[Federal Register Volume 59, Number 169 (Thursday, September 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21591]
[[Page Unknown]]
[Federal Register: September 1, 1994]
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FEDERAL TRADE COMMISSION
Policy Statement With Request for Public Comment Regarding
Duration of Competition Orders and Request for Public Comment Regarding
Duration of Consumer Protection Orders
AGENCY: Federal Trade Commission.
ACTION: Notice of policy statement and request for public comment.
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SUMMARY: This notice describes the Federal Trade Commission's policies
regarding the duration of future and existing administrative and
federal district court cease and desist orders in competition matters.
Under the Policy Statement, which became effective July 22, 1994, the
Commission will presume that core injunctive provisions in future
competition orders should terminate automatically (``sunset'') after
twenty years. The Commission will also presume that all supplemental
provisions in future competition orders should sunset after no more
than ten years. In addition, the Statement articulates the Commission's
policy determination to apply, in the context of petitions to reopen
and modify existing administrative competition orders, a rebuttable
presumption that the public interest warrants terminating orders that
have been in force for more than twenty years.
The Commission adopted these policies because it concluded that
permitting competition order provisions to continue indefinitely would
not serve the public interest. Although these policies are already in
effect, the Commission is soliciting comment from interested persons.
The Commission is also soliciting comment on adopting policies
affecting the duration of administrative and court orders entered in
consumer protection matters.
DATES: Comments will be received until November 4, 1994.
ADDRESSES: Comments should be sent to the Secretary, Federal Trade
Commission, Sixth Street and Pennsylvania Avenue, NW., Washington, DC
20580. Comments will be entered on the public record of the Commission
and will be available for public inspection in Room 130 during the
hours of 9 a.m. until 5 p.m.
FOR FURTHER INFORMATION CONTACT: Donald S. Clark, Secretary, Federal
Trade Commission, (202) 326-2514; Daniel P. Ducore, Assistant Director
for Compliance, Bureau of Competition, (202) 326-2526; or Dean C.
Graybill, Associate Director for Enforcement, Bureau of Consumer
Protection, (202) 326-3284.
SUPPLEMENTARY INFORMATION: Existing Commission policy in competition
cases has been to seek injunctive relief in administrative and court
cases for different durations, depending on the type of order
provisions involved. Typically, core injunctive provisions have been
perpetual in duration. Supplemental provisions have usually been
limited in duration.
The Commission has concluded that competition orders ordinarily
fulfill their remedial purposes within twenty years and that the
findings on which they are based should not be presumed to continue for
a longer period of time. Accordingly, the Commission has issued the
following Policy Statement adopting a presumption that future FTC
competition orders should terminate (or ``sunset'') automatically
within a prescribed number of years after the order has become final.
In addition, the Statement provides that, in the context of petitions
to reopen and modify existing competition orders, the Commission will
apply a rebuttable presumption that the public interest warrants
setting aside competition orders that are more than 20 years old.
Petitions to sunset orders under the 20 year presumption should
comply with the procedures set forth in Sec. 2.51 of the Commission's
rules of practice, 16 CFR 2.51. The petition should contain an
affidavit, signed by an officer or director of the respondent, stating
that the respondent is in compliance with the order.
Rebuttal to the presumption will be narrowly circumscribed to
conserve Commission resources and to ensure fairness to all
petitioners. In general, the Commission does not contemplate an
extensive review of each petition relying on this presumption beyond
information presented in the petition, contained in the Commission's
files, and received in response to the request for public comment that
is part of the Commission's order reopening procedures. If, however,
public comments, the Commission's experience in enforcing the order, an
ongoing antitrust investigation of the petitioner or the industry in
which the petitioner competes at the Commission or the Department of
Justice, or other readily available information raises substantial
concerns about whether the public interest warrants retaining the
order, such further review will be conducted as is necessary to
determine whether the public interest is best served by setting aside
the order, modifying it, or retaining it as written. The Commission
anticipates that, absent extraordinary circumstances, the basis for
rebutting the presumption will be information that the petitioner under
the order has engaged in recidivist conduct. Thus, for example, the
Commission may deny a petition based on this presumption (1) if the
respondent has been found to have been in violation of the order or has
been found to have engaged in conduct that would violate the order
within the past twenty years; or (2) if, at the time of the petition,
the Commission is investigating whether the petitioner has violated the
order. If the Commission denies a respondent's petition to sunset an
order because it does not meet these standards, the respondent may
petition again after the Commission closes the investigation of a
possible order violation without initiating enforcement action against
the petitioner or after the respondent establishes a record of
compliance with the order.
The Policy Statement is an exercise of the Commission's discretion.
It does not change the standards for reopening and modifying Commission
orders that are not within the scope of this Policy Statement. See 15
U.S.C. 45(b); 16 CFR 2.51; Louisiana-Pacific Corp., Docket No. C-2956,
Letter to John C. Hart (June 5, 1986), at 4; Hospital Corporation of
America, Docket No. C-9161, Letter to Peter J. Nickles, Esq. (November
27, 1987), at 3; Damon Corp., Docket No. C-2916, Letter to Joel E.
Hoffman, Esq. (March 29, 1983), at 2 [1979-83 Transfer Binder] FTC
Complaints & Orders (CCH) 22,007 at 22,585.
The Commission's present policy regarding the duration and
termination of consumer protection orders is that core provisions in
consumer protection cases generally continue in effect indefinitely and
that supplemental provisions terminate after a specified period of
time. The Commission solicits comment on whether to limit the duration
of consumer protection orders, and, if so, whether to adopt
presumptions similar to those it has adopted for competition orders or
an alternative approach. In addressing this issue, commenters are
encouraged to address whether core provisions in consumer protection
orders ordinarily will have served their remedial purposes within a
specified time period, as the Commission has concluded for competition
orders, or whether factors unique to consumer protection orders may
militate against adopting a similar (or any) sunset policy.
The Commission invites comment on the issues discussed in this
notice, in the Policy Statement and in the separate statements of
Commissioner Azcuenaga and Commissioner Owen. Commenters should specify
whether their comments pertain to competition or consumer protection
orders.
Statement of Policy With Respect to Duration of Competition Orders and
Statement of Intention to Solicit Public Comment With Respect to
Duration of Consumer Protection Orders
July 22, 1994.
The Commission is issuing this statement to describe the policies
that it has determined to implement with respect to the duration of
competition orders (i.e., orders dealing with ``unfair methods of
competition''), and to announce its intention to solicit public comment
on the policies that it currently follows with respect to consumer
protection orders (i.e., orders dealing with ``unfair or deceptive acts
or practices'').
Competition Orders
The Commission considers that injunctive provisions in competition
orders perform two functions. First, such provisions in both
administrative and federal district court orders may proscribe future
violations of statutory prohibitions--and secure adherence to statutory
requirements--including the prohibition of unfair methods of
competition embodied in section 5 of the Federal Trade Commission Act,
15 U.S.C. 45, and the prohibitions and requirements embodied in
sections 2, 3, 7, 7A, and 8 of the Clayton Act, 15 U.S.C. 13, 14, 18,
18a, 19. Second, injunctive provisions in federal district court
competition orders may proscribe future violations of existing
Commission administrative orders. As a matter of law, the remedial
provisions of Commission orders must bear a reasonable relationship to
the unlawful practices found to exist, and must be sufficiently clear
and precise to be easily understood by the respondents or
defendants.1 Particular injunctive order provisions may prohibit
both the specific illegal practices alleged in the associated complaint
and ``like and related'' practices.2
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\1\See, e.g., FTC v. Colgate-Palmolive Co., 380 U.S. 374, 392-95
(1965); FTC v. National Lead Co., 352 U.S. 419, 428-30 (1957); FTC
v. Ruberoid Co., 343 U.S. 470, 473 (1952); FTC v. Cement Institute,
333 U.S. 683, 726 (1948); Jacob Siegel Co. v. FTC, 327 U.S. 608,
611-13 (1946).
\2\ See FTC v. Mandel Bros., Inc., 359 U.S. 385, 393 (1959);
Consumers Products of America, Inc. v. FTC, 400 F.2d 930 (3d Cir.
1968), cert. denied, 393 U.S. 1088 (1969); Niresk Industries v. FTC,
278 F.2d 337, 343 (7th Cir.), cert. denied, 364 U.S. 883 (1960). For
example, in FTC v. Colgate-Palmolive Co., 380 U.S. 374, 395 (1965),
the Supreme Court reviewed a Commission order that prohibited a
particular advertising practice not only for the product at issue in
the case, but also for any other product. The Court sustained the
scope of the order provision, stating that
``[T]he Commission is not limited to prohibiting the illegal
practice in the precise form in which it is found to have existed in
the past.'' Having been caught violating the Act, respondents ``must
expect some fencing in.''
Id. at 395, quoting FTC v. National Lead Co., 352 U.S. at 431,
and FTC v. Ruberoid Co., 343 U.S. at 473.
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Where an injunctive provision has been included in an order, the
Commission may prevail in a subsequent enforcement proceeding simply by
establishing that the respondent or defendant did not comply with the
terms of the provision, without having to establish as well that the
conduct prohibited by the provision is illegal, or that the conduct
required is reasonably related to the prevention of illegal practices.
The Commission's policies with respect to the duration of antitrust
orders have been the subject of public debate in recent years.\3\ Under
the Commission's existing practice, Commission and federal court order
provisions that prohibit or require particular types of conduct in
order to prevent ``unfair methods of competition'' have different
durations depending on their type. ``Core'' provisions prohibit
practices that would be unlawful whether used by parties subject to the
order at issue or by other similarly situated persons or entities. In
competition orders, there are two types of core provisions: (1) Those
that prohibit per se illegal conduct; and (2) those that prohibit
conduct that is illegal on the basis of the rule of reason. Under
current policy, core injunctive competition provisions typically
continue in force indefinitely, and a respondent bears the burden of
establishing (through a petition to reopen and modify an administrative
order or a motion to modify a federal district court order) that such a
provision should be vacated.
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\3\See, e.g., Report of Section of Antitrust Law of the American
Bar Association on Sunsetting of Federal Trade Commission
Competition Order Provisions (May 21, 1987) (hereinafter Section of
Antitrust Law Report).
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All other injunctive competition order provisions may be
categorized as ``supplemental'' provisions,\4\ which are intended to
prevent a respondent (or defendant) from repeating a law violation or
to mitigate the effects of prior illegal conduct.\5\ There are also two
types of supplemental provisions: (1) Those that prohibit or restrict
conduct that would be lawful if engaged in by parties not subject to
the order at issue (such as provisions in merger cases that prohibit
the respondent from making certain acquisitions in the same or related
markets without first securing Commission approval), and (2) those that
impose an affirmative obligation (such as distributing copies of
Commission orders to prescribed persons or filing compliance reports).
Under existing policy, different varieties of supplemental provisions
in competition orders terminate automatically after different
prescribed periods. Thus, prior approval provisions in merger cases
typically expire after ten years,\6\ order distribution requirements
typically expire within one to three years, and compliance report
requirements usually expire within five years.
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\4\The Commission may also impose or seek types of relief in
administrative and court orders that are not addressed in this
statement because they have no further effect once the actions they
require have been taken. In administrative merger cases, for
example, the Commission may issue an order imposing some form of
structural relief, such as the divestiture of specified assets. In
appropriate federal court competition cases, the Commission may also
seek the issuance of an order requiring the defendants to pay civil
penalties (for violating a Commission administrative order),
disgorgement, or restitution. Thus, consent decrees resolving
allegations that two infant formula manufacturers had violated
section 5 of the FTC Act required the defendants to deliver a total
of 3.6 million pounds of infant formula to the U.S. Department of
Agriculture. See American Home Products Corp. and Mead Johnson &
Co., 5 Trade Reg. Rptr. (CCH) 23,209 (D.D.C. June 16, 1992).
\5\This definition of ``supplemental provisions'' for both
litigated and settled cases differs from the broader concept of
``fencing-in'' relief whose use the federal courts have sustained in
litigated cases. Thus, for example, in sustaining the Commission
order at issue in FTC v. Colgate-Palmolive Co. (see note 2, above),
the Supreme Court used the term ``fencing-in'' to apply not only to
otherwise legal conduct but also to any illegal conduct other than
``the illegal practice in the precise form in which it is found to
have existed in the past.'' FTC v. Colgate-Palmolive Co., 380 U.S.
at 395, quoting FTC v. Ruberoid Co., 343 U.S. at 473.
\6\The Commission has determined that such provisions will in
most cases have served their remedial purposes after ten years, and
that ``the findings upon which such provisions are based should not
be presumed to continue to exist for a longer period of time.''
Hercules, Inc., 100 F.T.C. 531 (1982) (modifying order). As a
consequence, the Commission has included--in almost all the prior
approval provisions it has imposed--a proviso that the requirement
is to terminate automatically ten years after the order becomes
effective. E.g., The Coca-Cola Company, Docket No. 9207 (F.T.C. June
13, 1994), Final Order at 2-3; Olin Corporation, 113 F.T.C. 400, 623
(1990), aff'd, 986 F.2d 1295 (9th Cir.), cert. denied, 114 S.Ct.
1051 (1993); The B.F. Goodrich Company, 110 F.T.C. 207, 366 (1988),
aff'd as modified per stipulation, Nos. 88-4065 and 88-4066 (2d Cir.
1989); Hospital Corporation of America, 106 F.T.C. 361, 524 (1985),
aff'd, 807 F.2d 1381 (7th Cir. 1986), cert. denied, 107 S. Ct. 1975
(1987); Columbia Healthcare Corporation, et al., Docket No. C-3505
(consent order) (July 5, 1994), at 7; Kiwi Brands, Inc., et al.,
File No. 921 0023 (consent order) (placed on public record on June
30, 1994), at 8-9; MidCon Corporation, 107 F.T.C. 48, 58 (1986)
(consent order); but see Columbian Enterprises, Inc., 106 F.T.C.
551, 554 (1985) (consent order) (five years).
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Policy for Future Competition Orders
The Commission has now concluded that ``core'' injunctive
provisions in competition orders ordinarily will have served their
remedial purposes within twenty years, and that the findings upon which
such provisions are based should not be presumed to continue to exist
for a longer period of time. The Commission also believes that
supplemental provisions in competition orders ordinarily should
terminate automatically after prescribed periods that do not exceed ten
years. Therefore, the Commission has determined to adopt the
presumptions (1) that all future core competition order provisions
should terminate automatically after twenty years; and (2) that all
future supplemental competition order provisions should terminate
automatically after no more than ten years.\7\
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\7\With respect to supplemental provisions, the time period is
characterized as ``no more than ten years'' in order to cover the
range of time periods currently used for supplemental provisions.
The Commission does not intend to change, in general, the expiration
periods for particular types of supplemental provisions.
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The Commission recognizes that, in 1979, the Antitrust Division
determined to stop seeking perpetual conduct decrees, and instead to
include ten year automatic termination clauses for all decrees,
including ``core'' provisions.\8\ The Commission concurs with the
concept of automatic termination for both core and supplemental
competition order provisions, but also believes that core provisions in
Commission cases presumptively should last more than ten years. The
Commission, unlike the Antitrust Division, has no criminal enforcement
authority and thus cannot present the same deterrence threat to
potential recidivists whose orders have expired.\9\ The Division can
secure substantial criminal penalties for Sherman Act violations--
whether or not it already has an order in place--including large
fines\10\ and prison terms of up to three years. The only penalties
directly available to the Commission are those that can be obtained for
violations of existing orders.\11\ Thus, the calculus involved in
weighing the maintenance of order enforcement options against the
burden of extended order duration is different for the two
agencies.\12\
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\8\All federal district court decrees secured by the Antitrust
Division consequently include the following provision:
This Final Judgment shall expire ten (10) years from the date of
entry.
\9\Where a recidivist's order has lapsed, the Commission could
request the Justice Department to commence a criminal enforcement
action against the new violation. Where a Commission order issued
pursuant to the FTC Act is in effect, the Commission may file a
federal court action seeking civil penalties for violations of the
order, provided that the Commission first notifies the Department of
Justice and the Department decides not to file the action itself. 15
U.S.C. 45(l), 56(a). Where a Commission order issued pursuant to the
Clayton Act is in effect, the Commission may request the Department
to file a federal court action on its behalf seeking civil penalties
for violations of the order. 15 U.S.C. 21(l). Where a federal court
order issued at the behest of the Commission is in effect, the
Commission may itself commence a civil contempt proceeding against a
defendant who violates the order, or can request the Department to
seek criminal contempt. 15 U.S.C. 56(b).
\10\Effective November 16, 1990, the maximum fines for Sherman
Act violations increased to the greatest of (1) $350,000 (for
individuals) or $10 million (for corporations); (2) twice the
pecuniary gain the individual or corporation involved derived from
the crime; or (3) twice the pecuniary loss caused to the victims of
the crime.
\11\Under 15 U.S.C. 18a(g)(1), however, the Commission can
request the Department to file a federal court action on its behalf
seeking civil penalties for violations of the pre-merger
notification provisions in section 7A of the Clayton Act.
\12\The Commission has secured substantial civil penalties for
violations of some conduct orders that occurred a significant period
of time after the orders themselves were issued. See United States
v. Phelps Dodge, 78 CIV 4479 (S.D.N.Y. 1982) (the Commission
obtained $1.4 million in civil penalties for violation of a 1936
price-fixing order in National Electrical Manufacturers Association,
24 F.T.C. 306 (1936)); FTC v. United States Steel Corp., H-77-1501
(S.D. Tex. 1980) (the court ordered civil penalties of $440,000 for
violation of a price-fixing order issued by the Commission in
American Iron and Steel Institute, 48 F.T.C. 123 (1951)); F.T.C. v.
Joseph Dixon Crucible, C80-700 (N.D. Ohio, 1982) (the Commission
obtained $75,000 in civil penalties and $525,000 in consumer redress
for violation of the price-fixing order in American Crayon Co., 26
F.T.C. 604 (1938)). In two other crayon matters, the Commission
secured $1.2 million in restitution through the acceptance of new
consent orders, instead of seeking civil penalties under the older
order. Binney & Smith, Inc., 96 F.T.C. 625 (1980); Milton Bradley
Co., 96 F.T.C. 638 (1980).
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Policy for Existing Competition Orders
The Commission has also considered whether to emulate the 1981-1984
review of existing orders conducted by the Antitrust Division. During
that period, the Division reviewed 400 of its outstanding decrees to
identify candidates for termination, and moved to terminate or modify
22 judgments.13 With respect to Commission orders, the Section of
Antitrust Law of the American Bar Association recommended in 1987:
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\1\3Section of Antitrust Law Report at 31, citing Department of
Justice Press Release Accompanying Statement of Policy by the
Antitrust Division Regarding Enforcement and Review of Permanent
Injunctions Entered in Government Antitrust Cases (April 27, 1984),
at 3.
Given the large number of outstanding Commission orders, we
believe, based on the Justice Department's experience, that the burden
of a sua sponte review of the Commission's orders may well outweigh any
corresponding benefit.14
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\1\4Section of Antitrust Law Report at 31-32. The Section noted
that after the order termination project, the Division had
determined to rely on defendants to bring to its attention decrees
that are not operating in the public interest, rather than to
attempt to identify such orders on the Division's own initiative.
Id. at 32.
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Based on the Antitrust Division's experience, and as a consequence
of resource constraints, the Commission believes that a comprehensive
review of its existing orders would not be feasible or desirable. The
Commission has, however, determined to amend its approach to petitions
to reopen and modify existing competition orders in a manner consistent
with the two presumptions described above. Section 5(b) of the Federal
Trade Commission Act, 15 U.S.C. 45(b), provides that the Commission
shall reopen an order to consider whether it should be modified if the
respondent ``makes a satisfactory showing that changed conditions of
law or fact'' so require. A satisfactory showing sufficient to require
reopening is made when a request to reopen identifies significant
changes in circumstances and shows that the changes eliminate the need
for the order or make continued application of the order inequitable or
harmful to competition.15 If the Commission determines that the
petitioner has made the necessary showing, the Commission must reopen
the order to consider whether modification is required and, if so, the
nature and extent of the modification.
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\1\5S. Rep. No. 96-500, 96th Cong., 2d Sess. 9 (1979)
(significant changes or changes causing unfair disadvantage);
Service Corporation International, Docket No. 9071 (May 12, 1994),
at 2; Tarra Hall Clothes, Inc., Docket No. C-2797 (October 27,
1992), at 4; Louisiana-Pacific Corp., Docket No. C-2956, Letter to
John C. Hart (June 5, 1986), at 4 (unpublished) (``Hart Letter'');
see also United States v. Louisiana-Pacific Corp., 967 F.2d 1372,
1376-77 (9th Cir. 1992) (``A decision to reopen thus does not
necessarily entail a decision to modify the order. Reopening may
occur even where the petition itself does not plead facts requiring
modification.''). The petitioner's burden is not a light one in view
of the public interest in repose and the finality of Commission
orders. See Federated Department Stores, Inc. v. Moitie, 425 U.S.
394 (1981) (strong public interest considerations support repose and
finality).
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Section 5(b) also provides that the Commission may modify an order
when--although changed circumstances would not require reopening--the
Commission determines that the public interest so requires. Respondents
therefore may demonstrate in petitions to reopen how the public
interest warrants the requested modification.16 In such a case,
the Commission will balance the reasons favoring the requested
modification against any reasons not to make the modification.17
The Commission also will consider whether the particular modification
sought is appropriate to remedy the identified harm.18
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\1\6Hart Letter at 5; 16 CFR 2.51 (1994).
\1\7Damon Corp., Docket No. C-2916, Letter to Joel E. Hoffman,
Esq. (March 29, 1983), at 2 [1979-83 Transfer Binder] FTC Complaints
& Orders (CCH) 22,007 at 22,585 (``Damon Letter'').
\18\Damon Letter at 4.
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The Commission has now determined that, when a petition to reopen
and modify a competition order is filed twenty years or more after the
order initially became final, the Commission will presume that the
public interest requires reopening and setting aside the order in its
entirety.19 Through this approach, the Commission expects to be
apprised of the orders twenty years old or older that warrant
modification.
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\1\9Rebuttal to this presumption will be narrowly circumscribed
in order to conserve staff resources and to ensure fairness to all
petitioners. It is not contemplated that Commission staff will
conduct extensive investigation beyond information gleaned from the
petition itself and from public comment. Moreover, rebuttal to this
presumption largely will be limited to whether there is evidence
that the petitioner under order has engaged in recidivist conduct.
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In sum, effective July 22, 1994, the Commission is establishing the
following two presumptions for application prospectively to new
competition orders: (1) All core competition order provisions should
terminate automatically after twenty years, and (2) all supplemental
competition order provisions should terminate automatically after no
more than ten years. Further, also effective July 22, 1994, the
Commission will presume, in the context of petitions to reopen and
modify existing orders, that the public interest requires setting aside
orders in effect for more than twenty years.
Although these policies are effective July 22, 1994, the Commission
intends to issue within thirty days a Federal Register notice
describing them more fully and soliciting public comment on them.
Consumer Protection Orders
The Commission's policies with respect to consumer protection
orders have not been the subject of public debate. The Commission
intends to include in the Federal Register notice an invitation for
public comment concerning Commission policies affecting the duration of
consumer protection orders.
By direction of the Commission, Commissioner Azcuenaga
concurring in a separate statement, and Commissioner Owen concurring
in part and dissenting in part in a separate statement.20
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\2\0Commissioner Owen voted in the affirmative, but dissented as
to (i) approving the presumption that all core order provisions in
competition matters should terminate automatically after twenty
years, and (ii) approving the presumption that when a petition to
reopen and modify a competition order is filed twenty or more years
after the order initially became final, the public interest favors
setting aside the order in its entirety. In each case, she favors a
ten year term.
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Donald S. Clark,
Secretary.
Separate Statement of Commissioner Mary L. Azcuenaga on Sunset
Policy
The Commission today announces the adoption of a policy
presumptively to sunset in future competition orders core provisions
(provisions that now are perpetual) twenty years from the effective
date of each such order.\1\ The new sunset policy is a significant step
in the right direction, but it does not go far enough. In my view, the
Commission should apply a sunset policy to all its administrative
orders, both competition orders and consumer protection orders and new
orders and existing orders. Instead of crafting the new policy in terms
of presumptions, which invite costly individual determinations and
potentially disparate treatment, I would apply the sunset policy
absolutely and across the board, and I would do so now.
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\1\The Commission already sunsets so-called fencing-in
provisions in both competition and consumer protection orders,
usually within ten years or less from the effective date of the
order, and affirmative obligations in merger orders (divestiture and
prior approval clauses) also end within ten years. The new sunset
policy would change the duration of injunctive provisions that
remain in conduct orders after fencing-in provisions have expired.
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Duration of Commission Orders
Because of the continuing value of the Commission's older
orders,\2\ the Commission's record of obtaining civil penalties for
violations of longstanding orders, and the substantial resources that
go into obtaining orders, I believe that Commission orders should
remain effective for a reasonably long period of time. I have suggested
that imposing a term of thirty years on all Commission orders would be
appropriate, while acknowledging that other periods of time also might
be defensible.\3\ Any number of years is necessarily arbitrary, and I
have no monopoly on wisdom in choosing the sunset period. Anything
longer than thirty years scarcely seems worth the effort of adopting a
new policy, and anything less than twenty seems to me clearly too
short. The twenty-year sunset adopted by the Commission today in its
Statement of Policy is a long time for people and for businesses, and
to me it seems entirely appropriate.
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\2\For example, as noted in the Statement of Policy with Respect
to Duration of Competition Orders and Statement of Intention To
Solicit Public Comment with Respect to Duration of Consumer
Protection Orders (``Statement of Policy''), the Commission has
obtained civil penalties in a number of cases 29-46 years after the
orders were issued. See Statement of Policy at 6 n.12.
\3\See remarks by Mary L. Azcuenaga, ``FTC Enforcement: An
Idiosyncratic Journey,'' before National Economic Research
Associates, Inc., 15th Annual Antitrust and Trade Regulation
Seminar, Santa Fe, New Mexico (July 7, 1994), at 14-15; Hearing on
FTC Reauthorization Before Senate Comm. on Commerce, Science and
Transportation, 102d Cong., 2d Sess. 37 (July 28, 1992) (testimony
of Mary L. Azcuenaga) (``time period should be fairly long, perhaps
in the neighborhood of 30 years'').
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Although some have encouraged the Commission to choose a shorter
period, such as ten years, those most likely to take this position are
those who are subject to Commission orders or their representatives.\4\
Those who would assess and assert the interest of the public in longer
orders are unlikely to be organized and vocal. It is up to the
Commission to fill that role. Public clamor, unless it can be
translated into reasoned justification, is not a sufficient basis for
defining Commission policy.
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\4\If the subject of a Commission order has a valid reason,
based on changed circumstance, to be free of the constraints of the
order, that opportunity is available via a petition to reopen and
modify. For a respondent who does not have a valid reason to assert
in a petition to reopen, it is not surprising that a short sunset
would be appealing.
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The Department of Justice has adopted a ten-year sunset policy, but
we are in a different position. As the Commission points out in its
Statement of Policy, ``[t]he Commission, unlike the Antitrust Division,
has no criminal enforcement authority and thus cannot present the same
deterrence threat to potential recidivists whose orders have expired.''
After the Sherman Act was amended in 1974, in view of the criminal
fines and prison terms available in a de novo suit, the Department in
1979 concluded that perpetual orders no longer were necessary to deter
future violations\5\ and adopted a ten-year sunset policy.
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\5\See speech by John H. Shenefield, Assistant Attorney General,
Antitrust Division, Department of Justice, before Federal Bar
Association, Cleveland Chapter (April 18, 1979), reprinted in [1969-
1983] Transfer Binder (CCH) 50,394, at 55,873 ((``Prior to the
increase in penalty from a misdemeanor to a felony * * * we filed a
companion civil case with virtually all criminal cases because the
risk of contempt citations for violating a civil injunction provided
added deterrence * * *.'').
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It is worth spelling out in somewhat greater detail what this means
in practical terms. In year 11, following the expiration of a ten-year
order, the Department of Justice may in an appropriate case seek
criminal penalties for repetition of the unlawful conduct,\6\ arguing
in favor of the imposition of penalties that the firm is a recidivist,
for whatever weight that may have.\7\ The Commission, on the other
hand, in year 11 after the expiration of a ten-year order, would have
to bring not one but two lawsuits to obtain penalties in the event the
unlawful conduct recurs. At that point, the Commission must begin by
seeking a new cease and desist order, thereby giving the malfeasor
another bite at the apple. The new order could stop the harmful conduct
but at a cost to the respondent that is considerably less than if the
Commission had been able to obtain penalties. To state the obvious, the
threat of incurring an order to cease and desist is far less than the
threat of incurring penalties.\8\ Following imposition of the new cease
and desist order, if the respondent, yet again, engages in unlawful
conduct, only then could the Commission seek civil penalties by
initiating yet another lawsuit. Given the differences in the statutory
authority of the Department and that of the Commission, it is neither
necessary nor reasonable to require that their orders conform in terms
of duration.
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\6\This assumes that the conduct is appropriate for the
imposition of criminal penalties. Whether to proceed civilly or
criminally under the Sherman Act is a matter of prosecutorial
discretion. See, e.g., Remarks by Donald I. Baker, Assistant
Attorney General, Department of Justice, before Antitrust Law
Briefing Conference, Arlington, Va. (Feb. 28, 1977), reprinted in
[1969-1983] Transfer Binder (CCH) 50,341. The fact that ``a
defendant has previously been convicted or adjudged to have been
violating the antitrust laws may warrant indictment for a second
offense,'' and ``the Division feels free to seek an indictment in
any case where a prospective defendant has knowledge that practices
similar to those in which he is engaging have been held to be in
violation of the Sherman Act in a prior civil suit against other
persons.'' Id., quoting Report of the Attorney General's National
Committee To Study the Antitrust Laws 350 (1955). In recommending a
criminal prosecution, willfulness will be considered and will be
presumed if the defendants knew they were violating the law or were
acting with flagrant disregard for the legality of their conduct.
Id., citing President's Commission on Law Enforcement &
Administration of Justice, Task Force Report: Crime and Its Impact--
An Assessment 110 (1967). Although I cannot speak to the
Department's policy, it seems clear that the availability of
criminal sanctions would have deterrence value.
\7\The Department has proceeded criminally against conduct
similar to that challenged by the Commission under Section 5 of the
FTC Act. Compare, e.g., United States v. Alston, 974 F.2d 1206 (9th
Cir. 1992) (criminal prosecution of price fixing by dentists), and
American Medical Ass'n v. United States, 317 U.S. 519 (1943)
(criminal prosecution of conspiracy to boycott), with FTC v.
Superior Court Trial Lawyers Ass'n, 493 U.S. 411 (1990) (per se
unlawful price fixing), and Southbank I.P.A., Inc., FTC Docket C-
3355, 57 FR 2913 (1992) (alleged price fixing and boycott by
doctors). The Department obtained $250,000 in criminal fines and a
10-year civil decree against resale price maintenance in United
States v. Cuisinarts, Inc., [1980-1988] Transfer Binder (CCH)
45,080 (Cases 2798 & 2799); 1981-1 Trade Reg. Rep. (CCH) 63,979
(D. Conn. 1981) (civil decree). The Department may gain enforcement
flexibility from its ability to proceed criminally or civilly. E.g.,
in 1991, US West agreed to pay a $10 million civil penalty for
alleged violations of the AT&T Modified Final Judgment--``the
highest civil penalty ever paid in an antitrust contempt case''--
following ``last year's indictment of NYNEX on criminal contempt
charges for MFJ violations.'' Speech by James F. Rill, Assistant
Attorney General, Antitrust Division, before 25th Annual New England
Antitrust Conference, Cambridge, Mass. (Oct. 25, 1991), reprinted in
7 Trade Reg. Rep. (CCH) 50,066, at 48,740.
\8\``The basic objective of a remedial system is to deter people
from violating the law * * *. The way in which we deter an activity
is by making it costly to engage in * * *.'' R.A. Posner, Antitrust
Law: An Economic Perspective 221 (1976).
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Competition and Consumer Protection Orders
The sunset policy announced today is to be limited to orders in
competition cases, although the Commission will seek public comment
about whether the policy should be extended to orders in consumer
protection cases. Although I am willing to be persuaded otherwise by
whatever public comment we may receive, based on the arguments I have
heard to date, I see no reason for treating consumer protection orders
differently.
In 1987, the Antitrust Section of the American Bar Association
suggested that the Commission adopt a sunset policy for competition
orders.9 Although some might interpret this as a recommendation
not to sunset consumer protection orders, that would appear to be an
overreading because the report was limited to competition orders, and
there is no indication that the Section even considered consumer
protection orders. Two years later, in 1989, in a more comprehensive
study of the Commission and ``its appropriate role as a federal
governmental agency,'' the Antitrust Section recommended that the
Commission sunset all of its administrative orders.10 To the
extent that it has considered the question, the Section has endorsed
the inclusion of consumer protection orders in a sunset policy.
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\9\Report of Section of Antitrust Law of the American Bar
Association on Sunsetting of Federal Trade Commission Competition
Order Provisions (May 21, 1987).
\1\0Report of the American Bar Association Section of Antitrust
Law Special Committee To Study the Role of the Federal Trade
Commission 69-70 (1989) (``We are troubled by the duration of
typical Commission orders * * *. Administrative orders should have
sunset provisions.'').
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Both competition and consumer protection orders are issued by the
Commission, principally under Section 5 of the FTC Act, and the purpose
of both is to protect consumers and the public interest.11 Unfair
methods of competition such as price fixing, market allocation and
boycotts can be as injurious to consumers as unfair or deceptive
practices such as misleading advertising and unscrupulous
marketing.12 To the extent that the policy to sunset orders is
based on changed circumstances,13 it would seem to apply with
equal force to both antitrust and consumer protection orders. A
respectable argument can be made that the conditions in which unfair
acts or practices arise are at least as mutable as the conditions in
which unfair methods of competition arise. To the extent that a sunset
policy reflects a concern about the costly regulatory effects of
orders,14 the concern probably arises with deceptive advertising
orders no less than price-fixing orders.
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\1\1Deceptive practices were challenged as ``unfair methods of
competition'' until enactment of the Wheeler-Lea Act in 1938, 52
Stat. 1028 (adding to Section 5 the phrase ``and unfair or deceptive
acts or practices''). E.g., FTC v. Winstead Hosiery Co., 258 U.S.
483 (1922) (false labelling). Under pre-1938 Section 5, the
Commission was required to show that the deceptive practices
affected competition. See FTC v. Raladam Co., 316 U.S. 149 (1942)
(applying pre-1938 law, FTC may ``infer that trade will be diverted
from competitors who do not engage in'' deception); FTC v. Raladam
Co., 283 U.S. 643 (1931) (``trader whose methods are assailed as
unfair [methods of competition] must have * * * rivals in trade
whose business will be * * * injured''). After the Wheeler-Lea Act,
the FTC could ``center its attention on the direct protection of the
consumer where formerly it could protect him only indirectly through
the protection of the competitor.'' Pep Boys--Manny, Moe & Jack,
Inc. v. FTC, 122 F.2d 158, 161 (3d Cir. 1941) (emphasis in
original).
\1\2``[N]o matter what its guise, cartel behavior constitutes no
more than fraud and theft from consumers.'' James F. Rill, Assistant
Attorney General, Antitrust Division, ``Antitrust Enforcement: An
Agenda for the 1990's,'' before 23rd Annual New England Antitrust
Conference (Nov. 3, 1989), reprinted in 7 Trade Reg. Rep. (CCH)
50,026, at 48,617.
\1\3According to the Commission in its Statement of Policy,
``provisions in competition orders ordinarily will have served their
remedial purposes within twenty years, and * * * the findings upon
which such provisions are based should not be presumed to continue
to exist for a longer period of time.''
\1\4See note 16 infra.
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More fundamentally, a decision to treat respondents under consumer
protection orders differently might be viewed as arbitrary and
capricious. Indeed, from my perspective, today's disparate treatment of
competition and consumer protection orders is so unjustified that it
cries out for an explanation from the Commission. Perhaps the comments
we receive will provide reasons for drawing this distinction.
Existing Orders
The Commission should apply its new sunset policy to existing as
well as future orders. Any other policy is unfair. How can the
Commission justify applying a twenty-year sunset policy to future
orders, without even knowing what those orders will be, and decline to
apply the same policy to its existing orders?
The new policy to favor termination of existing orders in effect
for more than twenty years, if the respondent comes forward with a
petition to reopen, is welcome but also too limited. Instead, the
Commission should initiate proceedings immediately to terminate all
orders that are more than twenty years old and to modify appropriately
(by adding a sunset provision) outstanding orders that are not yet
twenty years old. This could easily be accomplished by publishing in
the Federal Register notice of the sunset policy and of the
Commission's intention to apply the policy to outstanding
orders.15
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\1\5 Rules 3.72(b)(1) and 4.4(a)(2) of the Commission's Rules of
Practice may need to be amended to permit notice by publication in
the Federal Register. The Administrative Procedure Act permits the
Commission to amend its rules in this fashion without a public
comment period. 5 U.S.C. Sec. 553(b)(3)(A).
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The Commission cites the experience of the Department of Justice to
demonstrate the difficulty of reviewing old orders: The Department
reviewed 400 orders ``to determine which might profitably be modified
or vacated''16 and recommended terminating or modifying only 22 of
them.17 If anything, the Department's experience suggests that we
should not adopt a sunset policy at all. If the vast majority of
outstanding orders are worth retaining, why shouldn't we expect the
vast majority of future orders to be equally meritorious. The
Commission, having decided that a sunset policy nevertheless is
appropriate, should take a different approach to outstanding orders.
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\1\6 Speech by William French Smith, Attorney General of the
United States, before District of Columbia Bar (June 24, 1981),
reprinted in [1969-1983] Transfer Binder (CCH) 50,430, at 55,976
(suggesting that the Department would set aside or modify orders
that ``pervasively regulate . . . [and] hinder and not promote
competition,'' ``reflect erroneous economic analysis,'' or are
``superfluous'').
\1\7 Department of Justice Press Release Accompanying Statement
of Policy by the Antitrust Division Regarding Enforcement and Review
of Permanent Injunctions Entered in Government Antitrust Cases,
April 27, 1984, at 3.
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Application of a presumption in favor of sunset in response to
petitions to reopen will impose costs by requiring respondents to file
individual petitions and the Commission to assess in the context of
each such petition whether the presumption has been overcome for that
order.18 I see no need for such a time consuming, potentially
resource intensive review of the merits of individual orders.19
Applying the new policy across the board now would be less costly in
terms of both public and private resources. Simple fairness suggests
that the Commission now should terminate all its orders older than
twenty years and modify its other orders to provide for automatic
termination after twenty years.
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\1\8 To the extent that the basis for the Commission's sunset
policy is that the ``findings upon which [the order is] based should
not be presumed to continue to exist for a longer period of time,''
Statement of Policy at 4, in the context of a petition to reopen,
the persistence of the conditions on which the order was based, not
the respondent's recidivism, see Statement of Policy at 8 n.19,
would seem to be the appropriate focus in determining on the merits
whether the order should be set aside.
\1\9 The Commission's effort to narrow the scope of the
proceedings for terminating older orders is laudable, but it
contains the seeds for expansion. More importantly, even the cost of
a reduced proceeding is unnecessary and unfairly burdens subjects of
older orders vis-a-vis their more recent counterparts.
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The Presumption
Instead of establishing a definite policy to sunset new competition
orders twenty years after issuance, the Commission merely establishes a
presumption to that effect. The Commission's decision to forgo the
adoption of an unequivocal sunset policy and instead to embark on this
new course by way of a presumption may reflect a degree of unease about
terminating its orders that I do not share. Unless the Commission is
prepared to enumerate the bases for overcoming the presumption, and so
far it has not done so, the policy invites confusion and arbitrariness
if not its own unraveling.
Establishing a presumption instead of a rule that orders will
terminate automatically after twenty years opens the Commission to
arguments to extend the term of some orders and to abbreviate the term
of others. The duration of an order could now be an issue in every
case, and achieving consistency and fairness among orders will be
costly at best. Perhaps my colleagues envision, as I do, that the
presumption will be overcome, one way or the other, only in exceedingly
rare circumstances. If so, why not just be done with it and establish a
bright line rule with all the benefits of certainty, predictability and
efficiency that bright line rules provide? If not, some greater
explanation is in order to guide those subject to the Commission's
jurisdiction.
Conclusion
I support the step the Commission has taken today, I urge the
Commission to expand its new policy to include consumer protection
orders and existing orders, and I urge the Commission to make sunset an
unqualified policy, not a presumption.
Statement of Commissioner Deborah K. Owen, Concurring in Part and
Dissenting in Part, on FTC Policy Statement With Respect to Duration of
Commission Orders
I applaud my colleagues for this important first step in resolving
a controversy that has stymied the Commission for many years. However,
I am compelled to disagree on one important point affecting competition
orders--the number of years that must pass before an order,
presumptively, should terminate.1 Where the Commission has chosen
a twenty-year period, both with respect to prospective orders and the
modification of previous orders, in the interests of consistency with
the Justice Department, I would prefer a ten-year term.
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\1\The Policy Statement contains two new twenty-year
presumptions with respect to competition orders: (1) A presumption
that ``core'' provisions in future orders should terminate twenty
years after issuance, and (2) a presumption that the public interest
requires reopening and setting aside an existing order twenty years
after it becomes final.
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The Commission's sole explanation for deviating from the ten-year
period is that the Commission ``unlike the Antitrust Division, has no
criminal enforcement authority and thus cannot present the same
deterrence threat to potential recidivists whose orders have expired.''
Policy Statement at 5. I believe that this contrast is much less acute
than the Policy Statement suggests, and provides an insufficient basis
for adopting an inconsistent policy.
First, under traditional Justice Department policy, it would not be
appropriate for the Justice Department to use the threat of criminal
sanctions to deter the recurrence of civil antitrust violations. As one
former Assistant Attorney General has described, the Sherman Act is
``in reality two statutes''--one criminal and one civil.2 The
Antitrust Division has historically proceeded criminally in two types
of cases: (1) Cases involving per se violations, such as price fixing
and bid rigging, and (2) cases where there is ``evidence that the
defendants knew that they were violating the law and acted with
flagrant disregard for the legality of their conduct.'' U.S. Dep't of
Justice, Antitrust Division Manual at III-12, Oct. 18, 1987 (2d ed.),
revised, Oct. 16, 1989. In all other cases, the Antitrust Division
proceeds civilly, and generally seeks an order that expires after ten
years.3 If a civil violation recurs in year eleven (after the
expiration of an order), then under its stated policy, the Antitrust
Division would not seek to impose criminal penalties. Like the
Commission, the Division would proceed on the civil side.
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\2\Remarks by Donald I. Baker before the Antitrust Law Briefing
Conference, Arlington, Virginia (Feb. 28, 1977), reprinted in
[Current Comment--1969-83 Transfer Binder] Trade Reg. Rep. (CCH)
50,341 at 55,695.
\3\But see United States v. Microsoft Corporation, Civ. Action
No. ______ (D.D.C. 1994) (proposed consent decree would expire six
and a half years after its entry).
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In this regard, I note that the antitrust cases prosecuted by the
Commission are typically not the types of hard core violations for
which the Department of Justice reserves its criminal sanctions. Often
this agency's horizontal restraint cases are sufficiently complicated
or ambiguous that the Commission employs the Massachusetts Board mode
of analysis, rather than relying on the rule of per se liability. Even
within the per se category, there are several situations where the
courts and/or the Department have indicated that criminal prosecution
would not be appropriate. In particular, the Supreme Court has held
that intent is a necessary element of a criminal antitrust
violation.4
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\4\United States v. Gypsum Co., 438 U.S. 422 (1978). In
contrast, the intent to achieve anticompetitive effects is not a
necessary element of the Commission's cases under Section 5 of the
Federal Trade Commission Act. See also Antitrust Division Manual,
supra at III-12.
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Second, eleven years after an order is entered, if a firm engages
in a criminal violation of the antitrust laws, then it can be
prosecuted criminally--whether its original order was with the
Commission or with the Justice Department. See Policy Statement at 5 n.
9 (``Where a recidivist's order has lapsed, the Commission could
request the Justice Department to commence a criminal enforcement
action against the new violation.''). Indeed, it has long been the
Commission's policy to notify the Justice Department whenever it learns
of a potentially criminal antitrust violation (whether involving a
recidivist or a first-time offender).5 The Justice Department then
decides whether the case should be investigated and prosecuted
criminally (by the Antitrust Division), or civilly (by the FTC).
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\5\ See Department of Justice/Federal Trade Commission Clearance
Procedures for Investigations, reprinted in 7 Trade Reg. Rep. (CCH)
50,125:
Whenever during the course of an FTC investigation, evidence is
uncovered that indicates the likelihood that criminal conduct has
occurred (e.g., price fixing, bid rigging, mail or wire fraud), the
FTC will promptly refer the matter to DOJ.
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In short, the deterrence threat that faces a potential recidivist
whose FTC order has expired is identical to the deterrence threat that
faces a firm whose Antitrust Division order has expired. Accordingly, I
dissent with respect to the twenty-year (as opposed to ten-year)
presumptions in the Policy Statement as applied to competition
orders.6
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\6\ Had the Commission chosen to apply termination presumptions
across the board to all of its orders, including consumer protection
orders (an alternative I would have preferred), the Commission might
then have been on firmer ground in attempting to distinguish its
policy from that of the Justice Department.
[FR Doc. 94-21591 Filed 8-31-94; 8:45 am]
BILLING CODE 6750-01-P
