Statement of Senator Leahy Ranking Member, Senate Committee on the Judiciary on Mark-up of Hatch - Leahy - Dewine - Kohl Substitute Amendment to S. 1854, the Hart - Scott - Rodino Antitrust Improvements Act

April 27, 2000

The Hatch-Leahy-DeWine-Kohl substitute amendment to S. 1854, the “Hart-Scott-Rodino Antitrust Improvements Act,” that we consider today will make significant improvements to this important antitrust law. Section 7 of the Clayton Act, as amended by the Hart-Scott-Rodino Act of 1976 (HSR), requires companies that plan to merge to notify the Justice Department’s Antitrust Division and the Federal Trade Commission of their intention and submit certain information. HSR pre-merger notifications provide advance notice of potentially anti-competitive transactions and allow the antitrust agencies to block mergers before they are consummated, which is easier than undoing them after-the-fact.

Since passage of the Hart-Scott-Rodino Act, this law has worked well to help the American economy flourish, despite larger and more complex mergers and consolidations within and among different industries. The Hatch-Leahy-DeWine-Kohl substitute amendment to S. 1854, the “Hart-Scott-Rodino (HSR) Antitrust Improvements Act,” will update this law and make it work even better.

Specifically, the substitute would raise the threshold for the size of the transaction required to provide HSR notifications from $15,000,000 to $50,000,000. This change is supported by the antitrust agencies. The remaining part of the substitute directs the Federal Trade Commission and the DOJ’s Antitrust Division to implement regulations to improve the manner in which these agencies obtain information as part of the review of a proposed merger. The antitrust agencies are also supportive of this provision in the substitute amendment. As explained in more detail below, this substitute addresses the most significant flaws in the original bill.

To appreciate the issues addressed in the bill, the pre-merger review procedures currently in effect must be understood. Upon receipt of the merger notification, the agency takes a “quick look” and determines whether to open a Preliminary Investigation (PI). A PI may take from a few weeks to several months to determine whether to close the PI or proceed with a Second Request or Civil Investigative Demand (CID) for additional information. Second Requests were issued in only 2.5 percent of reported transactions in 1999.

Under statutory time limits, the Second Request must be made within 30 days from the initial filing. In addition, only a single Second Request is allowed so it must be complete. This Second Request extends the waiting period before the merger may be completed for up to 20 days from the time that all responsive documents are submitted to the agency. Second requests for voluminous documents, combined with the requirement that “all responsive documents” have been supplied by the companies to the agency, can cause substantial delays in the waiting period and the time when a merger may be completed.

To address business concerns over broad second requests and the delay such requests may cause, the original bill substantially limited the scope of agencies’ second requests and authorized judicial review of both the scope of and compliance with these critical requests, as detailed below.

Second Request Limits. First, the original bill would have limited the scope of second requests to information or documents “not unreasonably cumulative or duplicative” and that “do not impose a burden or expense that substantially outweighs the likely benefit of the information to the agency.” The antitrust agencies raised significant, valid questions about whether these limitations were workable. In particular, at the time a second request is issued, an agency generally cannot evaluate the cost/benefit tradeoff because it does not know the costs of production, and has only limited knowledge about the potential benefits of the information for the investigation (in part because the anticompetitive issues are often still indefinite). The documents themselves provide this information.

The bill would also have required the antitrust agency to provide, with each second request, a specific summary of the competitive concerns presented by the proposed acquisition and the relation between such concerns and the second request specifications. The antitrust agencies questioned this requirement because anticompetitive concerns are still often general and evolving at the time a second request is issued. Consequently, a specific summary may not be possible at that time and would likely be incomplete since additional competitive concerns may be discovered during the investigation. Furthermore, according to the agencies, this requirement was unnecessary since they ordinarily provide a general explanation of their concerns and provide more specific information as it develops, in face-to-face conferences between parties (or their counsel) and investigating staff.

Deficient Productions. Second, the original bill would have limited the agencies’ ability to claim that the production of documents in response to a second request is deficient only if the deficiency “materially impairs the ability of the agency to conduct a preliminary antitrust review.” This proposed standard for claiming deficiency (that is, for requiring further document production) is higher than the ordinary standard for discovery and would limit the agency’s ability to investigate, especially given HSR’s stringent time frames and the fact that the second request is the single opportunity to seek information in a premerger review. This could have seriously harmed the agency’s posture in court, as courts often examine the entire substance of the agency’s case even in a preliminary injunction action.

Magistrate Judge Review. Finally, the original bill would have authorized a merging company to seek review by a magistrate judge of both the scope of the second request and any claim of deficient production. The magistrate was required to apply the scope and deficiency standards described above, which impose more limits on antitrust agencies than general civil discovery rules. Moreover, magistrates were unlikely to be familiar with the types of information that form the basis for the complex antitrust analysis required in predicting likely future competitive effects of a proposed transaction – a shortcoming with possible adverse consequences for antitrust agencies seeking relevant information for an investigation since this experience is particularly important in light of HSR’s special time constraints and the agencies’ single opportunity to seek documents prior to the merger.

HATCH-LEAHY SUBSTITUTE. The substitute amendment eliminates these three problematic procedural limitations on the second request investigation process contained in the original bill. Instead, the Hatch-Leahy-DeWine-Kohl substitute amendment directs the agencies to reform the merger review process to eliminate unnecessary delay, costly duplication and undue delay. In addition, the agencies are directed to designate senior officials within the agencies to review the second requests to determine whether the requests are burdensome or duplicative and whether the request has been substantially complies with by the merging companies. These changes are consistent with reforms that the FTC and Antitrust Division already have underway. Indeed, the FTC on April 5th , and the Antitrust Division on April 6th announced their adoption of new procedures and other initiatives to improve the premerger “second request” investigation process to make the process more efficient for both businesses and the agencies. I commend both agencies for their efforts in this regard and look forward to working with them to ensure that implementation of their regulations proceeds smoothly.

FEE STRUCTURE. I appreciate that the antitrust agencies do not support the fee structure in the substitute amendment since, in their view, the level of fees authorized in the substitute amendment would not provide them with the ability to collect sufficient fees to meet their budget request for FY 2001. Although these agencies are funded by direct appropriations and not by their fees, the reality is that the appropriations to these agencies usually corresponds to the level of the fees collected. Nevertheless, the substitute amendment authorizes the collection of sufficient fees to be revenue neutral and at a level that would enable the agencies, according to the CBO, to collect fees at a level amounting to an increase of ten percent over the agencies’ last year’s budget. As this bill moves through the legislative process, I hope to work with the antitrust agencies to ensure that they receive all the funding necessary to support their mission and carry out their important work.