APPROACHES TO ENFORCEMENT OF
COMPETITION LAW AND POLICY
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SUBMISSION OF THE UNITED STATES
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This paper discusses the United States' approach to enforcement of competition law and policy. The paper first focuses on the U.S. competition laws and of economic activity which, under the U.S, system, are subject to those laws. The paper then proceeds to a discussion of government enforcement institutions and methods including a discussion of some of the ways in which U.S. competition policy is made. The paper concludes with a discussion of the role of private parties in the enforcement of U.S. competition laws.
Before getting into a discussion of the U.S. antitrust laws, and a description of the kind of competitive harms they are intended to prevent, it is probably worth noting that in the U.S, these laws are applied in the context of an essentially private economy, since the overwhelming majority of commercial enterprises in the U.S. are privately- not state-owned.
The U.S. has a long history of antitrust enforcement. The U.S, Congress enacted the first U.S. federal competition law �� the Sherman Act �� in 1890. Almost 25 years later, in 1914, the U.S. Congress enacted the Clayton Act and the Federal Trade Commission Act �� at which point the primary U.S. antitrust laws were in place. The Sherman Act contains broad bans �� with both criminal and civil penalties �� on price-fixing agreements, monopolization and other unreasonable restraints on trade. Section I of Sherman Act states that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal. " Sherman Act禮2 makes it unlawful to "monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states, or with foreign nations." The broad prohibitions of the Sherman Act have been read into section 5 of the FTC Act.
The Clayton Act prohibits mergers and certain other forms of conduct, the effect of which may be anticompetitive. Specifically, Clayton Act 禮7 prohibits mergers and acquisitions "in any line of commerce or in any activity affecting commerce in any section of the country,儮�where儮�the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly��" Mergers and acquisitions may also be challenged under sections 1 and 2 of the Sherman Act and section 5 of the FTC Act.
As can be seen from their language, these statutes are phrased in terms of broad prohibitions. The determination as to the kind of conduct that constitutes an "unreasonable restraint of trade" or the kind of merger "the effect of which may be substantially to lessen competition" has been delineated over the past 100 years by court decisions in specific cases. During the course of this judicial process, certain kinds of conduct have come to be recognized as being so economically harmful as to obviate the need for and in-depth search for anticompetitive effects. Such practices, i.e., price-fixing, bid rigging, agreements to limit output, as well as horizontal agreements allocating customers or territories, have been designated as per se antitrust offenses. Prosecution of such violations requires nothing other than proving that the relevant conduct occurred �� no proof of competitive effect is needed. Such per se violations are also essentially the only competition law violations that are prosecuted criminally.
Criminal violations of the Sherman Act by corporate defendants are punishable by fines of up to $10 million or double the gross amount gained from violation of the law or loss by the victim(s). Sherman Act violations by individuals are punishable by fines of up to $35,000, and up to three years imprisonment. The Department has recently requested Congress to increase the fine for corporations to a maximum of $100 million. This increase has been requested to ensure that antitrust penalties are not written off as a mere minor cost of doing business.
The primary purposes of the U.S. antitrust laws have been articulated differently at different times and in different contexts. Joel Klein, Assistant Attorney General in charge of the Antitrust Division of the Justice Department, recently explained the primary purposes of the antitrust laws as being the prevention of agreements or mergers that create or increase market power, and the prevention of unilateral actions that use existing market power to protect or expand a monopoly. Mr. Klein went on to explain that the three key statutory provisions of the U.S, antitrust laws are clearly aimed at these issues �� section 1 of the Sherman Act bars anticompetitive agreements, section 7 of the Clayton Act bars anticompetitive mergers, and section 2 of the Sherman Act prohibits the abuse of monopoly power. As Mr. Klein goes on to discuss, among the most significant potential anticompetitive effects of increases in market power or expansion of monopoly are a diminution in price competition �� which translates into higher prices for consumers �� and/or a reduction of innovation competition.
Higher consumer prices are one obvious result of most of the cartel-related activity usually prosecuted as per se violations of Sherman Act 禮1. Price-fixing and bid rigging are explicit attempts on the part of competitors to themselves set a price higher than the price which would prevail in a competitive market. Output restrictions, in effect, create some measure of artificial scarcity, which also usually results in prices rising above those that would prevail in a market free of such agreements. Finally, a likely �� and often the intended �� result of agreements to allocate customers or territories is the elimination of price competition for these customers or regions. Supracompetitive pricing can cause economic inefficiencies, as consumers purchase less of the affected product than they would if the good were priced at a competitive level.
In the merger context, DoJ and FTC have articulated the likely anticompetitive effect of enhanced market power as: (i) a lessening of competition through coordinated interaction, and/or (ii) a lessening of competition through unilateral effects. As the agencies explain in guidelines explaining their merger enforcement policy, coordinated interaction "is comprised of actions by a group of firms that are profitable for each of them only as a result of the accommodating reactions of the others". For example, a price increase might be profitable only if rivals follow. A strategy of reduced research and development �� which could enhance corporate profits and retard product innovation �� might also only be feasible only if engaged in by all competitors in a market. Unilateral effects, as the term implies, constitute actions �� such as increasing prices, reducing output or suppressing innovation �� that firms with market power may find profitable to undertake on their own.
The kinds of potentially anticompetitive unilateral effects identified in the merger context apply also in the case of monopoly. The anticompetitve effects of other practices, which are neither merger nor cartel related, are more difficult to generalize about. These practices will, by definition, however, result in increased prices, reduced output, diminution in consumer choice, retardation of innovation, or some combination thereof.
The two federal agencies for enforcing the U.S. competition laws are the Department of Justice (DoJ), through its Antitrust Division, and the Federal Trade Commission (FTC), an independent administrative agency established in 1914. A clearance procedure between the two agencies ensures that the same conduct is not subject to investigation by both agencies at the same time.
The DoJ is an Executive Branch Department; it enforces the antitrust laws (Sherman and Clayton Acts, but not the FTC Act) through criminal prosecutions and civil law suits in the federal courts. The DoJ has sole authority to prosecute federal criminal violations. The FTC is an agency independent of the Executive Branch. It is composed of five Commissioners appointed for staggered seven-year terms by the President, with the advice and consent of the U.S. Senate. No more than three Commissioners may, at any one time, be members of the same political party, and none may be removed from office except for non-feasance or mal-feasance. The President may not dismiss a Commissioner because he or she disagrees with the Commissioner's views.
The FTC enforces the antitrust laws (Clayton Act, FTC Act provisions on "unfair methods of competition," but not the Sherman Act) principally through administrative proceedings. The FTC also enforces provisions in the FTC Act that protect consumers against unfair or deceptive acts or practices. In addition to its adjudicative authority, the FTC has the authority to conduct economic studies and has the power to promulgate industry or trade regulation rules primarily for consumer protection matters. The FTC's ultimate recourse for enforcement of its orders and consumer protection rules is through the federal courts. Violation of Commission orders or consumer protection rules may result in significant civil monetary penalties.
In investigating criminal Sherman Act violations, DoJ relies primarily on the investigative powers of the federal grand jury. Under U.S. law, the function of the grand jury is to investigate possible criminal violations of the federal laws and to return indictments where there is probable cause to believe that a violation of law has occurred. The grand jury has authority to compel the production of documents from individuals and corporations, as well as to compel the testimony of witnesses. In its investigations, DoJ also relies on the voluntary production of information, on interviews conducted outside of the grand jury setting, and on other investigative techniques. Once indicted, i.e., named as a defendant in a criminal action, the corporation or individual has the right to a trial by jury. (The trial jury is different from and independent of the grand jury which returned the original indictment.)
In investigating civil non-merger competition law violations (e.g., potential monopolization offenses or other economic arrangements which are not per se illegal), DoJ and FTC have the authority to compel the production of documents from individuals and corporations, as well as to compel written answers to written questions and to compel oral testimony, through the use of process Known as Civil Investigative ("CIDs"). Each CID must describe the nature of the conduct constituting the alleged antitrust violation under investigation, as well as describe the information or documents sought with "definiteness and certainty." Such demands must also include specific time for compliance. The FTC may also issue subpoenas, which are similar in most respects to CIDs.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, notification to the FTC and DoJ �� setting forth relevant information about the proposed transaction �� is required before the consummation of an acquisition of stock or assets exceeding specified size of firm and size of transaction thresholds. A review of the notification form enables DoJ and FTC attorneys and economists to determine either hat the merger poses no competition concerns or that it raises questions sufficient to require more information. In the latter situation, the agencies will issue a request for additional information.
For most transactions, such requests for additional information must be issued by the reviewing agency within 30 days of receipt of the initial filing. If no such request is issued, the transaction may be consummated. When a request for additional information is issued by the antitrust authorities within the initial 30 day period, the merger cannot be consummated for 20 days after compliance with the request. (In practice, the time it takes to respond to second request can vary widely depending on the scope of the request and the merging parties' decision as to how quickly to respond, among other factors.) As discussed above, if an agency concludes that a proposed merger would violate the antitrust laws, it must apply to a court to enjoin the proposed transaction.
Documents and other information compelled by the federal agencies in each of these investigative contexts, whether through grand jury subpoena, FTC subpoena, CTD or premerger notification forms, are subject to strict confidentiality protections. Such information may be use during the course of any trial that results from the investigation, however, such information generally can not be released otherwise.
DoJ's remedy when challenging a merger believed likely to have anticompetitive effects is to obtain a court-ordered injunction. An injunction is an order by a court to a party to do or to refrain from doing a particular act. Because of the differences in the authority granted to the two U.S. agencies, the injunction remedies available to the merger context are somewhat different. If persuaded by the FTC that the agency is more likely than not to prevail in a full, in house, administrative trial on the question of whether a proposed transaction is likely to have anticompetitive effects, the court can issue a preliminary injunction forbidding the parties from completing until the FTC has conducted such a trial and determined whether to issue a prohibitory, cease and desist order.
An injunction is also the remedy usually sought by DoJ in civil non-merger cases. In such matters, DoJ would ask a court to order that certain practices being engaged in by corporate or individual defendants be stopped �� or at least modified. The FTC issues its own cease and desist orders, either after completion of an internal administrative adjudication or when a party consents to be placed under such an order in lieu of a trial on the merits. In certain rare circumstances, the FTC may obtain a preliminary injunction from a court, requesting that the practices at issue be enjoined until completion of an FTC administrative trial.
Other competition law-related remedies include specific financial penalties, imposed by the FTC also has broad discretion in fashioning remedial cease and desist orders, enforceable by court imposed civil penalties for non-compliance. Defendants in FTC administrative proceedings have the right to appeal the administrative decision to a federal appellate court.
It is worth noting here that not all DoJ or FTC investigations result in a government challenge to the investigated conduct. Further, many matters which do result in a decision by the investigating agency to challenge the investigated conduct are settled short of litigation. In the criminal context, such settlements usually take the form of plea agreements. In the civil context, such settlements usually take the form of judicial or administrative consent orders.
Court proceedings in the U.S. are public. In addition to serving as a protection to the rights to defendants, the open nature of the agencies, enforcement proceedings serve the important function of educating the bar, the public and American business about the agencies'- positions on important issues of competition law. The agencies also continually try to make their views about competition law-related issues known in more routine ways, i.e., through speeches by agency officials, through the issuance of business review letters, and through the issuance of guidelines.
Speeches, press releases and other agency statements are posted on the DoJ Antitrust Division's and the FTC's web sites (www.usdoj.gov/atr and www.ftc.gov), and are available in hard copy through the Division's public affairs office and the FTC's public records office. Guidelines, jointly issued by DoJ and FTC, have become an important means over the last several years of communicating the agencies' positions on specific subjects. Over the last several years, the agencies have jointly issued guidelines in several important areas: (I) the Horizontal Merger Guidelines, issued on April 2, 1992 and revised on April 8, 1997; (ii) the Antitrust Guidelines for the Licensing of Intellectual Property, issued on April 6, 1995; (iii) Antitrust Enforcement Guidelines for International Operations, issued on April 5, 1995; and (iv) Statements of Antitrust Enforcement Policy in Health Care, issued in August 1996.
The horizontal merger guidelines describe the analytical framework and specific standards normally used by the agencies in analyzing mergers. Through the issuance of these guidelines, the agencies hoped to reduce the uncertainty associated with enforcement of the antirust laws in this area. The intellectual property guidelines state the agencies' enforcement policy with respect to, among other things, the licensing of intellectual property by patent, copyright, and trade secret law, and of know-how.
The 1995 guidelines for international provide antitrust guidance on questions that relate specifically to the agencies' international enforcement policy. These guidelines cover issues such as subject matter jurisdiction over conduct and entities outside the United States and entities outside the United States and the considerations, issues, policies, and processes that govern the agencies' decision to exercise that jurisdiction; comity; mutual assistance in international antitrust enforcement; of foreign governmental involvement on the antitrust liability of private entities. In addition, the guidelines discuss the relationship between antitrust and international trade initiatives. Finally, the health care guidelines provide antitrust guidance on issues relating to mergers and various kinds of joint ventures in the health care area.
DoJ and FTC engage in competition advocacy as members of task forces or interagency committees that formulate policy on a number of economic issues For example, both DoJ and FTC have participated in an interagency working group on electricity issues. FTC also is empowered to gather information and issue reports. Studies of regulatory issues by FTC staff have applied staff expertise about the operation of competitive markets to examine the economic consequences of regulation (and deregulation).
Some statutes provide avenues for competition advocacy by authorizing DoJ or FTC to participate in industry-specific regulator proceedings or by requiring regulatory agencies to seek advice from the antitrust agencies on competition matters. (For example, section 271 of the Telecommunications Act of 1996 requires the FCC to consult with DoJ regarding proposed entry by Bell Operating Companies �� the local telephone carriers spun off from AT&T in 1988 as a result of a DoJ monopolization case �� into long distance services, and to accord "substantial weight" to DoJ's competitive evaluation.) Even where there is no explicit authorization, regulatory agencies regularly request DoJ and FTC views on competition issues in regulatory matters.
Finally, U.S. antitrust agencies, like other federal and state agencies and private persons, may file comments in regulatory proceedings before federal and state regulatory agencies, offering their expert advice and views. These comments filed with a wide variety of agencies on a wide range of regulatory issues. For example, in recent years DoJ and FTC have frequently filed comments with the FCC on such issues as the deregulation of AT&T's long distance telephone service and the extent of "effective competition" in cable television markets. Entry questions have been addressed in such contexts as the allocation of airport landing and take-off privileges, rules for securities rating agencies, real estate closings, local multipoint telephone and video distribution services and automobile sales. U.S. antitrust agencies also regularly file comments with federal agencies proposing new regulations.
Congress often seeks advice from the agencies on competition-related issues. Conversely, both agencies also monitor the Congressional calendar closely, and may offer their views on competition-related matters. DoJ and FTC also both act as competition advocates in a variety of international organizations.
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B. State antitrust enforcement
In the U.S., nearly all 50 states and the District of Columbia also have some form of antitrust law which is enforceable in their state courts. State antitrust statutes vary, as do the remedies for violations thereof. The investigative processes and procedures of the state attorneys general vary; most states, however, have civil CID authority analogous to the federal authority. State CID authority is used most frequently in the merger context. State antitrust laws are enforced by state attorneys general in state courts. When investigating the same transaction, state and federal authorities make every effort to coordinate their approaches.
State attorneys general may also, subject to a number of limitations, bring an action on behalf of natural persons residing within the state for injuries sustained as a result of any violation of the Sherman Act. Damages recovered by states in these actions are trebled.
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C. Private enforcement of U.S. antitrust laws
Private antitrust actions are an important feature of the federal antitrust enforcement regime. Because the resources of government agencies are limited, private plaintiffs may, in effect, serve to supplement government enforcement. While enforcement of the FTC Act is reserved to the Federal Trade Commission, private actions for the recovery of damages may be brought by any individual or entity "injured in its business or property by reason of anything forbidden in the antitrust laws." Private actions seeking an injunction may be brought by any individual or entity "threatened (with) loss or damage by a violation of the antitrust laws," Despite the broad statutory language, however, a private plaintiff must meet requirements demonstrating he was indeed "injured," that the injury was to his "business or property," and that the injury was the type of injury that the antitrust laws were intended to redress. If, in a case brought by the government, a defendant is adjudged to have violated either the Sherman or the Clayton Act, a private plaintiff may use that judgment as prima facie evidence in a subsequent action for damages, and ask the court for an award of three times the amount of any damages proven. The U.S, Government can also sue for treble damages to recover for injury to its business or property resulting from an antitrust violation.
Successful plaintiffs in damage actions are also entitled to recover treble damages as well as costs and attorneys' fees. In litigation in U.S. courts the loser does not pay the opponent's costs unless there are special statutory provisions. The Clayton Act provides for "one-way" costs: a losing plaintiff does not pay. Class actions and contingent attorney fee arrangements are generally available in U.S. litigation and are often used in antitrust cases. Rule 23 if the Federal Rules of Civil Procedure provides that where there are numerous individuals who likely are injured as a result of the same alleged illegal acts and where their claims involve common questions of law and fact, they may proceed jointly as a class against a defendant or defendants, so long as the class representatives will adequately protect the class members' interests. As a consequence, those who have suffered small monetary losses may be able to join in bringing a suit that would not be economic for any of them to bring separately.
In the most recent 12 month period for which statistics are available (October 1, 1996 - September 30, 1997), 570 private antitrust suits were filed.
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The U.S, has a long history of antitrust enforcement. These laws are applied in the context of a private economy, and are intended to prevent agreements or mergers that create or increase market power as well as unilateral actions that use existing market power to protect or expand a monopoly.
U.S. federal enforcement agencies strive, in a variety of ways, to make their views on important issues of competition law known to the bar, to business and to the public at large. The public nature of U.S. judicial and administrative proceedings adds to the transparency of U.S. competition law enforcement.
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