Statement of Commissioner Mozelle W. Thompson

Concerning the March 5, 2002 Clearance Agreement Between the Department of Justice and the Federal Trade Commission

With profound disappointment I learned today that DOJ Assistant Attorney General for Antitrust Charles James and FTC Chairman Timothy Muris executed an agreement that allocates merger reviews and conduct investigations between the two agencies on the basis of industries. This Agreement - which is identical to the one proposed on January 17th - was executed without substantive consultation with me, without approval of the FTC's Congressional committee Chairmen, and without the meaningful public dialogue that such a sweeping proposal deserves.(1) On January 17th, when this Agreement was first put forward, I stated that "[w]hile generally I favor intra-agency agreements that enhance the speed and efficiency of case processing, today's announced Agreement raises substantial concerns." During the intervening weeks my concerns have not been addressed and, in fact, for several reasons have only been heightened.

First, it was only last Thursday that I saw for the first time a memorandum prepared by four private antitrust attorneys who advised the Chairman and Assistant Attorney General on, among other things, how to allocate between the FTC and DOJ the future review of cases in various industries. Despite repeated prior requests, this memorandum was not provided to me or my colleagues but was instead belatedly posted with other documents on the FTC Web site. This non-public consultation with private attorneys is not a substitute for meaningful consultation with FTC Commissioners who are appointed by the President and confirmed by the Senate to work on behalf of the public interest.

Second, the documents that have been publicly provided as support for the Agreement are fundamentally flawed. For example, letters from the ABA Antitrust Section, former FTC and DOJ officials, Senators Herb Kohl and Mike DeWine, and the U.S. Chamber of Commerce each state support for some form of clearance agreement, but the authors take great pains to avoid stating that they support today's Agreement. Also, the proffered statistical data supporting the Agreement overstate DOJ's expertise in media and cable transactions, while failing to note the FTC's considerable experience in these matters. (See Attached)

Finally, I continue to be concerned that the public benefit of the Commission's independent expertise and knowledge in certain key industries, such as media, entertainment, and high technology, will be lost. Reviews of mergers and conduct - such as anticompetitive foreclosure - in these industries may be among the most important antitrust matters reviewed by the federal antitrust agencies. History demonstrates that the five-member independent Commission has used its democratic decision-making process to protect media consumers, the industry, and democracy.(2) Moreover, the Commission's substantial expertise and meaningful bi-partisan agency enforcement actions in the high-technology area may no longer be available to the public. See, for example:

Sony et al. (compact disc cooperative pricing policies)
Warner Communications & Vivendi Universal (price fixing/advertising restraint)
Time Warner/EMI (pre-recorded music merger)AOL/Time Warner (broadband merger)
Barnes & Noble/Ingram (booksellers)
Random House (book publishing and resale price maintenance)
MSC.Software (computer-aided engineering software merger)
Hearst (pharmaceutical database merger)
Automatic Data Processing (salvage yards parts trading database merger)
Cablevision/TCI (New Jersey cable television systems merger)
Time Warner/TCI (cable and cable programming merger)
VNU N.V./Nielsen Media Research (advertisement media service merger)
Cooperative Computing (computer management information systems merger)
Autodesk./Softdesk (computer-aided design engines merger)
Cadence Design (software layout environment for chip design merger)
Adobe Systems (computer programming and software merger)
Boulder Ridge Cable TV (cable television restraint)

In the end, I believe that issues raised by today's clearance Agreement are far too important to be resolved in secret or only with documents acting as a substitute for meaningful consultation. Thus, in the spirit of transparency - and with the hope that fuller discussion and debate will occur - I am making publicly available several analyses that I prepared in response to Congressional staff requests. (See attached) The information and statistics in these documents directly challenge the assertions contained in materials generated "after-the-fact" to justify the Agreement.

For the record, I continue to support the goal of clearance efficiency and reform, and believe there are workable parts of the present Agreement. But very little has been provided to justify the jiggering of the FTC's current antitrust authority, and I have seen nothing to demonstrate the need to move all responsibility for ensuring competitiveness in information, technology, thoughts and entertainment, to the executive branch through the Department of Justice.

What the events of the past six weeks have shown is that transparency in policymaking at the Federal Trade Commission and the Department of Justice is needed now more than ever. I hope it can begin with substantive dialogue to meaningfully discuss ways to resolve clearance issues related to our nation's media, entertainment, and high technology industries. The public interest demands no less.

List of Documents Submitted

1. Untitled document relating the abandoned DOJ/FTC Clearance Agreement, January 22, 2002.

Demonstrates that:

The Muris-James clearance delay statistics are not that dramatic;
Explains the value of the independent, multi-member FTC; and
Highlights the FTC's recent expertise in cases involving the media and entertainment sectors.

2. Untitled document listing recent FTC cable expertise, Submitted February 20, 2002.

Shows the great volume of investigations and enforcement actions involving cable mergers and agreements, as well as related media and entertainment markets.

3. "Comments on the Department of Justice's Submission Concerning Media and Entertainment Clearance Statistics," Submitted February 20, 2002.

A closer examination of what DOJ's statistical analysis actually shows: the FTC is more effective in bringing enforcement actions in the media and entertainment sectors, and that the bulk of DOJ's expertise and enforcement actions are in relatively narrow slices of the overall media and entertainment sectors.

4. "Allocating Antitrust Investigations Involving the Media and Entertainment Industries By Content and Distribution," Submitted February 22, 2002.

Illustrates:

The current division of FTC and DOJ areas of expertise for clearances;
Shows the James-Muris proposal; and
Proposes a more rationale re-allocation of media/entertainment industries.

Procedural Improvements for Clearance. The bulk of the proposed clearance improvements involve process and timing; industry allocations are a separate issue. According to the FTC Chairman, the changes will improve the clearance process and ensure that clearance disputes are resolved within 10 days. The agencies may enact these process changes without allocating industries between the two agencies.

Clearance Statistics. The press release to announce the abandoned clearance agreement stated that, over the past two years, 32 disputed clearance matters took 15 days or longer to resolve. Several statistics may help put this number in context:

What the statistic encompasses is not clear, but some number - perhaps as many as half of the 32 cited - may represent conduct investigations that do not involve mergers reported under Hart-Scott-Rodino. Those disputes not involving such mergers, of course, do not delay mergers and acquisitions, and the disputes generally do not hinder any other business activity.
32 matters in two years is only a fraction of the perhaps 600 cleared investigations and approximate 7,000 merger filings reviewed by the agencies over the last two years. (Probably around 500 of the cleared investigations were merger investigations and 100 or so non-merger investigations.)
Chairman Muris states that the procedural and timing improvements would establish 10 days as the maximum delay period due to clearance disputes. These timing improvements could be effectuated whether or not the FTC and DOJ allocate the industries.
Despite some press accounts of at least one antitrust practitioner claiming that the agencies have issued unnecessary second requests at great expense to the parties because of clearance disputes, no one has identified a specific transaction where such a thing has happened. Indeed, as a practical matter, whenever merging parties' counsel believes that they can provide quick evidence that shows a second request should not issue (or should not have issued) they may provide such evidence to both agencies' staff during any clearance period. (Or to the agency staff issuing the second request after the request has issued and before the merging parties choose to undertake a full search for documents.)

FY01: HSR statistics not public yet. (Likely around 2200 merger filings.)

FY00: 4749 Transactions 339 Investigations cleared 98 2d Requests 80 Challenges

FY99: 4340 Transactions 391 Investigations cleared 113 2d Req. 77 Challenges

FTC Act Section 5. Section 5 encompasses a greater scope of anticompetitive conduct than does the Sherman Act, so it allows the FTC to remedy conduct that can not be reached by DOJ under the Sherman Act. For example, the Commission can reach facilitating practices under Section 5. Facilitating practices (practices that facilitate horizontal collusion) are more typically a problem in oligopolistic industries such as media markets. The facilitating practice count was a critical aspect of the CD MAP case involving the five major music companies. Because of the legal parameters of a Sherman Act case, DOJ's bringing such a case might have proved problematic.

Administrative Litigation. Congress established the FTC as an expert antitrust body with its own administrative litigation process to handle novel, cutting-edge antitrust cases. For example, administrative litigation has helped develop the law in such novel areas as antitrust immunities (Ticor Title Insurance; Superior Court Trial Lawyers). This ability could be critical when litigating deregulating markets such as cable and when involving complex conduct cases.

Independent Agency.

Congress provided that the FTC would be comprised of five members with staggered seven-year terms. By law, only three Commissioners may be from the same political party. The structure allows for more diverse views, greater independence, and greater continuity in decision-making.

Policy-Making Agency.

The FTC has power to conduct industry studies and prepare reports to Congress (and post-enforcement evaluations) under Section 6. Unlike the DOJ, Congress gave the FTC authority to use compulsory process to evaluate public policy issues, conduct industry studies, and perform retrospectives on past enforcement actions. This power is especially important in emerging, dynamic, and deregulating markets, such as cable, media, and software. Examples of recent Commission workshop and report subjects include:

Business-to-Business (B2B) Electronic Marketplaces (2000)
Competition Policy in the World of E-Commerce (2001)
Electronic Signatures in Global and National Commerce Act (2001)
Internet Retailers, Marketers and Suppliers (2001)
Mobile Wireless Web, Data Services and Beyond: Emerging
Technologies (2000)
Marketing Violent Entertainment to Children (2000 and 2001 Reports on Movies, Video Games, and Pre-Recorded Music)
Divestiture Study (1999 Policy Report)

Synergies with Consumer Protection Activities. The Commission's consumer protection mandate has provided the agency growing expertise in high-tech industries. For example, consumer fraud cases involving Hewlett Packard and Microsoft (PDAs); AOL, CompuServe, and Prodigy (ISP services); and Sharp Electronics (Mobile/Hand-held PCs).

The Commission's Recent Media, Entertainment and High Tech Investigations/Cases

Sony et al. (compact disc cooperative pricing policies)
Warner Communications and Vivendi Universal (price fixing and advertising restraint)
Time Warner/EMI (pre-recorded music merger)
AOL/Time Warner (broadband merger)
Random House (book publishing and resale price maintenance)
MSC.Software (computer-aided engineering software merger)
Hearst (pharmaceutical database merger)
Automatic Data Processing (salvage yards parts trading database merger)
Cablevision/TCI (New Jersey cable television systems merger)
Time Warner/TCI (cable and cable programming merger)
VNU N.V./Nielsen Media Research (advertisement media service merger)
Cooperative Computing (computer management information systems merger)
Autodesk./Softdesk (computer-aided design engines merger)
Cadence Design (software layout environment for chip design merger)
Adobe Systems (computer programming and software merger)
Boulder Ridge Cable TV (cable television restraint)

Below is a sampling of the numerous cable industry mergers and agreements that the Federal Trade Commission has investigated in recent years:

[DETAILED CASE DESCRIPTIONS TO BE PROVIDED LATER]

The Department of Justice's Submission
Concerning Media and Entertainment Clearance Statistics
Provided to the Senate Committee on Appropriations

On January 29, 2002, The Department of Justice provided a set of materials to the Senate Committee on Appropriations. When viewed beyond the facade of the aggregate numbers presented, the materials demonstrate the Federal Trade Commission's success relative to the Department, as well as its expertise in significant segments of the broad, diverse media and entertainment sectors.

1. The materials reveal that the FTC is the more effective compared to DOJ in the DOJ-defined combined areas of telecommunication, media, and entertainment.

DOJ's Attachment A shows that the FTC is almost twice as likely as DOJ to take enforcement action in these areas following a substantial investigation:
- FTC: 64% of agency's substantial investigations result in enforcement actions.
- DOJ: 36% of agency's substantial investigations result in enforcement actions.

2. The FTC tends to investigate complex and novel media and entertainment antitrust matters, while DOJ frequently handles narrow cookie-cutter media and entertainment investigations. These DOJ cookie-cutter investigations result in many easy-to-get consent decrees; however, these matters do not add much value to DOJ's expertise in other media and entertainment industries.

For example, DOJ's Attachment C shows that a significant part of the Attachment A statistics are simple, cookie-cutter cases that increase DOJ's numbers but not experience:
- Radio and TV station mergers: 37 enforcement actions in 66 investigations; and
- Billboard acquisitions: 9 enforcement actions in 12 investigations.

3. By adjusting Attachment A's results (through subtracting out the numbers relating to DOJ's cookie-cutter cases), the revised statistics offer that, of the two agencies, the FTC has brought a greater number of enforcement actions in the overall media and entertainment sector:

FTC: 14 Enforcement Actions
DOJ: 12 Enforcement Actions

4. Because of DOJ's failure to prosecute a large percentage of matters that it investigates, the adjusted Attachment A figures shows even more dramatically how much more effective the FTC has been in the FTC's investigations of media and entertainment matters:

FTC: 64% enforcement percentage.
DOJ: 19% enforcement percentage.

5. DOJ's expertise in the telecommunications industry of course does not create expertise for media and entertainment sector because DOJ's telecommunications experience lies primarily in telephone and radio related areas.

6. Three current FTC Commissioners believe that the FTC has a unique role in media and entertainment investigations: Commissioners Anthony and Thompson so stated in their January 18, 2002 statements concerning the abandoned clearance agreement. And Commissioner Leary, as reported recently in FTC Watch, supports the FTC involvement in challenging, dynamic media and entertainment cases:

The FTC's primary mission, as envisioned by Congress is to provide forward-looking guidance that tackles intellectually challenging cases, Leary says. For example, he said, the Commission needs to stay focused on: . . . merger cases in new rapidly changing arenas, such as AOL/TW - 'that absorbed more time and energy than any other cases since I've been here and was all worth it.'"(3)

7. The DOJ category labeled "Media and Entertainment" - as demonstrated by Attachment A - constitutes a wide variety of different industries with various structures and market dynamics. Expertise in one type of matter and market - say analyzing TV station mergers or billboard mergers - does not benefit the agency in analyzing matters involving another industry, such as the cable or broadband industries (and the AOL/Time Warner merger). Several possible rationale alternatives could be pursued instead of the proposed clearance agreement:

If industries are allocated within a global clearance agreement:
The industries could be divided up more precisely to take account of the current significant expertise of the agencies. Because certain areas are so distinct (e.g., billboards versus music), further dividing the list could be undertaken without sacrificing administrative efficiencies; and
The FTC could review all matters in industries that are converging (where cable and television and Internet may ultimately interface) and those industries that are deregulating. These matters are the ones where the reviewing agency must look forward and contemplate rapidly changing industries - the five-member nonpartisan Commission is well-suited to achieve the important public policy objectives for these industries and consumers. If Congress wants both agencies to share jurisdiction and disfavors the current, expertise method of sharing jurisdiction, investigations may be randomly assigned to one agency or the other, regardless of the industry. No time or administrative effort would be wasted, and one agency alone does not necessarily shape the future of industries, especially emerging or important media and entertainment industries.
- A hybrid allocation system could be easily devised to allocate matters within certain specified industries to one agency or the other, with all other matters randomly assigned.
Congress could unify merger and conduct investigations within the FTC and continue the DOJ's criminal jurisdiction, a result that would provide for maximum efficiency, fully utilize the FTC's independent antitrust purpose and structure, and continue to take advantage of DOJ's role as the federal government's criminal prosecutor.

Allocating Antitrust Investigations Involving the Media and Entertainment Industries By Content and Distribution

Media/Entertainment Content	Current	Muris	Thompson
Advertising Services	DOJ	DOJ	FTC
Magazine Publishing	DOJ	DOJ	DOJ
Newspaper Publishing	DOJ	DOJ	DOJ
Movie Production	DOJ	DOJ	DOJ
Music Licensing Rights	DOJ	DOJ	DOJ
Cable/Satellite programming (MVPD)	Mix	DOJ	FTC
Upstream Internet video content	-	DOJ	FTC
Book Publishing	FTC	DOJ	FTC
Pre-recorded Music	FTC	DOJ	FTC
Sports	FTC	DOJ	FTC
Games/Toys	FTC	DOJ	FTC

Media/Entertainment Distribution	Current	Muris	Thompson
Radio Stations	DOJ	DOJ	DOJ
Television Stations	DOJ	DOJ	DOJ
Outdoor Advertising/Billboards	DOJ	DOJ	DOJ
Movie Distribution	DOJ	DOJ	DOJ
Satellite Services (e.g., DBS)	DOJ	DOJ	DOJ
Set-top Boxes and other inside-the-house Internet and cable equipment	DOJ	DOJ	FTC
Upstream Internet video distribution	-	DOJ	FTC
Cable Services (video/data/audio)	FTC	DOJ	FTC
Cable infrastructure	FTC	DOJ	FTC
Video Rentals	FTC	DOJ	FTC
Gaming	FTC	DOJ	FTC

It is curious that the Chairman claims that the Agreement is purely an "inside baseball" administrative matter, thus not warranting a Commission vote, or Congressional or public consultation. Yet the Chairman sees that the Agreement constitutes a significant enough policy change that it warrants two press conferences and several press releases over the past six weeks.
Indeed, the non-consultative actions in this situation only demonstrates why the FTC's role as an independent bi-partisan deliberative body is so important.
FTC: Watch, "When Is Antitrust Disgorgement a Good Idea?" at p. 3 (January 14, 2002).