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35–073 PDF 2007

S. HRG. 110–23

OVERSIGHT OF THE ENFORCEMENT OF THE

ANTITRUST LAWS

HEARING

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 7, 2007

Serial No. J–110–17

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MICHAEL O’NEILL, Republican Chief Counsel and Staff Director 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

HERB KOHL, Wisconsin, Chairman 

PATRICK J. LEAHY, Vermont 

JOSEPH R. BIDEN, JR., Delaware 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

ARLEN SPECTER, Pennsylvania 

CHARLES E. GRASSLEY, Iowa 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

JEFFREY MILLER, Chief Counsel 

PETER LEVITAS, Republican Chief Counsel 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS

Page

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin ............................ 1

prepared statement .......................................................................................... 138

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 4

Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa ..................... 3

WITNESSES 

Barnett, Thomas O., Assistant Attorney General, Antitrust Division, Department of Justice, Washington, D.C. ..................................................................... 6

Majoras, Deborah Platt, Chairman, Federal Trade Commission, Washington, 

D.C. ........................................................................................................................ 7

QUESTIONS AND ANSWERS 

Responses of Thomas Barnett to questions submitted by Senators Biden, 

Grassley, Kohl, Leahy and Specter ..................................................................... 26

Responses of Deborah Majoras to questions submitted by Senators Leahy, 

Kohl, Specter and Grassley ................................................................................. 59

SUBMISSIONS FOR THE RECORD 

American Antitrust Institute, Albert A. Foer, President, Washington, D.C., 

statement and attachment .................................................................................. 83

American Homeowners Grassroots Alliance, Arlington, Virginia, statement .... 104

Barnett, Thomas O., Assistant Attorney General, Antitrust Division, Department of Justice, Washington, D.C., statement .................................................. 109

Harkin, Hon. Tom, a U.S. Senator from the State of Iowa, prepared statement ...................................................................................................................... 136

Majoras, Deborah Platt, Chairman, Federal Trade Commission, Washington, 

D.C., statement .................................................................................................... 140

National Association of Exclusive Buyer Agents (NAEBA), statement .............. 178

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OVERSIGHT OF THE ENFORCEMENT OF THE 

ANTITRUST LAWS 

WEDNESDAY, MARCH 7, 2007

U.S. SENATE, SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY

AND CONSUMER RIGHTS, COMMITTEE ON THE JUDICIARY, Washington, D.C. 

The Subcommittee met, pursuant to notice, at 2:25 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Herb Kohl, Chairman of the Subcommittee, presiding. 

Present: Senators Kohl, Feingold, Hatch, and Grassley. 

OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR 

FROM THE STATE OF WISCONSIN 

Chairman KOHL. Good afternoon, ladies and gentlemen. We are 

glad to have you here today. 

Today’s hearing marks the first time in more than 4 years that 

we have held an oversight hearing to examine the enforcement of 

our Nation’s antitrust laws. Today we will hear from Assistant Attorney General Barnett and FTC Chairman Majoras—both able 

and talented public servants. We commend Chairman Majoras for 

her leadership and her efforts to bring more competition to the prescription drug market. 

However, we are concerned with the direction that the Antitrust 

Division has taken under this administration. With the exception 

of criminal enforcement, there is an alarming decline in the Division’s antitrust enforcement efforts across the board, particularly 

with respect to mergers. Compared to the last 4 years of the Clinton administration, the number of merger investigations initiated 

by the Justice Department in the most recent 4 years has declined 

by nearly 60 percent, and the numbers of mergers actual challenged has declined by 75 percent. 

These are not just statistics. These are real cases affecting consumers in many sectors of our economy. Whether it is the Whirlpool-Maytag deal, AT&T’s acquisition of BellSouth, or anticompetitive conduct in agriculture, this Division has simply not done 

enough, in our opinion, to protect consumers. As a result of this 

hands-off approach, the Division is encouraging even more consolidation, including companies who have lost their attempts to merger 

to try again in this environment. To quote the New York Times, 

merger policy ‘‘often appears to be little more than ‘anything goes.’ ’’ 

Now, while all of these issues are worthy of significant attention, 

the most important antitrust issue for me and my constituents in 

2

Wisconsin this year is AirTran’s bid to acquire Midwest Airlines in 

a hostile takeover. Midwest Airlines, which is based in Milwaukee, 

Wisconsin, is a true extraordinary success story. Midwest Airlines 

is a unique company in the airline industry, home-owned and operated, an airline that offers the highest quality of service and is actually beloved by its customers. Midwest Airlines has been recognized as the best domestic airline more than 45 times in the past 

17 years by a variety of industry surveys. Beyond this, Midwest 

Airlines is vital to the economy of Wisconsin and to the Greater 

Milwaukee area. It offers direct service to 33 key business center 

severy day from its hub in Milwaukee. Should AirTran acquire 

Midwest Airlines and decide in the future to reduce service from 

Milwaukee, the negative consequences for the Wisconsin economy 

would be enormous. 

Unfortunately, the business model of AirTran is very difficult for 

Midwest Airlines. It is a no-frills, discount airline with low ratings 

for quality and customer service in industry ratings. No one doubts 

that the quality of Midwest’s stellar service offered to consumers 

will suffer should AirTran complete this acquisition. Even more 

worrisome is AirTran’s history of promising high levels of service 

when they enter a market and then abruptly breaking these promises and sharply reducing customer service. Dallas-Fort Worth, 

Washington Dulles, and Pittsburgh arejust three examples of cities 

in which AirTran has sharply reduced service in recent years, contrary to optimistic promises made just a few years earlier. In sum, 

an acquisition of Midwest Airlines by AirTran would very likely 

cause a substantial injury to consumers, and also to business—specifically the many thousands of travelers and businesses throughout Wisconsin and around the Nation who rely on Midwest Airlines 

for reliable, high-quality, and competitively priced air travel. 

I was, therefore, very disappointed and surprised to learn that 

the Justice Department recently closed its investigation of the proposed AirTran-Midwest deal after only a cursory review lasting 

fewer than 30 days. Despite the obvious dangers, as I detailed, of 

this acquisition in terms of frequency of service and quality of service for the many thousands of Midwest Airlines customers, your Division off the Justice Department did not initiated the full ‘‘Second 

request’’ investigation that most in the industry did expect. I cannot, frankly, understand how the Justice Department could conclude after such a brief review that this deal with pose no risks to 

competition and consumers, considering the comments that I have 

made here today. So, Mr. Barnett, I will ask you about this very 

important deal and for a commitment to reopen this investigation 

to examine its impact to consumers and businesses in Wisconsin. 

We will discuss this essential issues and, if time permits, others, 

which include consolidation in the oil and gas industry; reverse 

payments in the pharmaceutical industry; mergers and investigations in the agriculture sector; the interpretation of the Tunney 

Act, among many others. We will be monitoring your agencies carefully, Mr. Barnett and Chairman Majoras, with respect to these 

and other issues as you carry out your vital responsibilities on behalf of American consumers. 

Senator Grassley, would you like to make a comment or two? 

3

STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR 

FROM THE STATE OF IOWA 

Senator GRASSLEY. Please, yes. First of all, with your comments 

about the airline issue and also the agriculture issue, I would associate myself with your remarks and probably extend a little bit on 

agriculture at this point. 

First of all, we need to ensure that the Justice Department and 

the Federal Trade Commission are being aggressive in the enforcement of antitrust laws. It critical that companies compete in a fair 

manner so that consumers can enjoy more choice as well as lower 

prices for goods and services. Vigorous of antitrust laws will help 

create and maintain an open, fair, and competitive marketplace. 

And, of course, if that is good for the American consumer—and it 

is—it is also good for the American economy. We also need to ensure that the department of Justice and the Federal Trade Commission have the necessary resources and expertise to do a good 

job. 

I probably will not be able to be here, so I am submitting some 

questions in writing for you to respond in writing. I would appreciate it if you would do that. There are a couple points, though, 

that I want to make, and they follow on one of the things that the 

Chairman said. 

First, I am concerned about the state of American agriculture. 

There is just too much concentration in the industry. I am concerned about reduced market opportunities, possible anticompetitive and predatory business practices, vertical integration, and 

fewer competitors. For example, late last year I wrote a letter to 

the Antitrust Division expressing my serious reservations about 

the proposed Smithfield Foods and Premium Standard Farms 

merger. Because of my concern about agriculture business consolidation, I am particularly interested in how the Antitrust Division 

and the FTC review agriculture culture mergers. The antitrust 

laws are supposed to protect consumers, but they are also supposed 

to keep the market fair and open for all market competitors. 

In 2003, the Judiciary Committee held a hearing on monopsony 

in agriculture culture and looked at the buying powers of processors in our Nation’s agriculture cultural markets. Former Assistant Attorney General Pate agreed that agriculture cultural markets can be very different from other markets, although Mr. Pate 

indicated that the Justice Department does look at vertical concerns in specific mergers. I am not convinced that the Antitrust Division is considering all the anticompetitive effects of monopsonies 

and bargaining power. I am not sure that they are looking at all 

the right things when they review agriculture culture mergers. We 

should seriously consider whether the Antitrust Division should 

issue guide lines specific to agriculture culture, as it has done with 

specific guide lines, for instance, in the health care industry, or 

whether it should issue general monopsony guide lines. I hope that 

the Chairman of the Committee as well as the Chairman of the 

Antitrust Subcommittee will work with me to craft legislation to 

deal with the unique antitrust concerns facing agriculture culture 

today. 

In addition, I would want to compliment Commissioner Majoras 

on the FTC’s efforts in ensuring that drug companies, both name 

4

brand and generic, play by the rules and do not stiff the American 

consumer. I would particularly like to compliment the Commission’s proactive efforts in pursuing reverse payments. I am working 

with the FTC, Senator Kohl, Senator Leahy, and others to refine 

the legislation that recently was approved by the Judiciary Committee to put a stop to these anticompetitive deals. 

On another matter, I urge the FTC to quickly complete a study 

on the practice of authorized generics that I requested with Chairman Leahy and Senator Rockefeller so that we can move forward 

on these issues. 

I appreciate this opportunity, Mr. Chairman, to make a statement at this point. 

Chairman KOHL. Thank you, Senator Grassley. 

We also have a statement for the record from Senator Harkin, 

and now to the Ranking Member on this Committee, Senator 

Hatch. 

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 

THE STATE OF UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. I appreciate 

your leadership on this, and we welcome you two leaders to the 

Senate, and we appreciate the work that you do down there. It is 

very important stuff. 

It is a pleasure to be with you today for the first of what I hope 

will be several hearings which thoroughly explore and examine the 

vital subject of antitrust law. Today’s topic is the Federal Government’s enforcement of those laws. 

You might ask, Why is this important? Why is so distinguished 

a panel with us here today? In one word: competition. Competition 

is the corner stone of our economy. It ensures efficient markets 

which, in turn, provide consumers quality goods at market prices, 

and antitrust laws are the rules that ensure that the American 

economy maintains that competition or that competitive effect. 

In effect, antitrust law ensures one of the fundamental tenets of 

the American dream: If you build a better mousetrap, you will be 

successful in the American marketplace. That is why effective, efficient, and fair enforcement is so important. 

Today’s hearing is intended to assist us in our on going oversight 

of the enforcement efforts of the two Government entities that are 

charged with enforcing these crucial laws. As with any endeavor, 

I am sure that there is some room for improvement with respect 

to current enforcement efforts, but I have personally been generally 

pleased with the enforcement efforts of both the Antitrust Division 

and the Federal Trade Commission. 

Now, this can be seen in the vital area of merger review. Assistant Attorney General Barnett has just instituted a revision to the 

Merger Review Process Initiative that holds the promise of moving 

the Division’s resources more efficiently to those cases that truly 

require further review and consideration. 

However, we have already seen some progress. In 2006, the Antitrust Division brought more merger challenges than the previous 

2 years combined. It should also be noted that during the same period, the Division increased the number of criminal fines that it obVerDate 0ct 09 2002 13:26 May 10, 2007 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35073.TXT SJUD1 PsN: CMORC
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tained by 40 percent to $470 million. That is the second highest 

level in the Division’s history. 

Change can also be seen in how the Antitrust Division analyzes 

mergers. No greater change can be seen than in the WhirlpoolMaytag merger. Under a traditional analysis, the Division would 

have placed great reliance on the market share that the resulting 

corporation would have enjoyed. However, these are different times 

when globalization and the speed of commerce are rapidly changing 

markets. 

Therefore, the Division worked with the parties to the merger 

and developed a detailed market analysis. What didthat show? 

That the merger would not have an ill effect on competition since 

overseas competitors were quickly expanding their market share. It 

also showed that appliance retailers could and do quickly change 

the appliance brands that they choose to carry in their stores—only 

further under lining the premise that a traditional market analys 

is might not be as effective in this situation. Equally as impressive 

in the Whirlpool-Maytag merger was the fact that the Division’s 

decision was made in 6 months. The Federal Trade Commission is 

also making strong strides. 

Just as the Division has sought to create a newopenness about 

how it reaches its conclusions on merger reviews, the Federal 

Trade Commission has also issued detailed decisions in such cases 

as frustrated—‘‘frustrated,’’ I think that is a Freudian slip—as Federated Department Stores’ acquisition of May Department Stores. 

The FTC has also sought greater transparency with there forms to 

the merger review process. These reforms, which generally formalize practices that the FTC currently uses, aim to reduce the 

transaction costs that are accrued during an investigation. 

However, most impressive is that even though pre-merger filings 

have increased by 28 percent since fiscal year 2004, the numbers 

of requests for additional information kept pace and increased by 

approximately 40 percent during the same period. 

I am also very interested in the role that the FTC is playing in 

maintaining competition and protecting consumers in energy markets. The Commission has performed admirable work in this by 

consistently monitoring the retail gasoline and diesel prices in 360 

cities. 

Now, in closing, I would like to thank both of today’s witnesses 

for being here today and for their responsiveness to our requests 

for information prior to the hearing. And while I am sure that we 

will all disagree from time to time on particular issues, I have been 

generally impressed by the strong commitment and leadership both 

of you have demonstrated as you have served in these very, very 

important positions. And I look forward to working with you 

through out the coming years, and I hope that this Committee will 

become a great help to antitrust enforcement in this country and 

the knowledge of antitrust and what we need to do in this country 

as well. And I am sure under Chairman Kohl’s leadership we will 

be able to do that. 

Thank you, Mr. Chairman. 

Chairman KOHL. Thank you very much, Senator Hatch. 

At this time we will introduce our two witnesses. Assistant Attorney General Thomas Barnett was confirmed by the Senate on FebVerDate 0ct 09 2002 13:26 May 10, 2007 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35073.TXT SJUD1 PsN: CMORC
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ruary 10, 2006. He has served within the Antitrust Division and 

other leadership positions since April 18, 2004. Prior to joining the 

Justice Department, Mr. Barnett was a partner in the law firm of 

Covington & Burling. Mr. Barnett graduated from Harvard Law 

School, received an economics degree from the London School of Economics, and received his B.A. from Yale. 

Our second witness will be Chairman Deborah Platt Majoras, 

who was sworn in to lead the Federal Trade Commission on August 

16, 2004. Prior to this position, she was a partner at the law firm 

Jones Day in Washington, D.C. Before that, she served in leadership positions in the Antitrust Division of the Justice Department 

for 3 years. Ms. Majoras graduated from Westminster College and 

received her J.D. from the University of Virginia. 

We welcome you both, and would you please stand and raise your 

right hand? Do you affirm that the testimony that you will give 

here today will be the truth, the whole truth, and nothing but the 

truth, so help you God? 

Mr. BARNETT. I do. 

Ms. MAJORAS. I do. 

Chairman KOHL. We thank you. 

Mr. Barnett, would you please proceed with your testimony? 

STATEMENT OF THOMAS O. BARNETT, ASSISTANT ATTORNEY 

GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, 

WASHINGTON, D.C. 

Mr. BARNETT. Thank you, Mr. Chairman. It is an honorand a 

privilege to testify before this Committee, with which there is a 

long and productive working relationship. I have submitted written 

testimony, and I will confine my oral remarks to a few points. 

The United States economy is truly one of the great wonders of 

the world, and it is our free enterprise system and the antitrust 

laws that we have that drive the creativity, the innovation, and the 

growth that is the hallmark of that economy. I am proud of the efforts and the successes of the Antitrust Division in enforcing the 

antitrust laws and providing support for that key under pinning of 

our free enterprise system. I will touch briefly on a few areas. 

First, our cartel enforcement, our criminal enforcement against 

price fixing, customer allocation, and other naked agreements not 

to compete is clearly the world’s leader ship program, or leads the 

world. As Senator Hatch acknowledged, last year we obtained over 

$400 million in fines. We continue to—this year we have already 

almost tied the record number of days for prison sentences imposed, and that is less than halfway through the year. We are well 

on track to continue the excellent record that the Antitrust Division has in the criminal enforcement area, and continue our leadership position in the United States and around the world. 

Merger enforcement is an area where we also remain very active. 

It is a fact-intensive investigation where we seek to apply the law, 

and the general principles set forth in the Merger Guidelines, to 

the facts developed in our investigation to make a decision or determination as to whether a merger threatens to harm the competitive 

process and consumer welfare. 

Last year the Division had 16 mergers in which we either filed 

a complaint or in which the parties modified the transaction in reVerDate 0ct 09 2002 13:26 May 10, 2007 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35073.TXT SJUD1 PsN: CMORC
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sponse to our investigations. That is the highest number of enforcement actions during the last 5 years, and certainly since 2001, at 

the end of the so-called merger wave. And these actions were in important basic industries, including steel, nickel, the newspaper industry, and school milk. 

At the same time, we have made progress in terms of improving 

the efficiency of our merger review process, reducing the average 

length of investigations, and reforming the second request process 

to reduce the burdens on the parties, as well as on the Division. 

Our non-merger civil enforcement program encompasses a broad 

range of activities. One stellar example includes the real estate industry where we have engaged not only in enforcement activity but 

also advocacy efforts to try to remove impediments to competition. 

This is a critically important industry in that it affects almost 

every American. It is the largest asset most Americans own, the 

largest single transaction most Americans engage in. That is one 

of the reasons why we focus particular attention in this area, and 

we believe that we have had some significant successes. 

No discussion of Division activities would be complete without 

addressing our extensive activities on the international front. It is 

truly a global economy and a global competition enforcement network. We engaged in more than 100 jurisdictions that now have 

antitrust regimes on multiple levels. We are active in leadership 

positions in the International Competition Network which the FTC 

and the DOJ helped to found in 2001. We are active in the leadership of the Competition Committee of the OECD. We engage in bilateral discussions with many of our partners, including the European Commission, Canada, Mexico, Japan, Korea, Australia, and 

others. It is a truly important area of our work, and we devote substantial resources to it. China is another country that we have been 

paying particular attention to, given its importance. 

None of the activities and none of the accomplishments of the Division would be possible—and I would be remiss if I did not underscore this—without the talent, the dedication, and the experience 

of the many people who serve within the Antitrust Division. It is 

certainly a pleasure and an honor for me to be a colleague with 

them and to serve the United States economy in this manner. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Barnett appears as a submission 

for the reord.] 

Chairman KOHL. Thank you, Mr. Barnett. 

Ms. Majoras? 

STATEMENT OF DEBORAH PLATT MAJORAS, CHAIRMAN, 

FEDERAL TRADE COMMISSION, WASHINGTON, D.C. 

Ms. MAJORAS. Thank you, Chairman Kohl, Ranking Member 

Hatch, other members of the Subcommittee. I am very pleased to 

appear before you today to discuss the FTC’s significant efforts to 

ensure that competition, which we have all acknowledged today is 

so critical, remains robust. We endeavor to focus our enforcement 

efforts on sectors of the economy that have extraordinarily significant impacts on consumers, such as health care, energy, real estate, and technology. 

8

Merger enforcement, with its increasingly global component, continues to consume a significant amount of our resources. Using the 

streamlined merger review procedures that I introduced last year, 

in fiscal year 2006, we identified 16 transactions that raised concerns for competition, obtained relief in 9 cases, and the other 7 

were abandoned or restructured. So far in this fiscal year, the Commission has issued 12 second requests, and already 10 cases have 

resulted in enforcement action or withdrawal. 

In the health care sector during the past year, the agency 

achieved substantial relief in seven mergers by obtaining consent 

decrees in the area of generic drugs, over-the-counter medications, 

injectable analgesics, and other medical devices and diagnostic 

services. Outside of mergers in health care, the Commission continues to be aggressive in challenging price-fixing agreements 

among competing physicians, and in the detection and investigation of agreements between drug companies that delay generic 

entry. 

Our Federal court challenge to an alleged anticompetitive agreement involving Ovcon has led to the introduction of lower-priced 

generic products. Under threat of preliminary injunction, Warner 

Chilcott waived the exclusionary provision that was preventing 

Barr from entering with its generic, which Barr almost immediately then began selling. 

Beyond enforcement, we continue to stand up against exclusion 

payment settlements by working with Congress on bipartisan efforts to advance a workable legislative remedy, and we thank the 

members of this Subcommittee for your leadership in this critical 

area. 

We continue to devote significant resources to the energy sector. 

During the past year, Chevron and USA Petroleum abandoned 

their proposed transaction after the FTC raised questions. The FTC 

challenged EPCO’s proposed $1.1 billion acquisition of TEPPCO’s 

natural gas liquids storage business, and we challenged a proposed 

$22 billion deal involving energy transportation storage and distribution firm Kinder Morgan. 

The Commission continues to monitor, as Senator Hatch noted, 

retail gasoline and diesel prices in 360 cities and wholesale prices 

in 20 urban areas in an effort to detect early any evidence of illegal 

conduct. 

Recognizing that purchasing a home is the most significant investment that most Americans will ever make, the FTC has actively investigated restrictive practices in the residential real estate industry. In the past year, the agency has brought eight enforcement actions against associations of realtors or brokers who 

adopted rules that with held the valuable benefits of the Multiple 

Listing Services that they control from consumers who chose to 

enter into non-traditional listing contracts with brokers. 

In the all-important technology area, last month the Commission 

issued a final opinion and order in the non-merger proceeding 

against technology developer Rambus. The Commission determined 

that Rambus unlawfully monopolized the markets for four computer memory technologies that had been incorporated into industry standards for DRAM chips. In addition to barring Rambus from 

making similar misrepresentations or omissions to organizations 

9

again in the future, the order requires Rambus to license there levant technology and set maximum allowable royalty rates. 

Our efforts to stand up for consumers and competition do not end 

with law enforcement. In the past year alone, the FTC has formally 

provided competition advice to policy makers on issues related to 

attorney matching services, contact lens sales, real estate services, 

pharmacy benefit managers, wine distribution, patent rules of practice, and online option trading assistance, to name a few. Our amicus program remains active, and we have aided the Antitrust Modernization Commission in its examination of our Nation’s competition laws. 

To ensure that our knowledge remains fresh, we are actively engaged in market research, with recent hearings, for example, exploring the boundaries of impermissible conduct under Section 2 of 

the Sherman Act and a recent workshop to examine broad band 

connectivity competition policy. 

In April, the FTC will host a 3 day conference entitled ‘‘Energy 

Markets in the 21st Century: Competition Policy and Perspective,’’ 

bringing together leading experts from around the energy area. 

And, finally, because educated consumers are empowered consumers in the market, we recently launched a multidimensional 

outreach campaign targeting new and bigger audiences with a message that even as markets rapidly change, one thing remains the 

same, and that is that competition counts to consumers. And so we 

are building a library of materials, both in print and online, in our 

efforts to better reach consumers and educate them on the vital importance of vigorous competition in this economy. 

Mr. Chairman, members of the Committee, you have my commitment that I and the fine men and women of the Federal Trade 

Commission will continue to work tirelessly to preserve competition 

and protect consumers. And I will be happy to take your questions. 

Thank you. 

[The prepared statement of Ms. Majoras appears as a submission 

for the record.] 

Chairman KOHL. Thank you very much, Ms. Majoras. 

Now, Mr. Barnett, many questions have been raised about the 

Antitrust Division’s reluctance to challenge important mergers and 

acquisitions that may harm consumers. One proposed acquisition 

that very much worries me, as you know, is AirTran’s plans to acquire Midwest Airlines, an airline based in my own home State of 

Wisconsin. Midwest Airlines is a true huge success story. It is beloved by the millions of travelers, both travelers who personally get 

on the airplane as well as businesses, who use it every year for its 

high quality of service. Midwest Airlines has been recognized as 

the best domestic airline more than 45 times in the last 17 years 

by a variety of industry-rating surveys. The 2005 Zagat Air Travel 

Survey rated Midwest Airlines as the top-rated domestic airline. 

And, most recently, Midwest Airlines placed first among singleclass service in the 2006 Conde Nast Traveler Business Travel 

Awards Poll. 

Now, by contrast, AirTran ranked last among the ten airlines 

rated. As a no-frills, discount airline, AirTran has a very different 

business model from Midwest Airlines, and acquisition of Midwest 

by AirTran would very likely result in a substantial decline in the 

10

quality of service currently realized by the many thousands of travelers throughout Wisconsin and around the Nation who use Midwest. 

Additionally, businesses in my home State have enormous worries regarding the consequences of such a merger. Should AirTran 

decide in the future to reduce service to the 36 major business centers served every day from Midwest’s Milwaukee hub, substantial 

economic damage would be the result of that kind of a decision. 

The frequent and efficient service offered by Midwest to dozens of 

key business markets from Milwaukee is essential to the Greater 

Milwaukee and the overall Wisconsin economy. 

The history of AirTran causes me special worry in this regard. 

AirTran has a history of entering new markets, promising to enhance services, and then, in fact, reducing service, despite its promises. For example, since 2004, AirTran has exited 29 markets it 

had promised to serve, sometimes returning in a scaled-down 

version and sometimes not returning at all. Notably, at Dallas-Fort 

Worth, AirTran promised a mini-hub with 30 flights a day to 7 destinations by the end of 2004. The reality was far different. AirTran 

never attained more than 17 flights a day at Dallas-Fort Worth 

and presently has only 8 flights a day to 2 destinations. Similarly, 

AirTran has reduced service at Washington Dulles from 16 to 7 

daily departures and at Pittsburgh from 13 to 6 daily departures. 

I have special personal experience of what can happen when an 

out-of-town company without ties to the local community acquires 

a respected local business serving local consumers. Years ago, my 

family sold our chain of grocery stores to an out-of-town buyer. We 

were the dominant Wisconsin grocery store chain. We were successful mainly because of our superior service to customers and our 

dedication to serving the needs of the local community, which we 

as the founding family understood in a way that outsiders could 

not understand. 

The new owners of the Kohl’s Food Stores lacked this commitment to the local consumer, and they eventually closed the local supermarkets entirely that our family had spent a lifetime building, 

much to the disappointment of thousands of Wisconsin consumers. 

This experience has taught me first hand how crucial local ownership can be in operating a particular business and what dangers 

can ensue and, in fact, happen when people from somewhere else 

take over a business, the success of which was not entirely but 

heavily dependent on the quality and the knowledge of local ownership. 

So, therefore, I was very surprised and disappointed to learn that 

the Justice Department had recently closed this investigation of 

AirTran’s planned acquisition after just a brief review of fewer 

than 30 days. Despite the obvious competitive implications of this 

acquisition and its potential danger for reduced service for the 

many thousands of Midwest Airlines customers, your Department 

did not initiate the full second request investigation that most in 

the industry expected. 

Question: I understand that AirTran does not presently have 

many overlapping routes with Midwest Airlines, but I do not think 

that that should be the end of your inquiry. Isn’t one important 

consideration in an antitrust review whether the merger is likely 

11

to harm the quality of service offered to consumers? Do we not 

have reason to worry that if acquired by AirTran, the very high 

quality of service Midwest currently offers to its customers will possibly be severely degraded? And isn’t this a basis for investigating 

this merger more fully, Mr. Barnett? 

Mr. BARNETT. Thank you, Mr. Chairman. Certainly, the air 

transportation industry is a critical and highly important part of 

our economy, and we take threats to competition in that industry 

very seriously. When we examine mergers, we look at the breadth 

of competition, which would include price competition as well as 

competition on quality. And in that respect, yes, that is certainly 

a consideration that weshould take into account. 

I am more than happy to take the comments that you have provided today as well as any other information that you, your staff, 

or any of your constituents may have to bear on this transaction 

back with me to examine it and to consider whether there is any 

appropriate antitrust concern there that we should pursue. And if 

we identify such a concern, we are certainly not precluded from 

pursuing it and will do so. 

Chairman KOHL. Well, I am really pleased to hear that. What 

you are indicating is that, you know, you are flexible and openminded on this, that you want ultimately to do the right thing. And 

if we can bring additional facts to bear, you are indicating that 

your Department is willing to take another look and, who knows, 

perhaps arrive at a somewhat different conclusion based on evidence. Is that what you— 

Mr. BARNETT. Yes, Mr. Chairman. 

Chairman KOHL. Well, I thank you so much. That makes me feel 

really good. 

Mr. Barnett, many consumer advocates and independent antitrust experts are concerned with what they believe is a significant 

cutback in antitrust enforcement in recent years. Particularly since 

you became the Assistant Attorney General, they cite several problems with antitrust enforcement on your watch. 

First, as I mentioned in my opening statement, there are the 

Antitrust Division’s own stats which show a sharp decline in enforcement activity in recent years. 

Second is the fact that you refused to take any action to block 

or modify several large controversial mergers among direct competitors. Prominent among these was your approval of the Whirlpool-Maytag merger, reportedly over the objections—reportedly—of 

your career staff. 

Another example was your approval of the AT&T-BellSouth 

merger last fall without placing a single merger condition on the 

deal or requiring any divestitures of any sort. Several weeks later, 

the FCC insisted on and obtained a series of pro-competition conditions on the merger. 

And, third, many analysts believe that now is the best time in 

decades to get previously unthinkable mergers through your Department review process. The announcement 2 weeks ago of the 

merger of the only two satellite radio companies, XM and Sirius, 

and Monsanto’s attempts to acquire the seed business of Delta and 

Pine Land, the very same deal rejected by the Justice Department 

8 years ago under the last administration, are just two examples. 

12

To those of us who care about antitrust enforcement, Mr. 

Barnett, this adds up to a picture that causes us concern. So my 

question to you is this: Are your critics correct or are they incorrect 

that your Department has adopted too much of a hands-off approach to merger enforcement and that some of them say that now 

is the best time to get deals done? But, however, whatever your 

critics may suggest or say, we are interested in your opinions and 

your thoughts on this matter. 

Mr. BARNETT. Thank you, Mr. Chairman. 

The short answer is that the critics are not correct. The Antitrust 

Division has consistently applied the merger guidelines set forth 

basically in the 1992 guidelines and subsequently amended consistently. 

What is important to remember is what those guidelines make 

quite clear is that merger review is a very fact-intensive analysis. 

We do much more than look at just the market shares of the companies. We look at the complete competitive process to try and get 

an understanding of what effect the merger is likely to have in the 

particular situation. 

In the instances of Whirlpool-Maytag, for example, we issued a 

closing statement, and I have previously publicly said the initial 

market shares gave all of us concern, gave us pause, indeed created 

a presumption of concern. But once we had conducted a very extensive 6 month investigation, we ultimately concluded that the competitive dynamics of the market place indicated there were other 

competitors that could, had, and would be in a position to expand 

rapidly in the face of an anticompetitive price increase. Based on 

traditional principles, we did not take action in that case. Similarly, in the other transactions. 

I would note just very briefly, if I may, that there are many other 

transactions, 16, in which we did take action that those critics 

seem to be ignoring. 

Chairman KOHL. I thank you. My time in this round is up. I will 

have questions for Ms. Majoras in the nextround, but let me turn 

to Senator Hatch. 

Senator HATCH. Well, thank you, Mr. Chairman. 

One treatise in antitrust law points out that in 1977 the Division 

boasted a staff of 421 attorneys. However, that number had fallen 

to 229 in 1989. And a further example is cited that during the 

1980s the largest percentage of criminal indictments for bid-rigging 

contracts for roads, airports, or other construction projects for local 

government—and that is what they were for, and it was a particularly active time, that particular time. By comparison, in the 1990s 

criminal enforcement focused on international price-fixing conspiracies involving large firms and major industries. So it is easy to see 

why statistics do not always mean anything, but if you read—the 

initial reading of the information, you know, that has been provided by the Department of Justice shows that there maybe some 

standing to the argument because, for example, the number of investigations of mergers has fallen from 139 in 2000 to 77 in 2006. 

The number of requests for additional information has likewise 

fallen from 55 in 2000 to 17 in 2006. But then, again, I would point 

out that improvements are occurring, too, and you cannot just rely 

13

on statistics to determine whether the Division is doing a great job 

of not. 

In 2006 alone, the Antitrust Division brought more merger challenges than the previous 2 years combined. And it should also be 

noted that during the same period the Division increased the number of criminal fines that it obtained by 40 percent, like I say, to 

470 million bucks, the highest ever—or I guess it is the second 

highest level in the Division’s history. On the issues the Subcommittee will focus on, one of them involves consolidation of the 

agriculture cultural sector and recent mergers in that area. In that 

regard, the pending Monsanto, Delta, and Pine Land transaction 

has, as you know, generated some controversy. And as you know, 

this is Monsanto’s second attempt to acquire Delta and Pine Land. 

Monsanto abandoned its previous proposed merger in 1989, if I recall it correctly—1999, I guess it was, due in part to the Division’s 

opposition. 

Now, in my view, this merger raises a number of interesting 

questions that are rarely discussed in this type of forum. While I 

do not intend to ask you, you know, about the details of the merger 

review of this particular transaction, I think it would be appropriate for you to discuss in general terms your approach to analyzing the competitive aspects or effects, I think would be a better 

word, of this type of merger. 

Specifically, I am interested in how the Division views a company’s patent portfolio with respect to assessing its market power. 

In general terms, I find myself in agreement with the Government’s position in the Independent Ink case, which involved a 

question of whether a company’s patent interest should result in a 

presumption of market power for purposes of antitrust tying analysis. But I really would be interested in hearing more about how 

the Division analyzes the effects of the patent interests and the absence of such a presumption, both with respect to potential strategic behavior, such as vertical foreclosure, and with respect to 

market power analysis in both its merger and non-merger enforcement. I would love to have you chat with us on that. 

And then, Chairman Majoras, I know that the FTC has been active in considering the competitive and strategic implications of 

patent assets as well. So I would be pleased to hear from you, after 

Mr. Barnett has responded to the first part of this question. 

Go ahead. 

Mr. BARNETT. If I may, if I can interject at the outset, with respect to the overall level of merger enforcement, it is important to 

note that the number of filings, merger filings, in the late 1990s 

was well over 4,000 a year. It dropped to under 2,000 after that, 

and that is a relevant consideration. 

With respect to Monsanto, obviously, the Monsanto matter is a 

pending matter, and so I will just note that it is a pending investigation that we continue to look at. We have not made a decision 

on it. 

Patent portfolios, as you indicated, the Supreme Court has confirmed our view that the existence of a patent by itself does not create a presumption of market power. That does not mean a patent 

cannot create market power. To the contrary, we look at the particular facts and circumstances, and if a patent portfolio, if you 

14

will, effectively precludes any other person from providing a reasonably substitute product, something that consumers would 

conside ran adequate substitute, without infringing upon that patent port folio, then the patent owner may well have market power. 

And that is fundamentally no different than how we assess any 

other set of assets that a company may hold. With respect to 

vertical considerations, we do look at vertical issues. Indeed, the 

Department has brought cases that involve vertical concerns. Several years ago, the Division challenged a merger between Northrop 

Grumman and TRW based on a vertical concern between different 

components of a satellite system. 

So what we are looking at is whether or not essentially market 

power in a particular—one or both of the vertical markets at issue 

will create some sort of anticompetitive horizontal effect at one 

level or the other. And there are certainly theoretical circumstances 

where that can occur, and if the evidence substantiates that, we 

can and will pursue a challenge to the merger under those circumstances. 

We are also mindful of the fact that vertical merger scan create 

significant efficiencies, and that is an additional factor that we 

have to take into consideration. 

Senator HATCH. Well, thank you, Mr. Barnett. 

Ms. Majoras? 

Ms. MAJORAS. Yes, thank you, Senator Hatch. The Federal Trade 

Commission, as the Antitrust Division does, views the inter face 

between competition and intellectual property policy to be absolutely critical in today’s economy, and we have come at this from 

a couple of different ways. 

As you are probably aware, a couple of years ago the FTC published a report on patent reform recommendations. What we 

learned over time in our enforcement cases is that while IP and 

competition are designed to accomplish the same goals, if one of the 

systems gets out of whack, so to speak, it can have an adverse impact on consumers. And here our point in that report is that if patents are not properly granted in the first instance and the patent 

grants some market power, then competition can be distorted. So 

we have a great interest in the patent system, as many others do 

today, including many Members of Congress. 

The second area, of course, is in our enforcement cases, Rambus 

being an example that I mentioned in my opening remarks, in 

which Rambus had patents and also was seeking to acquire more 

patent protection. At the same time Rambus was working within 

a standard-setting organization in which the clear expectation of 

all of the members was that if a member had patents and there 

was a discussion of technology that would be patented that would 

be incorporated into the standard, that needed to be disclosed because members would want to know that before incorporating it 

into the standard. Rambus did not, and the Commission made the 

decision that by not doing that, Rambus had illegally monopolized 

certain particular critical technology markets. 

And then, of course, in our cases in the Hatch-Waxman context, 

in which we have looked at settlements between brand and generic 

companies, obviously there, too, the issues of patents have been 

critical. 

15

So those are a few of the areas that highlight our work. 

Senator HATCH. Do you share Leibowitz’s position that we should 

have a bright-line situation with regard to Hatch-Waxman? Or is 

that debated at the FTC? 

Ms. MAJORAS. Well, we have had great debate within the FTC 

on that from the beginning. What I asked staff to do from the very 

beginning was to look at all options, and we have looked at all options. 

My view is that having, if you want to call it, a bright line, that 

is fine, that then excludes categories of settlements that we know 

would be, more often than not, pro-competitive would probably be 

the best way to go here, having looked at all of the different possibilities, we think. And I would be pleased to talk to you about that 

further. 

Senator HATCH. Well, we would like your advice onthat. It is not 

necessarily related to this hearing, but I just wanted to ask you 

that question as a follow-on. 

My time is just about up, so I will yield. I will submit further 

questions in writing. 

Chairman KOHL. Thank you. 

Senator Feingold? 

Senator FEINGOLD. Thank you very much, Mr. Chairman, and 

thank you for holding this hearing. During the past 6 years there 

has been far too little oversight of the two agencies that deal with 

antitrust issues. In fact, I understand that this is the first hearing 

where the Assistant Attorney General for the Antitrust Division 

has testified since September 2002, which, of course, was during 

that brief period when you, Senator Kohl, were the Chairman of 

the Subcommittee. 

Obviously, the Chairman takes his oversight responsibilities very 

seriously, and I think the public is well served by the Chairman’s 

approach. The major antitrust laws of this country are just about 

a century old. They reflect the basic underlying principle that the 

public receives over whelming benefits from competition and that 

the Government has an important role to play in ensuring that 

businesses do not engage in anticompetitive behavior. As the Supreme Court said in the Topco case, ‘‘Antitrust laws...are the 

Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free enterprise system as the 

Bill of Rights is to the protection of our fundamental personal freedoms.’’ 

These are lofty sentiments, but laws are just empty words and 

dusty books without enforcement. And I am becoming increasingly 

concerned that the Justice Department is not acting to enforce the 

antitrust laws in the best interests of the American people. 

I understand that neither the Department nor the FTC has challenged a merger in court since 2004. I suppose that could be because no one is proposing anticompetitive mergers, but I have my 

doubts. One case that was particularly surprising to many was the 

Department’s failure to challenge the acquisition of Maytag by 

Whirlpool, giving the combined company a 75 percent share of the 

market in some home appliances. The New York Times reported 

that the decision demoralized career antitrust lawyers in the Department. 

16

I find this very troubling, and I sincerely hope the Department 

is not relinquishing its historic responsibility to protect the American consumer from anticompetitive behavior. 

Mr. Barnett, based on my understanding about what happened 

earlier in the hearing, I do want to indicate that I was pleased to 

hear that you told the Chairman, Senator Kohl, that you will take 

another look at the AirTran-Midwest merger. That is a very big 

issue in our State, and I was very concerned that the Department 

concluded its inquiry so quickly. 

Let me turn to a couple of questions. Again, Mr. Barnett, one of 

the concerns I have about the apparently lax attitude of the Department of Justice toward merger cases is that it is encouraging 

mergers and acquisitions that perhaps the parties might not otherwise propose because the antitrust concerns are so obvious. We 

saw, again, as I mentioned, the Whirlpool acquisition of Maytag. 

XM Radio is proposing to merge with its only satellite radio competitor, Sirius. And there is even a company pursuing an acquisition that it had abandoned some years ago because the Department 

at that time opposed it. I am talking here about Monsanto, which 

is set to acquire cotton seed producer Delta and Pine Land Company, known as DPL. Monsanto already controls a majority of the 

biotech seed traits used in cotton, corn, and soybeans. While DPL 

is focused on cotton, many of the traits they are developing for cotton apparently can be applicable to corn and soybeans as well. 

My constituents in Wisconsin are very worried that the merger 

would eliminate DPL as a competitor with Monsanto in the development of biotech seed traits, an area that is already fairly concentrated. Moreover, not all farmers want to grow genetically modified crops, and they are concerned about this merger’s effect on 

competition in the conventional and organic seed markets as well. 

So my question to you is do we have reason to worry that the 

Department’s attitude toward mergers has changed so much that 

this particular merger might actually be cleared this time around? 

What steps is the Department of Justice prepared to take to protect 

the farmers in Wisconsin and elsewhere, whether they grow genetically modified crops, conventional crops, or organic crops, from the 

possible anticompetitive effects of this merger? 

Mr. Barnett? 

Mr. BARNETT. Senator, the Monsanto matter is a pending investigation, and this is not an appropriate forum for me to go into the 

specifics of that matter. But I will tell you generally that the Antitrust Division continues to apply the same principles that have 

been applied for two decades to antitrust enforcement in a bipartisan manner under the Merger Guidelines. 

We look to whether or not the merger threatens harm to the 

competitive process and consumer welfare, and based upon the extensive investigations that we undertake, the interviews, the documents, and the other sources of information, we make an assessment as to whether or not a merger violates Section 7 of the Clayton Act. 

If we conclude that it will do so, we aggressively pursue relief. 

Now, that relief can be narrow if the threatened harm from the 

merger is relatively narrow. Indeed, in such a situation, we think 

it is beneficial to be able to carve out and fix that narrow part of 

17

the merger and allow the remainder of the merger to proceed forward, which may have efficiencies and bring benefits to consumers. 

If that is not possible, we will seek to block the merger in its entirety. 

Whether we end up in court or not—you cited a statistic about 

not going to court since 2004. I respectfully disagree. We have filed 

complaints in each of the fiscal years. Indeed, we filed ten complaints in the last fiscal year. The parties chose not to litigate. 

They chose to cave, if you will, and accede to the remedy that was 

being requested. 

Indeed, last year we were on the eve of a jury trial in the Southern Bell-DFA merger transaction when the parties decided to enter 

into a settlement that gave us complete relief. 

So the short answer to your question is that we will investigate 

each matter on the merits, make a call as we see it, and pursue 

aggressively whatever relief we think is necessary to protect consumers, and if that involves litigating in court, we will so do, are 

happy to do so. But if we can do it through a more efficient consent 

decree proceeding, we will happily pursue that as well. 

Senator FEINGOLD. I understand your hesitation to talk too specifically, but you sort of generally talked about the way this is analyzed. I guess I just want you to say whether the concerns about 

the possible anticompetitive effects on farmers in Wisconsin will be 

taken into account in this Monsanto matter. 

Mr. BARNETT. Certainly. We take into account all potential anticompetitive effects when we do a merger investigation. We attempt 

to be as comprehensive as possible, and we would certainly consider any potential anticompetitive effects on farmers in Wisconsin. 

Senator FEINGOLD. What does it tell you about the Department’s 

merger policy that a company is coming back 8 years later with a 

merger that it could not obtain approval for before? 

Mr. BARNETT. Well, it does not tell me necessarily much of anything other than that 8 years have passed, and market conditions 

can change quite rapidly. We are not evaluating this merger based 

upon the conditions that existed in 1999. We are looking at the proposed merger based upon the market, the conditions, the competitors, the customers, the intellectual property rights, et cetera, et 

cetera, that exist in 2007. They may or may not have changed, and 

that may or may not have an effect on the outcome. 

Senator FEINGOLD. But you do not think it is possible that Monsanto thinks it has a better shot of winning now because of the nature of the enforcement? 

Mr. BARNETT. I cannot comment on what is going on subjectively 

in somebody else’s mind. What I can tell you is that we are consistently applying the same principles that the Division has applied for 

at least 15 or 20 years under the Horizontal Merger Guidelines. 

Senator FEINGOLD. Let’s talk about the Schering-Plough case, 

which, as you know, was brought by the FTC because of allegations 

that Schering-Plough made payments to two companies in a patent 

infringement case to delay their entry into the market for a particular potassium supplement drug. These are the so-called exclusion payment settlements that Senator Kohl is attempting to prohibit in his bill, the Preserve Access to Affordable Generics Act. 

18

And, I might add that bill has broad bipartisan support, and I am 

pleased to be a cosponsor of it. 

In the Schering-Plough case, the Eleventh Circuit reversed the 

FTC’s action, and as I understand it, the FTC wanted to appeal 

that ruling to the Supreme Court. It has been reported that the Solicitor General acted on your advice in arguing to the Supreme 

Court that it should not take the case. 

Did you recommend that the Solicitor General oppose Supreme 

Court review in the case? And if so, can you explain your reasoning? 

Mr. BARNETT. Well, Senator, I was, in fact, recused from that 

matter, so I did not participate in it. So the Solicitor General would 

not have been responding to a recommendation from me. 

Having read the brief, I would just observe that the brief did not 

actually go to the merits, the underlying antitrust merits, but addressed specifically the cert worthiness of the case, which is a distinct issue. So the short answer is that I did not participate, 

though. 

Senator FEINGOLD. Commissioner, do you want to comment on 

that case? 

Ms. MAJORAS. Thank you, Senator. You know, at the FTC we believe it is an extremely important case. We believe billions of dollars are at stake for consumers, and it was very disappointing to 

us, obviously, that the Eleventh Circuit did not see it our way. I 

think it is possible that the Supreme Court may take a similar case 

within the next year, and we are hopeful that that may happen. 

But we are not waiting. We are doing two things: we are working 

with Congress to determine whether we can come up with a workable legislative fix that will benefit consumers; and, second, we are 

continuing, as we are obligated to do, to look at the agreements between brands and generics to settle patent litigation, to determine 

whether we believe that any of them are anticompetitive. And we 

are opening investigations and continuing our work in the area. 

Senator FEINGOLD. Thanks to both the witnesses. 

Thank you, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Feingold. 

Just to get a little bit more on the record on that issue, one of 

my—as well as Senator Feingold, and I am sure Senator Hatch 

also, one of the priorities we have is finding ways to bring more 

competition to the prescription drug market. And one of the best 

ways to do this is by generic drug competition, as you both know. 

Generic drugs, as you know, have the potential to save consumers 

many billions of dollars. One of the biggest obstacles to competition 

from generic drugs is the practice of brand-name drug manufacturers to settle patent cases by paying generic companies millions of 

dollars to simply stay off the market. And along with several of my 

colleagues, we sponsored a bill and now have passed it through the 

Judiciary Committee to make this practice of paying off—of disallowing companies to pay off generic companies and there by 

harming consumers in the process. 

In 2005, the Eleventh Circuit Court of Appeals issued a decision 

that these payoff settlements do not violate antitrust law, reversing 

a decision of the Federal Trade Commission. The Justice DepartVerDate 0ct 09 2002 13:26 May 10, 2007 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35073.TXT SJUD1 PsN: CMORC
19

ment filed a brief opposing Supreme Court review and sided with 

the Eleventh Circuit against the FTC. 

Mr. Barnett, why did the Justice Department take that position? 

Mr. BARNETT. Mr. Chairman, as I indicated, I did not personally 

participate in that matter, so it is difficult for me to answer the 

specific question. I can make two observations in an effort to try 

to be responsive and helpful. 

The first is that, you know, these are—well, as I previously indicated, the brief, upon my reading of it after it was filed, did not 

feel that the—indicated it was not necessarily the best vehicle for 

the Supreme Court to address the issue that was presented, the legality of these reverse payment settlements. It did not get to the 

bottom-line question as to what the standard ought to be in that 

case. 

More generally, you know, this is an area which I would readily 

agree is very important to consumers. Access to health care generally and to effective drug treatments that are affordable is also 

extraordinarily important. 

I would further agree that the settlement of these cases can be 

anticompetitive and can be harmful. I would also add, however, 

that there are considerations on the other side. There are reasons 

why our system encourages settlement as a general matter. Resolving litigation early can not only avoid out-of-pocket costs, but the 

uncertainty that surrounds this set of assets while litigation is 

pending can have real costs and consequences as well. 

And so I have great respect for and sympathy with what Chairman Majoras was saying, that a complete per se approach here, 

one should think carefully about that because there are considerations on both sides. 

Chairman KOHL. Getting back to you, Ms. Majoras, I know that 

the FTC, as you have said, has done much good work in attempting 

to take action to prevent these payoff settlements. However, after 

the Eleventh Circuit’s Schering decision, the ability of the FTC to 

enforce the antitrust laws to prevent these settlements is in doubt. 

Doesn’t it make the bill that I have referred to, which you are very 

much aware of and have worked on, doesn’t it make the bill all 

that much more necessary? 

Ms. MAJORAS. Well, there is no question that our ability to attack 

these settlements from an antitrust perspective has been hampered 

by the Eleventh Circuit decision. No question. And we think it is 

important enough that we should work the problem from several 

different fronts. One is we want to work with you on this legislation, and I do think that that is extremely important. And, second, 

as I said, we will continue in the meantime investigating the settlements we have before us; settlements with the reverse payments, 

not surprisingly after the Eleventh Circuit decision, have gone way 

up from where they were before. And while I agree whole heartedly 

with Mr. Barnett that we have to look at all aspects of this because 

we do not want unintended consequences, I just note that during 

the years in which there was great antitrust risk for entering into 

these agreements, parties still settled lots of patent litigation. They 

just did not do it by having the brand pay the generic consideration 

in exchange for staying out of the market. 

20

So we are not trying to prohibit settlements. We are trying to 

prohibit settlements which—as a very prominent antitrust law professor said last week at a conference at which we both spoke, if 

these agreements were being reached outside this patent settlement context, they would be subject to criminal enforcement under 

the antitrust laws. So we need to, yes, weigh the benefits of patent 

settlement, but we also have to think about what is really going 

onhere. 

Chairman KOHL. That is good. 

Mr. Barnett, many shippers who depend on railroads to obtain 

their raw materials or ship their products to market, such as electric utilities who need coal or farmers who are shipping grain, believe that they have been victimized by the dominance in their area 

of a few freight railroads that they must use. In many cases, these 

so-called captive shippers have only one railroad that serves them. 

These captive shippers report that they have been the victims of 

price gouging and other monopolistic and anticompetitive conduct 

by the one railroad that they have to use, leading to price increases 

that will ultimately be passed along to consumers. This problem exists in my own State of Wisconsin, among many States. 

Over the past 20 years, the railroad industry has consolidated to 

the point where only four Class I railroads provide over 90 percent 

of the Nation’s rail capacity, and they rarely compete with each 

other. The railroad industry is protected by obsolete antitrust exemptions that in many cases exempts them from antitrust scrutiny, 

prevents private parties from availing themselves of antitrust remedies, and prevents the Justice Department from reviewing railroad mergers. These exemptions do nothing more than shield very 

often anticompetitive, monopolistic conduct by railroads. 

Yesterday I introduced a bill to repeal the railroad’s antitrust exemptions. Do you support such a repeal of these antitrust exemptions? Do you recognize that in many cases the present situation 

puts these people who must use that railroad and have no other 

opportunity at a competitive disadvantage in a way that almost 

prohibits their ability to operate their businesses if, in fact, there 

is nowhere else that they can receive shipments except through 

this one railroad which enjoys antitrust exemption? 

Mr. BARNETT. Well, Mr. Chairman, the Antitrust Division has a 

long history of promoting the view that exemptions should be rarely granted and, when granted, narrowly construed. Further, when 

I testified before the Antitrust Modernization Commission, I expressly encouraged them to recommend that Congress re-examine 

existing immunities and exemptions from the antitrust laws to see 

whether they are still warranted under current conditions. I believe 

that is a view that Chairman Majoras and I are in complete agreement on. And so I applaud your efforts to introduce such a bill and 

to look at this issue. 

Given that it was just introduced, I do not believe that the administration has yet had time to form a position on it, but as I say 

I underscore that I applaud your efforts and commit the Division 

to trying to work with you on that bill as you examine the issues. 

Chairman KOHL. That is great. 

Are you familiar enough to make a comment, Ms. Majoras? 

21

Ms. MAJORAS. Well, like Mr. Barnett, I can tell you that I am almost always opposed, as I believe the rest of the Federal Trade 

Commission likely is, to exemptions to the antitrust laws. And I absolutely think that particularly when exemptions have been on the 

books for a long time—and in the United States, we have several 

like these that have been in existence for a very long time when 

markets were very different and, quite frankly, the way we thought 

about markets was very different—we should examine them. 

I am not as familiar—I looked at your bill, and I think it is something we would be very happy to work with you on because it is 

just so rarely the case that I think an exemption should continue. 

Chairman KOHL. That would be great. I thank you for your comments, both of you. Mr. Barnett, perhaps the biggest merger announcement so far this year are the plans by the only two satellite 

radio services—Sirius and XM—to merge. Many of us are concerned that this merger appears to create a monopoly in satellite 

radio. Many commentators cite the XM-Sirius merger as an example of a merger between companies that would not have been attempted in the past, but now feel are worth attempting because of 

your, as some people say, lax attitude towards merger enforcement. 

How do you respond to that? 

Mr. BARNETT. Well, Mr. Chairman, without commenting on the 

specific pending matter, the XM-Sirius matter, I would reiterate 

that we have diligently applied the same principles to the evidence 

that was collected in each of our merger investigations and made 

a call as to whether we believed the merger was competitive or 

anticompetitive, threatened harm, as cognizable under Section 7 of 

the Clayton Act. 

Where we have found evidence to support a finding of aviolation, 

we have aggressively pursued that. That includes not only issues 

like the Mittal-Arcelor steel deal last year, but it includes Echo 

Star-DirecTV, which were two television direct broadcasts satellite 

providers that the Division aggressively challenged just a few years 

ago. 

Chairman KOHL. All right. Again, trying to get some comment 

out of you on this one—and I know you cannot make a comment 

on a merger which is not before you but likely may be before you—

can you explain how the Antitrust Division might look at this 

merger in the area of satellite radio and whether it is a separate 

market or whether satellite radio competes with terrestrial radio 

and other entertainment sources, especially new technologies like 

iPod and Internet radio, which is probably—which might be central 

to this merger. Just in general, do you think there are separate 

markets or they are all the same market? 

Mr. BARNETT. Well, Mr. Chairman, I will do my best. It is frequently the case in merger review, when we are arguing with parties about what the proper conclusion is, that the definition of the 

relevant market is very central. Parties frequently put before us 

assertions that various other alternative products or services 

should be included in the relevant market, and we do our best to 

assess whether that is actually the case. And we do that through 

a variety of means. We look at the parties’ own internal documents, 

marketing and sales strategies. We talk to customers. We talk to 

other suppliers. We can do statistical or econometric analyses to try 

22

and estimate cross-price demand elasticities or supply elasticities. 

And we make an assessment that whether or not—even if some 

consumers may view a proposed alternative as an alternative, 

whether enough view it as an adequate alternative to discipline the 

pricing of the merged parties’ post-transaction, whether or not they 

would be able to raise price profitably even if they lost some customers. 

That is a very fact-intensive analysis, and it would be difficult 

for me to answer that question under any circumstances in a matter in which we had just started looking at it. 

Chairman KOHL. OK. Mr. Barnett, as you know, the Tunney Act 

requires the court to approve an antitrust consent decree to ensure 

it is in the public interest before it can go into effect. For several 

years, the Justice Department has been allowing mergers to close 

prior to the court’s review of the settlement. This renders court review quite ineffective as the merger has already been consummated 

before the court reviews the settlement. The court is then left with 

virtually no remedy should it decide that the settlement is not in 

the public interest. 

How is allowing parties to close mergers prior to court review 

consistent with the intended command of the Tunney Act? 

Mr. BARNETT. Well, Mr. Chairman, as an initial matter, we are 

not empowered to prevent the closing of a transaction. That is 

something a court must order the—enter a preliminary injunction 

in order to prevent it. Once the HSR waiting period has expired, 

absent an order of the court, the parties are free to close. We are, 

of course, free to continue with our challenge. 

We make an assessment—and it has been long standing Division 

policy across administrations—as to whether or not there is cause 

or reason to move the court for such a preliminary injunction. 

There can be substantial cost or, alternatively, there can be substantial lost benefits from preventing a transaction from moving 

forward. In particular, if you have a situation where you have a 

very large transaction and we have identified a potential competitive harm in a relatively small portion of that transaction, there 

could be huge efficiencies that will be delayed for however long the 

Tunney Act review takes until a closing is allowed. 

By not getting in the way of that and allowing the parties to 

close, you can allow the realization of those efficiencies in circumstances where we have made the determination and the judgment that we believe the remedy that is on the table will adequately address the threatened harm to competition. 

Chairman KOHL. All right. Mr. Barnett, I would like to turn to 

the issue of media consolidation. Some believe that there is nothing 

special about mergers and acquisitions in the media marketplace, 

that they should be treated just like any other mergers. For example, former Antitrust Chief Charles James said at his confirmation 

hearing in 2001 that the only thing that mattered in reviewing a 

media merger was ‘‘economic consequences of the transaction.’’ 

Many of us would disagree with that. Mergers in the media are different, in our judgment, because they affect competition in the 

marketplace of ideas so central to our democracy. Diversity in 

media ownership is essential to ensuring that competing views are 

heard. I would think you would agree with that. Therefore, I beVerDate 0ct 09 2002 13:26 May 10, 2007 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35073.TXT SJUD1 PsN: CMORC
23

lieve that we must give mergers in the media special and more exacting scrutiny than when we review mergers in other industries 

which do not affect the free flow of information.

Former FTC Chairman Petofsky agrees with this view.

What is your view, Mr. Barnett? And then I will ask you, Ms. 

Majoras. Is the conventional view of antitrust review of media 

mergers focused solely on economic factors and ad rates correct? Or 

do you agree with many that the Justice Department should also 

consider a media merger’s impact on diversity of news and information and not limit your analysis to strictly an economic kind of consideration?

Mr. BARNETT. Well, Mr. Chairman, I could not agree with you 

more strongly that the marketplace of ideas is one of the core values of our political system and one of the fundamental sources of 

strength of our political system. And I believe that those First 

Amendment principles are just—it is impossible to over rate their 

importance. And we do look closely and take very seriously competition issues raised in the media industry. We have taken enforcement actions even recently. In the McClatchy-Knight Ridder 

transaction, for example, we required the divestiture of one of the 

daily papers in Minneapolis. We have other pending investigations 

within the industry because we do take it so seriously.

Your question raises some complicated issues. I would like to 

think that by preserving competition and an effectively free-flowing 

competitive market in the media industries, to the extent that 

there is a demand for a diversity of viewpoints in the populace, 

people will be able to supply a diversity of viewpoints. An effectively functioning market should effectively meet the demands of 

consumers.

I hesitate to say, however, that I as a Government official should 

be in a position of deciding that this particular viewpoint should 

be protected and that particular viewpoint should not be protected. 

And to that extent, I would be very hesitant to get into that kind 

of consideration, but would focus on trying to ensure that there are 

multiple providers in the marketplace and that a freely functioning 

marketplace can respond to the demand for diversity of views.

Chairman KOHL. Ms. Majoras, do you have some opinions you 

would offer?

Ms. MAJORAS. Thank you, Mr. Chairman. There is no question 

that media mergers are extremely important, and I think it is fair 

to say that we give—and I have talked to former Chairman 

Pitofsky about this extensively, and I think it is fair to say that we 

give them a certain type of heightened scrutiny because of their importance to our very democratic underpinnings.

Mr. Barnett is right, though, that we have a certain method for 

reviewing mergers that has been blessed by the court, which, of 

course, has an economic tone to it; but in making sure that, for example, advertisers have plenty of outlets in which to advertise, 

they essentially act as surrogates, so that there are plenty of avenues in the media, not only, of course, to advertise, but, of course, 

you have got to have some content in it to provide that content.

So I think those two view points are not so very far apart at all. 

And I also do—you know, I agreed with Mr. Barnett. We do have 

24

to be careful so that it does not look like Government is regulating 

speech. That you absolutely would not want. And the FCC, of 

course, has a little more leeway probably than we do to look at 

some more content-related issues, although for protection they have 

to do it really out in the open. But they have a public interest 

standard, of course, when they look at media mergers, mergers 

within their jurisdiction. And we do not have such a broad standard within which to review those mergers.

Chairman KOHL. All right. Just to go back to the WhirlpoolMaytag merger, which was approved about a year ago, I understand, shortly after that announcement it was raising prices up to 

12 percent on its washing machines, and it also announced plans 

to cut 4,500 jobs. This all occurred within a matter of months after 

the merger was approved.

Does this massive layoff and the sharp price increase lead you 

to have any reconsideration thoughts in your mind?

Mr. BARNETT. Mr. Chairman, I would require some additional information. With respect to price increases, it is important to note 

that there can, for example, be increases in input costs. It would 

be far more relevant for us to know whether or not the operating 

margins of the company had increased.

In addition, we tend to think in slightly longer time frames than 

1 year. It can take the market a little bit of time to respond, but 

if it does so reasonably quickly or is expected to do so reasonably 

quickly, we would still consider that not a sufficient threat to competition to bring a challenge. And so the short answer is that I 

would need some additional information.

Chairman KOHL. All right. Mr. Barnett, we have received allegations of anticompetitive and monopolistic conduct by DFA, the Nation’s leading milk marketing cooperative. One allegation in Florida 

is that independent dairy co-ops could not have their milk processed in plants affiliated with DFA unless the independent cooperative paid the processor millions of dollars around the cost of processing the milk. It is alleged that this and other anticompetitive 

conduct destroys the ability of independent co-ops to compete and 

ultimately results in higher milk prices to consumers.

Mr. Barnett, we have been informed that the staff of the Antitrust Division recommended to you in September of last year that 

the Justice Department pursue an antitrust case against DFA, but 

that you allegedly have not taken any action on that recommendation.

Question: Is this true? And what is the status of that investigation?

Mr. BARNETT. Well, Mr. Chairman, we do not generally get into 

the specifics of internal deliberations. I will go so far as to say your 

information is not entirely accurate. But it is a pending investigation. We are looking at the milk processing industry, the specific 

issues that you raised, and I continue to be very focused on it.

Chairman KOHL. That is very good.

Well, I thank you both for being here. I think you have shed a 

lot of light on issues that are really important to our society and 

to our consumers, and I appreciate your frankness and your willVerDate 0ct 09 2002 13:26 May 10, 2007 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35073.TXT SJUD1 PsN: CMORC
25

ingness to say what is on your mind. And I think you have made 

real contributions.

This hearing is concluded.

[Whereupon, at 3:45 p.m., the Committee was adjourned.]

[Questions and answers and submissions for the record follow.]

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