AMC REPORT INTRODUCTION AND EXECUTIVE SUMMARY [Preliminary Draft Outline]

AMC REPORT INTRODUCTION AND EXECUTIVE SUMMARY [Preliminary Draft Outline] The purpse f this preliminary draft utline f the AMC Reprt Intrductin and Executive Summary is t help fcus the Cmmissiners discussin f and cnsensus n (i) the majr messages, tne, and directin f the Intrductin and Executive Summary, and (ii) staff s prpsed rganizatin f the Intrductin and Executive Summary and the level f detail it will include. Having the Intrductin and Executive Summary in mind may als assist the Cmmissiners as they cntinue t deliberate n specific recmmendatins and pssibly cnsider whether t cnvert sme f what are nw cast as recmmendatins int discussin pints within the Reprt. This is a cnceptual and preliminary utline that we plan t discuss at the cnclusin f the Cmmissin s deliberatins n the Tentative Recmmendatins. This draft is based almst exclusively n the Tentative Recmmendatins t be discussed at the Cmmissin s meeting f January 11, 2007 (i.e., thse fr which six r mre Cmmissiners have previusly indicated supprt). It includes mst (but nt all) recmmendatins, as wrded in that list. It als includes sme prpsed findings based n thse recmmendatins, which have nt previusly been specifically reviewed and discussed by the Cmmissiners. The precise wrding f varius findings and recmmendatins may change, f curse, depending n the results f the Cmmissin s deliberatins n January 11. The purpse f this dcument, hwever, is t prvide a vehicle t btain Cmmissiner views n big picture issues. I. Intrductin In general, free-market cmpetitin is the fundamental ecnmic plicy f the United States. Cmpetitin in free markets that is, markets that perate withut either private r gvernmental anticmpetitive restraints frces firms t lwer prices, imprve quality, and innvate. Reliance n free markets benefits all cnsumers in the United States and creates incentives fr efficiency and innvatin that lead t greater prductivity and flexibility in the U.S. ecnmy. The purpse f antitrust law is t prtect cmpetitin. Antitrust laws seek t prmte aggressive cmpetitin n the merits by prhibiting anticmpetitive business cnduct that harms cnsumer welfare. Cngress created the AMC t determine whether antitrust analysis in the United States cntinues t keep pace with the glbal, high-tech ecnmy f the twentyfirst century. Industries in which innvatin, intellectual prperty, and technlgical innvatin are central features play imprtant rles in this ecnmy. The AMC cnsidered whether updated antitrust analyses and prcesses are needed t ensure the prper applicatin f U.S. antitrust law t firms cmpeting in U.S. markets. Antitrust standards and prcesses shuld be sufficiently flexible t Date: January 10, 2007

accmmdate new ecnmic and ther learning relevant t assessing the likely effects f particular business cnduct n cmpetitin, yet als clear and predictable in applicatin. Antitrust analysis has changed a great deal since the mst recent reprts by federal cmmissins, cmpleted in the 1960s and 1970s, n the state f the antitrust laws. Mst imprtantly, the flexibility f antitrust analysis has increased, as the curts and the agencies have refined antitrust analysis t incrprate new ecnmic learning. This has imprved the ptential fr a sund cmpetitive assessment in all industries, including thse characterized by innvatin, intellectual prperty, and technlgical change. Fr example: In the analysis f jint firm cnduct under Sectin 1 f the Sherman Act and the analysis f unilateral firm cnduct under Sectin 2 f the Sherman Act, antitrust law has largely turned away frm the applicatin f per se rules tward a Rule-f-Reasn type f analysis, which can accmmdate the assessment f a greater variety f factrs than per se rules. Likewise, the analysis f mergers has mved away frm a reliance primarily n structural presumptins abut cncentratin tward a mre cmplex analysis that incrprates predictins f cmpetitive effects using tls f mdern ecnmic analysis. The antitrust Rule f Reasn and current merger analysis require cnsideratin f, and accrding weight t, prcmpetitive efficiencies that may result frm firms agreements, unilateral cnduct, r prpsed transactins. This is a significant psitive change frm the typical antitrust analysis f thirty years ag. In additin, the curts and the federal antitrust agencies have evidenced a greater appreciatin f the imprtance f intellectual prperty in prmting innvatin and, accrdingly, the need t incrprate this recgnitin int a dynamic analysis f cmpetitive effects. All f these changes have imprved the likelihd f an accurate assessment f cmpetitive effects. The flexibility t accunt prperly fr the efficiencies assciated with business cnduct means that antitrust analysis has becme less likely t cndemn imprperly business cnduct that in fact benefits cnsumer welfare. The increased flexibility f antitrust analysis has nt cme withut csts, hwever. As antitrust analysis has becme mre flexible, it has als arguably becme less predictable. This increases business csts t cmply with the antitrust laws. Althugh, in sme cases, antitrust analysis nw clearly apprves certain previusly prhibited cnduct, in ther areas the mvement away frm previusly ver-inclusive per se rules simply affrds businesses a much greater pprtunity t explain why their - 2 -

cnduct is prcmpetitive, but less predictability n whether curts and ther antitrust enfrcers will agree. The ability f antitrust analysis t take int accunt a greater variety f factrs can increase the accuracy f the result, but als increase the amunts f infrmatin necessary fr antitrust analysis. Fr example, as merger analysis has becme mre cmplex, antitrust enfrcers have sught greater amunts f infrmatin, raising the csts t btain clearance f sme mergers. Other changes in the ecnmy als have cmplicated antitrust enfrcement in the decades since the 1960s and 1970s. Freign-based cmpanies are significant cmpetitrs in many U.S. markets. U.S. firms cmpete wrldwide t a much greater extent than previusly was the case. Many markets fr prducts and services are nt limited t the United States, but are wrldwide. Glbal cmpetitin means that many prpsed mergers r acquisitins are nw reviewed nt just by U.S. authrities, but als by authrities in many ther jurisdictins. Glbal antitrust enfrcement raises the csts f business cmpliance and ptentially subjects firms t incnsistent r cntradictry legal requirements. These changes in bth antitrust analysis and the glbal ecnmy pse new challenges fr hw best t maintain the balance f flexibility and predictability in antitrust analysis, as well as hw t manage the increased csts and cmplexity that accmpany an antitrust analysis that takes int accunt a greater number f factrs alng with a glbal ecnmy with multiple antitrust enfrcers. T address these issues, the Cmmissin [studied etc. describe a little f prcess here]. The Cmmissin s study leads it t make the fllwing findings and recmmendatins. - 3 -

II. Summary f Recmmendatins A. Substantive Standards FINDING: The ecnmic principles that guide antitrust law remain relevant t and apprpriate fr the antitrust analysis f all industries, including thse in which innvatin, intellectual prperty, and technlgical change are central features. There is n need t revise the antitrust laws t apply different rules t industries in which innvatin, intellectual prperty, and technlgical innvatin are central features. Antitrust analysis, guided by valid ecnmic principles, is sufficiently flexible t prvide a sund cmpetitive assessment in such industries. N statutry change is recmmended with respect t Sectin 7 f the Claytn Act. There is general cnsensus that the basic framewrk fr analyzing mergers fllwed by the Federal Trade Cmmissin and Department f Justice Antitrust Divisin, as well as curts, is fundamentally sund, althugh there are instances in which reasnable minds may disagree abut the utcmes reached in particular merger cases in which that framewrk is applied. N substantial changes t merger enfrcement plicy are necessary t accunt fr industries in which innvatin, intellectual prperty, and technlgical change are central features. Cngress shuld nt legislatively amend Sectin 2 f the Sherman Act. Standards currently emplyed by U.S. curts fr determining whether single-firm cnduct is unlawfully exclusinary are generally apprpriate. Althugh it is pssible t disagree with the decisins f particular cases, in general, the curts have apprpriately recgnized that vigrus cmpetitin, the aggressive pursuit f business bjectives, and the realizatin f efficiencies nt available t cmpetitrs are generally nt imprper, even fr a dminant firm and even where cmpetitrs might be disadvantaged. FINDING: Innvatin prvides a significant share f cnsumer benefits assciated with cmpetitin, particularly in the mst dynamic industries. In industries in which innvatin, intellectual prperty, and technlgical change are central features, just as in ther industries, antitrust enfrcers shuld carefully cnsider market dynamics in assessing cmpetitive effects and shuld ensure prper attentin t ecnmic and ther characteristics f particular industries that may, depending n the facts at issue, have imprtant bearing n a valid antitrust analysis. Antitrust analysis must pay careful attentin t the incentives and bstacles facing firms seeking t develp and cmmercialize new technlgies. Antitrust enfrcers shuld explicitly recgnize that market cnditins, business strategies, and industry structure can be highly dynamic. - 4 -

T accunt prperly fr dynamic effects in a relevant antitrust market, antitrust analysis must recgnize that current market shares may verstate r understate likely future cmpetitive significance. Antitrust analysis shuld give further cnsideratin t efficiencies that lead t mre rapid r enhanced innvatin, including the develpment f new r imprved prducts. Fr example, the FTC and DOJ shuld cntinue t give substantial weight t arguments that a merger will increase innvatin. The agencies als shuld be mre flexible in lengthening the tw-year time hrizn fr entry, where apprpriate, t accunt fr innvatin that may change cmpetitive cnditins beynd the tw-year perid. The FTC and DOJ give insufficient credit t sme claims f efficiencies. The agencies shuld increase the weight they place n certain types f efficiencies. Fr example, the agencies and curts shuld give greater credit fr fixed-cst efficiencies, particularly in dynamic, innvatin-driven industries where marginal csts are lw relative t typical prices. The FTC and DOJ shuld cntinue t seek t ensure that merger enfrcement plicy is apprpriately sensitive t the needs f U.S. cmpanies t innvate and btain the scpe and scale needed t cmpete effectively in glbal markets, while cntinuing t prtect the interests f U.S. cnsumers. FINDING: In general, antitrust standards shuld be clear and predictable in applicatin, administrable, and designed t minimize ver-deterrence and under-deterrence, bth f which impair lng-run cnsumer welfare. Additinal clarity and imprvement in Sectin 2 legal standards is desirable, particularly with respect t areas where there is currently a lack f a lack f clear and cnsistent standards, such as bundling and whether, and under what circumstances (if any), a mnplist has a duty t deal with rivals. In particular, the existing standards regarding bundling, as expressed in cases such as LePage s, may prhibit cnduct that is prcmpetitive r cmpetitively neutral and thus these standards may actually harm lng-term cnsumer welfare. This additinal clarity and imprvement is best achieved thrugh the cntinued evlutin f the law in the curts. Public discurse and cntinued research will als aid in the develpment f cnsensus in the curts regarding the prper legal standards t evaluate the likely cmpetitive effects f bundling and refusals t deal with a rival. The current Merger Guidelines, in cnjunctin with agency plicy statements, cmmentary, and enfrcement activity, prvide infrmative guidance t merging parties and accurately reflect current enfrcement plicy. Nnetheless, the FTC and DOJ shuld cntinue t wrk tward increasing transparency thrugh a variety f means. - 5 -

The agencies shuld increase issuance f clsing statements t explain the ratinale fr taking n enfrcement actin in a matter after a significant investigatin int a prpsed merger. The agencies shuld increase transparency by peridically reprting statistics n merger enfrcement effrts, including such infrmatin as was reprted by the FTC in its 2004 Hrizntal Merger Investigatin Data, as well as determinative factrs in deciding nt t challenge clse transactins. These reprts shuld emanate frm mre frequent, peridic internal reviews f data relating t the FTC s and DOJ s merger enfrcement activity. T facilitate and ensure the high quality f such reviews and reprts, DOJ and FTC shuld undertake effrts t crdinate and harmnize their internal cllectin and maintenance f data. The agencies shuld update the Merger Guidelines t explain mre extensively hw they evaluate the ptential impact f a merger n innvatin. The agencies shuld update the Merger Guidelines t include an explanatin f hw the agencies evaluate nn-hrizntal mergers. FINDING: Glbal cmpetitin requires antitrust enfrcers t increase their effrts t harmnize different standards and prcesses t minimize the ptential fr the applicatin f incnsistent r cntradictry legal requirements and t minimize businesses cmpliance csts, which ften are passed n t cnsumers. In additin, U.S. and freign antitrust enfrcers shuld take care t respect apprpriate jurisdictinal bundaries. The U.S. Justice Department and Federal Trade Cmmissin shuld, t the extent pssible, cntinue t pursue prcedural and substantive cnvergence n sund principles f cmpetitin law, including thrugh the Organizatin fr Ecnmic Cperatin and Develpment ( OECD ) and Internatinal Cmpetitin Netwrk ( ICN ). The United States shuld cntinue t pursue bilateral and multilateral antitrust cperatin and cmity agreements with mre f its trading partners and make greater use f the cmity prvisins in existing cperatin agreements. These cperatin and cmity agreements shuld explicitly recgnize the imprtance f prmting glbal trade, investment, and cnsumer welfare, and the impediment t such gals impsed by incnsistent r cnflicting antitrust enfrcement. Existing agreements shuld be amended t add apprpriate language. The U.S. Justice Department and Federal Trade Cmmissin shuld study and reprt t Cngress n the pssibility f develping a centralized internatinal premerger ntificatin system that wuld ease the burden n cmpanies engaged in crss-brder transactins. - 6 -

The FTAIA shuld be amended r cnstrued t apply the fllwing general principle: any persn wh makes a purchase utside the United States frm a seller utside the United States shuld be deemed nt t have suffered injury as a result f any U.S. anticmpetitive effects. FINDING: The imprtance f innvatin in the glbal, high-tech ecnmy has highlighted the rle f patents in cmpetitin. Hw well the patent system perates matters fr cmpetitin. A failure t strike the prper balance between cmpetitin and patent law and plicy can harm innvatin and cmpetitin. RECOMMENDATION: Cngress shuld seriusly cnsider recmmendatins in the FTC and NAS-STEP reprts with the gal f encuraging innvatin and at the same time aviding abuse f the patent system that, n balance, will likely deter innvatin and unreasnably restrain cmpetitin. B. Enfrcement Institutins FINDING: The existence f tw federal antitrust agencies the Department f Justice Antitrust Divisin and the Federal Trade Cmmissin may impse extra, unnecessary csts n firms prpsing mergers r acquisitins, due t the length f time the agencies take t decide which agency will review the prpsed transactin. In additin, firms prpsing a merger r acquisitin may face different prcedural pssibilities fr agency enfrcement actin against the transactin, depending n which agency reviews the prpsed transactin, and these differences may influence firms willingness t litigate r settle a merger challenge. These cnsequences f dual enfrcement are cstly and unfair t businesses. The Federal Trade Cmmissin and Department f Justice, wrking with Cngress, shuld take steps t reduce r eliminate the differences in enfrcement practices and ther csts that arise frm having tw federal antitrust enfrcement agencies, in rder t minimize the cnsequences fr parties f which agency cnducts an investigatin. The FTC and the DOJ shuld develp and implement a new merger clearance agreement based n the principles in the 2002 clearance agreement between the agencies, with the gal f clearing all prpsed transactins t ne agency r the ther within a shrt perid f time. The apprpriate cngressinal cmmittees shuld encurage bth federal antitrust agencies t reach a new agreement, and the agencies shuld cnsult with these cmmittees in develping the new agreement. Cngress shuld enact a statute that requires the FTC and the DOJ t clear all mergers reprted under the Hart-Sctt-Rdin Act t ne f the agencies within a shrt time perid after the filing f the premerger ntificatin. - 7 -

The FTC shuld adpt a plicy in HSR merger cases that, when it seeks injunctive relief in federal district curt, it will seek bth preliminary and permanent injunctive relief and will seek t cnslidate thse prceedings, as is the general practice f the DOJ. Cngress shuld amend Sectin 13(b) f the FTC Act t prhibit the FTC frm pursuing administrative litigatin if it fails t btain a preliminary injunctin frm a federal district curt in an HSR merger case. Cngress shuld ensure that the same standard fr the grant f a preliminary injunctin applies t bth the DOJ and the FTC by amending Sectin 13(b) f the FTC Act. FINDING: The Hart-Sctt-Rdin premerger ntificatin prcess is fundamentally sund. It can, hwever, impse significant csts n merging parties, bth in delay and respnse effrts, that the FTC and DOJ shuld cntinue t take steps t reduce. N changes are recmmended t the initial filing requirements under the Hart- Sctt-Rdin Act. The FTC and DOJ shuld cntinue t pursue refrms t reduce the burdens impsed n merging parties by secnd requests, and shuld cnsider implementing several specific refrms. Cngress shuld delink the funding f the antitrust agencies frm HSR filing fee revenues. FINDING: The available data n state merger and nn-merger enfrcement f the federal antitrust laws shw relatively little incnsistency with federal antitrust enfrcement appraches. N statutry change is recmmended t the current rles f federal and state antitrust enfrcement agencies with respect t assessing the cmpetitive implicatins f mergers. Hwever, these agencies are encuraged t crdinate their activities and t take cmity cnsideratins int accunt s that mergers are nt subjected t multiple and pssibly incnsistent prceedings. N statutry change is recmmended t the current rle f the states in nnmerger civil antitrust enfrcement. State nn-merger enfrcement shuld cntinue t fcus primarily n matters invlving lcalized cnduct r cmpetitive effects. - 8 -

C. Civil and Criminal Remedies FINDING: There is insufficient evidence that existing remedies systematically verdeter r underdeter anticmpetitive cnduct. N change is recmmended t the statute prviding fr treble damages in antitrust cases. Treble damages shuld remain available in all antitrust cases. N change is recmmended t the statute that prvides fr prejudgment interest in antitrust cases. N change is recmmended t the statute prviding fr attrneys fees fr successful antitrust plaintiffs. There is n need t give the antitrust agencies expanded authrity t seek civil fines. There is n need t clarify, expand, r limit the agencies authrity t seek mnetary equitable relief. While n change t existing law is recmmended, the U.S. Department f Justice shuld cntinue t limit its criminal antitrust enfrcement activity t naked price-fixing, bid-rigging, and market r custmer allcatin agreements amng cmpetitrs, which inevitably harm cnsumers. N change t the Sentencing Guidelines is needed t distinguish between different types f antitrust crimes because the Guidelines already apply nly t bid-rigging, price-fixing, r market allcatin agreements amng cmpetitrs, and the Department f Justice limits criminal enfrcement t such hard-cre cartel activity as a matter f bth histric and current enfrcement plicy. FINDING: Sme rules regarding civil and criminal antitrust remedies can create unfairness fr individual defendants and shuld be mdified t enhance the verall fairness f the antitrust remedial system. Cngress shuld enact a statute applicable t all antitrust cases that wuld permit nn-settling defendants t btain reductin f a plaintiff s claim, befre trebling, by the amunt f the settlement r the allcated share f liability f the settling defendant(s), whichever is greater. The recmmended statute shuld als allw claims fr cntributin amng nn-settling antitrust vilatrs. Cngress shuld encurage the Sentencing Cmmissin t reevaluate and explain the ratinale fr the use f the 20 percent harm prxy t calculate base fines fr antitrust crimes. The Sentencing Cmmissin shuld amend the Sentencing Guidelines t make explicit that the 20 percent harm prxy used t calculate the pecuniary gain r lss resulting frm a vilatin may be rebutted by prf by a prepnderance f - 9 -

the evidence that the actual vercharge was higher r lwer, where the difference wuld materially change the base fine. FINDING: The existing antitrust remedial scheme can impse significant litigatin csts n defendants and the judicial system in certain types f cases. There is a substantial need t reduce the csts f these cases by streamlining litigatin where pssible. T facilitate direct and indirect purchaser litigatin that takes place in ne federal curt fr all purpses, including trial, and avids inefficiency and duplicative recveries, Cngress shuld enact a cmprehensive statute with the fllwing elements: Overrule Illinis Brick and allw indirect, as well as direct, purchasers, t sue t recver damages fr vilatins f federal antitrust law. Allw remval f indirect purchaser actins brught under state antitrust law t federal curt t the full extent permitted under Article III. Allw cnslidatin f all purchaser actins in a single federal frum fr bth pretrial and trial prceedings. Mdify Hanver She in the cntext f actins with claims by bth direct and indirect purchasers. [Nt yet vted n: In such cases, class certificatin shuld cntinue t be decided n the assumptin there was n pass n f damages frm a direct t an indirect purchaser,],and the defendant s liability shuld be limited t the damages (trebled) suffered by direct purchasers (withut regard t pass n). These damages then shuld be apprtined amng all purchaser plaintiffs bth direct and indirect in full satisfactin f their claims. Retain Hanver She s hlding that, when nly direct purchasers sue, defendants may nt seek t avid liability by claiming that the direct purchaser passed n t indirect purchasers the vercharges the direct purchaser paid in the first instance. D. Exceptins t the Antitrust Laws FINDING: The Rbinsn-Patman Act is likely t harm cmpetitin and cnsumer welfare by prhibiting r discuraging price discriminatin that lwers prices t cnsumers; prtecting cmpetitrs, rather than cmpetitin; and increasing csts f ding business and thereby likely raising prices t cnsumers in a variety f ways. RECOMMENDATION: Cngress shuld repeal the Rbinsn-Patman Act in its entirety. FINDING: Gvernmental actin creating exceptins t free markets can deny cnsumers the benefits f free-market cmpetitin and harm cnsumer welfare. Such gvernmental actin can take at least three different, but related frms: 1) statutry r curt-implied immunities and exemptins frm antitrust enfrcement; 2) statutes that replace - 10 -

cmpetitin with the regulatin f prices, csts, and entry; r 3) curts inapprpriate applicatin f the state actin dctrine t grant antitrust immunity when nt required by federalism cncerns. Althugh the claimed justificatins differ, t sme extent, fr each f these three exceptins t free-market cmpetitin, the harm t cnsumer welfare that they can cause is similar. RECOMMENDATION: Cngress shuld nt displace free-market cmpetitin absent extensive, careful analysis and strng evidence that either 1) cmpetitin cannt achieve scietal gals that utweigh cnsumer welfare, r 2) a market failure requires the regulatin f prices, csts, and entry in place f cmpetitin. FINDING: Immunities frm antitrust enfrcement ften have csts disprprtinate t their benefits. They can benefit a small number f cmpetitrs, wh seek t avid the rigrs f cmpetitin, at the cst f harming a large number f cnsumers. In general, statutry immunities frm the antitrust laws shuld be disfavred. They shuld be granted rarely, and nly where, and fr s lng as, a clear case has been made that the cnduct in questin wuld subject the actrs t antitrust liability and is necessary t satisfy a specific scietal gal that trumps the benefit f a free market t cnsumers and the U.S. ecnmy in general. The fllwing steps are imprtant t assist Cngress in its cnsideratin f thse factrs: Create a full public recrd n any existing r prpsed immunity under cnsideratin by Cngress. Cnsult with the Antitrust Divisin f the Department f Justice and the Federal Trade Cmmissin abut whether the cnduct at issue culd subject the actrs t antitrust liability and the likely cmpetitive effects f the existing r prpsed immunity. Require prpnents f an immunity t submit evidence shwing that cnsumer welfare, achieved thrugh cmpetitin, has less value than the gal prmted by the immunity, and the immunity is the least restrictive means t achieve that gal. If Cngress determines that a particular scietal gal may trump the benefit f a free market t cnsumers and the U.S. ecnmy in general, Cngress shuld take the fllwing steps: Cnsider a limited frm f immunity fr example, limiting the type f cnduct t which the immunity applies and limiting the extent f the immunity (e.g., a limit n damages t actual, rather than treble, damages). Adpt a sunset prvisin pursuant t which the immunity r exemptin wuld terminate at the end f sme perid f time, unless specifically renewed. - 11 -

Adpt a requirement that the Federal Trade Cmmissin, in cnsultatin with the Antitrust Divisin f the Department f Justice, reprt t Cngress, befre any vte n renewal, n whether the cnduct at issue culd subject the actrs t antitrust liability and the likely cmpetitive effects f the immunity prpsed fr renewal. FINDING: Statutry regulatry regimes shuld clearly state whether and t what extent Cngress intended t displace the antitrust laws, if at all. Curts shuld interpret savings clauses t give deference t the antitrust laws, and ensure that Cngressinal intent is advanced in such cases by giving the antitrust laws full effect. Fr example, Trink is best understd nly as a limit n refusal-t-deal claims under Sectin 2 f the Sherman Act; it des nt displace the rle f the antitrust laws in regulated industries. Curts shuld cntinue t apply current legal standards in determining when an immunity frm the antitrust laws shuld be implied, creating implied immunities nly when there is a plain repugnancy between the antitrust and regulatry prvisins, as stated in cases such as Natinal Geremedical. Curts shuld cnstrue all immunities and exemptins frm the antitrust laws narrwly. FINDING: In recent decades, public plicy in the United States has mved tward partial r full deregulatin in industries frmerly subject t ecnmic regulatin that is, regulatin f prices, csts, and entry. The trend tward deregulatin has benefited cnsumers and the ecnmy and shuld be furthered where practicable. Free-market cmpetitin generally prmtes efficiency and thus benefits cnsumer welfare, while ecnmic regulatin ften results in inefficiency that increases prices t cnsumers. In the vast majrity f cases, cmpetitin is mre likely t benefit cnsumers than ecnmic regulatin. In general, public plicy shuld favr free-market cmpetitin ver industryspecific regulatin f prices, csts, and entry. Such ecnmic regulatin shuld be reserved fr the relatively rare cases f market failure, such as the existence f natural mnply characteristics in certain segments f an industry, r where ecnmic regulatin can address an imprtant scietal interest that cmpetitin cannt address. In general, Cngress shuld be skeptical f claims that ecnmic regulatin can achieve an imprtant scietal interest that cmpetitin cannt achieve. When the gvernment decides t adpt ecnmic regulatin, antitrust law shuld cntinue t apply t the maximum extent pssible, cnsistent with that regulatry scheme. In particular, antitrust shuld apply wherever regulatin relies n the presence f cmpetitin r the peratin f market frces t achieve cmpetitive gals. - 12 -

Even in industries subject t ecnmic regulatin, the antitrust agencies generally shuld have full merger enfrcement authrity under the Claytn Act. Fr mergers in regulated industries, the relevant antitrust agency shuld perfrm the cmpetitin analysis. The relevant regulatry agency shuld nt re-d the cmpetitin analysis f the antitrust agency. Mergers in regulated industries shuld be subject t the requirements f the Hart-Sctt-Rdin Act, if they meet the tests fr its applicability, r t an equivalent premerger ntificatin and investigatin prcedure, such as set frth in the banking merger statutes, s that the relevant antitrust agency can cnduct a timely and well-infrmed review f the prpsed merger. Cngress shuld peridically review all instances in which a regulatry agency reviews prpsed mergers r acquisitins under the agency s public interest standard t determine whether in fact such regulatry review is necessary. In its reevaluatin, Cngress shuld cnsider whether particular, identified interests exist that an antitrust agency s review f the prpsed transactin s likely cmpetitive effects under Sectin 7 f the Claytn Act wuld nt adequately prtect. Such particular, identified interests wuld be interests ther than thse cnsumers interests such as lwer prices, higher quality, and desired prduct chices served by maintaining cmpetitin. In additin, Cngress shuld evaluate whether the filed-rate dctrine shuld cntinue t apply in regulated industries and cnsider whether t verrule it legislatively where the regulatry agency n lnger specifically reviews prpsed rates. FINDING: The federal lwer curts in sme cases have misinterpreted r misapplied the state actin dctrine t verride the federal plicy in favr f free-market cmpetitin in ways incnsistent with prir Supreme Curt rulings. In additin, the curts have nt prtected ut-f-state cnsumers frm anticmpetitive cnduct that has been immunized by a single state thrugh the state actin dctrine. Nr have the curts established mre stringent standards fr applicatin f the state actin dctrine when, as is increasingly the case, a gvernmental entity acts as a market participant. Cngress shuld nt cdify the state actin dctrine. Rather, the curts shuld apply the state actin dctrine mre precisely and with greater attentin t bth Supreme Curt precedents and pssible cnsumer harm frm immunized cnduct. As prpsed in the FTC Reprt n the State Actin Dctrine, the curts shuld reaffirm a clear articulatin standard that fcuses n tw questins: 1) whether the cnduct at issue has been authrized by the state, and 2) whether the state has deliberately adpted a plicy t displace cmpetitin in the manner at issue. The curts shuld adpt a flexible apprach t the active supervisin prng, with different requirements based n different factual circumstances. The curts shuld nt apply the state actin dctrine where the effects f ptentially immunized cnduct are nt predminantly intrastate. - 13 -

When gvernmental entities act as market participants, the curts shuld apply the same test fr applicatin f state actin immunity t them as the curts apply t private parties seeking immunity under the state actin dctrine. - 14 -

III. Cmmissin Prcess and Prcedure A. Legislative histry f Cmmissin B. Organizatin f Cmmissin 1. Appintment f Cmmissiners; wrking grups/study grups; staff C. Transparency and Invlvement f Public 1. Issue Selectin (utreach t interested members f public and antitrust bar; slicitatin f public cmments) 2. Infrmatin gathering (Slicitatin f public cmments, including utreach; Public hearings, including summary f witnesses) 3. Transparency (Applicatin f FACA; public meetings; website; deliberatins and reprt drafting) D. Acknwledgements - 15 -