Merger Review Benchmarking Report — Chapter 5

Table of Content

In Washington in April 2000, senior Competition Bureau officials met with about 30 individuals involved in merger review in the United States, including officials of the Federal Trade Commission (FTC) and the Department of Justice (DOJ) as well as representatives of the American Bar Association. See Annex A for the names of these officials and counsel.

Due to timing and scheduling difficulties, most of the interviews were with FTC personnel, but these individuals were able to provide a substantial amount of information about the common features of the U.S. competition legislation and policies. Key DOJ personnel provided their views and experience.

This chapter describes the structure and legal and regulatory requirements of the merger review process in the U.S. It also describes the procedure the FTC and DOJ follow, and includes commentary from members of the private bar.

U.S. Merger Review Structure

The FTC and DOJ are responsible for federal antitrust enforcement in the U.S. Both have authority to investigate antitrust violations throughout the U.S. as well as in foreign jurisdictions when those violations have a direct impact on competition in the U.S. Both agencies have substantial investigative powers and, through compulsory process, have the ability to obtain documents and testimonial evidence that might be relevant to an investigation.

While mergers in the United States at the federal level can be examined under the Clayton Act, the Sherman Act and the Federal Trade Commission Act, in practice both the FTC and the DOJ review mergers under the Clayton Act. Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (section 7A of the Clayton Act) established the federal pre-merger notification program.

During 1999, there were approximately 4,700 filings under the Hart-Scott-Rodino provisions. Of these, only about 160 resulted in a second request being issued by either agency after the initial 30-day review period. The Commission or an individual Commissioner may issue a second request, as may the Assistant Attorney General or his or her designee. All matters that the agency intends to contest must be approved by a majority vote of the commissioners, in the case of the FTC, or by the Assistant Attorney General, in the case of the DOJ.

The Federal Trade Commission

The FTC is an independent administrative agency in which major enforcement decisions are made by a majority vote of the members of the Commission. The FTC’s authority is vested in the Federal Trade Commission Act, which prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce. The statute requires the FTC to take action to prevent persons, partnerships and corporations from pursuing unfair methods of competition. Mergers are reviewed under section 7 of the Clayton Act.

The Commission is composed of five members who are appointed by the President with the advice and consent of the Senate. The commissioners are appointed for seven years, and no more than three may be from the same political party. If a Commissioner is unable to serve his or her full seven-year term, a successor is appointed for the remainder of the term.

The President appoints the FTC Chairman from among the five members. The Chairman serves as chief executive officer of the agency and has powers and influence that the other commissioners do not. The Chairman appoints staff, distributes workloads and exercises direction regarding expenditures. While the approval of the remaining commissioners is required for major staff appointments, the Chairman is free to fill other vacancies.

The FTC acts as investigator, prosecutor and judge. FTC attorneys investigate antitrust issues and may recommend that the Commission issue a complaint. If a settlement is not reached with the parties, the Commission may order an administrative trial on the merits, presided over by an administrative law judge, who is also a Commission employee. If the administrative law judge decides against the parties, they must first appeal the decision to the full Commission. If the Commission upholds the decision, the parties may then appeal the case to the Federal Court of Appeals.

The Commission is organized into three bureaus: the Bureau of Competition, the Bureau of Economics and the Bureau of Consumer Protection. The Commission also has regional offices³⁴ located throughout the U.S. The Bureau of Competition has primary responsibility for enforcing federal antitrust and trade laws. The Bureau of Economics provides significant support to the Bureau of Competition attorneys who conduct merger and non-merger investigations, while making separate recommendations to the Commission, and help prepare antitrust cases for trial. Staff economists also prepare reports and studies related to the Commission’s mission to maintain competition. Each of the Bureaus is headed by a director who is responsible directly to the FTC Chairman. Each Bureau has several assistant directors who supervise staff attorneys and economists, and are directly responsible for day-to-day operations.

The Department of Justice

The Department of Justice, part of the executive branch of the government, is organized into divisions responsible for enforcing specific statutes. Major antitrust enforcement decisions, then, are the responsibility of the Assistant Attorney General of the Antitrust Division. Once a decision is made to prosecute a matter, the DOJ takes the case directly to Federal District Court where prosecution is governed by the Federal Rules of Civil Procedure or, in a criminal case, by the Federal Rules of Criminal Procedure.

There are several sections within the Antitrust Division, headed by section chiefs, as well as several field offices which have the same responsibility as head office. As merger antitrust investigations are opened, the Director of the Office of Operations and Merger Enforcement assigns them to the appropriate section or field office and staff attorneys carry out the investigation and carry out any litigation. Similarly, there is a Director of Civil Non-Merger Matters and a Director of Criminal Enforcement.

Unlike the FTC, the Antitrust Division acts solely as investigator and prosecutor. The Division has no authority to issue enforcement orders. All enforcement activity must be conducted through federal courts.

The Notification Process

The provisions and rules of Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (section 7a of the Clayton Act) require both parties to file notification under the pre-merger notification program when all of the following conditions are met:

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• one person has annual sales or assets of at least US$100 million;
• the other person has annual sales or assets of at least US$10 million; and
• as a result of the transaction, the acquiring person will hold a total amount of stock or assets of the acquired person valued at more than US$15 million, or, in some stock transactions, even if the stock held is valued at US$15 million or less, if it represents 50 percent or more of the outstanding stock of the issuer being acquired and the issuer is of a certain size.

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There are numerous exemptions, some contained in the statute itself, and others established by the FTC with the concurrence of the DOJ. Among these are exemptions for multinational mergers that would have minimal impact on the United States.

The notification fee is US$45,000 if the size-of-transaction is valued at greater than $50 million but less than $100 million; US$125,000 if the size-of-transaction is valued at $100 million or greater but less than $500 million; and US$280,000 if the size-of-transaction is valued at $500 million or greater. The acquired person also makes a filing but the acquiring party makes the filing and is responsible for paying the fee.

"Parties to certain proposed transactions must submit an Antitrust Pre-merger Notification and Report Form with information about their businesses to the enforcement agencies and wait a specified period of time before consummating their proposed transaction.³⁵ During this waiting period, the antitrust enforcement agencies analyze the likely competitive effects of the proposed transaction. If either agency believes that it needs further information in order to complete its competitive analysis, then it may request additional information and documentary material. This "second request" extends the statutory waiting period until a specified time after the parties respond.³⁶ When, after analyzing all of the information available to it, either agency believes that the transaction will violate the antitrust laws, then it will seek to enjoin the transaction in Federal Court.³⁷

Once an Antitrust Pre-merger Notification and Report Form is filed, the enforcement agencies begin their review. The Federal Trade Commission is responsible for the administration of the pre-merger notification program. As a result, the Commission’s Pre-merger Notification Office makes an initial determination whether the Form complies with the Act and Rules.³⁸

As soon as a staff member has concluded that the reporting parties appear to have complied with all requirements, the Commission sends letters to all parties indicating the date that the Forms were deemed filed correctly and the date the waiting period expires.

Both agencies undertake a preliminary substantive review of the proposed transaction. Only one of the two enforcement agencies investigates the proposed transaction. If, after preliminary review, both agencies conclude that a particular transaction warrants closer examination, the agencies decide between themselves which one will be responsible for the investigation.³⁹ Other than members of the Pre-merger Notification Office, no one at either agency will then initiate contact with any of the parties or any third parties until the agencies decide which of them will be responsible for investigating the proposed transaction.

Once the investigating agency has clearance to proceed, it may ask any or all parties to the transaction to submit additional information. The request for additional information is generally referred to as a "second request." Parties that receive a second request and believe that it is broader than necessary are encouraged to discuss the possibility of narrowing the request with the staff attorneys.⁴⁰ The issuance of a second request extends the statutory waiting period until 20 days after the parties comply with the second request. The second request must be issued by the enforcement agency before the 30-day waiting period expires. If the waiting period expires and the agencies have not issued a second request to any party to the transaction, then the parties are free to consummate the transaction."

Review Process in the FTC

The number of filings reported to the FTC and the DOJ has more than tripled in the past 10 years, from 1,529 in 1991 to 4,926 in the year ending September 30, 2000. The fiscal year 2000 was expected to see an increase of 15 percent over the record set in 1998 (4,728).

More than 70 percent of merger filings are cleared on an early termination basis and less than 3 percent receive a second request. This represents approximately 100 second requests by the FTC in 1999 out of approximately 4700 filings. At the FTC, more than 60 percent of the second request investigations result in some form of enforcement action suggesting that the agency is careful when identifying those mergers where enforcement action is most likely. Parties fully comply to the initial scope of a second request in fewer than 15 percent of the cases. This is because the FTC works with the parties to reduce concerns and limit the documentation required.

More than two thirds of the FTC’s competition enforcement resources are currently devoted to merger review. This is compared with the historical average of about 50 percent.

Pre-merger Notification

As noted above, the FTC administers the Hart-Scott-Rodino (HSR) process. Perhaps the most impressive aspect of this at the FTC is the unit headed by the Assistant Director, Pre-merger Notification Office (PNO), which first receives all of the HSR filings.

The Assistant Director, PNO regularly holds "brown bag" lunches with the "frequent filers" of the private bar in order to clarify, among others, filing issues and to explain changes in procedures. As of April 2000, 19 such lunches had taken place and several more were expected to be held at PNO regional offices. These lunches are very well attended by both members of the bar and of the PNO, who see them as a good vehicle for clarifying policy and procedures and improving communications and business relations between the two groups.

The PNO is staffed by several support persons, five attorneys and seven investigators. The support staff ensure that parties have properly completed the Pre-merger Notification Form and attached the fee. In addition, they enter all relevant information into a database, assign a PNO number to the case, date stamp and bind the documents. They also prepare a summary sheet and attach it to the file.

When a filing is deficient, the parties are called and asked to send in revised pages and a new certification of the Form. A deficient filing stops the waiting period until the corrected pages are received unless the missing information is considered to be trivial, in which case the PNO does not stop the clock and simply requests that the parties provide it as soon as possible. A filing is rarely found deficient. Counsel are very familiar with filing requirements, and the FTC and the DOJ regularly provide policy direction through speeches and papers.

Once initial verification has been done, the file is referred to one of the PNO attorneys or investigators for review. They complete a standard template, which describes the transaction, any issues and their recommendations. This information is entered into a database that is accessible on a read-only basis by the litigation attorneys as well as attorneys at the Department of Justice.

Parties generally provide sufficient information with the filing for PNO attorneys to determine whether or not to recommend early termination. The PNO does triage and decides which filings to send to the Bureau of Competition for further review. Even when there is no competition issue but the PNO is aware that a similar case has been addressed in the past, it usually forwards the file to the Bureau. The PNO generally has two or three days in which to make a decision to recommend either early termination or further review.

Given the 30-day legislative time frames, the PNO forwards all newly received transactions (with appropriate recommendations) to the Office of the Director, Bureau of Competition, by Wednesday of every week. The Director reviews the recommendations of the PNO (to either grant early termination or refer the case to the Bureau of Competition) and signs them off on Fridays. This is a very tight process that, with few exceptions, is strictly adhered to. This systematic process enables the PNO to effectively and efficiently deal with its caseload.

The Assistant Director of the PNO has made known her intent to streamline processes by capturing in the PNO database all information of an interpretative nature that is provided to private counsel. This will further ensure that the PNO provides consistent advice and information and that corporate knowledge is not lost with the departure of a PNO employee. With about 40,000 telephone calls to the PNO annually and staff turnover, it is critical that PNO staff provide consistent and accurate advice.

Clearance

The clearance process expeditiously resolves clearance issues between the FTC and the DOJ more than 95 percent of the time. The agency interested in pursuing the matter completes a Clearance Request that includes the pre-merger notification number, the parties, theory of the case, issues and agency expertise, along with the name of the attorney who is seeking clearance. There is a Clearance Office in each agency to direct this traffic. If no one argues with the clearance, then the case is assigned to the appropriate agency and person. When there is a dispute, the file goes to the Deputy Director of the Bureau of Competition and his or her counterpart at the DOJ. If the issue cannot be resolved at this level, the matter is further elevated until it is. The principal basis for clearance is expertise in the relevant product or products involved in the merger.

Review by the Bureau of Competition

Merger review in the Bureau of Competition is conducted by four operating divisions with 20 to 30 attorneys in each.⁴¹ Of these, at least five or six are considered lead attorneys. FTC attorneys receive a great deal of their training on the job. Each of the four merger operating divisions has specific areas of expertise. For example, one division has expertise in defence and pharmaceuticals, while another specializes in chemicals and computers.

For a major file, after initial assessment by the PNO and during the initial 30 days, there might be a lead attorney, one or two junior attorneys and an economist. After the second request, additional staff may be assigned. For complex cases that are litigated, there can be as many as eight attorneys and two economists. There may be even more staff assigned to extremely complex cases that are litigated.

The merger operating divisions make extensive use of paralegals and the Bureau of Competition has about 30 on staff at any given time. The paralegals in the "paralegal program"⁴² mainly help conduct interviews, review documents, draft memos and attend meetings. Each division also has two or three "career position" investigators who check compliance with second requests, prepare exhibits for trial books, draft motions and are responsible for document handling.

Depending on the volume of documents submitted in response to a second request, a lead attorney might request an additional 5 to 10 people to review the material. The lead attorney identifies the key issues and ensures that more seasoned staff read the most important papers, while the paralegals look at the less complex material.

The FTC typically hires an economic expert to provide testimony during litigation but does not generally hire industry experts.

Each division receives a package every week from the PNO with summaries (templates) that include such things as SIC code⁴³ overlaps and antitrust concerns. After reviewing this information, the divisions decide whether to request the HSR filing from the PNO for further review. According to officials, of approximately 4,600 filings in 1999, only about 1,000 were referred to the merger operating divisions. Of the cases sent to a division, a significant number (about 70 percent) are reviewed by an attorney who determines, based on the information in the filing, his or her knowledge of the industry and previous filings, and research of publicly available sources, that early termination should be granted without the need to contact third parties. Only about 100 of the cases result in the FTC issuing second requests.⁴⁴

When a division determines that more extensive investigation is warranted, the FTC seeks clearance from the DOJ, which allows the FTC to contact the parties and third parties. Once an investigation is opened, it is entered into the Matter Management System and a second file number is issued.

Given the need to decide on and issue a second request within 30 days,⁴⁵ the merger operating divisions typically have less than three weeks from the time they receive the HSR filing to determine whether the competitive issues raised by the proposed transaction warrant such a step. Division attorneys must exercise extreme discipline, given their caseload and legislated time frames. Because of time constraints, they rely greatly on past experience and third-party contacts.

Once clearance is obtained, attorneys generally try to call customers and competitors to get information about the competitive conditions in the markets in question. They also contact the parties’ counsel to request additional information about the companies and their products, competitors and customers. It is also not unusual for merger operating division attorneys to request, and for the parties to provide, recent ordinary course of business documents, such as strategic plans and competitive assessments, during the initial 30-day period.

Members of the bar are usually familiar with the areas of expertise within the Bureau of Competition and the DOJ. When a case will clearly be referred by the PNO, the parties’ counsel usually provide a courtesy copy of the filing to the appropriate merger operating division attorney at the same time as they send it to the PNO. This gives the merger operating division attorneys time to become familiar with the filing while it is being processed in the PNO.

Parties often schedule meetings with merger operating division attorneys prior to or shortly after filing in order to identify the relevant competitive issues and provide additional information so the evaluation of the transaction can be completed within the initial 30-day waiting period. Regular contact between division attorneys and the parties typically continues throughout the initial waiting period.

The FTC allows parties to withdraw a filing and to re-file provided that they do so within 48 hours. There is no additional fee for this. The principle behind allowing re-filing is that in certain cases when competitive concerns have been identified, the parties may believe that the division attorneys, given additional time and information, may conclude that a second request is not necessary. In such instances, parties may decide to withdraw their filing and re-file, thus starting a new 30-day clock.

Merger operating division attorneys typically notify parties near the end of the initial waiting period whether or not they will recommend a second request. This may lead the parties to consider re-filing.

Second Request

The Mergers Steering Committee must approve a recommendation by a merger operating division to issue a second request and a Commissioner must sign it. Merger Screening Committee meetings usually take place on Thursdays, but special meetings are often called when the file’s 30-day waiting period is expected to end before a regularly scheduled meeting. The Mergers Screening Committee typically reviews one or two cases a week. An 8- to 15-page memorandum outlining the facts of the case and suggested relevant market definition, etc. is sent to members of the Mergers Screening Committee at least two days before the meeting.

The meetings are attended by the Director of the Bureau of Competition, the Deputy Director for Antitrust of the Bureau of Economics, the Assistant Director of the PNO and the merger operating division making the recommendation, Bureau of Competition and Bureau of Economics staff working on the matter and other interested FTC staff members. The purpose of these meetings is to discuss the transaction, potential relevant markets and key issues to be investigated. Sensitive issues that might arise in the investigation, international dimensions, the scope of the second request and potential remedies all may be discussed.

The Assistant Director for Operations conducts "a thorough review of all second requests before they are sent to the Commission in an effort to provide additional review of the scope of documents requested."⁴⁶ Once a second request is issued, its extent and requirements are typically negotiated by the parties with the attorneys in the merger operating divisions. If parties feel that compliance with portions of the information request should not be required, and they are unable to obtain a satisfactory outcome with the lead attorney and the Assistant Director of the merger operating division reviewing the case, they may petition the General Counsel of the FTC to hear an appeal of unresolved issues.⁴⁷ Discussions with officials of the FTC confirm, however, that appeals are rare, since the second request is, as a matter of course, negotiated with the parties.

In his remarks to the American Bar Association in April 2000, the then Director of the Bureau of Competition announced that the FTC will now "routinely schedule second request conferences early in the investigation in which key issues will be identified and, hopefully, an agreed upon plan for the investigation put in place. Staff attorneys are now instructed to convene a ‘second request conference’ with parties to a transaction within five business days after issuance of the second request, unless otherwise agreed."⁴⁸ The FTC has also instituted a process whereby staff must respond to all requests for modifications within five business days after those modification proposals have been made.

There is no deadline for complying with a second request. Once parties do comply and certify that they have done so, the agency is under tremendous time pressure because the parties can close their transaction 20 days after substantial compliance with the second request. Thus, to block a merger, the FTC must obtain a temporary restraining order or preliminary injunction from a Federal District Court before the 20-day period expires. However, the parties can agree to delay the closing of their transaction in order to give the agency additional time to review the matter.

Parties, knowing the process, usually do not file all second request information at once, but submit information as it becomes available in order to give the agency time to review the materials and fully assess the parties’ arguments in support of the transaction.⁴⁹ The parties also usually meet with the merger operating division attorneys to make presentations and make their business officials available for investigational hearings.⁵⁰ The parties generally provide a written submission, called a white paper, that presents their arguments and supporting evidence. The parties may also choose to make a presentation to the Assistant Director of the merger operating division reviewing the transaction. In addition to the information submitted by the parties, the FTC relies heavily on interviews with third parties, including customers, competitors and other industry participants. The agency may also obtain third-party documents, information or testimony either voluntary or through compulsory process.

If the parties wish to make a presentation to the Director of the Bureau of Competition, they must do so at least one week before the waiting period expires. After a recommendation has been submitted to the Commission, parties generally meet with the Commissioners to try to convince them not to challenge a transaction. When the Commission believes that a merger would be anticompetitive, it has two primary options: enter into a settlement with the parties or seek to block the transaction through litigation. If the parties want to settle the matter, they negotiate a consent agreement with the FTC staff, on which the Commission must vote. If the Commission decides to block the merger through litigation, a majority of commissioners must vote to authorize staff to go before a district court to obtain a temporary restraining order and/or preliminary injunction. This halts the merger until a full review on the merits can be heard by an administrative law judge. When litigation is necessary, the FTC uses its own attorneys for the case.

Once a case is filed in District Court, the timing is within its discretion. For example, in the Staples-Office Depot case, the complaint was filed in November, there was a hearing in May and the decision came down in June. In a case involving drug wholesalers, the filing was in March and the decision came in late July. Some cases are decided much more quickly.

Closing Files

Attorneys complete a standard form at the end of every case, the contents of which is included in the database. The FTC annually tracks the number of cases with second requests that require remedies.⁵¹ The FTC Performance Report and Annual Report to Congress contain additional statistical and case-related information.

The FTC’s Office of Public Affairs prepares public announcements and other case-related documents for publication. The Office is staffed by communications experts, but the merger operating division reviewing a case, the Director of the Bureau of Competition and the FTC Chairman review all press releases to ensure legal and factual accuracy before they are released to the media. These announcements are also placed on the FTC’s Internet site (http://www.ftc.gov).

The Director of the Competition Bureau meets with his assistant directors monthly and receives a weekly report of "hot topics." The Director’s office is also in close contact with the mergers operating divisions to coordinate Mergers Screening Committee meetings, paper flow, and so forth.

Compliance Division

Staff from the Bureau of Competition’s Compliance Division work with attorneys in the merger operating divisions, starting early in the process, to help develop potential remedies. This has the advantage of concentrating the agency’s expertise in this area in one place. The division has six or seven attorneys. The Division also monitors compliance with orders and brings enforcement actions when parties violate HSR rules.

The Division was responsible for the recent FTC publication which assessed the success of divestiture orders.⁵² This study looked at the characteristics of the orders and attempted to determine what made orders successful, for example, identifying an acceptable buyer up front. The Division works with the party’s attorney to assess potential divestiture candidates, and identify and help retain trustees when required.

Bureau of Economics

Once a clearance is submitted, the Bureau of Economics is also notified of the transaction. However this Bureau is not expected to assign an economist to each file, since many are cleared after a few calls or research and require no significant economic input.

The Bureau of Economics comprises about 40 PhD-level economists and research assistants. Most economists have a caseload of one significant case and one or two others of lesser priority. The Bureau currently has only six research assistants. There are currently about one to two cases each week on which the economists must be assigned.

The economists have stated that 30 days do not provide a great deal of time to narrow a second request. Given that short time frame, they strongly believe that economists must be involved as early as possible in the process. They assist in the development of the theory of the case and the second request, assist with negotiations (considering whether potential remedies are acceptable) and usually identify the parameters for contracts. It is also critical that they participate in interviews, to ensure that the theory of the case is continually refined and supported and, when required, is modified.

Whether internal or external economists should be called to testify is an interesting question. While judges tend to see internal economists as biassed, the real question is whether they see someone hired to work on a case as any less biassed. Certainly, outside economists bring more "firepower,"so if the parties are using high-powered consultants the FTC can match them, an approach to cases the FTC favours. However, there is a concern that the pool of outside economists is shrinking, and reputable economists are extremely costly. It is also difficult to find experts who have a good balance of expertise in the industry in question and in industrial organization analysis. As a result, the Bureau of Economics is trying to promote using internal economists as witnesses and is training them to do so. Inside economists are less costly than their external counterparts, and benefit from in-house support. It is important to recognize that an in-house economist can be part of the team from the outset, providing guidance and leadership in case development and analysis, or can be brought in later to testify on specific issues, but cannot do both.

The Bureau of Economics also provides opportunities for their economists to devote up to 30 percent of their time on research. The Bureau generally tries to provide blocks of time when the economist is not assigned casework. This helps to maximize research time and provides a means of attracting new recruits.

Morale among the economists may be already affected when an internal economist is assigned to start a case but is subsequently replaced with external intellectual "fire power" when the case increases in importance and is headed for court. For this and other reasons discussed above, the Bureau of Economics goes to great lengths to motivate its staff and maintain a good pool of experts and experienced witnesses.

The FTC has created a two-day workshop on being an expert witness, and has set up mock trials so that economists can get testifying experience, understand the requirements and reality of a deposition hearing, and get a feel for witness requirements. It is also beneficial for litigators in the Merger operating division to practice being "on their feet", cross-examining witnesses and doing other courtroom activities.

The Bureau of Economics conducts seminars and workshops on how to prepare depositions, conducts simulations with outside economists and holds post-case assessments to evaluate, from an economic perspective, what worked well, and what models are or are not working. The Bureau also periodically includes new economists on cases with more experienced economists to help new recruits become familiar with the processes.

The FTC recognizes the value of looking forward, of attempting to anticipate change. The Bureau of Economics brings in academics and business people to brainstorm on emerging issues, and encourages staff members to debate new issues and propose new methodologies. The Bureau is committed to building expertise in important and emerging areas, such as econometrics and computer simulations of mergers.

International Cooperation

It is important, given globalization, to maintain cooperation with other agencies. While the legal profession is concerned because of the proliferation of merger control worldwide, the FTC is of the view that international cooperation is effective and efficient. In his remarks before the International Bar Association in Barcelona in September 1999, the former Senior Deputy Director of the Bureau of Competition, Federal Trade Commission, Richard G.Parker, noted that "agencies are up to the job and they are willing to work with one another to achieve complementary results. There is widespread convergence on market definition and on analysis of competitive effects. When, on extremely rare occasions, the agencies differ in outcomes, it is because of differences in the substantive standards in their respective laws."⁵³

There is consensus among FTC personnel that the key development in recent years has been the waiver by merging firms of confidentiality requirements related to merger filings. This has enabled agencies to discuss matters openly and on the basis of a common set of facts. Agencies are able to identify markets in which they have concerns and discover if they share the same concerns. Technology has also improved cooperation. For example, e-mail is much faster and more efficient than phone calls and makes time zones virtually irrelevant. In general, greater and earlier cooperation has also enabled agencies to take a more coordinated approach to developing and obtaining remedies.

Another key ingredient has been the development and maintenance of an excellent working relationship between the FTC’s International Division and the merger operating divisions, both of which need to stay abreast of developments in each other’s area. The International Division is considered skilled in the strategies necessary to be effective in cases involving two or more jurisdictions. The merger operating divisions bring the case experience and recognize the value to a case of cooperating internationally (see Chapter 9 - for more information on international context).

Review Process at the Department of Justice

The DOJ’s Antitrust Division has been faced with the same increased workload as the FTC. In her address to the Milton Handler Annual Antitrust Review of the Association of the Bar of the City of New York in November 1999, the Director of Operations and Merger Enforcement, Constance Robinson, noted that, "in fiscal year 1999, the DOJ and the FTC reviewed a record 4,679 transactions, an increase of nearly 65 percent since 1995. At the Division, we conducted 229 merger investigations, 66 of them resulting in the issuance of second requests. In this past fiscal year, we had 47 merger wins." Over the past two years, 97 transactions were abandoned or restructured in response to the competitive concerns expressed by the Antitrust Division.

As with the FTC, the Antitrust Division is under very tight deadlines to review files, having the same 30-day period within which to file or issue a second request, when required.

Pre-merger Notification

The Pre-merger Office (PO) of the Antitrust Division is small compared with that of the FTC. It receives and redirects filings to various litigation sections and is staffed with clerical support personnel, who do not do the same initial review function as the PNO attorneys at the FTC. All HSR filings are referred for decision to the litigation sections.

The PO logs the filing information into a tracking system. Based on the SIC, the PO determines the section to which the file should be assigned. Specific sections have expertise in electricity, telecommunications, regulated industries, transportation and computers, for example. It is the attorneys in these sections, and in some instances experienced paralegals, who conduct a first review.

The majority of files go to Litigation Section II, where they are referred to the HSR Coordinator. This attorney determines after a quick look whether the file can be terminated, which happens about 60 percent of the time. The Coordinator then notifies the PO by e-mail and a staff person there then enters the information in the database and prepares the necessary documentation. The Coordinator assigns the other 40 percent of cases, which are deemed to be more serious and complex, to litigators or experienced paralegals in the section. The majority of these files are granted early termination after an initial review by an attorney.

Review

The Antitrust Division has an elaborate system of macros (templates) that it uses to navigate through the process. These macros must be used for opening an investigation, requesting approval for second request, closing a file, etc. These macros,⁵⁴ which are all routed electronically, lead users through a series of boxes that prompt them for information that is later required for reporting purposes, including the names of the parties and the size of the transaction.

When a filing is deemed worthy of investigation, a memorandum (PI) requesting clearance from the FTC is prepared and is approved by a section chief, and the Director of Operations and Merger Enforcement opens the investigation. The Antitrust Division attempts to obtain clearance for the majority of transactions within five days.

The Director of Operations and Merger Enforcement has weekly meetings with the Section Chiefs to review all cases and outstanding issues. Progress reports are prepared for these meetings and contain information about case names, second requests and pending files. A merger calendar is also prepared for these meetings, which lays out all the transactions and their due dates by month.

Second Request

When attorneys are seeking approval for a second request, they typically prepare a document called a Notebook, usually about 15 pages in length and based on the merger enforcement guidelines. The Notebook describes product markets and issues and provides enough detail so that the weekly meeting can progress beyond an elaborate description of markets and other aspects of the case. Rather, these meetings are used to challenge managers, who might be required to justify to their colleagues investigating a case that another might deem not worthwhile. Attorneys must be prepared at these meetings to describe the theory of the case, any holes in the theory, what the parties are saying and issues for which they are not prepared.

When a second request is issued, the DOJ is committed to meeting the parties to discuss and consider modifications within five days. The DOJ also has an appeals procedure to provide parties with the opportunity to narrow the second request when they do not agree with its contents. The Director approves second requests, but does not usually meet with or get involved in negotiations with the parties.

Under the law, the DOJ has 20 days to reach a decision after receiving the response to a second request. Parties are usually willing however to grant extra time if they can be assured of a specific time to discuss any remaining issues.

It is becoming increasingly common for parties to major transactions to withdraw their application and re-file to allow the DOJ time to complete its review. For example, parties might need to provide additional information in order for the DOJ to determine whether to terminate or to recommend a second request. There are also occasions when the agency has not completed market contacts and will be forced to recommend a second request if the assessment cannot be completed within the 30-day period.

DOJ Resources

The DOJ makes extensive use of paralegals, having 30 to 40 on staff at any given time. These staff review documents, set up interviews, take notes at interviews, do data entry and Internet research. They also prepare documents and affidavits for trial. Senior career paralegals often act as case managers for cases going to trial.

The DOJ employs about 50 economists. The Department has considered the appropriate use of both internal and external economists. In its view, it is better to have in-house economists working on files from the start, but to go outside for an economist to testify.

The Antitrust Division has a formal training program for merger review, managed by a training coordinator. The Division has also hired the National Institute of Development to help develop various training materials on subjects such as trial fundamentals and negotiation skills. Training focusses on practical skills, such as how to fill out a second request and how to negotiate. There are brown bag lunches, seminars and a video tape library. New recruits are also paired with experienced senior attorneys and work with various attorneys to benefit from their strengths.

The Director also encourages post-mortems and during these meetings asks employees two fundamental questions: What three things would you not do again? What three things would you do again? These questions provide focus and direction to the antitrust analysis and ensure a good balance of positive and constructive commentary.

International Cooperation

The Antitrust Division recognizes the importance of international cooperation in merger review. As noted in its Annual Report to Congress, "an increasing number of transactions have competitive implications in more than one country, and today it is not uncommon for a transaction to be subject to multicountry review.... We are working closely with governments around the world to cooperate in merger review, both to minimize burdens on private parties and to advance the cause of proper antitrust analysis. To advance this process, the Attorney General established the International Competition Policy Advisory Committee (ICPAC), which issued its report reviewing international antitrust issues and making recommendations for consideration."⁵⁵ (See Chapter 9 - Merger Review in an International Context for more information on ICPAC.)

It is clear that the Department places considerable importance on effective international cooperation and sees good relations and the ability to discuss common issues among agencies as vital. The ability to work together to identify issues and coordinate development of remedies has been cited as a clear benefit of such cooperation. For example, DOJ staff see the increasing use and acceptance of waivers of confidentiality as a significant development that helps effective review in a multi-jurisdiction cases.

The Antitrust Division has had success cooperating with other agencies, for example, in the WorldCom-MCI merger with the Eu ropean Commission. This merger involved "two U.S. telecommunications firms, which resulted in the divestiture of MCI’s US$1.75 billion in Internet assets - the largest divestiture in U.S. merger history. In that case, the parties provided written waivers of confidentiality that permitted the two agencies’ staffs to work closely together in making their independent analyses of the transaction."⁵⁶

Comments from the Private Bar

Some counsel noted that they do not, as a matter of course, contact agencies upon or before filing. They feel that calling an agency signals that there might be issues or complexities with a file. If a lawyer deems a file to be relatively simple, he or she does not contact the agencies. However, since from a lawyer’s point of view it is important for antitrust agencies to narrow issues as quickly as possible, other lawyers welcomed the opportunity to discuss a case in advance of filing in order to narrow the scope of the filing requirement. According to some, the filing form does not provide adequate information with which agencies can adequately assess a transaction, although parties regularly include additional information with a filing. Others have said that the value of a two-stage process is that it allows agencies to quickly narrow files down to those that require intensive review.

In the view of some lawyers, the greatest strength of the Federal Trade Commission is the Pre-merger Notification Office - it is seen as one of the most responsive agencies in the U.S. government. It is seen as critical for the PNO to continue to be responsive and consistent. There is a danger, however, in being compelled to be responsive and provide quick service so that a transaction will not be delayed. If all employees in a notification unit do not have thorough knowledge and access to accurate and consistent information, there is a risk that they could provide false or inaccurate information. For this reason, it is critical that agencies capture in electronic form all advice and interpretations and make them available to all prenotification staff.

Canada

The lawyers interviewed who were familiar with the Canadian merger review system were complimentary, noting the Competition Bureau’s excellent reputation for openness and extensive expertise.

When asked about the Bureau’s merger filing system, some noted that having parties voluntarily filing a long form would, in their opinion, signal the Bureau that there are potential problems with the transaction. Some lawyers feel that there should be one form, along with the opportunity to file additional information and respond to requests for additional information.

Some also noted that requests under section 11 of the Competition Act seem to have brought added discipline to the Bureau. They are seen as having the advantage of getting senior Bureau officials involved in the process. The lawyers agreed that tying section 11 requests to identified issues would be beneficial, and recommended that the Bureau provide the opportunity for discussing requirements and ways to meet the demands of a section 11 request. In this regard, the lawyers noted positively that information produced for U.S. agencies is generally acceptable for their Canada counterparts.

The service standards the Competition Bureau has adopted were seen as positive, but some lawyers expressed concern about the "complex" category of cases and felt that the definitions should be reconsidered and refined.

Some echoed the findings of ICPAC and stressed the importance of an early narrowing of issues, and early and ongoing dialogue among agencies, which would ensure that two or more agencies are not focussing on separate issues.

Some lawyers also stressed the importance of waivers of confidentiality in order to facilitate the exchange of confidential information. This is seen as positive for parties as well as for the agencies involved, as long as the agencies provide assurance that confidential information will be safeguarded.

Another recommendation was for the Bureau to provide more press releases on major cases that are not challenged. The approach of the Australian Competition and Consumer Commission was cited as a good example.

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Annex A: People Interviewed

Federal Trade Commission (FTC)

Name and Title	Address	Phone/Fax/E-mail
Marian R. Bruno Assistant Director Bureau of Competition Federal Trade Commission Pre-merger Notification Office	600 Pennsylvania Ave. N.W. Washington, D.C. 20580	Tel.: (202) 326-2846 Fax: (202) 326-2884 E-mail: mbruno@ftc.gov
Randolph W. Tritell Assistant Director International Antitrust Federal Trade Commission	600 Pennsylvania Ave. N.W. Room H-382 Washington, D.C. 20580	Tel.: (202) 326-3051 Fax: (202) 326-2884 E-mail: rtritell@ftc.gov
Kathy S. French Investigator Federal Trade Commission	600 Pennsylvania Ave. N.W. Washington, D.C. 20580	Tel.:(202) 326-2703 Fax: (202) 326-2012 E-mail: kfrench@ftc.gov
Claudia R. Higgins Assistant Director Bureau of Competition Federal Trade Commission	6th and Pennsylvania Ave. N.W. Washington, D.C. 20580	Tel.: (202) 326-2810 Fax: (202) 326-2884 E-mail: chiggins@ftc.gov
Michael R. Moiseyev Attorney Federal Trade Commission	601 Pennsylvania Ave. N.W. Washington, D.C. 20580	Tel.: (202) 326-3106 Fax: (202) 326-2655 E-mail: mmoiseyev@ftc.gov
Geoffrey D. Oliver Assistant to the Director Bureau of Competition Federal Trade Commission	600 Pennsylvania Ave. N.W. Washington, D.C. 20580	Tel.: (202) 326-2275 Fax: (202) 326-2884 E-mail: goliver@ftc.gov
John J. Parisi Counsel for European Community Affairs Bureau of Competition Federal Trade Commission	6th and Pennsylvania Ave. N.W. Washington, D.C. 20580	Tel.: (202) 326-2133 Fax: (202) 326-2884 E-mail: jparisi@ftc.gov
Christina Perez Attorney Federal Trade Commission	6th and Pennsylvania Ave. N.W. Washington, D.C. 20580	Tel.: (202) 326-2048 Fax: (202) 326-2655 E-mail: cperez@ftc.gov
Gregory Vistnes Deputy Director for Antitrust Bureau of Economics Federal Trade Commission	6th and Pennsylvania Ave. N.W. Washington, D.C. 20580	Tel.: (202) 326-2937 Fax: (202) 326-2884 E-mail: gvistnes@ftc.gov

Department of Justice (DOJ)

Name and Title	Address	Phone/Fax/E-mail
Constance K. Robinson Director of Operations and Merger Enforcement Antitrust Division Department of Justice	950 Pennsylvania Ave. N.W. Room 3117 Washington, D.C. 20530	Tel.: (202) 514-3544 Fax: (202) 514-1629
J. Robert Kramer II Chief, Litigation II Section Antitrust Division Department of Justice	1401 H. Street N.W. Suite 3000 Washington, D.C. 20530	Tel.: (202) 307-0924 Fax: (202) 307-6283

American Bar Association

Name and Firm	Address	Phone/Fax/E-mail
Ronald A. Bloch Counsel McDermott, Will & Emery	600–13th Street N.W. Washington, D.C. 20005-3096	Tel.: (202) 756-8012 Fax: (202) 756-8087 E-mail: rbloch@mwe.com
Terry Calvani Pillsbury Madison & Sutro LLP	1100 New York Avenue N.W. Ninth Floor, East Tower Washington, D.C. 20005-3918	Tel.: (202) 861-3053 Fax: (202) 822-0944 E-mail: tcalvani@pillsburywithrop.com
Rebecca S. Prince Practice Support Specialist McDermott, Will & Emery	600–13 th Street N.W. Washington, D.C. 20005-3096	Tel.: (202) 756-8194 Fax: (202) 756-8087 E-mail: rprince@mwe.com
Christine C. Wilson Attorney at Law Collier, Shannon, Rill & Scott, PLLC	3050 K Street N.W. Washington, D.C. 20007	Tel.: (202) 342-8569 Fax: (202) 342-8451 E-mail: cwilson@colshan.com
Joseph F. Winterscheid Jones, Day, Reavis & Pogue	51 Louisiana Ave. N.W. Washington, D.C. 20001-2113	Tel.: (202) 879-3939 Fax: (202) 626-1700 E-mail: jwinters@jonesday.com

Annex B

The FTC and the DOJ Antitrust Division file a joint Annual Report to Congress at the end of each fiscal year. This report contains a wide variety of statistical information related to major cases, a sample of which appears below. The full report is accessible on the FTC website at ( and the DOJ website at (http://www.usdoj.gov).

Transactions by Fiscal Year

	1996	1997	1998
Transactions reported	3087	3702	4728
Investigations in which second requests were issued	99	122	125
FTC	36	45	46
DOJ	63	77	79
Transactions involving a request for early termination	2861	3363	4323