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Mr. HUTCHINSON. Do you think that the record would show that the Federal Trade Commission with its broader investigatory powers is more successful in section 7 cases than your Division?
Mr. KAUPER. Oh, I don't know that I would draw any kind of comparison there. They certainly do have somewhat different investigative authority than we do, broader investigative authority; on the other hand, they have operated for some time under a quite different set of procedures. So, I don't know that one could say any particular factor leads to a higher success rate, or not, based on that.
I think the overall record of both agencies in terms of success is probably pretty comparable, as far as I know.
Mr. HUTCHINSON. Well, as I recall it, in the argument on the CID bill, the point was made that they had broader powers than you did; I got the impression that they are probably more successful because of that.
Mr. KAUPER. Well, whether that could be isolated down that way or not, I'm not sure. Our concern in part here is in terms of our ability to obtain preliminary relief. The Commission really has not had that kind of authority with respect to explicitly going to court and getting preliminary relief until recently. So, I think there are some different factors that have to be judged there.
I suspect it is true-in fact, I'm reasonably sure it is true that the Commission has the ability to obtain more information than we have been able to obtain. That has become particularly difficult for us in the past year or two, and I'm now talking primarily about information from third parties, very frankly, because many third parties are now concerned that anything which they might give us on a voluntary basis we cannot protect under the Freedom of Information Act.
Mr. HUTCHINSON. Now, you mentioned in your statement that a second important proposal would be one which would embrace the entire commerce powers within section 7, rather than to be actually engaged in commerce between the States.
What you are suggesting is that section 7 be broadened to include all activities "affecting" commerce; is that the word, "affecting"?
Mr. KAUPER. In essence, yes. There is language in S. 1284 which is designed to do this, and I believe that appears as part of title VIII of S. 1284. The basic concept, as you are, I'm sure, aware, is that section 7 as presently drafted requires that corporations—both the acquiring corporation and the acquired corporation—be directly engaged in commerce. The court, in the American Building Maintenance case, interpreted that to mean that each company itself had to be, in essence, in the flow of commerce.
What we have suggested is a test which says the act applies if a corporation is engaged in activities which "affect” commerce, which is essentially the jurisdiction of the Congress, as I understand it.
Mr. HUTCHINSON. Now, yesterday, as I understand the bill, the House passed a bill that goes even further on that, and attempts to write into the statute a conclusive presumption that it is commerce. In other words, take away from the courts, entirely, the power to make any determination as to whether commerce is actually affected. We simply write it right into the statute that it is.
Do you think the Congress can go so far that?
Mr. KAUPER. I'm afraid, Mr. Hutchinson, I'm not a constitutional expert. What we suggested is simply use of "affecting.”
Mr. HUTCHINSON. The word "affecting" is common. But this thing goes to the point of a conclusive presumption.
Mr. KauPER. I suppose it is simply a question--and I'm shooting a little off the top of my head here because I have not really thought about that question-whether there is a sufficient showing that any American corporation can be viewed as being in commerce enough to create a presumption. I guess in constitutional terms I wouldn't be too sure about that. I think the “affecting commerce” test is certainly the traditional test, basically and, at least as I perceive it, would take care of the immediate problems which we confronted. Our major concern has been simply to get to that kind of a standard. I think that would meet the kind of circumstance that was involved in the American Building case, and in the kind of situation where I think we ought to have some role.
Mr. HUTCHINSON. All right. Thank you, Mr. Kauper.
Mr. FLOWERS. Mr. Kauper, I think you've indirectly been talking around this: Have you given us any exact definition of what would be a substantial company, or do you have one, does the Department have one?
Mr. KAUPER. Well, I think that is not really a concept we use, particularly. The statute talks in terms of competition and talks in terms of economic markets, so a firm which may to you and me in some abstract basis seem to be relatively small, may in tirat market be very substantial, indeed. So, it is a relative kind of standard, and a standard which is really a market-oriented sort of standard. One of the
Mr. FLOWERS. Go right ahead, sir. Mr. KAUPER. I was going to comment: One of the questions, or one of the issues stated in Mr. Rodino's letter to me was what distinction we drew, for enforcement purposes, between big and small mergers. That is not really a very meaningful distinction, it is the same problem we have with the phase “substantial" as an identification of a firm. What's a very small merger today could be in an industry that 10 years from now is going to be enormous.
Mr. FLOWERS. The whole determination must be subjective to some extent, you don't just put all the figures in a computer and out pops one and another stays in.
Mr. KAUPER. That's right; what we have attempted to do, if you look back at the old 1968 guidelines, for example, which we still follow, the concept of substantiality--and indeed, this is within the statuteis there a "substantial lessening of competition.
Now, in making that judgment, obviously you have to make judg. ments of, what does the elimination of a firm of this size in this market mean? That is usually done in market share terms. The guidelines attempt to set forth, for at least some edification, the levels of market shares where we think you are beginning to have a significant problem. And those market shares, if you are in a highly concentrated market, you are talking about a merger of two competitors, are by most standards. I would suppose, quite low. Mr. FLOWERS. All right.
Mr. Kauper. That is, a firm with 3 or 4 percent of the market may be viewed as a substantial competitor in that sort of case.
Mr. FLOWERS. In your Department, Mr. Kauper, do you have a merger section?
Mr. KAUPER. No; the merger activity, or I should say merger investigations and cases are spread among our litigation sections. The responsibilities of those sections are essentially divided by commodity and industry. So, if for example you have a merger in industry X, that will be investigated by the same section within the Division that would look at the issue of price fixing, or any other form of behavior within that same industry.
Mr. FLOWERS. Well, does this information only come to your Department through the formal channels, or are they gleaning the Wall Street Journal for proposals in advance? Also, is there sufficient liaison with FTC? What I'm trying to get at, as a practical matter, is just how is that handled in the Antitrust Division of the Justice Department?
Mr. KAUPER. We have tried in the statement to set out that procedure, and I did not go through that part of the statement orally; but I think it does describe the mechanical way we do things. But normally, that is one of the reasons for keeping merger enforcement in the section which has responsibility for that industry. We thus can enable those attorneys to stay readily abreast of what is happening in that industry generally.
Now, we all read the Wall Street Journal, I don't know how many people every day in the Division do—many do; and a variety of other trade journals, and a lot of information is picked up in that way. Other times simply because an attorney knows the industry; he may be looking at another problem in the industry, and he may start tripping over the fact that two firms are talking to each other.
So, there are a variety of ways in which one learns this. There is not a regularized single pattern through which we get this information today.
Mír. FLOWERS. Do you have a close liaison with FTC on notification procedures, and what not?
Mr. KAUPER. The information that the FTC obtains through its premerger notification program is available to us if we seek it; we do not normally get it on a routine basis. But, we have, I think, pretty good working relations with the Commission in terms of information they may have, or indeed we may have. The normal procedure, if we learn of a proposed transaction, merger transaction, however we learn of it, before we undertake a formal investigation of that, there is a notification to the Federal Trade Commission, what we refer to as the "clearance process.” At that point obviously both of us know of the proposed transaction, and then a judgment is made as to which agency is best equipped to handle that particular transaction.
Mr. FLOWERS. Do you feel within your Department now you have resource limitations? By that I mean, are you limited in your pursuit of those activities because of your limitations of personnel; or do you feel adequate in this regard !
Mr. KAUPER. Well, I think if you look back over a period of time, back into the sixty's, we had from 30 to 40 percent of our personnel and other resources in merger activities. That percentage is now much lower than that. If there were to be a significant, rapid increase in merger activity, we would be short of resources,
Mr. FLOWERS. If you got to the late sixty's level of merger activity, you would come up short.
Mr. KAUPER. Yes; in the sense that we would undoubtedly have to take people off some other things. Now, you asked the question, I think, specifically in terms of merger enforcement. I don't think I would say we would be short of resources there largely because if that activity picked up, that is virtually No. 1 priority in the Division. You would probably come up short in the areas you would take people off of, to handle merger investigations. I mean, we tend to view merger enforcement activity as one of the uncontrollables in the Division, an activity that has to go on.
Mr. FLOWERS. Sort of like social security, something like that.
We had some interesting hearings about a year ago with regard to food costs, trying to determine to what extent anticompetitive practices were contributing to food costs. I am sure the objectives of many of those who testified were to find some conspiracy among the large retail outlets or the food processing companies. But, as I recall the testimony, as far as monopolies or anticompetitive practices were concerned, we dealt primarily with the Teamsters Union, which had a monopoly on transporting food and which was noncompetitive, contributing artificial increase in prices that didn't seem to involve the antitrust laws.
Then we had some discussions with some of the farm co-operatives who were operating in a noncompetitive way that also seemed to be contributing to food costs.
Now, these escape the entire impact of our antitrust laws.
The thing that occurred to me, though, in the course of those hearings was the intense interest there was in getting into the operations of the large corporations and the amounts of profits they were making in different food lines, and how much they were spending on TV advertising.
Now, the question that I have is with respect to this premerger investigatory authority that you seek is this: Not only would that make available to you and hopefully it would be retained by you this kind of detailed information which the anticorporate groups are seeking, but it seems to me it could give a misunderstood impression which could be very harmful to the corporate enterprise system. Are
you not fearful of that? I notice in your testimony that you not only want to get this kind of detailed information from corporations that are involved in the merger, but others that are in related activities.
Mr. KAUPER. Let me respond to that by pointing out, first of all, what we think the CID bill would do for us-and, keep in mind, the CID bill is not something that would authorize us to conduct economic studies for the purpose of putting out public reports, or whatever; it is an enforcement tool.
One of the conditions, I think, we have been very insistent upon in connection with the CID bill, is that it must be made clear that the information which is obtained is not public. That is, it seems to me as a law enforcement agency, we view this as an enforcement tool, and we don't want it made public.
Mr. McCLORY. I have served as the ranking member on the House Committee on Intelligence, and induced our President and intelli
gence agencies to deliver tens of thousands of secret documents on the promise that these would not be made public. I just thought I'd throw that out.
Mr. KAUPER. I'm aware of that. I must say, however, I can't think of any circumstance while I've been here—and I'm getting to be an old man in this job now—where we have disclosed CID information. I think it is generally understood, and indeed the Congress has understood the need for keeping that information confidential.
I do think it is important that if this authority is given to us, that it is understood that it is to be so kept because I don't think the Division, as part of the Justice Department, has as its major mission compiling studies, reports, or whatever. We are basically a law enforcement agency. I don't want us to get in the position of being a reportissuing kind of body. That detracts from our mission.
We view this as purely an enforcement tool, to gain information which we would use only for litigation purposes, and indeed, the statute does provide for return of information.
Mr. McClory. I think that's the only question I have. Thank you very much. I yield back the balance of my time.
Mr. Flowers. The gentleman from Kentucky.
Mr. Kauper, I was wondering if I could refer back to page 9 of your statement in which you talk about your belief that your
failure to obtain preliminary injunctive relief sometimes is an incentive for further delay, rather than for swifter conclusion of the whole process; and you point to bank merger cases.
If I'm correct, bank merger cases are automatically stayed until you make your reports.
Mr. KAUPER. That is correct.
Mr. MAZZOLI. And yet, you feel that there should be no automatic stay with regard to these nonbank, free market mergers. I wonder if you could tell me a little bit about that.
Mr. KAUPER. Well, the judgment which is made with respect to the automatic stay provision, which, as I think everybody now knows is contrary to my original testimony, that the administration's position, I think, has been that the possible harm which can be caused by the issuance of the automatic stay, first of all, in a particular case where there has been no judgment at all with respect to the competitive issue, mav in that case work a considerable hardship.
But I think, more important than that, that to the firm which is planning a merger and thus has no concept as to when it may be able to consummate that merger, this provision in itself becomes a deterring factor. And if one recognizes--as I think we all do in varying degrees—that some mergers are highly desirable both because they are procompetitive, and in any free-market system you must preserve the ability of firms not only to enter the market, but to exit the market, that that deterrent effect, balanced against the number of cases in which this procedure would be utilized, was enough to tip the balance.
Now, in the bank merger case you have a little different circumstance in that the way the bank merger statutes are structured, you will already have had in the bank regulatory agency a relatively full hearing, and relatively full presentation of factual data. That is, our suit