The Justice Department and the Federal Trade Commission share responsibilities as the nation’s top two antitrust regulators, and they largely split mergers based on industry expertise.
But sometimes, both agencies want a crack at cutting-edge deals that don’t fall neatly into one industry.
Their tussles over cases have become legendary and, according to many insiders, passionate to the point of leaving bruised feelings.
The agencies guard the process like a state secret. But if both agencies want to review a deal, they sometimes resort to a kind of children’s schoolyard rules, insiders say: They simply take turns.
According to officials and lawyers close to the process, for several years, the two agencies have had an informal agreement to alternate review of mergers relating to Internet advertising services.
The agreement came about after the two agencies clashed over reviewing Google Inc.’s 2007 deal to buy online ad technology firm DoubleClick, according to three people familiar with the process. The two agencies then set up an informal agreement. Any reviews related to Internet advertising services would alternate between the Justice Department and the FTC.
Justice Department spokeswoman Gina Talamona said that “every clearance decision is based on expertise” and the agencies “work to ensure the best allocation of government resources.” FTC spokesman, Mitchell Katz, declined to comment, and both declined to explain what happens when both agencies assert expertise.
In a recent interview with Main Justice, former Assistant Attorney General for Antitrust Thomas Barnett declined to comment on specific arrangements between the agencies, but did say that, in rare instances, Justice and the FTC would take turns on close calls.
Former Antitrust Division chief Tom Barnett said on rare instances the agencies take turns on reviews. (Getty Images)
“To the best of our abilities we generally tried to address each matter on the merits,” Barnett said. “Was there some element at one time or the other of, this is a close one, it’s going to go this way, the next one will go our way? Sure. That’s a reasonable thing to do. But that was relatively rare.”
Neither Justice nor the FTC will publicly explain how the process works, since the merger review process is confidential, and to do so would highlight inter-agency bickering. Disclosure could also potentially provide an opening for companies to try to game the system to ensure their deal lands at their agency of choice.
“Both agencies do apply the merger guidelines, so there shouldn’t be a significant difference on how the two agencies come out on a merger,” said Maurice Stucke, a professor at the University of Tennessee who worked as a trial attorney in the Antitrust Division. “Any differences should be at the margins as the agencies are structured differently.”
On most big transactions, including on the Comcast-NBC deal, observers expect some behind-the-scenes maneuvering on the part of each agency to get the deal.
In areas where neither agency has a clear advantage in expertise, the decision goes up the chain of command and the two agency bosses — the head of the Justice Department’s Antitrust Division and the chairman of the FTC — sometimes duke it out.
One of the last big clearance fights to make its way to the top was the settlement between authors, publishers and Google over the search giant’s plan to distribute digital copies of books online, according to two people with knowledge of the process. (Assistant Attorney General Christine Varney won that round, since the Justice Department weighed in on the settlement.)
Similar disputes date back decades. When both agencies wanted a crack at the now failed merger between AOL and Time Warner in 1999, then FTC chairman Robert Pitofsky promised then-AAG Joel Klein that the commission’s work on the deal wouldn’t count as expertise for future requests.
More recently, talk circulated that the agencies had set up a mechanism to deal with other hard-to-decide cases that get passed up by staff to the desks of Deputy Assistant Attorney General for Civil Matters Molly Boast and Bureau of Competition Director Richard Feinstein. According to the talk, Justice and the FTC agreed to a calendar that would function as the ultimate arbiter.
Talamona denied that such a calendar existed, and Katz declined to comment.
The agencies have considered similar ideas in the past. A former Justice official said antitrust regulators in the Bush administration had discussed looking at the initial paperwork that merging companies file and using the time stamp on the documents to determine which agency would get it. An odd number would go to one agency, for example, and an even number would go to the other.
But the ideas were never implemented, said another former Justice official, because it was difficult to agree how one decision might influence future, industry-based decisions. “Are you deciding more than just that one case?” the former official said.
Antitrust lawyers said they would welcome a calendar-based policy because it would allow staff lawyers to investigate a deal without waiting weeks for officials to decide who would review it. Once parties file paperwork on a merger, a 30-day clock for the initial review starts ticking. Within that time, the agencies have to decide whether the merger presents enough antitrust concerns to merit a full investigation. In previous instances, including during the DoubleClick review, the waiting period has been eaten up with the dispute, and parties have had to refile their paperwork in order to reset the clock.
Most merger reviews are easy to divvy up, based on expertise the agencies have cultivated over the years. The FTC reviews pharmaceutical industry deals, for example, while airline partnerships go to the Justice Department.
But in new and evolving fields, the process of dividing the work is more complicated. “It is one thing to allocate industries that are static, but when you get to a merger involving a dynamic industry where boundaries are changing and multiple industries are involved, it’s hard to say who has the most relevant expertise,” said Bert Foer, president of the American Antitrust Institute, a think tank.
Google, for example, could be categorized as a library, a browser or an advertising company, he said.
“In these situations where both agencies want to do the investigation and they cannot agree, they need a fairly arbitrary way to make an assignment in a reasonably quick time,” Foer said. “I would be happy if they flipped a coin.”
But rather than use the coin flip every time, Internet advertising deals have gone back and forth. There have been three such deals since 2007.
The first was a review won by the FTC to oversee Google’s acquisition of DoubleClick in 2007.
Then in January 2008, Microsoft Corp. announced its $44.6 billion hostile bid for Yahoo! Inc., and the Justice Department began investigating. The deal never happened, although DOJ continued to review it through several iterations, including a proposed advertising pact between Google and Yahoo and what later became a less formal alliance between Microsoft and Yahoo.
Then last November, when Google announced its $750 million acquisition of mobile advertising platform AdMob, that review went to the FTC.
The agencies previously tried to set up a formal clearance agreement in 2002 but ran into congressional opposition and had to abandon the plan.
Former FTC Chairman Timothy Muris and Assistant Attorney General Charles A. James created a comprehensive document that would divide matters based on industry expertise. But lawmakers also split authority over the two agencies–The Judiciary Committee looks at the Justice Department and the Commerce Committee has oversight of the FTC–and were unhappy with some of the changes.
The then-chairman of the Senate Commerce Committee, Sen. Ernest Hollings (D-S.C.), threatened to use his authority over appropriations because the agreement would give the Justice Department mergers in the media industry.
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Comcast Corporation and NBC Universal laid out the case for their proposed merger in a filing today with the Federal Communications Commission, arguing that the deal was in the public interest and did not raise antitrust concerns.
The joint venture between Comcast and General Electric Company — the owner of NBC Universal – which would give Comcast a majority stake in NBC, would “increase the quantity, quality, diversity, and local focus of video content,” the companies said in the filing.
The FCC, which will assess whether the deal is in the public interest, has to approve a license transfer in order for the deal to go through. The Justice Department is separately investigating the merger for antitrust concerns.
In the filing, Comcast expanded on a set of commitments it issued when it announced the deal last Dec. 3. It vowed to support NBC’s free television and local news programming, and to add 1,000 hours of local programming and 1,500 on-demand choices for children and families within the first three years.
House Democrats offered initial praise for Comcast’s promises. “Comcast’s commitment to diverse programming and maintaining the journalistic independence of NBCU is encouraging,” said Rep. John Conyers Jr. (D-Mich.) who chairs the Judiciary Committee.
Conyers said the panel would hold hearings on the deal next month. Comcast and NBC execs are expected at hearings in front of two other congressional committees in the first week of February.
To make their case to antitrust regulators, the companies framed the transaction as one that is primarily vertical rather than a horizontal combination of competitors.
After the merger, according to the filing, Comcast will control only about one-seventh of the channels its cable systems will carry, and around 12 percent of national cable network advertising. NBC would still rank behind Disney, Time Warner, and Viacom in cable market size after the merger, Comcast says.
And in the market for online video, which critics have prodded the Justice Department to investigate, Comcast argues it is too nascent a market for regulators to involve themselves in. The NBC-owned video Web site Hulu accounts for only about 4 percent of that market, while Google, with its You Tube, accounts for around 40 percent, according to the filing.
“Indeed, to the extent that any one company maintains a substantial advantage in attracting online video viewers, that company is Google – not Comcast or NBCU,” Comcast says.
Critics of the deal have focused on the vertical aspects of the transaction, and argue that it puts too much control over the production and distribution of television programming in the hands of one company.
The price of coveted channels that Comcast would own — MSNBC, for example — could increase for other cable or satellite distributors, said Corie Wright, a lawyer at the consumer group Free Press, which has been a vocal critic of the merger.
Comcast would have an incentive to bundle such channels with other, less popular channels, she said, and force distributors to pay higher fees that would ultimately get passed on to viewers.
“Comcast is trying to downplay the value of that programming,” Wright told Main Justice, “but Comcast can charge rivals more money.”
Comcast says that, after pouring billions into NBC, it would be “irrational” to forgo revenues from licensing the channels to other providers in hopes of attracting more customers to Comcast within its “limited footprint.”
Critics also argue that Comcast would have an incentive to not carry independent television channels that might compete with NBC programming. But Comcast says that, as a content buyer, it lacks the market power it would need to effectively shut others out. Comcast also said it would add six new independent channels to its lineup in the next three years.
Even though critics focus on the the deal’s vertical components, recent Justice Department settlements might give Comcast and NBC hope that regulators will look closer at any horizontal aspects of the transaction.
In the Ticketmaster-Live Nation merger approved this week, with conditions, the DOJ focused its complaint on the deal’s horizontal impact in the ticketing market. The settlement did extract promises from the combined firm that addressed vertical concerns the deal raised.
Updated at 4:23 p.m. to include comments
Scientific tool manufacturer MDS Inc. will have to spin off some assets in order to complete its merger with another equipment manufacturer, Danaher Corporation, the Federal Trade Commission announced today.
MDS will divest assets related to laser microdissection devices, which are used to separate cells from larger tissue samples for specialized testing, according to a statement from the agency.
“The Commission’s order will protect competition in the specialized and highly concentrated market for laser microdissection devices, leading to lower costs and increased innovation,” said the FTC’s Richard Feinstein, who heads the agency’s competition bureau.
Danaher and MDS are two of only four companies that make the devices in North America, the FTC said.
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The Justice Department and three states filed suit against Dean Foods today, alleging that the dairy processor’s acquisition of two Foremost Farms dairy processing plants in Wisconsin last year removed competition in the milk industry.
The lawsuit asks Dean Foods, which is headquartered in Dallas, to sell off the milk processing plants in acquired in the April 2009 purchase.
The Justice Department and Illinois, Michigan, and Wisconsin filed the suit in federal court in Milwaukee, and said that the merger eliminated “substantial competition” in the sale of milk to schools and retailers in those states.
“The purpose of the department’s lawsuit is to restore competition so that schools, grocery stores and other retailers in Illinois, Michigan and Wisconsin, will pay lower prices for their milk,” said Assistant Attorney General for Antitrust Christine Varney, in a press release announcing the suit.
The deal was not originally presented to antitrust authorities for approval because it did not meet the size threshold required for regulatory review.
Sen. Herb Kohl (D-Wisc.) weighed in on the lawsuit: “Maintaining a competitive dairy market is a high priority of mine,” he said in a statement. “If the allegations are proven to be true, today’s lawsuit will result in lower prices for consumers and more competitive choices for dairy farmers in Wisconsin.”
The lawsuit comes amidst the Justice Department’s heightened interest in agriculture. The Antitrust Division confirmed it was conducting a probe in the seed industry last week. And it is hosting a series of town-hall discussions this year with the Department of Agriculture on competition issues in the industry. At Kohl’s request, one of the town-halls will explore dairy issues in Wisconsin.
Read the complaint here.
Here is the full text of the release.
This post was updated at 5:00pm to include Sen. Kohl’s comments.
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Oracle Corporation announced today that the European Commission has signed off on its $7.4 billion proposed acquisition of Sun Microsystems, Inc.
The company said it expects to get approval from Chinese and Russian authorities, and close the deal, “soon.”
The Justice Department cleared the deal last year, but European antitrust regulators held up the proposed acquisition, citing concerns about the potential for the deal to decrease competition in the database software industry.
Critics worried that Oracle might kill off Sun’s open-source software, MySQL, which, they said, was growing into a competitive threat to Oracle’s database products. The European Commission issued a preliminary statement of objections, but Justice Department regulators said they did not have the same concerns.
The differences of opinion led the two competition authorities to exchange tense statements questioning the judgment of the other.
U.S. lawmakers got involved, and sent a letter to the European Commission arguing that Sun was bleeding both money and jobs while it waited for regulatory approval.
After Oracle agreed to maintain MySQL, the Commission signaled it would approve the deal.
Assistant Attorney General of the Antitrust Division Christine Varney was recused on the Oracle review because she had previously handled work for Sun as a partner at Hogan & Hartson.
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The Antitrust Division found itself in the middle of a dust-up this week, when one report surfaced Tuesday evening that it was close to approving a pending merger between ticket giant Ticketmaster and concert promoter Live Nation.
But the next day, reports surfaced that shot down the story, and also went so far as to suggest settlement talks might have actually broken down and a government team was prepping for court.
While neither company nor the Justice Department will comment on the developments, and no one has confessed to the leak, the different reports got the antitrust world talking.
“It’s fascinating,” said one long-time antitrust attorney who is not working on the merger, referring to the brazenness of leaking a bad story that also moves the market. “It was a fairly strong-willed leak.”
But while the two reports seem at odds, observers caution, both could have some truth to them. One team of DOJ lawyers could be prepping for court, while another continues to work toward a potential settlement.
If the Antitrust Division has serious concerns about a deal, it usually follows one of two paths, said David Meyer, a former Antitrust Division deputy who co-heads the antitrust practice at Morrison & Foerster.
The division would either insist on a “binding timing commitment” from the parties that would give the agency time to prepare for court if negotiations broke down, Meyer said. Or it would be preparing for court while settlement discussions were going on.
“I’m aware of situations when I was there where thinking about the trial team occurred very early” in the review process, Meyer says.
When the DOJ reviewed Google’s proposed deal with Yahoo at the end of the prior administration, it brought in Hogan & Hartson’s Sandy Litvak to potentially litigate the case a few months before the parties abandoned the deal.
When the current Antitrust Division team took over, well-known litigator William Cavanaugh joined it as a deputy, signaling that the new Obama administration might be ready and willing to oppose more mergers in court.
Assistant Attorney General Christine Varney took over the Antitrust Division in April with a vow to reinvigorate enforcement. The Ticketmaster deal is being closely watched as one of the first big tests of the new administration.
The deal’s opponents say there is some precedent for Varney to take the merger to court rather than settle for what critics argue might be a weak divestiture.
The Center for American Progress’ David Balto, who has been working with a coalition opposed to the merger, points out that when Varney was a commissioner at the Federal Trade Commission during the Clinton administration, she voted to take an office supply store deal to court rather than accept a settlement the parties had negotiated.
The commission voted to litigate the proposed merger between Staples and Office Depot in 1997. It rejected a proposed settlement that would have required Staples to spin off stores in markets where the post-merger company would lack a serious competitor.
Varney “learned early in the Clinton administration” that “accepting a weak divestiture would be a mistake,” Balto said in an email to Main Justice. The court sided with the FTC, and blocked the merger.
The FTC’s decision in the Staples merger “was the right one,” Balto says, and it “revitalized” the FTC’s “role as a merger enforcer.”
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A report yesterday in The Deal that said the Justice Department was close to approving the controversial merger between Ticketmaster and Live Nation is “not true”, a person familiar with the matter told Main Justice.
Reuters reported that the Antitrust Division has a litigation team that has been “preparing the case” for months, and could decide to take the deal to court.
Another person familiar with the merger speculated that the companies leaked selective information ahead of a shareholder vote on the deal scheduled for Friday.
We’ll get more to you as the story develops.
NBC President Jeff Zucker (Ryan J. Reilly / Main Justice).
The Justice Department won the fight with the Federal Trade Commission and will review the merger between Comcast and NBC Universal, the Los Angeles Times reported and a person familiar with the matter confirmed to Main Justice.
The two agencies share authority in reviewing mergers for antitrust concerns and divide the work largely based on precedent.
The Comcast-NBC merger raises cutting edge issues that both agencies wanted to assess, and both had prior experience in related industries.
The deal will also be reviewed by the Federal Communications Commission, which will assess if the deal is in the public interest.
Comcast and NBC execs are headed to Capitol Hill for hearings in the House and Senate in early February.
When Comcast Chairman Brian Roberts and NBC Universal President Jeff Zucker head to Capitol Hill in the first week of February for a hearing in front of the Senate Judiciary antitrust subcommittee about the proposed merger between Comcast and NBC, they will also be stopping by the House.
According to a person familiar with the schedule, the House Energy and Commerce communications, technology, and the internet subcommittee chaired by Rep. Rick Boucher will hold a hearing on the public interest concerns the deal raises. Both hearings will be scheduled for the same day.
A final witness list has not been announced, but previous reports have confirmed that top company chiefs will attend.
The deal will be reviewed by either the Justice Department or the Federal Trade Commission for possible antitrust violations, and by the Federal Communications Commission, which assess if the deal is in the public interest.
Additional hearings on the deal are expected later in the year before the House Judiciary Committee and the Senate Commerce Committee.
The deal, which was announced in early December and valued NBC Universal at $30 billion, would fundamentally alter the media landscape and would give the cable giant control over up to one in five TV viewing hours, according to some analysts.
Critics have voiced concerns about access both for Comcast’s rival cable providers to content owned by NBC, and for rival television channels to be included in Comcast’s programming packages.
Earlier this week, media watchdog group Free Press attacked Comcast and other cable companies for their TV Everywhere strategy to provide television online for existing subscribers. The group said it had the potential to limit competition in the emerging online video industry.
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The Justice Department is set to approve Ticketmaster Entertainment Inc.’s proposed $720 million purchase of Live Nation Inc., according to a story in The Deal, a mergers & acquisition news service.
The deal between the ticket giant and the concert promoter prompted a year-long review by the Justice Department’s Antitrust Division. Staff attorneys, according to The Deal, were “unenthused” about pursuing the case.
Critics of the deal, including a coalition under the name ticketdisaster.org, urged antitrust regulators to block the merger, citing the combined firm’s “unprecedented control” over ticket prices and access. The merger would result in higher fees for consumers, critics said.
Attorneys for Ticketmaster and Live Nation did not respond to requests for comment.
