Policy Statement With Request for Public Comment Regarding Duration of Competition Orders and Request for Public Comment Regarding Duration of Consumer Protection Orders

FEDERAL TRADE COMMISSION

Policy Statement With Request for Public Comment Regarding

Duration of Competition Orders and Request for Public Comment Regarding

Duration of Consumer Protection Orders

AGENCY: Federal Trade Commission.

ACTION: Notice of policy statement and request for public comment.

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SUMMARY: This notice describes the Federal Trade Commission's policies

regarding the duration of future and existing administrative and

federal district court cease and desist orders in competition matters.

Under the Policy Statement, which became effective July 22, 1994, the

Commission will presume that core injunctive provisions in future

competition orders should terminate automatically (``sunset'') after

twenty years. The Commission will also presume that all supplemental

provisions in future competition orders should sunset after no more

than ten years. In addition, the Statement articulates the Commission's

policy determination to apply, in the context of petitions to reopen

and modify existing administrative competition orders, a rebuttable

presumption that the public interest warrants terminating orders that

have been in force for more than twenty years.

The Commission adopted these policies because it concluded that

permitting competition order provisions to continue indefinitely would

not serve the public interest. Although these policies are already in

effect, the Commission is soliciting comment from interested persons.

The Commission is also soliciting comment on adopting policies

affecting the duration of administrative and court orders entered in

consumer protection matters.

DATES: Comments will be received until November 4, 1994.

ADDRESSES: Comments should be sent to the Secretary, Federal Trade

Commission, Sixth Street and Pennsylvania Avenue, NW., Washington, DC

20580. Comments will be entered on the public record of the Commission

and will be available for public inspection in Room 130 during the

hours of 9 a.m. until 5 p.m.

FOR FURTHER INFORMATION CONTACT: Donald S. Clark, Secretary, Federal

Trade Commission, (202) 326-2514; Daniel P. Ducore, Assistant Director

for Compliance, Bureau of Competition, (202) 326-2526; or Dean C.

Graybill, Associate Director for Enforcement, Bureau of Consumer

Protection, (202) 326-3284.

SUPPLEMENTARY INFORMATION: Existing Commission policy in competition

cases has been to seek injunctive relief in administrative and court

cases for different durations, depending on the type of order

provisions involved. Typically, core injunctive provisions have been

perpetual in duration. Supplemental provisions have usually been

limited in duration.

The Commission has concluded that competition orders ordinarily

fulfill their remedial purposes within twenty years and that the

findings on which they are based should not be presumed to continue for

a longer period of time. Accordingly, the Commission has issued the

following Policy Statement adopting a presumption that future FTC

competition orders should terminate (or ``sunset'') automatically

within a prescribed number of years after the order has become final.

In addition, the Statement provides that, in the context of petitions

to reopen and modify existing competition orders, the Commission will

apply a rebuttable presumption that the public interest warrants

setting aside competition orders that are more than 20 years old.

Petitions to sunset orders under the 20 year presumption should

comply with the procedures set forth in Sec. 2.51 of the Commission's

rules of practice, 16 CFR 2.51. The petition should contain an

affidavit, signed by an officer or director of the respondent, stating

that the respondent is in compliance with the order.

Rebuttal to the presumption will be narrowly circumscribed to

conserve Commission resources and to ensure fairness to all

petitioners. In general, the Commission does not contemplate an

extensive review of each petition relying on this presumption beyond

information presented in the petition, contained in the Commission's

files, and received in response to the request for public comment that

is part of the Commission's order reopening procedures. If, however,

public comments, the Commission's experience in enforcing the order, an

ongoing antitrust investigation of the petitioner or the industry in

which the petitioner competes at the Commission or the Department of

Justice, or other readily available information raises substantial

concerns about whether the public interest warrants retaining the

order, such further review will be conducted as is necessary to

determine whether the public interest is best served by setting aside

the order, modifying it, or retaining it as written. The Commission

anticipates that, absent extraordinary circumstances, the basis for

rebutting the presumption will be information that the petitioner under

the order has engaged in recidivist conduct. Thus, for example, the

Commission may deny a petition based on this presumption (1) if the

respondent has been found to have been in violation of the order or has

been found to have engaged in conduct that would violate the order

within the past twenty years; or (2) if, at the time of the petition,

the Commission is investigating whether the petitioner has violated the

order. If the Commission denies a respondent's petition to sunset an

order because it does not meet these standards, the respondent may

petition again after the Commission closes the investigation of a

possible order violation without initiating enforcement action against

the petitioner or after the respondent establishes a record of

compliance with the order.

The Policy Statement is an exercise of the Commission's discretion.

It does not change the standards for reopening and modifying Commission

orders that are not within the scope of this Policy Statement. See 15

U.S.C. 45(b); 16 CFR 2.51; Louisiana-Pacific Corp., Docket No. C-2956,

Letter to John C. Hart (June 5, 1986), at 4; Hospital Corporation of

America, Docket No. C-9161, Letter to Peter J. Nickles, Esq. (November

27, 1987), at 3; Damon Corp., Docket No. C-2916, Letter to Joel E.

Hoffman, Esq. (March 29, 1983), at 2 [1979-83 Transfer Binder] FTC

Complaints & Orders (CCH) 22,007 at 22,585.

The Commission's present policy regarding the duration and

termination of consumer protection orders is that core provisions in

consumer protection cases generally continue in effect indefinitely and

that supplemental provisions terminate after a specified period of

time. The Commission solicits comment on whether to limit the duration

of consumer protection orders, and, if so, whether to adopt

presumptions similar to those it has adopted for competition orders or

an alternative approach. In addressing this issue, commenters are

encouraged to address whether core provisions in consumer protection

orders ordinarily will have served their remedial purposes within a

specified time period, as the Commission has concluded for competition

orders, or whether factors unique to consumer protection orders may

militate against adopting a similar (or any) sunset policy.

The Commission invites comment on the issues discussed in this

notice, in the Policy Statement and in the separate statements of

Commissioner Azcuenaga and Commissioner Owen. Commenters should specify

whether their comments pertain to competition or consumer protection

orders.

Statement of Policy With Respect to Duration of Competition Orders and

Statement of Intention to Solicit Public Comment With Respect to

Duration of Consumer Protection Orders

July 22, 1994.

The Commission is issuing this statement to describe the policies

that it has determined to implement with respect to the duration of

competition orders (i.e., orders dealing with ``unfair methods of

competition''), and to announce its intention to solicit public comment

on the policies that it currently follows with respect to consumer

protection orders (i.e., orders dealing with ``unfair or deceptive acts

or practices'').

Competition Orders

The Commission considers that injunctive provisions in competition

orders perform two functions. First, such provisions in both

administrative and federal district court orders may proscribe future

violations of statutory prohibitions--and secure adherence to statutory

requirements--including the prohibition of unfair methods of

competition embodied in section 5 of the Federal Trade Commission Act,

15 U.S.C. 45, and the prohibitions and requirements embodied in

sections 2, 3, 7, 7A, and 8 of the Clayton Act, 15 U.S.C. 13, 14, 18,

18a, 19. Second, injunctive provisions in federal district court

competition orders may proscribe future violations of existing

Commission administrative orders. As a matter of law, the remedial

provisions of Commission orders must bear a reasonable relationship to

the unlawful practices found to exist, and must be sufficiently clear

and precise to be easily understood by the respondents or

defendants.1 Particular injunctive order provisions may prohibit

both the specific illegal practices alleged in the associated complaint

and ``like and related'' practices.2

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\1\See, e.g., FTC v. Colgate-Palmolive Co., 380 U.S. 374, 392-95

(1965); FTC v. National Lead Co., 352 U.S. 419, 428-30 (1957); FTC

v. Ruberoid Co., 343 U.S. 470, 473 (1952); FTC v. Cement Institute,

333 U.S. 683, 726 (1948); Jacob Siegel Co. v. FTC, 327 U.S. 608,

611-13 (1946).

\2\ See FTC v. Mandel Bros., Inc., 359 U.S. 385, 393 (1959);

Consumers Products of America, Inc. v. FTC, 400 F.2d 930 (3d Cir.

1968), cert. denied, 393 U.S. 1088 (1969); Niresk Industries v. FTC,

278 F.2d 337, 343 (7th Cir.), cert. denied, 364 U.S. 883 (1960). For

example, in FTC v. Colgate-Palmolive Co., 380 U.S. 374, 395 (1965),

the Supreme Court reviewed a Commission order that prohibited a

particular advertising practice not only for the product at issue in

the case, but also for any other product. The Court sustained the

scope of the order provision, stating that

``[T]he Commission is not limited to prohibiting the illegal

practice in the precise form in which it is found to have existed in

the past.'' Having been caught violating the Act, respondents ``must

expect some fencing in.''

Id. at 395, quoting FTC v. National Lead Co., 352 U.S. at 431,

and FTC v. Ruberoid Co., 343 U.S. at 473.

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Where an injunctive provision has been included in an order, the

Commission may prevail in a subsequent enforcement proceeding simply by

establishing that the respondent or defendant did not comply with the

terms of the provision, without having to establish as well that the

conduct prohibited by the provision is illegal, or that the conduct

required is reasonably related to the prevention of illegal practices.

The Commission's policies with respect to the duration of antitrust

orders have been the subject of public debate in recent years.\3\ Under

the Commission's existing practice, Commission and federal court order

provisions that prohibit or require particular types of conduct in

order to prevent ``unfair methods of competition'' have different

durations depending on their type. ``Core'' provisions prohibit

practices that would be unlawful whether used by parties subject to the

order at issue or by other similarly situated persons or entities. In

competition orders, there are two types of core provisions: (1) Those

that prohibit per se illegal conduct; and (2) those that prohibit

conduct that is illegal on the basis of the rule of reason. Under

current policy, core injunctive competition provisions typically

continue in force indefinitely, and a respondent bears the burden of

establishing (through a petition to reopen and modify an administrative

order or a motion to modify a federal district court order) that such a

provision should be vacated.

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\3\See, e.g., Report of Section of Antitrust Law of the American

Bar Association on Sunsetting of Federal Trade Commission

Competition Order Provisions (May 21, 1987) (hereinafter Section of

Antitrust Law Report).

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All other injunctive competition order provisions may be

categorized as ``supplemental'' provisions,\4\ which are intended to

prevent a respondent (or defendant) from repeating a law violation or

to mitigate the effects of prior illegal conduct.\5\ There are also two

types of supplemental provisions: (1) Those that prohibit or restrict

conduct that would be lawful if engaged in by parties not subject to

the order at issue (such as provisions in merger cases that prohibit

the respondent from making certain acquisitions in the same or related

markets without first securing Commission approval), and (2) those that

impose an affirmative obligation (such as distributing copies of

Commission orders to prescribed persons or filing compliance reports).

Under existing policy, different varieties of supplemental provisions

in competition orders terminate automatically after different

prescribed periods. Thus, prior approval provisions in merger cases

typically expire after ten years,\6\ order distribution requirements

typically expire within one to three years, and compliance report

requirements usually expire within five years.

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\4\The Commission may also impose or seek types of relief in

administrative and court orders that are not addressed in this

statement because they have no further effect once the actions they

require have been taken. In administrative merger cases, for

example, the Commission may issue an order imposing some form of

structural relief, such as the divestiture of specified assets. In

appropriate federal court competition cases, the Commission may also

seek the issuance of an order requiring the defendants to pay civil

penalties (for violating a Commission administrative order),

disgorgement, or restitution. Thus, consent decrees resolving

allegations that two infant formula manufacturers had violated

section 5 of the FTC Act required the defendants to deliver a total

of 3.6 million pounds of infant formula to the U.S. Department of

Agriculture. See American Home Products Corp. and Mead Johnson &

Co., 5 Trade Reg. Rptr. (CCH)  23,209 (D.D.C. June 16, 1992).

\5\This definition of ``supplemental provisions'' for both

litigated and settled cases differs from the broader concept of

``fencing-in'' relief whose use the federal courts have sustained in

litigated cases. Thus, for example, in sustaining the Commission

order at issue in FTC v. Colgate-Palmolive Co. (see note 2, above),

the Supreme Court used the term ``fencing-in'' to apply not only to

otherwise legal conduct but also to any illegal conduct other than

``the illegal practice in the precise form in which it is found to

have existed in the past.'' FTC v. Colgate-Palmolive Co., 380 U.S.

at 395, quoting FTC v. Ruberoid Co., 343 U.S. at 473.

\6\The Commission has determined that such provisions will in

most cases have served their remedial purposes after ten years, and

that ``the findings upon which such provisions are based should not

be presumed to continue to exist for a longer period of time.''

Hercules, Inc., 100 F.T.C. 531 (1982) (modifying order). As a

consequence, the Commission has included--in almost all the prior

approval provisions it has imposed--a proviso that the requirement

is to terminate automatically ten years after the order becomes

effective. E.g., The Coca-Cola Company, Docket No. 9207 (F.T.C. June

13, 1994), Final Order at 2-3; Olin Corporation, 113 F.T.C. 400, 623

(1990), aff'd, 986 F.2d 1295 (9th Cir.), cert. denied, 114 S.Ct.

1051 (1993); The B.F. Goodrich Company, 110 F.T.C. 207, 366 (1988),

aff'd as modified per stipulation, Nos. 88-4065 and 88-4066 (2d Cir.

1989); Hospital Corporation of America, 106 F.T.C. 361, 524 (1985),

aff'd, 807 F.2d 1381 (7th Cir. 1986), cert. denied, 107 S. Ct. 1975

(1987); Columbia Healthcare Corporation, et al., Docket No. C-3505

(consent order) (July 5, 1994), at 7; Kiwi Brands, Inc., et al.,

File No. 921 0023 (consent order) (placed on public record on June

30, 1994), at 8-9; MidCon Corporation, 107 F.T.C. 48, 58 (1986)

(consent order); but see Columbian Enterprises, Inc., 106 F.T.C.

551, 554 (1985) (consent order) (five years).

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Policy for Future Competition Orders

The Commission has now concluded that ``core'' injunctive

provisions in competition orders ordinarily will have served their

remedial purposes within twenty years, and that the findings upon which

such provisions are based should not be presumed to continue to exist

for a longer period of time. The Commission also believes that

supplemental provisions in competition orders ordinarily should

terminate automatically after prescribed periods that do not exceed ten

years. Therefore, the Commission has determined to adopt the

presumptions (1) that all future core competition order provisions

should terminate automatically after twenty years; and (2) that all

future supplemental competition order provisions should terminate

automatically after no more than ten years.\7\

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\7\With respect to supplemental provisions, the time period is

characterized as ``no more than ten years'' in order to cover the

range of time periods currently used for supplemental provisions.

The Commission does not intend to change, in general, the expiration

periods for particular types of supplemental provisions.

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The Commission recognizes that, in 1979, the Antitrust Division

determined to stop seeking perpetual conduct decrees, and instead to

include ten year automatic termination clauses for all decrees,

including ``core'' provisions.\8\ The Commission concurs with the

concept of automatic termination for both core and supplemental

competition order provisions, but also believes that core provisions in

Commission cases presumptively should last more than ten years. The

Commission, unlike the Antitrust Division, has no criminal enforcement

authority and thus cannot present the same deterrence threat to

potential recidivists whose orders have expired.\9\ The Division can

secure substantial criminal penalties for Sherman Act violations--

whether or not it already has an order in place--including large

fines\10\ and prison terms of up to three years. The only penalties

directly available to the Commission are those that can be obtained for

violations of existing orders.\11\ Thus, the calculus involved in

weighing the maintenance of order enforcement options against the

burden of extended order duration is different for the two

agencies.\12\

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\8\All federal district court decrees secured by the Antitrust

Division consequently include the following provision:

This Final Judgment shall expire ten (10) years from the date of

entry.

\9\Where a recidivist's order has lapsed, the Commission could

request the Justice Department to commence a criminal enforcement

action against the new violation. Where a Commission order issued

pursuant to the FTC Act is in effect, the Commission may file a

federal court action seeking civil penalties for violations of the

order, provided that the Commission first notifies the Department of

Justice and the Department decides not to file the action itself. 15

U.S.C. 45(l), 56(a). Where a Commission order issued pursuant to the

Clayton Act is in effect, the Commission may request the Department

to file a federal court action on its behalf seeking civil penalties

for violations of the order. 15 U.S.C. 21(l). Where a federal court

order issued at the behest of the Commission is in effect, the

Commission may itself commence a civil contempt proceeding against a

defendant who violates the order, or can request the Department to

seek criminal contempt. 15 U.S.C. 56(b).

\10\Effective November 16, 1990, the maximum fines for Sherman

Act violations increased to the greatest of (1) $350,000 (for

individuals) or $10 million (for corporations); (2) twice the

pecuniary gain the individual or corporation involved derived from

the crime; or (3) twice the pecuniary loss caused to the victims of

the crime.

\11\Under 15 U.S.C. 18a(g)(1), however, the Commission can

request the Department to file a federal court action on its behalf

seeking civil penalties for violations of the pre-merger

notification provisions in section 7A of the Clayton Act.

\12\The Commission has secured substantial civil penalties for

violations of some conduct orders that occurred a significant period

of time after the orders themselves were issued. See United States

v. Phelps Dodge, 78 CIV 4479 (S.D.N.Y. 1982) (the Commission

obtained $1.4 million in civil penalties for violation of a 1936

price-fixing order in National Electrical Manufacturers Association,

24 F.T.C. 306 (1936)); FTC v. United States Steel Corp., H-77-1501

(S.D. Tex. 1980) (the court ordered civil penalties of $440,000 for

violation of a price-fixing order issued by the Commission in

American Iron and Steel Institute, 48 F.T.C. 123 (1951)); F.T.C. v.

Joseph Dixon Crucible, C80-700 (N.D. Ohio, 1982) (the Commission

obtained $75,000 in civil penalties and $525,000 in consumer redress

for violation of the price-fixing order in American Crayon Co., 26

F.T.C. 604 (1938)). In two other crayon matters, the Commission

secured $1.2 million in restitution through the acceptance of new

consent orders, instead of seeking civil penalties under the older

order. Binney & Smith, Inc., 96 F.T.C. 625 (1980); Milton Bradley

Co., 96 F.T.C. 638 (1980).

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Policy for Existing Competition Orders

The Commission has also considered whether to emulate the 1981-1984

review of existing orders conducted by the Antitrust Division. During

that period, the Division reviewed 400 of its outstanding decrees to

identify candidates for termination, and moved to terminate or modify

22 judgments.13 With respect to Commission orders, the Section of

Antitrust Law of the American Bar Association recommended in 1987:

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\1\3Section of Antitrust Law Report at 31, citing Department of

Justice Press Release Accompanying Statement of Policy by the

Antitrust Division Regarding Enforcement and Review of Permanent

Injunctions Entered in Government Antitrust Cases (April 27, 1984),

at 3.

Given the large number of outstanding Commission orders, we

believe, based on the Justice Department's experience, that the burden

of a sua sponte review of the Commission's orders may well outweigh any

corresponding benefit.14

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\1\4Section of Antitrust Law Report at 31-32. The Section noted

that after the order termination project, the Division had

determined to rely on defendants to bring to its attention decrees

that are not operating in the public interest, rather than to

attempt to identify such orders on the Division's own initiative.

Id. at 32.

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Based on the Antitrust Division's experience, and as a consequence

of resource constraints, the Commission believes that a comprehensive

review of its existing orders would not be feasible or desirable. The

Commission has, however, determined to amend its approach to petitions

to reopen and modify existing competition orders in a manner consistent

with the two presumptions described above. Section 5(b) of the Federal

Trade Commission Act, 15 U.S.C. 45(b), provides that the Commission

shall reopen an order to consider whether it should be modified if the

respondent ``makes a satisfactory showing that changed conditions of

law or fact'' so require. A satisfactory showing sufficient to require

reopening is made when a request to reopen identifies significant

changes in circumstances and shows that the changes eliminate the need

for the order or make continued application of the order inequitable or

harmful to competition.15 If the Commission determines that the

petitioner has made the necessary showing, the Commission must reopen

the order to consider whether modification is required and, if so, the

nature and extent of the modification.

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\1\5S. Rep. No. 96-500, 96th Cong., 2d Sess. 9 (1979)

(significant changes or changes causing unfair disadvantage);

Service Corporation International, Docket No. 9071 (May 12, 1994),

at 2; Tarra Hall Clothes, Inc., Docket No. C-2797 (October 27,

1992), at 4; Louisiana-Pacific Corp., Docket No. C-2956, Letter to

John C. Hart (June 5, 1986), at 4 (unpublished) (``Hart Letter'');

see also United States v. Louisiana-Pacific Corp., 967 F.2d 1372,

1376-77 (9th Cir. 1992) (``A decision to reopen thus does not

necessarily entail a decision to modify the order. Reopening may

occur even where the petition itself does not plead facts requiring

modification.''). The petitioner's burden is not a light one in view

of the public interest in repose and the finality of Commission

orders. See Federated Department Stores, Inc. v. Moitie, 425 U.S.

394 (1981) (strong public interest considerations support repose and

finality).

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Section 5(b) also provides that the Commission may modify an order

when--although changed circumstances would not require reopening--the

Commission determines that the public interest so requires. Respondents

therefore may demonstrate in petitions to reopen how the public

interest warrants the requested modification.16 In such a case,

the Commission will balance the reasons favoring the requested

modification against any reasons not to make the modification.17

The Commission also will consider whether the particular modification

sought is appropriate to remedy the identified harm.18

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\1\6Hart Letter at 5; 16 CFR 2.51 (1994).

\1\7Damon Corp., Docket No. C-2916, Letter to Joel E. Hoffman,

Esq. (March 29, 1983), at 2 [1979-83 Transfer Binder] FTC Complaints

& Orders (CCH)  22,007 at 22,585 (``Damon Letter'').

\18\Damon Letter at 4.

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The Commission has now determined that, when a petition to reopen

and modify a competition order is filed twenty years or more after the

order initially became final, the Commission will presume that the

public interest requires reopening and setting aside the order in its

entirety.19 Through this approach, the Commission expects to be

apprised of the orders twenty years old or older that warrant

modification.

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\1\9Rebuttal to this presumption will be narrowly circumscribed

in order to conserve staff resources and to ensure fairness to all

petitioners. It is not contemplated that Commission staff will

conduct extensive investigation beyond information gleaned from the

petition itself and from public comment. Moreover, rebuttal to this

presumption largely will be limited to whether there is evidence

that the petitioner under order has engaged in recidivist conduct.

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In sum, effective July 22, 1994, the Commission is establishing the

following two presumptions for application prospectively to new

competition orders: (1) All core competition order provisions should

terminate automatically after twenty years, and (2) all supplemental

competition order provisions should terminate automatically after no

more than ten years. Further, also effective July 22, 1994, the

Commission will presume, in the context of petitions to reopen and

modify existing orders, that the public interest requires setting aside

orders in effect for more than twenty years.

Although these policies are effective July 22, 1994, the Commission

intends to issue within thirty days a Federal Register notice

describing them more fully and soliciting public comment on them.

Consumer Protection Orders

The Commission's policies with respect to consumer protection

orders have not been the subject of public debate. The Commission

intends to include in the Federal Register notice an invitation for

public comment concerning Commission policies affecting the duration of

consumer protection orders.

By direction of the Commission, Commissioner Azcuenaga

concurring in a separate statement, and Commissioner Owen concurring

in part and dissenting in part in a separate statement.20

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\2\0Commissioner Owen voted in the affirmative, but dissented as

to (i) approving the presumption that all core order provisions in

competition matters should terminate automatically after twenty

years, and (ii) approving the presumption that when a petition to

reopen and modify a competition order is filed twenty or more years

after the order initially became final, the public interest favors

setting aside the order in its entirety. In each case, she favors a

ten year term.

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Donald S. Clark,

Secretary.

Separate Statement of Commissioner Mary L. Azcuenaga on Sunset

Policy

The Commission today announces the adoption of a policy

presumptively to sunset in future competition orders core provisions

(provisions that now are perpetual) twenty years from the effective

date of each such order.\1\ The new sunset policy is a significant step

in the right direction, but it does not go far enough. In my view, the

Commission should apply a sunset policy to all its administrative

orders, both competition orders and consumer protection orders and new

orders and existing orders. Instead of crafting the new policy in terms

of presumptions, which invite costly individual determinations and

potentially disparate treatment, I would apply the sunset policy

absolutely and across the board, and I would do so now.

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\1\The Commission already sunsets so-called fencing-in

provisions in both competition and consumer protection orders,

usually within ten years or less from the effective date of the

order, and affirmative obligations in merger orders (divestiture and

prior approval clauses) also end within ten years. The new sunset

policy would change the duration of injunctive provisions that

remain in conduct orders after fencing-in provisions have expired.

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Duration of Commission Orders

Because of the continuing value of the Commission's older

orders,\2\ the Commission's record of obtaining civil penalties for

violations of longstanding orders, and the substantial resources that

go into obtaining orders, I believe that Commission orders should

remain effective for a reasonably long period of time. I have suggested

that imposing a term of thirty years on all Commission orders would be

appropriate, while acknowledging that other periods of time also might

be defensible.\3\ Any number of years is necessarily arbitrary, and I

have no monopoly on wisdom in choosing the sunset period. Anything

longer than thirty years scarcely seems worth the effort of adopting a

new policy, and anything less than twenty seems to me clearly too

short. The twenty-year sunset adopted by the Commission today in its

Statement of Policy is a long time for people and for businesses, and

to me it seems entirely appropriate.

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\2\For example, as noted in the Statement of Policy with Respect

to Duration of Competition Orders and Statement of Intention To

Solicit Public Comment with Respect to Duration of Consumer

Protection Orders (``Statement of Policy''), the Commission has

obtained civil penalties in a number of cases 29-46 years after the

orders were issued. See Statement of Policy at 6 n.12.

\3\See remarks by Mary L. Azcuenaga, ``FTC Enforcement: An

Idiosyncratic Journey,'' before National Economic Research

Associates, Inc., 15th Annual Antitrust and Trade Regulation

Seminar, Santa Fe, New Mexico (July 7, 1994), at 14-15; Hearing on

FTC Reauthorization Before Senate Comm. on Commerce, Science and

Transportation, 102d Cong., 2d Sess. 37 (July 28, 1992) (testimony

of Mary L. Azcuenaga) (``time period should be fairly long, perhaps

in the neighborhood of 30 years'').

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Although some have encouraged the Commission to choose a shorter

period, such as ten years, those most likely to take this position are

those who are subject to Commission orders or their representatives.\4\

Those who would assess and assert the interest of the public in longer

orders are unlikely to be organized and vocal. It is up to the

Commission to fill that role. Public clamor, unless it can be

translated into reasoned justification, is not a sufficient basis for

defining Commission policy.

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\4\If the subject of a Commission order has a valid reason,

based on changed circumstance, to be free of the constraints of the

order, that opportunity is available via a petition to reopen and

modify. For a respondent who does not have a valid reason to assert

in a petition to reopen, it is not surprising that a short sunset

would be appealing.

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The Department of Justice has adopted a ten-year sunset policy, but

we are in a different position. As the Commission points out in its

Statement of Policy, ``[t]he Commission, unlike the Antitrust Division,

has no criminal enforcement authority and thus cannot present the same

deterrence threat to potential recidivists whose orders have expired.''

After the Sherman Act was amended in 1974, in view of the criminal

fines and prison terms available in a de novo suit, the Department in

1979 concluded that perpetual orders no longer were necessary to deter

future violations\5\ and adopted a ten-year sunset policy.

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\5\See speech by John H. Shenefield, Assistant Attorney General,

Antitrust Division, Department of Justice, before Federal Bar

Association, Cleveland Chapter (April 18, 1979), reprinted in [1969-

1983] Transfer Binder (CCH) 50,394, at 55,873 ((``Prior to the

increase in penalty from a misdemeanor to a felony * * * we filed a

companion civil case with virtually all criminal cases because the

risk of contempt citations for violating a civil injunction provided

added deterrence * * *.'').

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It is worth spelling out in somewhat greater detail what this means

in practical terms. In year 11, following the expiration of a ten-year

order, the Department of Justice may in an appropriate case seek

criminal penalties for repetition of the unlawful conduct,\6\ arguing

in favor of the imposition of penalties that the firm is a recidivist,

for whatever weight that may have.\7\ The Commission, on the other

hand, in year 11 after the expiration of a ten-year order, would have

to bring not one but two lawsuits to obtain penalties in the event the

unlawful conduct recurs. At that point, the Commission must begin by

seeking a new cease and desist order, thereby giving the malfeasor

another bite at the apple. The new order could stop the harmful conduct

but at a cost to the respondent that is considerably less than if the

Commission had been able to obtain penalties. To state the obvious, the

threat of incurring an order to cease and desist is far less than the

threat of incurring penalties.\8\ Following imposition of the new cease

and desist order, if the respondent, yet again, engages in unlawful

conduct, only then could the Commission seek civil penalties by

initiating yet another lawsuit. Given the differences in the statutory

authority of the Department and that of the Commission, it is neither

necessary nor reasonable to require that their orders conform in terms

of duration.

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\6\This assumes that the conduct is appropriate for the

imposition of criminal penalties. Whether to proceed civilly or

criminally under the Sherman Act is a matter of prosecutorial

discretion. See, e.g., Remarks by Donald I. Baker, Assistant

Attorney General, Department of Justice, before Antitrust Law

Briefing Conference, Arlington, Va. (Feb. 28, 1977), reprinted in

[1969-1983] Transfer Binder (CCH) 50,341. The fact that ``a

defendant has previously been convicted or adjudged to have been

violating the antitrust laws may warrant indictment for a second

offense,'' and ``the Division feels free to seek an indictment in

any case where a prospective defendant has knowledge that practices

similar to those in which he is engaging have been held to be in

violation of the Sherman Act in a prior civil suit against other

persons.'' Id., quoting Report of the Attorney General's National

Committee To Study the Antitrust Laws 350 (1955). In recommending a

criminal prosecution, willfulness will be considered and will be

presumed if the defendants knew they were violating the law or were

acting with flagrant disregard for the legality of their conduct.

Id., citing President's Commission on Law Enforcement &

Administration of Justice, Task Force Report: Crime and Its Impact--

An Assessment 110 (1967). Although I cannot speak to the

Department's policy, it seems clear that the availability of

criminal sanctions would have deterrence value.

\7\The Department has proceeded criminally against conduct

similar to that challenged by the Commission under Section 5 of the

FTC Act. Compare, e.g., United States v. Alston, 974 F.2d 1206 (9th

Cir. 1992) (criminal prosecution of price fixing by dentists), and

American Medical Ass'n v. United States, 317 U.S. 519 (1943)

(criminal prosecution of conspiracy to boycott), with FTC v.

Superior Court Trial Lawyers Ass'n, 493 U.S. 411 (1990) (per se

unlawful price fixing), and Southbank I.P.A., Inc., FTC Docket C-

3355, 57 FR 2913 (1992) (alleged price fixing and boycott by

doctors). The Department obtained $250,000 in criminal fines and a

10-year civil decree against resale price maintenance in United

States v. Cuisinarts, Inc., [1980-1988] Transfer Binder (CCH)

45,080 (Cases 2798 & 2799); 1981-1 Trade Reg. Rep. (CCH) 63,979

(D. Conn. 1981) (civil decree). The Department may gain enforcement

flexibility from its ability to proceed criminally or civilly. E.g.,

in 1991, US West agreed to pay a $10 million civil penalty for

alleged violations of the AT&T Modified Final Judgment--``the

highest civil penalty ever paid in an antitrust contempt case''--

following ``last year's indictment of NYNEX on criminal contempt

charges for MFJ violations.'' Speech by James F. Rill, Assistant

Attorney General, Antitrust Division, before 25th Annual New England

Antitrust Conference, Cambridge, Mass. (Oct. 25, 1991), reprinted in

7 Trade Reg. Rep. (CCH) 50,066, at 48,740.

\8\``The basic objective of a remedial system is to deter people

from violating the law * * *. The way in which we deter an activity

is by making it costly to engage in * * *.'' R.A. Posner, Antitrust

Law: An Economic Perspective 221 (1976).

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Competition and Consumer Protection Orders

The sunset policy announced today is to be limited to orders in

competition cases, although the Commission will seek public comment

about whether the policy should be extended to orders in consumer

protection cases. Although I am willing to be persuaded otherwise by

whatever public comment we may receive, based on the arguments I have

heard to date, I see no reason for treating consumer protection orders

differently.

In 1987, the Antitrust Section of the American Bar Association

suggested that the Commission adopt a sunset policy for competition

orders.9 Although some might interpret this as a recommendation

not to sunset consumer protection orders, that would appear to be an

overreading because the report was limited to competition orders, and

there is no indication that the Section even considered consumer

protection orders. Two years later, in 1989, in a more comprehensive

study of the Commission and ``its appropriate role as a federal

governmental agency,'' the Antitrust Section recommended that the

Commission sunset all of its administrative orders.10 To the

extent that it has considered the question, the Section has endorsed

the inclusion of consumer protection orders in a sunset policy.

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\9\Report of Section of Antitrust Law of the American Bar

Association on Sunsetting of Federal Trade Commission Competition

Order Provisions (May 21, 1987).

\1\0Report of the American Bar Association Section of Antitrust

Law Special Committee To Study the Role of the Federal Trade

Commission 69-70 (1989) (``We are troubled by the duration of

typical Commission orders * * *. Administrative orders should have

sunset provisions.'').

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Both competition and consumer protection orders are issued by the

Commission, principally under Section 5 of the FTC Act, and the purpose

of both is to protect consumers and the public interest.11 Unfair

methods of competition such as price fixing, market allocation and

boycotts can be as injurious to consumers as unfair or deceptive

practices such as misleading advertising and unscrupulous

marketing.12 To the extent that the policy to sunset orders is

based on changed circumstances,13 it would seem to apply with

equal force to both antitrust and consumer protection orders. A

respectable argument can be made that the conditions in which unfair

acts or practices arise are at least as mutable as the conditions in

which unfair methods of competition arise. To the extent that a sunset

policy reflects a concern about the costly regulatory effects of

orders,14 the concern probably arises with deceptive advertising

orders no less than price-fixing orders.

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\1\1Deceptive practices were challenged as ``unfair methods of

competition'' until enactment of the Wheeler-Lea Act in 1938, 52

Stat. 1028 (adding to Section 5 the phrase ``and unfair or deceptive

acts or practices''). E.g., FTC v. Winstead Hosiery Co., 258 U.S.

483 (1922) (false labelling). Under pre-1938 Section 5, the

Commission was required to show that the deceptive practices

affected competition. See FTC v. Raladam Co., 316 U.S. 149 (1942)

(applying pre-1938 law, FTC may ``infer that trade will be diverted

from competitors who do not engage in'' deception); FTC v. Raladam

Co., 283 U.S. 643 (1931) (``trader whose methods are assailed as

unfair [methods of competition] must have * * * rivals in trade

whose business will be * * * injured''). After the Wheeler-Lea Act,

the FTC could ``center its attention on the direct protection of the

consumer where formerly it could protect him only indirectly through

the protection of the competitor.'' Pep Boys--Manny, Moe & Jack,

Inc. v. FTC, 122 F.2d 158, 161 (3d Cir. 1941) (emphasis in

original).

\1\2``[N]o matter what its guise, cartel behavior constitutes no

more than fraud and theft from consumers.'' James F. Rill, Assistant

Attorney General, Antitrust Division, ``Antitrust Enforcement: An

Agenda for the 1990's,'' before 23rd Annual New England Antitrust

Conference (Nov. 3, 1989), reprinted in 7 Trade Reg. Rep. (CCH)

50,026, at 48,617.

\1\3According to the Commission in its Statement of Policy,

``provisions in competition orders ordinarily will have served their

remedial purposes within twenty years, and * * * the findings upon

which such provisions are based should not be presumed to continue

to exist for a longer period of time.''

\1\4See note 16 infra.

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More fundamentally, a decision to treat respondents under consumer

protection orders differently might be viewed as arbitrary and

capricious. Indeed, from my perspective, today's disparate treatment of

competition and consumer protection orders is so unjustified that it

cries out for an explanation from the Commission. Perhaps the comments

we receive will provide reasons for drawing this distinction.

Existing Orders

The Commission should apply its new sunset policy to existing as

well as future orders. Any other policy is unfair. How can the

Commission justify applying a twenty-year sunset policy to future

orders, without even knowing what those orders will be, and decline to

apply the same policy to its existing orders?

The new policy to favor termination of existing orders in effect

for more than twenty years, if the respondent comes forward with a

petition to reopen, is welcome but also too limited. Instead, the

Commission should initiate proceedings immediately to terminate all

orders that are more than twenty years old and to modify appropriately

(by adding a sunset provision) outstanding orders that are not yet

twenty years old. This could easily be accomplished by publishing in

the Federal Register notice of the sunset policy and of the

Commission's intention to apply the policy to outstanding

orders.15

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\1\5 Rules 3.72(b)(1) and 4.4(a)(2) of the Commission's Rules of

Practice may need to be amended to permit notice by publication in

the Federal Register. The Administrative Procedure Act permits the

Commission to amend its rules in this fashion without a public

comment period. 5 U.S.C. Sec. 553(b)(3)(A).

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The Commission cites the experience of the Department of Justice to

demonstrate the difficulty of reviewing old orders: The Department

reviewed 400 orders ``to determine which might profitably be modified

or vacated''16 and recommended terminating or modifying only 22 of

them.17 If anything, the Department's experience suggests that we

should not adopt a sunset policy at all. If the vast majority of

outstanding orders are worth retaining, why shouldn't we expect the

vast majority of future orders to be equally meritorious. The

Commission, having decided that a sunset policy nevertheless is

appropriate, should take a different approach to outstanding orders.

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\1\6 Speech by William French Smith, Attorney General of the

United States, before District of Columbia Bar (June 24, 1981),

reprinted in [1969-1983] Transfer Binder (CCH)  50,430, at 55,976

(suggesting that the Department would set aside or modify orders

that ``pervasively regulate . . . [and] hinder and not promote

competition,'' ``reflect erroneous economic analysis,'' or are

``superfluous'').

\1\7 Department of Justice Press Release Accompanying Statement

of Policy by the Antitrust Division Regarding Enforcement and Review

of Permanent Injunctions Entered in Government Antitrust Cases,

April 27, 1984, at 3.

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Application of a presumption in favor of sunset in response to

petitions to reopen will impose costs by requiring respondents to file

individual petitions and the Commission to assess in the context of

each such petition whether the presumption has been overcome for that

order.18 I see no need for such a time consuming, potentially

resource intensive review of the merits of individual orders.19

Applying the new policy across the board now would be less costly in

terms of both public and private resources. Simple fairness suggests

that the Commission now should terminate all its orders older than

twenty years and modify its other orders to provide for automatic

termination after twenty years.

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\1\8 To the extent that the basis for the Commission's sunset

policy is that the ``findings upon which [the order is] based should

not be presumed to continue to exist for a longer period of time,''

Statement of Policy at 4, in the context of a petition to reopen,

the persistence of the conditions on which the order was based, not

the respondent's recidivism, see Statement of Policy at 8 n.19,

would seem to be the appropriate focus in determining on the merits

whether the order should be set aside.

\1\9 The Commission's effort to narrow the scope of the

proceedings for terminating older orders is laudable, but it

contains the seeds for expansion. More importantly, even the cost of

a reduced proceeding is unnecessary and unfairly burdens subjects of

older orders vis-a-vis their more recent counterparts.

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The Presumption

Instead of establishing a definite policy to sunset new competition

orders twenty years after issuance, the Commission merely establishes a

presumption to that effect. The Commission's decision to forgo the

adoption of an unequivocal sunset policy and instead to embark on this

new course by way of a presumption may reflect a degree of unease about

terminating its orders that I do not share. Unless the Commission is

prepared to enumerate the bases for overcoming the presumption, and so

far it has not done so, the policy invites confusion and arbitrariness

if not its own unraveling.

Establishing a presumption instead of a rule that orders will

terminate automatically after twenty years opens the Commission to

arguments to extend the term of some orders and to abbreviate the term

of others. The duration of an order could now be an issue in every

case, and achieving consistency and fairness among orders will be

costly at best. Perhaps my colleagues envision, as I do, that the

presumption will be overcome, one way or the other, only in exceedingly

rare circumstances. If so, why not just be done with it and establish a

bright line rule with all the benefits of certainty, predictability and

efficiency that bright line rules provide? If not, some greater

explanation is in order to guide those subject to the Commission's

jurisdiction.

Conclusion

I support the step the Commission has taken today, I urge the

Commission to expand its new policy to include consumer protection

orders and existing orders, and I urge the Commission to make sunset an

unqualified policy, not a presumption.

Statement of Commissioner Deborah K. Owen, Concurring in Part and

Dissenting in Part, on FTC Policy Statement With Respect to Duration of

Commission Orders

I applaud my colleagues for this important first step in resolving

a controversy that has stymied the Commission for many years. However,

I am compelled to disagree on one important point affecting competition

orders--the number of years that must pass before an order,

presumptively, should terminate.1 Where the Commission has chosen

a twenty-year period, both with respect to prospective orders and the

modification of previous orders, in the interests of consistency with

the Justice Department, I would prefer a ten-year term.

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\1\The Policy Statement contains two new twenty-year

presumptions with respect to competition orders: (1) A presumption

that ``core'' provisions in future orders should terminate twenty

years after issuance, and (2) a presumption that the public interest

requires reopening and setting aside an existing order twenty years

after it becomes final.

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The Commission's sole explanation for deviating from the ten-year

period is that the Commission ``unlike the Antitrust Division, has no

criminal enforcement authority and thus cannot present the same

deterrence threat to potential recidivists whose orders have expired.''

Policy Statement at 5. I believe that this contrast is much less acute

than the Policy Statement suggests, and provides an insufficient basis

for adopting an inconsistent policy.

First, under traditional Justice Department policy, it would not be

appropriate for the Justice Department to use the threat of criminal

sanctions to deter the recurrence of civil antitrust violations. As one

former Assistant Attorney General has described, the Sherman Act is

``in reality two statutes''--one criminal and one civil.2 The

Antitrust Division has historically proceeded criminally in two types

of cases: (1) Cases involving per se violations, such as price fixing

and bid rigging, and (2) cases where there is ``evidence that the

defendants knew that they were violating the law and acted with

flagrant disregard for the legality of their conduct.'' U.S. Dep't of

Justice, Antitrust Division Manual at III-12, Oct. 18, 1987 (2d ed.),

revised, Oct. 16, 1989. In all other cases, the Antitrust Division

proceeds civilly, and generally seeks an order that expires after ten

years.3 If a civil violation recurs in year eleven (after the

expiration of an order), then under its stated policy, the Antitrust

Division would not seek to impose criminal penalties. Like the

Commission, the Division would proceed on the civil side.

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\2\Remarks by Donald I. Baker before the Antitrust Law Briefing

Conference, Arlington, Virginia (Feb. 28, 1977), reprinted in

[Current Comment--1969-83 Transfer Binder] Trade Reg. Rep. (CCH)

50,341 at 55,695.

\3\But see United States v. Microsoft Corporation, Civ. Action

No. ______ (D.D.C. 1994) (proposed consent decree would expire six

and a half years after its entry).

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In this regard, I note that the antitrust cases prosecuted by the

Commission are typically not the types of hard core violations for

which the Department of Justice reserves its criminal sanctions. Often

this agency's horizontal restraint cases are sufficiently complicated

or ambiguous that the Commission employs the Massachusetts Board mode

of analysis, rather than relying on the rule of per se liability. Even

within the per se category, there are several situations where the

courts and/or the Department have indicated that criminal prosecution

would not be appropriate. In particular, the Supreme Court has held

that intent is a necessary element of a criminal antitrust

violation.4

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\4\United States v. Gypsum Co., 438 U.S. 422 (1978). In

contrast, the intent to achieve anticompetitive effects is not a

necessary element of the Commission's cases under Section 5 of the

Federal Trade Commission Act. See also Antitrust Division Manual,

supra at III-12.

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Second, eleven years after an order is entered, if a firm engages

in a criminal violation of the antitrust laws, then it can be

prosecuted criminally--whether its original order was with the

Commission or with the Justice Department. See Policy Statement at 5 n.

9 (``Where a recidivist's order has lapsed, the Commission could

request the Justice Department to commence a criminal enforcement

action against the new violation.''). Indeed, it has long been the

Commission's policy to notify the Justice Department whenever it learns

of a potentially criminal antitrust violation (whether involving a

recidivist or a first-time offender).5 The Justice Department then

decides whether the case should be investigated and prosecuted

criminally (by the Antitrust Division), or civilly (by the FTC).

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\5\ See Department of Justice/Federal Trade Commission Clearance

Procedures for Investigations, reprinted in 7 Trade Reg. Rep. (CCH)

50,125:

Whenever during the course of an FTC investigation, evidence is

uncovered that indicates the likelihood that criminal conduct has

occurred (e.g., price fixing, bid rigging, mail or wire fraud), the

FTC will promptly refer the matter to DOJ.

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In short, the deterrence threat that faces a potential recidivist

whose FTC order has expired is identical to the deterrence threat that

faces a firm whose Antitrust Division order has expired. Accordingly, I

dissent with respect to the twenty-year (as opposed to ten-year)

presumptions in the Policy Statement as applied to competition

orders.6

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\6\ Had the Commission chosen to apply termination presumptions

across the board to all of its orders, including consumer protection

orders (an alternative I would have preferred), the Commission might

then have been on firmer ground in attempting to distinguish its

policy from that of the Justice Department.

[FR Doc. 94-21591 Filed 8-31-94; 8:45 am]

BILLING CODE 6750-01-P