[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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
98-754 PDF WASHINGTON : 2016
_________________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001
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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of Hon. William J. Baer
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of Hon. Edith Ramirez
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of Chairman Patrick J. Leahy
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Questions Submitted to Hon. William J. Baer by Senator Blumenthal
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Questions Submitted to Hon. William J. Baer by Senator Grassley
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Questions Submitted to Hon. Edith Ramirez by Senator Grassley
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Questions Submitted to Hon. William J. Baer by Senator Klobuchar
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Questions Submitted to Hon. Edith Ramirez by Senator Klobuchar
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Questions Submitted to Hon. William J. Baer by Senator Leahy
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Questions Submitted to Hon. Edith Ramirez by Senator Leahy
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Questions Submitted to Hon. William J. Baer by Senator Lee
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Questions Submitted to Hon. Edith Ramirez by Senator Lee
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Responses of Hon. Edith Ramirez to Questions Submitted
by Senators Leahy, Grassley, Klobuchar, and Lee
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Responses of Hon. William J. Baer to Questions Submitted
by Senators Klobuchar, Blumenthal, Grassley, Leahy, and Lee
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Submission for the Record
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]