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44–254 2008

SMALL BUSINESS COMPETITION POLICY: 

ARE MARKETS OPEN FOR ENTREPRENEURS? 

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

SEPTEMBER 25, 2008 

Small Business Committee Document Number 110-115 

Available via the GPO Website: http://www.access.gpo.gov/congress/house 


Congress.#13
HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLES GONZALEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

MICHAEL DAY, Majority Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director 

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax 

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

VERN BUCHANAN, Florida, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

Subcommittee on Contracting and Technology 

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma 

(II) 

Subcommittee on Regulations, Health Care and Trade 

CHARLES GONZALEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

Subcommittee on Rural and Urban Entrepreneurship 

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DAVID DAVIS, Tennessee 

Subcommittee on Investigations and Oversight 

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLES GONZALEZ, Texas 

RAUL GRIJALVA, Arizona 

MARY FALLIN, Oklahoma, Ranking 

LYNN WESTMORELAND, Georgia 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1 

Chabot, Hon. Steve .................................................................................................. 2 

WITNESSES 

Kovacic, Hon. Willam E., Chairman, Federal Trade Commission ....................... 3 

Hazel, Dr. William, Jr. MD, Secretary of the Board of Trustees, American 

Medical Association .............................................................................................. 19 

Rubin, Dr. Jonathan, Partner, Patton Boggs, LLP., on behalf of the American 

Antitrust Institute ............................................................................................... 21 

Hilal, Mr. Said, President, Applied Medical Resources Corp., Rancho Santa 

Margarita, CA, on behalf of the Medical Devices Manufacturers Association 23 

Lowe, Mr. Aaron, Vice President, Automotive Aftermarket Industry Association ........................................................................................................................ 24

MacLoed, Mr. William, Partner, Kelley Drye & Warren, LLP ............................ 27 

APPENDIX 

PREPARED STATEMENTS: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 43 

Chabot, Hon. Steve .................................................................................................. 45 

Kovacic, Hon. Willam E., Chairman, Federal Trade Commission ....................... 46 

Hazel, Dr. William, Jr. MD, Secretary of the Board of Trustees, American 

Medical Association .............................................................................................. 70 

Rubin, Dr. Jonathan, Partner, Patton Boggs, LLP., on behalf of the American 

Antitrust Institute ............................................................................................... 82 

Hilal, Mr. Said, President, Applied Medical Resources Corp., Rancho Santa 

Margarita, CA, on behalf of the Medical Devices Manufacturers Association 90 

Lowe, Mr. Aaron, Vice President, Automotive Aftermarket Industry Association ........................................................................................................................ 99

MacLoed, Mr. William, Partner, Kelley Drye & Warren, LLP ............................ 106 

STATEMENTS FOR THE RECORD: 

Kolter, Mr. Bill, Vice President, Biomet, Inc., Warsaw, IN ................................. 113 

Balto, Mr. David, Senior Fellow, Center for American Progress and the Consumer Federation of America .............................................................................. 116 

(V) 

(1) 

SMALL BUSINESS COMPETITION POLICY: 

ARE MARKETS OPEN FOR ENTREPRENEURS? 

Thursday, September 25, 2008 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

1539, Rayburn House Office Building, Hon. Nydia M. Vela ́zquez 

[Chair of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Altmire, Cuellar, Hirano, 

Clarke, Chabot, Shuster, and Westmoreland. 

Chairwoman VELA ́ ZQUEZ. Good morning. 

I call this hearing of the House Small Business Committee to 

order. Competition is the crux of our economy. It not only drives 

innovation and development, but it also spurs invention. After all, 

you don’t often see new products originating in unchallenged industries. Rather they come from diverse sectors that promote a wide 

range of options. In a free market economy, it is crucial that all 

businesses, large and small, have a level playing field. The FTC is 

charged with making sure that happens. With this in mind, it is 

important for the commission to be engaged and prevent industries 

from isolating themselves. A lack of competition does not benefit 

the economy and it certainly does not benefit the taxpayer. 

In recognizing this fact the FTC already has a number of antitrust provisions in place. The commission’s Bureau of Competition 

for example uses both administrative and judicial means for enforcing regulations. In this morning’s hearing we will discuss the FTC’s 

efforts to promote competition and its role in spurring small business development. 

Competition is a powerful catalyst for financial growth. This is 

particularly true for America’s entrepreneurs who thrive in an open 

economy. Competition is the key that allows small businesses to 

unlock new markets and expand existing industries. It lowers 

prices and raises the bar for quality, largely because it forces other 

companies to step up to the plate and elevate their standards. At 

the end of the day an entrenched business has little incentive to 

offer competitive values. Small firms, on the other hand, have 

every motivation to do so. 

On top of lowering consumer costs, competition also promotes invention. Startups have historically led the lion’s share of industry 

innovation. From the tech boom of the mid-1990s to the green energy revolution of today, entrepreneurs are the business world’s 

best innovators. They are always looking to meet emerging needs 

and offer fresher, better choices. In order to remain competitive, big 

2 

brands are then forced to either innovate on their own or otherwise 

increase the values. Either way, consumers enjoy more choices. 

Competition does more than level the playing field. It stimulates 

the economy. This is particularly true for America’s small businesses whose survival depends on access to an open marketplace. 

If monopolies are permitted to dominate entire industries, then 

they have little incentive to innovate or contribute to economic expansion. That is why it is so important that competition be protected for entrepreneurs. Without the opportunities that it affords, 

these small firms will not be able to do what they do best, drive 

innovation, create jobs and spur financial growth. 

I would like to take this opportunity to thank today’s witnesses 

in advance for their testimony, and I look forward to hearing their 

thoughts on this issue. 

With that, I yield to Ranking Member Chabot for his opening 

statement. 

[The statement of Chairwoman Vela ́zquez is included in the appendix at page 43.] 

Mr. CHABOT. Thank you, Madam Chairman. And thank you for 

holding this important hearing examining the antitrust laws in the 

United States. 

I might note that I had the honor to be the ranking member of 

the antitrust task force of the Judiciary Committee for much of the 

past Congress, and so it is an area that I have a significant amount 

of interest in; I would like to say some expertise, but definitely an 

interest, and so I do appreciate having this hearing. 

Enforcement of the antitrust laws play a key role in maintaining 

open competition, an environment in which small businesses thrive 

because of their attention to customer service and nimbleness in 

making business decisions. The Committee has a longstanding and 

long interest in examining the competitiveness of markets and the 

impact of the Sherman Antitrust Act and Federal Trade Commission Act on small business. However, the Committee has not examined these matters in nearly two decades. And in light of the report 

issued last year by the Antitrust Modernization Commission, it 

seems timely for the Committee to turn its attention to aspects of 

market competition that fall within the confines of the antitrust 

laws. So I commend the chairwoman for doing that. 

The Supreme Court has stated that, quote, the unrestrained 

interaction of competitive forces will yield the best allocation of our 

economic resources; the lowest prices, the highest quality and the 

greatest material progress, unquote. In short, competitive free markets represent the cornerstones of American progress and the success of our democracy. The antitrust laws were established to protect these precious values. 

By providing a mechanism to ensure that competition is not unreasonably hindered, the antitrust laws can be seen as further 

bracing the competitive foundation of this country. The Antitrust 

Modernization Commission was created by Congress to examine 

whether laws written more than 100 years ago were appropriate 

and continue to be for the modern economy. The commission’s conclusion that the antitrust laws are basically sound is one I fully 

support. 

3 

That being said does not eliminate the possibility for improvements, either in the actual legislative language of the laws or more 

rational enforcement of the existing laws. An issue that may not 

have raised competitive concerns 20 years ago might be one for the 

agencies charged with antitrust enforcement to reexamine. For example, the joint guidelines issued by the Department of Justice and 

the Federal Trade Commission on health care have not been evaluated in nearly 20 years. If this Committee can examine changes in 

the health care market and the impact of mergers on industry concentration, then it may make sense for the antitrust enforcement 

agencies to reassess their guidelines on antitrust enforcement. As 

with the Antitrust Modernization Commission, they may find that 

these guidelines are sound, but periodic review certainly may be 

warranted. 

Of course, such reevaluations need not result in any modifications to any antitrust law enforcement by the Federal Trade Commission or the Department of Justice. However, good management 

suggests that standards developed by the government should be reevaluated on a periodic basis; otherwise, it is conceivable that government enforcement of the antitrust laws may not serve their purpose of ensuring competition given the changes in market conditions. I look forward to the thoughtful discussion from the witnesses and their ideas on how to ensure that small businesses will 

face a free competitive market. 

And I again thank you Madam Chairwoman for holding this 

hearing, and I yield back. 

[The statement of Ranking Member Chabot is included in the appendix at page 45.] 

Chairwoman VELA ́ ZQUEZ. Thank you. 

And it is my pleasure to welcome the Honorable William Kovacic. 

The Honorable William Kovacic was designated Chairman to the 

Federal Trade Commission on March 30, 2008. Prior to this appointment, he was a commissioner with the FTC. The Federal 

Trade Commission is the only Federal agency with both consumer 

protection and competition jurisdiction in broad sectors of our economy. 

Welcome. 

STATEMENT OF THE HONORABLE WILLIAM E. KOVACIC, 

CHAIRMAN, FEDERAL TRADE COMMISSION 

Mr. KOVACIC. Thank you, Madam Chairwoman, Ranking Member Chabot, Congressman Westmoreland and Members of the Committee. 

I am very grateful for the opportunity to be here today to discuss 

the FTC’s role in addressing competition policy, small business, 

and new entrepreneurship. I have submitted a statement on behalf 

of the Commission for the record, and what I have to say today represents my own views, not necessarily those of my colleagues. 

I completely share the Chairwoman’s view about the importance 

of new business development and the role that new entrepreneurship has played in providing a uniquely powerful source of vitality 

and rejuvenation for our economy. And I believe it would be fair 

to say that if my colleagues were here with me today they would 

agree with that sentiment completely. 

4 

What I would like to do is to highlight three ways in which I 

think our agency today and in the future will be seeking to preserve what Mancur Olson, the economist who served for so many 

years at the University of Maryland, in talking about new business 

development described as an enabling environment for new entrepreneurship. The first thing that we try to do is to challenge private restrictions upon behavior under the antitrust laws that tends 

to do two things: We challenge behavior that tends to raise the 

costs of key inputs on which small businesses and large businesses 

rely, inputs that have a uniquely significant role in the growth and 

development of small businesses. Examples include the work that 

we do in the professions to ensure that professional services are 

priced at relatively low rates and feature innovative means of delivery so that small and large businesses alike are able to achieve 

cost reductions. 

The second form of conduct we attack is behavior that unreasonably restricts access to the market. Where private actors and incumbent firms band together, for example, to deny opportunities 

for innovative new firms to gain access to the market, a number 

of our cases have challenged that behavior. Our current program 

which involves real estate is but one example of areas where we 

have sought to ensure the innovative new models of providing important services get a test in the marketplace on the merits. 

The second area that is a key area of our concern involves what 

I would call research and advocacy. Because Congress entrusted us 

not simply with enforcement authority but saw our role to be very 

much that of providing research, being a convenor of events, we 

take this role very seriously in providing advice to other public institutions, to challenge and force a rethink of restrictions on entry 

into the market that we regard to be unnecessary to achieve legitimate policy goals and that unduly restrict access to the market. 

That has been a major focus of our work involving Internet sales 

of wine and other products. 

An increasing focus of our work is to inform policy development. 

That is to focus on emerging trends and, where necessary, to engage in a probing reassessment of what we have done. That was 

the ranking member’s comment about the importance of always reevaluating the wisdom of what we have done. And for myself, given 

the work that I have done in the area of development economics 

in other countries around the world, an increasing concern for me 

is why poverty persists in areas of severe economic disadvantage 

and where it might be possible for our programs to focus more carefully on artificial impediments to the market in parts of our country in which we see persistent, difficult, and often unsuccessful efforts by entrepreneurs to enter the market. I am not suggesting we 

will find precise and always successful solutions to that, but I think 

the general questions of economic disadvantage and new business 

development tend to be extremely important concerns to me. I will 

use the resources as well as I can of our agency to promote efforts 

to explore that. The last is to provide guidance and information to 

entrepreneurships. To provide guidance, we prepare a number of 

materials for small businesses that might not be able to afford the 

elegant services of a fairly costly law firm by which people, in relatively plain and simple terms—and I would like to present these 

5 

for your record as an illustration of what we do—can understand 

what the mandates of the law are and, through consumer protection measures such as the franchise rule, to ensure that new businesses contemplating entry into the market have a better informed 

judgment of what lies ahead for them. 

This is a snapshot of our program. I welcome the opportunity to 

address your comments and questions. And I hope this is the first 

of a number of occasions in which we can carry on a conversation 

about this important area of concern. 

Thank you, Madam Chairman. 

[The statement of Mr. Kovacic is included in the appendix at 

page 70.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Chairman. 

I hear you, hear you talk about agreeing with us regarding the 

importance of promoting new business through business development. I would like to hear from you with more specificity, from 

your perspective, how does the presence of small firms in the marketplace benefit consumers? And in particular, what steps has the 

FTC taken to actively work with the small business community on 

competition issues besides showing me the guidance that is going 

to be made part of the record? 

Mr. KOVACIC. I would say one of the most important benefits, 

though not the only one, is the one that you highlighted in your 

comments before. And that is the importance of innovation, the significance of having the new idea, the new form of organization 

come into the marketplace. In many instances, it is the small entrepreneur, it is the individual perhaps working in a large organization who has the idea about how to enter. So I would underscore 

that as being perhaps the most important single benefit to consumers. 

A large number of our programs seek to make sure that there 

are not artificial obstacles placed in the way of these individuals. 

And we do work through a fairly broad program of consultation 

with a variety of groups outside our walls. Academics who study 

these circumstances, trade associations before whom we appear 

regularly to discuss our programs, and to learn from the convening 

of workshops and programs - these are all measures by which we 

seek to make sure that we understand what is taking place in 

these communities and can make effective policies to address these 

concerns. 

Chairwoman VELA ́ ZQUEZ. Enforcement of our Nation’s antitrust 

laws is critical to maintaining a level playing field and, of course, 

keeping markets open for small businesses. What kind of anticompetitive conduct do you see as posing the biggest threat to 

small firms, and how is the FTC working to counter these threats 

to entrepreneurs? 

Mr. KOVACIC. I would say the single threat that strikes me as 

most important, though not the only, is where you have incumbent 

providers of a service seeing a threat by a new service provider who 

in particular threatens to topple the existing structure of things by 

doing something new and innovative, where the incumbent providers either ban together on their own to take measures to keep 

that person out, or they go to public institutions that have the 

power of law through regulation or statute to keep these individVerDate Aug 31 2005 15:32 Oct 17, 2008 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\44254.TXT RUSS
6 

uals out. We bring a number of cases that challenge the private restrictions, we use our advocacy program to approach public institutions and say that is harmful. 

But I would say at the same time, we have a similar concern 

about the capacity of a single dominant enterprise to do the same 

thing acting on its own. I put first in the hierarchy the collective 

effort to exclude. I would add to that instances in which a single 

firm, either using private means or again going to public authorities and saying keep the threat off my back, both of those are important to us. 

Chairwoman VELA ́ ZQUEZ. I understand you are going to be holding a series of hearings to mark the 100th anniversary of your 

agency. Are you planning to hold any hearings with the small business sector? 

Mr. KOVACIC. In a number of instances, I expect representatives 

of small business groups or individuals who started small and became large to address issues associated with the development of 

small business. I expect that will be a perspective. And we will be 

seeking it not only with the community at home but overseas, too, 

to tap experiences that foreign jurisdictions have had in trying to 

promote an enabling environment for their firms, too. 

Chairwoman VELA ́ ZQUEZ. Why is it so difficult just to design one 

hearing to listen to small business issues as they relate to antitrust 

laws? 

Mr. KOVACIC. I found that since we are having perhaps a total 

of over a dozen individual events - and I am glad to discuss more 

with you and the Committee about whether the structure of these 

programs might be reconsidered - I find it useful to have them as 

part of a larger mix of organizations to say, let me tell you how my 

own situation is similar to or different from the others. I welcome 

the opportunity to speak with you, your colleagues and your staff 

about considering whether this assumption is a sound one. 

Chairwoman VELA ́ ZQUEZ. I welcome that. 

The Justice Department recently issued a report on single firm 

conduct. While the FTC and the DOJ held nearly 20 joint hearings, 

the FTC refused to sign the report. The FTC’s dissent stated the 

policies in the report placed the interest of monopolies ahead of 

consumers and downplaying the risk of under-enforcement. How do 

the commission’s views differ from DOJ on monopoly policy? 

Mr. KOVACIC. I had my own statement in response, but I will try 

to say what I think my colleagues might agree with to put my finger on one thing. My sense is that the modern path of our jurisprudence, especially Supreme Court jurisprudence over the past 30 

years, has been one of giving dominant enterprises progressively 

greater freedom to make business choices as they wish; and that 

the zone of exposure that they face for exclusionary conduct has 

been shrinking progressively over time. For myself, I don’t see 

dominant enterprises today with being faced with particularly severe risks to their behavior over time. And with respect not only 

to dominant firms but other areas of our jurisprudence, I think the 

Supreme Court’s efforts in particular to respond to what they think 

are infirmities in private rights of action are starting to encumber 

public enforcement authorities, too. 

Chairwoman VELA ́ ZQUEZ. So that explains why you didn’t sign— 

7 

Mr. KOVACIC. That goes to the heart of my own views. And I suspect my colleagues wouldn’t disagree with me, in fairly direct 

terms, you have seen as well, their own more specific concerns 

about the Justice Department report. 

Chairwoman VELA ́ ZQUEZ. Last year, we held a hearing on health 

care antitrust laws in this Committee, and there has been a concern among small businesses regarding the lack of enforcement of 

antitrust laws by the FTC and the DOJ. While consolidations are 

up, the rate of merger challenges ranks among the lowest in modern history. Why have antitrust enforcement activities plummeted 

during this administration, and what are the consequences for entrepreneurs and consumers? 

Mr. KOVACIC. I hear that comment a lot, but it doesn’t remind 

me at all of the agency I work for. I think a careful examination, 

and I will speak for my own agency, with respect to merger policy 

in particular, enforcement has been every bit as robust as it was 

in the decade before. And I would be happy to review with you in 

more detail what I think the numbers show. But I would even go 

farther to say that, when you look at a number of measures that 

we have pursued in the Federal Courts, if anything, we have been 

trying to extend the zone in which we look at individual transactions at greater detail. So it doesn’t really capture the agency 

that I am talking about, and I think that it is not just my intuition. 

Again, I would be delighted to have a conversation with you and 

the Committee about this. 

Chairwoman VELA ́ ZQUEZ. I guess that, in 2007, The Wall Street 

Journal disagreed totally with you when it said that the Federal 

Government has nearly stepped out of the antitrust enforcement 

business leaving companies to mate as they wish. Isn’t it true that 

consolidation is up? 

Mr. KOVACIC. I don’t know that members of the Committee 

would agree with me completely, but I would ask you to accept the 

possibility that there are times when journalists lapse and perhaps 

don’t always get it exactly right. 

Chairwoman VELA ́ ZQUEZ. Okay. Answer my question, is consolidation up or not? 

Mr. KOVACIC. No, no, I think not - and not above levels in the 

areas that we are looking at that prevailed in the decade before. 

Now, we can have a larger conversation about whether— 

Chairwoman VELA ́ ZQUEZ. Okay. So let me ask you, in the area 

of health care insurers is consolidation up or not? 

Mr. KOVACIC. I know there have been a number of transactions 

but I don’t see the ultimate level of consolidation to be at a range 

that would not have been permitted in the previous decade too. 

Now, I think it is a valid point for discussion about whether things 

are at the right level. 

Chairwoman VELA ́ ZQUEZ. You are telling me that consolidation 

with insurers is not up in this country. 

Mr. KOVACIC. I am saying the level of consolidation is up. 

Chairwoman VELA ́ ZQUEZ. What is the level of consolidation? Can 

you be more specific? 

Mr. KOVACIC. The health insurer sector is not one that we oversee when it comes to mergers and acquisitions. I don’t have the 

specific data on trends available there. But this is something that 

8 

I would be glad to discuss in more length. The Department of Justice has been the agency that has looked at health care consolidation. But my impression from a distance is that they are using well 

accepted standards to examine transactions. I think a useful focal 

point for discussion would be to look. And we would be glad to engage in that discussion about specific areas or types of transactions 

that perhaps ought not to have been allowed. That is a valid point 

for consideration. 

Chairwoman VELA ́ ZQUEZ. Last October, the Committee held a 

hearing on how the market power of insurers is harming the ability 

of physicians to care for patients. As chairman, what are your 

plans to examine this issue? 

Mr. KOVACIC. We have been having a number of workshops that 

deal with efforts of individual physicians to provide care. This is an 

issue that I expect will continue to be a focal point for our own research and for these public deliberations. So I expect that it is an 

issue that will remain high on our agenda. 

Chairwoman VELA ́ ZQUEZ. And you examine this by conducting 

workshops? 

Mr. KOVACIC. We conduct workshops. It is an argument that is 

often raised in our enforcement efforts with regard to what we believe to be impermissible forms of collaboration among physicians. 

Chairwoman VELA ́ ZQUEZ. So let me ask you, can you explain to 

us why in the past 7 years have all nonmerger enforcement actions 

involved health care providers with virtually no enforcement involvement involving health insurers? 

Mr. KOVACIC. For ourselves, the insurance portfolio itself is one 

that has been the province of the Department of Justice. That is 

in the rough distribution of authority that we have over matters, 

that— 

Chairwoman VELA ́ ZQUEZ. Isn’t it true that the administration 

has focused more on antitrust enforcement activities on physicians 

but not on insurers? 

Mr. KOVACIC. With our area of authority, our focal points have 

been physicians and hospitals. 

Chairwoman VELA ́ ZQUEZ. I will come back in the second round. 

And I will recognize Mr. Chabot. 

Mr. CHABOT. Thank you. 

Chairman Kovacic, just a couple of questions. Are there procedural changes that you would recommend or that you think that 

we should consider that they be made in the antitrust laws that 

would increase competition in the marketplace, and if so, what type 

of things do you think that we should consider? 

Mr. KOVACIC. One thing that I would take a careful look at, Congressman, is the full spectrum of exemptions that now affect commercial activity in our country. I think, for myself, and it is a fairly 

familiar list, I think that one of the suggestions of the AMC report 

was that exemptions that be a significant focus of attention. I think 

that would be useful. I also think it would be very helpful for Congress to consider eliminating specific curbs on our authority to act. 

We have recommended, for example, that the common carrier exemption be reconsidered. There are limitations in our legislation 

that curb our capacity to do certain types of studies involving insurance unless we have approval first from the Congress. So two 

9 

focal points I would mention: one, exemptions generally; and second, I think specific limitations on our own authority to act. 

Mr. CHABOT. The FTC, as you mentioned, generally doesn’t support legislation concerning the granting of exemptions from the 

antitrust laws. Would you consider such exemption appropriate in 

a market in which either the purchaser or the seller already has 

an exemption from antitrust laws? 

Mr. KOVACIC. Generally speaking, no. We would certainly examine and consider specific arguments, as well as the context in 

which they are offered, but we would generally not. And as I suggested before, in the spirit of the AMC report, we would like to go 

back and reexamine in many instances the sensibility of the exemptions that already exist. 

Mr. CHABOT. Let me ask you about kind of a specific example 

here. And you can answer it to the degree that you feel is appropriate. Is the bowl, the College Bowl Championship Series in college football, in your opinion, does it constitute a contractor conspiracy to restrain trade since certain universities have contracts 

with certain bowl sponsors that exclude other institutions of higher 

education from participation? 

Mr. KOVACIC. Owing to a very important limit on our jurisdiction, Congressman, that is not one that I have looked at a great 

deal. If you were to take away to a large extent the not-for-profit 

exemption that excludes our consideration of these issues, I would 

like for us to be in the position to know more about this and give 

you a fuller answer. And, in my own view, not-for-profit institutions are educational institutions but they are also large entertainment providers. The extent to which the not-for-profit exclusion 

keeps us from looking at that sector of the economy, I think, is unwise. That is the carve-out from our jurisdiction that I would applaud Congress reconsidering. 

Mr. CHABOT. And another somewhat specific example is the auto 

manufacturers and the fact that they don’t provide independent 

auto repair shops with key computer codes and other pertinent repair information. Would that be considered a reasonable restraint 

of trade or could you comment on that area? 

Mr. KOVACIC. Yes, Congressman. I think the general trend in 

doctrine since the early 1990s has been one of giving original 

equipment manufacturers a greater measure of control over how 

the distribution of know-how takes place downstream with respect 

to their own retail outlets and to independents as well. It seemed 

in the early 1990s that our Supreme Court was giving a fairly 

broad charter for competition law to take a look more closely at 

these arrangements. The lower courts since then have backed off 

some of those suggestions. I would say that it is comparatively difficult to establish under existing doctrine a cause of action for those 

types of restrictions. I would say, as my predecessor mentioned I 

think 2 years ago in a hearing, we think there is a great deal of 

promise at a minimum to use the process of voluntary industry cooperation in negotiations that have taken place before to see if 

there might be a sensible result achieved between the original 

equipment manufacturers and the independent repair shops. 

Mr. CHABOT. Thank you. 

10 

And then, finally, related to the McCarran-Ferguson Act, could 

you comment on the imbalance in bargaining position relative to 

physicians in hospitals and their inability to negotiate contracts 

with health insurers? And the Chairwoman, to her credit, has been 

very focused on trying to do what we can in this Committee to improve affordable, accessible health care to small business folks. And 

that is one of the things, in traveling around my district, is one of 

the things I hear over and over again. One of the greatest challenges of small business folks is providing affordable health care 

for their employees. So could you discuss physicians in hospitals 

and their ability or inability to negotiate when it comes to the 

health care company? 

Mr. KOVACIC. I know this has been a contentious point. It is one 

we look at in great detail, whether we are looking at hospital mergers or collaborations involving physicians. Our sense in many instances is that physician groups in hospitals in fact have strong 

countervailing power when they deal with insurance companies. 

My larger plea is to put us in a position to be able to address these 

phenomena more competitively. I am not fond at all and I speak 

for myself, of the McCarran-Ferguson exemption. I think that is 

very much worth a rethink by this body. Again, -you find in our 

statute a limitation imposed in the early 1980s that curbs our ability to do research and studies concerning the business of insurance 

without a fairly elaborate process of approvals, I think it would be 

time to put us in a position to examine and rethink some of the 

positions I have been suggesting to you. It would be helpful if that 

were disbanded. 

Mr. CHABOT. Thank you very much. 

Madam Chair, I yield back my time. 

Chairwoman VELA ́ ZQUEZ. Ms. Hirono. 

Ms. HIRONO. None at this time. 

Chairwoman VELA ́ ZQUEZ. Mr. Westmoreland. 

Mr. WESTMORELAND. Thank you, Madam Chair. 

Mr. Chairman, where does intellectual property rights come into 

play when you are trying to weigh competition, where does that 

come in? 

Mr. KOVACIC. Increasingly the perspective of the competition 

agencies, certainly going back to the mid-1990s, has been to treat 

intellectual property as a valuable form of property right on a 

plane with other forms of valuable property; that is, to regard the 

property in ideas as being an extremely important asset, just as we 

could point to other forms of physical property. There has been a 

trend to regard those property rights as being extremely important 

and to take a great deal of care to see in what respects the specific 

character of property in ideas dictates any variation or adjustment 

in the way in which we enforce the laws. T000his has been a matter of pressing concern for both of the competition agencies, certainly going back a long period of time, but intensely since the mid1990s when the agencies revised their antitrust IP guidelines. 

Mr. WESTMORELAND. I have got an iPod, and it quit working, and 

so I took it to where I bought it. And they told me that I would 

have to take it back to Apple to get it looked at, that they didn’t 

have the ability to do it, that only an Apple store could do it. Would 

you think that when Apple sells an iPod, that they need to give you 

11 

a manual of how you could repair it yourself, or is that some type 

of antitrust something that I have got to go back—there is only one 

place I can take it? Is that an antitrust—if I have a complaint with 

you, can I call you and tell you that I can only get my iPod— 

Mr. KOVACIC. My phone is 202-326—(laughing) I think it depends from our point of view on at least two things: One is, with 

respect to that device, do you have other choices in the marketplace? That is, let’s assume there are a number of them, and they 

chose a policy that irritated and frustrated you. I suspect your reaction and mine might be the next time I was thinking of buying 

things, I am not going to buy this device from them. In fact, I remember that producer’s name, I am not going to buy anything from 

them because they made my purchasing experience worse. 

A second thing we would look at carefully is, why the limitation? 

One argument that would depend on a more careful factual evaluation, is assumptions we might make about the care with which individuals who would be able to do the repairs. If one could make 

a good argument that it took a highly specialized type of individual 

with a good deal of training to do that right, we might think that 

there is a greater basis for restricting who could do that, because 

if it doesn’t work after the repair, you are going to look at the 

name on the device and you will probably remember that rather 

than that it was Bill’s Repair Shop that did the work on it. That 

is the kind of issue that we would spend a great deal of time looking at in careful detail. 

Mr. WESTMORELAND. The aftermarket, which the ranking member mentioned, as far as automobile repairs, you mentioned an 

independent industry group, I guess, that handles some of the complaints that would come from an automotive repair shop or whatever as far as getting some of these codes or whatever for repair. 

Do you know from that group how many complaints have been filed 

in a year, and the total number of repairs done to automobiles once 

they leave that showroom floor, and what percentage is done by 

who? 

Mr. KOVACIC. I don’t know those numbers, Congressman. 

I know that, indirectly, one thing we track very carefully is how 

many complaints come our way. And certainly over the past 12 

months, with respect to end users, the consumers you were referring to before in your other example, we have not received complaints of this type. Occasionally we get them. I am not acquainted 

with what the experience within the dispute resolution process 

itself has been. Certainly if the Committee, you or other researchers, have data on that, that we ought to be focusing on, I would 

welcome the chance to do that. 

Mr. WESTMORELAND. Would you be surprised if I told you that 

of 500 million post-warranty service orders are done each year, 75 

percent of those are done by independent repair services; 25 percent by new car dealers? And I think that there was less than 100 

complaints last year that was filed with the National Automotive 

Service Task Force. That doesn’t seem like a large number when 

you think of those repairs. Do you think that you have any trained 

staff enough? Because I understand in some of the hearings they 

had last year, I didn’t attend any of the hearings, but my understanding was they wanted your agency to be involved in this, do 

12 

you think that you have got the staff, the trained personnel to investigate, respond, compile, update these stats and statistics and 

innovations that are in the automobile industry every year? 

Mr. KOVACIC. One of the reasons that we have found it helpful 

to explore the sorts of alternative dispute resolution in the industry, voluntary industry cooperation mechanisms that you described 

before, is that it is a way to see if we can get good solutions that 

doesn’t involve that kind of commitment of resources. I would add 

that there have been a number of areas in which Congress has 

asked us at different times by statute to take on demanding new 

challenges. We have a pretty good history of responding to those 

challenges with resources that Congress has generously provided 

us. So I wouldn’t say immediately that it would be an easy thing 

for us to do. I think some of these other paths are certainly worthy 

of further exploration. But were the choice to be made to ask us 

to do it, it has been a highly adaptable and successful process by 

which we have taken on major challenges. 

Chairwoman VELA ́ ZQUEZ. Would the gentleman yield for a second? 

Mr. WESTMORELAND. Yes. 

Chairwoman VELA ́ ZQUEZ. I hear you when you talk to us about 

listening and voluntary agreement and workshops. He is asking 

you about complaints that have been raised. Can you talk to us 

about any specific action taken on behalf of small businesses regarding enforcement of antitrust laws? 

Mr. KOVACIC. Many of our cases involving real estate, professional services, restrictions on the use of the Internet, has— 

Chairwoman VELA ́ ZQUEZ. And specifically on the issue that he 

raised. 

Mr. KOVACIC. On the issue of auto repair, no, we haven’t. We 

have done investigations. 

Chairwoman VELA ́ ZQUEZ. And? 

Mr. KOVACIC. We haven’t brought any cases. We do look at the 

complaints carefully. As I mentioned before, the existing legal 

framework on which an antitrust complaint would be premised imposes some extremely demanding standards, in my view, about 

bringing cases. But we have taken complaints that have come to 

us, Madam, with the greatest care. 

Chairwoman VELA ́ ZQUEZ. I yield back. 

Mr. WESTMORELAND. And I thank the Chairwoman for bringing 

that up because I think it is important to know that you have 

looked at some of these cases. And I am assuming you are saying 

that they haven’t risen to the level of where you feel like there has 

been any action needed or necessary from the FTC? 

Mr. KOVACIC. That is correct. 

Mr. WESTMORELAND. Madam Chairman, I will yield back the balance of my time and thank you. 

Chairwoman VELA ́ ZQUEZ. Mr. Altmire. 

Mr. ALTMIRE. Thank you, Madam Chair. 

Mr. Chairman, thank you for being here. 

Mr. KOVACIC. Thanks for the chance to do this. 

Mr. ALTMIRE. Of course. I wanted to focus on antitrust law and 

get your opinion on something more than anything else. There was 

a recent Justice Department paper that said, and I quote, the funVerDate Aug 31 2005 15:32 Oct 17, 2008 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\44254.TXT RUSS
13 

damental reason we favor competition over monopoly is that competition tends to drive markets to a more efficient use of scarce resources. So I was wondering, in your opinion, given the scope of 

this Committee, how does participation of smaller firms in the market increase economic efficiency? 

Mr. KOVACIC. I think the economy and the jurisdiction that provides an environment in which the best ideas get a test in the market is the jurisdiction that is going to be more prosperous than others. Quite often, the good idea, whether it is about a product, about 

how to deliver an existing product, how to organize a particular 

form of business entity, those ideas often come from new entrepreneurs, so that the competition of new entrepreneurs in a number of different settings is a tremendous spur to economic progress. 

Antitrust enforcement and a collection of policies that I would call 

competition policy have a tremendous contribution to make. This 

Committee’s work is part of that. 

Mr. ALTMIRE. In your opinion, do you see any correlation or anything you want to add about what we are dealing with as a Congress with a larger financial market and where smaller firms 

would fit into that? 

Mr. KOVACIC. Financial services is an area where Congress decades ago decided that, with the most limited exceptions, the FTC 

does not participate. That is one of the major carve-outs from our 

jurisdiction. There are some areas where we act. With respect to 

the larger phenomena that this body has been focusing on in recent 

days and the upheaval in that sector, those are institutions, for the 

most part, that are beyond the scope of our examination. 

Mr. ALTMIRE. Thank you. 

I have no further questions Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Mr. Shuster. 

Mr. SHUSTER. Thank you, Madam Chair. 

And thank you for being here today. And sorry I didn’t hear your 

testimony earlier and didn’t hear some of the earlier questions, so 

if I ask any that are redundant, please let me know. 

But my colleague from Georgia mentioned intellectual property 

rights, and in full disclosure, I should say I am a former automobile dealer, so I know firsthand the situation here. And my question deals with, what are the rights of, when you are viewing these 

cases, on investment in not only the auto manufacturer investing 

huge sums of capital to develop these products and parts but the 

auto dealer, who is also investing thousands and millions of dollars 

in some cases on repair facilities, and that they should have that 

competitive advantage in my view. If I am spending the money, I 

am the one who has to sign a deal with the auto manufacturer to 

carry their product line, what weight is given to that and how am 

I protected to make sure my investment is protected when you 

come into a situation? 

Mr. KOVACIC. Something that you have certainly observed from 

your previous life in that sector is that the automobile sector in 

North America, I think we might say, is pretty competitive. 

Mr. SHUSTER. Extremely. 

Mr. KOVACIC. During my childhood growing up in southeastern 

Michigan, there were four companies you talked about; three big 

ones, American Motors on the fringe and a couple of quaint things 

14 

called Volkswagen Beetles driving around. That is not the industry 

we see today, is it? Notice how many choices for original equipment 

consumers have. A basic assumption we would make as a starting 

point is that those manufacturers have every possible incentive to 

get things right with respect to the design of the distribution system. And generally speaking, providing incentives for them to invest in improving that distribution system is an important value to 

be recognized. 

At the same time, if I were to go back to my home at George 

Washington University where if I weren’t doing this I would be 

teaching contracts in the first semester, I don’t doubt that there 

are instances in which you see disagreements between the manufacturer and the dealer about that relationship over time. Perhaps 

you had some of those yourself. 

Mr. SHUSTER. Every day. 

Mr. KOVACIC. Every day. And generally, in our country, with respect to those kinds of disagreements, that has largely been the 

province of contract law. It is not that the disappointed dealers invariably are marching into courtrooms to wage battles over time. 

There can be instances in which the manufacturer or perhaps a 

dealer can behalf opportunistically to exploit certain investments 

that are made. But contract law has generally been the province 

where we examine that. I think because our courts and our Supreme Court has been concerned about those incentives to invest, 

they have tended to impose fairly demanding requirements on antitrust plaintiffs, including us, who would want to upset or challenge 

activity and behavior that is taking place in the course of that relationship. 

Mr. SHUSTER. The notion that it is anticompetitive out there because the dealers or the manufacturers aren’t giving out that information to me is a ruse I believe because, as my colleague stated, 

of the 500 million repairs, 70 to 80 percent of them are done by 

independent shops. Also, within, I am sure within 45 minutes of 

where we sit today, you can get any car that you—a Toyota, a 

Ford, a Chrysler—you can get it repaired by several, multiple dealerships around the area, so the competition is robust. Firsthand, 

there were 45 Chrysler dealers within 45 minutes of my store. 

Mr. KOVACIC. Congratulations (laughing). 

Mr. SHUSTER. So the idea that there is not competition, would 

you agree with that? I mean, there is robust competition between 

automobile dealers. 

Mr. KOVACIC. I believe there is. And I wouldn’t denigrate the role 

that independents have. Sometimes independents, and I suspect it 

was your experience, too, sometimes they see a better way to do 

this. And we would be interested and we do examine and take seriously the examination of why they would not receive access. And 

there are instances in which we would be doubting of that. But 

generally speaking if we compare the automobile sector that we 

know today to the automobile sector of, well, my childhood, it has 

been a dramatic transformation in the direction of better choices 

for consumers. 

Mr. SHUSTER. And I think you make an excellent point. Before 

I was in the automobile business I worked with Good Year Tire 

and Rubber Company and spent time in their real time operations, 

15 

which are independent operators. And many times you do find that 

they can find a better way or more efficient way to repair an automobile. So I have seen it from both sides, and I just—this legislation that I think we are talking about is, just seems to me it is not 

necessary because there is robust competition, there is information 

provided to the independent garages, and it is maybe not perfect 

information flow, but it gets out there. So I appreciate your time 

today. Thank you. And I yield back. 

Chairwoman VELA ́ ZQUEZ. Ms. Hirono. 

Ms. HIRONO. Thank you Madam Chair. 

Mr. Chairman I don’t know if you have had a chance to read the 

statement of the American Medical Association. 

Mr. KOVACIC. I have, Madam. 

Ms. HIRONO. You have. 

Mr. KOVACIC. Yes. 

Ms. HIRONO. So their concern is, in these challenging times, 

where mainly small practices, solo practices, are trying to figure 

out ways to keep going, the scrutiny on physician collaboration 

through network arrangements, their statement indicates that the 

FTC has put a very high bar on these kinds of arrangements to the 

point where most physicians are not able to avail themselves of 

these kinds of arrangements. Would you like to comment on that? 

Mr. KOVACIC. Yes, Madam. I would disagree. We can debate 

what the high bar is. I think we have applied sensible standards. 

And I think to a degree that I would disagree with the very 

thoughtful people who put that statement together. I would disagree with their characterization of how carefully we have been reviewing and considering arguments about what kinds of integration 

of activity promote desirable marketplace consumer ends. We think 

we have been very attentive to arguments based on efficiencies, 

based on what the antitrust laws consider to be procompetitive justifications to arguments that would justify different types of collaboration. 

But let’s suppose I am wrong, and I don’t think I am. We have 

also been engaged in a fairly intensive effort in recent years to reexamine those assumptions. We have had two workshops that deal 

directly with this issue within the past 12 months. We are engaged 

in continuing conversations with the AMA. So while I think there 

is enormous flexibility and sensitivity in our system to the assessment of these kinds of arguments, we are always inclined to reassess and to continue a discussion with not simply the industry but 

with other interested groups to make sure we have got things 

right. And I look forward to continuing that discussion with the 

AMA, with other service providers and with others who are experts 

in following developments in the sector. 

Chairwoman VELA ́ ZQUEZ. Will the gentlelady yield for a second? 

Ms. HIRONO. Yes. 

Chairwoman VELA ́ ZQUEZ. I would welcome your refreshing position about reconsidering, because in the past, people have said that 

they were not wrong and there were a lot of people who asked us 

to vote for the war based on weapons of mass destruction. Well, 

they were wrong. Maybe you are wrong. So I would like for you 

later on before you leave that you identify the member of your staff 

who will stay here to listen to the second panel. 

16 

Mr. KOVACIC. I would say there will be several of my colleagues 

who will be here to hear the second panel. I would offer one thing 

that I ask the Committee to think about; it is rare in the areas in 

which we enforce the responsibilities that you have given to us, 

that the people we sue, and in the mergers we seek to challenge, 

it is very rare for the parties in those transactions to say, ′′my 

goodness, the FTC was right.′′ They almost invariably say we are 

wrong. If the suggestion by any industry group or group of parties 

that we are wrong was ever taken to be a certifying mark of the 

correctness of their position, we would be out of business. 

Chairwoman VELA ́ ZQUEZ. Well, given the track record in terms of 

enforcement and the number of cases, that is an open question. 

Mr. KOVACIC. I don’t think for this agency it is, Madam. I say 

whether you are looking at numbers of cases, whether you are looking at outcomes, having watched my agency for the past three decades, I stack it up happily against any other. 

Chairwoman VELA ́ ZQUEZ. I yield back. 

Ms. HIRONO. Thank you, Madam Chair. 

I would like to continue. With regard to the physician collaboration of these kinds of arrangements, is FTC scrutiny based on Section 5 of the FTC Act or of Section 7 of the Clayton Act? 

Mr. KOVACIC. We enforce both, Congresswoman. 

Ms. HIRONO. With regard to these collaborations? Because Section 7 has to do with mergers and acquisitions. 

Mr. KOVACIC. The framework in Section 7 also picks up contractual arrangements, what might be called joint ventures, that fall 

short of an actual combination of ownership. So we use both instruments. I would say the tendency over time has been for the analytical techniques used in both areas to converge so that, in many 

ways with slight variations, we are asking the same basic questions about likely competitive harm, market power, and procompetitive justifications. 

Ms. HIRONO. So those are the three major issues that you are 

concerned with with these physician collaborations, because clearly 

they can’t be engaging in any kind of a price fixing activity, is that 

correct? 

Mr. KOVACIC. Generally speaking, there is a breathtakingly serious prohibition against efforts by direct rivals to set prices. 

Ms. HIRONO. Yes, that is per se. 

Mr. KOVACIC. Yes. But there are qualifications to that. And our 

antitrust jurisprudence and our policy have recognized them; we 

recognize them. There are instances in which restrictions which, if 

they were standing on their own with nothing else, might very well 

put you in front of a Grand Jury and send you to prison can be 

justified, and we take those justification arguments very seriously. 

Ms. HIRONO. Well, having just read through the AMA testimony, 

it is a little difficult for me to understand how it is that a group 

of physicians who have to compete on the basis of price and other 

ways, that somehow these kinds of arrangements would not pass 

scrutiny. It is sort of hard for me to understand. 

Mr. KOVACIC. But might we agree that if any group of service 

providers do nothing else but say, ′′let’s raise our rates,′′ without 

anything else we would be very suspicious of those arrangements. 

So the real issue is, is there something else going on beyond just 

17 

the decision to raise rates? That is really the issue about which we 

have a disagreement with the AMA, but it is also precisely the 

focal point of the continuing discussion that we look forward to 

having with them. 

Ms. HIRONO. I think with the concern that we have that the high 

cost of health care, that any reassessment on your part as to how 

you are going to enforce these kinds of arrangements I think is a 

welcome statement. 

Mr. KOVACIC. I do pledge us to engage in that discussion, which 

I would say has been a characteristic of our practice for decades. 

I would reiterate that, at the moment, yes, to the dismay of the 

AMA’s statement, we think that we have things set in the right 

place, but we are neither arrogant nor stubborn to think that there 

is not always room to continue the discussion and reevaluate. 

When facts and knowledge change, so do we. 

Ms. HIRONO. Thank you. 

I yield back, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Ms. Clarke. 

Ms. CLARKE. Thank you very much, Madam Chair and Ranking 

Member Chabot; and thank you, Mr. Chairman, for your insights 

today. 

I wanted to sort of turn to some of the current financial crisis 

and its impact on minority and female-owned disadvantaged businesses and whether the Commission is monitoring what impact 

this is having on that sector of our economy in terms of its capacity 

to compete, whether you would share some of your insights with 

us. 

Mr. KOVACIC. Congresswoman, a limiting condition for us with 

respect to most of the service providers that have been the focal 

point of the upheaval in recent weeks and months is that these institutions are beyond our jurisdiction. Congress decided in roughly 

a century ago and in subsequent legislation that our jurisdiction 

did not include the financial services sector. There are limited exceptions to that. So this is basically a sector we do not study, being 

faithful to the limitations in our statute. 

Ms. CLARKE. I think maybe my question was misunderstood. 

Mr. KOVACIC. I am sorry. 

Ms. CLARKE. I understand there are jurisdictional issues, but, 

within your purview, there are going to be businesses that are 

going to be impacted by this. And I wanted to know whether the 

Commission has begun to take a look at that. Because, ultimately, 

everyone outside of the financial sector is going to have to readjust 

for competition, given the credit crunch. And these are also the 

major employers of so many Americans. So while we are up here 

rushing to the rescue, I am assuming everyone else is looking at 

what the ramifications are for their particular domain. 

Mr. KOVACIC. Let me give you one I expect will be significant for 

us in exercising our authority to look at mergers, at questions of 

dominance, at questions of agreements. A major source of strength 

in our economy historically has been the strength of its capital 

markets. It is the capacity of individuals to raise funds by issuing 

stock, by getting loans and issuing debt. We make major decisions 

in individual cases depending upon how readily we think new firms 

18 

can enter the market or how existing entrepreneurs and organizations can expand. 

To the extent that the turmoil and recent experience may adjust 

or dictate an adjustment in those assumptions about how capital 

markets operate, that is certain to affect the way in which we 

evaluate the significance of an individual merger and the possibility that new firms will be able to come into the market and challenge them. So I see that as being a fairly powerful implication. 

Ms. CLARKE. Mr. Chairman, the concern is who ends up at the 

end of day at the table able to participate in those activities, which 

is why I turn to the most vulnerable sector of our small business 

environment, which is that of women-owned, minority owned disadvantaged businesses. 

It would be helpful to make sure that, as you look at particularly 

joint ventures and globalization, where these companies have always been disadvantaged, that we take a look at what the impact 

is going to be or what we project what the impact will be so that 

we can look at the other vehicles we have through our purview to 

be of support to them in this time of financial instability. 

I was wondering whether your Commission would be in fact 

highlighting or looking at that and sort of cautioning or sending 

out a warning so that we can react as quickly as possible. 

Mr. KOVACIC. Congresswoman, this traditionally has not been 

part, this specific set of issues, especially the range of concerns 

about which individuals are able to participate in the market and 

to what extent are historically excluded groups able to get access 

to the market has not been part of the traditional antitrust analysis. For myself, I find this issue to be a compelling one, and the 

question of how historically disadvantaged groups do get access to 

the market and participate is one that interests me intensely. 

I have in mind us doing some things that will look at these 

issues and especially the extent to which existing policies or programs impede the ability of people unnecessarily to get to the market. It is an issue that I would welcome discussing beyond the 

scope of this hearing. I would welcome the opportunity to discuss 

with you and your colleagues and with your staff perhaps more 

specifically how my own interest in making this a topic of research 

might coincide with some of your own concerns. I would be quite 

willing to do that on my own with you or with colleagues of yours 

who would like to explore this more fully. 

Ms. CLARKE. Thank you very much. 

I yield back, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Mr. Chabot. 

Chairman, thank you so very much for being here this morning; 

and if you at least for the record name one of your staff persons 

who will be remaining in the room. 

Mr. KOVACIC. Yes, I would be happy to. Would you allow me to 

glance back at them to make sure that the person I name will willingly nod and say yes. 

Do we have a volunteer? 

Ah, we have three: Kim Vandecar, who is with our Office of Congressional Relations and I think well-known to this office. We have 

David Narrow, who is from our health care group, Bureau of ComVerDate Aug 31 2005 15:32 Oct 17, 2008 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\44254.TXT RUSS
19 

petition. We have Neil Averitt from our Policy and Evaluation Office in the Bureau of Competition. 

That is an awesome contingent. Not only will they report faithfully on what you have to say, they will offer their own thoughtful 

interpretation, too. We will be in good hands. 

Chairwoman VELA ́ ZQUEZ. Thank you, and the gentleman is excused. 

Mr. KOVACIC. Thank you, Madam. 

Chairwoman VELA ́ ZQUEZ. I ask the second panel to please come 

forward. 

Gentleman, welcome. 

WITNESS PANEL II: WILLIAM HAZEL, JR., M.D., JONATHAN 

RUBIN, SAID HILAL, AARON LOWE, and WILLIAM MacLEOD 

Chairwoman VELA ́ ZQUEZ. It is my pleasure to welcome Dr. William Hazel, Jr. Dr. Hazel is a member of the Board of Trustees of 

the American Medical Association. Dr. Hazel is an orthopedic surgeon in private practice from Northern Virginia. He is here to testify on behalf of AMA, which is an organization that advocates on 

issues vital to the Nation’s health; and it is the United States’ largest physicians group. 

Chairwoman VELA ́ ZQUEZ. Welcome. You will have 5 minutes. 

STATEMENT OF WILLIAM HAZEL, JR., M.D., SECRETARY, 

BOARD OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION 

Dr. HAZEL. Good morning, Madam Chair, Ranking Member 

Chabot, members of the Small Business Committee and staff. 

I am Dr. Bill Hazel. I am an orthopedic surgeon in practice over 

in Fairfax, Virginia, and a member of the board of the AMA; and 

I appreciate having the opportunity to testify this morning on 

small business competition policy. 

The health care marketplace has changed dramatically over the 

past decade. Frankly, the FTC guidelines have not kept pace. Current antitrust policies are barriers that slow physician collaboration and hinder our ability to participate in a full spectrum of 

health care initiatives. They have also perpetuated an imbalance in 

the market so that health insurers are able to force physicians to 

accept contracts that often impede optimal patient care. 

The health care antitrust environment has evolved in three significant ways. 

Number one, current FTC policy discourages physician clinical 

integration efforts. The FTC guidelines and advisory opinions to 

date require a level of financial investment that is impractical for 

physicians in solo and small group practices, in other words, about 

75 percent of the physicians in the country. 

Number two, widespread health plan consolidation has eroded 

the market and severely limited our ability to advocate for ourselves and our patients. In the last decade, there have been 400 insurer mergers. Only three were challenged by the DOJ, only three 

of 400; and these mergers have benefited no one but executives and 

shareholders. And the proof is that premiums across the country 

have increased, out-of-pocket patient expenses have gone up, and 

physician payment has declined. 

20 

The third issue is that professional market and regulatory developments are encouraging physicians to collaborate, to collaborate 

on the purchase and use of health information technology and quality improvement initiatives. 

Allowing a more flexible approach to physician joint contracting 

would address these market changes and, in fact, would be procompetitive. Allowing physicians to jointly contract would increase 

competition in the insurance market. 

Creating physician panels is time consuming, and it is expensive. 

It can be a barrier to entry for new insurers through physician 

joint contracting new payers to gain access to panels of physicians 

with wide geographic and specialty distribution. When the physicians themselves undertake the initial task of the network formation, payers may substantially reduce their costs of entry and expansion. 

Joint contracting would also lead to more equitable, better-informed contracts. Most physician practices simply don’t have the 

resources to analyze payers’ contracts. By pooling resources we can 

spread the costs associated with analyzing these contracts and negotiate for improved contracts for our patients. 

Finally, joint contracting would allow physicians to create networks that would facilitate collaboration on health information 

technology and programs designed to monitor patient care and 

quality improvement that folks such as you are encouraging us to 

do even now. 

Acquiring, implementing, sustaining information technology requires extensive financial investments by physicians, but the Congressional Budget Office has documented that health insurers are 

the entities that benefit from cost savings associated with these 

systems. Allowing physicians to negotiate jointly with payers would 

help us reallocate these cost savings appropriately and pay for the 

services. 

Similarly, many physicians lack the ability to participate in quality improvement initiatives. By teaming up in networks, small and 

solo practices can gain the scale necessary for care coordination 

and appropriate data aggregation that allows us to implement 

these initiatives. 

Now current antitrust policy is clearly out of step with the 

changing health care marketplace. This led to overly aggressive enforcement against physicians in certain cases, limited opportunities 

for physicians to collaborate in other cases, and it has permitted 

unfettered, unfettered health insurer consolidation. 

The FTC must update these policies. As the chairman indicated, 

we are currently discussing with the FTC the guidelines on physician joint contracting, which we believe should allow small practices to collaborate on health information technology and health 

care quality improvement initiatives. Furthermore, the DOJ must 

challenge health insurer mergers more aggressively. These steps 

would restore balance to the health care market and ensure an innovative and efficient health care system. 

Thank you, Madam Chair and members. 

Chairwoman VELA ́ ZQUEZ. Thank you, Dr. Hazel. 

[The statement of Dr. Hazel is included in the appendix at page 

70.] 

21 

Chairwoman VELA ́ ZQUEZ. Our next witness is Dr. Jonathan 

Rubin. Dr. Rubin is a partner at the law firm Patton Boggs. Dr. 

Rubin concentrates in antitrust litigation and counseling. He is 

here to testify on behalf of the American Antitrust Institute. The 

AAI is an advocacy organization that seeks to increase the role of 

competition and assure that competition works and challenges 

abuses of concentrated economic power. 

Welcome. 

STATEMENT OF JONATHAN RUBIN, PARTNER, PATTON BOGGS 

LLP, ON BEHALF OF THE AMERICAN ANTITRUST INSTITUTE 

Mr. RUBIN. Thank you, Chairwoman, Ranking Member Chabot 

and members of the Committee. 

I am Jonathan Rubin. I am an antitrust lawyer with the firm of 

Patton Boggs here in Washington, D.C., and one of about a hundred members of the Advisory Board of the nonprofit organization, 

the American Antitrust Institute. The AAI’s Web site is 

www.antitrustinstitute.org. I appreciate the opportunity to testify 

today. 

My task is fairly limited. It is to present the major recommendations that appear in the upcoming report, entitled The Next Antitrust Agenda: The American Antitrust Institute’s Transition Report 

on Competition Policy to the 44th President. The report will be 

published in October and will be provided to the Committee. 

My remarks today reflect solely the position of AAI and not that 

of Patton Boggs or any of its clients. 

The antitrust laws are among America’s greatest contributions to 

the field of political economy. The AAI strongly believes that government ought to promote competition in free markets and that the 

Nation’s antitrust laws can and do precisely that if they are aggressively and creatively employed. 

Believing in competitive free markets is one thing however, but 

the facts on the ground may be very different. 

Two opposing forces constantly pull on the economy. On the one 

side is the urge by the government to control the private sector 

through regulation, and on the other side is a strong belief that 

free markets and laissez faire policies foster efficient economic 

growth and protect the private sector from counterproductive governmental control. 

Neither path provides a complete policy prescription. 

Over-regulation protects inefficient competitors and operates as a 

drag on the economy, and complete laissez-faire risks a lawless jungle operating without regard for justice. 

Antitrust occupies the middle ground between these polar possibilities and frequently offers nuanced instruments with which to 

steer markets back to an even keel when market failures occur. It 

is in this middle ground that opportunities for small businesses are 

often created—or destroyed. 

This inherent need for balance in antitrust is reflected in the positions advocated in the AAI Transition Report, the most important 

recommendations of which are itemized in my written testimony. 

I will use my remaining time instead to characterize where we are 

and where we need to go in the view of AAI. 

22 

As a general matter, the AAI applauds and encourages deregulation in industries in which ill-advised and overly intrusive regulatory structures are less efficient than an unregulated market. In 

the view of the AAI Transition Report, however, current antitrust 

policy worries too much about intervening incorrectly, risking false 

positives, and not enough about failing to intervene when necessary, risking false negatives. Antitrust is about predicting market outcomes, and predictions will sometimes be proven incorrect. 

AAI sees no reason to suppose a priori that false positives are inherently more injurious to an efficient economy than are false negatives. 

Current antitrust doctrine is also unabashed in its disdain for 

the capabilities of agencies, courts and lay juries to resolve antitrust disputes correctly, and expansive in its estimation of the costs 

of administering the resolution of such disputes. AAI believes that 

this lack of confidence in courts and juries is not justified. Limiting 

access to the courthouse often disadvantages private antitrust 

plaintiffs, who are frequently small and medium sized businesses. 

The AAI also believes that viewing single-firm issues exclusively 

through the lens of neoclassical price theory and assessing competitive injury solely in terms of its effect on price or quantity imposes 

artificial limitations on the scope of the antitrust enterprise. Consumer choice, variety, diversity, quality, convenience and innovation, these are all also legitimate values worthy of protection in the 

defense of competition by the operation of the antitrust laws. 

In short, current antitrust policy leads to an overly noninterventionist standard of contact that the AAI rejects. 

As a case-by-case form of regulation charged not with promoting 

competition but with eliminating impediments to it, antitrust exerts an influence on business conduct even where no action is 

taken. And the mere threat of antitrust liability deters anti-competitive conduct. 

No matter which party will control Congress or who the President will be, the AAI’s advice to the next administration is the 

same: 

Antitrust analysis should be brought more in line with a broader 

body of modern economic knowledge and made better equipped to 

deal with the realities of modern markets; more resources and personnel should be devoted to the skillful deployment of antitrust enforcement as a policy instrument to maintain competitive markets; 

and the institutions, substantive rules and procedures of antitrust 

should be rejuvenated, particularly as they pertain to the treatment of single-firm conduct. 

I thank the Committee for your attention and would be pleased 

to answer any questions you may have. 

Chairwoman VELA ́ ZQUEZ. Thank you, Dr. Rubin. 

[The statement of Mr. Rubin is included in the appendix at page 

82.] 

Chairwoman VELA ́ ZQUEZ. Our next witness is Mr. Said Hilal. He 

is the President of the Applied Medical Resources Corporation in 

Rancho Santa Margarita, California. Applied Medical is a company 

dedicated to meeting the innovative needs of progressive surgeons 

and clinicians. He is here to testify on behalf of the Medical Device 

Manufacturers Association. Since 1992, MDMA provides education 

23 

and advocacy assistance to innovative and entrepreneurial medical 

technology companies. 

Welcome. 

STATEMENT OF SAID HILAL, PRESIDENT, APPLIED MEDICAL 

RESOURCES CORPORATION, RANCHO SANTA MARGARITA, 

CALIFORNIA, ON BEHALF OF THE MEDICAL DEVICE MANUFACTURERS ASSOCIATION 

Mr. HILAL. Thank you, Madam Chairwoman. 

Madam Chairwoman, Ranking Member Chabot and members of 

the Committee, I address this Committee on behalf of Applied Medical and the nearly 200 members of the Medical Device Manufacturers Association, as well as the countless other smaller medical 

device companies in this Nation who face significant challenges accessing the hospital market. 

Innovation in the medical device arena is fueled by small companies working with clinicians, scientists and engineers to enhance 

the quality of care. Applied develops and sells devices for progressive, minimally invasive surgery. 

Back in 1988, we set out to create a company that can improve 

both healthcare and the financial outcomes of new modalities; and 

we did. In the process, we invented and innovated many procedures 

and many devices that achieved these end targets. But clinicians 

do not have access to the best and most cost-effective innovation, 

mainly because of the anti-competitive practices of dominant suppliers and certain hospital group purchasing organizations, or 

GPOs. 

Now, originally, GPOs were established to help small hospitals 

aggregate their purchasing power by combining them together, by 

banding together; and, instead, they have become the marketing 

arm of dominant suppliers and failed to achieve the intended goal 

of lower cost. 

This is because back in 1986 Congress created a safe harbor from 

the Medicare anti-kick back statute and permitted suppliers to 

fund the GPOs. Until that time, GPOs functioned more like cooperatives funded by their own members. But once the GPOs began 

to rely on key suppliers, on giant suppliers for funding, they lost 

the ability to independently review products and, in many situations, GPOs contracted with the suppliers who paid the most fees, 

fees that are actually percentages of the total contract price. So the 

question, would a GPO go with a $20 million price or discounted 

price of say $10 million when they are collecting 5 percent on either? Or are we creating a conflict here? 

Giant suppliers very quickly picked up on this and manipulated 

this situation to lock out smaller suppliers. We at Applied have had 

the good fortune to be able to fight back. We had the staying 

power. It cost us dearly, and it took 10 years to break into the market, before the market even opened up a little bit for us to get into 

it. But for every Applied there are countless small medical technology companies that continue to be totally foreclosed. 

To start restoring competition in the healthcare industry, it is 

imperative that Congress repeal the GPO safe harbor and move 

GPOs back to the hospital-funded model independent of the large 

suppliers. According to Harvard’s competition expert Michael PorVerDate Aug 31 2005 15:32 Oct 17, 2008 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\44254.TXT RUSS
24 

ter, there is no valid reason for buying groups to accept financing 

or any payment from suppliers. 

Speaking of those dominant suppliers, while ending the supplier 

kickbacks to GPOs would actually provide a better competitive 

landscape, it is but the starting step. Small companies in health 

care face monopolies and duopolies that engage directly in anticompetitive activities, including predatory pricing and bundling of 

related and unrelated products. 

We have repeatedly suffered from the predatory market powers 

of giant companies, regardless of their respective market share in 

the contested arena. But Applied and hundreds of companies like 

Applied have suffered the most from the total absence of oversight 

and enforcement in certain areas. And in the face of the latest 

predatory approaches by large monopolies and duopolies, our antitrust laws have been watered down or shelved, while the new practices and tactics have taken hold. 

At a time when the Department of Justice and the Federal Trade 

Commission should be taking a more proactive oversight role, the 

recent DOJ report takes the wrong direction and creates additional 

safe harbors, not less, for the monopolies at the expense of competition, consumers and innovation. This is not the direction the U.S. 

Government should be taking. Progressive European and Australian agencies are way ahead of us in these areas, and they are 

dealing with violators firmly. We can and must do better. 

In conclusion, these practices by dominant suppliers and some 

GPOs individually and collectively damage open competition and 

increase the cost of health care. By repealing the GPO’s safe harbor 

and providing proper oversight and enforcement over maintaining 

monopolies and large lock-step duopolies, I believe we can benefit 

patients, hospitals, customers, healthcare and providers. 

Thank you very much. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Hilal. 

[The statement of Mr. Hilal is included in the appendix at page 

90.] 

Chairwoman VELA ́ ZQUEZ. Our next witness is Mr. Aaron Lowe. 

He is the Vice President of Government affairs for the Automotive 

Aftermarket Industry Association. 

The motor vehicle aftermarket is a significant sector of the U.S. 

Economy, employing approximately 4.5 million people. The AAIA 

represents more than 100,000 repair shops, part stores and distribution outlets. 

Welcome. 

STATEMENT OF AARON LOWE, VICE PRESIDENT, GOVERNMENT AFFAIRS, AUTOMOTIVE AFTERMARKET INDUSTRY ASSOCIATION 

Mr. LOWE. Thank you, Madam Chair; and thank you, members 

of the Committee. I am pleased to present this testimony on this 

very important issue. 

As you said, our industry represents the independent 

aftermarket. It is everything that happens to a car once it leaves 

a new car showroom. 

Since the invention of the vehicle, the U.S. has had the most 

competitive vehicle aftermarket in the world, as has already been 

25 

stated in this hearing. Americans currently have a wide array of 

choices in vehicle repair, whether it is going back to the dealer or 

to the thousands of independent repair shops that are in every 

community in this Nation. This competition has kept car owners 

and not the vehicle manufacturers in the driver’s seat when it 

comes to making choices regarding vehicle repair destinations. 

While we are proud of our service to the American motoring public, we are extremely concerned that the dynamics are changing 

and that our independent shops are being placed at a competitive 

disadvantage. This change has nothing to do with the efforts that 

our independents are investing in servicing the public, but rather 

the attempts, whether intentional or not, by manufacturers to use 

technology to obtain a competitive advantage for their dealer network, an advantage that dealers have been unable to gain through 

customer service or price. Left unchecked, we will soon see the car 

companies controlling decisions as to where cars are repaired and 

not by the person who has spent their hard-earned money to purchase that vehicle. 

The U.S. Congress foresaw the role that technology would play 

in the repair market back in the late ’80s when the Clean Air Act 

was being debated. Back then, the Act required that on-board diagnostic computers be put on every car to monitor the emission systems and to alert the car owner to an emissions defect. While it 

was anticipated these OBD systems would ensure that cars would 

operate more effectively in use regarding pollution, they were also 

concerned that car companies would use this technology to keep the 

independent aftermarket out by making access to these computers 

proprietary and forcing the independent service provider out of the 

market. 

Therefore, provisions were added in the 1990 Act that would require on-board computers be accessible without the need for proprietary tools and that any information needed to repair the emission 

system be made available to the independent aftermarket. While 

this provision did permit car companies to retain trade secrets, the 

legislation specified that no information may be withheld if that information was provided either directly or indirectly to the new car 

dealer. 

However, the gains made by the Act have been tempered in the 

last several years by the fact that the computers that are now 

being installed in vehicles that go well beyond emissions, monitoring and controlling nearly every function of the vehicle from 

safety to entertainment. Further, new technologies are coming 

quickly down the pike that could provide the vehicle manufacturers 

with even more competitive advantage when it comes to repairing 

a customer’s vehicle. 

It is with this in mind that AAIA and the Coalition for Auto Repair Equality and a number of consumer groups are strongly supporting passage of the Motor Vehicle Owners Right to Repair Act. 

Introduced by Edolphus Towns, right to repair ensures that all information and tools provided to the new car dealer by the car company are also made available to the independent aftermarket. The 

information would not be free but would be provided at, hopefully, 

a fair and reasonable price. 

26 

This bill would not prohibit new technology but rather, similar 

to the Clean Air Act, ensure that the use of technology on vehicles 

would not act to the detriment of competition in the aftermarket 

and, in the end, the consumer. 

Car companies have strongly opposed passage of right to repair 

based on two contentions: one, that all the information is already 

available and, two, that this is a veiled approach by the independent aftermarket to obtain the trade secrets of the car companies. 

AAIA and CARE do not dispute the fact that the car companies 

have done a better job in making information tools available to our 

industry. However, much of this progress does not come due to 

their willingness to ensure competition for customers but, instead, 

EPA service information rules and political pressure that has been 

brought on them by consideration of this right to repair legislation. 

Should Congress ultimately decide not to enact right to repair 

legislation, we have little doubt that car companies will be under 

extensive commercial pressure to cut our industry out of access to 

information. 

Why are we concerned? Car companies and dealer franchises are 

now making significantly more money on their parts and service industry part of the market. According to NADA, even though dealership parts and service department sales comprise 11.8 percent of 

a typical dealer’s total sales, it contributes 48 percent of the total 

operating profit. New car sales make up 60 percent of total sales, 

but only contribute 35 percent to total profit. Absent legislation, 

the need by car companies and their dealers to maximize profits 

from parts and service will override, in the long run, any current 

cooperation we may be receiving. 

As to the allegations that our industry is looking for access to 

trade secrets, one only needs to look at the composition of our industry to understand why this is not true. Many of the companies 

who have produced parts for our industry and the vehicle 

aftermarket are the same companies that supply car companies 

with the original equipment parts. In other words, the part in the 

aftermarket box may be the same as the part in the original equipment box, just the label is different. And, oh, yeah, the cost may 

be considerably less. 

Further, maybe most importantly, the bill provides significant 

protections for the car company trade secrets, only requiring them 

to make available to the aftermarket, the same information they 

make available to the dealer network. This is similar to the Clean 

Air Act provisions protecting car company trade secrets. 

It is important to note that since the promulgation of the Clean 

Air Act 1990 amendments, there has never been intellectual property dispute regarding an EPA requirements for emissions-related 

information or tools. 

Madam Chairwoman and members of the Committee, America’s 

car owners are already being hit with much higher fuel costs which 

are making it more difficult to use their vehicle for even the most 

basic necessities. Should the competitive market disappear, car 

owners will find the cost of car ownership shooting up even further. 

After all, they bought the car. They should be able to obtain the 

27 

repairs where they would like to get them accomplished, whether 

it is themselves or an independent shop or a dealer. 

Thank you again for the opportunity to present this testimony, 

and I am open to respond to any questions that you may have. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Lowe. 

[The statement of Mr. Lowe is included in the appendix at page 

99.] 

Chairwoman VELA ́ ZQUEZ. Our next witness is Mr. William 

MacLeod. He is a partner at the law firm of Kelly Drye & Warren. 

His practice focuses on competition law, trade regulation, advertising privacy and security. He is also co-Chair of the Antitrust 

Practice Group. 

Prior to that, he held positions such as Director of the Bureau 

of Consumer Protection at the FTC and advisor to the Assistant Attorney General Antitrust Division in the U.S. Department of Justice. 

Welcome, sir. 

STATEMENT OF WILLIAM MacLEOD, PARTNER, KELLY DRYE & 

WARREN LLP 

Mr. MACLEOD. Thank you very much, Madam Chairman. 

I am William MacLeod, and in addition to the experience you described I would also note that I represent many thousands of small 

businesses both directly and through their trade associations, but 

I am here today on my own. I am not speaking on behalf of them, 

which gives me the rare privilege of being able to say what I think 

on the basis of my experience, both inside and outside the Federal 

Trade Commission. 

And, Madam Chairwoman, I commend you for calling this hearing today. I believe this is a most important subject for all of the 

constituents and the stakeholders around the FTC to remember 

and reassess on a regular basis. And that is, does the FTC have 

the power it needs and does the FTC have the wherewithal to exercise that power? 

In the gist of my testimony on the first point, I believe that it 

is almost beyond dispute now that the FTC has probably the most 

powerful weapon that the government has given any authority to 

protect competition and consumers; and that is Section 5 of the 

Federal Trade Commission Act. This section is so broad and gives 

the Commission the kind of power to address almost any perceived 

anti-competitive problem, as well as any perceived consumer protection problem the agency might assess. 

I believe that for the Federal Trade Commission it is in fact often 

ironically a detriment, a disadvantage when the Commission is 

given a specific authority to address some narrow character or 

some narrow aspects of the jurisdiction. And the reason why is because this broad power of the FTC Act that allows the Commission 

to basically assess whether the costs of some practice it sees in the 

marketplace outweigh the benefits. If the Commission stops using 

that power and starts enforcing narrow and specific grants of authority, that broad problem will begin to atrophy. I can give you 

some examples shortly. 

I also made a point in my testimony that I think the most important limitation the Federal Trade Commission faces is the limitaVerDate Aug 31 2005 15:32 Oct 17, 2008 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\44254.TXT RUSS
28 

tion of resources, and this limitation of resources is something that 

we faced when I was there. And, of course, it is something that any 

government agency is always going to face because our government 

has limited resources. 

I would add to that today, on the basis of the testimony that you 

have already heard, my concurrence with many of the comments 

that the other significant constraint the Commission faces is the 

constraint of exemptions and exclusions from its jurisdiction. 

I myself on behalf of small businesses have occasionally gone to 

the Commission and asked the Commission to look into this particular anti-competitive activity or that anti-competitive activity 

only to be told by the Commission staff they were concerned this 

activity came too close to an exemption that had been written into 

the law or an exclusion from the exclusion jurisdiction. 

I think that it is almost always a benefit to an industry and to 

a sector, even if it is regulated by some other particular agency of 

jurisdiction, for the Commission to have the ability to shine the 

light of its unfairness authority and its unfair methods of competition authority on the practices that may be going on in that sector. 

On another point that is related to the restraints that the Commission faces on its budget, when I was a Director of the Bureau 

of Consumer Protection, we were occasionally tasked with the assignment of writing rules and regulations to implement various 

statutory mandates that the Commission received. I believe the 

Commission, if anything, is writing more rules and more regulations today; and to an enforcer of the consumer protection and competition laws, what that tells the Commission is that the cops that 

would otherwise be on the beat are going to be back at their desks 

and they are going to be deciding how to address comments and 

how to draft rules and how to respond to rulemaking proposals. 

I would commend the Committee for calling the attention of the 

Commission to those areas that need attention and telling the 

Commission to get its cops out on the beat and start bringing the 

cases. I can tell you from my experience at the Commission and I 

can tell from you my experience since I have left the Commission 

that there are a number of senior and a number of energetic junior 

and a number of policymaking officials in between who are ready, 

willing and able to hear the complaint of a small business, of a medium-sized business, of an entrepreneur, of an innovator who is 

facing a barrier to compete. Those businesses will receive a very 

warm welcome at the FTC, and I believe they will also receive very 

warm welcomes if they are given the opportunity to reach outside 

the narrow scope of what the FTC may do. 

Finally, I think that it is a very easy proxy for what the FTC 

should be doing to ask the FTC again, again and again, are you 

raising or are you lowering the barriers for small businesses and 

for entrepreneurs to compete and to enter into businesses? If your 

law enforcement action lowers barriers, you are likely helping competition. If you are raising barriers, and sometimes unfortunate 

FTC enforcement has raised barriers, but if you are lowering barriers you are almost certainly helping competition. 

Madam Chairwoman, members of the Committee, that concludes 

my prepared testimony, I would be glad to answer any questions 

that you might have. Thank you very much. 

29 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. MacLeod. 

[The statement of Mr. MacLeod is included in the appendix at 

page 106.] 

Chairwoman VELA ́ ZQUEZ. Thank you all for your testimony. It 

was very enlightening. 

I hope that the staff from the Commission is paying close attention because, apparently, we have two set of witnesses here, one 

from the Commission and the witnesses that are on the ground 

dealing with the lack of enforcement and a level playing field. 

Dr. Hazel, you spoke in your testimony that the health care marketplace has changed dramatically in the last 10 years; and it was 

exactly in 1996 when the DOJ-FTC statement of health care antitrust policy was last updated. As a physician, how have you seen 

the medical marketplace change in the past 12 years? And how 

should enforcement policies of the DOJ and FTC be updated to reflect those changes? 

Dr. HAZEL. Boy, how do you begin with a question like that? 

We have changed in so many ways, but I think pertinent to this 

Committee a couple of things has happened, as pointed out in the 

testimony. Number one is that the insurers have grown larger, and 

they have consolidated. And you can begin to see evidence in places 

such as New Jersey where some of that happens. Premiums actually go up, instead of down; and there is evidence out there. I can 

present the Committee with evidence about the market consolidation. 

We have seen the physicians have gone from being in a fairly 

strong position over the years to a fairly weak position in terms of 

negotiating on behalf of patients and making medical decisions and 

appealing concerns and complaints through processes. So we need 

the ability to have contractual discussions with plans. 

But, even more, if you look at what I believe we all think now 

and recognize are the issues of health care costs, we need to look 

at how health information technology can help us as a tool. We 

need to look at the quality improvement initiatives, and those take 

a critical mass of physicians to actually be effective. Could you 

imagine being the first one to buy a fax machine? Somebody was, 

but without others involved in it, it wasn’t particularly useful. So 

in order to do that and to make it effective, we have to have the 

ability for physicians to organize together and deal with insurers 

around the issues of health information technology and quality improvement. 

Chairwoman VELA ́ ZQUEZ. Mr. MacLeod, I know you mentioned 

that you deal with small businesses, but can you comment about 

the statement made by Dr. Hazel that there has been 400 mergers 

and only three antitrust cases have been brought up. How does 

that compare to the previous Commission? 

Mr. MACLEOD. Well, the mergers, as I believe the chairman of 

the Commission mentioned, in the insurance industry are monitored by the Antitrust Division. However, I have seen some of the 

material that the American Medical Association has provided the 

Commission, and some of the concentration numbers that the AMA 

has pointed out are numbers that would be giving the antitrust authorities some cause for further concern and consideration. 

30 

A very important point to make, and this actually is part of my 

entry barrier test, I believe the American Medical Association 

makes a very good point when it notes that the antitrust enforcement against physicians should take into account the fact that if 

a few positions or a group of physicians gets together to accomplish 

some objective efficiently and it not creating any barrier to entry 

to other physicians, that should not raise serious antitrust concerns. There is a very good opportunity I think here for a little balancing of the playing field when it comes to looking at the physician combinations. 

Under the antitrust laws, it is sometimes forgotten in the drive 

always to find a lower price for a service or a lower price for a 

good, the antitrust laws protect the sellers into a marketplace as 

well as the buyers from a marketplace. And the same economic implications, the same inefficiencies and the same distortions occur if 

prices are suppressed to a level where we see sellers leaving a marketplace or sellers simply refusing or finding it impossible economically to provide their services. 

That is a very important part of what I heard from the American 

Medical Association, and I think that is a very worthwhile aspect 

for the antitrust agencies to consider. 

Chairwoman VELA ́ ZQUEZ. I am interested to hear from you what 

do you make of about the fact that FTC refused to sign the Justice 

Department’s recent report on monopoly policy? So it is a clear indication that there is a split between the agencies. As a former bureau director at the FTC, have you ever seen this kind of disagreement before? And will this lead to an inconsistent antitrust enforcement policy between the agencies? 

Mr. MACLEOD. That an a very ironic and timely question, 

Madam Chairwoman. Because when I started at the Federal Trade 

Commission, something very similar happened back in 1982 when 

the Antitrust Division first issued its merger guidelines and the 

guidelines were issued before the Federal Trade Commission had 

the chance to work out every potential disagreement that it might 

have over the substance of the guidelines. In the end, the agencies 

both were able to converge their enforcement policies and philosophies, and I expect we will something of the same thing here. 

I don’t expect to see different enforcement policies coming out of 

the agencies with respect to single firm conduct. However, it is 

pretty clear that over the last few years there has been more activity at the Federal Trade Commission with respect to non-merger 

and non-price-fixing behavior than there has been at the Department of Justice, and I think the FTC is still the primary source for 

that kind of adjustment. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

I will come back in a second round, so let me recognize Mr. Westmoreland. 

Mr. WESTMORELAND. I thank the Chairlady. 

Mr. Lowe, you represent the Automotive Aftermarket Industry 

Association. Do you also represent CARE? 

Mr. LOWE. I am testifying on their behalf this time. I don’t represent them as a paid lobbyist or anything. 

Mr. WESTMORELAND. But you are testifying on their behalf. Do 

you know if the Automotive Aftermarket Industry Association or 

31 

CARE has ever ran any advocacy ads against any member of this 

Committee and maybe somebody that is here today? 

Mr. LOWE. AAIA’s has never done that. I could not speak for any 

other group. 

Mr. WESTMORELAND. You could not speak for any other group. 

We are under oath today, right? 

Chairwoman VELA ́ ZQUEZ. No. 

Mr. WESTMORELAND. Okay. 

How many people are on your Board of Directors? 

Mr. LOWE. I think we have 30, 35. I think it is a fairly large 

board. 

Mr. WESTMORELAND. How many of those are in the automotive 

repair business, are repairers? 

Mr. LOWE. On the board? We have one representative that is a 

repair shop owner, and then we have a separate division that just 

represents repair shops. 

Mr. WESTMORELAND. How many Board of Directors? 

Mr. LOWE. Just one. 

Mr. WESTMORELAND. Just one out of thirty-five? 

Mr. LOWE. We have distributors, manufacturers, reps. We have 

all different aspects of the industry. We are very vertically integrated. 

Mr. WESTMORELAND. But this is called right to repair bill that 

you are interested in and you only have one repairer on the board 

of 35; is that correct? 

Mr. LOWE. Right, but they also represent a division that has repair shops. 

Mr. WESTMORELAND. I know. I am just talking about your Board 

of Directors. 

How many independent repairers have ever been chairman of 

your board? 

Mr. LOWE. I don’t believe in—we have been—I don’t remember 

having one. 

Mr. WESTMORELAND. Do you know of any that you can recall? 

Mr. LOWE. I said I didn’t—I don’t think we have had one. 

Mr. WESTMORELAND. Let me ask you this. Do you use any thirdparty information providers? Or do you know if that one repairer 

has ever brought it up at a board meeting that they use any thirdparty information providers? 

Mr. LOWE. I couldn’t tell you if that has come up at a board 

meeting. I am sure that most repair shops use third-party information providers. 

Mr. WESTMORELAND. Have you ever heard of any problems of 

them getting information from any of these third-party providers? 

Mr. LOWE. Yes, not from that board member but other repairs 

shops. 

Mr. WESTMORELAND. So other people have complained about 

being able to getting information from the third party? 

Mr. LOWE. Yeah, they said the information might be missing, 

and they have faxed them and found that that information was not 

available from the OE so it couldn’t be provided to them. 

Mr. WESTMORELAND. Do you know if any of your members of 

your organization actually own the third providers, the third-party 

information providers? 

32 

Mr. LOWE. On our Board of Directors? 

Mr. WESTMORELAND. No, anybody that belongs to your group. 

Mr. LOWE. Our membership? Yeah, I think that, definitely, we 

have memberships from all aspects of the industry. 

Mr. WESTMORELAND. How about AutoZone? 

Mr. LOWE. Yes, they are a member of ours. 

Mr. WESTMORELAND. They own Alldata? 

Mr. LOWE. Correct. 

Mr. WESTMORELAND. How about NAPA Auto Parts? 

Mr. LOWE. Yes, they are a member of ours. 

Mr. WESTMORELAND. Do they own any part of any of these third 

parties? 

Mr. LOWE. I am sorry. I can’t remember. 

Mr. WESTMORELAND. They do. 

Mr. LOWE. Okay. 

Mr. WESTMORELAND. They do. 

Let me ask you this, have they ever told you that any of these 

cannot obtain information to repair vehicles? 

Mr. LOWE. They said the independent third parties have all run 

into problems obtaining information at one time or the other. 

Mr. WESTMORELAND. Well, do you realize that these aftermarket 

providers, these information providers tell repairers that they can 

get them the information that they need to repair the vehicles? 

Mr. LOWE. In a lot of cases they do. They provide a very costeffective way for repair shops to get information. If they were to 

rely on simply purchasing information from the OEs, it would be 

way over their price level to try to compete. So, yeah, they do provide a very cost-effective solution for most independent repair 

shops. 

Mr. WESTMORELAND. For most? 

Mr. LOWE. A large—almost all of them, yeah. 

Mr. WESTMORELAND. But if I understand correctly, there was a 

third-party group set up to handle something where they couldn’t 

get this information and out of the 500 million repairs, only 100 

people complained to that group. Do you think that number is correct? 

Mr. LOWE. It is hard to know what the exact number is. I would 

say it is probably fairly low mainly because the source of information, the National Automotive Task Force, which is I guess what 

you are referring to, is made up or comprised of manufacturers. 

And what they do is they take information requests from an independent. They then funnel the request to the proper OE. It is up 

to the car company to respond to that independent repair shop. 

Then, once they respond, which can take weeks or months, it 

could include the information or it could be, well, we are not going 

to provide that information. 

The problem is an independent repair shop with the car in a bay 

doesn’t have weeks or months, it has hours to try to repair that 

car. So I think what has happened is that there is a credibility 

issue with NASTF and they don’t have time to spend to make that 

complaint to NASTF. I need to make sure the information is available now. 

I think NASTF, as long as there are mandatory requirements to 

have information, can serve a role of discussing these issues. But, 

33 

without that, NASTF just is an information clearinghouse, but it 

doesn’t resolve the issue of right to repair. It is a step in the right 

direction, but it doesn’t resolve the issue. 

Mr. WESTMORELAND. But out of the 500 million repairs done, 100 

complaints have gone to that group. Do you know how many of 

those have not been satisfied? 

Mr. LOWE. Well, the way they count it, as I understand it, is that 

a resolution is an answer but not necessarily the answer that resolves the issue. We have sent complaints to NASTF, and it took 

weeks before they even acknowledged they even got them. And 

then they sent it back to us saying they weren’t provided in the 

proper format, and they had to be reformatted. 

This is not the answer. These are companies, small businesses 

that operate in a very tight time frame. If you bring your car in 

to get it repaired, you want it back the next day. You don’t want 

to wait to have it repaired. 

Mr. WESTMORELAND. No, I understand. I completely understand 

that, but I had that iPod that I haven’t gotten repaired yet. 

Mr. LOWE. If you find a place to get iPods repaired, let me know. 

Mr. WESTMORELAND. I will, brother. 

Now, let me ask you this. I asked my staff to look into this because I think this is important and it is something I looked into, 

although I don’t serve on the Energy and Commerce Committee. 

One of the organizations that you are testifying for here today ran 

ads against me, and I was hoping that you knew about it, because 

I was going to get some clarification on some of them. You do represent the parts distributor; is that correct? 

Mr. LOWE. Yes, that is correct. 

Mr. WESTMORELAND. Has any part distributor filed a complaint 

with an NASTF about not being able to get any information that 

you are aware of? 

Mr. LOWE. Not that I am aware of. But I don’t see every complaint, so I couldn’t tell you. 

Mr. WESTMORELAND. Has it been something brought up at the 

board meetings? Is there a big problem that you all have had? 

Mr. LOWE. Parts manufacturing is not the issue. The issue is at 

the service end. The parts distributors are concerned with making 

sure that they have a customer left at the end of the day. 

Mr. WESTMORELAND. From what I have read of your proposal, or 

at least the bill, you want the purchaser to make a decision at the 

point of sale as to who is going to repair his car. Have you read 

the bill? 

Mr. LOWE. Yes. 

Mr. WESTMORELAND. Is that an accurate statement? 

Mr. LOWE. At the point of sale of the car? 

Mr. WESTMORELAND. Yes. 

Mr. LOWE. No, that is not our intention. Our intention is when 

the car owner is on the road and he has had it for a while—I mean, 

for warranty repairs he or she will go back to the dealer. After that 

point, we want the car owner just to have a choice of where to go 

to have it repaired. 

Mr. WESTMORELAND. I understand. But if this computer is supposed to be speaking between the owner of the car and the dealer, 

I am assuming, who sold them the car, if he says you need a brake 

34 

job, you need to call your repair agent at so-and-so, he’s got to 

know where to get that information to that person; is that not correct? 

Mr. LOWE. Are you talking then about telematic systems; is that 

correct? 

Mr. WESTMORELAND. That was in your testimony. 

Mr. LOWE. Oh, okay, I am sorry. What I am referring to is the 

telematic systems. And, yeah, I guess at that point somewhere 

down the line we would like the car owner to make that decision, 

but we would like them to have the decision of where that information goes and not have the manufacturer determine that. 

Chairwoman VELA ́ ZQUEZ. Time has expired. 

Mr. WESTMORELAND. Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Ms. Hirono. 

Ms. HIRONO. Thank you, Madam Chair. 

Mr. MacLeod, I agree with you that Section 5 of the FTC is a 

very, very broad mandate that the FTC can use. So in your testimony you indicated that, as we are concentrating on helping the 

small businesses, that one area that the FTC should really look at 

is focusing on barriers to entry for small businesses. And I think— 

I’ll get back to you—but, Mr. Rubin, is that what you were referring to when you said that the AAI report and its emphasis on 

looking at vertical relationships and the impact that vertical relationships can pose to barriers to entry? Are you kind of on the 

same page of looking at barriers to entry as a way that we can— 

the FTC enforcement can really help small businesses? Are you 

talking about the same things here? 

Mr. RUBIN. With the caveat that I don’t think there is any particular concentration on which portion of the antitrust laws ought 

to be employed. 

The main thrust of the idea is that vertical relationships as a 

problem for entry, as an anti-competitive problem, have pretty 

much fallen by the wayside. Whether it is Section 5, Section 2, 

even Section 1 has traditionally been used in vertical problems. I 

don’t think that matters much. The important thing is that vertical 

relationships deserve, in the view of the AAI report, to be revitalized as a subject. 

Ms. HIRONO. And vertical relationships—to look at vertical relationships, that is within the purview of the FTC Act, is it not? 

Mr. RUBIN. Certainly. 

Ms. HIRONO. So with regard to small businesses both of you 

would agree that the enforcement by the FTC should focus on those 

kinds of relationships, vertical relationships as a barrier to entry? 

Mr. MacLeod? 

Mr. MACLEOD. Yes, I think that a good way from a competitive 

standpoint to look at vertical relationships is to ask the question 

whether a vertical relationship begins to foreclose small businesses 

and entrants into a market from access to the channels of distribution. And if it does, the antitrust laws are very well-equipped to 

take care of those. 

The antitrust laws are less likely, obviously, to look at a vertical 

relationship between a small seller and a small buyer. There does 

need to be some sort of market effect of these things. But, beyond 

that, the antitrust laws and especially the Federal Trade CommisVerDate Aug 31 2005 15:32 Oct 17, 2008 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\44254.TXT RUSS
35 

sion Act are well-equipped to investigate and prosecute areas 

where the competition is being harmed. 

Ms. HIRONO. Is resale price maintenance per se a violation of the 

FTC laws? 

Mr. MACLEOD. It is not a per se violation of the FTC laws. And, 

indeed, the Federal Trade Commission Act doesn’t typically apply 

the pro se rule. That is typically considered under the Sherman 

Act. 

But just last month the Supreme court—a little bit longer ago 

now—in the last term the Supreme Court had decided to return resale price maintenance to a rule of reason approach, and that 

means that for future prosecutions and for a practical matter this 

is what the agencies have been doing for years. The agencies will 

look to see whether or not the resale price maintenance involved 

is on balance benefiting or harming competition. 

And the answer I think you can think of in very simple terms. 

If I were to start a small business tomorrow baking cookies and I 

had a couple of distributors to sell those cookies on the mall, there 

would not be a real issue to be concerned about if I were asking 

my distributors to charge a dollar a cookie. It is a very different 

issue if one is comprising virtually an entire market and is fixing 

for that entire market the price their retailers would charge. 

Ms. HIRONO. So based on the competitive strength of whoever is 

imposing the resale price maintenance—basically, it would be, I 

guess, the supplier—would you agree that it should be pro se—once 

that determination is made, that resale price maintenance should 

be per se a violation? Would both you agree with that? 

Mr. MACLEOD. No, I think at that point we are out of the realm 

of per se and we are asking ourselves, if there was a market effect, 

would we condemn the practice? And I think the answer there is 

very easily reached under the rule of reason. 

So the pro se rule, there are areas where the courts have adopted, modified pro se rules, and they very seldom enhance the antitrust analysis. It is much easier to say something is either always 

wrong or something will be wrong when we can identify there is 

a competitive harm done from it. 

Ms. HIRONO. I think I am getting a little too esoteric here. We 

are talking about FTC enforcement, and I would like to ask the two 

of you, with regard to the current FTC enforcement that supports 

small businesses and lowers barriers to entry, do you think the 

kinds of actions that they have been taking over, say, the last 10 

years promote, help small businesses because they are looking at 

barriers to entry? 

Mr. RUBIN. If I may respond, Congresswoman, the key event 

with respect to resale price maintenance is the Supreme Court decision in Leegin of a couple months ago wherein the Court ruled 

that the correct analysis for resale price maintenance was under 

the rule of reason, rather than per se unlawful as it had been 

theretofore. 

The problem as the AAI sees it in their report is that this is an 

open-ended analysis and requires more structure. They advocate 

that there should be a presumption that resale price maintenance 

is inherently suspect. And if there is a mechanism to reign in the 

36 

otherwise open-ended analysis of the rule of reason we believe that 

would be more helpful in ameliorating resale price maintenance. 

Ms. HIRONO. I appreciate that discussion. Actually, my question 

was whether the current FTC enforcement addresses what you 

were talking about, Mr. MacLeod, barriers to entry. Because we’re 

here to try to support and help small businesses. So is that the 

kind of enforcement that the FTC is engaging in the entire realm 

of enforcement that they can engage in? Are they placing enough 

emphasis on stopping barriers to entry and thereby helping small 

businesses? 

Mr. MACLEOD. I would like to see more, and I think the Federal 

Trade Commission itself has said that it would like to do more as 

well. It has set very ambitious goals for itself in bringing these 

kinds of cases. They have a brand new director in charge of the Bureau of Competition branch that investigates these cases, and I 

think we can expect to see from the FTC some more activity in this 

regard. 

It is very hard—I also make this point in my statement—for us 

sitting on the outside to know exactly in any individual case whether the FTC got it right or got it wrong. The last case the FTC 

brought in the non-merger area, at least the last significant controversial one, the commissioners themselves disagreed. So it is 

sometimes difficult to know whether or not the FTC is following 

the rule to go where the harm is worse and try to address that 

harm, but that is exactly where I think they are trying to head. 

Chairwoman VELA ́ ZQUEZ. Time has expired. 

Mr. Shuster. 

Mr. SHUSTER. Thank you, Madam Chair. 

My first question to Mr. Rubin and Mr. MacLeod, the FTC operates under laws that, some of them, are 100 years old or maybe 

older. Is there a need for an update in these laws? Because society 

has changed. Technology has changed. Mr. Rubin, I am afraid you 

are going to give me a dissertation on it, but are there needs to update the rules and regulations the FTC operates under? 

Mr. RUBIN. I didn’t realize my reputation was quite that bad. 

Mr. SHUSTER. You had a doctor in front of there, so I figured 

there was a Ph.D. Behind it. 

Mr. RUBIN. The AAI report and I would point out that the Antitrust Modernization Commission report as well does not see any 

need for textual revision of any major sort to the antitrust laws. 

It is a judicially implemented body of law. Because markets 

change, because conduct changes, the world changes very fast, this 

is an appropriate use in the view of the AAI. 

Mr. MACLEOD. Let me see if I can make that shorter, no. 

Mr. SHUSTER. I appreciate that. 

The other question, Mr. MacLeod, you said, and I think this is 

accurate, that when Congress puts narrowly defining laws, laws 

that are very narrow, that is something you believe diminishes the 

FTC’s ability, is that accurate? 

Mr. MACLEOD. I think so. When the Commission has a strength 

that it stops using and instead becomes an agency looking at a narrow mandate, that strength begins to atrophy. 

Mr. SHUSTER. Mr. Rubin? 

Mr. RUBIN. Yes, I concur with that statement. 

37 

Mr. SHUSTER. I don’t know how familiar you are with the right 

to repair law, but is that a law narrowly defining the issue for the 

FTC? 

Mr. RUBIN. I don’t believe that the AAI report specifically addresses that proposal. I believe that the AAI as an organization 

does support the right to repair bill as it stands. As far as whether 

that is narrow enough, I am not sure I can give an opinion on that. 

Mr. SHUSTER. Mr. MacLeod. 

Mr. MACLEOD. Well, I am not familiar with that law, but the 

question I would have about the law is whether it really would give 

the Commission more power to address anti-competitive or unfair 

acts and practices than the FTC Act already gives the Commission. 

Mr. SHUSTER. Mr. Lowe, you say there is a problem out there, 

but the facts don’t seem to bear that out. I am looking at reports 

that the National Automotive Service Task Force in 2006 received 

32 service information requests; in the year 2005, 48; in 2006 of 

those 32, 31 were resolved. And we are talking about 500 million 

automotive service repair events. That doesn’t seem to me that that 

is a big problem. 

As a former automobile dealer, it was frequent that my service 

manager would call the auto manufacturer up and say, hey, we 

need to get some information here. There is always information 

problems. But that to me seems minuscule. And yet you are proposing legislation you say is going to correct the problem that really don’t seem to exist to me. Can you expound upon that? 

Mr. LOWE. Well, I think the discussion I had with Congressman 

Westmoreland kind of highlights the problem in that I really don’t 

see that NASTF has an accurate measure of the repair problem out 

there that we are seeing when we talk to our members in the field. 

I think, you know, this is what we see happening right now in 

the industry. Our industry, when they run into a problem repairing 

the car, they don’t want to tell their customer they can’t fix that 

car. They either find some way, either a friend at the dealership 

or they have a relationship with the dealership over the table or 

under the table, but they find a way to repair that car. 

Our members are problem solvers. They are not people who like 

to whine. That is my job. They like to make sure they get that car 

repaired without the customer knowing. Because once that customer loses trust in that repair shop, they are going to start going 

to the dealer, and that is a big, big concern to every individual 

small shop. These guys they have been building these shops and 

they are family owned shops. They might be in it for generations. 

They are running into more and more roadblocks. They are still in 

there and fighting, but we are concerned it is going to be in the 

long term a losing battle. So we do see a problem, but we only see 

the problem growing in the future. 

Mr. SHUSTER. I guess that is my problem with what you are saying. You say that folks—and I know, many, many service repair operators and owners and have the greatest respect for them. This 

is not about me being against them. It is me being against what 

I think you are trying to say to us. I hear you are whining, but it 

is not coming from the automotive repair people. Because, in fact, 

you have very few members on your board or association who actually repair cars or automobiles. 

38 

The Automotive Service Association is really the institution or 

association that represents the thousands and thousands of people 

who actually fix cars in this country and are opposed to your legislation. So I do hear whining, and I think it is coming from the big 

part manufacturers, the NAPAs and the AutoZones. 

And so, again, I think I know where you are coming from here. 

In fact, you— 

Chairwoman VELA ́ ZQUEZ. Time has expired. 

Mr. LOWE. Can I respond to his statement? 

Chairwoman VELA ́ ZQUEZ. The time has expired. 

Ranking Member Chabot. 

Mr. CHABOT. Thank you, Madam Chair. 

I will limit my time to 5 minutes. I will let the gentleman continue, if he’d like to. 

Mr. SHUSTER. I’d appreciate that. 

AutoZone—and, again, I have to tell you I know NAPA distributors and have great regard for them, but I don’t hear them requesting this. They haven’t requested this to me in this legislation. 

But you have AutoZone which owns AllData repair, which is a 

service that you talked about with Mr. Westmoreland. And you 

have an ad here. First it says the number one OEM source of information—online repair information, and you have an automotive garage, a guy by the name of Jeff Cosand: I couldn’t get by without 

AllData. I have used it for over 10 years, and it is rare that I can’t 

find what I need on OEM information—that I need. OEM information is the gold standard. That’s especially true for wiring designs. 

I mean, you have AutoZone out there saying, we are advertising. 

We have a system that we can provide you, the small repair people, 

with all the information you need. It is rare. It is successful. 

So, again, knowing many, many people in the repair business 

and someone who has owned a dealership and worked in automotive repair, most technicians don’t want to mess with wire schematics. Because it is time consuming. It is not profitable. They 

would rather put brakes on. They’d rather put a muffler on. They 

would rather do those kinds of jobs that they can turn quick and 

be more efficient in their timing. 

So, again, it is pretty clear to me that you are not representing 

the repair industry. You are representing the manufacturers and 

the distributors of automotive parts. 

So, again, the facts don’t bear it out. The industry that I know 

that repairs them, they don’t support it. So, again, I think this is 

not a very good piece of legislation. And there is tremendous competition out there for this business. So I just don’t think the facts 

bear out your position on this. 

Mr. CHABOT. Reclaiming my time, and I will allow you to answer. 

Mr. LOWE. Sir, the Automotive Service Association certainly represents some repair shops. I think out of hundreds of thousands of 

repair shops around the country they do represent 12,000. Six 

thousand of those are body shops, and so half of those are mechanical shops. Our membership is around 20,000 repair shops. Most of 

the State groups, repair associations, a great many of them support 

right to repair. In fact, I think the Automotive Service Association 

is the only group that doesn’t support right to repair. 

39 

I would say that some of our members do repair, do brakes and 

mufflers, as you say. But a lot of them do very sophisticated repairs and are very interested in getting repair information, of 

course, so I am not sure I agree with your characterization of our 

industry. 

Mr. CHABOT. Thank you. 

Dr. Hazel, I know there has been for quite some time criticism 

of the antitrust laws relative to how it has impacted physicians and 

their inability to join together and negotiate so that you arguably 

don’t have the clout to negotiate with the health care insurance 

companies, et cetera. Would you like to comment on that or elaborate in any way? 

Dr. HAZEL. Yes, sir, I would, as the representative of the human 

aftermarket industry here. I am glad that we have broadened this 

conversation again. 

Actually, sir, we are not here to talk about a change in the law. 

We are here to talk about a change in the guidelines, in the enforcement policy. And what we are looking for is a situation where 

there is clarity for physicians in how these rules are going to be 

enforced, when you see what happens when the rules are not clear 

as to what is okay and what is not. 

There have been two approval levels. Let’s look at two groups 

that have gone to the FTC to get approval for collaboration. One 

is GRIPA in Rochester, New York. These are large organizations 

that took lots of money and a long time to go through their approval process, and that is not likely to happen most places. And 

where there is doubt on the part of physicians we are going to opt 

generally. And what you have seen, the reason there are so few of 

these, is we don’t want the government in whatever capacity coming into the offices. We are worried about that. 

So what we are looking for is FTC to work with us to clarify the 

guidelines so that we can collaborate in getting health information 

technology and you do quality improvement, but we are not looking 

at this point for a change in the law. 

Mr. CHABOT. Thank you. 

Madam Chair, I yield back. 

Chairwoman VELA ́ ZQUEZ. Mr. Hilal, for more than 20 years now 

group purchasing organizations have been exempt from the antikickback statute of the Social Security Act. How does the special 

legal status of GPOs make it difficult for entrepreneurs to compete 

for business from hospitals? And I will ask that Mr. MacLeod or 

Dr. Rubin, if you have any comments regarding the same question. 

Mr. HILAL. Thank you. It has distorted the purchasing process. 

Any company that has kickbacks in its decision making is going to 

miss on choosing the best product at the best price. This is why 

anti-kickback laws were there, and this is why they are especially 

needed in health care. 

So by carving this out, by introducing a third factor, which is 

how much commission is the third party going to make on the way 

of that decision, and if that commission is based on the volume or 

the size of the contract, then you can see the distortions that can 

come in. 

The example I gave in my introductory comment was $20 million or $10 million, 5 percent on one or the other can distort some opinVerDate Aug 31 2005 15:32 Oct 17, 2008 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\44254.TXT RUSS
40 

ions and some decisions. And in so doing, if we go back to the large 

manufacturers and large suppliers, they usually have the higher 

market share and wider product offering. So if we are here to see 

how that impacts entrepreneurs and their companies, there is no 

doubt that they will be crowded out. They have been crowded out, 

and they continue to be. 

Chairwoman VELA ́ ZQUEZ. Mr. MacLeod. 

Mr. MACLEOD. Yes, I think the antitrust concern is potentially 

related, but it is, of course, different as well. Under the antitrust 

laws, if a particular health care organization, whether it is a hospital or some other entity, chooses to buy one device or one drug 

over another drug, even if it is a bad decision or a mistake, there 

is not much the antitrust laws have to say about that. 

What raises concerns about GPOs, of course, is that large numbers potentially reaching a significant share of a market would 

make the same mistake; and we have seen many reports of that 

kind of decision thereby preventing the ability of a new manufacturer of a device or a company offering a new therapy or a new 

drug or a new service to be foreclosed from an entire market. 

I actually represented a physician in a case in which—it wasn’t 

a GPO, but it was the same kind of situation—where the physician 

believed that there was a combination among the hospitals and 

physicians in an entire area that prevented him from providing his 

radiology services. 

It becomes a serious antitrust problem when the market begins 

to close down to someone who has a better mousetrap to offer, with 

apologies to the marvelous devices and other services that the 

health care industry provides. 

Chairwoman VELA ́ ZQUEZ. So do you think there is a basis for 

FTC to look into it? 

Mr. MACLEOD. Oh, I would think that if there is a free road for 

the FTC to look into this area that the Commission, both from the 

commissioners down to the staff, would be delighted to do so. Of 

course, I don’t speak for them, but I can tell you when I was there 

I would have loved to have had my hands on this. 

Chairwoman VELA ́ ZQUEZ. Dr. Rubin. 

Mr. RUBIN. I don’t think I have that much to add to what Mr. 

MacLeod said, other that when the government is involved in large 

purchasing decisions we don’t need a competition agency necessarily to consider competition issues. I think that is the point 

that the AAI report makes, that competition is an American policy, 

and it deserves to be considered by everyone. 

Chairwoman VELA ́ ZQUEZ. Mr. MacLeod, I understand that you 

have experience in international antitrust policies. I would like to 

get your perspective regarding which antitrust regulatory regimes 

around the world do you think are the most effective to keeping 

markets open to entrepreneurs and what can we learn from them? 

Mr. MACLEOD. I think the most effective one is still right here 

in the United States, Madam Chairwoman; and I think that it has 

done a remarkable service around the world. As Chairman Kovacic 

testified, he himself has been one of the ambassadors of the United 

States in explaining antitrust laws to emerging economies, as well 

as to more mature market economies. And that the provisions that 

we have under the Sherman Act, the Federal Trade Commission 

41 

Act and our other antitrust laws are the same sorts of provisions 

that other countries can adopt very beneficially for their own market economies. 

Mr. HILAL. My comment on this from the trenches, please. 

Three years ago, venture capital went on notice, put us all on notice they are no longer going to invest in entrepreneurial start-up 

companies, if they can no longer get these companies to the marketplace. So, yes, we are the bastion of free markets. We are the 

bastions of entrepreneurship. But let’s not bruise something that is 

really working for this Nation. We lead the world in medical device 

and innovation, but we are stifling it. 

Chairwoman VELA ́ ZQUEZ. Dr. Hazel, you know we are in the 

midst of a Presidential election; and health care is one area where 

both candidates are offering their vision to reform health care. But 

a particular area is IT. Everyone talks about how IT has the great 

potential to improve the quality of care for patients, as well as reduce costs. However, the adoption of health IT requires a degree 

of cooperation among the provider community. Are FTC policies 

discouraging physicians from getting together to cooperate on 

health IT? 

Dr. HAZEL. Yes, ma’am. The answer to your question is, I believe, 

yes. 

Chairwoman VELA ́ ZQUEZ. How is that? 

Dr. HAZEL. Clearly, we think that health information technology 

has a lot of promise, as mentioned earlier, as a tool for looking at 

outcomes, improving efficiencies and so forth. The issues that we 

face—I both have been president of a practice that has 35 physicians in Northern Virginia and also chair a regional health information organization in Northern Virginia, so I am one of the believers. 

The issue is really one of partly expense and the savings that accrue from the things that we are trying to do and trying to promote. For instance, in your Medicare budget, you have a 3-year 

payment of 2 percent for e-prescribing in an effort to reduce medical errors. You have to have systems that work to do that. You 

have to have it on the physicians side and on the pharmacy’s side 

and so forth. So the point being is they take some investment. They 

have to be maintained, updated, operated. And the savings accrue 

to payers. In the case of Medicare, theoretically, it is to the government. And what we don’t have is an equivalent. 

You were kind enough to put a 2 percent kick in the Medicare 

payments for you prescribing for 3 years. We don’t have a similar 

thing in the private sector side. So as we use some of the savings 

to afford the technology, we have to work with payers to do that. 

Does that answer your question? 

Chairwoman VELA ́ ZQUEZ. Yes. 

Mr. Chabot, do you have any other questions? 

Mr. CHABOT. No further questions. 

Chairwoman VELA ́ ZQUEZ. I want to thank all of you. This has 

really been a very interesting hearing. I was pleased to see Mr. 

Westmoreland. I guess that I have to bring another witness that 

has done any kind of political campaign intervention to get them 

to come here. 

42 

But, in any case, this antitrust issue is very important for this 

Committee, especially at a time when we see how the economy is 

struggling. And in this case we are all asking that, based on the 

law, that the agencies do what is right to make sure that we all 

have a level playing field specifically for small businesses that are 

the drivers of our economy and that are creating the jobs that we 

need to get this economy growing again. 

With that, I ask unanimous consent that members will have 5 

days to submit a statement and supporting materials for the 

record. 

Without objection, so ordered. 

This hearing is now adjourned. Thank you. 

[Whereupon, at 12:27 p.m., the Committee was adjourned.] 

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