[Federal Register Volume 60, Number 149 (Thursday, August 3, 1995)]
[Notices]
[Pages 39741-39745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19110]



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FEDERAL TRADE COMMISSION


Administrative Litigation Following the Denial of a Preliminary 
Injunction: Policy Statement

AGENCY: Federal Trade Commission.

ACTION: Policy statement, and accompanying Commission statement, with 
request for public comment.

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SUMMARY: The Federal Trade Commission has adopted policies explaining 
how, after a court had denied preliminary injunctive relief to the 
Commission, the Commission decides whether administrative litigation 
should be commenced or, if it has already been commenced, should be 
continued. While the policies are already in effect, the Commission 
will receive comment for thirty days, and will thereafter take 

[[Page 39742]]
such further action as may be appropriate.

DATES: The policy statement was effective on June 21, 1995. Comments 
will be received until September 5, 1995.

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:
William Baer, Director, Bureau of Competition, (202) 326-2932, or 
Ernest Nagata, Deputy Assistant Director for Policy and Evaluation, 
Bureau of Competition, (202) 326-2714.

SUPPLEMENTARY INFORMATION: 1. On June 21, 1995, the Commission issued 
the following statement to accompany its policy statement:

Commission Statement to Accompany Statement of Federal Trade Commission 
Policy Regarding Administrative Merger Litigation Following the Denial 
of a Preliminary Injunction

Introduction

    The Federal Trade Commission is charged with ensuring that U.S. 
consumers are protected from higher prices, lower quality, and lessened 
innovation that could result from anticompetitive mergers.\1\ 
Historically, the Commission has resolved merger cases through 
administrative trials or consent orders. In recent times, most of the 
Commission's antitrust complaints have been settled through 
administrative consent orders.\2\ For those relatively few merger cases 
in which the Commission has litigated, the Commission's usual practice 
in recent years has been first to seek a preliminary injunction in 
federal district court to prevent the consummation of the proposed 
transaction.\3\ The Commission has won most of its challenges at the 
federal district court level.\4\

    \1\ As used herein, the term ``merger'' includes mergers, 
acquisitions, joint ventures, and equivalent transactions.
    \2\ For FY 1990 through FY 1994, the Commission resolved 
complaints through administrative consent orders, without 
authorizing either federal court or administrative litigation, in 
67% of the merger enforcement actions that the Commission 
authorized.
    \3\ For FY 1990 through FY 1994, the Commission authorized 
preliminary injunction actions in 29% of the merger enforcement 
actions that it authorized; in 4% of its merger enforcement actions, 
the Commission authorized administrative trials without first 
proceeding to federal court for a preliminary injunction.
    \4\ During the five-year period covered by fiscal years 1990-
1994, five out of seven of the Commission's motions for a 
preliminary injunction were granted. In one case, FTC v. University 
Health, Inc., 938 F.2d 1206 (11th Cir. 1991), the district court's 
denial of a preliminary injunction was reversed on appeal. For 
fiscal years 1985-1989, the Commission was successful in six out of 
nine motions for a preliminary injunction.
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    There have been five instances in the last ten years in which a 
federal district court has refused to grant a preliminary injunction 
sought by the Commission, and the Commission then proceeded with a 
challenge to the merger in administrative litigation.\5\ In such 
circumstances, the determination to continue a merger challenge in 
administrative litigation is not, and cannot be, either automatic or 
indiscriminate. In any given case, the evidence, arguments, and/or 
opinion from the preliminary injunction hearing may, or may not, 
suggest that further proceedings would be in the public interest. The 
Commission's guiding principle is that the determination whether to 
proceed in administrative litigation following the denial of a 
preliminary injunction and the exhaustion or expiration of all avenues 
of appeal must be made on a case-by-case basis.

    \5\ R.R. Donnelley & Sons, Dkt. 9243, is currently before the 
Commission on respondents' appeal from the Initial Decision of the 
administrative law judge. In Owens-Illinois, Inc., Dkt. No. 9212, 
the Administrative Law Judge (``ALJ'') found liability but the 
Commission reversed. 1987-1993 Transfer Binder (CCH) para. 22,731 
(Sept. 11, 1989) (Initial Decision), rev.d, 1987-1993 Transfer 
Binder (CCH) para. 23,162 (Feb. 26, 1992). In Promodes, S.A., Dkt. 
No. 9928, the administrative complaint was settled. 113 F.T.C. 372 
(1990). In Occidental Petroleum Co., Dkt. No. 9205, both the ALJ and 
the Commission found liability. 1987-1993 Transfer Binder (CCH) 
para. 22,603 (Sept. 30, 1988) (Initial Decision), aff'd, 5 Trade 
Reg. Rep. (CCH) para. 23,370 (Dec. 22, 1992), appeal dismissed 
pursuant to stipulation and modified order, 5 Trade Reg. Rep. (CCH) 
para. 23,531 (Jan. 14, 1994). In a fifth case, Lee Memorial 
Hospital, Dkt. No. 9265, the administrative proceeding, which was 
filed prior to the district court's denial of a preliminary 
injunction, has been stayed pending appeal.
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    The Commission is issuing the attached Statement to clarify the 
process it follows in deciding whether to pursue administrative 
litigation following denial of a preliminary injunction. The Statement 
also notes that, if necessary, the Commission will adopt certain 
procedures to ensure parties to a transaction the opportunity to have 
their views heard by the Commission before it makes its determination.
    In order to place these issues in context, this Statement begins by 
addressing the value of administrative litigation and why a preliminary 
injunction proceeding, regardless of its outcome, may not in and of 
itself provide a sufficient basis for the resolution of complex merger 
litigation.
The Value of Administrative Litigation

    The Federal Trade Commission was created in part because Congress 
believed that a special administrative agency would serve the public 
interest by helping to resolve complex antitrust questions. Congress 
intended that the Commission would play a ``leading role in enforcing 
the Clayton Act, which was passed at the same time as the statute 
creating the Commission.'' \6\ It was expected that an administrative 
agency was especially suited to resolving difficult antitrust 
questions, and that the FTC should be the principal fact finder in the 
process: it is ``within the Commission's primary responsibility'' to 
draw inferences of competitive consequences from the underlying 
facts.\7\

    \6\ Hospital Corp. of America v. FTC, 807 F. 2d 1381, 1386 (7th 
Cir. 1986), cert. denied, 481 U.S. 1038 (1987) (``HCA'').
    \7\ HCA, 807 F. 2d at 1386.
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    The Commission has fulfilled that special role in a number of 
important merger cases.\8\ Administrative cases provide valuable 
guidance on how the Commission applies the relevant legal standards and 
analytical principles as they evolve over time. Application of these 
standards and principles to concrete factual situations, developed in a 
full record, can provide insight into why certain mergers are likely to 
harm competition and result in consumer injury, and why others may not. 
Especially because the Supreme Court has addressed substantive issues 
of merger law only rarely in recent decades,\9\ and because antitrust 
law during that time has evolved in response to economic learning, the 
Commission's opinions have been an important vehicle to provide 
guidance to the business community on how to analyze complex merger 
issues.

    \8\ For example, the Commission's decision in Occidental 
Petroleum provided important guidance on supply side substitution 
and coordinated interactions in merger analysis. The Commission's 
decision in HCA explained how coordination could occur in an 
industry with differentiated and non-homogeneous products. Judge 
Posner, writing for the Seventh Circuit affirming that decision, 
called it a ``model of lucidity.'' 807 F. 2d at 1385. The 
Commission's decision in American Medical International, Inc., 104 
F.T.C. 1 (1984) examined in detail the dimensions of price and non-
price competition in the hospital industry and discussed 
efficiencies considerations in analyzing a merger.
    \9\ The Supreme Court's last opinion on substantive merger law 
was United States v. General Dynamics Corp., 415 U.S. 486 (1974).

[[Page 39743]]

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Why A Preliminary Injunction Proceeding May Not Be A Sufficient 
Substitute for Administrative Litigation

    If the same value could be achieved through a preliminary 
injunction proceeding as through administrative litigation, then there 
would be no reason for the Commission ever to proceed past the 
preliminary injunction phase. The differences between the two types of 
proceedings, however, mean that one does not equate with the other.
    A preliminary injunction hearing has a limited purpose: to 
determine whether to enjoin the consummation of a proposed transaction 
pending a full adjudication on the merits. Thus, the district 
overseeing a preliminary injunction hearing is not charged with making 
a final ruling on whether the acquisition in unlawful.
    Indeed, there may be an inadequate basis for doing so. Because a 
preliminary injunction proceeding has a limited purpose, the 
evidentiary record produced is often limited in scope. A court may not 
hear any witnesses, but instead may rule solely on the basis of the 
papers filed by the parties. A preliminary injunction proceeding is 
generally much shorter in duration than a full trial, and, because of 
its expedited nature, the thoroughness of the evidentiary presentation 
and analysis may be less than would be expected in a full trial. Since 
merger analysis can be a highly complex, fact-intensive undertaking, it 
may be particularly ill-suited for final resolution on the merits in 
the abbreviated forum of a preliminary injunction proceeding.
    Some commentators have suggested that because the Department of 
Justice lacks the ability to challenge mergers in the administrative 
process, the Commission's litigation should be confined to the federal 
courts in order to bring the two agency's enforcement powers in line 
with one another. The problem with such an approach is that the 
significant benefits of administrative litigation outlined above would 
be lost in such a change in enforcement policy. The business community 
would be denied the guidance provided by merger decisions based on a 
complete analysis of a full evidentiary record, and Congress' vision of 
the FTC's central role in merger enforcement would be subverted.
    Nonetheless, the Commission recognizes that automatic pursuit of 
administrative litigation following denial of a preliminary injunction 
is not required to serve the public interest. The attached Statement of 
Policy is intended to clarify the process the Commission follows in 
determining whether to pursue administrative litigation following 
denial of a preliminary injunction.
    2. On June 21, 1995, the Commission issued the following policy 
statement:

Statement of Federal Trade Commission Policy Regarding Administrative 
Merger Litigation Following the Denial of a Preliminary Injunction

    The Commission will assess on a case-by-case basis whether to 
pursue administrative litigation following the denial of a preliminary 
injunction.\1\ If necessary, the Commission will amend its Rules of 
Practice \2\ in order to facilitate the reconsideration of the public 
interest in continuing with an administrative case when an 
administrative complaint has already issued.

    \1\ Although the focus of this policy statement is merger 
litigation, similar principles would apply following the denial of a 
preliminary injunction in the context of non-merger competition 
litigation.
    \2\ 16 CFR 3.1 et seq.
    As discussed in the Commission Statement to Accompany Statement of 
Policy Regarding Administrative Merger Litigation Following the Denial 
of a Preliminary Injunction, the Commission believes that it would not 
be in the public interest to forego an administrative trial solely 
because a preliminary injunction has been denied. Nor would it be in 
the public interest to require an administrative trial in every case in 
which a preliminary injunction has been denied. Thus, a case-by-case 
determination is appropriate. This approach gives the Commission the 
opportunity to assess such matters as (i) the factual findings and 
legal conclusions of the district court or any appellate court, (ii) 
any new evidence developed during the course of the preliminary 
injunction proceeding, (iii) whether the transaction raises important 
issues of fact, law, or merger policy that need resolution in 
administrative litigation, (iv) an overall assessment of the costs and 
benefits of further proceedings, and (v) any other matter that bears on 
whether it would be in the public interest to proceed with the merger 
challenge.
    If necessary, the Commission will amend Part 3 of the Commission's 
Rules of Practice to expedite its review of the issues and 
determination immediately following the denial of a preliminary 
injuction and the exhaustion or expiration of all avenues of appeal. 
The issuance of an administrative complaint during the pendency of a 
preliminary injunction proceeding will affect only the nature of the 
procedures under which such considerations will be reviewed, not 
whether they will be reviewed.
    If an administrative complaint has not been issued by the time of 
the district court's ruling on a preliminary injunction and the 
exhaustion or expiration of all avenues of appeal, the Commission's 
consideration of whether to issue an administrative complaint will be 
conducted under its normal procedures for non-adjudicatory matters. If 
an administrative complaint has already been issued, the Commission 
will make its determination within the procedural framework for 
adjudicatory proceedings under Part 3 of the Commission's Rules of 
Practice.
    The policy articulated in this Statement is applicable to any 
current and future merger enforcement actions initiated by the 
Commission under Section 13(b) of the Federal Trade Commission Act. The 
Commission intends, however, to issue within thirty days a Federal 
Register notice soliciting public comment on the Commission's policy 
and, if necessary, setting forth any conforming amendments to Part 3 of 
its Rules of Practice.
    3. The Commission has determined to adopt a new rule, 16 CFR 
Sec. 3.26, to facilitate review of the public interest in continuing an 
adjudicative proceeding when, after the adjudicative proceeding has 
begun, a court denies preliminary injunctive relief in a section 13(b) 
case brought in aid of the adjudication. Under rule 3.26, which is 
published elsewhere in this issue, respondents can choose to have such 
review conducted either within the framework for adjudicative 
proceedings, or following withdrawal of the administrative case from 
adjudication.
    Also, as noted in footnote 1 of the June 21 policy statement, the 
principles applicable to administrative merger litigation would apply 
in the context of non-merger competitive litigation. They are also 
applicable in the context of consumer protection litigation.

    By direction of the Commission, Commissioner Azcuenaga 
concurring in part and dissenting in part.
Donald S. Clark,
Secretary.
Dissenting Statement of Commissioner Mary L. Azcuenaga Concerning FTC'S 
Adoption of Rule 3.26 Respecting Administrative Litigation Following 
Denial of a Preliminary Injunction

    On June 26, 1995, the Commission issued a Statement of Policy 
Regarding Administrative Merger Litigation Following the Denial of a 
Preliminary Injunction and an accompanying 

[[Page 39744]]
explanation.\1\ These documents reaffirm the Commission's longstanding 
policy, consistent with Section 5 of the FTC Act, 15 U.S.C. Sec. 45(b), 
of reconsidering whether to pursue administrative litigation following 
the denial of preliminary relief by the courts. Section 5 requires that 
the Commission premise issuance of an adjudicative complaint on finding 
reason to believe that the law has been violated and that enforcement 
would be in the public interest. This obligation continues implicitly 
throughout the proceeding, requiring the Commission to take all 
reasonable steps to assure itself that an enforcement action, once 
begun, remains in the public interest. I joined in that Statement.

    \1\ These materials appear again in this volume of the Federal 
Register.
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    The Commission now adopts new Rule 3.26 to govern how the agency 
will proceed if a court denies a requested preliminary injunction 
pending completion of an administrative adjudication.\2\ A central 
feature of the new rule is that following the court's action, the 
respondents may choose to have the administrative matter removed from 
adjudication to permit the parties to discuss with the Commission 
privately, off the record and ``without the constraints of adjudicative 
rules,'' \3\ the public interest in continuing the adjudication in 
light of the court's action.\4\ Strictly speaking, no revision of the 
Rules is necessary because existing provisions of the Rules of Practice 
are sufficient to permit the Commission to address any effect the 
court's action may have on the public interest in continuing the 
adjudication.\5\ Nevertheless, I have no objection to adopting a new 
rule to provide specific procedures for reconsidering an administrative 
adjudication following denial of a preliminary injunction. My 
difference of opinion is this: I believe that a rule adopted to address 
this situation should provide that the matter be left in adjudication 
for any reconsideration by the Commission and that any communication 
between the parties and the Commission take place on the record.\6\

    \2\ See 15 U.S.C. Sec. 53(b).
    \3\ Notice of Final Rule with Request for Public Comment, 60 
Fed. Reg.______, Slip Notice at 2-3.
    \4\ I do not oppose the alternative procedure included in the 
new rule, which expressly authorizes a motion by any respondent to 
dismiss the complaint in the public interest. Although the 
alternative procedure is redundant in light of existing Rules 3.22 
and 3.23, 16 CFR Secs. 3.22 and 3.23 (1995), I do not find it 
objectionable because the arguments would be presented on the record 
unless the Commission directs otherwise.
    \5\ See, e.g., Rule 3.22 governing adjudicative motions and Rule 
3.23 governing interlocutory appeals. The Commission also, of 
course, may act sua sponte to seek briefing from the parties or to 
dismiss the complaint.
    \6\ Confidential communications between the Commission and its 
staff before a matter enters adjudication and when the Commission is 
still carrying out its prosecutorial responsibility make sense. In 
our system of law, investigational and prosecutorial decisions are 
protected from public scrutiny. See 5 U.S.C. Sec. 552(b)(5). Such 
confidential communications after the prosecutorial function has 
concluded with the issuance of a complaint, however, raise issues 
concerning the exercise by the Commission of its quasi-judicial 
function.
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    The Commission opines that complaint counsel will be more candid 
off the record because they ``will be able to discuss the case without 
concern that their statements might compromise their litigation 
position if the case is returned to adjudication.'' \7\ It also 
suggests that the ex parte procedure will confer similar benefits on 
``respondents (and even third parties).'' \8\ It is unclear to me why 
all this candor cannot and should not take place on the public record.

    \7\ 60 Fed. Reg. ______, Slip Notice at 4.
    \8\ Id.
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    Traditionally, the Commission acts as a prosecutor up to and 
including its decision to issue an administrative complaint. As soon as 
the vote to issue an administrative complaint is complete, the 
Commission assumes a judicial role with respect to that case, which 
then is said to be ``in adjudication.'' \9\ It should go without saying 
that the Commission must not allow its prosecutorial role to intrude in 
any respect in carrying out its deliberative role in an administrative 
adjudication. Removing a matter from adjudication to chat off the 
record suggests that there is something that the Commission would 
prefer that the world not know. It also suggests an unease on the part 
of the Commission in carrying out its judicial function and an unseemly 
reluctance to relinquish its prosecutorial role. Although the automatic 
withdrawal provision may not disadvantage the respondent in any given 
proceeding, it may well undermine public confidence in the integrity of 
the Commission's adjudicative process.

    \9\ At this point, all further communications between the 
parties (complaint counsel and the respondent(s) are on the record 
with certain specified exemptions. Rule 4.7, 16 CFR Sec. 4.7.
    Let us consider three scenarios following a court's denial of a 
preliminary injunction: First, complaint counsel have a strong case, 
notwithstanding the court's denial of a preliminary injunction. If this 
is so, complaint counsel can explain why on the record. After the case 
has been withdrawn from adjudication and reconsidered, presumably the 
Commission will return the case to adjudicative status. Even if the 
respondents initiated withdrawing the matter from adjudication, the 
procedure, in-and-out-and-in adjudication, may create a perception that 
complaint counsel, speaking off the record, had an unfair advantage. 
The respondents may believe that had they only known what the staff was 
saying to the Commission behind closed doors while the case was 
withdrawn from adjudication, they could have defended more effectively 
and won a dismissal. After all, the court gave the first round to the 
respondents on the record.
    A second scenario is that the case is weak, and complaint counsel's 
arguments in support of the complaint are correspondingly weak. The 
Commission suggests in its Federal Register notice that if discussion 
is held on the record, complaint counsel will be inhibited from 
pointing to weaknesses in the case for fear that if the Commission 
disagrees and requires the adjudication to go forward, complaint 
counsel will be disadvantaged by having conceded the weaknesses of the 
case on the record. An underlying assumption here is that any 
weaknesses in the case will remain undiscovered (by the courts, by the 
respondent and by the administrative law judge), as long as complaint 
counsel can confide in the Commission off the record. Perhaps more 
serious, the assumption suggests an abiding lack of confidence in the 
administrative system of adjudication and the Commission's place in it. 
Complaint counsel will not be able to avoid the weakness of the case by 
confiding that fact in secret to the Commission. At most, they might 
conceal the weakness for a time, a result that ultimately would be 
wasteful of both government and private resources. Regardless of when 
during an adjudicative proceeding complaint counsel or the Commission 
itself discovers a possible weakness in the case, the Commission should 
base its decision whether to continue the proceeding on publicly 
available information.
    The new rule may lend itself to a public perception that the staff 
of the Commission has an advantage over targets of enforcement actions 
because the staff has the secret ear of the Commission. If the staff is 
permitted secret access to the Commission, a decision to continue an 
adjudication, particularly one that, based on publicly available 
information, appears weak, likely would suggest that complaint counsel 
were able to persuade the Commission to proceed only by ``hiding the 
ball'' from the respondents. Such a message hardly is consistent with 
fairness to the respondent or with the 

[[Page 39745]]
role of the Commission as an unbiased decisionmaker.\10\

    \10\ Off-the-record discussions with the respondents, followed 
by dismissal of the complaint, also may create misperceptions of 
unfairness and favoritism, with the implication that nonpublic 
communications that could not bear the light of day influenced the 
Commission's decision.
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    A third scenario is that the case is weak, respondents move to 
withdraw the matter from adjudication, and complaint counsel file 
nothing in support of the complaint.\11\ In such an instance, the 
Commission may agree with the respondents and dismiss the adjudication, 
or it may disagree and order that the proceeding continue. There seems 
no good reason not to have this occur on the public record. Again, 
private discussions between the Commission and its staff can create a 
public perception of unfairness to the respondents arising from 
apparent complicity between the prosecuting attorneys and the 
purportedly impartial adjudicators--the very danger the separation of 
functions requirements of the Administrative Procedure Act and the 
Commission's ex parte rule are designed to avoid.\12\

    \11\ This assumes that complaint counsel find themselves unable 
to make a principled argument in support of the complaint. See Jose 
Calimlin, M.D., Dkt. No. 9199 (June 24, 1986) (``complaint counsel 
represent the Commission's prosecutorial decision as embodied in the 
allegations of complaint and in the notice of contemplated 
relief''); accord R.J. Reynolds Tobacco Co., Dkt. No. 9206 
(interlocutory order, Dec. 1, 1986); see also R.J. Reynolds Tobacco 
Co. (interlocutory order, Dec. 10, 1986) (purpose of adjudication is 
``to subject the Commission's complaint to an adversarial test'').
    \12\ See 5 U.S.C. Sec. 552(d); 16 C.F.R. Sec. 4.7.
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    In addition to undermining the separation of functions at the 
Commission, the new rule limits the Commission's discretion to decide 
when individual cases should be in adjudication and remain on the 
public record. The exercise of discretion in an adjudicative matter is 
a responsibility of the Commission, not an occasion for apology. This 
responsibility, which must be carried out consistent with the law and 
with fundamental fairness, should not be ceded without a reason for 
doing so. Here, I see none. Both the policy to maintain the separation 
of deliberative and prosecutorial functions and the appearance of 
having done so are enhanced when the Commission retains its discretion 
to determine the appropriate disposition of a motion to withdraw from 
adjudication. The shifting of a portion of that discretion in favor of 
the respondents may appear open-minded, but, in the long term, it will 
disserve the Commission and the public interest.
    On balance, the Commission and the public would be better served if 
the Commission retained its discretion to decide which, if any, cases 
should be withdrawn from adjudication following denial of a preliminary 
injunction. The new rule is likely to undermine the integrity of the 
Commission and its adjudicative process by breaking down the wall 
between the Commission's prosecutorial and adjudicatory roles in a 
manner inconsistent with the separation of functions requirement of the 
Administrative Procedure Act and its own ex parte rule.
    I dissent.

[FR Doc. 95-19110 Filed 8-2-95; 8:45 am]
BILLING CODE 6750-01-M