403 or 408(e) of the National Housing Act (12 U.S.C. 1726 and 1730a), as amended, or section 5 of the Home Owners' Loan Act of 1933 (12 U.S.C. 1464), as amended: Provided, That duplicate originals of the information and documentary material filed with such agencies shall be contemporaneously filed with the Federal Trade Commission and the Assistant Attorney General at least thirty days prior to consummation of the proposed transaction;

"(viii) acquisitions, solely for the purpose of investment, of voting securities, if at the time of such acquisition, the securities acquired or held do not exceed 10 per centum of the outstanding voting securities of the insurer; "(ix) acquisitions of voting securities if, at the time of such acquisition, securities acquired do not increase, directly or indirectly, the acquiring person's share of outstanding voting securities of the issuer;

"(x) acquisitions, solely for the purpose of investment, of voting securities pursuant to a plan or reorganization or dissolution or of assets, other than voting securities or other voting share capital, by any bank, banking association, trust company, investment company, or insurance company, in the ordinary course of its business.

"(C) For the purpose of subsection (b) (4) (B) of this section, 'voting security' means any security presently entitling the owner or holder thereof to vote for the election or directors of a company or, with respect to unincorporated issuers, persons exercising similar functions.

"(c) (1) The Federal Trade Commission or the Assistant Attorney General may, prior to the expiration of the periods specified in subsection (b) (1) of this section, require the submission of additional information and documentary material relating to the acquisition by any person or persons subject to the provisions of this section, or by any officer, director, or partner of such person or persons. "(2) The Federal Trade Commission or the Assistant Attorney General may, in its or his discretion, extend the periods specified in subsection (b) (1) of this section for an additional period of up to twenty days after receipt of the information and documentary material submitted pursuant to subsection (c)(1) of this section.

"(3) No provisions of this section shall limit the power of the Federal Trade Commission or the Assistant Attorney General to secure, at any time, information or documentary material from any person, including third parties, pursuant to the Federal Trade Commission Act or the Antitrust Civil Process Act.

"(4) The Federal Trade Commission and the Assistant Attorney General may waive the waiting periods provided in this section or the remaining portions thereof, in particular cases, by publishing in the Federal Register a notice that neither intends to take any action within such periods in respect of the acquisition. "(d) If a proceeding is instituted by the Federal Trade Commission or an action is filed by the United States, alleging that a proposed acquisition or merger violates section 7 of this Act, or section 1 or 2 of the Sherman Act (15 U.S.C. 1-2), and the Commission or the Assistant Attorney General (i) files a motion for a preliminary injunction against consummation of such acquisition or merger pendente lite, and (ii) certifies to the United States district court for the judicial district within which the respondent resides or carries on business, or in which the action is brought, that it or he believes that the public interest requires relief pendente lite pursuant to this subsection—

"(1) upon the filing of such certification the chief judge of such district court shall enter an order temporarily restraining consummation of such proposed acquisition or merger until final disposition of the motion for a preliminary injunction; and shall immediately notify the chief judge of the United States court of appeals for the circuit in which such court is located, who shall designate a United States district judge to whom such action shall be assigned for all purposes:

"(2) the motion for a preliminary injunction shall be set down for hearing by the district judge so designated at the earliest practicable time, shall take precedence over all matters except older matters of the same character and trials pursuant to section 3161 of title 18, United States Code, and shall be in every way expedited:

"(3) a preliminary injunction shall issue restraining consummation of such proposed acquisition or merger until the order of the Commission in respect thereof or the judgment entered in such action has become final unless the defendants show that the Commission or the United States does not have a reasonable probability of ultimately prevailing on the merits, or that they

will be irreparably injured by the entry of such an order, in which case the court may deny, modify, or subject such preliminary injunction to such conditions as the court shall deem just in the premises: Provided, however, That a showing of loss of anticipated financial benefits from the proposed acquisition or merger shall not be sufficient to warrant denial, modification, or conditioning of such an injunction; and

"(4) if a decision by the district court on such motion for a preliminary injunction is not issued within sixty days after issuance of the order temporarily restraining consummation of such proposed acquisition or merger, under paragraph (1) of this subsection, such order shall be vacated unless, for good cause, the chief judge of the United States court of appeals for such circuit extends such order.

"(e) Failure of the Federal Trade Commission or the Assistant Attorney General to request additional information or documentary material pursuant to this section, or failure to interpose objection to an acquisition within the periods specified in subsections (b) (1) and (b)(2) of this section, shall not bar the institution of any proceeding or action, or the obtaining of any information or documentary material, with respect to such acquisition, at any time under any provision of law.

(f) (1) Whenever any person violates or fails to comply with the provisions of subsection (a) of this section, such person shall forfeit any pay to the United States a civil penalty, of not more than $10,000 for each day during which such person directly or indirectly holds stock or assets, in violation of this section. Such penalty shall accrue to the United States and may be recovered in a civil action brought to the United States.

"(2) Whenever any person fails to furnish information required to be submitted, pursuant to subsection (c)(1) of this section, such person shall be liable for the penalties provided for noncompliance with the provisions of the Federal Trade Commission Act or the Antitrust Civil Process Act, as the case may be.

"(g) In any proceeding instituted or action brought by the Federal Trade Commission or the United States alleging that an acquisition violates section 7 of this Act, or section 1 or 2 of the Sherman Act, upon application of the Federal Trade Commission or the Assistant Attorney General to the United States district court within which the respondent resides or carries out business, or in which the action is filed, such court shall, as soon as practicable, enter an order establishing the purchase price of the acquired stock or assets, requiring the acquiring person or persons to maintain the personnel, assets, stock, or firm being acquired as a separate entity unless the interests of justice require otherwise, and may enter an order requiring the profits of the acquired firm, stock or, assets to be placed in an escrow account, pending the outcome of the proceeding or action. Upon entry of a final order or judgment of divestiture under section 7 of this Act, or section 1 or 2 of the Act entitled 'An Act to protect trade and commerce against unlawful restraints and monopolies', approved July 2, 1890 (15 U.S.C. 1 et seq.), commonly called the Sherman Act, the court shall order that the divestiture be accomplished expeditiously. To the extent practicable, the court may deprive the violator of all benefits of the violation including tax benefits.".

SEC. 2. The amendment made by this Act shall take effect one hundred and twenty days after the date of enactment of this Act. Effective upon the date of enactment of this Act, the Federal Trade Commission is authorized and directed to carry out the requirements of section 7A (b) (3) and (b) (4) of the Act commonly called the Clayton Act, as amended by this Act.

Mr. FLOWERS. Our chairman, Mr. Rodino, wrote the committee report on the 1961 premerger notification and waiting bill. There are some differences between these earlier bills and this one. The 1957 bill required advance notification only for mergers involving companies worth $10 million or more.

But this bill raises that limit to $100 million or more, largely in recognition of 20 years of inflation. The 1959 bill set a premerger waiting period of 90 days while this one provides for a 30-day period which can be extended by 20 days or more.

The underlying purpose of those early bills remains the purpose of this one-to stop potential monopolies before they are created by stopping illegal mergers before they take place.

This bill seeks to achieve that goal. It will provide the Government with advance information about large mergers and a reasonable time to analyze that data. If the proposed merger then appears to be illegal, the Government will have a fair chance to stop it before it takes place. Otherwise the Government can challenge illegal mergers only after they are completed, in a divestiture proceeding.

But untangling two companies after their assets and companies have been merged is costly, time consuming, and is rarely successful. It has been compared to "unscrambling the eggs in an omelet." Our first witness spent years trying to unscramble the omelet created by one illegal merger.

He finally succeeded but that one case, I understand, Mr. Watkiss, lasted 17 years, and went to the Supreme Court 6 times. I want to yield to my distinguished colleague, the gentleman from Illinois, Mr. McClory.

Mr. MCCLORY. Thank you, Mr. Chairman.

I welcome the testimony we are about to receive in this hearing and in our consideration of this important legislation. The antimerger law does not prohibit conduct as such but conduct which has an anticompetitive effect. Thus it is often difficult for either participants or observers to determine whether the antimerger law has or has not been violated.

But here more than elsewhere in our antitrust laws the national policy is not so much to punish the violator as it is to protect competition. No criminal sanctions await the violator of the antimerger law as they do the violator of the Sherman Act, and that is as it should be.

But rather than showing weakness in our commitment to the antimerger law, the nonpunitive approach underscores the paramount significance of a policy which is too important to our national wellbeing to predicate enforcement on criminal law terms. This law has not worked that well. The prohibitions are more majestic than effective. The good faith of business and fear of litigation have been the substantial reasons for adherence to the law.

But for those who act in bad faith or those who have no fear of litigation, the antimerger law has not been effective. In our search for solutions we must not overlook the fact that mergers are necessary to the health of the general economy and necessary to the viability of individual businesses on many occasions.

Thus we must strike a balance in trying to make the law to ban anticompetitive mergers more effective. We must not exact too great a price from those who participate in mergers that are in the public interest.

How much dare we bother the good in order to stop the bad? This bill has five major points. It would provide for notification, a waiting period, automatic temporary restraining orders, a shift in the burden of proof for preliminary injunctions, and an escrow arrangement. Mr. Chairman, I would think that a balance of competing interests would require us neither to accept nor to reject all of these points.

I trust these hearings will shed light on these issues so we can make informed and responsible judgments in our markup of H.R. 13131.. Thank you.

Mr. FLOWERS. Mr. Watkiss, we want to welcome you to this subcommittee. I understand you have a prepared statement for us. [The prepared statement of David K. Watkiss follows:]

STATEMENT OF David K. Watkiss, Lawyer, Salt Lake City, Utah

I am David K. Watkiss, a lawyer from Salt Lake City, Utah, and am pleased to respond to your request to testify on H.R. 13131 on the need for premerger notification. My comments represent personal views developed largely during my seven-year experience as Chief Counsel for the ultimately successful applicant in the divestiture proceeding United States v. El Paso Natural Gas Company. This important enforcement action, discussed and reviewed in numerous articles and characterized in a Wall Street Journal editorial "Antitrust Gone Mad," in-volved most of the classic issues of divestiture and provided a concentrated practical course in the problems of divestiture.

If a premerger notification requirement like the one proposed had been on the books 20 years ago, I would probably never have had this interesting ex-perience, but more importantly, the public and the courts would have been spared the ordeal of the El Paso case. Notice and information from the major western interstate pipeline of its intention to acquire the only other interstate pipeline west of the Rockies would have produced a stay of the stock acquisition or at least an injunction against the subsequent merger and thus, the prevention of the 17-year restraint of competition in western natural gas markets. An effort by the Department of Justice to obtain a restraining order when the stock acquisition was announced was denied by the trial court even though the Supreme Court, when it reached the merits of the merger in 1964, unanimously found in so many words that "if El Paso can absorb Pacific Northwest without violating § 7 of the Clayton Act, that section has no meaning in the natural gas field." 376 U.S. at 662. If there had been no merger the case would have ended then, but another 10 years were required to accomplish the Supreme Court order requiring "divestiture without delay". Despite this prolonged and unsupportable delay, the El Paso case had a salutary effect because the business com-munity observed the Justice Department and courts persevere until a satisfactory remedy was finally achieved.

A brief description of the history of this divestiture case illustrates why legislation such as you are considering is needed to avoid the damage to the public interest that results from years of protracted litigation during the course of which a monopolistic or anticompetitive condition was allowed to continue because of no effective means at the outset to stop the unlawful acquisition and no efficient means to unravel it expeditiously. The El Paso litigation and the difficulties encountered in structuring a divestiture decree to meet the criteria required by the Supreme Court emphasizes the need to avoid divestiture by maintaining the separate identities while the violation is litigated if this can be reasonably and responsibly accomplished. While a successful divestiture was finally obtained, the period of time required with its attendant economic uncertainties and changing market conditions, together with the considerable expense and effort needed to achieve a satisfactory result graphically illustrates the desirability of this legislation.

El Paso Natural Gas Company (El Paso) was organized and commenced business as a natural gas pipeline transmission company in 1928. It began supplying natural gas to the State of California in 1947 Pacific Northwest Pipeline Corporation (PNW) was certified by the Federal Power Commission in 1955 to supply natural gas to the Pacific Northwest, particularly the States of Oregon, Washington and Idaho. The PNW pipeline was constructed to deliver gas supplies from the San Juan Basin in northwestern New Mexico. Supplemental sources of gas were obtained by PNW from Canada.

PNW. with an excess supply of natural gas for its new and developing market, began discussions with certain California consumers to determine if it could supply California. El Paso, the sole supplier of gas from outside California thereupon commenced negotiations to acquire all of the stock of PNW and this stock acquisition was consummated in 1957. Almost immediately, the Justice

Department filed suit against El Paso under § 7 of the Clayton Act contending that the acquisition substantially lessened competition in California.

A month after the filing by the Justice Department, El Paso applied to the Federal Power Commission (FPC) for approval of an asset merger of the two companies under 87 of the Natural Gas Act. Confusion and controversy followed over which forum should proceed first, with the District Court finally deciding to wait for the Commission to proceed. In December of 1959, the FPC approved the merger which was thereafter immediately consummated.

The State of California appealed the FPC order. In 1962, the United States Supreme Court vacated and remanded the case to the United States District Court for the trial of the Clayton Act violation holding that the Clayton Act suit against El Paso's acquisition of control should have been tried in the Federal District Court before the FPC permitted the consummation of the merger and that the regulatory authority of the FPC did not empower the Commission to immunize the transaction against antitrust attack under § 7 of the Clayton Act. Subsequently, in 1964, a unanimous Supreme Court found that the acquisition violated § 7 of the Clayton Act and with but one dissent ordered "divestiture without delay" remanding the case back to the District Court for compliance with the mandate."

In 1965, the District Court endorsed a plan of divestiture negotiated by El Paso and the Justice Department. However, this decision was appealed to the Supreme Court by three appellants, who had unsuccessfully attempted to intervene in the case and to be heard on the conditions of the divestiture plan. The Supreme Court reversed determining that intervention should have been afforded to all persons who might be adversely affected by the disposition of the acquired property, overturned the divestiture decree, and laid down criteria for an effective divestiture.'

Divestiture hearings began in 1967, with intervention granted at the outset to 29 new parties which included most of the western states and all of the customers of El Paso. There were ten applicants to acquire the new company who were required to present their respective qualifications, divestiture plan and how they would operate the new company and particularly how they intended to reinstitute competition in the relevant markets. This trial, known as Divestiture II, was lengthy extending intermittently from mid-1967 to mid-1968 and generating some 11,000 pages of transcript. În an effort to insure the ability of the new company to acquire the needed new reserves and to otherwise vigorously compete, the District Court finally chose the financially strong and experienced Colorado Interstate Gas Company (CIG), the only gas pipeline operator among the applicants, to acquire the new company rather than selecting a sale to interests outside the gas pipeline industry. This choice raised antitrust problems on its own for the anti-competitive restraints found objectionable in the original acquisition were likewise raised by the new company being divested to another potential competitor in the California or northwestern markets and an actual competitor for gas supplies for such markets.

This decision was appealed to the Supreme Court and despite subsequent attempts by the parties to dispose of the appeal, the Supreme Court in an extraordinary, unprecedented action, again overturned the divestiture plan. Petitions for rehearing delayed remand of the case to the District Court for a year, but finally, in 1970, new divestiture hearings were commenced with the same parties, but this time with only seven applicants for acquisition. The difficulties of establishing a New Company that could compete as effective as PNW had been able to do, some 15 years earlier, despite changed economic circumstances in the natural gas industry where competition had shifted from markets to obtaining natural gas supplies, was manifest to all. Lengthy hearings were again required to solve these issues, extending into 1972 and generating 9,000 pages of transcript. The District Court's decision was appealed to the Supreme Court again, but this time the Supreme Court refused review and the lower court's decision became final in March of 1973.

The court proceedings were thus finally concluded some 16 years after the suit was filed and 9 years after the acquisition was held illegal and "divestiture

1 California v. F.P.C., 369 U.S. 482 (1962).

United States v. El Paso Natural Gas Co., 376 U.S. 651 (1964),

Cascade Natural Gas Co. v. El Paso Nat. Gas Co., 386 U.S. 159 (1967).

Utah Pub. Serv. Comm'n v. El Paso Natural Gas Co., 395 U.S. 464 (1969) reh. denied, 399 U.S. 937 (1970).