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Organisation de Coopération et de Développement Economiques

Organisation for Economic Co-operation and Development

25-May-2005

___________________________________________________________________________________________

English text only

DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS

COMPETITION COMMITTEE

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Unclassified

ANNUAL REPORT ON COMPETITION POLICY DEVELOPMENTS IN THE UNITED STATES

-- 2003-2004 --

This report is submitted by the Delegation of the United States to the Competition Committee FOR DISCUSSION

at its forthcoming meeting (1-2 June 2005).

English text only

JT00184920

Document complet disponible sur OLIS dans son format d'origine

Complete document available on OLIS in its original format

DAF/COMP(2005)18/07

Introduction

Changes in law or policies

A. Changes In Antitrust Rules, Policies, or Guidelines

B. Proposals to Change Antitrust Laws, Related Legislation or Policies

C. International Antitrust Cooperation Developments

II.

Enforcement of antitrust laws and policies: actions against anticompetitive practices

A. Department of Justice and FTC Statistics

1) DOJ Staffing and Enforcement Statistics

2) FTC Staffing and Enforcement Statistics

B. Antitrust Cases in the Courts

1) United States Supreme Court

2) U.S. Court of Appeals Cases

a. Significant DOJ Cases Decided in FY 2004

3) Private Cases Having International Implications

C. Statistics on Private and Government Cases Filed

D. Significant DOJ and FTC Enforcement Actions

1) DOJ Criminal Enforcement

2) DOJ Civil Non-Merger Enforcement

3) FTC Non-Merger Enforcement Actions

E. Advisory Letters from the Commission

F. Business Reviews Conducted by the Department of Justice

III.

Enforcement of antitrust laws and policies: mergers and concentrations

A. Enforcement of Pre-merger Notification Rules

B. Significant Merger Cases

1) DOJ Merger Challenges or Cases

2) FTC Merger Challenges or Cases

IV.

Regulatory and trade policy matters

A. Regulatory Policies

1) FTC Staff Activities: Federal and State Regulatory Matters

2) DOJ Activities: Federal and State Regulatory Matters

B. DOJ and FTC Trade Policy Activities

New Studies related to antitrust policy

A. Antitrust Division Economic Analysis Group Discussion Papers

B. Commission Studies and Reports, and Economic Working Papers

1) Commission Studies and Reports

a. Workshops

b. Studies and Reports

2) Economic Working Papers

Appendices

Department of Justice: Fiscal Year 2004 FTE and Actual Resources by Enforcement Activity

Federal Trade Commission: Fiscal Year 2004 Competition Mission FTE and

Dollars by Program by Bureau/Office

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Introduction

This report describes federal antitrust developments in the United States for the period October 1,

2003, through September 30, 2004 (“FY 2004”). It summarises the activities of both the Antitrust Division

(“Division”) of the U.S. Department of Justice (“Department” or “DOJ”) and the Bureaus of Competition

and Economics of the Federal Trade Commission (“Commission” or “FTC”).

On April 1, 2004, the Division announced that David A. Higbee had been appointed to serve as

Chief of Staff and Deputy Assistant Attorney General. In this new position, he has primary responsibility

for several ongoing Division management initiatives aimed at making the Division's enforcement efforts

more efficient and effective. On March 31, 2004, the Division announced that Thomas O. Barnett had

been appointed to serve as the Deputy Assistant Attorney General in charge of civil enforcement,

overseeing three of the Division's civil sections.

In October 2003, Bruce Hoffman was appointed as Deputy Director of the Bureau of

Competition, replacing M. Sean Royall. In January 2004, Anne Malester, one of three Deputy Directors of

the Bureau of Competition, announced her departure from the agency. In February 2004, Nancy Ness Judy

was appointed as Director of the Office of Public Affairs, replacing Cathy MacFarlane. In July 2004,

Maureen Ohlhausen was appointed as Acting Director of the Office of Policy Planning upon the departure

of Todd Zywicki and Lydia B. Parnes was named Acting Director of the Bureau of Consumer Protection

after the departure of J. Howard Beales. In August 2004, Deborah P. Majoras replaced Timothy J. Muris

as Chairman of the Federal Trade Commission. In September 2004, Jonathan Leibowitz was confirmed as

Commissioner upon the departure of Commissioner Mozelle W. Thompson.

Changes in law or policies

Changes in Antitrust Rules, Policies or Guidelines

On June 22, 2004, President Bush signed into law Pub. L. No. 108-237, which includes the

Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (ACPERA) and the Standards

Development Organisation Advancement Act of 2004 (SDOAA). The ACPERA increases the maximum

potential Sherman Act corporate fine to $100 million, the maximum potential individual fine to $1 million,

and the maximum potential Sherman Act term of imprisonment to 10 years. These increases bring antitrust

penalties in line with those for other financial crimes with similar harmful effect, and helps ensure that the

antitrust laws remain an appropriately strong deterrent against cartel activity. The Act also strengthens the

Antitrust Division’s Corporate Leniency Policy – which undermines cartel secrecy by offering cartel

participants the chance to avoid criminal prosecution by being the first to come forward and expose the

cartel and cooperate with the investigation and prosecution – by also limiting the cartel participant’s

private damages exposure, if it cooperates with plaintiffs in the private lawsuit, to the amount actually

inflicted by its own conduct. The other cartel participants remain liable for the full measure of treble

damages, so the result should be more cartels exposed and brought to justice, both in criminal prosecutions

and in private legal actions.

The SDOAA extends the protections provided by the National Cooperative Research and

Production Act of 1993 (NCRPA) – de-trebling of damages, rule-of-reason analysis, and attorneys fees to

either prevailing party – to standards development organisations (SDOs) that satisfy specified openness,

voluntariness, and due process requirements.

Data on Merger Investigations and Challenges: In 2004, the FTC released two reports designed

to give the public a transparent picture of its enforcement policies and standards. Together with the DOJ,

the FTC released a report that summarised market concentration data sorted by market for both agencies’

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merger challenges over a five-year period (1999-2003). In February 2004, the FTC released a report that

provided data on consumer complaints or “hot” documents (i.e., those revealing a party’s expectation of

decreased competition following the merger) for a total of 151 FTC merger investigations over eight years.

In August 2004, the FTC supplemented that information with data on ease of entry. In February 2005, the

FTC released an econometric analysis of the merger investigations data that showed, inter alia, that no

structural shift in enforcement patterns had occurred over the eight years covered by the study.

Merger Workshop: The FTC and the DOJ are currently working on a Commentary on the

Horizontal Merger Guidelines. The agencies held a three-day workshop designed to assess the practical

efficacy of the 1992 Merger Guidelines in light of 12 years of experience. The workshop provided a forum

for two-way information exchange – from the agencies to the public on application of the Guidelines, and

from the public to the agencies on the strengths and weaknesses in the Guidelines and areas for

clarification. Participants analysed and discussed all sections of the Guidelines with a focus on whether

their analytical framework (1) leads to accurate assessments about the likely effects of proposed mergers,

and (2) provides adequate guidance to the business and legal communities. Following the workshop, the

FTC analysed the testimony and public comments and published these findings on its website. What

emerged from this review was a consensus among antitrust practitioners that the analytical framework

underlying the Guidelines was functioning effectively, but that some further explanation of the agencies’

practical application of the Guidelines would be beneficial.

Explanations of Merger Investigation Outcomes: The DOJ and FTC issued reasoned explanations

of decisions to clear merger investigations in appropriate cases, for example when the decision has

precedential value or represents a change in enforcement policy or practice. In these cases, the agencies

issue a public statement and press release on the decision, also made available on the issuing agency’s

website. See below, paras 56-58, for DOJ examples. In June, 2004, in RJR/Brown & Williamson, the

Commission, for example, outlined three reasons for its conclusions that the merger of these two firms was

unlikely to harm competition in the U.S. cigarette market: (i) that Brown & Williamson plays and is

expected to continue to play an increasingly minor role in the market; (ii) the investigation found no

markets in which the firms were each other’s closest competitors; and (iii) a majority of the

Commissioners had reason to believe that the evidence indicated that the transaction was unlikely to

facilitate or enhance coordination among the major U.S. cigarette manufacturers

Balancing Competition and Patent policy: In October 2003, after extensive hearings, the FTC

released a report on the proper balance between competition and patent law and policy. While both

competition (in markets) and patents (for inventors) can promote innovation, a proper balance between

these policies is necessary to achieve that goal. The report concluded that questionable patents are a

significant competitive concern and can harm innovation. The report made ten recommendations for

reducing the number of questionable patents that are issued and upheld. The report is available at

http://www.ftc.gov/os/2003/10/innovationrpt.pdf.

Proposals to Change Antitrust Laws, Related Legislation or Policies

10.

On July 23, 2004, the agencies issued a joint report, Improving Health Care: A Dose of

Competition, to inform consumers, businesses, and policy makers on a range of issues affecting the cost,

quality, and accessibility of health care. The report is based on 27 days of DOJ/FTC Joint Hearings on

Health Care and Competition Law and Policy, held from February through October 2003; an FTCsponsored workshop in September 2002; and independent research. Culminating a two-year project, the

report reviews the role of competition and provides recommendations to improve the balance between

competition and regulation in health care. The report provides significant recommendations and

observations on a variety of topics, including the availability of information regarding the price and quality

of health care services, cross-subsidies, physician collective bargaining, insurance mandates, hospital

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merger analysis, managed care organisations’ bargaining power, and hospital group purchasing

organisations. The report is available at http://www.usdoj.gov/atr/public/health_care/204694.htm.

11.

Improving the Merger Review Process: FTC Chairman Majoras established a task force to

recommend further improvements to the merger review process. While the FTC has implemented some

improvements in the merger review process in recent years, the agency expects to adopt further

improvements to ease the burden on affected parties and increase internal efficiency. These improvements

include assessing the data requested on HSR Notification and report forms, the content of the analysis to

aid public comment, and the second request compliance process and its impact on both the agency and

practitioners.

12.

Electronic Discovery: The FTC is working to improve its ability to receive and review Second

Request and other discovery materials in electronic format, which it views as beneficial both for itself and

for those producing documents to the agency. The agency also is adapting Model Second Request

language to provide for electronic production, and is working internally and with the DOJ to determine the

most effective methods for identifying responsive materials stored in various electronic formats.

International Antitrust Cooperation Developments

13.

In the three years since it was launched in 2001, the International Competition Network (ICN)

has grown to a very broad network of antitrust officials from around the world. Its membership has grown

to nearly 90 antitrust agencies from nearly 80 jurisdictions, joined by the participation of interested

international organisations and increasing numbers of non-governmental advisers including academics,

industry groups, lawyers, economists, and consumer groups. In 2003-2004, the ICN continued practical

work in three substantive working groups focused on mergers, antitrust enforcement in regulated sectors,

and competition policy implementation. At the 2004 ICN Annual Conference held in Seoul, South Korea,

a fourth substantive working group was created to address anti-cartel enforcement.

14.

The ICN’s Merger Working Group, chaired by DOJ, through its Notification and Procedures

subgroup, chaired by the FTC, added four detailed Recommended Practices for merger notification

procedures. With their approval by members at the Seoul conference, there is now a total of eleven agreed

Recommended Practices on this subject. The Investigative Techniques subgroup expanded its manual on

merger investigation to encompass chapters on investigative planning and private sector perspectives. The

Antitrust Enforcement in Regulated Sectors Working Group prepared a comprehensive report based on

contributions from participating members on the effects regulation can have on the application of antitrust

law, antitrust enforcement experiences in regulated sectors, and the interaction between antitrust authorities

and regulatory agencies. The Competition Policy Implementation (CPI) Working Group produced a report

on improving the effectiveness of competition advocacy in developing and transition economies and a

methodology for examining ways to enhance the stature of competition authorities with consumers.

Additionally, the CPI working group held a workshop in February 2004 for technical assistance donors and

recipients aimed at strengthening cooperation between the two. The Cartel Working Group was created in

April 2004 to address the legal and conceptual challenges of anti-cartel enforcement and to help antitrust

agencies to improve their enforcement techniques.

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II.

Enforcement of antitrust laws and policies: actions against anticompetitive practices

Department of Justice and FTC Statistics

DOJ Staffing and Enforcement Statistics

15.

At the end of FY 2004, the Division employed 811 individuals: 364 attorneys, 57 economists,

169 paralegals, and 221 other professional staff. For FY 2004, the Division received an appropriation of

$133.1 million.

16.

During FY 2004, the Division opened 211 investigations and filed 50 civil and criminal cases in

federal district court. In FY 2004, the Division was party to three civil antitrust cases decided by the

federal courts of appeals, and eight criminal appeals.

17.

During FY 2004, the Division filed 42 criminal cases in which it charged 20 corporations and 39

individuals. Thirteen corporate defendants and fifteen individuals were assessed fines totalling $141.2

million and 20 individuals were sentenced to a total of 7,334 days of incarceration. Another four

individuals were sentenced to spend a total of 1,575 days in some form of alternative confinement.

18.

During FY 2004, 1,454 proposed mergers and acquisitions were reported for review under the

HSR Act. In addition, the Division screened a total of 1,127 bank mergers. The Division further

investigated 89 mergers and challenged 6 of them in court. An additional three transactions were

restructured or abandoned prior to the filing of a complaint as a result of the Division’s announcement that

it would otherwise challenge the transaction. The Division opened 130 civil investigations (merger and

non-merger), and issued 562 civil investigative demands (a form of compulsory process). The Division

filed two non-merger civil complaints. Also during FY 2004, the Division responded to two requests for

review of written business proposals.

FTC Staffing and Enforcement Statistics

19.

The FTC has 295 non-administrative staff working on competition enforcement, including

180 lawyers, 49 economists, 66 ‘other’ (the “other” category includes paralegals, investigators, merger

analysts, compliance specialists, industry analysts, research analysts, and financial analysts/accountants).

The FTC’s Maintaining Competition Mission had a budget of $82.5 million in FY 2004.

20.

During FY 2004, the Commission brought a total of 26 competition enforcement actions. The

Commission staff opened 184 initial phase investigations under the mergers and joint ventures program

and issued requests for additional information (“second requests”) in 20 transactions. The Commission

challenged 12 mergers. One preliminary injunction was authorised; ten consent orders were accepted; two

administrative complaints were issued. In addition, eight transactions were abandoned for antitrust

concerns. (One transaction was challenged both through a preliminary injunction as well as an

administrative complaint.) Three transactions were abandoned after the issuance of the second request,

and five were abandoned during the course of the investigation.

21.

The Commission brought 11 enforcement actions challenging a variety of anticompetitive

conduct. Seven were tentatively resolved by consent agreements, four of these consent agreements were

still pending at the end of FY 2004. There was one administrative complaint issued during the fiscal year.

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Antitrust Cases in the Courts

United States Supreme Court

22.

The United States Supreme Court decided four antitrust and antitrust-related cases in FY 2004. In

Intel Corp. v. Advanced Micro Devices, Inc., 124 S. Ct. 2466 (June 21, 2004), the Court construed 28

U.S.C. § 1782(a), which provides that, on the request of “any interested person,” a United States district

court “may order” a person to give testimony or produce a document “for use in a proceeding in a foreign

or international tribunal.” Advanced Micro Devices (AMD) filed a complaint against Intel with the

Directorate-General for Competition of the Commission of the European Communities alleging an abuse

of Intel’s dominant market position, and then petitioned a district court to require Intel to produce certain

documents to support its complaint. The Court held that the statute authorised, but did not automatically

require, a court to order such discovery; that AMD’s status as complainant to the Directorate-General made

it an “interested person;” and that the Directorate-General is a “tribunal” for purposes of that section. It

also held that a proceeding need not be pending, but only “within reasonable contemplation,” and that

discovery is not limited to evidence that would be discoverable under either the foreign law or domestic

law, so long as it is not privileged. The Court formulated a number of considerations to guide a district

court’s exercise of discretion with respect to such requests, including whether the foreign tribunal needed

or wanted help in securing the evidence, whether the application was being used to circumvent other

restrictions on gathering the evidence, and how burdensome the request was. Upon remand to consider the

matter under those guidelines, the district court denied the application. See Advanced Micro Devices, Inc.

v. Intel Corp., 2004 WL 2282320, 2004-2 Trade Cases ¶ 74,569 (N.D. Cal. Oct. 4, 2004).

23.

In F. Hoffman-LaRoche Ltd. v. Empagran S.A., 124 S.Ct 2359 (June 14, 2004), the Court

construed the Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6a, which provides that the Sherman

Act “shall not apply to conduct involving trade or commerce ... with foreign nations,” unless the conduct

significantly harms imports, domestic commerce, or American exporters. It held that, where the conduct

takes place and injury occurs in foreign countries, the Act allows a suit under the Sherman Act for the

foreign injury only if it is dependent on the effects of the conduct in the United States. The fact that the

conduct causes parallel but independent injury in the United States is not enough. The Court remanded the

case for a determination whether it might be maintained on the theory that the alleged domestic effect did

contribute to the foreign injury.

24.

In United States Postal Service v. Flamingo Industries (USA) Ltd., 540 U.S. 736 (Feb. 25, 2004),

the Supreme Court addressed the question of whether the United States Postal Service is subject to liability

at all under the federal antitrust laws. The Court unanimously held that the Postal Service is not subject to

suit under the federal antitrust laws. The Court explained that Congress is not presumed to have subjected

the federal government itself to liability in the absence of clear evidence of such an intent, which is lacking

in this statute.

25.

Finally, in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398

(Jan. 13, 2004), the Court construed the antitrust savings clause of the Telecommunications Act of 1996 to

bar either an implied immunity arising from the Act, or the creation of new claims that go beyond existing

antitrust standards. While the Telecommunications Act requires an incumbent local exchange carrier to

share facilities with competitors, the court held that the Sherman Act does not. Thus, a complaint by a

customer of a competitive carrier alleging injury because of an incumbent’s discrimination in dealing with

the competitor did not state a violation of § 2 of the Sherman Act. Considering the policies of the antitrust

laws and the risk of chilling the very competition they are intended to protect, the Supreme Court

emphasised the need for caution with respect to government intervention against single firm conduct,

especially in imposing antitrust obligations on firms to assist competitors and share resources. The Court's

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opinion strictly circumscribed or eliminated expansive theories of antitrust liability under the labels of

“essential facilities” or “monopoly leveraging.”

U.S. Court of Appeals Cases

Significant DOJ Cases Decided in FY 2003

26.

In United States v. LSL Biotechnologies, 379 F.3d 672 (9th Cir. 2004), the court addressed the

Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6a, in connection with an agreement, adopted in

Israel, not to compete in the sale of seeds for long shelf life tomatoes in Mexico, where the tomatoes would

be sold in the United States. The FTAIA makes the Sherman Act applicable to conduct involving foreign

trade only where such conduct has a “direct, substantial, and reasonable foreseeable effect” on United

States commerce; in this case, the court thought that the likelihood that the contractually restricted firm

would develop a competitive product not barred by the defendant’s patent to be speculative, so the

agreement did not have a “direct” effect on the market.

27.

In Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004) (en banc), the court

affirmed the litigated decree entered in the suit by several state governments; only the Commonwealth of

Massachusetts had appealed, seeking additional relief. In reviewing the numerous items of additional

relief sought, the court applied three general principles: the relief necessary was limited by its earlier

findings on liability; it should be directed to restoring competition, not to benefiting individual

competitors; and it should not harm consumer interests. The court also allowed two industry organisations

to intervene in the Government’s suit against Microsoft to challenge the consent decree that had been

entered by the district court, but upheld the decree as “in the public interest.”

28.

In United States v. Simmons, 374 F.3d 313 (5th Cir. 2004), the court affirmed the appellant’s

conviction for price fixing in the sale of auto glass, rejecting challenges to the joint trial with his coconspirator, the jury instructions, and testimony regarding some of his certain out-of-court statements.

29.

In United States v. Therm-All, Inc., 373 F.3d 625 (5th Cir. 2004), the court affirmed the price

fixing convictions of two companies involved in the sale of laminated fibreglass insulation, although the

jury acquitted the responsible corporate officers. It held, among other things, that the statute of limitations

in an antitrust case starts to run from the last overt act in furtherance of the conspiracy, and that a single

(rather than multiple) conspiracies was shown by a common goal, the need for cooperation among the

conspirators, and the presence of a key actor coordinating their efforts.

Private Cases Having International Implications in FY 2003

30.

In Sniado v. Bank Austria AG, 378 F.3d 210 (2d Cir. 2004) , the court reconsidered an earlier

decision in the same case, which involved an alleged conspiracy among European banks to fix currency

exchange fees. In light of the Supreme Court’s intervening decision in F. Hoffman-La Roche Ltd. v.

Empagran S.A., 542 U.S. 155 (2004), the court held that the complaint must be dismissed under the FTAIA

because it did not allege the cause of action arose from the domestic effects of the conspiracy.

31.

In Prewitt Enterprises, Inc v. Organization of Petroleum Exporting Countries, 353 F.3d 916 (11th

Cir. 2003), the court held that, under the Federal Rules of Civil Procedure, a gas station owner had not,

and could not, adequately serve a complaint in an antitrust case on OPEC. Under Austrian law, pursuant to

an agreement between the Austrian government and OPEC, OPEC could not be served with judicial

process at its headquarters in Vienna without its consent, which OPEC expressly refused.

32.

In In re Automotive Refinishing Paint Antitrust Litigation, 358 F.3d 288 (3rd Cir. 2004), the court

construed section 12 of the Clayton Act, 15 U.S.C. 22, to allow service of process in an antitrust case

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anywhere the defendant, in that case a German corporation, may be found. It also held that the court may

constitutionally exercise personal jurisdiction based on the defendant’s contacts with the United States,

rather than with the forum state. Finally, it held that the plaintiff could pursue discovery related to

jurisdiction over the defendant under the Federal Rules of Civil Procedure, and was not required to follow

the Hague Convention on the Taking of Evidence Abroad.

Statistics on Private Cases Filed

33.

According to the annual report of the Director of Administrative Office of the U.S. Courts, 764

new civil and criminal antitrust actions, both government and private, were filed in the federal district

courts in FY 2004. (We do not have data on private cases filed in state courts).

Significant DOJ and FTC Enforcement Actions

DOJ Criminal Enforcement

34.

Chemical Additives: On September 30, 2004, Bayer Corporation, a U.S. subsidiary of the

German firm Bayer AG, agreed to plead guilty and to pay a $33 million criminal fine for participating in a

conspiracy to fix prices of polyester polyols, a chemical used in a number of consumer products, including

plastic grocery bags, shoe soles and automotive parts. Polyester polyols are also used in automotive

coatings, filters, belts, seals and gaskets, adhesives, sound-proofing products, and textiles. According to the

charge, Bayer Corporation conspired from 1998 to 2002 with an unnamed producer and unnamed

individuals to suppress and eliminate competition in the United States for aliphatic polyester polyols.

35.

Rubber Chemicals: Crompton Corporation was charged on March 15, 2004 and pled guilty in

May to participating in an international conspiracy to fix prices in the rubber chemicals market. Rubber

chemicals are a group of additives used to improve the elasticity, strength, and durability of rubber

products, such as tires, outdoor furniture, hoses, belts, and footwear. Approximately $1 billion of rubber

chemicals are sold annually in the United States. Crompton was sentenced to pay a $50 million criminal

fine for its role in the conspiracy from 1995 to 2001. On July 14, 2004, the German firm Bayer AG was

charged with participating in the same conspiracy. Bayer is awaiting sentencing, but has agreed to pay a

$66 million criminal fine. Joseph B. Eisenberg, a former Crompton executive, was charged on September

14, 2004, in the conspiracy. On September 21, 2004, James J. Conway, another former Crompton

executive, was also charged. Conway and Eisenberg have entered pleas of guilty and agreed to cooperate

with the continuing investigation; their sentencings have been postponed pending completion of their

cooperation.

36.

DRAM: On September 15, 2004, the Division charged Infineon Technologies AG, a German

manufacturer of dynamic random access memory (DRAM), with participating in an international cartel

from 1999 to 2002 to fix DRAM prices. DRAM is the most commonly used semiconductor memory

product, providing high-speed storage and retrieval of electronic information for a wide variety of

computer, telecom, and consumer electronic products. Annual sales of DRAM in the U.S. exceed $5

billion. Infineon pled guilty and was sentenced to pay a $160 million fine, the largest criminal fine in any

DOJ case in the preceding three years. This charge came nine months after an executive of Micron

Technology, Inc., a U.S. firm and the largest DRAM manufacturer in North America, had agreed on

December 17, 2003, to plead guilty to obstructing the grand jury investigation of the price-fixing

conspiracy. Alfred P. Censullo, Micron’s regional sales manager for upstate New York, was charged with

obstruction of justice for altering and concealing documents containing competitor pricing information,

which were requested in a federal grand jury subpoena.

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37.

Diamonds: On July 13, 2004, De Beers Centenary AG pled guilty and was sentenced to pay a

$10 million criminal fine to resolve a longstanding indictment for conspiring to fix the price of industrial

diamonds in the United States and elsewhere. Diamond tool manufacturers use industrial diamond products

in cutting and polishing tools for a variety of manufacturing and construction applications, including road

construction, stone cutting and polishing, automobile manufacturing, mining, and oil drilling. In 1994, a

federal grand jury in Columbus, Ohio indicted De Beers Centenary for conspiring to raise list prices of

various industrial diamond products worldwide in 1991 and 1992. De Beers’ alleged co-conspirator,

General Electric, was tried and acquitted by the district court on this charge. De Beers Centenary,

headquartered in Switzerland, was not tried on the charge because the court had not acquired jurisdiction

over the company. As a result of the plea agreement, De Beers Centenary consented to the jurisdiction of

the court and admitted that it conspired to raise list prices for certain industrial diamond products sold

worldwide, as charged in the indictment. The 2004 plea agreement resolves the Department’s 1994

indictment.

38.

E-Rate: On May 27, 2004, NEC-Business Network Solutions Inc., a subsidiary of NEC America

Inc., pled guilty and was sentenced to pay a total $20.6 million criminal fine, civil settlement and

restitution relating to charges of collusion and wire fraud in the Federal Communications Commission’s ERate program. The E-Rate program, created by Congress in the Telecommunications Act of 1996,

provides funding for needy schools and libraries to connect to and use the Internet. NEC-Business

Network Solutions Inc. (NEC/BNS), based in Irving, Texas, was charged with allocating contracts and

rigging bids for E-Rate projects in five different school districts in Michigan, Wisconsin, Arkansas, and

South Carolina. NEC/BNS was also charged with wire fraud by entering into a scheme to defraud the ERate program and the San Francisco Unified School District by inflating bids, agreeing to submit false and

fraudulent documents to hide the fact that it planned on installing ineligible items, agreeing to donate

“free” items for which it planned to bill E-Rate, and submitting false and fraudulent documents to defeat

inquiry into the legitimacy of the funding request. In another case involving the E-Rate program and filed

in the Eastern District of Wisconsin, the Division on Sept. 24, 2004, charged three brothers, Haider, Qasim,

and Raza Bokhari, with defrauding the program via a conspiracy to commit mail fraud, mail fraud, a

money laundering conspiracy, and money laundering. The brothers defrauded the E-Rate program by

subverting the E-Rate bid process by offering schools improper inducements for selecting the Bokhari’s

company as the E-Rate vendor and by submitting false documentation that work had been performed when

it had not, and then they concealed the fraudulently obtained E-Rate payments. Haider and Qasim Bokhari

pled guilty to all charges and each was subsequently sentenced on January 28, 2005 to a six-year jail

sentence, to pay jointly $1.2 million in restitution, and to forfeit property derived from the charged crimes.

Raza, a Pakistani national and resident, is an international fugitive. Additional cases are expected to be

generated from this ongoing investigation.

39.

DOD Household Goods: On April 29, 2004, Cartwright International Van Lines, Inc. pled guilty

and was sentenced to pay a $250,000 fine for conspiring to increase the rates paid by the Department of

Defence (DOD) for the transportation of military and civilian DOD household goods. Cartwright was

charged with conspiring to fix prices in connection with the transportation of military and civilian DOD

household goods from Germany to the United States in 2002. As part of the same federal investigation of

anticompetitive and fraudulent conduct in the industry, on February 18, 2004, the Department filed charges

against Belgium-based Gosselin World Wide Moving N.V. (Gosselin) and the Pasha Group (Pasha), a

U.S.-based firm. The two count Information charged Pasha and Gosselin with participating in: (1) a

conspiracy to fix the prices that the DO paid for the shipment of military and civilian household goods

from Germany to the United States; and (2) a conspiracy to defraud the United States. On August 16,

2004, the district court held that defendants’ agreement was immune from antitrust prosecution under the

Shipping Act and dismissed the price-fixing count of the Information against Pasha and Gosselin. On

September 15, 2004, the government filed a notice of appeal; the appeal is currently pending.

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40.

Other significant criminal investigations reported during FY04 include matters relating to the

following industries: linen supply, scrap metal, textbook stores, road construction, printing and graphic

services, and roofing contracts.

DOJ Civil Non-Merger Enforcement

41.

Movies-on-Demand: On June 3, 2004, the Department announced that it had closed its

investigation into Movielink, a joint venture formed by five major movie studios - Sony (Columbia-TriStar

Pictures), Warner Bros., MGM, Paramount and Universal - to provide video-on-demand (VOD) services.

VOD is a new technology that has enabled the studios to distribute their films in digital format to

consumers over two primary platforms, the Internet and digital cable. The terms of the Movielink

agreements provide that each studio determines pricing and release dates for its own films. The

Department’s investigation focused on whether formation of the joint venture facilitated collusion among

the studios or decreased their incentives to license movie content to competing video-on-demand

providers. The Department considered several theories of competitive harm but ultimately determined that

the evidence does not support a conclusion that the structure of the joint venture increased prices or

otherwise reduced competition in the retail markets in which Movielink competes.

42.

Digital Music: On December 23, 2003, the Department announced that it was closing its

investigation into the major record labels' pressplay and MusicNet joint ventures, two joint ventures

formed by the major record labels to distribute music over the Internet. Pressplay began as a joint venture

of major labels Sony Music Entertainment and Universal Music Group, but recently was sold to software

supplier Roxio. MusicNet is a joint venture of major labels Warner Music Group, EMI Group, and BMG

Music, as well as RealNetworks, an Internet media company. In its investigation of pressplay and

MusicNet, the Division focused primarily on two questions. First, did the joint ventures restrain

competition among the major record labels on the terms on which they would license their music to digital

music services not owned by the record labels themselves? Second, did the joint ventures allow the major

record labels to impede the growth of the Internet as a channel for the authorised promotion and

distribution of music, and thereby help the major labels solidify their central roles in the existing music

market? Having answered both questions in the negative, the Department closed the investigation.

43.

Microsoft: The DOJ’s complaint and the subsequent proceedings against Microsoft have been

described in prior years’ reports. In November 2002, the district court approved the settlement, finding

that entry of the Final Judgment was in the public interest. In June 2003, the U.S. Court of Appeals for the

District of Columbia soundly approved the District Court's findings, as previously described. The United

States continues to actively enforce Microsoft’s compliance with the Final Judgment, coordinating its

efforts with the various state enforcement authorities to collectively ensure the remedial effect intended by

the Final Judgment. Over the past year, the Department has worked to resolve numerous complaints

against Microsoft, including a change in web browser default functionality within Windows XP. The

Department continues to oversee the communications protocol licensing program, a significant provision

of the final judgment. In this role, the Department has worked to expand the scope of the protocols

available for use by licensees; extend the life of the licensing program by two years; and improve the

completeness, accuracy, and usability of the Technical Documentation.

Modification or Enforcement of DOJ Consent Decrees

44.

On August 11, 2004, the Department, along with SBC Communications Inc. and BellSouth

Corp., filed a request for a modification of a consent decree that prohibited the two firms from reacquiring

previously divested spectrum licenses in California and Indiana. The modification, approved by the U.S.

District Court in Washington, D.C. on October 13, 2004, allowed SBC and BellSouth, through their joint

venture Cingular Wireless LLC, to reacquire certain of the divested spectrum licenses as part of their

DAF/COMP(2005)18/07

acquisition of AT&T Wireless Services, Inc. The original consent decree, filed at the time of the formation

of Cingular in 2000, required SBC and BellSouth to sell wireless businesses in 16 markets and prohibited

reacquisition of the divested spectrum licences in those markets. AT&T Wireless purchased the divested

wireless businesses in California and Indiana. The Department supported the modification of the consent

decree after reviewing changes in the marketplace and the increased competition in the affected markets.

45.

On August 6, 2004, the Department announced a settlement with American Airlines resolving

alleged violations of a 1994 consent decree in the Airline Tariff Publishing Co. (ATPCO) case. In that

case the Department alleged that American and other major domestic airlines used fare filings

disseminated by ATPCO to communicate proposed fare increases to competitors. American agreed to pay

a $3 million civil penalty in response to the Department’s claim that it violated the consent decree through

its publication of fares in a manner prohibited by the decree.

FTC Non-Merger Enforcement Actions

46.

The FTC has identified priorities and sought systematically to bring non-merger cases in key

areas. Consistent with a consumer welfare approach, the agency focuses on industries of fundamental

importance to most consumers, including health care, prescription drugs, standards setting, professional

associations, and immunities from and exceptions to the antitrust laws.

47.

Health care: The FTC has been active in prosecuting unlawful conduct in the health care and

pharmaceutical industries. The FTC has continued to take action against groups of physicians and other

health providers for agreements relating to prices. The agency obtained four settlements, including one in

a case in administrative litigation (Southeastern New Mexico Physicians, White Sands Health Care System,

Preferred Health Services and Piedmont Health Alliance). The Commission is now considering the appeal

of an Initial Decision upholding the complaint (North Texas Specialty Physicians). The Commission also

required two pharmaceutical firms to disgorge $6.25 million in alleged illegal overcharges for children’s

pain medicine (Perrigo/Alpharma), and issued an order denying a motion to dismiss the FTC’s challenge

to alleged restrictions on competition for dental services in South Carolina (South Carolina Board of

Dentistry).

Southeastern New Mexico Physicians: In June 2004, a consent agreement resolved FTC

charges that 73 percent of the physicians independently practicing in Roswell, New Mexico,

collectively negotiated their fees with payers, resulting in prices above those prevailing

elsewhere in the state. The consent order bars similar future conduct.

White Sands Health Care System. In September 2004, a physician-hospital organisation

in New Mexico settled the Commission’s allegations that it fixed prices charged to health

plans for physician and nurse anesthetist services, agreeing to cease and desist such conduct.

Piedmont Health Alliance. In August 2004, a 450 member group of North Carolina

physicians agreed to settle price-fixing charges made by the Commission in a 2003

administrative complaint, just before the scheduled beginning of trial.

Perrigo/Alpharma: In August 2004, generic drug manufacturers Alpharma, Inc. and

Perrigo Company agreed to give up $6.25 million in illegal profits to settle Federal Trade

Commission charges that their agreement to limit competition for over-the-counter storebrand children’s liquid ibuprofen drove up prices and violated federal law. Alpharma, Inc.

and Perrigo Company signed an agreement under which Alpharma allegedly agreed not to

compete in selling children’s liquid Ibuprofen for seven years in exchange for an up-front

payment and a royalty on Perrigo’s sales of the product. The complaint further alleges that

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Perrigo raised its prices following the agreement. The Commission will use the $6.25

million payment to reimburse consumers harmed by the alleged illegal conduct. This is the

first case in which the Commission has applied its new guidelines on the use of

disgorgement in antitrust cases.

South Carolina Board of Dentistry: The FTC challenged restrictions against dental

hygienists providing basic dental care to South Carolina school children – particularly those

that are economically disadvantaged. In July 2004, the Commission denied the South

Carolina Board of Dentistry’s motion to dismiss the FTC’s administrative complaint,

rejecting the Board’s contention that the State Action doctrine (immunising sovereign state

conduct) protected its actions against antitrust challenge. The Commission noted that the

Board’s actions were not pursuant to a clearly articulated policy of the state and appeared to

have been contravened by the legislature. The Commission has agreed to stay the

administrative proceedings pending the resolution of the Board’s appeal of the

Commission’s decision.

48.

Energy: The Commission’s efforts to protect competition in the petroleum industry include a

significant adjudicative matter involving the alleged acquisition of monopoly power in the technology

market for producing a formulation of gasoline in California:

Unocal: In an Opinion issued in July 2004, the Commission reversed an Administrative

Law Judge’s (ALJ) initial decision that the Noerr-Pennington doctrine (immunising certain

petitioning to the government) protected Union Oil of California from charges of

monopolisation, thus sending the matter back before an administrative law judge (ALJ) for

a full trial on the merits. The Commission held that, in some circumstances, false

petitioning does not enjoy Noerr-Pennington protection. According to the Commission,

these circumstances include “when the petitioning occurs outside the political arena; the

misrepresentation is deliberate, factually verifiable, and central to the outcome of the

proceeding or case; and it is possible to demonstrate and remedy this effect without

undermining the integrity of the deceived governmental entity.” The case concerns energy

and standards setting, and the Commission’s complaint alleges that Unocal made

misrepresentations to the California Air Resources Board (CARB) and to industry

participants concerning its research relating to low-emissions reformulated gasoline (RFG).

Unocal’s actions allegedly led to a regulatory standard that overlapped with Unocal patents,

giving Unocal a monopoly over the technology used to produce and supply California

“summertime” RFG and costing California consumers hundreds of millions of dollars in

higher gasoline prices. The case is awaiting the ALJ’s decision following the completion of

the administrative trial.

49.

Other Non-merger Enforcement: In the past year, the Commission accepted consent agreements

in two other non-merger cases raising important conduct issues:

Clark County, Washington, Attorneys: In June 2004, the Commission charged an

attorneys’ group in Clark County, Washington with price fixing. The group consisted of 43

independently practicing attorneys who represented criminal indigent defendants.

According to the FTC’s complaint, the attorneys formed a consortium through which they

collectively demanded higher fees from the county for defending certain types of criminal

cases and threatened to refuse to take additional cases of these types unless the county

agreed to the higher fees. The Commission settled with the group and issued an order

barring the attorneys from engaging in similar conduct in the future.

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Virginia Board of Funeral Directors and Embalmers: In August 2004, the FTC

charged the Virginia Board of Funeral Directors and Embalmers with violating the

antitrust laws and restraining competition by prohibiting funeral directors from

advertising discounts for “pre-need” funeral planning and services. The parties agreed to a

settlement, and an order bars the Board from prohibiting or restricting truthful price

advertising, including enforcing any regulation that might prevent Board licensees from

using truthful advertising to notify consumers of prices and discounts for funeral products

and services.

50.

Two additional non-merger adjudicative matters are pending before the Commission following

appeals from ALJ decisions:

•

Kentucky Movers: In 2003, the Commission filed a complaint against several associations

of household goods movers, charging that the associations, consisting of competing firms,

each violated the FTC Act by jointly filing tariffs containing collective rates on behalf of

their members. All but one of the matters have settled. In June 2004, the ALJ’s Initial

Decision upheld the complaint’s allegations that the Kentucky association had engaged in

horizontal price-fixing and that its conduct was not protected by the State Action doctrine

because the state had not actively supervised the association’s rate-making activities. At the

end of FY 2004, the Commission was scheduled to hear oral arguments on the matter in

January 2005.

•

Rambus: The Commission is considering an appeal from an ALJ’s dismissal of the

complaint in an administrative proceeding against Rambus, Inc. The complaint charged that

Rambus violated the antitrust laws by knowingly failing to disclose its relevant intellectual

property holdings to a standards setting organisation in which it participated. In dismissing

the complaint, the ALJ concluded that Rambus’s conduct did not amount to deception or a

violation of Rambus’s duties and that complaint counsel did not prove that Rambus’s

conduct violated the antitrust laws.

Advisory Letters from the Commission

51.

In FY 2004, FTC staff issued the following advisory letters: (1) to Medical Group Management

Association (MGMA), stating that MGMA’s proposal to conduct and publish the results of a survey of

physician practices does not appear to prompt coordinated anticompetitive behaviour by physicians; (2) to

Dunlap Memorial Hospital regarding the Non-Profit Institutions Act (NPIA) on the sales of

pharmaceuticals, stating that the pharmaceuticals Dunlap transferred to the Free Clinic (at a small fee)

would be covered by the NPIA as long as Dunlap does not profit from the transfer; (3) to Bristol-Myers

Squibb Company (“BMS”), stating that the proposed agreement with Teva Pharmaceuticals USA, Inc. to

settle litigation over the validity of BMS’s patent for the drug Carboplatin does not raise issues under

Section 5 of the Federal Trade Commission Act (prohibiting unfair methods of competition); (4) to the

American Down and Feather Section (“AD&FS”) of the American Home Fashion Products Association

stating that the staff would not recommend bringing enforcement action challenging AD&FS’s proposed

labelling compliance program; and (5) to the Electronic Retailing Association (“ERA”), stating that it

would not challenge ERA’s implementation of a program that would review and if necessary, discontinue,

direct response television shows (i.e., infomercials).

Business Reviews Conducted by the Department of Justice

52.

In FY2004, the Department issued two business review letters. On October 17, 2003, the

Department announced it would not challenge proposed changes in the procedures for the National Cable

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Television Cooperative Inc. (NCTC), a consortium of primarily independent and smaller owners of cable

television systems, to jointly purchase national cable programming. The Department said that with respect

to the overwhelming majority of NCTC member cable systems, there is no danger that NCTC’s procedures

will facilitate retail price collusion because those cable systems do not compete with each other in the sale

of multichannel video programming distribution (MVPD) services to consumers. Furthermore, it said that

the proposed changes to the joint purchasing procedures would result in lower programming costs to

members that could be passed on to consumers, so the proposed conduct could potentially have

procompetitive effects. On May 25, 2004, the Department announced it would not challenge an online fee

survey proposal among competing Internationally Board-Certified Lactation Consultants (IBCLCs).

Lactation consultants provide breast-feeding assistance to mothers. Based on information provided in the

proposal, the Department said the proposed survey would determine the range of prices customarily

charged by self-employed IBCLCs and would allow independent practitioners to set reasonable fees for

their area, providing procompetitive benefits while raising little risk of anticompetitive effects.

III.

Enforcement of antitrust laws and policies: mergers and concentrations

Enforcement of Pre-merger Notification Rules

53.

On May 3, 2004, the Department and the Federal Trade Commission announced that Bill Gates

had agreed to pay an $800,000 civil penalty to settle charges that he violated pre-merger reporting

requirements. According to the complaint filed by the Department at the request of the FTC, Gates,

through his personal investment company, acquired more than $50 million of the voting securities of ICOS

Corporation in 2002 without complying with pre-merger notification requirements. He did not qualify for

the “solely for the purpose of investment” exemption because he intended to participate in the basic

business decisions of ICOS, a pharmaceutical company, through, among other things, his longstanding

membership on its board of directors. The case was not related to Gates’ position in Microsoft Corporation

nor to the Department’s antitrust litigation against the company.

54.

On May 3 the Department also announced that Manulife Financial Corporation, a Canadianbased insurance and financial services company, agreed to pay a $1 million civil penalty to settle charges

that it violated pre-merger notification requirements when it acquired more than $50 million of John

Hancock common stock in the spring of 2003. Manulife and John Hancock announced in September 2003

an intent to merge, and they consummated the transaction in April 2004. The Department alleged that the

initial purchases in the spring of 2003 did not qualify for the “solely for the purpose of investment”

exemption because at the time of the acquisitions, Manulife was considering a Manulife-John Hancock

combination.

Significant Merger Cases

DOJ Merger Challenges or Cases

55.

Oracle/PeopleSoft: On February 26, 2004, the Department filed suit in the U.S. District Court for

the Northern District of California (San Francisco Division) to block Oracle Corporation’s proposed

acquisition of PeopleSoft, Inc. The Department alleged that the acquisition would substantially lessen

competition in North America for high-function financial management system and human resource

management software. The trial began on June 7, 2004, after two months of discovery, and lasted over

four weeks. On September 9, 2004, the District Court ruled in favour of Oracle Corp., concluding that the

Department failed to meet the requisite burden on a number of factual issues surrounding relevant markets,

entry, and competitive effects. The District Court made various conclusions of law that were often very

much intertwined with its factual findings. While the Department disagreed with the District Court’s

decision, the Department ultimately decided not to appeal. Throughout the investigation and trial, the

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Department worked closely with the European Commission on its review of the proposed transaction; the

European Commission ultimately decided not to issue a Statement of Objections.

56.

United Health Group/Oxford Health Plans: On July 20, 2004, the Department announced that it

had recently closed its investigation of United Health Group’s proposed acquisition of Oxford Health

Plans. United is one of the largest health insurance companies in the country and Oxford is a significant

regional health insurer, focused on the tri-state area of Connecticut, New Jersey, and New York. The

Department’s review focused on the proposed merger’s potential effects on the sale of health insurance

products by insurance plans and on the purchase of health care provider services. The Department

concluded that the merger would not substantially lessen competition in any relevant market and that the

product market involved in the proposed acquisition was no broader than the market for fully-insured

health insurance products sold to employers that are largely located in the tri-state area.

57.

Anthem/WellPoint: On March 9, 2004, the Department announced that it was closing its

investigation of Anthem, Inc.’s proposed acquisition of WellPoint Health Networks, Inc. Anthem and

WellPoint are two of the largest health insurance companies in the country, and the two largest licensees of

the Blue Cross Blue Shield Association. Under their agreement, Anthem would acquire WellPoint for

$16.4 billion in cash and stock. The combined entity would become the largest managed care insurance

company in the country. The Department’s review focused on four separate areas: the extent to which

Anthem and WellPoint compete for the sale of health insurance products, the possibility that this

transaction could give a combined Amthem/WellPoint buyer-side market power over health care providers,

the possibility that the combination of Anthem and WellPoint’s complementary plans might increase their

incentives or ability to exercise monopsony power, and the possible effects of this deal on the acquisition

of Blue Cross Blue Shield plans. After a thorough review, the Division decided that it was unlikely that

this transaction would result in substantial competitive harm in the foreseeable future.

58.

NewsCorps/Hughes: On December 19, 2003, the Department stated that it would not challenge

News Corp’s proposed acquisition of Hughes Electronics Corp., including its DirecTV subsidiary. The

Department’s decision was based in part on the announcement by the Federal Communications

Commission (FCC) that it will approve the transaction subject to certain conditions imposed on News

Corp.’s licensing of its regional sports networks and granting of retransmission consent for its Fox

Broadcasting Network. The restrictions imposed by the FCC as a condition for granting its approval of the

transaction will reduce News Corp.’s ability to withhold, or threaten to withhold, its programming content

from cable television and Direct Broadcast Satellite providers that currently compete with DirecTV.

59.

First Data/Concord: On December 15, 2003, the Department reached a settlement with First

Data Corporation and Concord EFS under which First Data agreed to divest its entire interest in NYCE

Corporation in order to proceed with its proposed $7 billion acquisition of Concord EFS. The Department

had filed a civil lawsuit on October 23, 2003, to block the acquisition, stating that the transaction would

have substantially reduced competition among Personal Identification Number, or PIN, debit networks.

This would have resulted in consumers paying higher prices for goods and services from merchants that

offer debit transactions. According to the complaint, filed in the U.S. District Court in Washington, D.C.,

Concord owns STAR, the largest PIN debit network, and First Data owns NYCE, the third-largest PIN

debit network. These networks enable consumers to purchase goods and services from merchants through

PIN debit transactions by swiping their bank cards at a merchant’s terminal and entering a PIN. According

to the complaint, the competition that the divestiture preserves has brought lower prices and better services

for PIN debit transactions both to merchants and to the consumers who purchase goods and services from

them.

60.

Dyno Nobel/El Paso: On December 2, 2003, the Department filed a civil lawsuit to block Dyno

Nobel Inc.’s proposed acquisition of ammonium nitrate production assets from El Paso Corporation. The

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Department required Dyno Nobel Inc. to divest its 50 percent interest in an industrial grade ammonium

nitrate (IGAN) production facility in Utah in order to proceed with the multi-million dollar acquisition.

IGAN is an essential ingredient in the production of blasting agent explosives used commercially in

industries such as mining and construction. The Department said that the transaction, as originally

proposed, would have resulted in higher prices for IGAN purchasers in the western United States. The

Department also noted in its complaint that if the acquisition had been allowed to proceed as originally

proposed, two firms would have controlled about 90 percent of IGAN sales in western North America.

Dyno and El Paso would have had a combined share of about 50 percent, and the proposed transaction

would have eliminated competition between them.

61.

DFA/Southern Belle: On April 24, 2003, the Department filed a lawsuit against Dairy Farmers of

America Inc. (DFA) and Southern Belle Dairy Co. LLC to compel DFA to divest its interests in Southern

Belle Dairy. The Department said DFA’s acquisition eliminated the only other independent bidder for

school milk - resulting in a monopoly - in over 40 school districts, and reduced the number of independent

bidders from three to two in approximately 50 more school districts, in Kentucky and Tennessee. On

August 31, 2004, the district court granted summary judgment for the defendants, relying on DFA's

removal of its voting rights on the representative committee for Southern Belle. The court did not address

the two years that DFA operated under the old governance agreement, the econometric evidence of a price

effect during that period, or the ease with which the markets could be allocated, as demonstrated by a bidrigging scheme that Southern Belle participated in from the late 1970s until 1989. Instead, after

acknowledging that control is not necessary and that statements of good intentions are not a valid defence,

the court concluded that, given the absence of voting rights, there was no mechanism for the transaction to

cause anticompetitive effects. The court gave no weight to the Department's argument that DFA had

selected the heads of the two competing dairies, had a history of past deals with those executives

demonstrating their fidelity to DFA, and offered them through past, present and potentially future deals

very lucrative compensation for advancing DFA's interests. The case is currently on appeal in the Sixth

Circuit.

FTC Merger Challenges or Cases

62.

During FY 2004, the number of pre-merger filings under the Hart-Scott-Rodino Act (HSR)

increased by more than 40 percent over the previous year, with a commensurate increase in the number of

mergers requiring investigation by the FTC or the DOJ. The value of mergers reported under HSR

increased by about 54 percent over the FY 2003 level. The following cases were significant merger cases

in FY 2004, although all four were closed with no action.

•

Sunoco/Eagle Point: In December 2003, the Commission concluded that Sunoco’s

proposed acquisition of Eagle Point Oil Company from El Paso Corporation would not

substantially lessen competition. Although Sunoco owned three Philadelphia-area refineries

and the acquisition would add a fourth, the FTC’s investigation identified significant

sources of both reformulated and conventional gasoline that likely would prevent Sunoco

from raising prices above the competitive level. In addition, Sunoco presented credible

evidence that that the acquisition likely would produce substantial merger-specific

efficiencies relating to refinery synergies and optimisation.

•

Genzyme/Novazyme: In January 2004, the Commission closed its consummated merger

investigation of Genzyme Corporation's 2001 Acquisition of Novazyme Pharmaceuticals,

Inc. At the time of its acquisition, Novazyme was engaged primarily in conducting early

pre-clinical studies relating to enzyme-replacement treatment (ERT) for Pompe disease.

Genzyme was also engaged in preclinical animal testing of ERTs. The Commission's

investigation focused on the transaction's potential impact on the pace and scope of research

DAF/COMP(2005)18/07

into the development of a treatment for Pompe disease. The Commission concluded that the

transaction was not likely to substantially reduce competition, and would more likely result

in major benefits to patients.

•

RJR/Brown & Williamson: In June 2004, the Commission outlined three reasons for its

conclusion that the merger of these two firms was unlikely to harm competition in the U.S.

cigarette market. It explained, first, that Brown & Williamson plays an increasingly minor

role in the market, with that trend expected to continue. Second, the investigation found no

markets in which the two firms are each other’s closest competitors. Third, a majority of

the Commissioners believed the evidence indicated that the transaction was unlikely to

facilitate or enhance coordination among the major U.S. cigarette manufacturers. (One

Commissioner issued a concurring statement.)

•

Victory/St. Therese. In July 2004, FTC Commissioners issued two statements explaining

their differing assessments of evidence obtained in an investigation of a consummated

merger of Victory and St. Therese hospitals in the Waukegan, Illinois area, leading to a 3-2

vote not to challenge the transaction. The majority emphasised that the merged hospital had

not succeeded in renegotiating contracts with payers, indicating a lack of market power, that

post-merger price increases were no greater than those at similar hospitals, and that the two

hospitals had been steadily losing market share before the merger. The two dissenting

Commissioners stated that the empirical evidence of post-merger price increases was

inconclusive, and that the totality of the evidence, including documents and testimony,

supported an enforcement action.

63.

In FY 2004, the FTC had three merger cases in adjudicative status. In Aspen Technology, the

Commission reached a settlement. The second case, Evanston/ Highland Park was still in administrative

litigation at the close of FY 2004. In the third case, Arch Coal, the Commission withdrew the case from

adjudication following an unsuccessful action in federal court for preliminary injunction and the

subsequent consummation of the transaction, and is considering whether to return the matter to

administrative adjudication.

•

Evanston/Highland Park: Based on its hospital merger retrospective project, the

Commission issued an administrative complaint challenging a hospital acquisition in

Chicago’s northern suburbs by Evanston Northwestern Healthcare Corporation. The

complaint alleges that the merger resulted in large price increases compared to a control

group of comparable hospitals. In a separate count, the Commission alleged price fixing by

some doctors associated with the hospitals. That count was recently removed from the

ongoing litigation for the Commission to consider a settlement proposal.

•

Arch Coal: In early 2004, the Commission approved a preliminary injunction action to

block Arch Coal’s planned acquisition of Triton Coal Company, based on concerns that the

merger would harm competition in the market for coal production from Wyoming’s

Southern Powder River Basin. That area supplies one-third of U.S. coal production and

fuels electrical power generation in 26 states. The Commission also issued an

administrative complaint against this transaction in April 2004. The district court denied

the injunction, stating that the agency’s concern over the likelihood of coordinated

interaction was based on a “novel theory” of output coordination and that the testimony of

the merging parties’ customers had little or no probative value. In response to the

Commission’s emergency motion, the U.S. Court of Appeals for the District of Columbia

Circuit denied an injunction pending appeal. Although the court granted an expedited

appeal, the parties consummated the transaction shortly after the court ruled. The appellate

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court’s per curiam order noted, however, that there was “nothing novel about the theory [the

Commission] has advanced in this case.” Subsequently, the Commission withdrew the case

from administrative litigation in August 2004 to facilitate consideration of next steps.

•

Aspen Technology/Hyprotech: In another case reflecting the FTC’s emphasis on high

technology matters, the parties resolved the challenge to the acquisition of Hyprotech’s

software assets by Aspen Technology just weeks before an administrative trial was set to

begin last summer. As the transaction was exempt from pre-merger reporting requirements,

the FTC challenged it administratively after consummation. The consent order, issued in

July 2004, remedies the concerns outlined in the Commission’s complaint by requiring

Aspen Technology to divest the overlapping Hyprotech assets and take several other

measures to restore competition to pre-merger levels.

IV.

Regulatory and Trade Policy Matters

Regulatory Policies

FTC Staff Activities: Federal and State Regulatory Matters

64.

In FY 2004, the FTC’s regulatory matters were focused on the health, energy and professional

services industries.

•

Pharmacy Benefit Manager Comments: Concerned with likely price increases in

pharmaceutical markets, in September 2004, the FTC staff submitted comments on

proposed California legislation that would have required pharmacy benefit managers

(PBMs) to disclose certain information to health plans and consumers regarding their

arrangements companies. The FTC pointed out that these provisions likely would reduce

competition between pharmaceutical companies and thus decrease the incidence of costreducing drug substitutions. The Governor of California vetoed the legislation, citing the

FTC letter as a basis for his decision.

•

“Any Willing Provider” and “Freedom of Choice” Bills: Concerned about rising

pharmaceutical costs and other harm to consumers, FTC staff responded to requests for

comments on seven proposed bills in Rhode Island that contain so-called “freedom of

choice” and “any willing provider” provisions for pharmaceutical sales. All seven bills

require health plans to ensure “freedom of choice” for consumers to choose among all

sources of pharmaceutical services and to include in their networks any pharmacy willing to

accept the contractual terms offered to other pharmacies. Although the bills are designed to

increase competition by letting consumers choose their pharmacy provider, staff concluded

that the bills likely would increase the cost of pharmaceutical services as well as limit

competition and undermine consumer choice.

•

Contact Lens Competition: The agency has been active in ensuring competition in the

contact lens industry. Under with pharmaceutical the Fairness to Contact Lens Consumers

Act, in July 2004, the FTC issued the Contact Lens Rule which requires, inter alia, that

prescribers provide patients with a copy of their prescriptions after a fitting and verify those

prescriptions to any third party a patient designates.

•

Below Cost Gasoline Sales Bills: In FY 2004, FTC staff responded to requests from

Alabama and Michigan legislators for comments on bills to ban below-cost gasoline sales.

FTC staff concluded that, if enacted, the bills likely would restrict competition, deter pro19

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competitive price cutting, and lead to higher prices for the states’ consumers. Moreover,

staff concluded that such bills are unnecessary because federal antitrust laws already cover

below-cost pricing that has the potential to harm competition.

•

Electricity: The FTC filed two comments with the Federal Energy Regulatory Commission

(FERC) in July 2004 about how to assess and safeguard against the exercise of market

power and accompanying price increases. The first comment recommended that FERC’s

assessments of when to permit electric utilities to sell wholesale power at market rates be

based on the principles and framework outlined in the DOJ/FTC Horizontal Merger

Guidelines. FERC has not yet ruled on these issues. The second comment concerned

FERC’s policies governing electric utility procurement. FERC cited this comment to

support new policies to prevent rate regulation evasion and anticompetitive crosssubsidisation that have the effect of raising consumer prices.

•

Corporate Ownership of Funeral Homes: In April 2004, FTC staff commented on a bill to

permit corporate ownership of funeral homes in Maryland in response to a legislator’s

request. Staff concluded that the bill would permit easier entry into the funeral home

business, increasing competition and potentially offering consumers lower prices and better

quality for funeral home services.

•

Professional Services: The FTC and DOJ continue to be concerned about efforts to prevent

non-lawyers from competing with attorneys in the provision of certain services through the

adoption of overly broad “unauthorised practice of law” opinions and laws by state bar

associations, courts, and legislatures. In FY 2004 the FTC and the DOJ continued advocacy

activities in Michigan and Ohio, including filing a brief amicus curiae with the Supreme

Court of Ohio in Cleveland Bar Ass’n v. Comp Management, Inc. (Case No.: UPL 02-04) in

August 2004.

DOJ Activities: Federal and State Regulatory Matters

65.

In FY2004, the DOJ filed its last comments with the Federal Communications Commission

(FCC) in a “Section 271” proceeding involving the FCC’s determination of whether it was in the public

interest to permit a Regional Bell Operating Company to offer long-distance service in its own area. The

last 271 comments, recommending that the FCC approve Qwest’s application to provide long distance

services in Arizona because local telecommunications markets there were fully and irreversibly open to

competition, were filed on October 9, 2003, and the FCC granted 271 approval in the last case at the end of

2003. The Regional Bell Operating Companies are now permitted to offer long distance services anywhere

the

country.

The

Division’s

comments

are

available

http://www.usdoj.gov/atr/public/comments/sec271/sec271.htm.

66.

On February 18, 2004, the DOJ filed comments with the U.S. Department of Agriculture

opposing a proposal under the Agricultural Marketing Agreement Act of 1937 to establish a Hop

Administrative Committee to control the quantity of hops that domestic producers may market. The

comments asserted that the proposed restrictions on output would lead to non-competitive pricing effects

and resource misallocations, in an industry with a well-performing, competitive market with many

producers and dealers who have ready access to high-quality market information and ample opportunities

to enter into long-term contracts as they see fit to hedge against price fluctuations.

67.

On February 24, 2004, the DOJ submitted comments to the Surface Transportation Board (STB)

urging it to impose conditions on any approval of Canadian National Railway Company’s acquisition of

railroad assets from Great Lakes Transportation, in order to preserve the potential competition that

DAF/COMP(2005)18/07

Canadian National’s build-out opportunities provided to Great Lakes’ customers. The conditions would

include giving a replacement railroad trackage rights over Canadian National’s line and authorising it to

connect that line to certain facilities through build-outs.

68.

On October 10, 2003, the DOJ filed comments with the Federal Maritime Commission

supporting the petitions of United Parcel Service and other non-vessel-owning common carriers

(NVOCCs) for an exemption from tariff filing and publication requirements. The DOJ argued that by

negotiating service contracts with vessel-operating common carriers (VOCCs) for the aggregated volume

of their underlying shippers’ cargoes, NVOCCs can reduce smaller shippers’ ocean transportation costs

and compete to lower VOCC prices. Eliminating the tariff filing requirements would permit NVOCCs to

enter into confidential service contracts with shipper customers in same manner as VOCCs, thereby

increasing competition, lowering costs, and improving service in U.S. liner trades.

69.

On November 7, 2003, the DOJ filed comments with the Board of Governors of the Federal

Reserve System regarding the Board’s proposed interpretation and supervisory guidance to the anti-tying

provisions in the Bank Holding Company Act. The DOJ recommended that the Board interpret these

provisions to be consistent with, and not broader than, the federal antitrust laws, in order to avoid

prohibiting some procompetitive practices, such as multi-product discounting, and to avoid disadvantaging

banks as competitors in markets in which banks and nonbanks compete.

70.

On October 1, 2003, the FTC and DOJ filed comments with the Indiana State Bar Association

regarding a proposed amendment to Indiana Supreme Court rules that would define for the first time the

practice of law for purposes of bringing actions to restrain or enjoin the unauthorised practice of law. The

agencies concluded that the proposed draft would harm consumers because it was overbroad and likely to

prevent nonlawyers (e.g., real estate agents, tenants’ associations, consumer associations, independent

contractors, income tax preparers and accountants, and investment bankers and other business planners)

from providing a number of services in competition with lawyers, thus raising costs and limiting choices

for consumers while providing little benefit.

DOJ and FTC Trade Policy Activities

71.

Both the Division and the FTC are involved extensively in interagency discussions and decisionmaking with respect to the formulation and implementation of U.S. international trade and investment

policy as concerns competition policy. The Division participates in interagency trade policy discussions

chaired by the Office of the U.S. Trade Representative. The Department provides antitrust and other legal

advice to U.S. trade agencies, and has been actively involved in certain NAFTA Chapter 11 arbitrations

relevant to competition issues and in the recently settled WTO Mexican telecommunications case. The

Division also works with other Justice components (including the Criminal, Environment, and Civil

Divisions) on international trade and investment issues that affect those components or the Department as a

whole.

72.

Both DOJ and FTC participate in bilateral and multilateral discussions and work projects to

improve cooperation in the enforcement of competition laws. The Division and the FTC participate in a

number of negotiations and working groups related to regional and bilateral trade agreements. The

Division and the FTC participate with the Office of the U.S. Trade Representative and other U.S. agencies

in competition policy groups associated with the Free Trade Area of the Americas (FTAA) and AsiaPacific Economic Cooperation (APEC), and we chaired or co-chaired the negotiating teams for the

competition chapters of the U.S.-Thailand, U.S.-Andean Community, and U.S.-Australia free trade

agreements. The antitrust agencies also have played an important role in the working group established by

the World Trade Organisation (WTO). The WTO working group did not meet in FY2004, but the DOJ

and FTC continued to monitor competition policy developments in the WTO closely.

DAF/COMP(2005)18/07

73.

For more than a decade the Department and the FTC have assisted transition and developing

economies that have made the commitment to market and commercial law reforms. In addition to

advancing the adoption of competition policies that incorporate sound economic principles and effective

enforcement mechanisms, these programs create long-term cooperative relationships with policy and

enforcement officials in the countries involved. During FY 2004, the technical assistance program was

active in India, Southeast Asia, South and Central America, Russia, Southeast Europe, Mexico and South

Africa. These programs rely on a combination of resident advisors, regional workshops, and targeted short

term missions, with a focus on the development of investigative skills.

74.

The Division co-chairs (with the Office of the U.S. Trade Representative) the Cross-Sectoral

Working Group under the U.S.-Japan Regulatory Reform and Competition Policy Initiative. In these

discussions, the United States has urged the Japanese government to take a variety of actions to strengthen

its enforcement of Japan’s antimonopoly law, take effective measures to eliminate bid rigging, make its

administrative procedures fair and open, and accelerate an effective program of deregulation to open

markets to competition

New Studies related to antitrust policy

Antitrust Division Economic Analysis Group Discussion Papers

75.

The Economic Analysis Group issued the following papers during FY2004. Copies may be

obtained by contacting Janet Ficco at 600 E Street, N.W., Suite 10000, Washington, D.C. 20530 or at (202)

307-3779 (janet.ficco@usdoj.gov). Other Division public materials may be obtained through the Antitrust

Documents Group of the Division's Office of Operations. Requests should be directed to Ms. Janie Ingalls,

Room 215, Liberty Place Building, 325 7th Street, N.W., Washington, D.C. 20530. Ms. Ingalls may be

reached via fax at (202) 514-3763 or e-mail (janie.ingalls@usdoj.gov).

Alexander Raskovich, Solving Holdup through Intermediation, EAG 04-12, August 2004.

Kenneth Heyer, A World of Uncertainty: Economics and the Globalisation of Antitrust, EAG 04-11,

August 2004.

Charles J. Romeo and Mary W. Sullivan, Controlling for Temporary Promotions in a Differentiated

Products Model of Consumer Demand, EAG 04-10, August 2004.

Ari Gerstle, Mergers in Durable-Goods Industries: A Re-Examination of Market Power and Welfare

Effects, EAG 04-9, August 2004.

David S. Sibley, Michael J. Doane, Michael A. Williams, and Shu-Yi Tsai, Pricing Access to a Monopoly

Input, EAG 04-8, March 2004. Forthcoming Journal of Public Economic Theory.

David S. Sibley and Simon Wilkie, Equilibrium Exit from a Long Term Contract, EAG 04-7, March 2004.

David S. Sibley, Cost Asymmetries, Mavericks and Coordinated Behavior, EAG 04-6, March 2004.

Thomas P. Lyon and Jing Li, Regulatory Uncertainty and Regulatory Scope, EAG 04-5, January 2004.

Thomas P. Lyon and Eric Rasmusen, Buyer-Option Contracts Restored: Renegotiation, Inefficient Threats,

and the Hold-Up Problem, EAG 04-4, January 2004.

DAF/COMP(2005)18/07

Patrick Greenlee and Keith Waehrer, The Effect of Profit Sharing on Auction Markets, EAG 04-3,

February 2004.

Patrick Greenlee and David Reitman, Competing with Loyalty Discounts, EAG 04-2, February 2004.

Russell Pittman, Abuse-of-Dominance Provisions of Central and Eastern European Competition Laws:

Have Fears of Over-Enforcement Been Borne Out?, EAG 04-1, January 2004. Published at 27

World Competition 245 (2004).

Commission Studies, Reports and Economic Working Papers

Commission Studies and Reports

76.

The FTC’s studies and reports during FY 2004 included reports on patent reform, health care,

and mergers in the petroleum industry.

•

Patent Reform: In April 2004, the FTC co-sponsored a conference, “Ideas into Action:

Implementing Reform of the Patent System,” with the National Academy of Sciences

(NAS) and the Berkeley Center for Law and Technology to address patent reform and

possible implementation. The event provided a forum for government officials, business

representatives, scholars, lawyers, and others to evaluate and discuss recommendations from

recent reports on patent reform released by the FTC and the NAS.

•

Health Care Report: In July 2004, the FTC and the DOJ released a joint report, Improving

Health Care: A Dose of Competition, which distilled a wealth of information gained from

27 days of public hearings and other data collected over a two-year period. To promote

policies that ensure access to quality health care and enhance informed consumer choice,

the report provided significant observations and recommendations about the availability of

information regarding the price and quality of health-care services, physician collective

bargaining, insurance mandates, hospital merger analysis, managed care organisations’

bargaining power, and hospital group purchasing organisations.

•

Petroleum Merger Report: In August 2004, the staff of the FTC’s Bureau of Economics

released a report, The Petroleum Industry: Mergers, Structural Change, and Antitrust

Enforcement, which presented a detailed review of structural changes and the FTC’s

antitrust law enforcement efforts in the petroleum industry over the past 20 years.

Consistent with the purpose of enhancing public understanding and policy making

concerning competition in this industry, the report also elaborated on the analytical process

the Commission uses to review petroleum-related mergers. The report concluded that

thorough FTC oversight of the industry, including both investigations and enforcement

actions, has helped preserve industry competition and prevent gasoline price increases

beyond those dictated by market conditions.

77.

The FTC also hosted a two day research symposium in September 2004, in honour of the

agency’s 90th anniversary. Current commissioners and agency officials, FTC alumni, prominent scholars

and practitioners addressed the FTC’s mission, competition and consumer protection issues, the FTC’s

relations with domestic and international government agencies, and other related topics.

DAF/COMP(2005)18/07

Economic Working Papers

78.

78. The following papers may be obtained at http://www.ftc.gov/be/econwork.htm.

Can Ranking Hospitals on the Basis of Patients’ Travel Distances Improve Quality of Care?, Daniel P.

Kessler, June 2004

Identifying Demand in EBay Auctions, Christopher P. Adams, June 2004

The Economics of Price Zones and Territorial Restrictions in Gasoline Marketing, David W. Meyer,

Jeffrey H. Fischer, March 2004

The Economic Effects of the Marathon-Ashland Joint Venture: The Importance of Industry Supply Shocks

and Vertical Market Structure, Christopher T. Taylor, Daniel S. Hosken, March 17, 2004

The Union Pacific/Southern Pacific Rail Merger: A Retrospective on Merger Benefits, Denis A. Breen,

March 11, 2004 (published in the Review of Network Economics, 2004 )

Is It Always Optimal to “Sell the Firm” to a Risk-Neutral Agent?, Christopher P. Adams, February 2004

Quantifying Antitrust Regimes, Michael W. Nicholson, February 2004

Bargaining, Bundling, and Clout: The Portfolio Effects of Horizontal Mergers, Daniel P. O'Brien and Greg

Shaffer, December 2003 (forthcoming in RAND Journal of Economics)

Reconciling the Off-Net Cost Pricing Principle with Efficient Network Utilization, Patrick DeGraba,

October 2003 (published in Information Economics and Policy, 2004)

DAF/COMP(2005)18/07

APPENDICES

Department of Justice: Fiscal Year 2004 FTE and Actual Resources by Enforcement Activity

FTE

AMOUNT

Criminal Enforcement

271

$46,442,000

Civil Enforcement

504

$86,250,000

TOTAL

775

$132,692,000

Federal Trade Commission: Fiscal Year 2004 Competition Mission FTE and Dollars

by Program by Bureau/Office

Total Maintain Competition Mission

Bureau of Competition

Bureau of Economics

Regional Offices

Mission Support

FTE

505

277

125

Amount ($ in thousands)

$81,443

$31,697

$8,497

$3,724

$37,525

Premerger Notification

Bureau of Competition

Bureau of Economics

Regional Offices

$3,206

$3,090

$116

Merger & Joint Venture Enforcement

Bureau of Competition

Bureau of Economics

Regional Offices

205

149

$23,684

$17,050

$4,772

$1,862

Merger & Joint Venture Compliance

Bureau of Competition

Bureau of Economics

Regional Offices

$1,260

$1,144

$116

Non merger Enforcement

Bureau of Competition

Bureau of Economics

Regional Offices

106

$12,309

$8,468

$1,979

$1,862

DAF/COMP(2005)18/07

Non merger Compliance

Bureau of Competition

Bureau of Economics

Regional Offices

FTE

Amount ($ in thousands)

$805

$572

$233

Antitrust Policy Analysis

Bureau of Competition

Bureau of Economics

Regional Offices

-7

$815

-$815

Other Direct Mission Resources

Bureau of Competition

Bureau of Economics

Regional Offices

$1,839

$1,373

$466

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.