MESSAGE FROM THE AAG
Thomas O. Barnett, Assistant Attorney General,
speaks at Yonsei University in Seoul, Korea.
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The Division has been at the forefront of antitrust
enforcementduring the last year with near record criminal fines
[and] themost merger challenges since 2001...
Thomas O. Barnett
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The Division has been at the forefront of antitrust enforcement during
the last year with near record criminal fines, the most merger challenges
since 2001, improved efficiency in merger review, exceptional success
in advocating competition before the Supreme Court and in such areas
as the real estate industry, and expanding international outreach.
Cartels
The Divisions cartel enforcement program remains extraordinarily successful.
In 2006, our Office of Criminal Enforcement (OCE) obtained the second highest
amount of fines $473 million in the Division's history, achieved
the longest sentence for a foreign national in an international antitrust case,
and made significant progress toward its first extradition of a foreign national
for an antitrust offense. Already this year, we have set a new record for jail
time imposed on Antitrust Division defendants.
The success does not appear likely to abate any time soon.The Division has
a robust pipeline of grand jury investigations that include everything from
suspected major international cartels to investigations of price fixing in a
single city. Two observations arise from these circumstances. First, the OCE
is doing a terrific job of developing leads, pursuing investigations, and prosecuting
cartels. Second, we need to continue our efforts to increase both the risk of
detection for cartel participants and the penalties imposed on them once they
are convicted.
We have been enhancing our cartel enforcement by encouraging and supporting
the expansion of criminal cartel enforcement in other jurisdictions around the
world. As more jurisdictions adopt criminal cartel penalties and implement effective
cartel enforcement programs, the likelihood of detection increases along with
our ability to collect evidence. And, of course, the expected penalties increase
as well. Through these efforts, we are making the world increasingly risky for
price fixers.
Mergers
Merger enforcement is one of the Division's core priorities, and the talent,
dedication and sophistication of our merger review personnel is second to none.
The Division is committed to challenging any merger where the evidence developed
in a thorough investigation demonstrates that the merger is likely to harm U.S.
consumers and businesses. Indeed, the Division filed 10 merger enforcement actions
in district court in FY 2006, and an additional six transactions were restructured
by the parties in response to Division investigations. This marks the highest
level of merger enforcement activity since the end of 2001 a time when
the Division was receiving many more premerger notifications than today. The
Division has obtained divestitures or other relief to prevent harm to competition
from mergers in such industries as steel, newspapers, dairies, telecommunications,
banking, and movie theaters.
At the same time that the Division hasseen increased enforcement activity,
it has improved the efficiency of its merger review process. In December 2006,
the Division announced amendments to its Merger Review Process Initiative. The
initiative helps us to identify more quickly those transactions that are not
likely to harm competition so that we can devote increased resources to those
transactions that should be challenged.
Non-Merger Activities
The Division promotes competition througha range of non-merger matters. During
2006, for example, the Division continued its efforts in the real estate industry.
Those efforts encouraged several states to modify proposed or existing laws
and regulations to enhance competition to the benefit of consumers. Delaware,
Ohio, Tennessee, and Wisconsin all passed bills that included a provision that
empowered individual consumers to choose not to purchase unwanted types of real
estate brokerage services. In the last few years, real estate commissions in
West Virginia, Tennessee, Kentucky, and South Dakota, and the state of South
Carolina, lifted bans on consumer rebates and other inducements to consumers
in real estate transactions.Consumers in these states now have the potential
to save thousands of dollars on the purchase or sale of a home.
The U.S. Supreme Court has shown increased interest in antitrust cases in recent
years, taking nine cases over the last four terms. The Court has taken these
opportunities to update older antitrust precedents in light of modern antitrust
analysis that focuses on harm to competition, not competitors, and that incorporates
rigorous economic analysis. One remarkable fact has been the lack of dissenting
views on the outcomes. For five of the six cases decided as of this writing,
all of the participating justices either joined the majority opinion or concurred
in the result. In the one other case, seven justices joined the majority opinion.
These decisions reflect the consensus that has been forged in the United States
across abroad range of antitrust issues, including refusals to deal, price discrimination,
international jurisdiction, and the role of the per se rule in joint venture
analysis.
International
The Division has been particularly focused on strengthening international cooperation
and promoting antitrust policy convergence. In the last year, the Division has
engaged the European Commission and the International Competition Network (ICN)
on merger enforcement and unilateral conduct issues and has sent delegations
to more than two dozen countries on five continents. With a global economy and
competition regimes in more than 100 countries, such global engagement has become
a necessity, and the Division will continue to expand its international outreach
and cooperation efforts.
The Year Ahead
The Division will continue its leadership role during the next year to ensure
that consumers reap the benefits of competition. The pipeline of cartel cases
and continuing rise in premerger filings will keep our enforcement personnel
busy. We also expect a flurry of activity on the policy front. The Antitrust
Modernization Committee (AMC), for example, has issued its report, which confirms
that U.S. antitrust laws and policies are soundly and appropriately based on
protecting competition and consumer welfare. We are reviewing the AMCs
specific recommendations to determine appropriate next steps. The Section 2
hearings that we are conducting jointly with the FTC will end soon, and the
agencies will focus on how to benefit from the information and discussions generated
by those hearings. The ICN working groups will be addressing unilateral conduct
issues and substantive and procedural convergence in merger review. We look
forward to meeting these and many other challenges.
SIGNIFICANT EVENTS APRIL 2006 - APRIL 2007
- MA-RI-AL Corp. and two executives indicted on charges of conspiring
to fix prices of ready mixed concrete in Indianapolis, bringing the
total to three companies and eight individuals charged, and more than
$30 million infines collected (April 2006)
- Qualcomm Inc. and Flarion Technologies Inc. charged with illegal premerger
coordination in violation of section 7A of the Clayton Act and fined
$1.8 million in civil penalties (April 2006)
- In response to Division investigations, both the West Virginia and
Tennessee real estate commissions began to allow real estate brokers
to offer rebates and other discounts to consumers in their states (May
& July 2006)
- International Competition Network finalizes merger guidelines workbook,
establishes working group to study unilateral conduct, and adopts suggested
best practices for enforcement in the telecommunications sector (May
2006)
- U.S. District Court in Washington, D.C. extends the term of certain
portions of the Microsoft Final Judgment by at least two years, due
to ongoing problems with the company’s technical documentation in the
FJ’s communications protocol licensing program (May 2006)
- The Division and FTC begin a series of joint public hearings to examine
the antitrust implications of single-firm conduct (June 2006)
- Consent decree requires divestiture of six electricity generating
plants in Pennsylvania and New Jersey, to resolve competition concerns
arising from the merger of Exelon Corp. and PSEG Inc. (June 2006)
- Consent decree requires Inco Limited to sell a nickel refinery and
related assets to resolve competition concerns in the high-purity nickel
market arising from Inco’s proposed acquisition of Falcon-bridge Limited
(June 2006)
- Consent decree requires The McClatchy Company and Knight Ridder Inc.
to divest the St. Paul Pioneer Pressin order to proceed with their proposed
merger (June 2006)
- Consent decree requires divestiture of Dofasco Inc. or alternative
assets to resolve competition concerns in the tin mill products industry
arising from Mittal Steel’s proposed acquisition of Arcelor S.A. (August
2006)
- Stolt-Nielsen S.A., two subsidiaries, and two executives indicted
for participating in a conspiracy to allocate customers, fix prices,
and rig bids on parcel tanker shipping contracts (September 2006)
- On the eve of trial, Dairy Farmers of America Inc. agrees to divest
its interest in Southern Belle Dairy Co., restoring competition for
milk contracts in 100 school districts in Kentucky and Tennessee (October2006)
- In a business review letter, Division announces that it will not oppose
a patent disclosure policy proposal by VITA, a standard-setting organization,
to implement a policy on the disclosure and licensing of patents (October
2006)
- Denial of motion filed by the National Association of Realtors seeking
to dismiss the antitrust case filed against it by the Division, allowing
the case to proceed (November 2006)
- Amendments to the Division’s 2001 Merger Review Process Initiative
to further streamline the merger review process (December 2006)
- U.S. Supreme Court Weyerhaeuser decision holds that the Brooke
Group standard for predatory pricing also applies to predatory buying
claims (February 2007)
- U.S. District Court in Washington, D.C. finds proposed consent decrees
in SBC/AT&T and Verizon/MCI mergers in the public interest (March
2007)
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CRIMINAL ENFORCEMENT THE YEAR IN REVIEW
The detection, prosecution and deterrence of cartel offenses continue to be
the Antitrust Division's highest priority. The Division places particular emphasis
on combating international cartels that target U.S. markets because of the breadth
and magnitude of the harm they inflict on American businesses and consumers.
This enforcement strategy has succeeded in cracking dozens of international
cartels, securing convictions and jail sentences against culpable U.S. and foreign
executives, and obtaining significant corporate fines. And, because of the importance
of global cooperation among competition agencies, the Division actively promotes
convergence and devotes significant resources to working with competition agencies
around the world toward increasingly aggressive anticartel enforcement.
Case Highlights
In 2006 and early 2007 the Division brought numerous cases involving violations
of the Sherman Act and related federal statutes, resulting in significant fines
and stiff prison sentences for individuals.
Dynamic Random Access Memory
The Division continued to produce record results from its investigation of
the price-fixing cartel for high-tech dynamic random access memory (DRAM) products.
To date the investigation has yielded total fines of more than $730 million
and charges against four companies and 18 executives. One executive pleaded
guilty to obstructing the investigation and 11 foreign executives, including
three German nationals and eight Korean nationals, have served or agreed to
serve time in U.S. prisons for their participation in this price-fixing conspiracy.
In November 2006, the Division obtained an $84 million criminal fine against
Japanese manufacturer Elpida Memory Inc. In February 2007, Y.H. Park, an executive
of Samsung Electronics Company Ltd., was sentenced to serve 10 months in jail
after pleading guilty to participating in the conspiracy. Park's sentence is
the longest jail sentence ever imposed on a foreign national for participation
in an international price-fixing cartel. Two Samsung executives and one Hynix
executive were also indicted in October 2006, and the trial is pending.
Ready Mixed Concrete
Chicago Field Office, Ready-Mixed Concrete Team.
Back Row (L-R): Trial Attorneys Jonathan Epstein,
Frank Von-drak (Assistant Chief), Eric Schleef, and
Michael Boomgarden. Front Row seated (L-R):
Economist Donald Brown and Paralegals Carly
Blakeman and Janice Swallow.
The Division's highly successful investigation of price fixing among ready-mixed
concrete producers in Indiana continued to net significant results. To date
the investigation has yielded total fines of more than $35 million, including
a $29.2 million criminal fine the largest ever obtained in a domestic
cartel investigation against Irving Materials Inc., a ready-mixed concrete
producer doing business in the Indianapolis metropolitan area, and charges against
five companies and 10 executives. Eight of the executives pleaded guilty and
two were convicted after trial; all were sentenced to serve between five and
27 months in jail.
Nationwide E-Rate Investigation
The Division continued its nationwide investigation of bid rigging and fraud
in the E-Rate program, which was created by Congress to subsidize the provision
of Internet access and telecommunications services to economically disadvantaged
schools and libraries. To date, 14 individuals and 12 companies have been charged
in connection with anticompetitive and fraudulent acts affecting dozens of schools
in 10 states. A total of six companies and four individuals have either pleaded
guilty, agreed to plead guilty or entered civil settlements, and have agreed
to pay criminal fines and restitution totaling approximately $40 million. Two
individuals have each been sentenced to serve more than five years in prison.
In 2006 the Division charged four companies and four individuals with defrauding
the E-Rate program; more than $4 million in criminal fines and restitution have
been imposed as a result of these cases. In February 2007, in the first E-Rate
matter to go to trial, a federal jury in McAllen, Texas convicted Rafael Adame,
the former president and owner of ATE Tel Solutions Inc., on seven of nine counts
of wire fraud in a scheme to defraud the E-Rate program in a Weslaco, Texas
school district. Trials are pending in three additional E-Rate cases: United
States v. Video Network Communications, Inc.; United States v. Cynthia
Ayer; and United States v. Douglas Benit.
Increased Emphasis on Jail Sentences for Individuals
The Division, having long believed that individual incarceration has a greater
deterrent effect than fines alone, continues to emphasize prison terms for individuals
who participate in price-fixing conspiracies. Antitrust offenders are being
sent to jail with increasing frequency and for longer periods of time. And,
we have heard firsthand accounts from cartel members about international cartels
that chose not to expand their cartel to the United States because of the risk
of going to jail. In FY 2006 the Division obtained criminal sentences for 19
individuals totaling 5,383 days of jail time. Already in just the first half
of FY 2007 the Division has obtained criminal sentences for 21 individuals totaling
17,235 days of jail time; the average jail sentenced imposed is 27.3 months.
Recently, the Division has also increased the number of foreign nationals prosecuted
and sent to jail in connection with its cartel investigations. Approximately
30 foreign defendants from Canada, France, Germany, Japan, South Korea, the
Netherlands, Norway, Sweden, Switzerland and the United Kingdom have served,
or are currently serving, prison sentences in U.S. jails as a result of the
Division's cartel investigations.
International Cartel Enforcement
The global reach of modern cartels, as illustrated by the DRAM investigation,
means that criminal conspiracies outside U.S. borders often have significant
effects on U.S. consumers. International advocacy and coordination efforts are
therefore crucial to U.S. cartel enforcement, and increased cooperation and
assistance from foreign governments continues to enhance the Division's ability
to detect and prosecute international cartel activity. Over the past several
years there has been a growing worldwide consensus that international cartel
activity is pervasive and victimizes consumers everywhere. A shared commitment
to fighting international cartels has led to the establishment of cooperative
relationships among competition law enforcement authorities around the world.
The Division actively promotes convergence in the area of cartel enforcement
and devotes significant resources to bilateral meetings, the International Competition
Network and the Organization for Economic Cooperation and Development (OECD).
The Division continues to focus on the investigative benefits of leniency programs
and frequently provides technical assistance to other enforcement agencies.
The Division has recently been gratified to see enhanced enforcement powers
and new or strengthened leniency programs in several jurisdictions in Europe,
Asia, and around the world. The Division continues to advocate the deterrent
effect of prison sentences as opposed to a "fines only" approach
and the prospect of extradition to the locus of a cartel's economic harm.
The decisions to date in The Government of the United States of America v.
Ian P. Norris part of the Divisions carbon brushes matter
have been a major step toward such deterrence.
Extradition of Foreign Nationals the Norris Case
In June 2005, an English magistrates' court found a United Kingdom national
to be extraditable on a U.S. antitrust charge. The Bow Street Magistrates' Court
ruled that the price-fixing and obstruction offenses filed against Ian Norris
in 2004 were extraditable offenses under the U.K. Extradition Act of 2003. The
magistrates' court then referred the case to the U.K. Secretary of State, who
ordered the defendant's extradition in September 2005.
Norris filed multiple appeals in England's High Court of Justice. In February
2006, the High Court rejected an appeal under which Norris had challenged the
designation of the United States under the U.K. Extradition Act due to the lack
of ratification by the United States of the 2003 U.S./U.K. Extradition Treaty
and the alleged lack of consistency between extraditions requested by the United
States and extraditions requested by the United Kingdom. In January 2007, the
High Court dismissed additional appeals based on human rights arguments, the
passage of time since the commission of the offenses charged, the dual criminality
requirement for extradition, and a claim that obstruction of foreign investigators
is not an extradition offense. Norris has filed an application for leave to
appeal the High Courts latest ruling to the House of Lords.
Conclusion
With approximately 130 criminal grand jury investigations throughout
the United States currently looking into suspected cartel activity,
the upcoming year looks likely to yield additional significant national
and international antitrust prosecutions.
Source: DOJ Antitrust Division
[D]
COMPETITION ADVOCACYAND TRANSPARENCY
In addition to its traditional law enforcement role, the Antitrust Division
regularly seeks to promote competition by educating businesses and through
its competition advocacy efforts by providing transparency in its enforcement
decisions. The Divisions efforts at both transparency and competition
advocacy can take many forms. Transparency results from policy documents,
business review letters, and closing statements, among other vehicles.
The Division advocates the benefits of competition by providing advice
and analysis concerning a variety of matters, participating in Supreme
Court cases, engaging in international efforts, and offering its views
regarding legislation and regulation at both the federal and state levels.
Anticompetitive constraints imposed by government action can affect entire
sectors of the economy and can therefore have a much broader negative
impact on consumers than any single cartel or merger. Such constraints,
however, are generally exempt from direct challenge under the antitrust
laws. The Division believes that robust competition advocacy is an important
part of its mission to protect competition on behalf of American consumers
and businesses. The Division therefore educates policy makers and the
general public about the benefits of competition in a variety of markets
in an effort to ensure that competition in those markets is not constrained.
For example, the Division has devoted substantial competition advocacy
efforts to two markets that are vitally important to the United States
economy and affect virtually every consumer real estate and health
care.With respect to real estate, the Division provides assistance and
information to entities considering rulessuch as rules that prohibit
rebates to consumers or that undermine online brokerage modelsthat
would inhibit some types of competition that can lower the cost of buying
or selling a home. During 2006, several states modified proposed or existing
laws and regulations to enhance competition to the benefit of consumers
as a result of the Divisions advocacy. In health care, the Division
pursues the objective of promoting competition as a means to hold down
health care costs. A recent example of this type of advocacy was the appearance
of Mark Botti, Chief of the Divisions Litigation I Section, before
the Georgia legislature, where he explained why certificate of need requirements
can stifle innovation and increase health care costs to the detriment
of consumers.
Transparency is readily achieved when the Division brings an enforcement
action. Theories and evidence of anticompetitive harm are available to
the public through complaints, press releases, and competitive impact
statements. The public often has as much, if not greater, interest, however,
in why the Division decides not to bring an enforcement action in particular
cases. While confidentiality restrictions place significant limits on
what the Division can say publicly about its Hart-Scott-Rodino investigations,
the Division has been active and intends to remain active in issuing closing
statements in mergers that it does not challenge after extensive investigations.
These statements describe the Divisions rationale for the enforcement
decisions within confidentiality limits. Thus, for example, the Division
issued closing statements detailing its decisions not to challenge the
AT&T/Bellsouth and Maytag/Whirlpool mergers. The Division will continue
to issue such statements where appropriate to help the public better understand
its actions.
The Divisions transparency efforts also have included the release
of a joint Department of Justice/Federal Trade Commission (FTC) Commentary
on the Horizontal Merger Guidelines, which was issued in March 2006. The
commentary is the latest chapter in the antitrust agencies ongoing
efforts to provide guidance to the antitrust bar and businesses regarding
how the agencies enforce section 7 of the Clayton Act. The analytical
framework and standards used to analyze the likely competitive effects
of mergers are embodied in the Horizontal Merger Guidelines, which the
Division and the FTC jointly issued in 1992 and revised in 1997. The commentary
explains how the agencies have applied particular guidelines provisions
relating to market definition, competitive effects (including coordinated
interaction and unilateral effects analysis), entry conditions, and efficiencies.
Included throughout the commentary are summaries of actual mergers that
the agencies analyzed under the Merger Guidelines.
Another important form of transparency is the business review letter.
Persons concerned about the legality under the antitrust laws of proposed
business conduct may ask the Department of Justice for a statement of
its current enforcement intentions with respect to that conduct under
the Business Review Procedure. See 28 C.F.R. Section 50.6. The Division
believes that the business review process provides the business community
an important opportunity to receive guidance from the Department of Justice
with respect to the scope, interpretation, and application of the antitrust
laws to particular proposed conduct. Six business review letters were
issued in 2006, including letters addressing ex ante disclosure of patent
licensing terms in standard-setting, joint ventures for services to the
healthcare industry, and model broker agreements in transportation.
The Antitrust Divisions competition advocacy and transparency efforts
help consumers, businesses and policy makers understand antitrust law
and the importance of competition in our economy. These efforts will continue
to be an important part of the Divisions mission.
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MEET DENNIS W. CARLTON, DEPUTY ASSISTANT ATTORNEY GENERAL FOR ECONOMIC
ANALYSIS
Deputy Assistant Attorney General for Economic Analysis,
Dennis W. Carlton.
Since October 2006, Dennis W. Carlton has served as Deputy Assistant Attorney
General for Economic Analysis in the Antitrust Division. He is on leave from
the University of Chicago, where he has for many years been a professor of economics
at the graduate school of business. Dennis has also taught in and has been a
faculty member of the university's economics department and law school. He specializes
in microeconomics, industrial organization and antitrust economics, and he has
published more than 80 research papers on a variety of topics, including behavior
under uncertainty, price rigidity, vertical integration, network economics,
durable goods, and the telecommunications industry. In the antitrust area, his
recent papers address merger policy, the economics of tie-in sales, exclusive
conduct, and market definition. Dennis is co-author, with Jeffrey Perloff, of
one of the nation's leading industrial organization textbooks, "Modern Industrial
Organization." He is co-editor of the Journal of Law and Economics, and
of Competition Policy International. He has served as the sole economist
on the Antitrust Modernization Commission, a congressional commission whose
report evaluating and issuing recommendations concerning U.S. antitrust laws
is due out this spring.
In addition to his academic experience, Dennis has been one of the country's
leading antitrust consultants and has served frequently as an expert witness
in antitrust litigation. Prior to joining the Division, Dennis consulted for
about 30 years through Lexecon, an economics consulting firm, where for several
years he served as president. He has worked on many of the largest and most
public mergers to come before the Division and Federal Trade Commission (FTC)
during that time, and his experience and expertise cover a wide range of industries,
including telecommunications, insurance, payment mechanisms, transportation
and energy. He has served as a consultant to both the Division and FTC on several
matters, including various revisions to the Merger Guidelines.
Since joining the Division, Dennis has interacted extensively with foreign
antitrust agencies on a wide range of antitrust issues, including appropriate
vertical and horizontal merger policy. He has given several presentations abroad
on antitrust topics and recently participated in a public forum in London where
the U.S. and European approaches to antitrust and regulation were debated.
On the domestic front, Dennis coordinates closely with the Division's staff
of career economists on both policy development and analysis of mergers and
other business practices. Dennis has also assisted in the analysis of antitrust-related
matters before the U.S. Supreme Court. One of his interests, and a particular
focus of his attention, has been to promote and encourage Economic Analysis
Group research and to further the Division's efforts in the area of competition
advocacy. In particular, Dennis has encouraged economic research bearing on
the effects of antitrust policy and the consequences of regulations and legislation
that constrain the competitive process. Through such efforts, he hopes to further
competition advocacy projects in which the Division takes an active role in
encouraging federal and state bodies to avoid laws and rules that harm consumers
by interfering with competition.
MERGER ENFORCEMENT THE YEAR IN REVIEW
Source: DOJ Antitrust Division
[D]
Efficient merger enforcement preventing the relatively few transactions
that threaten harm to competition each year and quickly clearing those that
do not continues to be a top priority for the Antitrust Division. FY
2006 was the most active merger enforcement year the Division has had since
the end of the "merger wave" in FY 2001. HSR pre-merger filings increased 8.9
percent over FY 2005, to 1,860, and parties already have notified the antitrust
agencies of 873 transactions thus far in FY 2007. The Division filed 10 merger
enforcement actions over the course of the year, and its investigations led
to parties restructuring an additional six transactions more merger challenges
than the previous two years combined. These 16 matters also represented about
21 percent of the HSR-reportable transactions that the Division investigated
in FY 2006.
At the same time, the Division continued to improve its efficiency in the review
of HSR transactions: the percentage of HSR transactions resulting in a second
request dropped from 1.5 percent to 1 percent, and the duration of the average
second request investigation continued to decline.
The cases that the Division filed in 2006 included challenges to transactions
in the steel and nickel industries (the Mittal/Arcelor and Inco/Falconbridge
transactions, respectively, which are discussed elsewhere in this newsletter),
as well as the telecommunications (Verizon/MCI and SBC/AT&T), newspaper
(McClatchy/Knight Ridder), health insurance (United Health Group/PacifiCare
Health Systems), electricity (Exelon/PSEG), banking (Regions Financial/AmSouth
Bancorporation), and mobile wireless services (Alltel/ Midwest Wireless) industries,
among others. The Division's challenge of Dairy Farmers of America Inc.'s acquisition
of Southern Belle Dairy Co. was also resolved through a settlement favorable
to the Division.
Exelon/PSEG
In the energy industry, the Division investigated the proposed $16 billion
merger of Exelon Corporation and Public Service Enterprise Group Inc. (PSEG).
The merger would have combined two of the largest electricity generating companies
in the eastern U.S., and as originally proposed likely would have caused higher
prices for wholesale electricity to consumers in the mid-Atlantic region, particularly
in New Jersey, Philadelphia, central Pennsylvania, and eastern Maryland. In
this area, with some $30 billion in yearly sales, the combined firm would have
had about a 40 percent share of generating capacity. The post-merger Herfindahl-Hirschman
Index (HHI) would have been approximately 2,100, an increase of approximately
800. Beyond simple market shares, the Division determined that the proposed
merger would combine groups of assets different kinds of generation plants
with widely differing marginal costs in a way that would result in a
firm that would have significantly more incentive and ability to withhold output
from the market. The Division resolved its competition concerns through a consent
decree that required the divestiture of six electricity plants in Pennsylvania
and New Jersey that provide more than 5,600 megawatts of generating capacity.
The case was ultimately withdrawn when the merger was abandoned by the parties.
Maytag/Whirlpool
When the Division investigates a merger, high market shares for the merging
parties and high levels of concentration give rise to an initial presumption
of a competitive problem. In some such cases, like Exelon, a detailed factual
investigation strengthens those structural presumptions. In other cases involving
high market shares, detailed fact-finding rebuts the initial presumption and
the Division determines that the deal is not likely to result in a substantial
lessening of competition. The Division's investigation of Whirlpool's acquisition
of Maytag was such a case.
The investigation focused on residential clothes washers and dryers. The Division
found that despite the two companies' high market shares in the U.S., any attempt
to raise prices likely would be unsuccessful. Whirlpool and Maytag represented
two well-known brands in the industry, but rival appliance brands such as General
Electric, Frigidaire, and Kenmore are also well established. Also, new brands
such as LG and Samsung have quickly established themselves in the U.S. In fact,
large retailers like Sears, Lowe's, The Home Depot, and Best Buy have had significant
success introducing LG laundry products and, in the case of Best Buy, displacing
Maytag laundry products altogether. The Division concluded that the combination
of strong rival suppliers with the ability to expand sales significantly and
the large cost savings and other efficiencies that the parties were able to
substantiate made it unlikely that the transaction would harm consumer welfare.
Thus, the initial presumption having been rebutted, the investigation was closed.
DFA/Southern Belle
DFA/Southern Belle Team. Back Row (L-R): James Fredricks,
Derrick
Lam, Christopher Oropeza, Nora Terres, Tor Winston, Jonathan Jacobs,
N. Christopher Hardee, Peter Mucchetti. Front Row (L-R): Carol Bell,
Carolyn Pasternak, Richard Martin, Elizabeth Armington, Michael Klass,
John Read, Ihan Kim, Alex Rohr. Not pictured: Mark Botti, Joseph Miller,
Claudette Strange, Robert Nicholson, Gregory Werden.
After a victory in the court of appeals, a settlement negotiated on the eve
of a district court trial that required Dairy Farmers of America Corp. (DFA)
to divest its interest in Southern Belle Dairy Co. successfully ended the Division's
lawsuit challenging DFA's acquisition of a 50 percent interest in Southern Belle.
The complaint charged that the partial acquisition of Southern Belle reduced
competition for school milk contracts in 100 school districts in Kentucky and
Tennessee because it gave DFA substantial ownership interests in two dairies
Southern Belle and the nearby Flav-O-Rich dairy that competed
for the contracts. The acquisition reduced the number of independent bidders
for school milk contracts from two to one in 45 school districts in eastern
Kentucky, and from three bidders to two in 55 school districts in eastern Kentucky
and Tennessee.
Initially, the district court granted summary judgment for the defendants after
they modified their ownership agreements to reduce DFA's legal rights to exercise
control over Southern Belle. Without addressing the ownership arrangement that
had been in effect for two years, the district court held that the government
failed to establish a mechanism by which the acquisition was likely to affect
competition adversely in the school milk markets under the defendants' modified
agreement. In October 2005, the Court of Appeals for the Sixth Circuit agreed
with the Division, and concluded that the lower court erred in ignoring the
original ownership arrangement. The court also held that DFA's 50 percent ownership
of the two competing dairies and the closely aligned interests of the dairies'
managements could lead to anticompetitive behavior, violating Section 7 of the
Clayton Act, even in the absence of formal DFA control rights. The court of
appeals reversed the district court and remanded the case for trial. In October
2006, prior to trial, a consent decree was filed that required DFA to divest
its interest in the Southern Belle Dairy. That divestiture has now been completed.
THE MERGER REVIEW PROCESS INITIATIVE ACHIEVES POSITIVE RESULTS
The Antitrust Division's 2001 Merger Review Process Initiative and its December
2006 amendments have succeeded in helping the Division achieve its goal of making
the merger review process more efficient and transparent. The initiative improves
the Division's ability to identify more transactions that do not threaten harm
to consumer welfare during the initial Hart-Scott-Rodino (HSR) waiting period
without issuing a second request, and describes practices designed to make second
request investigations more efficient.
Merger Review Process
The HSR merger review process is applied sparingly by both the Division and the Federal Trade Commission. Of the 7,210 filed transactions during the fiscal years 2002-2006, second
requests were issued in only 214 matters. Thus, 97 percent of the transactions that were filed with the agencies were cleared within the initial 15 or 30-day waiting period.
Today most federal merger challenges occur before deals close, when
effective injunctive relief is available, structural relief is more practical
and effective, and harm to consumer welfare has not yet occurred. However, the
premerger review process can be costly and time-consuming, and it is often full
of uncertainties. Recognizing that the vast majority of transactions that are
notified to the agencies each year are either competitively neutral or beneficial
to consumers and businesses, the Division strives to make the right enforcement
decision as quickly and as efficiently as possible. This means clearing transactions
that do not pose a threat to competition during the first 30-day waiting period
wherever possible, so that the Division can concentrate its resources on those
transactions that do threaten competitive harm.
Merger review is complicated by the fact that the agencies and the courts have
shifted away from a static analysis of market shares and concentration toward
a fuller analysis of the competitive process at work in each examined industry.
While this decreased reliance on market shares and presumptions, along with
the advances in economic analysis that make more precise investigations possible,
lead to better enforcement decisions, such developments require significant
quantities of data and information.
Thanks to recent technological advances there is typically no shortage of information.
E-mail, electronic document creation and storage, and complex databases have
led to an explosion in the volume of information that companies must sift through
in order to comply with a second request and that Division staff must review
under the time pressures of an HSR investigation. Until relatively recently,
a document production that yielded a few hundred boxes of documents would have
been considered a "large" production. Today, a virtually identical second request
schedule will yield gigabytes, or even terabytes, of documents and data.
The Division is committed to its goal of utilizing investigative resources more efficiently to further reduce the burden placed on parties to transactions that it investigates consistent
with its responsibility to enforce the antitrust laws. Since 2001, the Division has sought to meet this challenge through its Merger Review Process Initiative.
2001 Initiative
The 2001 Merger Review Process Initiative helps the Division identify more
quickly critical legal, factual and economic issues regarding proposed mergers;
to facilitate more efficient and more focused investigative discovery; and to
provide for an effective process for the evaluation of evidence. In the five
years since its launch it has enabled the Division to deploy its investigative
resources more efficiently and effectively and has reduced the investigative
burden placed on parties to transactions that are reviewed by the Division.
During FY 2000-2001, before the initiative was announced, approximately 40
percent of the Division's HSR preliminary investigations led to second requests.
During the two years that followed the launch of the initiative that number
fell to just under 28 percent, and in FY 2004-2006 only about 24 percent of
investigations resulted in second requests. In addition, since the initiative
was announced, the average number of days between the opening of a preliminary
investigation and the closing of the investigation (either before or after issuance
of a second request) in matters that do not lead to an enforcement action has
fallen from about 93 days to 57 days. The average length of second request investigations
dropped from 213 days for the two years before the initiative to 154 days during
the last two years, a drop of over 25 percent.
2006 Amendments
The December 2006 amendments build on the success of the 2001 initiative, which
are the culmination of an extensive internal review of the Division's best practices
for investigating mergers and acquisitions, as well as an analysis of the progress
the Division has made since first launching its initiative. The amendments include
a voluntary option that will enable companies to limit the duration and cost
of merger investigations. Under this option, document searches generally will
be limited to certain central files and a list of 30 employees. For their part,
companies taking advantage of this option will need to provide certain critical
information to the Division early in the investigation; agree to an investigation
schedule; and agree to a sufficient period for the Division to conduct post-complaint
discovery should the investigation become one of the few that result in contested
litigation. This option reflects the reality that few merger investigations
result in a contested challenge. In FY 1999-2006, for example, the Division
issued second requests in 265 HSR merger investigations and brought 60 enforcement
actions, but only four of those enforcement actions led to a trial.
As part of the amendments, the Division also released a revised Model
Second Request that is based largely on limitations that Division staff
have successfully negotiated and implemented in merger investigations
in recent years. These changes include: a shorter time period for most
document requests (generally, two years rather than three to four years);
significant limitations on when second request recipients must conduct
a "second sweep" for responsive documents; and an alternative to the
requirement that companies search back-up tapes for responsive electronic
documents.
COMPETITION POLICY AND INTELLECTUAL PROPERTY LAWS WORK IN TANDEM
TO PROMOTE GROWTH AND INNOVATION
Innovation is a key component of the U.S. economy. A significant driver of innovation is competition: firms striving to be the first to deliver new products to consumers that could
allow them to be the first to capture a market by dint of their innovative efforts. A complementary driver of innovation are U.S. intellectual property (IP) laws, laws that encourage
inventors and artists to participate in the marketplace by protecting their creative and inventive efforts. When enforcing the antitrust laws, the Antitrust Division seeks to maintain
a competitive American marketplace, one that improves consumer welfare by encouraging innovative efforts and providing an environment in which these efforts may flourish.
Maintaining this competitive market place means curtailing activities involving intellectual property rights that foster illegal collusive or exclusionary conduct. In most cases involving
intellectual property rights, the appropriate approach to making this determination is to analyze activities involving intellectual property rights under the rule of reason, taking into
account both the efficiencies of a particular activity as well as any anticompetitive effects.
The Division has devoted much time and effort to analyzing issues involving intellectual property and antitrust. It efforts have included, but are not limited to, business review letters,
international working groups, bilateral discussions with important trading partners, interagency discussions, amicus briefs and speeches. The Division has focused on two particularly
important areas in recent business review letters: patent pooling and standard setting.
The Division analyzes patent pooling agreements under the rule of reason because combining complementary patents within a pool can be an efficient and procompetitive way
to disseminate those rights to would-be users of the technology or standard. Including substitute patents in a pool, however, does not make the pool presumptively anticompetitive.
Rather, the Division considers the inclusion of substitutes as one of many factors when evaluating the competitive impact of pooling agreements.
The Division's recent business review letter to the standard-setting organization (SSO) known as VITA (VMEbus International Trade Association) also applied a rule of reason analysis
when evaluating VITA's proposed patent policy. That policy will require licensors of patents necessary to implement VITA standards to provide standard setters with more information
about potential patent licensing costs than a simple commitment to license on reasonable and nondiscriminatory terms before they decide which technologies to include in the standard.
The Division concluded that this proposed policy was a "sensible effort" by VITA "to avoid unreasonable patent licensing terms that might threaten the success of the future standards
and to avoid disputes over licensing terms that can delay adoption and implementation after standards are set." It should, therefore, "preserve, not restrict, competition among patent
holders." To be sure, not all SSOs need implement the same, or even any, patent licensing policy. Different SSOs will reach different conclusions regarding the potential benefits and
costs of such policies and the marketplace will indicate which SSOs have made the best choices.
INTERNATIONAL COOPERATION AND ANTITRUST POLICY CONVERGENCE A TOP PRIORITY
The Antitrust Division continues to make international
cooperation and antitrust policy convergence a top priority.
In 2006-2007, the Division pursued these goals by continuing
to work closely with multilateral organizations, strengthening
its bilateral ties with antitrust agencies of other jurisdictions,
and working with countries such as China that are in
the process of adopting antitrust laws.
Multilateral Efforts
The International Competition Network (ICN) and the
Organization for Economic Cooperation and Development
(OECD) continue to make important strides in achieving
consensus on antitrust issues. ICN a working collaboration
of antitrust enforcement officials and non-govern-mental
advisors from around the world celebrated two important
milestones this past year. October 2006 marked the fifth
anniversary of the founding of ICN by the Division, the
Federal Trade Commission (FTC), and 13 foreign agencies.
And in March 2007, ICN welcomed its 100th member to the
network.
In just five short years, ICN has made substantial progress
on a number of fronts. Through its 13 recommended practices
for merger notification and review procedures, the Merger
Working Group which is chaired by the Division has
brought much needed procedural coherence to
multijurisdictional merger review. The Merger Working
Group has also laid important groundwork for future
convergence on substantive merger issues through its work
analyzing the merger guidelines of various jurisdictions. In
particular, the practical,
user-friendly Merger
Guidelines workbook that
was adopted in May 2006
provides both new and
established antitrust
agencies with detailed
insights into the basic
framework used in the
substantive assessment of
mergers. On the cartel front,
ICN has encouraged
convergence by bringing
cartel experts together
annually to discuss practical
enforcement issues, such as
leniency, obstruction of
justice, and the role of
negotiated settlements.
ICN has also made
significant contributions in
other areas by addressing
issues of importance to new
antitrust agencies and
through its work on
regulated sectors,
particularly the suggested
best practices for antitrust
enforcement in the
telecommunications sector,
which ICN members
adopted in 2006.
If the past five years are
any guide, the future of
ICN is bright, even as it
turns its attention to more
difficult policy issues. At
the Moscow ICN
conference in May 2007,
under the Division's
leadership as chair of the
Merger Working Group,
ICN is expected to begin
work on substantive
merger policies. ICN has
already begun work on
monopolization issues. At
the ICN's most recent
annual conference held in
Cape Town, South Africa in
May 2006, members
launched a new working
group chaired by the
FTC and Germany's
antitrust agency on
unilateral conduct. Agency
and non-governmental
advisors have already
begun a robust dialogue on
objectives of competition
laws and the definition of
"dominance" and
"substantial market
power." In both the merger
and unilateral conduct
areas, the Division is
strongly committed to
promoting convergence
based on sound antitrust
principles.
The OECD is another important forum for developing
antitrust convergence among like-minded jurisdictions. The
OECD provides a setting where its 30 member countries seek
answers to common problems, identify best practices and
coordinate antitrust policies. The Division continues to be
actively engaged with the OECD in all phases of its
competition work. Assistant Attorney General Barnett chairs
the Competition Committee's working party on enforcement
and cooperation. Under his leadership, this group held
productive sessions on plea bargaining in cartel cases, private
remedies (class actions and indirect purchaser rules), and
evidentiary issues related to market power and merger
review. The group also hosted two workshops to address
issues that arise in countries where antitrust agencies and
prosecutors work in separate agencies but nonetheless must
work together to combat cartels. During the past year, the
Competition Committee as a whole addressed such
important topics as remedies in monopolization cases;
competition, patents, and innovation; and vertical mergers.
The com-mittee also adopted a Competition Assessment
Toolkit that provides guidance to regulatory bodies on how
to assess the effect on competition of proposed or existing
regulatory measures.
China
Assistant Attorney General Thomas O. Barnett leads
delegation in meeting
with the National Peoples Congress in Beijing.
One important way the Division encourages convergence
is by working with other nations' enforcement institutions as
they draft antitrust laws. Working with China as it continues
its efforts to enact its first comprehensive antitrust law
remains a high priority for the Division. The Division has
commented on several draft versions of China's
antimonopoly law over the past three years. In addition, the
Division has sent several high-level delegations to China to
discuss the draft law and competition policy generally,
including a visit by Assistant Attorney General Barnett in
September 2006 and several trips to Beijing by Deputy
Assistant Attorney General Gerald F. Masoudi. Closer to
home, Division officials moderated discussions with
government officials from China in a U.S.China Legal
Exchange Program held in
Seattle, Cleveland and
Washington, D.C. in
December 2006. Both
Chinese and United States
officials agree on the
importance of continued
dialogue, and additional
work with Chinese officials
is expected in the coming
year.
Bilateral Relationships
The Division also remains
committed to strengthening
its working relationships
with foreign antitrust
agencies. In the
enforcement area, the
Division worked closely
with Canada, the European
Commission (EC), Japan
and Korea to conduct
simultaneous searches in its
ongoing cartel
investigation of the air
cargo industry. On the
policy front,
monopolization/abuse of
dominance and intellectual
property took center stage.
During the past year, the
Division has consulted
closely with the EC as it
seeks to refine its approach
to abuse of dominance
cases. The Division also
participated in working
groups on intellectual
property and
monopolization issues with
Canada and Mexico. The
working groups explored in
detail each of the three
countries' enforcement
approaches, and
significantly improved all
three jurisdictions'
understanding of common
problems. On the other side
of the world, the Division
has been consulting with
the Japan Fair Trade
Commission on revisions to
its IP licensing guidelines
and merger guidelines.
International cooperation
is also fostered by the
Division's technical
assistance program. In the
past 15 years, the Division
and the FTC often with
USAID funding have
conducted close to 400
missions to scores of
countries on short-term
trips and multi-month
advisory missions. This
past year, the Division's
technical assistance
program focused on Egypt,
India, Russia and Southeast
Asia.
CIVIL NON-MERGER ENFORCEMENT
In addition to its cartel
and merger priorities, the
Antitrust Division enforces
the antitrust laws against
civil non-merger conduct
that harms competition,
which may involve
agreements or single-firm
activity. The Division has
brought recent enforcement
actions in several important
sectors of the economy.
Real Estate
In the real estate
industry, the Division
investigates rules that
reduce competition between
real estate brokers and lead
to higher commissions and
reduced consumer choice.
Many such rules have been
removed as the result of the
Division's efforts. For
example, in response to a
Division investigation, the
West Virginia Real Estate
Commission rescinded a
regulation that prohibited
real estate brokers from
offering discounts to
consumers. The amended
regulation took effect in
May 2006. The Division has
also presented its views in
more than a dozen states in
which minimum service
legislation and rebate laws
were under consideration.
Finally, the Division also
has an ongoing lawsuit
against the National
Association of Realtors
(NAR), challenging certain
NAR rules that limit
competition from real estate
brokers who use the
Internet to serve their
customers. In November
2006, the U.S. District Court
in Chicago denied NAR's
motion to dismiss the
lawsuit. The lawsuit is now
in the discovery phase.
Health Care
Competition in health
care helps reduce cost and
increase choice and quality
as it does in other areas of
the economy, and the
Division works to prevent a
range of anticompetitive
practices in the industry.
For example, the Division
filed suit against the
Cincinnati-area Federation
of Physicians and Dentists,
alleging that the federation
conspired to share pricing
information and raise rates
to insurers. The Division is
seeking a ruling from the
Federal District Court for
the Southern District of
Ohio on a motion for partial
summary judgment for
liability under Section 1 of
the Sherman Act.
Business Review Letters
In technology licensing,
the Division issued an
important statement of its
enforcement intentions
through its business review
procedure, under which
parties can request an
evaluation of proposed
business conduct. In
October 2006, the Division
issued a review to the
VMEbus International
Trade Association, which
develops technical
standards. The Division
stated that it does not
intend to challenge the
group's proposed patent
policies, which require
patent holders to make
early declarations of
maximum royalty rates and
most-restrictive licensing
terms for patent rights that
may be essential to relevant
stan-dards. The group
explained its policies as, in
part, an attempt to strike a
balance between the
interests of innovators and
the threat of
anti-competitive patent
"hold up" in
high-technology standard
setting. At this writing, the
Division is considering a
similar request from the
Institute of Electrical and
Electronics Engineers for a
review of its proposed
policy regarding the
disclosure of patents and
licensing terms.
DOJ/FTC HEARINGS ON SINGLE-FIRM CONDUCT
The Division seeks to advance development of antitrust law across its activities. Among other things, sound antitrust enforcement policy requires prosecution of exclusionary
conduct that reduces output and increases prices while at the same time avoiding rules for condemning single-firm conduct that would chill procompetitive behavior.
However, determining when unilateral conduct is unlawful under Section 2 has proven difficult because aggressive, unilateral behavior at issue in Section 2 cases often resembles
healthy, aggressive competition that the antitrust laws seek to promote. To help meet this challenge, in June 2006 the Division and the Federal Trade Commission (FTC) began a series
of public hearings on single-firm conduct under the antitrust laws. The primary goal of the hearings is to examine thoroughly the competitive implications of such conduct and their
appropriate treatment under Section 2 of the Sherman Act.
The antitrust enforcement agencies expect the hearings to lead to a clearer
understanding of when it is appropriate to challenge unilateral conduct under
the antitrust laws and provide firms with more usable standards for assessing
their business strategies before implementation. Accordingly, the agencies solicited
public comments from lawyers, economists, businesses, consumer groups, academics,
and other interested persons on the relevant legal and economic principles underlying
Section 2 and on real-world examples of single-firm conduct that should be
considered in these hearings. The agencies also invited legal and economic experts
as well as academics and business representatives to give public presentations
and participate in panel discussions.
Assistant Attorney General Thomas O. Barnett and FTC Chairman Deborah Platt
Majoras opened the hearings on June 20, 2006. They were joined by two of the
leading antitrust and industrial organization scholars in the United States,
Professor Herbert Hovenkamp and Professor Dennis Carlton (now the Division's
Deputy Assistant Attorney General for Economics). Professors Hovenkamp and
Carlton discussed the difficulties involved in identifying monopolists, defining
the types of single-firm conduct that should be prohibited under the antitrust
laws, and crafting remedies that improve competition.
Hearings held since June 2006 have focused on predatory pricing, predatory
buying, refusals to deal, tying, exclusive dealing, bundled loyalty and market
share discounts, misleading and deceptive practices, market definition and
market power, and remedies. There have also been hearings on foreign antitrust
enforcement, empirical studies, business history and strategy, and business
and academic perspectives on single-firm conduct. The final hearing, tentatively
scheduled for late April 2007, will both review prior hearings as well as deal
with the appropriateness of general standards for evaluating single-firm conduct
under Section 2.
Through these hearings and the follow-on efforts by the agencies, the agencies
seek to provide businesses, the antitrust bar, and foreign enforcers with transparent,
objective, and economically sound frame-works for identifying single-firm conduct
under Section 2 that harms competition that may be condemned without chilling
pro-competitive conduct that benefits consumers and businesses.
ANTITRUST AN INCREASINGLY HOT SUBJECT AT THE SUPREME COURT
Antitrust is a hot subject at the SupremeCourt. Despite shrinking its docket overall, theCourt considered the merits of four antitrust cases this term the most since 1989-1990
and seven cases in the last two years. In addition, the Court has sought the government'sviews on six antitrust petitions over the lastthree years, and in each of those cases hasreached
decisions consistent with the government's position. In the following four cases theUnited States filed merit briefs this term:
Leegin Creative Leather Products v. PSKS
Leegin Creative Leather Products v. PSKS continues the Court's review of long-established antitrust doctrine in light of modern understanding. The case addresses whether resale
price maintenance (RPM) should remain per se unlawful, as the court of appeals held has been the standard since the Court's Dr. Miles decision in 1911.
In Monsanto v. Spray-Rite Service (1984), the United States as amicus urged the Court to reconsider Dr. Miles, but the Court concluded the issue was not properly raised. Leegin
squarely raises it, and the United States' amicus brief recommends that Dr. Miles be overruled and RPM analyzed under the rule of reason. It argues there is a near-consensus that RPM
can be pro-competitive as well as anticompetitive, making per se treatment inappropriate under established criteria. The brief urges the Court to bring the treatment of RPM into line
with modern experience and economic understanding, as the Court did for other vertical practices in State Oil v. Khan (1997) (maximum price fixing) and Continental T.V. v. GTE
Sylvania (1977) (non-price restraints). The Court heard argument in the case on March 26, 2007.
Bell Atlantic v. Twombly
Bell Atlantic v. Twombly may be the most significant of this term's antitrust cases because it concerns federal pleading standards as applied to antitrust conspiracy claims. The court
of appeals held a class action complaint's Section 1 conspiracy allegation sufficient to state a claim if the "pleaded factual predicate" includes conspiracy among "the realm of 'plausible'
possibilities." Pleading facts indicating parallel conduct by the defendants would be sufficient, the Court said, unless "there is no set of facts that would permit a plaintiff to demonstrate
that the particular parallelism asserted was the product of collusion."
The United States as amicus urged that federal pleading rules required more before permitting a potentially massive factual controversy to proceed to discovery, the burdens of
which might force a settlement regardless of the merits of the claim. It argued that the allegations, taken as true, must provide a "reasonably founded hope" that discovery will reveal
evidence supporting the alleged wrongful conduct. The United States argued that allegations of parallel conduct, without more, are unlikely to do so, because parallel conduct is
normal, indeed pervasive, in competitive markets. The Court heard argument on November 27, 2006.
Credit Suisse Security v. Billing
Credit Suisse Securities v. Billing concerns implied repeal of the antitrust
laws by the securities laws ("implied antitrust immunity"), a topic the Court
has addressed several times. Plaintiffs alleged that investment banks that underwrite
initial public offerings (IPOs) violated Section 1 of the Sherman Act. In light
of the SEC's role in regulating IPOs, the district court dismissed the complaint
on implied immunity grounds. Because the complaint included allegations of conduct
prohibited by the securities laws, the Second Circuit vacated the district court's
decision. In response to the Supreme Court's request, the United States recommended
that the underwriters' petition for a writ of certiorari be granted.
The United States' amicus brief on the merits argues that a proper accommodation
of the federal regulatory regime governing public offerings of securities with
the antitrust laws "should give effect to both statutory schemes." Such an accommodation
"recognizes that antitrust immunity must be extended not only to collaborative
conduct specifically authorized under the securities regime, but also to activities
that are inextricably intertwined with permitted collaboration." It does not,
however, "require conferring antitrust immunity for all conduct of underwriters
in connection with IPOs." Because neither of the lower courts adequately accommodated
the interests of the two critical statutory frameworks, the United States argued,
the decision below should be vacated, and the case should be remanded. The plaintiffs
should be given an opportunity to amend their complaint. If at any point the district
court determines that they "cannot establish an antitrust violation without relying
on conduct that is authorized by the regulatory scheme or cannot be practicably
separated from authorized conduct, the court must grant judgment for" the defendants.
The Court heard argument on March 27, 2007.
Weyerhaeuser v. Ross-Simmons Hardwood Lumber
Antitrust cases alleging predatory sales are relatively rare; cases alleging predatory
buying (or bidding) have been even more rare. The Court held in Brooke Group v.
Brown & Williamson (1993) that liability for predatory selling requires proof
of both below-cost pricing in the short term and a "dangerous probability" of
recouping the resulting losses over the long term. In Weyerhaeuser v. Ross-Simmons
Hardwood Lumber, the court of appeals held that liability for a sawmill operator's
alleged predatory buying of sawlogs could be established without proof of the
buy-side analogs of the Brooke Group requirements; liability could properly rest
on a finding that the defendant paid more than "necessary" for the logs to prevent
the plaintiff from obtaining the logs it needed at a "fair price."
The United States, which had recommended certiorari, argued on the merits
that Brooke Group's requirements should apply, mutatis mutandis, to buy-side
price predation for essentially the same reasons that supported their application
by the Court to sell-side price predation. It also contended the court of appeals'
subjective liability standard would likely deter procompetitive conduct by large
firms. On February 20, 2007, in a unanimous opinion authored by Justice Thomas,
the Court agreed, holding that "predatory bidding mirrors predatory pricing"
and that the "two-pronged Brooke Group test should apply to predatory-bidding
claims."
PROFILE: LITIGATION II SECTION
Litigation II Section.
The Antitrust Division's Litigation II Section ("Lit II") is responsible primarily
for the enforcement of the antitrust laws with regard to mergers and acquisitions
and civil non-merger activity in unregulated industries. Lit II reviews, investigates,
and litigates matters in a large variety of industries, including defense, banking,
steel, metals, heavy industrial equipment, road and building construction, and
waste hauling and disposal.
Lit II cooperates with a variety of governmental entities in conjunction with
its enforcement efforts. In defense industry mergers, Lit II works closely
with the Department of Defense and with the applicable military branch affected
by a proposed transaction. When reviewing banking mergers, Lit II works closely
with the Federal Reserve Board, the Federal Deposit Insurance Corporation, and
the Office of the Comptroller of the Currency. Lit II also coordinates with
the relevant state attorneys general in its review of transactions affecting
regional economies, such as mergers in the road construction industry. For
that industry, in particular, Lit II staff attorneys have undertaken a significant
consulting role with numerous state attorneys general investigating transactions
that affect local markets. Further, Lit II informally advises and consults with
foreign officials on a variety of competition issues and cooperates with foreign
competition authorities on multi-jurisdictional investigations. During the past
year, Lit II investigated two multi-jurisdictional
transactions the proposed $33 billion hostile takeover of Arcelor S.A. by
Mittal Steel Com-pany and the $15 billion cash tender offer by Inco Limited
for the shares of Falconbridge Limited each of which presented unique investigative
issues.
In its investigations of both the Mittal/ Arcelor and the Inco/Falconbridge
transactions, Lit II determined early in its review that the transactions raised
competitive concerns Mittal/ Arcelor in the eastern U.S. market for steel
tin mill products and Inco/Falconbridge in the high-purity nickel market. The
investigations and the potential remedies were complex in each case due to the
nature of the transactions. For example, prior to a full second request investigation,
Mittal entered into an agreement with the Division whereby Mittal agreed to
divest Arcelor's Canadian subsidiary, Dofasco, or, if necessary, one of two
alternative assets, in the event that Mittal's takeover of Arcelor succeeded
and the Division concluded after further investigation that such a divestiture
was necessary to protect competition. The Division provided for the divestiture
of an alternative asset because, in an attempt to thwart a takeover by Mittal,
Arcelor had tied up Dofasco in a Dutch trust, or "stichting." The Division ultimately
filed suit to block the transaction and simultaneously filed the consent decree
that it previously had negotiated with Mittal. As foreseen by the consent decree,
the Dutch stichting did not authorize the sale of Dofasco; accordingly, the
Division selected one of the alternative assets Mittal's Sparrows Point plant
near Baltimore for divestiture.
The Inco/Falconbridge investigation presented the unique circumstance of simultaneous
competing bids for the same company. During the pendency of Inco's tender offer
for Falconbridge, Xstrata plc, a Swiss mining company, also planned to acquire
Falconbridge. Lit II concluded that the proposed transaction would have resulted
in higher prices to a significant number of customers for high-purity nickel.
The Division entered into a proposed consent decree that, among other things,
would have required Falconbridge to divest a refinery in Norway and related
assets to a particular buyer, with which Inco already had negotiated agreements
for the sale of the refinery. After Xstrata acquired Falconbridge and Inco abandoned
its effort to acquire Falconbridge, the Division dismissed its lawsuit against
Inco.
In addition to these notable cases, during the past year Lit II conducted a
comprehensive investigation of the proposed bank merger of Regions Financial
Corp. and AmSouth Bancorporation, after which the Division resolved its competitive
concerns in 17 local markets for small business lending by requiring divestitures
of 52 branch offices with approximately $2.7 billion in deposits in Alabama,
Mississippi, and Tennessee. This case represents just one of the approximately
1,000 bank merger applications reviewed by Lit II's Banking Unit each year.
For more than half of those bank mergers, Lit II prepares for the bank regulating
agencies a "competitive factors" report, which contains an assessment of the
competitive issues presented by the transaction in question. For those transactions
that present more significant competitive concerns, Lit II conducts a more
extensive investigation.
Lit II's dedicated 50-member staff will continue its mission to enforce the
antitrust laws in these important industries.
ANTITRUST DIVISION SECTION CONTACTS
Antitrust Division Front Office Staff. Seated(L-R):
Gerald Masoudi, Thomas Barnett,
Scott Hammond. Front Row(L-R): Robert Kramer, Helen Agostino, Jacqueline
Lincoln,
Bruce McDonald, David Meyer, Dennis Carlton, Marc Siegel, Ann O'Brien,
Patricia
Brink, Paula Wright, Belinda Barnett. Back Row(L-R): Frederick Young,
Robert Potter,
Anne Marie Cushmac, James O'Connell, Aaron Hoag, Douglas Ross, Thomas
King, Hill
Wellford, James Fredricks, Edward Hand.
OFFICE OF OPERATIONS
Director: Robert Kramer;
Deputy Director: Patricia Brink
The Office of Operations coordinates investigations and litigation policies
and procedures affecting the Division's operations.
Contact: 202-514-3544
EXECUTIVE OFFICE
Executive Officer: Thomas King;
Deputy Executive Officer: Vicki Ellison
Contact: 202-514-2421
LEGAL SECTIONS
Litigation I Section
Chief: Vacant;
Assistant Chief: Joe Miller
Civil antitrust enforcement in industries such as dairy, health care, paper
and insurance.
Contact: 202-307-0001
Litigation II Section
Chief: Maribeth Petrizzi;
Assistant Chief: Dorothy Fountain
Civil antitrust enforcement in industries such as defense, waste and banking.
Contact: 202-307-0924
Litigation III Section
Chief: John Read;
Assistant Chief: Nina Hale
Civil antitrust enforcement in industries such as music, movies, and publishing.
Contact: 202-307-0468
Networks and Technology Section
Chief: Jim Tierney;
Assistant Chief: Scott Scheele
Contact: 202-307-6640
Telecommunications and Media Section
Chief: Nancy Goodman;
Assistant Chief: Laury Bobbish
Contact: 202-514-5621
Transportation, Energy, and Agriculture Section
Chief: Donna Kooperstein;
Assistant Chief: William Stallings
Contact: 202-307-6349
Appellate Section
Chief: Cathy O'Sullivan;
Assistant Chief: Bob Nicholson;
Assistant Chief: John Powers
Contact: 202-514-2413
Foreign Commerce Section
Chief: Edward Hand;
Assistant Chief: Anne Purcell White
Contact: 202-514-2464
Legal Policy Section
Chief: Robert Potter;
Deputy Chief: Gail Kursh;
Assistant Chief: Howard Blumenthal
Contact: 202-514-2512
ECONOMIC SECTIONS
Competition Policy Section
Chief: W. Robert Majure;
Assistant Chief: Eric Emch
Contact: 202-307-6341
Economic Litigation Section
Chief: Norm Familant;
Assistant Chief: Beth Armington
Contact: 202-307-6323
Economic Regulatory Section
Chief: Dan O'Brien;
Assistant Chief: Ronald Drennan
Contact: 202-307-6591
FIELD OFFICES
Each of the Division's field offices handles criminal matters within its respective
area and serves as the Division's liaison with U.S. Attorneys, state attorneys
general, and other regional law enforcement agencies. The field offices also
handle national and international matters that arise within their territories.
Atlanta
Chief: Nezida Davis;
Assistant Chief: James Kurosad
Contact: 404-331-7100
Chicago
Chief: Marvin Price, Jr.;
Assistant Chief: Frank Vondrak
Contact: 312-353-7530
Cleveland
Chief: Scott Watson;
Assistant Chief: Michael Wood
Contact: 216-687-8400
Dallas
Chief: Duncan Currie;
Assistant Chief: Mitchell Chitwood
Contact: 214-661-8600
New York
Chief: Ralph Giordano;
Assistant Chief: John McReynolds
Contact: 212-264-0390
Philadelphia
Chief: Robert Connolly;
Assistant Chief: Joseph Muoio
Contact: 215-597-7405
San Francisco
Chief: Phillip Warren;
Assistant Chief: Niall Lynch
Contact: 415-436-6660
National Criminal Enforcement Section
Chief: Lisa Phelan;
Assistant Chief: Mark Rosman
Contact: 202-307-6694
CONTACT INFORMATION:
WEBSITE
U.S. Department of Justice, Antitrust Division: www.usdoj.gov/atr
OBTAIN DOCUMENTS
Law firms and the general public may obtain paper copies of Division documents
from the Antitrust Documents Group:
Phone: 202-514-2481
Fax: 202-514-3763
E-mail: atrdocs.grp@usdoj.gov
WEB LINKS
The following links may be used to obtain Division documents online:
Public Court and Administrative Filings:
http://www.usdoj.gov/atr/cases.html
Guidelines and Policy Statements:
http://www.usdoj.gov/atr/public/ guidelines/guidelin.htm
Speeches:
http://www.usdoj.gov/atr/public/ speeches/speeches.htm
Congressional Testimony:
http://www.usdoj.gov/atr/public/ testimony/testimon.htm
Business Review Letters:
http://www.usdoj.gov/atr/public/ busreview/letters.htm
PRESS RELEASES
Copies of Division press releases (from 1992 to the present) can be found online
at:
http://www.usdoj. gov/atr/public/press_releases/2007/index07.htm
Media may contact the Office of Public Affairs at:
Phone: 202-514-2007
Fax: 202-514-5331
Law firms and the general public should contact the Antitrust Documents Group
to obtain other documents.
ASSISTANT ATTORNEY GENERAL AND DIVISION STAFF
For contact information for the Office of the Assistant Attorney General and
the Division's sections and field offices, see
http://www.usdoj.gov/atr/offices2.htm.
Use the following link to obtain phone numbers for Division employees:
http://www.usdoj.gov/atr/contact/ phoneworks.htm
Comments
To comment on past or ongoing investigations, send an e-mail to antitrust.atr@usdoj.gov.
Report Possible Antitrust Violations
If you have information about a possible antitrust violation or potential anticompetitive
activity please contact the Division:
E-Mail:
antitrust.complaints@usdoj.gov
Phone: 1-888-647-3258 (toll-free in the U.S. and Canada) or
202-307-2040
fax 202-514-1629
(Attn: Citizen Complaint Center)
Mail:
U.S. Department of Justice
Antitrust Division
Citizen Complaint Center
950 Pennsylvania Avenue, NW
Room 3322
Washington, DC 20530
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