Hearing of the House Judiciary Committee Antitrust Task Force Subcommittee- Department of Justice Antitrust Division

Interview

Oversight Hearing of the Antitrust Agencies: Department of Justice Antitrust Division and Federal Trade Commission Bureau of Competition

REP. LOFGREN: So ordered, and all members may put their opening statements in the record.

Mr. Conyers may wish to deliver his opening statement when he arrives from his meeting. I will just note that I think the antitrust portfolio is one of the most important in the DOJ. Those of us who are fortunate to live in a country that has a vigorous capitalist economy also know that competition is protected through vigorous antitrust review, and I will note that I do have concerns over the level of review of mergers that have occurred in DOJ and other enforcement activities. But I will certainly get into that when it is time for questions.

At this point, I would like to introduce our witnesses and ask them to make their opening statements. First we have Deborah Platt -- is it "Mahoras"? Majoras.

She's our first witness. She's the chairman of the Federal Trade Commission. Ms. Majoras has spent much of her career working on antitrust issues. From April of 2001 through 2003, she served first as the deputy assistant attorney general and then as the principal deputy for the Department of Justice's Antitrust Division. Prior to her time at the Justice Department, she was a partner in the antitrust section of the Jones Day law firm.

Welcome to you, Ms. Majoras.

Next we have Thomas O. Barnett. Mr. Barnett is the assistant attorney general for the Department of Justice's Antitrust Division. H was confirmed as assistant attorney general in 2006 but had been serving as the acting attorney general for the division since July of 2005.

Prior to his tenure as acting attorney general, Mr. Barnett had since 2004 served as the Antitrust Division's deputy assistant attorney general for civil enforcement. Before joining the Justice Department, Mr. Barnett was a partner at Covington & Burling, where he was vice chair of the firm's Antitrust and Consumer Protection Practice Group.

Welcome, Mr. Barnett.

And if you would note the machine on the table, we have five minutes to hear your oral testimony. We do ask when the yellow light goes on that you have about a minute left and that you sum up. And your full written statements will be made part of the record.

So first let me call on you, Ms. Majoras, to give us your statement.

MS. MAJORAS: Madame Chairwoman, Ranking Member Keller, members of the task force, thank you for the opportunity to discuss the FTC's efforts to protect consumers by ensuring competition -- which is a critical underpinning of our market economy -- remains robust.

To this end, at the FTC we focused our enforcement efforts on the areas that are most likely to impact consumers: namely health care, energy, real estate, technology and retail sectors. During the past three fiscal years, the FTC's competition work has produced 51 merger enforcement actions or withdrawals of mergers which derived from 84 second requests -- that is, expanded investigations -- in 22 non- merger actions.

During this same time period, we have completed 12 statutorily mandated rule makings and reports, eight public conferences and workshops, plus a set of hearings on issues arising under Section 2 of the Sherman Act, and nine reports on competition issues significant to consumers.

Through the first 11 months of this fiscal year 2007, pre-merger filings have increased 23 percent from the same period in the last fiscal year and the number of investigations that we have undertaken reflects this continual uptick. Since January of this year, we've litigated three preliminary injunction actions in federal court.

On the health care front, last month the commission ruled that Evanston Northwestern Heathcare Corporation's consummated acquisition of Highland Park Hospital was anti-competitive -- that it resulted in higher prices and a substantial lessening of competition for acute care inpatient hospital services in parts of Chicago's northern suburbs. The commission also has challenged several recent health care transactions and achieved substantial relief for consumers in the areas of generic drugs, over-the-counter medications, injectable analgesics, and other medical devices and diagnostic services.

The commission continues to work to detect and investigate anti- competitive agreements between drug companies that delay generic entry. Indeed, our federal court challenge to an alleged anti- competitive agreement involving Ovcon, a branded oral contraceptive product, has led to the introduction of lower-priced generics.

So far in 2007 the commission has challenged three mergers in the energy industry. Western Refining's acquisition of Giant Industries -- unsuccessful in district court; E0quitable Resources' proposed acquisition of the People's Natural Gas Company, which is still in litigation; and the proposed $22 billion deal whereby energy firm Kinder Morgan would be taken private by its management and a group of investment firms, including the Carlyle Group and Riverstone Holdings. We also charged the American Petroleum Company with illegally conspiring with competitors to restrict the importation and sale of motor oil lubricants in Puerto Rico.

The FTC has actively investigated restrictive practices in the residential real estate industry, recognizing that the purchase of a home is the most significant investment that most consumers will ever make. In the past year alone the agency has brought enforcement actions against associations of realtors or brokers who adopted restrictive rules that allegedly withheld the valuable online benefits of their multiple listing services that they control from consumers who chose to enter into nontraditional type contracts with real estate brokers.

In the critical technology arena, in February of 2007 the commission issued a final opinion and order finding that technology developer Rambus Inc had unlawfully monopolized the markets for four computer memory technologies that had been incorporated into industry standards for DRAM chips, and we required Rambus to license its SDRAM and DDR SDRAM technologies according to maximum allowable royalty rates. This is the commission's first litigated case in the standards-setting area, and we believe the first time in 22 years that the commission has heard a monopolization case in administrative litigation.

The commission also guards against anti-competitive conduct in the retail sector, and I'd be happy to elaborate on that later.

In addition, complementing our law enforcement work, in the past year we've issued reports on competition issues in real estate, gasoline, broadband and intellectual property, and provided competition analysis to policymakers regarding such areas as attorney advertising and pharmacy benefit managers.

We aided the Antitrust Modernization Commission in its examination of the U.S. antitrust laws, and to ensure that our knowledge remains fresh, we are actively engaged in market research, with recent hearings examining the boundaries of permissible and impermissible conduct under Section 2 of the Sherman Act, a workshop to examine broadband connectivity competition policy, and a three-day conference on energy markets in the 21st century.

Madame Chairman, members of the task force, the FTC is committed to working to preserving competition and to protecting consumers, and we look forward to speaking with you further about this and we appreciate your support.

Thank you.

REP. LOFGREN: Thank you very much.

Mr. Barnett, you are now welcome to deliver your oral testimony.

MR. BARNETT: Madam Chairwoman, Ranking Member Keller, and other members of the task force, it's a pleasure to appear before you.

I thank you for the opportunity to highlight the division's accomplishments and answer your questions. I also appreciate the active interest and strong support of our law enforcement mission that the Judiciary Committee, through the continuing work of the Antitrust Task Force, has provided to us.

Competition is the cornerstone of our nation's economic foundation. Antitrust enforcement promotes and protects a robust free market economy by helping ensure that anti-competitive agreements, conduct and mergers do not harm consumers. In my short time, I will briefly highlight just a few of our outstanding achievements.

On cartel enforcement, we thank the committee for its efforts in increasing the criminal fines and statutory maximum sentences for Sherman Act offenses in 2004, as well as for making antitrust offenses a predicate act for wiretapping authority. The division's cartel enforcement efforts had an outstanding year for fiscal year 2007 which ends this week. The division more than doubled its record for the most total jail time imposed, attained the second-highest amount of fines in division history, and succeeded in obtaining the longest jail sentence for a foreign national ever charged with an antitrust offense.

As one specific example of success, on August 23rd of this year British Airways and Korean Airlines each pleaded guilty and were sentenced to pay separate $300 million fines for fixing cargo and passenger fares. Each fine ties the record for the division's second largest fine ever. On the same day, the United Kingdom's Office of Fair Trading announced a similar resolution with British Airways with a fine of approximately $250 million. This was the first time that the division and the OFT have brought parallel charges.

One important focus of the division's criminal enforcement efforts in the past year has been fraud and corruption in the bidding, contracting and procurement process. These cases take money out of the pocket of every American taxpayer and deserve severe condemnation. They deal with U.S. operations in Iraq, construction in New Orleans following Hurricane Katrina, U.S. Navy, the Department of Defense, U.S. schools, among others.

Merger enforcement continues to be one of the division's core priorities. The division is committed to challenging mergers if the evidence developed through a thorough investigation evaluated pursuant to rigorous economic analysis demonstrates it's likely to harm U.S. consumers and businesses. In fiscal year 2007, six transactions were restructured or abandoned by the parties in response to a division investigation, and the division filed an additional four merger enforcement actions in district court.

Some of our most significant recent merger actions include the following:

The division challenged Monsanto's $1.5 billion proposed merger between Monsanto and Delta Pine Land and obtained a consent decree that required Monsanto and DPL to divest a major seed company, multiple cottonseed lines, and other valuable assets.

The division is currently litigating a challenge to a transaction between two daily newspapers in Charleston, West Virginia. In August 2006 the division challenged Mittal's proposed acquisition of Arcelor as likely to adversely effect competition in the $2 billion tin mill products markets in the Eastern United States.

The division also seeks continually to improve its merger review process and its transparency. In December of last year we announced a revision to the 2001 Merger Review Process Initiative. This initiative helps us identify increased -- and devote increased resources to those transactions that should be challenged. Our transparency efforts also have included the release of a joint DOJ-FTC commentary on the horizontal merger guidelines in March of 2006.

The division remains active in other areas such as holding hearings in conjunction with the FTC on Section 2 standards. In addition, with more and more countries adopting antitrust enforcement regimes, we make a priority of strengthening international cooperation and promoting antitrust policy convergence. In the last year we have worked closely with multilateral organizations around the world such as the OECD and the International Competition Network, and further developed strong bilateral relationships in other countries.

I emphasize that none of what I have discussed today could have been accomplished without the dedicated career staff of the Antitrust Division. It's an honor and privilege to serve with them.

I'm pleased with what we've accomplished, but I recognize that the hallmark of any successful organization is a continuing desire to improve. In that regard, we look forward to working with the members of the task force and your respective staff.

REP. LOFGREN: Thank you, Mr. Barnett.

And thank you both for your testimony.

REP. LOFGREN: Thank you, Mr. Keller.

I want to follow up on the credit card interchange fee issue because the hearing that we had was really pretty stark. And it became pretty clear in the course of the hearing that this is a very one-sided operation where the retailers -- in some cases they weren't even permitted to see the contracts and their very high fees.

I actually was so frustrated at the apparent lack of action at DOJ that I contacted the attorney general of California to see -- you know -- states have an opportunity and they actually have an active investigation ongoing on this issue.

I'm wondering, if you can't tell us obviously what you're going to decide, what is your estimate on the time frame for your investigation of this situation? Can you tell us that, Mr. Barnett?

MR. BARNETT: Again, I don't have a precise estimate. I can tell you that we try to be through and comprehensive in our evaluation.

To give you an example, when the division brought an action in the credit card industry against -- involving Visa and MasterCard -- that investigation took a number of years before we had collected the information that we felt was necessary to pursue the challenge; we then filed a suit and ultimately prevailed.

So this is a much more recent investigation; I expect that it will take us some time. But again, we like to do these as quickly as we responsibly can and that's what we're committed to do here.

REP. LOFGREN: May I ask how many investigators you've assigned to this?

MR. BARNETT: I don't have an exact number here.

REP. LOFGREN: If you could get back to us on that I would appreciate it.

You know, obviously we want a through investigation, but how much effort you put into something also depends on how fast it's going to be done.

And in the meanwhile, if the testimony we've received is correct, there's a lot of retailers in the country that are being on the short end of the stick and consumers paying higher prices than they really should.

MR. BARNETT: Well, Madame Chairwoman, it's a little difficult for me to give an exact number in that the number of people involved at any given point in time varies depending on what is going on in the investigation. If we're --

REP. LOFGREN: Perhaps you can give me a range -- how many and over what period of time.

I want to talk about standards setting. You mentioned -- I don't want to get into individual cases, but in the tech world it is a difficult matter. You do want standard setting; you know, that really does advance the growth of technology.

On the other hand, you can have problems -- (laughs) -- with standard setting, as we all know. And I know that the joint IP report that you have issued indicates that the agencies are going to evaluate joint ex ante activity to establish licensing terms under the rule of reason.

Have you been able jointly to do that kind of follow up and tracking of these standard setting operations, and if so, what have you found?

MR. BARNETT: Well, we are continually monitoring various developments in different industries. The division has issued a couple of business review letters, one involving a VITA, an organization called Vita; the other, I believe, IEEE -- where we applied a rule-of-reason-type analysis to some disclosure policies that those organizations were interested in pursuing to try to address the issue of what some people call sort of "holdup issues."

After they set a standard, a member who has a patent --

REP. LOFGREN: Right, I'm familiar with the issue.

MR. BARNETT: And in those instances, we found that under a rule- of-reason-type of approach that the disclosure policies were reasonable and we thought would be potentially pro-competitive.

REP. LOFGREN: I'm wondering -- my time is almost up -- whether you can explain to us, maybe in a follow-up letter -- how you go about tracking this, as you said you would in the report, and whether it's pursuant to the National Cooperative Research Act. And if you have a comment on how that has worked in terms of spurring this kind of disclosure, it would be very helpful.

I don't know -- Ms. Majoras, in the remaining seconds --

MS. MAJORAS: Very happy to do that. We've been very active in the standard-setting arena and we are monitoring complaints and so forth as we get them from standard-setting organizations, so we can absolutely give you a follow-up on that.

REP. LOFGREN: I would appreciate that. Thank -- my time has expired with -- actually 18 seconds to go -- and so I will now call on the gentleman from Ohio, Mr. Chabot for his --

REP. LOFGREN: The gentleman yields back.

I just have a couple of quick questions.

I will note that, as I said in my brief opening remarks, the antitrust portfolio is an essential one. And I have had the sense over the last several years that the enforcement has -- at DOJ, at least -- has not been as vigorous as it has been in past years.

And the statistics seem to back that up. Using the Department of Justice's own statistics, there was a 59 percent decline in merger investigations in the past four years of the Bush administration compared to the last four years of the Clinton administration, and with respect to merger challenges in the last four years reveal a 75 percent decline compared to the last four years of the Clinton administration, and a 37 percent decline even for non-merger enforcement.

There are times when I feel that, you know, the most vigorous antitrust activity is really occurring with state AGs, but there are some things I think that it's very difficult for them to do. And that really comes to my question regarding the Internet.

I believe that the rules that were in place until the FCC decisions in 2005 really did play a tremendous, important role in fostering innovation and an even playing field in that section, and I was very surprised, frankly, that the department submitted a filing with the FCC just recently and late, opposing the concept of net neutrality.

And I was wondering why this filing was months late -- after the comment period was over -- and what motivated the department to do this, and who did you meet with? I note that in the filing there was a mention of the opponents of net neutrality -- Hands Off the Internet and Consumers for Cable Choice -- which I think are sometimes referred to as "Astroturf groups" really funded by the phone companies, AT&T and Verizon.

I'm wondering, did you meet with the opponents of the phone companies before you filed? Who did you meet with in reaching the conclusion?

MR. BARNETT: Well, Madame Chairwoman, I respectfully disagree with your assessment regarding the DOJ's enforcement activities.

With respect to merger enforcement, we applied consistently across, I believe, across administrations the horizontal merger guidelines at both agencies.

REP. LOFGREN: Well, my question was about the net neutrality filing.

MR. BARNETT: I understand that, Madame Chairwoman.

I just note that between the last four years of the Clinton administration and the last four years of the Bush administration, there was perhaps a 70 percent drop in the number of mergers. So you would expect the number of reviews and the number of challenges would likely to go down.

With respect to net neutrality, I was the one who made the decision to file those comments. We certainly collected information from a wide range of sources.

REP. LOFGREN: Can you give me a list after this hearing?

MR. BARNETT: The gist of the comments or the bottom line is not necessarily to say that some form of regulation is ever inappropriate. It was to say that as we understand it -- and this is a core part of our competition advocacy mission -- as we understand it, in general we let markets work with antitrust enforcement as a backdrop. We try not to intervene with government regulation unless there is a specific case to be made for that.

And we had not seen -- until we reviewed the other comments that had been filed with the FCC -- we reviewed them, and we did not see that a case had been made. It doesn't necessarily mean that a case can't be made down the road, but we were providing our experience, our expertise in this industry for the benefit of the FCC.

REP. LOFGREN: I would like to know -- and you can provide it in writing afterwards; I don't want you to orally list it. But I would like to know who you met with or who the department met with prior to that filing. And I also would note -- because my time is about to expire -- that 96 percent of the residential broadband market nationwide is really controlled by a duopoly, and I just can't think of why that wouldn't be a compelling public policy goal to disrupt that kind of market control. And how you can possibly think that that is a competitive market is just astounding to me.

So I will not belabor it. I will look for your report on who you met with after this hearing.

And I will now call on the gentleman from -- I guess our gentlemen have left. (Laughs.)

My time's expired and Ms. Sutton has left, and I guess we've closed down this hearing. And at this point we will note that the hearing record remains open for five days. Members have five days to submit additional questions, and we would ask the witnesses if we forward additional questions to answer them as promptly as you may.

And with that, this hearing is adjourned.

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