PROCEEDINGS
(9:15 A.M.)
MR. RILL: I'm Jim Rill and together with Paula
Stern we're co-chairs of the International Competition
Policy Advisory Committee. Merit Janow, as you know, is
our Executive Director.
I would like to open the meeting with
expressions of gratitude to both the Attorney General and
Assistant Attorney General Klein and his colleagues. They
had the foresight to put together this Committee at an
extraordinarily interesting and, I think, catalytic
moment in the relationship between trade and competition
-- the global nature of business and competition policy.
They have asked us to deliberate and come forward with
policy recommendations for the Department of Justice and
the U.S. Government as a whole concerning the role of the
United States in global competition issues, from the
standpoint of substance as well as process and structure,
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and to put forth these recommendations within what's
scheduled to be an 18-month time frame.
I'm very honored -- as I'm sure my fellow
colleagues are who have been selected -- to participate
in what I consider to be a seminal effort by the United
States Government to pull together the views of the
Committee members, accepted leading authorities with
diverse backgrounds in antitrust competition policy,
trade, and very, very importantly, business.
I think the diversity in experience of this
Committee, the Advisory Committee, is truly remarkable,
and I think that the work that this Committee will do
could truly make a difference. It certainly has the
prospect of significantly making a difference in the U.S.
policies on trade and global competition.
I'm personally very grateful to the very
eminent academics, former government leaders, business
community leaders and legal experts who have agreed to
take the time to make this difference in formulating
advice to the United States and the United States
Department of Justice on the role of the United States in
convergence of trade and competition and global
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competition issues in this increasingly shrinking world
in which we live.
Today we have a tight agenda. We're going to
hear this morning from the representatives of the
Department of Justice, starting with the Honorable Joel
Klein, the Assistant Attorney General. But before we
turn the program over to Joel, I wonder if, Paula, if you
would have some remarks?
MS. STERN: Thanks, Jim. Good morning. I'm
so
happy to be here with each and every one of you, all 100
percent, which is testimony to your diligence and the
importance of this Committee.
I just would like to invoke again how
critically important this moment is for us as an economy,
and so I would also like to express my gratitude to the
Attorney General and to Joel Klein for taking the
initiative, or seizing the initiative, to pull us
together to grapple with some very significant matters.
Over the years, the U.S. economy and global
economy have changed enormously, becoming intertwined
nation with nation. And during those years we have had a
great deal of successful trade liberalization and
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deregulation. And we most certainly not only practiced
it at home but we preached it overseas in international
markets, therefore making what were previously domestic
markets very much international, and making what were
domestic competitors very much international competitors.
So equipping the U.S. Government and updating
our regulations and grappling with the challenges that
these changes in international economy will mean for our
laws is something which I'm hoping all of us working
collectively together will be able to come forward with
some very good practical policy suggestions based on the
collective wisdom of each and every one of you all here.
So thank you all very much for getting together
in line so quickly and now I think it's time for us to do
some listening to Joel Klein and our Justice Department
colleagues, who have a lot of briefing to get us all up
to the same speed, and at least, talking with the same
vocabulary. Thank you.
MR. KLEIN: Thank you, Paula, Jim. On behalf
of Janet Reno, the Attorney General of the United States,
and the Antitrust Division, I am personally delighted to
welcome each and every one of you here. I cannot tell
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you how much pride the Department of Justice has in
having been able to assemble such a rich, diversified,
and talented group of people to look at some of the most
important issues affecting our economy that you can
possibly look at.
These issues, frankly, are as challenging as
they are important, and we're going to need the skills
and talent of all of you, I think, to work through this.
I think the Attorney General, in her words, said it is
difficult to imagine, given the pressing schedules of the
kind of people who have agreed to serve on the Committee,
that we could bring so much talent to bear. I am
delighted.
Let me tell you as a matter of history, this is
really the third outside advisory committee in 60-odd
years at the Antitrust Division. It seems to me -- for
reasons I'm not sure of -- but we appoint one of these
every 20 years. The first one was appointed in 1955 and
that one dealt with really the substance of the antitrust
laws and produced a report that even to this day is still
read, cited, and discussed among antitrust scholars.
The second committee was appointed by President
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Carter in 1977, and that focused on the whole issue of
streamlining the antitrust laws. Antitrust enforcement
in the '60s had become cumbersome and difficult, and
there was a real question about its extension and where
to go in that respect.
Indeed one of the current Committee members,
Eleanor Fox, worked on that project as well. She was
quick to remind me she didn't work on Attorney General
Brownell's project. I figured that out, Eleanor. Even I
was able to make that determination.
Why this Committee at this point in history? I
think the answer, in a word, is globalization. In a
speech by Principal Deputy Assistant Attorney General
Doug Melamed not so long ago, I think he pointed out the
crux of the problem, and why we need some new, creative
thinking. And that is: We are essentially living in a
world of nation states that are now being asked to
regulate, to the extent regulation is appropriate, a
global economy. And that is the challenge we face.
And so for the first time, in a sense, we need
to really think through, in a systematic way, a series of
unilateral, bilateral, and multilateral arrangements, the
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differences in laws and policies and -- once you're on
the playing field -- the relationship with antitrust and
trade as well as other economic considerations. And how
it is that we in America, who now stand here today at a
time when our economy is the strongest in the world, it
also happens to be the most competitive it has been --
and those two factors I submit are not unrelated to each
other -- how, in a sense, we can export, if you will, our
view of competition policy to prevail in a global
economy? So that, in the broadest sense, is the
assignment before you.
Just to give you some sense of the dimensions
from our point of view, our Co-Chairman, Jim Rill, when
he was in the job I have now, which ran until 1992, he
was probably the first person to really look ahead and
see what was coming in terms of globalization and the
need for internationalization. He probably did more to
put us on the map in that regard than anyone had done
certainly until that time.
In one sense he showed his foresight; because I
went back and looked and at the time probably 2 percent
of our cases had an international dimension. Today which
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is, what, seven years later, now probably almost a third
of our cases have an international dimension. And that
doesn't reflect the significance of the resource
commitment, because the really big cases are often
international cases such as the international cartels
that my criminal Deputy, Gary Spratling, will talk about.
So we are heavily, heavily involved in these
matters, and that will only increase. You read last week
that there were four different enforcement authorities
reviewing the KPMG merger, and that I think is a
harbinger of things to come, things that we need to
consider.
And I think for us in particular there are two
specific challenges that we are looking at. One is our
institutional capacity to enforce our domestic law in an
international environment -- both practical as well as
conceptual limitations; and, second, and as importantly,
how when we and our colleagues and what will soon be
numerous other countries review the same transaction,
what problems that will create both for us and the
businesses that are affected when people have different
legal time tables, different criteria, different
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policies, different views of international trade and
competition?
At least, as we see it sitting here today,
there are three areas that we would like the opportunity
to brief you on this morning that are front and center on
our agenda right now, but this is, I want to assure you,
a very involved process.
First, the area of international cartel
enforcement. Let me say I was actually surprised when we
got into this at how deep and serious a problem this is
right now. Gary will go into detail, but essentially
what we are seeing in modern markets is an extraordinary
number of international cartels, and in essentially every
major city people are meeting on every continent in any
nation and country to set prices and sell products at 10,
15, 20, 30 percent above fair market value.
And for us this creates serious practical
problems. Because of the limitations on our
jurisdictional reach, we need to depend on access to
evidence in other countries, raising issues of trying to
extradite people and so forth.
Now, we have had some extraordinary success in
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this area. What our success has taught us is that we're
just beginning to scratch the surface of the problem, and
it is a serious problem for American consumers. I
believe American consumers are losing literally billions
of dollars a year as a result of international cartels
selling a product at inflated prices.
The second issue that we can't avoid dealing
with is the whole set of issues growing out of the
multi-jurisdictional merger review. Everyone is aware of
the intense focus and conflict that arose this past
summer in the Boeing/McDonnell Douglas merger, and that
the U.S. and the European Union reached divergent
results, which leads to a very serious set of
international issues. Ultimately, I think it was
resolved in part through the intervention of the
Department of Justice. But that problem, and those sets
of issues, are going to continue to be before us.
As we sit here today, I found out recently that
the Japanese are for the first time seeking jurisdiction
to be able to review a merger like Boeing/McDonnell
Douglas as well, and I suspect when you really have a
global economy, you are going to see mergers that affect
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product in virtually every country. More and more
countries are going to want to review these. Problems
for businesses that try to go through these processes are
going to be serious.
On the other hand, there is a legitimate
sovereign interest for each country -- since product is
sold in your country -- to be able to review and consider
the competitive implications of a merger. That is
something both we and Federal Trade Commission discuss.
As I sit here today, in the past couple of weeks I had
discussions on British Airways/American Airlines matter
and probably two or three others in that respect.
Then the third set of related issues are
perhaps in many ways the most difficult because they go
to the core of how you deal with issues of competition
policy in the globalized market, are those at the
intersection of trade and competition.
This raises a series of questions -- really,
essentially two -- and they are: How do we effectively
coordinate, blend, work out arrangements between the
paradigms of trade and competition; and whether these are
paradigms that will merge, whether they will have to
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remain separate but respectful, and how do we facilitate
that kind of process in a world in which issues of market
access are critical to an effective global economy? If
you have disparate market access rules, either
governmental or certainly private in terms of antitrust
policy, this can have significant implications in terms
of the way one company can be protected at home while
another company doesn't have the same protection.
We in the United States are, I think, quite
vigorous in our enforcement of the antitrust laws without
fear of favoritism in terms of issues of national origin
of the company. And we do that because we believe our
consumers benefit best by getting the product that is the
most advanced at the best price. And if that happens to
benefit a foreign competitor, we have been known to
enforce the law in a way that does that.
I think it's fair to say not every country has
the same history and tradition in that respect, and that
obviously creates a disequilibrium in the world markets
that we need to be aware of. As governmental barriers
are coming down this is going to become increasingly
important. In a nutshell, those are the issues we seek
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your guidance and your assistance on.
I think, at its largest level, as I said, it
really will be a question of what role is there and what
methods are there for dealing with regulation of a global
economy by sovereign nations, and what kind of
arrangements is that going to require. Is the WTO the
kind of forum that offers the necessary opportunities?
Do you need a separate forum? I said this somewhat
facetiously, but I think it is something that needs to be
considered. Do you need a world competition organization
that is charged with a different set of important
priorities? Are there bilateral relationships that can
facilitate these kind of goals?
Putting aside procedure, how are we going to
get substantive agreement on policy? There are many
developing nations that really view antitrust law from a
different perspective, and in some respects who are just
beginning to learn about this and how they will factor
into a world trade/competition environment.
So those are the issues. There is a tremendous
amount going on. It is almost remarkable in one sense
that just this past week, the Competition Law and Policy
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Committee of the OECD for the first time got the leading
industrial nations of the world all to agree essentially
on the importance of enforcement cooperation vis-a-vis
international cartels. It took two years to agree on
what is a hard core cartel. Can you imagine when you
start to look at vertical restraints, exclusive dealing,
market definition, and other important issues in other
nations, what kind of congruence can one expect there?
After two years, vis-a-vis hard core cartels,
the OECD recognized that there should be mutual support
and enforcement efforts. We know of two occasions when
we conducted a search, and on the day of that search,
documents were destroyed in other countries because we
had no means of conducting parallel searches in other
nations. By contrast, we had one Canadian case where we
were able to do parallel searches.
The WTO is in the middle of its own proposal
with respect to a global competition policy. The
Europeans are far ahead of us in terms of what they see
as a useful movement towards possible dispute resolution.
At the WTO, I think we are reluctant to bring a move
toward multilateral dispute settlement.
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This is the short run and we will certainly
consult with you in this regard, and we are evolving here
today a very sophisticated, mature relationship with the
European Union, one in which there will be interstitial
inputs, I suspect, as we go along with this Committee.
The primary charge of this Committee, as I see
it, is to produce a landmark report and offer a vision
for the next 20 years of how we move toward effective
trade and competition integration and effective antitrust
enforcement in a global economy.
If it is to be -- and I have no a priori view
on this -- if there is to be a multinational coordination
of these problems, we need guidance on the steps to get
there. Premature efforts in that regard will be highly
destructive. If there are meaningful bilateral ways to
tackle this problem, we need guidance on both the
processes and limitations. So this is a big charge.
And let me make it absolutely clear this is not
a Committee we brought together to rubber stamp some
series of ideas that we at the Department of Justice
already have. This a Committee we hope will be able to
work, think, and bring new ideas to the problems. In the
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end we may not agree with every suggestion of the
Committee, but it would be a waste of your time and waste
of our time to pretend that we have some agenda we're
working towards.
We have people from business, people from
public policy, people familiar with international events,
people from the Academy all sitting around this table
bringing collectively hundreds of years of experience,
knowledge to these problems. Give us that. Don't worry
about the fact that we may create some difficult
discussion at times. What we need is the best thinking
we bring together on these issues of critical importance,
I submit, to the future of this nation.
As I view it, competition policy will become
more important in an increasingly globalized economy. I
want to thank you for your time and commitment.
MR. RILL: Thank you.
MS. STERN: Thank you so very much. We're
running a few minutes ahead of time which I think will
give us an opportunity to get started. You'll be
introducing your team to us, and I thought it might be a
good idea just to go around the table and have everyone
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who are Members introduce themselves, and you should just
say if you have any short comments.
I want you all to know we do anticipate having
the whole afternoon for discussion. That will be much
more open, whereas this morning will be virtually a
briefing from the whole Justice Department team.
So, Mr. Dunlop, would you?
MR. DUNLOP: John Dunlop, Harvard
University.
Main interests are in the world of labor, management and
government interactions.
MS. FOX: Eleanor Fox, New York University. I,
like the others, am very honored to be part of this
group, and I am very excited about your charging
statement, Joel. Conversations of this sort are going on
all over the world. They're even going on in the
European Union on the relationship of state restraints to
private restraints. I'm very hopeful that with your
leadership, we can make a serious contribution.
MR. DONILON: Tom Donilon. Again, Joel, I
appreciate the honor of serving. My only initial comment
would be, listening to you this morning, this may be an
opportunity for us to get ahead of the problem, which is
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unusual in government and which I think would be a really
quite useful thing to do particularly in this area where
forces are moving so powerfully. I appreciate it.
MR. KLEIN: I think in the 4 years you served
as the Secretary of State's Chief of Staff, you were way
ahead of the problem.
MR. RATTNER: Steve Rattner, of Lazard Fr�res,
and we're, I guess, reasonably active in the merger area,
and deal almost every day with a lot of issues Joel was
looking to, and I'm sure we'll talk about it a little bit
later.
MS. BAIRD: I'm Zoe Baird, President of the
Markle Foundation. It is a pleasure to participate in
this. I too join Tom in complimenting you in being ahead
of the problems and thinking in advance about what
Government policy ought to be, rather than responding to
the next crisis we may have, like when we have a merger
situation that someone attempts to block. So I
appreciate the approach you're taking.
MR. RILL: Jim Rill. I'm with the law firm of
Collier, Shannon, Rill, and Scott, and I would like to
commend Joel on the increasing activity of the Department
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in international antitrust and on the steps that have
been taken to enhance global cooperation. It has been
truly remarkable over the last several years.
I also, as is the case with Eleanor, am very
excited about the charge you've given us and fully
anticipate a full-court effort to make the contribution
you look for.
MS. STERN: Paula Stern. I guess I bring the
international trade piece and economic analysis to the
table, having chaired the U.S. International Trade
Commission and spent a great deal of time in the trade
field.
I would like to introduce everyone to Merit
Janow who is the Executive Director of the Committee and
who has already been bearing a great deal of the burden
up until now. And, Merit, why don't you say a few words?
MS. JANOW: I am a professor of international
trade law and policy at Columbia University. It is a
great honor for me to be part of this effort which is
enormously timely and deals with problems of real
immediacy, not only for the U.S. economy but the global
economy. Although discussions on these subjects are
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occurring around the world, I know of no other effort of
this sort to bring together diverse leadership and
experience, and so I'm delighted to be part of this.
It's a great pleasure. Thank you very much.
MR. SIMMONS: I'm Dick Simmons, CEO of
Allegheny-Teledyne, a producer of metals and composites.
I've had the unique opportunity over the last 25 years to
appear before Paula many times, as well as having had the
perspective of the way that the world is changing with
regard to trade and competition. So I welcome this
opportunity. I appreciate the fact I was asked to serve.
I'm sure I will learn a great deal about this blurring of
the lines between trade and competition.
MR. THOMAN: I'm Rick Thoman. I'm Chief
Operating Officer of Xerox. I think when you postulate a
period of 10 to 20 years, one of the things that has been
most interesting to me is the degree technology has
changed these issues. If you think about the Internet
and consumer sales over a 20-year period, how do you talk
about -- there is a whole series of technology issues
that I think will be relevant that I'm most interested in
learning with you.
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MR. GILMARTIN: I'm Ray Gilmartin with
Merck
and Company. We have a number of joint ventures as do
many of us, across borders with French and Swedish firms.
Also our industry has been consolidating with a couple of
very high profile merger opportunities or about-to-be
mergers which didn't occur, such as the Glaxo-Wellcome/
SmithKline-Beechum opportunity. I think they're very
representative of the global nature of our industry and
the kinds of business combinations and relationships that
will occur over time -- and also since we are all
pursuing emerging markets which have varying rules and so
on, market access and competition is also of very keen
interest to us.
So given our experience in these matters, we
look forward to contributing what we can and, at the same
time as the others have said, learning a great deal.
MR. JORDAN: I'm Vernon Jordan. I'm here
very
simply because Joel sent for me. Having said that, I
want to say I'm happy to be here. I'm glad that he sent
for me.
Joel, what you did not tell us in your opening
statement is, after you have drained us of our intellect
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and our creativity and productivity, you didn't tell us
what you're going to do with all of this or what you
anticipate doing with all of this. Is it going to end up
on your bookshelf or the Attorney General's bookshelf?
Are the results going to be publicly distributed? What
is going to happen?
MR. YOFFIE: I'm David Yoffie, professor,
Harvard Business School. I have studied international
trade, written several books over the last 20 years. I
also wanted to second what Rick Thoman said. We can
easily get trapped and focus on commodity businesses and
the existing economy as we've known it for the last 50
years. And we're at a major crossroad where intellectual
property, information technology, is transforming almost
every aspect of international trade and competition. So
I think it will be critical for us to think about
intellectual property questions because that's where a
lot of the future of trade dynamics are ultimately going
to be vested.
MR. RILL: Joel, I don't know whether you want
to answer Vernon's question now or whether you want to
proceed by --
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MR. JORDAN: I want him to answer my
question.
MR. RILL: -- letting the response to the
question unfold in the next 18 months?
MR. KLEIN: I'll answer it. I would say there
are three things I expect of the work product: a very
thorough report on these issues. Already, obviously,
there are some interesting ideas that have surfaced in
terms of changing technology. The work product of this
Committee will not only be published and disseminated,
but it will be a definitive statement with respect to
what is going on with these issues in the world. I think
our staff is already pulling together their -- with
Merit's direction -- is pulling together a great library
and so forth.
I hope, Vernon, it will certainly inform, if
not define, policy of the Justice Department with respect
to these issues. And if that would occur, I'm hoping to
take it and see if we will define the Administration's
policy with respect to these issues.
Our timing is such that realistically we ought
to look to somewhere in the Fall of 1999 to complete
these reports and analyses and then to let us, with your
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assistance, then make this the basis of policy. I don't
think this is simply an academic study.
MS. STERN: It's also your time.
MR. KLEIN: It gives me great pleasure to be
here with so many people on our staff, and we have one of
our colleagues from the Federal Trade Commission with us
as well this morning to report to you on these issues,
and I do hope that in the course of this we will have
time for questions and answers. That would be helpful.
First I would like to introduce Chuck Stark who
is two seats to my right. Chuck is the Chief of the
Foreign Commerce Section of the Antitrust Division. The
Foreign Commerce Section is actually the part of the
Division that coordinates all of our international
efforts, and Chuck is a 25-year career veteran of the
organization. He's been Chief of Foreign Commerce for
some 10 years. He's not only well-written but well-known
in all of the international matters we're discussing. I
thought it would be helpful if he could give you some
background of where we have been and where we are.
Chuck.
MR. STARK: Thank you, Joel, and thank you
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members of the Committee. Joel has identified vividly
the issues as they face us today, and what I'm going to
offer is some background on how we've gotten where we are
today in three areas of particular broad interest.
First, I'll offer some history of and
description of how our U.S. antitrust laws apply in the
international setting. Second, I'll describe how the
U.S. antitrust regime has over the years interacted with
other governments because, of course, everything we do in
the international area potentially impacts on the
interest of other governments, and other governments
have, in many instances, felt very strongly about that
impact.
Finally, I'll say something very briefly about
the way we, the antitrust agencies, and the Antitrust
Division in particular, interact with other parts of the
U.S. Government in the increasingly important area in
which antitrust policy and trade policy come together.
The intensity and importance of the
international dimensions of U.S. antitrust policy is
greater today than it ever has been. But it has to be
noted, to understand where we've gotten today, that the
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application of our antitrust laws to international
matters is not something that has emerged only recently.
In fact, it goes back to the very beginning of our
antitrust laws -- to the Sherman Act in 1890 which from
the beginning has applied to not only restraints of trade
and monopolization of our domestic markets, but also
international markets.
In early antitrust cases -- for example, the
American Tobacco Trust Case, which involved a global
arrangement to divide world markets in tobacco, -- the
Supreme Court confirmed the application of antitrust laws
in this kind of setting.
But the case that really set the tone for the
law's modern application didn't come until 1945: the
famous Alcoa case which established the so-called effects
test in U.S. antitrust law. Basically, it established
the proposition that even foreign conduct by foreign
firms is within the sweep of the American antitrust laws
if that conduct was intended to have an effect on U.S.
commerce, and it did have an effect on U.S. commerce.
Now, at the time of the Alcoa decision,
in
1945, U.S. antitrust was, as a practical matter, the only
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game in town when it came to antitrust. That's not to
say we had the only antitrust law in the world.
Historically, Canada's antitrust law is one year older
than the Sherman Act. But as a practical matter,
antitrust was an American monopoly well into the post-war
period.
Because of that, and because the U.S. was
unique in the vigor of our attack through the antitrust
laws on international cartels, those attacks frequently
came up against the interests of foreign governments.
What were efforts to preserve competition in the world,
from our perspective, were often seen by other countries
as efforts to frustrate their mercantilist policies.
Because of that, for many years antitrust
enforcement in the international context was more a
matter of constant confrontation than a matter of
cooperation, as it's come to be today.
Before I describe that in more detail, let me
describe some of the ways in which U.S. antitrust laws do
apply in international commerce. The general proposition
is they apply to conduct wherever it takes place if it
has a direct, substantial, a reasonably foreseeable
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impact on U.S. commerce.
That can include international or foreign
cartels that raise prices to U.S. consumers or allocate
markets. It can include transnational or even foreign
mergers or joint ventures that affect competition in the
American market. It can include with increasing
importance, as was recognized and noted by some of the
panel members, intellectual property licensing
arrangements, and it can include anticompetitive conduct
here or abroad that limits the export opportunities of
U.S. firms. I'll say something more about this last
proposition.
The application of U.S. antitrust laws to
export restraints -- that is to say, anticompetitive
conduct abroad that impedes market access by U.S. firms -
- has been part of U.S. law as far back as you can go.
But in terms of enforcement policies, for the U.S.
agencies or at least the Antitrust Division, it has been
a subject of some variation.
As nobody around the table knows more vividly
than Jim Rill, there was a time in the 1980s when the
U.S. Department of Justice took the view that,
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notwithstanding the broader scope of the law, as a matter
of enforcement policy the Department would not bring
cases unless there was a direct impact on U.S. consumers.
Jim Rill undertook to reevaluate that policy at a time
when we were deeply involved, under Jim's leadership, in
the Structural Impediments Initiative talks with the
Japanese Government.
We had as one of our principal objectives in
those talks convincing the Japanese to more vigorously
enforce their antitrust laws, which were already on the
books but which were not aggressively enforced. This
raised the issue as to the extent our own antitrust laws
could be used to reach export restraints, one of the
kinds of conduct about which we were concerned.
Jim reversed a policy that had been in place
for some four or five years at that time and announced we
would no longer limit ourselves in this way, and that we
would, in appropriate cases, use our antitrust laws to
attack anticompetitive foreign conduct that restrained
U.S. exports.
It should be noted that this had long been part
of the law, though it had never been the main thrust of
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U.S. antitrust enforcement in the international area.
The main thrust in terms of number of cases and
number of investigations we have brought has never been,
for quite obvious reasons, on the kind of conduct
impacting on exports from the U.S. These export
restraint cases always had peculiar problems both in the
terms of our ability to get evidence abroad, in terms of
being able to get cooperation by foreign governments --
since we're talking about cases that are and have always
been very controversial with foreign governments -- and
in terms of our ability to impose and enforce remedies
abroad. But this is an important area, and I know Joel
intends to speak about it in greater detail later this
morning.
I started to say that U.S. antitrust was at one
time the only game in town. International antitrust
meant extraterritoriality. That was a term that was
applied by those resisting it rather than by us in our
own description of what we were doing.
But that has changed radically in the current
world. When we were the only game in town that was
controversial. Today some 70 countries around the world
Page 36
have antitrust laws -- antitrust laws that are, it has to
be said, enforced with differing degrees of vigor and
sophistication.
But beginning especially in the late '80s, with
the fall of communist regimes and fall of the central
planning paradigm and the more or less universal
appreciation of marketplace economics as the ordering
principle for a global economy, antitrust has come to be
recognized as an important cornerstone of the regulatory
structure that has come to underlie this marketplace
system, both nationally and at the international level.
Increasingly, as the economy has become more
global, more and more countries have come to recognize
that antitrust enforcement is not an exercise that can
realistically be limited to conduct that occurred
exclusively within one's own borders. What was once
looked at as an aggressive and imperialistic exercise of
jurisdiction is now the mainstream view of most countries
that have serious antitrust regimes. It is not the
universal view, but on this issue the U.S., I would say,
is a leader and at the same time a mainstream player in
the antitrust world today.
Page 37
The U.S. has developed, in order to implement
this, cooperative relationships that we look at today as
an increasingly important cornerstone of our program.
These agreements with foreign governments go back
initially to some that were designed to deal with the
conflict arising out of our enforcement efforts when
these were a more controversial item.
Our early agreements with Canada and Australia
in the early 1980s were really designed to alleviate the
kinds of conflicts that arose when our anti-cartel
activities ran up against efforts by foreign governments
to protect their own cartels.
It's ironic when we look at the world today,
that some of these early controversies were with
countries like Canada and Australia. Some of the most
intense controversies, indeed, even reached the level of
Presidential-Prime Ministerial discussions, in those
early days with those countries.
Canada and Australia are among our closest
partners in antitrust enforcement in today's world, and
that is really a concrete reflection of how the world has
changed over the last decade and a half. We now have
Page 38
antitrust agreements in place with Australia, Canada,
Germany, and the European Communities.
The 1991 European Communities Agreement was
the
first of what we tend to think of as our modern antitrust
agreements. It was hammered out in its key elements by
Jim Rill and Sir Leon Brittan, who had the competition
portfolio in the European Commission at the time. It was
the first of the modern agreements in the sense that it
looks not only to conflict resolution issues but it also
looks ahead to the need to cooperate and coordinate in an
increasing number of cases that will be of common concern
to antitrust enforcers on both sides of the Atlantic
Ocean.
Up through the US-EC Agreement, and this
applies to all of our earlier agreements, there were
important limitations. That is, none of these agreements
provided for what has become a more and more obvious need
-- the ability to share evidence with foreign antitrust
agencies that are looking at the same deals we are
looking at, as well as the ability to get assistance from
foreign antitrust agencies in getting evidence abroad.
All of these needs were subordinated to
Page 39
provisions in our law and foreign law that made it
impossible to leap over confidentiality protections in
order to share evidence, even when there was a clear and
common interest in doing so.
Now we recognize increasingly, as Joel has
described, that we need that kind of ability. We need
the ability to get evidence from our foreign
counterparts; we need the ability to get evidence from
foreign countries in order to effectively enforce our own
antitrust law. We recognized a few years ago, under Anne
Bingaman's leadership, that in order to get that, we were
going to have to be able to offer reciprocal arrangements
to our foreign counterparts.
That recognition led in 1994 to legislation
called the International Antitrust Enforcement Assistance
Act of 1994, the IAEAA, something we can say because we
have been practicing it for a long time.
This is important legislation which allows us
to enter into mutual assistance agreements with our
foreign counterparts. These agreements have to build-in
very strict protections against the improper use or
disclosure of confidential business information, and
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require us to ensure that our giving assistance in each
particular case is consistent with our national interest.
Subject to these important protections, the
IAEAA gives us a very powerful tool to cooperate with our
foreign counterparts in exchanging and obtaining evidence
in order to meet our mutual need to enforce the antitrust
laws in these global economies.
Just last year, we announced the first of these
agreements with Australia, and we hope this will be the
first of a number of agreements around the world.
We've also negotiated a path-breaking new
agreement with the EU -- really an elaboration of a
provision that first appeared in our 1991 US-EC Agreement
-- built on the concept of "positive comity." That term
was coined at the time we negotiated the 1991 agreement
with the European Communities. It simply means that when
there's anticompetitive conduct abroad that affects the
interest of the jurisdiction in whose territory it is
taking place and it also affects our jurisdiction, we can
go to that other jurisdiction and say: You are better
placed to deal with this conduct than we; it affects your
consumers; it affects our interest -- perhaps, in
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particular, our export interest. You're in a better
place to deal with it than we are, and we are prepared to
help you deal with that conduct rather than undertake the
difficult burden of investigating it ourselves if we have
the confidence that you can and will adequately deal with
it.
This is in our '91 agreement with the EC, and
we have now worked out -- subject to final approvals and,
we hope, very soon to be put in place -- this new
agreement that will elaborate on this concept and put
much more stringent assurances that this will work with
the European Union. It was spearheaded by Joel and his
counterpart on the EU side, and we think this concept has
tremendous potential in the future where conditions for
its use are right.
Very briefly, let me say something about the
way in which we work on a multilateral level. Joel has
referred to the OECD as the most important forum
historically, because it's a forum in which
industrialized countries with established antitrust
regimes get together, at senior levels, to work out ways
to work more effectively together. Recently at the OECD,
Page 42
as Joel described, officials met and reached an agreement
on international cartels.
I'm not sure Joel mentioned that this was a
U.S. initiative. It was hammered out in a working party
that Joel chaired and into which he put tremendous
personal initiative. It was a pleasure to work with him
on that, an initiative which will have an important
impact in the years to come, I think.
We are very cognizant and committed to the work
that is going on in the WTO, looking toward how to deal
with the interface between trade and competition
policies, and examining how that work should proceed in
the future. This area is a most important one and an
area that is unresolved.
Finally something about how we work within the
U.S. Government in the area of trade and competition
policy. This is an interface which is increasingly
important but one with which we and our counterparts on
the trade side have been dealing for many, many years.
We tend to come to it because, as an Executive
Branch agency, we are part of a network within the
Executive Branch which deals with the intersection of
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international trade and competition policy at both the
policy and legal level. We come into this in part
because the many arrangements that our trade negotiators
work out are arrangements on which they need advice to
make sure they are consistent with U.S. antitrust laws.
It is sometimes observed that one person's
solution to a trade problem is another person's cartel.
We work with other agencies in making sure these
arrangements fall on the right side of that line, and it
is an important function on which we provide advice at
the policy level, too.
There has been a growing number of instances in
which U.S. firms have identified the problem of
anticompetitive behavior abroad as an impediment to their
ability to fairly compete in foreign markets. This is an
area where the intersection of trade policy and
competition policy is not yet fully developed, where both
we and our trade colleagues have an important stake, and
where we have worked closely to advise our trade
colleagues and find solutions to come to optimum
solutions which bring together and reconcile the
diversity of interests that the United States has in this area.
Page 44
The Kodak-Fuji dispute is the most recent and
most well-known and vivid instance in which we worked
together, but it is not a unique instance at all.
This background, I hope, will help set the
stage for what we're talking about this morning and over
the next 18 months.
MR. RILL: Joel, if I may. Chuck, thank you.
Let me tell those who don't know that Chuck is unduly
modest regarding his own role in the 1991 US-EU
Agreement. The real work was done between Chuck and his
counterparts and the competition director of the EC.
Chuck still has his job; his counterpart is off somewhere
else. I don't know what that says.
Chuck, I think that was extraordinarily
valuable to me, and I hope to my colleagues. I wonder if
it would be possible, while the thought still occurs to
me, if you and the Division could put together not merely
what Chuck said but some kind of briefing memorandum that
gets into the history of the global competition
involvement of the Antitrust Division? For those of us
who are lawyers, maybe also an appendix with cases that
Page 45
basically summarizes the story, perhaps from at least
1945 forward, so that we can have before the Committee
the context in which we're working, at least insofar as
the Department of Justice is concerned. We tried to put
some of that together back in the early '90s. I think
there is a lot written but it is scattered. And if it
were put in one place, it would be very helpful.
MR. STARK: We'd be happy to do that.
MS. STERN: May I ask at some point if you
could provide me, at least the Committee, the cases, the
list of cases -- Joel, you mentioned the increasing
international flavor that -- and if there is some kind of
a list that can give us that, it would be helpful. Thank
you.
MR. KLEIN: I think you'll get more of that as
we go forward and as the people give us all the
background material on it. Thank you, Chuck.
Let me now introduce Gary Spratling who is the
Deputy for Criminal Enforcement at the Antitrust
Division. Gary is a 27-year career veteran who has
prosecuted many cases and is widely viewed as the most
decorated career official in the Antitrust Division. He
Page 46
has just received a special one-time award today, given
out by the Attorney General, for his work in criminal
enforcement in the Department of Justice.
He was selected this year by President Clinton
for the highest Presidential rank award given by the
United States Government. He has been chosen as
antitrust lawyer of the year in California this year. I
only selected this year because it was actually a bad
year and I didn't want to take up all your time. He is
an extraordinary public servant. While working for the
Division, he also served as mayor of Tiburon where he
lives and --
MR. JORDAN: Where?
MR. KLEIN: Tiburon. Is that acceptable?
MR. JORDAN: I just never heard of it.
MR. SPRATLING: You've missed a wonderful
city.
MR. KLEIN: It's a place on the hill that
overlooks the bay in San Francisco. And the only thing I
would say is really his efforts and the people working
with him in busting open these international cartels have
been truly extraordinary, and he's going to have a chance
to report in detail on this.
Page 47
But I know, from the Attorney General's point
of view and throughout the Administration, his work is
sort of featured as a great career prosecutor. It is my
pleasure to introduce Gary Spratling.
MR. SPRATLING: Thank you, Joel. Vernon
said
he was here because Joel sent for him. I'm here because
Joel told me to be here. But, I want to tell you it
would be hard to overstate how much I was hoping Joel
would tell me to be here. I'm absolutely candid when I
say I'm honored to be sitting at a table with the rest of
you.
The Antitrust Division's criminal enforcement
program has gone international, and it's gone
international in a big way. We haven't yet developed a
recruitment poster that says "Join the Antitrust Division
and See the World," but if we did have such a poster, it
would fulfill its promise.
We look at the enforcement of the United States
antitrust laws against international cartels as one of
our highest priorities. We take that priority very
seriously. And the reason we take it so seriously is
because we have found out in our investigations and
Page 48
prosecutions that international cartels pose a greater
threat to American businesses and consumers than their
domestic counterparts. And they do so because they are
generally more sophisticated and they have much broader
scope in terms of geographic area covered, in terms of
the number of victims, and in terms of the amount of
commerce affected.
And so we have trained a huge amount of our
resources into the investigation and prosecution of
international cartels.
Let me pass in both directions around the table
a few facts about our international enforcement effort.
You will see, in looking at the first full
subtitle, "Grand Jury Investigations," that we currently
have 25 sitting Federal grand juries looking at
international cartel activity. That, of course, is the
highest in the Division's history and under any standard
is an extraordinary number of grand juries looking at
separate international cartels.
The subjects and targets of these
investigations are located in over 20 countries on five
continents. But even those numbers, as impressive and
Page 49
surprising as they are to someone like me in the
enforcement field for a long time, still don't capture
the real geographic scope of cartel activity currently in
the world.
To give you a better idea of that, we've
prepared an exhibit.
MR. KLEIN: See what happens when you have a
criminal trial lawyer.
MR. RILL: That reminds me of the Division's
Pacific Coast Office.
MS. STERN: I thought it was very California,
very Tiburon.
MR. SPRATLING: This is a map of the locations
of international cartel meetings affecting United States
commerce. Each numbered location is a city in which a
meeting occurred among cartel members to fix prices,
allocate volume, carve up territories in the world that
affected United States commerce. We have colored in
yellow those countries where meetings occurred and
provided to you a list. I won't go over the list,
obviously, of the 60 cities, you can read those at your
leisure.
Page 50
But one thing to appreciate when you look at
this chart of 60 cities where cartel members have gotten
together and divided up the world in order to fix prices,
is that we have only listed the cities in cases we've
already brought or in cases where prosecution is
imminent. We haven't listed the cities of all the other
investigations that we have under way; if we did this
would be a much larger list.
Some of the cities have a lot more meetings
than others. Paris is a great place for a meeting. And
Geneva, I don't know what it is, but there is something
about Geneva, there are a lot of meetings there as well.
You can see most of the countries of Europe have hosted
these meetings. The United States has certainly hosted
them as well. Does that give you a feel of the amount of
this activity that is going on in the world and the
dimensions of the investigative effort that we're
undertaking in order to prosecute these?
MR. JORDAN: It does make you appreciate Paris
more, doesn't it?
MR. SPRATLING: The volume of commerce
affected
by these conspiracies is also very large. In a number of
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our investigations, the volume of commerce affected is
over $1 billion a year in the United States and certainly
a lot more than that worldwide.
That's true, for example, in the case that we
filed just this last Monday, a case in graphite
electrodes. That's the first of the cases to be filed in
that investigation and we expect there will be a number
more. And in a large number of our investigations, more
than $500 million in commerce per year is involved. In
over half of our investigations, over $100 million in
commerce is involved.
And you multiply that times the number of
matters that we have under investigation. And when Joel
said in his introductory remarks that it is his belief
that international cartels are costing American consumers
billions of dollars a year, it is very easy to
extrapolate and make the calculations to come to those
numbers.
I personally think that the statistics that
give the greatest appreciation for the expansion of our
international enforcement effort are the statistics about
the number of foreign defendants, both corporate and
Page 52
individual, in our cases now compared to previously.
If we go back to 1991, the number -- the
percentage of our corporate defendants that were
foreign-based was 1 percent. The number of individual
defendants that were foreigners was zero percent.
If you go to the fiscal year 1997, those
figures are 32 percent of corporate defendants were
foreign-based, 32 percent of individuals. And if you
look at the first five months of this fiscal year, which
is as far into the fiscal year as we are -- our fiscal
year starts October 1st -- counting the case we filed
yesterday, 48 percent of corporate defendants are
foreign-based and 29 percent of individual defendants are
foreigners.
MR. JORDAN: To what do you attribute that.
MR. SPRATLING: If you'll allow me, Vernon,
I'm
going to get into the reasons we think that's the case,
and the reasons why we're successful in just a couple of
minutes.
MR. JORDAN: Okay.
MR. SPRATLING: During the break I'm going to
hand each of you an 8 and a half by 11 copy of the map,
Page 53
but I won't take the time to pass that around right now.
I do want to pass around another exhibit which I'll pass
in both directions.
This exhibit we think demonstrates the
magnitude of the threat to American businesses and
consumers that are represented by international cartels.
The largest cartels, because of the way our Federal
Sentencing Guidelines work, that is, those that affect
the greatest numbers of consumers, are the ones that
result in the largest fines against the individual
companies.
This chart shows the Sherman Act violations
yielding a fine of $10 million or more. In one sense it
might be misleading because the Archer Daniels Midland
fine really represents two fines -- that $100 million
fine is comprised of separate fines of $70 million and
$30 million. They're penalties for violations in the
lysine and citrus acid conspiracies. This represents --
MR. RATTNER: The earliest case in this is late
1995?
MR. SPRATLING: That is the first time we have
a $10 million fine, ICI Explosives. You see the second
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fine under the dotted line, that was late August 1995.
That was a domestic case. In Dyno Nobel, on the next
line, the total fine there was $15 million. There were
separate counts, one for 10 million, one for 5 million,
and that case was filed in September of '95.
MS. BAIRD: Is this complete since then or are
all the fines over 10 million?
MR. SPRATLING: These are all the fines and
that includes the $20 million fine obtained yesterday
against Fujisawa, about five down on the list, a Japanese
company. So this shows all the fines.
MS. BAIRD: Here is my question: These fines
are actually small compared to security fraud cases.
Does the statute need to be changed? Are the fines in
the Sherman Act cases just much too small? Is that a
question we ought to look at here?
MR. SPRATLING: Joel and I are formally
requesting the Sherman Act fines be increased from 10 to
100 million -- that is reported today in U.S.A. Today and
Reuters and other publications. Yes, we do think the
fine is too small, and you have pitched such a softball
to me, if I tried to hit it, that I would spend much of
Page 55
my time on it. Yes, it is too small and all of these
fines would be larger, all of these fines at $10 million
or above would be larger if we weren't forced to adopt a
separate methodology to get this fine level other than
the methodology provided under the Sentencing Guidelines.
I have to take one minute to explain because I see some
puzzled looks.
Under the Sentencing Guidelines, the fine
against corporations is based upon volume of commerce.
However, the Sentencing Guidelines' calculation is capped
by the statutory maximum which is either the $10 million
Sherman Act fine or double the gain to the conspirators
or double the loss to the victims, whichever is higher.
Anytime, under the existing statute we ask for fines
above $10 million, we are either forced to prove or
required to negotiate with the defendants what double the
gain or double the loss is likely to represent, and
explain that to the court in order to get above it.
The effect of that is that the larger
corporations, and those that affect the largest amount of
commerce, and those that have the most victims in the
United States, are the ones that are treated, relatively
Page 56
speaking, the most leniently under the Sentencing
Guidelines because they are taking the benefit of the cap
of $10 million in the statute, which has not kept pace
with our prosecutorial activity.
And something of which I'm sure, when we
amended the statute in 1990 to $10 million and came out
with the original Guidelines in 1991, no one at that time
-- and I certainly worked on it and Jim Rill worked on it
who was such a tour de force in getting the Sentencing
Guidelines for antitrust so they would be based on volume
of commerce -- none of us anticipated we would be at this
stage today where every one of our international cartels
would be far above this max.
I did get side tracked more than I wanted to.
MS. BAIRD: I appreciate it. Thank you.
MR. SPRATLING: A point I wanted to make
with
this chart, my main point was if you count the very first
entry as two instead of one, that is two fines instead of
one, look at the countries where the defendants reside or
their parents reside that have engaged in the
international cartels. Out of 15 entries, counting the
top entry as two, 12 are foreign. Again, it indicates
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the dimension of the problem and seriousness of the
threat to the United States.
MS. FOX: I wonder if you try to estimate the
cost of international cartels to world consumers as well
as the cost to U.S. consumers? If the fine is based only
on the impact on U.S. consumers, we may not deter the
cartel.
When the U.S. Justice Department prosecutes a
world cartel, it is a kind of surrogate attorney general
for the world.
MR. SPRATLING: It is a very complex issue
because the Sentencing Guidelines are silent as to
whether or not you look just to U.S. commerce or look to
foreign commerce as well. The Antitrust Division has
taken the position that we can consider world commerce in
addition to U.S. commerce in devising an appropriate fine
under the Guidelines. Rather than including foreign
commerce as part of the calculation, we look at it as a
factor in aggravation.
And, in fact, in two recent cases, we have
increased the level of the fine, with the consent of the
defendants, to account for the large amount of commerce
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that occurred outside the United States because, in our
view, we found that commerce in the United States
understated the role of the conspirator in the
conspiracy.
This is especially true in a market allocation
conspiracy, where a defendant that you're charging is the
one that agreed pursuant to the cartel arrangement not to
sell much in the United States. Absent that agreement,
of course, the cartel would not have been as effective in
the United States.
So our argument is, if you would have been
competing rather than participating in the cartel, you
would have been selling here. The fact that you had very
small sales thereby eliminates the volume of commerce as
the relevant criteria. We have to add to that the
worldwide sales as another criteria to consider.
You're absolutely right. We do look at a
worldwide effect as well as -- and we -- and if you're
interested, I can give you citations of those two cases
and tell you what they are.
The next factor I wanted to point out to you is
record fines, and here again I'm passing a chart around the table.
Page 59
MR. SIMMONS: Just to complete the record, my
firm is a very large customer for graphite electrodes, so
we are following the announcement this week with
interest. We can tell you that it has been very
interesting for a very long period of time that certain
foreign producers of graphite electrodes just didn't want
to market it in the United States. But I would like to
say to Zoe's comment, this, of course, makes no attempt
to include the civil suits that will be filed for treble
damages by any number of customers who may have been
injured by this practice.
MR. SPRATLING: That's correct. This chart is
just a bar graph showing the Division fines. In 1997 we
collected $205 million in criminal fines. That was a
five-fold increase over the previous high year and,
counting the 29 million that was agreed to in the case we
filed Monday in graphite electrodes, and the 20 million
we obtained from Fujisawa yesterday, we collected another
50 million this week. As of yesterday, we're at $130
million as of the first five months of this fiscal year.
We're on a pace to obtain greater dollars in fines.
Page 60
MR. SIMMONS: Are you defined as a profit
center?
MR. SPRATLING: That's a point Joel would like
to make.
MR. KLEIN: Our budget is just under $100
million, and we bring in total revenues of $300 million.
MR. RILL: This does not go to the Department?
MR. KLEIN: The fees do, the criminal fines
don't. They go to victims' compensation.
MR. SPRATLING: And, in fact, it was the fines
collected by the Division last year that paid for the
Oklahoma City bombing people to travel to Denver for the
trial. Our fines go into the Office for Victims of Crime
and the funds for victims across the country.
I have some bullet points in Part B in the
initial handout that are intended to address the question
that Vernon asked as to why is this happening now. And
Joel has reminded me of the time and told me to speed
this up. And so what I'll do is I'll try to hit each of
these six points in a minute or less. Is that okay?
The globalization of the economy, I don't have
to tell you about that. You are all aware of the
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statistics that indicate the tremendous increase in the
globalized nature of the U.S. economy. And while that
has all the benefits that we all know, it also provides
the opportunity for cartel activity to occur to victimize
American businesses and consumers. That is an
environmental factor that has to be considered.
The Division has reallocated its resources and
changed its emphasis to place great weight on the
prosecution of cartels.
The amnesty program -- I should spend more than
15 seconds on because that has been an extremely
important aspect of our international enforcement
program. The Antitrust Division's amnesty
program is one
that provides that a company which comes forward and
gives us information on its involvement in an
international cartel may avoid criminal exposure in
either of two situations: where we have an investigation
already and where we do not. Corporations that qualify
for amnesty may avoid criminal liability; and all
officers, employees, and directors who come forward with
full cooperation can also avoid any type of criminal
liability in the matter.
Page 62
And several of our international cartel cases
have been broken up by amnesty applications. In the past
I have been completely unable to talk about any but two
of them and have been unable to make comparisons as to
the tens of millions of dollars that companies save by
coming forward rather than waiting until subsequent
prosecutions occur.
But an unusual thing has happened and that is:
Two different companies in the last six months have each
issued press releases as to the fact that they came
forward in the amnesty program. There are a lot of
reasons for that, which is the subject of another
discussion.
But in any event, in the graphite electrodes
case that we have now mentioned a couple of times around
the table, the Carbide/Graphite Group came forward and
participated in an amnesty program, the first company to
come forward, and obviously paid zero dollars in fines.
The first company to be prosecuted, a cooperating
company, on Monday agreed to pay $29 million in fines,
and so you're comparing $0 to $29 million.
The company that agreed to pay $29 million has
Page 63
only 18 percent of the market, and so you can imagine
what exposure the other firms have. That $29 million is
a reduction from $75 million, which would have been the
fine had they not been cooperating.
In another example J. Ray McDermott came
forward in the marine construction cases. They obviously
paid zero dollars in fines. Heere Mac, the Dutch
corporation, paid $49 million in fines.
Cooperation with foreign antitrust authorities,
Chuck has said a lot about that. I think there will be
more said about that.
Let me -- Joel mentioned one thing, however,
that I might amplify on. And he mentioned the importance
of the simultaneous execution of the compulsory process,
namely search warrants.
We have been successful in getting that in some
cases. For example, and the example that is most public,
is the prosecution of the international conspiracy in the
area of plastic dinnerware, where on the same day and, in
fact, simultaneously on the same day, 50 Royal Canadian
Mounted Police and FBI agents executed search warrants in
Montreal, Minneapolis, and Boston. This resulted in such
Page 64
powerful evidence that five corporations immediately came
in, entered guilty pleas, and paid a total of $9 million.
And seven individuals came in and pled guilty, including
two Canadian nationals, each of which agreed to serve
jail time in the United States jails.
An extraordinary result of the power of
evidence, if you can get it that way, as distinguished
from the lysine investigation where executives of
Ajinomoto -- I'm able to say this because these are both
public examples -- where executives of Ajinomoto ordered
destruction of documents in Japan at the time the search
warrant was executed in the United States. And the
sodium gluconate investigation where they ordered
destruction of documents at the time of the search
warrant.
Another important aspect of cooperation,
besides the fact of cooperation, is the psychological
impact on targets of investigations. To know that
separate countries are cooperating in the investigation
sends a message: There is no place to run and nowhere to
hide. And that has a tremendous impact on their
incentive to cooperate.
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We have a memorandum of understanding with
the
INS. It is the only such memorandum in existence. There
is no United States Attorney's office that has it and no
other division of the Department of Justice that has it.
It provides for preadjudication of immigration relief for
foreigners who decide to cooperate with us and plead
guilty.
What that means is that the INS has agreed, for
antitrust crimes only, to tell a foreigner who is
anticipating cooperating in the investigation if he or
she will receive the immigration relief that will allow
them to travel unfettered to the United States in the
continued conduct of their international business if they
assist us in the investigation. This has been one of the
single most important developments in terms of an
incentive for individuals and their corporations to come
forward.
There has been a great increase in the
effectiveness of border watches. It used to be the
equivalent of buying a lottery ticket but now, through
new procedures, the INS is catching a lot of people at
the border, detaining them for questioning. We have
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procedures so we can have attorneys and investigators on
the spot immediately, and quite a number of these have
happened. And the grapevine has told counsel around the
world: If you're a target of investigation, you're likely
to be caught in a border watch.
The last point is a revitalization of a
partnership with the Bureau, something that was started
under Jim Rill and continued with Anne Bingaman and Joel
Klein. The Bureau, the Federal Bureau of Investigation,
last year, for the first time ever, made antitrust a
priority in white collar prosecutions.
There is at least one FBI investigator assigned
to each of our international investigations. In a
program that is unique to the Antitrust Division, they
are now assigning in-house FBI agents in field offices of
the Antitrust Division around the country to assist in
these investigations.
I took longer than I should have.
MR. RILL: I think we're into a discussion
period now and, Gary, that was a terrific review. Just a
couple of questions occurred to me and one observation.
The level of fines only begins to identify the effects of
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a particular international cartel, and I wonder if there
is any work that has been done that can be made public
that would identify an assessment of the effects on
business and on consumers, at least of the cartels that
we've prosecuted? I know in some of the informations and
indictments, allegations are made. I wonder if those
could be pulled together so we can get some parameters as
to the scope of what we're dealing with?
Secondly, by way of a couple of observations, I
think that what's not widely recognized is not only the
dimension of the issue, but also the impact that cartel
behavior has, not only on consumers, but on business.
Usually in the first instance it is the business customer
that's gouged by price fixing and market allocation
practices. I think that's a message that needs to be
carried forward not only here but in your effort to
increase the criminal fines to levels that are
commensurate really with penalties that exist in other
parts of the world.
Finally, and I think this is something we all
need to consider, and that is: The cosmetics or
pyrotechnics of global cooperation sometimes arise from a
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misunderstanding of the different enforcement systems in
the United States and other parts of the world.
The fact of the matter is that the United
States, Canada, and curiously enough, I think, Japan are
the only countries that have criminal sanctions directed
at antitrust violations, and the notion of cooperation in
cartel enforcement sometimes raises concerns. The fact
of the matter is, of course, that the European Community
has a penalty system related to the global turnover of
those caught in violation of Article 85, which governs
price fixing -- the Sherman Act's Section One counterpart
in the Treaty of Rome.
And I think there's some analysis to be done by
this Committee and perhaps explanatory work to be done by
this Committee and by yourself to demonstrate that the
asymmetry is not as great as it might appear. Those are
just observations to kick off discussion, perhaps. Any
reaction?
MR. SPRATLING: I would like to respond to
them
in reverse order. Any work that the Committee would do
on your third point would be very, very difficult. I
think it is something like a policy statement that needs to be made.
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Your second point about the impact of cartel
behavior on business customers, we do know that with
respect to any work on the effects of cartels -- you will
remember from your work on the Guidelines when you were
Assistant Attorney General, when the Sentencing Committee
asked for that kind of material -- it was and is
difficult to develop, except anecdotally. But with that
we were able to develop some information.
The same is true, only less so, in terms of
availability of any type of widespread evidence in the
international area. Our information is largely
anecdotal. Many times we don't even have that with
respect to international cartels, because so often we
can't get access to the documents that are located abroad
that would assist us in the analysis of overcharge -- so,
often we have to base it on the testimony of people as to
what the overcharge is, and then in negotiations with
defendants try to arrive at a mutual view of what might
be overcharge.
So, Jim, any type of widespread analysis or
statistical work on effects, I think, would be next to impossible.
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MR. RILL: On the other hand, the absence of
that kind of report tends to diminish the ability to
publicize the gravity of this kind of problem on the flow
of commerce and free enterprise.
MR. SPRATLING: What we have done is part of
Joel's testimony this afternoon. We have, without
identifying cases because of grand jury secrecy, we have
made public the amount of increases of prices during the
term of the conspiracy with respect to some
investigations. In one investigation, during a six month
period during the first year of the conspiracy, the price
went up nearly 70 percent.
MR. RILL: We would like to have that kind of
information.
MR. SPRATLING: We can certainly make that
available without identifying the product, just general
statements as to the evidence of amount of price increase
during the term of the conspiracy, and there is some
evidence about the proposed overcharge, proposed increase
-- testimonial evidence from individuals.
Of course caveats have to be issued with that,
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because many times these increases are occurring at the
same time the cost of production is increasing for people
as well. So we have to account for that as well. Jim,
we will put together some information.
MR. RILL: We have time before the break.
MR. YOFFIE: I had two questions and one
observation. The first question is: Do we have any
evidence or do we know whether this is a new problem or
just new awareness? When you look at this chart on
criminal fines, you see, obviously, this jump up. Of
course we know international cartels have been around for
hundreds of years. And the question is: Is this really a
function of some evidence that we know this is happening
more, or is it really a function of greater awareness and
greater prosecution? If you have any evidence of that,
that's actually quite helpful.
It could also be -- that they're declining. I
want to take the opposite point-of-view that they may
not, in fact, be more significant in the world, but we're
paying more attention to this and therefore we're seeing
these kinds of fines.
The second question gets back to Eleanor's
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point about thinking about this as a global problem and
thinking about fines being levied on a global basis. The
fundamental issue that we face in enforcement has to be
an incentive problem, which is: How do we give our
international partners an incentive to cooperate with us?
One way to think about that and, again, this is
both the question and the observation: Is there a way in
which we can think about defining the fines in terms of
global volumes and then sharing the fines with our
partners as a way of, on the one hand, taking the burden
off of our partners and having to actually do the
prosecution? We incur the costs and the risks. But on
the other hand, because they potentially know they're
going to be beneficiaries of the fines, they would
ultimately have more incentive to participate.
MS. STERN: Good business school thought.
MR. THOMAN: Then another jurisdiction fines,
then another jurisdiction, then you have not only more
fines but more protracted issues to deal with it, which
is another way of looking at the same issue.
MR. SPRATLING: Your first question is one that
is put to us often and about which those of us
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on the
criminal enforcement side have thought. I think it is a
combination of the two factors. I think there is an
increase in cartel activity. The fact that our economy
is becoming more globalized is what has provided the
opportunity for cartels. We're talking about cartels
that affect United States commerce, not cartels in the
world in general, but cartels that affect United States
commerce. Yes, we think it's on the increase.
But it is also the case, because we believe it
is on the increase, we have turned our resources towards
it and view it among our most important priorities on the
criminal enforcement side.
As to incentives for international partners to
cooperate and maybe defining the fines in terms of
worldwide volumes, let me tell you what is a potential
downside in that approach. If a corporation with an
incentive to cooperate by putting the matter behind it in
the United States -- because it wants no further
liability in the United States and because it wants its
executives to be able to travel to the United States in
continued execution of their international trade
responsibilities -- and the way to do that is to pay the
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fine that the United States is going to extract. There
is an incentive to come in and do that. But our fine
system is very tough on antitrust violators, and if a
company is considering coming forward and thought that
they had to pay that type of fine on their total world
volume, there would be no incentive for it to come
forward because of the likelihood, I think, as they do
their risk analysis, that there will be serial
prosecutions as well. We're aware of some of our matters
where the EC is also looking at them and the EC will
undoubtedly take a crack at it. I think you remove the
incentive for companies to come forward because in
essence they would be paying a 20-percent-plus charge on
their entire worldwide commerce -- which for a lot of
companies may well put them out of business.
MR. KLEIN: One quick thing. I think these are
some of the questions you and Eleanor raised and have
been the main thrust of the Division's work. I think one
of the most powerful deterrents is individual liability
and jail time. What we have which creates another
disequilibrium for us, we have the ability to lay that on
U.S. people but not on foreigners. In a weird kind of
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way, a $10 million fine on a corporation is one thing; a
senior executive going to jail three months will do it,
but the rest of it is just economics. That is one of the
problems we have right now. People cut us a $10 million
check as if it was a simple tariff on the transaction and
then go home.
I think that's where the disparate impact on
the international arena is a critical problem, and we
suspect, although we can't prove it, we suspect a lot of
these cartels are coming up in response to the fact that
as domestic protection is great now, some of the comforts
they had at home they would now like to have on an
international basis. So we don't see any reason to think
this problem is going to abate.
MR. RILL: There needs to be a point of
perspective on this too, picking up on Dick Simmons'
comment, we're not looking at the mandate, just at
criminal enforcement. We're looking at cartel issues and
one element of that is private enforcement.
One of the focal points of the Structural
Impediments Initiative -- SII -- is that paradigm; it was
an attempt to deal with the Government of Japan on this
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issue, as well as enforcement. I won't go into any
detail on that. It's not something that's uniformly
viewed with great enthusiasm, but private enforcement is
an important vehicle that we at least ought to consider
as an option among all the potentially effective attacks
on international cartel activity and what can be done to
enhance convergence. This may not happen tomorrow, maybe
not the next day, but down the road it is something I
think we ought to be considering.
MS. JANOW: May I clarify? Related to this and
to make sure I understand the inference you're making,
could you generally explain as to how cartel activity is
coming to the Division's attention? Is it primarily a
result of corporations coming forward to utilize amnesty
programs or is it arising because of private litigation,
or some combination? Is there a generalization you can
make to help us understand how cartels are surfacing?
MR. SPRATLING: I cannot think of a single --
Chuck, you think about this, too -- I cannot think of a
single cartel prosecution that we have brought that has
been brought to our attention by private litigation. We
are detecting international cartel behavior the same way
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we detect domestic conspiracies. A combination of
complaints of customers, businessmen, and consumers.
Lots of times it is disaffected members of the conspiracy
-- somebody may think that one conspirator is cheating on
the agreement and wants to get back at that conspirator.
The amnesty program has been very effective. A
company's senior management may not have been aware until
they conduct an internal audit, find out and say, "My
God, we're involved, we have to go forward and see if we
can get in the amnesty program."
MR. KLEIN: The biggest problem we have is
cartels that don't have U.S. members, and I suspect there
is a lot of this out there in the world. We just cracked
one recently in facsimile papers where it was a Japanese-
based conspiracy to raise the price. Foreign-based
conspiracies are going on a lot -- the people are
beginning to bang around how we're going to get those in
here. They take real money from U.S. businesses and
consumers.
MR. SIMMONS: One of the things I think you're
really leaning to is not just to identify the cartels but
to try to change the mind set for international companies
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so they don't want to participate in cartels. In my
experience over the past 25 years, it is very clear that
foreign business people were far less sensitive to the
antitrust laws of their own country, which were not
administered the way U.S. laws were.
I do think the ability to urge foreign
countries to sensitize their business people to a much
greater degree than they have been in the past could go a
long way toward making everyone understand the
consequences and the reasons why such practices should
not be carried out.
For any businessman around the table, if you
had side bar conversations in Japan or in Europe over a
20- or 30-year period, it is very clear that 10 or 15
years ago they didn't know what you're talking about.
They really didn't understand, and keep in mind Japan had
exactly the same antitrust laws that the United States
had, but they were observed in the breach rather than in
practice.
I think that our Government's Antitrust
Division can play a role in helping to educate foreign
governments in the need to sensitize business people.
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MR. STARK: I think that is a good observation
because it impacts not only on cartel activities abroad
but in the U.S. This goes to David Yoffie's question of
how much of this activity really represents an increase.
We have had a couple of cases where cartels in
the U.S. have originated, where U.S. firms have been
bought by foreign companies, European managers have come
to take over the now U.S. subsidiary and sat down with
their domestic managers and said, "First thing we need to
do is eliminate this competition, and I want you to go
out and contact our competitors and start getting prices
up." That occurred in more than one conspiracy that we
have successfully prosecuted.
MR. RILL: I think we could go on for quite a
while in this discussion. The time has elapsed, and we
have other important things to talk about today. We're
about 15 minutes late on a break. I don't know how long
you all are going to be around, but we have another
discussion time and might want to pick up this discussion
again. I have approximately 11:00. We can take the
break and cut it down to ten minutes and get back at
11:10.
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(Brief recess taken.)
MR. RILL: Joel, I know we have limited time.
I would like to get started again, and we're back to you
on international merger review. By the way, excuse me
one second. The reporter has asked we speak into the
mike, obviously, but she's having some trouble picking up
what we're saying.
MR. KLEIN: We're known as the soft spoken
Division.
Now, it's my pleasure to introduce actually a
joint venture presentation. This is a lawful joint
venture to present views on merger review. First, I
believe we'll hear from Charles Biggio. Charles has been
actively involved in all of our merger work and was
personally involved in the McDonnell Douglas matter on
behalf of the Administration.
With Charles is George Cary, who is the Senior
Deputy Director of the Bureau of Competition at the
Federal Trade Commission. George has had a long,
distinguished career. Why don't we start with you,
Charles?
MR. BIGGIO: Thanks, Joel. It is a pleasure
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for me to be here. Years ago as a law student at
Fordham, my antitrust professor had made a reputation as
one of the few people in the old days who was interested
in international antitrust. It is a different world now
where it seems like everybody is interested in
international antitrust.
Consistent with our long and amicable history
of resolving disputes between the FTC and DOJ, we have
struck on dividing our time up this morning, and I'm
going to speak a little bit about the general issues that
confront business and antitrust enforcement agencies
reviewing international and transnational mergers, and
try to set a general stage or framework for thinking
about the problems that arise when a transnational merger
is being reviewed by multiple jurisdictions. George is
then going to spend a few minutes talking about several
cases that the FTC has recently reviewed that have raised
significant international issues, so to give you an
understanding of some of the problems we face and some of
the problems the business community faces in getting a
deal through the various regulatory regimes in our world.
Gary's talk pointed up the issue of cartel
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enforcement, which is trying to get a large and somewhat
unwieldy group of independent enforcement agencies all on
the same page and ferreting out and prosecuting cartels
that span multiple jurisdictions. That chart tells you
the amount of coordination that is necessary in
prosecuting international cartels.
It is a slightly different issue with respect
to merger control. You've got one merger and you've got
a growing number of merger control regulations around the
world. It is not a question of rallying the troops to
review a transaction. It is more of a question of
coordinating or, at least from a business standpoint,
understanding various jurisdictions that will be actively
involved in reviewing the transaction.
The number of jurisdictions with regulations is
quite large and growing. As Joel pointed out earlier,
Japan is considering expanding its merger review
authority. Many countries around the world have some
sort of mandatory filing requirements that raise, at the
very minimum, transaction cost issues of doing any
transaction with an international component to it.
At the same time, the EU is lowering its
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jurisdictional threshold in terms of turnover. So there
is certainly great opportunity and growing opportunity
for a single transaction to be looked at by a variety of
independent antitrust enforcement authorities around the
world. As Joel mentioned, the KPMG-Ernst and Young
transaction was being actively reviewed by four
jurisdictions: Canada, Australia, the EU, and the United
States.
To understand what the basic problems or issues
are that confront us at the Antitrust Division, or any
other antitrust enforcement authority, as well as the
problems that confront parties to a merger, we should
step back and look at what are the economic objectives of
business and the enforcement objectives of the antitrust
authorities.
From the business standpoint, obviously the
business community wants to obey the antitrust laws
wherever they may be. They don't have an interest in
violating the rules of any jurisdiction in which they're
doing business, and there is no exception with respect to
transnational mergers. They want to conform with the
regulations in the jurisdictions that might be affected.
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At the same time it is important to recognize that the
process tends to be adversarial. The business community
does not want to merely acquiesce in the process without
presenting its position on what the antitrust merits are.
There are some opportunities for conflict, at least over
the antitrust merits, when the transaction is reviewed by
antitrust authorities around the world.
Second, a company wants to do the minimum it
needs to do to comply with merger control regulations
around the world. My experience has been that simple
transaction costs around the world can be quite
staggering. Even in circumstances where there is little
prospect of a substantive review, there are numerous
filings that have to be made. That creates a need for
duplicate and redundant filings. It also certainly takes
a lot of time to coordinate making the filings around the
world.
More importantly, the business community and
parties to the transaction want some predictability as to
whether they can go ahead at all. Is there a
jurisdiction that can stop the deal full stop? More
practically, what is going to be the restructuring, if
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any, required around the world? Is the United States
going to ask for divestiture? Is the European Union
going to ask for divestiture. In the cases where the EU
doesn't apply, Britain or Germany, are they going to
require some sort of restructuring?
It is very important that the parties
understand the economic reality of what the likely
restructuring cost might be before they strike the
purchase price, to see whether the deal makes sense.
That becomes an exceedingly complicated question,
however.
Now, what are the objectives of the antitrust
enforcement authorities? The key objective is to get
premerger review, which is so important. The Hart-Scott-
Rodino Act [HSR] was promulgated about 28 years ago
principally because it was recognized that trying to undo
done deals was extremely expensive, unproductive, and
wasn't an effective enforcement tool. So it is very
important that the antitrust authorities around the world
be able to look at a transaction reasonably before it's
closed, in order to effectively stop anticompetitive
mergers.
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It is also important for antitrust authorities
to be able to do triage. It is very important that the
authorities be able to ferret out very quickly those
transactions that pose no substantive concerns and go
forward without any further impediment. At the same
time, it's very important that the authorities be able to
detect and evaluate those deals that are in the gray
area. Many transactions that are suspect on their face
turn out not be a problem. It is very important that we
have the ability, before the deal closes, to make sure
that the transactions are carefully evaluated. At the
end of the day, it's very important to be able to collect
evidence and understand transactions that are actually
going to be anticompetitive and take measures that will
allow us to either stop those transactions or get them
restructured in a way that preserves competition.
In order to do all of this, the enforcement
agencies have to collect a lot of information. The
process is complicated by the fact that merger review
tends to involve extraordinarily complicated analytical
elements. And the very detailed facts required to make
sure the analysis is applied properly are quite
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voluminous. And all of this has to be done in a fairly
restricted time frame, which is usually imposed. For
example, the Hart-Scott-Rodino waiting period is 30-days
after the initial filing in the United States.
If there is a second request for information
made in connection with the transaction, the waiting
period is extended for another 20 days following
compliance of that request. Basically we're talking
about a minimum of 50 days and perhaps a bit more before
our agency can develop some view of whether the
transaction is anticompetitive. In the EU, they have one
month followed by a four-month review.
Four, five, six months may seem long, but in
fact, it's not so long, considering that these are
complicated transactions that require those agencies to
devote significant resources and their best efforts to
make sure we make the right decision in the time allowed.
So each jurisdiction that now has merger
control regulation has to protect its own interests, and,
moreover, the competitive circumstances in each of these
jurisdictions may well be different.
So there is opportunity for any single
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transaction to be subject to a merger control regime that
may have a different perspective on the transaction
because the effect may be different from one market to
the next. Or the facts necessary for them to understand
the impact of the merger may be localized in that market,
or maybe the information is to be found in some other
jurisdiction. So it's a very complicated fact process
that each jurisdiction has to go through in order to make
sure it's doing the right thing.
One thing also that distinguishes the merger
control regimes around the world from the cartel
enforcement efforts is that, unlike cartels, mergers can
be good or bad. And so the process is complicated by the
efforts of the antitrust agencies to make sure they're
not making a mistake in challenging transactions that
actually are beneficial to society.
So enforcement authorities have a clear stake
in making sure the right transactions get challenged and
the benign transactions go forward. All of this, I
think, creates an obvious dilemma for both business and
government: How much of a review process should a large
company doing a transnational deal be subject to in
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keeping with the local law enforcement objectives of each
jurisdiction?
Now, the problems that merger review gives rise
to, I think, basically fall into two categories. One is
process. The large number of filings created for any
transaction, as I mentioned before, creates numerous
opportunities for duplicative filings. The other basic
issue that arises is the problem of the substantive
review of the transactions.
The United States, for example, has a different
review standard for evaluating acquisitions than does the
European Union. In Europe, the standard is whether or
not the transaction creates or enhances the dominant
position within the common market. Whereas in the United
States, our focus is more on whether or not the
transaction creates an opportunity to raise prices
through coordinated behavior or some other effect.
Consequently, there may well be a circumstance that
results in conflicting conclusions as to the competitive
nature of the transactions or the remedy.
The significance of the different review
standards, I think, depends on the type of case involved.
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Transnational deals with discrete antitrust concerns in
global markets that have a localized impact or that can
be solved with localized remedies make up one type of
transaction. While that type of case raises
international concerns, it may well be that the
transaction doesn't pose a considerable opportunity for
conflict or disparate results.
Another category of transactions, which is
somewhat more problematical, is where the transaction
might be localized but the remedies required may well
involve multiple jurisdictions. We had a case recently
of Kimberly-Clark/Scott where the impact of the
transaction was fairly localized. The Europeans had --
the European market was a different market from the
United States, so there was not any possibility that our
review of that transaction would conflict with the EU's.
But, we were trying to obtain the divestiture of a plant
and it meant involving Canada, because there was a North
American market, and it affected the disposition of that
plant. So it is very important for us to be in contact
with the Canadians.
Finally, the most troubling transaction is the
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one where there is no localized impact. The transaction
affects commerce, and there is no easy way to fix the
transaction, because the production assets are
sufficiently localized that there is no way to fix the
transaction in one jurisdiction without affecting the
other markets.
The key example of that is the McDonnell
Douglas merger, where there was no opportunity to fix the
transaction in a way that would have allowed the
Europeans to go forward with divestiture-type relief in
Europe without altering the global structure of the
transaction.
There are several efforts under way to deal
with the possibility of redundancy or conflict in efforts
-- to make the process more predictable. These are the
types of things that the Committee could be considering.
First, there is streamlining premerger
procedures. At the OECD, there is currently a working
party that is considering whether or not changes to
premerger notification forms will reduce the burden on
business in complying with premerger notification around
the world. So there is a simple effort to streamline the
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process.
The other way that the possibilities for
conflict can be resolved is through the various
cooperation agreements, as Chuck mentioned, with the EC,
Canada, and so forth.
Another idea is to provide interested
jurisdictions with notification of mergers that may
affect each other's interests to the extent possible,
consistent with confidentiality provisions. These
information exchanges, as I'm sure George will talk
about, allow the enforcement agencies to better
understand the issues and facts and to make better
decisions and coordinate other activities.
There is also the opportunity for consultation,
so if a possible conflict emerges, the two jurisdictions
can talk to each other in order to understand each
other's concerns where, for example, a conflict over
remedy arises.
In Boeing/McDonnell Douglas, I was personally
at the hearings the EU conducted in this case. Also,
Joel and I and Chuck Stark and John Goodman from the
Department of Defense were able to speak with the members
Page 93
of the DG-IV staff looking at the transactions, so we
could discuss our views of the impact of the EU's
investigation on legitimate important U.S. issues,
interests which they took into account.
It is an example both of the possibility of
having consultation minimize the amount of conflict that
might arise as a result of multijurisdiction antitrust
enforcement, and of the fact that the process is full of
pitfalls and can well be a very tense circumstance
between the two reviewing nations.
The most sensitive and difficult area for
possible review is the convergence of substantive
antitrust standards. It is our biggest challenge.
As I said, that is a very sensitive area and
requires cooperation of the various nations around the
world to modify their perceptions and their antitrust
enforcement regimes in a way to make the process more
predictable and transparent. On that note, looking at my
watch, I'll turn to George for some case-by-case
discussion.
MR. CARY: Thanks, Charles. As you know, the
FTC and Department of Justice do not usually investigate
Page 94
the same transactions. In keeping with that practice,
I'll try not to cover the ground that Charles covered,
but I want to go through some specific examples that
raise some of the issues that Charles has raised.
First, the information that the various
national antitrust agencies get is not always the same
kind of information. Each antitrust regime has its own
rules about what has to be produced and when, the
detailed type of information requested, the extent of the
information, and the processes that are applied. But
there is some information that we do routinely share with
our partners overseas and in Canada when more than one
country is looking at the same transaction. For example,
we may discuss the relevant product markets that we're
looking at, the names of third parties and the types of
third parties that we would be interviewing in the
foreign jurisdictions so that we can better obtain
cooperation. These are the types of information that we
might share.
Second, during the course of a merger
investigation, it would not be unusual for us to share
our perspectives about what the transaction is about,
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what the concerns are, what issues we're looking at, and
what our competitive assessments are of the transaction.
Finally, it is not unusual for us to coordinate
with foreign agencies with regard to remedies that we
might impose or that they might impose. We might have
conversations about what kind of a fix would resolve
problems here and overseas at the same time.
As has been pointed out, in the global economy
in which we now operate, many of our most significant
transactions are viewed by several antitrust authorities
and there is the potential for different results in
different jurisdictions. This potential arises: first,
because the different jurisdictions might be applying
different substantive standards; second, because factual
conditions in local markets might be different; and
third, because we might have different information than
other jurisdictions which leads us to different
conclusions.
One can debate the extent to which we ought to
harmonize the substantive standards. Toward that end,
I'll discuss why we apply the standards we apply and why
we think that harmonization towards different standards
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might not be in the best interest of consumers. But
certainly a process that allows us to work off the same
base ought to yield consistent results. It's preferable
that, if we arrive at different conclusions, we vindicate
our own policies. We would not want to impose a remedy
that is not necessary here just because there is a
problem overseas.
Let me start with the Boeing/McDonnell Douglas
case because it has become somewhat of a focal point for
people analyzing treatment of mergers domestically and
overseas. This was obviously a very important
transaction to the U.S. economy and very important
transaction to the world economy. The FTC was the agency
domestically responsible for investigating the
transaction. We did what we always do, with one major
difference possibly being the extent and detail of our
annual review.
This was probably the largest investigation in
terms of numbers of boxes of documents that we received
from both parties, and it was also very extensive in
terms of interviews with customers and interviews with
competitors.
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We interviewed over 40 domestic and
international airlines and we developed a very detailed
understanding of the way the airplane manufacturing
industry works and the underlying economics of the
industry, which is the key to our analyses.
We considered in great detail the cost to
McDonnell Douglas of upgrading its technological
capabilities and bringing to the market a new generation
of aircraft, and we did both a subjective and objective
economic analysis of the kind of investment that would be
necessary to bring that technology up to being
competitive with Boeing's, and whether such an investment
would make economic sense.
In the course of doing this analysis, we came
to several conclusions. First, we concluded that Douglas
Aircraft division was lacking in major customer support,
even among its traditionally most loyal customers. The
airlines were telling us that in the next generation of
bids they did not view the Douglas Aircraft Company as a
viable competitor and would not consider buying Douglas
Aircraft planes.
We concluded, as a result, that Douglas
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Aircraft was not a viable competitor going forward based
on existing technology. Finally, we concluded that the
economics of the industry, the huge investments it would
require, and the amount of time it would take meant that,
going forward, it was very unlikely that Douglas could
become an effective competitor to Airbus and Boeing.
In short, we came to the conclusion that
Douglas Air merging into Boeing would not reduce
competition significantly, because Douglas going forward
was not likely to be a very significant competitor.
Now, it has been well-publicized that the
European Union required certain conditions for the
transaction to go forward, and it has also been
well-publicized that there were some in the European
Union that did advocate a stronger antimerger position
than ultimately came out of the European Union.
This should not be read to lead to the
conclusion that they viewed the facts in a fundamentally
different view than we do. Ultimately their review
revealed the same bottom line conclusion about Douglas
Aircraft's future viability as a competitive force as
that reached in the United States.
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The fundamental facts that they discovered in
their investigation were very similar to our own in terms
of whether airlines were willing to commit to a Douglas
fleet going forward; whether Douglas would be in a
position to compete in that business on a going forward
basis; and exactly what the competitive posture of
Douglas was. Ultimately, they did not determine to
challenge the transaction, but they did require
concessions relating to exclusive contracts that Boeing
had entered into with domestic and foreign airlines.
Some have concluded the fact that they required
such concessions means that the EU viewed the underlying
facts differently than we did, but I would suggest that
the difference in outcome really reflects a different
legal standard. The European Union was applying its
standard that a merger is problematic if it has a
tendency to enhance a firm's dominant market position,
and it came to the conclusion that the addition of
Douglas' spare parts business and customer relations to
the existing business of Boeing would, in fact,
strengthen Boeing's position going forward and therefore
enhance its dominant share. That is not a concern that
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is implicated in U.S. antitrust law. In U.S. antitrust
law, the concern is was Douglas an effective competitor
and will its elimination negatively affect consumers in
the U.S. marketplace, either in terms of innovation or
price competition. So ultimately it was the different
legal standards applied that led to a different result in
Europe than in the United States.
Let me describe the degree of cooperation that
the Federal Trade Commission and the European Union
undertook in investigating the transaction. First, the
staffs of the two agencies were in regular communication
about what we were looking at and what we were finding,
and what issues we were exploring in our investigation.
As the investigation proceeded, those
discussions became more frequent and ultimately went to
the highest levels of the agencies. Chairman Pitofsky
had several conversations with DG-IV to advise them of
the progress of our investigation, the substantive issues
we were looking at, and to explain in some detail the
factual predicates on which the decision might turn. The
EU was therefore aware from the outset where we were
going, what we were looking at, and how the facts as
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developed might influence the decision. Efforts were
made to make sure that there was no misunderstanding as
to how we arrived at our decision, so as to minimize any
negative repercussions of the agencies coming to
different conclusions.
Many across the Atlantic, mostly observers
outside the agency, some of whom represented parties with
an interest in the transaction, have expressed suspicions
that the FTC's decision was influenced by concerns beyond
antitrust.
As the manager responsible for the
investigation, I can absolutely assure you that that was
not the case. The investigation was conducted just as
all of our other investigations: purely on the factual
record and on antitrust principles. Nevertheless, after
we reached our decision at the FTC, and as the European
Union's process moved forward and the European Union
began to consider what their own position would be, the
Justice Department, on behalf of the Administration, as
well as other branches of the Administration, shared with
DG-IV our national concerns about the transaction that
went beyond antitrust issues. I must emphasize, however,
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that such concerns were raised only after the FTC had
come to its antitrust conclusion.
MR. KLEIN: I'm concerned about the
Committee's
time, as important as all of this is, I'm sorry for being
impolite. I think we really need to move on.
MR. CARY: Let me talk about two other cases
very quickly to highlight a couple of other issues. Mr.
Yoffie mentioned innovation which is a critical part of
what we look at and, again, this is something that we do
routinely, particularly in high technology industries.
Let me comment quickly about the Ciba-
Geigy/Sandoz investigation. That was a case involving
two Swiss pharmaceutical companies which were merging
internationally. Again, the U.S. enforcement agencies
came to different conclusions than the Europeans. Our
own enforcement decision came from our great concern
about innovation competition. Ciba-Geigy, through their
partially owned U.S. subsidiary, Chiron, and Sandoz,
through their wholly owned U.S. subsidiary, Gene Therapy
Inc., are two of only a few firms conducting research on
certain types of gene therapies. The combination of the
two parent companies would put under one roof the major
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innovators in this area, and could substantially change
the incentives of these two firms to continue their
competition to innovate. We believed that it was
critically important to preserve that competition in gene
therapy innovation, and therefore required as a condition
of the transaction going forward that the parties grant a
license to others for certain new patents necessary for
such innovation, so that competition in innovation by
wholly independent actors would continue.
The Europeans, historically, have been less
assertive in asserting concerns about innovation markets
than we have here. The question in pursuing relief in
the U.S., therefore, came down to whether we are prepared
to assert our priorities and see that innovation
competition continues in the context of a merger between
two foreign competitors.
Certainly the fact that the assets at issue
were U.S. assets controlled by subsidiaries that were
U.S. companies made our decision easier than it otherwise
might have been. The issue was also made easier by the
fact that we were able to reach an agreed-upon resolution
with the parties. A far more problematic question would
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have arisen if the assets at issue were instead owned
directly by the foreign parent companies and were located
overseas. Had U.S. enforcement officials sought to block
the entire $30 billion transaction between two Swiss
firms under those circumstances, harder questions about
the reach of a single nation's antitrust laws in
governing primarily foreign transactions would have
arisen.
Another case that is a useful illustration of how
cooperative antitrust enforcement can lead to better
results from the point of view of both domestic and
foreign consumers is the Guinness/Grand Metropolitan
merger. I'll discuss this transaction from the point of
view of the process, where cooperation between the two
agencies yielded the result that, in my view, best served
the consumers of both the European Community and the U.S.
This was a case where international cooperation
led to a divestiture agreement which was ideal from the
point of view of the Europeans and also in resolving the
issues that we were looking at. We were very active in
monitoring the EU's investigation. And because there was
a fair amount of communication between the two agencies,
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the final divestiture package accomplished the remedial
goals of both jurisdictions far better than what either
side might have accepted separately.
The case is also interesting because the
divestitures that were required were of products that
were not produced in the United States. They were
foreign products, albeit with very significant market
positions in the United States. The fact that the EU saw
our resolution as desirable from the point of view of
their consumers certainly made it less difficult than to
insist upon such relief.
Given the shortness of time, let me close by
simply saying that the policy implications of the
different results can be very important for American
consumers.
Ultimately, as we've described, the Europeans
have a slightly different standard in reviewing mergers
than we do. Our focus is on prices to consumers, while
the EU is concerned about enhancing a dominant position.
Some have argued that our position with respect to
dominant firm mergers is more receptive to efficiency
considerations, for example, that may entrench a dominant
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firm but may result in benefits to consumers. That issue
goes to core values and any effort to harmonize the laws
must take these differences into account.
Other jurisdictions such as Canada, perhaps,
give more leeway to efficiency considerations where there
are efficiencies which benefit shareholders but not
consumers. As a small economy seeking to achieve
economies of scale necessary to compete internationally,
they have their own policies that they're trying to
vindicate. Our concern is for consumers. Again, the
question is: Which policy is to prevail or are both
nations to pursue their own policies? Those are just a
couple of suggestions of issues that ought to be
considered going forward in terms of the question of
harmonizing antitrust enforcement overseas.
MR. RILL: Thank you. I think these issues
require a good bit of discussion. Rather than do that
now, Joel, I'll give you an opportunity to cover your
subject because you have some testimony to give to the
Senate this afternoon. Then I think if it's okay with
you, we'll let you go ahead and kick that off, then have
a discussion of all subjects before the lunch break.
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MR. KLEIN: I think it's appropriate, and I can
be quite brief. That is an appropriate transition, Jim,
because as I see in some other jurisdictions, merger
cases can be complicated. The status quo is each agency
likes to do what it's doing, likes its procedures, forms,
and substantive review. This is going to be augmented by
new and increasing numbers of agencies doing this.
Nobody is going to be willing to defer to another agency.
The argument was made: Why shouldn't the
Europeans defer to us? It's for the same reason my good
friends at the FTC said. On the other hand, if you do
have divergences and inconsistencies besides the
transaction costs, you have a real risk. Efficiencies
you thought you might get in the United States or
anywhere else in the world would be lost -- that can
become a significant problem with people using different
standards in different countries.
So I see this as a chance to get ahead of the
curve a little bit; but where exactly do you get out?
You may be left standing in the middle of the street.
Let me transition because I think a lot of
people believe there was home team sports involved in
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Boeing. I don't think that that's what happened on both
sides of the Atlantic, but that kept coming up.
That leads, I think, to the transition to trade
and competition policy and let me make a couple of bullet
points.
What are we talking about here in terms of
market access? Merit asked me if I would spend some time
defining what I would think of as market access. I would
say there are at least three or four factors. First,
traditional governmental barriers: tariff and non-tariff.
Then you have structural barriers. These may be
regulatory or they may be market structure issues,
stemming from how different economies are organized at a
point in time. Then the third set of what I view as
market access issues are conventional antitrust and
antimonopoly types of barriers. You can have vertical
agreements and horizontal agreements that will basically
impair the flow of and movement of the product into
market, and in some respects the Kodak-Fuji case involved
all of those things. In that case, we saw specific
application of government-imposed large retail store
measures. You had allegations of a structural dimension
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to the market and pre-existing relationships with the
distributors, then you had actual allegations about
specific agreements.
So the first thing we need to think through is:
Is there a way to have an effective, coordinated approach
to dealing with all of these different potential
barriers, some of which are classic trade issues, some of
which are underlying structural problems, some of which
are classic antitrust barriers?
Now, within the antitrust area, there are, as
Chuck Stark mentioned, alternative models of how one
addresses these problems.
To the extent we're dealing with private
antitrust problems embodied in horizontal agreements,
abuse of monopoly power or vertical agreements, the three
models on the table are: one, unilateral enforcement
action. We bring the case, as we did in the Pilkington
case against a British company that used intellectual
property rights in Asia to keep out U.S. competitors.
Essentially there wasn't a U.S. market in the case, but
the real markets we were talking about were opening up
Asian markets for U.S. competitors because of what we
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viewed as a private market restraint. The case was
settled, and I think as a result of that, U.S. companies
are now actually selling a significant amount in Asian
markets.
Chuck pointed out that Jim Rill reasserted this
unilateral authority in the Bush administration.
The real point is that this kind of approach is
not going to be a satisfactory solution for a number of
reasons. We cannot get the evidence to prosecute the
cases because the evidence is overseas. Foreign
jurisdictions are not going to cooperate with us and give
us the evidence because they view it as their market and
why should we, in their view, get in the middle of it.
Often times we don't have the ability to impose a remedy
in a foreign market. And finally, it does cause an
enormous amount of hostility and undermines cooperative
efforts. So we're not going to be able to do it all.
The second model that we've been working on is
one of positive comity. Somebody comes to us, let's just
say you have a market access case in Asia, and you think
it's private market restraints. You bring us the
evidence. We review it. Rather than sending you to the
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Asian authority, we review it and make a preliminary
determination that there is at least a reason for full
and thorough investigation of these antitrust allegations
and weigh in with full government authority, shift it to
a foreign antitrust authority which, in turn, agrees to
report back to us.
Now, we have a case like this right now
involving Sabre, which is the computer reservation system
for American Airlines, claiming that it has been denied
certain information that strips it of being an effective
competitor in Europe by the European airlines that bound
together to form Amadeus, which is a European computer
reservation system [CRS]. We did a rather elaborate
investigation and wrote up a 10-, 15-page report and
referred the case to the Europeans, who are in the
process of doing their full-scale analysis. They agreed
to report back to us. If they find a violation and we
think that they have satisfactory remedy, we could step
aside. If they don't find violation or if we don't think
they have a satisfactory remedy, we reserve the right to
take further action.
We have negotiated a very thorough protocol
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with the Europeans that's going to be signed imminently
that sets forth the circumstances in which we'll make
these cross-referrals. The Europeans are telling us
they're about to make some referrals to us about market
issues in the United States -- and will report back.
I personally think this is a very constructive
way to deal with the problem at this point, when dealing
with the countries with which we have very good,
effective bilateral relations like the Europeans,
Canadians, and Australians. The real problem is with
countries where the antitrust authorities are not
sufficiently powerful, independent, well-developed --
where we cannot be sure the process will work
efficaciously, particularly when home team sports are
involved in the analysis. So that is the model we have
been working on trying to help mature and develop.
The third model is the one the Europeans seem
at least in the process of supporting: some form of WTO
resolution that would involve a dispute fact-finding
effort at the WTO.
I think the Europeans are way ahead of
themselves on this issue. I think they think that
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somehow either what they will do will be small and
ineffectual, that is, it won't be harmful, or they really
think you can deal this way with a case involving, say,
the Sabre/Amadeus case. If you think you can take that
case and give it to some world panel that doesn't have
subpoena powers, that doesn't have deposition powers,
that doesn't do the kind of hard work that we do, I think
you will get a trade remedy for a competition problem.
And as Chuck Stark said earlier in his comments, at times
trade remedies are market share remedies which really are
in many ways inconsistent with private market antitrust
enforcement.
So I think again there are three models, each
with a potential upside, each with some potential
downside, none of which provides by itself a fully
satisfactory solution. But as the world gets more linked
and you get increasing global interdependence, there is
going to be no question that U.S. corporations in
particular, largely because our markets are very open,
are going to increase pressures to deal with private
market restraints in addition to their ongoing efforts to
deal with structural, deregulatory, and governmentally
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imposed restraints.
So you need to think through as a Committee how
this antitrust piece integrates with the larger market
access issues, both substantively and procedurally. And
once you figure out how to organize the parts, what are
the right procedural mechanisms to effectuate U.S.
Government policy?
MR. RILL: Thanks very much.
Paula?
MS. STERN: Let me just ask you a quick
question on the three models. You seem to feel that
positive comity is a constructive approach, and the
agreement you're developing with Europe is something we
do want to consider more closely.
The third model that you said the Europeans are
supporting -- this idea of the WTO resolution is that, in
fact, their official position -- that they're supporting
that WTO approach? I think of positive comity, as you
said, being so much more practical, and if you're coming
to a closer understanding with the Europeans on that,
maybe that's where we really should spend some more of
our time than on this third one? I just want to see how
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right the model is.
MR. KLEIN: Two reasons: First of all, in
fairness to the Europeans, you should not have a critic
characterize your position. So I may not have done it
justice. But I would say they basically want to have a
very simple negotiation at this point, one that would say
two things: One, you have to have an antitrust code and
you have to enforce it. When I say to them, well, that
sounds well and good but could we enforce it? Could
somebody challenge whether we enforced it in Boeing/
McDonnell Douglas? Could somebody challenge a decision,
as a matter of prosecutorial discretion, not to bring
cases we could bring because it's not worth the
resources? I don't know how to answer it.
The second question now is whether the WTO
would look at specific cases. The Europeans say no, but
I don't know how you do the one -- that is determine
whether people are enforcing the law -- without doing the
other. I've asked a number of times. Could we challenge
what you did in Boeing/McDonnell Douglas -- as a
protectionistic interest? I think that's the problem.
On the other hand, I wouldn't want to take off
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the table a long range plan for multilateral dispute
resolution, and some people may want to have it as a
shorter range plan, but I think the Committee has to look
at the risks and benefits -- for example, although I have
more experience with this bilateral mode, whether that's
a satisfactory approach vis-�-vis certain Asian markets,
whether a multilateral approach is better, and how do you
bring new countries into this mix of soup?
There are lots of countries in the WTO that are
kind of struggling with these issues, and how do we get
them on board? I think that is what is in play here.
MS. STERN: Is that the third model, is that a
formal position now of the Europeans?
MR. KLEIN: Yes. And my suspicion is we will
not agree with them when the negotiation is proposed, but
we will probably support continuing non-negotiation or
continuing work in the field of trade and competition
policy.
MS. STERN: Thank you for the clarification.
MR. RILL: We have, thanks to Joel's
expeditious treatment of his subject, about 25 minutes
left for discussion before, Joel, you have to go and we
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have lunch, a non-working lunch.
MR. JORDAN: May I ask a question, please? I
would like to ask Mr. Biggio if he could talk about the
differences in the substantive merger review. In the
U.S. we focus mostly on consumer injury and consumer
welfare loss. In France, for example, they worry about
employment loss, whether or not the domestic company can
compete against the merged company: sort of a public
interest injury standard as opposed to our consumer
standard. So how do you reconcile these substantive
differences?
MR. BIGGIO: Certainly the substantive
differences exist, and they become important to the
extent that a single transaction is exposed to both
regimes. So the national antitrust authority can't make
a decision on a case without having to mix the apples and
oranges or actually make a decision about reconciling
these conflicting policies. In some cases, given the
nature of the transaction, what might be the rule in
France can be remedied in France without jeopardizing the
transaction in the United States or elsewhere.
In other circumstances -- and this happens very
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infrequently historically but will happen more
increasingly in the future, as Joel commented -- there
will be a transaction where there is only an up or down
decision, and each jurisdiction is going to have the
ability to make that call. And that's the real challenge
we're going to face.
As Joel said, everybody likes their form, their
policy, and their substantive rules. And as transactions
come up that cannot be fixed on a jurisdiction-by-
jurisdiction basis, it's exactly that kind of conflict
that's going to produce the tension that we saw in the
Boeing/McDonnell Douglas case, where there really wasn't
that much opportunity for each jurisdiction to do its own
thing without causing significant tension with other
jurisdictions.
There is not an answer to the question at this
point, but that is the challenge for the future: to deal
with the cases like the Boeing/McDonnell Douglas case
which haven't happened as much so far, but will be
happening many more times in the future.
MR. JORDAN: Assuming that egos hadn't gotten
in the way of the Glaxo/SmithKline thing and they had
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gotten themselves together and the European Community
said this is fine over here, would you guys at Justice
and FTC have said it's not so fine over here. What
happened?
MR. BIGGIO: I'll let George speak to that
because I don't think that's much different from
precedent that they've already set.
MR. CARY: Without commenting specifically
about that transaction --
MR. JORDAN: You can because it didn't go, it's
all right.
MR. CARY: I don't want to prejudge a
hypothetical transaction.
MR. RILL: Or any other, I hope.
MR. CARY: Historically we have been able to
take care of our domestic problems with fixes that are
perhaps worldwide fixes, but do not threaten to
jeopardize the entire transaction. In the original
Glaxo-Wellcome transaction, for example, we did require
some divestitures of some medications that the two
companies made in competition with each other that were
produced overseas.
Page 120
In the Sandoz deal, we required certain
divestitures not threatening the entire transaction, but
protecting consumers where they would have a dominant
position.
The real difficulty comes when you're
implicating the entire transaction. I don't know that
we've faced that question head on so far, and I'm sure it
will be an interesting experience when we do.
It's less likely we will face that situation
than in other transactions that might be more local,
where you're talking about single product line -- for
example -- which are less susceptible to resolution
through consent. Boeing/McDonnell Douglas is one example
of a deal which would have been hard to resolve short of
a challenge. But that's a very tough question,
especially when there are efficiencies from the deal, and
they are going to be blocked along with the market power
if one jurisdiction challenges the transaction.
MR. SIMMONS: Both of those companies, as
Vernon implies, are UK based and had over 50 percent of
their business in the United States. So the possibility
you allude to could have easily come up.
Page 121
I wonder if I could go back to something,
George, you referred to and, Joel, you mentioned in your
quick survey -- the political dimension -- and ask if
either or both of you would expand on it a little bit?
You talked a lot about different procedural issues and
standards. It was also Vernon's question.
And you mentioned home team sports. I
wondered
if it should be dismissed as quickly as you dismissed it
as a potential issue as this thing unfolds in the future?
And you said that home team sports is not an issue, and
you implied it wasn't an issue. On the other side, I
would like to hear you expand on that and the extent to
which you feel home team sports could get into the game,
short of a WTO solution or something like that.
MR. KLEIN: I know the players involved in the
transactions, so I have a personal conviction about
whether there were home team sports influencing the
outcome of that.
Having said all of that, it's also predictable
that the two antitrust agencies would say no, no, no,
this is all wrong -- it's always better to say that you
disagree on the merits than to say that politics
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influenced your decision.
Having said all of that, I tell you that there
was a lot of legitimate concern, that the Europeans were
trying to protect Airbus, and I think those issues were
raised. And one can't discount the perception,
regardless of what the reality is. And I think you will
see more of that and that is why I think there is a
transition as you go from merger to trade to competition.
How you do it? Do you scrap the antitrust
agencies in a way that I think people do not think is
right for the United States? And I think they're right.
I do not think that the FTC took a dive on the
case because it was a home team merger. That's because
we have a lot of history and a lot of unpopular
decisions. But how that is going to play out in other
parts of the world is unclear to me. The problem is that
it might point to a multilateral process. Who are the
three judges in the multilateral process? Why are they
any less political than the European Commission? That is
the whole conundrum.
MR. RILL: The challenge to this Committee and
the United States and other enforcement agencies as well,
Page 123
is how to minimize the uncertainty which is created when
the general theme seems to be absolute harmonization of
standards and merger enforcement. It is not something
we're going to see in the immediate future.
As I think Chairman Pitofsky said in his speech
on Boeing/McDonnell Douglas, the European decision was
driven -- and he puts it, I think, very diplomatically by
saying it was driven by a difference in the law which has
a focus on competitor protection, whereas we focus on
consumer protection. Translate that any way you want.
That isn't going to change tomorrow, I don't think. Even
in a jurisdiction as close as Canada, they still have
investment considerations in their antitrust merger law.
Given that, what can we propose as the question
for us to deliberate on? What we can produce that will
reduce the uncertainties that arise from the disparate
root differences in enforcement? The thought occurs to
me that greater communication and greater transparency at
least is a strong step in that direction.
Perhaps we should look at the possibility of
developing some form of guidelines for dealing with
communications, but I think we also need to consider
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where confidentiality issues really shake out in all of
this. I think that there's more discussion about
confidentiality issues than reality may actually justify.
That is my own personal view, however.
The other thing it seems to me that we have to
consider, in candor, is that there may not be a uniform
view among all merging parties that convergence is a good
thing. There may be those that think, although I think
it's less true, that there is an advantage in moving
first for approval say in a "soft country", than
presenting it first in let's call it the more "rigorous
country," with a de facto result implicating a political
solution and saying, "Okay guys, what are you going to do
now?"
In honesty, we have to consider this is a
possibility that is a strategic course of conduct that
makes a lot of sense. But it's declining because I think
there is greater international cooperation and greater
coordination.
I throw these out as questions and areas for
deliberation in the merger field that I think are
important.
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MS. BAIRD: Jim, if I can comment on that last
point, it might be worth while to have the staff do some
look at analogous legal regimes, foreign, domestic. For
example, on a number of heavily regulated industries,
there are multiple agencies that take the same basic
charter and interpret them as requiring them to look at
different things -- and some State, some Federal,
sometimes multiple Federal agencies -- and this is not
all new and unique to antitrust.
If we identify some of the questions that we
really want to focus on, such as the benefits or burdens
of multiple jurisdictional review and multiple standards,
we may well want to take a look at some analogous legal
structures to inform this and to also enhance the
persuasive value of any conclusions we might reach.
MR. BIGGIO: I think that is an excellent way
to proceed. As I think about the merger area and what
problems arise, I always come to think about it in
practical terms. As I opened up saying, there are basic
business objectives that every merging firm wants to
achieve. And if you sort of push through what it is
they're trying to avoid -- transaction costs -- and
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trying to achieve -- some deal that is basically
economically acceptable to them -- and try to figure out
at each step along the way what it is that can be done to
minimize the transaction costs without jeopardizing the
review, even on the basic practical procedural level, I
think that's valuable.
On the other hand, trying to figure out what
accommodations can be made in the substantive review that
allows the transaction to go forward, at the same time
protecting the legitimate interests of the individual
jurisdiction is a much harder problem. It seems to me by
trying to break the problem down to smaller steps, it at
least makes the constructive recommendations easier, even
though they may be small.
MR. RILL: I think we have only done part of
our job, as George pointed out, to look at mergers in the
traditional context. Mergers and joint ventures in the
intellectual property field are expanding in importance
by a great magnitude. I think this is one area that is
going to be a real challenge to this Committee -- to
consider how in the global context we would recommend the
agencies of the United States proceed in those types of
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transactions.
MS. STERN: If I could stay on this point about
the forum shopping problem, which certainly we
encountered at the International Trade Commission under
section 337, where some of the intellectual property
patent, copyright, or trademark matters were concerned
about import infringing and could choose, if you will, to
come to the ITC or to the courts.
So I think that's a terrific practical idea for
us to just see how this has been dealt with in
experiences that we have already had in other
jurisdictions.
My question is: I would like to understand
better how, when there are reviews, either by Justice or
the FTC, that have implications in overseas
jurisdictions, whether authorities take account of either
public interest arguments, such as Vernon spoke of, or
just the views of foreign authorities?
Is there -- are there provisions for such
hearings? And if there are, and we are already
listening, what weight are they given? What does the law
instruct the authorities to consider when it comes to
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testimony from foreign authorities and other interests of
other publics other than the U.S.?
MR. BIGGIO: Just briefly, that is --
principally in the U.S., the process of receiving
information from other authorities is informal and
embodied in the cooperation agreements Chuck spoke of
earlier. We're a law enforcement agency, and our
decision is to whether we exercise our prosecutorial
discretion to seek court action.
Discussions are done informally, and the
opportunities that arise for us to listen to the DG-IV,
for example, have been done under agreements with other
jurisdictions that are subject to the various
confidentiality requirements -- it is basically an
informal process. If they have facts, that's great, they
have an analytical approach that we haven't thought of,
that's great too.
Certainly the ultimate decision is going to be,
consistent with the fundamental question here, whether or
not consumers will be harmed as a result of this
transaction. We wouldn't deviate from that policy
objective in making the decision.
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As I said, on our side is an informal process.
On the EC side it is somewhat more of an administrative
process: It gives people a chance to come in and hold
hearings like in the McDonnell Douglas case. I could go
to the hearing to listen, not speak, at least at that
proceeding. At least there is some opportunity for some
formal relationship in addition to the various informal
conversations that we have with them every day, and the
Department's investigating staff has informal
conversations with them every day on the various matters
that we are both reviewing.
MS. STERN: I think we have to think of long
term solutions as well as baby steps, particularly when
you're talking about home team sports and the politics
and the diplomacy. It may be something that we want to
think about that might be suggested provisions,
recommendations for at least having a formal hearing of
the other side or allowing you, for example, when you
went over to observe the hearing, to also make a
statement.
Again, drawing on my experience at the
International Trade Commission: We would hear from the
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public and we would have public statements. There were
questions about how much we took that into account under
the law. So there may be some baby steps here. I'm
wondering what the FTC's experience is?
MR. CARY: Basically the same as what Charles
described at DOJ. We are a law enforcement agency. We
have legal restrictions on what we can and can't consider
on making decisions on the merits, but we have
prosecutorial discretion. Part of that discretion can
involve comity or other issues. But the fundamental
merits decision has to be based on whether our consumers
are going to be injured. I think a more practical
approach historically is to listen to the concerns
expressed and to see whether there is a way, consistent
with our statutory mandate, to avoid the harm raised by
the foreign nation. For example, if a foreign government
raises concerns about employment issues arising from a
required divestiture of foreign facilities, can we think
of relief other than structural relief to solve the
problem, that gets us what we need and, at the same time,
takes care of the problems on our side? For example, can
we seek a license as opposed to divestiture of a plant
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that's located overseas -- something of that nature? If
we can do that, we would certainly strive to do that.
MS. STERN: You're already doing that. It's a
question of how you can build on that accommodation.
MR. CARY: Again, within the confines of a
prosecutorial discretion point of view, as opposed to
shirking our responsibilities to enforce U.S. law.
MR. RILL: Let me invite --
MR. SIMMONS: Before Joel gets away, I
wonder
if you would expand a bit on positive comity with regard
to market access with a couple of variations, just to see
whether you had given any considerations to that?
You used Sabre computer reservation system as an
example of how positive comity could be used. Would, in
your opinion, positive comity be an applicable solution?
And I'm going to give you two examples.
One would be a developing nation which
restricts market access, then becomes developed but
continues to limit market access. And the second one
would be two or more nations who agree not to export to
each other, then export 20 or 30 or 40 times as much to a
third market such as the United States? Would, in your
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opinion, positive comity be a potential solution?
MR. KLEIN: The second one wouldn't, in terms
of our world view, because that is a government decision.
It may be an anticompetitive one, so that's the problem.
On the first one, I think it is an appropriate
one. What we need to do, though, and this goes to some
of the WTO functions, we need to get developing countries
as they develop and get to where they're major players in
this economic world, to have well-developed antitrust
systems. Then you can get the positive comity referrals,
and I think there will be real pressure brought to bear
when these referrals take place. They involve trade-type
issues and those are often seen in political terms.
Still, given our experience, I continue to think that
other countries will respond reasonably well to these
referrals. It's clearly a developing process.
MR. RILL: Picking up on something that Dick
said earlier, it seems to me that we need to consider the
role of unilateral enforcement on an effects-test basis.
The Committee needs to consider this. While positive
comity may work with a country that has a strong
tradition of enforcement activity which is relatively
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close to that of the U.S., I wonder how effective it is
elsewhere?
As you suggested yourself, not to put too fine
a point on it, but if that doesn't work, and the WTO
seems to be premature as an answer to the market access
problem, then I think we need to examine the role of
unilateralism, to coin a phrase, in dealing with the
market access problem.
I think another thing we need to examine is the
scope of the problem, and Dick's hypothetical to raise
another issue. And that is I think you're right, Joel,
to characterize your statement and paraphrase it a bit,
by saying that governments are perhaps the greatest trade
restrainers in the world.
Maybe we don't have an answer yet to that
question, particularly in areas of intellectual property.
Intellectual property can be an important element in this
discussion. May I follow up on --
MR. MELAMED: Up.
MR. RILL: As a backup, perhaps.
MR. MELAMED: The market access issue is
somewhat different, at least in degree from the other two
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issues we talked about in this respect. If the barriers
to market access are the result of some restrictions on
competition in the target market, then at least in
respect to the competition enforcement agency, the target
market ought to have a great deal more at stake than the
export market.
We might have one or two firms trying to export
to a foreign country -- they have a problem with real
market power information, consumer injury in their
domestic markets. So, from that one could draw the
inference that positive comity is unlikely to work
because if it were likely, the domestic authority would
be concerned about the problem without at least depending
on that to integrate that concern.
And by the same token, if the domestic markets
are not concerned about the state of competition at home,
then unilateral enforcement, while perhaps effective,
would create tensions.
MR. RILL: No question about that, but I think
your analysis presupposed a commitment in the country
where the restraints occur to consumer welfare rather
than a commitment, perhaps, a greater commitment to
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producer welfare.
MR. MELAMED: If there were such a
commitment,
you may not have such a problem. It's because you don't
have that kind of commitment you both have an access --
MR. RILL: Isn't this the sort of situation
where we need to take a hard look at unilateral
enforcement?
MR. MELAMED: Absolutely, I think.
MR. KLEIN: I think one way to do this it goes
to the politics in the country. Most countries care
about welfare, but if we make a positive comity referral
to antitrust agencies, even though that antitrust agency
might be under domestic political restraints, this
international liaison may actually empower them, and that
is something we need to consider.
MR. RILL: There is an enormous role to be
played in pushing for transparency in these kind of
relationships.
MR. KLEIN: If we make a referral and
third-party agencies impinge on the process, that really
gets the local agency potentially furious because it
looks like they're being co-opted and it also enables
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them to say to their trade authorities: This is what we
have to report back to the Department of Justice, the
Federal Trade Commission or the referring agency.
I think we need to think through the dynamics
of the process not just the theoretical.
MR. RILL: Not to talk about the merits at all,
but I think the transparency that was undertaken in the
computer reservations system matter, with Justice issuing
a press release and DG-IV publicly accepting the computer
reservations system case, was a strong step in the right
direction. Positive comity is something the Committee
needs to look at.
MR. THOMAN: Part of this is just a question of
time: If it's a relatively new process then, in how
optimistic a time, with the current set of pressures at
work -- five or ten years from now -- positive comity
will work fairly well, at least between the developed
worlds? Or is it that the standards are pretty immutable
and not likely to change much?
MR. KLEIN: I think there is going to be de
facto convergence as the amount of cases you work on
grows as the world becomes more globalized. Vernon
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brought up the French, who take industrial policy into
account. That will, again, erode as we move forward
because of the way global markets work. What you will
see, although it will take time, is de facto
convergences. But you're never going to see perfect
agreement.
I have to tell you, in the United States, it is
entirely conceivable under the same antitrust law that
two top antitrust enforcers could come to somewhat
different views.
But having said all of that -- I think the de
facto convergence is increasing in the
industrialized world. I would guess that in nine out of
ten cases there would be no difference between us and the
Europeans; us and the Australians.
MR. DONILON: I agree that cooperation over
time will breed convergence. And I think we would do a
service if we could work towards common forms and
procedures and things like that in the real world that
help these transactions go forward. Firms experience
substantial burdens right now both in terms of expense
and in terms of predictability and timing. Where does
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the Department and the FTC, the prenotification office,
stand on working on this issue: potentially having common
forms, filing periods, evidence sharing? I guess that's
part of the 1991 agreement? With respect to that, where
does it stand? What do you think the prospects for it
are, and I guess the point is: Are we prepared? Is it
important enough for us for this to happen, for these
transaction costs to be lowered, to actually make some
changes in procedures that have been in place a long
time?
MR. YOFFIE: Before you answer that, I want to
reinforce one aspect that builds on that. Anytime you
want to get multilateral or bilateral cooperation, the
critical issue is: Do we have our own house in order?
This is a variation of the same question. To the extent
we're perceived as not being coordinated and having
multiple fora you reduce the prospects for cooperation
with international parties. To what extent do we also
need to think about our own internal house -- Justice,
FTC, State, Commerce, and so forth -- as a piece of the
problem we're looking at here?
MS. STERN: Can you answer that in two
separate
Page 139
answers?
MR. KLEIN: That is just about the time we want
to go to lunch.
Let me start specifically. I think the candid
view and one of the reasons you want input from a group
like that here, the candid view is agencies tend toward
inertia. You know that and I know that. In an idealized
world, I would not want to change a thing in our forms
and timing, if everybody else adopted our forms and
timing. And I think that is right on the merits.
MR. RILL: Not including your second request.
MR. KLEIN: This is a man with a different view
than when you sat where I sat. There is no doubt there
will be domestic resistance to some things. We're
working on it at the OECD, and my experience has been
that there is a great deal of resistance toward change.
Now, in fact, three European countries have, as
far as I can tell, a common form. Nobody uses it. I
think that goes to the larger issue that David just
raised -- I am not adverse if there are things we need to
do to get our domestic house in order. That's always a
risk when you take creative, talented, independent people
Page 140
in a room, but I think you need to think that way, Tom.
I think that's very important.
MR. CARY: Can I take a crack at those
questions? This is to elaborate on Joel's point. Let me
give you some examples of the differences. In Europe,
for example, instead of using an objective basis SIC
codes listing their product as we do, it is a much more
subjective basis. The ability to objectively say these
two companies make the same thing or don't make the same
thing contributes to our ability to say you have early
termination, you're out of here. Whereas a more
subjective form may require more investigation. So there
are costs and trade-offs of going with that procedure.
Another --
MR. RILL: Ray has been trying to get our
attention. Go ahead.
MR. CARY: Another side of this is that their
process is administrative. They have much more
discretion as an administrative agency as to what to do.
We have to go to court to block the transaction. In our
review process we need documents in much greater numbers
than they need, because we must prove our case in court.
Page 141
Those are the kind of trade-offs that are implicated
here; if you want to give parties the opportunity for
judicial review, immediately, rather than go with an
administrative process where the agencies' decisions are
binding.
MR. RILL: Ray.
MR. GILMARTIN: Going in a different direction
before you go, one of the things we face as an industry
-- it affects European-based pharmaceutical companies as
well as U.S.-based firms -- is an area that falls in the
middle between trade and antitrust, and it's not clear if
it fits into this Committee -- when the European
Community's Member States use price controls as a means
of controlling healthcare costs, it has the practical
effects, it limits competition based on innovation, and
it limits competition in general. It's an unintended
affect perhaps in many instances, but it also -- so it
limits market access, it limits competition, and it is to
the detriment of the consumer ultimately.
Yet there is -- and we've discussed this at
round tables with the European Commission and Member
States -- there is no hook, no easy hook here in terms of
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how you get after this. Is there an antitrust thrust
possible on it? Or is it -- it's not clearly a trade
issue as well, but it's where regulation comes into play
to limit competition.
MR. RILL: You think it's part of -- I think
it's fascinating and nothing is beyond the scope of
consideration by this Committee along the lines of any
kind of trade or business barrier that we confront
locally.
MR. GILMARTIN: As it relates to intellectual
property as well, it has the effect through parallel
trade, through fixed prices and open --
MR. RILL: We're about ten minutes out of time.
Joel, you have testimony up at the Senate. We thank the
Department leadership for their stimulating participation
and guidance this morning and also to George Cary, the
ambassador from the FTC, for your participation. We will
break for a non-working lunch of this Committee.
I would like as a personal favor if possible,
to get back really as close to 2:00 as we can. I'm going
to have to leave a little early. It's 12:40. If we can
reassemble at 2:00?
Page 143
(Whereupon, at 12:40 p.m., the meeting was
recessed for lunch, to reconvene at 2:00 p.m., this same
day.).
Page 144
AFTERNOON SESSION
(1:55
p.m.)
MS. STERN: One of the big issues is what do we
do with all of these problems? How do we go forward?
Merit, if you want to give us some beginning remarks on
this in terms of the working groups and just based on the
memo you sent out to the group last week, I think you
were kind of tipping people off to think about what their
particular interests are. Why don't you just talk about
those three, and then let's open it up for people to have
just any comments they want to offer.
MS. JANOW: Let me offer a couple of
procedural
observations and perhaps a personal perspective. All of
you have had more experience than I have in working in
this kind of committee context, so I ask you please to
educate me in what you think is the most efficient and
effective way that we might proceed.
Joel gave us some guidance, I think, in terms
of thinking about the Fall of '99 as the time frame that
we should target by way of completing our work. What
form that work takes is for you to decide as to whether
it's a single product or multiple products.
Page 145
We have and are hiring a staff to make sure
that the burden on you is limited to the substantive
input you wish to provide, and that the staff can provide
the groundwork to help you.
We also are hoping to be able to help give you
background data on all issues that are useful to your
deliberations.
We'll also be working with each of you and your
staff to identify specific meeting times. Everyone is
busy, and I think the sooner we can agree on a whole
schedule of meetings, the more likely we'll be able to
have the full Committee involved. And so we'll hope to
get back to each of you within the next week or two to
start nailing down those dates.
I think that we have both an obligation and an
opportunity to get views from the outside into our
process, and a web site is one vehicle, but I think we
need to think proactively about pulling in those experts
that we can identify as being useful to this process or
interest groups, domestic and foreign.
One way that I thought might be useful for us
to move ahead is by identifying some cluster of each of
Page 146
you to participate in working groups, with no limitation
as to how many in each cluster. It's really up to your
interest, and the time that you have available to
participate. We should have at least three working
groups. That is to say, the Justice Department and Joel
Klein have identified the areas of multi-jurisdictional
merger review, enforcement cooperation, and trade and
competition policy this morning as the three core issues
that have animated the Division into initiating this
process.
We haven't yet had an opportunity this morning
to really get the benefit of your own thinking about the
issues that have intrigued you to come forward into this
process, so I think, obviously, we're going to spend the
afternoon getting a far better sense of your own
interests.
But one approach that we could take going
forward is to have some self-selection here among those
three working groups, or full participation in all, if
your schedules permit. That's one suggested approach for
moving ahead.
Those working groups would then work hard on
Page 147
each of those issues, define issues and identify input,
domestic and international and, as your work proceeds,
inform the rest of the full Committee.
So that's a procedural suggestion that I
welcome any reactions you have. One thing that I think
we'll do right after this meeting, if you concur, is to
try to generate what we understood to be the core
concerns in each of these areas. But you should consider
that very much a work in progress and not limited at this
early stage, but a work in progress, so that we can over
time create something that identifies core concerns for
each of the subgroups, that's my suggestion for one way
of proceeding.
MS. STERN: Thank you, Merit. That's very
helpful. Let's start off the discussion. Thoughts on
anything, including particular emphasis you wish to see
or procedurally how you would like to -- what you think
of Merit's proposal. We can talk about this morning or
the procedure this afternoon.
MR. DUNLOP: I would raise a procedural
element. If you're serious about inviting European
people or Japanese people or the WTO, since we've had
Page 148
discussions about that, it seems to me that's a matter
you're going to have to schedule fairly longer range.
That's nothing you can say, "Come to our meeting on X
date." So the meeting date schedule and those sorts of
meetings are going to have to be integrated.
And I think that's very much -- I also may, on
a procedural level, a suggestion, that you distribute to
us all each other's mail, address, telephone numbers. If
I want to call one of you up and say I didn't like what
you said, how about this, what about that, we have a
direct way of communicating. You put the e-mail
addresses in, if that's also possible, so you can do it
by e-mail instead of other ways. Those two comments grow
out of my experience.
MS. STERN: Thank you.
MR. RILL: I think John raises a good point to
the extent that it both relates to the subgroups and the
meetings scheduled. To the extent that there would be
top level formal inputs into the Committee, by law, those
would be public sessions. Such a hearing would probably
more likely be a full session as opposed to a working
group meeting or perhaps a combination of the two.
Page 149
It seems to me that scheduling that kind of
roundtable, perhaps, of those inputs would be something
we'd have to schedule in advance, and I think it's
something -- personally I think it's something we ought
to do.
MS. STERN: I agree with that, if we can do it.
So it's a very practical suggestion, and we'll see if we
can.
As for the list we have and we'll do it again
after this meeting, exchange everybody's addresses, but
it may be now that we have our web site and our e-mail
for this Committee, that in order to assure that there is
communication instead of having to CC everybody, we can
send it through --
MR. JORDAN: I think on this e-mail web site
business, you have to keep in mind there are some of us
who adamantly refuse to enter into this part of the
world. I'm one of them. I hate e-mail, I hate all of
this. I've got it, it's there.
Also there is a privacy issue and the
confidentiality issue, as relates to that, and I think
that ought to be kept in mind. There are some
Page 150
traditional old-fashioned ways of communicating, and I
hope that will not be dismissed in this process.
MR. SIMMONS: Where do faxes fall in that?
MR. JORDAN: I hate it.
MR. RILL: It depends who picks it up.
MS. BAIRD: Is voice mail okay?
MR. JORDAN: I hate that.
MR. RILL: I think another thing that would be
helpful, if we're circulating the address information, is
to the extent that we have, as I do, people in my own
shop helping me in connection with this Advisory
Committee and don't mind doing so, to identify those
persons in addition to the Committee Member, as someone
whom you might communicate with, send material to. If
you want to do that, I think it would be helpful to
expedite the thinking.
MR. JORDAN: Mr. Co-Chairman, you said
something this morning as one of the lawyers was talking
you said please send us the cases. What I would like to
amend is that they send us briefs of the cases.
MR. RILL: I was actually saying send us a list
of the cases, but I think it would be a good job for
Page 151
Chuck to abstract those cases for you.
MR. STARK: Anything else, Jim?
MR. RILL: Brings back old times.
MR. JORDAN: We can bring back the canned
briefs, but I haven't done that since law school.
MR. RILL: I was thinking citations, but
depending on workload that obviously would be helpful.
MR. SIMMONS: Jim or Paula, there's a number
of
people in Washington whom I think could make a
significant contribution to one or more of the three
areas of focus. I'm thinking of people right now -- Alan
Wolff, of Dewey Ballantine, and Bob Lighthizer -- both of
whom you know are really knowledgeable people in these
areas that impinge on trade, not just on products I make,
but as you know a wide range of products who, I think,
don't come with a particular point of view.
I remember Alan Wolff when he was an
unabashed
free trader. These are really good people, and I'm sure
there are others as well you might want to ask to
participate in some fashion, if the Committee structure
allows it. They are also fast talking lawyers. They may
be able to bring some legal light to the subject that
Page 152
some of us who are engineers don't have.
MS. STERN: I think we hope to have procedures
by which we can pull as many good thinkers into this as
possible, and I think actually one of the papers we
included was Alan's --
MS. JANOW: I think we didn't include that yet.
MR. SIMMONS: Both Alan and Lighthizer were
at
USTR and now they're both in private practice and very
good.
MR. RILL: One of the ways of doing that is to
utilize the working group format or a one-on-one format,
-- in fact, I recently met privately with Alan Wolff to
discuss these issues. Obviously any of us should feel
free to talk to anybody at any time -- but I think the
subgroup or the working group formulation is a decent way
to do that for speed and convenience.
I think, for example, an Alan Wolff would have
more to say about the trade and competition area than he
would about cartel enforcement. Maybe you wouldn't need
a full meeting of the Committee to have those kind of
exchanges. We do need outreach.
One of the things that occurs to me is when you
Page 153
look back, not through personal experience -- I wasn't
that old -- if you look back to the '55 Committee, there
were a number of academics and legal economic types that
really had spent their entire life in antitrust, so
therefore they produced a very valuable antitrust book.
We have a diversity of views and that may
perhaps be even more valuable to this effort. We will,
however, need some input, significant, substantial input
from the antitrust and trade community. We're going to
need to do outreach to outside sources to produce
technical help that would be useful to us -- the kind of
views that Alan Wolff can provide.
There are views perhaps on the other side we
should solicit, as well, in that area. We should
consider asking Diane Wood, to the extent she's
available, to talk to us regarding issues on the
competition side.
But I think the subgroup structure, if I may
point out, is something that's amenable to that kind of
input as well as the formal submission of papers.
MS. FOX: I wonder if you think it is important
for us to get started with some of our hard work in the
Page 154
form of subgroups?
MS. STERN: Yes.
MS. FOX: Before we start thinking about whom
to invite, we should know what we want to ask them.
Perhaps the subgroups can come back to a meeting of the
whole with the questions or propositions we think need to
be examined. Then we can give direction to those whom we
want to appear before us.
MS. STERN: That's a good segue into it. I
would like to talk about the next steps in the work
program breaking down into the three working groups, and
would like to survey you all to see if you have
preferences for where you would like to serve. We've had
some informal conversations before this meeting, but if
we could kind of start to see a show of hands on
expression of interest.
MR. JORDAN: Have you informally arranged us
already?
MS. STERN: No.
MR. JORDAN: I don't believe that.
MS. STERN: I have had a conversation with a
man over there. Let's see if he was right, Vernon, do
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you have a --
MR. JORDAN: Can you put in a request? I
would
like to be on the merger post.
MS. STERN: And I was right.
MR. GILMARTIN: Trade and competition.
MS. JANOW: There is no limit. It's only your
time. You don't only have to choose one.
MR. THOMAN: How much time would it take?
MS. JANOW: I realize very well when you
joined
this effort you were aware of four meetings a year, but
subgroups probably need to meet once before each meeting.
MR. GILMARTIN: A subgroup --
MR. JORDAN: Are you full-time staffing this or
are you teaching and other things?
MS. JANOW: I am a full-time professor at
Columbia, but shall give this as much time as it needs.
It is very important.
MR. JORDAN: How much staff?
MS. JANOW: Stephanie Victor is joining us, and
we're hiring two additional people, full-time staff
attorneys. I'm in the process of interviewing for those
candidates. I have a pile I'm working through and a
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couple of very appealing prospects, but we're very
enthusiastically looking for candidates as well.
MR. JORDAN: There is a direct correlation
between the effectiveness of the staff and the
effectiveness of this Committee.
MS. STERN: That is why we're so lucky.
MR. JORDAN: The extent we get pushed by the
staff is the extent to which we do our work better. That
has been my experience.
MR. RILL: I think your point is well taken,
Vernon. On the other side, I think at least in my case
when I was asked to serve, I recognized that I was going
to have to put significant personal time into it and
perhaps more valuably dedicate some of my own firm's
resources to doing some of the staff work, if you will,
in this Committee.
MR. JORDAN: Part of the honor of being
co-chairman.
MR. RILL: But for the honor of the thing,
Vernon.
MR. THOMAN: To the extent we're able to
leverage resources in that way, we can use staff
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resources also.
MS. STERN: Absolutely.
MR. THOMAN: I think trade and competition. I
also may spend some time in mergers also.
MR. SIMMONS: Given a choice, I would also
like
to be in the trade and competition. I recognize we're
going to have to balance this out. Since you're asking,
I don't mind first choice.
MS. STERN: That's exactly what we're doing.
Zoe?
MS. BAIRD: I'm open. We'll see what you need.
MS. STERN: We need cartel enforcement.
MR. RILL: Is that a generic comment or
Committee comment?
MS. BAIRD: That's truly -- I don't know about
studying it. No, I'm happy to do that, whatever you
would like.
MR. RILL: The Division will be devoting a lot
of resources as well.
MS. STERN: Your guidance would be extremely
helpful in carrying that through, and naturally we're not
going to take up time that's not needed. We'll use the
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resources where needed, but just to know.
MS. BAIRD: I have no lawyers on my staff any
more, you have to remember, so I can be part of this, but
others have to staff it.
MS. STERN: You're looking at someone who is
totally sympathetic with you, Zoe, because I'm staffing
my staff. Steve.
MR. RATTNER: I don't know a thing about
international cartel enforcement. I think you've
penciled me in for mergers. That probably makes the most
sense.
MR. DONILON: I would like to work on the
merger enforcement side as well.
MS. FOX: I would like to work on trade and
competition and also the part of merger enforcement that
regards the clashes of jurisdiction as opposed to the
part that regards the common reporting forms.
MS. STERN: Eleanor, are you focused on --
when
you talk about that, the difference in standards?
MS. FOX: Yes, I would like to work on the part
that includes standards. Different standards can cause a
clash. Sweeping in a little industrial policy under the
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rug causes clashes, too.
MS. STERN: Thank you.
Mr. Dunlop?
MR. DUNLOP: Trade and competition, and I'm
particularly interested in the borderline. I've been a
little uncomfortable myself with the discussion because
there is a large amount of trade to which I do not think
antitrust statutory standards are appropriate, and where
there may be anticompetitive behavior, all the roles of
government. For example, country X says, "If you want to
build a bridge, you've got to build it with one of our
employees. If they don't do it -- we only give cement to
people we're used to dealing with."
Or as I was discussing with the person sitting
here, if all of the retailers in the United States say
we're not going to import your clothing because it is
made with child labor, or accidents are too high, now
that clearly seems to me to violate various kinds of
competitive standards, but they may be very socially
respectable.
And I'm not comfortable with the distinction
with what violates antitrust standards, and what we
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choose to enforce are very different rules. I would
rather get the standards built into the rules rather than
treat it as somehow an enforcement proposition myself.
But anyway, that's the kind of problem as well
as your issue about healthcare.
MS. STERN: And Ray's point about the parallel
pricing.
MR. GILMARTIN: Fixed prices.
MS. STERN: Excuse me, fixed prices. It may be
that part of our job is really going to be defining some
areas which may not be, as you said, on point for an
antitrust committee. We may want to consider a
recommendation that says there should be another group
set up that does deal, you know, with those areas.
So the point is: We need to define what's in
and what's out and, even if it's out, it may still be
something that we can make some recommendations of how to
at least move the thinking forward. I'm sorry, David?
MR. RILL: I thought we missed David on the
last go-round.
MR. YOFFIE: Merit got to me this morning, and
I said I was interested in the trade and competition.
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MS. BAIRD: David, I would also ask you to be
involved in the cartel enforcement issue because
information technology increasingly would be how these
cartels would be forming and doing business, and you
would be very valuable.
MR. YOFFIE: It's like any of the other
comments made by Vernon and Rick, it is a question of
time, and I have no staff. It is just me.
MS. STERN: Your points on incentive versus
penalty even in the cartel enforcement --
MR. YOFFIE: That is something that cuts across
all the areas. How do we create the appropriate set of
incentives to get the kinds of cooperations required to
make any of these things work on a bilateral or
multilateral basis? It's going to be as time allows, is,
I guess, the only thing I can say.
MS. STERN: That's the spirit.
Vernon?
MR. JORDAN: I think the most difficult thing
that you're going to be confronting is the time of the
members of the Committee. So I think that to the extent
that you can set dates for the task forces and set dates
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for the entire Committee meeting, I think for all of us -
- the sooner the better because everybody has something
else they need to be doing. And if it's planned
sufficiently, we can work it out.
To the extent we can know dates and times and
places as early as possible, that would be very helpful.
Ray doesn't like this because I've already
discussed it with him, but Saturday morning might not be
a bad time to think about it. It might cause him a
little domestic tranquility difficulty.
MS. BAIRD: Those of us with children are glad
we've moved into the information technology age and use
e-mail and aren't going to meet on Saturday morning.
MR. GILMARTIN: You notice I went for trade
and
competition.
MR. JORDAN: I'm just telling you that time is
everything and everybody around here has a lot to do.
But we can work it out if we know sufficiently.
MR. YOFFIE: Something else on that wave
length, which is, there is another use of information
technology for those of us who are not located in
Washington. If you want to have to try to have shorter
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meetings that might be done via video conferencing that
might make it also more possible. Otherwise if you're
coming from someplace else, it is a much larger
commitment and makes it almost impossible in many cases.
MR. JORDAN: Do you have a budget?
MS. JANOW: I have a budget that is being
formed and informed as we speak.
I think some of these subgroup meetings can
also occur by telephone so we don't all have to meet in
the same location. I'm very mindful of what you're
saying about locking in these schedules right away for
the next 18 months as to the full group. And as to
subgroups, to the extent that we can do so, better still.
And I'm also very mindful of what you're saying about
good staff work in synthesizing issues.
My intention is to synthesize issues but also
give you the back up detail to fill in as your particular
interests lead you.
MS. STERN: We have a few more moments, and
I'm
wondering if there -- if Eleanor or anyone wants to kind
of delve into the scope, as you envision it, for the
working group that you're particularly interested in? I
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turn to you, Eleanor, just because you've done so much
professional work in this already.
MR. RILL: Can I preempt Eleanor because I'm
going to have to leave in about ten minutes? I'm a
victim of merger enforcement and I'm going to have to go
down and meet with a Commissioner of the FTC. Maybe we
can decide on that issue?
MS. STERN: It has been noted.
MR. RILL: I want to apologize to all members
of the Committee for this interruption.
Joel has been very clear and articulate about
the three areas, broad areas that he would like us to
cover. I just think that we, particularly you,
colleagues, should not feel limited if you think there
are other areas that don't fit nicely into those pigeon
holes, you think we ought to take up.
Ray, if you're concerned that what you're
talking about doesn't necessarily fit a neat, defined
box, that doesn't mean we shouldn't consider it. If we
want to assign it another title, that's up to us. If we
want to fit it into a pre-defined place, that's up to us.
I think the beauty of this Committee is the broad range
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of expertise and broad experience it brings to the table.
I would hate to think that those of us who have
different ideas or different permutations of the existing
areas that Joel and his colleagues have described would
feel inhibited from bringing them in, because frankly
this may be the best chance we have to bring it to the
attention of the United States Government.
Again, I guess I speak for Paula too, as
Co-Chairs we'll help out with all three and whatever
other areas we can and put the time and effort into
helping, but don't hesitate to call. I'm sorry, Eleanor.
MS. FOX: No problem. I'll just say a few
words about some thoughts I have, taking a different
slice from Joel.
There are some very separate subjects that
we're interested in. One is business. The interest in
business cuts several ways: minimization of transaction
costs when unnecessary transaction costs are imposed on
business; and freedom of business to engage in
transactions and move across the markets of the world
unrestricted by artificial restraints. I would construe
business interests as well as the second and third to
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coincide with world welfare.
Number two is enforcement, optimal enforcement
for the Justice Department and how it can improve it. We
can also think of this in terms of all agencies across
the world. How do and should authorities cooperate to
get optimal enforcement?
The third is, I think, the most challenging.
We have global transactions but national systems. This
means there is a balkanization, both of enforcement and
the way people look at markets. There are global
transactions that sometimes call out for global
perspective.
I'm not saying that we should go to the WTO for
a global solution, although that is one of the
possibilities on our plate. I am saying that we need
coherence and unity in thinking about world transactions.
This problem falls into two categories. One is
on the nation to nation level. There are many clashes
because of many national laws trying to achieve basically
the same thing, but doing it differently. Systems clash
and we need principles to resolve the clashes.
The other is: We have the opportunity to think
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about transactions globally. We may have a better
appreciation and may find better solutions.
For example, market access should be viewed as
a global problem.
There are anticompetitive state rules, and some
of them are not proscribed by the world trading system.
There are also anticompetitive private restraints of
trade. When we think about opening markets, and we have
to think about how to do it: by competition rules, trade
rules, or a new combination.
MS. STERN: Do you think that those areas are
dealt with in a separate rubric not within the three
slices that Joel and the working groups --
MS. FOX: I think that Joel suggested the
correct three slices. I was just putting issues together
in a different way.
The trade and competition issue is separate.
The premerger notification form and merger coordination
is a transactions cost problem, whereas the substantive
law of mergers may be a conflicts problem.
For both mergers and market access, we have to
figure out whether we want convergence of national law to
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solve the clash problem before it arises next time, or
whether there should be some higher principle of law.
I think we should think about what a single
world substantive standard would look like if we had one
merger law. If the law says "no anticompetitive mergers,"
we still have to know what "anticompetitive" means.
I wanted to add a thought to Joel's outline,
but I can stop if I've talked too much.
MS. STERN: Go ahead.
MS. FOX: When Joel was talking about ways to
solve the world problems such as access to foreign
markets, he said we can have unilateralism, cooperation,
or maybe -- I'm making this simpler than he said -- the
EU proposal for a WTO code. I think that we might also
consider some middle ground, and surely there must be
some middle ground.
One middle ground to throw onto Jim's that you
do have is that transparency becomes the most key point
-- this is me, not Jim now, so, Jim, I don't want to put
my wind into your mouth.
MR. RILL: I associate myself fully.
MS. FOX: There could be a world discipline
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that says to all countries, "we're going to apply -- it
also goes to Vernon Jordan's point-of-view, there could
be a world system discipline that says everybody is going
to analyze mergers, first of all, on competition grounds,
but if you choose to analyze them on jobs grounds, or X-
Y-Z grounds, or national defense grounds, this must be
very explicit.
And if you cannot authorize an anticompetitive
merger without telling us this additional ground, why at
least if this is teased out and the process is
transparent, you can then think about what you do for the
next step. Perhaps the merger is anticompetitive and
hurts the consumers of the world. But the country has
authorized it on a non-competition basis.
Then we can start to think clearly about how a
world system should treat its priorities of national
sovereignty or world welfare.
MS. STERN: I think that's a very interesting
suggestion. And not to detract from it, it still can't
resolve the problem we have where you have different
standards on what is competitive and what isn't.
MS. FOX: This is a problem, and we have to
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talk about it.
MS. STERN: The other question is: How do you
enforce that? Does, as a matter of practice, a
demonstration effect encourage others to do that?
MR. RILL: Disclosure, at least, is a good
step.
MS. STERN: That is exactly right, get our own
house in order.
MR. JORDAN: May I raise an issue that I would
think is not directly a part of our mandate, but I think
it certainly impacts our mandate, and that is this
historic blind justice view, one or the other between the
public sector and the private sector. In that there are
certain assumptions made by people in the private sector
that are wrong and misinformed about people in the public
sector who have enforcement regulatory supervision. But
the same attitude exists on the public side. Wrong
assumptions, misinformation, and somehow maybe we can
find a way to address this problem of how the private
sector would better understand what the mandate is down
here, and the people down here can better understand what
Ray is trying to do or Rick at Xerox. I think that
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historically has been a fundamental problem.
Secondly, we're trading with countries most of
whom never heard of or do not have a Foreign Corrupt
Practices Act. When you try to get your fruit from one
side to another, the guy says you have to pay me, you say
we don't do that in our country, and your fruit rots if
you don't get it to market. There is a lot of
misinformation and misunderstanding about two processes
that are very important and make this democracy and free
market what it is.
So it seems to me -- I don't know how we do it.
The Yale School of Management was supposed to have a way
to solve it, but all the graduates went into business.
But something, it seems to me, has got to be
thought about so we can make people in these two sectors
understand one another better. And I don't know how we
do that, but I do know that it's a problem and, of
course, the other problem is how we make different
countries in different cultures appreciate one for the
other.
MR. THOMAN: I had a thought. One is: It
would
be useful somewhere to have access to a fact base. You
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argued to the extent industries are concentrating around
the world it makes issues more important. To the extent
they're deconcentrating, maybe less important, maybe in
certain industries they're more important than in other
industries. Maybe we want to focus a little more
selectively industry by industry. To do that we have to
have a fact base to where we think the issues will be
particularly relevant as we go forward.
MS. STERN: Of course you stipulated us off on
the high tech as well.
MR. THOMAN: That aspect is all conjectural.
More conjecturally, think how that impacts competition in
the future is another -- it may be useful as opposed to
doing every industry in the world everywhere. We get
some sense of where these issues are going to play and be
important and in a little more focus.
MS. STERN: As the composition of the
Committee
was considered, of course, we -- it was recognized you
can't cover everything.
MR. THOMAN: That's implicit; you may find it's
more explicit than that.
MS. STERN: I think we are talking about trying
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to get analysis. Merit, you want to give us insight on
that?
MR. JORDAN: Before we do, may I have that
hall
pass I asked for earlier?
MS. STERN: Yes, you may. Thank you for your
contribution, Vernon. See you soon.
MS. JANOW: I would like very much for us to
reach out to investment banks and business consulting
shops and professors and all, to give us some sense
particularly on the merger and analysis side, and if I
may call upon Steve, I was going to say that I didn't
have a chance to ask you this privately before --.
MR. RATTNER: This is not one of the things I
was going to serve about.
MS. JANOW: I know the Division keeps data on
the mergers it reviews, some data on multiple reviews of
the transactions it reviews, so I'm hoping to extract
from the Division the data it has, which is a particular
slice. But I think what you're talking about is more
prospective economic trends, which I think is very
important for us to consider. Another dimension we
haven't talked about, but you just alluded to, is the
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conduct of deconcentrating and privatizing enterprises in
their own environments and internationally. So to the
extent we can bring in some data analysis, I think that
--
MR. THOMAN: Maybe the cases we talked
about
were highly concentrated.
MR. DUNLOP: The discussion uses the word
industry, but the real question is products. You may
have industry that is highly decentralized or other
products that are very highly concentrated, so there are
all kinds of output that is controlled by the three
largest firms, five largest firms. But the real problem
is the SIC code, which is a very much more complicated
subject, and I'm not aware quickly of a general
availability of that sort of information.
So I'm just trying to suggest to you it's a
tougher problem than you might have thought because it's
not industry.
MS. STERN: It's a data problem.
MR. DUNLOP: It's a product.
MS. STERN: But getting the data broken down
to
more commercially relevant --
Page 175
MR. DUNLOP: Let's just say it's more --
MS. STERN: You're saying you've done all of
the research in this area, you're going to discourage us
from -- David, you take it.
MR. DUNLOP: There are any number of people
in
business school.
MR. YOFFIE: I think what he's saying is that
the average statistics aren't going to do us much good.
If you're looking at the area we're talking about this
morning, Richard, you said you were buying -- I've
forgotten the product, graphite electrodes. That is not
something that would show up in these statistics, but
those are the areas you'll see the kinds of cartel
arrangements that are potentially damaging.
MR. DUNLOP: Take the list of cases they didn't
proceed with this morning. Archer Daniels -- it isn't
coal or something like that, it is those two specific
assets. So it's a product issue.
MR. THOMAN: You're exactly right. And
industrial goods. Others you could argue. Boeing/
McDonnell, the large bank concentrations are just a few
more -- I think you're correct, but we still may be able
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to approach it and get some substance from it.
MR. YOFFIE: It would be more useful for the
merger than the cartel information. It would apply
differently in different areas.
MS. JANOW: I interpreted what you're saying as
"it" being primarily a merger.
MR. THOMAN: And the competitive issue.
MS. JANOW: Yes.
MS. STERN: We have to get a sense of the
universe against which we're making policy
recommendations and where that universe is going to be in
the next five, ten, 20 years. That was one of the
reasons why I was asking just generally on the kinds of
cases that had been before the Justice Department and the
FTC. To the extent to which they have been increasingly
internationalized and reflective of the sectors of the
SIC codes, I think it will be very informative to the
extent we can get it.
MR. DUNLOP: May I raise one other question
and
I'll try -- one of the memos I would like to see in
keeping with the remark one of our colleagues made about
getting our own house in order is to what extent in
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Federal countries -- US, Canada, et cetera -- are state
antitrust actions a problem? I'm well aware that in the
United States we have some ambitious -- maybe that's
unfair -- attorneys general who choose to enter this, and
then the question is has that turned out to be a problem?
How are those problems resolved when they arise? If
we're going to get our house in order, which I think is
very sage advice, we ought to have some idea to what
extent state attorneys general in their prime have been a
part of the solution, a part of the problem. Our
Co-Chairman was telling me privately that there are many
cases where the state attorneys general have put into
effect under such cases pretty anticompetitive solutions
to problems. So I would just like to know, and I think
we all ought to know, what has been the activity in this
country of the State antitrust authorities.
MS. STERN: In fact, if we're asking for a memo
from the Justice Department or for some research to be
done for this, it would be telling not only in terms of
the remedies they might suggest, but also in terms of
transaction costs again.
If we as a body make recommendations about
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other countries getting forms and time tables aligned
with the U.S. and vice versa, I suspect we may hear from
other countries saying, gee, we would like these states
to get their forms and requests aligned.
So I think informing us factually to the extent
to which this is a problem will help us make a better
recommendation going forward and getting the house in
order.
MR. GILMARTIN: Just following up on the
transaction costs, that's important, but also other
things such as predictability are important as well.
When you're about to consider a transaction, the first
thing you consider is: Can I get it done? And you're not
going to trigger anything because it's just too
devastating to start in and not complete it.
To the extent there is lack of transparency,
the barriers are too high, because of the regulatory
complexity, it would have a very chilling effect on the
number of mergers that were done for acquisitions. So
that's another cost, if you will, in a different way, an
opportunity cost if we don't resolve some issues.
MS. BAIRD: If I might, predictability has two
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aspects to it. One is what jurisdictions might have
interest, and that isn't obvious and isn't always defined
in advance. And in this area a real contribution could
simply get the potential field of jurisdictions or
regulatory entities defined in advance. Then secondly,
what do they need to know?
Not necessarily outcome, but obviously
standards would be the third thing ideally. But often
the standards are known, if you can guess who is going to
be jumping in, and if you can figure out what they're
going to want, you often don't get the first two, even
though you know the third.
MS. STERN: David, I'm sorry, are we still on
transactions?
MS. FOX: I wanted to talk about state and
private actions.
MS. STERN: Shall we stay on the state thing,
then go --
MS. FOX: What John said is correct, though I
wanted to add a word of warning: This could detract us
from other issues that we have to focus on more
carefully. There has been an enormous amount of work
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done on the cost of private actions. There is a
Georgetown study on it. They did a symposium and a study
about five years ago, in response to complaints that
state and private actions increase the costs of
transactions.
Our state attorneys general are falling in line
with federal formulations on premerger notification and
timing in order not to rock the boat. So I think, while
state and private enforcement is a really important
issue, it's going to distract us.
MS. BAIRD: That is why I made my comment
too,
if I might add, I don't think anybody will usefully
recommend that people who have jurisdiction should not
play in the game. I think that could become a huge
distraction for us, and there might be areas where you
say there ought to be federal preemption, but it's really
a huge distraction.
But if you at least know everyone who might be
in the game or what they might require in terms of data
and you might get to some uniformity of data
requirements, people are used to going to multiple
jurisdictions in all of these industries, as you can say
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as well as I might.
MR. YOFFIE: When Joel presented this morning,
I was fairly convinced that this was a reasonable way to
organize the structure of this group. But now after
thinking about it a little bit, I'm not quite as certain.
I think it might even be a little premature to start
working in the narrow on individual working groups
because I think there actually are some themes that cut
across all the groups that are really going to be the
critical issues for this group to consider.
We've talked about in all of these areas there
are questions of overlapping jurisdiction. This is
something that each group has to consider. We've talked
about the question of getting our own house in order.
That cuts across all the groups in thinking about the
appropriate organization for the U.S. Government to
effectively pursue competition. It certainly applies
across all the areas. How do we think about streamlining
procedures? That's going to be relevant to all three.
We've talked about trying to create incentives
for cross-national cooperation, whether that be bilateral
or multilateral. That cuts across all of them.
Page 182
We haven't talked about, again, specifically
things about how the new information economy cuts across
potentially all of them in a variety of different ways,
which would be e-mail on cartels, which I don't think is
all that relevant, but it could be to questions of whole
new areas that are currently not being considered by the
Justice Department because they're too new.
But that's where we have the opportunity to get
ahead of the game again. We don't have anything here
where we're specifically addressing that.
I at least want to pose the question where we
might think initially about some of these themes more
broadly, then come back to some specific organizations
around these particular areas which I think will help the
Justice Department, but I'm not as clear that starting
with the individual areas is necessarily going to yield
the best results.
MS. JANOW: Can I ask us, David, if this
bridges the gap? Because these themes cut across all and
I think even if we were to form groups, we would be in
our full group meetings discussing all subjects.
So in a sense, my hope is that if we do proceed
Page 183
down working groups, that is, in fact, generating themes
also for consideration. In other words, we do both
simultaneously, just as a way of proceeding. I think if
we don't operate in some sort of task force, that our
ability to go deeply into each of these areas might be
somewhat more constrained. I'm wondering if we could do
both simultaneously. In fact, charge ourselves with the
identification of cross cutting themes even as some go
deeper in some areas.
MR. YOFFIE: The only problem again is overlap
and, potentially, redundancy. Someone has to be certain
that that is not happening because people here don't have
the time to do that.
MS. STERN: That's a job of the discipline that
Merit and the staff is going to bring.
MS. JANOW: And the Co-Chairs.
MS. STERN: We're going to be here as well. In
fact, Jim and I are going to try to participate as much
as possible and in all of the meetings. It's obviously a
function of time.
MR. THOMAN: I assume because you can't do
everything, I assume there has been an argument that goes
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back and forth for a number of years that certain capital
markets benefit host companies in those capital markets
more than others. The Japanese have 1 percent. That's a
competitive advantage. You can argue national companies,
the old multi-nationals and the new multi-nationals,
those at least, are things we haven't mentioned, but I
assume we're to keep this thing within manageable
dimensions. I assume we really don't want to consider
them.
MS. STERN: That's my take.
MR. THOMAN: Nobody has mentioned that the
sources of competitive advantage come in all sorts of
flavors, and we have to keep it manageable, I would
assume. Is that the sense of this group?
MS. STERN: I think so. And we can, by the
way, in our book is the charter, and I think having
participated in a number of competition policy advisory
groups as a member and a director -- I was on the one
that was set up by Congress and the President and went on
for several years -- I think that we ought to stick with
our comparative advantage and focus that the Justice
Department set us up with.
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MS. JANOW: Since the largest group here of
interest is in the market access area, Joel identified
three ways of thinking about market access: traditional
barriers, structural, and conventional antitrust. And my
experience coming out of the trade business is that,
oftentimes, what American business has identified as
problematic in doing business internationally is some
combination of business practices occurring abroad that
may or may not be operating in an environment of
antitrust laxness or discriminatory enforcement but may
not, in fact, be an antitrust-defined problem.
So I think there might be some work to be done
here in thinking about what are the trade and competition
issues that need to be considered by this group and where
are the gaps between what is a Justice Department focus
versus a trade focus might produce in terms of how
governments think about these problems. Is that
constructive?
MR. THOMAN: It's not the traditional things,
more new things that aren't -- many are related to
technologies, as we stated before.
MS. STERN: In what sense that it may relate to
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--
MR. THOMAN: For example, that a search
engine
looks for certain Japanese products and nobody else is
biased, so that kind of issue. Just an example.
MS. FOX: It's a CRS bias.
MR. THOMAN: Right, a CRS notion applied to
the
Internet.
MS. FOX: There were three in the field and
there was no combination. That is a gap area, especially
if the antitrust enforcement would not be
anticompetitive. We don't want to suggest any rules that
themselves would be anticompetitive.
MR. SIMMONS: I don't want to be a pessimist,
but I hope we don't set our expectations so high with
regard to what it is we'll be able to accomplish within
the range of the number of meetings that we have
scheduled without a massive amount of staff work.
I would also like to remember what I think Joel
has told us is our responsibility, and that is to try and
create a photo color road map that might, in the future,
lead to some type of voluntary coming together of the
different policies of countries around the world. I
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could fill books with the differences between one economy
and another, whether it be with regard to value-added tax
rebates which, of course, gives them an export advantage,
but which our courts have found to be legal as long as
they're not specifically applied to an industry. Or a
difference in social costs or no layoff policies which
means you produce an excess. I don't really think that's
what our charge is.
I hope what that charge is, is to try and
provide a series of directions that, at least, the
Justice Department would consider, accept, or reject, as
Joel indicated, as something that could be used as a base
for hoping to move other countries and us to some common
direction. Although even he admitted it might take a
long time to reach it.
I think that there are a number of fundamental
issues in the area of cartels, as one example, that are
clearly in violation of what we consider to be antitrust
anticompetitive behavior, by definition. And I think
that ought to be examined and we ought to try and offer
suggestions that might lead to accomplishing the things
that Joel Klein outlined.
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The area of competition and access is a more
difficult one because all of us think of it so frequently
anecdotally. We've had an experience in a given nation
or nations in which we're convinced that we are precluded
from those markets and we believe that's anticompetitive.
And I think we talked about what a number of those would
be -- a developing nation which is now developed which
continues to exclude competitors. I think Korea is a
classic example of that. How we can frame those
thoughts? And whether or not we can even frame them in a
fashion that the DOJ feels comfortable with is another
question. I think the issue that I did not define
clearly this morning to Joel is that a number of
companies in different countries, not the countries
themselves, reach agreements not to compete with each
other and therefore divert trade to a third country. It
might be the United States, it might be Europe, it might
be some other country. I think those are the broad
issues I hope we're going to spend a great deal of our
time on. As we start to peel the onion too finely, I
think we're going to get bogged down in details that will
not be productive.
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MR. THOMAN: I agree. I was just trying to
make explicit what we are going to do.
MS. STERN: I agree with everything you said.
MR. SIMMONS: Everything?
MS. STERN: Absolutely. I wanted to question
one thing, however, and that is the recommendation to the
Justice Department because I see this also potentially
overlapping with recommendations that will have impact
beyond the Justice Department. Joel did talk about
informing the Government and I think one of the reasons
that has animated the creation of this Committee is that
there has been issues of multiple interest, not the
traditional, FTC/Department of Justice, but the goal of
international activity with trade agencies and the
Commerce Department as well as with the Justice
Department.
So there may be things that we may be coming up
against which will have implications for changes or
recommendations or regulatory adjustments outside of the
Justice Department.
MR. SIMMONS: I agree with that. But our boss
in this particular case is DOJ.
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MS. STERN: I thought it was Merit.
MR. SIMMONS: It's Merit then DOJ, who is
paying the budget.
MS. JANOW: Hopefully we'll have lots of
bosses.
MS. STERN: Too many, any other comments?
Merit I know has already started to make some phone calls
around to make sure in answer to Vernon's point that we
try to get the next meeting dates for the entire year
locked in. And I turn it over to you, Merit, to tell us
when we will next hear from you.
MS. JANOW: You will hear from probably
someone, Stephanie Victor, or others, coordinating with
each of your offices about calendar. As I said, that's
started, but we hope in the next two weeks to be able to
circulate an agreed upon timetable for the next 18
months, at least for the full group.
We were thinking that May was the appropriate
time frame for the next meeting maybe late August. Some
are saying no, not late August. Let's do it early
September then kind of late October/November time frame.
That's one kind of benchmark I'm thinking of, at least,
Page 191
this calendar year. But we'll be in touch with all of
you to be much more concrete.
But if there's anything, if I may ask all of
you, if there is anything that you think that others
should read or consider, please send that to my
attention. I think at this point while structure is
critical, I hope we can also be a little experimental in
getting the benefit, for those of you who own large
companies, your individual views and those of your
corporations, and really get a lot of input into our
system here.
We had talked informally that at some point of
trying to have some sort of hearing process or roundtable
process. It's premature to talk about, maybe at this
point, specifically what that might focus on, but any
thoughts you have even at this early stage about those
processes, and groups to reach out to, that's helpful.
As I say, there will be an opportunity for
interested groups to provide input to us through the
federal register notices and the web site and so forth.
But there are others that we know of who are doing work,
and we know the OECD and WTO and intergovernmental
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organizations are discussing exactly these issues, as
well as the ABA. There is some work going on in this
broad field that we're aware of, but all of you are
likely to know of others, even if you think it's obvious,
feed it into us. It would be helpful.
MS. STERN: You prompted me to add to the
different groups that are looking into this for my own
personal work and advice with the Trans-Atlantic Business
Dialogue, and I know that continually today the US-EU
came up. And when we were talking about the three
different models, Joel talked about a unilateral model,
then positive comity, then he talked about the notion of
using the World Trade Organization, but there may be baby
steps as I was suggesting this morning, where the U.S.
and EU may be closer together and we were briefed on a
number of those that we might be able to accelerate some
of the recommendations, if they're applicable in US-EU
conduct. Whether they're actually ready for prime time
on a global scale, or as Brittan suggested, on a WTO
scale.
So I wanted to share that with you all because
it is one of my personal interests, and I know Rick
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you're going to be participating in the competition
policy aspect of that Trans-Atlantic Business Dialogue
with both U.S. CEOs and European CEOs. For you all's
further information, it does seem that the molecules are
moving faster in US-EU trade and just general dialogue
right now. President Clinton and Prime Minister Blair
will be meeting again in May. Blair of Great Britain has
the lead these six months in presiding over the EU as
well, so there may be some interesting developments that
will accelerate some ideas and I hope that, as a group,
we can think immediately as well as thinking long range
for what the panacea shall be that will come from this
group.
I also wanted to make some other point about
small- and medium-sized companies. We talked about
transaction costs and naturally transaction costs are
going to be disproportionally born by companies that
might come in under the smaller rather than larger
category. And I was stimulated by a conversation I had
at lunch, off line, about those U.S. companies which may
not hit the barrier in the EU that triggers EU review but
rather triggers a country-by-country review in Europe, so
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that you have multiple transaction costs of having to
fill out forms in each one of those countries, except, as
we heard, France, Germany and England share a form.
So I think to the extent our collective group
can think about the entrepreneurial types and the smaller
emerging middle-sized companies as well, whether they're
in high tech or not, I just wanted to put it on the
table.
MS. JANOW: Could I give you a footnote on this
thick volume that some of you have claimed was a little
too thick. We're going to be sending you things that
should be considered resource materials for you and
others in your organizations. We will try to distill it
so we direct you to that which you might find most useful
to read.
In this first volume there is the EU Experts
Report that was the European counterpart to this effort.
The EU's Van Miert and others brought together a less
diverse group of antitrust experts and considered what
should be done and that's what they've produced. So you
might want to take a look at that. I think it's not a
consensus document but it does find points of consensus.
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Jim and Joel both referenced the 1955 Attorney General's
report. That is a multi-volume, very serious treatise.
And the EU treatment is comparatively slim. I would hope
that in this process we can go much further than the EU
because, as someone said, this is still a new field.
MS. STERN: Further comments? Further
instructions? Gratuitous remarks? Well, we're ending
before the time allocated, which, I suggest, indicates
how efficient we're going to be operating. I would thank
again each and every one of you for giving us all of your
time today. It was 100 percent. We've all sat on a lot
of different committees. This one is particularly
ambitious, particularly as Merit pointed out, Joel sees
this like a comet, every 20 years hopefully shedding
light for the future.
It's also pretty long. We'll be sitting for a
period of time up to 18 months, or more if necessary. So
I thank you for what I think was a terrific beginning and
you'll be hearing from us very, very soon. And with
that, the meeting is adjourned.
(Whereupon, at 3:14 p.m., the meeting was adjourned.)
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