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After nearly three years of record-breaking merger activity, the deluge of deals is taking its toll on the Federal Trade Commission. Bogged down with reviewing a seemingly endless series of corporate unions, FTC lawyers have been hard-pressed to seek out and prosecute other antitrust violations like price-fixing and abuse of monopoly power. At the same time, the FTC has been scrutinizing an ever-smaller percentage of mergers, despite the unprecedented value and complexity of the transactions. The agency, which shares responsibility for approving corporate deals with the Department of Justice, has been forced in recent years to move one-third of its specialists from enforcement to merger investigations, leaving a skeleton crew of about 50 lawyers to act as cops on the antitrust beat. Now, FTC attorneys fear that outside counsel are well aware of their institutional weakness and are urging clients to use it to their advantage. Corporate lawyers say the agency’s fear is warranted. “Of course it’s happening,” says one antitrust specialist at a D.C. firm. Testifying before the House Judiciary Committee earlier this year, FTC Chairman Robert Pitofsky pleaded for funding to keep pace with the agency’s workload. “The merger wave strains the FTC resources to the breaking point,” he said. To cope, the agency has “shifted resources from non-merger enforcement to mergers as a stop-gap measure. … If we are to keep up with the growing demands that will be imposed by the 21st century marketplace, we need significantly more resources.” The 100,000-employee DOJ is feeling the pinch as well, but it has more ability than the 979-person FTC to compensate by shifting its resources internally. Also, the DOJ has shown a willingness to hire outside lawyers to help with huge antitrust cases, as it did when it tapped David Boies to handle the case against the Microsoft Corp. By contrast, even longtime FTC employees say they cannot remember the agency ever bringing in outside legal assistance. DROWNING IN DEALS In the past decade, the number of deals reviewed each year by the FTC has tripled, and the value of those deals has increased 11-fold, to more than $1.8 trillion in 1999. The year 2000 is on course to set a new record. As of April, Hart-Scott-Rodino merger filings were up 18 percent over fiscal 1998, the previous all-time high in terms of volume. Among the deals now on the FTC’s plate: the $183 billion union of America Online Inc. and Time Warner, which the agency has been studying since January. Other time-consuming mergers have included Exxon and Mobil in 1999, which resulted in the largest retail divestiture in FTC history. Despite, or perhaps because of, the glut of mega-deals, FTC lawyers in 1999 issued second requests for documents — the signal that a deal needs closer scrutiny — on fewer than one percent of transactions, or on 45 out of 4,642 mergers. In 1995, by contrast, the FTC took a closer look at 58 out of 2,816 transactions — just over two percent. One reason is that, despite the uptick in work, staffing levels at the FTC have barely risen in the last decade. At the end of Jimmy Carter’s administration, the agency employed more than 1,700 people, but 12 years of Ronald Reagan and George Bush whittled the staff down to a low of 894 in 1989. Under Clinton, 40 new positions have been added. “The workload in our merger shop is very, very, very — add a few more verys — high,” says Richard Parker, director of the FTC’s Bureau of Competition, which handles both merger reviews and overall antitrust enforcement. “People are working tremendously long hours, nights, and weekends in order to keep up with the number of mergers coming in.” Still, Parker says, “I don’t think we’re letting important cases pass by. I do think that if we had greater resources or the merger wave was not as intense, then I think these investigations would move faster, and that would benefit consumers and the parties involved.” But Jonathan Baker, the director of the FTC’s Bureau of Economics from 1995 to 1998 and now a professor at American University’s Washington College of Law, thinks it inevitable that violations are going undetected. “It’s hard to know what cases could have been brought and what good it would have done consumers,” he says. “But the odds are there are practices that would be worth attacking and that would have led to lower prices and improved products.” Even during his tenure, before the merger wave peaked, Baker says he “wanted to devote more resources to pro-actively finding nonmerger cases. But there wasn’t any point. We couldn’t take on anything given what we had to do with Hart-Scott-Rodino [merger] filings.” He adds, “If you suck all the agency’s resources into mergers, there isn’t much left for other things.” The antitrust bar has come to the same conclusion. “Lawyers are always giving probability advice,” says Albert Foer, president of the American Antitrust Institute. When a lawyer warns a client of a possible antitrust violation, he says, the first question is usually, “How likely am I to get caught? [Lawyers] know the agencies are overwhelmed right now, and that is part of the analysis.” Robert Schlossberg, a partner at the D.C. office of Philadelphia’s Morgan, Lewis & Bockius, adds that he is familiar — although not personally — with a related strategy dubbed “file and pray.” The theory is that government lawyers might hesitate to challenge a dubious merger if they’re too busy to fight. “Litigation takes a lot of effort, and if you’re already gasping for air, it might push the agencies toward taking a consent decree in a close case,” he says. Parker, however, is quick to point out that the FTC is not in the habit of rubber-stamping deals. In the past year, he says, FTC lawyers have filed suit five times to block mergers. Three cases, dealing with chewing tobacco, baby food, and sewing patterns, are still pending. In April, the agency favorably settled the BP Amoco/Arco merger case, and in June, the Kroger Co. abandoned its plans to buy 74 Winn Dixie supermarkets. “The number of merger cases we’ve brought shows we are not shrinking from the task,” Parker says, although he acknowledges that litigating such cases takes a tremendous amount of time. As for nonmerger enforcement cases, the FTC has scored several recent victories. Two actions settled in March — a resale price-fixing case against women’s shoe supplier Nine West and a price-discrimination case against spice giant McCormick & Co. In May, the FTC settled charges with the largest distributors of recorded music over allegedly illegal advertising policies that affected prices for CDs. Currently, the FTC is investigating the spike in gasoline prices in the Midwest. To date, the FTC has brought 10 nonmerger cases this year. Last year, the agency brought just five, compared to 12 in 1995 and 12 in 1990. Foer, however, argues that when it comes to nonmerger enforcement, the FTC is “just not doing the job at levels compatible” with the past. “When you get overstretched, you’ve got to respond one way or another. You bring fewer cases and do quicker investigations, or you bring cases that are relatively simple and short,” he says. SPARE A DIME? Although Parker says that efforts by the Bureau of Competition saved consumers $1.2 billion in 1999, the FTC has not fared well this budget cycle in the House. The lower body awarded the FTC $134.8 million for fiscal year 2001, up $10 million from this year, but $34 million below the president’s request of $169 million. House appropriators were apparently unimpressed by a May 17 letter from Judiciary Committee Chairman Henry Hyde, R-Ill., and ranking member John Conyers Jr., D-Mich., asking them to fully fund the FTC’s Bureau of Competition and DOJ’s Antitrust Division. “We cannot overstate the importance of effective antitrust enforcement to the health of the United States’ economy,” they wrote. “The requested resources will allow the agencies to (1) investigate the increasing number of large and complex mergers; [and] (2) to pursue major civil matters in many industries including telecommunications, defense, agriculture, financial services, health care, and airlines.” When that failed, David Obey, D-Wis., tried unsuccessfully to restore funding through an amendment, pleading to his colleagues that they “see to it that government has enough resources to keep the rules of the game honest.” Senate appropriators were more generous with the FTC, awarding the agency $159.5 million. The full Senate has yet to vote on the spending bill, after which the two bodies will hammer out final legislation to send to the president. To Foer, the FTC’s rather poor showing is no reflection on the agency. “It’s an uphill argument in the first place,” he says, noting that appropriators are “reluctant to make an exception to their general tight-fistedness.” The problem is compounded by what he terms a “bifurcation in expertise, between the people who understand antitrust and have oversight, and the people in the budget process, who are not particularly close to the subject.” Even among those who understand antitrust law, a difference of opinion exists over what an appropriate budget for the FTC might be. “I can tell they are working very hard, harder than I’ve ever seen them work in 20-plus years of contact,” says William MacLeod, a partner at D.C.-based Collier Shannon Scott and director of FTC’s Bureau of Consumer Protection from 1986 to 1990. But, he adds, there is a danger in over-funding the agency. “When there are too many people sitting around looking at business activities and seeing if there are antitrust violations, they are more likely to start getting into ordinary and legitimate business activities,” he says. “Twenty-five years ago, the commission had far too many people doing nonmerger cases, which were routinely overturned in the court of appeals.” With more money, the FTC could doubtless bring more cases, agrees D.C.-based Wiley, Rein & Fielding antitrust expert Bert Rein. But Rein does not believe that is necessary. “Neither consumers nor Congress have been so concerned by the absence of activity that they’re willing to do anything about it,” he says. “If Congress really felt that there was some shifting of a large amount of money from consumers to benefit monopoly interests, there would be an uproar.” Other antitrust lawyers say the agency is making up for its shortage of bodies in part by adopting an increasingly combative posture in the cases they do bring. “The agency has become more aggressive in merger enforcement,” says Mary Azcuenaga, an antitrust partner at the D.C. office of San Francisco’s Heller Ehrman White & McAuliffe and a former FTC commissioner. “Where you once had the opportunity to spend a lot of time exploring various fine points and possible settlements, they just don’t have the time to do that anymore.”

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