Over the past several administrations there has been a broad consensus on the important role that antitrust law plays in our free market economy, and antitrust enforcement has enjoyed broad bipartisan support. However, many people in the antitrust bar, academia, and the business community question whether the Department of Justice Antitrust Division (DOJ) has struck the right balance between under-enforcement and over-enforcement in recent years. President-elect Obama was critical of DOJ antitrust enforcement during the campaign, so we should expect changes in antitrust enforcement in the Obama administration.
Increased Merger Enforcement at DOJ
President-elect Obama has stated that he intends to “reinvigorate antitrust enforcement” and “step up review of merger activity,” so that is certainly likely to be an area of change, especially at DOJ. Many commentators were surprised by DOJ’s decision not to challenge several high profile mergers in concentrated markets, such as Whirlpool/Maytag and XM/Sirius, and DOJ also was criticized for the adequacy of remedies in other cases. DOJ seemed far more receptive to efficiency claims than past administrations. On the other hand, DOJ recently threatened to challenge the proposed agreement between Google and Yahoo!, which was abandoned by the parties in the face of that challenge. The Federal Trade Commission (FTC) has been more active in merger enforcement, with three litigated mergers in 2007 and two in 2008 (Whole Foods, Equitable Resources, Western Refining, Inova, and Polypore), so change in merger enforcement at the FTC is less likely.
Renewed Emphasis on Conduct Cases
The Obama administration is likely to bring a different perspective on dominant-firm issues. The Bush DOJ failed to bring a major monopolization case in eight years, and instead advocated standards that focused more on the risks of over-deterrence than the benefits of enforcement. DOJ recently issued a report on Sherman Act Section 2 that would set a very high bar for antitrust scrutiny of single-firm conduct. DOJ sought to have the Microsoft consent decree lifted, although the court rejected that effort after state attorneys general objected. DOJ also criticized foreign enforcers and courts that challenged dominant firm conduct with potential effects in their own jurisdictions. In contrast, the FTC brought several Section 2 cases and achieved significant settlements in cases like Unocal, which involved the manipulation of a standard setting effort. Three of the four sitting FTC Commissioners were critical of DOJ’s Section 2 Report on the ground that it “would be a blueprint for radically weakened enforcement of Section 2 of the Sherman Act.”
It is likely that the Obama administration will focus more resources on single-firm conduct investigations and litigation. The potential consolidation of several industries in the wake of the current financial crisis may heighten the need for investigations of market power abuses in the future. The federal antitrust agencies should play an important role in single-firm conduct enforcement because they are objective and act on behalf of consumers, unlike competitors who may bring private actions more for their own benefit than in aid of competition. However, since it can be difficult in some cases to distinguish between vigorous competition and anticompetitive conduct, the Obama administration will need to tread carefully and provide clear standards by which it will evaluate single-firm conduct.
Given the emphasis on rising health care costs during the campaign, issues involving health care are likely to be a focus of the Obama administration. President-elect Obama’s campaign antitrust statement specifically targeted agreements that, according to the campaign, “artificially retard the entry of generic pharmaceuticals," while emphasizing the importance of "preserving the incentives to innovate” for branded pharmaceutical firms. This will likely encourage the FTC to continue its scrutiny of such arrangements.
Antitrust Policy Advocacy
The Obama campaign antitrust statement supported elimination of antitrust exemptions that have sheltered certain industries, such as insurance exemptions, and renewed scrutiny of implied immunities and exemptions that protect some regulated industries from price competition. President-elect Obama has not called for new antitrust laws, but rather has advocated vigorous enforcement of existing laws.
The campaign antitrust statement also recommended strengthened antitrust advocacy to ensure that special interests do not use regulation to insulate themselves from competition. The Bush administration DOJ and FTC also engaged in policy advocacy before Congress, the Supreme Court, federal agencies, and state legislatures and regulators. The Obama administration is likely to continue those efforts.
Continued Aggressive Cartel Enforcement
DOJ’s record on cartel enforcement has been strong. Its amnesty and leniency policies have encouraged self-reporting and led to pleas and criminal convictions in high-profile cases. For example, in FY 2007, DOJ obtained $630 million in criminal antitrust fines (the second highest annual total in history) and more than doubled the previous record for number of jail days imposed. These numbers may be partly explained by the increases in criminal penalties for antitrust violations that were approved by the U.S. Sentencing Commission in 2005, but DOJ deserves credit for advocating increased penalties and for energetically enforcing the law, including the following notable cases:
- In November 2008, three leading electronics manufacturers agreed to plead guilty and pay a total of $585 million in criminal fines for their roles in conspiracies to fix prices in the sale of liquid crystal display (LCD) panels. LG Display Co. Ltd. alone will pay $400 million, the second highest criminal antitrust fine ever imposed.
- In June 2008, several international airlines agreed to plead guilty and pay criminal fines totaling $504 million for participating in a multi–year conspiracy to fix air cargo rates.
- Between 2005 and 2007, DOJ imposed criminal fines totaling more than $730 million against four companies and 18 individuals involved in a global conspiracy to fix prices for dynamic random access memory (DRAM). DOJ also advocated strengthened cartel enforcement by other countries, including successfully urging foreign enforcers to adopt leniency and amnesty programs similar to those used so effectively in the U.S. The Obama administration will continue these efforts.
Antitrust has been one of our most successful exports -- more than 100 nations now have antitrust laws. This growth, combined with the increasing integration of the world economy, makes cooperation between antitrust agencies around the world more essential. Moreover, crises in the financial markets are leading to an increasing number of large-scale government interventions in markets worldwide. As a result, the institutions at the core of a well-functioning market economy – including the antitrust agencies – have an even more crucial role to play in preserving the effective operation of free markets. The importance of international cooperation between antitrust agencies in ensuring the effective and coherent enforcement of antitrust laws around the world has never been greater or more complex to achieve.
The ever-increasing number of enforcers gives rise to the possibility that businesses operating in multiple jurisdictions may be subject to conflicting or differing outcomes. Thus, increased cooperation among antitrust enforcers — through increased dialogue involving international organizations, such as the International Competition Network and OECD, and through multilateral and bilateral agreements — must play an important role in future antitrust enforcement.
Unfortunately, it is not clear that the US agencies continue to enjoy the same leadership position in international antitrust that they had in the past. For example, DOJ no longer leads in surveys of the top enforcement agencies. Foreign agencies have started looking to the European Union for guidance rather than the U.S. For example, the new Chinese Anti-Monopoly Law borrows concepts from European competition law. The Obama administration should renew America’s status as the international leader in antitrust policy development and convergence, and re-establish it as a credible advocate for the view that antitrust law must be used to protect consumers from conduct that threatens to stifle competition and innovation. The Obama administration likely will seek to improve international cooperation in a variety of areas, from cartel enforcement to merger review to dominant firm investigations.
The general consensus in the antitrust community is that enforcement at the FTC has been far more robust. The FTC has been more active in merger investigations, and also initiated several dominant firm and conduct investigations, including using its authority under Section 5 of the Federal Trade Commission Act, which prohibits unfair methods of competition. The FTC’s significant matters during the Bush administration included the following:
- The FTC challenged the proposed acquisition of Prince William Health System by Inova Health System, which was abandoned by the parties.
- The FTC filed several cases to prevent brand name drug companies from paying generic competitors to stay out of the market in settlements of patent infringement litigation – commonly called “reverse payments” – including high profile cases against Schering Plough and Cephalon, although several of those decisions were reversed on appeal.
- The FTC initiated several cases involving manipulation of standard setting organizations. In 2006, the FTC ruled that computer technology developer Rambus unlawfully monopolized several technologies by distorting a critical standard setting process. The DC Circuit reversed that decision, although a petition for Supreme Court review remains pending.
- At Congress’ direction, the FTC proposed regulations regarding the manipulation of petroleum markets. It expects to conclude the rulemaking by the end of 2008.
- The FTC’s antitrust enforcement under Section 5 has been controversial and was recently the subject of hearings on its appropriate scope.
To a large degree, policy changes will arrive through new leaders. President Obama will have the opportunity to appoint new leadership at both antitrust agencies. In addition to a new Assistant Attorney General for the Antitrust Division, he will appoint several new deputies, although the wellrespected Scott Hammond likely will continue as deputy in charge of cartel enforcement. At the FTC, President Obama could use the existing vacancy to appoint a new Chairman, or he could name a current Commissioner as Chairman, most likely Jon Leibowitz, a Democrat, or Pamela Jones Harbour, an independent. Finally, both agencies will seek new chief economists.
The Obama administration will continue to build upon the broad bipartisan consensus that the antitrust laws are essential to a growing and healthy free market economy, and it will continue the Bush administration’s strong cartel enforcement. The Obama administration will likely be more aggressive in its oversight of potentially anticompetitive mergers and dominant firm conduct. Change in antitrust enforcement typically occurs at the margin, but the margin in the transition from the Bush administration to the Obama administration is likely to be broader than it has been in other recent transitions.