Trustbuster William Baer: The Ftc's Eager Sheriff
A year ago, legal experts were ready to dismiss William J. Baer as the Don Quixote of the antitrust world. The Federal Trade Commission's chief trustbuster was pursuing a seemingly hopeless case to block Staples Inc. and Office Depot Inc. from merging. His aim? To prevent the creation of a merged company that would control a mere 5% of the general market for office supplies--too little, it seemed, to give the company any power to raise prices.
Baer presented a surprising case, though. He argued that superstores such as Staples and Office Depot competed only among themselves, not with the vast sea of other stationery shops. In the discrete realm of megastores, Baer maintained, the merged company would be dominant. U.S. District Judge Thomas Hogan agreed, issuing a preliminary injunction to halt the consolidation. Ultimately, the companies called off their marriage.
Now, the director of the FTC's Bureau of Competition has embarked on an even more ambitious crusade that has antitrust lawyers again predicting failure. On June 8, the FTC accused Intel Corp. of using its dominance in the microprocessor market to kill rivals. To detractors, Baer is pushing a weak case and is merely vying for attention with his Justice Dept. counterpart, Joel I. Klein, whose suit against Microsoft Corp. has grabbed headlines. Nonsense, Baer counters: "We're only going to get points if we do the right thing. The notion that we are doing something that is not sound is silly."
AGGRESSIVE. In fact, the 48-year-old regulator's track record is deadly serious as far as Corporate America is concerned. Since becoming the commission's No.1 trustbuster in 1995, Baer and his mentor, FTC Chairman Robert Pitofsky, have presided over easily the most aggressive antitrust activity in 25 years. In just the first five months of 1998, Baer opposed 20 mergers, compared with an average of 22 a year in the early 1990s. He has taken the unprecedented step of requiring companies to make big divestitures up front to win approval for some mergers. And he has fined companies that don't turn in key documents early.
Is the FTC pushing the limits of traditional antitrust theory? Baer says his approach--and that of occasional tennis partner Klein--is actually quite centrist. Their views fall between the big-is-bad regulatory zeal of the Nixon years and the hands-off ideology of the Reagan era. "Most business conduct will not run afoul of enforcement. But we're here to make sure markets work competitively," Baer says.
Like most of his predecessors at the Bureau of Competition, Baer has played both sides of the street. After graduating from Stanford University Law School in 1975, Baer spent five years as the FTC's lobbyist with Congress. Lawmakers had cut off funding for the commission because it was considered too anti-business. But Baer persuaded Congress that the agency should be kept open because it worked to promote lower prices and consumer choice.
NOT SO FRIENDLY. In 1980, he left for Washington's blue-chip Arnold & Porter. He made his name there as a member of the team that successfully defended General Electric Co. against Justice charges that it conspired with South Africa's DeBeers Consolidated Mines Ltd. to fix prices for industrial diamonds. The 1994 verdict was one of Justice's most embarrassing defeats. Jeffrey B. Kindler, ge's vice-president for litigation at the time, recalls how Baer destroyed a prosecution witness. "He comes across as friendly and folksy, with his tie askew," says Kindler, now general counsel at McDonald's Corp. "Next thing you know, he's eviscerated you."
Baer may be known for his laid-back style, but it was his sharp-edged skill as a litigator that prompted Pitofsky to tap him for the competition bureau. The chairman--who worked with Baer at the FTC in the '70s and at Arnold & Porter in the '80s--depends on his protege to set trial strategy. Litigation "was the area where the government has fallen short," says Pitofsky. "Bill has not just won cases for us but has developed a cadre of lawyers who know the inside of a courtroom."
Baer watchers say he is as public-relations savvy as he is legally skilled, taking special care to simplify complex arguments for public consumption. But Intel officials say he crossed the line in their case. Company execs are angry about a background paper that explains the legal underpinnings of the FTC's case, which Baer sent to antitrust experts who were asking him for information. Intel says Baer breached confidentiality by including points the company made to him during private talks. Baer says none of Intel's arguments included in the paper was secret. "It is part of my job to explain the agency's position," Baer says.
For all his professed moderation, though, Baer has often gone out on legal limbs. In a 1996 action against Toys `R' Us Inc., the FTC argued that the retailer improperly muscled toymakers not to sell popular items to discount warehouses. But Toys only had a 30% market share--not enough, under traditional antitrust analysis, to give it the power to bully business partners. Baer got around this theoretical problem by accumulating evidence that, though the retailer only controlled a small portion of the toy market, it still had enough power to dictate terms to manufacturers. If Baer prevails in the case, trustbusters for the first time will be able to bring predatory-conduct suits against companies with less than the standard 80% market share. "That would truly have major impact," says George Mason University School of Law professor William E. Kovacic. Last September, an administrative law judge upheld the FTC charges, and the case is on appeal.
ANTI-INNOVATION? Baer is also trying to adapt antitrust law to the world of high-technology industries. In the Intel suit, Baer claims the chipmaker used its dominant power to punish customers that sued the company over patent infringements. Such action sends a chilling signal to innovators who may come up with patents that Intel would want, he says. An innovator, he argues, may stop developing a product because of the prospect of having to share it with Intel. The company responds that because the companies it hurt were customers, not competitors, there's no way consumers could be hurt.
Another controversial Baer rule: his requirement that companies find buyers for divested holdings before getting merger approval. In the past, merged companies that agreed to divest units could put off a sale for years. However, companies gripe that this edict means they have to sell assets at fire-sale prices. "It's not appropriate for a public agency to say, `We'll shoot you in the leg unless you do what we want,"' says Washington antitrust attorney Joe Sims.
Companies that don't like Baer's push-the-envelope approach had better get used to it. Baer has good connections with confidants of Al Gore. Should Gore capture the White House, Bill Baer could be testing the limits of antitrust theory well into the next century.