In a brief break between the blizzards that have paralyzed Washington, D.C.,  Main Justice sat down with former Assistant Attorney General Thomas O. Barnett in his office at the Washington, D.C., law firm of Covington & Burling.

Former Antitrust Division chief Tom Barnett at a 2005 news conference. (Getty Images)

Barnett, who led the Antitrust Division from 2005 until 2008, spoke about his tenure at the Justice Department, the Federal Trade Commission’s case against chip maker Intel Corp., and how he believes his successor’s bark may be worse than her bite.

The following is an edited transcript of the interview:

Your successor on the job, Christine Varney, has been at the Antitrust Division for less than one year. Her early speeches criticized your approach and signaled the DOJ would take a tougher line on antitrust enforcement. The Ticketmaster-Live Nation merger, which the Division approved with conditions last month, was closely watched as an early test of the new administration. How would you rate its performance?

I would distinguish between the rhetoric at the division and their actual enforcement and policy actions. They certainly came in with very strong rhetoric suggesting they would be dramatically more aggressive in enforcement actions.

But you look at the specific example of Ticketmaster-Live Nation. What the agency did do was challenge a horizontal overlap that under the market definition that they alleged, indicated that the combination would have led to a very high degree of concentration. They alleged barriers to entry, and then they obtained relief for that. That’s the sort of theory that is perfectly consistent with the enforcement actions that were taken during the previous eight to nine years.

They also adopted some behavioral remedies in the Ticketmaster settlement that affect vertical relationships.

An interesting policy question is, if you look at the merger remedy manual that the Antitrust Division puts out, it very much disfavors behavioral remedies. It indicates that the policy of the division is to seek structural remedies wherever possible.

Because a behavioral remedy is hard to enforce?

It’s hard to monitor, it’s hard to enforce, it can draw the Division and the court into regulating day-to-day operations, and there are some question that I’ve seen raised in the press about what some of the terms mean: you can bundle, but you can’t exclude, and could bundling be exclusion? Those are hard questions, and I don’t think they are answered on the face of the papers.

As head of the Antitrust Division, you issued a controversial report on bundling and other conduct that could raise antitrust concerns under Section 2 of the Sherman Act. The Federal Trade Commission, which shares the responsibility of enforcing federal antitrust laws, did not sign on.

You can think about the report in two aspects. One is the synthesize of, this is what the courts have said, this is what academics have said, this is what people on both sides of the issue have said. The second aspect is, where should we go from here? The prescriptive aspect of it. On the descriptive aspect of it, I really thought that the staffs had done a phenomenal job of collecting all of that information together. At a basic level, I wanted the public to have the benefit of that work.

And on the second, prescriptive, issue?

I viewed it as an important part of our responsibility as public servants to try to move the law forward. And businesses should have as clear guidance as possible about where the line is. If they know where the line is, they are more likely to stay on the right side of it and comply with the law. If the line is clear and they cross it, it’s going to be easier to bring a challenge and challenge the conduct. It did become clear at some point that the FTC was not going to join in either aspect of the report. And my view, I believe very much in a marketplace of ideas. You put it out there, and you let it rise or fall on the crucible of competition, and you allow people to debate it.

But wouldn’t that result in more confusion for businesses?

It revealed that there were some differences of views between at least the Antitrust Division in 2008 and the FTC. The mere fact that that difference became public, is a valuable thing for businesses to know, because it’s not like that difference wasn’t there. It just became public. And transparency is generally a good thing.

One of Christine Varney’s first actions as head of the Antitrust Division was to withdraw the report.

Christine Varney (photo by Main Justice)

If the current Assistant Attorney General does not agree with the report, particularly the prescriptive aspects of the report, then as a matter of transparency, the right thing to do is to make that public, which she did in withdrawing the report. So I would agree with her decision to do it. Now what the FTC did not do at the time, and what the DOJ has not done since it has withdrawn the report, is they’ve not come forward and said, here is our alternative.

I would go further and say I was disappointed that the report was withdrawn in its entirety. I’ve drawn this distinction between the prescriptive side and the descriptive side. I mean that is still out there, and people can still reference it. But one could have at least considered in being more selective about what was withdrawn. I really do think the staff did a tremendous job in pulling all that together.

Now that you are back in private practice, do you care which agency is reviewing a deal you are working on?

Historically it has been the case that the outcome at either agency is likely to be the same. But there is now at least the possibility, based on what has happened with Whole Foods, that the standard for the FTC is significantly lower than it is for the DOJ. The amount of time between when the investigation starts and when you get to an Article III [ie: federal] court is far longer at the FTC than it is at the DOJ. As a matter of policy, it is not clear to me that the standard for seeking a preliminary injunction should be different between the two agencies, because then you end up with a situation where the burden on the parties is significantly different based on the clearance issue.

The FTC recently filed suit against Intel using its authority under Section 5 of the Federal Trade Commission Act, which has not been tested by the courts in recent years.

I’m not in a position to comment on the merits of the Intel case.  As a separate policy matter, I’m very concerned about the expansion of stand-alone Section 5 enforcement because of the inability to set forth clear criteria for where the line is. If the standard is perceived by the courts as being so amorphous that it is effectively an ex-post judgment that was not reasonably foreseeable by the parties at the time they were making their decisions, I think it could be unfair to the parties and harmful to consumers, and I think the courts may react negatively to this approach.

The agencies are now considering revising the guidelines they use to evaluate horizontal mergers. Do you think they should be changed?

The basic framework of the guidelines, and the basic focus on market definition, and competitive effects, entry and efficiencies, is the right framework, I think. There have been discussion about whether the agencies might try to interject some new concepts into the guidelines, but to me it would be a mistake. I think it is a healthy discipline if you are forced to put the theory of the challenge to the merger into the framework of a relevant market, and then explaining within that framework why the merger of these two particular companies would be anti-competitive.

But some observers have said the Justice Department lost its 2004 case to block Oracle’s hostile bid for PeopleSoft, in part because of the merger guidelines’ market definition requirements.

At the end of the day, while the division presented evidence to support its proposed definition of the relevant market, the judge decided that the evidence weighed more in favor of a broader market. If the judge had accepted more of the narrower market, then the analysis of competitive effects and the theory of harm that the division was presenting would have been far more likely to be persuasive to the judge.

Once the judge had decided that the evidence didn’t support the narrow market, then the case basically fell apart. That’s not a matter of following the guidelines or not following the guidelines.

In retrospect, is there anything you would have done differently at the Justice Department?

No. That’s not to say that everything I did was perfect, but what I tried to do is to work hard on each individual matter to understand the facts, to understand the evidence, to understand the law, and to make the right decision. And I feel comfortable that that’s what we did in every case. In that respect, I don’t have any regrets.

You were at Covington & Burling before joining the Justice Department, and you went back there after leaving government. Did you move back into your old office?

No, different office, my old office was occupied. But it is a better view. I can see the Department of Justice from my window!

The guidelines that federal antitrust regulators use to evaluate mergers between two competitors will likely see some changes, according to Assistant Attorney General for Antitrust Christine Varney.

At the last in a series of five workshops to consider changes to the guidelines, Varney today said she expected to update the guidelines in a few areas. The first workshop was in early December 2009.

“A consistent theme running through the panels is that there are indeed gaps between the guidelines and actual agency practice,” Varney said today in remarks introducing the panel.

“Gaps increase uncertainty and thus can lead to unnecessary surprises,” she said, in prepared remarks. “We want to avoid that.”

The revisions are being considered, she said, to be more transparent so that businesses know when a merger will likely be scrutinized, and to provide a document for courts to use that better reflects how the agencies evaluate a deal.

In recent years, both the Federal Trade Commission and the Justice Department have lost cases in court, in part by having their hands tied by unclear or outdated guidelines they were committed to follow but that did not accurately reflect how the agencies built their cases.

For example, when the Justice Department tried in 2004 to block Oracle Corp.’s purchase of PeopleSoft Inc., a federal judge said the government’s definition of the relevant market was too narrow, and allowed the deal to go through.

Again in 2007, a federal judge rejected the FTC’s efforts to block a merger between Whole Foods Market and Wild Oats Markets, calling into question the government strategy of defining the market in which the two grocery chains competed as only organic and natural food.

The current guidelines require regulators to first define the relevant market when looking at a merger. Only if the market share of the combined firm meets a certain threshold can lawyers explore whether the firm might act as a monopolist.

The FTC’s case in the Whole Foods-Wild Oats merger, in essence, fell apart due to its own guidelines when officials were left with two poor choices: either argue for a gerrymandered organic foods market, or accept a larger market but concede any possibility that Whole Foods might raise prices or reduce quality levels after the merger. (Whole Foods later settled the case and agreed to terms that addressed many of the FTC’s concerns.)

In her remarks today, Varney suggested revising the guidelines to reflect a more integrated approach. “Defining markets and measuring market shares may not always be the best place to start,” she said.

While updating the guidelines to articulate an integrated rather than a sequential approach might help regulators in court, it would also better reflect avenues for merging firms to make their case. “A merger involving a new, disruptive entrant may well impact competition far more than market shares might suggest,” Varney said.

Other probable revisions Varney outlined are designed to reflect economic changes or developments in economic analysis since the last revisions almost two decades ago,  including raising the threshold that signals a market is concentrated enough for a merger to raise concerns, and adding newer types of evidence the agencies look at when assessing the anti-competitive effects of a merger.

Assistant Attorney General Christine Varney quickly found out what was utmost on the minds of participants in a panel discussion Thursday morning on merger guidelines.

More than a generic discussion about whether to update decades-old guidance on how to address proposed mergers, folks really wanted to talk about the big news in their regulatory niche:  Comcast’s pending deal with General Electric Co. to take an ownership stake in NBC Universal.

The most burning question: which agency — the Justice Department or the Federal Trade Commission — would review the multi-billion dollar deal? More than one panelist mentioned that a review of the merger guidelines was particularly timely given the NBC sale.

But Varney refused to satisfy their curiosity:

“I’ve gotten a lot of questions about Comcast,” Varney said. She told the audience she would tell them the same thing she told everyone else, that she would not comment.

Varney had to shorten her prepared remarks on the overall topic of merger regulation. Her attendance at the panel discussion at the FTC’s offices in Washington, D.C., was part of a day-long workshop to review and possibly update the guidelines antitrust regulators follow in considering whether a proposed merger is likely to raise anti-competitive concerns.

Participants included agency officials, antitrust lawyers, academics and economists.

The Justice Department and the Federal Trade Commission are considering revising the 17-year-old guidelines to bring them more in line what how the agencies currently operate. The goal is also to make them easier for judges and others outside the antitrust bar to understand.

In recent years, the government has lost several major cases that went to court, including attempts to block deals between Oracle Corp. and PeopleSoft Inc., and Whole Foods Market and Wild Oats Markets. In part, regulators lost by having their hands tied by unclear and outdated guidelines they was committed to following.

In her prepared remarks, Varney asked whether the guidelines should give more weight to certain kinds of evidence that both the agencies and the courts find helpful, and whether the step by step process outlined in the guidelines should be revised to reflect the more holistic way in which regulators scrutinize a merger.

In the day’s first panel, most of the discussion turned to how the guidelines might better reflect a deal’s impact on innovation. Tim Muris, of counsel at O’Melveny & Myers and a former FTC chairman said that, particularly in the case of drug company mergers, the benefit to innovation and research could be “overwhelming,” and suggested the agencies explore in separate papers the weight they afford such concerns.

One of the most important questions regulators ask, echoed A. Douglas Melamed, senior vice president and general counsel at Intel Corporation and former Assistant Attorney General in the Antitrust Division, is does a merger “affect incentives to innovate?”

Three more panel discussions will be held around the country. There is no timetable for completion of the merger guideline review.

Officials at the Justice Department and the Federal Trade Commission are launching a process to review and possibly update a set of guidelines that the agencies follow in considering whether to approve or challenge a proposed merger.

The first in a series of workshops to discuss the guidelines begins tomorrow, at the Federal Trade Commission offices in Washington, D.C. Participants will include agency officials, antitrust lawyers, academics and economists. Subsequent panels are scheduled for the next two months in New York, Chicago, and Palo Alto., Calif. Officials have not indicated a time frame for completing the review. And they have not said whether the review will reveal the need for any changes in the guidelines.

Most observers expect to see some changes.

Many of the revisions, experts say, might be directed at judges who oversee antitrust cases but who don’t have much expertise in the area. In recent years, antitrust regulators have lost major cases that went to court, in part by having their hands tied by unclear or outdated guidelines they were committed to follow.

For example, when the Justice Department tried in 2004 to block Oracle Corp.’s purchase of PeopleSoft Inc., a federal judge said the government’s definition of the relevant market was too narrow, and allowed to deal to go through.

Again in 2007, a federal judge rejected the FTC’s efforts to block a merger between Whole Foods Market and Wild Oats Markets, calling into question the government strategy of defining the market in which the two grocery chains competed as only organic and natural food.

The current guidelines require regulators to first define the relevant market when looking at a merger. Only if the market share of the combined firm meets a certain threshold can lawyers explore whether the firm might act as a monopolist.

The FTC’s case, in essence, fell apart due to its own merger guidelines when officials were left with two poor choices: either argue for a gerrymandered organic foods market, or accept a larger market but concede any possibility that Whole Foods might raise prices or reduce quality levels after the merger. (Whole Foods later settled the case and agreed to terms that addressed many of the FTC’s concerns.)

The most recent set of guidelines, issued in 1992 and revised in 1997, are also being reviewed in order to bring them in line with current agency practice. The threshold level in the guidelines for a market share that might raise competitive concerns is much lower than the de facto level at which regulators currently scrutinize a merger.

Experts expect that any review will raise that threshold level higher. “Look to see whether or not the guidelines you have reflect reality, because the old ones don’t,” said Kent Bernard, a law professor at Fordham University who spent most of his career at Pfizer Inc.

The move to consider changes also is driven by improvements in economic modeling that allow regulators to more accurately understand what might happen after a merger. The top economists in the Antitrust Division and at the FTC’s Competition Bureau have proposed, in academic papers, different methods to calculate a newly combined firm’s market power.

Other observers have called for guidelines to more specifically address the high-tech markets that regulators often scrutinize, and account for how a merger might affect research and innovation in the field. “The  basic model of the merger guidelines is to look at whether the merger will allow companies to exercise market power and raise price,” says M. Howard Morse, co-head of the antitrust practice group at Drinker Biddle & Reath who spent 10 years in the Federal Trade Commission’s competition bureau. “But companies compete not only on price but also on innovation.”