seem to suggest is the case, you would institute 
enforceable commitments. If, on the other hand, there is not a 
violation of antitrust laws, then the Government should not be 
involved in informal market regulation.
    Now, I noticed in a footnote to the Commission's decision 
that you indicated that although you were pleased that Google 
has decided to change certain of its practices, you objected to 
the form of the commitments.
    Given this set of circumstances, what I have just 
described, how is the FTC going to assure that Google adheres 
to these commitments? And if you determine that Google is not 
adhering to the voluntary commitments, will you consider making 
the commitments mandatory instead of voluntary?
    Ms. Ramirez. Senator, thank you for your question and for 
allowing me an opportunity to address this issue.
    I share your concern, as I expressed in that footnote that 
you referenced, that the voluntary commitment would create 
confusion over settlement practices at the Commission. What I 
can tell you is that that matter should not be considered a 
precedent. When there is a majority of Commissioners who find 
there has been a violation, any remedy should be embodied in a 
formal consent order. That is what happened before the Google 
matter, and that is what is going to continue to happen 
following the Google matter.
    At the same time, Google did make these voluntary 
commitments to the agency, and I expect that they will fulfill 
them.
    Senator Lee. And if they do not?
    Ms. Ramirez. The agency will take appropriate action if 
Google does not.
    Senator Lee. Okay. More broadly, I worry that such 
voluntary commitments take the Commission away from enforcing 
antitrust standards according to the rule of law, and instead 
toward an informal, and in my mind illegitimate, regulatory 
approach. Will voluntary commitments become a more commonly 
used practice at the FTC under your leadership? And if not, how 
do you avoid the concern articulated by Commissioner Rosch's 
dissent that the decision creates very bad precedent and may 
lead to the impression that well-heeled firms such as Google 
will receive special treatment by the Commission?
    Ms. Ramirez. Senator, that would not be the right takeaway 
from the Google matter. As I mentioned, I think there is 
consensus among my colleagues that when there is a majority of 
Commissioners who find that there is a violation, any resulting 
remedy will be embodied in a formal consent order. So, in my 
view, what transpired in the Google matter does not change the 
practice of the Commission.
    Senator Lee. Okay.
    Mr. Baer, at your confirmation hearing last July, when 
asked how you would examine allegations that Google was engaged 
in anticompetitive conduct in the future, you answered by 
saying that you did not fully understand the precise division 
of responsibility for certain Internet-related subject matter 
between FTC and the Antitrust Division. But anytime a dominant 
firm is in a position to hit a tipping point and abuse its 
position of dominance, Antitrust ought to be looking. That was 
your statement at that hearing.
    Am I correct in understanding your answer to mean that you 
believe it is within the scope of the Antitrust Division's 
responsibilities to examine allegations that might arise in the 
future that Google is engaged in anticompetitive conduct?
    Mr. Baer. Senator, we have a clearance process between the 
FTC and the Antitrust Division that ensures that we are not 
investigating the same thing at the same time, or even the same 
thing seriatim.
    To the extent concerns come up about behavior by any 
dominant firm, the protocol we have is the staff and, if we 
cannot agree at the staff level, the Chair and I will have a 
discussion about who is best equipped to take a look at 
behavior by a dominant firm. That process is working quite 
well, and one of the things we agreed on the first day that I 
heard that the President had designated Edith Ramirez as Chair 
was we were going to continue to make sure that process worked 
quickly and efficiently. This stuff is too important for there 
to be any delay in terms of addressing anticompetitive behavior 
in the marketplace.
    Senator Lee. Based on what you have learned regarding the 
division of authority between the Antitrust Division and the 
FTC since becoming the Assistant AG, am I correct in assuming 
that if new facts came to light suggesting Google was abusing 
its dominant position, the FTC's prior investigation would not 
necessarily prevent the Department of Justice from 
investigating these allegations in the future?
    Mr. Baer. We would have a prompt conversation about who is 
best equipped to do it.
    Senator Lee. Okay.
    Chairwoman Ramirez, the Commission found evidence that 
Google biases its search results against websites that compete 
with Google's secondary offerings, but ultimately concluded 
that because Google's preferential display of its own content 
would plausibly be viewed as an improvement in the overall 
quality of Google's search product, the conduct was not 
anticompetitive.
    Can you help me understand what standard the Commission 
used in reaching this conclusion? Because, obviously, 
circumstances of innovation do not automatically overcome or 
override evidence of competitive harm.
    Ms. Ramirez. Senator, in my view, the pertinent standard 
that governs product improvements is the standard that was 
applied by the D.C. Circuit in the Microsoft case. And I want 
to clarify that what we found was that the design changes were, 
in fact, pro-competitive changes designed to improve the 
overall search experience for the user, and that pro-
competitive justification was supported by ample evidence, even 
though it also had the impact of negatively impacting rivals. 
So just to clarify the way you had structured your question.
    Senator Lee. Okay. Now, Commissioner Rosch made clear that 
he was prepared to litigate against Google on antitrust and 
consumer protection principles for deceiving consumers by 
``telling half-truths to maintain a monopoly or near monopoly 
position.''
    Was this an issue the FTC investigated in its examination 
of Google's business practices?
    Ms. Ramirez. The issue that was raised by Commissioner 
Rosch in his statement had a privacy dimension. It was one that 
we looked at but that the majority of the Commission felt was 
not a violation of the antitrust laws.
    Senator Lee. Okay. Thank you.
    Madam Chair, I have got one more question, with your leave.
    Chairman Klobuchar. Go ahead.
    Senator Lee. This one is for Mr. Baer.
    There are reports coming out of Europe that Google is 
abusing its search dominance for the Android operating system 
to exclude competitors in mobile markets there. Should we be 
concerned about these issues in the United States? And what is 
your view about the importance of robust competition in mobile 
technology markets?
    Mr. Baer. Senator, part of our job is to make sure that 
there is robust competition in all markets, and part of the 
reason why--the reason why the Antitrust Division challenged 
AT&T's proposed acquisition of T-Mobile was out of concern that 
that competitive marketplace would deteriorate if that 
transaction were allowed to go forward.
    Senator Lee. Okay. Thank you very much.
    Thank you, Madam Chair.
    Chairman Klobuchar. Thank you very much, Senator Lee.
    I just wanted to respond on the antitrust front on the 
railroad issue. I was sitting here thinking of how best to 
describe it, and that is, there were once, I think, 63 
railroads in this country, and now only four provide over 90 
percent of the service for freight rail, and that is four, 
which is the exact number on the Monopoly board, I was thinking 
to myself. And so I think the point here is when you talk about 
the retroactivity issue, it is simply that these are contracts 
that were entered into 20 years ago and Congress gets involved 
in those kinds of things from time to time.
    Just to give an example of what we are talking about, 
Blandon Paper, which is located in Minnesota, as everyone 
knows, the paper industry has not had the easiest time. It 
actually costs less for them to ship their paper to Finland, 
the country of Finland. There is a Finland, Minnesota, that 
probably you have not visited, Mr. Baer. But it costs less for 
them to ship their paper to Finland than it does to customers 
in Georgia and Pennsylvania and South Carolina because of the 
cost of being on a captive rail line from Grand Rapids, 
Minnesota. And so that is why we are talking about this, and 
there are obviously other ways to approach this as well with 
the Surface Transportation Board, but, unfortunately, we have 
not been able to move very far with that as well, and one of 
the reasons we keep pushing on this antitrust exemption, and we 
hope we can resolve this in the coming years. And Senator 
Vitter and I are working to do that.
    As you can see from our hearing--I do not know if you have 
any other questions, Senator Lee. We have covered everything 
from trains and planes and auto parts as well as beer, and a 
far-reaching discussion of the issues, the competitive issues 
facing this country. And just because there has not been a lot 
of drama in this hearing, it is probably because our witnesses 
have had no ``gotcha'' moments because they have been so able 
to answer these questions, as well as the fact that we have 
tried to bring a lot of civility to this Subcommittee, and we 
will continue to do that, because while we may not agree on 
everything, Senator Lee and I, we do agree that we have to have 
strong competition in this country for the country's prosperity 
as well as for the consumers. So I want to thank you both for 
attending today and for answering our questions so thoroughly.
    The record will remain open for a week for anyone that 
wants to put things on the record. I thank you for attending, 
and this hearing is adjourned.
    Do you want to add anything, Mike? Okay.
    The hearing is adjourned. Thank you.
    Mr. Baer. Thank you.
    Ms. Ramirez. Thank you.
    [Whereupon, at 4:02 p.m., the Subcommittee was adjourned.]
    [Additional material submitted for the record follows.]

                            A P P E N D I X

              Additional Material Submitted for the Record
              
              
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               Prepared Statement of Hon. William J. Baer
               
               
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                Prepared Statement of Hon. Edith Ramirez
                
                
                
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            Prepared Statement of Chairman Patrick J. Leahy
            
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   Questions Submitted to Hon. William J. Baer by Senator Blumenthal

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    Questions Submitted to Hon. William J. Baer by Senator Grassley
    
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     Questions Submitted to Hon. Edith Ramirez by Senator Grassley

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    Questions Submitted to Hon. William J. Baer by Senator Klobuchar

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     Questions Submitted to Hon. Edith Ramirez by Senator Klobuchar

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      Questions Submitted to Hon. William J. Baer by Senator Leahy

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       Questions Submitted to Hon. Edith Ramirez by Senator Leahy

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       Questions Submitted to Hon. William J. Baer by Senator Lee

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        Questions Submitted to Hon. Edith Ramirez by Senator Lee

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         Responses of Hon. Edith Ramirez to Questions Submitted
            by Senators Leahy, Grassley, Klobuchar, and Lee

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        Responses of Hon. William J. Baer to Questions Submitted
      by Senators Klobuchar, Blumenthal, Grassley, Leahy, and Lee

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                       Submission for the Record

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