In a speech today in New York City to the Milton Handler Antitrust Review, Federal Trade Commission Chairman Timothy J. Muris discussed his philosophy about the appropriate content of the FTC's competition policy strategy and explained the logic of the positive agenda used to implement the strategy.
"My experience in public agencies," he said, "confirms a vital, often-stated conclusion of academic researchers: no public institution achieves policy success without a coherent strategy for exercising its authority and spending its resources. A key manifestation of an agency's strategy is a positive agenda -- a statement of the measures the agency intends to pursue to accomplish its substantive aims. Without a general strategy and a positive agenda, an agency becomes a passive observer, swept along by external developments and temporary exigencies."
Muris explained that a positive agenda also provides essential guidance for the agency's staff and for the business community. For the agency's staff, a positive agenda focuses effort on measures most likely to fulfill the institution's mission. For the business community and other interested parties, a clear statement of intentions reduces uncertainty and facilitates compliance with the law.
The speech detailed the four general principles that Muris believes should inform the development of the FTC's competition policy strategy:
- Play an active role in promoting competition as the basic principle of economic organization through strong enforcement and focused advocacy;
- Focus antitrust enforcement resources on conduct that poses the greatest threat to consumer welfare;
- Make full use of the agency's distinctive institutional capabilities by applying the entire range of its policy instruments to solve competition policy problems; and
- Attach a high priority to improving the institutions and processes by which antitrust policy is formulated and applied.
"I view antitrust law as a form of regulation that competes with other regulatory structures," he stated, "and makes direct regulation unnecessary."
The United States has chosen antitrust law to provide the governing rules for competition in most sectors of the economy, Muris explained. He noted that two antitrust immunities help protect and foster regulatory growth: Noerr immunity and the state action doctrine. Each has been widely criticized. Muris then described two initiatives to address their immunities.
Muris first described the Task Force he created to study Noerr and to recommend appropriate case and advocacy opportunities. The FTC's Noerr Task Force has been conducting a careful analysis of existing case law, seeking to identify opportunities to clarify the case law in a manner that promotes competition and enhances consumer welfare. The Task Force has been evaluating the feasibility and desirability of promoting a number of specific developments in the Noerr doctrine including:
- Adopting an appropriately narrow view of conduct that constitutes immunized "petitioning," currently used in cases involving tariff filings and private settlements.
- Making clear that the Walker Process exception to Noerr immunity extends beyond the Patent and Trademark Office (PTO) context to analogous non-legislative proceedings. In Walker Process, the Supreme Court ruled that an effort to defraud the PTO does not enjoy antitrust immunity.
- Recognizing fully an independent misrepresentation exception -- separate and distinct from the "sham" exception set forth in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries. In short, material misrepresentation should not be protected.
Muris next described the State Action Task Force and the history of the state action doctrine, first articulated by the Supreme Court in 1943 in Parker v. Brown. Since Parker, the scope of state action immunity has increased considerably. At times, courts have failed to consider carefully whether the anticompetitive conduct in question was envisioned by the state legislature or truly necessary to accomplish the state's objective. Other courts have granted broad immunity to quasi-official entities, including entities composed of market participants, with only a tangential connection to the state. He explained that overbroad state action immunity has significant costs.
Muris said that the FTC's State Action Task Force has been conducting a careful analysis of existing state action case law, seeking to identify opportunities to direct the development of that case law in a manner that promotes competition and enhances consumer welfare. To date, the Task Force has evaluated the feasibility and desirability of promoting a number of specific developments in the state action doctrine, including the following:
- Clarify the proper interpretation of the "clear articulation" requirement the first prong of the two-prong test in California Retail Liquor Dealers Association v. Midcal Aluminum, Inc. to ensure that a state truly intended to displace competition by authorizing the anticompetitive conduct at issue.
- Elaborate further the standards for the "active supervision" requirement the second prong of the Midcal test to ensure that the requirement has "teeth" and will prevent private entities from restraining competition absent meaningful government oversight. Courts have not articulated a well-defined standard for active supervision. The Supreme Court has stated that a state official must engage in a "pointed re-examination" of a pricing scheme (Midcal) and must exercise "independent judgment and control" (Ticor), but has provided little concrete guidance on the standards federal courts should use to assess the state's efforts and what states should do to satisfy those standards.
- Advocate a tiered approach to govern the application of the "clear articulation" and "active supervision" requirements to ensure that these tests are applied most strictly when the threat to competition and consumer welfare is greatest, and less strictly where the threat is less severe.
- Consider explicit recognition of a "market participant" exception to state action immunity based on the statement in Omni Outdoor Advertising that immunity "does not necessarily obtain where the State acts not in a regulatory capacity but as a commercial participant in a given market."
Muris then turned to the Commission's role of competition advocacy. He emphasized that although vigorous law enforcement is necessary to protect consumers, the Commission also can enhance consumer welfare by increasing the information available to decision makers on the likely effects of proposed policies. "Today, the FTC is acting as a vigorous advocate for competition through the publication of studies and reports, as well as participation in state and federal legislative and regulatory fora. Participation in judicial fora, as an amicus curiae, is part of our advocacy program, especially when the FTC's participation can help remove protectionist regulations, when substantial questions of antitrust law are likely to be debated, or when because of special knowledge or experience, the agency can add a different perspective to the deliberations," Muris explained. "The FTC's advocacy program provides economic analysis and other informed guidance to help policymakers better understand the impact of their decisions in creating, maintaining, or forestalling competitive markets."
Muris noted that law enforcement provides the most consistent means by which the FTC influences the rules of the competitive process. Competition policy succeeds when it serves consumer interests for example, by pressing producers to offer lower prices or to improve product quality. "The true measure of our contribution to the economy," Muris stated, "is our progress in increasing consumer welfare."
Muris continued by noting that public antitrust enforcement has not always achieved this objective. In some cases, the departure from a consumer-oriented focus resulted from conscious policy choices that equated the well-being of individual firms with consumer interests. In other instances, antitrust enforcement has failed to serve consumer interests owing to a basic misdiagnosis of commercial phenomena.
Placing antitrust thinking in a chronological framework, Muris pointed out that the 1980s brought a "revolution" in antitrust. Antitrust finally regarded enhancing consumer welfare as the single unifying goal of competition policy, and it used a policy framework that was based on sound economics, both theoretical and empirical. The foundation of that framework was the belief, supported by modern economic research, that economics should be the guidepost for Commission actions. In addition, an approach based on enhancing consumer welfare recognizes that governmental impediments to, or exemptions from, competition can be at least as harmful to consumers as private restraints. This approach to antitrust enforcement, Muris noted, has been largely consistent at the Commission since the acceptance in the 1980s of economic analysis as the basis for antitrust analysis and decision making.
In describing the Commission's enforcement program, Muris noted that it focuses closely on the transactions and kinds of practices that have been shown over time to pose the greatest threat of substantial consumer injury. The agency considers the deterrent effect of enforcement action as well as the amount of immediate consumer injury. Additionally, the Commission carefully considers its enforcement experience. The pharmaceutical and standard-setting cases highlight an area in which the agency is devoting substantial resources to identify enforcement targets, such as the nexus between intellectual property and antitrust.
According to Muris, the agency has responded to the centrality of intellectual property issues in these cases and other investigations, in part, by forming an Intellectual Property Case Generation Working Group, whose responsibility is to identify and investigate widespread or significant practices that have anticompetitive effects without corresponding consumer benefits.
Shifting the discussion to mergers, Muris set the stage by stating that "there is a general consensus that the practices about which we should most worry occur when competitors stop competing vigorously, making peace to benefit themselves at the expense of consumers."
Horizontal mergers in which anticompetitive effects are likely are one fertile area for firms to make peace to the detriment of consumers, he explained, which is why there is a well-accepted horizontal merger policy, based on the foundations of the Department of Justice and FTC Merger Guidelines. Despite the decline in the merger wave, the FTC has a very active enforcement program in which over one half of its total competition budget is used to scrutinize horizontal mergers.
Continuing the merger discussion, Muris noted that firms also make peace through a wide range of non-merger conduct such as pure price-fixing, naked output restraints or market divisions, and bans on advertising. Muris pointed out that the Commission has brought numerous cases in these areas in the last eighteen months involving physicians, trade associations, and generic drugs.
Muris next touched on the category of potentially troubling single-firm conduct involving the abuse of government process. He noted that potential monopolization concerns can occur when firms misuse a self-regulatory process such as standard setting, citing American Society of Sanitary Engineering and Dell. Muris ended the merger discussion by noting that it is now widely accepted in law and economics that, in most situations, vertical restraints or vertical mergers do not harm consumers, citing Cytyc/Digene and Synopsys/Avant!.
Muris next discussed the Commission's unique collection of capabilities that include expansive power to conduct studies or perform research about the economy; a broad charter to act as an advocate for competition before other government bodies; and authority to use administrative adjudication to resolve competition policy disputes.
He described the agency's use of competition advocacy to address exemption and immunity issues as most prominent among its non-litigation instruments, citing the Commission's recently published generic drug study as an example of how the agency's research and analysis function can shape the policy environment. Muris also noted that the President recently announced that the Food and Drug Administration was proposing to change its rules to adopt the FTC report's major recommendation.
Citing another example of the Commission's unique institutional capacities, Muris described the agency's efforts concerning competition in e-commerce. He said he created a task force to examine possible anticompetitive efforts to restrict competition on the Internet. The task force is analyzing state regulations, such as occupational licensing and physical office requirements, that may have pro-consumer or pro-competition rationales, but that nevertheless may restrict the entry of new Internet competitors. The task force also is examining barriers that arise when private parties employ potentially anticompetitive tactics, such as when suppliers or dealers apply collective pressure to limit online sales.
To position the FTC to make intelligent contributions to competition policy through litigation or non-litigation instruments, Muris stressed the need for substantial investments in competition policy research and development. "For the FTC to be effective," Muris said, "the agency should be in the forefront in understanding whether markets are operating in a competitive fashion, and in communicating to decision makers the harm to consumer welfare when there is movement away from competitive, free markets. The agency also should explore the relevance of the theoretical foundation (generally, but not exclusively, industrial organization theory) of our efforts and those of others."
Muris detailed that the FTC's current competition policy Research and Development efforts have focused on: (1) improving the empirical understanding of our theoretical framework, (2) analyzing "merger outcomes," (3) reviewing two decades of change in the petroleum industry, (4) a unique effort in the real time monitoring of wholesale and retail gas prices across the nation, (5) the operation of current and developing health care markets, (6) reviewing the development of barriers to e-commerce, and (7) considering the interplay between the competition and intellectual property regimes. He stressed that the findings in these areas will continue to form the basis for enforcement actions, changes in enforcement policies, legislative recommendations, and public reports and comments.
Muris cited the FTC's recent two-day health care workshop as an example of the Commission's efforts, and noted that because the workshop only began to explore these complex and interdependent issues, the Commission authorized an extended set of hearings on health care and competition policy, commencing in February 2003 and continuing through the year.
Muris concluded his speech by touching on the role of the FTC in improving competition policy institutions and processes. He explained that the Commission has a special responsibility to pursue improvements in the processes and institutional arrangements through which competition policy is formulated at home and abroad. On several occasions in the past year, the Commission has issued statements explaining why it declined to take actions involving mergers for which the agency had issued a second request or otherwise conducted a significant inquiry. By doing so, the agency has sought to provide greater transparency concerning its analysis of mergers. The FTC also has made a considerable effort to improve the premerger review of specific transactions and reduce the costs associated with the merger-control regime.
Continuing on this theme, Muris said that the FTC is intensifying its commitment to improve the operation of our bilateral cooperation agreements. "No relationship assumes greater importance than our cooperation with the Competition Directorate of the European Commission," said Muris. "In many respects, this relationship between two of the world's most substantial antitrust regimes is a vital testing ground for collaborative approaches and practical techniques that might be adapted on a larger multinational scale. The past year has featured expanded cooperation between our agencies on a variety of fronts, and it is evident that the additional effort is yielding positive results."
Muris announced that he expects to see the FTC and its counterparts overseas use their experience in antitrust cooperation to improve the enforcement of consumer protection prohibitions against fraud. Such efforts, he noted, could become part of a larger international program to improve understanding of the links between competition policy and consumer protection and to ensure that public policy in these two areas serves the mutually reinforcing purpose of improving consumer welfare.
Finally, Muris stressed that the FTC's commitment to assist transition economies in building effective competition policy and consumer protection regimes has reached an all-time high. In the fiscal year that concluded in September, the FTC performed numerous short-term technical assistance missions involving antitrust and consumer protection issues in transition economies and assigned long-term advisors to assist the competition authorities of Indonesia and South Africa. These initiatives extend and build upon the FTC's decade-long program to help less developed countries build the legal infrastructure to support the operation of a market economy.
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