US Antitrust Law Gets Energizing Tune-Up
After 12 years of emphasis on free markets, a new focus on anticompetitive behavior leaves some businesses confused
BUSINESS likes certainty.
One thing is now for certain: Antitrust policy under President Clinton has changed.
Since becoming assistant attorney general for antitrust policy last year, Anne Bingaman has tacked the Antitrust Division of the Justice Department onto a different course. The business community says the shift leaves them confused.
Ms. Bingaman says the division wants to bring significant civil cases to court and improve its litigation record in the merger area. She has charged her staff to prepare for litigation earlier. And she is beginning to define how the Justice Department will apply antitrust law, which deals with anticompetitive behavior, to such complicated areas as high technology and health care.
To back up a more ambitious agenda, Bingaman is adding 30 to 40 new lawyers and 40 to 60 new paralegals to the division.
``What she is talking about is a very significant change both in terms of the reorganization, including the number of people, and the redirection of focus,'' says Charles (Rick) Rule, who ran the division from November 1986 to May 1989. ``Compared to the Reagan years, they are dramatic changes.''
``Antitrust enforcement has been reenergized,'' says Art Amolsch, editor of FTC:WATCH, a Washington-based newsletter.
Justice Department observers expect Bingaman to begin to announce some major antitrust cases, perhaps as early as this spring. Her moves will be watched closely by both the business and legal communities. In an unprecedented move last August, for example, Bingaman started combing through crates of documents relating to Microsoft Corporation, the computer software giant in Redmond, Wash. The Federal Trade Commission (FTC) had deadlocked 2-2 in July over suing Microsoft for anticompetitive behavior. Bingaman's staff says she decided to act in place of the FTC's fifth commissioner, who had recused himself.
Bingaman's office is also deeply involved in developing antitrust policy as it relates to high technology. On Jan. 26, Bingaman told the House Subcommittee on Economic and Commercial Law that she had no problem with legislation that would allow the regional Bell operating companies to enter the long-distance and manufacturing businesses, as long as local telephone service was opened up to competition.
In the months ahead, she will have to rule on the AT&T and McCaw Cellular merger and the merger between Bell Atlantic Corporation and TeleCommunications Inc. On Jan. 10, Bingaman indicated that some of the big mergers may be justified if they result in faster innovation.
Until she decides these cases, the biggest change under Bingaman is her announcement last Aug. 10 that the department would rescind the ``Vertical Restraints Guidelines'' issued in 1985 by the Reagan administration. Under former President Reagan, the department established enforcement guidelines on how it would deal with the tricky issue of resale price maintenance.
Shift in price controls
The free-market Reaganites essentially decided not to challenge pricing arrangements between manufacturers and retailers. Thus, a manufacturer of widgets could tell its distributors or retailers at what price it wanted the widgets sold. The Justice Department under Reagan was more concerned about price fixing between competing brands.
In making the shift, Bingaman decided that the Justice Department would treat vertical price fixing as illegal and nonprice fixing restraints as subject to a meaningful analysis. For example, a company that sets service requirements (``We only want happy customers'') may not be pursued. But a company that will not sell its goods to a retailer stocking competing products could be in trouble.
Prior to Bingaman's change, ``everyone felt the vertical restraint guidelines were a statement that manufacturers could do whatever they wanted,'' explains Alan Silberman, an antitrust specialist with Chicago-based Sonnenshein Nath and Rosenthal. ``Now, Anne Bingaman is saying this whole subject is a fair subject for debate and that the law will have to develop on a case-by-case judicial basis.''
``This is something that is very valuable to the American consumer, and it will save the working stiff millions of dollars over time,'' Mr. Amolsch says. So far, the Justice Department says it has not pursued any cases relating to this change in policy.
Amnesty rules broadened
In another major shift, Bingaman has changed the division's corporate amnesty program. Under President Bush, amnesty would only be granted to the first company confessing to an antitrust crime. Thus, the other participants in a price-fixing scheme would be prosecuted even if they confessed.
Bingaman broadened the plan, allowing all the parties to receive amnesty, provided the division had not received information about the activity from any other source. ``In the long run, the change will be helpful,'' predicts Mr. Silberman, who heads up the American Bar Association's antitrust section. So far, two or three companies have come in to the Justice Department to confess, but the division says the cases are still under review to see if they will qualify for the new policy.
Bingaman has also started to define how antitrust policy will fit with Clinton's health-care reform. She has rejected a Pharmaceutical Manufacturers' Association request to allow members to cooperate in an effort to limit price hikes. She reasons that agreements on ceilings can become agreements on price increases.
On Sept. 15, Bingaman issued six enforcement policy statements on mergers in the health-care system. This was essential since the industry had started to consolidate in advance of Clinton's health-care policy. ``The assets are dancing,'' says Pat Oden, managing director and head of health-care public finance at CS First Boston in New York.
The Justice Department and the FTC agreed they would not challenge the following: certain hospital mergers; hospital joint ventures involving high technology; physician's collective provision of information to purchasers of health-care services; some joint purchasing arrangements; some third-party surveys of price and cost information among hospitals; and some physician network joint ventures.
Since the policy was announced, ``I have not noticed any aggressive enforcement towards types of structures that don't meet the guidelines,'' says James Cherney in Chicago, a health-care antitrust specialist with Latham & Watkins, an international law firm. However, he calls the guidelines ``a positive signal'' that Washington will accept new types of arrangements. So far, four companies have qualified under the new policy.
Lawyers believe, however, that Bingaman has other legal views - yet to be made public - which will cause more controversy. Mr. Rule, the former head of the Antitrust Division, says some of the ongoing investigations are based on ``kind of bizarre'' theories. Rule, now with the law firm of Covington & Burling, certainly would not get any argument from General Motors.
Two years ago, GM decided to sell its Allison Division, which produces automatic transmissions for tanks, trucks, and buses. Within six months, GM had reached an agreement with the German company Z. F. Friedrichshafen to buy the division. GM then began filing the paperwork for antitrust approval. That was under the Bush administration.
GM did not envision any real problems getting approval. After all, Allison's biggest competitors in the market for transmissions for trucks were Eaton, Rockwell International, and Dana-Spicer. ZF only sold about 400 to 700 automatic transmissions a year in the United States. However, Allison also sold bus and garbage truck transmissions which competed against ZF.
``We thought there might be a few difficulties but not a problem,'' recalls William Slowey, a lawyer for GM.
So GM and Mr. Slowey were surprised when Bingaman said the division would fight the proposed merger. What surprised Slowey the most were the grounds: Bingaman said the merger would have ``controlled most of the assets worldwide necessary for innovation in the production and improvement of heavy-duty truck and bus automatic transmissions.''
Slowey complains that GM did not know the Justice Department was concerned about innovation until Bingaman's complaint was on its way to the district court in Delaware. ``It was never a linchpin of our discussions,'' the GM attorney recalls. GM had invested $250 million in improving Allison's transmissions to develop a new electronic transmission. ``The innovation had largely passed,'' Slowey says.
Gina Talamona, a spokeswoman for the division, however, says this is not true. ``The innovation factor was a major issue, and the parties were invited to address the innovation factor with the staff,'' she says.
Of course, GM could have gone to court and moved to dismiss those counts of the government's complaint. But that could have taken years, which would have kept the division in turmoil until the issue was resolved.
Rule, in fact, says some of Bingaman's theories will ultimately be frowned on by the courts - if companies are willing to challenge them.
This may happen if Bingaman tries to enforce another of her theories. On Oct. 21, she gave a speech at Fordham Law School in New York, stating: ``I want to reaffirm the department's willingness to enforce the antitrust laws against restrictions imposed abroad that have a `direct, substantial, and reasonably foreseeable affect' on US exports, even where such restraints have no direct impact on US consumers.''
To add some muscle to this view, Bingaman appointed Diane Wood, formerly associate dean of the University of Chicago Law School, to head up the effort.
However, Rule says the Justice Department has not tried to enforce this concept in the past. Some foreign countries, for example, will only turn over documents that are public. The Japanese have considered making it a crime to turn over documents in an antitrust case. ``You must do it right and you must do it cooperatively,'' Rule says. The issue has been discussed in trade negotiations with Japan.
Bingaman has had some experience going after overseas cartels. In 1980, she won a $1 billion award from foreign uranium producers who were price fixing. It is still one of the largest antitrust judgments in history.
Bingaman may also go down in history if she decides to take on Microsoft. The software company's competitors have been alleging unfair practices for some time. However, government trust busters have learned that pursuing large companies purely because they are successful is frowned on by the courts. The government spent years chasing IBM without success.
Instead, antitrust experts believe Bingaman will attempt some sort of change in Microsoft's behavior. Microsoft makes MS DOS, the operating system used by IBM and IBM- compatible computers. An article in American Lawyer magazine details how the company sells DOS. Microsoft will offer large discounts to the supplier, provided it gets a royalty for every computer produced, whether or not it uses MS DOS. If a manufacturer uses a different system, ``they would wonder why they would pay a second royalty on top of the one they pay Microsoft,'' Amolsch says.
In a letter in a subsequent issue, the company's legal counsel wrote that the article was biased (the author admitted bias) and it reached conclusions ``without the benefit of the pertinent evidence or an expert analysis of the legal or economic considerations.'' Microsoft says it will not talk about the case to the press.
The sooner Bingaman delineates her policies, the happier business will be. Business can play by any rules, Slowey says, ``we just want to know what the rules are. A clear statement of economic policy would be most welcome.'' In other words, some certainty.