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Christopher M. Ries
christopher.ries@usdoj.gov
United States Department of Justice
Antitrust Division, Litigation III Section
325 Seventh St., NW Suite 342
Washington, D.C. 20530
Telephone: 202-307-6351
Facsimile: 202-514-7308
Attorney for the United States of America

UNITED STATES DISTRICT COURT

DISTRICT OF OREGON



UNITED STATES OF AMERICA,    

                  Plaintiff,

                  v.

GREATER PORTLAND CONVENTION
and ASS'N, HILTON HOTELS CORP., ITT   
SHERATON CORP. OF AMERICA, AND
COSMOPOLITAN INVESTMENT, INC.,

                  Defendants.


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CV. 70-310

UNITED STATES' MEMORANDUM
In Response To Defendant Hilton
And Starwood
Hotels' Motion to
Terminate the Partial Final
Judgment and Final Judgment



TABLE OF CONTENTS

TABLE OF CONTENTS

TABLE OF AUTHORITIES

  1. INTRODUCTION
  2. THE COMPLAINT AND THE JUDGMENTS
    1. The Conduct Challenged
    2. Provisions of the Judgement That Remain in Force

  3. LEGAL STANDARDS APPLICABLE TO TERMINATION OF AN ANTITRUST FINAL JUDGMENT WITH THE CONSENT OF THE UNITED STATES
  4. REASONS WHY THE UNITED STATES TENTATIVELY CONSENTS TO TERMINATION OF THE PARTIAL FINAL JUDGMENT AND THE FINAL JUDGMENT
    1. Changes in Hospitality Purchasing Have Rendered the Judgments Obsolete
    2. The Judgments Are Obsolete and Prohibit Potentially Procompetitive Conduct That Modern Antitrust Law Allows
    3. Developments in Antitrust Laws
    4. The United States Received No Evidence In Its Investigation Establishing That Continuation of the Decrees Would Serve the Public Interest
    5. Summary

  5. PROPOSED PROCEDURES FOR PROVIDING PUBLIC NOTICE OF THE PENDING MOTIONS AND INVITING COMMENT THEREON
  6. CONCLUSION

TABLE OF AUTHORITIES

FEDERAL CASES

Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979)

United States v. Greater Portland Convention Association, Inc, et al., 1971 Trade Cas. (CCH) ¶ 73,731

United States v. Greater Portland Convention Association, Inc, et al., 1973 Trade Cas. (CCH) ¶ 74,614

Klor's Inc. v. Broadway Hale Stores, 359 U.S. 207 (1959)

N. Pac. Railway v. United States, 356 U.S. 1 (1958)

Northwest Wholesale Stationers Inc. v. Pacific Stationery and Printing Co., 472 U.S. 284 (1985)

Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993)

United States v. America Cyanamid Co., 719 F.2d 558 (2d Cir. 1983)

United States v. Columbia Artists Management, Inc., 662 F. Supp. 865 (S.D.N.Y. 1987)

United States v. Eastman Kodak Co., 63 F.3d 95 (2d Cir. 1995)

United States v. International Business Machines Corp., 163 F.3d 737 (2d Cir. 1998)

United States v. Loew's Inc., 783 F. Supp. 211 (S.D.N.Y. 1992).

United States v. Swift & Co., 286 U.S. 106 (1932)

United States v. Swift & Co., 1975-1 Trade Cas. (CCH) ¶ 60,201, at 65,703 (N.D. Ill. 1975)

United States v. Western Electric Co., 900 F.2d 283 (D.C. Cir. 1990).

United States v. Western Electric Co., 993 F.2d 1572 (D.C. Cir. 1993)

FEDERAL STATUTE

15 U.S.C. § 16

OTHER MATERIALS

Antitrust Division Manual, § IV.E.d.2. (1998 ed.)

William F. Baxter, Department of Justice Authorization for Fiscal Year 1984 Before the Subcommittee on Monopolies & Commercial Law, Committee on the Judiciary, 98th Cong. 16 (1983)

William French Smith, Attorney General of the United States, Remarks at the Annual Meeting of the District of Columbia Bar (June 24, 1981)

Jeffrey I. Zuckerman, Removing the Judicial Fetters: The Antitrust Division's Judgment Review Project (1982)

U.S. Department of Justice, Antitrust Division, DOJ Bull. No. 1984-04, Statement of Policy by the Antitrust Division Regarding Enforcement of Permanent Injunctions Entered in Government Antitrust Cases

U.S. Department of Justice Press Release, New Protocol to Expedite Review Process for Terminating or Modifying Older Antitrust Decrees (Apr. 13, 1999)

  1. INTRODUCTION
Defendant Hilton Hotels Corp. ("Hilton") and successor in interest Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") have jointly moved to terminate two consent decrees, the Partial Final Judgment in United States v. Greater Portland Convention Association, Inc., et al., Civil No. 70-310, 1971 Trade Cas. (CCH) ¶73,731 (D. Or. 1971), entered by the Court on November 29, 1971 (hereinafter "Partial Final Judgment"), and the Final Judgment in United States v. Greater Portland Convention Association, Inc., et al., Civil No. 70-310, 1973 Trade Cas. (CCH) ¶74,614 (D. Or. 1973), entered by the Court on September 14, 1973 (hereinafter "Final Judgment").(1) A copy of the Partial Final Judgment is attached as Appendix 1, and a copy of the Final Judgment is attached as Appendix 2.

After soliciting initial public comments on the proposed termination and conducting an extensive investigation, the United States tentatively consents to termination of both the Partial Final Judgment and the Final Judgment, subject to further public notice and comment.(2) The United States concludes that these decrees are no longer necessary to protect competition, that some of their provisions may well be inhibiting competition, and that the continued existence of these decrees does not provide any public benefit. The decrees bar defendants from participating in arrangements that are known to have procompetitive benefits and that the defendants' competitors are free to undertake. Therefore, it would be in the public interest for the Court to terminate both the Partial Final Judgment and the Final Judgment as to all defendants.

As discussed below, the decrees to be terminated involve identical legal and factual issues. Furthermore, both decrees arise from the same case, and due to consolidation in the industry, the sole party to the second decree, successor in interest Starwood, is also party to the first decree. Accordingly, the parties submit that, in the interest of judicial economy, termination of these decrees should be addressed simultaneously. See United States v. Eastman Kodak Co., 63 F.3d 95, 97-100 (2d Cir. 1995) (terminating separate Kodak decrees with one order).

  1. THE COMPLAINT AND THE JUDGMENTS
    1. The Conduct Challenged

The Partial Final Judgment and the Final Judgment arose from a 1960s investigation into the GPCA and four of its hotel members. At that time, GPCA was a nonprofit corporation that had been organized in 1959 to aid the Portland Chamber of Commerce in attracting convention business to the city of Portland, Oregon. Tr. 608.(3) Its members were various Portland area hotels, hotel suppliers, restaurants, and similar businesses that profited from tourist business. GPCA was organized because the Chamber of Commerce decided that an "auxiliary" organization with the "special purpose of getting a little additional money to promote conventions" would be useful in developing Portland as a convention destination. Tr. 608. In order to raise more money to promote conventions, the GPCA hotel members agreed to require that each supplier to the hotels contribute to GPCA, as a membership fee, an amount equal to one percent of the total business it conducted with the hotels. Tr. 816.

To determine the amount of business that each supplier conducted, GPCA sent cards to all hotels requesting that they provide their suppliers' names and the amount of business transacted with each. Tr. 363. These cards were then returned to GPCA, and each supplier was assessed a contribution to GPCA based upon the total of its sales. Tr. 363-64. Every four to six weeks GPCA sent a master list of all suppliers to the general managers and purchasing agents of the hotels. Tr. 372. On this list, GPCA identified those suppliers that had paid their "membership" assessments in full and also designated those suppliers that were still in arrears. Tr. 371. The primary concern of the United States was whether there was an agreement among the four hotel members of GPCA to boycott hotel suppliers who had not paid any assessments or were in arrears.

On May 12, 1970, a grand jury indicted GPCA and the four hotel members of GPCA — Hilton, Sheraton, Cosmopolitan, and Westin(4) — for engaging in a combination and conspiracy in restraint of trade, in violation of Section 1 of the Sherman Act. United States v. Hilton Hotels Corp., et al., Criminal Action No. 70-123 (D. Or. Indictment filed May 12, 1970). Additionally, in a civil complaint filed the same day, the United States charged GPCA and the four hotel members of GPCA with per se violations of Section 1 of the Sherman Act. United States v. Greater Portland Convention Association, Inc., et al., Civil Action No. 70-310 (D. Or. Compl. filed May 12, 1970). The civil complaint charged the defendants with engaging in a combination and conspiracy consisting of a "continuing agreement" under which "(a) hotel suppliers in and around Portland, Oregon are each annually assessed an amount of money fixed by defendants . . . to be paid as a contribution to GPCA, (b) the hotel defendants give . . . preferential treatment to hotel suppliers who pay . . . the GPCA assessments imposed upon them; and (c) the hotel defendants curtail . . . their respective purchases of hotel supplies from hotel suppliers who fail to pay . . . the GPCA assessments imposed upon them." Id. at ¶ 14.

Prior to trial, four of the five defendants — Hilton, GPCA, Sheraton, and Cosmopolitan — entered pleas of nolo contendere to the criminal charge and eventually entered into the Partial Final Judgment on November 29, 1971. United States v. Greater Portland Convention Association, Inc., et al., Civil No. 70-310, 1971 Trade Cas. (CCH) ¶73,731 (D. Or. 1971). The fifth defendant, Westin, was tried by jury from November 30 to December 4, 1970. The jury found that Westin violated Section 1 of the Sherman Act, and Westin appealed to the Ninth Circuit. United States v. Hilton Hotels Corporation., et al., 467 F.2d 1000 (9th Cir. 1972), cert. denied, 409 U.S. 1125 (1973). On September 26, 1972, the Ninth Circuit affirmed the verdict. Westin entered into the Final Judgment on September 14, 1973. United States v. Greater Portland Convention Association, Inc., et al., Civil No. 70-310, 1973 Trade Cas. (CCH) ¶ 74,614 (D. Or. 1973).

    1. Provisions of the Judgments That Remain in Force
Eleven of the substantive provisions of the Partial Final Judgment remain in effect,(5) and nine substantive provisions of the Final Judgment remain in effect.(6) Section IV(A) and (B) of both decrees prohibit the defendants from agreeing with any other hotel or convention bureau to give preference to any hotel supplier or to curtail or terminate the purchase of hotel supplies from any hotel supplier. See Greater Portland Convention Association, Inc, 1971 Trade Cas. (CCH) ¶ 73,731 at 91,057-058; Greater Portland Convention Association, Inc, 1973 Trade Cas. (CCH) ¶ 74,614 at 94,717. Section V of both decrees prohibits the hotel defendants from engaging in certain unilateral conduct, such as tracking supplier contributions to convention bureaus or distributing supplier contribution lists to their employees, that potentially could facilitate the same results as the coordinated activity prohibited in Section IV. See Greater Portland Convention Association, Inc, 1971 Trade Cas. (CCH) ¶ 73,731 at 91,058; Greater Portland Convention Association, Inc, 1973 Trade Cas. (CCH) ¶ 74,614 at 94,717. Section VI of the Partial Final Judgment prevents the convention bureau defendant from engaging in the same type of unilateral conduct as Section V prohibits for the hotel defendants. See Greater Portland Convention Association, Inc, 1971 Trade Cas. (CCH) ¶ 73,731 at 91,058.

As discussed below, none of these provisions is needed to protect competition in light of the many changes in industry circumstances over the past thirty-five years and the fact that most of the potentially anticompetitive conduct addressed by the decree provisions is also adequately addressed by existing antitrust laws. In addition, several provisions of these decrees impose obligations that are inconsistent with modern antitrust law and policy, and their continued existence may well be inhibiting rather than preserving effective competition. Because the provisions of the decrees that remain in effect either are no longer necessary or may be interfering with the competitive process, their continued existence does not provide a public benefit, and the two decrees should be terminated.

  1. LEGAL STANDARDS APPLICABLE TO TERMINATION OF AN ANTITRUST FINAL JUDGMENT WITH THE CONSENT OF THE UNITED STATES
This Court has jurisdiction to terminate the Partial Final Judgment and the Final Judgment. Section X in each Judgment states that the Court retains jurisdiction to "enable the parties to apply for any such further order . . . as may be necessary or appropriate for . . . the modification or termination of any of the provisions thereof." Furthermore, "the power of a court of equity to modify an injunction in adaptation to changed conditions" is "inherent in the jurisdiction of the chancery." United States v. Swift & Co., 286 U.S. 106, 114 (1932). Likewise, under Rule 60(b)(5) of the Federal Rules of Civil Procedure, "[o]n motion and upon terms as are just, the court may relieve a party . . . from a final judgment . . . [when] it is no longer equitable that the judgment should have prospective application." See also United States v. International Business Machines Corp., 163 F.3d 737 (2d Cir. 1998) ("IBM") (affirming grant of joint motion by United States and defendant to terminate antitrust consent decree).

Where, as here, the United States tentatively consents to termination of some or all of the provisions of an antitrust judgment, the issue before the court is whether such termination is in the public interest. IBM, 163 F.3d at 740; United States v. Am. Cyanamid Co., 719 F.2d 558, 565 (2d Cir. 1983); United States v. Loew's Inc., 783 F. Supp. 211, 213 (S.D.N.Y. 1992) ("Loew's"); United States v. Columbia Artists Mgmt., Inc., 662 F. Supp. 865, 869-70 (S.D.N.Y. 1987). Exercising "judicial supervision," IBM, 163 F.3d at 740, the court should approve a consensual decree termination where the United States has provided a reasonable explanation to support the conclusion that termination is consistent with the public interest. Loew's, 783 F. Supp. at 214. See also United States v. Western Elec. Co., 900 F.2d 283, 307 (D.C. Cir. 1990) (public interest test applies to a termination of decree restrictions with assent of all parties to the decree; district court should approve an uncontested termination "so long as the resulting array of rights and obligations is within the zone of settlements consonant with the public interest today"); United States v. Western Elec. Co., 993 F.2d 1572, 1576-77 (D.C. Cir. 1993) (under "deferential" public interest test, court should accept a consensual termination of decree restrictions that the United States "reasonably regarded as advancing the public interest;" it is "not up to the court to reject an agreed-on change simply because the proposal diverge[s] from its view of the public interest;" rather, court "may reject an uncontested modification only if it has exceptional confidence that adverse antitrust consequences will result").

The "public interest" standard takes its meaning from the purposes of the antitrust laws. IBM, 163 F.3d at 740; Am. Cyanamid, 719 F.2d at 565. As the Second Circuit has emphasized, "[t]he purpose of the [Sherman] Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market." IBM, 163 F.3d at 741-42 (alteration in original) (quoting Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993)). The purpose of an antitrust decree is to remedy and prevent the recurrence of the violation alleged in the complaint. Where the government has consented to termination, the focus is on whether there is a "likelihood of potential future violation, rather than the mere possibility of a violation." IBM, 163 F.3d at 742 (emphasis added). In this context, if the government reasonably explains why there is "no current need for" the constraints imposed by a decree, termination will serve "the public interest in 'free and unfettered competition as the rule of trade.'" Loew's, 783 F. Supp. at 213, 214 (S.D.N.Y. 1992) (quoting N. Pac. Ry. v. United States, 356 U.S. 1, 4 (1958)).

Obsolete decrees are worse than unnecessary; they may themselves have anticompetitive effects, burdening the parties, the courts, and the competitive process. See, e.g., IBM, 163 F. 3d at 740; Loew's, 783 F. Supp. at 214. Where the United States and the defendants jointly seek termination long after entry of a decree that has no termination date, it is reasonable to presume that the violation has long since ceased and that competitive conditions were adequately restored. Thus, for example, the Second Circuit affirmed termination of the IBM decree under the public interest standard because there was no longer any material threat of antitrust violations absent the decree restrictions and because the decree "resulted in artificial restraints . . . which do not further the cause of healthy competition." IBM, 163 F.3d at 740. Termination of an antitrust decree, of course, leaves the parties "fully subject to the antitrust laws of general application." Loew's, 783 F. Supp at 214.

  1. REASONS WHY THE UNITED STATES TENTATIVELY CONSENTS TO TERMINATION OF THE PARTIAL FINAL JUDGMENT AND THE FINAL JUDGMENT

Termination of the Partial Final Judgment and the Final Judgment is plainly in the public interest. The United States' extensive experience with the enforcement of the antitrust laws has shown that, as a general matter, industries evolve and change over time in response to competitive and technological forces. In most situations, the passage of many decades results in significant industry change that renders the rigid prohibitions placed years before in consent decrees either irrelevant to the parties' ongoing compliance with the antitrust laws or an affirmative impediment to the kind of adaptation to change that is a hallmark of the competitive process.

These considerations, among others, led the Antitrust Division of the Department of Justice ("Department") in 1979 to establish a policy of including in every consent decree a so-called "sunset provision" that, except in exceptional cases, would result in the decree's automatic termination after no more than ten years.(7) As a result of the Department's consistent adherence to this policy, the only antitrust consent decrees to which the United States is a party that remain in effect are those entered within the past ten years, or before 1979 when the "sunset" policy was adopted. The Department encourages parties to old decrees to seek the Department's consent to their termination, especially where such decrees contain provisions that may be restricting competition. See U.S. Department of Justice, Antitrust Division, DOJ Bull. No. 1984-04, Statement of Policy by the Antitrust Division Regarding Enforcement of Permanent Injunctions Entered in Government Antitrust Cases (hereinafter, "DOJ Policy Regarding Decree Enforcement") (attached hereto as Appendix 3); and U.S. Department of Justice Press Release, New Protocol to Expedite Review Process for Terminating or Modifying Older Antitrust Decrees (Apr. 13, 1999) (hereinafter, "New DOJ Decree Termination Protocol") (attached hereto as Appendix 4).(8) In the United States' view, decrees entered prior to 1979 should be terminated unless there are affirmative reasons for continuing them, which we would expect to exist only in limited circumstances.(9)

    1. Changes in Hospitality Purchasing Have Rendered the Judgments Obsolete
Both the Partial Final Judgment and the Final Judgment have been in effect for more than 30 years. In these intervening years, hospitality industry purchasers have dramatically changed the methods by which they procure, distribute, and store their input products, as well as from whom and in what quantities they purchase these products. These substantial changes in the purchasing practices of the hospitality industry have caused the subject decree provisions to become an inadvertent impediment on competition and to bar conduct that would be allowed under the antitrust laws today.

In the 1960s and 1970s, individual hotels, including those belonging to large hotel chains, employed general managers, chefs, and purchasing agents who made many of the purchasing decisions for their hotel and often orchestrated supply contracts with local grocers, furniture companies, and office supply stores. Today, many branded hotel chains centralize their hotel purchases from cooperative distributorships and large national retailers and negotiate preferred supplier relationships. Such centralized purchasing allows hospitality companies to ensure brand consistency, reduce input costs, and ensure a reliable flow of supplies for all of their hotels.

In addition to centralized purchasing, individual hotels and hotel chains, including several of the defendants' competitors, frequently purchase supplies through group purchasing organizations. Group purchasing organizations make purchases on behalf of a number of companies that purchase the same kinds of products. For example, three of the defendants' major competitors purchase their supplies regionally and nationally through a group purchasing organization that they partly own. Group purchasing organizations can offer potential economies of scale by providing their members with such services as negotiating with suppliers, budgeting, expediting, and managing transportation services. Members of group purchasing organizations can decrease their supply procurement costs through pooled orders, coordinated inventory management, and shared distribution costs.

    1. The Judgments Are Obsolete and Prohibit Potentially Procompetitive Conduct That Modern Antitrust Law Allows

Some provisions of the decrees prohibit conduct that offers procompetitive benefits and would today likely be considered legal.(10) Section IV, subparts (A)-(B) of the decrees unconditionally prevent the defendants from agreeing with other hotels to give preference to any supplier or curtail purchases from any supplier. These prohibitions — which were meant to enjoin local hotels from collectively boycotting local suppliers who did not contribute to the local convention bureau — also prevent the defendants and their suppliers from undertaking procompetitive group purchasing opportunities and inhibit them from undertaking centralized purchasing.(11)

Preventing Starwood and Hilton from joining any group purchasing organization that has other hotels among its members places them at a disadvantage relative to their competitors who are not subject to the decrees. As discussed above, many of the defendants' major competitors have formed their own hospitality-oriented centralized purchasing programs that serve their owned, operated and franchised hotels in order to operate more efficiently. Others have joined diversified group purchasing organizations that include other hotels and other purchasers of the same types of products that hotels need, such as linens or food services, in order to decrease procurement costs. By depriving defendants of these cost saving opportunities, the decrees may lead to unnecessary inefficiencies and increased prices for consumers.

Termination of the decrees will enable Hilton and Starwood to consider entering into procompetitive purchasing collaborations that include all of their branded hotels, as well as with other hospitality industry participants, in order to lower their input costs. While the possibility exists that Hilton and Starwood might enter into agreements with competitors that violate the antitrust laws, terminating the decrees will not preclude the Antitrust Division from bringing an enforcement action if that occurs. Where the government has consented to termination, the focus is on whether there is a "likelihood of potential future violation, rather than the mere possibility of a violation." U.S. v. IBM, 163 F.3d 737, 742 (2d Cir. 1998) (emphasis added). Here, there is no such likelihood.

    1. Developments in Antitrust Law

At the time of the conduct that led to the decrees, courts treated all agreements among competitors not to deal with suppliers — including the group purchasing prohibited in the decrees — as per se illegal. See Klor's Inc. v. Broadway Hale Stores, 359 U.S. 207 (1959) (holding the group boycotts and concerted refusals to deal are not "saved by allegations that they were reasonable in the specific circumstances, nor by a failure to show that they fixed or regulated prices, parceled out or limited production, or brought about a deterioration in quality."). Indeed, on appeal from the district court's application of the per se rule in this case, the Ninth Circuit rejected Westin's argument that per se treatment was improper. See United States v. Hilton Hotels Corporation., et al., 467 F.2d 1000, 1002-1004 (9th Cir. 1972), cert. denied, 93 S.Ct. 938 (1973).

Today, application of the per se rule in the context of group boycotts turns on "'whether the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output . . . or instead one designed to increase economic efficiency and render markets more, rather than less, competitive.'" See Northwest Wholesale Stationers Inc. v. Pacific Stationery and Printing Co. 472 U.S. 284, 289-90 (1985) (quoting Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 19-20 (1979)).(12) Furthermore, cases in which the Supreme Court has applied the per se approach have "generally involved joint efforts by a firm or firms to disadvantage [direct] competitors by either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle." Id. at 294 (internal quotations omitted). Moreover, when a defendant advances plausible arguments that a practice enhances overall efficiency and makes markets more competitive, per se treatment is inappropriate, and the rule of reason applies. Id.

    1. The United States Received No Evidence In Its Investigation Establishing That Continuation of the Decrees Would Serve the Public Interest

Before tentatively agreeing to join the defendants in moving the Court to terminate these decrees, the United States conducted its own investigation of the industry and also solicited public comments on Hilton's proposal to terminate the Partial Final Judgment. As discussed below, Hilton published notice of its proposal to terminate the Partial Final Judgment in The Wall Street Journal and Hotel Business and provided the public an opportunity to submit comments to the United States. The United States did not receive any public comments with respect to this proposal.

The United States conducted interviews of industry participants, including hospitality industry competitors and suppliers, all of whom supported termination of these decrees. Competitors and suppliers interviewed confirmed that, except for Hilton and Starwood, hospitality companies will usually require their owned, managed and franchised hotels to order supplies through centralized purchasing organizations operated by their parent company and often participate in group purchasing collaborations with competitors. These interviewees also noted that group purchasing organizations in the hospitality industry have improved brand consistency and reduced supply chain distribution and inventory costs for both the hotels and their suppliers. None of the interviewees expressed concerns about future anticompetitive effects that could arise from termination of the decrees. The suppliers interviewed in connection with this investigation agreed that continuing to prevent Hilton and Starwood from engaging in the group purchasing opportunities likely would increase costs for Hilton, Starwood, their suppliers, and ultimately consumers.

    1. Summary

As a result of the passage of time and the changes in hospitality supply purchasing practices, these decrees no longer serve the public interest. Their purposes are amply served by the existing body of antitrust law. The prohibitions in these thirty year old consent decrees create an affirmative impediment to the adaptation to change that is a hallmark of the competitive process. Therefore, the United States believes that termination of the Partial Final Judgment and Final Judgment would be in the public interest and tentatively consents to such termination.

  1. PROPOSED PROCEDURES FOR PROVIDING PUBLIC NOTICE OF THE PENDING MOTIONS AND INVITING COMMENT THEREON

In United States v. Swift & Co., the court noted its responsibility to implement procedures that will provide non-parties adequate notice of, and an opportunity to comment upon, antitrust judgment modifications proposed by consent of the parties:

Cognizant . . . of the public interest in competitive economic activity, established chancery powers and duties, and the occasional fallibility of the Government, the court is, at the very least, obligated to ensure that the public, and all interested parties, have received adequate notice of the proposed modification. . . .

1975-1 Trade Cas. (CCH) ¶ 60,201, at 65,703 (N.D. Ill. 1975) (footnote omitted).

Early in the course of the Department's investigation, Hilton published notice of its proposal to terminate the Partial Final Judgment and provided the public an opportunity to submit comments to the United States. The notice was published in two widely read industry publications: it appeared in The Wall Street Journal on November 7, 2006 and November 8, 2006 and Hotel Business on November 7, 2006 and November 21, 2006. See Appendix 6. The proposal to terminate the Final Judgment was not expressly included in these notices. The United States received no comments in response to these notices.

In accord with Antitrust Division policies, the United States proposes — and Hilton and Starwood have agreed to — the following additional notice and comment procedures:

  1. The United States will publish in the Federal Register a notice announcing the motion to terminate the Partial Final Judgment and the Final Judgment, and the United States' tentative consent to it, summarizing the Complaint and Judgments, describing the procedures for inspecting and obtaining copies of relevant papers, and inviting the submission of comments.
  2. Hilton and Starwood will publish, at their own expense, notice of the motion in two consecutive issues of The Wall Street Journal and Hotel Business. These periodicals are likely to be read by persons interested in the markets affected by the Partial Final Judgment and the Final Judgment. The published notices will provide for public comment during the thirty days following publication of the last notice.
  3. Within a reasonable period of time after the conclusion of the thirty-day period, the United States will file with the Court copies of any written comments that it receives and its response to those comments.
  4. The parties request that the Court not rule upon the Motions to Terminate for at least forty days after the last publication of the notices described above, i.e., for at least ten days after the close of the period for public comment.

This procedure is designed to provide notice to all potentially interested persons, informing them that a motion to terminate the Partial Final Judgment and the Final Judgment is pending and providing them an opportunity to comment thereon. Starwood and Hilton have agreed to follow this procedure, including publication of the appropriate notice. The parties therefore submit herewith to the Court a separate order establishing this procedure. The United States reserves the right to withdraw its consent to the motions at any time prior to entry of an order terminating the Partial Final Judgment and the Final Judgment.

  1. CONCLUSION

For the foregoing reasons, the United States tentatively consents to termination of the Partial Final Judgment and the Final Judgment.

Dated: October 17, 2007.

Respectfully submitted,

_______________/s/________________
CHRISTOPHER M. RIES
Attorney for the United States
U.S. Department of Justice
Antitrust Division, Litigation III Section
325 Seventh St., N.W., Suite 342
Washington, DC 20530
Telephone: (202) 307-6351
Facsimile: (202) 514-7308


CERTIFICATE OF SERVICE

I hereby certify that on this 17th day of October, 2007, I caused a copy of the foregoing Memorandum in Response to Defendant Hilton and Starwood Hotels' Motion to Terminate the Partial Final Judgment and the Final Judgment to be served on the defendant and successors in interest to the Partial Final Judgment and the Final Judgment that still have active operations in the United States at the addresses given below:

Counsel for Defendant Hilton Hotels Corp.

JOSEPH F. WINTERSCHEID
McDermott Will & Emery LLP
600 Thirteenth St., NW
Washington, D.C. 20005
Telephone: (202)756-8061
Facsimile: (202)756-8087

CHRISTOPHER L. RIEVE
Oregon State Bar # 833058
Jordan Schrader Ramis PC
Two Centerpointe Drive
Sixth Floor
Lake Oswego, OR 97305
Telephone: (503)598-7070
Facsimile: (503)598-7373

Counsel for Successor in Interest Starwood Hotels and Resorts, Worldwide, Inc.

HELENE D. JAFFE
Weil, Gotshal & Manges LLP
767 Fifth Ave.
New York, NY 10153
Telephone: (212) 310-8572
Facsimile: (212) 310-8007

ELIZABETH M. CLINE
Oregon State Bar # 944859
The Rosen Law Firm
Old Federal Courthouse
Suite 702
620 S.W. Main St.
Portland OR 97205
Telephone: (503) 525-2525
Facsimile: (503) 525-2526

Counsel for Successor in Interest Portland Oregon Visitors Association

MICHAEL A. COHEN
Schwabe, Williamson and Wyatt, P.C.
1211 S.W. Fifth Ave.
Suites 1500-1900
Portland, OR 97204
Telephone: (503) 796-2488
Facsimile: (503) 796-2900


_______________/s/________________
CHRISTOPHER M. RIES
Attorney for the United States
U.S. Department of Justice
Antitrust Division, Litigation III Section
325 Seventh St., N.W., Suite 342
Washington, DC 20530
Telephone: (202) 307-6351
Facsimile: (202) 514-7308


FOOTNOTES

1. Four defendants were subject to the Partial Final Judgment: Hilton, ITT Sheraton Corporation of America ("Sheraton"), Cosmopolitan Investment, Inc. ("Cosmopolitan"), and the Greater Portland Convention Association ("GPCA"). Western International Hotels Company ("Westin") was the sole defendant to the Final Judgment. Of these five original defendants, only one original defendant, Hilton, and two successors in interest, Starwood and the Portland Oregon Visitors Association ("POVA"), exist today. Starwood is a successor in interest to defendants Sheraton and Westin; POVA is a successor in interest to defendant GPCA; and defendant Cosmopolitan is now defunct. Hilton notified POVA of its intent to terminate the Partial Final Judgment. POVA does not oppose termination.

2. The Antitrust Procedures and Penalties Act, 15 U.S.C. § 16(b)-(h) (the "Tunney Act"), which provides for public notice and comment on antitrust settlements proposed by the United States, does not apply to decree terminations. Nevertheless, the United States solicits public comments in furtherance of its investigation of the proposed termination of antitrust decrees.

3. "Tr." refers to United States v. Hilton Hotels Corp., et al., Criminal Action No. 70-123 (D. Or. Transcript of Proceedings November 30- December 4, 1970.)

4. Various executives of these organizations were also individually indicted.

5. Partial Final Judgment at §§ IV(A)-(B), V(A)-(G), and VI(A)-(B). The remaining provisions expired long ago.

6. Final Judgment at §§ IV(A)-(B), and V(A)-(G). The remaining provisions expired long ago. Sections IV(A)-(B) and V(A)-(G) in the Final Judgment are prohibitions identical to those in §§ IV(A)-(B) and V(A)-(G) in the Partial Final Judgment. Section VI(A)-(B) of the Partial Final Judgment applies only to the convention bureau defendant. No convention bureau defendant was subject to the Final Judgment.

7. Antitrust Division Manual, § IV.E.d.2. (1998 ed.). This change in policy followed Congress' 1974 amendment of the Sherman Act to make violations a felony, punishable by substantial fines and jail sentences. With these enhanced penalties for per se violations of the antitrust laws, the Division concluded that antitrust recidivists could be deterred more effectively by a successful criminal prosecution under the Sherman Act than by a criminal contempt proceeding under provisions of an old consent decree aimed at preventing a recurrence of price-fixing and other hard-core antitrust violations. United States v. Columbia Artists Mgmt., Inc., 662 F. Supp. 865, 867 (S.D.N.Y. 1987).

8. In addition, in the early 1980s, the Antitrust Division conducted its own review of over 1,200 old consent decrees then in effect to ensure that none "hinder[ed] . . . competition" or "reflect[ed] erroneous economic analysis and thus produce[d] continuing anticompetitive effects." The Honorable William French Smith, Attorney General of the United States, Remarks at the Annual Meeting of the District of Columbia Bar (June 24, 1981), at 11. Although that effort was necessarily constrained by the Division's limited resources and other enforcement priorities, it did lead to the termination of several decrees that at the time appeared most problematic. See also Jeffrey I. Zuckerman, Removing the Judicial Fetters: The Antitrust Division's Judgment Review Project (1982) at 2-3 (hereinafter "Zuckerman Speech") (attached hereto as Appendix 5); see Department of Justice Authorization for Fiscal Year 1984 Before the Subcommittee on Monopolies & Commercial Law, Committee on the Judiciary, 98th Cong. 16 (1983) (statement of William F. Baxter, Assistant Attorney General, Antitrust Division).

9. Among the circumstances where continuation of a decree entered more than ten years ago may be in the public interest are: a pattern of noncompliance by the parties with significant provisions of the decree; a continuing need for the decree's restrictions to preserve a competitive industry structure; and longstanding reliance by industry participants on the decree as an essential substitute for other forms of industry-specific regulation where market failure cannot be remedied through structural relief. None of these circumstances is present in this case.

10. See, e.g., Partial Final Judgment and Final Judgment at §§ IV(A)-(B) (prohibiting the hotel defendants from, among other things, entering into agreements with other hotels to utilize preferred suppliers). Other provisions prohibit unilateral conduct that, absent some evidence of an agreement to act in concert, would not even be prohibited by the antitrust laws. See, e.g., Partial Final Judgment and Final Judgment at §§ V(A)-(G), and Partial Final Judgment at VI(A)-(B) (prohibiting, among other things, hotel and convention bureau defendants from sharing certain types of information with their employees).

11. Currently, for fear of violating the decrees, the defendants' franchised hotels, which comprise a significant portion of their branded hotels, do not participate in the defendants' centralized purchasing programs. The triggering mechanism for the decrees' prohibition on group purchasing is the involvement of "other hotels," which are defined as any hotel that is not owned, operated, or managed by the defendants . United States v. Greater Portland Convention Association, Inc., et al., Civil No. 70-310, 1971 Trade Cas. (CCH) ¶73,731 (D. Or. 1971).

12. The Department and the Federal Trade Commission (FTC) have recognized procompetitive benefits can come from the types of legitimate group purchasing collaborations prevented by the decrees. According to the joint DOJ/FTC Antitrust Guidelines for Collaboration Among Competitors (2000) ("Guidelines"), purchasing collaborations may be procompetitive because they enable participants to centralize ordering, and to combine warehousing or distribution functions more efficiently. See §3.31(a). Furthermore, these collaborations may enable the participants to offer goods and services that are cheaper, more valuable to consumers, or brought to market faster than would be possible absent collaboration with competitors. Id. at §2.1. Since these benefits may outweigh any anticompetitive effects arising from the agreement, rule of reason analysis is more appropriate when analyzing these restraints.