Online Extra: Q&A with Outgoing FTC Chairman Pitofsky

He says he tried to craft an antitrust program that would not change radically with the results of elections

In the six years Robert Pitofsky has chaired the Federal Trade Commission he sought to fashion a new doctrine of antitrust enforcement for the New Economy. In both merger reviews and suits against alleged monopolists, he has acted aggressively to promote competition -- in some cases in industries that are barely off the drawing board.

As he prepares to turn over his job to the decidedly more conservative Timothy J. Muris, Pitofsky talked to BusinessWeek legal-affairs correspondent Dan Carney about his accomplishments and where he sees antitrust enforcement going in the future. Here are edited excerpts of their conversation:

Q: What have you accomplished in your tenure?

A:

My goal was to establish an antitrust program that was not too hot, not too cold, one that would not change radically with the results of elections. That has not been the case for 20 or 30 years here. No policy in the U.S. regulatory framework bounced around from left to right as much as antitrust did in the 60s, 70s, [and 80s]. I wasn't comfortable with the 60s, which I thought was over-enforcement. I wasn't comfortable with the 80s, which I thought was under-enforcement.

I thought we had about the right balance in mergers between sympathy for efficiency and incentives to innovate, and traditional antitrust enforcement. As to what the future will bring? I don't know. Remember the chair is just one vote. You have to take account what my [colleagues] will want.

Q: Some critics, including incoming FTC Chairman [Muris] argue that you do not give the efficiency argument a proper airing -- such as your decision to block the merger of the nation's two also-rans to Gerber in the baby-food market, Heinz and Beechnut.

A:

I don't mean to be a smart aleck about this, but [critics] said the same thing in the Staples-Office Depot merger. The judge found our way. They said the same thing about drug wholesalers. The judge found our way. We paid attention to efficiencies in the baby-food case. We just didn't think they were adequate to [justify a merger in an industry with just three companies.]

Q: Another case that has been criticized by the incoming chairman is Intel.

A:

I thought Intel was the best example of combining traditional antitrust enforcement with a sensitivity to incentives to innovate. The [1997 consent decree] went on at great length to explain that our goal was not compulsory licensing but to eliminate a very narrow range of behavior.

It was a case that challenged the behavior of Intel [which agreed not to withhold its semiconductors from companies it was involved in legal disputes with.] I still believe that an alleged monopolist should not cut off an essential supply to a company that sues the monopolist. That's not a novel theory.

Q: How do you think future FTC chairmen will treat industries that are very rapidly growing? Will they follow your lead of acting aggressively and proactively to protect competition?

A:

There are major elements of the New Economy that are different -- primarily the fact that many new products and services are the embodiment of ideas. It's very important that antitrust, if it's going to stay current and relevant, takes these differences into account. There's a lot that's new. And antitrust has, and should, adjust to those new realities.

Q: But you still use core antitrust concepts?

A:

I still believe that the core of antitrust is still valid. But you've got to adjust the way you apply it.

Q: You've been known to act in industries that were barely nascent. There was a drug merger where you insisted on the divestiture of some patents that were years away from being marketable.

A:

Yes, the merger between Ciba-Geigy and Sandoz [now Novartis]. As I may remind you, your magazine said: "The antitrust people finally get one right." The thing that was different about the case: It was an innovation market. Not only were the patents not for sale but they weren't going to be for sale for another five years.

Historically, the law has taken a position that it's too speculative to figure out what's going to happen in five years, and therefore we should hold our hands. I believe the reality is that if you wait too long, it's going to be too late. And therefore it's proper to step in on innovation markets. I think that was one of the solidest decisions of the commission.

Q: The AOL-Time Warner deal, particularly as it related to interactive television, was another case in which you acted with a nascent industry. Critics don't understand how an agency could jump into something where there's such uncertainty about where an industry is going.

A:

I don't dismiss that kind of concern. I think that's legitimate. First of all, interactive TV is not like a phase-three drug. Interactive TV is here. How fast will it grow? How will it grow? These are uncertainties, and I think we took those uncertainties into account. We didn't block it. We just acted to keep that market open to competitors. We didn't want to see foreclosure occur in the early stage of this product. Virtually everybody says it's part of the wave of the future. It's here, and it's going to become more important.

But when you're in high tech, predictions are even more difficult because the industry is so dynamic.

Q: It seems like general merger activity has declined somewhat.

A:

It's down 30% this year.

Q: Is that permanent?

A:

I'd make a lot of money if I had an answer to that.

Q: There are a lot of lawyers getting very nervous about their antitrust practices.

A:

Two things. First, the economy is cooling off. Second, the higher filing fees kicked in, and it may be that some people rushed through their mergers to avoid the higher fee. I have no idea. I've often said you can't set a record every year. And we have set a record every year.

Q: You've been criticized for allowing mergers but putting on too many conditions. The BP Amoco-Arco deal received some attention.

A:

I don't think the conditions were very elaborate. Now Time Warner-Turner, those were elaborate. But with BP and Arco, they were No. 1 and 2 in Alaska. And we insisted that Arco Alaska be sold off as a going business and that there be a buyer upfront. They weren't happy with that. But we saw their brief. They saw ours. They settled.

Q: What accomplishment are you most happy with?

A:

I wanted to participate in an antitrust policy that was more active than the Reagan years but was more welcoming of claims of efficiency and innovation than the Warren Court appeared to be. I wanted an active but still moderate enforcement regime. One proof of the pudding is we still only investigate 3% of the mergers we see. And we challenge between 1% and 2% -- that's slightly higher than the Reagan years but not radically.

On the consumer-protection side, the new marketplace, telemarketing, electronic commerce, were the areas where consumers were most exposed. I wanted to make sure we weren't fighting last year's wars. It's hard to lose some of these consumer cases because the behavior is so indefensible. Have we ever lost one? I don't think so.

Q: Have you created an edifice that will withstand future elections?

A:

I hope so. I actually am optimistic that this commission will be very active on the consumer front, because it's the right thing to do, and because it's clear Congress wants us to do that.

On [the] antitrust side, no one is going to bring exactly the same cases we did. There will be some mergers we let go that others might challenge, and some that we challenged that they would let go. But I think the fundamentals are there.

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