Editor: I sense that a real shakeup is taking place at the DOJ.
Newborn: With the Obama victory there's going to be a major change in antitrust enforcement at the Department of Justice. There's a widespread perception, which I think is accurate, of underenforcement during Bush's two terms. Many people criticized the DOJ for taking no action in the Whirlpool-Maytag, XM-Sirius and Delta-Northwest mergers and feel that Obama's DOJ would probably have sued in at least two of those cases.
Having specifically noted during the campaign the underperformance of the DOJ under Bush, Obama reshaped the DOJ with the idea of stepping up enforcement and named Christine Varney to the post of assistant attorney general. Christine was a former FTC commissioner.
Christine came to the position making a number of pronouncements that the DOJ would increase enforcement across the board, especially in merger enforcement and dominant firm enforcement/ monopolization type cases under Section 2. She has put together a team there that includes at least two former FTC-ers, Molly Boast and Sharon Pozen Arnold. She also named Carl Shapiro, one of the most vocal critics of the DOJ's non-enforcement over of the last eight years, as the head of her economic bureau. Carl taught at Berkeley and worked for one of the consulting firms. He wrote a paper for which I was interviewed that talked about the lack of enforcement at the DOJ during the Bush years.
It is clear that Christine has a very aggressive staff and no doubt will make the DOJ at least as aggressive as the FTC has been over the last few years. During the Bush administration, for whatever reason, and I can think of several, the FTC was as enforcement-minded as it had been almost any time in the past. Under both Democratic and Republican administrations over the last 12 years, the FTC has been relatively consistent in being pro-enforcement, especially in mergers.
The new antitrust lineup at the DOJ will undoubtedly put the DOJ more in line with what the FTC has been doing in merger enforcement. I also think that both agencies are going to be much more active in civil non-merger enforcement.
Editor: In contrast, what's happening at the FTC seems more like musical chairs.
Newborn: You might say that. Bill Kovacic, a Republican who was chairman under Bush, has been replaced by Jon Leibowitz, a Democrat, but Kovacic is still a commissioner and Tom Rosch remains a commissioner as well. Although Rosch is a Republican carryover from the Bush years, he has acted more like a Democrat than a Republican during his tenure. The fourth commissioner is Pamela Harbour. Her term ends in September. Julie Brill, a consumer protection specialist from the Vermont AG's office, is supposedly to be named as a replacement for Pamela.
The front-runner for the currently vacant fifth seat is Edith Ramirez. She's a litigator at the law firm of Quinn Emanuel who represents major companies in intellectual property and Latino media and entertainment matters. She was on the Harvard Law Review at the same time Obama was its president and also served as California deputy political director and director of Latino outreach for the Obama for America organization.
Once the new commissioners are in place, the FTC might be even more enforcement minded than they are right now - and right now they're as enforcement minded as they've been in recent memory. When I say enforcement minded, I mean with respect to mergers and dominant firm cases.
Editor: Do you see any return to a per se rule with respect to tie-in's, bundling, and resale price maintenance?
Newborn: I really doubt it. I think that train has probably left the station. Back in the 1960s and '70s, the reason that resale price maintenance, tieing, bundling and things like that were considered bad was to protect competitors and not consumers.
There has been a sea change in the '80s and '90s in that enforcers came to believe that the antitrust laws were really not there to protect other competitors, but rather to protect consumers, and that those practices often help consumers.
If Procter and Gamble sells both toothpaste and detergent to supermarkets and then says if you buy my detergent we'll give you the toothpaste for a much lower price, that really doesn't hurt anybody but their competitors. It actually helps consumers because the consumer gets a cheaper price for the toothpaste, but competitors such as Unilever or Colgate might feel that they cannot compete on that basis and therefore they're going to be injured. Well, antitrust law doesn't really care very much about that type of harm - at least not in the United States.
People no longer look at those practices and say they are per se illegal. Because many of such practices are actually pro consumer, they can no longer argue that there is virtually no set of facts in which they can be considered pro-competitive. I think in fact that, if there is a presumption, it goes the other way, that is that those practices are probably pro-competitive resulting in consumers being better off. This explains why enforcement policies have changed over the years. I do not think the new administration is going back to the old approach. Having said that, it's certainly true there is talk about bringing a bundling case and talk about trying to overrule the Leegin case through legislation. The Leegin case was a Supreme Court case a couple of years ago that basically said that resale price maintenance is usually perfectly legitimate.
Editor: How do the changes you have described affect reverse payment cases?
Newborn: The FTC was strongly behind enforcement in situations involving reverse payments even during the Bush administration. The DOJ disagreed with it at that time and that has changed; Varney has come out in favor of the FTC's policy. So I think what we're going to find is a DOJ that is more in line with the FTC's enforcement policy. That means that there will be less forum shopping when you're looking at who you want to look at your mergers. It used to be as a matter of course you would prefer the Department of Justice to look at your merger because you would have an easier time with them, but now I think that is changing and fewer people are thinking that they'd rather be at DOJ than at the FTC.
Editor: What other situations are most likely to be targeted for enforcement attention.
Newborn: The healthcare industry and the oil and gas industry have always been targeted over the last few years and that will likely continue. As to dominant firm conduct, I expect that both the DOJ and the FTC will continue to be interested in industries where one company, e.g. Google, essentially dominates an industry, and that interest will not only be focused on mergers in which they might be involved but also on the way in which they obtain or exercise their market power.
Editor: Do you think that the U.S. Supreme Court will continue to exercise a restraining influence?
Newborn: Yes. In the last 15 years antitrust plaintiffs have lost all their cases in the Supreme Court. The Trinko decision was 9 to 0. Twombly was 7 to 2. Billing went 7 to 1. Interestingly, only the Leegin decision was 5 to 4.The conservative antitrust majority is unlikely to change. However, antitrust legislation that's in Congress now could take the courts out of the game with respect to some matters. I mentioned the likelihood that both the FTC and DOJ will continue to crack down on reverse payment patent settlements. Legislation is pending in Congress that would outlaw them. There are proposals to adopt legislation to overturn Leegin by either outlawing resale price maintenance or reestablishing that practice as per se illegal.
There are other legislative initiatives. One would eliminate the antitrust exemptions for the railroad industry and subject railroad mergers to the Clayton Act. Others relate to the practices of issuers of credit card.
Editor: What is happening in other countries?
Newborn: In the last ten years more and more jurisdictions have focused on antitrust. Often, especially in smaller countries, it is just to obtain filing fees for mergers. But there have been some developments recently that are worthy of note. The EU has placed increasing emphasis on merger review as well as on enforcing their antitrust laws generally. Indeed, the EU was often the more aggressive enforcer during the Bush years. The U.S. and the EU are the two most important jurisdictions to worry about in doing a merger.
Messages developed for one country can sometimes get you into trouble in another country because their laws differ. Efficiencies may be very helpful to a U.S. analysis. They are less helpful and may indeed be harmful to an EU analysis. For example, I am doing mergers right now that involve filing in multiple jurisdictions. We have a weekly call with law firms covering those places to determine what guidance each law firm needs for that country and to be sure that we review everything that is filed so that nothing inconsistent is said, for example, in Colombia with what we say in the United States, for example. The facts may be very different in each jurisdiction, but the arguments have got to be consistent.
In hiring lawyers to do a world-wide merger, you should be sure that they are experienced and understand that consistency across jurisdictions is critical. The agencies talk to each other far more than they ever did in the past. Therefore, what you say to the U.S. is going to be known in Europe - perhaps the same day. Again, you have to understand that certain arguments that you make in the U.S. can actually hurt you in Europe, and therefore you may need either to tone down those arguments or otherwise figure out a way to make them more palatable to a European enforcer. Finally you have to make sure that the law firms that you use throughout the world coordinate their efforts to get timely approval and consistent remedies in all jurisdictions.
Editor: Tell us about antitrust developments in China.
Newborn: China is the "sleeping giant" in so many different ways. Last year it passed an antitrust act, and while no one is really certain what obstacles this new law poses for mergers, approval has to be taken into consideration. So far it has not been disruptive, but if China starts using the antitrust laws as a basis for making political decisions, lots of problems are going to arise. There are many U.S. firms that have a Chinese antitrust lawyer, and we do as well. But very often we also hire a Chinese law firm because we believe that they have superior contacts with the ministry involved.
Published October 4, 2009.
