[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).
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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
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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
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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