Foreword By Assistant Attorney General Joel I. Klein
March 20, 2000
I am pleased to present this Report summarizing the recent major activities of the Antitrust Division of the Department of Justice. As the Report documents, this has been an active period for the Antitrust Division across the full-range of its enforcement responsibilities: criminal prosecutions, merger review, and civil non-merger activities. Our accomplishments range from prosecutions of international cartels that have resulted in greater fines than ever before to successful challenges to multibillion dollar mergers, not to mention challenges to exclusionary behavior in technologically critical industries.
Antitrust plays an important role in our economy. Competition is the cornerstone of this country's economic foundation. We have long extolled the virtues of the free market, which provides business with the opportunity to innovate, produce, and distribute goods and services without direct intervention by the government. Competition, rather than government directives, determines which businesses will succeed, and consumers are the ultimateand appropriatebeneficiaries of the competitive process.
The antitrust laws ensure that the benefits of the competitive process are not interdicted by private anticompetitive conduct. The Supreme Court has described the Sherman Act as the "magna carta" of the free enterprise system. The antitrust laws are thus used to deter and punish anticompetitive conduct and to obtain prospective relief to prevent such conduct in the future.
At the same time, caution must be taken to assure that the antitrust laws are not misused to protect competitors from the vigor of the competitive process. In a free market system, innovation and creativity should be rewarded, not penalized. There will inevitably be winners and losers in this battle, but while the antitrust laws are intended to prevent conduct that impairs the competitive process, the antitrust agencies are not in the business of picking who should win and who should lose. That responsibility falls to consumers, who make that determination through their purchasing decisions.
This is the kind of antitrust enforcement policy to which this Administration is committed. It is both principled and pragmatic. There is no presumption that "big" is "bad," but neither is there an assumption that the market will always "correct" anticompetitive problems. Instead, the Antitrust Division pays careful attention to facts, informed by economic analysis, in making its enforcement decisions.
Despite the diversity of our enforcement targetsranging from hard-core criminal violations to exclusionary practices by dominant producers and service providerswe have observed certain important trends that cut cross the full range of competitive activity: globalization of trade, rapid technological change, and deregulation. Each of these trends has important implications for the future of antitrust enforcement.
(Description of photograph: Assistant Attorney General Joel Klein sitting at his desk.)
Globalization of Trade
International trade is of increasing importance to the economic well-being of United States producers and consumers. U.S. firms frequently export to foreign countries, and American consumers purchase goods manufactured abroad. Nearly 25 percent of our GDP is now related to export and import trade. The increasing globalization of economic behavior presents important challenges to antitrust regimes that have traditionally been administered by individual sovereign nations. The Antitrust Division has taken account of the globalization of trade in important ways.
First, the Antitrust Division is devoting more of its resources to uncovering international cartel behavior that has significant economic consequences for American consumers. Perhaps the most widely publicized example during the past year was the successful prosecution of companies and individuals involved in vitamin production, which culminated in fines of over $875 million for companies and in significant jail time for individuals. More of our criminal investigations involve foreign companies than ever before. To detect and prosecute international cartels, the Antitrust Division has developed programs that encourage cooperation by foreign companies and their employees, including various forms of cooperation agreements with other governments.
So, too, the Antitrust Division has recognized the international dimension of merger activity. An increasing number of transactions have competitive implications in more than one country, and today it is not uncommon for a transaction to be subject to multicountry review. The Antitrust Division has endeavored to develop good working relationships with other countries and the European Union. We are working closely with governments around the world to cooperate in merger review, both to minimize burdens on private parties and to advance the cause of proper antitrust analysis. To advance this process, the Attorney General established the International Competition Policy Advisory Committee, which recently issued its report reviewing international antitrust issues and making recommendations for consideration.
(Description of photograph: Assistant Attorney General Joel Klein speaking in front of a microphone. In the background, to his right, is Attorney General Janet Reno.)
A number of our most important industries have been characterized recently by unprecedented levels of technological change. Such change has important implications for antitrust enforcement. On the one hand, such change creates opportunities for companies to develop new products and services and find rapid customer acceptance. It has been argued that the prospect for such change reduces the need for antitrust enforcement because a company that dominates an industry today may be replaced tomorrow by a company that suddenly offers a superior product or service. However, rapid technological change may actually increase barriers to entry through network externalities and first-mover advantages, which pose risks that markets will "tip" very quickly toward a dominant supplier and thereby make entry extremely difficult. The more important that innovation becomes to society, the more important it is to preserve economic incentives to innovate. In such circumstances, timely and effective antitrust enforcement may be the key to preserving an environment in which companieswhether new or old, large or smallbelieve that there will be no artificial barriers to bringing new products and services to market.
It is undoubtedly true that rapid technological change requires careful attention to facts. Our challenges to the Lockheed Martin-Northrop Grumman transaction and Microsoft's monopoly of computer operating systems are not garden-variety antitrust actions. They and other challenges filed by the Antitrust Division were undertaken only after careful consideration of both historical conduct and likely future effects. The fact that antitrust analysis of issues arising in high-technology industries may be difficult is no basis for abandoning the effort altogether. Enforcement decisions that are made today, especially in industries characterized by rapid technological change, will have important ramifications for the nature of the American economy for many years to come.
In recent decades, legislative and regulatory changes in the United States have reversed a generation of pervasive government regulation and deregulated such basic industries as telecommunications, energy, financial services, and transportation. Competition, with appropriate reliance upon antitrust laws, has again become the norm.
The Antitrust Division continues to work with various agencies to find ways to replace regulatory constraints with competitive incentives. We have been very active in promoting competition pursuant to the Telecommunications Act of 1996, both to the Federal Communications Commission and in the courts. The Antitrust Division is the primary advocate of competition within the executive branch and works regularly with Congress, urging that the marketplacethrough purchase decisions made by consumersrather than government agencies determine the products and services that businesses will provide.
The United States has again become the dominant economy of the world. The fact that this reemergence has coincided with a substitution of competition for regulation and a reinvigorated antitrust enforcement policy is not a coincidence. Michael Porter noted in his landmark work The Competitive Advantage of Nations (at pp. 662-63) that domestic firms spared from competing at home are unlikely to succeed abroad. He also found that the importance of domestic rivalry has "strong implications for antitrust policy
. A strong antitrust policy, especially in the area of horizontal mergers, alliances, and collusive behavior, is essential to the rate of upgrading in an economy." We could not agree more.
I hope you will find the attached report informative. This is the first Annual Report published by the Antitrust Division in over three years. As a result, the discussion of our enforcement programs includes references to certain matters begun before fiscal 1999 that carried over into that year, and the appendices contain information about cases filed subsequent to publication of our last annual report.
Our recent accomplishments are testimony to the hard-working men and women of the Antitrust Division and the bipartisan support that antitrust enforcement has enjoyed. Both are critical to the health and future of the American economy.