Antitrust Enforcement Panel: a Conversation With Two Enforcers

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ANTITRUST ENFORCEMENT PANEL: A CONVERSATION WITH TWO ENFORCERS

By Ashley M. Bauer1

The Golden State Institute was honored to host a panel discussion with current antitrust enforcers, including Bruce Hoffman, Director of the Bureau of Competition at the United States Federal Trade Commission, and Doha Mekki, Counsel to the Assistant Attorney General in the Antitrust Division of the United States Department of Justice. The discussion was moderated by Karen E. Silverman, Partner in the San Francisco office of Latham & Watkins LLP.

MS. SILVERMAN: This is quite an honor, truly, and thank you for your interest in the Institute. I think you’re going to find the conversation this afternoon—and we are going to make it a conversation—pretty interesting. We are going to try to get a dialogue going, and we will reserve some time for questions. So, keep track of those because we are going to move through a couple of different categories with our panelists; although, if you think there is something really pressing, certainly we are happy to be interrupted.

We have a gender-balanced panel. So, when I say this is Bruce, you know exactly who I’m talking about. Bruce Hoffman is the Director of the Bureau of Competition at the Federal Trade Commission. Before that, he was in private practice, where we had the pleasure of working together on a couple of matters. Specifically, Bruce was the head of Shearman & Sterling’s Antitrust & Competition Group, which is a global practice. Before that, he was chair of Hunton & Williams’ antitrust practice. He’s been doing this for what I’m going to say is a very long time, because I’ve been doing it a long time. He will tell you and show you that he is a graduate of University of Florida.

MR. HOFFMAN: And, my homemade orange and blue Apple watch band.

MS. SILVERMAN: And, then Doha Mekki has joined us from the Department of Justice, where she is Advisor and General Counsel to the Assistant Attorney General. She is sitting in for Barry Nigro, who is sorry he could not be here today. But we are delighted to have Doha in his stead. I know that she has some interesting things to say. She will be channeling Barry a little bit, but is also very much her own woman.

One of the things that has occurred to me being out here in San Francisco is we don’t get as much time as some of our Washington D.C. colleagues do just getting to know you a little bit. Things like: what is interesting to you, how you came not just to your practice in general but also what inspired you from an antitrust perspective, and what you enjoy most about your practice. I wanted to let you know that’s part of what we’re hoping to get out of this panel today—a sense of who you are and how you came to this practice. We’re also going to cover some questions about mergers, as well as nonmerger civil work. We’re going to talk a little bit about technology, and the exogenous factors that can affect investigations. And then we’ll wrap it up with some Q&A at the end.

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So, on with mergers. I think we’re going to start with nonhorizontal mergers. There has been a lot in the news these days with the CVS-Aetna deal, the Time Warner-AT&T deal, and the Amazon-Whole Foods deal. These are deals that have lots of strategic implications, but do not raise the traditional horizontal merger questions, or if they do, they’re driven more by the nonhorizontal aspects. There is a renewed focus on these types of deals from what we can tell; not just from the docket that you all maintain, but also from your speeches on these issues during the hearings that have been going on in Washington. These mergers also raise very specific questions: how do you protect against overenforcement? How do some of the adjacencies in the product markets implicate potential competition issues? What kinds of evidence are most probative in a case where you’re not looking at classically horizontal overlap? How do you protect against false positives or the trap of having to prove negatives? And do you put that trap on the parties or do you put that trap on the government?

So, with that, I am going to ask Bruce to start us off on with his thoughts and any summaries about vertical or nonhorizontal mergers.

MR. HOFFMAN: Thanks, Karen. So, first off, let me thank the California Lawyers Association and everybody involved in giving us the opportunity to come out here and speak. This is a fantastic antitrust bar. I’ve had the pleasure of working with a lot of people in this room. I’ve had cases out here, and I’ve also had the great pleasure of working closely with the California Attorney General’s Office, particularly through our western regional office here in San Francisco. That office is made up of a phenomenally talented and hardworking group of lawyers handling antitrust and consumer protection issues, intimately involved in some of our most cutting-edge cases and investigations. So, it’s really a great group of people; it’s a real pleasure to be out here. Thank you.

And, let me also give my standard disclaimer. The views I express and the things I say do not necessarily represent the views of the Federal Trade Commission, or any Federal Trade Commissioner, or even my own views, depending on the context—we’ll see.

In terms of nonhorizontal or vertical mergers, I don’t know how many folks out here are merger practitioners, but I find merger law absolutely fascinating. A friend of mine— he’s a family lawyer—once told me after listening to me talk about a merger on the phone: "I’ve never known what you do; I still have no idea what you do, but it is far more boring than I imagined possible." And, nonhorizontal mergers, can you get better than that?

But, in any event, let me say something. Earlier there was some conversation about economists taking over the antitrust world. That’s actually largely why I got into antitrust; I was interested in economics, but I couldn’t do the math. I moderated a panel on vertical and nonhorizontal mergers at the FTC hearings that are going on right now, and, on that panel, we were asked a question which ran something like this: given that the implied benefit from the elimination of double marginalization is isomorphic to the harm implied by concentration in horizontal mergers, why would we make any assumptions a priori about the direction of the arrow? And, I thought, how come you asked the lawyers’ panel this question and not the economists’ panel?

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So, when we look at vertical mergers, one of the things that we think about—and this came out of the AT&T case,2 which, of course is a DOJ case—is that implied in any nonhorizontal merger is a built-in efficiency. And, what I mean by that is, when you’ve got a firm that makes something and then they buy a firm that distributes it, that is going to be inherently cost-reducing because you eliminate the incentive of each firm at that level to charge its own markup or take out its own profit. Rather, they could just do the internal transfers at marginal costs. And, so you have this built-in effect. Carl Shapiro, who is the Department of Justice’s expert in the AT&T case, recognized this and mentioned it at the hearing. This effect creates some inherent differences in how we look at nonhorizontal versus horizontal mergers.

But, I don’t think this is really the time and place to go into too much detail on that, although I will answer questions. For more information, I would look at the transcripts coming out of the FTC hearings last week, which I think are worth reading. I also gave a long speech on this just about a year ago in Washington, which is up on the FTC website.3And, John Sallet, who was the Deputy Assistant Attorney General in the Antitrust Division under the Obama administration, gave a long speech on vertical mergers as well. A lot of these issues are fleshed out in detail there.

One of the critical things to remember when we look at these mergers is that there is a fundamentally different starting point for horizontal mergers and vertical mergers. Horizontal mergers have an implied anticompetitive effect; it doesn’t always happen, it can be outweighed by efficiencies, but it’s an inherent condition of a horizontal merger. This is not the case with a vertical merger.

MS. MEKKI: I think that’s exactly right. Let me also start off by saying thank you to the California Lawyers Association for having me. Hopefully the biggest reveal I will make today is that I am not, in fact, Barry Nigro, but I am nevertheless happy to be here, and I think this will be a very good conversation.

Let me also add a disclaimer: I am here in my personal capacity, and the views I will express today are not necessarily those of the U.S. Department of Justice or its Antitrust Division.

Back to the point of nonhorizontal mergers. I agree with everything that Bruce has said. I would also note that one of the reasons why larger nonhorizontal mergers have captured attention from lots of observers, including antitrust enforcers, the private bar, academics, legislators, and others, is because sometimes large deals, while inherently procompetitive, can fundamentally alter the way consumers experience the delivery of goods and services. And, sometimes it takes work to sort out what should go in the procompetitive effect bucket, and what might actually be an anticompetitive effect. There are layers of challenges that we experience from sorting that out. The first is the categorization, and the second is how you balance those potential effects. Then remedies are of course a whole different can of worms.

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But, notwithstanding those powers and the fascination that large mergers—in particular large nonhorizontal mergers—can draw, I would say that the day-to-day nuts and bolts investigation of those kinds of mergers is really not that much more complicated than anything else the agency does. They are going to rely on myriad interviews of industry participants, likely the issuance of compulsory process, document review, testimony, and then we get to the real work of sorting out which way the evidence seems to point.

MS. SILVERMAN: Is predicting anticompetitive effects quantitatively different in a nonhorizontal context? I ask that because certainly the economics are different, as you suggest. So, it follows that the quality of evidence is going to be a little bit different given that you’re making different kinds of predictions.

As both agencies have been grappling with this lately, are you discovering that there are new ways to think about evidence which would be helpful for the parties to understand? For example, is there certain evidence in this context that matters more, or may be underweighted? Is there evidence that you wish you could see more of or that you’re tired of seeing too much of? Are there patterns evolving in your agencies’ minds about how parties should attack this? I know that the folks involved in the CVS-Aetna deal spent a lot of time in various categories of evidence. Was that time well spent? Were there different ways to be thinking about it? What’s useful to you? Is there anything emerging now?

MS. MEKKI: I would just say that the cornerstones of any investigation are going to be documents, data which drives the economic modeling, and testimony. And, all three of those sources are going to tell us something about how a market is structured, including the availability of suppliers up and downstream. But, of course, all of the action is really with the economics. We are really fortunate at the Antitrust Division to have a bullpen of PhD economists who are not only our in-house economists, but also academics. They do a great job of thinking about what kinds of tools can be brought to bear so that we make the right decision about any kind of merger—especially the kinds of blockbuster nonhorizontal mergers that we have talked about today.

We’ve talked about behavioral economics. We’ve talked about the kind of modeling that we can use to predict foreclosure effects, and testing those merger simulations and modeling for the robustness of results when we tinker with different types of data. So, I would just underscore that data, supported by documents and testimony, is really important. In any kind of merger enforcement decision, I think there are the different categories of data that ultimately tell a story which points in one direction.

MR. HOFFMAN: I completely agree with that. The points that Doha made about the three types of evidence are important to understand because I think of it as a three-legged stool. Although that analogy may be slightly inaccurate, which I will get to in a minute. But, ultimately, we look for all three of those things: documents, testimony, economic modeling. And then the question I usually ask when thinking about bringing an enforcement action is: do we have at least two? If two are really strong, or pretty strong, then I’m less concerned if the third isn’t so strong. If we only have one or none, then that makes it a lot more difficult to think about an enforcement action.

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In the specific context of nonhorizontal mergers, though, what I would say is that I think the economic modeling is getting better, but it’s nowhere near as robust or well-articulated as it is in the case of horizontal mergers. For example, primarily for modeling the effects of vertical mergers, we look at different kinds of foreclosure models using Nash bargaining-type solutions to try to determine what’s going to happen post transaction. We also have looked at or used a tool called vGUPPIs, which is essentially a mechanism that attempts to determine the pricing pressures created by the transaction. These tools, though, have a whole lot larger range of uncertainty than similar tools in the horizontal merger context do. And, in fact, if you go to fully articulated models using our current best understanding of the way vertical markets work, you often find that very small changes in your assumptions can actually change the sign of the result that you’re getting. So, in other words, you go from showing a merger as harmful to showing a merger as beneficial just by changing one small assumption. Generally our horizontal merger models are not nearly that susceptible to huge changes based on small changes in assumptions.

So, I actually care a little less about the predictions of economic models in vertical merger cases, and I care a little bit more about what the documents and the testimony say. Because if the documents and testimony point strongly towards there being a problem, but the model is uncertain, that’s not going to necessarily deter me from thinking we should have a case.

MS. SILVERMAN: Let’s switch gears. I’ve got a million more questions. I could talk about this a long time. But, for everybody else, let’s switch to another subject that’s near and dear to a lot of our hearts up here, which is antitrust in technology. Specifically, we’re talking about algorithms, platforms, and, in a world that’s going to be saturated with new what I call "frontier technologies," how we should be thinking about the intersection of those technologies and what is really driving and pushing the outcomes in traditional antitrust rules.

What I did not realize when we started to develop this topic was that we have an expert on the panel. I’m pointing to you, Bruce. At the age of 15 you developed your own database?

MR. HOFFMAN: Oh, yeah. That was one of my many wrong career choices.

MS. SILVERMAN: Well, we’re trying to get you to tell us the story.

MR. HOFFMAN: So what I told Karen earlier was, we were talking about career mistakes we made and things we did before going to law school. And, so mine was—I actually have many, it’s a long litany of mistakes and accidents which basically describes my entire career, and a few random bits of luck. But, when I was about 15, I was really interested in computers. I wrote computer programs and a database program and sold it to a couple of companies. But I thought it was boring to do that, and also the pay was more uncertain. Whereas there was a Hardee’s near my house which was offering not just minimum wage, but also you could get a burger every shift, which happened to include the mushroom and Swiss burger. So I ditched the computer programming and went to work at Hardee’s. In any event, that’s why I’m here today, I suppose.

MS. SILVERMAN: So, we’ll look to you for prognosticating on where this is taking us.

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MR. HOFFMAN: Yeah, I’ve got a great track record.

MS. SILVERMAN: Okay. But when we were discussing this earlier, it was about distinguishing between the technology and how you think about consumer welfare in a world where it’s not always about dollars and cents: it’s about time and attention, it’s about privacy, and it’s about interconnectivity. And then who gets to connect with whom and on what terms, and how we think about biases in the system. Arguably, the range of consumer welfare interests is expanding, and, with that, my questions are: are the antitrust rules also expanding, or do we need to be thinking about new law enforcement approaches to these questions?

These are the questions that a lot of people are debating. We’re certainly not going to be the first ones to resolve them today, but I thought it would be important to hear from both of you on what the current thinking is. I realize that it differs based on whether you’re talking about some of these platform technologies, or whether you’re talking about nascent or frontier technologies, whether its ARVR or those powered by AI.

MR. HOFFMAN: Well, I guess I’ll start due to my credentials that I established a moment ago. So, a couple of things.

First of all, we’ve had antitrust in this country now for a good bit over 100 years. I think roughly every 10 years some new technology will arise and there will be great hand-wringing, and the commentary from various sources will always say: oh, well, is antitrust out of date? Do we need to change our fundamental approaches to antitrust to accommodate the new technology, whether it’s cars or supermarkets or the Internet or now big data algorithms?

The answer I would give to that is—I don’t see any compelling evidence that we need fundamental changes in our approach. In fact, one of the reasons I got interested in antitrust is because antitrust law is basically results oriented in the sense that it’s a set of commands that say: we need to try to achieve the best economic outcome, we need to try to achieve the best results for consumers, and we’re worried about conduct and mergers that harm consumers. Beyond that, and outside of Hart-Scott-Rodino (HSR) which is very specific and nit-picky, we have a lot of freedom to adapt antitrust enforcement to the current best learning, whether it’s legal or economic. In other words, antitrust has proven very able to evolve with the times.

Does that mean I am saying today that exactly the way we look at every issue should remain unchanged? Absolutely not. What I’m saying is the fundamental structures of antitrust have been very adaptable and very capable of evolving with changes in technology. And, I don’t yet see any reason to think that’s not the case.

Now, having said that, the questions presented by the development of the technologies we’re talking about are very interesting. This is one of the subjects of the hearings at the Federal Trade Commission that we’re doing in an effort to get better information so we can determine whether changes to our approach should be considered. Would the changes just be details, or are larger changes to our approach necessary? All of those questions are on the table. But, ultimately, I do think there would have to be a lot of evidence that we would have to gather, or be presented with, to say: well, we need to fundamentally change the concepts of antitrust.

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Let me just give you one small example of that in the algorithm space. So, a lot of people have talked about the algorithm space, or they use it as shorthand for computers crunching equations really fast so they can run through lots of data and observe correlations in huge data sets on a scale that would be very challenging for humans to do. People looking at this space say that the algorithms must somehow inherently either allow firms to collude more effectively by themselves or, potentially worse, reach the same outcome that you would get from firms price fixing but without any humans ever intervening or colluding. Well, that’s an interesting theory. If it were the case that it was so, then we might have to think really hard about what to do about that. But there is no evidence that suggests this is true.

For starters, there’s a theoretical reason why it may be really difficult for algorithms to reach a collusive outcome. I won’t go deep into bargaining theory and game theory, but the basic issue is that when you have algorithms looking at pricing, for example, what they’re effectively looking at is the equivalent of an infinitely repeated game with multiple players. There’s a theorem in game theory called the Folk Theorem, which says that under those conditions, I’m going to shorthand it, but, basically, anything is possible. So there is a theoretical reason why you might say it’s not obvious that algorithms, that machines themselves, would ever be able to get to the collusive outcome because they might never be able to figure out why they’re observing any particular state of play at a particular moment. In fact, there have been experiments on this where people have tried to get machines to get to a collusive outcome without human intervention, and they’ve been unable to do it because the machines, frankly, will get tons of prices and tons of data and they don’t know what to do.

Now, you can program machines to fix prices. And, the DOJ brought a case involving poster sales on this issue, which Doha probably knows more about than I do and could talk about; I’m giving you an opportunity for that.

MS. MEKKI: Happy to do it.

MR. HOFFMAN: But, there’s nothing about that which says algorithms are so fundamentally different that they require us to totally rethink antitrust concepts. Could it be the case that they become so, or that further information shows us that’s true? Certainly. We don’t know the future; that’s one of the reasons antitrust law changes all the time.

MS. MEKKI: As usual, Bruce is spot on. You’re not going to get much disagreement from me. But one thing I will note is Assistant Attorney General Makan Delrahim’s statements on this precise issue. He is a fan of the consumer welfare standard; he believes it is flexible enough to take on embryonic, emerging, and rapidly evolving markets. I think the reasoning behind that is, despite robust discussion—good academic discussion—which I think is healthy and important for the antitrust bar as a whole to be engaging in, there’s always a concern that conflating the goals of antitrust with notions of political and social justice risks subjecting those goals to the possible lobbying and rent-seeking behaviors that antitrust enforcers are not very well equipped to handle. And, in fact, that reduces transparency and leads to poor outcomes for businesses and, frankly, enforcers alike.

Regarding algorithms, I noted recently that the UK’s Competition and Markets Authority (CMA) released a really interesting study about the capabilities of algorithms. I think that we have taken the view that algorithms can have procompetitive benefits, but they can also be used by cartelists to monitor compliance with a collusive scheme, or to detect accidental overstepping from a scheme.

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The wall décor case4 that Bruce mentioned is a really interesting example of why the tools that we currently have in place were, frankly, enough to deter anticompetitive conduct notwithstanding the use of algorithms. In that case, two individuals agreed to a collusive scheme, right? So there is the Monsanto/Spray-Rite standard—a conscious commitment to a common scheme. But the algorithm was really just the mechanism by which they executed the collusive agreement.

This leads us to the question of what is the actual capability of algorithms. And, I certainly won’t do the armchair tech-geek thing; I don’t even profess to be an armchair economist. But it’s worth thinking about the actual capabilities of algorithms. I don’t believe there has been a study yet that has determined algorithms are actually capable of colluding on their own without a human programming the algorithms to behave in a certain way. And I think that’s consistent with the CMA’s finding.

MS. SILVERMAN: So, again, moving on probably more swiftly than a lot of questions in my mind would suggest, we’re going to turn to the status and highlights of civil nonmerger enforcement. What, sitting here today, do you most want us to know about your work and your programs in that area? And, let’s start with Doha.

MS. MEKKI: In civil nonmerger world, the Antitrust Division has been very active. Earlier this year we filed a consent decree in United States v. Knorr-Bremse AG and Wabtec.5That one is near and dear to my heart because it’s a case I led before coming to the Front Office. And that was also the first no-poach filing that the Antitrust Division had issued since the October 2016 HR guidance, where we announced our intent to criminally prosecute naked no-poach and wage-fixing agreements. There’s probably not enough time to go into all of the details of that, but the reason it was resolved civilly, notwithstanding the fact that the Antitrust Division alleged that the agreements were per se unlawful, was because the companies had withdrawn from the agreement before the October 2016 bright line that was announced.

Other interesting civil nonmerger matters, we have a pending litigation in the Western District of North Carolina, United States and the State of North Carolina v. Carolinas Healthcare System.6 That is a case about steering between the hospital and major commercial health insurers. Before that there was also a settlement that we entered into with certain Michigan hospitals who had allocated markets for advertising in Michigan.7 And, then shortly before that, in March of 2017, we entered into a settlement with AT&T, DirecTV, and certain other broadcasters over information sharing schemes affecting the broadcast of Dodger’s baseball games.8

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MS. SILVERMAN: Get no love in this room.

MS. HOFFMAN: Come on, you’re doing good for the viewers.

MS. SILVERMAN: No one here watches the Dodgers.

MR. HOFFMAN: There’s no one here from Los Angeles?

So, civil nonmerger is a big slice of the FTC’s enforcement agenda, in part because the DOJ gets the criminal cartels, so there is a substantial piece of antitrust enforcement that we don’t deal with and that the Antitrust Division does. We may therefore put slightly more resources into the civil nonmerger context, just simply by the choices available to us.

We have a very busy trial docket, which includes a case in trial right now in our administrative court. Just for those of you who don’t know, the Federal Trade Commission can bring cases in federal court for certain kinds of relief and under certain circumstances. But, our default litigation mechanism is to bring cases in administrative court, before an administrative law judge. After which the cases can go for final decision to the Commission itself, where the five Commissioners decide. The case can then be appealed to the Federal Circuit Court of Appeals, going into the federal court system at that juncture. Overall, about half of our conduct cases are brought in front of the administrative court.

We have one of those cases in trial right now involving what we allege to be an agreement among the three largest distributors of dental products in the country to refuse to offer discounts or otherwise deal with buying groups of independent dentists.9 That case was investigated and is being handled primarily by our San Francisco office. So, we have a team working on it from across the agency, but the primary trial team and lead trial lawyer, Lin Kahn, are in our office out here. However, that team is mostly spending its time in D.C. right now. I came out here and went to the office today, but most of the offices are empty because they’re all in D.C. trying this case.

We have the Qualcomm case,10 which involves a set of very complex facts having to do with standard setting; brand commitments, which is fair, reasonable, and nondiscriminatory royalty commitments; and other things. It’s a highly complex case. That’s set to go to trial before Judge Koh out here in January.

We have a number of other cases that are about to go to trial or recently went through trial. We had the AbbVie case,11 which was a pay-for-delay case that went through a bench trial last spring and resulted in a judgment this summer of about $500 million in disgorgement to the Federal Trade Commission, and then ultimately from there to consumers. We have the 1-800 Contacts case pending on appeal in front of the Commission.12 We have a case involving the Louisiana Realtors Board, which is actually on interlocutory appeal in front of the Fifth Circuit having to do with the application of the state action doctrine.13

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So, we have a large number of civil nonmerger cases going on right now, and we’re always looking for more. If anyone out there has great ideas of cases we should bring, call anybody at the Commission, send us an email—it’s an area that we really would like to bring more cases. I should say the last time I was at the Commission, which was from 2001 to 2004, we brought more conduct cases during that period than either agency has brought at any other time, certainly since the 1970s. That period set a high watermark for the number of conduct cases that were brought. And, I know that Joe Simons14 is interested in repeating that or exceeding it. So if you have ideas, we’re all ears.

MS. SILVERMAN: I’m going to accelerate one of our topics here. If either of your agencies had to pick what you would like to be working on, independently of what parties are bringing you, what you would like to make progress on within your agencies?

MR. HOFFMAN: Well, I guess I’ll start. We talked about this before, but I have a particular interest in finding conduct cases where the victims are in marginalized communities. And there’s two reasons for that.

One is, though I don’t know as a matter of fact that there’s a lot of antitrust violations directed at the non-English speaking, lower income, or marginalized communities, I have no reason to think there is not. We do know that communities like that, because at the FTC we also do consumer protection, are disproportionately targeted for fraud and consumer protection violations. So, at least as a starting point, there is no reason to think that they’re not also being subjected to cartel behavior, or the consequences of non-compete agreements and exclusive dealing that go too far. Moreover, the harm suffered would be a lot more impactful to people living in those kinds of circumstances than the harms that large companies suffer when they’re subjected to antitrust violations. Companies lose some money, but they typically don’t make decisions about whether they’re going to have food on the table based on that. So, I think the bang for the buck might be high.

The second thing is that these are very hard cases for us to find. We get a lot of complaints about anticompetitive conduct from sophisticated companies. And, the reason for that is sophisticated companies hire really good lawyers, like a lot of the lawyers in this room, that know who to call and what to say. So they come to us and they make very effective and persuasive presentations about antitrust problems, then we go and investigate and sometimes we bring cases. The kinds of communities that I’m talking about don’t have that kind of access. These are people who don’t necessarily know who to call or what to say. If I were making resource allocation decisions where I wasn’t worrying about handling the docket that’s already in front of us, I would really like to put more energy into this.

And, the other thing that I would like to do a little bit more of is working on our prospective analysis of mergers to do a better job of testing and refining the tools that we use to figure out if mergers are harmful. But, that would really be bad, so I’ll stop there.

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MS. SILVERMAN: But, before we leave that, would these prospective merger analyses be fairly academic or would these be attached to particular industries?

MR. HOFFMAN: So briefly, one of my long-standing complaints about merger review and merger analysis is that we don’t do real science; right? By that I mean—real science is hypothesis testing. I construct a hypothesis, if X then Y, and then I test it. Ideally, I test it with a controlled study where I have control groups. That’s really hard to do in the merger context.

Leaving that aside, I would want to make a prediction beforehand of what will happen and then see if it comes true. And, if it comes true, then I have a reason to think that my prediction was valid, and if it doesn’t come true, then I might want to see why. We don’t do that; it’s very difficult to do that in the merger context. What we tend to do is we look at mergers after the fact and we try to figure out what happened and why. Did we get it right? Did we get it wrong? The trouble with that is, storytelling isn’t really science. And, it’s extremely difficult when you’re looking at something ex post to disentangle all the things that produce the result that you observe.

What I would actually really like to do, and I will say we’re actually doing some of this, is find mergers that are extremely close cases, or ideally mergers that we think are harmful but we were somehow prevented from stopping them. Like some exogenous thing takes place where legally we can’t proceed, or we litigate and lose. By the way—I don’t mean to suggest that we want to litigate and lose. We like to win. But we do lose sometimes, which parenthetically is a great virtue of our system in this country; the government does not always win.

When we lose, we then have a test case. If we litigate and lose, it’s because we thought the merger was bad. And so, what we’re trying to do, and I would like to do more of, is more rigorously and in more detail articulate, using the best available economic tools, what we think the effect will be from a merger. Where will the prices go up? Where will quality go down? Where will consumers suffer, and why? Then take that prediction and test it against what actually happens to determine how right we were or how wrong we were, and if so, why. I think we really need to do more of that because it is a continuing problem in the antitrust enforcement world that we have these great economic tools, but we still have some underlying lack of confidence about how accurately they describe the real world.

MS. MEKKI: For me, I would spend a lot more time focusing on labor issues. It’s a little bit disingenuous; my policy portfolio in the front office is both civil and criminal labor antitrust issues, and so I get to spend a lot of time thinking about these issues already—it’s really to my bosses’ credit. Assistant Attorney General Delrahim, Principal Deputy Andrew Finch, and Criminal Deputy Richard Powers are really interested in these issues, and they have given me a lot of room to think about what direction the Antitrust Division should run on these issues. But, it is not a topic where there is a lot of consensus yet. The FTC did a great job of putting on labor monopoly hearings; one was with a legal panel, one was with an economist panel, and the difference of opinions were on full display.

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Nonetheless, I think labor is an interesting product because people are a kind of product. It’s not an antitrust issue that is necessarily intuitive to the business community. Most of the time that you think about antitrust problems, you’re thinking about tangible, downstream, widget products. Whereas, it’s not intuitive to think about buy-side harms and input labor markets that might be affected by harmful transactions or bad conduct. And, so, I love the fact that the labor economists and industrial organization experts are just now getting into a room to talk about what labor economists have been worried about, and whether there’s room in the antitrust context for going after bad conduct and transactions that harm labor.

The other piece that’s really interesting to me about labor is that people are the very object of antitrust law solicitude. And, it’s interesting to think of ways that antitrust law can work to the benefit of these people.

MS. SILVERMAN: Really interesting, and I’m sure some of the questions will come back to both of those issues. I would be remiss to miss the opportunity to ask about what we can be doing better. So, when practitioners come in to see you, whether these are practical or theoretical issues, I think we would all benefit by knowing what irritates you, what works, and what you need more from us on that would be productive to help move, not just matters, but thinking along.

MR. HOFFMAN: Yes.

MS. MEKKI: Yes, I have a number of things on my list.

MS. SILVERMAN: I thought so.

MS. MEKKI: So, in no particular order, I’ll offer three observations that are very much my own. I would like to see practitioners use customer advocacy more effectively. There are lots of times that I can remember when I was actually working up investigations where companies would come in, or lawyers would come in, and give you this big stack of declarations or affidavits from customers that would all say the same thing—this merger is fine. I have options in the market. It does not matter if these two companies merge.

I’d just go back to basic, solid antitrust principles. When you make representations about what customers think of a merger, think about what customers are best suited to talk about. Customers are not particularly good at telling us the likely competitive effects of a merger. That is a subject that is largely dominated by economic analysis. Customers are really good at explaining the mechanics of a bidding market. They’re very good at telling us how they respond to price increases. They’re very good at describing the availability of suppliers or their impressions about what company, if any, might be poised to enter in the next couple of years. And, so I think customer advocacy is very important, but it should be used effectively.

In the same vein, I would be careful about customer education campaigns.

MR. HOFFMAN: Euphemistically named.

MS. MEKKI: It is no secret that we spend a lot of time—particularly in the early days of an investigation—talking to market participants. It is my observation that companies have a lot more incentive to tell the agency the truth. And sometimes it is not favorable to a company, or to a lawyer’s credibility, when a company tells us facts that are materially different than what is contained in a declaration or a letter of support. So, that’s one thing.

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A second tip would be to recognize the power of the initial review period, especially the first meeting or the first presentation with an agency. That is a beautiful time, no impressions have been formed, or very few impressions should have been formed about the merger. Bring in businesspeople who are competent and well suited to talk about the things that are going to be interesting to the agencies.

There is nothing better than when lawyers come in to that first meeting and they say: here are the other competition authorities who are going to be looking at the transaction. Here is the waiver, or we are going to commit to getting you waivers in "X" amount of time. I can commit to overlap charts or top customers or something like that. It just enables us to do our work very quickly. And, there is nothing better than closing a merger that does not raise competition concerns very quickly.

The final thing is to follow up effectively. In the initial review period I think lawyers are very good at calling agency staff and saying: "What are you hearing? Do you have concerns?" That’s good, and sometimes it can help increase transparency for a company. It can also help narrow the scope of issues, even if you believe a second request or a Civil Investigative Demand (CID) is coming. Even after a second request or a CID has been issued, there are many meaningful opportunities to engage with staff.

I won’t say the matter, but there was one I led a couple of years ago when the second request had been negotiated, but no documents and data had come in. The lawyers got into a room; we actually went over to the law firm and just talked about what we expect to happen over the coming months. We got to ask questions like: "Have you seen these documents? What kind of story are they going to tell?" We talked about where we think we might need depositions. We let them know that if this happens, we think we’re going to need more of this kind of evidence. We discussed whether there were problems with the data. It was just a very good level-set conversation that I think was very beneficial to the merging parties, but also helpful for us because it allows agency staff to communicate not only with their section or shop management, but also with the front office.

MR. HOFFMAN: I think those are great points; I agree with every one of them. I would add two things.

First, I’m constantly surprised by how frequently people come in to us, and we ask them questions and they don’t answer them. They will say: well, it’s an interesting question, but I’d really rather talk about something totally different that you didn’t ask me about, so I’m going to do that now. Or we will ask them things in writing, and then we don’t get back a response to what was asked. Instead, we get some advocacy that’s totally unrelated to the question we asked. We ask questions for a reason. They are not generally just some random thought that happens to flit across the minds of the lawyers or the economists that are in the room. We ask questions because they go directly to the issues that we’re considering.

To take something from what Justice Cuellar said earlier—answer the question even if it’s bad. It does you much, much, much more benefit to say: this is a problem for us. Let me answer your question, and then I’m going to tell you why we’re going to solve this problem, or why the problem should not dictate the outcome.

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I actually learned that in high school debate, but I learned it subsequently from watching David Boies, among other things, in a case I had against him years ago. He got asked a question by the judge about a case that was really bad for him. And, he said: oh, Judge, that case is terrible for us, but let me tell you why I think you could still rule for us notwithstanding that case. And, that was a great answer. It was a great answer. You could see it had an immediate effect on the demeanor of the judge. And, so too with us. I may be fairly easy to fool, but the staff is not easy to fool. They are not going to miss issues. They are going to figure it out. If there is a problem in the merger, they are going to find it. Tell us about it. Answer our questions. That’s one.

Second, this is really just a process point, but it actually gets at something that Judge Alsup made clear in a case that I was on with a number of people here in this room. And, I am sure many of you have had this experience, but I think it’s a really serious issue. We would like to see more opportunity being given to junior lawyers, and frankly, more diverse lawyers on the teams that come in front of us to actually talk.

We have a lot of situations where troupes of lawyers will descend on us, briefcases in hand, handing us 90-page PowerPoints that we’ve never seen before the meeting. I think, well, that’s great, this will be a nice doorstop. I’m not otherwise ever going to look at it. In any event, that’s a whole other issue. But, the sole purpose of the more junior lawyers who come to these meetings often appears to be to carry the stacks of the 90-page PowerPoints that I’m never going to read, and then hand it to me so I can stare at it and then put it away. That’s a bad use of their time, and I think it’s actually bad for the development of the bar.

The reason I mentioned Judge Alsup is that he has a policy of requiring you to designate a junior lawyer, under certain parameters of what " junior" means, who actually gets to argue motions and do things in his court. I think that’s a really darn good thing.

I had the great advantage, when I started out practicing law, of starting out as a litigator in Miami at a small law firm—a 40-lawyer firm—which meant that I was handed a case and told: go litigate this. That was it—no instructions, no supervision, no nothing. I was in court a week after I passed the bar arguing a motion to dismiss that I dreamed up and wrote with absolutely no guidance. Although, I later concluded this was probably not the best training method, and I went to a bigger firm where they actually taught you how to do things.

But, I spent a lot of my early legal career in court all the time, and that is a rare thing these days. Particularly, at the kind of large firms that practice in front of us, the junior lawyers have very crimped opportunities for development. I think that’s a bad thing for the profession, it’s a bad thing for junior lawyers, and I think it also has a negative effect on diversity because it means that the more junior lawyer pool, which is more diverse, does not get the opportunity to do things on their feet, or sitting in a chair talking to us, that would really help them develop in their careers.

So, we are really encouraging people to consider that when they’re thinking about coming in and making presentations to us. It’s something that we would value. It’s not that we’re not going to listen to you if you don’t. We know you, you’re experienced lawyers, you’re here before us, you’re more senior—that’s fine, we’ll listen to you. But, we really would like it if people would make more of an effort to find ways to give more of a role to other folks on the team.

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MS. SILVERMAN: Okay. With that, we’re going to open up to the floor. We have a few other questions.

QUESTION BY JAMES KEYTE: James Keyte, from the Fordham Competition Law Institute. I have a question about customer testimony, and it reminded me—Ken Heyer wrote about this a while ago—that certainly the DOJ and the FTC wouldn’t commit to not using customer testimony in analyzing mergers. At the end of the day, the customer testimony very often reflects what really is going on. Economists can’t always measure and identify elasticity and other things.

So, I was just taken by your comment about customer affidavits and declarations submitted by parties, given that, at the same time, certainly the DOJ and the FTC are looking for customers who will complain. If you take the Sysco merger, the DOJ and FTC only had one or two customers complain. But, those complaints were very important for the government. So, if they’re important for the government, I would think they would have to also be important for the merging parties as well.

MS. MEKKI: It’s a fair question. I think some nuance is helpful. Certainly my comment was not intended to suggest that customers are never important or never useful, but I think it’s important to think about how customers are used.

There is a reason why economists, especially testifying economists, and their teams often are participating or listening in when there are interviews being done during the litigation phase. It’s because they’re taking that information and ultimately running their economic analyses, especially when they’re writing expert reports. But, I think it is a mistake to suggest that customers can do the predictive exercise of figuring out what a market, or the world, might look like after a merger.

Again, I would go back to the examples that I cited earlier. Customers are very good at telling us how they experience market mechanics; they’re essentially potential fact witnesses. They’re not going to be expert witnesses. They’re very good at bringing to mind examples of natural experiments. So, for example: here is what happened the last time Company A acquired one of its rivals. That’s really their utility.

MR. HOFFMAN: And, just to add to that briefly, James. One thing I want to say is, first of all, it’s not the case that we look for customers who complain. We want to find out what customers are saying. This is an important point because, having now spent time back and forth between government and private practice, one of the fundamental differences between those two things is that in government we’re not advocates up until the time when we go to court. What we’re trying to do is figure out what the right answer is.

And, by the way, I don’t mean to say anything derogatory about this. I think our system is an advocacy system for good reasons, and I think it’s very effective. It’s good that when you’re in private practice or when you’re litigating in the government, you become an advocate, push for a side, and then there’s a neutral decision maker. That is absolutely fine. But that’s not where we start in the investigative stage. We’re trying to find out what we should think about things. So I wanted to address that predicate.

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On the secondary point, I think what Doha said is right. I think the question is: what can customers competently testify to? A lot of times we find customers loaded up to say something that they might actually not know about, and that comes apart when you start asking them about it. For example, sometimes they are told to say: well, this merger won’t hurt us; I love it. When you ask: why is that? They don’t know. Or the other way. Sometimes, customers are sure that a merger is going to hurt them. We ask: why, and what experience do you have on which to base that assumption? They may not know.

So, we try to figure out not just what customers are saying, but why they are saying it and what experience do they have that would allow them to form a reasonable basis for making an assumption about how the transaction will affect them in the future. It’s more a matter of competence, accuracy, and real knowledge, as opposed to categories writ large.

MS. MEKKI: Actually, I just have one more follow-up. I remembered about two years ago at the ABA Spring Meeting there was a fantastic judges’ panel that featured John Bates from D.C., the Honorable Amit Mehta who presided over the Sysco-US Foods trial, and also Judge Winmill who handled the St. Luke’s Hospital merger. They made these same observations. I think Judge Bates, in particular, has talked about the value that he places on expert economic testimony when he is deciding cases. And, he has also drawn a distinction between what customers can competently say, and what an expert is really useful for in informing courts about a merger.

MS. SILVERMAN: Peter, do we have time for one more or is that it?

MR. HUSTON: One more, as long as we keep the answers short.

QUESTION BY UNIDENTIFIED SPEAKER: This question is for Mr. Hoffman. So, what happened with that motion to dismiss when you were a brand-new lawyer?

MR. HOFFMAN: Well, I won. That’s what I remember, so I would have forgotten if I had lost. But I actually, bizarrely enough, I found a decision of the Queen’s Bench from around 1700 that was relevant and I cited it. This was a state court motion to dismiss. I was sitting across the table from the judge, and, while I’m reading this Queen’s Bench decision, the lawyer from the other side said: are you kidding? That was his argument. And, the judge said: this is really cool.

MS. SILVERMAN: Thank you very much.

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Notes:

1. Ashley M. Bauer is a partner in the San Francisco office of Latham & Watkins LLP and a member of the firm’s Litigation & Trial Department.

2. United States v. AT&T Inc., Case No. 17-cv-02511-RJL (D.D.C.).

3. Available for download at: https://www.ftc.gov/system/files/documents/public_statements/1304213/hoffman_vertical_merger_speech_fmal.pdf.

4. United States v. Aston, Case No. 15-cr-00419-WHO (N.D. Cal.).

5. United States v. Knorr-Bremse AG, Case No. 18-cv-00747-CKK (D.D.C.).

6. United States v. Carolinas Healthcare Sys., Case No. 16-cv-00311-RJC-DCK (W.D.N.C.).

7. United States v. Hillsdale Cmty. Health Ctr., Case No. 15-cv-12311-JEL-DRG (E.D. Mich.).

8. United States v. DirecTV Group Holdings, LLC, Case No. 16-cv-08150-CAS (C.D. Cal.).

9. In re Benco Dental Supply Co., et al., FTC Docket No. 9379, FTC File No. 151-0190.

10. FTC v. Qualcomm Inc., Case No. 17-cv-00220-LHK-NMC (N.D. Cal.).

11. FTC v. AbbVie Inc., Case No. 14-cv-05151-HB (E.D. Pa.).

12. In re 1-800 Contacts, Inc., FTC Docket No. 9372, FTC File No. 141-0200.

13. Louisiana Real Estate Appraisers Bd. v. FTC, Case No. 18-60291 (5th Cir.).

14. Joseph J. Simons has served as Chairman of the FTC since May 1, 2018.