President Obama recently announced his selections to head the U.S. Department of Justice’s Antitrust Division (DOJ) and the Federal Trade Commission (FTC). Christine Varney will become the assistant attorney general for the Antitrust Division, and Jonathan Leibowitz will assume the role of chairman of the FTC. Varney’s appointment is subject to confirmation by the U.S. Senate, while Leibowitz’s appointment to chairman is not subject to confirmation hearings given his current position as an FTC commissioner. The selection of Varney signals that the Obama administration likely will be pragmatic, but more aggressive than the Bush administration in its enforcement of U.S. antitrust laws, while the elevation of Commissioner Leibowitz to chairman emphasizes the FTC’s continued role in robust enforcement of competition and consumer protection laws.
Christine Varney is a partner in the Washington, D.C., office of Hogan & Hartson LLP, and heads the firm’s internet practice group. Varney has held several government positions, including FTC commissioner from 1994 to 1997, assistant to President Clinton and secretary to the Cabinet. She also served as personal counsel to President Obama’s transition team, chief counsel to the Clinton/Gore presidential campaign, general counsel to the 1992 Presidential Inaugural Committee and general counsel to the Democratic National Committee from 1989 to 1992.
During her tenure at the FTC, Varney’s primary focus was issues of privacy and e-commerce on the internet. She initiated the agency’s review of internet issues, and Varney maintained her focus on these issues in private practice, where she provides advice regarding privacy, advertising and antitrust issues.
Varney’s record of antitrust enforcement while she was at the FTC suggests a practical approach. For example, she voted in favor of allowing mergers to proceed if the parties agreed to certain concessions to preserve competition. However, her approach was less conventional with regards to analyzing the potential competitive effects of a transaction. In examining issues of competition in health care, Varney encouraged the FTC and DOJ to be more accepting of novel delivery modes and models. Also, in transactions involving electronic high technology and biotechnology, Varney analyzed transactions based on their potential impacts on innovation-based competition, and was willing to challenge transactions based on innovation or potential competition theories. Varney may be inclined to look at other modes of non-price competition, particularly where they relate to consumer privacy. For example, companies that collect consumer data from online activity increasingly have been competing with one another by offering more favorable privacy policies, or more effective opt-out options for consumers. In analyzing a merger similar to Google’s 2008 acquisition of DoubleClick, Varney may examine privacy policies and use and collection of consumer data as another dimension of non-price competition.
As head of the Antitrust Division, Varney likely will pursue more robust enforcement of the antitrust laws than her predecessors in the Bush administration; however, Varney’s apparent pragmatism and willingness to consider less traditional competitive effects likely will temper this more aggressive stance. Her measured approach may result in a serious effort to revise the agencies’ 1992 Horizontal Merger Guidelines to reflect a more modern methodology of merger analysis. Also, given Varney’s prior service as an FTC commissioner, she may be able to serve as a bridge between the DOJ and FTC to repair the widening rift between the antitrust enforcement goals of the two agencies. Given the Obama administration’s focus on health care issues, under Varney’s leadership, the DOJ also likely will scrutinize consolidation among health care insurance companies and examine other conduct that may affect health care prices. Lastly, Varney likely will maintain open channels of communication with international competition authorities. Varney believes that convergence of international competition laws is important in a global economy, and that cooperation among competition authorities is the best way to achieve that convergence.
Jonathan Leibowitz has served as an FTC commissioner since September 2004. Previously, his antitrust experience included serving as Democratic chief counsel and staff director for the U.S. Senate Antitrust Subcommittee from 1997 to 2000. From 1989 to 2000, he worked as chief counsel to Senator Herb Kohl, the chairman of the Senate Antitrust Subcommittee. He has also held several other positions on various Senate subcommittees, and also worked in the private sector. Given his more than a decade of experience on Capitol Hill, Commissioner Leibowitz likely will be sympathetic to the agenda of Democratic representatives and senators.
Commissioner Leibowitz’s tenure at the FTC provides insight into some of the issues on which he may focus as chairman. For example, Commissioner Leibowitz sees a broader role for Section 5 of the FTC Act, which prohibits “unfair methods of competition,” to fill in the gap in remedying anticompetitive conduct that may not violate the Sherman Act, such as unfair methods of competition practiced by branded and generic pharmaceutical manufacturers and participants in standard-setting organizations.
During his term at the FTC, Commissioner Leibowitz has voted on cases involving a variety of industries; however, competition in the health care and pharmaceutical industries represents one area where Commissioner Leibowitz has been particularly vocal. For example, Commissioner Leibowitz would like to use Section 5 of the FTC Act to attack pay-for-delay and “ever-greening” tactics that undermine the ability of generics to compete with branded pharmaceuticals. In his statement in the Matter of Cephalon, Inc. (February 13, 2008), Commissioner Leibowitz also advocated naming generic drug manufacturers as defendants in pay-for-delay cases where the generic manufacturers took pay-offs and subsequently refused to relinquish their 180-day exclusivity period under the Hatch Waxman Act to allow other generic competitors to enter the marketplace.
More recently, Commissioner Leibowitz argued in his statement regarding Federal Trade Commission v. Ovation Pharmaceuticals, Inc. (December 16, 2008) that the FTC should have challenged a pharmaceutical acquisition as a violation of Section 7 of the Clayton Act although the acquiring party did not manufacture, distribute or sell a competing product. Commissioner Leibowitz, along with Commissioner Thomas Rosch, argued that the acquiring party lacked the same concern over the reputational impact of charging monopoly prices that restrained the target company from exercising monopoly power and charging supra-competitive prices. In that same opinion, Commissioner Leibowitz encouraged the FTC to seek disgorgement of ill-gotten gains from anticompetitive conduct more often.
Commissioner Leibowitz likely will continue to vigorously enforce the consumer protection laws within the FTC’s purview, as well as find ways to combat unfair or deceptive trade practices occurring within emerging fields such as privacy and data security, behavioral advertising and spam/spyware. For example, he supports the proposed FTC Reauthorization Act of 2008, which includes provisions that would allow the agency to prohibit aiding and abetting violations of consumer protection statutes that the FTC enforces, and also broaden the FTC’s ability to seek civil penalties for knowing violations of Section 5, including a wide range of unfair and deceptive acts and antitrust violations. During the FTC’s 2007 Ehavioral Advertising Town Hall, Commissioner Leibowitz referred to a “do not track” list, similar to the “do not call” list for telemarketers, as a “really promising idea” for addressing consumers’ privacy concerns while browsing the internet.
Antitrust Enforcement Under the Obama Administration
The Obama administration is likely to be more aggressive than the Bush administration in its enforcement of mergers and acquisitions, as well as dominant firm conduct. President Obama once said that he wants a DOJ that “actually believes in antitrust law.” The Obama administration will likely maintain the Bush administration’s strong record of cartel enforcement. The greatest change will likely occur at the Antitrust Division where, under Varney’s leadership, it likely will be more aggressive in challenging transactions and single-firm conduct. A more active DOJ likely will lead to fewer enforcement policy differences between the FTC and DOJ than we have seen in recent years.
With more aggressive challenges to mergers and acquisitions, key implications for parties contemplating transactions include the following:
A more aggressive DOJ will likely result in fewer differences between FTC and DOJ merger policy. As such, merger investigation outcomes will be less dependent on which agency reviews the transaction.
Regardless of a Democratic administration and more aggressive agency enforcement, the judiciary largely will remain Republican and more business-oriented. As a result, companies may be more willing to litigate merger challenges in court, especially against the DOJ.
The FTC and DOJ are more likely to consider vertical issues and other less-conventional theories of harm, resulting in more Second Requests and potentially more challenges.
Customers and competitors should be encouraged to express concerns to the agencies about transactions, as the DOJ and FTC will be more likely to investigate and challenge transactions.
The FTC and DOJ will continue to focus on acquisitions resulting in minority positions in competing businesses.
With regards to non-merger enforcement, key implications for businesses include the following:
Under Varney’s leadership, the DOJ likely will initiate more investigations and challenges to single-firm conduct. Companies with large market shares should expect greater regulatory scrutiny relating to exclusive dealing, predatory pricing, tying, bundling and loyalty discounts.
The FTC will continue to investigate and challenge patent litigation settlements and standard setting cases.
The DOJ will continue to aggressively pursue cartels.
The DOJ and FTC may push Congress to eliminate antitrust exemptions, such as the McCarran-Ferguson exemption that protects insurance companies.
In anticipation of increased antitrust scrutiny and enforcement, businesses should consider taking the following action:
Implementing or updating their antitrust compliance programs
Examining pricing, marketing and distribution policies through the lens of more aggressive scrutiny of bundling and resale price maintenance conduct
Complaining to the FTC or DOJ about proposed transactions of competitors or suppliers, which can be more cost effective than civil litigation
Viewing the current economic crisis as a potential opportunity to acquire struggling competitor companies or sell distressed subsidiaries to competitors with potentially less antitrust scrutiny