[House Report 113-658]
[From the U.S. Government Publishing Office]
113th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 113-658
======================================================================
STANDARD MERGER AND ACQUISITION REVIEWS THROUGH EQUAL RULES ACT OF 2014
_______
December 11, 2014.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Goodlatte, from the Committee on the Judiciary,
submitted the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 5402]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 5402) to amend the Clayton Act and the Federal Trade
Commission Act to provide that the Federal Trade Commission
shall exercise authority with respect to mergers only under the
Clayton Act and only in the same procedural manner as the
Attorney General exercises such authority, having considered
the same, report favorably thereon without amendment and
recommend that the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 2
Hearings......................................................... 5
Committee Consideration.......................................... 5
Committee Votes.................................................. 6
Committee Oversight Findings..................................... 6
New Budget Authority and Tax Expenditures........................ 6
Congressional Budget Office Cost Estimate........................ 6
Duplication of Federal Programs.................................. 7
Disclosure of Directed Rule Makings.............................. 8
Performance Goals and Objectives................................. 8
Advisory on Earmarks............................................. 8
Section-by-Section Analysis...................................... 8
Changes in Existing Law Made by the Bill, as Reported............ 10
Dissenting Views................................................. 17
Purpose and Summary
H.R. 5402, the ``Standard Merger and Acquisition Reviews
Through Equal Rules Act of 2014,'' or the ``SMARTER Act,''
harmonizes the standards applied to the Department of Justice
(DOJ) and the Federal Trade Commission (FTC) when each agency
seeks a preliminary injunction to a proposed merger or
acquisition. Additionally, the SMARTER Act amends the Clayton
Act to provide the FTC with the same authority DOJ already
possesses to seek an injunction against a proposed merger, and,
in doing so, removes the ability of the FTC to pursue internal
administrative litigation following a court's denial of an FTC
preliminary injunction request. The SMARTER Act would preserve
each agency's authority to challenge monopolistic transactions
or ones that would substantially lessen competition.
Background and Need for the Legislation
A. BRIEF OVERVIEW OF ANTITRUST ENFORCEMENT BY DOJ AND THE FTC OF
PROPOSED MERGERS AND ACQUISITIONS
Two Federal agencies, the Antitrust Division of DOJ and the
FTC, share responsibility for government enforcement of the
Federal antitrust laws.\1\ The position of Assistant Attorney
General for Antitrust was created at DOJ in 1903, and the
Antitrust Division became a separate operating unit within DOJ
30 years later.\2\ In 1914, Congress passed the Federal Trade
Commission Act (the FTC Act),\3\ which created the FTC and
conferred to the independent agency antitrust enforcement
authority that would, in part, supplement DOJ's antitrust
enforcement authority.
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\1\Antitrust Modernization Commission, Report and Recommendations,
at 129 (Apr. 2007), available at http://govinfo.library.unt.edu/amc/
report_recommendation/amc_final_
report.pdf [hereinafter, the ``AMC Report''].
\2\Id.
\3\15 U.S.C. Sec. Sec. 41-58 (1914).
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Section 7 of the Clayton Act (Section 7) prohibits mergers
and acquisitions that would ``substantially lessen
competition'' or ``tend to create a monopoly.''\4\ The
Antitrust Division and the FTC have essentially identical
authority to enforce Section 7. The manner in which they review
proposed transactions and enforce their Section 7 authority
largely is prescribed by the Hart-Scott-Rodino Antitrust
Improvements Act (the HSR Act).\5\ Under the HSR Act, each of
the antitrust enforcement agencies is notified in advance of a
proposed transaction and afforded a period of time to review
the effects of such a transaction.\6\ Only one agency takes
responsibility for the review of a proposed transaction.\7\ For
the vast majority of transactions, the antitrust enforcement
agencies will grant an early termination of the statutory
waiting period or simply allow the waiting period to expire
without taking any formal action, both of which have the effect
of allowing the transaction to proceed to consummation.
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\4\15 U.S.C. Sec. 18 (2013).
\5\15 U.S.C. Sec. 18a (2013), as amended.
\6\As a practical matter, virtually every transaction includes a
period of time between the execution of the initial transaction
documents that outline the intent of parties to enter into a deal and
the manner in which they intend to consummate the deal, and the
``closing'' of the transaction when the deal is consummated. Depending
on the size and complexity of the transaction, that period of time
could be anywhere between a matter of weeks to over a year.
\7\AMC Report, at 132 (2007) (explaining that there is not a
governing document or policy that determines which agency reviews each
proposed transaction; however, there are some historical practices that
can influence which agency reviews the transaction. For example, DOJ
typically reviews telecommunications transactions and the FTC typically
reviews health care transactions. These historical practices, however,
are not hard and fast rules and are not always followed.).
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When the antitrust enforcement agencies conclude that the
consummation of a proposed transaction would violate Section 7,
the agencies pursue an injunction of the transaction in Federal
court. Generally speaking, if the court grants the injunction,
the parties abandon the merger; if the court denies the
injunction, the parties consummate the transaction shortly
thereafter.
B. DISPARATE PRELIMINARY INJUNCTION STANDARDS
The FTC and DOJ confront different standards when seeking a
preliminary injunction of a proposed transaction in court. When
reviewing the FTC's request for a preliminary injunction,
courts apply the standard explicitly set forth in Section 13(b)
of the FTC Act, which states that ``[u]pon a proper showing
that, weighing the equities and considering the Commission's
likelihood of ultimate success, such action would be in the
public interest, and after notice to the defendant, a temporary
restraining order or a preliminary injunction may be granted
without bond.''\8\ By comparison, Section 15 of the Clayton
Act, pursuant to which DOJ seeks injunctions, does not specify
a standard of review for courts when they determine whether to
grant preliminary injunctive relief. Consequently, DOJ must
meet the traditional preliminary injunction standard as applied
by the presiding Circuit Court, which generally requires ``a
reasonable likelihood of success on the merits'' and ``the
balance of equities'' favoring DOJ.\9\
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\8\15 U.S.C. Sec. 53(b) (2013).
\9\See, e.g., United States v. Siemens Corp., 621 F.2d 499, 505-06
(2d Cir. 1980) (citations omitted). Although courts generally also
require a showing of irreparable injury or substantial harm to the
public to grant a preliminary injunction, many courts have held that
irreparable harm to the public should be presumed once the government
establishes a reasonable probability of success. See, e.g., id. at 506.
See also the American Bar Association, Section of Antitrust Law, Public
Comments Submitted to the Antitrust Modernization Commission Regarding
Differential Merger Enforcement Standards, at 3 (Oct. 28, 2005).
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These disparate preliminary injunction standards can yield
different results. Some commentators go so far as to suggest
that the FTC may even be subject to a more lenient standard
than DOJ.\10\
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\10\AMC Report, at 142 (2007). But see AMC Report at 142 n.90
statement of William Blumenthal (stating that the perception
continually changes, and that it is not invariably the case that people
would rather be before the DOJ).
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C. DISPARATE PROCESSES TO PREVENT A PROPOSED TRANSACTION
Generally, DOJ agrees with the transaction parties to
combine the proceedings for both a preliminary injunction and
permanent injunction before the district court.\11\ In
contrast, the FTC's practice is to seek only a preliminary
injunction, despite the fact that they have the authority to
consolidate the proceedings in the same fashion as DOJ. In
fact, the FTC has affirmatively fought against efforts to
consolidate the preliminary injunction and permanent injunction
proceedings.\12\
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\11\AMC Report, at 138 (2007).
\12\See Pl. FTC's Mem. in Opp'n to Defs.' Mot. Seeking
Consolidation of Prelim. & Permanent Injs., FTC v. Arch Coal, Inc.,
Case No. 1:04-CV-00534, at 3, 4 (Apr. 22, 2004) (arguing against
consolidation).
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One of the primary reasons that the FTC's practice to
pursue only a preliminary injunction is it preserves the FTC's
ability to pursue administrative litigation following the
denial of a preliminary injunction request. The FTC may pursue
an administrative hearing after the denial of a preliminary
injunction if, on a case-by-case basis, it determines that
administrative litigation would serve the public interest.\13\
In contrast, the DOJ does not have the authority to conduct
administrative litigation.
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\13\Administrative Litigation Following the Denial of a Preliminary
Injunction: Policy Statement, 60 Fed. Reg. 39,741 (1995).
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D. THE ANTITRUST MODERNIZATION COMMISSION AND
ITS RECOMMENDATIONS
In early 2003, the bi-partisan Antitrust Modernization
Commission (the AMC) was formed pursuant to the Antitrust
Modernization Act.\14\ The AMC was charged with examining the
antitrust laws, soliciting the opinions of experts on the
operation of such laws, and publishing a report with the AMC's
recommendations for any improvements to the antitrust laws. On
April 2, 2007, the AMC issued a 540-page report that detailed
the issues it examined and provided a number of recommendations
for legislative, administrative, and judicial action.
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\14\Antitrust Modernization Commission Act of 2002, Pub. L. No.
107-273, Sec. 11054(h), 116 Stat. 1856, 1857.
---------------------------------------------------------------------------
Included in the AMC report was an examination of the issues
attendant to the existing disparities in the preliminary
injunction standards applied to DOJ and the FTC, and the
disparate processes available to DOJ and the FTC when each
agency seeks to prevent a proposed transaction. As stated
within the AMC report:
Parties to a proposed merger should receive comparable
treatment and face similar burdens regardless of
whether the FTC or the DOJ reviews their merger. A
divergence undermines the public's trust that the
antitrust agencies will review transactions efficiently
and fairly. More important, it creates the impression
that the ultimate decision as to whether a merger may
proceed depends in substantial part on which agency
reviews the transaction.\15\
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\15\AMC Report, at 138-9 (2007). The importance of removing any
potential divergence is underscored by the fact that it often is mere
chance or, the ``flip of a coin,'' that determines which agency reviews
the proposed transaction.
The AMC report further explains that even the perception of a
difference between the standards applied to, and processes used
by, the agencies could impact how parties interact with the
agencies. For example, the FTC may be perceived as having
greater leverage when negotiating a consensual consent decree
with the proposed transaction parties.\16\ Again, ``just the
perception that the applicable rules depend on the happenstance
of which agency is reviewing the transaction can undermine
confidence in the fairness of a dual merger enforcement
regime.''\17\
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\16\AMC Report, at 142 (2007).
\17\Id.
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E. THE SMARTER ACT
The SMARTER Act incorporates a number of the
recommendations made by the AMC, and provides the antitrust
enforcement agencies with consistent authority and processes
when seeking to prevent a proposed transaction. Specifically,
the SMARTER Act confers to the FTC the same authority that DOJ
presently possesses under the Clayton Act. In doing so, the
SMARTER Act also requires the FTC to petition the district
court to seek an injunction of a proposed transaction rather
than using an internal administrative process. The FTC will
retain administrative litigation capabilities in other
contexts. As the AMC report highlights:
Elimination of administrative litigation in HSR Act
merger cases will not deprive the FTC of an important
enforcement option. Although administrative litigation
may provide a valuable avenue to develop antitrust law
in general, it appears unlikely to add significant
value beyond that developed in Federal court
proceedings for injunctive relief in HSR Act merger
cases. Whatever the value, it is significantly
outweighed by the costs it imposes on merging parties
in uncertainty and litigation costs.\18\
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\18\AMC Report, at 141 (2007) (citations omitted).
Accordingly, under the SMARTER Act, both DOJ and the FTC remain
able to pursue both preliminary and permanent injunctions, and
the standards applied by courts to both agencies will be
identical. Consequently, while there will continue to be a dual
antitrust enforcement regime, the standards and processes
applied to parties who undergo a transaction review will be
harmonized.
Hearings
On April 3, 2014, the Subcommittee on Regulatory Reform,
Commercial and Antitrust Law conducted a hearing on a
discussion draft of the SMARTER Act. The witnesses at the
hearing were: Deborah Garza, Esq., Partner, Covington & Burling
LLP, former Chairwoman of the Antitrust Modernization
Commission, former Acting Assistant Attorney General of the
Department of Justice; Richard Parker, Esq., Partner, O'Melveny
& Myers LLP, former Director of the Bureau of Competition of
the Federal Trade Commission; Abbott (Tad) B. Lipsky, Jr.,
Esq., Partner, Latham & Watkins LLP, former Deputy Assistant to
the Assistant Attorney General of the Department of Justice;
and Professor John B. Kirkwood, Seattle University School of
Law.
All four witnesses, including the Minority witness,
testified in support of the same preliminary injunction
standard being applied to both antitrust enforcement agencies.
Additionally, three of the four witnesses testified in support
of removing the FTC's ability to pursue administrative
litigation solely in the context of merger reviews. These
witnesses testified that such a change would promote
transparency, fairness, and predictability to the merger review
process as well as allow the United States to continue its
leadership role in global antitrust enforcement policy.
Committee Consideration
On September 10, 2014, the Committee met in open session
and ordered the bill, H.R. 5402, favorably reported without
amendment, by voice vote, a quorum being present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that there
were no recorded votes during the Committee's consideration of
H.R. 5402.
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 5402, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, November 6, 2014.
Hon. Bob Goodlatte, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 5402, the
``Standard Merger and Acquisition Reviews Through Equal Rules
Act of 2014.''
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie,
who can be reached at 226-2860.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 5402--Standard Merger and Acquisition Reviews Through Equal Rules
Act of 2014.
As ordered reported by the House Committee on the Judiciary
on September 10, 2014.
CBO estimates that implementing H.R. 5402 would not
significantly affect discretionary spending. Enacting H.R. 5402
would not affect direct spending or revenues; therefore, pay-
as-you-go procedures do not apply.
Under current law, both the Federal Trade Commission (FTC)
and the Department of Justice (DOJ) enforce Federal antitrust
laws, though in some instances, the manner in which that
authority is exercised is different in the two agencies. H.R.
5402 would amend the Clayton Act and the Federal Trade
Commission Act to align certain procedures followed by the FTC
to review a proposed merger or acquisition with those followed
by DOJ.
Specifically, the bill would:
LHarmonize the standard each agency must meet
before a Federal court can issue a preliminary
injunction against a proposed transaction;
LDirect the FTC to resolve a contested merger
or acquisition through a Federal court rather than
through administrative litigation; and
LIn cases where the FTC and the parties reach
an agreement that allows the merger or acquisition to
proceed, require the agency to submit the agreement to
the Federal court for its approval.
CBO expects that the FTC's efforts to prepare for and
litigate a contested merger in Federal court using the new
standard specified in H.R. 5402 would not require a significant
increase in staffing levels. Over the past 5 years, the FTC has
filed 6 preliminary injunctions in Federal court. Based on
information from the agency, CBO expects that volume to remain
relatively constant over the next 5 years.
Similarly, the FTC approved, on average, fewer than 15
agreements related to proposed mergers over each of the past 5
years. Under H.R. 5402, those agreements would be considered by
the Federal courts rather than the FTC under similar, though
not identical, procedures. Taking into account the small number
of agreements sought each year and the fact that the FTC
follows procedures similar to those required in H.R. 5402, we
estimate the increased workloads resulting from the new
requirement would have an insignificant effect on the FTC's
staffing levels and on the workload of the Federal courts.
H.R. 5402 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
The CBO staff contact for this estimate is Susan Willie.
The estimate was approved by Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
Duplication of Federal Programs
No provision of H.R. 5402 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from GAO to Congress pursuant to section 21 of Public
Law 111-139, or a program related to a program identified in
the most recent Catalog of Federal Domestic Assistance.
Disclosure of Directed Rule Makings
The Committee estimates that H.R. 5402 specifically directs
to be completed no specific rule makings within the meaning of
5 U.S.C. 551.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
5402 amends the Clayton Act and the Federal Trade Commission
Act to provide the Federal Trade Commission with the same
authority as the Department of Justice with respect to mergers
under the Clayton Act.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 5402 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(e), 9(f) or 9(g) of Rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Section 1. Short Title.
Sets forth the short title of the legislation as the
``Standard Merger and Acquisition Reviews Through Equal Rules
Act of 2014.''
Section 2. Amendments to the Clayton Act.
Subsection 2(1) amends Section 4F of the Clayton Act, which
provides that the Attorney General must notify state attorneys
general of any antitrust action in which he or she believes the
state could bring an action based on substantially similar
facts, and share related files with such state attorneys
general. The SMARTER Act amends this section to subject the FTC
to these same requirements.
Subsection 2(2)(A) amends section 5(a) of the Clayton Act,
which provides that, in cases brought by the United States that
result in final judgments against a defendant, those judgments
can be used as prima facie evidence (i.e., unless rebutted,
sufficient to prove the allegation) of antitrust violations
under substantially similar facts brought by other parties. The
SMARTER Act amends this section to clarify that actions brought
by the United States include actions brought by the FTC under
Section 7.
Subsection 2(2)(B) amends section 5(b) of the Clayton Act,
which provides that the United States, in civil actions to
which the United States is a party, must publish proposed
consent orders, and comments to such orders, in the Federal
Register along with ``competitive impact statements'' that
generally describe the nature of the actions, the violations
and the proposed consent judgments. The SMARTER Act amends this
section to clarify that the FTC is also subject to these same
requirements for cases brought under Section 7.
Subsection 2(2)(C) amends section 5(c) of the Clayton Act,
which provides that the United States must publish in
newspapers in general circulation in the district in which a
case is filed, in the District of Columbia, and in other
districts that the presiding court may direct, a summary of the
proposed consent judgment, the related competitive impact
statement, and a list of materials that the United States will
make available for public inspection. The SMARTER Act amends
this section to clarify that the FTC is also subject to these
same requirements for cases brought under Section 7.
Subsection 2(2)(D) amends section 5(d) of the Clayton Act,
which provides that the Attorney General must consider comments
submitted by the public to a consent judgment and file a
response to such comments in the Federal Register (or in
another manner as the presiding court may prescribe). The
SMARTER Act amends this section to clarify that the FTC is also
subject to these same requirements for cases brought under
Section 7 of the Clayton Act.
Subsection 2(2)(E) amends section 5(e) of the Clayton Act,
which provides certain factors that a court must consider when
approving a proposed consent judgment submitted by the United
States. The SMARTER Act amends this section to clarify that the
term United States includes the FTC.
Subsection (2)(2)(F) amends section 5(f) of the Clayton
Act, which provides a reviewing court certain tools when
considering a proposed consent judgment, including allowing it
to review the comments submitted to the United States as part
of the required publication process. The SMARTER Act amends
this section to clarify that the term United States includes
the FTC.
Subsection (2)(2)(G) amends section 5(g) of the Clayton
Act, which requires a defendant in the action to submit a
description of any communication it, or its agents, had with
the Attorney General or DOJ employees relevant to a consent
judgment, excluding communications by the defendant's counsel
of record. The SMARTER Act amends this section to provide that
the same requirement is applicable to communications with the
FTC or its employees.
Subsection (2)(2)(H) amends section 5(i) of the Clayton
Act, which suspends the statute of limitations for private and
state rights of action based on the conduct in question during
a United States' proceeding and for 1 year thereafter, except
that claims brought under section 4 or 4C of the Clayton Act
only may be brought during the United States' proceeding or
within 4 years after the cause of action accrued. The SMARTER
Act amends this section to clarify that the statute of
limitations is also tolled for actions brought by the FTC under
Section 7.
Subsection 2(3) amends section 11 of the Clayton Act, which
authorizes the enforcement of compliance with certain sections
of the Clayton Act by Federal agencies with specific expertise
and provides for procedures for such enforcement. For example,
section 11 authorizes the Federal Reserve Board to enforce
compliance of these sections of the Clayton Act against banks,
banking associations, and trust companies. The SMARTER Act
excludes the FTC's enforcement of Section 7 from these separate
procedures, which further ensures that the FTC's Section 7
enforcement procedures will be identical to the procedures
applicable to the Attorney General.
Subsection 2(4) amends section 13 of the Clayton Act, which
allows the United States to issues subpoenas that will be
effective in any judicial district. The SMARTER Act amends this
section to clarify that the term United States includes the FTC
when it is prosecuting Section 7 cases.
Subsection 2(5) amends section 15 of the Clayton Act, which
provides that it is the duty of the United States district
attorneys, under the direction of the Attorney General, to
institute antitrust lawsuits and provides them with authority
to seek temporary restraining orders or other remedies against
the offensive conduct. The SMARTER Act amends this section to
provide that the Clayton Act duties and authorities are also
extended to the FTC.
Section 3. Amendments to the FTC Act.
Subsection 3(1) amends section 5 of the FTC Act, which
allows the FTC to initiate an administrative proceeding to
evaluate an ``unfair method of competition,'' which could
include a proposed merger. The SMARTER Act amends this section
to exclude the initiation of such a proceeding on the basis of
a merger review.
Subsection 3(2) amends section 9 of the FTC Act, which
provides jurisdiction to the Federal courts to issue writs of
mandamus that command compliance with the FTC Act. The process
for obtaining such a writ of mandamus requires the FTC to
request the Attorney General to submit an application to the
courts for the writ. The SMARTER Act amends this section to
allow the FTC to submit independently an application to the
courts for such a writ for merger review cases in which the FTC
finds that the activity in question constitutes an ``unfair
method of competition.''
Subsection 3(3) amends section 13(b) of the FTC Act, which
provides authority to the FTC to seek a preliminary injunction
for a violation of the FTC Act. The SMARTER Act amends this
section specifically to exclude the FTC from seeking a
preliminary injunction in a case brought under Section 7
because the FTC now has this authority separately under the
Clayton Act.
Section 4. Effective Date; Application of Amendments.
Subsection 4(a) provides that the effective date of the
SMARTER Act will be the day that it is signed into law.
Subsection 4(b) provides that the SMARTER Act will not
apply to violations of Section 7 that occurred prior to the
enactment of the SMARTER Act, transactions that are in
compliance with Section 7A of the Clayton Act (i.e.,
transactions for which the parties have filed a Hart-Scott-
Rodino merger review notice), and consummated mergers.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italics and existing law in which no change is
proposed is shown in roman):
CLAYTON ACT
* * * * * * *
actions by attorney general of the united states or the federal trade
commission
Sec. 4F. (a) Whenever the Attorney General of the United
States (or the Federal Trade Commission with respect to a
violation of section 7) has brought an action under the
antitrust laws, and he (or it) has reason to believe that any
State attorney general would be entitled to bring an action
under this Act based substantially on the same alleged
violation of the antitrust laws, he (or it) shall promptly give
written notification thereof to such State attorney general.
(b) To assist a State attorney general in evaluating the
notice or in bringing any action under this Act, the Attorney
General of the United States (or the Federal Trade Commission
with respect to a violation of section 7) shall, upon request
by such State attorney general, make available to him, to the
extent permitted by law, any investigative files or other
materials which are or may be relevant or material to the
actual or potential cause of action under this Act.
* * * * * * *
Sec. 5. (a) A final judgment or decree heretofore or
hereafter rendered in any civil or criminal proceeding brought
by or on behalf of the United States (including a proceeding
brought by the Federal Trade Commission with respect to a
violation of section 7) under the antitrust laws to the effect
that a defendant has violated said laws shall be prima facie
evidence against such defendant in any action or proceeding
brought by any other party against such defendant under said
laws as to all matters respecting which said judgment or decree
would be an estoppel as between the parties thereto: Provided,
That this section shall not apply to consent judgments or
decrees entered before any testimony has been taken. Nothing
contained in this section shall be construed to impose any
limitation on the application of collateral estoppel, except
that, in any action or proceeding brought under the antitrust
laws, collateral estoppel effect shall not be given to any
finding made by the Federal Trade Commission under the
antitrust laws or under section 5 of the Federal Trade
Commission Act which could give rise to a claim for relief
under the antitrust laws.
(b) Any proposal for a consent judgment submitted by the
United States (including the Federal Trade Commission with
respect to a violation of section 7) for entry in any civil
proceeding brought by or on behalf of the United States
(including the Federal Trade Commission with respect to a
violation of section 7) under the antitrust laws shall be filed
with the district court before which such proceeding in pending
and published by the United States (including the Federal Trade
Commission with respect to a violation of section 7) in the
Federal Register at least 60 days prior to the effective date
of such judgment. Any written comments relating to such
proposal and any responses by the United States (including the
Federal Trade Commission with respect to a violation of section
7) thereto, shall also be filed with such district court and
published by the United States (including the Federal Trade
Commission with respect to a violation of section 7) in the
Federal Register within such sixty-day period. Copies of such
proposal and any other materials and documents which the United
States (including the Federal Trade Commission with respect to
a violation of section 7) considered determinative in
formulating such proposal, shall also be made available to the
public at the district court and in such other districts as the
court may subsequently direct. Simultaneously with the filing
of such proposal, unless otherwise instructed by the court, the
United States (including the Federal Trade Commission with
respect to a violation of section 7) shall file with the
district court, publish in the Federal Register, and thereafter
furnish to any person upon request, a competitive impact
statement which shall recite--
(1) * * *
* * * * * * *
(6) a description and evaluation of alternatives to
such proposal actually considered by the United States
(including the Federal Trade Commission with respect to
a violation of section 7).
(c) the United States (including the Federal Trade
Commission with respect to a violation of section 7) shall also
cause to be published, commencing at least 60 days prior to the
effective date of the judgment described in subsection (b) of
this section, for 7 days over a period of 2 weeks in newspapers
of general circulation of the district in which the case has
been filed, in the District of Columbia, and in such other
districts as the court may direct--
(i) * * *
* * * * * * *
(iii) and a list of the materials and documents
under subsection (b) which the United States (including
the Federal Trade Commission with respect to a
violation of section 7) shall make available for
purposes of meaningful public comment, and the place
where such materials and documents are available for
public inspection.
(d) during the 60-day period as specified in subsection (b)
of this section, and such additional time as the United States
(including the Federal Trade Commission with respect to a
violation of section 7) may request and the court may grant,
the United States (including the Federal Trade Commission with
respect to a violation of section 7) shall receive and consider
any written comments relating to the proposal for the consent
judgment submitted under subsection (b). the Attorney General
or his designee shall establish procedures to carry out the
provisions of this subsection, but such 60-day time period
shall not be shortened except by order of the district court
upon a showing that (1) extraordinary circumstances require
such shortening and (2) such shortening is not adverse to the
public interest. At the close of the period during which such
comments may be received, the United States (including the
Federal Trade Commission with respect to a violation of section
7) shall file with the district court and cause to be published
in the Federal Register a response to such comments. Upon
application by the United States (including the Federal Trade
Commission with respect to a violation of section 7), the
district court may, for good cause (based on a finding that the
expense of publication in the Federal Register exceeds the
public interest benefits to be gained from such publication),
authorize an alternative method of public dissemination of the
public comments received and the response to those comments.
(e)(1) Before entering any consent judgment proposed by the
United States (including the Federal Trade Commission with
respect to a violation of section 7) under this section, the
court shall determine that entry of such judgment is in the
public interest. For the purpose of such determination, the
court shall consider--
(A) * * *
* * * * * * *
(f) In making its determination under subsection (e), the
court may--
(1) * * *
* * * * * * *
(4) review any comments including any objections
filed with the United States (including the Federal
Trade Commission with respect to a violation of section
7) under subsection (d) concerning the proposed
judgment and the responses of the United States to such
comments and objections; and
* * * * * * *
(g) Not later than 10 days following the date of the filing
of any proposal for a consent judgment under subsection (b),
each defendant shall file with the district court a description
of any and all written or oral communications by or on behalf
of such defendant, including any and all written or oral
communications on behalf of such defendant by any officer,
director, employee, or agent of such defendant, or other
person, with any officer or employee of the United States
(including the Federal Trade Commission with respect to a
violation of section 7) concerning or relevant to such
proposal, except that any such communications made by counsel
of record alone with the Attorney General (or the Federal Trade
Commission) or the employees of the Department of Justice (or
any officer or employee of the Federal Trade Commission) alone
shall be excluded from the requirements of this subsection.
Prior to the entry of any consent judgment pursuant to the
antitrust laws, each defendant shall certify to the district
court that the requirements of this subsection have been
complied with and that such filing is a true and complete
description of such communications known to the defendant or
which the defendant reasonably should have known.
* * * * * * *
(i) Whenever any civil or criminal proceeding is instituted
by the United States (including the Federal Trade Commission
with respect to a violation of section 7) to prevent, restrain,
or punish violations of any of the antitrust laws, but not
including an action under section 4A, the running of the
statute of limitations in respect of every private or State
right of action arising under said laws and based in whole or
in part on any matter complained of in said proceeding shall be
suspended during the pendency thereof and for one year
thereafter: Provided, however, That whenever the running of the
statute of limitations in respect of a cause of action arising
under section 4 or 4C is suspended hereunder, any action to
enforce such cause of action shall be forever barred unless
commenced either within the period of suspension or within four
years after the cause of action accrued.
* * * * * * *
Sec. 11. (a) That authority to enforce compliance with
sections 2, 3, 7, and 8 of this Act by the persons respectively
subject thereto is hereby vested in the Surface Transportation
Board where applicable to common carriers subject to
jurisdiction under subtitle IV of title 49, United States Code;
in the Federal Communications Commission where applicable to
common carriers engaged in wire or radio communication or radio
transmission of energy; in the Secretary of Transportation
where applicable to air carriers and foreign air carriers
subject to the Federal Aviation Act of 1958; in the Federal
Reserve Board where applicable to banks, banking associations,
and trust companies; and in the Federal Trade Commission where
applicable to all other character of commerce (excluding
enforcing compliance with section 7) to be exercised as
follows:
* * * * * * *
Sec. 13. That in any suit, action, or proceeding brought by
or on behalf of the United States (including the Federal Trade
Commission with respect to a violation of section 7) subpoenas
for witnesses who are required to attend a court of the United
States in any judicial district in any case, civil or criminal,
arising under the antitrust laws may run into any other
district: Provided, That in civil cases no writ of supoena
shall issue for witnesses living out of the district in which
the court is held at a greater distance than one hundred miles
from the place of holding the same without the permission of
the trial court being first had upon proper application and
cause shown.
* * * * * * *
Sec. 15. That the several district courts of the United
States are hereby invested with jurisdiction to prevent and
restrain violations of this Act, and it shall be the duty of
the several district attorneys of the United States, in their
respective districts, under the direction of the Attorney
General, and the duty of the Federal Trade Commission with
respect to a violation of section 7, to institute proceedings
in equity to prevent and restrain such violations. Such
proceedings may be by way of petition setting forth the case
and praying that such violation shall be enjoined or otherwise
prohibited. When the parties complained of shall have been duly
notified of such petition, the court shall proceed, as soon as
may be, to the hearing and determination of the case; and
pending such petition, and before final decree, the court may
at any time make such temporary restraining order or
prohibition as shall be deemed just in the premises. Whenever
it shall appear to the court before which any such proceeding
may be pending that the ends of justice require that other
parties should be brought before the court, the court may cause
them to be summoned, whether they reside in the district in
which the court is held or not, and subpoenas to that end may
be served in any district by the marshal thereof.
* * * * * * *
----------
FEDERAL TRADE COMMISSION ACT
* * * * * * *
Sec. 5. (a) * * *
(b) Whenever the Commission shall have reason to believe
that any such person, partnership, or corporation has been or
is using any unfair method of competition (excluding the
consummation of a proposed merger, acquisition, joint venture,
or similar transaction subject to section 7 of the Clayton Act)
or unfair or deceptive act or practice in or affecting
commerce, and if it shall appear to the Commission that a
proceeding by it in respect thereof would be to the interest of
the public, it shall issue and serve upon such person,
partnership, or corporation a complaint stating its charges in
that respect and containing a notice of a hearing upon a day
and at a place therein fixed at least thirty days after the
service of said complaint. The person, partnership, or
corporation so complained of shall have the right to appear at
the place and time so fixed and show cause why an order should
not be entered by the Commission requiring such person,
partnership, or corporation to cease and desist from the
violation of the law so charged in said complaint. Any person,
partnership, or corporation may make application, and upon good
cause shown may be allowed by the Commission to intervene and
appear in said proceeding by counsel or in person. The
testimony in any such proceeding shall be reduced to writing
and filed in the office of the Commission. If upon such hearing
the Commission shall be of the opinion that the method of
competition (excluding the consummation of a proposed merger,
acquisition, joint venture, or similar transaction subject to
section 7 of the Clayton Act) or the act or practice in
question is prohibited by this Act, it shall make a report in
writing in which it shall state its findings as to the facts
and shall issue and cause to be served on such person,
partnership, or corporation an order requiring such person,
partnership, or corporation to cease and desist from using such
method of competition (excluding the consummation of a proposed
merger, acquisition, joint venture, or similar transaction
subject to section 7 of the Clayton Act) or such act or
practice. Until the expiration of the time allowed for filing a
petition for review, if no such petition has been duly filed
within such time, or, if a petition for review has been filed
within such time then until the record in the proceeding has
been filed in a court of appeals of the United States, as
hereinafter provided, the Commission may at any time, upon such
notice and in such manner as it shall deem proper, modify or
set aside, in whole or in part, any report or any order made or
issued by it under this section. After the expiration of the
time allowed for filing a petition for review, if no such
petition has been duly filed within such time, the Commission
may at any time, after notice and opportunity for hearing,
reopen and alter, modify, or set aside, in whole or in part,
any report or order made or issued by it under this section,
whenever in the opinion of the Commission conditions of fact or
of law have so changed as to require such action or if the
public interest shall so require, except that (1) the said
person, partnership, or corporation may, within sixty days
after service upon him or it of said report or order entered
after such a reopening, obtain a review thereof in the
appropriate circuit court of appeals of the United States, in
the manner provided in subsection (c) of this section; and (2)
in the case of an order, the Commission shall reopen any such
order to consider whether such order (including any affirmative
relief provision contained in such order) should be altered,
modified, or set aside, in whole or in part, if the person,
partnership, or corporation involved files a request with the
Commission which makes a satisfactory showing that changed
conditions of law or fact require such order to be altered,
modified, or set aside, in whole or in part. The Commission
shall determine whether to alter, modify, or set aside any
order of the Commission in response to a request made by a
person, partnership, or corporation under paragraph (2) not
later than 120 days after the date of the filing of such
request.
* * * * * * *
Sec. 9. That for the purposes of this Act the commission,
or its duly authorized agent or agents, shall at all reasonable
times have access to, for the purpose of examination, and the
right to copy any documentary evidence of any corporation being
investigated or proceeded against; and the commission shall
have power to require by subpoena the attendance and testimony
of witnesses and the production of all such documentary
evidence relating to any matter under investigation. Any member
of the commission may sign subpoenas, and members and examiners
of the commission may administer oaths and affirmations,
examine witnesses, and receive evidence.
Such attendance of witnesses, and the production of such
documentary evidence, may be required from any place in the
United States, at any designated place of hearing. And in case
of disobedience to a subpoena the commission may invoke the aid
of any court of the United States in requiring the attendance
and testimony of witnesses and the production of documentary
evidence.
Any of the district courts of the United States within the
jurisdiction of which such inquiry is carried on may, in case
of contumacy or refusal to obey a subpoena issued to any
corporation or other person, issue an order requiring such
corporation or other person to appear before the commission, or
to produce documentary evidence if so ordered, or to give
evidence touching the matter in question; and any failure to
obey such order of the court may be punished by such court as a
contempt thereof.
Upon the application of the Attorney General of the United
States, at the request of the commission, the district courts
of the United States shall have jurisdiction to issue writs of
mandamus commanding any person or corporation to comply with
the provisions of this Act or any order of the commission made
in pursuance thereof.
Upon the application of the commission with respect to any
activity related to the consummation of a proposed merger,
acquisition, joint venture, or similar transaction subject to
section 7 of the Clayton Act that may result in any unfair
method of competition, the district courts of the United States
shall have jurisdiction to issue writs of mandamus commanding
any person or corporation to comply with the provisions of this
Act or any order of the commission made in pursuance thereof.
The commission may order testimony to be taken by
deposition in any proceeding or investigation pending under
this Act at any stage of such proceeding or investigation. Such
depositions may be taken before any person designated by the
commission and having power to administer oaths. Such testimony
shall be reduced to writing by the person taking the
deposition, or under his direction, and shall then be
subscribed by the deponent. Any person may be compelled to
appear and depose and to produce documentary evidence in the
same manner as witnesses may be compelled to appear and testify
and produce documentary evidence before the commission as
hereinbefore provided.
Witnesses summoned before the commission shall be paid the
same fees and mileage that are paid witnesses in the courts of
the United States, and witnesses whose depositions are taken
and the persons taking the same shall severally be entitled to
the same fees as are paid for like services in the courts of
the United States.
* * * * * * *
Sec. 13. (a) * * *
(b) Whenever the Commission has reason to believe--
(1) that any person, partnership, or corporation is
violating, or is about to violate, any provision of law
enforced by the Federal Trade Commission (excluding
section 7 of the Clayton Act and section 5(a)(1) with
respect to the consummation of a proposed merger,
acquisition, joint venture, or similar transaction
subject to section 7 of the Clayton Act), and
* * * * * * *
Dissenting Views
Although H.R. 5402, the ``Standard Merger and Acquisition
Reviews Through Equal Rules Act of 2014'' or ``SMARTER Act,''
may have some facial appeal, we are concerned that this measure
would undermine the independence of the Federal Trade
Commission (FTC) and contravene the agency's unique role in
developing antitrust policy. H.R. 5402 does this by eliminating
the FTC's ability to use the procedures established under the
Federal Trade Commission Act\1\ (FTC Act) to enforce antitrust
law in merger cases, including, most importantly, its ability
to use administrative adjudication. Moreover, while this
proposal purports to implement recommendations of the Antitrust
Modernization Commission (AMC), it goes far beyond the AMC's
recommendations in some respects by reaching the FTC's ability
to address non-merger activity. Finally, although we share the
conclusion of most observers who believe that the preliminary
injunction standards applicable to the FTC and to the
Department of Justice (DOJ) in merger cases are the same as a
practical matter, to the extent that the FTC Act standard is,
in fact, more enforcement-friendly, as H.R. 5402's proponents
claim, then the bill wrongly chooses the weaker standard to be
the uniform standard.
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\1\Federal Trade Commission Act of 1914, Pub. L. No. 63-203, 38
Stat. 717 (1914), codified at 15 U.S.C. Sec. Sec. 41-58 (2014).
---------------------------------------------------------------------------
H.R. 5402 is not a modest measure. It represents a major
change to the status quo by undermining the FTC's fundamental
nature as an independent administrative agency charged with
enforcing antitrust laws and developing antitrust policy in a
stable, long-term manner using bipartisan expertise. Reducing
the FTC's independence directly conflicts with Congress's
intent in creating this antitrust enforcement agency and
policymaking body to be relatively shielded from political, and
particularly Executive Branch, interference. More generally,
the elimination of distinctions between the FTC and the DOJ in
merger enforcement actions potentially opens the door to the
elimination of the FTC itself by chipping away at the various
differences that justify its separate existence.
We share the views expressed by FTC Chairwoman Edith
Ramirez, who wrote to the Committee to express her ``serious
concerns'' about the ``far-reaching immediate effects'' and the
``potential for significant unintended consequences'' of an
earlier, but substantially similar, draft of the SMARTER
Act.\2\ In addition, the American Antitrust Institute, a
consumer-oriented antitrust organization, expressed similar
concerns about the legislation, particularly with respect to
its elimination of the FTC's ability to use administrative
adjudication in merger cases.\3\
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\2\Letter from the Honorable Edith Ramirez, Chairwoman, Federal
Trade Commission, to Representatives Spencer Bachus (R-AL), Chair, and
Henry C. Johnson, Jr. (D-GA), Ranking Member, of the Subcomm. on
Regulatory Reform, Commercial and Antitrust Law of the H. Comm. on the
Judiciary (Apr. 2, 2014) on file with Democratic staff of the H. Comm.
on the Judiciary [hereinafter ``Ramirez Letter''].
\3\Letter from Albert A. Foer, President, American Antitrust
Institute, to Representatives Spencer Bachus (R-AL), Chair, and Henry
C. Johnson, Jr. (D-GA), Ranking Member, of the Subcomm. on Regulatory
Reform, Commercial and Antitrust Law of the H. Comm. on the Judiciary
(Apr. 9, 2014) on file with Democratic staff of the H. Comm. on the
Judiciary [hereinafter ``AAI Letter''].
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For these reasons, and those described below, we urge our
colleagues to oppose H.R. 5402.
DESCRIPTION AND BACKGROUND
DESCRIPTION
H.R. 5402 eliminates the ability of the Federal Trade
Commission (FTC) to use the procedures of the FTC Act in merger
enforcement cases and with respect to certain types of non-
merger activity. In its stead, the bill requires the FTC to use
the procedures available to the DOJ under the Clayton Antitrust
Act in such circumstances.\4\ The following is a description of
the bill's substantive provisions.
---------------------------------------------------------------------------
\4\Clayton Antitrust Act of 1914, Pub. L. No. 63-212, 38 Stat. 730
(1914), codified at 15 U.S.C. Sec. Sec. 12-27, 29 U.S.C. Sec. Sec. 52-
53 (2014).
---------------------------------------------------------------------------
Section 2 of H.R. 5402 makes numerous amendments to the
Clayton Act in order to subject the FTC to the merger
enforcement procedures of the Clayton Act. Section 2(1) amends
section 4F of the Clayton Act, which currently requires the
U.S. Attorney General, whenever the government has brought an
action under the antitrust laws, to notify any state attorney
general when he or she has reason to believe that the state
would be entitled to bring an action under the Clayton Act
based on substantially the same alleged violation. It also
requires the U.S. Attorney General to provide assistance upon
request of any state attorney general in any actual or
potential cause of action by the state in these circumstances.
Section 2(1) of the bill adds references to the ``Federal Trade
Commission'' after each reference to the U.S. Attorney General
of the United States.
Section 2(2) of the bill amends section 5 of the Clayton
Act, which specifies the evidentiary weight of judgments and
consent decrees in any criminal or civil proceeding brought by
the government under the antitrust laws in any action by a
third party. Section 5 also specifies procedures for public
notice and comment on proposed consent decrees (including the
requirement that the government file a competitive impact
statement), requires a court to make a public interest
determination prior to entering a consent judgment, outlines
procedures for making such a public interest determination,
requires a defendant to file with the court written or oral
communications with the government, makes inadmissible as
evidence competitive impact statements or public interest
determinations in any action brought against a defendant by a
third party, and suspends the statute of limitations for every
private or state right of action under the antitrust laws when
the federal government institutes a proceeding. Section 2(2) of
the bill adds references specifying that the term ``United
States'' as used throughout this provision includes the FTC
with respect to merger cases.
Section 2(3) of H.R. 5402 amends section 11(a) of the
Clayton Act, which reserves enforcement authority for certain
provisions of the Clayton Act for agencies other than the DOJ.
Among the other agencies listed is the FTC ``where applicable
to all other character of commerce.'' Section 2(3) of the bill
would specifically exclude from this authority enforcement of
section 7 of the Clayton Act, governing mergers and other
acquisitions.
Section 2(4) of the bill amends section 13 of the Clayton
Act, which provides that in any government suit, subpoenas for
witnesses who are required to attend a federal court in any
judicial district in an antitrust case may have effect in any
other district when the witness lives within 100 miles of the
trial court unless the trial court permits the subpoena to
extend beyond the 100-mile reach. Section 2(4) of the bill
would specify that reference to the ``United States'' in this
provision includes the FTC in merger cases.
Section 2(5) of the bill amends section 15 of the Clayton
Act, which grants federal district courts jurisdiction to
consider violations of the Clayton Act. It also makes it the
duty of the U.S. Attorney General and U.S. Attorneys to
institute court proceedings to restrain violations of the Act.
In addition, section 15 specifies that the court may provide
injunctive relief, issue temporary restraining orders, and
summon other parties through subpoena if necessary when the
ends of justice require in such cases. Section 2(5) of the bill
adds a reference to the FTC in the provision outlining the
``duty'' of the U.S. Attorney General and U.S. Attorneys.
Section 3 of the bill makes several amendments to the FTC
Act that, broadly speaking, eliminate the FTC's authority to
act pursuant to the FTC Act's provisions in merger cases and
certain other circumstances. Section 3(1) amends section 5(b)
of the FTC Act, which provides the FTC with the authority to
institute administrative proceedings against a person,
partnership, or corporation whenever the FTC determines that
such a party has been or is using ``any unfair method of
competition,'' among other things. If the FTC determines after
a notice and hearing that the target of the complaint has
engaged in the ``unfair method of competition'' and prepares a
report to that effect, the FTC may issue a cease and desist
order. A party may appeal an FTC decision to a federal court of
appeals.
A central objection to the SMARTER Act is in section
3(1)(A) of the bill, which would exclude from the definition of
``unfair method of competition'' any ``unfair method of
competition that would result from the consummation of a
merger, acquisition, joint venture, or similar transaction.''
The exclusion of a ``joint venture'' or ``similar transaction''
from the definition of ``unfair method of competition''
suggests that the bill's elimination of the FTC's
administrative authority extends beyond mergers to include
arguably non-merger anticompetitive conduct.
Section 3(2) of the bill amends section 9 of the FTC Act,
which specifies, among other things, that the FTC may request,
through the U.S. Attorney General, that a federal district
court issue a writ of mandamus to any person, partnership, or
corporation to comply with any of the FTC's orders pursuant to
the FTC Act. Section 3(2) of the bill allows the FTC to
directly seek a writ of mandamus from a federal district court
with respect to any activity in preparation for a merger,
acquisition, joint venture, or similar transaction which if
consummated, may result in any unfair method of competition.
Section 3(3) of the bill amends section 13(b)(1) of the FTC
Act, which sets forth the FTC's authority to bring suit in a
federal district court to enjoin any conduct that violates any
provision of law enforced by the FTC. Section 13(b) also
articulates the standard for granting a preliminary injunction,
which requires a showing that, ``weighing the equities and
considering the [FTC's] likelihood of ultimate success, such
action would be in the public interest.'' It further provides
that if the FTC does not file a complaint within a time period
specified by the court not to exceed 20 days, the preliminary
injunction is dissolved. Section 3(3) of the bill excludes from
section 13(b) any actions that violate section 7 of the Clayton
Act and section 5(a)(1) of the FTC Act (which declares, in
part, that unfair methods of competition are unlawful) with
respect to an unfair method of competition that would result
from the consummation of a merger, acquisition, joint venture,
or similar transaction. While many commentators say that, in
practice, the preliminary injunctions applicable to the FTC and
the DOJ are the same, to the extent that the FTC Act standard
is different and ``stronger'' from a consumer-protection
perspective, the bill's proponents offer no reason why the FTC
standard, rather than the general standard applicable to DOJ,
should not be the standard applicable to both agencies in
merger cases.
BACKGROUND
A. The Federal Trade Commission
1. History and Reasons for Creation
In 1890, the Sherman Antitrust Act was enacted to stop the
anti-consumer abuses resulting from an unchecked wave of
corporate mergers.\5\ Thereafter, the position of Assistant
Attorney General for Antitrust in the DOJ was created in
1903.\6\ Neither effort, however, was sufficiently effective to
stem these abuses. Thus, President Woodrow Wilson, in 1914,
signed the FTC Act,\7\ which established the FTC and made
unlawful, inter alia, ``unfair methods of competition.''\8\
That same year, President Wilson also signed into law the
Clayton Antitrust Act.\9\ Congress created the FTC to encourage
development of antitrust policy by antitrust experts through an
independent administrative agency that would share enforcement
authority with the DOJ\10\ and have the exclusive authority to
enforce the FTC Act.\11\ Additionally, Congress gave the FTC
broad investigative and reporting powers and empowered the
Commission to use an administrative adjudication process to
enforce the antitrust laws rather than try cases before a
federal judge, though the FTC's decisions may be appealed to a
federal court of appeals.\12\
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\5\15 U.S.C. Sec. Sec. 1-7 (2014).
\6\The Antitrust Division became a separate operating unit within
DOJ in 1933. Antitrust Modernization Commission, Report and
Recommendations [hereinafter ``AMC Report''], at 129 (Apr. 2007),
http://govinfo.library.unt.edu/amc/report_recommendation/
amc_final_report.pdf.
\7\15 U.S.C. Sec. Sec. 41-58 (2014).
\8\15 U.S.C. Sec. 45(a) (2014); Marc Winerman, A Brief History of
the Federal Trade Commission: Federal Trade Commission 90th Anniversary
Symposium, 6 (Sept. 22, 2004), http://www.ftc.gov/sites/default/files/
attachments/ftc-90-symposium/90thanniv_program.pdf [hereinafter FTC
History].
\9\FTC History, at 6; 15 U.S.C. Sec. Sec. 12-27, 29 U.S.C.
Sec. Sec. 52-53 (2014).
\10\An ``indepedent'' agency is one that has some measure of
independence from the President. The main mark of such independence is
that the President cannot remove the head of such an agency without
cause. Independent agencies are often styled ``commissions'' or
``boards.'' STEPHEN G. BREYER, et al., ADMINISTRATIVE LAW AND
REGULATORY POLICY, at 100 (4th ed. 1999).
\11\While the FTC has no authority to enforce the Sherman Act, the
Supreme Court has held that any conduct that violates section 1 of the
Sherman Act would also violate section 5(a) of the FTC Act. Federal
Trade Comm'n v. California Dental Ass'n, 526 U.S. 756, 763 n.3 (1999)
(``The FTC Act's prohibition of unfair competition and deceptive acts
or practices . . . overlaps the scope of Sec. 1 of the Sherman Act.'').
\12\15 U.S.C. Sec. 45(b) (2014).
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According to one historical study of the origins of the
FTC, the congressional advocates for its creation were
dissatisfied with what, in their view, was the failure of the
Sherman Antitrust Act to stop the merger wave and corporate
abuses that occurred in the 24 years from its enactment to the
passage of the FTC Act in 1914.\13\ Advocates for the creation
of the FTC disclaimed any intent to amend the Sherman Act or to
undermine DOJ's enforcement role, but, rather, sought to
enhance existing antitrust law and enforcement.\14\ In
particular, they ``wanted a new agency that would prosecute if
the [DOJ] faltered, enforcing a flexible new standard where the
Sherman Act might not.''\15\
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\13\Marc Winerman, The Origins of the FTC: Concentration,
Cooperation, Control, and Competition, 71 Antitrust L. J. 74 (2003),
http://www.ftc.gov/sites/default/files/attachments/federal-trade-
commission-history/origins.pdf.
\14\Id.
\15\Id.
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Congress historically has sought to give the FTC broad
authority to prohibit unfair methods of competition. This is
demonstrated by the fact that every time the Supreme Court has
issued a decision restricting the FTC's statutory authority,
Congress has responded by amending the FTC Act to expand the
FTC's authority.\16\ In reaction against this ever-increasing
grant of authority, however, something of a backlash against
the FTC began in 1980, which one commentator described as ``a
tidal wave of response and restricting legislation.''\17\ Most
recently, for example, the U.S. Chamber of Commerce has been
highly critical of the FTC for its use of its authority under
section 5 of the FTC Act to prohibit ``unfair methods of
competition.''\18\
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\16\FTC History, at 7-9 (outlining instances in the 1920's and
1930's in which Congress expanded the FTC's authority in response to
restrictive Supreme Court decisions, and also highlighting further
expansions of the FTC's authority by Congress in the 1950's and
1970's).
\17\Id. at 9.
\18\U.S. Chamber of Commerce, Unfair Methods of Competition Under
Section 5 of the FTC Act: Does the U.S. Need Rules ``Above and Beyond
Antitrust''?, GCP: The Antitrust Chronicle, (Sept. 2009), http://
www.uschamber.com/sites/default/files/reports/0909antrust_0.pdf.
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2. LFTC and the Broader Antitrust Merger Enforcement Regime
As noted, the DOJ's Antitrust Division and the FTC's Bureau
of Competition enforce the Nation's antitrust laws jointly.
Both agencies enforce section 7 of the Clayton Act, which
prohibits anticompetitive mergers and other types of
acquisitions.\19\ Pursuant to this responsibility, both have
the authority to conduct antitrust reviews of proposed mergers
and acquisitions. To facilitate coordination between them, the
DOJ and FTC developed joint standards known as the ``Merger
Guidelines'' that outline the type of inquiry to be followed in
reviewing a proposed merger.\20\ The Guidelines state, ``The
unifying theme of these Guidelines is that mergers should not
be permitted to create, enhance, or entrench market power or to
facilitate its exercise.''\21\
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\19\15 U.S.C. Sec. 21(a) (2014).
\20\U.S. Dep't of Justice and Federal Trade Comm'n, Horizontal
Merger Guidelines (2010).
\21\Id. at 2.
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With respect to the review of a proposed merger, once
parties make the requisite filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976\22\ (HSR), which established
a pre-merger review process for transactions that meet certain
dollar thresholds, it is up to the agencies to decide during
that initial 30-day review period which agency will review the
transaction. The agencies have developed an informal process
that relies primarily upon historical experience in the
relevant industry to determine which agency has a better claim
to review a particular transaction.
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\22\Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub. L.
No. 94-435, 90 Stat. 1383 (1976), codified at 15 U.S.C. Sec. 18a
(2014).
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If the reviewing agency ultimately determines that the
transaction is illegal, it will file a complaint in federal
court (if the enforcement agency is DOJ) or institute an
administrative proceeding (if the enforcement agency is FTC) to
stop the parties from consummating the transaction. Often
times, such suits are resolved with the entry of a consent
decree whereby the merger parties agree to take certain steps
(usually the divestiture of certain assets, sometimes
commitments by the merging parties to take certain other
actions) to address the reviewing agency's antitrust concerns.
As a practical matter, the HSR pre-merger review process has
dramatically reduced the amount of antitrust litigation since
its enactment.
3. Preliminary injunctions in merger cases
In the exceedingly rare instances where the government and
the merging parties do not reach a consent agreement at the
moment the government has filed suit, the government may seek a
temporary restraining order and a preliminary injunction to
stop consummation of the merger while the government pursues
its complaint. Nominally, FTC and DOJ are subject to different
standards for the grant of preliminary injunctions. While the
dominant view is that in practice both standards essentially
are the same, there are some who believe that the FTC standard
is more favorable to the enforcement agency.
B. Antitrust Modernization Commission
Congress created the Antitrust Modernization Commission
(AMC) in 2002 to examine whether antitrust laws, policies, and
procedures needed to be amended in light of changes to the
economy, and particularly the impact of the rise of the high-
technology sector and its implications for antitrust and
competition policy.\23\ In 2007, the AMC issued a 449-page
report outlining 80 recommendations for revisions to antitrust
law and policy.\24\ Only two of these 80 recommendations--
recommending the elimination of FTC's administrative
adjudication authority for merger cases and the adoption of a
uniform preliminary injunction standard--are relevant to
consideration of the SMARTER Act.
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\23\Antitrust Modernization Commission Act of 2002, Pub. L. No.
107-273, Sec. 11054(h), 116 Stat. 1856, 1857 (2002).
\24\AMC Report.
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CONCERNS WITH H.R. 5402
I. H.R. 5402 WOULD UNDERMINE THE FTC'S INDEPENDENCE AND CONTRAVENE
CONGRESS'S PURPOSE IN CREATING THE AGENCY, ESPECIALLY BY ELIMINATING
THE FTC'S ADMINISTRATIVE ADJUDICATION AUTHORITY IN MERGER CASES.
H.R. 5402 would effectuate a fundamental change to the
FTC's century-old organizational structure and lessen the
agency's independence. By eliminating its authority to pursue
administrative litigation in merger cases and other
circumstances, the bill would essentially undermine the FTC's
character as an independent administrative agency and turn it
into another executive enforcement agency in HSR merger cases,
which contravenes Congress's purpose in establishing the FTC in
the first place.
As the AMC Report recognized, Congress created the FTC as
an independent agency--that is, one with a considerable measure
of independence from the President--not only to supplement the
DOJ's enforcement activity where Congress thought DOJ
enforcement may be lacking, but also to develop antitrust
policy by relying on a body of antitrust experts rather than
generalist courts or the DOJ, which, as an arm of the Executive
Branch, may be subject to dramatic swings in political
ideology.\25\ As FTC Chairwoman Ramirez noted, ``Congress
created the Commission in 1914 as a bipartisan expert agency
that would augment existing antitrust enforcement authority by
taking a considered and long-term approach to developing
antitrust law and safeguarding competition,''\26\ recognizing
that ``American consumers would benefit from an expert agency
with the means to develop competition law and policy over
time.''\27\ By weakening the FTC's independence, H.R. 5402
jeopardizes these benefits for American consumers.
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\25\Id. at 129 (noting that Congress ``also believed that an
administrative agency--conducting administrative adjudication of
antitrust cases, and vested with broad information-gathering powers--
would be a better vehicle for developing more flexible standards of
antitrust law than were the courts.'').
\26\Ramirez Letter.
\27\Id.
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Beyond the specific changes proposed by H.R. 5402, we are
wary of any measure to alter, and possibly diminish, the FTC's
authority. Opponents of the FTC's enforcement activities have
engaged in a longstanding campaign to undermine the agency,
both because of its role as an antitrust enforcer and also
because of its work in the consumer protection arena. Any
proposal to alter the FTC's authority, and particularly one
that would eliminate its distinctiveness vis a vis the DOJ,
should be viewed with skepticism. Although H.R. 5402 is
ostensibly limited to HSR merger cases, eliminating
distinctions between the DOJ and the FTC is a possible way to
justify ultimately eliminating the FTC altogether, at least as
an antitrust enforcement and policymaking agency.
In addition, H.R. 5402 does not appear to address a
particularly pressing or widespread problem. To the extent that
the main concern of H.R. 5402's proponents is to reduce costs
and uncertainty by promoting uniformity in merger reviews, it
should be noted that FTC and DOJ already analyze mergers by
following the same substantive policy in conducting pre-merger
reviews, i.e., the joint Merger Guidelines. The changes that
H.R. 5402 contemplates would apply in the exceedingly rare
instances where: (1) a transaction is large enough to merit HSR
review; (2) after the review, the reviewing agency determines
that it would challenge the transaction through litigation; (3)
the parties do not agree to any settlement, including
divestures and other commitments; and (4) the parties choose to
continue with their transaction despite the filing of a
complaint by the reviewing agency rather than abandoning the
transaction. Instances where the FTC would seek a preliminary
injunction and use its administrative process are rare, and
instances when the FTC seeks to use its administrative process
after losing a preliminary injunction proceeding in court are
even more rare. Additionally, the FTC's internal procedures
already make it highly unusual that the agency would ever seek
such a ``second bite at the apple.''\28\ Nonetheless, there may
be rare instances where, even in the ``second bite'' scenario,
it is in the public interest to allow the FTC to pursue
administrative litigation where developing a full
administrative record would help make an advancement in the law
in ways that a court would be less well-equipped to do.
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\28\H.R. 5402's proponents may cite the actions of the FTC in the
Whole Foods-Wild Oats merger as an example of the FTC's problematic use
of administrative proceedings after losing a preliminary injunction
proceeding in court. In that case, however, the U.S. Court of Appeals
for the D.C. Circuit ultimately vindicated the FTC's pursuit of
administrative litigation after losing the preliminary injunction
proceeding in court when the appeals court reversed the district
court's denial of the FTC's request for a preliminary injunction. FTC
v. Whole Foods Market, Inc., 548 F.3d 1028 (D.C. Cir. 2008).
Additionally, as both the AMC and AAI have pointed out, the FTC's own
internal practice and procedures make the ``second bite'' scenario
unlikely. AMC Report at 141; AAI Letter at note 4.
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It is with the foregoing in mind that we are particularly
troubled by H.R. 5402's elimination of the FTC's authority to
use administrative adjudication in merger enforcement matters.
As Chairwoman Ramirez noted, ``Congress gave the FTC unique
tools to carry out [the FTC's] special charge. These include
expert research authority, broad information-gathering power,
and, of particular significance here, an adjudicative function
in which the FTC considers and decides cases as an expert
tribunal, subject to review by a federal court of
appeals.''\29\ Chairwoman Ramirez further noted that this
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\29\Ramirez Letter.
quasi-judicial role is a defining characteristic of the
FTC and is critical to our ability to fulfill our
mission to promote competition and advance consumer
welfare. It allows the Commission to conduct thorough
hearings to develop both the facts and the law in a
broad variety of antitrust matters. Our adjudicative
function has been particularly valuable in complex
areas such as hospital mergers, where the Commission
has used the combination of its information-gathering
power and case-specific law enforcement authority to
develop a coordinated, well-considered approach to
challenging anticompetitive conduct, one that has now
been endorsed by the federal courts.\30\
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\30\Id.
In discussing the value of administrative adjudication, the
American Antitrust Institute (AAI) stated in its letter to the
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Committee:
[P]rudence compels caution in any tinkering with a
system of dual enforcement including administrative
adjudication that emerged out of robust debate in the
course of the 1912 Presidential election campaign and
that Congress adopted two years later in the face of
grave concern over the fate of antitrust enforcement
generally when left exclusively in the hands of
generalist judges.
. . .
AAI believes that eliminating FTC administrative
adjudication would almost surely be counterproductive.
We would thereby (a) lose the considerable benefits of
expert agency policy evolution, the original Wilson/
Brandeis vision giving rise to the FTC's creation a
hundred years ago and more important than ever for
sound evolution of merger policy in the 21st Century;
and (b) exacerbate any inefficiency of dual enforcement
generally since we would then have two enforcement
agencies applying the same merger law standards and
procedures to different companies in different
industries in cases brought exclusively to generalist
courts. A more logical course would be channeling all
merger enforcement to the FTC and its expert
administrative processes.\31\
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\31\AAI Letter at para.para.3, 5.
Similarly, at a hearing before the Subcommittee on
Regulatory Reform, Commercial, and Antitrust Law examining
draft legislation that was substantially similar to H.R. 5402,
Professor John Kirkwood of Seattle University School of Law
expressed great concern about the removal of the FTC's
administrative adjudication authority.\32\ He testified that
the purpose of having this authority was to allow the FTC to
develop antitrust law in a less partisan, more expert way than
generalist courts and a DOJ under the control of one political
party could.\33\ Professor Kirkwood's concern was twofold.
First, removing the FTC's administrative adjudication authority
in merger cases might lead to a ``slippery slope'' whereby its
authority with respect to other areas of antitrust enforcement
could eventually be eliminated or consolidated with that of
DOJ.\34\ Second, administrative adjudication supports the FTC's
congressionally-mandated mission of developing administrative
expertise through sustained attention, information-gathering,
and vigorous enforcement.\35\ Professor Kirkwood acknowledged
that the unique benefits of administrative adjudication were
not as strong in all cases. In those instances when an industry
is changing rapidly or when an agency has not developed much
expertise in it, however, an administrative proceeding would be
quite helpful, such as the FTC's use of administrative
proceedings in hospital merger enforcement as an example of
such benefits.\36\
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\32\Subcommittee Hearing (written statement of John B. Kirkwood,
Professor of Law and Associate Dean for Strategic Planning and Mission,
Seattle University School of Law).
\33\Id.
\34\Id. at 5.
\35\Id.
\36\Id.
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In agreeing with the views of Chairwoman Ramirez, Mr. Foer,
and Professor Kirkwood, Ranking Member John Conyers, Jr. (D-MI)
stated that H.R. 5402, ``rather than strengthening the FTC's
enforcement authority, does exactly the opposite.''\37\ Ranking
Member Conyers further stated that ``our preeminent goal should
be to strengthen, not weaken, antitrust enforcement to protect
consumers.''\38\
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\37\Unofficial Tr. of the Markup of H.R. 5402, the ``Standard
Merger and Acquisition Reviews Through Equal Rules Act,'' by the H.
Comm. on the Judiciary, 113th Cong., at 150 (Sept. 10, 2014).
\38\Id.
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II. H.R. 5402'S SCOPE IS BROADER THAN THE AMC RECOMMENDATIONS.
To the extent that H.R. 5402's proponents claim that the
bill simply applies the AMC's recommendations, we note that
H.R. 5402 exceeds what the AMC contemplated in its
recommendations. Specifically, the AMC recommended that
Congress should eliminate the FTC's authority to pursue
administrative litigation in HSR cases and that it should
ensure that the same standard that DOJ is subject to when
seeking a preliminary injunction in an HSR case also applies to
the FTC.\39\ First, rather than limiting its provisions to
these two recommendations, the bill would make the FTC
functionally equivalent to the DOJ in large merger cases,
which, arguably, is a step towards eliminating the dual
enforcement regime, which the AMC specifically said it was not
recommending.\40\ Second, the bill's carve-out for the FTC's
administrative adjudication authority would reach beyond merger
cases to also include a ``joint venture'' and ``similar
transaction,'' meaning that the loss of the FTC administrative
adjudication authority would extend beyond the scope of section
7 of the Clayton Act to also include potentially non-merger
activity. The bill also eliminates the independent grant of
authority to the FTC under Clayton Act section 11, eliminating
administrative adjudication for consummated mergers too. Third,
the bill would impose certain unhelpful or currently
ineffective Clayton Act obligations on the FTC merger
enforcement process, such as certain public notice and comment
requirements concerning proposed consent decrees and the Tunney
Act requirement that a district court make a public interest
determination before entering a consent judgment.\41\
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\39\AMC Report at 140-41.
\40\Id. at 129 (recommending ``no comprehensive change to the
existing system in which both the FTC and the DOJ enforce the antitrust
laws'').
\41\See AAI Letter at para.7 (noting that reform of judicial and
public vetting of merger settlements was ``one aspect of institutional
reform in the merger enforcement field that is now timely for
Congressional consideration'').
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III. WITH RESPECT TO THE PRELIMINARY INJUNCTION STANDARD, H.R. 5402
ADDRESSES A NON-EXISTENT PROBLEM, BUT IN SO DOING EXPOSES ITS
PROPONENTS' INTENT TO APPLY A LESS CONSUMER-FRIENDLY STANDARD.
By making the preliminary injunction standard applicable in
DOJ merger cases\42\ also apply to the FTC in merger cases\43\,
H.R. 5402 does not solve a real problem. The dominant opinion
among courts, academics, and the antitrust bar appears to be
that the standards, while nominally different, are the same in
practice.\44\ Assuming there is a real difference between the
injunction standards, however, attempting to unify them once
again raises the concern that the bill simply seeks to
undermine the FTC's independence and distinctiveness, contrary
to Congress's intent in creating an independent antitrust
enforcement agency in the first place.
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\42\When DOJ seeks a preliminary injunction, it acts pursuant to
section 15 of the Clayton Act, which provides, in part, that a court
hearing a case under the Act ``may at any time make such temporary
restraining order or prohibition as shall be deemed just in the
premises.'' 15 U.S.C. Sec. 25 (2014). Section 15, however, does not
specify a standard for determining when to grant a preliminary
injunction. Therefore, a modified version of the general test for
preliminary injunctions applies. The test is usually articulated as
requiring that the government show a reasonable likelihood of success
on the merits and that the balance of equities tips in its favor. See,
e.g., U.S. v. Siemens Corp., 621 F.2d 499, 505 (2d Cir. 1980).
\43\FTC Act section 13(b) requires a court to grant a preliminary
injunction to the FTC upon ``a proper showing that, weighing the
equities and considering the Commission's likelihood of ultimate
success, such action would be in the public interest.'' 15 U.S.C.
Sec. 53(b) (2014). Courts have interpreted this standard to mean that
the FTC must raise questions that are ``so serious, substantial,
difficult and doubtful as to make them fair ground for thorough
investigation.'' FTC v. H.J. Heinz Co., 246 F.3d 708, 714-15 (D.C. Cir.
2001).
\44\See, e.g., AMC Report at 141 (noting the view of Commissioners
Garza, Jacobson, and Kempf that the standard is the same and that such
legislation is not truly necessary).
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We agree with the points raised by AAI regarding the
preliminary injunction standards applicable to the FTC and the
DOJ. First, AAI noted that the differences in the preliminary
injunction standards did not matter ``in any material sense
since courts generally require both agencies to make strong
showings of probably anticompetitive effect before a
preliminary injunction is entered. . . .''\45\ It further
argued that:
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\45\AAI Letter at para. 1.
Assuming this difference does matter, however, SMARTER
Act supporters prematurely jump to the conclusion that
the correct solution to this ``unfairness'' is to
subject FTC challenges to the tougher standard
applicable to DOJ. Why is it not better from a public
policy standpoint to address the anomaly by extending
the benefit of the Section 13(b) standard to DOJ
challenges? A deferential standard for both agencies is
warranted by the expertise and sophistication of the
merger review process at both agencies. . . .\46\
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\46\Id.
Similarly, Professor Kirkwood testified that equalizing the
FTC and DOJ preliminary injunction standards was not necessary
because both standards function the same way as a practical
matter.\47\ He did, however, express the concern that changing
the preliminary injunction standard applicable to the FTC in
merger cases could have unintended consequences, like causing
courts to apply the non-FTC standard in non-merger cases as
well. He also testified that the FTC Act standard, to the
extent that it really was substantively more favorable to the
government than the one applicable to the DOJ, was designed to
allow the FTC to use its administrative proceedings.\48\
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\47\Kirkwood Statement at 3.
\48\Id at 4-5. We further note that H.R. 5402 does not guarantee
independent litigating authority for the FTC in preliminary injunction
proceedings, thereby further undermining the FTC's independence.
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CONCLUSION
This year marks the 100th anniversary of the establishment
of the FTC, an agency specifically created by Congress to
strengthen the enforcement of antitrust law in order to better
protect the American consumer. Congress intended the agency to
be a vigorous enforcer of the law and to develop antitrust
policy in a bipartisan and expert manner while being
comparatively insulated from the changing political and
economic priorities that occur with each new presidential
administration. A hallmark of this independence, and a key tool
in support of its mission and of its independent status, is the
FTC's ability to pursue administrative adjudication, including
in merger enforcement cases. By prohibiting the agency from
exercising this authority in merger cases, H.R. 5402 ultimately
strikes at the very heart of the rationale for the FTC's
existence and directly contravenes Congress's intent in
establishing the FTC a century ago. Whatever the potential
benefits for business in terms of lowered costs and
uncertainty, undermining the FTC's independence and
distinctiveness jeopardizes the agency's ability to protect
consumers.
We are additionally concerned that H.R. 5402 goes well
beyond the recommendations of the AMC. In particular, the
elimination of administrative adjudication authority would also
apply to certain non-merger conduct, including joint ventures
and ``similar'' transactions.
Finally, the bill's uniform preliminary injunction standard
for merger cases appears to be a solution in search of a
problem. Most observers concur that whatever differences in
their articulation, such differences would not change the
outcomes in any given case. Nonetheless, to the extent that
there is a material difference, and to the extent that the FTC
Act standard is, in fact, more favorable to enforcement
authorities, as H.R. 5402's proponents contend, H.R. 5402
chooses the less consumer-protective standard.
For the foregoing reasons, we urge our colleagues to oppose
H.R. 5402.
John Conyers, Jr.
Zoe Lofgren.
Sheila Jackson Lee.
Henry C. ``Hank'' Johnson, Jr.
Judy Chu.
Karen Bass.
Cedric Richmond.
David N. Cicilline.