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S. HRG. 111–993 

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 ELEVENTH CONGRESS 

SECOND SESSION 

JUNE 9, 2010 

Serial No. J–111–97 

Printed for the use of the Committee on the Judiciary 

( 

(II) 

PATRICK J. LEAHY, Vermont, Chairman 

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 

AMY KLOBUCHAR, Minnesota 

EDWARD E. KAUFMAN, Delaware 

ARLEN SPECTER, Pennsylvania 

AL FRANKEN, Minnesota 

JEFF SESSIONS, Alabama 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MATTHEW S. MINER, Republican Chief Counsel 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

HERB KOHL, Wisconsin, Chairman 

CHARLES E. SCHUMER, New York 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

EDWARD E. KAUFMAN, Delaware 

ARLEN SPECTER, Pennsylvania 

AL FRANKEN, Minnesota 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

TOM COBURN, Oklahoma 

CAROLINE HOLLAND, Democratic Chief Counsel/Staff Director 

JACE JOHNSON, Republican Chief Counsel 

(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, prepared 

statement .............................................................................................................. 98 

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

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 2 

WITNESSES 

Leibowitz, Jonathan D., Chairman, Federal Trade Commission, Washington, 

DC .......................................................................................................................... 6 

Varney, Christine A., Assistant Attorney General, Antitrust Division, U.S. 

Department of Justice, Washington, DC ............................................................ 4 

QUESTIONS AND ANSWERS 

Responses of Jonathan D. Leibowitz to questions submitted by Senator Kohl, 

Hatch, Feingold, Grassley and Cornyn .............................................................. 40 

Responses of Christine A. Varney to questions submitted by Senator Hatch, 

Cornyn, Kohl, Feingold and Grassley ................................................................. 65 

SUBMISSIONS FOR THE RECORD 

Balto, David, Senior Fellow, Center for American Progress Action Fund, 

Washington, DC., statement ............................................................................... 88 

Leibowitz, Jonathan D., Chairman, Federal Trade Commission, Washington, 

DC, statement ...................................................................................................... 100 

National Community Pharmacists Association (NCPA), Alexandria, Virginia, 

statement .............................................................................................................. 117 

Varney, Christine A., Assistant Attorney General, Antitrust Division, U.S. 

Department of Justice, Washington, DC, statement ......................................... 123 

(1) 

OVERSIGHT OF THE ENFORCEMENT OF THE 

ANTITRUST LAWS 

WEDNESDAY, JUNE 9, 2010 

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 2:04 p.m., in room 

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

Present: Senators Kohl, Feingold, Specter, Schumer, Durbin, Klobuchar, Kaufman, Franken, and Hatch. 

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

FROM THE STATE OF WISCONSIN 

Chairman KOHL. Good afternoon to one and all. Today’s hearing 

is the Subcommittee’s first oversight hearing to examine the enforcement of our Nation’s antitrust laws under this administration. 

No topic could be more central to those who believe in the vital 

role played by antitrust policy to protect consumers. Vigorous and 

aggressive enforcement of our Nation’s antitrust laws is essential 

to ensuring that consumers pay the lowest possible prices and gain 

the highest quality goods and services. And it is the Justice Department’s Antitrust Division and the Federal Trade Commission 

whom we rely on to protect consumers from the excesses of monopoly, from industry concentration resulting from mergers, and from 

other anticompetitive road blocks to full and fair competition. 

Assistant Attorney General Varney and Federal Trade Commission Chairman Leibowitz, we are pleased to have you both with us 

here today so we can fulfill our oversight duties and discuss the 

pressing competition issues that have such a profound impact on 

consumers’ wallets. 

Antitrust enforcement was sorely in need of revival, in my opinion, at the beginning of this administration. At our last antitrust 

oversight hearing in March of 2007, we observed sharp declines in 

antitrust enforcement at the Justice Department in both the number of investigations initiated and the number of merger challenges 

brought. Mergers among direct competitors in highly concentrated 

industries affecting millions of consumers were approved, and anticompetitive practices went unchallenged. This hastened the dangerous consolidation trend in many key industries. And we all saw 

the consequences of allowing firms to grow ‘‘too big to fail’’ during 

the financial crisis of 2008 and 2009. 

2 

Today we continue to hear calls from certain quarters that antitrust is not an appropriate tool to ensure competition in today’s 

high-tech economy and that antitrust enforcement can chill innovation. While we must be balanced and fair in our approach, I believe 

antitrust is as essential to protect competition with respect to today’s Internet and telecom sectors as it was to the railroad industry of more than a century ago. Without antitrust enforcement 

against IBM, would Microsoft have ever emerged? And without 

antitrust enforcement to prevent Microsoft from illegally maintaining its monopoly, would today’s Internet and high-tech giants Goggle and Apple have thrived in the first place? 

Time and again, antitrust enforcement has shown itself to be essential to breaking up anticompetitive road blocks and unfetter the 

marketplace to allow new competitors and new business models to 

emerge, all to the benefit of consumers. So it is my view that the 

present is not the time for Government to take a cramped or a limited view of antitrust enforcement. 

I see no contradiction between support for antitrust enforcement 

and support for our free market capitalist economy. Indeed, viewed 

properly, antitrust is a free market alternative to governmental 

regulation. In the words of the Supreme Court, antitrust is ‘‘a charter of economic liberty.’’ 

So we hope that both of you, Ms. Varney and Chairman 

Leibowitz, always remember that your positions carry a special responsibility. Your positions are a public trust to ensure that competition may flourish and anticompetitive abuses are prevented. 

Millions of consumers depend on your efforts and your judgment to 

ensure that the economy is sufficiently vibrant to keep prices low 

and quality high. You both have inherited a proud legacy at the 

Antitrust Division and the FTC, and it is my sincere hope and full 

expectation that you will always strive to uphold this legacy in the 

years ahead. We are looking forward to your testimony. 

Now I call on the Ranking Member, Senator Hatch, for his comments. 

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

THE STATE OF UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. And I welcome 

both of you. I have great fondness for both of you and appreciate 

the very difficult jobs you have. So I want to thank you, Mr. Chairman, for holding this hearing. I also want to thank our distinguished panel for coming to participate in these proceedings. 

Oversight of Federal agencies is one of Congress’ most important 

responsibilities, and given the state of our economy, I would say 

that oversight in these agencies is particularly important. That 

being the case, I hope we can have a through and productive discussion of the relevant issues today. 

The Antitrust Division of the Justice Department and the Federal Trade Commission are charged with protecting competition in 

the American marketplace. This is a vital and important task. It 

is a fundamental American value that those who exercise creativity, innovation, hard work, and efficiency should be rewarded 

in the marketplace. However, these rewards can be reduced, stifled, 

or blocked altogether if there is not competition in a free and open 

3 

market. While some of us may disagree as to how the agencies 

should go about enforcing our antitrust and competition laws, I 

think we would all agree that competition is essential to maintaining a strong and a vibrant economy. 

There are a number of issues that I hope we will get a chance 

to talk about in today’s hearing. For example, the FTC has signaled 

its intention to pursue more antitrust and competition enforcement 

through Section 5 of the FTC Act rather than the Sherman and 

Clayton Acts. Quite frankly, I am concerned about this development. There is a long line of case law surrounding both the Sherman and the Clayton Acts which has provided businesses with substantial guidance in their efforts to comply with the law. Section 

5 of the FTC Act, by comparison, has a much thinner jurisprudential record. 

Some have argued that increasing the use of Section 5 particularly to address conduct that has traditionally fallen under one of 

the other antitrust statutes has the potential to create uncertainty, 

which is harmful to growth and innovation. It can also lead to 

abuse if it is not subjected to clear, specific standards and if the 

remedies that are sought are not appropriate to the conduct at 

issue. 

These concerns are even more relevant when we consider that 

over the past few years we have been working to ensure that 

American businesses are not disadvantaged in foreign markets by 

poorly defined competition laws and lack of due process. 

I look forward to hearing more about the agencies’ efforts to address the problems of our Nation’s businesses, and especially with 

regard to overseas markets. And in that same vein, I hope we can 

work together to ensure that our antitrust enforcement practices 

serve as a model for foreign governments as well. 

I also look forward to hearing more about the efforts of the Justice Department in the antitrust arena. Since our last oversight 

hearing, we have seen a different administration take the reins. 

Many on this panel and a number of people who are now working 

for the Obama Justice Department had no shortage of criticism for 

the efforts of the Bush Justice Department when it came to antitrust enforcement. In fact, in many circles, including among some 

of my colleagues here in the Senate, it was considered common 

knowledge that the Bush administration was too lenient in antitrust enforcement and was too eager to give big business a pass 

when it came to anticompetitive conduct. And while I did not really 

share this view at the time, I am interested to learn more about 

what has changed since the Antitrust Division came under new 

management in 2009. 

Finally, because I know that many who are present here feel 

strongly about this issue, I would like to just mention the issue of 

pay-for-delay patent settlements. There is near universal agreement on the need to eliminate settlements which are designed to 

harm consumers by delaying the entry of lower-priced generic 

drugs. These so-called pay-for-delay settlements are anticompetitive and wrong. They do nothing to promote the best interests of 

consumers, and they go against the fundamentals of our patent 

system and the laws in place to protect innovation. But I do not 

believe we should be working to eliminate beneficial patent stateVerDate Nov 24 2008 08:10 Jul 05, 2011 Jkt 066454 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\66454.TXT SJUD1 PsN: CMORC
4 

ments that bring competition to the market years before they 

might otherwise become available to consumers. Imposing undue 

hurdles on settling parties could effectively discourage pro-consumer statements and create uncertainty among industry participants, their investors, and the public. And that uncertainty as to 

the duration of patent protection, ability to resolve good-faith disputes, and investment in new applications for existing medicines 

will have a significant adverse effect on innovation and the quality 

of health care in the United States. 

Now, Mr. Chairman, these are just some of the issues that I hope 

to be able to discuss today. Once again, I would like to thank both 

Chairman Leibowitz and Assistant Attorney General Varney for 

being present at today’s hearing. I have respect for both of you and 

will always show the utmost respect that I can. And I look forward 

to an open and honest discussion on these important matters. 

Thank you for holding this hearing. 

Chairman KOHL. Thank you very much, Senator Hatch. 

I would now like to introduce today’s distinguished panel of witnesses. 

Our first witness will be Christine Varney. Ms. Varney was confirmed as Assistant Attorney General for the Antitrust Division in 

April 2009. Prior to her appointment, Ms. Varney was a partner at 

the law firm Hogan & Hartson and also served as a Federal Trade 

Commissioner from 1994 to 1997. Before becoming a Federal Trade 

Commissioner, Ms. Varney served as Assistant to the President 

and Secretary to the Cabinet during the Clinton administration. 

Next we will hear from Jon Leibowitz. Mr. Leibowitz has served 

as Chairman of the Federal Trade Commission since March of 2009 

and as a Commissioner since 2004. Before joining the Commission, 

he was Vice President for Congressional Affairs for the Motion Picture Association of America. Mr. Leibowitz was my chief counsel 

from 1989 through 2000 and the Democratic counsel and staff director of the Antitrust Subcommittee from 1997 through 2000. 

We thank you both for appearing here, and we are looking forward to taking your testimony. Ms. Varney, we will hear from you 

first. 

STATEMENT OF HON. CHRISTINE A. VARNEY, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, U.S. DEPARTMENT 

OF JUSTICE, WASHINGTON, D.C. 

Ms. VARNEY. Good afternoon, Chairman Kohl and members of 

the Subcommittee. It is a pleasure to be here today with my colleague and friend, Chairman Leibowitz, whom I think has the 

home court advantage. And I am delighted that we are going to be 

able to talk to you about our work over the last year. 

Competition is a cornerstone of our Nation’s economic foundation. At the Antitrust Division, we use sound competition principles 

and antitrust precedent to evaluate each matter carefully, thoroughly, and in light of its particular facts. Our enforcement helps 

keep markets competitive, promotes consumer welfare, and spurs 

innovation. We appreciate this Subcommittee’s active interest in— 

and strong support of—our law enforcement mission. We are particularly thankful that you and this Committee and Senator Reid, 

5 

with the support of the Obama administration, led the effort to 

eliminate antitrust immunity for the health insurance industry. 

At the DOJ we have two department-wide initiatives that complement the Antitrust Division’s work. The first is the Intellectual 

Property Task Force, which is a department-wide effort focusing on 

the protection of IP rights. The IP Task Force works with the 

White House Office of Intellectual Property to improve the efficiency and effectiveness of IP enforcement both here and abroad. 

The second effort is the Financial Fraud Enforcement Task 

Force, an interagency group led by the Justice Department with active participation from the SEC, Treasury, and HUD on the Steering Committee and the FTC as a very active partner. Established 

by Executive Order, the Financial Fraud Task Force seeks to 

strengthen the Government’s efforts to combat financial crime. 

Merger enforcement continues to be a core priority for the Division. We are committed to blocking mergers that will substantially 

reduce competition. For instance, we are litigating a case involving 

the Nation’s largest dairy processor, seeking to restore competition 

so that schools, grocery stores, and consumers in Illinois, Michigan, 

and Wisconsin will pay lower prices for milk. 

Our intent to challenge in Michigan Blue Cross/Blue Shield’s acquisition of Physicians Health Plan led the parties to abandon that 

deal. If consummated, their proposed merger would have resulted 

in Blue Cross controlling 90 percent of commercial health insurance in Lansing. In both matters, we coordinated closely and successfully with the State Attorneys General. 

We have also settled cases when our competitive concerns can be 

addressed. In the Ticketmaster settlement, the merged company 

will divest more ticketing assets than it gained through the merger 

and subject itself to tough antiretaliation and anticompetitive bundling restrictions. At the same time, I want to underscore that we 

are committed to quickly closing investigations of mergers that do 

not threaten consumer harm, such as Oracle’s acquisition of Sun 

and Microsoft’s joint venture with Yahoo. 

In our criminal program, we continue to uncover and prosecute 

a number of cartels that inflict significant competitive harm. These 

efforts were recently enhanced by Congress’ extension of the Antitrust Criminal Penalty Enhancement and Reform Act. Again, we 

thank you for leading the effort to extend that program through a 

10-year reauthorization. 

Our recent prosecutions have resulted in significant fines and jail 

time. In 2009, the Division obtained more than $1 billion in criminal fines. 

Our civil non-merger program remains active as well. In addition 

to our ongoing investigations, which I cannot discuss, let me mention just two matters that we have settled. The first concerns the 

largest seller of electricity capacity in New York City. In that case, 

we alleged that Keyspan engaged in anticompetitive swap transactions that likely increased electricity prices. That settlement, now 

pending, includes a $12 million disgorgement payment. 

The second case, which is also pending, enjoins a group of Idaho 

surgeons who organized a boycott of Idaho’s workers’ compensation 

system, essentially refusing to treat injured workers. 

6 

The Division has stepped up its efforts to strengthen markets 

and preserve economic freedom and fairness. Promoting competition principles through broad advocacy efforts and regulatory outreach is one of our highest priorities. As a result of our enforcement efforts, the Antitrust Division has gained enormous insight 

into the competitive dynamics of many industries. The Division 

works actively with a broad range of Federal and State agencies to 

promote competition across a number of vitally important industries in our economy, including transportation, energy, telecommunications, agriculture, and finance. 

Mr. Chairman and members of the Subcommittee, my first year 

in the Department has been remarkable. Working with the Justice 

Department on Attorney General Holder’s team and closely with 

the dedicated men and women of the Division, we are doing all we 

can to ensure that the competitive playing field is open and fair, 

giving consumers more and better choices. I look forward to year 

two and continuing what we have started. 

That concludes my remarks. I have also provided a written statement that describes some of our matters in more detail. I am grateful to have the opportunity to speak with you, and I look forward 

to answering your questions. 

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

for the record.] 

Chairman KOHL. Thank you very much, 

Ms. VARNEY. Chairman Leibowitz. 

STATEMENT OF HON. JONATHAN D. LEIBOWITZ, CHAIRMAN, 

FEDERAL TRADE COMMISSION, WASHINGTON, DC 

Mr. LEIBOWITZ. Thank you, Chairman Kohl and Ranking Member Hatch and Senators Specter and Franken, for inviting me to 

testify today. As you already have my written statement, let me 

spend my allotted time talking about just a few of the interesting 

issues that we are focusing on right now. 

As a starting point, let me note that after a several-year losing 

streak, we have won a handful of merger cases in a row. These 

deals include the proposed Thoratec acquisition of HeartWare, 

which would have combined the only two producers of critical heart 

devices used by patients waiting for a heart transplant. By challenging this transaction—it was abandoned by the parties after we 

challenged it—we ensured that patients would have more choices, 

prices would be reduced, and innovation increased. 

We have been aggressive when we find mergers that we think 

will decrease competition. But just as important, we are not afraid 

to hold off when we think that a major deal is not going to cause 

consumer harm. A recent example of this is Google/Admob, which 

we investigated thoroughly but unanimously decided not to challenge. We are not perfect, of course, but I do believe we are striking 

a pretty reasonable balance to protect consumers, yet still allow 

businesses latitude to combine, when appropriate. 

Right now the top competition priority at the Commission is to 

stop pay-for-delay agreements between brand name and generic 

drug makers. We estimate that these sweetheart deals cost consumers $3.5 billion each and every year. And by now you are familVerDate Nov 24 2008 08:10 Jul 05, 2011 Jkt 066454 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\66454.TXT SJUD1 PsN: CMORC
7 

iar with the story. Brand name drug companies sue generic companies claiming that the generic is violative of their patent, and then 

they turn right around and they settle these cases by paying off the 

generic not to compete. It is win-win-lose: win for the brand companies because they continue to get monopoly pricing; win for the generic companies because they collect a big fat paycheck from the 

brand; and a loss for the consumers because they keep paying high 

prices for their medicines. On all counts, it is a bad outcome. Since 

a few misguided court decisions in 2005, the problem has only gotten worse. Because of our enforcement efforts, there was not a single pay-for-delay agreement in 2004. Before those decisions, there 

were plenty of settlements. But last year, because of those decisions, there were 19 suspect settlements, as you can see from that 

chart. 

Every single FTC Commissioner going back through the Bush 

and to the Clinton administrations has supported stopping these 

unconscionable agreements, and more and more others are coming 

around to our view. Under Assistant Attorney General Varney, the 

Department of Justice position has evolved considerably, and it 

now agrees that pay-for-delay settlements are presumptively anticompetitive. The Second Circuit recently encouraged plaintiffs in a 

pay-for-delay case to request en banc review of a previous ruling 

that would allow these deals. As members of this Committee know, 

circuit courts do this only rarely, and it is often a sign that they 

are ready to reverse a previous position. We will know that soon 

enough. But we also know litigation can take a long time, and it 

would be much faster and more direct to enact legislation to end 

this extortionate practice. We greatly appreciate the leadership of 

the Judiciary Committee to support this legislation, and I appreciate your remarks, Senator Hatch, because I know you are struggling with this, and you were one of the leaders of the Medicare 

Modernization Act provision in 2003 that gave us these deals to review. 

Let me also discuss the Commission’s increasing use of our Section 5 unfair methods of competition authority, which allows us to 

go beyond the ambit of the antitrust laws to protect consumers. 

Congress granted us this authority in 1914, and it balanced it by 

limiting the remedies available under Section 5. In recent years, 

Section 5 has been used sparingly since lower courts in the late 

1970s rejected some applications of Section 5 when the antitrust 

laws were viewed much more broadly and I would say in some 

ways too broadly. 

But since that time, the courts have restricted the range of antitrust to some extent as a result of the Chicago School, which, to 

its credit, has emphasized rigorous economic analysis as well as efficiencies, and to some extent in reaction to the costs of class actions and private treble damage litigation. But for whatever the 

reason, the result of these changes has been to limit Federal enforcement agencies, which have no treble damage authority, in our 

efforts to protect American consumers. 

Section 5, carefully applied—and it needs to be—is practically 

tailor-made for this situation. It can effectively protect consumers, 

but it is not an antitrust law so it does not by its own terms create 

treble damage liability. So we have broad bipartisan support within 

8 

the Commission to use Section 5 in appropriate circumstances, and 

we are going out and re-using it. 

For example, just today, the Commission filed a Section 5 case 

and reached a settlement with U-Haul in an invitation-to-collude 

case where a U-Haul executive asked Budget, its competitor, to fix 

prices on rental trucks, something that would affect everyday consumers directly and meaningfully. When the Commission sees conduct like this, we are going to go after it aggressively, and Section 

5 is going to be an important tool in our arsenal, and our vote 

today was 5–0. It was unanimous and bipartisan. 

I would also like to talk very quickly about another issue that 

we spend a lot of time on, and that is gasoline prices. When the 

price of gasoline hit $4 a gallon in mid-2008, every household in 

the country felt the impact. Everyone in this room did. And we realize how important it is for American consumers that petroleum 

markets are competitive. Unfortunately, as the members of this 

Committee know all too well, much of the price of gas is driven by 

the price of crude oil, which means that OPEC has a lot of control 

and there is not much we can do about it. But we have added to 

our arsenal by adopting a rule in the last year that prohibits the 

manipulation of wholesale petroleum markets and allows us to find 

violators. 

Finally, very quickly, let me mention the revision of the horizontal merger guidelines. It is a very significant project. We work 

very closely with Assistant Attorney General Varney, who did a 

terrific job, to issue—and we just issued draft guidelines. It was a 

very transparent process, and we hope to issue final guidelines 

fairly soon. 

From my perspective, the changes reflect common sense, smart 

economics, and solid antitrust policy. The Commission is doing a lot 

of other important work that I would be glad to discuss, including 

an initiative on the future of news. But at this point I think I will 

stop, and I am happy to answer any questions. Thank you. 

[The prepared statement of Mr. Leibowitz appears as a submission for the record.] 

Chairman KOHL. Thank you very much, Commissioner 

Leibowitz. 

We will now have rounds of questions of 8 minutes. 

Ms. Varney, one matter which disappointed some advocates of 

strong antitrust enforcement was the Justice Department’s decision 

to approve the Ticketmaster/Live Nation merger subject to conditions rather than to challenge the deal in court. Your critics note 

that this deal combined the Nation’s dominant live-concert ticket 

seller with the Nation’s leading owner of concert venues which had 

recently launched a competing ticket business. They contend that 

the combination of these two companies will make it very difficult 

for any new national ticket competitor to emerge. So the question 

is: Given that great concern, which I think was fairly legitimate, 

why did you approve the merger? 

Ms. VARNEY. Senator, we were equally concerned about that 

transaction, and we were absolutely prepared to litigate the transaction because we thought it did present potential anticompetitive 

concerns. The parties were aware fully of our intent to block the 

transactions and continually worked to address our concerns. 

9 

As you may be aware, there are essentially three components— 

and I would not say we approved the merger. I would say we were 

prepared to challenge and went ahead and settled on terms that 

dramatically altered the terms of the transaction. 

First, Ticketmaster had to divest a very large ticketing asset. 

That is the Paciolan ticketing platform that will be going to a very 

large competitor that can and most likely, we hope, will enter the 

ticketing market. 

Second, Ticketmaster had to divest its technology—not divest but 

license its technology in ticketing to create platforms for others to 

compete on ticketing. 

And, finally, when it came to the venues and promoters, we were 

quite concerned that Ticketmaster might engage in anticompetitive 

bundling or retaliatory activity. When the parties came forward 

with what I believe are very tough divestitures, licensing, and remedies that we believed addressed our concerns and protected consumers, we believed the right thing to do was to settle the case 

based on what our concerns were. 

I hope—I think—we got a good deal for American consumers. We 

would like to see a lot of competition in that ticketing space. 

Chairman KOHL. All right. Ms. Varney, the Justice Department 

and the USDA have been conducting a series of workshops examining antitrust enforcement in agriculture, as you know. The next 

one is slated for Madison, Wisconsin, later this month to discuss 

the dairy industry, which I hope to attend if the Senate schedule 

permits. We are pleased about the emphasis you are placing on 

this issue. It is my view that we need increased focus on competition in agriculture to ensure that our farmers and our ranchers get 

fair prices for their products. 

What have you learned from the workshops so far? Is there a 

lack of free and fair competition in agriculture? And if so, what can 

the antitrust enforcers at the Justice Department do about it? 

Ms. VARNEY. Well, Senator, as you recall, this was a matter of 

great concern to many members of the Subcommittee during my 

confirmation hearing, and I committed to you that I would take a 

hard and careful and close look at that. And we have been doing 

that. 

I went to Vermont with Senator Leahy and Senator Sanders and 

looked at some of the dairy issues in Vermont. I have been to upstate New York with Senator Schumer to look at some of the issues 

there. I would be happy to go to any of your States with you should 

that be appropriate. We will be coming out—we have done a very 

large workshop in Iowa with Senator Grassley and looked at some 

of the issues confronting the grain and seed industry there. We 

were recently in Normal, Alabama, where we spent the day with 

poultry farmers. And we are learning a lot. 

There is a lot of consolidation in what we think of as the middle 

of the market between the farmer and the consumer. A lot of that 

has occurred over the last decade. Some of it has brought tremendous efficiencies to the market. At the same time, it may have reduced competition at the input level, at the production level. 

So we are continuing these workshops. We will go wherever they 

lead us. I have not reached any conclusions whatsoever about what 

may or may not be anticompetitive in a particular industry. 

10 

However, as you know, we have challenged the Dean Food acquisition, and we believe that that was anticompetitive, and we will 

continue to challenge those practices or those acquisitions that we 

believe are anticompetitive. 

Chairman KOHL. With respect to milk, is that Dean Foods challenge your response to my question about dairy farmers and whether they are getting a fair price for their product? 

Ms. VARNEY. The Dean Foods is a challenge where we believe 

that the acquisition created an anticompetitive effect because there 

was too much concentration. Our view is always the more competition there is for farmers to deliver their milk, the better the pricing 

situation will be. So, yes, we will continue to challenge those either 

acquisitions or circumstances that we believe are anticompetitive. 

Chairman KOHL. Chairman Leibowitz, for nearly a century, it 

was a basic rule of antitrust law that a manufacturer could not set 

a minimum price for a retailer to sell its product. This rule allowed 

discounting to flourish and greatly enhance competition for dozens 

of consumer products on everything from electronics to clothes. But 

in 2007, a 5–4 decision of the Supreme Court, the Leegin case, 

overturned this rule and held that vertical price fixing was no 

longer banned in every case. 

I believe this decision is very dangerous to consumers’ ability to 

purchase products at discount prices and it is harmful to retail 

competition. I have introduced legislation to overturn the Leegin 

case and restore the ban on vertical price fixing. We have ten cosponsors, and it passed the Judiciary Committee several weeks 

ago. 

Do you agree with me on the principle that manufacturers’ setting retail prices should be banned? Do you support our Discount 

Pricing Consumer Protection Act? 

Mr. LEIBOWITZ. Well, there are a range of views on the Commission, but I certainly support overturning Leegin. I thought that the 

four-person minority had the more persuasive view and that Dr. 

Miles should not have been overturned. It had been the law for 

close to 100 years, so I do support overturning Leegin. 

The place where we do have consensus at the FTC is that there 

is still room for RPM enforcement. We had an RPM investigation 

last year. It did not pan out. But we do support a higher standard, 

and we want to work with you going forward. 

Chairman KOHL. In your case, at your confirmation hearing you 

said that there was room under existing law that the Justice Department pursue retail price maintenance cases. Do you still feel 

that way? Are you intent on moving forward on this? Where are 

you on this? 

Ms. VARNEY. Absolutely, Senator. I believe retail price maintenance can be anticompetitive, and we work closely with the FTC, 

who generally takes the lead on these issues. We provide any support that we can to them. We work with the States on this. We 

think that absolutely RPM should continue to be enforced and prosecuted, and we will continue to devote the resources to do so. 

Chairman KOHL. Is it fair to say that you are not a fan of the 

Leegin decision? 

Ms. VARNEY. I tend to agree with the Chairman that I think the 

dissent was the stronger of the two positions. 

11 

Chairman KOHL. Thank you so much. 

We turn now to Senator Hatch. 

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

Let me start with you, Mr. Leibowitz, Chairman Leibowitz. You 

mentioned in your testimony that you are actively pursuing two 

cases which you assert are pay-for-delay cases. Court papers recently filed by Watson Pharmaceutical’s CEO—Paul Bisaro is his 

name, I believe—alleged that the FTC threatened to initiate an investigation of Watson if the company did not waive its exclusivity 

rights to a generic version of Provigil so that a foreign competitor 

could enter the market. 

Now, the court brief includes the following allegations: ‘‘That the 

FTC obtained confidential information from the FDA and shared 

that information with Watson and Apotex.’’ 

The next paragraph, ‘‘That the FTC obtained confidential information from Watson and apparently shared it with Watson’s competitor, Apotex.’’ 

And then one more: ‘‘That Markus Meier, Assistant Director of 

the FTC Bureau of Competition’s Health Care Division, asserted 

that FTC’s ‘front office’ would open an investigation of Watson if 

Watson did not relinquish its potential exclusivity rights.’’ 

Now, Chairman Leibowitz, what concerns me is that the FTC apparently did not deny any of these allegations. Were you aware of 

Mr. Meier’s actions in this matter? And can you look into these allegations and provide me with more information about what happened? 

Mr. LEIBOWITZ. We would be happy to do that, and the reason 

we have not responded to this yet is because that was a filing by 

a company, Watson, in the AndroGel case, and it is a filing in response to our insistence that we allow—that the CEO be subpoenaed. So it is one thing for a company to disagree with our case. 

You have a right to say this is not a pay-for-delay or a reverse payment case, and that is fine. It is another thing, as I understand it, 

not to even be deposed. 

So we are going to respond in court papers. We are going to take 

a look at this. I am going to get back to you. Markus Meier is a 

very, very good and experienced litigator. He runs our health care 

practice, and I do not believe that he would ever breach a confidentiality. But we are going to take a look at that because I think that 

is important. 

Senator HATCH. Well, I think you ought to take a look at it. 

Mr. LEIBOWITZ. We will, absolutely, Senator. 

Senator HATCH. I do not know what the case is. 

Let me ask you, Assistant Attorney General Varney, as you 

know, many U.S. corporations have faced difficulty as they have 

interacted with foreign competition and enforcement and regulatory agencies. Many of these companies have expressed concern 

that the foreign agencies have used their authority specifically to 

disadvantage American businesses. And there have been questions 

as to whether the foreign agencies have provided adequate due 

process to American companies and whether they have applied 

sound antitrust principles in their investigations and enforcement 

proceedings. 

12 

Now, you have spoken about the need for greater convergence 

and transparency in the international antitrust enforcement. What 

problems do you see on the horizon resulting from the diverse and 

often disparate antitrust approaches throughout the world? And do 

you believe the concerns that some companies have had regarding 

due process with overseas agencies are legitimate? 

Finally, can you tell this Subcommittee what specific steps the 

Department of Justice has taken in this area and whether there is 

a role for any other agencies in helping you to address these concerns? 

Ms. VARNEY. Certainly, Senator. I have heard the same concerns 

that you have from many global corporations headquartered here 

in the United States that do business around the world, and obviously it is a great disadvantage to business to not have certainty, 

predictability, and transparency as they are doing business around 

the world. 

It is something that, as you mentioned, I have spoken out about 

now quite frequently. In two international forums—the International Competition Network and the OECD in Paris—we, the 

United States, are leading an effort to inform jurisdictions around 

the world to create a dialog on what is due process, what is transparency, what is procedural fairness, what are the best practices so 

that we can create predictability and stability in an increasingly 

global world. 

I believe it has to be an administration-wide effort. We are coordinating with the Federal Trade Commission, obviously, with the 

State Department, with the Department of Commerce, and with 

the USTR as we continue to push forward in our dialogue with our 

international colleagues. 

As a matter of fact, Senator, at the Department of Justice we 

have, in an unprecedented move, hired a European lawyer to help 

us at the DOJ go not only to Europe but to other jurisdictions and 

work on these issues, and I think we have made tremendous 

progress in that effort. But we have a lot more to do. 

Senator HATCH. OK. Thank you. 

Mr. LEIBOWITZ. If I can just add, Christine, Assistant Attorney 

General Varney, is doing a wonderful job here leading our effort, 

and we have worked together also with the business community in 

different countries, too, to try to ensure procedural due process, because it is obviously very, very important to American companies. 

It is very, very important to any company. 

Senator HATCH. Thank you. Let me go back to you, Mr. Chairman. As I mentioned in my opening statement, I have serious concerns about the FTC’s decision to bring what are essentially antitrust cases under Section 5 of the FTC Act rather than under the 

Sherman Act. Now, you have answered that to a degree. You touch 

on this issue in your written statement as well. 

My concern is that there is a breadth of case law under the Sherman Act that gives businesses clear guidance as to what types of 

conduct are lawful or unlawful. So given the proper legal guidance, 

a company is able to operate its business with general assurance 

that its conduct is lawful under the antitrust laws. 

However, it does seem to me that with the FTC’s decision to 

start bringing cases under Section 5 of the FTC Act, these compaVerDate Nov 24 2008 08:10 Jul 05, 2011 Jkt 066454 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\66454.TXT SJUD1 PsN: CMORC
13 

1 51 Cong. Rec. 11,236 (1914) (statement of Senator Cummins). 

nies may find themselves facing FTC complaints for conduct that 

they had good reason to believe was allowable under the law. Now, 

this is mostly due to the fact that Section 5 has an extraordinarily 

thin record of jurisprudence, giving the FTC extraordinary leeway 

to bring cases and to find on its own what types of competitive conduct are illegal. 

Now, is this a legitimate concern? And should we not be concerned—— 

Mr. LEIBOWITZ. Well, I think—— 

Senator HATCH. Let me just finish the rest of it. Should we not 

be concerned that the uncertainty inherent in the FTC’s use of Section 5 will prevent businesses from competing aggressively? 

Mr. LEIBOWITZ. Well, I think it is a legitimate discussion for debate, and I am glad you raised it. 

If you go back and you look at Supreme Court cases—and the 

last two times the Supreme Court has opined on unfair methods 

of competition—in the Sperry & Hutchinson case in 1972 in which 

the FTC was a party, and in Indiana Federation of Dentists—they 

recognized the breadth of unfair methods of competition, that it is 

a penumbra around the antitrust laws, at the same time with limited remedies. And I went back and I pulled—I only wish Senator 

Grassley was here, because I pulled a quote from Senator 

Cummins, who was a Republican of Iowa and was the lead author 

of the FTC Act. This is from the debate—and then he became the 

Chairman of the Judiciary Committee. And this is from the debate 

in 1914, and he said, ‘‘What is the concept of unfair methods of 

competition? ’’ 

Well, unfair methods of competition—and I quote, and I will put 

this in the record with a cleaner copy—‘‘seeks to go further and 

make some things offenses that are not now condemned by the 

antitrust law. That is the only purpose of Section 5—to make some 

things punishable, to prevent some things, that can not [sic] be 

punished or prevented under the antitrust law.’’ 1 Because at that 

time I think the Congress was very concerned about the enforcement of the antitrust laws by the courts, and they wanted to give 

a new agency expanded jurisdiction, but, again, limited remedies. 

I agree with you, though, that you need to have standards. You 

do not want—I mean, we have talked, and when I was on this 

Committee, we talked many times about the need for business certainty. So I think the conduct has to be unfair. It has to be something like deceptive conduct. There has to be harm to the competitive process. 

In cases like the U-Haul case we brought today, I think everyone 

agrees it is an important gap filler. You do not want invitations to 

collude where one company invites another company to fix prices. 

In cases involving other uses of unfair methods of competition, 

it can be a little dicey. I do not want to talk about any pending 

cases, of course, but we used the unfair methods of competition authority a couple of years ago in a case involving N-Data. Now, this 

involved a standard-setting case for ethernet ports. We all use 

ethernets when we are traveling and plug in our computers to go 

on the Internet. And one company had said to every company, ‘‘You 

14 

can use our standard or our patent and’’—‘‘You can use our patent, 

and we will not charge you any royalties.’’ And everyone wrote to 

that standard. It was the new standard. They then sold the patent 

rights to another company, which then sold it to another company, 

which then said, ‘‘Pay us money.’’ And at this point there had already been lock-in. 

And so from our perspective, what we want to do is stop anticompetitive behavior. In this instance, there was not a monopolization claim because the monopoly power came long before the reneging on the commitment. And so, you know, we are taking this very 

carefully as we go forward. We have held a series of workshops. We 

are going to be writing a report on this issue. And we are going 

to use it carefully because we know that Congress can take away 

any authority it gives us. So we are going to try to use it judiciously. But we can keep on having this discussion, I think, and I 

look forward to it. 

Senator HATCH. Let me just mention three things I am concerned 

about. Should we not be concerned that the uncertainty inherent 

in the FTC’s use of Section 5 will prevent businesses from competing aggressively? Also, in your opinion, does the FTC have the 

authority under Section 5 to unilaterally establish new competitive 

norms? And what are the outer limits of Section 5, and who ultimately decides what those limits are? 

Mr. LEIBOWITZ. Well, of course, ultimately it will be the courts 

that decide, because if we bring a case within the FTC, there is an 

appellate court that the case will ultimately go to. And if we bring 

a Section 5 case outside of the Federal Trade Commission and in 

court, it will be the district court and then an appellate court that 

will make that determination. 

But, again, you know, we have—— 

Senator HATCH. Let me just interrupt you. 

Mr. LEIBOWITZ. Sure. 

Senator HATCH. Are you basically saying that the parties 

charged under Section 5 will have to go through a trial and appeal 

just to find out what the law is? 

Mr. LEIBOWITZ. No, no, no. I do not think anyone—I just want 

to say this, and I know that there is some concern about our use 

of Section 5, and anyone has a right to raise that, and of course, 

when you were laying the groundwork for the Microsoft case, I 

think people were very concerned about what the Judiciary Committee was doing, and they had a right to do that, too. 

I do not think any company would be surprised, and I have yet 

to meet a company that was surprised, by our application of unfair 

methods of competition to the conduct that we believe violates the 

FTC Act. And, again, ultimately we are not the arbiters of this. It 

is going to be the courts. But we want to stop anticompetitive conduct that could raise prices, that could reduce innovation, that 

could reduce choices. And it is extraordinarily important, I think, 

that particularly—and, again, what the Chicago School did—and I 

want to go back to this, because in the 1960s and 1970s, there was 

no need to use our unfair methods of competition authority or little 

reason to use it because the antitrust laws were read so broadly. 

Now we have seen those laws circumscribed, I think for some very 

good reasons, and, again, the Chicago School’s emphasis on effiVerDate Nov 24 2008 08:10 Jul 05, 2011 Jkt 066454 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\66454.TXT SJUD1 PsN: CMORC
15 

ciencies and rigorous economic analysis is a good thing. But having 

said that, you want us to stop anticompetitive conduct that harms 

consumers. That is what we are trying to do in an area where antitrust has been limited, particularly because of treble damages, 

which we are not able to get. It is appropriate, I believe, and I 

think the majority, a bipartisan majority of the Commission believes for us to use this authority on occasion. Not always. 

Senator HATCH. Thank you. 

Chairman KOHL. Thank you, Senator Hatch. 

I will now call on Senator Franken. 

Senator FRANKEN. Thank you, Mr. Chairman. This is for the Assistant Attorney General. 

Ms. Varney, as you may know, I am very interested and concerned about the potential merger of Comcast and NBC Universal, 

and I know that you cannot discuss the specifics of the Comcast/ 

NBC Universal merger, but I want to talk to you a bit about my 

concerns and ask a few questions about the way the Department 

of Justice analyzes antitrust actions certainly in this field. 

I have said this before, but I cannot say it enough. It matters 

who runs the media companies. The media are our source of information. They are the way we learn about the world and how we 

understand the world. So it is a problem when the same company—to me it is—It is a problem when the same company produces the programs and runs the pipes that bring us those programs. 

Now, I was working at NBC when Fin-Syn, the Financial Interests and Syndication, Rules were rescinded. Fin-syn had existed to 

prevent a conflict of interest. Networks were not allowed to own 

more than a very small number of their own shows. 

NBC promised at the time of the hearings about fin-syn that rescinding fin-syn would not change the way NBC treated other companies’ programming. They said, ‘‘We are not going to choose our 

own programming over someone else’s programming. Why would 

we do that? Our interest is in ratings.’’ 

My first question to you is: Do you know what happened after 

fin-syn was rescinded on the networks? 

Ms. VARNEY. They relatively promptly favored their own programming. 

Senator FRANKEN. Relatively promptly, like immediately. That is 

exactly right. And I say this as background so that you understand 

my inherent distrust of NBC’s and Comcast’s promises. It is just 

too easy for a media company that owns its own programming to 

favor that programming. That is a big problem for consumers who 

get less information and from fewer sources. 

My experience has been that media consolidation creates more 

media consolidation. When fin-syn was abolished, it meant that 

these networks could own their own shows, and they started to. By 

1992, over 50 percent of the shows on NBC were owned by NBC. 

Well, what that did was the studios just started buying networks, 

because now they had a place to put their shows. So Disney bought 

ABC. Viacom, which owns Paramount, bought CBS. NBC and Universal merged. Fox owns Fox. And I am worried that if the NBC/ 

Comcast merger goes through, AT&T and Verizon are going to buy 

their own networks and Hollywood studios. And if that happens, 

16 

we are going to have a serious impact on independent programming. 

Now, independent programming is already declining. According 

to an analysis done by the Independent Film and Television Association, the percentage of independently produced fiction series on 

the national networks plunged from approximately 50 percent in 

1989—these are independents, not Disney, not owned by the networks-50 percent in 1989 before fin-syn was rescinded to just 5 percent in 2008. Independent programming is critical. It is the way we 

get access to new information and new perspectives. 

Ms. Varney, what I want to ask you is: What can and will the 

Antitrust Division do to ensure that competition is restored in the 

entertainment industry and that the barriers to distributing independent programming are diminished? 

Ms. VARNEY. Well, let me assure you, Senator, we do not rely on 

promises. If a transaction is anticompetitive and violates Clayton 

7s prohibition on substantially lessening of competition, we will 

block it. We will go to court and we will block it. 

As I understand your concerns—and I have tried to follow—you 

have spoken publicly about this, and I understand your concerns 

in antitrust parlance to fall into two broad categories. You are concerned about the vertical integration that Comcast owning the 

pipes is going to favor its own programming and discriminate 

against other programming. And you are concerned about the horizontal overlaps in both instances. 

Senator FRANKEN. Yes. 

Ms. VARNEY. The way we analyze those type of mergers—and 

you are absolutely right, this is a vertical integration with horizontal overlap—we will use all of the existing tools that we have 

to understand what the competitive marketplace will look like posttransaction. And should we have the evidence that guides us to the 

conclusion that this is a transaction that will meet the standards 

set by the courts and set by the law, we will challenge it. 

However, if the parties come back to us and adequately address 

our concerns that would be actionable, we would explore with them 

how those concerns could be addressed. They will not be addressed 

in promises. Should we get there—and I have not prejudged, and 

I would never speak on a specific investigation. But in any investigation, when we reach a consent with parties, those consents are 

binding orders of the court that we will enforce, and we will bring 

actions for violations of those orders. 

The fine for violations can be as high as $10,000 per occurrence. 

‘‘Occurrence’’ is defined very narrowly so that you can have a massive number of occurrences off any particular transaction. So, in 

general, that is how we look at these mergers when they are both 

vertical and horizontal. 

Senator FRANKEN. OK. Thank you for your answer. 

One of my other concerns about Comcast/NBC—and this impacts 

people in Minnesota and all over the country—is their cable bills. 

Now, it seems to me that the combined NBC and Comcast—and 

Comcast is the biggest cable carrier. 

Ms. VARNEY. That is right. 

Senator FRANKEN. And one of the biggest Internet providers, too, 

so that is the future. And NBC owns not just NBC’s programming, 

17 

but all these other cable networks—Bravo, MSNBC, et cetera, et 

cetera, et cetera. 

Well, NBC can start charging Comcast twice as much for its programming, and for Bravo and for MSNBC. And then that means 

every other cable station has to pay the same fee. But with 

Comcast, it is going from one pocket to the other, with Comcast/ 

NBC. But for the other cable owners, it creates a tremendously unfair advantage for Comcast/NBC, and it increases the cable cost, 

the cable bills of every American. 

So my question is: In a merger transaction involving cable companies, how do you analyze whether consumers’ cable bills are actually likely to go up? And where does that figure into this? 

Ms. VARNEY. So, again, without commenting on a specific transaction, which we cannot do—— 

Senator FRANKEN. Absolutely. 

Ms. VARNEY. What you do, Senator, is you take all the documentary evidence, which will include both past pricing, future plans of 

pricing. You do econometric analysis. You run a number of both 

economic tests and look at direct evidence, and you attempt to determine whether or not there will be a significant non-transitory 

price increase that would be actionable under the antitrust laws. 

If you find that evidence, that is certainly something you would 

consider when you try to determine whether or not you block the 

merger. 

Senator FRANKEN. Thank you. 

Thank you very much, Mr. Chairman. 

Chairman KOHL. Senator Specter. 

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

Comcast, as it is well known, is a major constituent of mine in 

Pennsylvania, and I introduced the Comcast officials when the 

hearings were held on a number of occasions. I have known the 

Roberts family for decades. They have been very good corporate 

citizens, and they have been very fair and equitable in their dealings. 

Senator Franken has posed a number of theoretical questions, 

and I understand the propriety of your answers and the generalizations. You cannot deal with them until you really know exactly 

what is going on. And he postulates a concern that Verizon may 

make an acquisition, AT&T may make an acquisition, and I am 

sure that if that were to occur, the Antitrust Division and FTC 

would take a look at what is happening in the industry overall and 

would make a judgment if some additional factors were to occur in 

the future. But those would not be matters that you would consider 

now as to hypothetical situations which might arise in the future, 

but you would naturally await the events of the day, would you 

not, to consider what impact that would have on the overall market? 

Ms. VARNEY. Senator, as we discussed, speaking not about a 

transaction but speaking about merger analysis generally, you take 

the transaction in front of you at the time given the market conditions at the time. The hypothetical that you reference that Senator 

Franken brought up actually has happened in the past in drug 

wholesalers, which Jon may recall. There were a series of consolidations in the drug wholesaling industry, and if I recollect corVerDate Nov 24 2008 08:10 Jul 05, 2011 Jkt 066454 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\66454.TXT SJUD1 PsN: CMORC
18 

rectly, Chairman, I think the first one was allowed and then the 

second one there was too much consolidation. And at the time that 

the second one was proposed, a third one was simultaneously proposed. Both of those were declined by the Federal Trade Commission in that industry at that time based on the facts, and I believe 

they were both upheld by the district court. 

Senator SPECTER. So that if that were to occur in the future, you 

would have enough power and authority to deal with it as it did 

arise. 

Ms. VARNEY. I believe in any industry we have the authority to 

examine each transaction in the context of the industry as it exists, 

always informed by prior learning, informed by what has been the 

result of previous transactions in the industry. We take everything 

into account. 

Senator SPECTER. Senator Franken has postulated a hypothetical 

of gouging. If NBC raised its prices to Comcast, then NBC could 

charge other people the same amount of money using its market 

position to use the one-pocket-to-another analogy. Just speaking 

having known the Roberts and knowing Comcast, I do not think 

that is going to happen, but let us deal with hypotheticals. That 

is about all we are dealing with at the moment. 

If that were to happen, there would be authority under the antitrust laws to move in using that kind of market position in a flagrant way, as Senator Franken has described it to take some remedial action at that time, wouldn’t there? 

Ms. VARNEY. Well, Senator, under Section 2 of the Sherman Act, 

of course, if a company enjoys market power and they are engaging 

in predatory acts, it would be actionable. I think it is important to 

recognize that there is a difference between the tests that you 

apply in a merger which looks at the ability of the company postmerger to inflict a significant, non-transitory increase in price, and 

then perhaps post-merger, your word, gouging of an enterprise 

might be something that would be more actionable under the consumer protection laws than—— 

Senator SPECTER. Well, in considering whether to approve the 

merger, you are not going to hypothesize dastardly conduct on the 

part of one of the parties so that in the future they may do something which is untoward. Wouldn’t you await those events and exercise the power you have to deal with that as that kind of situation arose? 

Ms. VARNEY. Dastardly conduct will be prosecuted, without regard to whether there is a merger or not a merger, wherever we 

find it and our jurisdiction reaches. And I would invite the Chairman to comment on that. He has slightly broader authority than 

I do in that regard. 

Senator SPECTER. Well, it is good to establish the dastardly conduct doctrine so we—— 

Mr. LEIBOWITZ. Yes, I think we have established it here today, 

but it may not leave this Committee. 

I would say this: When we look at an area in the context of a 

merger—say, for example, Google/Admob, which we recently approved—we do not just walk away. You know, we have acquired 

some expertise. We think about these marketplaces and we think 

about other—and sometimes it leads us to other problems within 

19 

the marketplace. So I guess I would add—that is the only comment 

I would add to Christine’s—— 

Senator SPECTER. So what you are saying, Mr. Chairman, is that 

if that occurs, you have adequate power to protect consumers in 

futurum? 

Mr. LEIBOWITZ. We do. Perhaps not under the dastardly conduct 

doctrine, but under the antitrust laws, yes. 

Ms. VARNEY. You could combine that with Section 5. 

Senator SPECTER. Moving to another subject, I want to associate 

myself with the comments that Senator Hatch has made about the 

generic issue and discouraging the settlements. Chairman 

Leibowitz, my question is: When a matter is in litigation and you 

have a settlement which is proposed and you have a concern about 

whether the consumers are being adequately protected, isn’t it sufficient to have that settlement subject to court approval to see to 

it that the consumers are protected without having the FTC intervene? 

Mr. LEIBOWITZ. Well, I would say this: You know, we certainly 

believe in settlements, and in the period before the 2005 cases that 

threw this area into some uncertainty, there were many, many settlements. They just did not involve money between the parties. And 

so, you know, at one level, if—— 

Senator SPECTER. I only have a minute left. Is it sufficient to 

have the court which has jurisdiction of the case protect the consumers interests in approving or disapproving the settlement? 

Mr. LEIBOWITZ. Well, I think that can happen sometimes, but 

here both parties have an interest in making—if there is a pay-fordelay deal, both parties have an interest in making a settlement, 

but the consumers are not at the table. And I think in the Judge 

Newman decision—Newman, Parker, and Pooler decision in the 

Second Circuit in Cipro just a few weeks ago, I think that was one 

of the points they made in calling for an en banc review in the Second Circuit, is that the—— 

Senator SPECTER. Well, can’t the court involve the consumer interests and hear those interests in making a determination as to 

whether to approve the settlement? 

Mr. LEIBOWITZ. It is certainly conceivable, but I also think you 

want the FTC engaged in this issue so that if, in fact, there is a 

settlement that violates the antitrust laws, we can try to stop them 

subject to a court’s determination—— 

Senator SPECTER. Well, I would like to have the FTC involved if 

they are needed. But if a court can protect the interests and has 

the case—let me move on to another point. I have just a short 

amount of time left. 

There has been a concern raised by a constituent of mine, 

Cephalon, with respect to whether the FTC provided information to 

Apotex, which was confidential and impacted on Cephalon’s ability 

to deal with its sleep drug, Provigil. Is there any factual basis to 

that? 

Mr. LEIBOWITZ. Well, we know that there is a filing and a court 

case to which we will be responding, and Mr. Levitas over here, a 

former Committee staffer, is going to be involved in taking a look 

at this. But we do not believe there was a breach. I think that 

these companies talk amongst themselves all the time, sometimes, 

20 

we believe, for dastardly reasons. But we will get to the bottom of 

this, and we will be responding in court very shortly. 

Senator SPECTER. So we will be hearing more about that? 

Mr. LEIBOWITZ. You will. 

Senator SPECTER. One last comment. Chairman Kohl has raised 

the issue of Dean Foods, and I would like to associate myself with 

his questions. The profit margins, as I understand it, have gone for 

Dean from some $30 million in 2008 to $72 million plus in 2009, 

a time period when farmers experienced record-low prices for raw 

milk and consumers saw little or no decline in retail prices. I would 

urge you, General Varney, to take a look at that. That touches a 

very sore subject with my dairy farm industry. Thank you very 

much. 

Thank you, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Specter. 

Senator Schumer. 

Senator SCHUMER. Thank you, Mr. Chairman. I thank both of 

you for coming. Attorney General Varney, thank you for coming to 

upstate New York, Genesee County, Batavia, where we actually 

talked about the issue of Dean Foods, and she heard testimony 

from farmers about that problem. I, too, associate myself with your 

good questions, Mr. Chairman, and I thank you, Chairman 

Leibowitz, for the good work you have done most recently on 

subprime lending. Countrywide was excellent work, excellent settlement, which I have been very interested in. 

First I would like to talk to Chairman Leibowitz about privacy 

issues and social networking. As you know, a number of us on this 

Committee—Senator Franken, myself, as well as others, Senator 

Bennett, Senator Begich—have talked about our concerns about 

privacy and social networking, and particularly Facebook sort of 

changing the rules in midstream. I cannot ask you to comment on 

Facebook in particular, but I do want to get some general concepts 

and general thoughts out on this issue. 

Now, in 2004, the FTC’s Director of Criminal Protection said, ‘‘It 

is simple. If you collect information and promise not to share, you 

cannot share until the consumer agrees. You can change the rules, 

but not after the game was played.’’ 

Do you agree with that statement? 

Mr. LEIBOWITZ. Without respect to any particular case, I absolutely do. And, in fact, last year, in 2009—— 

Senator SCHUMER. I am just going to write you down as a ‘‘yes’’ 

so I can—— 

Mr. LEIBOWITZ. Write me down as a ‘‘yes.’’ Go ahead. 

Senator SCHUMER. OK. To put it in slightly different terms, do 

you agree that when a company changes its terms of use or privacy 

policies, it would be best to require consumers to opt in to any new 

information sharing? 

Mr. LEIBOWITZ. Yes, and that is precisely the public guidance 

that we have made as a Commission last year. 

Senator SCHUMER. Good. In what circumstances is consent necessary before the sharing of information with third parties? When 

should consent be necessary? 

Mr. LEIBOWITZ. Well, I think the best practice is always to get 

consumers’ consent, and this is a roiling issue, you know, in the 

21 

work that we do. And we have tried to take a two-track approach 

here. One track is we prosecute malefactors, people who engage in 

unfair or deceptive acts or practices. We had a major case last year 

against Sears for data mining. They did not do anything with the 

data, but they were taking data without consumers knowing. And 

the other thing we were doing is we set up a process to think 

through these issues, because obviously it is a complicated marketplace. We are going to write a report in the fall, and we will have 

something to say there. 

Senator SCHUMER. Good, because that was my next question. 

Generally, I guess, then you agree there is currently not sufficient 

guidance and regulation about how consumer data should be protected on social networks. That is a fair thing, and I guess you are 

saying you are going to come out with some guidance maybe in the 

fall. 

Mr. LEIBOWITZ. I mean, there is the guidance in the sense that 

you cannot engage in unfair or deceptive acts or practices, but we 

have certainly found companies that have gone beyond what we 

think is appropriate, and then in this area, we really do think that 

there is a lot of uncertainty, and we can try to help push companies 

in the right direction. And social networking is—— 

Senator SCHUMER. Right, and you are having these roundtables 

now to sort of flesh this out. 

Mr. LEIBOWITZ. That is exactly right. 

Senator SCHUMER. But the guidelines that you will issue will not 

be binding or enforceable against social networking sites, they are 

just guidance. Right? 

Mr. LEIBOWITZ. They are just guidance. That is exactly right. 

Senator SCHUMER. So if these guidelines will not be enforceable, 

what tools does the FTC have to pursue social networking sites 

that are not adequately protecting their users’ data? 

Mr. LEIBOWITZ. Well, I would say that we have the enforcement 

authority that Congress has given us—— 

Senator SCHUMER. Section 5? 

Mr. LEIBOWITZ. Section 5. It is unfair or deceptive acts or practices, and we will not hesitate to use this. Obviously, we have your 

very good letter in the Facebook context. We have a petition about 

Facebook. So without confirming an investigation—we do not do 

that—we are taking a look at all of this, both at the micro and 

macro level. 

Senator SCHUMER. Is Section 5 sufficient or might you need other 

authority to deal with this issue, which is a—— 

Mr. LEIBOWITZ. I think in this issue, in this area, I would say 

that our statute is sufficient. I would say this: As you know, and 

as I know Senator Durbin knows, and Senator Kohl, right now in 

the financial reform legislation, there is a debate—the House has 

given us expanded fining authority, which is something that the bipartisan majority of Commissioners support and Caspar Weinberger, when he was the Chairman of the FTC, supported. I do 

think in cases involving identity theft or spyware, you know, expanding fining authority would be very, very helpful. But for this 

particular area, this discrete area, I think we have the authority 

we need. 

22 

Senator SCHUMER. Good. So get to work. You have the authority, 

get to work. 

Next is on debt settlement, a different issue. Senator McCaskill 

and I introduced the Debt Settlement Consumer Protection Act in 

April. It is the first comprehensive proposal introduced in Congress 

to address these abuses. I am also aware and commend you for the 

efforts the FTC has had to combat deceptive and abusive practices 

in this industry. 

One thing missing, though—the FTC has some proposed rules. 

That is good. One thing missing from the FTC’s proposed rules, 

however, is a cap on fees that debt settlement companies can 

charge. I understand that under current law the FTC’s hands are 

tied. But given your extensive work on this issue, I want to get 

your opinion, not criticize you for not putting it out. 

Our bill provides a strict cap on fees, 5 percent of the amount 

the consumer saves as a result of any settlement negotiated by a 

debt settlement provider. They have been just taking people to the 

cleaners on this. They come in and say, ‘‘We will settle your debts,’’ 

and then they charge such a fortune that you wish they had not 

even helped you some of the time. And so we also ask that the debt 

settlement provider can only collect its fee actually after it settles 

the debt. They are busy collecting now ahead of time, and then 

they do not settle the debt. And these are poor people often who 

are preyed upon. 

So the questions are two. First, would you agree that a fee cap 

is a vital tool that would help stop dishonest and predatory debt 

settlement companies from ripping off consumers? And do you support prohibiting a debt settlement company from receiving any debt 

settlement fee from a consumer until the company has provided the 

consumer with documentation that a debt has, in fact, been settled? 

Mr. LEIBOWITZ. So let me answer your second question first, if 

I may. We have a pending rulemaking. The proposed rule would 

ban advance fees because, as you point out, this is an industry that 

is just riddled with deceit, and there are callous instances—and, of 

course, this is true, and you have done such great work in the 

mortgage area. This is true in the foreclosure rescue area as well. 

They take the money, 95 percent of the company is in sales, 3 percent is in re-working loans, and so obviously loans are not helped. 

And so I cannot comment on that except to say, you know, our 

pending draft rule, which we are in the process of finalizing, after 

consulting with the other members of the Commission, so it is very 

closely related to the solution to your second question. 

As to the first question, there are some States, as you know, that 

have placed caps. It is an idea that has been proffered in the context of our proposed rulemaking as well, at least in some of our 

roundtables earlier on. I want to go back and talk to our other 

Commissioners about that, but having said that, I commend you for 

your leadership here because this is an area that is just rife with 

abuse. 

And one more very quick anecdote, which is: I was driving with 

my daughter to a soccer game 2 weeks ago. She is 14 years old. 

We heard on sports radio someone saying, ‘‘And we are a Government-approved debt settlement company.’’ And so she said, ‘‘Dad, 

23 

I am going to call them up,’’ and she called them up, and she said, 

‘‘I am having problems with’’—she probably should not do this, but 

she said, ‘‘I am having problems with my loans. What can you do 

for me? ’’ And they said, ‘‘Well, we can help you out. We have 98- 

percent effectiveness.’’ And she said, ‘‘Are you Government-approved? ’’ And they said, ‘‘Yes, we are Government-approved.’’ And 

she said, ‘‘Well, what does that mean? ’’ And the person on the 

phone said, ‘‘It means we are approved by the Government,’’ which, 

of course, they are not. 

So we are well aware of these problems, and I think they permeate even down to teenaged children. 

Senator SCHUMER. It seems like you have a budding junior commissioner there in your car. 

[Laughter.] 

Senator SCHUMER. So we will put you down as in favor of—at 

least personally, in favor of—— 

Mr. LEIBOWITZ. Strongly supporting looking at that idea. 

Senator SCHUMER. Yes. I was going to say in favor of not collecting the fee before they actually solve the problem, and in terms 

of a cap, interest in checking with your Commissioners. 

Mr. LEIBOWITZ. I would say on the first one, strongly in favor of 

moving through a very strong rule. You will see the rule very 

shortly, in the next month or two. 

Senator SCHUMER. Great. 

Thanks, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Schumer. 

Senator Feingold. 

Senator FEINGOLD. Thank you, Mr. Chairman. 

Over the past 2 years, we have seen what happens when the 

Government turns a blind eye to risky and self-serving activities on 

Wall Street. The small businesses on Main Street and ordinary citizens are left holding the bag. And while much attention has been 

paid to the consequences of this approach in the banking and the 

financial sectors, the hands-off regulatory ideology was also pervasive in other areas during the previous administration, such as the 

enforcement of antitrust laws. In fact, in September 2008, a majority of the FTC, including the current Chairman, whom I welcome 

here today, sightly blasted a DOJ antitrust report as ‘‘a blueprint 

for radically weakened enforcement of Section 2 of the Sherman 

Act.’’ 

The FTC Commissioners further described the DOJ report as 

being ‘‘chiefly concerned with firms that enjoy monopoly or nearmonopoly power and prescribes a legal regime that places these 

firms’ interests ahead of the interests of consumers. At almost 

every turn, the Department would place a thumb on the scales in 

favor of firms with monopoly or near-monopoly power and against 

other equally significant stakeholders.’’ 

Fortunately, as I urged, the current administration withdrew 

this flawed report. I have been impressed by the change in approach that properly makes farmers, other small businesses, and 

consumers the focus of antitrust protections, and I am going to 

focus today on competition in Agriculture, and especially dairy. But 

I want to note that I think this change has been seen across the 

board. It is particularly heartening that after years of hearing conVerDate Nov 24 2008 08:10 Jul 05, 2011 Jkt 066454 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\66454.TXT SJUD1 PsN: CMORC
24 

cerns from dairy farmers in my listening sessions and pressing for 

scrutiny of anticompetitive practices and enforcement of antitrust 

laws in Washington, there is finally a serious collaboration between 

the Justice Department and the Department of Agriculture as is 

shown by the upcoming joint USDA-DOJ workshop in Madison, 

Wisconsin, on June 25th. This is a great start, but the farmers and 

consumers I talk to remind me that this good policy and interagency cooperation needs to translate into fair competition and 

strong enforcement on the ground as well. 

So I am glad to have this opportunity to talk to both of you, and, 

Assistant Attorney General Varney, let me first take a moment to 

talk about this upcoming workshop on dairy in Madison. I know 

Senator Kohl mentioned it. I was very pleased when this workshop 

was announced, both because of the important topic and because 

you chose to hold this in our home State of Wisconsin. As I mentioned, at these town meetings in all 72 counties, this is the type 

of feedback we get along these lines of encouraging public participation. I recently suggested that the workshop have additional sessions for public comment throughout the day instead of just at the 

end of the day, similar to what was done at the poultry workshop 

in Alabama. 

Can you confirm the Department is planning on having two public comment sessions? 

Ms. VARNEY. I can confirm that if they were not, they are now. 

Senator FEINGOLD. All right. That is good to hear. One of the 

best things about these workshops is they are an opportunity for 

the Department to hear the unvarnished comments of farmers and 

cheese makers and other Wisconsinites who think we should be 

doing more to protect family farms and restore competition in the 

dairy industry. And I think it is frustrating sometimes for people 

to come from long distances and then just hear all of our wonderful 

political speeches, but I think you need to hear from the farmers. 

I think you know that. 

I have been a strong proponent of the need for enhanced Federal 

agency collaboration and communication with respect to dairy competition over the last several years. It is a very complex industry. 

It is often unclear which agency has jurisdiction and who should 

be taking the lead to resolve competition problems. For example, 

when I was a State Senator, I had a chart on my wall that showed 

the farmers’ share of retail spending on dairy products and how the 

farmers’ share had been shrinking over time. This trend seemed to 

roughly correspond to consolidation at the cooperative processor 

and retail levels. Unfortunately, the farmers’ share has continued 

to shrink, and many farmers and other dairy industry observers 

suspect that someone between the farmer and the consumer is taking a much bigger slice of the pie than they really deserve. Although the Agriculture portion of the system is regulated by the 

Antitrust Division, retail distribution is controlled by the FTC and 

price discoveries at the CME, which is prone to manipulation and 

is under the jurisdiction of the CFTC. 

The bottom line is that I am encouraged by the collaboration between the USDA and DOJ with these Agriculture workshops, but 

I hope it is only the beginning. 

25 

So, Ms. Varney, can you tell me what the Department is doing 

to increase outreach and collaboration with the other agencies on 

these complicated dairy and agriculture antitrust issues? And, 

Chairman Leibowitz, how is the FTC pitching in here? For example, is the FTC planning on being part of the USDA–DOJ workshop 

on margins where I hope many of these cross-agency issues will be 

discussed? Ms. Varney. 

Ms. VARNEY. First, Senator, let me start with thank you for all 

the support that all of you have given us on these Agriculture 

issues. You impressed upon me how important it was to you during 

my confirmation hearing, and one of the first things that we did 

was reach out to USDA, who was extremely receptive to collaborating in a way that has never been done before. 

As you know, Attorney General Holder and Secretary Vilsack 

have both been to all the workshops and will be in your State next. 

It has been an unprecedented collaboration. The first thing that 

we have done is we have started up a task force of DOJ lawyers 

and USDA lawyers to look exactly at where the overlap is between 

our two jurisdictions. As you may know, the USDA administers the 

Packers and Stockyard Act, although the Department of Justice 

does some of the prosecution under that. 

So we have a group of lawyers who are now working very closely, 

who are talking to each other daily. We are creating a centralized 

office location so they can physically sit together and trade information as we are vigorously pursuing investigations that may have 

been dormant for several years. 

The next thing that we are doing is reaching across agencies and 

consulting with our colleagues at the CFTC. I would hope that the 

FTC will weigh in on our margins workshop. They have a lot of expertise there. So we are continuing to try and pull the Government 

effort together. 

At the same time, we are trying to gather as much evidence as 

we can in the field. To my knowledge, that has not been done before. I cannot tell you how much I learned when I went to Vermont 

and upstate New York, when I was in Normal, Alabama, the other 

day, when we were in Iowa, and I am looking forward to the same 

thing in Wisconsin. 

When you talk to the individuals who are the farmers on the 

ground and they can tell you what is happening to them on a dayto-day basis, you come away with an entirely different understanding of how the industry works, which I think makes us more 

rigorous in our analysis of what the intersection is between agriculture and competition policy. 

I have not prejudged anything. We have not reached any conclusions or any results. We are going to continue this and take it to 

wherever its logical conclusion is. 

Senator FEINGOLD. Thank you. 

Mr. Leibowitz. 

Mr. LEIBOWITZ. Yes, just following up, Senator Feingold, I am always, as you know, delighted to find any excuse to go out to Madison, Wisconsin, particularly during the summer. So I am sure that, 

if invited, we will be glad to have a presence there, and if I can 

do it, I absolutely will. 

26 

You know, one of the reasons that we get along so well is that 

we work with each other and we also defer on expertise. So here 

we are happy to help out with your initiative and play a role. And, 

again, on the pay-for-delay settlement issue—and I apologize because now that I look at it, it does look like a large wheel of cheese 

when we say $3.5 billion a year, but which we do believe is costing 

consumers $3.5 billion. We took the lead on this in a brief we wrote 

to the Second Circuit. We did it jointly and collaborate together. So 

we will be glad to collaborate with you in this area as well. 

Senator FEINGOLD. When the competition workshops were first 

announced, several farmer cooperatives expressed concern that the 

process would somehow try to demonstrate that cooperatives are 

anticompetitive. I do not think this was the intent of the workshops, and I have been a strong supporter of cooperatives. I believe 

they often help small farmers to negotiate better prices with large 

suppliers, middlemen, and processors. I realize that all cooperatives 

are not perfect, but, Ms. Varney, do you generally agree that cooperatives can have a positive balancing influence on agricultural 

markets? 

Ms. VARNEY. Absolutely. 

Senator FEINGOLD. I thank you and I thank the Chair. 

Chairman KOHL. Thank you very much, and I will give Senator 

Hatch a chance to ask a question. 

Senator HATCH. I just have one further question. Then I have to 

go to the floor. I think most everybody is aware of my concerns 

about the Bowl Championship Series in college football. I believe 

that the BCS system is patently anticompetitive, and I believe that 

there are serious questions as to whether it is legal under the antitrust laws. 

Now, I have taken some criticism from people who believe that 

the college sports are simply too trivial to be receiving Government 

attention. Yet with just the BCS, we are talking about hundreds 

of millions of dollars every year, billions over time. All told, college 

athletics yearly is a multi-billion-dollar enterprise for the schools, 

for the conferences, for television networks, and others. It affects 

students, athletes, and consumers throughout the country. Now, it 

is my understanding that the Justice Department is looking into 

the BCS matter, and I will not ask you to comment substantively 

on that inquiry. 

It is also my understanding that the Department is looking into 

the NCAA’s rules regarding athletic scholarships. We are also hearing news reports about conference expansion and even consolidation among the bigger conferences, which could have enormous impact on the competitive and commercial landscape of college sports 

and could have a negative impact on the schools that are left out 

of the shuffle. Now, I would expect at the very least major movement in this area would get the Department’s attention. 

Now, my question to you, General Varney: Do you believe that 

college sports are too trivial for the Antitrust Division’s attention. 

To put that another way, would the fact that these issues revolve 

around college sports keep the Justice Department from bringing 

a case if the conduct was found to be anticompetitive? Then I 

would appreciate hearing your view on those two questions, too, 

Mr. Leibowitz. 

27 

Ms. VARNEY. Senator, my view is that sports are business. They 

are a big business, whether they are in college or out of college. 

And so far as I know, the only enterprise that enjoys antitrust immunity is baseball. Other than that, all of these enterprises are 

subject to the antitrust laws. 

Senator HATCH. Right. 

Ms. VARNEY. We will obviously investigate, thoroughly pursue, 

and bring the appropriate action against any enterprise, whether 

it is sporting or otherwise, that is in violation of the antitrust laws. 

Mr. LEIBOWITZ. I guess I would just add to this that when Senator DeWine and Senator Kohl took over the Antitrust Subcommittee in, I think, 1997 and I was one of the staff directors, the 

first hearing we did was on the BCS, the Bowl Alliance. And, you 

know, at that time it seemed to us—and you know this—that it 

was a bunch of big, large competitors who got together—they were 

universities—and excluded some of the little guys. 

Now, my understanding is that the rules have changed a little 

bit, I think in part thanks to prodding from this Committee—— 

Senator HATCH. Not much. Not much. 

Mr. LEIBOWITZ. Not much? But I know that this issue is ably 

being looked at by our sister agency. 

Senator HATCH. Well, I appreciate it because, you know, this is 

a nutty thing to me. This is very, very important, and what I call 

the preferred conferences have tremendous advantages in all ways 

over the unprivileged conferences. And that is just not fair in this 

country. And so I would appreciate your really giving that every 

thought. 

Thank you, Mr. Chairman. I thank my colleagues for letting me 

ask one more question. 

Chairman KOHL. Thank you, Senator Hatch. 

Senator Kaufman. 

Senator KAUFMAN. Thank you, Mr. Chairman, and thank you for 

holding this hearing. And I want to thank the two witnesses for 

their long and good service to us all. We are very much advantaged 

by your service. 

Ms. Varney, I am concerned about the language in the Senate financial regulatory reform bill that could eliminate in-depth antitrust review of certain large financial mergers. Are you aware of 

the problem? And if so, do you share my concern? 

Ms. VARNEY. Senator, the administration is working closely with 

the conferees as they are going into conference, and I believe the 

administration is largely committed to making sure that all laws 

are consistent with antitrust principles and application of the laws. 

Senator KAUFMAN. Can you give me any kind of formal assurance that the administration supports this fix? The conference 

starts next Tuesday. 

Ms. VARNEY. I can check for you, Senator. I do not know that the 

administration has a position on any of the specifics as they are 

going into conference. 

Senator KAUFMAN. OK. Could you get back to me on that? 

Ms. VARNEY. I will. I will report back to you. Yes, I will. 

[The information appears as a submission for the record.] 

Senator KAUFMAN. I am also concerned in the same bill of the 

increased concentration in the financial industry along with bailVerDate Nov 24 2008 08:10 Jul 05, 2011 Jkt 066454 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\66454.TXT SJUD1 PsN: CMORC
28 

outs and other subsidies for banks that are too big to fail undermines competition by making it tougher for smaller, more conservative institutions to compete. What is your feeling about that? 

Ms. VARNEY. I think, Senator, that we are keenly aware of bottlenecks in competition in any industry, including in financial industries. So as we continue to look at the competitive forces in the industry, we will be shining a spotlight on barriers to competition. 

If there are enterprises that have market power that are imposing 

barriers to competition, we will certainly vigorously enforce our 

laws. 

Senator KAUFMAN. Great. The Patient Protection and Affordable 

Care Act, the health care bill, calls for the creation of insurance exchanges to help individuals purchase affordable health insurance. 

What role do you see for the Federal antitrust laws and competition policy in making sure that there is adequate competition 

among these exchanges? 

Ms. VARNEY. A very vigorous role, Senator. We are working with 

the administration, with HHS right now, giving our input into how 

we ensure the exchanges are designed in a way that is as competitive as possible. 

As you may know, we, I want to say, forced the abandonment of 

a transaction in Michigan where Blue Cross/Blue Shield was trying 

to acquire another enterprise that would have left them with a significant market share. And we are aware around the country of the 

significant concentration that can exist, so we are committed to ensuring that the exchanges foster and promote competition in insurance in order to expand coverage and get lower costs for everybody. 

Mr. LEIBOWITZ. If I could just—— 

Senator KAUFMAN. I was interested in your comments. 

Mr. LEIBOWITZ. Yes, if I could just add that I agree with everything that the Assistant Attorney General said. You know, I would 

also say that, at least from my perspective, I am supportive of 

modification of McCarran-Ferguson. 

Senator KAUFMAN. Great. 

Mr. LEIBOWITZ. And then due to a 1980 law—we like to think it 

is antiquated and someday it will be changed—we cannot even 

write a report—and we have a terrific Public Policy Office. We cannot even write a report on health insurers without the permission—I think we will get it ultimately—of the majority of members 

of the Commerce Committee. So we used to have the authority to 

write reports. Apparently, some people did not like—I can tell you 

I suspect we know who did not like some of the reports we wrote 

in the 1970s, and we no longer have that authority. We would love 

to have it back someday. 

Senator KAUFMAN. Great. I think that is—— 

Mr. LEIBOWITZ. And we are also working, obviously, with all of 

the entities and stakeholders to try to ensure that health care reform works for everybody. 

Senator KAUFMAN. Yes, this is really key, and I think competition is key, and I think what happens in the exchanges is key. So 

both of you being involved, that would really be helpful. 

Ms. Varney, I believe that generic competition is vital to many 

of our markets, and this includes the market for crop seed. Some 

people charge that some leading seed manufacturers manage everVerDate Nov 24 2008 08:10 Jul 05, 2011 Jkt 066454 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\66454.TXT SJUD1 PsN: CMORC
29 

green or extend the patents on their products by asserting dubious 

patent claims designed to thwart generic competition. Is that a 

problem you are aware of? And if so, what can we do about it? 

Ms. VARNEY. Senator, we have confirmed publicly that we have 

an investigation into the seed industry, and we are very aware of 

your concern. Certainly any practice like that that was anticompetitive would be something that we would be interested in. 

Senator KAUFMAN. Chairman Leibowitz, have you run into this 

evergreening problem? 

Mr. LEIBOWITZ. We see it to some extent in the pharmaceutical 

area where, for example, in the quintessential case—I do not know 

that this has ever happened—would be if you changed a pill to a 

tablet to extend your monopoly or your patent longer because you 

would have a patent on the new way to—you would not have a patent on the core substance of the medicine, but you would have it 

on the way in which it is disseminated into the human body. So 

we have some concern about evergreening. I think the State Attorneys General had a case several years ago involving evergreening 

of patents and got a settlement, and we are going to keep an eye 

out for this. 

Senator KAUFMAN. Good, and I would like to yield my time back 

to the diligent Assistant Majority Leader. 

Chairman KOHL. Senator Durbin. 

Senator DURBIN. Let me thank the Senator from Delaware. I appreciate that. I tried to shame him into a good work. 

[Laughter.] 

Senator KAUFMAN. Half worked. 

Senator DURBIN. Half worked. Thank you very much. And, Mr. 

Chairman, thanks for having this hearing, and because the Federal 

Trade Commission is in the loving arms of the Financial Services 

Subcommittee of Appropriations, which I chair, and we recently 

held a hearing—I am going to spare Mr. Leibowitz today from 

questions, but I would just like to direct a few to Ms. Varney, who 

is here. Thank you very much for joining us. 

Let me first ask you a hypothetical question. You remember 

these from the highly regarded Georgetown Law Center. 

Ms. VARNEY. I do. 

Senator DURBIN. If Coca-Cola said in one of their stores that was 

selling Coke, ‘‘You cannot offer a discount for the sale of Pepsi in 

this store,’’ and Pepsi said the same thing about Coke, would that 

be a restraint of trade? 

Ms. VARNEY. Hypothetically speaking, Senator, if that existed, 

we would almost certainly investigate it to determine whether or 

not there was a restraint of trade that violated the Sherman Act; 

and if there were, we would prosecute. 

Senator DURBIN. So right now, beyond the hypothetical into another area, Visa and MasterCard each sets of operating rules that 

they impose on everyone who accepts their cards for payment. Visa 

has a rule that says if a merchant accepts Visa cards, the merchant 

cannot offer a discount to encourage a customer to use a competing 

network, MasterCard. MasterCard, lo and behold, has a similar 

rule. The card companies penalize merchants who offer a discount 

in violation of these rules. 

30 

Now, a few years back, in 1998, the Justice Department brought 

a lawsuit against Visa and MasterCard charging they had conspired to restrain trade by prohibiting member banks from issuing 

American Express and Discover cards. The court found that Visa’s 

and MasterCard’s rules were a substantial restraint on competition 

in violation of the Sherman Act. In that litigation, the trial court 

found, and the Second Circuit agreed, that Visa and MasterCard 

had market power within the card network services market. ‘‘Market power’’ has been defined by the Supreme Court to mean the 

power to control prices or exclude competition. 

In general, when companies have market power, do they deserve 

extra scrutiny to ensure they are not acting to diminish competition? 

Ms. VARNEY. In general, when companies have market power, 

they have an obligation to obey the law as laid down by the Supreme Court in Lorain Journal, Microsoft, Aspen Skiing, and any 

predatory acts they engage in will be investigated. 

Senator DURBIN. For the record, the Visa/MasterCard duopoly 

controls about 80 percent of the credit card market. I have been 

concerned about their market dominance and the existence of competition within their marketplace. And I have addressed the interchange fee system that they have created. 

Visa and MasterCard set the interchange fee rates that merchants ultimately pay to card-issuing banks whenever a card is 

used or swiped. Every bank in the network receives the same fee 

rate under the system. This means that banks do not compete with 

one another to lower their fees by managing their costs more efficiently. It also means that merchants cannot negotiate with banks 

or comparison shop to reduce their fees. 

Now, it troubles me that we have a system where Visa fixes the 

price for a fee that a merchant must pay to a bank. You can see 

how the banks would have incentive to collude within the card networks to keep the fees high. 

It also troubles me that Visa and MasterCard can use their market power to prohibit merchants from offering certain types of discounts to their customers. I tell the story of going out to the Washington National Airport, and the lady in front of me at the cash 

register put a package of chewing gum on the counter and handed 

over a credit card. And I said, as she left, to the cashier, ‘‘Now, is 

that the lowest amount you ever put on a credit card? ’’ She said, 

no, 35 cents was the lowest amount that she could remember. 

It goes without saying that most merchants will lose money on 

that transaction after they have paid the basic swipe fee and interchange fees and obviously for the cost of the product. But they are 

prohibited currently by the rules established by both credit card 

companies, both credit card giants, from offering discounts for cash, 

offering discounts for those who will use debit cards, or favoring 

one card over another, which I mentioned earlier. 

It has been reported in the press, Ms. Varney, that the Justice 

Department is conducting an investigation of the credit card networks, including Visa, to see if they are engaging in anticompetitive practices. Can you confirm the Justice Department is indeed 

conducting such an investigation? 

31 

Ms. VARNEY. Senator, we have publicly confirmed that we have 

an open investigation into the credit card industry. 

Senator DURBIN. Well, I understand your limits in speaking 

about that investigation, and I respect them very much. I might 

also tell you that in the course of having passed this amendment, 

much to the surprise and chagrin of the credit card companies, 

there is now a full-court press to try to change it, which is their 

right. But it appears to be a very coordinated campaign. These two 

great competitors coordinate in many, many ways. I have written 

to them and said that I think that it is permissible for companies 

to work together in advocacy. I was concerned that the advocacy is 

leading to conduct, and specifically my concern is this: Under the 

amendment, which passed the House of Representatives in financial reform, we provide that the interchange fees that are charged 

for debit card transactions will be judged by the Federal Reserve 

as to whether or not they are reasonable and proportional. And we 

draw a line, and the line is a financial institution issuing a card 

with assets less than $10 billion. It does not apply to hometown 

banks, smaller-city banks, or credit unions with assets less than 

$10 billion, any provision of what I am suggesting. And that would 

mean that literally three credit unions in the United States would 

be affected by my amendment and about 80 or 90 banks. And so 

now we are being told from reliable sources that many of these 

credit unions and banks are being warned that if the Durbin 

amendment is not rejected in conference, whatever hit they take on 

the interchange fees from the largest banks, they are going to pass 

along to the smaller banks that are not covered by the amendment. 

They have that market power. They can just do it almost unilaterally. 

This to me is way beyond free market and competition, and I am 

not going to go any further or ask you to comment because you 

have said that this matter is under investigation. But it is the reason I wanted to take the time, wait my turn, and come today so 

that it is a matter of record for my colleagues and also for these 

two major credit card giants that their activity is such that it 

should be carefully scrutinized considering their market positions. 

Thank you for being here today. 

Ms. VARNEY. Thank you, Senator. 

Senator DURBIN. Thank you, Mr. Chairman. 

Chairman KOHL. Thank you very much, Senator Durbin. 

We now turn to Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much, Mr. Chairman. 

Thank you, both of you. We had a Commerce hearing, and I just 

came over from there. We got some good work done in marking up 

some bills. 

I first wanted to start, Mr. Leibowitz, with a case that I have 

asked you about before, and this really came out of a hearing, a 

Commerce hearing, when I brought to your attention a drug that 

is used to treat children’s hearts, that went suddenly from $36 per 

vial to $500 per vial, and I wanted to talk to you about the status 

of that case with Ovation. I know that closing arguments were 

heard. I brought it to your attention. The FTC brought a lawsuit, 

and this came to my attention from doctors, children’s doctors, and 

patients’ families all over Minnesota. And I want to thank you 

32 

again for taking on that case, and I wondered what the status of 

it is. 

Mr. LEIBOWITZ. I think—and let me just check with my staff. We 

are awaiting decision on that, right? Yes, I think that we are 

awaiting a decision, and I have to say this was one of the most— 

I thank you for your work on this because it was one of the most 

important cases we have brought in the last year. For those of you 

who do not know about it, it involved a company, Ovation, that 

manufactured a drug, one of only two drugs used for infants born 

with premature heart conditions, heart defects. And then they 

bought—under the Hart-Scott-Rodino threshold, they bought the 

only competing drug, and then they raised prices exactly in the 

manner you describe, from—we used a different calculus, but we 

can use yours. It is the same. From, we would say, $100 to $1,500 

per use or per treatment, but the same at 36 to 500. 

And so we went to trial. They would not settle, and we are hoping to get money back to all of the people—and the insurers, quite 

frankly, but not always insurers—who paid skyrocketing prices. 

And, again, you know, the only two drugs used—it tells you what 

happens when a company has monopoly control over a vital product. We think it violates the Clayton Act, that it substantially 

lessens competition, and we hope that the judge will agree. 

Senator KLOBUCHAR. Well, very good, and I had actually in another health care area asked you a question or wrote you a letter 

about this in the past, and it is the issue of pharmacy benefit managers and their relationships with large pharmacies. As you know, 

PBMs are involved in the reimbursement of most prescription drug 

claims, and in 2007, CVS and Caremark merged. Since the merger, 

consumers have reported difficulty accessing their drugs as a result 

of restrictive plans that steer them away from their local pharmacists to CVS, which may be miles away in another town. Consumers and non-CVS pharmacies have also complained that the 

merger has imposed harsh and unfair administrative requirements 

on the non-CVS pharmacies. In some cases, patients who do not 

elect to fill prescriptions through Caremark’s mail-order business 

are charged higher co-pays. 

Could you talk about any work being done in this area and your 

reaction to this? And if you want to add anything, Ms. Varney. 

Mr. LEIBOWITZ. Yes, I would be happy to. I can say this because 

the company has already acknowledged it. We have an open investigation of CVS/Caremark. It is one of those rare investigations— 

hopefully, it will be less rare in the future—where we have people 

from both our Bureau of Competition and our Bureau of Consumer 

Protection working on this. I do not think I can say much more 

other than that we have—I have personally met with CVS/ 

Caremark as well as a number of family pharmacists or local pharmacists, and we are in the process of receiving documents. We are 

going to work through this. Thank you. 

Senator KLOBUCHAR. Thank you. 

Do you want to add anything, Ms. Varney. 

Ms. VARNEY. Ongoing investigation. I will leave it at that. 

Senator KLOBUCHAR. Very good. Pay-for-delay, I know Senator 

Kohl has mentioned this, and I want to thank him for his leadership—I am a cosponsor—that would make these pay-for-delay 

33 

agreements between pharmaceutical companies and generic companies to get generic drugs to staff the market rather than offer lowcost alternatives that would make them presumptively illegal. It is 

a step in the right direction. 

Do you think that this will—will this be enough to halt these 

types of settlements, or is there more work to be done? 

Mr. LEIBOWITZ. Well, if we pass the legislation that Senator Kohl 

introduced with Senator Grassley and that you are a cosponsor of, 

I think that would go a very long way to stopping the worst abuses. 

As you can see, in 2005, when there were a couple of decisions that 

allowed these—very permissive decisions that allowed these deals, 

the number went from zero in the previous year, and it has only 

continued to be the way—not for every pharmaceutical company 

because some of them frown on this behavior, but the way that 

some pharmaceutical companies have been doing business. And, of 

course, it is win-win for the companies; it is lose-lose for consumers. And you can see that the number has gone up from zero 

in 2004 to three right after the tamoxifen insuring decisions to 19. 

Obviously, we are hopeful that Congress can pass a legislative 

solution. The President supports it. It was part of his health care 

bill. The House has passed legislation. The Judiciary Committee 

has reported out legislation. 

And then the only other point I would make is that in a major 

decision in the Second Circuit that our agencies worked on together, along with the Solicitor General’s office, the Second Circuit, 

which had a very permissive rule, just about 6 weeks ago called for 

an en banc—said that they disagreed in an en banc—in a per curiam decision said that they disagreed with the previous standard 

enunciated by the Second Circuit and called for an en banc review. 

So we are hopeful that the tide is turning not only in Congress but 

also in the courts, and, again, for us this is a huge issue, $3.5 billion a year back to consumers’ pockets. 

Senator KLOBUCHAR. Ms. Varney. 

Ms. VARNEY. As the Chairman mentioned, that is the Cipro case 

in the Second Circuit where the United States has filed in favor of 

a presumption, a rebuttable presumption but a presumption, 

against such payments. We are anxiously awaiting to see if it will 

go en banc, and it would require the Second Circuit to overturn 

Tamoxifen, which we believe is the right result, but it remains to 

be seen whether en banc review will be granted and what the en 

banc court will do. 

Senator KLOBUCHAR. OK. Very good. I was frustrated—I know 

many of us were—that this should have been part of the health 

care bill also. Obviously, I would have liked to have seen the reimportation as well as allowance for negotiating under Medicare 

Part D, and we are just going to have to keep pushing for that 

independently. I think all of those things would help with the pricing of pharmaceuticals. 

The last thing I just wanted to mention was just I have been 

working a lot on innovation—it is the Subcommittee I head up— 

and I really believe it is the key to bringing ourselves out of this 

economic rut and exporting. And I know that the FTC is involved 

in a lot of investigations in the high-tech area, and I just would 

like to know how you balance that with your mission to protect cusVerDate Nov 24 2008 08:10 Jul 05, 2011 Jkt 066454 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\66454.TXT SJUD1 PsN: CMORC
34 

tomers and consumers and the need to allow for innovation in our 

country, and then also to prevent anticompetitive conduct. 

And I guess I would also add to that, if a company is taking, 

even outside of the high-tech field, if they are taking steps to address problems that some competitors may feel are anticompetitive, 

do you take these measures into account when determining whether to investigate a company that is even beyond the high-tech area? 

Mr. Leibowitz. 

Mr. LEIBOWITZ. So usually our antitrust enforcement and our 

support of innovation are complementary because one of the best 

ways to ensure innovation is to have competition. So there is not 

usually a tension. And just going back to the pay-for-delay issue, 

what we have found and what we strongly believe is that the companies that are most likely to pay off—the brands that are most 

likely to pay off the generic competitors are the ones who have the 

weakest patents. And so it really does discourage innovation if you 

have these payoffs that prevent people from innovating around patents. 

Was the question do we listen to—the second one, do we—— 

Senator KLOBUCHAR. When companies are clearly trying to do 

something about what may be perceived or is anticompetitive conduct, they are taking measures on their own, do you take that into 

account when you decide whether to investigate? 

Mr. LEIBOWITZ. I think it might depend on the circumstance, but 

the answer is, you know, we always talk to stakeholders. We always try to survey to determine the market. We listen to competitors sometimes in the merger context. Sometimes they have self-interested things to say, and sometimes they have legitimate things 

to say, and sometimes it is both. But I would say just recently, you 

know, we did a very extensive investigation of Google’s acquisition 

of Admob, and part of the determination from the Commission’s 

perspective to let that deal go forward without challenging is—because we had been inclined, I think, to challenge it—was the things 

that Apple was doing on a different platform and the changes it 

made in its terms of service. 

So I think under appropriate circumstances we do look to see 

what the marketplace is doing. That is part of the way you determine, for instance, in a merger context, whether a deal may substantially lessen competition, which is the standard we apply and 

the Antitrust Division applies. 

Senator KLOBUCHAR. Ms. Varney. 

Ms. VARNEY. So if I understand your question, Senator, do we 

take into account if an alleged anticompetitive action has ceased 

when we are determining whether to open an investigation. Generally, every matter is unique, but generally not in the determination as to whether or not to open. If we believe that there is anticompetitive action or practices that are restraining trade or diminishing competition and we have a credible basis for that belief and 

it has an effect on the economy and on consumers, generally we 

would open an investigation. 

Now, if the company in question, if it was an aberrant decision, 

if it was something done in good faith that they did not realize 

was—— 

35 

Senator KLOBUCHAR. My question was specifically about taking 

account for measures to address it, if it was something that they 

realized they did wrong or would be perceived or have an effect 

that they did not—— 

Ms. VARNEY. So what we would generally do as a matter of practice is we would look at every investigation, once we have opened 

it, and while we want to give good actors credit for doing the right 

thing, we also balance that against what I would call a recidivist 

problem. So I think we cannot give an absolute answer. 

Obviously, when you have good corporate citizens that are trying 

to do the right thing, that will factor in to what your ultimate remedy is. At the same time, you want to make sure you have the right 

ongoing protections for the American consumers. So it is always a 

balancing. It is always on the facts at hand. 

Senator KLOBUCHAR. Exactly, and just again the promise with 

some of these innovations that we want to promote, I am sure it 

is always a balancing act. But I am hoping that you will consider 

that. You know, when I look at things like delaying the entry of 

generic drugs, that seems to me pretty obvious it is not a good 

thing. But some of these things I know are fuzzy lines, so I appreciate you taking that into account. 

Thank you. 

Chairman KOHL. Thank you, Senator Klobuchar. 

Ms. Varney, railroad antitrust, one of the very few industries to 

enjoy an exemption from antitrust is the freight railroad industry, 

as you know. Because of this exemption rail shippers have been 

victimized by the conduct of dominant railroads, and they have no 

antitrust remedies, as you know. Higher rail shipping costs are 

passed along to consumers which result in higher electricity bills, 

higher food prices, and higher prices for manufactured goods, as 

you know. So I have introduced a bill that abolishes obsolete antitrust exemptions for railroads. The bill has passed the Judiciary 

Committee by a 14–0 vote. Companion legislation has passed the 

House Judiciary Committee. 

At your confirmation hearing, you indicated that you supported 

this legislation, and we have repeatedly asked you for a letter of 

support, and we have never received one. I assume you are very 

busy and you have not chance to read the letter—— 

[Laughter.] 

Chairman KOHL.—and that we are going to be getting a letter of 

support from you very shortly, or do I misunderstand? 

Ms. VARNEY. Senator, I read your mail immediately, so I think 

we have corresponded. I am working hard inside the administration. They are aware of your request for a statement of administration position on that legislation, and I will continue to try and get 

that. 

Chairman KOHL. Is it fair to say that you do support repeal of 

that exemption and to the extent that you are in a position as the 

Assistant Attorney General to do something about it? 

Ms. VARNEY. Well, Senator, as you know, antitrust is generally 

allergic to exemptions, and we were very pleased to work with you 

and Senator Leahy and others trying to remove the exemption for 

insurance companies in McCarran-Ferguson. And it is with the 

36 

same vigor that I am pursuing getting a statement of administration policy on your legislation. 

Chairman KOHL. All right. Mr. Leibowitz, the newspaper industry has been under tremendous pressure. As you well know, in the 

digital age, more and more consumers as they abandon traditional 

print newspapers in favor of online sources of news, advertisers 

have followed. Newspapers ad revenues have gone into a sharp decline, according to an FTC staff report released last week that 

newspaper advertising revenues have fallen over 45 percent in the 

last decade, as you know. Declining fortunes of the newspaper industry is distressing to all of us who care about newspapers and 

believe that the in-depth reporting is so very important in our 

country. 

The Federal Trade Commission has been holding a series of 

workshops regarding the problem of the newspaper industry. Some 

have argued for, among other things, a relaxation of antitrust requirements so that newspapers can jointly require consumers to 

pay for access on the Internet. And there are other proposals that 

have been suggested. 

What is your view on this? How important do you think it is that 

we find a way, if we can, to allow newspapers to remain viable? 

Mr. LEIBOWITZ. So let me answer the last part of that question 

first, which is, as Assistant Attorney General Varney noted, we 

have a very strong allergy toward any exemptions from the antitrust laws. And I would think that that would not be something 

that the Commission would endorse. 

There have been some other ideas that have been proffered in 

our workshops including taxing electronic equipment to subsidize 

newspapers. I think that is a terrible idea. But I do think this is 

a really important initiative because, you know, cable news, network news, and newspapers have clearly seen a dramatic erosion 

of viewership or readership. And we all know newspapers are absolutely vital—newspapers and news media are absolutely vital to 

our democracy and for a democracy to thrive. 

And so we have been examining how all this change affects consumers. We are going to do a roundtable next week. We are going 

to release a report, and hopefully we will have something for policymakers to think about in the fall. 

I will just make one other comment, which is I was in Chicago 

a couple of months ago, and I went and I visited something called 

the Chicago News Co-op. It is a startup formed by former Chicago 

Tribune reporters. It is the only startup I have ever visited where 

the average age is about 65. But it is a startup, nevertheless, and 

they are trying to develop a vibrant news organization. And their 

idea is to have three people covering Cook County, three people 

covering City Hall, and three people covering the State House in 

Springfield. If they do that, they will have more people in each of 

those bureaus than the Chicago Tribune will. And that was just an 

astonishing fact to me about how things have changed. 

I went back and I talked to the Small Business Administration 

because I thought here is a great startup, they are struggling for 

money, maybe the SBA can help them. And so it turns out they are 

ineligible to get SBA loans. It seems to me that regardless of platform—this happens to be an online platform. And I am speaking 

37 

only for myself. We have not made recommendations from the 

Commission. You know, people who want to startup a news organization regardless of platform, regardless of, you know, their political beliefs, they ought to be eligible like other small businesses for 

loans. 

So we are looking at this. It is an interesting issue. We will keep 

this Committee involved. 

Chairman KOHL. Ms. Varney, there have been two major airline 

mergers since 2008—first Delta and Northwest and now the currently pending United/Continental. Merging airlines argue that 

these deals are necessary due to the poor economic conditions and 

high costs in the industry. We all recognize the tough times endured by the industry in the last decade, including things like terrorist attacks, fuel spikes, as well as the recession. 

Some smaller airlines, however, some competitive airlines, are 

concerned with their ability to compensate against the large national legacy carriers because the smaller carriers do not have the 

international route structures, huge networks, and the expansive 

frequent-flyer programs enjoyed by the legacy carriers. Smaller airlines are also worried about their access to airport slots and gets 

at important airports like New York La Guardia and Washington 

Reagan National. 

I know you cannot comment on the pending United/Continental 

merger, and I am not asking you to, but what are your views on 

the state of airline competition generally. Are you concerned at all 

about the challenges facing smaller and startup carriers trying to 

compete with the larger carriers? 

Ms. VARNEY. Absolutely, Senator, we are concerned about the 

airline industry. We are concerned about the competition in the airline industry which leads to lower prices for consumers generally. 

We have been very active, particularly with the Department of 

Transportation. As you know, we have filed twice on applications 

for global immunity when it comes to the alliances that they are 

putting together. We have been very active in the proposed slot 

swap, which is now moving through the system. And I think our 

views are fairly well known, and that is, we want to see competition, and we want to see competition in city pairs, in airport pairs. 

We want to see competition for slots. We want to see competition 

at the gates. 

So any merger that we are looking at, we will use our traditional 

tools to examine whether or not the merger is likely to substantially lessen competition, and we will seek to block the merger or 

seek appropriate remedies should the parties want to remedy any 

anticompetitive issues as they go forward in a merger. 

If I can comment for 1 second on the newspapers, you may know 

that recently the Associated Press came to us and asked for a business review letter to allow them to set up a collaboration consistent 

with the antitrust laws that would allow a lot of the print newspapers to effectively and efficiently in a pro-competitive manner license their copyrighted material to a variety of sources. We have 

worked closely with the AP, and we have provided them the guidance and approval they need. They think it is a very important 

step for them and their members to continue to compete in this 

changed world. 

38 

We have also, under the Newspaper Preservation Act, been 

charged with enforcing the law permitting the joint operating 

agreements for newspapers around the country, and we have seen 

a lot of change in those markets, and we have worked closely with 

the enterprises in those markets to try and help them find solutions that can remain competitive and supportive of the news function as we move into a new age. 

Chairman KOHL. Thank you so much. 

Senator Klobuchar, do you have any thoughts or questions? 

Senator KLOBUCHAR. Well, just a little follow-up. I was listening 

actually to the newspaper issue. I grew up in a newspaper family, 

and there is a similar operation in Minnesota called MinnPost, 

which is an online newspaper where it has a lot of retired reporters, including my Dad, Chairman Kohl, who wrote every Monday 

after each Viking game in the fall, reporting on, of course, Brett 

Favre. A detail that—— 

Chairman KOHL. I am sorry. What is that? 

[Laughter.] 

Senator KLOBUCHAR. But in any case, I have grown to appreciate 

some of the online newspapers, and also I appreciate what you 

said, Ms. Varney, because I do think that paying for contents, those 

kinds of things are going to be critical as we go forward. And I appreciate the Justice Department working on this. 

Another issue that I understand was raised when I was at the 

Commerce hearing on your agricultural competition workshops, so 

I understand you already answered that we do invite USDOJ and 

USDA personnel to come out to Minnesota. We are the No. 1 turkey producer in the country. You could, like I did, take a tour of 

the Jennie-O turkey processing plant, and half an hour later eat 

a turkey burrito with the CEO, if you can do that, if you are ready 

for Minnesota. But we obviously would like to help in any way. It 

is a very important industry in our State. 

And I just wanted to end with one question on something I care 

a lot about, and that is the cell phone marketing, Mr. Leibowitz, 

and what is going on there. I have a bill, along with Senators Webb 

and Feingold and Begich and others, to pro-rate the early termination fees for cell phones. It has come out now that in a recent 

study two out of three Americans have seriously considered switching cell phone providers but ultimately decided to stay with their 

current provider because of a cancellation fee. Obviously, we are 

working with the FCC on that, and they have started to open that 

up. But I have found it to be not good for competition, the fact that 

people cannot move around, and there are these outrageous fees. 

They move somewhere, their cell phone service does not work. But 

as far as the FTC involvement, there is still bill shock going on. 

People do not understand what is on their bills. And I wondered 

if the FTC has involved itself at all with any of the cell phone advertising issues about service areas and things like that. 

Mr. LEIBOWITZ. Well, it is a great question, and I actually had 

lunch with the Chairman of the Federal Communications Commission yesterday, Julius Genachowski, who is obviously working very, 

very hard on this bill shock issue. Unfortunately, those phones are 

considered to be common carrier-regulated, so we do not have jurisdiction over them. But I can certainly say that any efforts—and 

39 

Senator Kohl had a pricing initiative last year on this matter. Any 

efforts to move forward on consumer protection and competitive 

pricing I think would be really appreciated by the consumers in 

your State and consumers in America. 

Senator KLOBUCHAR. Thank you very much. I appreciate it. 

Chairman KOHL. Well, we thank you so much for being here. 

Oversight is an important part of our job, and you have been very 

forthcoming today. I think you have shed a lot of light on important issues, and in that sense, what you have done here is really 

important. Thank you. 

Ms. VARNEY. Thank you, Senator. 

Mr. LEIBOWITZ. Thank you. 

[Whereupon, at 4:03 p.m., the Subcommittee was adjourned.] 

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

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