[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
STANDARD MERGER AND ACQUISITION REVIEWS
THROUGH EQUAL RULES ACT OF 2015
=======================================================================
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
ON
H.R. 2745
__________
JUNE 16, 2015
__________
Serial No. 114-32
__________
Printed for the use of the Committee on the Judiciary
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Available via the World Wide Web: http://judiciary.house.gov
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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
----------
JUNE 16, 2015
Page
THE BILL
H.R. 2745, the ``Standard Merger and Acquisition Reviews Through
Equal Rules Act of 2015''...................................... 3
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 9
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Committee on the Judiciary 10
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 11
WITNESSES
Deborah A. Garza Esq., Partner, Covington & Burling LLP
Oral Testimony................................................. 14
Prepared Statement............................................. 16
David A. Clanton, Esq., Senior Counsel, Baker & McKenzie LLP
Oral Testimony................................................. 26
Prepared Statement............................................. 28
Abbott B. Lipsky, Jr., Esq., Partner, Latham & Watkins LLP
Oral Testimony................................................. 35
Prepared Statement............................................. 37
Albert A. Foer, Esq., Senior Fellow, American Antitrust Institute
Oral Testimony................................................. 47
Prepared Statement............................................. 49
APPENDIX
Material Submitted for the Hearing Record
Response to Questions for the Record from David A. Clanton, Esq.,
Senior Counsel, Baker & McKenzie LLP........................... 66
Response to Questions for the Record from Albert A. Foer, Esq.,
Senior Fellow, American Antitrust Institute.................... 68
Letter from Rick Pollack, Executive Vice President, the American
Hospital Association........................................... 73
Letter of Support for H.R. 2745, the ``Standard Merger and
Acquisition Reviews Through Equal Rules Act of 2015''.......... 74
Letter from George P. Slover, Senior Policy Counsel, Consumers
Union.......................................................... 77
STANDARD MERGER AND ACQUISITION REVIEWS THROUGH EQUAL RULES ACT OF 2015
----------
TUESDAY, JUNE 16, 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 2:09 p.m., in
room 2141, Rayburn House Office Building, the Honorable Tom
Marino (Chairman of the Subcommittee) presiding.
Present: Representatives Marino, Goodlatte, Farenthold,
Collins, Bishop, Johnson, Conyers, DelBene, and Peters.
Also Present: (Majority) Anthony Grossi, Counsel; Andrea
Lindsey, Clerk; and (Minority) Slade Bond, Counsel.
Mr. Marino. The Subcommittee on Regulatory Reform,
Commercial and Antitrust Law will come to order. Without
objection, the Chair is authorized to declare recesses of the
Committee at any time.
We welcome everyone to today's hearing on H.R. 2745, the
``Standard Merger and Acquisition Reviews Through Equal Rules
Act of 2015.'' I will recognize myself for an opening
statement.
Today's hearing is on the ``Standard Merger and Acquisition
Reviews Through Equal Rules Act of 2015,'' known as the
``SMARTER Act.'' This legislation enacts an Antitrust
Modernization Commission recommendation that the standards and
processes applied in the merger review process should be
identical between our two antitrust enforcement agencies.
Since 1914, two Federal agencies have enforced our Nation's
antitrust laws, the Department of Justice and the Federal Trade
Commission. When a company wishes to merge with or purchase
another company, it notifies both antitrust enforcement
agencies of the proposed transaction. Ultimately, only one
agency reviews the transaction to determine whether it violates
the antitrust laws, and there is no fixed rule to determine
which agency will conduct this review.
When the reviewing antitrust enforcement agency concludes
that the proposed transaction violates the antitrust laws, it
then seeks to prevent the parties from consummating the deal.
It is at this stage of the merger review process that the AMC
identified a problem.
The AMC noted that there are different standards applied
and processes available to the FTC and DOJ when each agency
seeks to block a proposed transaction. Each agency is subject
to a different preliminary injunction standard.
Additionally, the FTC has the option to unwind or prevent
the closing of the transaction through administrative
litigation, DOJ on the other hand cannot.
The AMC concluded that, although certain of the differences
between the FTC and DOJ may have some benefits, the disparities
between the dual merger review processes result in unfairness
and uncertainty. In light of this finding, the AMC recommended
that Congress harmonize the merger review processes and
standards between the two antitrust enforcement agencies.
The SMARTER Act effectuates this recommendation. This
legislation was carefully drafted to reform only the merger
review process. The SMARTER Act does not prevent the FTC from
pursuing administrative litigation in conduct cases, against
consummated transactions, or in any other context outside of
the merger review. This narrow construction is consistent with
the AMC's recommendations.
Our witnesses today come with experience in the FTC, the
DOJ, the AMC, and in private practice. I look forward to
hearing their testimony on the important reforms contained in
the SMARTER Act.
[The bill, H.R. 2745, follows:]
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__________
Mr. Marino. And I now recognize the Ranking Member of the
Subcommittee on Regulatory Reform, Commercial and Antitrust
Law, Mr. Johnson of Georgia, for his opening statement.
Mr. Johnson. Thank you, Mr. Chairman.
Today's hearing is an important opportunity to consider the
Federal Trade Commission's critical role in developing and
enforcing antitrust law.
Congress first established the Federal Trade Commission in
1914 to safeguard consumers against anticompetitive behavior by
specifically empowering the Commission with the authority to
enforce, clarify, and develop antitrust law. Under the process
of administrative litigation, also known as Part III
litigation, the Committee may seek permanent injunctions in its
own administrative court in addition to its ability to seek
preliminary injunctions in Federal district court.
This additional authority is a unique mechanism that takes
advantage of the Commission's longstanding expertise to develop
some of the most complex issues in antitrust law.
Today, this Subcommittee will consider the Standard Merger
and Acquisition Review Through Equal Rules, or SMARTER Act.
This bill would create a uniform standard for preliminary
injunctions in cases involving mergers, acquisitions, joint
ventures, or similar transactions and, alarmingly, eliminate
the Commission's century-old authority to administratively
litigate these cases.
Proponents of the SMARTER Act argue that divergent
standards for enjoining mergers may undermine the public's
trust in the efficient and fair outcomes of merger cases. But
it is unclear that these differences are material, let alone
that the differences have led to divergent outcomes in merger
cases.
In the absence of any evidence, it is difficult to support
wholesale changes to longstanding antitrust practices at the
FTC for consistency's sake alone based solely on speculative
harms. But even assuming that there are material differences in
cases brought under these standards, we should strike a balance
in favor of competition by lowering the burden of proof in
cases brought by the Justice Department, not by raising the
Commission's burden for obtaining preliminary injunctions.
Courts already require a lower burden of proof in cases brought
by the Commission and Justice Department precisely because both
are expert agencies equipped with large staffs of economists
who analyze numerous mergers on a regular basis that may only
bring cases that are in the public interest.
To the extent that we should address perceived differences
in the standard for preliminary injunctions in merger cases,
legislation should favor increased competition, not the
interest of merging parties.
The SMARTER Act would also eliminate the FTC's authority to
administratively litigate mergers and other transactions under
Section 5(b) of the FTC Act. Leading authorities in antitrust
across party lines have expressed serious reservations with
eliminating the Commission's administrative litigation
authority.
For instance, Bill Kovacic, a former Republican chair of
the Commission, has referred to this aspect of the bill as
``rubbish,'' noting that the Commission has used administrative
litigation to win a string of novel antitrust cases that courts
have ultimately upheld where the Commission has had to fight
every single foot along the way.
Edith Ramirez, the chairwoman of the FTC, likewise wrote
last Congress that eliminating the FTC's administrative
litigation authority would ``fundamentally alter the nature and
function of the FTC.''
In light of these concerns, I sincerely hope that we can
work to find an evenhanded solution that promotes competition
in the market and protects the public interest.
And with that, I thank the Chairman, and I yield back.
Mr. Marino. Thank you, Mr. Johnson.
The Chair now recognizes the Chairman of the full Judiciary
Committee, Mr. Bob Goodlatte of Virginia, for his opening
statement.
Mr. Goodlatte. Thank you, Mr. Chairman.
I believe our Nation's antitrust laws serve an important
function in rooting out anti-competitive and discriminatory
behavior in the marketplace. I also believe that to be
effective, these laws must be administered fairly and
consistently.
Today's hearing focuses on the ``Standard Merger and
Acquisition Reviews Through Equal Rules Act,'' or the ``SMARTER
Act,'' which makes important reforms to ensure that our
antitrust laws are prosecuted in this manner. Specifically, the
bill amends the standards and processes applied to proposed
transactions so that they are no longer determined by the flip
of a coin.
One of the responsibilities of the Judiciary Committee is
to ensure that the enforcement of our Nation's antitrust laws
is fair, consistent, and predictable. We discharge this
responsibility through vigorous oversight of the antitrust
enforcement agencies and vigilant supervision of the existing
antitrust laws. To assist the Committee in its antitrust
oversight, the Antitrust Modernization Commission was formed
and charged with conducting a comprehensive examination of the
antitrust laws and existing enforcement practices.
Following this review, the AMC issued a 540-page report
that detailed the issues it examined and provided a number of
recommendations for legislative, administrative, and judicial
action. One of the issues the AMC examined was the existing
disparities in the standards applied to, and processes used by,
the Department of Justice and the Federal Trade Commission when
they seek to prevent the consummation of a proposed
transaction.
As the AMC report states, ``Parties to a proposed merger
should receive comparable treatment and face similar burdens
regardless of whether the FTC or DOJ reviews their merger. A
divergence undermines the public's trust that the antitrust
agencies will review transactions efficiently and fairly. More
important, it creates the impression that the ultimate decision
as to whether a merger may proceed depends in substantial part
on which agency reviews the transaction.''
The subject of today's hearing, the SMARTER Act, solves the
issue highlighted by the AMC. Specifically, the bill eliminates
the disparities in the merger review process so that companies
face the same standards and processes regardless of whether the
FTC or DOJ reviews their proposed transaction.
The SMARTER Act contains two principal reforms to the
antitrust laws. First is the harmonization of the preliminary
injunction standards that DOJ and the FTC must meet in court.
The second reform is the removal of the FTC's ability to pursue
administrative litigation following judicial denial of a
preliminary injunction request.
The Department of Justice cannot conduct administrative
litigation, and it is unfair for some parties to be subject to
administrative litigation while others avoid this prospect
merely as a result of the identity of the reviewing antitrust
enforcement agency. Notably, the removal of the FTC's
administrative powers is constructed narrowly and applies
solely to the context of merger review cases.
The AMC recommended this removal and went on to state,
``elimination of administrative litigation in HSR Act merger
cases will not deprive the FTC of an important enforcement
option. Although administrative litigation may provide a
valuable avenue to develop antitrust law in general, it appears
unlikely to add significant value beyond that developed in
Federal court proceedings for injunctive relief in HSR Act
merger cases. Whatever the value, it is significantly
outweighed by the costs it imposes on merging parties in
uncertainty and litigation costs.''
The SMARTER Act is a common-sense, straightforward measure
that implements reforms advanced by the bi-partisan members of
the AMC. Furthermore, it is an important step to achieving this
Committee's goal of ensuring our Nation's antitrust laws are
enforced in a manner that is fair, consistent, and predictable.
I look forward to hearing today's testimony from our
esteemed panel of witnesses regarding the SMARTER Act, and I
yield back the balance of my time.
Mr. Marino. Thank you, Chairman Goodlatte.
The Chair recognizes the full Judiciary Committee Ranking
Member, Mr. Conyers of Michigan, for his opening statement.
Mr. Conyers. Thank you, Mr. Chairman, and to my colleagues.
This so-called SMARTER Act would make the Federal Trade
Commission adhere to the same merger enforcement procedures as
the Justice Department's Antitrust Division for proposed
mergers, acquisitions, and other similar transactions. There
are several reasons that lead me not to recommend this measure.
By weakening the Commission's independence this bill, in
fact, undermines Congress' original intent in creating the
Commission in the first place. For good reasons that are still
relevant today, Congress established the Commission to be an
independent administrative agency, and we must be mindful of
these reasons as we consider arguments in favor of the SMARTER
Act.
Even though the Justice Department's antitrust enforcement
authority already existed at the time the Congress created the
Commission in 1914, Congress established this agency in direct
response to the Department's failure to enforce the Sherman
Antitrust Act of 1890, as well as the Act's perceived failure
to stop the wave of mergers and corporate abuses that occurred
during the 24 years following its enactment.
The Commission is an independent body of experts tasked
with the developing antitrust law and policy free from
political influence and particularly executive branch
influence. Congress specifically gave the Commission broad
administrative powers to investigate and enforce laws to stop
unfair methods of competition, as well as the authority to use
an administrative adjudication process to help it develop
policy expertise rather than requiring the Commission to try
cases before a generalist Federal judge.
Unfortunately, the SMARTER Act, rather than strengthening
the Commission's authority, does the opposite.
A greater concern is the act's elimination of the
administrative adjudication process for merger cases under
Section 5(b) of the Federal Trade Commission Act. By doing so,
the bill effectively transforms the Commission from an
independent administrative agency into another enforcement
agency indistinguishable, in fact, from the Justice Department.
The Commission's administrative authority is designed to
serve its role as an independent administrative agency.
Eliminating it, therefore, threatens the Commission's
distinctive role and independence. Make no mistake, eliminating
the Commission's administrative authority opens the door for
ultimate elimination of the Commission's role in competition
and antitrust enforcement and policy development.
You don't have to take my word for it alone. While
supporting the bill's harmonization of preliminary injunction
standards applicable to two antitrust enforcement agencies, the
former Republican Commission Chairman has also publicly said
that the rest of the SMARTER Act is ``rubbish.'' The former
Chairman understood the ultimate effect of the SMARTER Act, and
so do I, when he commented, let me put it this way, behind the
rest of the SMARTER Act is the fundamental question of whether
you want the Federal Trade Commission involved in competition
law.
Similarly, Commission Chairwoman Ramirez observed last year
that the bill would have far-reaching immediate effects and
fundamentally alter the nature and function of the Commission,
as well as the potential for significant unintended
consequences.
So, finally, the SMARTER Act is problematic because it may
apply to conduct well beyond large mergers, which could further
curtail the Commission's effectiveness. In particular, the
SMARTER Act would eliminate the Commission's authority to use
administrative adjudications not just for the largest mergers,
but for any ``proposed merger.''
It also removes such authority to review a joint venture or
similar transaction. Moreover, the measure could be read to
eliminate the use of administrative processes for already
consummated acquisitions, joint ventures, and other types of
transactions that are not mergers as currently drafted.
I recognize that the bill's authors have tried in good
faith to respond to some of the concerns expressed by myself
and by the Commission last year in response to an early draft
of the SMARTER Act, and I appreciate these efforts. Moreover, I
recognize that the Commission itself earlier this year changed
its procedural rules to make it easier to end the use of
administrative litigation where it loses a preliminary
injunction proceeding in court.
My disagreement with the sponsors, however, is more
fundamental, at least regarding whether the Commission should
retain its administrative litigation authority at all in merger
cases. This disagreement leads me to oppose the so-called
SMARTER Act, even in its written form.
I thank the Chair and yield back my time.
Mr. Marino. Thank you, Mr. Conyers.
Without objection, other Members' opening statements will
be made part of the record.
Would the witnesses please rise to be sworn in and raise
your right hand?
Do you swear that the testimony you are about to give
before this Committee 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.
Please be seated.
I am going to begin by introducing all of the witnesses,
and then we will come back for your opening statements. If I
mispronounce your name, please do not hesitate to tell me.
Our first witness is Ms. Garza, the co-chair of Covington &
Burling's antitrust and competition law practice group. In
private practice, she has been involved in some of the largest
antitrust matters in the last 30 years, and many other
litigation and regulatory matters on behalf of Fortune 500
companies. Before joining Covington, Ms. Garza served as acting
Assistant Attorney General in charge of the Antitrust Division
at the Department of Justice.
Ms. Garza also was appointed by President George W. Bush to
chair the Antitrust Modernization Commission, a bipartisan,
blue-ribbon panel created by Congress to study and report to
the President and Congress on the state of antitrust
enforcement in the United States. The AMC report has been
widely praised for providing a valuable framework for policy
proposals.
Ms. Garza received her B.S. from Northern Illinois
University and her J.D. from the University of Chicago.
Welcome, Ms. Garza.
Mr. Clanton as the senior counsel at Baker & McKenzie,
where he also served as head of the firm's global and North
American antitrust practice groups. Mr. Clanton has over 30
years of experience representing clients in high-profile and
complex antitrust matters. Prior to joining the law firm, Mr.
Clanton served as a commissioner and acting chairman of the
Federal Trade Commission.
Mr. Clanton received his B.A. from Andrews University and
his J.D. from Wayne Law School, where he served on law review.
Welcome, Mr. Clanton.
Mr. Tad Lipsky is a partner in the Washington, D.C., office
of Latham & Watkins. He is recognized internationally for his
work on both U.S. and global antitrust law and policy, and has
handled antitrust matters throughout the world.
Before Latham & Watkins, Mr. Lipsky served as the chief
antitrust lawyer for the Coca-Cola Company for 10 years. Mr.
Lipsky also served as Deputy Assistant Attorney General under
William F. Baxter, who sparked profound antitrust law changes
while serving as President Reagan's Chief Antitrust Official.
Mr. Lipsky received his B.A. from Amherst College, his M.A.
from Stanford University, and his J.D. from Stanford Law
School.
Welcome, sir.
Our final witness is Mr. Bert Foer, the founder and former
president of the American Antitrust Institute. Prior to
founding AAI, Mr. Foer served in both private and public
capacities in the antitrust field. His public service includes
serving as the Assistant Director and Acting Deputy Director of
the Federal Trade Commission's Bureau of Competition. His
private sector experience includes working at Hogan & Hartson,
serving as the CEO of a midsize chain of retail jewelry stores,
working in various trade associations and nonprofit leadership
positions, and teaching antitrust to undergraduate and graduate
business school students.
Mr. Foer received his B.A. magna cum laude from Brandeis
University, and M.A. in political science from Washington
University, and his J.D. from the University of Chicago Law
School where he was an associate law review editor.
Welcome, sir.
Each of the witnesses' written statements will be entered
into the record in its entirety. I ask that each witness
summarize his or her testimony in 5 minutes or less. And to
help you with that, you have timing lights in front of you. A
light will switch from green to yellow, indicating that you
have 1 minute to conclude your testimony. And when the light
turns red, it indicates that the witness's 5 minutes have
expired. When it gets to the point of when the light flashes
red, I know you are intent on getting in your statement, I will
politely pick up my hammer and just give you a little
indication to please wrap up.
Ms. Garza, your 5-minute opening statement, please?
TESTIMONY OF DEBORAH A. GARZA ESQ., PARTNER, COVINGTON &
BURLING LLP
Ms. Garza. Thank you, Chairman Marino, Vice Chairman
Farenthold, and Members of the Judiciary Committee and the
Subcommittee. It is a pleasure to testify in support of the
SMARTER Act as the former chair of Congress' Antitrust
Modernization Commission. That Commission was a 12-member
bipartisan, blue-ribbon panel comprised of six Democrats, five
Republicans, and one independent. It was a bipartisan panel. We
were an engaged group of experienced practitioners, several
former enforcers and zealous advocates of strong antitrust
enforcement, including a former general counsel of the Federal
Trade Commission during the Clinton administration, and two
former heads of the Antitrust Division during Democratic
administrations.
So I wanted to put that out there. It is not in my opening
statement, but I wanted to be clear that we were Congress'
committee and we were structured to be bipartisan, and that is
the way that our recommendations came out.
The AMC made three recommendations, each of them with
bipartisan support, that relate to the subject matter of this
hearing, which is creating greater parity between the DOJ and
the FTC with respect to merger enforcement.
One recommendation was that the FTC should adopt a policy
that when it seeks to block a merger, it should seek both a
preliminary injunction and permanent relief, and consolidate
those two into a single hearing as long as agreement can be
reached between the enforcement agency and the parties on an
appropriate scheduling order. All of the commissioners joined
in that recommendation, with the exception of one Democrat, so
five Democrats joined in that recommendation.
Second, the AMC recommended that Congress should amend
Section 13(b) of the FTC Act to prohibit the Federal Trade
Commission from pursuing further administrative litigation if
it lost its motion for a preliminary injunction. One Democratic
Commissioner declined to join on the basis that, at the time,
the FTC had adopted a policy statement saying that it would
rarely actually pursue administrative proceedings after losing
a preliminary injunction motion.
I should say that that policy statement, which was in place
at the time of the AMC vote, was revoked. This was the Pitofsky
rule that Mr. Lipsky refers to in his testimony, and I do in
mine.
Third, the AMC recommended that Congress act to ensure that
the same standard for the grant of a preliminary injunction
apply to both the FTC and the DOJ. Five Democrats joined in
that recommendation.
The SMARTER Act accomplishes the objectives of each of
these recommendations. The premise of the AMC recommendations
and the SMARTER Act is very simple: Mergers should not be
treated differently depending on which agency happens to review
it. The regulatory outcome should not be determined by an
agency flip of the coin.
I would like to emphasize that this is not anti-enforcement
legislation, at least not by the lights of the AMC. We regard
it to be pro-enforcement. We regarded that legislative change
was important to maintain consensus about the value of a strong
enforcement regime and that a perception of unequal or unfair
treatment undermines that consensus.
Chairman Goodlatte had this in his statement, but I want to
read the carefully crafted words of the Commission in
explaining its recommendation. ``Parties to mergers should
receive comparable treatment and face similar burdens,
regardless of whether the FTC or the DOJ reviews the merger. A
divergence undermines the public trust that the antitrust
agencies will review transactions efficiently and fairly. More
importantly, it creates the impression that the ultimate
decision as to whether a merger may proceed depends in
substantial part on which agency reviews a transaction. In
particular, the divergence may permit the FTC to exert greater
leverage in obtaining parties' assent to a consent decree.''
In closing, I would like to say that no one on the AMC
believed at the time, and I do not believe today, that this
legislation would make it difficult or impossible for the
Federal Trade Commission to do its job. The Justice Department
has done very well in pursuing its merger enforcement agenda
working with the standards that apply to it. And I firmly
believe that the Federal Trade Commission can do so as well.
Thank you.
[The prepared statement of Ms. Garza follows:]
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__________
Mr. Marino. Thank you, Ms. Garza.
Mr. Clanton?
TESTIMONY OF DAVID A. CLANTON, ESQ., SENIOR COUNSEL, BAKER &
McKENZIE LLP
Mr. Clanton. Thank you, Mr. Chairman, and Members of the
Committee.
As you mentioned before, I served on the Commission right
after the HSR Act was passed, and when we put into place the
procedures, which largely are still there today after nearly 40
years.
And let me explain just briefly why I think this
legislation is right on point. It is targeted. It deals with an
issue of fairness that I will explain. And it does not--it does
not, I emphasize that--create any wholesale revision to the
FTC's administrative process.
This legislation will focus only on proposed mergers, which
essentially are reportable and nonreportable mergers under the
HSR Act. And when Congress passed that statute, it created
essentially a unified structure for how proposed mergers are to
be reported to the FTC and the timelines the FTC has and DOJ,
because both agencies are equally involved in that process. The
administration of the statute is jointly managed. The FTC is
the lead manager in terms of the whole reporting process, but
Justice has to concur.
In addition to that, over the years, the two agencies for
reportable mergers have developed very extensive, substantive
merger guidelines that the courts increasingly are accepting
and have adopted.
So you really have a very unique structure that is specific
to this idea and to this whole concept of how merger review
should take place.
And let me just then go on to talk about what happens in
this process. So the parties file merger notifications with
both agencies. Both agencies then determine which agency is
going to review it. Sometimes you know that in advance. Many
times you don't know that in advance. So it could go to one
agency or another.
After that, if there are antitrust concerns, which is why
you end up in litigation, there is a very extensive discovery
process, what we call a second request. And the whole process
goes on for many, many months, typically 6 months or longer.
And at the end of that, if there is a problem and the parties
cannot work out a settlement, either the FTC or DOJ, depending
on the agency, decides if they have to go to court.
And here is where the differences start to take place. They
haven't occurred previously, but here the FTC has one process
where they can go to court and seek a preliminary injunction.
And if they get that, then they move forward on their
administrative proceeding.
By contrast, DOJ goes into court exclusively, and what has
happened over recent years, instead of seeking a preliminary
injunction, the parties typically agree, and it is a hearing on
the merits. And that hearing encompasses all of the substantive
issues, and DOJ bears the burden of proving a violation of
Section 7 of the Clayton Act. So you have a significant
contrast right there.
And let me just explain briefly on the administrative
process for the FTC, they go into court. They seek a
preliminary injunction. That preliminary hearing may take
several months.
There is a case that I mention in my testimony that is
going on right now involving Sysco and U.S. Foods. That case
was brought in February. The decision is probably going to
happen fairly soon from the district court judge. The FTC
administrative proceeding doesn't start until July 21 of this
year, 5 months after the case was filed.
If you just look at the FTC rules, that case will then last
for another 7 months. And at that point, it will probably be,
based on the history of how long it takes DOJ cases which are
on the merits, not a preliminary injunction, in the range of 5
or 6 months. And I give two examples of two cases where that
happened, two significant cases, by the way.
So to get to the point quickly, just using those examples,
and we could come up with others, the FTC administrative
process takes roughly twice as long as it does to go into
Federal court. And at the end of the day, the FTC hearing
probably ends on a preliminary injunction decision. If the
companies lose, they don't have the time. They have already
probably invested a year-plus of the deal defending this and
going through the investigative process. And at the end of
that, they face another 7 months, not to mention potential
judicial review.
So the process is inherently unfair and differential, and
that is what the legislation seeks to change. And I think that
makes sense. The FTC has all the authority in the world and has
a lot of experience in bringing cases in Federal court. They
are not going to be harmed by this.
Thank you.
[The prepared statement of Mr. Clanton follows:]
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__________
Mr. Marino. Thank you, Mr. Clanton.
Mr. Lipsky, your statement, please?
TESTIMONY OF ABBOTT B. LIPSKY JR., ESQ., PARTNER, LATHAM &
WATKINS LLP
Mr. Lipsky. Thank you, Mr. Chairman. I am very honored to
be asked to testify today. I am glad to appear before you.
I just wanted to quickly echo some of the comments of the
previous witnesses. I think I speak for everybody at the
witness table here in saying that we all think that the United
States was very wise to choose competition and vigorously
enforced antitrust law as the main rule of economic
organization for the United States. It is one of the things
that has helped make the United States the leading economic
powerhouse and innovator that it is today.
And I think if any of us thought that there was any
possibility that this bill would diminish the value of the
antitrust laws and antitrust agencies, we wouldn't be here
testifying in support.
But I do testify in support like my colleagues, Mr. Clanton
and Ms. Garza, because this bill I think very responsibly and
in a very limited fashion corrects a very evident unfairness
and an illogical aspect of the way that the procedures have
come to work.
You will see my statement that I have taken this over a bit
of history. I guess I have gotten to the point where I know
more history than most people that are around. That is not a
good comment. But this concern particularly about the use of
administrative litigation following an FTC proceeding in court,
it is actually based on some very tangible negative experience.
And you will see I discuss the RR Donnelly, Meredith/Burda
merger, which was proposed in 1989 and went through
administrative litigation, which took 6 years. And ultimately,
the Commission decided that the district court had been right
in declining to enter a preliminary injunction.
And I also mentioned a case involving the Dr Pepper soft
drink brand, an administrative litigation where the FTC
actually won a preliminary injunction under Section 13(b) in
1986. And despite a declaration from the D.C. Circuit that that
matter was moot because it was originally proposed to be
acquired by the Coca-Cola Company, that was the merger that was
enjoined. And then the Dr Pepper brand was sold off, eventually
combined with the 7-Up brand to form the Dr Pepper Seven-Up
Company.
But while all that wonderful soft drink industry history
was proceeding, the Federal Trade Commission was going along
with an administrative litigation. So the RR Donnelly case and
the Dr Pepper case happened to culminate at about the same
time, which was about 1995, shortly after Bob Pitofsky had been
appointed Chairman of the Federal Trade Commission by President
Clinton.
Bob Pitofsky knows a tremendous amount about the antitrust
laws and before coming to the Commission as Chairman had been
in several roles there, including as a commissioner in a prior
administration. And he very wisely, I think, issued the so-
called Pitofsky rule, 16 CFR 3.26, the policy statement.
Now the policy statement, if you read it carefully, is a
little bit cagey. It doesn't make any commitments, but it does
say that the decision to proceed to administrative litigation
following a loss of preliminary injunction would be considered
on a case-by-case basis.
And in the context of those two merger cases where the use
of administrative litigation had been very heavily criticized
in the bar, it was understood to essentially acknowledge the
unfairness and the irrationality of having a situation where if
your merger is judged in the Justice Department, you end up in
a judicial proceeding, whereas if you are judged in the Federal
Trade Commission, you face the possibility of this nearly
endless administrative litigation. In the Dr Pepper situation,
it was 9 years, and that was even before the final disposition
by the appellate court.
So I think the Pitofsky rule was wise. I think that the
Commission has largely acted in accordance with the Pitofsky
rule. And all the SMARTER Act would do, really, is codify I
think what is FTC's better judgment that if there is a loss in
the district court, it is best that administrative litigation
be foregone.
It is true that Congress originally foresaw a very special
role in creating this administrative litigation for the FTC.
But we also have to take into account that when the 13(b)
statute, the injunction statute, was passed in 1973, it did
provide the Commission with the possibility to seek a permanent
injunction in the Federal district court. So the Commission has
a very clear and obvious available authority so that it could
decide to go to the district court.
I will stop there. Thank you.
[The prepared statement of Mr. Lipsky follows:]
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__________
Mr. Marino. Thank you, Mr. Lipsky.
Mr. Foer, your statement, please?
TESTIMONY OF ALBERT A. FOER, ESQ., SENIOR FELLOW, AMERICAN
ANTITRUST INSTITUTE
Mr. Foer. Thank you, Mr. Chairman, Members of the
Committee.
In previous hearings on the SMARTER Act, you heard from
Professor John Kirkwood, like myself, a senior fellow of the
American Antitrust Institute, and similarly well experienced at
the FTC, albeit years ago. We sent the Committee a letter, and
that is attached. This is a year ago, so that is attached to
the testimony, and I understand it will be included.
Our position on this legislation, though, has not changed.
Put simply, we do not think that the case has been made for new
legislation. I will give three reasons.
First, while we agree there is no need for differently
articulated standards for obtaining a preliminary injunction,
we do not perceive that the differences between the FTC and the
Justice Department that are addressed by this bill are
differences that, in fact, make a difference.
Federal courts generally require both agencies to make
strong showings of probable anticompetitive effect before a
preliminary injunction is issued. In actual practice, it rarely
if ever occurs that a merger outcome is influenced much less
determined by the theoretically more lenient public interest
test for a preliminary injunction under Section 13(b) of the
FTC Act.
Second, if a single theoretical standard is somehow deemed
so important, then we suggest, as I think Ranking Member
Johnson suggested, that it would make more sense to modify the
DOJ standard to conform to the FTC standard, so that the
Department of Justice would share the presumption of expertise
that is implicit in the FTC standard.
And third, prudence compels caution. I sound like a real
conservative here. Prudence demands caution when tinkering with
the system of dual enforcement, including but not limited to
administrative adjudication at the FTC. This system emerged out
of robust debate during the 1912 presidential election
campaign. Congress then was concerned about leaving antitrust
enforcement exclusively in the hands of generalist judges,
preferring to establish a sister administrative agency with
group decision-making by a body of experts.
It is no accident that modern merger law has been the
result of administrative guidelines developed jointly by the
two antitrust agencies rather than by judicial interpretations.
It is administrative guidelines to which both agencies are
particularly well-qualified to contribute which are the key to
predictability and efficiency in merger controls.
Administrative adjudication of mergers offers an important
outlet for the application of such guidelines.
Because of differences in the agency statutes and
procedures, special care must be taken to foresee possible
unintended consequences. To mention one such risk that can
probably be fixed by additional drafting, consummated
transactions involving nonprofit organizations, such as some
important hospital mergers, might be precluded from
administrative adjudication by the FTC. I don't think that is
intended. I don't think it would be wise.
But more important, if Congress takes away the FTC's
administrative adjudication for mergers, it could be starting
down one of those slippery slopes where brakes are likely to
fail.
The Clayton Act Congress and the FTC Congress were one and
the same. Those farsighted legislators valued a competitive
marketplace, which they saw endangered by ever-growing
commercial establishments with ever-growing economic and
political power. And they became convinced that having two
agencies conceived with different structures share the
responsibility, that that would be best to ensure the
competitive economy they wanted to maintain.
We at the AAI believe that the DOJ and FTC have contributed
importantly to the evolution of merger law and policy, both as
cooperators in a joint enterprise and occasionally as rivals,
motivated by the desire to outshine the other in the public
eye.
In this regard, I might mention that the FTC has shown that
it has already heard the criticisms of the Antitrust
Modernization Commission by taking important steps, including
3.26 of its rules to make their process both fairer and
quicker.
So why act now? Why not let the FTC continue to work its
way through? We have not seen a lot of examples of problems,
and the examples we see are very old and before the FTC took
its lessons from the modernization commission.
So I say, why fix a wheel that simply ain't broke?
Thank you for, again, listening to our views.
[The prepared statement of Mr. Foer follows:]
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__________
Mr. Marino. Thank you, sir.
We begin now with our questioning for 5 minutes. I am going
to ask each of the Members to keep their questions to 5
minutes.
Please bear in mind that we like to get to ask each of you
a question, so keep your answers as succinct as possible.
I am going to begin with Ms. Garza, please. Ms. Garza, some
suggest that the SMARTER Act will make merger enforcement more
difficult for the FTC. Do you think DOJ is effective at
preventing anticompetitive transactions? And is there any
reason to think that the FTC cannot be equally as effective
operating under the same rules?
Ms. Garza. Congressman, I think the FTC can be equally
effective, and they have shown themselves to be in a number of
cases.
The way it works now is that after investigating a
transaction pursuant to the HSR Act, as Mr. Clanton has
mentioned, after undertaking discovery and investigating for 3,
4, 6, 8, 12 months, the Justice Department then generally goes
to court, if it believes there is a problem. And it produces
its evidence and has been successful in a number of cases in
proving its case or in extracting a consent judgment from the
parties that it feels adequately addresses the issues.
There is no reason why the Federal Trade Commission that
has the equal ability to get the same discovery for the same
length of time cannot do the very same thing, go into a Federal
court, prove that a merger is anticompetitive, and prevail in
that way.
All we are talking about here is basically giving the
parties a chance to actually have that day in court. The
concern is that the deal will not hold together. The concern is
that the FTC has the ability and has been exploiting the
process to try to win, not by the merits but by the process,
and that is a problem.
Mr. Marino. Thank you.
Mr. Clanton, the FTC recently reinstated the Pitofsky rule
that purports to create a higher threshold for proceeding with
administrative litigation against a proposed transaction.
Do you believe this rule is sufficient on its own, or is
the SMARTER Act still necessary?
Mr. Clanton. Mr. Chairman, I think the change made sense.
The Commission did the right thing. But it only dealt with one
part of the problem, and that relates to transactions where the
Commission loses and the parties close the transaction and the
Commission continues to litigate. I think they have not done
that in a long time.
There were some bad examples going back a few years, but my
concern really is what happens when the FTC wins and then you
start another phased administrative hearing that ends up
doubling the length of time that you would have if you went
into Federal court directly on the merits.
Mr. Marino. Thank you, sir.
Mr. Lipsky, in your testimony you discussed two cases where
the FTC pursued administrative litigation after a Federal court
ruling. In one case, the FTC continued administrative
litigation for nearly 6 years after a Federal court denied its
preliminary injunction request. In the other, the FTC continued
administrative litigation after they had won in Federal court
and the parties abandoned the transaction.
Would these administrative litigation cases have been
allowed to continue if the SMARTER Act was enacted into law?
Mr. Lipsky. No, Mr. Chairman. I think they would be
prohibited by the SMARTER Act, and I think that is the great
virtue.
I think the intent of the Pitofsky rule and the revision
enacted this year is to try to achieve that same result. And I
think this act is an improvement over the mere administrative
policy statements, because it gives parties the assurance that
the Commission will, indeed, act as it suggests it will act in
these policy statements.
And we have to remember that in 2008, there was a
retrenchment. I believe Ms. Garza mentioned that they actually
reversed the Pitofsky rule for a time back in 2008 when they
were focusing on the acceleration of administrative litigation
and involving the Commission much more directly in the conduct
of the hearings.
So this is a classic example of a good policy that the
Commission has followed since 1995, by and large. But one of
the primary merits of the legislation is that it would give
parties the assurance that the Commission would adhere to that
sound policy.
Mr. Marino. Mr. Foer, in 20 seconds, why should some
companies be subject to FTC standards and processes and others
to DOJ standards and processes? Does having different standards
and processes result in fair and consistent enforcement for our
antitrust laws?
Mr. Foer. I am not certain I understood the question.
Mr. Marino. Having different standards and processes, is
that fair and consistent?
Mr. Foer. The question is theoretical because, in theory,
there are some differences. But my point is that, in fact, the
way things work, these differences don't really make a
difference and are not sufficiently large, in view of the
downside potentials, to justify legislation right now.
Mr. Marino. Thank you, sir.
The Chair now recognizes the Ranking Member, the gentleman
from Georgia, Mr. Johnson.
Mr. Johnson. Thank you, Mr. Chairman.
Ms. Garza, in your statement, you write, ``The premise of
SMARTER is simple. A merger should not be treated differently
depending on which antitrust enforcement agency, DOJ or FTC,
happens to review it. Regulatory outcomes should not be
determined by a flip of the merger agency coin.''
I was puzzled by your characterization of how the agencies
go about determining which one will assert jurisdiction.
Can you explain what you mean by the flip of a merger
agency coin?
Ms. Garza. Representative Johnson, there was a time when, I
can honestly tell you, we seriously discussed coin flips when I
was at the Justice Department.
The issue is that, by and large, the FTC and the DOJ have
concurrent jurisdiction to review a merger.
Mr. Johnson. And they have determined between themselves
when they will assert jurisdiction over a particular matter,
depending upon each agency's decades of experience over the
relevant merging parties' industry. Isn't that correct?
Ms. Garza. Not exactly. There are some industries that tend
to be looked at by one agency.
Mr. Johnson. Well, then in those instances where it can't
be determined, the agencies go through a careful process
outlined by the antitrust laws and in some cases implemented
through the Code of Federal Regulations. Isn't that correct?
Ms. Garza. I am not sure I caught all of that. But what I
would suggest to you is that it is not always----
Mr. Johnson. Well, I guess what I am suggesting is that it
is a little bit more than just simply a coin flip in 99.9
percent of the cases. Isn't that correct?
Ms. Garza. I probably don't agree with you on that. But I
would ask you the question of why should one industry like the
paper industry be subjected to a different standard than, I
don't know, another industry, like the pharma industry.
The problem is, if you are going to have two very
diametrically different processes, Congress should consider,
well, is there a reason why one industry--let's just assume,
for the sake of argument, that----
Mr. Johnson. Well, I don't want you to take up all of my
time.
Ms. Garza. Okay, I don't want to do that either. I can
follow up in writing.
Mr. Johnson. Okay.
I would like to hear Mr. Foer's response to what you have
said in response to my questions.
Mr. Foer. Look, I would say that, I said before, there is a
theoretical difference in the standards of how a preliminary
injunction can be issued. But in point of practice, that
doesn't seem to make much difference.
So the real difference comes down to whether or not the FTC
ought to be able to bring a case in front of the administrative
process. And yes, that does take time.
But one question we should look at, and the elephant in the
room, I think, is what do we want our merger policy to be? We
are only talking about less than 3 percent of those mergers big
enough to notify get a second request. And only about half of
those, about 1.5 percent a year, go through any kind of process
that leads to a change in the terms or to stopping a merger.
So it is a very small percentage of just those mergers that
are really important for the country.
Now, how much time do we think we should spend on
understanding those mergers? If we spend very little time by
rushing it through preliminary and final injunctions, which is
the way we try to do it, then we are giving the advantage to
the merger. If we take a lot of time, we are giving advantage
to the government. We need to find the right balance.
I think the FTC has a pretty good balance here, which
says----
Mr. Johnson. Well, let me ask then, Mr. Lipsky, you cited a
couple cases--and excuse me for interrupting--one back in 1987
and the other in 1991. Can you cite any more recent cases that
show where the FTC continuing to litigate after a preliminary
injunction has been denied has worked an undue hardship on one
of the parties due to the length of time?
Mr. Lipsky. I think probably the lead example of where the
Commission was using its administrative procedures to really
put tremendous pressure on the parties is the more recent Inova
case.
As I mentioned, since the issuance of the Pitofsky rule in
1995, the Commission has been pretty good about adhering to
that rule. It is just their persistent declining to affirm that
that would be the rule--they say they have discretion to do
what they have been doing, but they will never quite promise to
do what they have been doing. I think that is where this
legislation would really give the assurance to all the
businesses that have to think about and plan for this process
that is necessary to establish the rationality of the
enforcement regime.
Mr. Johnson. Thank you. I yield back.
Mr. Marino. Thank you, Mr. Johnson.
The Chair now recognizes the other gentleman from Georgia,
Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman.
I appreciate this hearing, again. As we have done a lot, it
is time to get some stuff that we have done last Congress, it
is time to get it again this Congress. Let us move some stuff
forward. So I am hoping this will lead toward mark up and lead
toward the floor, because we have had a very similar hearing to
this last year. In fact, I think three of you were witnesses in
the last hearing we did on this.
But I want to make it clear that I am strongly in favor of
a strong antitrust enforcement to prevent anticompetitive
behavior, as I think are most the Members here today.
But that said, Mr. Lipsky you mentioned in the last
hearing, and we do go back and actually look at those, but it
stuck with me. You said that, in some cases, the cost and
duration of administrative litigation can discourage
stakeholders from behavior that is actually procompetitive.
Now, I don't know if you still feel that way or not, but it
did stick with me at that point.
You seem to want to make a comment. Do you still feel that
way?
Mr. Lipsky. Yes, absolutely.
Mr. Collins. I think that is the interesting thing, because
we don't want to do something in preventing anticompetitive
behavior and get into discouraging procompetitive behavior. I
believe this bill is a step in the right direction to ensure
that, and I think that our antitrust laws and enforcement
efforts are functioning effectively.
So I think some questions I want to follow up on, Ms.
Garza, as you know, in the 2003 Antitrust Modernization
Commission report, it stated that parties to a proposed merger
should receive comparable treatment and face similar burdens,
regardless of whether it is FTC or DOJ reviews of the merger,
and highlighted that differing treatment could undermine the
public trust that transactions are reviewed efficiently and
fairly.
Last Congress, we discussed the importance of the process.
I want to touch on that again. In your opinion, is there a real
or perceived disparity in enforcement by the two agencies? And
how does the process play into that disparity?
Ms. Garza. So it is clear that there is a perception that
there is a disparity. We heard that over and over again in
testimony before the Commission, and it was something that the
commissioners believed. As I mentioned, a lot of our
commissioners are very experienced both in the government
enforcement side and the advisory side.
I believe that if you sat down in a bar with folks over at
the DOJ and the FTC and have a discussion with them, they would
agree with you, too.
The fact of the matter is that in one case, if I am at DOJ,
I am able to count on, if I want to, being able to have a day
in court. I know that the DOJ is going to agree to do a
consolidated preliminary injunction, permanent injunction
hearing. It is going to take a while. It could still take more
than a year, which is a long time to hold a deal together, but
I know that I am going to get a hearing. There is some
certainty.
If I am at the Federal Trade Commission right now, I know
that I am going to go through that same very lengthy
investigation process, and then I am going to go to court where
they are going to seek a preliminary injunction, and I would
argue to you that if it is in the District of Columbia where a
lot of these cases are going to be, I am going to have a
deferential standard applied, whereas Rich Parker described it
last year as sort of if it is a tie, the tie goes to the FTC,
unlike with the DOJ. The DOJ actually has to prove its case.
For the FTC, arguably, all they have to do is get to a tie,
and then that gets them to an administrative hearing with
several months more with an ALJ who is an FTC employee, and
then possibly to an appeal to the Commission that issued the
complaint, and then possibly back to the court, which applies a
deferential standard. That is a difference in process.
Mr. Collins. You just said something that was not in my
questions, but you just made a comment that I think highlights
a bigger issue that goes even beyond this hearing. It is the
general perception of the public and what we do up here not
only on the Capitol Hill and in Congress, but also the
administrative agencies and executive branch agencies.
And what you said--I don't think you meant what I am going
to talk about, but I am going to at least take up what you
said--is the American public today, and whether it is with
going through agencies that don't turn over emails or going
through problems of budgeting, they always feel like the tie
goes to the government. The tie goes to the government.
That is an interesting process here where we talk about
where you said the DOJ has to prove the case. I think what we
have to do, and I think this bill from my friend from Texas
actually does that. But I think when we talk about this,
whether it is anticompetitive or procompetitive, the government
should not be in the way. This is not baseball where the tie
goes to the--this should not be the tie goes to the government.
It should be what is best for the American people, the very
ones who put us here.
And I think, Mr. Foer, in your testimony, one of things you
actually had sort of implied is they try to outshine each
other, that basically I think is the way you termed that.
How do we get by that? I think that is the reason for this
hearing. I think that is why this is actually a good bill.
And that is why, Mr. Chairman, I am proud to have done
that.
But I think you raised a great point on that.
And with that, Mr. Chairman, I yield back.
Mr. Marino. Thank you, Mr. Collins.
The Chair now recognizes the Ranking Member of the full
Committee, the gentleman from Michigan, Mr. Conyers.
Mr. Conyers. Thank you, Mr. Chairman.
And I thank the witnesses for the discussion here.
There is a 1989 report on the role of the Federal Trade
Commission. The American Bar Association's Antitrust Law
Section recognized that merger enforcement was probably the
FTC's most important antitrust role.
Mr. Foer, what is your response to that?
Mr. Foer. Sir, would you mind repeating the case you are
talking about?
Mr. Conyers. Yes, the American Bar Association's Antitrust
Law Section thought that the merger enforcement role was
probably the FTC's most important activity as an antitrust
provider.
Mr. Foer. I am sorry, I am not catching on to what rule we
are talking about here.
Mr. Conyers. Mr. Lipsky, are you familiar with that?
Mr. Lipsky. I think that is referred to as Kirkpatrick 2.
It was an ABA report. It was a very broad report on all the
functions of the FTC, right?
Mr. Conyers. Yes.
Mr. Lipsky. I think you would probably agree with that or
maybe you don't.
Mr. Foer. I think it was an extremely important document
that led directly to the rebirth of the FTC as a functioning
agency, a reputable agency of government.
Mr. Conyers. Let me ask this question, Mr. Foer, why might
the SMARTER Act threaten to create a slippery slope to ending
joint enforcement of antitrust law by both FTC and DOJ?
Mr. Foer. The problem is, why do we need an FTC?
Ultimately, the question would be asked, why do we need a
second body to enforce the laws if, for example, the
administrative process is considered a failure here? ``It takes
too long. We have to make everything move faster.''
The slippery slope is that the precedent of removing this
power of adjudication can lead people to believe that the
adjudication is not an appropriate way to deal with antitrust
cases. For those of us who believe in strong antitrust
enforcement, and possibly everybody at the table would agree, I
don't know, but I think it would be a disaster.
Mr. Conyers. Mr. Lipsky, am I reading too much into your
comments to suggest that you might not feel too badly if we end
the FTC's antitrust enforcement role?
Mr. Lipsky. Oh, I wouldn't support that statement at all. I
think that is the kind of thing that would require a much more
comprehensive look at the whole enforcement system. We are just
talking about one very limited but impactful aspect of the
enforcement system and a very targeted way of correcting it,
and that is why I support the legislation, not because I have
any broader argument with the existence of the FTC.
Mr. Conyers. I am glad to hear that.
Back to Bert Foer again, why is it important for the FTC to
retain its ability to use administrative adjudication in merger
cases?
Mr. Foer. The importance is probably not central, because a
lot of cases could be dealt with through the preliminary
injunction route and are.
But there ought to be and there are reserved under this
Commission rule 3.26 the possibility under various
circumstances where the public interest would actually require
holding a trial. And the FTC made it clear it won't use that
ability very frequently or very easily, but we should not take
that possibility away, and especially if we see it as being
used in a responsible way.
Mr. Conyers. Thank you very much.
And I thank the panel for their comments.
I yield back, Mr. Chairman.
Mr. Marino. Thank you, Mr. Conyers.
The Chair now recognizes the Congresswoman from the State
of Washington, Ms. DelBene.
Ms. DelBene. Thank you, Mr. Chair.
Thanks to all of you for being here today. We appreciate
your time.
I kind of have a question for everyone, and so we will see
how we go here, but it could be argued that one of the
strengths of administrative litigation is the ability of the
Commission to consider novel legal theories and employ
innovative forms of economic analysis, things that the DOJ may
not be able to do.
So how does the Commission use of innovative evidence and
novel legal theories advance antitrust law, especially in
today's complex and rapidly changing digital economy where
there may not be precedents out there to rely on?
I guess I will start with you, Ms. Garza.
Ms. Garza. I don't think I understand the premise of the
question. Both the DOJ and the FTC follow the same merger
guidelines that they have jointly developed and issued. It is
not clear to me what innovative approaches anyone has in mind
with respect to mergers, but to the extent that there are any,
it is not clear to me why the DOJ would be less well placed to
pursue them than the FTC.
Ms. DelBene. Part of, I think, the question has been around
having people who have expertise in a given area and
understanding, and are able to bring that expertise to the
table, especially on a newer industry or newer type of
technology.
Ms. Garza. But then again, what you are suggesting is
that--you still have the role of the court, of the FTC, in
deciding whether or not there should be a preliminary
injunction. So there is the issue of whether they should have a
lesser standard. Then it goes to a single ALJ, which is an
employee of the FTC.
The question is, why would the ALJ be in any better
position to assess a merger than any of our judges that we
have?
Bert talks about the difference between a generalist court
and a specialist court, but the problem, I think what people
perceive, is that what you are really setting up is a system
where you get a lower standard for a preliminary injunction,
and then it goes to a judge who is an employee of the Federal
Trade Commission, and then it goes to the Commission that
issued the complaint in the first place.
I am not aware of any evidence such suggests that somehow
or other that ALJ is in any better position than would be a
district court judge in the District of Columbia or any other
district to consider the arguments and the evidence that the
DOJ or the Federal Trade Commission would put forward as to why
a transaction would be anticompetitive.
Ms. DelBene. Okay. Mr. Foer, if I could get your feedback
on that?
Mr. Foer. I think that the ALJ problem is a problem. You
have to make sure that you have top level, top quality ALJs.
But an ALJ who deals with antitrust issues day in and day out
over years is likely to be much more expert and much more able
to contribute to the systematic development of the law than a
whole bunch of Federal district court judges, many of whom are
not trained in economics at all and none of whom get very much
experience with these cases. Very few Federal district court
judges deal with more than a few merger cases, let's say, in
any given year or maybe in a lifetime in a court.
So there is a big difference between attempting to develop
in a systematic, predictable way a pattern of law, and we are
doing that largely through guidelines, jointly written
guidelines, which is great, but we are not getting much
assistance from the courts in developing this body of law.
There are probably two reasons for that. One I gave you,
the lack of expertise. But these cases are very fact intensive,
and it is hard to have appeals or to develop appellate
jurisprudence in these kinds of cases. In fact, we could have a
guess about how long it has been since the Supreme Court took
on a merger case. I don't know if any of us remember one in our
lifetimes.
So it is very useful, I think, to have a body of experts
that can handle this law.
Ms. DelBene. Thank you.
Also, Mr. Foer, I think in your testimony you had talked
about any concern about the SMARTER Act reaching transactions
other than proposed Hart-Scott-Rodino mergers, so I wondered
what your thoughts were on that and whether you think the bill
would apply to other things like consummated transactions or
non-merger activity, or move into that area.
Mr. Foer. Well, I don't think it is going to apply outside
of merger, joint venture, and whatever similar transactions
might mean, although that in itself is an interesting question.
It could give rise to some litigation down the road of what
is covered and what is not covered. But I don't think that
monopolization cases or cartel cases are going to be affected
by this, nor would nonconsummated mergers. I did raise a
question about nonprofits in that regard, but, hopefully, this
bill would be interpreted so as not to create a problem that
way.
And it is intended to be narrow. I think it largely
achieves that goal. But it is not bad in the sense that this
bill will change areas outside of mergers.
Ms. DelBene. Thank you.
And I yield back my time, or I am out of time. Thanks.
Mr. Marino. Thank you, Ms. DelBene.
Seeing no other Members to ask questions, and I am told
that we are going to be voting within the next 10 or 15
minutes, this concludes today's hearing.
I want to thank the witnesses for attending. It was very
insightful and pleasant to hear a discussion from four lawyers
who are very, very well-qualified and just brilliant in their
field. So I want to thank you all for being here.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the witnesses or
additional materials for the record.
I want to thank the people in the gallery for being here,
and this hearing is adjourned.
[Whereupon, at 3:24 p.m., the hearing was adjourned.]
A P P E N D I X
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