[Federal Register Volume 59, Number 169 (Thursday, September 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21591]


[[Page Unknown]]

[Federal Register: September 1, 1994]


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FEDERAL TRADE COMMISSION

 

Policy Statement With Request for Public Comment Regarding 
Duration of Competition Orders and Request for Public Comment Regarding 
Duration of Consumer Protection Orders

AGENCY: Federal Trade Commission.

ACTION: Notice of policy statement and request for public comment.

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SUMMARY: This notice describes the Federal Trade Commission's policies 
regarding the duration of future and existing administrative and 
federal district court cease and desist orders in competition matters. 
Under the Policy Statement, which became effective July 22, 1994, the 
Commission will presume that core injunctive provisions in future 
competition orders should terminate automatically (``sunset'') after 
twenty years. The Commission will also presume that all supplemental 
provisions in future competition orders should sunset after no more 
than ten years. In addition, the Statement articulates the Commission's 
policy determination to apply, in the context of petitions to reopen 
and modify existing administrative competition orders, a rebuttable 
presumption that the public interest warrants terminating orders that 
have been in force for more than twenty years.
    The Commission adopted these policies because it concluded that 
permitting competition order provisions to continue indefinitely would 
not serve the public interest. Although these policies are already in 
effect, the Commission is soliciting comment from interested persons. 
The Commission is also soliciting comment on adopting policies 
affecting the duration of administrative and court orders entered in 
consumer protection matters.

DATES: Comments will be received until November 4, 1994.

ADDRESSES: Comments should be sent to the Secretary, Federal Trade 
Commission, Sixth Street and Pennsylvania Avenue, NW., Washington, DC 
20580. Comments will be entered on the public record of the Commission 
and will be available for public inspection in Room 130 during the 
hours of 9 a.m. until 5 p.m.

FOR FURTHER INFORMATION CONTACT: Donald S. Clark, Secretary, Federal 
Trade Commission, (202) 326-2514; Daniel P. Ducore, Assistant Director 
for Compliance, Bureau of Competition, (202) 326-2526; or Dean C. 
Graybill, Associate Director for Enforcement, Bureau of Consumer 
Protection, (202) 326-3284.

SUPPLEMENTARY INFORMATION: Existing Commission policy in competition 
cases has been to seek injunctive relief in administrative and court 
cases for different durations, depending on the type of order 
provisions involved. Typically, core injunctive provisions have been 
perpetual in duration. Supplemental provisions have usually been 
limited in duration.
    The Commission has concluded that competition orders ordinarily 
fulfill their remedial purposes within twenty years and that the 
findings on which they are based should not be presumed to continue for 
a longer period of time. Accordingly, the Commission has issued the 
following Policy Statement adopting a presumption that future FTC 
competition orders should terminate (or ``sunset'') automatically 
within a prescribed number of years after the order has become final. 
In addition, the Statement provides that, in the context of petitions 
to reopen and modify existing competition orders, the Commission will 
apply a rebuttable presumption that the public interest warrants 
setting aside competition orders that are more than 20 years old.
    Petitions to sunset orders under the 20 year presumption should 
comply with the procedures set forth in Sec. 2.51 of the Commission's 
rules of practice, 16 CFR 2.51. The petition should contain an 
affidavit, signed by an officer or director of the respondent, stating 
that the respondent is in compliance with the order.
    Rebuttal to the presumption will be narrowly circumscribed to 
conserve Commission resources and to ensure fairness to all 
petitioners. In general, the Commission does not contemplate an 
extensive review of each petition relying on this presumption beyond 
information presented in the petition, contained in the Commission's 
files, and received in response to the request for public comment that 
is part of the Commission's order reopening procedures. If, however, 
public comments, the Commission's experience in enforcing the order, an 
ongoing antitrust investigation of the petitioner or the industry in 
which the petitioner competes at the Commission or the Department of 
Justice, or other readily available information raises substantial 
concerns about whether the public interest warrants retaining the 
order, such further review will be conducted as is necessary to 
determine whether the public interest is best served by setting aside 
the order, modifying it, or retaining it as written. The Commission 
anticipates that, absent extraordinary circumstances, the basis for 
rebutting the presumption will be information that the petitioner under 
the order has engaged in recidivist conduct. Thus, for example, the 
Commission may deny a petition based on this presumption (1) if the 
respondent has been found to have been in violation of the order or has 
been found to have engaged in conduct that would violate the order 
within the past twenty years; or (2) if, at the time of the petition, 
the Commission is investigating whether the petitioner has violated the 
order. If the Commission denies a respondent's petition to sunset an 
order because it does not meet these standards, the respondent may 
petition again after the Commission closes the investigation of a 
possible order violation without initiating enforcement action against 
the petitioner or after the respondent establishes a record of 
compliance with the order.
    The Policy Statement is an exercise of the Commission's discretion. 
It does not change the standards for reopening and modifying Commission 
orders that are not within the scope of this Policy Statement. See 15 
U.S.C. 45(b); 16 CFR 2.51; Louisiana-Pacific Corp., Docket No. C-2956, 
Letter to John C. Hart (June 5, 1986), at 4; Hospital Corporation of 
America, Docket No. C-9161, Letter to Peter J. Nickles, Esq. (November 
27, 1987), at 3; Damon Corp., Docket No. C-2916, Letter to Joel E. 
Hoffman, Esq. (March 29, 1983), at 2 [1979-83 Transfer Binder] FTC 
Complaints & Orders (CCH) 22,007 at 22,585.
    The Commission's present policy regarding the duration and 
termination of consumer protection orders is that core provisions in 
consumer protection cases generally continue in effect indefinitely and 
that supplemental provisions terminate after a specified period of 
time. The Commission solicits comment on whether to limit the duration 
of consumer protection orders, and, if so, whether to adopt 
presumptions similar to those it has adopted for competition orders or 
an alternative approach. In addressing this issue, commenters are 
encouraged to address whether core provisions in consumer protection 
orders ordinarily will have served their remedial purposes within a 
specified time period, as the Commission has concluded for competition 
orders, or whether factors unique to consumer protection orders may 
militate against adopting a similar (or any) sunset policy.
    The Commission invites comment on the issues discussed in this 
notice, in the Policy Statement and in the separate statements of 
Commissioner Azcuenaga and Commissioner Owen. Commenters should specify 
whether their comments pertain to competition or consumer protection 
orders.

Statement of Policy With Respect to Duration of Competition Orders and 
Statement of Intention to Solicit Public Comment With Respect to 
Duration of Consumer Protection Orders

July 22, 1994.
    The Commission is issuing this statement to describe the policies 
that it has determined to implement with respect to the duration of 
competition orders (i.e., orders dealing with ``unfair methods of 
competition''), and to announce its intention to solicit public comment 
on the policies that it currently follows with respect to consumer 
protection orders (i.e., orders dealing with ``unfair or deceptive acts 
or practices'').

Competition Orders

    The Commission considers that injunctive provisions in competition 
orders perform two functions. First, such provisions in both 
administrative and federal district court orders may proscribe future 
violations of statutory prohibitions--and secure adherence to statutory 
requirements--including the prohibition of unfair methods of 
competition embodied in section 5 of the Federal Trade Commission Act, 
15 U.S.C. 45, and the prohibitions and requirements embodied in 
sections 2, 3, 7, 7A, and 8 of the Clayton Act, 15 U.S.C. 13, 14, 18, 
18a, 19. Second, injunctive provisions in federal district court 
competition orders may proscribe future violations of existing 
Commission administrative orders. As a matter of law, the remedial 
provisions of Commission orders must bear a reasonable relationship to 
the unlawful practices found to exist, and must be sufficiently clear 
and precise to be easily understood by the respondents or 
defendants.1 Particular injunctive order provisions may prohibit 
both the specific illegal practices alleged in the associated complaint 
and ``like and related'' practices.2
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    \1\See, e.g., FTC v. Colgate-Palmolive Co., 380 U.S. 374, 392-95 
(1965); FTC v. National Lead Co., 352 U.S. 419, 428-30 (1957); FTC 
v. Ruberoid Co., 343 U.S. 470, 473 (1952); FTC v. Cement Institute, 
333 U.S. 683, 726 (1948); Jacob Siegel Co. v. FTC, 327 U.S. 608, 
611-13 (1946).
    \2\ See FTC v. Mandel Bros., Inc., 359 U.S. 385, 393 (1959); 
Consumers Products of America, Inc. v. FTC, 400 F.2d 930 (3d Cir. 
1968), cert. denied, 393 U.S. 1088 (1969); Niresk Industries v. FTC, 
278 F.2d 337, 343 (7th Cir.), cert. denied, 364 U.S. 883 (1960). For 
example, in FTC v. Colgate-Palmolive Co., 380 U.S. 374, 395 (1965), 
the Supreme Court reviewed a Commission order that prohibited a 
particular advertising practice not only for the product at issue in 
the case, but also for any other product. The Court sustained the 
scope of the order provision, stating that
    ``[T]he Commission is not limited to prohibiting the illegal 
practice in the precise form in which it is found to have existed in 
the past.'' Having been caught violating the Act, respondents ``must 
expect some fencing in.''
    Id. at 395, quoting FTC v. National Lead Co., 352 U.S. at 431, 
and FTC v. Ruberoid Co., 343 U.S. at 473.
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    Where an injunctive provision has been included in an order, the 
Commission may prevail in a subsequent enforcement proceeding simply by 
establishing that the respondent or defendant did not comply with the 
terms of the provision, without having to establish as well that the 
conduct prohibited by the provision is illegal, or that the conduct 
required is reasonably related to the prevention of illegal practices.
    The Commission's policies with respect to the duration of antitrust 
orders have been the subject of public debate in recent years.\3\ Under 
the Commission's existing practice, Commission and federal court order 
provisions that prohibit or require particular types of conduct in 
order to prevent ``unfair methods of competition'' have different 
durations depending on their type. ``Core'' provisions prohibit 
practices that would be unlawful whether used by parties subject to the 
order at issue or by other similarly situated persons or entities. In 
competition orders, there are two types of core provisions: (1) Those 
that prohibit per se illegal conduct; and (2) those that prohibit 
conduct that is illegal on the basis of the rule of reason. Under 
current policy, core injunctive competition provisions typically 
continue in force indefinitely, and a respondent bears the burden of 
establishing (through a petition to reopen and modify an administrative 
order or a motion to modify a federal district court order) that such a 
provision should be vacated.
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    \3\See, e.g., Report of Section of Antitrust Law of the American 
Bar Association on Sunsetting of Federal Trade Commission 
Competition Order Provisions (May 21, 1987) (hereinafter Section of 
Antitrust Law Report).
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    All other injunctive competition order provisions may be 
categorized as ``supplemental'' provisions,\4\ which are intended to 
prevent a respondent (or defendant) from repeating a law violation or 
to mitigate the effects of prior illegal conduct.\5\ There are also two 
types of supplemental provisions: (1) Those that prohibit or restrict 
conduct that would be lawful if engaged in by parties not subject to 
the order at issue (such as provisions in merger cases that prohibit 
the respondent from making certain acquisitions in the same or related 
markets without first securing Commission approval), and (2) those that 
impose an affirmative obligation (such as distributing copies of 
Commission orders to prescribed persons or filing compliance reports). 
Under existing policy, different varieties of supplemental provisions 
in competition orders terminate automatically after different 
prescribed periods. Thus, prior approval provisions in merger cases 
typically expire after ten years,\6\ order distribution requirements 
typically expire within one to three years, and compliance report 
requirements usually expire within five years.
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    \4\The Commission may also impose or seek types of relief in 
administrative and court orders that are not addressed in this 
statement because they have no further effect once the actions they 
require have been taken. In administrative merger cases, for 
example, the Commission may issue an order imposing some form of 
structural relief, such as the divestiture of specified assets. In 
appropriate federal court competition cases, the Commission may also 
seek the issuance of an order requiring the defendants to pay civil 
penalties (for violating a Commission administrative order), 
disgorgement, or restitution. Thus, consent decrees resolving 
allegations that two infant formula manufacturers had violated 
section 5 of the FTC Act required the defendants to deliver a total 
of 3.6 million pounds of infant formula to the U.S. Department of 
Agriculture. See American Home Products Corp. and Mead Johnson & 
Co., 5 Trade Reg. Rptr. (CCH)  23,209 (D.D.C. June 16, 1992).
    \5\This definition of ``supplemental provisions'' for both 
litigated and settled cases differs from the broader concept of 
``fencing-in'' relief whose use the federal courts have sustained in 
litigated cases. Thus, for example, in sustaining the Commission 
order at issue in FTC v. Colgate-Palmolive Co. (see note 2, above), 
the Supreme Court used the term ``fencing-in'' to apply not only to 
otherwise legal conduct but also to any illegal conduct other than 
``the illegal practice in the precise form in which it is found to 
have existed in the past.'' FTC v. Colgate-Palmolive Co., 380 U.S. 
at 395, quoting FTC v. Ruberoid Co., 343 U.S. at 473.
    \6\The Commission has determined that such provisions will in 
most cases have served their remedial purposes after ten years, and 
that ``the findings upon which such provisions are based should not 
be presumed to continue to exist for a longer period of time.'' 
Hercules, Inc., 100 F.T.C. 531 (1982) (modifying order). As a 
consequence, the Commission has included--in almost all the prior 
approval provisions it has imposed--a proviso that the requirement 
is to terminate automatically ten years after the order becomes 
effective. E.g., The Coca-Cola Company, Docket No. 9207 (F.T.C. June 
13, 1994), Final Order at 2-3; Olin Corporation, 113 F.T.C. 400, 623 
(1990), aff'd, 986 F.2d 1295 (9th Cir.), cert. denied, 114 S.Ct. 
1051 (1993); The B.F. Goodrich Company, 110 F.T.C. 207, 366 (1988), 
aff'd as modified per stipulation, Nos. 88-4065 and 88-4066 (2d Cir. 
1989); Hospital Corporation of America, 106 F.T.C. 361, 524 (1985), 
aff'd, 807 F.2d 1381 (7th Cir. 1986), cert. denied, 107 S. Ct. 1975 
(1987); Columbia Healthcare Corporation, et al., Docket No. C-3505 
(consent order) (July 5, 1994), at 7; Kiwi Brands, Inc., et al., 
File No. 921 0023 (consent order) (placed on public record on June 
30, 1994), at 8-9; MidCon Corporation, 107 F.T.C. 48, 58 (1986) 
(consent order); but see Columbian Enterprises, Inc., 106 F.T.C. 
551, 554 (1985) (consent order) (five years).
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Policy for Future Competition Orders

    The Commission has now concluded that ``core'' injunctive 
provisions in competition orders ordinarily will have served their 
remedial purposes within twenty years, and that the findings upon which 
such provisions are based should not be presumed to continue to exist 
for a longer period of time. The Commission also believes that 
supplemental provisions in competition orders ordinarily should 
terminate automatically after prescribed periods that do not exceed ten 
years. Therefore, the Commission has determined to adopt the 
presumptions (1) that all future core competition order provisions 
should terminate automatically after twenty years; and (2) that all 
future supplemental competition order provisions should terminate 
automatically after no more than ten years.\7\
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    \7\With respect to supplemental provisions, the time period is 
characterized as ``no more than ten years'' in order to cover the 
range of time periods currently used for supplemental provisions. 
The Commission does not intend to change, in general, the expiration 
periods for particular types of supplemental provisions.
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    The Commission recognizes that, in 1979, the Antitrust Division 
determined to stop seeking perpetual conduct decrees, and instead to 
include ten year automatic termination clauses for all decrees, 
including ``core'' provisions.\8\ The Commission concurs with the 
concept of automatic termination for both core and supplemental 
competition order provisions, but also believes that core provisions in 
Commission cases presumptively should last more than ten years. The 
Commission, unlike the Antitrust Division, has no criminal enforcement 
authority and thus cannot present the same deterrence threat to 
potential recidivists whose orders have expired.\9\ The Division can 
secure substantial criminal penalties for Sherman Act violations--
whether or not it already has an order in place--including large 
fines\10\ and prison terms of up to three years. The only penalties 
directly available to the Commission are those that can be obtained for 
violations of existing orders.\11\ Thus, the calculus involved in 
weighing the maintenance of order enforcement options against the 
burden of extended order duration is different for the two 
agencies.\12\
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    \8\All federal district court decrees secured by the Antitrust 
Division consequently include the following provision:
    This Final Judgment shall expire ten (10) years from the date of 
entry.
    \9\Where a recidivist's order has lapsed, the Commission could 
request the Justice Department to commence a criminal enforcement 
action against the new violation. Where a Commission order issued 
pursuant to the FTC Act is in effect, the Commission may file a 
federal court action seeking civil penalties for violations of the 
order, provided that the Commission first notifies the Department of 
Justice and the Department decides not to file the action itself. 15 
U.S.C. 45(l), 56(a). Where a Commission order issued pursuant to the 
Clayton Act is in effect, the Commission may request the Department 
to file a federal court action on its behalf seeking civil penalties 
for violations of the order. 15 U.S.C. 21(l). Where a federal court 
order issued at the behest of the Commission is in effect, the 
Commission may itself commence a civil contempt proceeding against a 
defendant who violates the order, or can request the Department to 
seek criminal contempt. 15 U.S.C. 56(b).
    \10\Effective November 16, 1990, the maximum fines for Sherman 
Act violations increased to the greatest of (1) $350,000 (for 
individuals) or $10 million (for corporations); (2) twice the 
pecuniary gain the individual or corporation involved derived from 
the crime; or (3) twice the pecuniary loss caused to the victims of 
the crime.
    \11\Under 15 U.S.C. 18a(g)(1), however, the Commission can 
request the Department to file a federal court action on its behalf 
seeking civil penalties for violations of the pre-merger 
notification provisions in section 7A of the Clayton Act.
    \12\The Commission has secured substantial civil penalties for 
violations of some conduct orders that occurred a significant period 
of time after the orders themselves were issued. See United States 
v. Phelps Dodge, 78 CIV 4479 (S.D.N.Y. 1982) (the Commission 
obtained $1.4 million in civil penalties for violation of a 1936 
price-fixing order in National Electrical Manufacturers Association, 
24 F.T.C. 306 (1936)); FTC v. United States Steel Corp., H-77-1501 
(S.D. Tex. 1980) (the court ordered civil penalties of $440,000 for 
violation of a price-fixing order issued by the Commission in 
American Iron and Steel Institute, 48 F.T.C. 123 (1951)); F.T.C. v. 
Joseph Dixon Crucible, C80-700 (N.D. Ohio, 1982) (the Commission 
obtained $75,000 in civil penalties and $525,000 in consumer redress 
for violation of the price-fixing order in American Crayon Co., 26 
F.T.C. 604 (1938)). In two other crayon matters, the Commission 
secured $1.2 million in restitution through the acceptance of new 
consent orders, instead of seeking civil penalties under the older 
order. Binney & Smith, Inc., 96 F.T.C. 625 (1980); Milton Bradley 
Co., 96 F.T.C. 638 (1980).
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Policy for Existing Competition Orders

    The Commission has also considered whether to emulate the 1981-1984 
review of existing orders conducted by the Antitrust Division. During 
that period, the Division reviewed 400 of its outstanding decrees to 
identify candidates for termination, and moved to terminate or modify 
22 judgments.13 With respect to Commission orders, the Section of 
Antitrust Law of the American Bar Association recommended in 1987:
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    \1\3Section of Antitrust Law Report at 31, citing Department of 
Justice Press Release Accompanying Statement of Policy by the 
Antitrust Division Regarding Enforcement and Review of Permanent 
Injunctions Entered in Government Antitrust Cases (April 27, 1984), 
at 3.

    Given the large number of outstanding Commission orders, we 
believe, based on the Justice Department's experience, that the burden 
of a sua sponte review of the Commission's orders may well outweigh any 
corresponding benefit.14
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    \1\4Section of Antitrust Law Report at 31-32. The Section noted 
that after the order termination project, the Division had 
determined to rely on defendants to bring to its attention decrees 
that are not operating in the public interest, rather than to 
attempt to identify such orders on the Division's own initiative.
    Id. at 32.
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    Based on the Antitrust Division's experience, and as a consequence 
of resource constraints, the Commission believes that a comprehensive 
review of its existing orders would not be feasible or desirable. The 
Commission has, however, determined to amend its approach to petitions 
to reopen and modify existing competition orders in a manner consistent 
with the two presumptions described above. Section 5(b) of the Federal 
Trade Commission Act, 15 U.S.C. 45(b), provides that the Commission 
shall reopen an order to consider whether it should be modified if the 
respondent ``makes a satisfactory showing that changed conditions of 
law or fact'' so require. A satisfactory showing sufficient to require 
reopening is made when a request to reopen identifies significant 
changes in circumstances and shows that the changes eliminate the need 
for the order or make continued application of the order inequitable or 
harmful to competition.15 If the Commission determines that the 
petitioner has made the necessary showing, the Commission must reopen 
the order to consider whether modification is required and, if so, the 
nature and extent of the modification.
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    \1\5S. Rep. No. 96-500, 96th Cong., 2d Sess. 9 (1979) 
(significant changes or changes causing unfair disadvantage); 
Service Corporation International, Docket No. 9071 (May 12, 1994), 
at 2; Tarra Hall Clothes, Inc., Docket No. C-2797 (October 27, 
1992), at 4; Louisiana-Pacific Corp., Docket No. C-2956, Letter to 
John C. Hart (June 5, 1986), at 4 (unpublished) (``Hart Letter''); 
see also United States v. Louisiana-Pacific Corp., 967 F.2d 1372, 
1376-77 (9th Cir. 1992) (``A decision to reopen thus does not 
necessarily entail a decision to modify the order. Reopening may 
occur even where the petition itself does not plead facts requiring 
modification.''). The petitioner's burden is not a light one in view 
of the public interest in repose and the finality of Commission 
orders. See Federated Department Stores, Inc. v. Moitie, 425 U.S. 
394 (1981) (strong public interest considerations support repose and 
finality).
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    Section 5(b) also provides that the Commission may modify an order 
when--although changed circumstances would not require reopening--the 
Commission determines that the public interest so requires. Respondents 
therefore may demonstrate in petitions to reopen how the public 
interest warrants the requested modification.16 In such a case, 
the Commission will balance the reasons favoring the requested 
modification against any reasons not to make the modification.17 
The Commission also will consider whether the particular modification 
sought is appropriate to remedy the identified harm.18
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    \1\6Hart Letter at 5; 16 CFR 2.51 (1994).
    \1\7Damon Corp., Docket No. C-2916, Letter to Joel E. Hoffman, 
Esq. (March 29, 1983), at 2 [1979-83 Transfer Binder] FTC Complaints 
& Orders (CCH)  22,007 at 22,585 (``Damon Letter'').
    \18\Damon Letter at 4.
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    The Commission has now determined that, when a petition to reopen 
and modify a competition order is filed twenty years or more after the 
order initially became final, the Commission will presume that the 
public interest requires reopening and setting aside the order in its 
entirety.19 Through this approach, the Commission expects to be 
apprised of the orders twenty years old or older that warrant 
modification.
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    \1\9Rebuttal to this presumption will be narrowly circumscribed 
in order to conserve staff resources and to ensure fairness to all 
petitioners. It is not contemplated that Commission staff will 
conduct extensive investigation beyond information gleaned from the 
petition itself and from public comment. Moreover, rebuttal to this 
presumption largely will be limited to whether there is evidence 
that the petitioner under order has engaged in recidivist conduct.
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    In sum, effective July 22, 1994, the Commission is establishing the 
following two presumptions for application prospectively to new 
competition orders: (1) All core competition order provisions should 
terminate automatically after twenty years, and (2) all supplemental 
competition order provisions should terminate automatically after no 
more than ten years. Further, also effective July 22, 1994, the 
Commission will presume, in the context of petitions to reopen and 
modify existing orders, that the public interest requires setting aside 
orders in effect for more than twenty years.
    Although these policies are effective July 22, 1994, the Commission 
intends to issue within thirty days a Federal Register notice 
describing them more fully and soliciting public comment on them.

Consumer Protection Orders

    The Commission's policies with respect to consumer protection 
orders have not been the subject of public debate. The Commission 
intends to include in the Federal Register notice an invitation for 
public comment concerning Commission policies affecting the duration of 
consumer protection orders.

    By direction of the Commission, Commissioner Azcuenaga 
concurring in a separate statement, and Commissioner Owen concurring 
in part and dissenting in part in a separate statement.20
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    \2\0Commissioner Owen voted in the affirmative, but dissented as 
to (i) approving the presumption that all core order provisions in 
competition matters should terminate automatically after twenty 
years, and (ii) approving the presumption that when a petition to 
reopen and modify a competition order is filed twenty or more years 
after the order initially became final, the public interest favors 
setting aside the order in its entirety. In each case, she favors a 
ten year term.
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Donald S. Clark,
Secretary.

Separate Statement of Commissioner Mary L. Azcuenaga on Sunset 
Policy

    The Commission today announces the adoption of a policy 
presumptively to sunset in future competition orders core provisions 
(provisions that now are perpetual) twenty years from the effective 
date of each such order.\1\ The new sunset policy is a significant step 
in the right direction, but it does not go far enough. In my view, the 
Commission should apply a sunset policy to all its administrative 
orders, both competition orders and consumer protection orders and new 
orders and existing orders. Instead of crafting the new policy in terms 
of presumptions, which invite costly individual determinations and 
potentially disparate treatment, I would apply the sunset policy 
absolutely and across the board, and I would do so now.
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    \1\The Commission already sunsets so-called fencing-in 
provisions in both competition and consumer protection orders, 
usually within ten years or less from the effective date of the 
order, and affirmative obligations in merger orders (divestiture and 
prior approval clauses) also end within ten years. The new sunset 
policy would change the duration of injunctive provisions that 
remain in conduct orders after fencing-in provisions have expired.
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Duration of Commission Orders

    Because of the continuing value of the Commission's older 
orders,\2\ the Commission's record of obtaining civil penalties for 
violations of longstanding orders, and the substantial resources that 
go into obtaining orders, I believe that Commission orders should 
remain effective for a reasonably long period of time. I have suggested 
that imposing a term of thirty years on all Commission orders would be 
appropriate, while acknowledging that other periods of time also might 
be defensible.\3\ Any number of years is necessarily arbitrary, and I 
have no monopoly on wisdom in choosing the sunset period. Anything 
longer than thirty years scarcely seems worth the effort of adopting a 
new policy, and anything less than twenty seems to me clearly too 
short. The twenty-year sunset adopted by the Commission today in its 
Statement of Policy is a long time for people and for businesses, and 
to me it seems entirely appropriate.
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    \2\For example, as noted in the Statement of Policy with Respect 
to Duration of Competition Orders and Statement of Intention To 
Solicit Public Comment with Respect to Duration of Consumer 
Protection Orders (``Statement of Policy''), the Commission has 
obtained civil penalties in a number of cases 29-46 years after the 
orders were issued. See Statement of Policy at 6 n.12.
    \3\See remarks by Mary L. Azcuenaga, ``FTC Enforcement: An 
Idiosyncratic Journey,'' before National Economic Research 
Associates, Inc., 15th Annual Antitrust and Trade Regulation 
Seminar, Santa Fe, New Mexico (July 7, 1994), at 14-15; Hearing on 
FTC Reauthorization Before Senate Comm. on Commerce, Science and 
Transportation, 102d Cong., 2d Sess. 37 (July 28, 1992) (testimony 
of Mary L. Azcuenaga) (``time period should be fairly long, perhaps 
in the neighborhood of 30 years'').
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    Although some have encouraged the Commission to choose a shorter 
period, such as ten years, those most likely to take this position are 
those who are subject to Commission orders or their representatives.\4\ 
Those who would assess and assert the interest of the public in longer 
orders are unlikely to be organized and vocal. It is up to the 
Commission to fill that role. Public clamor, unless it can be 
translated into reasoned justification, is not a sufficient basis for 
defining Commission policy.
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    \4\If the subject of a Commission order has a valid reason, 
based on changed circumstance, to be free of the constraints of the 
order, that opportunity is available via a petition to reopen and 
modify. For a respondent who does not have a valid reason to assert 
in a petition to reopen, it is not surprising that a short sunset 
would be appealing.
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    The Department of Justice has adopted a ten-year sunset policy, but 
we are in a different position. As the Commission points out in its 
Statement of Policy, ``[t]he Commission, unlike the Antitrust Division, 
has no criminal enforcement authority and thus cannot present the same 
deterrence threat to potential recidivists whose orders have expired.'' 
After the Sherman Act was amended in 1974, in view of the criminal 
fines and prison terms available in a de novo suit, the Department in 
1979 concluded that perpetual orders no longer were necessary to deter 
future violations\5\ and adopted a ten-year sunset policy.
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    \5\See speech by John H. Shenefield, Assistant Attorney General, 
Antitrust Division, Department of Justice, before Federal Bar 
Association, Cleveland Chapter (April 18, 1979), reprinted in [1969-
1983] Transfer Binder (CCH) 50,394, at 55,873 ((``Prior to the 
increase in penalty from a misdemeanor to a felony * * * we filed a 
companion civil case with virtually all criminal cases because the 
risk of contempt citations for violating a civil injunction provided 
added deterrence * * *.'').
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    It is worth spelling out in somewhat greater detail what this means 
in practical terms. In year 11, following the expiration of a ten-year 
order, the Department of Justice may in an appropriate case seek 
criminal penalties for repetition of the unlawful conduct,\6\ arguing 
in favor of the imposition of penalties that the firm is a recidivist, 
for whatever weight that may have.\7\ The Commission, on the other 
hand, in year 11 after the expiration of a ten-year order, would have 
to bring not one but two lawsuits to obtain penalties in the event the 
unlawful conduct recurs. At that point, the Commission must begin by 
seeking a new cease and desist order, thereby giving the malfeasor 
another bite at the apple. The new order could stop the harmful conduct 
but at a cost to the respondent that is considerably less than if the 
Commission had been able to obtain penalties. To state the obvious, the 
threat of incurring an order to cease and desist is far less than the 
threat of incurring penalties.\8\ Following imposition of the new cease 
and desist order, if the respondent, yet again, engages in unlawful 
conduct, only then could the Commission seek civil penalties by 
initiating yet another lawsuit. Given the differences in the statutory 
authority of the Department and that of the Commission, it is neither 
necessary nor reasonable to require that their orders conform in terms 
of duration.
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    \6\This assumes that the conduct is appropriate for the 
imposition of criminal penalties. Whether to proceed civilly or 
criminally under the Sherman Act is a matter of prosecutorial 
discretion. See, e.g., Remarks by Donald I. Baker, Assistant 
Attorney General, Department of Justice, before Antitrust Law 
Briefing Conference, Arlington, Va. (Feb. 28, 1977), reprinted in 
[1969-1983] Transfer Binder (CCH) 50,341. The fact that ``a 
defendant has previously been convicted or adjudged to have been 
violating the antitrust laws may warrant indictment for a second 
offense,'' and ``the Division feels free to seek an indictment in 
any case where a prospective defendant has knowledge that practices 
similar to those in which he is engaging have been held to be in 
violation of the Sherman Act in a prior civil suit against other 
persons.'' Id., quoting Report of the Attorney General's National 
Committee To Study the Antitrust Laws 350 (1955). In recommending a 
criminal prosecution, willfulness will be considered and will be 
presumed if the defendants knew they were violating the law or were 
acting with flagrant disregard for the legality of their conduct. 
Id., citing President's Commission on Law Enforcement & 
Administration of Justice, Task Force Report: Crime and Its Impact--
An Assessment 110 (1967). Although I cannot speak to the 
Department's policy, it seems clear that the availability of 
criminal sanctions would have deterrence value.
    \7\The Department has proceeded criminally against conduct 
similar to that challenged by the Commission under Section 5 of the 
FTC Act. Compare, e.g., United States v. Alston, 974 F.2d 1206 (9th 
Cir. 1992) (criminal prosecution of price fixing by dentists), and 
American Medical Ass'n v. United States, 317 U.S. 519 (1943) 
(criminal prosecution of conspiracy to boycott), with FTC v. 
Superior Court Trial Lawyers Ass'n, 493 U.S. 411 (1990) (per se 
unlawful price fixing), and Southbank I.P.A., Inc., FTC Docket C-
3355, 57 FR 2913 (1992) (alleged price fixing and boycott by 
doctors). The Department obtained $250,000 in criminal fines and a 
10-year civil decree against resale price maintenance in United 
States v. Cuisinarts, Inc., [1980-1988] Transfer Binder (CCH) 
45,080 (Cases 2798 & 2799); 1981-1 Trade Reg. Rep. (CCH) 63,979 
(D. Conn. 1981) (civil decree). The Department may gain enforcement 
flexibility from its ability to proceed criminally or civilly. E.g., 
in 1991, US West agreed to pay a $10 million civil penalty for 
alleged violations of the AT&T Modified Final Judgment--``the 
highest civil penalty ever paid in an antitrust contempt case''--
following ``last year's indictment of NYNEX on criminal contempt 
charges for MFJ violations.'' Speech by James F. Rill, Assistant 
Attorney General, Antitrust Division, before 25th Annual New England 
Antitrust Conference, Cambridge, Mass. (Oct. 25, 1991), reprinted in 
7 Trade Reg. Rep. (CCH) 50,066, at 48,740.
    \8\``The basic objective of a remedial system is to deter people 
from violating the law * * *. The way in which we deter an activity 
is by making it costly to engage in * * *.'' R.A. Posner, Antitrust 
Law: An Economic Perspective 221 (1976).
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Competition and Consumer Protection Orders

    The sunset policy announced today is to be limited to orders in 
competition cases, although the Commission will seek public comment 
about whether the policy should be extended to orders in consumer 
protection cases. Although I am willing to be persuaded otherwise by 
whatever public comment we may receive, based on the arguments I have 
heard to date, I see no reason for treating consumer protection orders 
differently.
    In 1987, the Antitrust Section of the American Bar Association 
suggested that the Commission adopt a sunset policy for competition 
orders.9 Although some might interpret this as a recommendation 
not to sunset consumer protection orders, that would appear to be an 
overreading because the report was limited to competition orders, and 
there is no indication that the Section even considered consumer 
protection orders. Two years later, in 1989, in a more comprehensive 
study of the Commission and ``its appropriate role as a federal 
governmental agency,'' the Antitrust Section recommended that the 
Commission sunset all of its administrative orders.10 To the 
extent that it has considered the question, the Section has endorsed 
the inclusion of consumer protection orders in a sunset policy.
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    \9\Report of Section of Antitrust Law of the American Bar 
Association on Sunsetting of Federal Trade Commission Competition 
Order Provisions (May 21, 1987).
    \1\0Report of the American Bar Association Section of Antitrust 
Law Special Committee To Study the Role of the Federal Trade 
Commission 69-70 (1989) (``We are troubled by the duration of 
typical Commission orders * * *. Administrative orders should have 
sunset provisions.'').
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    Both competition and consumer protection orders are issued by the 
Commission, principally under Section 5 of the FTC Act, and the purpose 
of both is to protect consumers and the public interest.11 Unfair 
methods of competition such as price fixing, market allocation and 
boycotts can be as injurious to consumers as unfair or deceptive 
practices such as misleading advertising and unscrupulous 
marketing.12 To the extent that the policy to sunset orders is 
based on changed circumstances,13 it would seem to apply with 
equal force to both antitrust and consumer protection orders. A 
respectable argument can be made that the conditions in which unfair 
acts or practices arise are at least as mutable as the conditions in 
which unfair methods of competition arise. To the extent that a sunset 
policy reflects a concern about the costly regulatory effects of 
orders,14 the concern probably arises with deceptive advertising 
orders no less than price-fixing orders.
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    \1\1Deceptive practices were challenged as ``unfair methods of 
competition'' until enactment of the Wheeler-Lea Act in 1938, 52 
Stat. 1028 (adding to Section 5 the phrase ``and unfair or deceptive 
acts or practices''). E.g., FTC v. Winstead Hosiery Co., 258 U.S. 
483 (1922) (false labelling). Under pre-1938 Section 5, the 
Commission was required to show that the deceptive practices 
affected competition. See FTC v. Raladam Co., 316 U.S. 149 (1942) 
(applying pre-1938 law, FTC may ``infer that trade will be diverted 
from competitors who do not engage in'' deception); FTC v. Raladam 
Co., 283 U.S. 643 (1931) (``trader whose methods are assailed as 
unfair [methods of competition] must have * * * rivals in trade 
whose business will be * * * injured''). After the Wheeler-Lea Act, 
the FTC could ``center its attention on the direct protection of the 
consumer where formerly it could protect him only indirectly through 
the protection of the competitor.'' Pep Boys--Manny, Moe & Jack, 
Inc. v. FTC, 122 F.2d 158, 161 (3d Cir. 1941) (emphasis in 
original).
    \1\2``[N]o matter what its guise, cartel behavior constitutes no 
more than fraud and theft from consumers.'' James F. Rill, Assistant 
Attorney General, Antitrust Division, ``Antitrust Enforcement: An 
Agenda for the 1990's,'' before 23rd Annual New England Antitrust 
Conference (Nov. 3, 1989), reprinted in 7 Trade Reg. Rep. (CCH) 
50,026, at 48,617.
    \1\3According to the Commission in its Statement of Policy, 
``provisions in competition orders ordinarily will have served their 
remedial purposes within twenty years, and * * * the findings upon 
which such provisions are based should not be presumed to continue 
to exist for a longer period of time.''
    \1\4See note 16 infra.
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    More fundamentally, a decision to treat respondents under consumer 
protection orders differently might be viewed as arbitrary and 
capricious. Indeed, from my perspective, today's disparate treatment of 
competition and consumer protection orders is so unjustified that it 
cries out for an explanation from the Commission. Perhaps the comments 
we receive will provide reasons for drawing this distinction.

Existing Orders

    The Commission should apply its new sunset policy to existing as 
well as future orders. Any other policy is unfair. How can the 
Commission justify applying a twenty-year sunset policy to future 
orders, without even knowing what those orders will be, and decline to 
apply the same policy to its existing orders?
    The new policy to favor termination of existing orders in effect 
for more than twenty years, if the respondent comes forward with a 
petition to reopen, is welcome but also too limited. Instead, the 
Commission should initiate proceedings immediately to terminate all 
orders that are more than twenty years old and to modify appropriately 
(by adding a sunset provision) outstanding orders that are not yet 
twenty years old. This could easily be accomplished by publishing in 
the Federal Register notice of the sunset policy and of the 
Commission's intention to apply the policy to outstanding 
orders.15
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    \1\5 Rules 3.72(b)(1) and 4.4(a)(2) of the Commission's Rules of 
Practice may need to be amended to permit notice by publication in 
the Federal Register. The Administrative Procedure Act permits the 
Commission to amend its rules in this fashion without a public 
comment period. 5 U.S.C. Sec. 553(b)(3)(A).
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    The Commission cites the experience of the Department of Justice to 
demonstrate the difficulty of reviewing old orders: The Department 
reviewed 400 orders ``to determine which might profitably be modified 
or vacated''16 and recommended terminating or modifying only 22 of 
them.17 If anything, the Department's experience suggests that we 
should not adopt a sunset policy at all. If the vast majority of 
outstanding orders are worth retaining, why shouldn't we expect the 
vast majority of future orders to be equally meritorious. The 
Commission, having decided that a sunset policy nevertheless is 
appropriate, should take a different approach to outstanding orders.
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    \1\6 Speech by William French Smith, Attorney General of the 
United States, before District of Columbia Bar (June 24, 1981), 
reprinted in [1969-1983] Transfer Binder (CCH)  50,430, at 55,976 
(suggesting that the Department would set aside or modify orders 
that ``pervasively regulate . . . [and] hinder and not promote 
competition,'' ``reflect erroneous economic analysis,'' or are 
``superfluous'').
    \1\7 Department of Justice Press Release Accompanying Statement 
of Policy by the Antitrust Division Regarding Enforcement and Review 
of Permanent Injunctions Entered in Government Antitrust Cases, 
April 27, 1984, at 3.
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    Application of a presumption in favor of sunset in response to 
petitions to reopen will impose costs by requiring respondents to file 
individual petitions and the Commission to assess in the context of 
each such petition whether the presumption has been overcome for that 
order.18 I see no need for such a time consuming, potentially 
resource intensive review of the merits of individual orders.19 
Applying the new policy across the board now would be less costly in 
terms of both public and private resources. Simple fairness suggests 
that the Commission now should terminate all its orders older than 
twenty years and modify its other orders to provide for automatic 
termination after twenty years.
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    \1\8 To the extent that the basis for the Commission's sunset 
policy is that the ``findings upon which [the order is] based should 
not be presumed to continue to exist for a longer period of time,'' 
Statement of Policy at 4, in the context of a petition to reopen, 
the persistence of the conditions on which the order was based, not 
the respondent's recidivism, see Statement of Policy at 8 n.19, 
would seem to be the appropriate focus in determining on the merits 
whether the order should be set aside.
    \1\9 The Commission's effort to narrow the scope of the 
proceedings for terminating older orders is laudable, but it 
contains the seeds for expansion. More importantly, even the cost of 
a reduced proceeding is unnecessary and unfairly burdens subjects of 
older orders vis-a-vis their more recent counterparts.
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The Presumption

    Instead of establishing a definite policy to sunset new competition 
orders twenty years after issuance, the Commission merely establishes a 
presumption to that effect. The Commission's decision to forgo the 
adoption of an unequivocal sunset policy and instead to embark on this 
new course by way of a presumption may reflect a degree of unease about 
terminating its orders that I do not share. Unless the Commission is 
prepared to enumerate the bases for overcoming the presumption, and so 
far it has not done so, the policy invites confusion and arbitrariness 
if not its own unraveling.
    Establishing a presumption instead of a rule that orders will 
terminate automatically after twenty years opens the Commission to 
arguments to extend the term of some orders and to abbreviate the term 
of others. The duration of an order could now be an issue in every 
case, and achieving consistency and fairness among orders will be 
costly at best. Perhaps my colleagues envision, as I do, that the 
presumption will be overcome, one way or the other, only in exceedingly 
rare circumstances. If so, why not just be done with it and establish a 
bright line rule with all the benefits of certainty, predictability and 
efficiency that bright line rules provide? If not, some greater 
explanation is in order to guide those subject to the Commission's 
jurisdiction.

Conclusion

    I support the step the Commission has taken today, I urge the 
Commission to expand its new policy to include consumer protection 
orders and existing orders, and I urge the Commission to make sunset an 
unqualified policy, not a presumption.

Statement of Commissioner Deborah K. Owen, Concurring in Part and 
Dissenting in Part, on FTC Policy Statement With Respect to Duration of 
Commission Orders

    I applaud my colleagues for this important first step in resolving 
a controversy that has stymied the Commission for many years. However, 
I am compelled to disagree on one important point affecting competition 
orders--the number of years that must pass before an order, 
presumptively, should terminate.1 Where the Commission has chosen 
a twenty-year period, both with respect to prospective orders and the 
modification of previous orders, in the interests of consistency with 
the Justice Department, I would prefer a ten-year term.
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    \1\The Policy Statement contains two new twenty-year 
presumptions with respect to competition orders: (1) A presumption 
that ``core'' provisions in future orders should terminate twenty 
years after issuance, and (2) a presumption that the public interest 
requires reopening and setting aside an existing order twenty years 
after it becomes final.
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    The Commission's sole explanation for deviating from the ten-year 
period is that the Commission ``unlike the Antitrust Division, has no 
criminal enforcement authority and thus cannot present the same 
deterrence threat to potential recidivists whose orders have expired.'' 
Policy Statement at 5. I believe that this contrast is much less acute 
than the Policy Statement suggests, and provides an insufficient basis 
for adopting an inconsistent policy.
    First, under traditional Justice Department policy, it would not be 
appropriate for the Justice Department to use the threat of criminal 
sanctions to deter the recurrence of civil antitrust violations. As one 
former Assistant Attorney General has described, the Sherman Act is 
``in reality two statutes''--one criminal and one civil.2 The 
Antitrust Division has historically proceeded criminally in two types 
of cases: (1) Cases involving per se violations, such as price fixing 
and bid rigging, and (2) cases where there is ``evidence that the 
defendants knew that they were violating the law and acted with 
flagrant disregard for the legality of their conduct.'' U.S. Dep't of 
Justice, Antitrust Division Manual at III-12, Oct. 18, 1987 (2d ed.), 
revised, Oct. 16, 1989. In all other cases, the Antitrust Division 
proceeds civilly, and generally seeks an order that expires after ten 
years.3 If a civil violation recurs in year eleven (after the 
expiration of an order), then under its stated policy, the Antitrust 
Division would not seek to impose criminal penalties. Like the 
Commission, the Division would proceed on the civil side.
---------------------------------------------------------------------------

    \2\Remarks by Donald I. Baker before the Antitrust Law Briefing 
Conference, Arlington, Virginia (Feb. 28, 1977), reprinted in 
[Current Comment--1969-83 Transfer Binder] Trade Reg. Rep. (CCH) 
50,341 at 55,695.
    \3\But see United States v. Microsoft Corporation, Civ. Action 
No. ______ (D.D.C. 1994) (proposed consent decree would expire six 
and a half years after its entry).
---------------------------------------------------------------------------

    In this regard, I note that the antitrust cases prosecuted by the 
Commission are typically not the types of hard core violations for 
which the Department of Justice reserves its criminal sanctions. Often 
this agency's horizontal restraint cases are sufficiently complicated 
or ambiguous that the Commission employs the Massachusetts Board mode 
of analysis, rather than relying on the rule of per se liability. Even 
within the per se category, there are several situations where the 
courts and/or the Department have indicated that criminal prosecution 
would not be appropriate. In particular, the Supreme Court has held 
that intent is a necessary element of a criminal antitrust 
violation.4
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    \4\United States v. Gypsum Co., 438 U.S. 422 (1978). In 
contrast, the intent to achieve anticompetitive effects is not a 
necessary element of the Commission's cases under Section 5 of the 
Federal Trade Commission Act. See also Antitrust Division Manual, 
supra at III-12.
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     Second, eleven years after an order is entered, if a firm engages 
in a criminal violation of the antitrust laws, then it can be 
prosecuted criminally--whether its original order was with the 
Commission or with the Justice Department. See Policy Statement at 5 n. 
9 (``Where a recidivist's order has lapsed, the Commission could 
request the Justice Department to commence a criminal enforcement 
action against the new violation.''). Indeed, it has long been the 
Commission's policy to notify the Justice Department whenever it learns 
of a potentially criminal antitrust violation (whether involving a 
recidivist or a first-time offender).5 The Justice Department then 
decides whether the case should be investigated and prosecuted 
criminally (by the Antitrust Division), or civilly (by the FTC).
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    \5\ See Department of Justice/Federal Trade Commission Clearance 
Procedures for Investigations, reprinted in 7 Trade Reg. Rep. (CCH) 
50,125:
    Whenever during the course of an FTC investigation, evidence is 
uncovered that indicates the likelihood that criminal conduct has 
occurred (e.g., price fixing, bid rigging, mail or wire fraud), the 
FTC will promptly refer the matter to DOJ.
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    In short, the deterrence threat that faces a potential recidivist 
whose FTC order has expired is identical to the deterrence threat that 
faces a firm whose Antitrust Division order has expired. Accordingly, I 
dissent with respect to the twenty-year (as opposed to ten-year) 
presumptions in the Policy Statement as applied to competition 
orders.6
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    \6\ Had the Commission chosen to apply termination presumptions 
across the board to all of its orders, including consumer protection 
orders (an alternative I would have preferred), the Commission might 
then have been on firmer ground in attempting to distinguish its 
policy from that of the Justice Department.

[FR Doc. 94-21591 Filed 8-31-94; 8:45 am]
BILLING CODE 6750-01-P