    Justice's Antitrust Division: Better Management Information Is
    Needed on Agriculture-Related Matters (06-APR-01, GAO-01-188).

    GAO reviewed the Department of Justice's Antitrust Division's
    overall policies and procedures for carrying out its statutory
    responsibilities, particularly as they apply to the agriculture
    industry. Specifically, GAO (1) described the Division's
    interaction with the Federal Trade Commission (FTC) and the
    Department of Agriculture (USDA) with regard to antitrust matters
    in the agriculture industry, (2) provided information on the
    number of complaints and leads in the agriculture industry
    received by the Division for fiscal years 1997 through 1999, and
    (3) provided information on the number and types of closed
    matters in the agriculture industry for fiscal years 1997 through
    1999. In addition, GAO described the Division's policies for and
    procedures for investigating potential anti-trust violations. GAO
    found that the Division (1) maintains a cooperative working
    relationship with regard to anticompetitive matters in the
    agriculture industry with FTC and USDA, (2) estimates that 165
    complaints and leads related to the agriculture industry were
    received in fiscal years 1997 through 1999, (3) closed 1,050
    matters during fiscal years 1997 through 1999.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-01-188
        ACCNO:   A00759
        TITLE:   Justice's Antitrust Division: Better Management
                 Information Is Needed on Agriculture-Related Matters
         DATE:   04/06/2001
      SUBJECT:   Interagency relations
    	     Antitrust law
    	     Agricultural industry
    	     Corporate mergers
    	     Management information systems
    	     DOJ Correspondence and Complaint
    	     Tracking System
                 DOJ Matter Tracking System

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    GAO-01-188

    Report to the Chairman, Subcommittee on Administrative Oversight and the
    Courts, Committee on the Judiciary United States Senate

    United States General Accounting Office

    GAO

    April 2001 JUSTICE'S ANTITRUST DIVISION

    Better Management Information Is Needed on Agriculture- Related Matters

    Page i GAO- 01- 188 Antitrust Division's Operations Letter 1

    Results in Brief 2 Background 4 Scope and Methodology 7 Division Lacks
    Reliable Data on Complaints and Leads Received in

    the Agriculture Industry 11 Division Also Lacks Reliable Data on Closed
    Matters 15 Phases of Closed Matters 19 Agency Comments 23

    Appendix I: Objectives, Scope and Methodology 27 Appendix II: Overview of
    the Department of Justice's Antitrust Division Staffing

    and Functions 32 Appendix III: Overview of the Antitrust Division's Policies
    and Procedures for

    Investigating Potential Antitrust Violations 42 Appendix IV: Characteristics
    of Matters for Which Only a PI Was Done 72 Appendix V: Comments From the
    Department of Justice, Antitrust Division 76 Appendix VI: GAO Contacts and
    Staff Acknowledgments 84

    Tables

    Table 1: Reported Number of Agriculture- Related Complaints and Leads
    Identified for Fiscal Years 1997 Through 1999 and Number of Preliminary
    Inquires Opened As a Result 14 Table 2: Classification of Agriculture-
    Related Matters Closed by the

    Antitrust Division, Fiscal Years 1997 through 1999 17 Contents

    Page ii GAO- 01- 188 Antitrust Division's Operations

    Table 3: Number of Agriculture- Related Matters Closed by the Antitrust
    Division by SIC Category, Fiscal Years 1997 through 1999 18 Table 4: Last
    Phase of Inquiry at Which the Division Closed

    Agriculture- Related Matters, Fiscal Years 1997 Through 1999 19 Table 5: SIC
    Categories for Different Phases of Agriculture- Related

    Matters Closed by the Division During Fiscal Years 1997 Through 1999 20
    Table 6: SIC Codes Included in the Definition of the Agriculture

    Industry. 28 Table 7: Antitrust Division's Section and Field Office
    Staffing, as of

    July 21, 2000 32 Table 8: Antitrust Division Field Offices 40 Table 9:
    Source of the Agriculture- Related Matters Closed at the

    End of the Preliminary Inquiry, Fiscal Years 1997 – 1999 72 Table 10:
    Geographic Market and Amount of Commerce Affected

    for Agriculture- Related Matters Closed at the End of the Preliminary
    Investigation, Fiscal Years 1997 - 1999 73 Table 11: SIC Categories for
    Agriculture- Related Matters Closed at

    the End of the Preliminary Inquiry, Fiscal Years 1997 - 1999 74 Table 12:
    Number of Days Preliminary Inquiries Were Open for

    Agricultural Matters Closed at the End of the Preliminary Investigation,
    Fiscal Years 1997 – 1999 74 Table 13: Reasons Agriculture- Related
    Matters Were Closed at the

    End of the Preliminary Investigation, Fiscal Years 1997 –

    1999 75

    Figures

    Figure 1: Antitrust Division's Organizational Chart, as of November 2000 36
    Figure 2: Flowchart of Antitrust Division's General Process for

    HSR Merger Enforcement 56 Figure 3: Flowchart of Antitrust Division's
    General Process for

    Civil Enforcement 62 Figure 4: Flowchart of Antitrust Division's General
    Process for

    Criminal Enforcement 70

    Page iii GAO- 01- 188 Antitrust Division's Operations Abbreviations

    AAG Assistant Attorney General AMIS Antitrust Management Information System
    AMS Agricultural Marketing Service CCTS Correspondence and Complaint
    Tracking System CID Civil Investigative Demand DAAG Deputy Assistant
    Attorney General ERS Economic Research Service FBI Federal Bureau of
    Investigation FOIA Freedom of Information Act FTC Federal Trade Commission
    GIPSA Grain, Inspection, Packers, and Stockyards Administration HHI
    Herfindahl- Hirshman Index HSR Hart- Scott- Rodino MOU Memorandum of
    Understanding MTS Matter Tracking System PI Preliminary Inquiry SIC Standard
    Industrial Classification TEA Transportation, Energy and Agriculture USDA
    United States Department of Agriculture

    Page 1 GAO- 01- 188 Antitrust Division's Operations

    April 6, 2001 The Honorable Jeff Sessions Chairman, Subcommittee on
    Administrative

    Oversight and the Courts Committee on the Judiciary United States Senate

    The Honorable Charles E. Grassley United States Senate

    The Department of Justice's Antitrust Division (Division) investigates and
    prosecutes civil and criminal violations of federal antitrust laws. The
    basic federal antitrust statutes are the Sherman Act, as amended (15 U. S.
    C. 1- 7); and the Clayton Act, as amended (15 U. S. C. 12- 27). The acts'
    objectives are to prevent anticompetitive behavior and preserve and promote
    competition in the marketplace. The Division generally shares responsibility
    for enforcing federal antitrust laws with the Federal Trade Commission (FTC)
    and state attorneys general. 1 Both the Division and FTC are responsible for
    enforcing the premerger notification provisions of the Hart- Scott- Rodino
    Act (HSR Act), 2 which requires parties to notify the Division and FTC of
    certain proposed mergers and to observe a waiting period before merging.
    During fiscal year 1999, the Division handled over 4,900 matters, 3 of which
    4,642 (about 95 percent) were potential mergers filed under the notification
    provisions of the HSR Act.

    This report responds to a request from Senator Grassley, as the former
    Chairman of the Subcommittee on Administrative Oversight and the Courts,
    Senate Committee on the Judiciary, that we obtain information on the
    Division's overall policies and procedures for carrying out its statutory

    1 Section 4C of the Clayton Act (15 U. S. C. 15c) authorizes state attorneys
    general to bring civil actions in the name of a state on behalf of resident
    consumers who have been injured as a result of a Sherman Act violation. In
    addition, Section 4 of the Clayton Act (15 U. S. C. 15) authorizes private
    parties “injured in [their] business or property by reason of anything
    forbidden in the antitrust laws” to sue the offending parties and
    recover three times their actual damages, costs, and reasonable attorney's
    fees.

    2 Section 7A of the Clayton Act (15 U. S. C. 18a), enacted as part of the
    Hart- Scott- Rodino Antitrust Improvements Act of 1976, is commonly referred
    to by that name. 3 In this report, we use the term “matter” to
    mean any inquiry, investigation, or filing by the Division before a civil or
    criminal court.

    United States General Accounting Office Washington, DC 20548

    Page 2 GAO- 01- 188 Antitrust Division's Operations

    responsibilities, particularly as they apply to the Division's enforcement
    activities in the agriculture industry. Specifically, as agreed with Senator
    Grassley's office, our objectives were to

    ? describe the Division's interaction with FTC and the U. S. Department of
    Agriculture (USDA) with regard to antitrust matters in the agriculture
    industry;

    ? provide information on the number of complaints and leads in the
    agriculture industry received by the Division for fiscal years 1997 through
    1999; and

    ? provide information on the number and type (such as mergers) of closed
    matters in the agriculture industry for fiscal years 1997 through 1999.

    As also agreed, in appendix III, we describe the Division's policies and
    procedures for investigating potential antitrust violations.

    According to Division, FTC, and USDA officials, their agencies maintain a
    cooperative working relationship with regard to anticompetitive matters in
    the agriculture industry. This interaction with respect to specific matters
    centers on their agencies' responsibilities to investigate antitrust
    matters. The Division and FTC share responsibility for enforcing antitrust
    laws. Their interaction generally occurs through their clearance procedures,
    which is the process established between them to determine which agency will
    investigate potential antitrust violations. According to agency officials,
    in recent years, the Division and USDA have worked together in a number of
    respects. For example, the Division obtains useful information about
    agricultural markets from USDA's Agricultural Marketing Service (AMS) and
    Economic Research Service (ERS).

    The Division estimates that 165 complaints and leads related to the
    agriculture industry were received in fiscal years 1997 through 1999. The
    five legal sections or task forces 4 and seven field offices that could
    potentially have handled such complaints and leads used different systems
    for tracking complaints and leads and captured varying levels of detail in
    their systems. One of the sections- the one specifically responsible for
    agricultural commodities and that received the largest number of
    agriculture- related complaints and leads- did not require its staff to
    document and track all complaints and leads. Consequently, Division

    4 Hereafter this letter refers to sections and task forces as sections.
    Results in Brief

    Page 3 GAO- 01- 188 Antitrust Division's Operations

    officials could provide only estimates of the number of complaints and leads
    the Division received. 5 During the course of our review, the Division
    issued revised guidance to improve its documentation of complaints and
    leads, requiring all sections and field offices to use the Division's
    Correspondence and Complaint Tracking System (CCTS) for recording complaints
    and leads. However, the revised guidance does not include guidance on the
    information that staff are required to document on each contact, and the
    CCTS does not include specific fields to capture information on Standard
    Industry Classification (SIC) codes or the final outcome of complaints and
    leads received. These limitations, combined with past history, indicate that
    information may still be collected and recorded inconsistently by the
    sections and field offices.

    The Division's primary source of information on matters received and closed
    is the Matter Tracking System (MTS), which is also used to support Division
    management and budget reports. However, MTS data on matter status- such as
    date closed or whether the matter was closed immediately or after some
    period of investigation- are not reliable because of inconsistencies. We had
    to adjust the data from MTS to ascertain the general status of matters
    handled by the Division. These data show that during fiscal years 1997
    through 1999, the Division closed 1, 050 matters involving mergers and
    potential antitrust violations in the agricultural industry. Of these 1,050
    matters, 935 (89 percent) were potential mergers filed under the premerger
    notification provisions of the HSR Act. Of these 935 filings, 827 (88
    percent) expired within the minimum prescribed time period that the parties
    must wait before the transaction can proceed. 6 The Division took no formal
    action, such as opening a preliminary inquiry, beyond reviewing the
    documents submitted by the merging parties and public sources of information
    for these 827 matters- a normal outcome for mergers that are permitted to
    proceed after the required premerger notification period.

    5 In 1991, we reviewed the Division's criminal cases and found that the
    Division had a policy for documenting information on complaints and leads
    from the public. However, the Division did not know how many complaints it
    had received, nor did it have complete data on their characteristics because
    this policy was not always followed for complaints or leads the Division
    decided not to investigate. Antitrust: Information on Criminal Cases (GAO/
    GGD- 92- 21FS, Dec. 17, 1991).

    6 The initial waiting period is 15 days for cash tender offers and
    bankruptcy sales and 30 days for other transactions.

    Page 4 GAO- 01- 188 Antitrust Division's Operations

    This report includes four recommendations to the Attorney General to improve
    the Division's documentation and tracking of complaints and leads and the
    MTS database. In commenting on our report, the Division stated that our
    recommendation to incorporate a data field for SIC codes into the CCTS was
    reasonable and that it would also consider our recommendation to link the
    CCTS to MTS to enable the Division to track the results of citizen's
    complaints. The Division was silent on our recommendation that it monitor
    compliance with the November 27, 2000, policy regarding documenting and
    tracking public inquiries. However, the Division took issue with our
    recommendation to correct errors and improve the accuracy and reliability of
    MTS data.

    The Division is responsible for promoting and maintaining competition in the
    American economy by enforcing the federal antitrust laws. To accomplish its
    mission, the Division has 16 sections in headquarters and 7 field offices
    located throughout the United States. As of July 21, 2000, the Division had
    561 full- time staff and 237 part- time staff onboard; about 29 percent of
    the full- time staff and about 21 percent of the part- time staff were
    assigned to the field offices (see app. II for a breakdown of staffing by
    sections and field offices). The Division's budget authority for fiscal year
    2000 was $114.4 million, about a 16- percent increase, in nonconstant
    dollars, over fiscal year 1999 funding of $98.3 million. The Division's
    appropriations are offset by the fees companies are required to pay when
    they file premerger notifications under the HSR Act.

    The Division is responsible for enforcing the antitrust laws throughout the
    economy, including industries, such as computers, health care,
    telecommunications, transportation, and agriculture. Overall, the Division
    handled over 4,900 matters during fiscal year 1999, 4, 642 (about 95
    percent) of which were proposed mergers for which notice was filed under the
    HSR Act. For fiscal year 1999, agricultural industry matters- both mergers
    and nonmergers- represented about 8 percent (395) of the Division's total
    workload.

    As previously noted, the basic federal antitrust statutes are the Sherman
    Act and the Clayton Act. Section 1 of the Sherman Act makes illegal any
    contract, combination, or conspiracy that results in a “restraint of
    trade.” The courts have construed the term to cover a variety of
    horizontal and Background

    Page 5 GAO- 01- 188 Antitrust Division's Operations

    vertical trade restraining agreements. Horizontal restraints 7 are
    agreements among competitors at the same level of the production,
    distribution, or marketing process. Vertical restraints 8 are arrangements
    among persons or firms operating at different levels of the
    manufacturingdistribution- marketing chain that restrict the conditions
    under which firms may purchase, sell, or resell. Section 2 of the Sherman
    Act prohibits monopolization, as well as attempts, combinations, or
    conspiracies to monopolize. Although the Sherman Act is both a criminal and
    civil statute, it is the Division's policy to criminally prosecute only what
    the Division considers to be the most egregious per se Sherman Act
    violations. 9 However, in some situations the Division may not deem criminal
    investigation or prosecution to be appropriate, even though the conduct may
    appear to be a per se violation of the law. As examples, the Antitrust
    Division manual, which outlines the Division's formal internal practices and
    procedures, cites situations in which (1) there is confusion in the law; (2)
    there are novel issues of law or fact presented; (3) confusion reasonably
    may have been caused by past prosecutorial decisions; or (4) there is clear
    evidence that the subjects of the investigation were not aware of, or did
    not appreciate, the consequences of their actions.

    Section 7 of the Clayton Act prohibits mergers and acquisitions that may
    substantially lessen competition or tend to create a monopoly in any market.
    The HSR Act added section 7A to the Clayton Act, which requires premerger
    notification of proposed mergers to assist the Division and FTC in
    investigating whether they would be anticompetitive.

    The Division generally shares responsibility for enforcing federal antitrust
    laws with FTC and state attorneys general. With the exception of criminal

    7 Horizontal restraints include agreements among competitors to (1) fix
    prices, (2) engage in bid rigging, (3) allocate markets, and (4) refuse to
    deal or participate in a boycott. These restraints can also include certain
    competitor mergers and acquisitions and anticompetitive joint ventures.

    8 Vertical restraints of trade analyzed for possible illegality under the
    antitrust laws include (1) exclusive dealing agreements, (2) restrictions on
    the territory in which a manufacturer's distributor may sell and
    restrictions concerning the customers with whom a distributor may deal, (3)
    restrictions on the location of a distributor's place of business or area of
    operations, (4) vertical price fixing, (5) vertical mergers and stock
    acquisitions, and (6) tying arrangements or requirements. Under a tying
    arrangement, a seller requires that the buyer of a good or service purchase
    a second, distinct good or service as a condition of purchasing the first.

    9 A per se Sherman Act violation is one in which proof of the existence of
    the conduct is enough to establish its illegality.

    Page 6 GAO- 01- 188 Antitrust Division's Operations

    enforcement of the Sherman Act, which the Division has sole authority for,
    the “unfair methods of competition” clause of section 5 of the
    FTC Act generally allows FTC to reach the same conduct as prohibited by the
    Sherman Act. Both the Division and FTC are responsible for enforcing
    Sections 7 and 7A of the Clayton Act, with the exception of certain
    industries in which FTC's jurisdiction is limited by statute. For example,
    Section 5 (a) (2) of the Federal Trade Commission Act of 1914 10 generally
    excludes from its coverage activities subject to the Packers and Stockyards
    Act. 11 FTC also enforces the Robinson- Patman Act, 12 which governs price
    discrimination in interstate commerce, and section 8 of the Clayton Act (15
    U. S. C. 19), which governs interlocking directorates.

    As previously noted, the Division is responsible for enforcing the antitrust
    laws in a broad range of industries. The antitrust laws apply generally
    throughout the economy, and the Division exercises prosecutorial discretion
    to determine which matters warrant investigation or enforcement action.
    According to Division officials, their principal expertise is in antitrust
    laws, not in specific industries. Some industries also are regulated by
    government agencies under statutes that go beyond the antitrust laws to
    establish additional, industry- specific regulatory requirements and
    standards. For example, USDA's Grain Inspection, Packers, and Stockyards
    Administration (GIPSA) regulates sales in the livestock and meat- packing
    industries. GIPSA generally has the authority to prohibit unfair trade
    primarily within the livestock industry.

    The Division's policies and procedures manual outlines the processes for
    investigating potential antitrust violations. Depending on the conduct
    alleged, the Division can initiate either civil or criminal investigations
    of

    10 15 U. S. C. 45( a)( 2). The Federal Trade Commission Act, as amended (15
    U. S. C. 41- 58) created the FTC and authorized the Commission to, among
    other things, (a) define and prohibit unfair methods of competition and
    unfair or deceptive acts or practices in or affecting commerce; (b) seek
    monetary redress and other relief for conduct injurious to consumers; (c)
    prescribe trade regulation rules defining with specificity acts or practices
    that are unfair or deceptive, and establishing requirements designed to
    prevent such acts or practices; (d) conduct investigations relating to the
    organization, business practices, and management of entities engaged in
    commerce; and (e) make reports and legislative recommendations to Congress.

    11 The Packers and Stockyards Act of 1921 (7 U. S. C. 181 et seq.) was
    enacted to ensure fairness and competitiveness in the livestock, meat,
    meatpacking, and poultry industries by preventing fraudulent,
    discriminatory, or anticompetitive practices.

    12 15 U. S. C. 13.

    Page 7 GAO- 01- 188 Antitrust Division's Operations

    these potential violations. The Division may identify possible antitrust
    violations or proposed mergers through a variety of sources. The Division is
    made aware of many proposed mergers through filings required of the merging
    parties by the HSR Act. The Division may learn of a possible antitrust
    violation from a confidential informant, individuals, or corporations
    applying for amnesty; 13 complaints and referrals from other government
    departments or agencies; anonymous tips; or through reviews of newspapers,
    journals, and trade publications. It may develop information about potential
    criminal violations through grand jury proceedings. As previously noted,
    more detailed information and flow charts of the Division's enforcement
    procedures can be found in appendix III.

    Our objectives were to (1) describe the Division's interaction with FTC and
    USDA with regard to antitrust matters in the agriculture industry, (2)
    provide information on the number of complaints and leads in the agriculture
    industry received by the Division for fiscal years 1997 through 1999, and
    (3) provide information on the number and type of agriculturerelated matters
    closed by the Division for fiscal years 1997 through 1999.

    As agreed with Senator Grassley's office, we used SIC codes selected by the
    Division to define the agriculture industry (see app. I). The SIC codes
    selected included only those codes specifically related to plant and animal
    products that originate on land and are commercially cultivated or raised
    for human or animal consumption. 14

    To obtain information on the Division's interaction with FTC and USDA, we
    interviewed officials in the Division, FTC, and USDA. We also reviewed the
    Division's policies and procedures for interacting with other agencies,
    including relevant interagency agreements.

    The Division does not maintain divisionwide data on complaints and leads
    related to possible anticompetitive practices in the agriculture industry.
    To

    13 The Division also identifies antitrust violations through its Corporate
    and Individual Leniency Policies program, also referred to as the amnesty
    program. According to Division officials, this program has been in place
    since the 1980s, and it was expanded in 1993 to make it easier and more
    attractive for companies to come forward and cooperate with the Division.

    14 According to Division officials, they had to make a number of subjective
    judgments to identify SIC codes related to the agriculture industry. Scope
    and

    Methodology

    Page 8 GAO- 01- 188 Antitrust Division's Operations

    obtain an estimate of the number of agriculture- related complaints and
    leads received in fiscal years 1997 through 1999, we interviewed the section
    or field office chief, assistant section chief, and other knowledgeable
    Division officials for each of the five legal sections and seven field
    offices that potentially handle matters in the agriculture industry during
    this period. These officials provided information on the number of
    complaints and leads received and the methods they used to record and track
    them.

    To gather information on the number and type of matters closed in the
    agriculture industry in fiscal years 1997 through 1999, we obtained data on
    the characteristics of the matters for selected SIC codes and for the
    relevant time period from the Division's MTS. However, some of the data in
    MTS were not accurate and reliable. For example, actions were shown as being
    taken on matters after the matter had been recorded as closed, or links were
    not being established between related matters. We also reviewed opening and
    closing memorandums for matters that were closed without the filing of a
    complaint to determine the reasons for closing the matters. We did not
    attempt to determine the appropriateness of the Division's prosecutorial
    decisions.

    More detailed information about our scope and methodology can be found in
    appendix I. We performed our work in Washington, D. C., between October 1999
    and February 2001, in accordance with generally accepted government auditing
    standards.

    As noted earlier, the basic federal antitrust statutes are the Sherman Act
    and the Clayton Act, and the Division generally shares responsibility for
    enforcing the antitrust laws with FTC. The interactions between the agencies
    are generally limited to their roles in enforcing antitrust laws. Officials
    from the Division, FTC, and USDA said that their agencies maintain a
    cooperative working relationship with regard to anticompetitive matters in
    the agriculture industry. According to Division and FTC officials, their
    agencies' interactions with respect to specific matters generally occur
    during the clearance process established between them to determine which
    agency will investigate potential antitrust violations for which they have
    joint jurisdiction. According to agency officials, in recent years, the
    Division and USDA have worked together in a number of respects. For example:

    ? The Division obtains useful information from USDA's AMS and ERS.
    Division's Interaction with

    FTC and USDA

    Page 9 GAO- 01- 188 Antitrust Division's Operations

    ? With respect to livestock and meatpacking markets, the Division has
    obtained useful information from USDA's GIPSA. 15

    ? The Division has also provided technical assistance to GIPSA on various
    economic studies and on GIPSA's competition enforcement program.

    ? During the course of any major antitrust investigation involving
    agriculture- related markets, the Division typically consults with USDA
    officials to obtain the benefit of their perspective.

    ? USDA and Division officials have also participated in a number of
    interagency policy and public outreach efforts regarding competitive
    conditions in agriculture- related markets.

    The Division, FTC, and USDA entered into a Memorandum of Understanding (MOU)
    16 on August 31, 1999, that sets forth general policy for interacting,
    exchanging information, and continuing to work together on competitive
    developments in the agriculture marketplace. Division, FTC, and USDA
    officials described the MOU as memorializing a longstanding, cooperative
    working relationship between the agencies. Under the MOU, each agency agreed
    to designate a primary contact person to facilitate communication among
    agency officials. The Division's designated contact is an attorney- advisor
    in the Legal Policy Section. However, in practice, this responsibility is
    shared with the Division's Special Counsel for Agriculture. 17 FTC's contact
    is the Deputy Director in the Bureau of Competition; and USDA's contact is
    the Assistant General Counsel, Trade Practices Division. The officials in
    the three agencies could not determine whether there has been any change in
    the purpose or frequency of contact since the MOU was signed because they
    have not tracked, nor do they currently track, communications, coordination,
    or consultations between the agencies.

    To avoid duplication of effort in areas of antitrust enforcement in which
    FTC and the Division share enforcement jurisdiction, the agencies issued

    15 A recently issued GAO report recommended changes to the Agriculture
    Department's method of investigating potential anticompetitive behavior
    under the Packers and Stockyard Act. Packers and Stockyards Programs:
    Actions Needed to Improve Investigations of Competitive Practices (GAO/
    RCED- 00- 242, Sept. 21, 2000).

    16 According to agency officials, the MOU was an outgrowth of the 1998
    interagency panel that examined concentration in the agriculture industry,
    particularly with respect to the hog market. The task force was made up of
    representatives of USDA, FTC, the Division, and other agencies and was
    coordinated through the Office of the White House Counsel.

    17 This position was created in January 2000 to report directly to the
    Assistant Attorney General for Antitrust and work exclusively on
    agriculture- related issues.

    Page 10 GAO- 01- 188 Antitrust Division's Operations

    joint clearance procedures, most recently revised in December 1993, to
    determine which agency will pursue an investigation. 18 According to
    Division officials, the agencies interact on specific matters mainly around
    these procedures. Appendix III provides, among other things, information on
    the clearance procedures.

    According to Division officials, the August 1999 MOU is the only formal
    procedure relating to the interaction between the Division and USDA. FTC has
    had a formal agreement with USDA since at least 1958 regarding
    investigations in the wholesale or retail food industry.

    According to Division and USDA officials, USDA provides the Division with
    useful information about agricultural markets that the Division uses in its
    economic analysis of a particular industry. Additionally, when USDA uncovers
    conduct that it believes may violate antitrust laws, it has the authority to
    refer the matter to the Division for possible investigation and enforcement
    action. 19 Our review of 64 matters that the Division closed after
    conducting a preliminary investigation (PI) during fiscal years 1997 through
    1999 revealed that 1 matter was referred from USDA. Additionally, the
    Division consulted with USDA on six of the matters.

    18 The first interagency agreement was informally instituted in 1938; since
    1948, it has been modified and formalized. 19 Section 202 of the Packers and
    Stockyards Act (P& S Act) makes unlawful actions by packers or live poultry
    dealers that are unfair; unjustly discriminatory or deceptive; or that are
    anticompetitive, such as allocation of territory or manipulating prices.
    Violations of section 202 by packers may be enforced through administrative
    litigation before the Secretary. However, according to a USDA official,
    violations of section 202 by live poultry dealers must be referred to the
    Department of Justice for enforcement. GIPSA refers those cases, cases
    alleging that entities have violated the Secretary's order in administrative
    enforcement, and cases alleging that an entity subject to the P& S Act has
    refused to register (as required by the P& S Act) to the U. S. Attorney's
    Office. According to USDA and Division officials, if GIPSA discovers
    evidence of anticompetitive activity that might violate the antitrust laws
    of the United States, USDA will communicate with Justice's Antitrust
    Division and cooperate with them, as appropriate, in further action on the
    case.

    Page 11 GAO- 01- 188 Antitrust Division's Operations

    Our 1991 review of the Division's criminal cases found that although the
    Division had a policy for documenting information on complaints and leads
    from the public, this policy was not always followed for complaints or leads
    the Division decided not to investigate. 20 As a result, the Division did
    not know how many complaints it had received nor did it have complete data
    on their characteristics. Such problems continued during the period of our
    review, fiscal years 1997 through 1999. High- level Division officials were
    not aware of a policy requiring staff to document all complaints and leads
    from the public, and the Division did not have a uniform database to provide
    divisionwide information on complaints and leads. During the course of our
    review, the Division took steps to improve its documentation of complaints
    and leads. If fully implemented, these steps should move the Division in a
    positive direction toward addressing the deficiencies we identified.
    However, the improvements do not allow the Division to track complaints and
    leads by industry classifications, and on the basis of past history, the
    information may still be collected inconsistently by the sections and field
    offices. Thus, better guidance and closer management attention to monitoring
    the documentation of complaints and leads will be necessary.

    We met with high- level Division officials, including the Chief of the Legal
    Policy Section and an attorney- advisor in that section; the Special Counsel
    for Agriculture; and the attorney who, according to Division officials,
    handles the largest number of the complaints and leads in the agriculture
    industry. We asked them whether the 1980 policy cited in our 1991 report was
    still in effect. Initially, the officials were not aware of whether such a
    policy was still in effect. According to the officials, the Division could
    provide only an estimate of the number of complaints and leads received in
    the agriculture industry.

    On February 29, 2000, the Division's Chief of Staff issued a memorandum to
    all section and field office chiefs stating that the Attorney General wanted
    to ensure that the Department of Justice was answering all of its mail and
    telephone inquiries in a timely and effective way. The memorandum required
    all sections and field offices to use the Division's CCTS to track inquiries
    from the public to help ensure that the Division was responsive to incoming
    inquiries. However, in June and July 2000 when we conducted our structured
    interviews with section and field office

    20 GAO/ GGD- 92- 21FS, Dec. 17, 1991. Division Lacks

    Reliable Data on Complaints and Leads Received in the Agriculture Industry

    Page 12 GAO- 01- 188 Antitrust Division's Operations

    staff responsible for documenting and tracking complaints and leads, they
    were not all using CCTS, and two told us they had never heard of CCTS.

    When the Division began implementing CCTS in 1997, the Division encouraged,
    but did not require, the sections and field offices to use CCTS for general
    and telephone correspondence. 21 CCTS was designed primarily to record
    information on controlled correspondence (e. g., correspondence received
    from the White House; Congress; and federal, state, and local agencies).
    CCTS includes such information as the complainant's name, address, phone
    number, position, and organization; the date received, date assigned,
    section name, staff assigned, response due date, and date completed; and a
    description of the complaint and keywords. CCTS does not include specific
    fields to capture information on SIC codes or related industries or the
    final outcome of complaints and leads received from the public.
    Additionally, CCTS is not linked to the Division's MTS. As a result, CCTS
    does not have the information needed to analyze patterns of potential
    anticompetitive behavior that might emerge from complaints and leads related
    to specific industries or to track the ultimate outcome of a complaint or
    lead.

    Subsequent to our interviews with the five legal sections and seven field
    offices that would potentially handle complaints and leads related to the
    agriculture industry, Division officials determined that the July 2, 1980,
    directive requiring staff to document all complaints and leads was still in
    effect. The 1980 directive outlined the Division's policies and procedures
    for handling all unsolicited contacts of a routine and nonsensitive nature
    from the general public, whether by letter, telephone call, or personal
    visit. The directive required that staff

    ? ensure that unsolicited public contacts are assigned promptly to the
    appropriate staff member( s);

    ? log basic information about each contact; 22 21 According to the
    Division's CCTS manual, general correspondence constitutes the bulk of the
    Division's incoming correspondence. It comprises letters, email, or faxes
    addressed to the Division generally; to Division staff; or to one of the
    Division's sections, field offices, or units. It includes, among other
    things, citizen inquiries or complaints. Phone correspondence describes
    notes, memorandums, or logs of incoming telephone requests, especially those
    requiring follow- up by the Division.

    22 The 1980 directive provided examples of the types of information staff
    could document, such as date of receipt; complainant's name, address, and/
    or telephone number; type of contact; subject, staff member assigned to
    handle the complaint; response due date; actual response date; and other
    action.

    Page 13 GAO- 01- 188 Antitrust Division's Operations

    ? mail written responses, if warranted, within 20 working days of the date
    the inquiry was received by the Division;

    ? maintain a central file in each section and office of all correspondence
    and notes on telephone calls and visits; and

    ? make all logs and files described in the directive available for review by
    Division officials.

    In the absence of a central source of uniform, complete, and reliable data
    on complaints and leads, the Division agreed to let us contact officials in
    five legal sections and seven field offices to obtain any available data on
    complaints and leads received in those sections and field offices. 23
    According to the data provided, the Division received 165 agriculturerelated
    complaints and leads in fiscal years 1997 through 1999, 14 of which resulted
    in a PI being initiated (see table 1). Of these 14, 1 was referred to USDA.

    Officials in these sections and field offices provided information derived
    from a variety of sources, such as automated and manual tracking systems and
    attorney notes, that varied among the sections and field offices. We did not
    verify the accuracy or completeness of the information provided. Officials
    in Transportation, Energy and Agriculture (TEA), which received the largest
    number of complaints and leads reported to us, indicated that the numbers
    for fiscal years 1997 and 1998 did not, to their knowledge, include
    complaints received by phone and that the 1999 data were based on
    information from the two section attorneys who received “most”
    of the complaints and leads for the section.

    23 Because the sections, task forces, and field offices employed different
    methods to record information about complaints and leads, we had to rely on
    the information officials provided during structured interviews. Reported
    Data on Number

    of Complaints and Leads Received

    Page 14 GAO- 01- 188 Antitrust Division's Operations

    Table 1: Reported Number of Agriculture- Related Complaints and Leads
    Identified for Fiscal Years 1997 Through 1999 and Number of Preliminary
    Inquires Opened As a Result

    Fiscal year 1997 Fiscal year 1998 Fiscal year 1999 Total Number received

    Number of PIs opened Number

    received Number

    of PIs opened Number

    received Number

    of PIs opened Number

    received Number

    of PIs opened

    Civil Task Force 0 0 0 0 7 0 7 0 Litigation I 0 0 0 0 0 0 0 0 Litigation II
    a 11 0 15 0 4 0 30 0 TEA 2 0 17 1 46 3 65 4 Atlanta 10 40 3080 Chicago 30 00
    2151 Cleveland 1 1 5 1 1 0 7 2 Dallas 60 20 60140 New York 0 0 3 0 0 0 3 0
    Philadelphia 2 2 1 0 0 0 3 2 San Francisco 7 2 1 1 15 2 23 5

    Total 33 5 48 3 84 6 165 14

    Legend: PI = preliminary inquiry; TEA = Transportation, Energy and
    Agriculture. a In July 1999, the Merger Task Force was combined with the
    Litigation II Section. The numbers reported in this table for Litigation II
    reflect the combined totals of both units. Source: GAO analysis of data
    provided during structured telephone interviews with officials from the
    Antitrust Division's sections and field office.

    According to Division officials, the Division receives many complaints
    reporting conduct that is unrelated to antitrust. In these instances, they
    said that a complaint might be referred to an appropriate federal, state, or
    local agency. For example, 4 of the 165 complaints and leads the Division
    received during fiscal years 1997 through 1999 were referred to FTC. On some
    occasions, they said the Division section may refer an antitrustrelated
    complaint or lead to another Division section, to FTC, or to the appropriate
    state attorney general's office. If a Division attorney determines that
    there are sufficient indications of an antitrust violation to open an
    investigation beyond discussions with the complainant, he or she is to draft
    a PI request memorandum.

    According to Division officials, staff can generally determine whether the
    information provided by a complainant merits further investigation. The
    Division may respond to a complainant by telephone or in writing. Division
    officials also said that many complaints in the agriculture industry are
    general in nature, with no information useful for an investigation, and that
    the Division's response to such a general complaint typically

    Page 15 GAO- 01- 188 Antitrust Division's Operations

    ? attempts to educate the complainant on antitrust laws and the Division's
    role in enforcing them,

    ? describes the type of evidence needed to open an investigation or bring a
    case, and

    ? invites the complainant to come back to the Division with more specific
    information that might indicate a possible antitrust violation.

    On October 24, 2000, the Division rescinded the 1980 policy and issued a new
    directive requiring all of its sections and offices to (1) use the
    Division's CCTS to document and track all unsolicited public contacts (such
    as complaints and leads) and (2) maintain a central file of these contacts.
    This directive made section and field office chiefs responsible for ensuring
    that the procedures are routinely followed. The October 2000 directive was
    replaced with a November 27, 2000, directive. The only difference between
    the two directives was that the November directive made reference to an
    optional word perfect form that staff could use- in addition to CCTS, not in
    lieu of it- to document information for the section's or office's own
    central file. Consistent with the 1980 directive, neither the October 24,
    2000, directive nor the November 27, 2000, directive provided guidance on
    the information that staff are required to document on each contact.
    Consequently, it is not clear that the latest directive will resolve the
    data availability issues discussed above, including inconsistently recorded
    information on complaints and leads.

    To obtain information on the number and type of closed matters in the
    agriculture industry for fiscal years 1997 thorough 1999, we relied on data
    from the Division's MTS, its primary management information system for
    tracking the Division's matters. 24 We encountered several problems with the
    MTS data, including inconsistencies on matter status and type. For example,
    there were many matters for which the final disposition was unclear
    according to our review of the MTS data. For some of the matters we
    reviewed, the MTS data indicated that actions had been taken on matters
    after the matters had been recorded as closed. In addition, the dispositions
    for some of the matters were not appropriate for the particular phase of the
    matters. We worked with Division officials to resolve these issues wherever
    possible. Recognizing its limitations, we

    24 Implemented in February 1998, MTS was created and is maintained to permit
    Division personnel to, among other things, locate matters currently or
    formerly under investigation. The system is also used in the preparation of
    management and budget reports. Division Also Lacks

    Reliable Data on Closed Matters

    Page 16 GAO- 01- 188 Antitrust Division's Operations

    believe the adjusted MTS data we used can provide a general profile of
    agriculture- related matters closed by the Division during fiscal years
    1997- 1999. We used the MTS data because there is no other comprehensive
    listing of the Division's matters and their status.

    According to Division officials, there were several causes for the MTS data
    problems we encountered. Some of the matters we reviewed were entered into
    the Division's older system, the Antitrust Management Information System
    (AMIS), and were incorporated into MTS without change. 25 A 1991 GAO report
    reported that there were inaccuracies and inconsistencies in the AMIS data.
    26 Concerning the matters for which MTS incorrectly indicated that the
    matter was closed following the PI, Division officials said it is possible
    to have further action after a matter is closed. Occasionally, evidence
    associated with a particular investigation would initially prove inadequate
    for further prosecutorial action. However, several months or years later,
    evidence may become available, and instead of opening a new PI, the Division
    would reopen the original investigation. We did not test the MTS data to
    determine the full nature or extent of the data reliability problems.
    However, with the corrections made with the assistance of Division
    officials, the MTS data we used can provide a general profile of the status
    of agriculture- related matters closed by the Division in fiscal years 1997
    through 1999.

    MTS data showed that the Division closed 1,050 matters involving mergers and
    potential antitrust violations in the agricultural industry during fiscal
    years 1997 through 1999. Of these 1,050 matters, 935 (89 percent) were Hart-
    Scott- Rodino merger filings. Of these 935 filings, 827 (88 percent) expired
    within the initial 30- day HSR waiting period. The Division took no formal
    action, such as opening a PI, beyond reviewing the documents submitted by
    the merging parties and public sources of information for these 827 matters-
    a normal outcome for mergers that are permitted to proceed after the
    required premerger notification period. Table 2 shows the classification of
    the 1,050 matters closed by the Division during this time period.

    25 For reopened matters, the dispositions captured in MTS at the time we
    reviewed the data may be subsequently changed, so that the final
    dispositions, if matters were reopened, may be different from those we have
    reported in this report.

    26 GAO/ GGD- 92- 21FS, Dec. 17, 1991. Most Closed Matters

    Involved Hart- ScottRodino Filings and Were Not Pursued

    Page 17 GAO- 01- 188 Antitrust Division's Operations

    Table 2: Classification of Agriculture- Related Matters Closed by the
    Antitrust Division, Fiscal Years 1997 through 1999 Classification FY 97 FY
    98 FY 99 Total

    Hart- Scott- Rodino mergers 262 326 347 935

    Civil nonmergers 19 6 10 35

    Criminal 10 3 18 31

    Pre- Hart- Scott- Rodino mergers a 6 71326 Multiple types 4 4 5 13

    Non- Hart- Scott- Rodino mergers b 2 125 Other c 1 405

    Total 304 351 395 1,050

    a A “pre- Hart- Scott- Rodino merger” is a merger subject to HSR
    reporting but for which the PI memo was submitted before the HSR filing was
    received. b A “non- Hart- Scott- Rodino merger” is a merger not
    subject to HSR reporting.

    c Other includes business reviews, judgment enforcement, and requests for
    export trade certificates. Source: GAO analysis of data from the Division's
    MTS database.

    As discussed previously, the Division included several SIC codes in its
    definition of the agricultural industry. The largest number of the 1,050
    matters closed by the Division during the 3 fiscal years was in SIC codes
    for food manufacturing- 442, or 42 percent. Table 3 shows the number of
    matters that were closed by the Division during fiscal years 1997 through
    1999 by the agriculture- related SIC categories that make up the Division's
    definition for the agricultural industry.

    Page 18 GAO- 01- 188 Antitrust Division's Operations

    Table 3: Number of Agriculture- Related Matters Closed by the Antitrust
    Division by SIC Category, Fiscal Years 1997 through 1999

    Fiscal year 1997 1998 1999 Total

    All food manufacturing 124 162 156 442

    Eating and drinking places 50 37 45 132

    Retail food stores 26 38 67 131

    Wholesale trade– groceries 36 42 52 130

    Wholesale trade– farm supplies 8 61327 Agricultural chemicals 7 8722
    Farm machinery manufacturing 3 9719 Wholesale trade– beer, wine, and
    distilled beverages 7 6 6 19

    All crop production 4 8517 All tobacco products 5 2714 Wholesale
    trade– farm/ raw materials 10 1 3 14

    All livestock production 0 7310 Warehousing and storage 1 449 All
    agricultural services 3 115 Food products machinery manufacturing 3 036
    Wholesale trade– farm and garden machinery 2 0 2 4

    Wholesale trade– tobacco products 0 011 Multiple primary codes 2 035
    Other a 13 20 10 43 Total 304 351 395 1,050

    a Other includes those matters for which the primary SIC code was not
    agriculture, but there were secondary SIC codes that were. Note: See
    appendix I for definitions of the SIC categories used in this table. Source:
    GAO analysis of data from the Division's MTS database.

    It should be noted that FTC also handles matters in the agriculture
    industry, so the figures above do not include the entire universe of
    agriculture antitrust matters and merger filings within these SIC codes. The
    Division could not provide reliable data on the direct labor costs for
    agriculture- related matters that were closed during fiscal years 1997
    through 1999. According to Division officials, MTS does not contain reliable
    data on direct labor costs, although such data could be obtained with some
    effort from other sources.

    Page 19 GAO- 01- 188 Antitrust Division's Operations

    Not all of the matters handled by the Division culminated in a case being
    filed in civil or criminal court. We analyzed the Division's MTS database to
    ascertain how many matters completed the various phases of an inquiry or
    what the last actions taken were when no inquiry was done. As previously
    noted, the majority of the 1,050 matters closed by the Division during this
    period were filings submitted under the premerger notification provisions of
    the HSR Act. In about 88 percent of these filings, the Division did not
    initiate any formal investigative inquiries because it concluded that the
    matters did not appear to raise significant competitive concerns warranting
    a more thorough review. These matters were closed without further action on
    or before the expiration of the initial 30- day HSR waiting period expired.
    Table 4 shows the number of matters closed by the Division by the last phase
    of inquiry or action taken in the matter. The categories are listed in the
    general order of resources expended on the matter. For example, HSR filings
    that expired within the initial 30- day waiting period or that were cleared
    to FTC would not generally result in a preliminary inquiry. Conversely, a
    civil investigative demand (CID) would generally be issued following a
    preliminary inquiry.

    Table 4: Last Phase of Inquiry at Which the Division Closed Agriculture-
    Related Matters, Fiscal Years 1997 Through 1999

    Fiscal year 1997 1998 1999 Total

    HSR filings that expired within 30- day waiting period 228 284 315 827

    HSR filings that were cleared to FTC 20 18 18 56

    Non- HSR matters cleared to Justice for which a PI was not initiated 17 7 1
    25

    Non- HSR matters that were cleared to FTC 14 9 18 41

    Preliminary inquiry only 13 26 25 64

    CID a issued or grand jury held 6 41020 Civil or criminal case filed in
    court 5 3816 Business review conducted b 1 001

    Total 304 351 395 1,050

    a A CID may be issued to any person who may be in possession, custody, or
    control of documentary material, or may have any information, relevant to a
    civil antitrust investigation. A CID is a written demand for such person to
    produce such documentary material for inspection and copying, to answer in
    writing written interrogatories, to give oral testimony concerning
    documentary material, or to furnish any combination of such material,
    answers, or testimony. b According to the Division manual, under the
    Antitrust Division's Business Review Procedure, 28

    C. F. R., sect. 50.6, business entities can ascertain the Division's current
    enforcement intentions with respect to proposed business conduct. The
    business review procedure is currently used to evaluate only potential
    civil, nonmerger conduct, with the exception of a very limited number of
    health care mergers.

    Source: GAO analysis of data from the Division's MTS database.

    Phases of Closed Matters

    Page 20 GAO- 01- 188 Antitrust Division's Operations

    To determine any differences among various agriculture- related industries,
    we arrayed the inquiry phases in table 4 by primary SIC category. Table 5
    shows the last phase of each matter by the primary SIC category for all 3
    fiscal years. In appendix IV, we also summarize information about the 64
    matters shown in table 4 that were closed following a PI with no further
    action.

    Table 5: SIC Categories for Different Phases of Agriculture- Related Matters
    Closed by the Division During Fiscal Years 1997 Through 1999

    Category HSR- DOJ HSR –

    FTC NonHSR

    – DOJ

    NonHSR FTC PI

    CID or Grand

    Jury Civil or

    crim. case Bus.

    Review Total

    All food manufacturing 340 20 11 8 41 14 8 0 442

    Eating and drinking places 1292 0000 1 0132 Retail food stores 95 13 2 19 2
    0 0 0 131

    Wholesale trade– groceries 1164 2151 1 0130 Wholesale trade–
    farm supplies 220 1021 1 027 Agricultural chemicals 126 0300 1 022 Farm
    machinery manufacturing 171 0020 0 020 Wholesale trade– beer, wine,
    and distilled beverages 14 1 3 0 1 0 0 0 19

    All crop production 912122 0 017 Tobacco manufacturing 101 0300 0 014
    Wholesale trade– farm/ raw materials 612020 3 014 All livestock
    production 900010 0 010 Warehousing and storage 900000 0 09 All agricultural
    services 410000 0 05 Food machinery manufacturing 201110 0 05 Wholesale
    trade– farm and garden machinery 2 0 0 1 1 0 0 0 4

    Wholesale trade– tobacco products 1 0 0 0 0 0 0 0 1

    Multiple primary codes 030020 0 05 Other a 302 1422 1 143

    Total 827 56 25 41 64 20 16 1 1, 050

    a Other are those matters for which the secondary code( s), but not the
    primary code( s), was included in the definition of agricultural industry.
    Source: GAO analysis of data from the Division's MTS database.

    Upon reviewing these tables, the Division questioned the category
    “NonHSR

    matters cleared to Justice for which a PI was not initiated” in table
    4. We provided the Division with a list of the matters that we placed in
    that category as a result of our analysis of the MTS database. After
    additional

    Page 21 GAO- 01- 188 Antitrust Division's Operations

    research of the files and discussions with the attorneys who handled some of
    these matters, the Division provided additional information on all 25 of the
    matters in that category.

    According to Division officials, of these 25 matters, the last action or
    phase for 4 was PI, CID or grand jury for 5, and a case filed in court for
    3. The officials indicated that the Division initiated a PI memorandum but
    that a PI was not conducted for one matter; and the Division had considered
    opening a PI for another, but then decided not to after gathering additional
    information about the matter. They indicated that the remaining 11 matters
    involved Division activities that do not require that a PI be opened- 5
    involved the Division's responsibilities for granting an export trade
    certificate, 2 involved judgment enforcement actions, 2 involved judgment
    modification actions, 1 was a business review letter, and 1 was an internal
    matter- one field office reviewing another office's files for ideas on how
    to approach a possible investigation.

    According to Division officials, the 12 matters for which a PI had been
    opened, a CID issued, a grand jury convened, or a case filed in court should
    all have been linked in MTS to other matters in the database. They said that
    the links apparently had not been made in the database and believed that
    including these matters in our profile would, therefore, be double-
    counting. As previously noted, we based our profile on the information that
    was available in the MTS database. Although we understand the Division's
    concern about double- counting, we have not dropped these matters from our
    analysis for mainly two reasons. First, we do not know whether there were
    additional cases for which the MTS database was missing appropriate links.
    It is possible that additional case file review and analysis would have
    resulted in alterations to the MTS data for other matters. Second, removing
    these 25 matters from our profile would afford them preferential treatment
    based on detailed Division research and analyses that were not conducted for
    all agriculture- related matters in the database. Moreover, the fact that
    the Division had to conduct additional review on these matters to clarify
    their status further illustrates that the information in the database is not
    wholly reliable. Given the problems we encountered with the database
    throughout this assignment, we believe that the data available from MTS
    cannot be used without the type of time- consuming checking and scrutiny
    that the Division and we performed. An accurate, detailed picture of the
    Division's workload cannot readily be determined using MTS alone until the
    Division corrects the errors that have been identified and verifies that all
    of the data in MTS are accurate and reliable.

    Page 22 GAO- 01- 188 Antitrust Division's Operations

    Although the Division had a specific policy to document all complaints and
    leads received, the policy was not consistently followed in the past by all
    sections and field offices. Federal internal control standards, among other
    things, note that all transactions and significant events should be clearly
    documented and promptly recorded to maintain their relevance and value to
    management in controlling operations and making decisions. 27 The Division's
    new policy requiring staff to document all complaints and leads in CCTS is a
    step in the right direction. However, given our 1991 finding that the 1980
    policy was not being followed by all sections and field offices and given
    the findings of our current review, we believe that better guidance and
    closer management attention will be needed to ensure compliance with
    whatever policy is in place.

    However, even if the new policy is implemented consistently, the CCTS system
    is inadequate for providing the information needed to assess patterns in
    complaints and leads by industry or track and analyze the results of
    complaints and leads. CCTS does not include specific fields for SIC code or
    the final outcome of complaints and leads received from the public.
    Furthermore, the Division's primary management information system for
    tracking matters, MTS, does not include information on the source of a
    matter, nor is it linked to CCTS. As a result, Division officials may not
    have readily available information on the source of matters and the specific
    industries about which the Division is receiving complaints.

    The data in the Division's MTS, which are used for developing management and
    budget reports, are not totally accurate and reliable. Errors have been
    identified that have not been corrected. For example, links were not
    consistently established between related matters, and actions were recorded
    after matters had reportedly been closed. Given the problems we encountered
    with the MTS database throughout this assignment, we believe that MTS
    information should be used with caution and that an accurate, detailed
    picture of the Division's workload cannot

    27 Standards for Internal Control in the Federal Government (GAO/ AIMD- 00-
    21. 3. 1, Nov. 1999). Conclusions

    Page 23 GAO- 01- 188 Antitrust Division's Operations

    readily be determined until the Division corrects the errors that have been
    identified and verifies that all MTS data are accurate and reliable.

    To ensure that (1) all complaints and leads are documented as required by
    the Division policy; (2) data are readily available on the final outcome of
    complaints and leads, the source of matters, referrals of matters to other
    agencies, and the specific industries in which the Division receives
    complaints and leads; and (3) the Division has an accurate and reliable
    database that can be used to prepare meaningful management and budget
    reports, we recommend that the Attorney General direct the Assistant
    Attorney General for Antitrust to

    ? modify CCTS to capture the related SIC code( s);

    ? monitor compliance with the November 27, 2000, policy regarding
    documenting and tracking public inquiries;

    ? link CCTS to MTS to provide a mechanism to determine the source of the
    matter and the ultimate outcome of a complaint; and

    ? correct the errors that have been identified in MTS as a result of our
    work and verify that the MTS data are accurate and reliable.

    Justice's Antitrust Division provided written comments on a draft of this
    report. In its comments, which are included as appendix V, the Division
    stated that our recommendation to incorporate a data field for SIC codes
    into CCTS was reasonable and that it would also consider our recommendation
    to link CCTS to MTS to enable the Division to track the results of citizens'
    complaints. The Division was silent on our recommendation that it monitor
    compliance with the November 27, 2000, policy regarding documenting and
    tracking public inquiries.

    The Division took issue with our recommendation to correct errors and
    improve the accuracy and reliability of MTS data. The Division stated that
    although data linkages can be improved and data coding reviewed to ensure
    consistency, MTS is soundly structured, logically presented, and contains
    fully reliable data. The Division contended that we based our conclusion
    concerning the reliability of MTS data largely on the results of 25 of 1,050
    agriculture- related matters.

    We continue to believe that the Division needs to take steps to improve the
    accuracy and reliability of MTS data. Contrary to the Division's assertions,
    the basis for our conclusion goes beyond the 25 matters highlighted in the
    report. On numerous occasions during our review, we had to ask officials
    Recommendations

    Agency Comments

    Page 24 GAO- 01- 188 Antitrust Division's Operations

    for clarification about data issues because the information as presented was
    not clear or appeared to be in error. For example, there were many matters
    for which we could not determine the final disposition on the basis of the
    data recorded. Division officials needed to devote considerable time and
    effort to respond to questions and issues we raised. MTS data should not
    require repeated reviews and refinements to produce accurate data on simple
    frequency counts of the number of matters closed. The finding of missing
    database links for 12 of the 25 matters further illustrates the difficulty
    of creating accurate frequency counts using the MTS database without careful
    and time- consuming review of the data, sometimes requiring a review of the
    case files. The Division acknowledged in its letter that it is currently
    reviewing how best to ensure that any similar linkage issues are identified
    and corrected, and it is updating MTS as new information becomes available
    and inaccuracies or gaps are discovered. These statements show that the
    Division recognizes that information in the MTS database needs improvement.

    In connection with its discussion on data reliability problems, the Division
    mistakenly stated that we found that its reopening of previously closed
    matters was an indication of incorrect closures. We recognize that closed
    matters are sometimes reopened in light of new evidence and do not object to
    the Division doing so. Our point was that the database does not accurately
    portray this activity, and we noted this as another example of MTS failing
    to accurately represent Division activity. However, we modified the language
    in our report to clarify this issue.

    The Division also commented on four other items discussed in our report.
    First, the Division stated that contrary to our assertion, it could report
    direct labor costs for matters but not from one central data source. During
    our review a high- level Division official stated that although it is true
    that MTS does not contain accurate data on direct labor costs for specific
    matters, such data would be available through various other sources.
    However, at a meeting to discuss direct labor costs, among other things,
    this official told us that although the Division could provide us with these
    data with considerable effort, the data would be incomplete and lack
    credibility.

    Second, the Division indicated that its efforts to improve its documentation
    of complaints and leads began well before we initiated our review. However,
    the Division's response ignores the fact that the problems we identified in
    tracking complaints and leads were also identified in our 1991 report. Thus,
    any corrective actions taken over the last 10 years were insufficient to
    address the deficiencies identified in that

    Page 25 GAO- 01- 188 Antitrust Division's Operations

    report. As noted in our report, at the beginning of our review Division
    officials were unsure whether the 1980 policy to document and track
    complaints and leads was still in effect. Further, at the beginning of our
    review the Division's sections and offices were not using a uniform system
    to document and track complaints and leads. The Division issued a memorandum
    in February 2000 that instructed the legal sections and field offices to use
    CCTS to track all public inquiries and ensure that they were addressed in a
    timely manner. In June 2000, we found that 7 out of the 12 sections and
    field offices were not using CCTS to document and track complaints and
    leads. Of the five that were using CCTS, three had begun using it only after
    March 2000. In October 2000, the Division issued a directive requiring all
    sections and field offices to (1) use the CCTS to document and track all
    unsolicited pubic contacts and (2) maintain a central file of these
    contacts.

    Third, the Division stated that the draft report gave the impression that if
    a merger filing under the HSR process did not result in a PI being opened,
    the Division had taken no action. It was not our intent to give this
    impression. Our report states that the Division took no formal action in
    these filings. Further, our report states that it is a normal outcome that
    PIs are not initiated for the majority of HSR mergers and that such mergers
    are permitted to proceed at the end of the required waiting period after the
    Division has concluded that they should be permitted to proceed. However, we
    modified the language in our report to clarify this issue.

    Fourth, the Division commented on the definition of
    “agriculture” used to determine which matters to include in our
    review, intimating perhaps that this was a shortcoming of the Division. We
    did not take issue with the Division's lack of a working definition of
    agriculture. We merely stated that because there was no set definition, we
    needed to determine one to define the constraints of our review.
    Furthermore, we relied on the Division's judgment in this matter and
    accepted its definition as given. In fact, the definition the Division
    provided was the same one that it used in its April 2000 response to Senator
    Lugar on another agriculture- related antitrust matter.

    The Division also offered technical comments on the draft, which we
    incorporated where appropriate. However, we disagree with the Division's
    characterization of our description of the antitrust legal framework and
    antitrust enforcement, as the vast majority of its comments were technical
    suggestions or editorial preferences and not substantive. Moreover, in some
    cases, the Division's suggested changes altered wording taken directly from
    the Division's written policies and

    Page 26 GAO- 01- 188 Antitrust Division's Operations

    procedures. In such cases, we generally retained the wording from the
    Division's official documentation.

    We also requested comments from FTC and USDA officials with whom we had met
    during this review. Both agencies provided technical comments, which we
    incorporated where appropriate.

    We will send copies of this report to Senator Orrin G. Hatch, Chairman, and
    Senator Patrick J. Leahy, Ranking Member, Senate Committee on the Judiciary;
    Representative Jim Sensenbrenner, Jr., Chairman, and Representative John
    Conyers, Jr., Ranking Minority Member, House Committee on the Judiciary; the
    Honorable John D. Ashcroft, Attorney General; the Honorable Mitchell E.
    Daniels, Jr., Director of Management and Budget; and other interested
    parties. We will also make copies available to others upon request. This
    report will also be available on GAO's home page at http:/ www. gao. gov.

    Please contact William Jenkins or me on (202) 512- 8777 if you or your staff
    have questions about this report. Major contributors to this report are
    acknowledged in appendix VI.

    Richard M. Stana Director, Justice Issues

    Appendix I: Objectives, Scope and Methodology

    Page 27 GAO- 01- 188 Antitrust Division's Operations

    Our objectives were to (1) describe the Department of Justice's Antitrust
    Division's (Division) interaction with the Federal Trade Commission (FTC)
    and the U. S. Department of Agriculture (USDA) with regard to antitrust
    matters in the agriculture industry, (2) provide information on the number
    of complaints and leads in the agriculture industry received by the Division
    for fiscal years 1997 through 1999, and (3) provide information on the
    number and type of closed matters in the agriculture industry for fiscal
    years 1997 through 1999.

    Because the Antitrust Division does not have a working definition of the
    agriculture industry, we first had to determine what constituted the
    agriculture industry. To define what complaints, leads, matters, and cases
    were related to agriculture, we met with the Division and requestor staff to
    identify the Standard Industrial Classification (SIC) codes that would
    encompass agriculture. The Division assigns each matter or case one or more
    SIC codes. As agreed with Senator Grassley's office, we used the Division's
    selected SIC codes to define the agriculture- related activities. The
    Division's selected SIC codes used to define the agriculture industry
    included those specifically related to plant and animal products that
    originate on land and are commercially cultivated or raised for human or
    animal consumption, meaning oral ingestion. If any identified complaint,
    lead, matter, or case included one of these SIC codes, we included it in our
    analysis. The SIC codes the Division included in its definition for the
    agricultural industry, as well as the way we grouped them for analysis
    purposes, are shown in table 6. Appendix I: Objectives, Scope and

    Methodology

    Appendix I: Objectives, Scope and Methodology

    Page 28 GAO- 01- 188 Antitrust Division's Operations

    Table 6: SIC Codes Included in the Definition of the Agriculture Industry.
    GAO Categorization SIC Code a Definition

    All crop production 01 All crop production, including tobacco and cotton
    (because of cottonseed oil), with the sole exception of ornamental nursery
    products (Code 0181) All livestock production 02 All livestock, including
    animal aquaculture (Code 0273), except for fur- bearing

    animals and rabbits (Code 0271), horses and other equines (Code 0272), and
    animal specialties not elsewhere classified (Code 0279 - pets, lab animals,
    etc) All agricultural services 07 All agricultural services, including
    cotton ginning (Code 0724 – a necessary step in

    producing cottonseed oil), except for specialized veterinary services (Code
    0742 –

    pets, horses, fur- bearers), and landscape and horticultural services (Code
    078 –

    lawnscapes, lawn and garden, ornamental shrubs and trees) All food
    manufacturing 20 All food manufacturing, except canned and cured seafood
    (Code 2091), fresh or

    frozen prepared fish (Code 2092), and manufactured ice (Code 2097) Tobacco
    manufacturing 21 All tobacco products manufacture Agricultural chemicals 287
    Agricultural chemicals manufacture Farm machinery manufacturing 3523 Farm
    machinery and equipment manufacture Food machinery manufacturing 3556 Food
    products machinery manufacture

    4221 Farm product warehousing and storage Warehousing and storage 4222
    Refrigerated warehousing and storage Wholesale trade– farm and garden
    machinery 5083 Wholesale trade in farm and garden machinery Wholesale
    trade– groceries 514 Wholesale trade in groceries and related
    products, except for trade related solely to

    fish and seafood (Code 5146) Wholesale trade– farm/ raw materials 515
    Wholesale trade in farm product raw materials Wholesale trade– beer,
    wine, and distilled beverages 518 Wholesale trade in beer, wine, and
    distilled beverages Wholesale trade– farm supplies 5191 Wholesale
    trade in farm supplies Wholesale trade– tobacco products 5194
    Wholesale trade in tobacco and tobacco products Retail food stores 54 Retail
    food stores Eating and drinking places 58 Eating and drinking places Liquor
    stores 592 Liquor stores Tobacco stores and stands 5993 Tobacco stores and
    stands

    a Two- digit SIC codes designate each major industry group. The scheme is
    hierarchical and allows related industries to be classified together. Each
    additional digit provides an increasing level of specificity in designating
    the industry group.

    To obtain information on the Division's interaction with the FTC and USDA,
    in each of the three agencies, we relied primarily on interviews with key
    officials in the Division, FTC, and USDA. We relied on these officials'
    representation of the agencies' interaction. We also reviewed the Division's
    policies and procedures for interacting with other agencies and relevant
    interagency agreements, including the 1999 Memorandum of

    Appendix I: Objectives, Scope and Methodology

    Page 29 GAO- 01- 188 Antitrust Division's Operations

    Understanding that addresses cooperation among the Division, FTC, and USDA
    for monitoring competitive conditions in the agricultural marketplace. In
    addition, we reviewed Division testimonies, speeches, and press statements
    that addressed the interaction among the agencies. With regard to merger
    investigations, we reviewed agreements between the Division and FTC for
    cases that fell within the joint antitrust jurisdiction of both agencies.
    These included a 1993 agreement that established clearance procedures for
    investigations and a 1995 agreement in which the agencies agreed to specific
    time frames for deciding which agency should investigate a matter.

    Because the Division had not collected consistent, divisionwide information
    on complaints and leads, we relied on data provided by Division officials to
    obtain information about the agriculture- related complaints and leads the
    Division received by mail, telephone, facsimile, e- mail, or personal visit
    during fiscal years 1997 through 1999. To obtain information on the policies
    and procedures for documenting and tracking complaints and leads, we
    interviewed the Director of Legal Policy; the Chief of the Legislative Unit;
    the Executive Officer; the Special Counsel for Agriculture; and the
    Directors of Criminal Enforcement, Civil Merger Enforcement, and Civil
    Nonmerger Enforcement. In addition, we reviewed the Division's directives
    for tracking complaints and leads. We also held structured interviews with
    Division officials representing the five headquarters sections or task
    forces- Civil Task Force; Litigation I section; Litigation II section;
    Transportation, Energy and Agriculture section, and Merger Task Force 1 -and
    the seven field offices- Atlanta, Chicago, Cleveland, Dallas, New York,
    Philadelphia, and San Francisco- that Division officials said would most
    likely have reviewed anticompetitive matters in the agriculture industry for
    the period we reviewed. We asked them to describe their policies and
    procedures for documenting and tracking complaints and leads. We provided
    them with the agriculture- related SIC codes, and we asked them to provide
    us with data on, among other things, the total number of agriculture-
    related complaints and leads received by SIC code for each fiscal year 1997
    through 1999 and the outcome of the complaint or lead. Because of the
    variety of methods used to track complaints and leads within the Division,
    we could not verify the accuracy or completeness of the data provided to us.

    1 In July 1999, the Merger Task Force was combined with the Litigation II
    Section.

    Appendix I: Objectives, Scope and Methodology

    Page 30 GAO- 01- 188 Antitrust Division's Operations

    To summarize and describe the matters that were closed during fiscal year
    1997 through 1999, we analyzed data from the Division's Matter Tracking
    System (MTS). MTS contains information on all civil merger, civil nonmerger,
    and criminal matters handled by the Division. As each matter goes through
    various phases in the enforcement process, MTS is to capture each phase and
    its related disposition. MTS is designed and used primarily for Division
    management purposes.

    We obtained data on the characteristics of the matters for those
    agriculture- related SIC codes for fiscal years 1997 through 1999. To
    understand the data elements in MTS and how the Division systematically
    maintains information on matters during its review of potential
    anticompetitive conduct, we reviewed the Antitrust Division Manual and the
    Division's MTS data dictionary, and we met with officials from the
    Division's Information Systems Support Group.

    We defined a closed matter as any effort (e. g., a case, an investigation,
    an inquiry, etc.) in the database that the Division closed during fiscal
    years 1997, 1998, or 1999. The database defines matters by use of a unique
    identification number, which tracks efforts that may span multiple years
    and/ or contain multiple phases. We used this number to identify each
    individual matter.

    To provide a profile, we categorized the closed matters in the agriculture
    industry into the following groups:

    1. Hart- Scott- Rodino (HSR) matters that expired by the 30- day limit
    (under Division purview),

    2. HSR matters that were cleared to FTC, 3. non- HSR matters on which a
    formal PI was not opened (under Division

    purview), 4. non- HSR matters that were cleared to FTC, 5. matters in which
    a PI was opened but no further action was taken by

    the Division, 6. matters on which a civil investigation was conducted or a
    grand jury

    was held, 7. matters for which a civil or criminal case was filed in court,
    or

    Appendix I: Objectives, Scope and Methodology

    Page 31 GAO- 01- 188 Antitrust Division's Operations

    8. business review matters. The groups were defined on the basis of the last
    phase recorded in the database for the matter. A matter in group (7), for
    example, might have originated as an HSR filing; but it was assigned to
    group (7) because the last phase recorded either indicated that a case was
    filed, or it gave the outcome (e. g., “won”) of the case.

    To augment MTS information for our profile of closed matters, we reviewed
    Antitrust Division memorandums for matters for which a PI was conducted but
    no further actions were taken by the Division. Our data collection
    instrument included the dates that the investigation was authorized to be
    opened and closed, the type of matter, statute and potential antitrust
    conduct violated, geographic market, amount of commerce affected, SIC code(
    s), section assigned to review the matter, reason for closing the
    investigation, and whether or not there was economic analysis group
    concurrence.

    For those matters for which we were unable to understand the information
    provided in the memoranda, we spoke with a Division official to clarify the
    information. We verified summary results with Antitrust Division officials,
    and we discussed and came to agreement on matters of discrepancy.

    Appendix II: Overview of the Department of Justice's Antitrust Division
    Staffing and Functions

    Page 32 GAO- 01- 188 Antitrust Division's Operations

    The Department of Justice's Antitrust Division's (Division) mission is to
    promote and maintain competition in the American economy. According to its
    manual, the Division's primary functions and goals include

    ? the general criminal and civil enforcement of the federal antitrust laws
    and other laws relating to the protection of competition and the prohibition
    of restraints of trade and monopolization;

    ? the intervention or participation before administrative agencies
    functioning wholly, or partly, under the regulatory statutes in proceedings
    requiring consideration of the antitrust laws or competitive policies; and

    ? the advocacy of procompetitive policies before other branches of
    government.

    To accomplish its mission, the Division has 16 sections or task forces in
    headquarters and 7 field offices located throughout the United States. As
    shown in table 7, as of July 21, 2000, the Division had 561 full- time staff
    and 237 part- time staff, of which about 29 percent of the full- time staff
    and about 21 percent of the part- time staff were assigned to the field
    offices.

    Table 7: Antitrust Division's Section and Field Office Staffing, as of July
    21, 2000 Attorney Economists Paralegals Secretaries Other Total Headquarters
    section Fulltime Parttime

    Fulltime Parttime Fulltime Parttime Fulltime Parttime Fulltime Parttime
    Fulltime Parttime

    Office of AAG 14 2 0 0 0 1 4 0 5 0 23 3 Office of Operations 71 0 0 0 3 22
    20116

    FOIA and Privacy Act U nit 10 0 0 4 1 01 21 73 Paralegal Unit 0 0 0 0 16 71
    0 7 0 1 16 79 Appellate Section 10 1 0 0 0 0 2 0 1 0 13 1 Civil Task Force
    19 4 0 0 0 4 4 4 0 0 23 12 Competition Policy Section 0 0180 001002192
    Computers and Finance Section 24 1 0 0 0 2 4 1 1 1 29 5 Economic Litigation
    Section 0 0153 013172257 Economic Regulatory Section 0 0190 002303216
    Executive Office 00 0 0 0 0 112292310

    Information Systems Support Group 00 0 0 0 0 02201203 Foreign Commerce
    Section 71000002 10 83 Legal Policy Section 52 0 0 0 0 10 10 72

    Appendix II: Overview of the Department of Justice's Antitrust Division
    Staffing and Functions

    Appendix II: Overview of the Department of Justice's Antitrust Division
    Staffing and Functions

    Page 33 GAO- 01- 188 Antitrust Division's Operations

    Attorney Economists Paralegals Secretaries Other Total Headquarters section
    Fulltime Parttime

    Fulltime Parttime Fulltime Parttime Fulltime Parttime Fulltime Parttime
    Fulltime Parttime

    Litigation I Section 15 1 0 0 0 1 2 1 2 0 19 3 Litigation II Section 47 5 1
    0 0 4 5 8 2 0 55 17 Telecommunications Task Force 25 5 0 0 0 3 4 3 1 0 30 11
    Transportation, Energy and Agriculture Section 25 3 0 0 0 3 6 2 1 0 32 8
    Health Care Task Force 12 2 0 0 0 1 3 2 1 0 16 7

    Totals 211 28 53 3 20 97 44 40 69 20 397 188 Percent of division totals 38
    12 9 1 4 41 8 17 12 8 71 79 Field offices

    Atlanta 12 1 0 0 5 4 2 2 2 0 21 7 Chicago 11 0 1 0 2 5 5 1 3 0 22 6
    Cleveland 13 1 0 0 2 3 2 2 3 0 20 6 Dallas 13 0 0 0 3 5 4 1 3 0 23 6 New
    York 17 1 0 0 3 4 4 2 4 0 28 7 Philadelphia 14 2 0 0 1 7 4 2 2 0 21 11 San
    Francisco 16 1 1 0 3 2 4 2 5 1 29 6

    Totals 96 6 2 0 19 30 25 12 22 1 164 49 Percent of division totals 17 3 .4 0
    3 13 4 5 4 .4 29 21 Division totals 307 34 55 3 39 127 69 52 91 21 561 237

    Note: Percentages do not add to 100 due to rounding. Source: Antitrust
    Division staffing summary as of July 21, 2000.

    The Assistant Attorney General (AAG) for the Antitrust Division is
    responsible for leadership and oversight of all Division programs and
    policies. The Division AAG is nominated by the president and confirmed by
    the Senate. The AAG's Chief of Staff is responsible for managing the Office
    of the Assistant Attorney General, advising the AAG on the formulation and
    implementation of highly sensitive antitrust policy issues, and coordinating
    that policy with other federal and state government agencies.

    As of November 2000, the Division AAG had has three special counsels- the
    Special Counsel for Civil Enforcement, the Special Counsel for Information
    Technology, and the Special Counsel for Agriculture (who

    Appendix II: Overview of the Department of Justice's Antitrust Division
    Staffing and Functions

    Page 34 GAO- 01- 188 Antitrust Division's Operations

    was appointed in January 2000). 1 The special counsels are generally
    responsible for:

    ? maintaining expertise in assigned program areas and the competitive issues
    affecting them;

    ? advising the AAG and other senior Division management about enforcement
    priorities in assigned program areas and assisting in the development and
    implementation of Division policy in these areas;

    ? assisting the Division in articulating its views on issues involving
    assigned program areas before other government entities, the press, the bar,
    and the public; and

    ? participating as appropriate in the identification of potential
    investigations assigned to program areas and any resulting investigation or
    enforcement action.

    The Division also has five Deputy Assistant Attorneys General (DAAG), at
    least one of whom has traditionally been a career employee; and three
    Directors of Enforcement, one of whom serves as the Director of Operations.
    Each DAAG has a number of components that report to him or her. (See fig.
    1.)

    1 Currently, only the Special Counsel for Agriculture remains. More may be
    added by the new Assistant Attorney General when he arrives.

    Appendix II: Overview of the Department of Justice's Antitrust Division
    Staffing and Functions

    Page 35 GAO- 01- 188 Antitrust Division's Operations

    Appendix II: Overview of the Department of Justice's Antitrust Division
    Staffing and Functions

    Page 36 GAO- 01- 188 Antitrust Division's Operations

    Figure 1: Antitrust Division's Organizational Chart, as of November 2000

    Deputy Assistant Attorney General

    for Economic Analysis

    Litigation I Section Atlanta

    Office New York

    Office Chicago

    Office Cleveland

    Office Dallas

    Office San Francisco

    Office Philadelphia

    Office Economic

    Litigation Section

    Competition Policy Section

    Economic Regulatory

    Section Deputy Assistant

    Attorney General for Criminal Enforcement

    B

    Assistant Attorney General A

    This line represents the office's involvement with the three Deputy
    Assistant Attorneys General

    Appendix II: Overview of the Department of Justice's Antitrust Division
    Staffing and Functions

    Page 37 GAO- 01- 188 Antitrust Division's Operations

    Source: Antitrust Division.

    Principal Deputy Assistant Attorney General

    Deputy Assistant Attorney General

    for Civil Non- Merger

    Enforcement Deputy Assistant

    Attorney General for Merger Enforcement

    Office of Operations

    Civil Task Force

    Foreign Commerce

    Section Computers and Finance

    Section Appellate

    Section Health Care

    Task Force Transportation

    Energy and Agriculture

    Telecommunications Task Force

    Legal Policy Section

    Litigation II Executive

    Office

    B

    Special Counsel for Information Technology

    Special Counsel for Civil Enforcement

    Special Counsel for Agriculture

    A

    Appendix II: Overview of the Department of Justice's Antitrust Division
    Staffing and Functions

    Page 38 GAO- 01- 188 Antitrust Division's Operations

    The DAAG for Criminal Enforcement, who traditionally has been a career
    employee, has overall supervisory and management responsibility for the
    Litigation I Section and the Division's seven field offices and is primarily
    responsible for the Division's criminal enforcement program. The civil
    enforcement responsibilities are divided among the remaining three legal
    DAAGs.

    The DAAG for Economic Analysis 2 has supervisory and management
    responsibility for the three economic sections (i. e., Economic Litigation,
    Economic Regulatory, and Competition Policy). The Economic Litigation
    Section focuses on general industries that historically have not been
    regulated; it also has a Corporate Finance Unit, which provides financial
    analyses of failing firm defenses, divestitures, and efficiencies defenses;
    makes recommendations as to fines; and reviews financial issues involved in
    damage analyses and other issues requiring financial, accounting, and
    corporate analysis. The Economic Regulatory Section focuses on industries
    that currently are regulated or historically have been regulated (e. g.,
    telecommunications, airlines, and energy matters). The Competition Policy
    Section assists in matters that have a strong foreign outreach connection as
    well as matters involving certain specialized industries.

    In total, the economic sections are made up of 52 full- time and 3 part-
    time economists. According to a Division official, the economic sections
    have a common pool of staff members. Although economists are assigned to one
    of the three sections, in practice they work for all three sections.
    According to a Division official, this practice helps balance workload.

    The three Directors of Enforcement- which include the Director of Merger
    Enforcement, the Director of Civil Non- Merger Enforcement, and the Director
    of Criminal Enforcement- have direct supervisory authority over the
    activities of the various litigating sections, task forces, and field
    offices, each of which is headed by a Chief and Assistant Chief. These
    sections, task forces, and field offices carry out the bulk of the
    Division's investigatory and litigation activities. According to the
    Division manual, the three Directors of Enforcement work closely with the
    DAAGs in overseeing Division activities. Four special assistants to the
    Directors of Enforcement are each assigned several sections and field
    offices and play

    2 In 1985, the head economist was elevated to the position of DAAG for
    Economics and began to report directly to the Division's AAG. Prior to then,
    the Economics Director formally reported to one of the Division's DAAGs.

    Appendix II: Overview of the Department of Justice's Antitrust Division
    Staffing and Functions

    Page 39 GAO- 01- 188 Antitrust Division's Operations

    a liaison role between those sections and the Directors, in addition to
    performing other duties as assigned by the Directors. The senior Special
    Assistant also serves as the Liaison Officer to FTC.

    The Director of the Office of Operations, who also serves as one of the
    Directors of Enforcement, reports to the AAG. The Office of Operations
    coordinates the policies and procedures governing the Division's civil
    investigations and enforcement actions and includes four support units. The
    Premerger Notification Unit/ FTC Liaison Office (commonly referred to as the
    Premerger Office) receives the Division's copy of all Hart- ScottRodino
    filings and assigns them to the appropriate sections. The Premerger Office
    communicates to FTC the Division's interest in conducting an investigation
    or its willingness to grant early termination of the filing period. The
    Freedom of Information Act (FOIA) Unit is responsible for receiving,
    evaluating, and processing all FOIA requests made of the Division; assisting
    in the preparation of materials to be provided to state attorneys general;
    and maintaining and indexing pleadings, business review letters, and other
    frequently used files. The Paralegal Unit provides paralegal support on
    request to investigations and cases handled in Washington, D. C., and the
    field offices. The Training Unit coordinates training opportunities for the
    Division's legal and support personnel.

    The Division has seven Washington, D. C., litigating sections and task
    forces, including the following:

    ? The Computers and Finance Section enforces antitrust laws and competition
    policy in the banking, finance, insurance, securities, and computer
    industries.

    ? The Civil Task Force handles civil nonmerger antitrust enforcement in some
    assigned industries, in intellectual property matters, and in all industries
    not specifically assigned elsewhere and handles merger matters in its
    assigned industries.

    ? The Health Care Task Force investigates and litigates civil merger and
    nonmerger antitrust law violations involving the health care industry and
    provides legal guidance to the American health care industry through an
    extensive business review program.

    ? The Litigation I Section conducts criminal investigations and litigation
    in conjunction with its field office counterparts.

    ? The Litigation II Section enforces antitrust laws with regard to mergers
    and acquisitions in unregulated industries; handles some civil nonmerger
    work in its assigned industries; and reviews, investigates, and litigates

    Appendix II: Overview of the Department of Justice's Antitrust Division
    Staffing and Functions

    Page 40 GAO- 01- 188 Antitrust Division's Operations

    matters in a large variety of industries. 3 This section is also responsible
    for the review of bank mergers.

    ? The Telecommunications Task Force enforces antitrust laws and promotes
    procompetitive regulatory policies in the communications industry,
    investigating and litigating violations of antitrust laws within that
    industry, and participating in proceedings before the Federal Communications
    Commission.

    ? The Transportation, Energy and Agriculture Section enforces antitrust laws
    and promotes procompetitive regulatory policies in transportation, energy,
    and agricultural commodities, investigating and litigating violations of
    antitrust laws within those industries, and participating in proceedings
    before a number of federal regulatory agencies, including the Department of
    Agriculture; and prepares reports to Congress and the executive branch on
    policy issues related to various transportation, energy, and agriculture
    industries.

    The Division's seven field offices conduct criminal investigations and
    litigation. Field offices also handle some civil merger and nonmerger
    matters, depending on resource availability and particular expertise. The
    offices act as the field liaison with U. S. Attorneys, state attorneys
    general, and other law enforcement agencies within their areas of
    jurisdiction (see table 8).

    Table 8: Antitrust Division Field Offices Field office States covered by the
    field offices

    Atlanta Alabama, Florida, Georgia, Mississippi, North Carolina, South
    Carolina, Tennessee, Puerto Rico, U. S. Virgin Islands Chicago Colorado,
    Illinois, Indiana, Iowa, Kansas, West District of Michigan, Minnesota,
    Missouri, Nebraska, North Dakota,

    South Dakota, Wisconsin Cleveland Kentucky, Eastern District of Michigan,
    Ohio, West Virginia Dallas Texas, Oklahoma, Louisiana, New Mexico, Arkansas
    New York Connecticut, Maine, Massachusetts, New Hampshire, Northern New
    Jersey, New York, Rhode Island, Vermont Philadelphia Delaware, Maryland,
    Southern New Jersey, Pennsylvania, Virginia San Francisco Alaska, Arizona,
    California, Hawaii, Idaho, Montana, Nevada, Oregon, Utah, Washington,
    Wyoming

    Source: Antitrust Division.

    3 Prior to July 1999, the Division had eight sections. In July 1999, the
    Merger Task Force was folded into the Litigation II Task Force. The Merger
    Task Force was responsible for the enforcement of the antitrust laws with
    regard to mergers and acquisitions in its assigned unregulated industries.
    It also handled some civil nonmerger work in those industries.

    Appendix II: Overview of the Department of Justice's Antitrust Division
    Staffing and Functions

    Page 41 GAO- 01- 188 Antitrust Division's Operations

    The Division also has several specialized components, in addition to those
    included in the Office of Operations, that assist in carrying out the
    Division's mission.

    ? The Executive Office formulates and administers the Division's budget,
    manages its reporting and records, handles personnel matters, and provides
    information systems services for all Division activities. This Office
    includes the Information Services Support Group, which provides automated
    services and resources to handle information in support of the Division's
    attorneys, economists, and managers.

    ? The Appellate Section represents the Division in appeals to the U. S.
    Courts of Appeals and appeals before the U. S. Supreme Court.

    ? The Legal Policy Section provides analyses of complex antitrust policy
    matters; coordinates the Division's legislative program; and handles
    longrange planning, projects, and programs of special interest to the AAG.
    This Section includes the Legislative Unit, which coordinates the Division's
    relations with Congress and responds to congressional requests and inquiries
    of the Division.

    ? The Foreign Commerce Section assists other sections in matters with
    international aspects and is primarily responsible for the development of
    Division policy on international antitrust enforcement and competition
    issues involving international trade and investment.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 42 GAO- 01- 188 Antitrust Division's Operations

    The Antitrust Division is responsible for, among other things, promoting and
    maintaining competition in the United States by enforcing the federal
    antitrust laws. It is charged with investigating and prosecuting violations
    of these laws. The Division's Antitrust Division Manual 1 is intended to
    provide a comprehensive source of information about the Division's mission
    and investigative and enforcement procedures and practices. The following is
    a general overview of the antitrust investigative and enforcement processes,
    up to the point at which an enforcement action is filed, for the three
    principal types of antitrust enforcement actions brought by the Division-
    Hart- Scott- Rodino merger enforcement actions, civil enforcement actions,
    and criminal prosecutions. 2

    The Division may become aware of a possible antitrust violation through a
    variety of sources, including a confidential informant; individuals or
    corporations applying for amnesty; complaints and referrals from other
    government departments or agencies; an anonymous tip; or through reviews of
    newspapers, journals, and trade publications. New investigations may also
    begin with information the Division obtains in other grand jury proceedings,
    or in merger filings required by the premerger notification provisions of
    the Hart- Scott- Rodino Antitrust Improvements Act of 1976 (HSR Act, 15 U.
    S. C. 18a). Economists from one of the Economic Analysis Group sections may
    also discover a possible anticompetitive activity, which they would then
    discuss with an attorney in one of the Division's legal sections.

    When an attorney makes a determination that there is sufficient evidence to
    open an investigation beyond discussions with the complainant, he or she is
    to draft a preliminary inquiry (PI) request memorandum to the section, task
    force, or field office 3 chief describing the conduct involved

    1 The last comprehensive revision was issued in February 1998. 2 We
    developed the description of the processes from discussions with Division
    officials, information obtained from the Division, and our review of the
    Antitrust Division Manual . According to Division officials, figures 2
    through 4 and the accompanying narrative fairly describe a typical antitrust
    investigative and enforcement process. However, Division officials said that
    no two investigations are exactly alike, and, therefore, the Division's
    processes are flexible. Additionally, they noted that for any significant
    matter, there is ongoing consultation at all levels within the Division,
    including at the DAAG and AAG levels.

    3 Hereafter this appendix refers to sections and task forces as sections and
    field offices as offices. Appendix III: Overview of the Antitrust

    Division's Policies and Procedures for Investigating Potential Antitrust
    Violations

    Identification of Possible Antitrust Violations

    Preliminary Inquiry Process

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 43 GAO- 01- 188 Antitrust Division's Operations

    and the possible violation. For civil matters, the memorandum is also to
    state whether the economist concurs. The memorandum is to include, among
    other things

    ? a factual summary of the information upon which the request is based,

    ? evidence supporting a potential antitrust violation as well as any
    contrary evidence,

    ? an evaluation of the significance of the matter from an economic and
    antitrust perspective, and

    ? a description of the proposed course of the investigation. Additionally,
    the memorandum is to include basic information on (1) the commodity or
    service to be investigated; (2) the alleged anticompetitive conduct or
    merger and, for civil matters, the theory of competitive harm; (3) the
    relevant statute; (4) the parties involved; (5) the amount of commerce
    affected on an annual basis; and (6) the geographic area involved.

    If the section chief does not agree with the staff's recommendation to open
    a PI, no further action is taken. If the section chief agrees with the
    recommendation, he or she is to submit a request to Operations or, in the
    case of a criminal PI, to the Office of Criminal Enforcement. The
    appropriate Director of Enforcement is to approve or disapprove the PI
    request on the basis of four standards: (1) the facts presented must provide
    sufficient indications of an antitrust violation; (2) the amount of commerce
    affected must be substantial, or the matter must have some broader
    significance or implicate an important legal principle; (3) the
    investigation should not needlessly duplicate or interfere with other
    efforts of the Division, FTC, a U. S. Attorney, or a state Attorney General;
    and (4) Division resources must be available for the investigation.

    Because both the Division and FTC have antitrust jurisdiction, they must
    agree on which agency is to conduct the investigation. 4 To ensure that both
    agencies are not investigating the same conduct, they have established
    clearance procedures to determine which agency will

    4 Although clearance is also required for the opening or expansion of a
    criminal investigation, the Division handles all criminal matters and,
    according to Division officials, FTC routinely grants clearance as long as
    it agrees that the matter is criminal in nature.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 44 GAO- 01- 188 Antitrust Division's Operations

    investigate a potential violation. 5 If either the Division or FTC objects
    to the other agency conducting the investigation, the staffs are to follow
    the clearance dispute procedures to determine which agency will proceed with
    the investigation. 6 According to Division and FTC officials, clearance
    disputes are relatively rare.

    Clearance must be obtained for all PIs, business reviews, grand jury
    requests that have not resulted from an existing PI, and any expansion of a
    previously cleared matter. The agencies cannot begin a PI until clearance is
    granted. 7 For a typical investigation, the clearance request is to specify,
    among other things, the parties to be investigated, the product line
    involved, the potential offenses, and the geographic area. The Division's
    Premerger Notification Unit/ FTC Liaison Office oversees the clearance
    process.

    The primary determinant of which agency will conduct an investigation is
    current agency expertise about the product or service market( s) at issue,
    so that a merger will usually be reviewed by whichever of the two agencies
    is most knowledgeable about the relevant market( s). According to Division
    and FTC officials, the Division has investigated the preponderance of
    mergers affecting agriculture, with a prominent exception being grocery
    store transactions, in which FTC has substantial experience and expertise.
    The Division has handled investigations in the cattle, hog, and lamb
    sectors, and FTC has traditionally handled investigations in the poultry
    sector.

    5 The first interagency agreement was informally instituted in 1938; since
    1948, it has been modified and formalized. On December 2, 1993, FTC and
    Justice jointly issued “Clearance

    Procedures for Investigations.” On March 23, 1995, FTC and Justice
    jointly announced

    “Hart- Scott- Rodino Premerger Program Improvements.” These
    improvements included a commitment by each agency to resolve clearance on
    matters where an HSR filing was made within 9 business days of receipt of
    the HSR filings for a merger, and 7 business days of receipt of a filing in
    a cash tender offer or a notification involving an acquisition in
    bankruptcy.

    6 According to Division officials, the criteria for resolving clearance on
    civil nonmerger matters differ in one important respect from those used in
    merger matters. Although valuing expertise, they also give weight towards
    initiative. In the absence of overwhelming expertise in an area, the matter
    generally will be awarded to the agency that first identified the potential
    competitive problem and developed the proposed investigation.

    7 Division staff cannot contact private parties, except for complainants who
    approach the agencies on their own initiative, until clearance is obtained.
    However, they can develop information from public sources and governmental
    entities.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 45 GAO- 01- 188 Antitrust Division's Operations

    Once clearance is obtained and the PI is opened, staff are to investigate
    the merger or alleged conduct through interviewing complainants, customers,
    competitors, other possible witnesses and victims and reviewing other public
    sources of information. They may request information on a voluntary basis
    from any party involved. They also may use a compulsory process to obtain
    further information and documents. 8

    According to Division officials, the staff determine whether to conduct a
    criminal or civil investigation early in their deliberations, usually when
    the PI request is submitted. Where it is unclear whether the conduct in
    question would be a civil or criminal violation, the Division's policy is
    usually to open a civil investigation. This policy stems from two Supreme
    Court decisions 9 that place restrictions on the government's ability to use
    evidence gathered during the course of a grand jury investigation in a
    subsequent civil case.

    After the staff evaluates the results of the PI, the attorneys and economist
    (in civil matters) are to recommend either closing the PI or proceeding with
    a civil or criminal investigation. For a civil matter, this means preparing
    a lawsuit for filing. For a criminal matter, this means convening a grand
    jury. In making this decision, the staff are to consult with their section
    or office chief and, in civil matters, the relevant economic analysis group
    chief to discuss the results of the PI.

    To close a PI, the attorney is to prepare a closing memorandum. In a civil
    matter, the legal staff's memorandum is to state whether the economist
    concurs. The memorandum generally is to provide the factual and legal bases
    for the staffs' recommendation to close the PI.

    Operations or, in criminal matters, the Office of Criminal Enforcement is to
    review the memorandum and consult with the appropriate DAAG and

    8 In most civil matters handled by the Division, both merger and nonmerger,
    Civil Investigative Demands (CIDs) can be used to compel production of
    information and documents if voluntary requests are judged to be inadequate
    or inappropriate for the Division's needs. Under the Antitrust Civil Process
    Act, CIDs may be served on any person, including suspected violators,
    potentially injured persons, witnesses, and record custodians, if there is
    reason to believe that the person may have documentary material or
    information relevant to a civil antitrust investigation.

    9 United States v. Sells Engineering, Inc., 463 U. S. 418 (1983) and United
    States v. Baggot, 463 U. S. 476 (1983).

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 46 GAO- 01- 188 Antitrust Division's Operations

    AAG if the matter involves significant policy questions. 10 The appropriate
    Director of Enforcement then notifies the cognizant section or office chief
    of the decision to close the PI. Staff are to then notify the subjects of
    the investigation that the matter is closed and close the file on the
    matter.

    Most mergers and acquisitions that have the potential to raise competitive
    concerns must be reported to the Division and FTC before they occur. The
    premerger notification provisions of the Hart- Scott- Rodino Act require
    companies exceeding certain thresholds of company size and value of the
    transaction to notify the Antitrust Division and FTC of the proposed merger
    transaction, 11 submit documents and other information to the agencies
    concerning the transaction, 12 and refrain from closing the transactions
    until a specified waiting period has expired. 13

    10 The Division's AAG has full supervisory authority over the activities of
    the Antitrust Division, including the authority to become involved in any
    investigation at any stage. The DAAGs also have the authority to become
    involved in any investigation within their authority at any stage. The AAG
    may have other special legal assistants for specific areas, such as the
    Special Counsel for Agriculture. These special legal assistants have
    delegated authority to involve themselves in any matter within their areas
    of responsibility.

    11 FTC's Premerger Notification Office is responsible for administering the
    HSR premerger notification program for both the Division and FTC. The
    Premerger Notification Office has the ultimate responsibility for accepting
    the filing or rejecting it if it is deemed to be incomplete.

    12 The parties must provide the agencies with information concerning the
    parties to the transaction and the structure of the transaction; information
    concerning each party's revenues, by Standard Industrial Classification
    codes; copies of certain Securities & Exchange Commission filings and annual
    reports; information related to prior relevant acquisitions; and certain
    certifications. Additionally, each party is required to submit copies of any
    documents that have been prepared in connection with the transaction by or
    for any officer or director that analyze the competition aspects of the
    transaction. The filing must be accompanied by a filing fee, which, for the
    period we reviewed, was $45, 000 regardless of the value of the transaction.
    However, the HSR filing fees were amended effective February 1, 2001, and
    are now set at $45, 000 for transactions valued at less than $100 million;
    $125,000 for transactions valued at $100 million to less than $500 million;
    $280, 000 for transactions valued at $500 million or more. (Departments of
    Commerce, Justice, and State, the Judiciary, and related agencies
    Appropriations Act, 2001, P. L. 106- 553, section 630 (Dec. 21, 2000)) These
    dollar thresholds will be adjusted annually, beginning with fiscal year
    2005, to reflect changes in the gross national product during the previous
    fiscal year.

    13 Failure to comply with the HSR Act is punishable by a civil penalty of up
    to $11,000 per day, and parties not in compliance are subject to injunctive
    and other equitable relief. Hart- Scott- Rodino

    Merger Enforcement Process

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 47 GAO- 01- 188 Antitrust Division's Operations

    There are three tests, all of which must be met in order for the transaction
    to be reportable. 14 The first test is the commerce test, in which either
    the acquiring party or the acquired party must be engaged in commerce or in
    any activity affecting interstate commerce, as defined in Section 1 of the
    Clayton Act. The second test is the size- of- person test. For the period we
    reviewed, one party to the transaction had to have annual sales or assets of
    at least $100 million and the other party of at least $10 million. 15 The
    third test is the size- of- transaction test. Under this test, for the
    period we reviewed, as a result of such acquisition, the acquiring party had
    to hold (1) voting securities or assets worth in the aggregate more than $15
    million, or (2) voting securities that confer control (50 percent) of an
    issuer with annual sales of $25 million or more. 16

    HSR merger reviews usually begin with the parties filing a proposed merger.
    However, the Division also may become aware of a merger prior to the
    required filing through other sources, such as its own research or
    notification by a concerned citizen. The Division has up to 30 days (15 days
    for cash tender offers and bankruptcy filings) from the time of the filing
    of the proposed merger to review the filing and make a determination as to
    whether the Division should seek additional information and documents from
    the merging parties and thereby extend the waiting period to enable further
    review. Generally, staff should decide within 5 business days of receipt of
    an HSR filing (3 days in the case of a cash tender offer or a bankruptcy
    filing) whether the filing raises competitive issues that need to be
    investigated. According to Division officials, in markets already
    characterized by high concentration levels, there is a substantially
    increased likelihood that a proposed merger will be investigated.

    14 Unless otherwise noted, the discussion of the tests for reportability
    pertains to the period we reviewed. Legislation that took effect February 1,
    2001, made changes in these tests. (Departments of Commerce, Justice, and
    State, the Judiciary, and related agencies Appropriations Act, 2001, P. L.
    106- 553, section 630 (Dec. 21, 2000)).

    15 When the acquired party is not engaged in manufacturing and does not have
    at least $100 million of sales or assets, then it must have assets of at
    least $10 million. 16 See 15 U. S. C. 18a( a) and 16 C. F. R. 802.20. The
    legislation that took effect on February 1, 2001, discussed in footnote14,
    raised the size- of- transaction threshold from $15 million to $50 million.
    The legislation also eliminated the alternative percentage threshold.
    Accordingly, no transaction resulting in an acquiring person holding less
    than $50 million or voting securities of an acquired person will be
    reportable. In addition, under the new legislation, transactions valued at
    greater than $200 million are reportable without regard to whether the size-
    of- person threshold is met.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 48 GAO- 01- 188 Antitrust Division's Operations

    The majority of mergers that raise antitrust concerns are horizontal
    mergers. According to Division officials, the Division's and FTC's joint
    Horizontal Merger Guidelines are a reasonably accurate portrayal of how the
    Division and FTC generally conduct their analyses of proposed mergers. 17
    The guidelines were originally developed in 1982 and were updated in 1992.
    In 1997, the efficiencies section of the guidelines was expanded. 18 The
    unifying theme of the guidelines is that mergers should not be permitted to
    create or enhance market power or facilitate its exercise. The guidelines
    define a seller's market power as the ability to profitably maintain selling
    prices above competitive levels for a significant period of time. Similarly,
    a buyer's market power is defined as the ability to profitably maintain
    buying prices below competitive levels for a significant period of time. 19

    The guidelines outline the five- step analytical process the Division is to
    use to determine whether a merger is likely to substantially lessen
    competition and, ultimately, whether to challenge a merger. The Division is
    to (1) delineate the relevant market and assess whether the merger would
    significantly increase concentration and result in a concentrated market; 20
    (2) identify the market participants, assign shares, and assess

    17 The Division also has “Non- Horizontal Merger Guidelines” for
    mergers involving firms that do not operate in the same market. In addition,
    the Division and FTC issued joint

    “Antitrust Guidelines for Collaborations Among Competitors.”
    These guidelines address a broad range of horizontal agreements among
    competitors, including joint ventures, strategic alliances, and other
    competitor collaborations. The Division and FTC also issued joint
    “Antitrust Guidelines for the Licensing of Intellectual
    Property.” These guidelines set forth the antitrust enforcement policy
    of Justice and the FTC with respect to the licensing of intellectual
    property protected by patent, copyright, and trade secret law, and of
    knowhow.

    18 The efficiencies section of the guidelines was revised and issued on
    April 8, 1997. The revised section states that the government will not
    challenge a merger if cognizable efficiencies are of a character and
    magnitude such that the merger is not likely to be anticompetitive in any
    relevant market.

    19 According to the Division, in most instances, the concern raised by a
    merger is the ability of the merging companies to raise above the
    competitive level the price of the products or services they sell. However,
    in some instances, the concern will be that the merger will substantially
    lessen competition with respect to the price that the merging companies pay
    for the products or services they purchase.

    20 Once a market is defined, the market shares of competitors within the
    market are determined and the Herfindahl- Hirshman Index (HHI) is calculated
    by squaring the market shares of each firm and adding them to determine
    market concentration. A postmerger HHI below 1,000 indicates an
    unconcentrated market. Mergers resulting in unconcentrated markets are
    unlikely to have adverse competitive effects and usually require no further
    analysis.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 49 GAO- 01- 188 Antitrust Division's Operations

    whether increased market concentration from the proposed merger raises
    concern about potential adverse competitive effects; (3) assess whether
    entry into the market would be timely, likely and sufficient either to deter
    or to counteract the competitive effects of concern; (4) assess any
    efficiency gains that cannot be reasonably achieved by the parties absent
    the proposed merger; and (5) determine whether, but for the merger, either
    party to the transaction would be likely to fail and exit the market.

    If the attorney, in consultation with the economist, concludes that the
    information reviewed does not raise significant competitive concerns, the
    attorney is to submit a “no interest” form 21 and, with the
    section chief's concurrence, no investigation is opened. 22 If the “no
    interest” decision is made in time, the Division will typically
    request that FTC grant “early

    A post- merger HHI between 1,000 and 1,800 indicates moderate concentration.
    Mergers producing an increase in the HHI of less than 100 points in
    moderately concentrated markets postmerger are unlikely to have adverse
    competitive effects and generally require no further analysis. Mergers
    resulting in an increase in the HHI of more than 100 points in moderately
    concentrated markets postmerger potentially raise significant competitive
    concerns. A postmerger HHI above 1,800 indicates a highly concentrated
    market. Mergers producing an increase in the HHI of less than 50 points even
    in highly concentrated markets postmerger are unlikely to have adverse
    competitive consequences and ordinarily require no further analysis. Mergers
    resulting in an increase in the HHI of more than 50 points in highly
    concentrated markets postmerger potentially raise significant competitive
    concerns.

    When the postmerger HHI exceeds 1,800, the Division assumes that mergers
    producing an increase in the HHI of more than 100 points are likely to
    create or enhance market power or facilitate its exercise. However, this
    assumption may be refuted by showing that other factors in the guidelines
    make it unlikely that the merger will create or enhance market power or
    facilitate its exercise, in light of market concentration and market shares.

    21 The no- interest form records such information as the identity of the
    parties, the HSR transaction number, SIC codes, product and geographic
    overlaps, and a summary of the transaction. Staff also are to explain why
    they recommend that no investigation be initiated.

    22 According to Division officials, the Division and FTC undertake their
    review of a merger in order to determine whether to challenge the merger.
    Therefore, they do not “approve” a merger, but rather decide not
    to challenge it. Moreover, the Division and FTC are not precluded from
    pursuing enforcement actions even after the transaction has closed.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 50 GAO- 01- 188 Antitrust Division's Operations

    termination” of the waiting period when requested in writing by one of
    the merging parties. 23

    If the attorney, in consultation with the economist, concludes that the
    information reviewed raises significant competitive concerns warranting a
    more thorough review, the attorney is to submit a request to open a PI. The
    PI request is to be reviewed by the section chief and, if the section chief
    concurs, by Operations. While deciding whether to authorize the PI,
    Operations is to request clearance to proceed from FTC. If clearance is
    granted to the Division, the Director of Merger Enforcement in Operations
    decides whether to authorize the PI. According to Division officials,
    Operations generally approves merger PI requests.

    If the PI is authorized, the attorney and economist are to investigate the
    proposed merger during the initial waiting period, generally using voluntary
    procedures. 24 They are to determine whether the proposed transaction raises
    issues substantial enough to warrant the issuance of a second request. At
    this point, the merging parties often begin to meet with Division staff to
    discuss any problems the Division has with the proposal and to provide their
    own analysis of the transaction. 25

    If the attorney concludes, in consultation with the economist, that there
    are no significant competitive concerns, then the attorney is to submit a
    memorandum to the section chief recommending that the investigation be
    closed. If the section chief concurs, the memorandum is to be sent to
    Operations, where the Director of Merger Enforcement makes the final
    decision on whether to close the investigation. If the attorney concludes,
    in consultation with the economist, that there are significant competitive

    23 Section 7A( b)( 2) of the Clayton Act, 15 U. S. C. 18a( b)( 2),
    authorizes FTC and the Division to grant early termination of the act's
    waiting period. Early termination will normally be granted where (1) it has
    been requested in writing, (2) all parties have submitted their notification
    and report forms, and (3) both enforcement agencies have determined not to
    take enforcement action. All early terminations must be cleared through FTC,
    and the act requires that notice that early termination has been granted be
    published in the Federal Register. FTC is responsible for notifying parties
    that early termination has been granted by

    both agencies, even in situations where the investigation has been cleared
    to the Division. 24 When PI authority is granted, staff may begin contacting
    customers, trade associations, competitors, and other relevant parties to
    more thoroughly assess whether there are likely competitive concerns in any
    relevant markets.

    25 The merging parties, generally through their counsel, and often their
    economists as well, typically meet with Division staff at different stages
    throughout the process to discuss their proposed merger.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 51 GAO- 01- 188 Antitrust Division's Operations

    concerns that require the Division to obtain additional information to be
    obtained from the parties to enable a more thorough review, the attorney is
    to submit a proposed “Second Request” for that information to be
    submitted to the merging parties before the waiting period expires. 26

    The proposed second request is to be reviewed by the section chief and, if
    the section chief concurs, by Operations, where the Director of Merger
    Enforcement makes the final decision whether to approve the second request.
    According to Division officials, if the second request is not approved, the
    investigation typically is closed.

    If the second request is approved, it is sent to the merging parties. For
    the period we reviewed, this extended the waiting period until 20 days (10
    days for cash tender offers and bankruptcy sales) after the merging parties
    substantially comply with the second request. 27 In order for the extended
    waiting period to end, the merging parties must substantially comply with
    the second request. The attorney also may apply for authorization to issue
    CIDs to any person. According to Division officials, the attorney and
    merging parties will likely meet to discuss the competitive concerns as well
    as any possible modifications to the second request.

    When the merging parties have supplied the information requested, they are
    to certify substantial compliance with the second request. If the attorney
    does not agree that the parties are in substantial compliance, the attorney
    is to notify the merging parties of the areas of noncompliance and submit a
    proposed deficiency letter to the section chief. If the section chief
    concurs, the letter is to be sent to the merging parties, and the waiting
    period is further extended.

    26 In April 2000, the Division issued a press release announcing
    improvements to its merger review procedures. The improvements are intended
    to make the process for obtaining additional information in a merger
    investigation more efficient for the business community and the Division
    and, according to the Division, are continuations or extensions of existing
    practices. The improvements include (1) centralized high- level review of
    second requests prior to issuance, (2) early conferences with the merging
    parties to identify competitive issues, (3) quick turn- around of requests
    for modifications of a second request, (4) new procedures for appealing
    second request issues, (5) specialized staff training on second request
    investigations, and (6) ongoing consultation with the industry and the
    private bar to identify further means of easing the merger review process.

    27 The legislation that took effect on February 1, 2001, discussed in
    footnote 14, extended the 20 day period to 30 days, while leaving the 10-
    day period for cash tender offers and bankruptcy sales unchanged.

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    If the attorney agrees that there has been substantial compliance with the
    second request, or if the section chief does not concur in sending the
    deficiency letter, the waiting period is not further extended and comes to
    an end within the prescribed number of days after certification of
    substantial compliance.

    If the attorney concludes in consultation with the economist that the merger
    is not likely to substantially lessen competition in violation of the
    antitrust laws, the attorney is to submit a memorandum to the section chief
    recommending that the investigation be closed. If the section chief concurs,
    the memorandum is to be sent to Operations, where the Director of Merger
    Enforcement decides whether to close the investigation. If the Director of
    Merger Enforcement approves closing the investigation, the Division
    typically requests that FTC early terminate the extended waiting period. 28

    If the attorney concludes in consultation with the economist that the merger
    is likely to substantially lessen competition in violation of the antitrust
    laws, the attorney is to inform the section chief. If the section chief
    concurs, Operations is to consider the matter in consultation with the
    attorney, the economist, the section chief, and the relevant DAAGs. If the
    section chief does not concur with the attorney's conclusion, then the
    investigation is typically closed; or occasionally, it is sent back to the
    attorney for further work.

    If the Director of Merger Enforcement concurs with the attorney's
    conclusion, the attorney is to notify the merging parties of the specific
    competitive concerns and that staff intends to recommend challenging the
    merger in court if the parties proceed with the merger as proposed. If the
    Director does not concur, the investigation is closed or, occasionally, sent
    back to the section for further work.

    If the Division determines that the proposed merger is anticompetitive, the
    merging parties may offer to divest assets in a manner that resolves the
    competitive concerns. If they do so, the Division files a complaint and
    proposed consent decree with the court that binds the parties to the

    28 Early termination may be granted even absent a request from a merging
    party in instances in which a second request has been issued.

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    for Investigating Potential Antitrust Violations

    Page 53 GAO- 01- 188 Antitrust Division's Operations

    arrangement. 29 Alternatively, the merging parties may elect to “fix
    it first” by divesting the assets of competitive concern before the
    merger takes place, or to “restructure” the merger by forgoing
    acquisition of those specific assets in the first place. 30

    If the merging parties do not offer to divest assets in a manner that
    resolves the competitive concerns, the attorney is to submit a case
    recommendation package to the section chief. 31 The package is to include
    the recommendation memorandum, an order of proof with the key documents and
    other evidentiary support, a draft complaint, and draft motions for
    temporary restraining order and preliminary injunction. The case
    recommendation memorandum is to include, among other things:

    ? the date by which the Division must file any temporary restraining order
    or preliminary injunction papers, and any other dates that bear on timing;

    ? a brief description of the transaction, including the identity of the
    merging parties, the form of the transaction, and the consideration;

    ? a brief description of the proposed suit, including proposed defendants,
    the statutes under which the merger is to be challenged, the proposed
    judicial district, and the relief sought;

    ? a general description of the impact of the transaction, including the
    relevant product and geographic markets, volume of commerce, market shares,
    and HHIs;

    ? a brief description of the basic theory of competitive harm;

    ? a short discussion of the weaknesses of the case; 29 The Antitrust
    Procedures and Penalties Act (also known as the Tunney Act) requires that a
    competitive impact statement be filed with every proposed consent decree. 15
    U. S. C. 16. A competitive impact statement is the Division's explanation of
    its case, the proposed judgment, and the circumstances surrounding the
    judgment.

    30 Because a “fix it first” resolution does not involve a case
    being filed, no complaint, stipulation, competitive impact statement,
    Federal Register notice, or newspaper notice is necessary. However, staff is
    to prepare a case recommendation memorandum and draft press release, along
    with any documents necessary to understand the proposed resolution.

    31 According to the Division manual, the expertise and capabilities of
    Division economists should be fully utilized as a resource in thorough
    prefiling preparation for litigation, particularly in merger and other civil
    matters. The Division's Economic Analysis Group assigns one or more
    economists to each merger or civil nonmerger matter to assist the legal
    staff in investigating and analyzing the competitive effects of the proposed
    acquisition or other conduct being investigated. Additionally, Division
    economists and the Division's Economic Analysis Group are to participate
    fully in, among other things, developing and implementing quantitative
    analysis of anticompetitive effects of mergers and other business conduct,
    and in providing or securing expert economic testimony.

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    for Investigating Potential Antitrust Violations

    Page 54 GAO- 01- 188 Antitrust Division's Operations

    ? any settlement possibilities; and

    ? an explanation of why litigation is worth the expenditure of the necessary
    Division resources.

    The economist also provides a memorandum on the key economic issues. These
    memorandums and accompanying materials are to be forwarded to Operations and
    to the relevant DAAG. After conferring, they make a recommendation to the
    AAG.

    At this point, the merging parties may request meetings with the Director of
    Enforcement, the DAAG, and the AAG to discuss the merger. During this
    period, the merging parties may still offer to divest assets to resolve the
    competitive concerns. If the parties do not offer to divest assets in a
    manner that resolves the competitive concerns, and if the AAG approves
    taking enforcement action, the Division files a complaint and, usually,
    motions for a preliminary injunction and a temporary restraining order with
    the court. The preliminary injunction prevents consummation of the
    transaction before the court can determine its legality. If the AAG does not
    approve taking enforcement action, the investigation is closed.

    Figure 2 shows the general process the Division follows for HSR merger
    enforcement actions.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 55 GAO- 01- 188 Antitrust Division's Operations

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 56 GAO- 01- 188 Antitrust Division's Operations

    Figure 2: Flowchart of Antitrust Division's General Process for HSR Merger
    Enforcement

    Are there competitive concerns that warrant further

    review?

    Yes No Merging parties file

    with Division and Federal Trade Commission (FTC)

    Staff complete a “No Interest” form and, with concurrence of
    section chief, no investigation is opened

    Attorney makes recommendation to open investigation and submits a request,
    through section chief, to Operations for Preliminary Inquiry (PI)

    FTC clearance is requested Is clearance contested? Division and

    FTC complete and exchange “contested matter claim form”

    Clearance is granted to the Division

    Yes No

    Clearance is granted to FTC

    Director of Merger Enforcement authorizes the PI

    Attorneys and economists investigate potential violation Clearance is

    granted to the agency with greatest, most current industry experience

    Attorneys and economists assigned and make initial review Early termination
    is usually

    granted when requested in writing by one of the merging parties

    Are there significant concerns that require additional

    information from merging parties?

    No A

    Attorney submits memo, through section chief, to Operations recommending
    that investigation be closed

    Yes

    Does Director of

    Merger Enforcement

    concur? Operations

    closes PI

    Yes No

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 57 GAO- 01- 188 Antitrust Division's Operations

    Source: Developed by GAO on the basis of the Antitrust Division Manual and
    discussions with Division officials.

    Operations closes PI Attorney prepares Second

    Request to send to Operations through section chief

    Does there appear to be a violation of

    antitrust laws?

    Case is filed in court

    Yes No

    Yes

    Second Request issued to merging parties

    Are parties in substantial

    compliance with Second

    Request? Deficiency letter

    sent to merging parties

    Attorney submits memo, through section chief, to Operations recommending
    that investigation be closed

    Yes No

    No Yes

    Does AAG decide that enforcement

    action is warranted?

    No

    Operations closes investigation

    Is Second Request approved?

    Attorney notifies merging parties of specific competitive concerns and
    intent to challenge the merger in court

    Do merging parties agree to restructure

    merger to resolve concerns?

    No

    Parties restructure before merger or Division files a complaint and proposed
    consent decree in court

    A

    Attorney and economist submit case recommendation memos, through section
    chiefs, to Operations for review and discussion, often in consultation with
    the Deputy Assistant Attorney General (DAAG)

    Does Director of Merger

    Enforcement concur?

    Yes No

    Does Director of Merger

    Enforcement concur? Operations

    closes investigation

    No Yes

    Operations forwards case recommendation to relevant DAAG and

    to the Assistant Attorney General

    (AAG) Yes

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 58 GAO- 01- 188 Antitrust Division's Operations

    When alleged conduct would not be appropriate for criminal prosecution but
    might be found to be anticompetitive, the Division may initiate a civil
    investigation. Civil investigations differ from criminal investigations in
    the involvement of the Division's economists and in the manner of the
    Division's interaction with the parties under investigation. The Division
    generally follows the same procedures for reviewing civil non- HSR mergers
    and HSR mergers, except that non- HSR merger investigations are not subject
    to statutorily prescribed waiting periods. The Division's procedures for
    reviewing non- HSR merger matters and civil nonmerger matters are also very
    similar.

    Civil nonmerger matters involve the investigation and civil prosecution of a
    variety of conduct under Sections 1 and 2 of the Sherman Act. According to
    the Division, such conduct may constitute an illegal restraint of trade or
    unlawful monopolization or attempted monopolization. Examples of conduct
    that may raise competitive issues include strategic alliances between
    companies, joint ventures among suppliers, and misuse of intellectual
    property rights. According to the Division manual, considerations in civil
    matters include legal theory, relevant economic learning, the strength of
    the likely defense, any policy implications, and the potential doctrinal
    significance of the matter.

    The investigative process begins when the Division becomes aware of
    potentially anticompetitive conduct, or a potentially anticompetitive merger
    not subject to HSR reporting, and it refers the matter to the appropriate
    section for handling. Attorney( s) and economist( s) are assigned to assess
    the conduct or merger using public sources of information. If the attorney,
    in consultation with the economist, concludes that the conduct or merger
    raises significant competitive concerns warranting a more thorough review,
    the attorney is to submit a request to open a PI. Otherwise, the attorney
    recommends that no action be taken; and, if the section chief concurs, no
    investigation is opened.

    The PI request is to be reviewed by the section chief and, if the section
    chief concurs, by Operations. Before deciding whether to authorize the PI,
    Operations is to request clearance to proceed from FTC. If clearance is
    granted to the Division, the Director of Enforcement decides whether to
    authorize the PI. According to Division officials, civil PI requests are
    generally authorized.

    If the PI is authorized, the attorney and the economist are to investigate
    the conduct or merger, generally using voluntary procedures, such as
    interviews and voluntary requests for documents. The attorney may also Civil
    NonMerger and

    Non- HSR Merger Enforcement Process

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 59 GAO- 01- 188 Antitrust Division's Operations

    apply for authorization from Operations to issue CIDs to parties subject to
    the investigation and to third parties who may have relevant information.
    According to the Division manual, a decision to issue CIDs generally
    involves a significant expansion in resources committed by the Division and
    should be made only after serious consideration and a thoughtful
    reassessment of the matter's potential significance.

    If the attorney and economist recommend closing the investigation and if the
    section chief and Director of Enforcement concur, the investigation is
    closed. The closing recommendation is to include a description of the
    conduct or market involved in a violation, an analysis of competitive
    issues, a development of the facts and law, and recommendations. The
    Director of Enforcement may send the matter back for further work.

    If the attorney, in consultation with the economist, concludes that the
    conduct or merger can be proven to violate the antitrust laws, the attorney
    is to submit a case recommendation to the Director of Enforcement. The case
    recommendation is to include the following information:

    ? a brief description of what the prospective case is fundamentally about;

    ? a conceptual discussion of the case and why it is an important one for the
    Division to bring, including the theory and statute( s) on which the case
    would be based; theories investigated but not recommended to be pursued; and
    the justifications or defenses likely to be raised by the prospective
    defendants;

    ? an assessment of whether the case is winnable at trial, including a short
    order of proof (which will typically be attached to the case recommendation
    as a separate document), a summary of the relative strengths and weaknesses
    of the evidence supporting the case, and a summary of likely defense
    evidence and arguments; and

    ? a discussion of potential settlement options. The case recommendation is
    to be reviewed by the section chief, and if the section chief concurs, the
    recommendation is reviewed by Operations, in consultation with the attorney,
    the economist, the section chief, the economic chief, and often the relevant
    DAAGs. The economist is also to

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 60 GAO- 01- 188 Antitrust Division's Operations

    submit a case recommendation memorandum on the key economic issues. 32

    If the Director of Enforcement does not concur, the investigation is closed
    or, occasionally, sent back to the section for further work. If the Director
    of Enforcement concurs in the attorney's conclusion, the attorney is to
    notify the parties of the Division's competitive concerns and that staff
    intends to recommend challenging the conduct or merger in court. Operations
    is to forward the case recommendation to the relevant DAAGs and to the AAG.

    The AAG is to review the case recommendation and consider whether to bring
    an enforcement action. At this point, the parties may request meetings with
    the DAAG and with the AAG to discuss the matter. 33 The parties may offer to
    cease the conduct giving rise to the competitive concerns and take other
    action as necessary to resolve those concerns, or to restructure the merger
    to resolve the competitive concerns. If the offer satisfactorily resolves
    the competitive concerns, the attorney is to file a complaint and proposed
    consent decree in court. 34 If the parties do not satisfactorily offer to
    resolve the competitive concerns, and if the AAG approves taking enforcement
    action, he or she is to sign the pleadings and other documents. The Division
    then files a case in court and begins litigation. If the AAG does not
    approve taking enforcement action, the investigation is closed.

    Figure 3 shows the general process the Division follows for civil nonmerger
    and non- HSR merger enforcement actions.

    32 According to a Division official, the economist's memorandum generally
    provides essential background information and focuses on the key economic
    issues. The memorandum follows the same review process as the attorney's
    case recommendation memorandum.

    33 The parties usually prepare their own position paper (also referred to as
    a “white paper”), including an economic analysis, and submit it
    to the Division. 34 As with an HSR merger, in the case of a merger, the
    parties may elect to “fix it first” by divesting the assets of
    competitive concern before the merger takes place, or to

    “restructure” the merger by forgoing acquisition of those
    specific assets in the first place, in which case there is no complaint or
    consent decree filed in court.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 61 GAO- 01- 188 Antitrust Division's Operations

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 62 GAO- 01- 188 Antitrust Division's Operations

    Figure 3: Flowchart of Antitrust Division's General Process for Civil
    Enforcement B

    Clearance is granted to the Division

    Yes No

    A

    Clearance is granted to the FTC

    Division becomes aware of potentially anticompetitive conduct or merger a
    and refers to appropriate section or field office

    Attorneys and economists are assigned to make initial review

    Are there competitive concerns that warrant further

    review? No further action

    taken Attorney submits a request, through section chief, to Operations for
    Preliminary Inquiry (PI)

    Federal Trade Commission (FTC) clearance is requested

    Director of Enforcement grants PI authority

    Is clearance contested?

    Attorneys and economists investigate the conduct or merger (and if attorney
    requests, Director of Enforcement may authorize CIDs)

    Does merger or

    conduct violate antitrust

    laws? Division and FTC

    complete and exchange “contested

    matter claim form”

    No Yes Yes

    No

    Clearance is granted to the agency with greatest, most current industry
    experience

    a Refer to figure III. 1 for mergers for which a filing is received pursuant
    to the Hart- Scott- Rodino Act. Attorney submits memo,

    through section chief, to Operations recommending that investigation be
    closed

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 63 GAO- 01- 188 Antitrust Division's Operations

    Source: Development by GAO on the basis of the Antitrust Division Manual and
    discussions with Division officials.

    Does Director of Enforcement

    concur? Operations

    closes PI Operations forwards case recommendation to the relevant DAAG and
    to the Assistant Attorney General (AAG) Attorney notifies parties

    of specific competitive concerns and intent to challenge the conduct or
    merger in court

    A Yes

    No

    Attorney and economist submit case recommendation memos, through section
    chiefs, to Operations for review and discussion, often in consultation with
    Deputy Assistant Attorney General (DAAG)

    Does Director of Enforcement

    concur? Do parties agree to resolve competitive concerns

    by ceasing conduct or restructuring

    merger? Division files a complaint and a proposed consent decree in court.
    (If parties restructure merger before consummating, there is no need to
    file.)

    Does AAG decide enforcement

    action is warranted?

    Yes

    Operations closes investigation

    Case is filed in court

    No No

    Yes Yes B

    No

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 64 GAO- 01- 188 Antitrust Division's Operations

    When the Division becomes aware of a possible criminal antitrust violation,
    it assigns the matter to the appropriate section or office to handle the
    review. The attorney reviews the information to decide whether to seek
    authority to open a criminal investigation. If the attorney concludes that
    there is not sufficient evidence to warrant opening a criminal PI, and if
    the section or office chief concurs, the Division would not open a criminal
    investigation, but it might open a civil investigation. 35

    If the attorney concludes that there is not sufficient evidence to warrant
    opening a grand jury investigation, but there is sufficient evidence to
    warrant opening a preliminary inquiry, the attorney is to submit a PI
    request to the section or office chief. (If the attorney concludes that
    there is already sufficient evidence to warrant opening a grand jury
    investigation, the attorney may bypass the criminal PI and proceed directly
    to submit a request for grand jury authority to the section or office
    chief.) If the section or office chief concurs in the PI request, the
    request is to be sent to the Office of Criminal Enforcement. If the section
    or office chief does not concur in the PI request, a criminal investigation
    is not opened, but a civil investigation might be opened.

    35 Generally, decisions on whether to investigate a matter as a potential
    criminal violation or a potential civil violation are based on the nature of
    the conduct involved. Criminal enforcement is reserved for the most
    egregious, hard- core anticompetitive conduct, such as price fixing, bid
    rigging, and horizontal market allocation agreements. Other suspected
    antitrust violations are investigated civilly. Typically, it is readily
    apparent whether the allegations under investigation are of a nature that
    would warrant criminal prosecution. Occasionally, however, during the course
    of an investigation that is generally pursued criminally, the Division
    determines that unusual circumstances exist that would make criminal
    prosecution inappropriate. Situations that might lead the Division to
    proceed civilly rather than criminally include cases where (1) the legality
    of the conduct is not clear, (2) there are novel legal or factual issues,
    (3) prior prosecutorial decisions may have caused confusion about
    enforcement policies, or (4) there is clear evidence that the subjects of
    the investigation were not aware of the consequences of their actions.
    Criminal Enforcement

    Process

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 65 GAO- 01- 188 Antitrust Division's Operations

    If the Director of Criminal Enforcement approves the criminal PI request, 36
    the Office of Criminal Enforcement is to request clearance from FTC through
    the clearance process; and, once clearance is obtained, 37 the attorney is
    to investigate the potential violation, using voluntary procedures. If the
    Director of Criminal Enforcement does not approve the criminal PI request,
    the Division would not open a criminal investigation, but it might open a
    civil investigation.

    If the attorney concludes that the PI does not reveal sufficient evidence to
    warrant opening a grand jury investigation, the attorney is to submit a
    memorandum to the section or office chief recommending that the
    investigation be closed. If the section or office chief concurs with the
    closing memorandum, it is to be sent to the Director of Criminal
    Enforcement, who will close the criminal investigation or, occasionally,
    send it back to the section or office to develop more evidence. If the
    criminal investigation is closed, a civil investigation might be opened.

    If the attorney concludes that the PI reveals sufficient evidence to warrant
    opening a grand jury investigation (or if the PI phase is bypassed and a
    grand jury is requested at the outset), the attorney is to submit a
    memorandum to the section or office chief outlining the evidence and
    requesting grand jury authority. To the extent possible, the request for
    grand jury authority is to

    ? identify the companies, individuals, industry, or commodity or service
    involved;

    ? estimate the amount of commerce involved on an annual basis; 36 The
    decision on whether to open an investigation depends on three questions: (1)
    are the allegations or suspicions of a criminal violation sufficiently
    credible or plausible to call for a criminal investigation, which, according
    to the Division manual, is a matter of prosecutorial discretion; (2) is the
    matter significant, which is determined on a matter- bymatter basis based on
    such factors as volume of commerce affected, geographic area impacted,
    potential for expansion of the investigation or prosecution from a
    particular geographic area and industry to an investigation or prosecution
    in other areas or industries, the deterrent impact and visibility of the
    investigation and/ or prosecution, the degree of culpability of
    conspirators, and whether the scheme involved a fraud on the federal
    government; and (3) what resources will be required to investigate and
    prosecute the matter, which, according to the Division manual, is asked only
    for matters that are assessed as having lesser significance.

    37 Because the Division handles all criminal investigations, clearance is
    not contested in a criminal matter, as long as FTC agrees that the matter is
    criminal in nature.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 66 GAO- 01- 188 Antitrust Division's Operations

    ? identify the geographic area affected and the judicial district in which
    the investigation will be conducted;

    ? describe the suspected violations, including non- antitrust violations,
    and summarize the supporting evidence;

    ? evaluate the significance of the possible violation from an antitrust
    standpoint;

    ? explain any unusual issues or potential difficulties the staff has
    identified;

    ? identify the attorneys who will be assigned to the investigation;

    ? explain initial steps in the staff's proposed investigative plan; and

    ? estimate the duration of the investigation. If the request is approved by
    the section or office chief, the Special Assistant is to prepare a
    memorandum for the Director of Criminal Enforcement, who makes a
    recommendation to the Division's AAG, with a copy to the DAAG. If the AAG
    does not approve the request, the criminal investigation is closed or,
    sometimes, sent back to the section or office to develop more evidence. If
    the criminal investigation is closed, a civil investigation might be opened.

    If the grand jury request is approved by the AAG, the Office of Criminal
    Enforcement is to obtain FTC clearance if it has not already been obtained
    previously for a PI, or if the scope of the investigation is expanded. Then
    the attorney is to meet with the local U. S. Attorney's office, and a grand
    jury is convened. 38

    The grand jury investigation phase involves (1) issuing a subpoena to
    companies for records, (2) calling witnesses, and (3) presenting evidence on
    the alleged violation to the grand jury. After completing the grand jury
    investigation, the attorneys are to recommend either closing the
    investigation; proceeding with a criminal case and prosecuting the
    defendants; or, occasionally, continuing the investigation as a civil
    matter.

    If the attorney concludes that the grand jury investigation does not reveal
    sufficient evidence to warrant filing criminal charges, the attorney is to
    submit a memorandum to the section or office chief recommending that the
    investigation be closed. If the section or office chief concurs with the
    closing memorandum, it is sent to the Director of Criminal Enforcement,

    38 The investigation must be conducted by a grand jury in a judicial
    district in which the violation occurred or in which subjects of the
    investigation do business.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 67 GAO- 01- 188 Antitrust Division's Operations

    who will either authorize closing the investigation or, occasionally, send
    it back to the section or office for further grand jury investigation.

    If the attorney concludes that the grand jury investigation reveals
    sufficient evidence to warrant filing criminal charges, and if the section
    or office chief concurs, the attorney and section or office chief are to
    submit a memorandum to the Office of Criminal Enforcement recommending
    criminal action and providing the factual and legal bases of their
    investigation. The memorandum is to include the following information:

    ? a summary of the offense;

    ? a list and description of the proposed defendants;

    ? a summary of the evidence establishing the offense and a summary of the
    evidence against each proposed defendant;

    ? the names of the persons and companies that were potential targets of the
    investigations but are not being recommended for indictment;

    ? a detailed analysis of the weaknesses of the case, and any anticipated
    defenses, with appropriate staff responses; and

    ? a list of the defense counsel for the proposed defendants, a description
    of the arguments made to staff, and staff responses to the arguments.

    The Director of Criminal Enforcement is to analyze all the related
    documents, assess the merits of the case, and recommend what action, if any,
    to bring against the proposed defendant( s). The documents are then to be
    reviewed by the Division's criminal DAAG. According to the Division manual,
    staff will ordinarily inform defense counsel that staff is seriously
    considering recommending indictment and give counsel an opportunity to
    present their views to the staff and section or office chief, or to the
    Director of Enforcement or the DAAG, before the indictment recommendation is
    forwarded to the AAG. At any time, the party may agree to plead guilty.
    Defense counsel do not have an absolute right to be heard by the Director of
    Criminal Enforcement or the criminal DAAG, although it is routine that they
    are.

    If the DAAG (or the Director of Criminal Enforcement) does not concur in the
    recommendation to proceed with criminal prosecution, the criminal
    investigation is closed or, occasionally, sent back to the section or office
    to develop more evidence. If the criminal investigation is closed,
    occasionally, a civil investigation might be opened. If the DAAG (or the
    Director of Criminal Enforcement) concurs in the recommendation to proceed
    with criminal prosecution, the DAAG (or the Director of Criminal
    Enforcement) is to forward a recommendation to the Division's AAG. The

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 68 GAO- 01- 188 Antitrust Division's Operations

    Division's AAG is to decide whether to bring a legal action or decline
    prosecution.

    If the AAG does not approve the criminal prosecution, the criminal
    investigation is closed or, occasionally, sent back to the section or office
    to develop more evidence. Occasionally, if the criminal investigation is
    closed, a civil investigation might be opened. If the AAG approves criminal
    prosecution and the party has not agreed to plead guilty, the Division
    presents the recommended indictment to the grand jury. If the grand jury
    returns an indictment, the Division begins criminal proceedings in court. If
    the grand jury does not indict, the investigation is closed.

    If the party has agreed to plead guilty, staff are to prepare a memorandum
    recommending filing an information and entering a plea agreement with a
    sentence recommendation. The memorandum is to be forwarded to the criminal
    DAAG through the Director of Criminal Enforcement if it is the first case to
    arise from an investigation, or to the Director of Criminal Enforcement if
    it is not the first case. The memorandum is to include the following
    informaiton:

    ? a brief description of the proposed charges;

    ? a description of the illegal conduct and an analysis of the available
    evidence demonstrating the existence of that conduct;

    ? a brief description of the elements of the proposed plea agreement, with a
    more detailed explanation of any unusual provisions, and an analysis of the
    potential criminal penalty pursuant to the United States Sentencing
    Commission's Federal Sentencing Guidelines;

    ? a description of the potential charges faced by the proposed defendant,
    had the case proceeded to indictment;

    ? an analysis of the benefits and disadvantages of the proposed plea
    agreement, including the impact of the proposed agreement on any continuing
    investigation or future trial; and

    ? a discussion of relevant victims' rights issues. The DAAG is to review the
    memo and forward it to the AAG with a recommendation. If the AAG concurs
    with the recommendation, the

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 69 GAO- 01- 188 Antitrust Division's Operations

    Division files the information, plea agreement, and sentence recommendation
    with the court. 39

    Figure 4 shows the general process the Division follows for criminal
    enforcement actions.

    39 Violation of the Sherman Act is a felony punishable by fines up to
    $350,000 and up to 3 years' imprisonment for each offense for individuals
    and fines up to $10 million for each offense for corporations. Under 18 U.
    S. C. 3571, the Alternative Fine Provision, if any person derives pecuniary
    gain from the offense, or if the offense results in pecuniary loss to a
    person other than the defendant, the defendant may be fined not more than
    the greater of twice the gross gain or twice the gross loss, unless
    imposition of a fine under this subsection would unduly complicate or
    prolong the sentencing process.

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 70 GAO- 01- 188 Antitrust Division's Operations

    Figure 4: Flowchart of Antitrust Division's General Process for Criminal
    Enforcement

    Division becomes aware of possible antitrust violation

    Is there enough evidence to warrant

    a grand jury investigation?

    Attorney makes recommendation to open an investigation and submits a
    criminal PI request to Office of Criminal Enforcement

    Does Director of Criminal Enforcement

    grant criminal PI authority?

    Attorneys investigate potential violation

    Is there sufficient evidence to warrant opening

    a grand jury investigation?

    Yes No

    Section or field office attorney assigned to decide whether to seek
    authority to open a criminal investigation

    Attorney prepares memo to recommend closing investigation

    Office of Criminal Enforcement closes criminal PI a Is

    there enough evidence to open

    a criminal Preliminary

    Inquiry (PI)? No further action

    taken a

    Yes

    Attorney prepares memo to request grand jury authority and submits through
    section or office chief to Office of Criminal Enforcement

    No further action taken or criminal PI closed a Grand jury request is

    forwarded to AAG for review

    Yes No

    A

    a The Division may initiate a civil investigation or the matter could be
    returned to the section or office for further work.

    No Yes

    Yes No No

    Does Director of Criminal Enforcement

    concur in grand jury request?

    Appendix III: Overview of the Antitrust Division's Policies and Procedures
    for Investigating Potential Antitrust Violations

    Page 71 GAO- 01- 188 Antitrust Division's Operations

    Source: GAO developed based on Antitrust Division Manual and discussions
    with Division officials. Division staff

    meet with local U. S. Attorney's Office and convene grand jury Is grand

    jury authority request approved?

    A

    Is sufficient evidence revealed to warrant

    filing criminal charges?

    Do Director and DAAG concur with recommendation?

    Does AAG approve

    prosecution? Division files information, plea agreement, and sentence
    recommendation in court Division presents

    proposed indictment to grand jury Does

    grand jury indict? Office of Criminal

    Enforcement closes investigation

    Recommendation is forwarded to AAG

    Yes Yes

    Case is filed in court

    Office of Criminal Enforcement closes investigation

    No Yes No

    No Yes

    Memo is submitted to Office of Criminal Enforcement to close investigation

    No Yes

    Office of Criminal Enforcement closes investigation a

    Party is notified of proposed indictment

    Yes No No

    Has party agreed to

    plead guilty?

    Staff and section chief prepare memo with recommendation to proceed
    criminally and forward memo to Office of Criminal Enforcement. Party is
    notified that staff is seriously considering recommending indictment.

    Director of Criminal Enforcement and Deputy Assistant Attorney General
    (DAAG) review and comment on memo and package, and usually meet with defense
    counsel.

    Appendix IV: Characteristics of Matters for Which Only a PI Was Done

    Page 72 GAO- 01- 188 Antitrust Division's Operations

    As shown in table 4 of our report, during fiscal years 1997 through 1999,
    the Division closed a total of 64 agriculture- related matters in the SIC
    codes we examined after conducting a PI. We reviewed opening and closing
    memorandums for all 64 matters to determine, among other things, (1) the
    source of these matters, (2) the geographic market and amount of commerce
    affected, (3) the SIC codes for these matters, (4) the number of days the
    matters were open, and (5) the reasons the matters were closed with no
    action beyond the PI phase.

    For the 64 matters that were closed following the PI, 47 (73 percent) of the
    PIs were initiated as a result of HSR filings. Of the remaining matters,
    seven resulted from complaints received from the public; four were referred
    from another federal agency, including two from the Federal Bureau of
    Investigation (FBI), one from USDA, and one from FTC; two resulted from an
    investigation of a related matter; and two were selfinitiated. In addition,
    there were two matters for which there appeared to be more than one source
    for the investigation. Table 9 summarizes how the Division became involved
    in each of the 64 matters.

    Table 9: Source of the Agriculture- Related Matters Closed at the End of the
    Preliminary Inquiry, Fiscal Years 1997 – 1999

    Source of the matter Number of matters Percent of total matters

    HSR filing 47 73 Complaint from the public 7 11 Referral from another agency
    a 4 6 Investigation of related matter 2 3 Self- Initiated 2 3 Other b 2 3

    Total 64 100 c a Two matters were referred from the FBI, one from USDA, and
    one from FTC.

    b Other includes one matter for which we could not determine whether it was
    initiated as a result of a complaint or an HSR filing, and another for which
    we could not determine whether it resulted from a complaint or was self-
    initiated. c Does not add to 100 percent due to rounding.

    Source: GAO analysis of data from opening and closing memorandums.

    Table 10 shows the distribution of these 64 matters by the geographic market
    and amount of commerce affected. Forty- three (67 percent) of the matters
    were regional 1 in scope, and the amount of commerce affected

    1 Regional means of a geographical scope less than national, such as
    Northeast or Midwest. Appendix IV: Characteristics of Matters for

    Which Only a PI Was Done

    Appendix IV: Characteristics of Matters for Which Only a PI Was Done

    Page 73 GAO- 01- 188 Antitrust Division's Operations

    was not shown in the closing memorandums in 16 (25 percent) of the 64
    matters. Of the 47 matters in which the amount of commerce was known, 12 (25
    percent) involved commerce estimated at between $150 million and $499.9
    million.

    Table 10: Geographic Market and Amount of Commerce Affected for
    AgricultureRelated Matters Closed at the End of the Preliminary
    Investigation, Fiscal Years 1997 - 1999

    Geographic scope and amount of commerce affected Number of

    matters Percent of total matters

    Geographic scope of market

    Regional 43 67 National 20 31 International 1 2

    Total for geographic market 64 100 Amount of commerce affected

    $1,000,000 to $9,999,999 3 5 $10,000,000 to $24,999,999 3 5 $25,000,000 to
    $49,999,999 4 6 $50,000,000 to $149,999,999 9 14 $150,000, 000 to $499, 999,
    999 12 19 $500,000, 000 to $999, 999, 999 4 6 $1,000,000,000 to $ 1, 499,
    999, 999 4 6 $1.5 billion and over 8 13 Unknown b 16 25 Not completed 1 2

    Total for amount of commerce affected 64 100 a

    a Unknown indicates that at the time the PI memorandum was submitted,
    Division staff did not have information on the amount of commerce affected.
    b Does not add to 100 percent due to rounding.

    Source: GAO analysis of data from opening and closing memorandums.

    Table 11 shows the breakdown of the primary SIC categories for each of the
    64 PIs. As can be seen, food manufacturing is the largest overall category
    and accounted for 41 of 64 PIs. No other primary industry code had more than
    5 PIs.

    Appendix IV: Characteristics of Matters for Which Only a PI Was Done

    Page 74 GAO- 01- 188 Antitrust Division's Operations

    Table 11: SIC Categories for Agriculture- Related Matters Closed at the End
    of the Preliminary Inquiry, Fiscal Years 1997 - 1999

    SIC category Number of matters Percent of total matters

    All crop production 3 5 All food manufacturing 41 64 All livestock
    production 2 3 Farm machinery 2 3 Food products 1 2 Retail food stores 2 3
    Wholesale beverages 1 2 Wholesale farm supplies 2 3 Wholesale farm/ garden 1
    2 Wholesale farm/ raw materials 2 3 Wholesale grocery 5 8 Multiple SIC codes
    2 3

    Total 64 100 a

    a Does not add to 100 percent due to rounding. Source: GAO analysis of data
    from opening and closing memorandums.

    Table 12 shows the number of days the PI was open for each matter
    classification for matters closed after staff conducted a PI. According to
    the Division manual, the normal time period required to conduct a PI ranges
    from a few weeks to a few months. Table 12 shows that about 66 percent of
    the matters were closed within 3 months. All of the matters that closed
    within 3 months were HSR merger matters. The PI for each of the criminal
    matters lasted more than 6 months.

    Table 12: Number of Days Preliminary Inquiries Were Open for Agricultural
    Matters Closed at the End of the Preliminary Investigation, Fiscal Years
    1997 – 1999

    Number of days HSR merger Non- HSR merger Civil

    nonmerger Criminal Total Percent of total

    0 to 15 days 12 0 0 0 12 19 16 to 30 days 18 0 0 0 18 28 31 days to 3 months
    12 0 0 0 12 19 Over 3 months to 6 months 5 0 1 0 6 9 Over 6 months 5 1 2 8
    16 25

    Total 52 1 3 8 64 100

    Source: GAO analysis of data from opening and closing memorandums.

    Appendix IV: Characteristics of Matters for Which Only a PI Was Done

    Page 75 GAO- 01- 188 Antitrust Division's Operations

    As can be seen in table 13, 58 (91 percent) of these matters were closed
    because the Division found insufficient evidence of potential antitrust
    violations.

    Table 13: Reasons Agriculture- Related Matters Were Closed at the End of the
    Preliminary Investigation, Fiscal Years 1997 – 1999

    Reason matter was closed Number of matters Percent of total matters

    Insufficient evidence 58 91 Matter resolved 4 6 Parties abandoned merger 2 3

    Total 64 100

    Source: GAO analysis of data from opening and closing memorandums.

    Appendix V: Comments From the Department of Justice, Antitrust Division

    Page 76 GAO- 01- 188 Antitrust Division's Operations

    Appendix V: Comments From the Department of Justice, Antitrust Division

    Appendix V: Comments From the Department of Justice, Antitrust Division

    Page 77 GAO- 01- 188 Antitrust Division's Operations

    Appendix V: Comments From the Department of Justice, Antitrust Division

    Page 78 GAO- 01- 188 Antitrust Division's Operations

    Appendix V: Comments From the Department of Justice, Antitrust Division

    Page 79 GAO- 01- 188 Antitrust Division's Operations

    Appendix V: Comments From the Department of Justice, Antitrust Division

    Page 80 GAO- 01- 188 Antitrust Division's Operations

    Appendix V: Comments From the Department of Justice, Antitrust Division

    Page 81 GAO- 01- 188 Antitrust Division's Operations

    Appendix V: Comments From the Department of Justice, Antitrust Division

    Page 82 GAO- 01- 188 Antitrust Division's Operations

    Appendix V: Comments From the Department of Justice, Antitrust Division

    Page 83 GAO- 01- 188 Antitrust Division's Operations

    Appendix VI: GAO Contacts and Staff Acknowledgments

    Page 84 GAO- 01- 188 Antitrust Division's Operations

    Richard M. Stana, (202) 512- 8777 William O. Jenkins, Jr. (202) 512- 8777

    In addition to those named above, Chan My J. Battcher, Cathy Hurley, Jan
    Montgomery, Tim Outlaw, Anne Rhodes- Kline, Maria Strudwick, and Bonita
    Vines made key contributions to this report. Appendix VI: GAO Contacts and
    Staff

    Acknowledgments GAO Contacts Acknowledgments

    (182084)

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