[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE
ANTITRUST ENFORCEMENT AGENCIES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
MAY 15, 2015
__________
Serial No. 114-33
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
LAMAR S. SMITH, Texas ZOE LOFGREN, California
STEVE CHABOT, Ohio SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
TOM MARINO, Pennsylvania, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California HENRY C. ``HANK'' JOHNSON, Jr.,
DOUG COLLINS, Georgia Georgia
MIMI WALTERS, California SUZAN DelBENE, Washington
JOHN RATCLIFFE, Texas HAKEEM JEFFRIES, New York
DAVE TROTT, Michigan DAVID N. CICILLINE, Rhode Island
MIKE BISHOP, Michigan SCOTT PETERS, California
Daniel Flores, Chief Counsel
C O N T E N T S
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MAY 15, 2015
Page
OPENING STATEMENTS
The Honorable Tom Marino, a Representative in Congress from the
State of Pennsylvania, and Chairman, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 1
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
Congress from the State of Georgia, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 3
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Committee on the Judiciary 4
The Honorable Darrell E. Issa, a Representative in Congress from
the State of California, and Member, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 5
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 6
WITNESSES
The Honorable William J. Baer, Assistant Attorney General,
Antitrust Division, U.S. Department of Justice
Oral Testimony................................................. 15
Prepared Statement............................................. 18
The Honorable Edith Ramirez, Chairwoman, Federal Trade Commission
Oral Testimony................................................. 29
Prepared Statement............................................. 31
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 7
Material submitted by the Blake Farenthold, a Representative in
Congress from the State of Texas, and Vice-Chairman,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 56
APPENDIX
Material Submitted for the Hearing Record
Response to Questions for the Record from the Honorable William
J. Baer, Assistant Attorney General, Antitrust Division, U.S.
Department of Justice.......................................... 74
Response to Questions for the Record from the Honorable Edith
Ramirez, Chairwoman, Federal Trade Commission.............86
deg.OFFICIAL HEARING RECORD
Unprinted Material Submitted for the Hearing Record
Material submitted by the Honorable Darrell E. Issa, a
Representative in Congress from the State of California, and
Member, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law.................................................. 63
http://docs.house.gov/meetings/JU/JU05/20150515/103472/HHRG-114-
JU05-20150515-SD003.pdf
OVERSIGHT OF THE
ANTITRUST ENFORCEMENT AGENCIES
----------
FRIDAY, MAY 15, 2015
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 9:01 a.m., in
room 2141, Rayburn House Office Building, the Honorable Tom
Marino (Chairman of the Subcommittee) presiding.
Present: Representatives Marino, Goodlatte, Conyers,
Farenthold, Issa, Trott, Johnson, DelBene, Jeffries, Cicilline,
and Peters.
Staff Present: (Majority) Anthony Grossi, Counsel; Andrea
Lindsey, Clerk; (Minority) Slade Bond, Counsel; and James Park,
Counsel.
Mr. Marino. Good morning.
The Subcommittee convenes this morning to hear from the
Nation's two top antitrust enforcement officials regarding
their ongoing efforts, as well as to discuss certain issues
facing the agencies in the application of antitrust law.
I am going to recognize myself for a couple of minutes for
an opening statement and then my good friend Ranking Member Mr.
Johnson's opening statement.
In doing so, the Subcommittee continues its strong and
vigilant oversight of the agencies under its jurisdiction.
Continued oversight is one of the fundamental responsibilities
of this Subcommittee and brings to light the checks and
balances envisioned by our Founding Fathers.
The Federal Trade Commission, through its Bureau of
Competition, and the Department of Justice, of which I had the
honor of working there through its Antitrust Division, are
charged with protecting the freedom of our markets from
anticompetitive conduct and practices, thereby enhancing
American consumer welfare.
To facilitate a free market, the agency should enforce the
antitrust laws in a manner that is transparent, fair,
predictable, and reasonably stable over time. This will allow
businesses to innovate and grow with a firm understanding of
what conduct runs afoul of the law and without the fear of
capricious government intervention.
One of the areas that has drawn the scrutiny of the
Judiciary Committee, sitting FTC Commissioner's antitrust law
practitioners, and academics is the FTC's authority under
section 5 of the FTC Act, and I greatly respect the people and
what they do at the FTC.
Specifically, there is a concern about the parameters of
the FTC's enforcement authority. Many legal practitioners and
members of the business community question what conduct
qualifies as an ``unfair method of competition'' under section
5 of the FTC Act, but does not otherwise violate the Clayton or
Sherman Acts.
Last Congress, FTC Chairwoman Ramirez testified that the
FTC has used its stand-alone section 5 authority in limited
circumstances and has provided appropriate guidance on when it
will exercise such authority. Yet, it appears that much, if not
all, of this guidance is contained in consent decrees reached
with parties following an FTC administrative proceeding without
any judicial review.
FTC Commissioner Wright recently announced that he has
proposed several definition of the FTC's section 5 stand-alone
authority for a vote within the Commission. I look forward to
hearing whether the FTC has seriously reviewed any of
Commissioner Wright's proposals.
Another area deserving a serious review concerns the
different merger review process of two antitrust enforcement
agencies. Last year, the Standard Merger and Acquisition
Reviews Through Equal Rules Act, or the SMARTER Act, was
introduced and reported favorably by the Judiciary Committee.
The legislation permanently removes the disparities in the
merger review process. It also ensures that companies face the
same standards and processes regardless of whether the FTC or
Justice Department reviews the merger.
While the FTC took a positive step this year by approving a
rule that partially adopts one of the reforms contained in the
SMARTER Act, the full set of changes to the merger review
process should be made permanent. It should not remain subject
to a Commission that has already demonstrated an ability to
withdraw and reinstate rules over time.
The Committee also is concerned with the application of
competition laws of foreign jurisdiction. And I'm looking
forward to hearing your response on those. In particular, the
Committee has received troubling reports of China's use of its
antitrust laws to promote domestic industry at the expense of
intellectual property rights and international business.
I look forward to discussing how our antitrust enforcement
agencies are coordinating with other administrative agencies,
departments, and their foreign counterparts to ensure that
global antitrust policy promotes competition.
Today's hearing will allow for an open discussion on these
and other issues with the aim of ensuring that the antitrust
enforcement agencies are appropriately policing our free
markets.
And please let me add we will be called to votes somewhere
around 9:30. In consideration of our distinguished guests, I'm
going to try to be very efficient.
And, with that, I now recognize my good friend from
Georgia, Congressman Hank Johnson, and he is the Ranking Member
of this Subcommittee.
Mr. Johnson.
Mr. Johnson. Thank you, Mr. Chairman.
I welcome this esteemed panel today. Chairwoman Edith
Ramirez has distinguished herself in her short time as the
chair of the Federal Trade Commission.
The Commission recently celebrated a century's commitment
to its important mission to protect consumers on a variety of
issues. One particular aspect of the Commission's mission that
is near and dear to me is its focus on consumer privacy. In
recent years, the Commission has demonstrated a keen interest
in protecting against unfair privacy intrusions.
Additionally, it is my hope that the Commission's role in
protecting consumers and holding corporations accountable for
the promises they make grows and flourishes as part of making
the Obama administration's vision for strong consumer privacy
protection a reality following the White House privacy
blueprint and big data report.
As the proud sponsor of the Application Privacy,
Protection, and Security Act, or the APPS Act, I recognize that
consumer privacy is one of the key issues of our time and will
only grow more complicated as more consumers and devices are
connected.
I would also note that, although we conceive privacy as
primarily a consumer protection issue today, there is a growing
consensus that big data and consumer privacy have implications
on antitrust law and competition policy. On both sides of the
Atlantic, there has been substantial focus on the role of big
data as a barrier to market entry as well as calls to
incorporate consumer privacy issues into traditional antitrust
analysis.
Additionally, the Supreme Court has long held that Congress
intended that the Sherman Act, the first major Federal
antitrust statute, to be a consumer welfare prescription. Given
the broad agreement among consumer advocates, the public, and
stakeholders that user trust and privacy are central to user
experience, it is clear that restraints on trade and
competition that upset this experience in consumer preference
are not consistent with the goals of antitrust law.
Assistant Attorney General Baer has also distinguished
himself as a voice for consumers in his tenure as the Assistant
Attorney General for the Antitrust Division. Through a history
of strong enforcement of the antitrust laws, competition has
flourished under his leadership, although work remains to be
done.
Of particular interest to me is the Justice Department's
role in enforcing private antitrust actions. In 2013, the
Supreme Court wrongly decided in American Express v. Italian
Colors that parties must arbitrate even where antitrust laws
prohibit a party from using its monopoly power to force other
parties to pay higher fees.
In a joint brief alongside the Solicitor General, the
Justice Department's Antitrust Division argued for the United
States that, ``Private actions are an important supplement to
the government's civil enforcement efforts under Federal
competition laws, which the Department of Justice and the
Federal Trade Commission have primary responsibility for
administering,'' and concluded that, ``the United States,
therefore, has a substantial interest in ensuring that
arbitration agreements are not used to prevent private parties
from obtaining redress for violations of their Federal
statutory rights.''
I wholly agree with this view. Although this issue arose
just before Assistant Attorney General Baer's tenure, it is
clear that opportunities remain for the Antitrust Division of
the Justice Department to right this wrong.
For instance, as a condition for the merger agreements, the
Justice Department may require merging parties to agree to
condition the merger's approval on the parties' agreement to
not require forced arbitration and claims, particularly in the
antitrust context. This would, at least in some circumstances,
curtail the impact of the rapid growth of forced arbitration
clauses and forestall their negative impact on competition.
With that, I thank the Chairman for holding this hearing.
And I yield back the balance of my time.
Mr. Marino. Thank you, Mr. Johnson.
And just some housekeeping. Without objection, the Chair is
authorized to declare recesses of the Committee at any time.
Now the Chair recognizes the Chairman of the full Judiciary
Committee, Congressman Goodlatte, for his opening statement.
Mr. Goodlatte. Thank you, Mr. Chairman.
The vigorous, intelligent, and predictable enforcement of
antitrust law is critical to the American free market. By
contributing to clear boundaries within which companies can
compete, innovate, and grow, sound antitrust enforcement helps
the American economy to flourish and American consumers to reap
the competitive benefits of choice, quality, and reasonable
prices.
Today's hearing will explore whether the antitrust
enforcement agencies are administering the antitrust laws in a
fashion that promotes a free market and encourages robust
competition.
Last Congress, I led a letter to Chairwoman Ramirez
expressing concerns with the lack of guidance on the Federal
Trade Commission's section 5 stand-alone enforcement authority.
As I explained then, the absence of clear guidance creates an
enforcement environment that can deter innovation and economic
creativity and is antithetical to the principles underlying our
antitrust laws.
Over a year has passed and the FTC has not yet issued
guidance and does not appear any closer to doing so. It is my
hope that the Judiciary Committee will not need to take action
beyond writing letters and holding hearings. I look forward to
discussing this issue today in more detail with Chairwoman
Ramirez and working together to ensure the marketplace has
transparent and predictable rules within which to operate.
Another important reform that promotes the fair,
consistent, and predictable enforcement of our antitrust laws
is the Standard Merger and Acquisition Reviews Through Equal
Rules Act, or the SMARTER Act. This legislation harmonizes the
standards and processes that the antitrust enforcement agencies
apply to merger reviews. I look forward to working with my
colleagues in both the House and Senate to enact this important
reform into law.
Finally, I understand that the Department of Justice and
the FTC are undertaking separate antitrust inquiries into areas
that may affect intellectual property issues. The FTC is in the
midst of a nearly 2-year study of patent assertion entities,
commonly referred to as ``patent trolls.'' I look forward to
hearing additional detail regarding the progress and substance
of the inquiry, as well as when we can expect a final report on
the study.
Additionally, the Department of Justice is in the process
of reviewing the separate consent decrees that govern the two
largest performing rights organizations, the American Society
of Composers, Authors and Publishers, or ASCAP, and the
Broadcast Music, Incorporated, BMI. I'm interested to learn
about the status of this review, when it might conclude, and
what potential revisions to the decrees are being considered.
I look forward to hearing the testimony today from our
witnesses on the agencies' antitrust enforcement efforts in
general as well as on these important issues.
Thank you, Chairman Marino, for continuing the Committee's
long and robust oversight record by holding this Subcommittee
hearing.
At this time I would like to yield to the gentleman from
California, Mr. Issa, for his comments.
Mr. Issa. Thank you for yielding, Mr. Chairman.
Today I will be entering into the record by unanimous
consent the report of the Committee on Oversight and Government
Reform dated January 2, entitled ``Tiversa, Inc.: White Knight
or Hi-Tech Protection Racket?''
Although it would be inappropriate to ask for specifics on
this ongoing case, I will be dealing with the ramifications of
that case.
And I would like to take a moment to thank both Mr. Baer
and Ms. Ramirez for something that is unusual for me to do, and
that is, in the case of Tiversa, only because of the Justice
Department's determination that Rick Wallace was a credible
witness was he granted immunity as a whistleblower so that he
could testify before the administrative law judge in that case,
which was the LabMD case.
In that case, he testified under oath that Tiversa had a
pattern of deception that included, but not limited to, its
falsifying information in the LabMD case. This calls into
question the very system on which the FTC bases its section 5
authority, which is that most often, when they are going after
a data breach, they are relying on the data breach to be
authentic and as stated.
This is a complicated issue and one that I'm sure both the
FTC and other agencies will be grappling with for a period of
time. Many of my questions today will deal with section 5
authority and, in particular, in the case of a company such as
Tiversa, who has shown to have scraped data from around the
world on a regular basis, including and not limited to defense
contractor information that involved Marine One's new diagram
for their cockpit, additionally, AIDS patients' information in
which those patients' information was then used by an attorney
for Tiversa to mount a plaintiff's suit as a class-action suit
against that free AIDS clinic. This has been verified by the
Oversight Committee by factual data, including telephone
records subpoenaed.
When we have an entity like that, is the Federal Trade
Commission's primary responsibility to use section 5 authority
to go after companies who have inadvertent breaches or should
they be concentrating on the many companies who troll the
Internet scraping data or in some other way trying to make a
living through high-tech hijack and extortion? That is a
question that I believe can be answered most properly by: You
must do both, but certainly cannot fail to focus on those who
prowl the Internet, causing these breaches and often taking
full advantage.
There are many good actors, many white knights. In the case
of the investigation of Tiversa, we found that they were not a
white knight. We found that the Federal Trade Commission,
whether willingly or unwillingly, had been deceived. And today
I want to thank both of our witnesses for their effort to bring
that truth to the court.
And I thank the gentleman and yield back.
Mr. Marino. Thank you.
The Chair now recognizes the Ranking Member of the full
Judiciary Committee, Mr. Conyers.
Mr. Conyers. Thank you, Mr. Chairman.
I will be brief. But the thrust of my opening statement
deals with the fact that we have for too long ignored the fact
that there ought to have been a much more vigorous antitrust
action. I was concerned when we settled the American Airlines-
US Airways merger. And I want to reflect that antitrust
scrutiny of mergers have been woefully insufficient over the
years.
And what we are doing is continuing a new strategy of
examining, for example, 12 telecommunication mergers since
1997; the failure of the AOL-Time Warner merger; in the banking
industry, 50 mergers since 2001. And so we've got a lot of
cleaning up to do and a lot of reexamination of our strategies.
In that sense, we are very cautious and wary of efforts of
some in our legislature to undermine some of the important
authority that we have. The good news is that the merger
enforcement efforts of both agencies appear to reflect a new
willingness to take care of the business at hand.
And so it is in that spirit that I welcome our two
witnesses, both who I think are moving us in a new and more
vigorous direction.
I will submit the rest of my statement for the record, Mr.
Chairman, and yield back.
[The prepared statement of Mr. Conyers follows:]
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__________
Mr. Marino. Thank you.
Without objection, the Members' opening statements will be
made part of the record.
We have an exceptionally distinguished and experienced
witnesses today. And I want to welcome you and thank you for
being here.
I will begin by swearing you in. Would you please stand.
Do you swear that the testimony you are about to give is
the truth, the whole truth, and nothing but the truth, so help
you God?
Let the record reflect that the witnesses have answered in
the affirmative.
You may be seated, please.
Mr. Baer was sworn in as Assistant Attorney General for the
Department of Justice Antitrust Division in January of 2013.
Prior to his appointment, he was a partner in Arnold & Porter
and head of the firm's antitrust practice group and head of the
FTC's competition bureau from 1995 to 1999.
Mr. Baer received a J.D. From Stanford Law School in 1975
and served as an editor of Stanford's Law Review. He received a
B.A. From the Lawrence University in 1972, where he graduated
cum laude and Phi Beta Kappa.
Thank you for being here, sir.
Federal Trade Commission Chairwoman Edith Ramirez was sworn
in as Commissioner of the FTC in April of 2010 and designated
the chairwoman by President Obama on March 4th of this year.
Before joining the Commission, Ms. Ramirez was a partner at
Quinn Emanuel in Los Angeles, representing clients in
intellectual property, antitrust, and unfair competition suits.
Chairwoman Ramirez graduated from Harvard Law School cum
laude, where she served as editor of the Harvard Law Review and
holds an A.B. In history and magna cum laude from the
University of Harvard.
And welcome.
Each of the witnesses' writtenstatements will be entered
into the record in its entirety. I ask that each witness
summarize his or her testimony in 5 minutes or less. You see
the lights in front of you. You know how they work. I'm not
going to explain it.
So, Mr. Baer, you are up.
TESTIMONY OF THE HONORABLE WILLIAM J. BAER, ASSISTANT ATTORNEY
GENERAL, ANTITRUST DIVISION, U.S. DEPARTMENT OF JUSTICE
Mr. Baer. Thank you, Mr. Chairman.
Mr. Chairman, Vice Chairman Farenthold, Ranking Member
Johnson, Mr. Conyers, Representative Cicilline, I appreciate
the opportunity to be back. I appreciate the role of the
oversight that this Subcommittee and this Judiciary Committee
has historically provided the Antitrust Division. It is an
honor, as always, to share the witness table with my friend and
my colleague, Chairwoman Ramirez.
The antitrust laws that the Antitrust Division is
privileged to enforce reflect judgments made by prior
Congresses, 125 years ago in the case of the Sherman Act, 100
years ago with respect to the Clayton and FTC Acts, that free
markets and competition are the cornerstones of our economy.
Antitrust enforcers serve as the economic cop on the beat,
making sure we all play by the same rules, acting decisively
where companies and company executives seek to restrain those
free market forces.
Our job, stated simply, is to ensure that your constituents
benefit from lower prices and higher quality goods and services
that competition provides. And that means smokestack industries
to high-tech markets, from health care to financial services,
from e-books to airlines. Since I was last here about a year
and a half ago, we have worked hard at the Antitrust Division
to enforce the antitrust laws with vigor, with transparency,
with fairness, and an analytical rigor. My prepared testimony
provides the details.
Let me just highlight a couple of things, if I may. Two
weeks ago the Department of Justice showed its continuing
resolve to prosecute financial crimes. We held Deutsche Bank
accountable for manipulating the LIBOR rate, a key financial
matrix, and forced them to pay a record $775 million penalty
for fraud and antitrust violations.
It is part of our ongoing effort to address restraints on
competition in financial markets that includes LIBOR, municipal
bond investment instruments, foreign currency exchange--an
ongoing matter--real estate foreclosure bid rigging, and tax
lien auction bid rigging.
Mr. Chairman, no company is too big to prosecute. No one is
too big to jail. And company executives who participate in
these conspiracies will be charged along with the companies. In
the last 6 years, the Antitrust Division has brought felony
charges against 132 different companies. We have obtained
almost $6 billion in penalties.
We prosecuted, charged criminally, almost 400 individual
wrongdoers. Ten years ago the average sentence for a criminal
charge brought by the Antitrust Division was about 12 months.
In 10 years, we more than doubled that, to an average of 25
months.
Foreign nationals don't escape our scrutiny by engaging in
offshore conduct that affects the U.S. market and U.S.
consumers. A third of the individuals we have charged are
foreign nationals. Many of them have agreed to come back to the
United States and serve time. In other cases, we have
successfully extradited individuals to come back and face the
music.
On the civil side, where we share enforcement with
Chairwoman Ramirez and her talented group that are located
about a block and a half from where I work, we have taken
systematic action against both bad conduct and bad mergers.
Most recently American Express was ordered by a judge in
Brooklyn to abandon anti-steering rules that limited credit
card competition. You all know that Comcast and Time Warner,
after hearing antitrust concerns articulated by the Antitrust
Division and the Federal Communications Commission, decided to
give up on its proposed transaction.
We don't work alone. We work in partner with the FBI, which
is instrumental in prosecuting these antitrust crimes. We
worked over the last 5 years with 51 different State attorneys
general in cooperation. Internationally, we work to export the
principles of sound competition law enforcement. That's
transparency, procedural fairness, and even-handed enforcement.
We think, at the end of the day, there is a good value
proposition for the scarce taxpayer dollars you entrust us
with. I thank, as my time runs out, the women and the men of
the Antitrust Division who work so hard on behalf of your
constituents and the American consumer.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Baer follows:]
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__________
Mr. Marino. Thank you Assistant General.
Commissioner Ramirez.
TESTIMONY OF THE HONORABLE EDITH RAMIREZ, CHAIRWOMAN, FEDERAL
TRADE COMMISSION
Ms. Ramirez. Thank you, Chairman Marino, Ranking Member
Johnson, and Members of the Subcommittee for inviting me to
testify regarding the Federal Trade Commission's current
antitrust enforcement and policy efforts.
I'm pleased to be here with Assistant Attorney General Bill
Baer. We have a very close working relationship with the
Department of Justice's Antitrust Division, and it's been an
honor to work with him and with his staff.
Last year the FTC celebrated its centennial. For more than
100 years now, the Commission has worked to ensure that
American markets are open, vibrant, and unencumbered by
unreasonable private or public restraints.
One of our main responsibilities is preventing mergers that
may substantially lessen competition. In fiscal year 2014 and
through the first half of fiscal year 2015, we've challenged 28
mergers.
In most of those cases, we negotiated a remedy allowing the
merger to proceed. But in three instances the Commission
authorized the staff to stop the merger, and in three other
cases the parties abandoned the deal after we raised concerns.
We also maintain an active program to identify and stop
anticompetitive business practices. During the same timeframe,
we brought nine enforcement actions to stop harmful conduct,
such as unlawful exclusive dealing and invitations to collude.
We focus our efforts, in particular, on sectors of the
economy where actions will provide the greatest benefits with
the largest number of consumers, including health care and
consumer products. Anticompetitive mergers and conduct in
healthcare markets, in particular, can threaten to undermine
efforts to control costs.
As shown by two recent important appellate wins in the St.
Luke's and ProMedica cases, we remain committed to preserving
and promoting competition in healthcare provider markets.
Merger activity in the pharmaceutical sector has also increased
significantly, and we carefully review mergers between drug
manufacturers to prevent them from acquiring market power and
raising prices on crucial drugs.
In the last 2 years alone, we took action in 13
pharmaceutical mergers ordering divestitures to preserve
competition for drugs that treat diabetes, hypertension, and
cancer, as well as widely used generic medications, like oral
contraceptives and antibiotics.
We also continue to protect consumers from anticompetitive
drug patent settlements that delay generic entry. We will be
starting a trial in Federal court in Philadelphia on June 1 in
one of these cases, Cephalon, involving the billion-dollar drug
Provigil.
Given their direct impact on consumers' pocketbooks, we
also seek to promote competition for consumer products. We're
currently in Federal court here in the District seeking a
preliminary injunction in our challenge to the proposed merger
between Sysco and US Foods, the country's two largest food
service distributors. We allege that the transaction will lead
to higher prices and reduced service for national customers as
well as customers in 32 local markets.
Additionally, earlier this year the Commission ordered the
largest divestiture ever in a supermarket merger, requiring
Albertsons and Safeway to sell 168 supermarkets and 130 local
markets in several Western States, ensuring that communities
continue to benefit from competition among their local
supermarkets.
In addition to the appellate victories that I mentioned
earlier, we recently had two other important wins that I'd like
to highlight. In North Carolina Dental, we obtained our third
Supreme Court win in the last 2.5 years when the court affirmed
the Commission's ruling that the State Action Doctrine does not
immunize the anticompetitive conduct of unsupervised State
boards comprised of private-market participants. This victory
is significant because occupational licensing governs a
substantial and growing segment of the U.S. economy and
incumbent providers can use regulations to deter new forms of
competition.
Additionally, the Eleventh Circuit agreed with the
Commission's decision in the McWane case that a monopolist's
exclusive dealing practices violated the antitrust laws by
preventing would-be market entrants from becoming meaningful
competitors in the market for domestic pipefittings.
The Commission also remains active in research and policy.
Next month we will hold a workshop devoted to the so-called
sharing economy to explore how existing regulatory frameworks
can accommodate new business models while at the same time
maintaining appropriate consumer protections and a competitive
marketplace. The workshop will complement our enforcement and
policy work, including advocacy work discouraging unnecessary
regulations that could hamper competition from Uber and other
ride-sharing services.
Finally, on the international front, we routinely engage
with our foreign antitrust counterparts so that competition
laws function coherently and effectively worldwide, benefiting
U.S. businesses and consumers at home and globally.
Thank you. And I will be happy to answer any questions.
[The prepared statement of Ms. Ramirez follows:]
[GRAPHICS ARE NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. Thank you.
We will now go into the questioning. I recognize myself for
5 minutes of questioning. I'm going to hold to the 5 minutes
for everyone on the dais.
So, with that, Assistant Attorney General, I will start
with you, please.
The Department of Justice closed the public comment period
for ASCAP or BMI consent decrees in August of 2014, and this is
an issue this is very, very important to songwriters.
Could you please tell me what is the status of this review
and a timeline, if you would, please.
Mr. Baer. Thank you, Mr. Chairman.
We are, at the Justice Department reexamining the ASCAP-BMI
consent decrees to see whether they need to be updated in light
of new technology, new ways in which people get access to
music. It is a nonpublic law enforcement investigation, but we
did--because we're talking about possibly amending public
consent decrees--issue a notice, and give an opportunity for
comment.
We received comment from over 250 different entities on
these changes. My Chief Deputy, Renata Hesse, who is behind me,
is in charge of the review. She assures me that it is
proceeding expeditiously and that we are trying to sort through
what updating is appropriate, whether there are problems with
behavior that was agreed to in conjunction with these
preexisting decrees. And while we are not ready to make an
announcement yet, things are very much in progress and we are
moving forward.
Mr. Marino. A followup on that, please.
What are the key revisions, if you can share them with us,
to the consent decrees that DOJ is currently contemplating? And
I'm just going out on a limb here and assuming that, because of
technology today, we definitely do need some type of change.
Would you please respond.
Mr. Baer. I'm delighted to respond.
And I think it's perhaps more appropriate to give a more
detailed response for the record. I personally am not
participating in that review because of clients I had when I
was in private practice. So----
Mr. Marino. Understood.
Mr. Baer [continuing]. Deputy Assistant Attorney General
Hesse is handling the review. And if there is an ability for us
to provide more information while this thing is ongoing, we are
glad to do it in the form of a response to the question for the
record.
Mr. Marino. That would be very, very appreciated.
Mr. Baer. Thank you, sir.
Mr. Marino. Commissioner Ramirez, if you would, please,
there have been reports--excuse me. I want to jump to another
question for you.
Last Congress, you maintained that the business community
can gain sufficient guidance from the pleadings and settlements
surrounding stand-alone section 5 prosecutions.
How can you be so confident that there is sufficient
guidance contained in the documents surrounding the FTC's
stand-alone prosecutions, particularly when these lawsuits
rarely reach the Federal judiciary?
Ms. Ramirez. Mr. Chairman, as I explained when I testified
on this issue the last time, in my view, the guidance that the
agency has provided through its consent orders suffices to
provide adequate guidance to the business community about what
the touchstone is when we do bring stand-alone section 5 cases.
And, as I emphasized, it is an area where the Commission
exercises considerable restraint. The vast majority of our
actions are brought under the Sherman Act and the Clayton Act.
It is only in limited instances that the Commission has acted
using its stand-alone section 5 authority. The touchstone is
that we don't act unless there is harm to competition or harm
to the competitive process.
At the same time, I do understand that there is concern in
the business community about whether the absence of more formal
guidance by the Commission chills procompetitive conduct. In my
view, I have not seen evidence to suggest that, nor have any
companies come to visit me.
And I do have an open-door policy to address this issue or
suggest that they have not been able to engage in
procompetitive conduct as a result of failure to have more
formal guidelines. It is an issue that we are thinking about at
the Commission and we will continue to think about very
seriously.
Mr. Marino. Okay. I have 30 seconds here.
It is my understanding--and correct me if I'm wrong--it is
possible for a staff member, a staff member, to initiate a
conduct investigation against a company without a Commission
vote. Is that true? And why is that so? Because, as a
prosecutor, my staff did not initiate any investigations--and I
was a United States Attorney--without my consent.
Ms. Ramirez. Mr. Chairman, there is significant management
oversight over any investigation. But what does occur is that,
as a preliminary matter, preliminary investigations can
commence without a formal Commission vote.
If there is a significant concern that would lead to a more
in-depth investigation at that point in time, the Commission
would then issue a vote in order to authorize staff members to
issue compulsory process and proceed with a full-phase
investigation.
Mr. Marino. My time has expired. I do have very severe
reservations about that process.
With that, the Chair now recognizes the Ranking Member, Mr.
Johnson, for his questioning.
Mr. Johnson. Thank you, Mr. Chairman.
General Baer, I have heard reports that three major Gulf
airlines have received billions in subsidies from their
governments over a multi-year period, which has allowed these
airlines to massively expand their wide-body fleet of aircraft
which they are using to penetrate U.S. airline markets with
excess capacity, cheap seats, and amenities that no other
airline can offer because they are not subsidized.
This is troubling and appears to raise questions concerning
their use of their dominant positioning of key markets to
eliminate competition. I would like your thoughts about it.
Mr. Baer. Thank you, Mr. Johnson.
I'm aware of the complaint that Delta, American, and United
Airlines have filed with the U.S. Government. They obviously
are entitled to a level playing field. And we have heard from a
number of Members of Congress on this issue.
Right now the Departments of Commerce, Transportation, and
State have asked for public comment on the concerns expressed
by these three airlines and to evaluate the nature and extent
of--arguable--unfair competition. And so we will get feedback.
And we have offered our antitrust assistance to those three
departments as they review the comments.
I think, keeping in mind these concerns expressed by these
three U.S. airlines, we need to appreciate that what's happened
in 20, 25 years of open skies is more consumers in the United
States have more opportunity to fly to more places from more
U.S. airports than ever was the case before. And what we don't
want to lose sight of is the additional opportunity for
consumers.
As I said at the beginning, these airlines, our U.S.
carriers, are entitled to a level playing field, and we need to
make sure that playing field indeed remains level.
Mr. Johnson. Thank you.
Ms. Ramirez, in June, a workshop on the sharing economy
will be held and you will be considering whether existing
regulatory frameworks are adequately responsive to sharing
economy business models and protecting consumer protections.
And this workshop will have both regulatory and antitrust
implications, since it will examine the effects of regulations
on marketplace competition and consumers.
Given this Subcommittee's ample jurisdiction over both of
these issues, please discuss several of the regulatory topics
that you anticipate will be discussed at the workshop.
Ms. Ramirez. I'm happy to, Congressman.
One of the very important functions of the Federal Trade
Commission is to have both a research and policy function, and
this workshop is an example of that.
Really, what we are trying to do here is to explore the
growth that we have been seeing in products that are built on
peer-to-peer platforms. Some of these new business models that
we're seeing arise in the context of industries that have
traditionally been regulated.
And the question that we're trying to explore is how
existing regulatory models can apply to deal with appropriately
legitimate health and safety issues while at the same time
ensuring that there is sufficient competition and that there
aren't entry barriers to new businesses.
So it really is an exploratory exercise. We are asking for
public comments in advance of the workshop, and we will be
addressing the various dimensions of competition and, also,
legitimate health and safety consumer protection issues that we
see in regulations.
And then, also, we will be seeking public comment following
the workshop in an effort to enhance our understanding of these
issues with a goal of being able to provide more informed
advocacy, and then, if we do identify any competition problems,
also to be able to take action.
Mr. Johnson. All right. Thank you.
And since we are kind of strapped for time, I'm going to
yield the balance of my time.
Mr. Marino. Thank you, Mr. Johnson.
The Chair recognizes the gentleman from Texas, the Vice-
Chairman of this Committee, Mr. Farenthold.
Mr. Farenthold. Thank you very much.
Mr. Baer, I understand the Chairman's concerns with respect
to ASCAP and BMI, and I agree we need to take a look at it. But
I have some very serious concerns about some of the proposed
modifications to the consent decrees. That is easy for me to
say.
How music publishers withdraw their rights from the decree
regime, especially on the digital side, brings up several
questions that I think need to be answered.
First, the proposed increase in transparency I think is
critical. If it doesn't come on the front end, digital
distribution service could potentially be exposed to massive
liability that the publishers have exploited in the past. Just
last year U.S. District Judge Denise Cote identified troubling
coordination among the music publishers.
And while I understand your recusal limits your commenting
on the situation, as part of what you send back to the
Chairman, I would like to know explicitly what the DOJ has in
mind to ensure that transparency enhancements will be fully
operational before any rights withdrawal happens and that this
partial withdrawal won't simply be used to enable further
coordination between the publishers.
I would also like to enter into the record this article
from The Hill, from the Digital Media Association laying out
their industry's concerns with the proposed Consent Decree
revision.
[The information referred to follows:]
[GRAPHICS ARE NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Farenthold. So can I count on you to get me that
information?
Mr. Baer. Thank you, sir.
I will note that the public comment we issued specifically
asked for views of folks on transparency, on selective granting
of rights, on how the rate courts should behave, whether we
need rate courts or should move to a mandatory arbitration
system. And those are the issues that were subject to the 250
comments, and those are the very core issues that our team is
looking at.
Mr. Farenthold. Well, I look forward to following this
issue. It is a big one for both sides on the equation.
Mr. Baer. Thank you, sir.
Mr. Farenthold. And let's see. Where do I want to go next?
Chairwoman Ramirez, on March 13, the FTC approved a rule
that sets a higher threshold for the Commission to continue
administrative merger review cases after the FTC loses a
preliminary injunction request in court.
Why did you all do this rule?
Ms. Ramirez. Let me clarify that it doesn't set or alter
the standard. The Commission has always--if it loses a request
for preliminary injunction in Federal court during the course
of a merger challenge, it has always reviewed whether it is in
the public interest to continue the administrative proceeding
that is pending concurrently. That has always been done.
What the rule change did was that it addressed some
apparent concerns and confusion in the business community
about--it goes back to a rule that we had in place prior to
2009.
Mr. Farenthold. So under the SMARTER Act, the FTC would be
required to pursue injunctions against proposed mergers in
court rather than through the administrative process.
Why is the FTC opposed to pursuing these cases in court,
particularly in light of the Antitrust Modernization
Commission's recommendation that administrative litigation does
not make sense in the context of merger reviews?
Ms. Ramirez. Congressman, I think that that aspect of the
proposed SMARTER Act really goes and undermines one of the
central strengths of the Federal Trade Commission and one of
the reasons that the Federal Trade Commission was created in
the first instance, which was to have an expert body of
bipartisan commissioners rule on and develop antitrust
doctrine.
And, in my mind, that system has worked well for over 100
years now. I think our appellate record--which, if you look
over the course of the last 20 years, we have won in the
antitrust arena 11 out of the last 13 appeals.
If you consider the sharing case a win because the
Commission's position was vindicated in the activist case, that
record, I think, speaks for itself. And to undermine the
ability of this expert body to develop antitrust doctrine would
be, in my mind, a mistake.
Mr. Farenthold. All right. Finally, the FCC has been doing
a lot lately with respect to net neutrality. It seems like the
evil that net neutrality is designed to prevent, that is,
dominant Internet service providers using their market share to
block or limit access to certain types of material potentially
from a competitor, is just the type of behavior both consumer
protection laws that the FTC administers as well as antitrust
laws deem to prohibit.
Would either of you all like to comment on where this fits
or does not fit and why we would need to go to additional
regulations with the FTC. Why couldn't you all do it?
Mr. Baer. If I may, Mr. Farenthold, antitrust clearly has a
role in preventing abuse of the way in which content is
developed, put, and brought into consumers' homes through
Internet service providers and through wireless carriers.
But there is value, too, to have prospective certainty. If
a Silicon Valley developer with a great idea knows how he or
she is going to get information into that pipeline and can be
confident it will be treated the same as content provided by
NetFlix or someone else, we are going to get more investment.
If Internet service providers know what the rules of the
game are in advance, they are going to be able to observe those
rules and ensure that consumers get high-speed access to this
tremendous program.
Mr. Farenthold. I'm way over my time. I appreciate your
answer. I may disagree with you. But thank you very much.
Mr. Marino. The gentleman's time is expired.
The Chair now recognizes the Ranking Member of the full
Judiciary Committee for his questioning.
Congressman Conyers.
Mr. Conyers. Thank you, Chairman.
General Baer, I keep reviewing the American Airlines-US
Airways merger, and I'm not as enthusiastic about it as some
people are, maybe even you. Let's go over this.
Were slots awarded to low-cost carriers? And were fares on
key routes cheaper as a result? To what extent could you assert
that the consumers have many benefits, sir?
Mr. Baer. Thank you, Mr. Conyers. I know we talked about
this the last time I was up here.
Mr. Conyers. Sure.
Mr. Baer. It was the day after we had announced that
settlement.
The preliminary indications from the settlement we entered
into in November of 2013 are that, in fact, low-cost carriers
have dramatically increased their offerings out of DCA, out of
Reagan National. There are 40 new flights on bigger equipment.
13 new cities are being served. Love Field was just opened up
as the Wright Amendment expired.
There has been new service offered by Southwest and by
Virgin Atlantic, which got opportunity to 2 of the 20 gates
available at Love Field. There's new service into Dallas from
San Francisco, Los Angeles, DCA, LaGuardia. There's a new form
of competition that's been----
Mr. Conyers. What about lower fares?
Mr. Baer. The data on lower fares are not in yet. DOT
collects this information, but there is a time lag. And we have
a team set up to evaluate where we are with respect to fares.
But by giving companies like Southwest, like Virgin
America, which compete on a different model--Southwest doesn't
have a bag fee--there are indications that consumers are
benefiting from the divestitures we required.
Mr. Conyers. Well, give us some of the results after you
finish reviewing it, please.
Mr. Baer. Pleased to, sir.
Mr. Conyers. Madam Chairwoman, welcome.
I'm worried about the SMARTER Act and what it has done in
the adjudication authority in merger cases. I think it has been
an, obviously, weakening.
How do you assess its effect in terms of the policy that
FTC promotes?
Ms. Ramirez. Congressman, this proposed legislation is
something that I do oppose. As I was mentioning earlier, the
reason for that is that I think it undermines a central
component of what is a core strength of the FTC, and that is
our ability to develop antitrust doctrine using our
administrative process and acting in our quasi-judicial role.
I think that we have done a very good job of protecting
American consumers, clarifying important antitrust doctrine,
and I think the evidence of that is, if you look at our
appellate record, I highlighted in my opening remarks----
Mr. Conyers. There have been some victories.
Ms. Ramirez. Yes.
Mr. Conyers. Well, that's good.
And I take into consideration that there have been so many
decades of lax enforcement that there is a lot of catching up
to do. I mean, you can't come in there and straighten things up
and tidy things around quickly.
Let me ask you both this last question and your comments.
Given the accumulating evidence of the adverse effect of
mergers over decades of lax enforcement, don't you think that
we should conduct more reviews to study the effects of the
already-consummated mergers and what has resulted from that?
Can I ask you both that before we leave?
Mr. Baer. Absolutely, Mr. Conyers.
I think sound antitrust enforcement includes being willing
to look back and see what you have learned. And we have learned
in various markets some of the representations merging parties
made to us about how much better the world will be, cost
savings, no price increases. Sometimes those representations
have proven not to be exactly correct, and that's a bit of an
understatement.
And so part of our job is to learn from past inquiries. And
where we have allowed a merger and it doesn't seem to have
worked out, that skepticism is fully applied to the next matter
that comes before us, and it should be.
Ms. Ramirez. Let me just add briefly that I concur with the
remarks that Mr. Baer has made. The FTC just recently launched
a remedy study during which we will be looking back at the
effectiveness of our orders, given, of course, the importance
of merger review and analysis.
Mr. Conyers. Well, I thank you both.
And I yield back.
Mr. Marino. Thank you.
The Chair now recognizes the Chairman of the full Judiciary
Committee, Chairman Goodlatte.
Mr. Goodlatte. Thank you, Mr. Chairman.
I will direct this question to both of you. And, again,
thank you for being here and for your testimony.
On February 26 the FCC passed its Open Internet Order which
classifies broadband Internet access under Title II of the
Communications Act. Two Supreme Court Cases, Trinko and Credit
Suisse, call into question whether an antitrust claim can
survive against an entity that is heavily regulated.
So in light of these decisions, how will the FCC rule
impact each of your antitrust enforcement agencies' ability to
prosecute antitrust violations by any entity that is regulated
under Title II?
Mr. Baer. I'm privileged to go first, Mr. Chairman.
We have looked very hard at the invocation of Title II by
the FCC, but because they forebeared--if that's the right use
of the term--on much of Title II, we do not think it will have
an impact on the Antitrust Division's ability to look hard at
both behavior and at mergers in this sector.
I should note that the United States Government is a
statutory respondent when someone appeals an FCC order. So the
FCC lawyers will be defending, and in addition, the Antitrust
Division will be defending the interests of the executive
branch, the United States Government. So we are going to need
to look hard and closely at the arguments, and they are clearly
going to be appealed.
Mr. Goodlatte. But that very structure that you just
described where both you and the FCC team up against some
business that you are claiming has violated some open access
issue is the very reason why the Supreme Court issued its
opinions in Trinko and Credit Suisse. They said, if you
regulated industry, you have got to be very careful about what
antitrust standards you impose against it as well.
As you know, I'm a strong advocate of your antitrust
authority to keep the Internet open, and I'm very concerned
that what is going to happen here is that, as the FCC ramps
up--and, yeah, they have started with what they claim is a
light touch--but they will ramp up, and, as they do, your
authority is going to be diminished. And I think your authority
is the more effective one.
Ms. Ramirez.
Ms. Ramirez. Let me address one issue that impacts the FTC
specifically, and that is the issue of the common carrier
exemption to our jurisdiction.
The Open Internet Order reclassifies broadband service as a
common carrier service. A unanimous commission would seek
appeal of that exemption. And we do urge Congress to eliminate
that because, in our view, the common carrier exemption to our
jurisdiction no longer has a valid role in today's world.
And, in particular, I note that this impacts the consumer
protection work that we do. So if I may put this in your minds,
I would hope that Congress would take action to eliminate that.
Mr. Goodlatte. So your solution would be that we should
buttress the FCC's regulation of the Internet and, instead,
back off of the FTC's role here or try to go around the Supreme
Court decisions and say, ``You can have your cake and eat it
too'' by allowing you to be able to use your FTC authority at
the same time that they regulate the Internet?
Ms. Ramirez. I share Mr. Baer's view of the application of
Trinko. I do think that, in order to have robust and adequate
protection, in certain instances it does make sense to have the
FTC use its enforcement authority, particularly----
Mr. Goodlatte. I think in----
Ms. Ramirez [continuing]. As regards consumer protection.
Mr. Goodlatte. I think in many instances it is important
for the FTC to have that authority, and I think it is going to
be impaired by the FCC's action. That's why there is such a
negative reaction to this by many of us here in the Congress.
Recently Commissioner Wright announced that he proposed
several definitions of the Federal Trade Commission's section 5
stand-alone authority for a vote within the Commission.
I've heard you testify this morning and in your statement
that you think that the lack of specificity in those standards
that you have now and pointing us toward actions taken as
guidance as opposed to clear written guidance is sufficient. I
question that.
But what is the status of those proposals from Commissioner
Wright? And are you willing to work with your fellow
Commissioner on reaching a consensus definition?
Ms. Ramirez. So let me just clarify my position. I believe
that the stand-alone authority can be developed using case-by-
case development in the same way that the antitrust rules have
evolved over time.
In specific response to your question, I'm afraid that I
can't get into our internal Commission deliberations. But what
I can tell----
Mr. Goodlatte. Can you at least tell us if you are willing
to work with him?
Ms. Ramirez. What I can tell you is that these are issues
that we are discussing, and I take very seriously the concerns
that you've raised and that the others in the business
community have raised.
Mr. Goodlatte. Okay. And then, finally, on March 19 of this
year, The Wall Street Journal reported that the FTC had
inadvertently disclosed a portion of the Bureau of
Competition's recommendation to the Commission regarding the
Google search investigation that had been closed for over 2
years.
What steps have been taken to prevent these types of
occurrences in the future?
Ms. Ramirez. Let me say that--first, that we regret that
inadvertent disclosure. We have conducted a complete review of
our procedures and put in place several steps to ensure that
this does not occur again.
Mr. Goodlatte. How has this disclosure impacted companies'
willingness to provide information voluntarily to the
Commission?
I mean, part of your ability to be effective is to have
companies entrust you with confidential information that they
then will know will impact the decision that has made, but also
will know that it won't be disclosed.
Now here it is 2 years after the case is closed and it is
disclosed. Are they going to be as willing to cooperate as they
have in the past?
Ms. Ramirez. There's no question, Mr. Chairman, that this
has been an unfortunate situation for the agency. It's vital
for us to protect the confidential information of the parties
that provide us with information regarding marketplace
conditions.
And, again, we regret that this occurred. I assure you that
we have done a very thorough review and put in place a number
of different steps to ensure that this does not happen again.
Mr. Goodlatte. Thank you.
Thank you, Mr. Chairman.
Mr. Marino. Thank you.
Before we go and vote, the Chair is going to recognize the
congresswoman from Washington, Ms. DelBene.
Ms. DelBene. Thank you, Mr. Chair.
And thanks to both of you for being with us today.
In the age of the Internet economy now, we have different
business models that are challenging old notions of what is
viewed as anticompetitive behavior.
In antitrust cases, you, of course, need to define the
market you are dealing with before you can start to consider
whether a company might be violating antitrust laws with
respect to that market, but Internet companies today are
engaging with consumers through many different market channels
and constantly testing and evolving new services for their
users. Companies that didn't compete before now are competing
in different ways.
Could you each outline for me kind of how your teams are
adapting to what might be called an increasingly amorphous
market, marketplace, and what challenges you see in carrying
out your missions going forward, given these changes.
We could start with you, Attorney General Baer.
Mr. Baer. Thank you.
The antitrust laws, as Chairwoman Ramirez said a second
ago, are flexible enough that we feel confident that we can
apply those basic standards to emerging technologies, and we
do.
We have workshops to study. We have brought in people with
high-tech expertise. Even though things are fast-changing,
there still is the ability of companies to become near
monopolists to enter into acquisitions which injure consumers.
Most recently we brought a criminal case where two firms
conspired to adopt the same algorithm, so when someone goes on
Amazon search to look for a price for this product, the price
would pop up as exactly the same. It was price fixing through
algorithm on the Internet.
So we are alert to, vigilant in, pursuing behaviors,
whether they're online or a smokestack industry that have the
potential to injure consumers.
Ms. DelBene. Chairwoman.
Ms. Ramirez. I concur with the views that have been
articulated. I also agree that the flexible principles that we
have I think can be applied to today's dynamic markets.
I think the challenge lies in our ability to conduct
thorough investigations as efficiently as possible so that, if
action is needed, we can take appropriate action in a time that
makes sense.
Ms. DelBene. Even when we have companies that might have
very different business models may eventually be competing in
the same marketplace, but in very, very different ways, you
still are able to----
Ms. Ramirez. I believe that we still have an ability to
monitor these new dynamic marketplaces. Again, the challenge
becomes in how quickly we can take action while at the same
time ensuring that we provide appropriate process and be as
thorough as we need to be. But, in my mind, we can certainly be
effective, notwithstanding the dynamic nature of the markets.
Ms. DelBene. Attorney General Baer, I wanted to ask you if
you might comment on the Antitrust Division's early recognition
of the pro-competitive benefits of ensuring availability of
low-frequency spectrum for smaller providers and, you know,
kind of what is your position relative to the FCC and what they
have been focused on recently.
Mr. Baer. The FCC has an active rulemaking or proceeding
going on to allocate this high-value, low-frequency spectrum to
wireless carriers.
We have filed comments on the public record suggesting that
one of the factors the FCC appropriately should take into
account is the impact on competition and local markets, that no
one or two wireless carriers should be able to get to the
position where they dominate wireless availability in a local
area and effectively make it impossible for smaller carriers to
compete.
So we are supportive of a level playing field and
appropriate guidance to the potential bidders for that high-
value frequency to make sure that we aren't creating antitrust
problems over the long run that will have your constituents and
others around the country paying more for wireless service than
they would if the market were more competitive.
Ms. DelBene. Thank you very much.
And thank you, Mr. Chair. I yield back.
Mr. Marino. Thank you.
I am going to squeeze Mr. Issa in for questioning. And the
rest of the panel is welcome to head to the floor and vote. And
as soon as Mr. Issa's done, I will do a run over to the floor
to get my vote in.
Mr. Issa. Thank you, Mr. Chairman. Thank you for your
willingness to jog with me.
Madam Chair, I do have a number of questions on the section
5 authority, but let me just concentrate for a minute on that
and then move on.
First of all, I would like to ask unanimous consent at this
time that the Tiversa report be placed in the record. *
---------------------------------------------------------------------------
*Note: The submitted material, a report titled ``Tiversa, Inc.:
White Knight or Hi-Tech Protection Racket?'' is not printed in this
hearing record but is on file with the Subcommittee and can be accessed
at: http://docs.house.gov/meetings/JU/JU05/20150515/103472/HHRG-114-
JU05-20150515-SD003.pdf.
---------------------------------------------------------------------------
Mr. Marino. Without objection.
Mr. Issa. Thank you.
Section 5 authority, as you mentioned--one of your
Commissioners, Mr. Wright, clearly is proposing that there be a
standard.
Leaving that alone as to what the standard would be, isn't
it reasonable for us to see from this side of the dais that, if
there is no standard and the staff is not bringing you votes on
particular events, then, by definition, the staff is making
decisions without specific guidance and you are abrogating what
should be your authority?
And I will just put a question in this specifically. Until
you have specific standards on which to judge, shouldn't the
Commission have to be informed and, as appropriate, vote before
these actions go forward based on what is effectively less-
than-sufficient guidance?
Ms. Ramirez. Let me address two issues here, and I want to
be very clear. First of all, I don't think it is accurate to
say that there is no standard. There absolutely is a standard,
and the standard is whether conduct by companies has an adverse
impact on either competition or on the competitive process. I
think that's been very clearly established----
Mr. Issa. But you use section 5 authority when somebody
simply gets hacked and their data's out there based on, ``They
are not using a sufficient care,'' on which you have no
standard.
Ms. Ramirez. So let me clarify. What you're talking about
has to do with our consumer protection authority, which relates
to something separate from our unfair methods and competition
authority. There we are exercising our authority under section
5, which bars deceptive or unfair practices.
Mr. Issa. Right. But I want to focus this.
Tiversa, the LabMD case, which was a data breach, which
was, if you will, failure to maintain personal identifiable
information, used your section 5 authority. We followed that
case.
So you are clearly using an authority for data breaches
and----
Ms. Ramirez. We are. We're using----
Mr. Issa. Okay. So now----
Ms. Ramirez [continuing]. Protection authority----
Mr. Issa. Now that we have established you are using--
because I have very limited time.
Ms. Ramirez [continuing]. Which is different from what Mr.
Wright is----
Mr. Issa. Yeah. No. I understand. I understand. But I want
to stay on section 5 authority and the examples that I have put
in the record.
Ms. Ramirez. Yes. All of this is within section 5. Let me
clarify.
Mr. Issa. So, now, back to section 5, you also don't have a
standard for, if you will, the safe haven for data protection.
You have no outside group that sets standards. You have no
specific standards.
So your standard for going after a company that has a data
breach is they have a data breach. Isn't that true?
Ms. Ramirez. No. That's absolutely not true.
Mr. Issa. Okay. If they don't have----
Ms. Ramirez. We----
Mr. Issa [continuing]. A data breach, have you done----
Ms. Ramirez. We have broad over----
Mr. Issa [continuing]. Any section 5 actions for data
breaches?
Ms. Ramirez. I'm sorry?
Mr. Issa. If there is no leaking of personally identifiable
information, you don't go after them. When you find out they
do, you go after them. And, yet, you have no standard where
someone can say, ``If I do this,'' ``If I hire this company,''
``If I am ISO 9002,'' ``if I am'' whatever, ``it is a safe
haven.''
So let me go through this process for a moment. In the case
of many of your enforcements that we have been monitoring, what
happens is the data breach itself becomes the evidence and, at
the end of the day, they enter into consent decrees because
they want you off their back not because they know exactly what
they should have done to have not had it.
In the case of Tiversa or in the case of a case that you
passed on--and I appreciate that you passed on it--it was a
free AIDS clinic in Chicago who had a data breach that turned
out to be based on a stolen laptop, the result of a breaking
and entering, that then Tiversa informed you about, that then
Tiversa informed their lawyer about, that then that lawyer sued
by getting those AIDS patients all riled up and suing the AIDS
clinic.
So as we go through this, the question I have for you is:
Until or unless you have a standard of care for a breach before
it happens so that people know that, if they assert this, they
have a safe haven, which we do in antitrust in most other
areas--you can define it--shouldn't your focus switch to those
who mine data, those who hack, those whose use of somebody
else's data, in fact, is inappropriate, rather than those, for
better or for worse, who get hacked?
And I will close with this. You don't have the authority to
go after the State Department, the Veterans Administration,
Congress, or any of these other government agencies, all of
whom have had massive data breaches.
Why is a data breach in your focus? Is it just because the
breached company is easy and the hacker is hard?
So whatever time the Chairman will allow for you to answer.
Ms. Ramirez. If I may.
Mr. Marino. Yes, please.
Ms. Ramirez. So I want to clarify that we do have a
standard when it comes to enforcement actions in the area of
data security. Companies are required to, under section 5, have
reasonable security measures in place to protect consumer
information. So that's----
Mr. Issa. That standard has been----
Ms. Ramirez. And we----
Mr. Issa. We have asked for it, and you haven't published
anything other than those words.
Ms. Ramirez. We absolutely have a standard where we use
both under deception as well as unfairness.
Mr. Issa. Well, we will follow up with any additional
information you can give us to show where a company can know a
safe haven so it can be published and they can know what they
need to do to be immune if there is a data breach and they have
met that standard.
Ms. Ramirez. And I would be happy to supply both. We have
more than 50 cases in this area. We have guidance. And we're
continuing to provide even more guidance to companies.
Just one more very short point, and that is that I also
want to make clear that no investigation at the FTC is
commenced without senior management supervision and there won't
be any conduct remedy that is imposed or any remedy of any kind
that's imposed without a Commission vote. So I want to clarify
that point.
Mr. Marino. Thank you.
We will go into recess to vote. With my apologies, we are
going to be at least 40 minutes.
[Recess.]
Mr. Marino. The Committee will come to order.
Again, thank you for your patience. I apologize.
The Chair now recognizes the gentleman from New York,
Congressman Jeffries.
Mr. Jeffries. I thank my good friend and distinguished
Chair from the great state of Pennsylvania.
And I thank the distinguished panelists for your service
and for your presence here today.
Let me start with Chairwoman Ramirez. We, as the Judiciary
Committee, have been undertaking an effort to deal with the
patent troll phenomenon and to strike an appropriate balance in
terms of our litigation system in making sure that all actors
have access to, you know, vindicate their rights pursuant to
legitimately held patents, but that the process is not abused
in a way where you have a situation where some defendants are
forced to make decisions with respect to resolution not based
on the underlying merits of the claim, which is what should be
the case, but based on the high cost of litigating the matter
even if, ultimately, they think they will be successful.
And so we are hopefully moving toward closure as it relates
to that process where we can get a product out of the House and
the Senate and to the President's desk. But one aspect that we
have not addressed, I gather, for jurisdictional reasons in
terms of the Judiciary Committee side is the demand letter
phenomenon. And I know that is something that you have been
working on.
And if you could just speak to what your efforts have been
and what your thoughts are as it relates to dealing with demand
letter overreach, on the one hand, but also recognizing that it
can also be a legitimate vehicle pursuant to pre-litigation
settlement discussions.
Ms. Ramirez. Absolutely. And I am happy to address that
question. And I do think that we have to be careful to ensure
that any efforts at reform in this area carefully balance the
rights of IP holders as well as those who are legitimately
implementing technology.
This is something that we have been looking at very closely
at the FTC, and we certainly stand ready to use our consumer
protection authority in this area so that, if there are any
practices that are deceptive, we will take action.
In fact, last year we did take action against one
particular entity, a patent assertion entity, that we alleged
was acting deceptively in sending out thousands of demand
letters to small businesses around the country. So it is
something that we care very deeply about, and we are monitoring
the arena vigilantly.
And with regard to particular legislation, I will say that
I generally believe that our current authority is adequate to
address the situations where you do have deceptive conduct
that's involved, but at the same time, we're certainly happy to
work with Congress in connection with particular legislation in
this area.
Mr. Jeffries. If you can speak to the issue of what was the
outcome--or what is the present status of the action that was
taken with respect to that particular patent assertion entity?
Ms. Ramirez. So we resolved it, and we basically imposed a
cease and desist order that prohibits this entity from engaging
in similar unlawful conduct in the future.
Mr. Jeffries. Okay. Thank you.
And, Mr. Baer, you noted in your testimony that airline
competition is vital to the American consumer, and you
indicated that you have been pleased with the efforts by the
Department of Justice in terms of ensuring the broadest
possible competition within the law related to the airline
industry. If you can just, you know, add some color and context
to that assessment.
Mr. Baer. Sure, Mr. Jeffries. Thank you for the
opportunity.
Essentially, what we have had is consolidation over a
number of years in the industry. When we took a look at the
U.S. Air-American merger and we filed suit to block it, part of
what we said in that complaint is that the three legacy
carriers, now three after U.S. Air and American combined,
seemed to be engaged in behavior that was not fiercely
competitive, not what we expect of markets that are fully
functioning.
And in trying to figure out what best to do, we made the
conclusion that allowing the merger, but giving up gates and
slot rights at capacity-constrained airports where the
different players, the discount carriers, the low-cost
carriers, were actually coming in and driving fares down was
the best way to improve what was not a terrific competitive
dynamic.
I can't tell you it's day and night. Mr. Conyers was really
raising that question with me earlier. But we are seeing
improvement, more flights to more places in airports that
previously had been basically dominated by Delta, United, and
American. So there is improvement, and we are pleased to see
it.
Mr. Jeffries. If the Chair would just indulge a brief
follow-up.
Mr. Marino. You may have all the time that you would like,
Mr. Jeffries.
Mr. Jeffries. Thank you.
And I would just urge the Department of Justice and the
antitrust shop to continue to closely monitor, you know, the
issue, particularly as it relates to pricing, because it does
seem, based on concerns that have been articulated to me by
many of my constituents--and I have got JFK in the immediately
adjacent district that I represent--that, amongst the major
airlines, the prices don't seem to differ significantly in a
way that would suggest that there is real competition.
And then there was also significant concern that, as we
experienced toward the end of last year and earlier this year a
dramatic decline in fuel prices, that there was no similar
impact on airfare. And one might expect, in fact, that some of
the benefits of the reduced fuel costs would be transferred to
consumers, and there was no evidence that that took place. And
I would just urge the Department of Justice to do what they can
to continue to monitor the situation aggressively.
Mr. Baer. You have my commitment.
Mr. Jeffries. Thank you.
Thank you, Mr. Chair.
Mr. Marino. Thank you.
I am going to have one more question, and the Ranking
Member is going to have another question, because I sort of
feel a little guilty making you wait almost an hour and then
saying we are done with you. Do you mind if we do that? Okay.
I am going to defer to the Ranking Member.
Mr. Johnson. Thank you, Mr. Chairman.
Attorney General Baer, in its brief, the Antitrust
Division--well, let me start. First, arbitration agreements are
pervasive in society, affecting countless Americans every year.
This issue has concerned me since I first introduced
legislation to prohibit forced arbitration agreements back in
the 110th Congress.
As I mentioned in my opening statement, the brief for the
United States in Italian Colors noted that private actions are
important to supplementing the government's civil enforcement
efforts under the antitrust laws as administered by both the
Justice Department and the FTC.
Attorney General Baer, in its brief, the Antitrust Division
argued alongside the Solicitor General that the United States
has a substantial interest in ensuring that arbitration
agreements not prevent the redress for violations of Federal
statutory rights, including those enumerated by the antitrust
laws.
In the wake of Italian Colors, how has the court's decision
affected the ability of antitrust plaintiffs to enforce
important statutory rights in court?
Mr. Baer. Well, the reason the Justice Department, the
Antitrust Division, took the position it did in Italian Colors,
a position that did not prevail in the Supreme Court, was
concern that the imposition of mandatory arbitration rights on
consumers could limit their access to the courts and,
basically, result in an imbalance in disputes between consumers
and big business.
But Italian Colors is the law of the land, and it is an
adjustment that private plaintiffs and their lawyers are
seeking to address going forward. It is an imperfect world in
which we operate, I am afraid.
Mr. Johnson. Basically getting adjusted to the fact that
forced arbitration is the reality?
Mr. Baer. Yes, sir. And I appreciate the concerns that
underlie the legislation you are sponsoring.
Mr. Johnson. Thank you.
I yield back.
Mr. Marino. Thank you.
General, I wanted to ask you a question about the
international antitrust enforcement actions, if you would,
please.
There have been reports that China is using its antitrust
laws to advance its own industrial policies--and I actually
just read another report that was even more descript about
this--at the expanse of intellectual property rights,
particularly rights of American companies.
How does DOJ--as a matter of fact, FTC can respond to this
as well--coordinate with other executive agencies on issues of
international antitrust enforcement?
And I am just going to throw out another follow-up question
that you will probably answer anyhow.
To have foreign countries applying antitrust laws in
protectionist manners, how does your agency and each other
agency respond to address the issue as well?
Mr. Baer. Let me give sort of three levels of answer.
First, there is a very active process within the executive
branch to make sure these issues are identified and presented
at the highest levels. When President Obama went over to meet
the president of China in November, that was on his agenda,
fair, non-discriminatory enforcement of the antitrust laws.
There's been follow-up at secretary-level meetings between
senior officials of the Chinese Government, vice premier level,
and senior officials in the Obama administration to make sure
that we get commitments from those agencies that enforce the
Chinese antimonopoly law, that they will do so in a fair and
transparent and non-discriminatory fashion. We have received
some of those assurances, and we are hopeful that they will be
honored.
The third level is the two of us are extraordinarily
committed to working with the antimonopoly law enforcers. There
are three agencies over there. You think it is interesting that
there are two here. Well, there are three over there, and we
work with all three.
We have been to China. We have met with their senior
leadership. The head of their merger enforcement agency will be
in town next week. The two of us are meeting with him in my
office on Monday morning to talk about these issues, talk about
remedies, talk about fairness.
So it is very much a priority for this Administration and
for the antitrust enforcers in the United States.
Mr. Marino. Recently I just read an in-depth article, a
report, actually, about China flexing its muscle with U.S.
companies on what China's calling antitrust issues concerning
their laws.
And in return for not pursuing things further, it is, to
me, arm-twisting with these companies, saying:If you give us
licensing to something that we are interested in, if you give
us the right to perform any testing or research needed here in
our country and in our laboratories, we will forego any
further, for the lack of better term, general prosecution or
fines or even as much as removing the company from the country.
What say you about that?
Mr. Baer. Well, it is a concern. We've heard from U.S.
business interests. We've met with U.S. companies that have
those concerns to make sure we understand. Where we think it
appropriate, where we think the concern is legitimate, we've
communicated those concerns to our counterparts in China.
At the risk of being controversial, not all complaints that
one hears from U.S. companies or foreign companies are
automatically three-dimensional, valid, take everything into
account.
So one of the things we try to do is sort through what we
think appears to be a legitimate concern on the part of a U.S.
company and communicate that. To the extent we think it is
appropriate enforcement, the sort of enforcement actions we
would take here, we let the companies know.
So we're trying to nuance this and encourage the--I said in
my prepared testimony one of the things that we export well
from the United States is sound antitrust competition policy.
It is a big item of commitment for the both of us and our
teams.
Mr. Marino. It is a complex tightrope to walk. And can you
give an example of how we are attempting--other than through
negotiations, what we can use sometimes as a hammer over their
heads, saying, ``If you continue this, these repercussions may
occur.''
Mr. Baer. As antitrust enforcers, I think we don't have
many hammers.
Mr. Marino. Right.
Mr. Baer. And it would be inappropriate, I think, as a law
enforcement function, to threaten retaliation that is not on
the merits. Right?
Most countries that we work with that are developing
antitrust enforcement regimes want to be respected. They want
to be fair. There is a temptation, as new laws develop, maybe
to tilt the playing field in favor of the home team. And where
we think that is going on, we communicate it.
Many of these communications are bilateral and
confidential. We want to respect their process, encourage them
to aspire to international norms of good competition
enforcement. And that is a large part of what we do. It is
below the radar, as is appropriate when law enforcement
officials are talking to one another.
Mr. Marino. I do think also another method could
significantly improve the situation if--and I am sure this goes
on to a certain extent--other countries joined with the U.S. to
suggest to China that this could hurt your reputation around
the world as far as being a trading partner.
Mr. Baer. It is helpful. And we work with our counterparts.
A great example is the European Union, who also have a strong
bilateral relationship.
And we share concerns and are transparent with one another
about our discussions, whether it be with China, India, any
competition authority which is beginning to develop an
enforcement regime.
Mr. Marino. Thank you.
Commissioner, do you have any response to any of my
questions pursuant to this?
Ms. Ramirez. I echo the same comments that Mr. Baer has
made. These issues are very important. We do engage on an
international level. And we think that it really impacts, you
know, the legitimacy of international enforcers around the
world when fair processes aren't used during the course of
investigations and when actions are taken that are not
supported by sound evidence showing anticompetitive conduct.
So these are messages that we've been communicating
internationally. We've been communicating them on an individual
basis with counterparts not only in China, but in other parts
of the world.
And as part of our multilateral efforts, in fact, we work a
great deal with something called the International Competition
Network. And we have just produced some guidance on
investigative procedures that, in our mind, are important and
good best practices to utilize during the course of antitrust
investigations.
So these are important issues, and we're certainly keeping
an eye on them.
Mr. Marino. Good.
I have one more question for you, Commissioner, but I would
like if you could send it to us in writing. And I'm just going
to read it for the record, but we will submit to you the
question in writing so your staff doesn't have to sit back
there and start writing everything down.
At this Committee's last oversight hearing in November of
2013, I personally asked you about the merger between Express
Scripts and Medco. I was concerned that it may lead to
anticompetitive effects within the pharmacy market.
At the time, you stated that, ``There hasn't been much time
that has elapsed,'' and you weren't aware ``of any evidence of
there being anticompetitive conduct.''
Now that we have had more time to evaluate the market post-
merger, 3 years have now passed since the merger occurred, one
of your colleagues has also raised concerns that there is
insufficient competition in the PDM market.
For the sake of time, could you please provide in writing a
response to the following question: Can you now report on
whether or not this Express Scripts-Medco merger has led to any
anticompetitive effects on the PDM market? And, in addition,
could you provide the Commission's overall view of the market.
Ms. Ramirez. I would be happy to give you a response in
writing.
Mr. Marino. Thank you so much.
Mr. Ranking Member, anything else?
Mr. Johnson. I am good.
Mr. Marino. Okay. This concludes today's hearing.
I want to thank the witnesses very, very much and the
people in the audience for waiting for as long as you had to.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the witnesses or
additional materials for the record.
Again, thank you all very much. This hearing is adjourned.
[Whereupon, at 11:27 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Response to Questions for the Record from the Honorable William J.
Baer, Assistant Attorney General, Antitrust Division, U.S. Department
of Justice
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