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The original documents are located in Box 58, folder "1976/09/30 HR8532
Hart-Scott-Rodino Antitrust Amendments Act of 1976 (5)" of the White House Records
Office: Legislation Case Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Exact duplicates within this folder were not digitized.
Digitized from Box 58 of the White House Records Office Legislation Case Files
at the Gerald R. Ford Presidential Library
Calendar No. 763
94TH CONGRESS
2d Session
}
SENATE
{
REPORT
No. 94-803
THE ANTITRUST
IMPROVEMENTS ACT OF 1976
REPORT
OF THE
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
together with
ADDITIONAL AND MINORITY VIEWS
TO ACCOMPANY
S. 1284
PART I
MAY 6, 1976.-Ordered to be printed
U.S. GOVERNMENT PRINTING OFFICE
69-509 0
WASHINGTON : 1976
This lengthy publication was not digitized. Please contact the Gerald R. Ford
Presidential Library or the government documents department of a local library to
obtain a copy of this item.
Calendar No. 763
94TH CONGRESS
2d Session
}
{
REPT. 94-
SENATE
803 Part II
THE ANTITRUST
IMPROVEMENTS ACT OF 1976
PART II-MINORITY VIEWS
OF THE
REPORT
OF THE
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
TO ACCOMPANY
S. 1284
MAY 20, 1976.-Ordered to be printed
U.S. GOVERNMENT PRINTING OFFICE
70-922 0
WASHINGTON : 1976
This lengthy publication was not digitized. Please contact the Gerald R. Ford
Presidential Library or the government documents department of a local library to
obtain a copy of this item.
94TH CONGRESS
HOUSE OF REPRESENTATIVES
REPT. 94-
1st Session
499 Part 2
ANTITRUST PARENS PATRIAE ACT
NOVEMBER 4, 1975.-Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
Mr. RODINO, from the Committee on the Judiciary,
submitted the following
SUPPLEMENTAL REPORT
[To accompany H.R. 8532]
Pursuant to clause 7 of rule XIII, the Judiciary Committee esti-
mates that no substantial costs, if any at all, will be incurred in the
implementation of H.R. 8532.
57-006
94TH CONGRESS
HOUSE OF REPRESENTATIVES
REPORT
1st Session
No. 94-499
ANTITRUST PARENS PATRIAE ACT
SEPTEMBER 22, 1975.-Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
Mr. RODINO, from the Committee on the Judiciary,
submitted the following
REPORT
together with
MINORITY AND SEPARATE VIEWS
[To accompany H.R. 8532]
The Committee on the Judiciary, to whom was referred the bill
(H.R. 8532), to amend the Clayton Act to permit State attorneys
general to bring certain antitrust actions, and for other purposes, hav-
ing considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu thereof
the following:
That this Act may be cited as the "Antitrust Parens Patriae Act".
SEC. 2. The Act entitled "An Act to supplement existing laws against unlawful
restraints and monopolies, and for other purposes", approved October 15, 1914
(15 U.S.C. 12 et seq.), is amended by inserting immediately after section 4B the
following new sections:
"ACTIONS BY STATE ATTORNEYS GENERAL
"SEC. 4C. (a) Any State attorney general may bring a civil action, in the name
of the State, in the district courts of the United States under section 4 of this
Act, and such State shall be entitled to recover threefold the damages and the
cost of suit, including a reasonable attorney's fee, as parens patriae on behalf of
natural persons residing in such State injured by any violation of the antitrust
laws.
"(b) In any action under subsection (a), the court may in its discretion, on
motion of any party or on its own motion, order that the State attorney general
proceed as a representative of any class or classes of persons alleged to have been
injured by any violation of the antitrust laws, notwithstanding the fact that such
State attorney general may not be a member of such class or classes.
"(c) In any action under subsection (a), the State attorney general shall, at
such time as the court may direct prior to trial, cause notice thereof to be given
by publication in accordance with applicable State law or in such manner as the
57-006
2
3
court may direct; except that such notice shall be the best notice practicable
by striking out "section 4" and inserting in lieu thereof "section 4 or 4C"
under the circumstances.
and
"(d) Any person on whose behalf an action is brought under subsection (a)
(3) by adding at the end of section 16 (15 U.S.C. 26) the following "In
may elect to exclude his claim from adjudication in such action by filing notice
any action under this section, the court shall award reasonable attorneys'
of his intent to do so with the court within sixty days after the date on which
fees to a prevailing plaintiff."
notice is given under subsection (c). The final judgment in such action shall be
res judicata as to any claim arising from the alleged violation of the antitrust
I. PURPOSE
laws of any potential claimant in such action who fails to give such notice of
intent within such sixty-day period, unless he shows good cause for his failure
The purpose of H.R. 8532 is to provide a new federal antitrust
to file such notice.
"(e) An action under subsection (a) shall not be dismissed or compromised
remedy which will permit State attorneys general to recover monetary
without the approval of the court, and notice of the proposed dismissal or com-
damages on behalf of State residents injured by violations of the anti-
promise shall be given in such manner as the court directs.
trust laws. The bill is intended to compensate the victims of antitrust
"MEASUREMENT OF DAMAGES
offenses, to prevent antitrust violators from being unjustly enriched,
and to deter future antitrust violations.
"SEC. 4D. In any action under section 4C (a) or (b) or in any other action
under section 4 of this Act which is maintained as a class suit, damages may be
II. SUMMARY OF REPORTED BILL
proved and assessed in the aggregate by statistical or sampling methods, by the
computation of illegal overcharges, or by such other reasonable system of estimat-
ing aggregate damages as the court in its discretion may permit, without the
The first section establishes the bill's short title.
necessity of separately proving the individual claim of, or amount of damage to,
Section 2 contains the parens patriae provisions to be added as new
each person on whose behalf the suit was brought.
sections of the Clayton Act (15 U.S.C. 12 et seq.). Proposed section
4C(a) authorizes State attorneys general to sue for damages on behalf
"DISTRIBUTION OF DAMAGES
of natural persons who have been injured by antitrust violations. Sec-
"SEC. 4E. Damages recovered under section 4C(a) shall be distributed in such
tion 4C(b) authorizes the conversion of 4C(a) actions into class suits
manner as the district court in its discretion may authorize, subject to the re-
quirement that any distribution procedure adopted afford each person a reason-
under certain circumstances. Section 4C(c) requires that individuals
able opportunity to secure his appropriate portion of the damages awarded less
on whose behalf parens patriae suits are brought be notified. Section
unrecovered costs of litigation and administration.
4C(d) provides an opportunity for individuals to exclude their claims
from parens patriae suits. Section 4C(e) requires court approval of
"ACTIONS BY ATTORNEY GENERAL OF THE UNITED STATES
settlements of parens patriae cases. Section 4D provides that, in parens
"SEC. 4F. (a) Whenever the Attorney General of the United States has brought
patriae cases and other antitrust class suits, damages may be proved
an action under section 4A of this Act, and he has reason to believe that any State
and assessed in the aggregate by reasonable methods of estimation.
attorney general would be entitled to bring an action under section 4C(a) based
substantially on the same alleged violation of the antitrust laws, he shall promptly
Section 4E requires the opportunity for individuals to secure their
give written notification to such State attorney general with respect to such
appropriate share of the damages recovered, with any amount re-
maining to be distributed as the court directs. Section 4F (a) requires
action. "(b) To assist a State attorney general in evaluating the notice and in bringing
the U.S. Attorney General to notify appropriate State attorneys gen-
any action under section 4C of this Act, the Attorney General of the United
States shall, upon request by such State attorney general, make available to
eral of their entitlement to bring parens patriae cases. Section 4F(b)
him, to the extent permitted by law, any investigative files or other materials
requires the U.S. Attorney General to make investigative materials
which are or may be relevant or material to the actual or potential cause of
available to State attorneys general in parens patriae cases.
action under section 4C.
Sections 3(1) and 3(2) amend existing sections of the Clayton Act
"DEFINITIONS
to include parens patriae actions in that Act's statute of limitations
"SEC. 4G. For purposes of this section and sections 4C, 4D, 4E, and 4F:
and provision for tolling the statute of limitations, respectively. Sec-
"(1) The term 'State attorney general' means the chief legal officer of a
tion 3(3) amends the Clayton Act to require that plaintiffs who prevail
State, or any other person authorized by State law to bring actions under
this Act; except that such term does not include any person employed or
in antitrust injunction cases be awarded reasonable attorney's fees.
retained on a contingency fee basis,
"(2) The term 'State' means a State, the District of Columbia, the Com-
III. BACKGROUND
monwealth of Puerto Rico, and the territories and possessions of the United
States. "(3) The term 'antitrust laws' does not include sections 2 and 7 of this
The economic burden of many antitrust violations is borne in large
measure by the consumer in the form of higher prices for his goods and
Act.". "(4) The term 'natural persons' does not include proprietorships or
services. This is especially true of such common and widespread prac-
tices as price-fixing, which usually result in higher prices for the con-
SEC. partnerships.". 3. The Act entitled "An Act to supplement existing laws against unlawful
sumer, regardless of the level in the chain of distribution at which the
restraints and monopolies, and for other purposes", approved October 15, 1914
violation occurs. It is also true of other antitrust violations such as
(15 U.S.C. 12 et seq.), is amended-
(1) in section 4B (15 U.S.C. 15b), by striking out "4 or 4A" and inserting
monopolization, attempts to monopolize, group boycotts, division of
in lieu thereof "4, 4A, or 40";
markets, exclusive dealings, tie-in arrangements, and conspiracies to
(2) in section 5(b) (15 U.S.C. 16(b)), by striking out "private right of
limit production. All of these violations are likely to cause injuries to
action" and inserting in lieu thereof "private or State right of action"; and
4
5
consumers, whether by higher prices, by illegal limitation of consumer
choices, or by illegal withholding of goods and services. Moreover, anti-
Those whose injuries were too small to bear the burden of com-
trust violations almost always contribute to inflation. They introduce
plex litigation would have no effective access to the courts. As
illegal and artificial forces into the market place, thus undermining
a result, the goal of deterrence sought by the Clayton Act
our economic system of free enterprise.
would be frustrated in those situations where damages fell
Frequently, antitrust violations injure thousands or even millions of
directly on small consumers or purchasers.
consumers, each in relatively small amounts. Indeed, many of the Jus-
Under the well established doctrine of parens patriae, States have
tice Department's recent prosecutions have involved price-fixing of
successfully sued to halt continuing wrongs which injure or threaten
consumer goods on a local or regional basis. In the food industries
to injure their citizens. The Clayton Act has been interpreted by the
alone, the Justice Department's cases have included price-fixing prose-
Supreme Court as authorizing States to maintain parens patriae law-
cutions involving bread and bakery products in the Philadelphia area,
suits to enjoin violations of the antitrust laws when those violations are
milk in Wyoming, dairy products in Colorado, Utah and Idaho, bread
injuring the State's citizens. In Georgia V. Pennsylvania R.R., 324 U.S.
and bakery products in Baltimore and the Eastern Shore area of
439, 451 (1945), the Court said that the State "as a representative of
Maryland, milk in Washington and Alaska, soft drinks in Tulsa, bread
the public is complaining of a wrong which, if proven, limits the oppor-
in New York and Chicago, baking companies in San Diego and
tunities of her people, shackles her industries, retards her development,
Louisiana, and sugar refiners nationally.
and relegates her to an inferior economic position among her sister
Although the antitrust laws have the immediate goals of protecting
States. These are matters of grave public concern in which Georgia
and promoting competition, it is the consuming public that ultimately
has an interest apart from that of particular individuals who may be
benefits from the enforcement of the antitrust laws. Nonetheless, Fed-
affected."
eral antitrust statutes do not presently provide effective redress for
However, when the State of California recently tried to sue to re-
the injury inflicted upon consumers. This lack of an effective consumer
cover monetary damages on behalf of persons who had allegedly been
remedy sometimes results in the unjust enrichment of antitrust vio-
injured by the price-fixing of snack foods, the Ninth Circuit Court of
lators and undermines the deterrent effect of the treble damage action.
Appeals held that parens patriae damage actions were not authorized
H.R. 8532 fills this gap by providing the consumer an advocate in the
by the Clayton Act. In large part, H.R. 8532 is a response to that case
enforcement process-his State attorney general.
and a recognition that the consuming public currently has no effective
During the Subcommittee's hearings in the 93d Congress, Assistant
means of obtaining compensation for its injuries.
Attorney General for Antitrust, Thomas Kauper outlined the problem
An extremely important benefit which would flow from H.R. 8532
in this way:
is the promotion of cooperation in antitrust enforcement between
There can be no doubt that the treble damage remedy pro-
the States and the federal government. As Federal Trade Commis-
vides a strong deterrent, especially against price-fixing and
sion Bureau of Competition Director James Halverson put it during
other hard-core per se offenses. This damage remedy has been
the Subcommitee's hearings this year:
particularly effective in cases involving large purchasers, for
There are certain violations of the federal antitrust laws
these plaintiffs are likely to have detailed evidence, a suffi-
which would be handled more efficiently by a parens patriae
ciently large economic stake to bear the inevitable risks of a
suit for damages than by a federal criminal proceeding or
lawsuit, and the resources to meet the apparently inevitable
action for injunctive relief. An example of such a situation
costs of protracted and complex litigation. However, the
might be where a regional seller of consumer goods has re-
remedy has been less effective in circumstances involving mul-
cently discontinued anticompetitive practices that directly
tiple transactions of relatively small size, particularly pur-
injured his customers. The best deterrent to a resumption of
chases by ultimate consumers of products that may cost as
the illegal conduct might be a suit by the state which deprives
little as 25 or 30 cents. There. records are not likely to be
the violator of the profits gained from his bad conduct and
available, individual claims will be small, and the claimant
provides relief which compensates the injured consumers.2
less likely to have either the sophistication or resources nec-
essary to prosecute their individual claims.
A State attorney general is an effective and ideal spokesman for
I believe that there is a need for the availability of a method
the public in antitrust cases, because a primary duty of the State
by which damages can be recovered where antitrust viola-
is to protect the health and welfare of its citizens. He is normally an
tions have caused small individual damages to large numbers
elected and accountable and responsible public officer whose duty is
to promote the public interest.
of citizen-consumers. Without such a procedure, those anti-
trust violations which have the broadest scope and, often,
the most direct impact on consumers would be most likely to
Subcomm. of the House Comm. on the Judiciary, 93d Cong., 2d Sess., ser. 43, at 27
1 Hearings on H.R. 12528 and H.R. 12921 Before the Monopolies and Commercial Law
escape the penalty of the loss of illegally-obtained profits.
(1974) (emphasis added) (hereinafter cited as 1974 Hearings).
Subcom. of the House Comm. on the Judiciary, 94th Cong., 1st Sess., ser. 3, at 16 (1975)
Hearings on H.R. 38 and H.R. 2850 Before the Monopolies and Commercial Law
(hereinafter cited as 1975 Hearings).
6
7
VI. THE CONSUMER PRESENTLY HAS No PRACTICAL MEANS OF REDRESS
dentiary issues, and distribution of any recoveries. In Eisen V. Carlisle
& Jacquelin, the Supreme Court interpreted Rule 23 to require class
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides a private
action plaintiffs to provide individual prelitigation notice to all
cause of action for treble damages, costs and attorneys' fees for "any
identifiable members of the class regardless of the cost of providing
person
injured in his business or property by reason of anything
such notice. In the 1975 hearings, the Director of the FTC's Bureau of
forbidden in the antitrust laws."
Competition, James Halverson, explained that:
Under this section, a State may sue to recover damages it has sus-
tained in its capacity as a propietor or purchaser of goods and serv-
The practical effect of Eisen is to eliminate the Rule 23
ices.³ Likewise, under § 4A of the Clayton Act, 15 U.S.C. § 15a, the
class action as a feasible means for recovery by a large class
United States may sue whenever it is injured in "its business or pro-
of individuals each of whom has sustained relatively minor
perty." Neither the United States nor any State, however, may pres-
damages. In situations where the costs of giving notice to the
ently use for damages in a representative capacity on behalf of in-
class are much greater than any individual class member's
jured citizens unless it has been injured in the same manner.
stake in the outcome of the action, it is unlikely that any suit
The impact of this legislative omission on effective antitrust enforce-
will be brought. The person who deals in certain types of con-
ment has become clear in recent years as a result of developing judicial
sumer goods, where each transaction may involve only a few
decisions. Under § 4 of the Clayton Act, any person, including any
dollars, can now fix prices, relatively free from the fear of
consumer, who can prove he was injured by price-fixing or any other
substantial treble damage actions.
antitrust violation, has a cause of action.4 In most instances, however,
A description of the facts in Eisen will indicate where
the Supreme Court's decision has left the consumer class
an individual law suit by an injured consumer is, as a practical mat-
ter, out of the question. If, for example, a price-fixing con-
action. The plaintiff, in Eisen, who claimed personal damages
spiracy results in an overcharge of a dollar on a relatively low
of only $70, sought to represent a class of as many as 6 million
priced consumer item, and 50 million such items are sold, the aggregate
persons who allegedly were injured as a result of violations
of the antitrust and securities laws. It was calculated that
impact of the conspiracy upon consumers and the illegal profits of the
price-fixers are not insignificant-at least $50 million.5 Yet no single
that the cost of giving individual notice to all identifiable
consumer could practically be expected to bring suit. He would have
members of the class would be about $315,000. The Court, in
no investigative resources-or incentive-to discover the conspiracy;
ruling that the plaintiff must give such notice, explicitly rec-
ognized that its decision sounded the death knell for Eisen's
should he become aware of the overcharge, he will almost certainly
have no proofthat he purchased the item at a particular time, place and
class action because the plaintiff was unlikely to expend
price; he will quite obviously have neither the incentive nor the re-
$315,000 to proceed with a suit in which he had a stake of only
$70. The immediate result was that the defendants retained
sources to engage in protracted and extremely costly litigation to re-
cover his tiny individual stake.
the profits from their allegedly illegal activities.⁷
Attempts to use the revised class action provisions of the 1966
At a minimum, the new emphasis on the intricacies of class actions
amendments to Rule 23 of the Federal Rules of Civil Procedure to
has simply added another round of expensive and delaying litigation
fashion a mechanism for consumer redress in this situation have been
on the very propriety of the validity, and therefore certification, of the
disappointing. Many courts have found that large consumer classes
class.
predicated upon small individual claims present insurmountable prob-
Individual suits and class actions have worked far better for busi-
lems of "manageability" in the conduct of the litigation. These man-
ness entities than for consumers injured by antitrust violations. Whole-
ageability problems include proper notice, the complexity of evi-
salers and retailers purchasing from price-fixing manufacturers will
frequently buy in sufficient volume to give them a substantial incentive
3 State and local governmental units have been recognized as "persons" under § 4 and
to sue. They maintain accurate purchase records which may be used
its predecessor for the purpose of bringing proprietarial damage actions since at least
1906. See, Chattanooga Foundry & Pipe Works V. City of Atlanta, 203 U.S. 390 (1906).
as proof of purchase, and they will usually have access to attorneys
4 Some courts initially interpreted the Supreme Court's decision in Hanover Shoe, Inc. V.
and other resources for investigating the facts and prosecuting the
United Shoe Mach. Corp., 392 U.S. 481 (1968), to limit standing to sue to the first pur-
chaser of a price-fixed product. In Hanover Shoe the Court refused to allow a defendant
litigation. Their numbers will be smaller, and ordinary business rec-
to escape liability by asserting that his purchaser had passed on any illegal overcharge
to the ultimate consumer. A major concern of the Court was to prevent the violator from
ords and the records of trade associations will frequently ease the
retailing the ill-gotten gains of his illegal behavior. The Court noted that if the first
problem of identifying claimants, so that they will not face many of
purchaser was denied standing the ultimate consumers would have neither the incentive
nor the ability to bring effective actions for return of the overcharges. 392 U.S. at 494.
the obstacles encountered by consumers in class action litigation.
More recently lower courts have recognized the pro-enforcement thrust of Hanover Shoe
The result has been relatively effective antitrust enforcement where
and have held that plaintiffs at lower levels of the chain of distribution may attempt to
prove that illegal overcharges were in fact passed on to them. See, e.g., In re Western
the violation has occurred high up in the chain of distribution, and
Liquid Asphalt Cases, 487 F.2d 191 (9th Cir. 1973).
6 The amount of the overcharge, of course, may not represent either the total social
where the impact has been upon other business entities. Where, how-
cost of the violation or the total of recoverable damages flowing therefrom. See, e.g., Flint-
ever, wholesalers and retailers have passed on all or most of the cost of
kote Co. V. Lysfjord, 246 F.2d 368, 389-90 (9th Cir.), cert. denied, 355 U.S. 835 (1957).
0 See, e.g., Donson Stores, Inc. V. American Bakeries Co., 1973-1 Trade Cases, 74,387
a violation to the consumer, or where the violation itself occurred at
(S.D.N.Y. 1973) (all purchasers of bread in the New York metropolitan area) ; United
Egg Producers V. Bauer Int'l Corp., 312 F. Supp. 319 (S.D.N.Y. 1970) (all purchasers of
eggs in the United States).
7 1975 hearings, 16.
8
9
the retail level (thus subjecting the consumer to the major impact of
the weak and helpless of the realm-to solve a very modern problem
the violation), adequate.enforcement mechanisms simply do not exist.
in antitrust enforcement. This doctrine is also firmly embedded in
The consumer, who benefits from the proper functioning of our free
American jurisprudence. Since 1900 the Federal courts have expanded
enterprise system with appropriate antitrust enforcement, has been
the power of a State to sue "in her capacity as a quasi-sovereign or as
without an effective method of redress of his grievances.
agent and protector of her people against a continuing wrong done to
Frustrated by this gap, the State of California brought an action
them." 10 The parens patriae doctrine already applies to antitrust in-
on behalf of its 20 million purchasers of snack foods, claiming they
junction cases. H.R. 8532 extends the doctrine to permit States to
had been the victims of a price-fixing conspiracy and seeking to repre-
protect their citizens by suing for damages when they are injured by
sent their interests in court. The Ninth Circuit Court of Appeals held
antitrust violations. The following is a discussion of individual sec-
in California v. Frito-Lay, 474 F.2d 774 (9th Cir.), cert. denied, 412
tions of the Bill.
SUBSECTION 4C(a)
U.S. 908 (1973), that California could not maintain such a "parens
patriae" action for its injured and legally helpless citizens. The court
This is the heart of H.R. 8532. It permits a State attorney general to
applauded the State's imaginative approach to an obviously important
bring parens patriae actions for treble damages "on behalf of natural
problem, but held that, under the law, California could not recover
persons residing in such State injured by any violation of the antitrust
damages on behalf of its citizens under the Clayton Act. Legislative
laws."
action was needed, the court said, to enable the State to represent its
The subsection creates no new substantive liability. Each person on
injured citizens:
whose behalf the State attorney general is empowered to sue already
The State most persuasively argues that it is essential that
has his own cause of action under section 4 of the Clayton Act, even
this sort of proceeding be made available if antitrust viola-
if, for practical reasons, the right to sue is not likely to be exercised.
tions of the sort here alleged are to be rendered unprofitable
Subsection (a) thus provides an alternative means to make practi-
and deterred. It would indeed appear that the State is on the
cally available Federal remedies at law, previously denied, for the vin-
track of a suitable answer (perhaps the most suitable yet pro-
dication of existing substantive claims. It authorizes State attorneys
posed) to problems bearing on antitrust deterrence and the
general to sue for damages on behalf of injured persons, subject to the
class action as a means of consumer protection. We disclaim
other provisions of the bill, namely, (1) the right of individuals to
any intent to discourage the State in its search for a solution.
opt out under section 4C(d), (2) the extinction of the individual's
However, if the State is to be empowered to act in the
right to maintain his own suit if he does not opt out, and (3) the right
fashion here sought we feel that authority must come not
of the individual to receive his appropriate share of any recovery.
through judicial improvisation but by legislation and rule
The establishment of an alternative remedy does not increase any
making, where careful consideration can be given to the con-
defendant's liability. To the extent an antitrust violator was liable to
ditions and procedures that will suffice to meet the many prob-
an individual, H.R. 8532 would make the violator liable to either the
lems posed by one's assertion of power to deal with another's
individual or the State. The likelihood of a financial recovery against
property and to commit him to actions taken in his behalf.
an antitrust violator, however. is significantly increased because H.R.
8532 creates an effective remedy where none existed before.
H.R. 8532 is a response to the judicial invitation extended in Frito-
The subcommittee and the full committee gave extended considera-
Lay, The thrust of the bill is to overturn Frito-Lay by allowing State
tion to the proper scope of the remedy. The original bill before the
attorneys general to act as consumer advocates in the enforcement
subcommittee, H.R. 38, would have permitted actions on behalf of
process, while at the same time avoiding the problems of manageability
"citizens" injured by antitrust violations. The subcommittee also con-
which some courts have found under Rule 23.
sidered using the terms "persons" and "consumers"; it concluded that
Support for these legislative goals was expressed in hearings by
"persons" was too broad a term as it might be construed to include busi-
every witness before the subcommittee, including some who opposed
ness entities, which are able, in general, to fend for themselves. On the
substantial portions of earlier versions of the bill. The bill as reported
other hand, the term "consumers" was considered potentially too nar-
by the committee is supported by the Department of Justice and the
row and too prone to definitional problems.
Acting Director of the Bureau of Competition of the Federal Trade
The committee chose "natural persons" as the best expression of the
Commission, and, generally, by the National Association of Attorneys
goals of the legislation. The term is intended to exclude business en-
General.
tities such as corporations, partnerships and sole proprietorships.
V. THE PROVISIONS OF H.R. 8532
While some "natural persons" might be in a position to bring their
own actions and some business entities might not, the committee con-
H.R. 8532 employs an ancient concept of our basic English common
cluded that these instances will be rare and that use of the phrase
law-the power of the sovereign to sue as parens patriae on behalf of
"natural persons" will permit actions on behalf of those most in need
8A single antitrust violation, it must be noted, may cause multiple injuries, and each
individual or business which is injured in its business or property has a right to recover
10 Georgia V. Pennsylvania R.R., 324 U.S. 439, 443 (1945). For an historical discussion
damages. A violation occurring at the retail level may, in addition to raisng consumer
of the parens patriae doctrine in American law, see Hawaii V. Standard Oil Co., 405 U.S.
prices, injure other retailers who compete with the violators.
251, 257-260 (1972).
474 F.2d at 777.
H. Rept. 94-499-2
10
11
of representation but presently unrepresented. Moreover, the "opt-out"
If a case is converted to a § 4C(b) class action, the provisions of
provision of subsection 4C(d) will preserve the separate law suit of
§§ 4C(c), 4C(d), 4C(e), 4D, 4E, 4F(b), and 4G apply, even though
any "natural person" who does not want the State attorney general to
they may be inconsistent with the provisions of Rule 23. "Adequacy
pursue his claim.
of representation" may be an issue in Rule 23 actions because of the
Under H.R. 8532, parens patriae actions may be maintained to re-
possibility that the representative may have a conflict of interest or
cover damages for any antitrust injuries, except those resulting from
otherwise be inadequate. No such issue should arise in parens patriae
violations of section 2 (price discrimination) and section 7 (anticom-
cases under section 4C(a) or 4C(b), however, absent extraordinary
petitive mergers) of the Clayton Act. The Assistant Attorney General
circumstances involving a particular State attorney general.
recommended that these sections not be included, and the committee
Subsection 4C(b) is designed to give the courts maximum flexibility
agreed that they are not appropriate for parens patriae actions.
to structure individual and consolidated actions to achieve the goal of
State attorneys general may retain outside private counsel to assist
full and fair adjudication of claims under the antitrust laws. 13 It will
in the prosecution of parens patriae cases. Private counsel may be espe-
permit the courts to utilize the services of the attorney general in a
cially necessary and useful when there is multistate litigation since
broad representative capacity in those few cases where the parens
private counsel may be better able to coordinate such litigation than
patriae action would be clearly inappropriate.
any individual State attorney general. Private counsel may not, how-
The committee is clear in its preference for parens patriae actions
ever, be retained or employed on a contingency fee basis under the com-
under section 4C(a). One of the subsidiary purposes of H.R. 8532 is to
mittee's bill, because the committee felt that States should be encour-
avoid, in consumer actions, the cumbersome litigation of peripheral
aged to develop their own in-house antitrust capability.
issues which under Rule 23 has sometimes become more time-consum-
ing and costly than litigating the merits of the case. Only where some
SUBSECTION 4c(b)
positive impediment to the maintenance of a parens patriae action
Subsection 4C(b) provides the courts with a flexible alternative to
exists should a court have to resort to the alternative provided by sec-
tion 4C(b).
the parens patriae action in those rare instances where a different ap-
SUBSECTIONS 4C(C) AND 4c(d)
proach is necessary to the efficient conduct of litigation. Under this
section the court is empowered, on its own motion or that of any party,
Subsections 4C(c) and 4C(d) must be read together; they are
to order that an action originally filed as a parens patriae action be
designed to protect the constitutional due process rights of each indi-
maintained as a class action. The attorney general may then represent
vidual potential claimant and defendant.
an appropriate class or classes, regardless of whether he himself is a
The constitutional concept of due process in a civil case embodies
member of that class or of those classes.
at a minimum two components: notice that a court is about to take
Under the existing class action enforcement scheme, the courts have
action which may affect a person's interests, and an opportunity to be
been reluctant to permit State attorneys general to act as representa-
heard in defense (or prosecution) of that interest. 14 At the same time,
tives of classes of injured consumers, unless their States, or subdivisions
a defendant who litigates a case against a case against a person who
thereof, have been injured in the same way as the other members of
purports to represent a particular class has a strong interest in being
the class.¹¹ At one level, § 4C(b) reflects the committee's disapproval of
able to enforce the result against and avoid relitigation with any
this unnecessarily narrow approach to the issue of adequate repre-
person who was supposedly represented in the action. That interest
sentation in antitrust class actions.¹²
is given effective recognition in the legal doctrines of res judicata and
The Judiciary Committee recognized that there may be occasions
collateral estoppel.
when extensive investigations and pretrial proceedings and the inter-
Subsections 4C(c) and 4C(d) serve these constitutional interests by
ests of all parties involved convince the court that, in the interests of
providing all potential claimants in the parens patriae action with
justice, an action which was brought as a 4C(a) parens patriae law-
adequate notice that their interests are to be adjudicated and an oppor-
suit should be transformed to and maintained as a class action. It
tunity to be heard in vindication of those interests. Simultaneously,
might, for instance, be fairer to all parties for the court to order that
they allow a defendant to plead the result as res judicata against all
a parens patriae action become a 4C(b) action when both businesses
those represented by the State attorney general.
and natural persons have been injured in exactly the same manner.
Under § 4C(c), the attorney general in a parens patriae action is
Conversion to a 4C(b) action would be inappropriate except where
the interests of justice would be served thereby. And it would clearly
required to cause "notice thereof to be given by publication in accord-
be inappropriate for a court to convert a 4C(a) action into a Rule 23
13 Once a parens patriae action has been converted to a class action under subsection
class action and, then, dismiss the case on grounds of unmanageability
4C(b), it is not intended to limit in any fashion the existing discretion of the court to
under Rule 23.
define classes and subclasses and to designate appropriate parties to provide adequate
representation. To the contrary, the intent is to make clear the breadth of that discretion.
Thus the attorney general could, under subsection 4C(b), be designated to act as a
representative of a class including business entities, notwithstanding the fact that he
11 See, e.g., California V. Frito-Lay, Inc., 474 F.2d 774 (9th Cir.), cert. denied, 412 U.S.
could not initially have brought a subsection 4C(a) action on behalf of such entities.
908 (1973).
Likewise, even though subsection 4C(b) makes it clear that the attorney general or the
12 As one court put it, "it is difficult to imagine a better representative of the retail
State need not actually be a member of the class he acts to represent, such membership
consumers within a State than "State's attorney general." In re Antibiotic Antitrust
would not be a disqualification. Thus where the State itself is a purchaser, the attorney
Actions, 333 F. Supp. 278, 280 (S.D.N.Y. 1971).
general could represent its proprietarial interests and the interests of those of its citizens
included in the class designated by the court.
14 See, e.g., Mullane V. Central Hanover Bank & Trust Co., 339 U.S. 306, 314-15 (1950).
12
13
ance with applicable State law or in such manner as the court may
claimant being bound by the result in the parens patriae case, absent
direct; except that such notice shall be the best notice practicable
a showing of good cause for his failure. If an individual opts out, he
under the circumstances."
may bring his own action under existing law.
The subsection reflects a committee preference for notice by publica-
Thus subsection 4C(d) provides protection for the potential claim-
tion in all cases where such notice would adequately serve the consti-
ant's interest in prosecuting his own action. At the same time it safe-
tutional and other interests at stake. "Publication" should, of course,
guards the res judicata rights of defendants against claimants who fail
be taken in modern context to include employment of media such as
to come forward and exclude themselves from the representational
radio and television, as well as traditional newspaper advertise-
action. In this regard it protects the right of a defendant to avoid
ment. 15 When there is no applicable State law, or where the manner
duplicative liability.
of publication provided by State law would, in the court's judgment,
SUBSECTION 4C(e)
be insufficient, the court should determine the method of publication.
The statutory preference for publication is qualified by the proviso
Under Rule 41 of the Federal Rules of Civil Procedure, parties to
that whatever form of notice adopted should be "the best notice prac-
litigation are ordinarily allowed to dismiss or compromise the action
ticable under the circumstances." This language is taken from Rule 23
without court approval. In Rule 23 class actions, however, settlements
and from major Supreme Court decisions under the due process clause.
require court approval, which is intended to offer protection to the
These decisions require the court to engage in a delicate balancing
class members. Under § 4C(e) of the bill, dismissal or compromise of a
process to determine what is the "best notice practicable under the cir-
parens patriae action without the approval of the court is likewise pro-
cumstances." This balancing test cannot be reduced to any specific
hibited. Moreover, where an action is dismissed or compromised, notice
written formula, but a few of the underlying principles are worth
must be given "in such manner as the court directs," thus allowing dis-
mentioning. Where the number of potentially affected parties is large
satisfied claimants to object to the proposed settlement.
and individual interests are small or remote, or where names and ad-
The committee views this section as an important safeguard for con-
dresses are difficult or impossible to obtain, the due process clause does
sumers in the event an attorney general seeks to terminate a parens
not rigidly require individual written notice of the litigation to be
patriae action by settlement.
sent to each.¹⁶ Moreover, where the requirement of individual written
Subsection 4C(e) serves a special prophylactic function, to protect
notice would frustrate a major legislative or judicial policy, that coun-
members of the class from unjust or unfair settlements should their
tervailing policy is entitled to considerable weight in the determina-
champion become fainthearted or inadequate in his representation.
tion whether publication notice will suffice.¹⁷
This section is intended to promote public confidence in the settlements
In light of these factors and the historically fluid nature of due
of parens patriae cases by requiring court approval. As under Rule 23,
process requirements, the committee believes that the imaginative use
it will be incumbent on the courts to consider carefully any proposed
of publication notice will suffice in the vast bulk of parens patriae anti-
settlement and to approve that settlement only if it is fair and reason-
trust suits. The numbers of potential claimants will frequently be very
able and in the interests of justice.
large, the absence of documented proof of purchase will make identifi-
cation of individual claimants in many instances difficult or impos-
SECTIONS 4D AND 4E
sible, and publication through newspapers, radio and television will
These two sections deal with the measurement and distribution of
frequently quite literally be "the best notice practicable." At the same
damages once liability has been established. They must also be viewed
time, the strong public interest in enforcement of the antitrust laws
and understood as a unit. Section 4D provides that a State attorney
against those who have injured large numbers of consumers would be
general may prove the damages suffered by a given class in the aggre-
frustrated by a rejection of publication notice in favor of something
gate by statistical or other reasonable methods of estimation. Section
economically or otherwise impracticable. Only in extraordinary cir-
4E provides that any amounts left over after the satisfaction of in-
cumstances where publication notice would be manifestly unfair
dividual claims shall be distributed as the court may direct. These sec-
should courts require more.
tions address another major difficulty in the emerging Rule 23 case law.
Subsection 4C(d) provides that any person may exclude his claim
The potential difficulties of computing and distributing damages for
from the parens patriae action by filing notice of intent to do SO within
large classes of persons have led a number of courts to refuse to certify
60 days after notice has been given. Failure to file such a notice of in-
actions under Rule 23 on the grounds that they would be unreason-
tent to exclude himself within the given time will result in a potential
able.¹⁸
The fundamental premise of sections 4D and 4E with regard to the
15 See Nolop V. Volpe, 333 F.Supp. 1364 (D.S.D. 1971).
16 Mullane V. Central Hanover Bank & Trust Co., 339 U.S. 306, (1950) Hansberry V.
measurement, assessment and distribution of damages is that the anti-
Lee, 311 U.S. 32 (1940) Supreme Tribe of Ben-Hur V. Cauble, 255 U.S. 356 (1921)
trust laws should, at a minimum, provide an effective means whereby
Gonzales V. Cassidy, 474 F.2d 67 (5th Cir. 1973) Berland V. Mack, 48 F.R.D. 121
(S.D.N.Y. 1969) Miller, Problems of Giving Notice in Class Actions, 58 F.R.D. 313,
a plaintiff or plaintiff class can force a guilty defendant to part with
314-15 (1972) Comment, 62 Geo. L. J. 1123, 1169, and n. 256 (1974); Note, 87 Harv.
L. Rev. 589, 590 (1974).
17 Boddie V. Connecticut, 401 U.S. 371, 377-78 (1971) Armstrong V. Manzo, 380 U.S.
18 See, e.g., Boshes V. General Motors Corp., 59 F.R.D. 589 (N.D. III. 1973) City of
545, 550 (1965) Schroeder V. City of New York, 371 U.S. 208, 212-13 (1962) ; Sniadack V.
Philadelphia V. American Oil Co., 53 F.R.D. 45 (D.N.J. 1971).
Family Finance Corp., 395 U.S. 337, 339 (Harlan, J. Concurring).
14
15
all measurable fruits of his illegal activity as it relates to the plaintiff,
brought in instances where thousands or millions of consumers have
multiplied threefold to reflect the factor Congress has determined is
been injured. Few consumers keep receipts for all the goods and serv-
necessary as a punishment, as a deterrent, and as an incentive. This
ices they purchase or use. In fact, individual receipts or records are
premise is in full accord with established concepts of damages under
not available on a great many consumer goods and services. Snack
the antitrust laws. The cases reiterate that defendants must disgorge
food machines, for instance, do not issue receipts. Without the aggre-
ill-gotten gains; 19 and the standard rules for measuring damages
gation provisions of § 4D, antitrust violators would be able to injure
allow a reasonable estimate thereof once the fact of injury has been
most consumers with impunity, even if § 4C(a) parens patriae actions
established.20
were permitted. Section 4D is also necessary to avoid endless trials in
Section 4D draws upon this established body of law by permitting a
which thousands or millions of individuals would have to appear to
reasonable estimation of the amount of damage to the class as a whole
prove their individual claims and the amounts of their individual
in a parens patriae or Rule 23 antitrust class action. After the viola-
injuries. The section is needed to make parens patriae cases manage-
tion and the fact of some injury to the class have been proved, § 4D
able and effective. It will reduce significantly the time and expense
permits the aggregation of the claims and amounts of injury to the
of the parties and it will simplify the job of the court. Section 4D
members of the injured class without the requirement of separate
also permits aggregation and estimation of damages in class actions
proof of the fact and amount of injury to each individual member of
brought by private parties under § 4 of the Clayton Act. In this regard,
the class. Questions relating to causation and the fact of injury to a
the section overcomes some problems which have arisen in cases hold-
class may require the court to address such questions separately with
ing that.large classes and the difficulties of damage proof render litiga-
respect to different groups within the class of natural persons. For
tion unmanageable.
example, in a price-fixing case, the illegal overcharge may have alleg-
Section 4D is fair to both plaintiffs and to defendants. It changes
edly been passed on to some consumers indirectly through several
the method by which damages are to be measured and assessed, but
layers in the chain of distribution and to others directly. These two
the defendant is entitled to a jury trial on the same issues as before.
groups may pose separate questions of causation and fact of injury
As in other antitrust cases, the pertinent issues of fact in a parens
which must be separately addressed.
patriae case will be whether there was a violation of the antitrust laws,
Section 4D acknowledges the obvious reality that "it is far simpler
whether that violation caused an injury to the plaintiffs, and what the
to prove the amount of damages to the members of the class by estab-
amount of damage was.
lishing their total damages than by collecting and aggregating indi-
Section 4D does not permit speculative damages, but it does permit-
vidual claims as a sum to be assessed against the defendants.' 21 In a
as the courts have done consistently-the damages to be estimated
price-fixing case, for example, frequently the only method of deter-
reasonably. There is no injustice in permitting aggregation and estima-
mining the total impact of the conspiracy will be to measure total ille-
tion after the defendant's liability to the class has been established.
gal overcharges in defendants' total sales during the relevant period at
The courts have long permitted damages to be proved in antitrust
the artificially high price to members of the injured class. Once this
cases by a "just and reasonable estimate of the damages based on rele-
figure has been computed and assessed against the defendants, their
vant data." 22
real interests in the case is at an end. The question of how the sum
As the Supreme Court put it almost 45 years ago in Story Parch-
assessed a damages should be distributed and employed is one in which
ment Co. V. Paterson Parchment Paper Co., 282 U.S. 555, 563 (1931)
the defendants have no interest. Their only proper remaining inter-
Where the tort itself is of such nature as to preclude the
est-their res judicata rights-are fully protected by § 4C(d).
ascertainment of the amount of damages with certainty, it
Aggregation of damages, as provided by § 4D, is necessary because
would be a perversion of fundamental principles of justice
the proof of individual claims and amounts would be impracticable
to deny all relief to the injured person, and thereby relieve the
and virtually impossible. Parens patriae actions will normally be
risk of the uncertainty should be thrown upon the wrongdoer [T]he
wrongdoer from making any amend for his acts
19 As the Supreme Court put it in a pivotal case
"Any other rule would enable the wrongdoer to profit by his wrongdoing at the expense
instead of upon the injured party.
of his victim. It would be an inducement to make wrongdoing S0 effective and complete in
every case as to preclude any recovery, by rendering the measure of damages uncertain.
The committee believes that a defendant who has committed an
Failure to apply it would mean that the more grievous the wrong done, the less likelihood
there would be a recovery.
antitrust violation has no right, constitutional or otherwise, to the re-
"The most elementary conceptions of justice and public policy require that the wrong-
doer shall bear the risk of the uncertainty which his own wrong has created."
tention of one penny of measurable illegal overcharges or other fruits
Bigelow V. RKO Radio Pictures, Inc., 327 U.S. 251, 264-65 (1946). See also Continental
of the violation. This committee emphatically rejects the notion that
Ore Co. V. Union Carbide & Carbon Co., 370 U.S. 690, 697 (1962) Bordonaro Bros.
Theatres, Inc. V. Paramount Pictures, Inc., 176 F.2d 594, 597 (2d Cir. 1949); Banana
our constitutional requirements are SO rigid that they somehow require
Distributors, Inc. V. United Fruit Co., 162 F. Supp. 32, 46 (S.D.N.Y. 1958), rev'd on other
that each of millions of potential claimants for individually trivial
grounds, 269 F.2d 790 (2d Cir. 1959).
20 See e.g., Zenith Radio Corp. V. Hazeltine Research, Inc., 395 U.S. 100, 123-24 (1969)
sums be paraded through the court to prove his personal damages, when
Bigelow V. RKO Radio Pictures, Inc., supra note 19; Story Parchment Co. V. Paterson
Parchment Paper Co., 282 U.S. 555 (1931) Eastman Kodak Co. V. Southern Photo Ma-
the best evidence and often the only appropriate measure of the scope
terials Co., 273 U.S. 359 (1927).
21 In re Antibiotics Antitrust Actions, 33 F. Supp. 278, 281 (S.D.N.Y. 1971); see e.g.,
West Virginia V. Chas. Pfizer & Co., 440 F.2d 1079 (2d Cir.), cert. denied, 404 U.S. 871
22 Bigelow V. RKO Radio Pictures, Inc., 327 U.S. 251, 264 (1946).
1971; Hartford Hospital V. Chas. Pfizer & Co., 1971 Trade Cases 73,561 (S.D.N.Y.
1971).
16
17
of the violation is found in the records of the defendants themselves.
establish a medical clinic in his neighborhood. The only alternative-
A number of Federal courts have agreed.23
retention of the profits by the adjudicated wrongdoer-is uncon-
While the premise of § 4D is that defendants should be made to dis-
scionable and unacceptable.28
gorge all measurable profits from an antitrust violation, § 4E, which
applies only to parens patriae actions, recognizes that rarely, if ever,
SECTION 4F
will all potential claimants actually come forward to secure their share
of the recovery. Section 4E requires that all potential claimants be
Section 4F promotes parens patriae actions as a major aspect of
given a reasonable opportunity to claim their "appropriate portion
antitrust enforcement by encouraging Federal-State cooperation. The
of the damages awarded less unrecovered costs of litigation and ad-
section provides that whenever the United States has brought suit in
ministration." Once this claims procedure has run its course, § 4E
its proprietary capacity under § 4A of the Clayton Act, and the U.S.
commits the disbursement of the undistributed portion of the fund,
Attorney General believes that the same antitrust violation may have
which will often be substantial, to the discretion of the court. The funds
given rise to potential parens patriae claims, he shall notify the ap-
remaining should be used for some public purposes benefiting, as closely
propriate State attorneys general. Whenever a State attorney general
as possible, the class of injured persons.
SO requests, in order to evaluate the notice from the U.S. Attorney Gen-
Section 4E thus adopts a concept developed in highly imaginative
eral or in order to bring a parens patriae action, section 4F (b) re-
fashion by a number of courts over the years. The judicial antecedents
quires the U.S. Attorney General to make the Justice Department's
of § 4E include cases in which recoveries for illegal overcharges on
investigative files available to the State attorneys general "to the ex-
bus and taxi fares were applied to reduce those fares in future years.2
tent permitted by law." This means that the files are to be made avail-
and the innovative application of illegal overcharges in the antibiotic
able except where specifically prohibited.
drug industry to a variety of programs beneficial to the drug-consum-
Section 4F (b) reflects the committee's desire that the Federal Gov-
ing public. 25 These include the expansion of State-sponsored health
ernment cooperate fully with State antitrust enforcers.
programs, medical research, the training of nurses and paramedical
The benefits of increases in Federal-State cooperation and coordina-
personnel, the staffing of medical and rehabilitation clinics, and other
tion of antitrust enforcement are obvious, and are achieved in H.R.
similar programs.²⁶
8532 without the expenditure of additional Federal funds.
The committee considered and squarely rejected arguments that
this method of applying damage recoveries to the general benefit of
SECTION 4G
the injured class is unconstitutional.²⁷ Once it is acknowledged that
the antitrust violator has no constitutional right to retain the profits
Section 4G defines the terms used in §§ 4C, 4D, 4E, and 4F.
of his illegal activity, it becomes clear that he has no constitutionally
The term "State attorney general" is defined as the "chief legal
protected interest in how those profits are distributed for the benefit
officer of a State, or any other person authorized by State law" to
of those whom he has injured. Using the antibiotic litigation example,
bring parens patriae actions. Since "State" is defined to include the
neither the public nor a person who has been illegally overcharged
District of Columbia, the Commonwealth of Puerto Rico and the terri-
for his antibiotics receives an unconstitutional "windfall" at the ex-
tories and possessions of the United States, it thus includes the Corpo-
pense of the price-fixer when the fruits of the conspiracy are used to
ration Counsel of the District of Columbia, and it includes any legally
appointed special prosecutors.
23 The Seventh Circuit put the matter succinctly
The committee strongly supports the development of "in-house"
"To permit the defendants to contest liability with each claimant in a single, separate
suit. would. in many cases give defendants an advantage which would be almost equivalent
State antitrust capabilities. At the present time, regrettably, only a
to closing the door of justice to all small claimants. This is what we think the class suit was
few States have the staff and financial ability to prosecute protracted
to prevent."
Hohmann V. Packard Instrument Co., 399 F.2d 711, 715, (7th Cir. 1968), quoting
antitrust cases without the assistance of retained private attorneys.
Weeks V. Bareco Oil Co., 125 F.2d 84, 90 (7th Cir. 1941) See Dickerson V. Burnham,
Especially in consolidated multistate litigation, retained counsel may
197 F.2d 973 (2d Cir.). cert. denied. 344 U.S. 875 (1952) In re Antibiotics Antitrust
Actions, 333 F. Supp. 278, 282, 283, 289 (S.D.N.Y. 1971). See also 1974 Hearings at 29;
well be both necessary and entirely proper for parens patriae cases.
1975 Hearings at 17 (testimony of Messers. Kauper and Halverson).
Statistical and sampling methods are, of course, commonly used in evidence in Fed-
Nonetheless, the Judiciary Committee believes that certain types of
eral courts in a variety of contexts. See Manual for Complex Litigation § 2.712 (1973).
fee arrangements between States and private attorneys may inhibit the
See also Brown Shoe Co. V. United States. 370 U.S. 294. 339-343 (1962) United States V.
United Shoe Mach. Corp., 110 F. Supp. 295. 305-07 (D. Mass. 1953) Rosado V. Wyman,
development of State antitrust capabilities. The definition of State
322 F. Supp. 1173 (E.D.N.Y. 1970), aff'd 437 F.2d 631 (2d Cir. 1971) (citing numerous
cases and other authorities, 322 F. Supp. at 1180-81) ; Zippo Mfg. Co. V. Rogers Imports,
attorney general, therefore, specifically prohibits parens patriae cases
Inc., 217 F. Supp. 670, 680-84 (S:D.N.Y. 1963).
24 See Bebchick V. Public Utilities Comm'n. 318 F.2d 187 (D.C. Cir.), cert. denied, 373
28 The committee disapproves decisions such as City of Philadelphia V. American Oil
U.S. 913 (1963). Daar V. Yellow Cab Co., 67 Cal.2d 695, 433 F.2d 732, 63 Cal. Rptr. 224
Co., 53 F.R.D. 45 (D.N.J. 1971) : Illinois Bell Tel. Co. V. Slattery, 102 F.2d 58 (7th Cir.
(1967).
1939), and In re Hotel Telephone Charges. 500 F.2d 86 (9th Cir. 1975). in which. if allega-
25 In re Antibiotics Antitrust Actions, 333 F. Supp. 278 (S.D.N.Y. 1971).
tions were accepted as true, defendants were permitted to retain millions of dollars in ill-
26 Hearings on S. 1284 Before the Subcomm. on Antitrust and Monopoly of the Senate
gotten gains because of the apparent difficulties involved in manageability or in devising
Comm. on the Judiciary. 94th Cong., 1st Sess. at 343 (1975).
an equitable scheme for distribution of the overcharges to specific individual claimants.
27 Compare West Virginia V. Chas. Pfizer & Co., 440 F.2d 1079 (2d Cir. 1971), cert. de-
For added insight on the facts involved in the Illinois Bell outcome. see Newberg. Class
nied, 404 U.S. 871 (1971) (approving antitrust class action settlement embodying fluid
Action Legislation, 9 Harv. J. Legis. 217, 231 (1972) Comment, 39 U. Chi. L. Rev. 448,
class recovery concept), with Eisen V. Carlisle & Jacquelin, 479 F.2d 1005, 1018 (2d Cir.
451, & n. 13 (1972) ; Note, 31 Md. L. Rev. 354, 361, & n. 50 (1971).
1973), vacated and remanded on other grounds. 417 U.S. 156 (1947) (expressing due
process doubts concerning what that court termed "fluid class recovery").
18
19
to be brought by "any person employed or retained on a contingency
fee basis."
The Clayton Act is intended to provide a sufficient incentive for
Suits in the name of a State are an exercise of State power. The com-
private parties to sue antitrust violators to redress their grievances
mittee believes that the States should exercise control over the use of
effectively. That incentive is primarily achieved by permitting a win-
State power not only in theory but in fact. If a State attorney general
ning plaintiff to recover treble damages for any injuries he has sus-
were able to delegate this function to private counsel on a contingency
tained as a result of the defendant's violation of the antitrust laws.
fee basis, the political and financial stake he would experience in other-
Another significant incentive provided in § 4 of the Clayton Act
wise prosecuting the action would be substantially diminished. And
is the requirement that a losing defendant in a damage case pay for a
thus State power would be exercised without the guarantee of State
"reasonable attorney's fee" for a winning plaintiff. Because antitrust
supervision.
cases are frequently lengthy and complicated, they are normally very
The committee bill excludes the use of fee arrangements whereby
expensive for a person to bring and maintain. Attorneys' fees, there-
a State agrees to pay a private attorney a percentage of the recovery
fore, comprise by far the largest portion of the legal expenses incurred
if the attorney wins the parens patriae case for the State. H.R. 8532
in maintaining a private antitrust lawsuit. Since the award of attor-
also prohibits any contracts which make the outside counsel's fee or
neys' fees is made in addition to the treble damage award, a prevailing
the amount thereof contingent on the amount, if any, of the recovery
plaintiff is able to pay for the services of his attorney without having
or on whether there is a recovery.
to reduce his damage award. The attorneys' fee provision thus pre-
The term "State", as used in proposed §§ 4C, 4D, 4E, and 4F in-
serves the incentive for a private party to file a meritorious lawsuit.
cludes the District of Columbia, the Commonwealth of Puerto Rico,
The injunctive provisions of § 16 of the Clayton Act, 15 U.S.C. 26,
and the territories and possessions of the United States.
however, are silent on the subject of awarding attorneys' fees to pre-
As used in the parens patriae sections, especially § 4C, the term
vailing plaintiffs. Until recently, the U.S. courts of appeals were split
"antitrust laws" excludes sections 2 and 7 of the Clayton Act. Section 2
over whether attorneys' fees could be awarded in antitrust injunction
is the Robinson-Patman Act, which concerns price discrimination, and
cases. Such fees were disapproved in Decorative Stone Co. V. Building
section 7 is the section which prohibits mergers which are anticompeti-
Trades Council of Westchester County, 23 F.2d 426 (2d Cir.), cert.
tive. Assistant Attorney General Thomas Kauper recommended that
denied, 277 U.S. 594 (1928), but they were approved in ITT V. General
these provisions be excluded from the violations for which State attor-
Telephone & Elec. Co., 43 U.S.L.W. 2466 (9th Cir., April 25, 1975).
neys general could recover damages in parens patriae actions. The
The issue of attorneys' fees in § 16 injunction cases was apparently
committee believes that evolving standards of damage assessment
disposed of on May 12, 1975, when the Supreme Court ruled in Alyeska
under these sections are in sufficiently embryonic stages that further
Pipeline Service Co. V. Wilderness Society, 95 S. Ct. 1612 (1975), that,
evaluation is necessary before permitting statewide actions of a parens
with a few narrow exceptions, the Federal courts have no power to
patriae nature.29
award attorneys' fees in the absence of specific statutory authority.
Finally, the bill defines the term "natural persons" SO as to exclude
While Alyeska was not an antitrust case, the principle apparently ap-
sole proprietorships and partnerships. This provision is discussed in
plies to cases brought under section 16 of the Clayton Act. The court
connection with § 4C(a).
noted in Alyeska that:
It is true that under some, if not most, of the statutes pro-
SECTION 3-ADDITIONAL AMENDMENTS TO THE CLAYTON ACT
viding for the allowance of reasonable fees, Congress has
Section 3 of H.R. 8532 amends the Clayton Act's provisions con-
opted to rely heavily on private enforcement to implement
cerning the statute of limitations, tolling that statute during the pend-
private litigation. Fee-shifting in connection with treble
ency of Government actions, and the injunction section.
public policy and to allow counsel fees SO as to encourage
Section 3(1) amends the statute of limitations provision to include
damage awards under the antitrust laws is a prime example.
parens patriae actions under section 4C within the 4-year statute of
95 S. Ct. at 1624.
limitations.
Alyeska invites Congress to enact specific legislation authorizing the
Section 3 (2) conforms the tolling provision of the Clayton Act SO
award of attorneys' fees when there is a strong public policy. In the
that States' rights of action under section 4C will be treated the same
case of § 16 antitrust injunction actions, there is such a compelling
as other rights of action for which the statute of limitations is tolled
public policy to justify the award of attorneys' fees, and § 3 (3) of
(stayed) pending the outcome of antitrust civil or criminal cases
H.R. 8532 provides the specific legislative authority necessary.
brought by the United States.
The antitrust laws clearly reflect the national policy of encouraging
private parties (whether consumers, businesses, or possible competi-
ATTORNEYS' FEES IN INJUNCTION CASES
tors) to help enforce the antitrust laws in order to protect competition
through compensation of antitrust victims, through punishment of
Section 3 (3) of H.R. 8532 provides that in parens patriae injunc-
antitrust violators, and through deterrence of antitrust violations.
tion cases and in all other private antitrust cases, a prevailing plaintiff
Litigation by "private attorneys general" for monetary relief and for
shall be awarded reasonable attorneys' fees.
injunctive relief has frequently proved to be an effective enforcement
29 See Gottesman V. General Motors Corp., 414 F.2d 956 (2d Cir.), cert. denied, 393
tool. Alyeska, however, has apparently eliminated the possibility that
U.S. 1086 (1969) (first holding that damages may be recovered under § 7).
prevailing plaintiffs can recover attorneys' fees in meritorious and
20
21
successful injunction cases. As such, Alyeska creates a significant
V. INFORMATION SUBMITTED PURSUANT TO RULES X AND XI
deterrent to potential plaintiffs bringing and maintaining lawsuits
to enjoin antitrust violations. Without the opportunity to recover at-
A
torneys' fees in the event of winning their cases, many persons and
corporations would be unable to afford or unwilling to bring antitrust
Clause 2(1) (3) of Rule XI-is not applicable. Section 308 (a) of the
injunction cases.
Congressional Budget Act of 1974 will not be implemented this year.
Indeed, the need for the awarding of attorneys' fees in § 16 injunc-
See last paragraph of House Rept. No. 94-25, 94th Cong., 1st session
tion cases is greater than the need in § 4 treble damage cases. In dam-
(1975).
age cases, a prevailing plaintiff recovers compensation, at least. In
B
injunction cases, however, without the shifting of attorneys' fees, a
plaintiff with a deserving case would personally have to pay the very
No estimate or comparison from the Director of the Congressional
high price of obtaining judicial enforcement of the law and of the
Budget Office was received.
important national policies the antitrust laws reflect. A prevailing
C
plaintiff should not have to bear such an expense. Section 3 (3) of
No related oversight findings or recommendations have been made
H.R. 8532, therefore, is intended to reiterate congressional encourage-
ment for private parties to bring and maintain meritorious antitrust
by the Committee on Government Operations under 2(b) (2) of
Rule X.
injunction cases. Under this section, a plaintiff who substantially pre-
D
vails would be entitled to the award of "reasonable attorneys' fees."
In addition to private parties, States would be entitled to recover
Pursuant to Clause 2 (1) (4) of Rule XI, the committee believes that
reasonable attorneys' fees whenever they prevail in § 16 cases.
H.R. 8532 can be a major force in combating the present inflationary
spiral, and can have a significant anti-inflationary impact on prices
IV. COMMITTEE ACTION
and costs in the operation of the national economy.
In March 1974, during the 93d Congress, the Judiciary Subcom-
In August of 1974, the Assistant Attorney General in charge of the
Justice Department's Antitrust Division estimated that ineffective
mittee on Monopolies and Commercial Law conducted 2 days of hear-
competition in the Nation's economy was adding $80 billion annually
ings on H.R. 12528 and H.R. 12921. Identical bills, H.R. 38 and H.R.
to prices paid by consumers. An FTC Commissioner estimated that
2850, were introduced during the 1st session of the 94th Congress, and
consumer costs rose as much as $10 billion annually because of price
the subcommittee held an additional 2 days of hearings in February
fixing violations alone. The President of the United States, in October,
and March 1975. The subcommittee received testimony from Assistant
1974, also recognized and endorsed the anti-inflationary effect of
Attorney General for Antitrust Thomas Kauper, the Federal Trade
vigorous enforcement of the antitrust laws. In the 93d Congress, the
Commission's Director of the Bureau of Competition James Halverson,
Joint Economic Committee also concluded that it is vitally important
National Association of Attorneys General Antitrust Committee
to strengthen competition not only to curtail inflation, but also to pre-
Chairman Andrew Miller (attorney general of Virginia), representa-
serve the free market system itself.
tives of the attorneys general of Connecticut, New York, Ohio, and
Thus while the precise extent of the inflationary impact of antitrust
California, and representatives of the private antitrust bar and of
violations cannot be determined, it is clear that they introduce foreign
private industry. In addition, the subcommittee received correspond-
and artificial forces exerting upward pressure on prices. By providing
ence or prepared statements from several Members of Congress, a total
more effective enforcement of the antitrust laws on a large scale, H.R.
of 38 State attorneys general, the Mayor of Washington, D.C., the
8532 should contribute to a. reduction in the level of these forces.
American Bar Association's Section on Antitrust Law, the Chamber
Compensating antitrust victims and preventing violators from being
of Commerce, the National Association of Manufacturers, the Con-
unjustly enriched will not alone reduce consumer prices and combat
sumers Union, and other persons and organizations.
inflation. But, to the extent that the individual States develop credible
In public session on May 7, 1975, after 4 days of marking up H.R.
antitrust enforcement capabilities, H.R. 8532 will help to convince
2850, the Subcommittee on Monopolies and Commercial Law ordered
potential antitrust offenders that violations will not be profitable. The
11 to 2 that the amended version, H.R. 6786, be introduced and re-
bill gives the States the opportunity to deter future antitrust viola-
ported favorably to the full Committee on the Judiciary. On July 10,
tions, but the deterrence will depend entirely upon the States' taking
1975, in public session, the subcommittee agreed by unanimous consent
advantage of their opportunities to bring parens patriae cases. If
to reconsider H.R. 6786, which was then amended. By a 9 to 2 vote,
States use H.R. 8532 responsibly and are able to deter antitrust viola-
the subcommittee ordered the favorable report of a clean bill, H.R.
tions, then H.R. 8532 will have an anti-inflationary impact locally and
8532, to the full Committee on the Judiciary. In public session on
July 22 and 24, 1975, the committee considered and amended H.R.
regionally, at least, by reducing imperfect competition's contribution
to inflation.
8532, and on July 24, the committee by voice vote ordered that H.R.
8532, as amended, be reported favorably to the House.
MINORITY VIEWS OF MESSRS. HUTCHINSON, RAILS-
BACK, WIGGINS, MOORHEAD, ASHBROOK, HYDE AND
KINDNESS
In the name of providing a legal remedy to those who, as a practical
matter, have none, this bill charges far beyond the mark to impose a
mandatory irreductible fine on violators of the antitrust laws. Al-
though this remedy is deemed civil, it partakes of both civil and crim-
inal aspects. In doing so, the remedy fails to meet ordinary standards
for civil or criminal remedies. As a civil remedy, the damages paid
generally will not be paid to compensate victims for their losses. As a
criminal remedy, the damages paid will be a mandatory fine, often
astronomical, but irreducible, without regard for the interests of jus-
tice in the specific case. In our opinion, this legislative remedy presents
the worst of both worlds.
We agree that the bill establishes no new substantive liability. No
new antitrust violations are created. However, the bill does establish
procedural machinery for the calculation and imposition of damage
awards that undoubtedly will revolutionize the law of antitrust
damages.
It will be said that all this bill does is to allow defendants' current
potential liability to become realized, and that to oppose this legisla-
tion is, in effect, to oppose the promise of section 4 of the Clayton Act,
now over 60 years old. But since the logic of a single idea does not take
account of competing ideas, one may by mere logical extensions step
over the precipice.
This bill does go too far. It is critical to note that this bill operates in
an area where the claimants are often nameless, unidentified, unidenti-
fiable, and ignorant of the trivial injury allegedly suffered and ig-
norant of who inflicted it. Nevertheless, the bill extracts from defend-
ants three times the damages sustained. Why? Because, it is suggested,
that's the way it's done in antitrust law.
But the purpose of treble-damage awards in antitrust law as we
understand it is to compensate victims for their injury and to provide
the incentive for bringing the action. But in the typical case envisioned
by this bill-for example, one involving price-fixing bread-there is no
incentive to bring the case even though treble damages are obtainable
and there generally are no provably known victims to compensate.
What the treble-damage award really is in this context is punishment.
Although we believe wrongdoers should not be allowed to retain ill-
gotten gains, this principle does not compel the imposition of treble
damages. It is respectfully suggested that payments exacted from de-
fendants which, as a general matter, will not go to compensate victims
for losses and which will put to some noble purpose at the discretion
of the court may be more accurately termed "fines" than damage
awards.
But the fines imposed by this bill-and this is critical-may not be
imposed commensurate with the interests of justice. The committee
(23)
24
25
rejected an amendment that would have permitted the court to take
public eye as its champion against "fat cat" antitrust violators by fil-
into consideration the "defendant's degree of culpability, any history
ing lawsuits to the sound of political trumpets may be too great. Since
of prior such conduct, ability to pay, effect on ability to continue to
antitrust cases take years to complete, the politically ambitious attorney
do business and such other matters as justice may require." Although
general need not fear the embarrassment of a string of losses. In any
these actions may be filed on behalf of millions of unknown individuals
event, many of the cases will have been undoubtedly settled because of
and involve millions of dollars, the resultant award must be arbitrarily
their adverse publicity and their nuisance value. This bill underscores
calculated and may not be reduced even if the interests of justice SO
how quickly we have forgotten the lesson many thought we learned
require.
last year that politics and antitrust should not be mixed.
The imposition of minimum mandatory penalties may have its place
Finally, in our opinion, the committee report does not correctly de-
in the law, but such penalties are established at the low end of the
scribe the notice requirements of the bill. In subcommittee there was
scale SO as to be "just" in every application. Not SO with these fines,
substantial debate on the quality of the notice to claimants that should
which may run into millions of dollars. Moreover, such penalties
be required. I was recognized that to require only publication notice
envision a range of choices from which the court, in the interests of
would certainly streamline the lawsuit, but it was likewise conceded
justice, might fashion an appropriate penalty. But this bill goes far
that such a provision without more would be susceptible to constitu-
beyond that. Under this bill once the extent of the injury is shown,
tional attack on due process grounds in instances where the names and
the imposition of the fine, both in fact and in amount, is automatic.
addresses of the claimants were known but where mailed notice-the
It is argued that it is of no concern to the defendant to what purpose
best notice practicable-was not given. Thus in order to insulate the
the award is put after it has paid it. The argument misses the point.
bill from litigation over its procedure and to eliminate the notice issue
It should be of concern to the Congress how necessary it is to inflict
as a matter of controversy the subcommittee adopted the proviso that
possibly astronomical awards, definitionally three times the damage
the notice had to be the "best notice practicable," which the committee
done, when there is no interest among the victims in bringing the case
ratified without further debate. Although the report correctly de-
and where there are no provably known victims or only a few able to
scribes where the phrase is found in the Federal rules of civil pro-
make claim against the award.
cedure and in case law, other language of the report can be fairly read
If the purpose is not to compensate in the manner of a civil remedy,
to give this phrase of art a new meaning. The report suggests that the
it must be to punish and deter in the manner of a criminal penalty.
test for adequacy of notice is not whether it is "best" for the claimants
But as a criminal penalty, it is harsh and arbitrary. If the major part
to be notified but whether it is "best" for the policy of authorizing
of an award is committed to the discretion of the court to be used for
parens patriae actions against antitrust violators. Such a suggestion is
some related purpose, it is difficult for us to understand how the pur-
foreign to the intention expressed in adopting the language explained
pose, to be fashioned by the court after the case is heard, must be satis-
in the report.
fied by an amount which is exactly three times the damage proven to
For these reasons we respectfully dissent.
have been done by the defendant.
EDWARD HUTCHINSON.
The purpose fashioned by the court will be a public one. For ex-
ToM RAILSBACK.
ample, it is suggested that in a case involving the price-fixing of drugs,
CHARLES E. WIGGINS.
it is appropriate to commit the award to support a drug clinic. But it
CARLOS J. MOORHEAD.
is patently clear that the needs of the drug clinic do not define the
JOHN M. ASHBROOK.
amount of the award. Nor does the need to compensate, nor does the
HENRY J. HYDE.
need to provide incentives for enforcement, as stated before.
THOMAS N. KINDNESS.
We believe that the public interest served by the channeling of the
award to some analogous purpose must also admit other factors. For
example, if the award is such that it will require the defendant to liqui-
date assets and lay off employees from work, there may be circum-
stances where the economic well-being of the community should be
a matter for the court to consider in determining whether the defend-
ant should be required to pay the full amount.
The provisions of the bill treating with the aggregation and distri-
bution of damages are the crux of this legislation. We believe they are
the wrong answer to the problem. Beyond that we believe that the bill
will be subject to much abuse. By calling on the State attorneys to
champion these antitrust actions, the bill seeks to provide a political
incentive for antitrust enforcement in cases where even treble damage
awards provide no economic incentive.
We believe that politics and antitrust will not make a happy mar-
riage. The temptations for the politically ambitious to ride into the
SEPARATE VIEWS OF MS. JORDAN
I wholeheartedly support this bill. As a sponsor of the original
measure I beileve it represents a vital step forward in both general
antitrust enforcement and consumer protection.
I am seriously concerned, however, with one amendment adopted
by the committee, which may have the effect of undermining a great
deal of what the bill is intened to accomplish.
Section 4G, as amended, by its definition of a "State Attorney Gen-
eral," effectively precludes the States from employing knowledgeable
private counsel on the basis of any "contingency fee."
The amendment has, I believe, two laudable purposes, namely to
encourage States to develop their own antitrust capabilities and to
protect them from potential gouging by lawyers who take cases on a
flat percentage fee, thus sometimes winding up with unjustifiable
windfall fees.
I am in sympathy with both these objectives. Indeed, I would favor
an amendment to provide Federal assistance to the States to develop
antitrust litigation capabilities. However, I think it is unrealistic to
believe that more than a handful of States will be in a position to
conduct a significant amount of such litigation on their own in the
foreseeable future. And some States will never have the resources or
the interest to hire and train the large staffs which antitrust litigation
requires.
Thus there will persist for the foreseeable future a critical need
to enlist the services of the private bar if the bill is to have any real
impact. I am concerned that a flat ban on "contingency fees" will
effectively place the services of perfectly ethical and highly knowledge-
able attorneys beyond the reach of the States.
Most plaintiff's antitrust litigation, like much plaintiff's litigation
in general, is conducted presently on a contingent fee basis. Section 4
of the Clayton Act anticipates this. It provides for the court to award
a reasonable attorney's fee to a prevailing plaintiff, in addition to his
treble damage recovery. Thus for the most part, lawyers agree to take
antitrust cases for plaintiffs in return for whatever fee the court
awards them at the successful conclusion or settlement of the action.
Without such arrangements, there would be precious little private
antitrust enforcement, since few, if any, plaintiffs will be able to pay
the normal hourly rate of experienced counsel without regard to the
outcome of the case. States, while in a better financial position than
ordinary private plaintiffs, will likewise be unable in most instances
to commit the required sums to a major case in advance, win or lose.
In some instances, contingency fees can involve overreaching. I
do not personally approve of arrangements whereby the lawyer re-
ceives both the court-awarded "reasonable fee" and a percentage of
the recovery on top of that. However, I fear that the committee, by
striking at the overreaching may have seriously undermined the entire
scheme of treble damage prosecution.
(27)
28
29
At the very best, the amendment adopted by the committee regard-
SEC. 4. That any person who shall be injured in his business or
ing "contingency fees" creates dangerous ambiguities with respect to
property by reason of anything forbidden in the antitrust laws may
permissible fee arrangements. It does not specify what contingent ele-
sue therefor in any district court of the United States in the district
ments must be present in order to render an arrangement unacceptable,
in which the defendant resides or is found or has an agent, without
and it is clear that not all uncertainty as to final amount will render
respect to the amount in controversy, and shall recover threefold
a fee "contingent." Even where the lawyer is being paid an hourly
the damages by him sustained, and the cost of suit, including a
charge, he will usually have little idea at the outset what his actual fee-
reasonable attorney's fee.
will be. The committee amendment could, therefore, be open to an inter-
SEC. 4A. Whenever the United States is hereafter injured in its
pretation which would salvage fee contracts department for their ulti-
business or property by reason of anything forbidden in the antitrust
mate amount on some unknown element, such as the award of the court
laws it may sue therefor in the United States district court for the
at the conclusion of the case. The risk is very great, however, that a
district in which the defendant resides or is found or has an agent,
court would determine that the arrangement was "contingent" if some
without respect to the amount in controversy, and shall recover actual
element of success-either at settlement or at trial-made the difference
damages by it sustained and the cost of suit.
between a large fee for the lawyer and a low, probably uncompensa-
SEC. 4B. Any action to enforce any cause of action under sections
tory one.
[4 or 4A] 4, 4A, or 40 shall be forever barred unless commenced
I think that risk is unacceptable, since States are certain to be de-
within four years after the cause of action accrued. No cause of action
pendent for many years upon the services of expert private counsel,
barred under existing law on the effective date of this Act shall be
whom they will be unable to compensate on a hourly basis without re-
revived by this Act.
gard to the outcome of the case.
There is another vital point at stake. The contingent fee is not
ACTIONS BY STATE ATTORNEYS GENERAL
merely an honorable means of financing litigation for those who would
otherwise be unable to afford it until the award of final judgement. It
Sec. 40. (a) Any State attorney general may bring a civil action,
is also recognized as an important tool for weeding out the frivolous
in the name of the State, in the district courts of the United States
and unmeritorious case on the basis of expert assessment. It is highly
under section 4 of this Act, and such State shall be entitled to recover
unlikely that a lawyer knowledgeable in any field will be prepared to
threefold the damages and the cost of suit, including a reasonable
invest large quantities of his own time and effort in a case on the basis
attorney's fee, as parens patriae on behalf of natural persons resid-
that he will be uncompensated unless he obtains a successful result for
ing in such State injured by any violation of the antitrust laws.
the client, unless he believes after careful examination that the case has
(b) In any action under subsection (α), the court may in its dis-
serious merit.
cretion, on motion of any party or on its own motion, order that the
This point is responsive to two concerns which have been expressed
State attorney general proceed as a representative of any class or
by opponents and critics of the bill. Business interests have argued that
classes of persons alleged to have been injured by any violation of the
the enactment of this legislation will bring a plethora of unfounded
antitrust laws, notwithstanding the fact that such State attorney gen-
lawsuits for enormous sums of money, which they will have to defend
eral may not be a member of such class or classes.
at great expense. And members of the committee have on several occa-
(c) In any action under subsection (a), the State attorney general
sions questioned whether the law might not present irresistible temp-
shall, at such time as the court may direct prior to trial, cause notice
tations to politically ambitious State officials bent on making a reputa-
thereof to be given by publication in accordance with applicable State
tion without regard to the ultimate disposition of the cases they bring.
law or in such manner as the court may direct; except that such notice
Neither of these unfortunate predictions is remotely likely to come
shall be the best notice practicable under the circumstances.
true if the economic judgment of the legal experts is invoked in the
(d) Any person on whose behalf an action is brought under subsec-
evaluation of cases through the use of the contingent fee.
tion (a) may elect to exclude his claim from adjudication in such action
Hon. BARBARA JORDAN.
by filing notice of his intent to do 80 with the court within sixty days
after the date on which notice is given under subsection (c). The final
CHANGES IN EXISTING LAW MADE BY THE BILL, As REPORTED
judgment in such action shall be res judicata as to any claim arising
from the alleged violation of the antitrust laws of any potential claim-
In compliance with clause 3 of Rule XIII of the Rules of the House
ant in such action who fails to give such notice of intent within such
of Representatives, changes in existing law made by the bill, as
reported, are shown as follows (existing law proposed to be omitted
notice. sixty-day period, unless he shows good cause for his failure to file such
is enclosed in black brackets, new matter is printed in italics, existing
(e) An action under subsection (a) shall not be dismissed or com-
law in which no change is proposed is shown in roman)
promised without the approval of the court, and notice of the proposed
ACT OF OCTOBER 14, 1914
directs. dismissal or compromise shall be given in such manner as the court
30
31
MEASUREMENT OF DAMAGES
defendant has violated said laws shall be prima facie evidence against
such defendant in any action or proceeding brought by any other party
SEC. 4D. In any action under section 40 (a) or (b) or in any other
against such defendant under said laws or by the United States under
action under section 4 of this Act which is maintained as a class suit,
section 4A, as to all matters respecting which said judgment or decree
damages may be proved and assessed in the aggregate by statistical or
would be an estoppel as between the parties thereto: Provided, That
sampling methods, by the computation of illegal overcharges, or by
this section shall not apply to consent judgments or decrees entered
such other reasonable system of estimating aggregate damages as the
before any testimony has been taken or to judgments or decrees entered
court in its discretion may permit, without the necessity of separately
in actions under section 4A.
proving the individual claim of, or amount of damage to, each person
(b) Whenever any civil or criminal proceeding is instituted by the
on whose behalf the suit was brought.
United States to prevent, restrain, or punish violations of any of the
antitrust laws, but not including an action under section 4A, the
DISTRIBUTION OF DAMAGES
running of the statute of limitations in respect of every private or
SEC. 4E. Damages recovered under section (a) shall be distributed
State right of action arising under said laws and based in whole or in
in such manner as the district court in its discretion may authorize,
part on any matter complained of in said proceeding shall be suspended
subject to the requirement that any distribution procedure adopted af-
during the pendency thereof and for one year thereafter: Provided,
however, That whenever the running of the statute of limitations in
ford each person a reasonable opportunity to secure his appropriate
respect of a cause of action arising under section 4 or 40 is suspended
portion of the damages awarded less unrecovered costs of litigation
and administration.
hereunder, any action to enforce such cause of action shall be forever
barred unless commenced either within the period of suspension or
within four years after the cause of action accrued.
ACTIONS BY ATTORNEY GENERAL OF THE UNITED STATES
*
*
*
*
SEC. 4F. (a) Whenever the Attorney General of the United States
SEC. 16. That any person, firm, corporation, or association shall be
has brought an action under section 4A of this Act, and he has reason
entitled to sue for and have injunctive relief, in any court of the
to believe that any State attorney general would be entitled to bring
United States having jurisdiction over the parties, against threat-
an action under section 4C(a) based substantially on the same alleged
ened loss or damage by a violation of the antitrust laws, including
violation of the antitrust laws, he shall promptly give writtten notifica-
sections two, three, seven and eight of this Act, when and under the
tion to such State attorney general with respect to such action.
same conditions and principles as injunctive relief against threatened
(b) To assist α State attorney general in evaluating the notice and
conduct that will cause loss or damage is granted by courts of equity,
in bringing any action under section 40 of this Act, the Attorney Gen-
under the rules governing such proceedings, and upon the execution of
eral of the United States shall, upon request by such State attorney
proper bond against damages for an injunction improvidently granted
general, make available to him, to the extent permitted by law, any in-
and a showing that the danger of irreparable loss or damage is im-
vestigative files or other materials which are or may be relevant or
mediate, a preliminary injunction may issue: Provided, That nothing
material to the actual or potential cause of action under section 40.
herein contained shall be construed to entitle any person, firm, corpora-
tion, or association, except the United States, to bring suit in equity for
DEFINITIONS
injunctive relief against any common carrier subject to the provisions
SEC. 4G. For purposes of this section and sections 40, 4D, 4E, and
of the Act to regulate commerce, approved February fourth, eighteen
4F:
hundred and eighty-seven, in respect of any matter subject to the regu-
(1) The term "State attorney general" means the chief legal
lation, supervision, or other jurisdiction of the Interstate Commerce
officer of a State, or any other person authorized by State law to
Commission. In any action under this section, the court shall award
bring actions under this Act, except that such term does not in-
reasonable attorneys' fees to a prevailing plaintiff.
clude any person employed or retained on a contingency fee basis.
*
(2) The term "State" means a State, the District of Columbia,
the Commonwealth of Puerto Rico, and the territories and posses-
sions of the United States.
(3) The term "antitrust laws" does not include sections 2 and 7
of this Act.
(4) The term "natural persons" does not include proprietor-
ships or partnerships.
SEC. 5. (a) A final judgment or decree heretofore or hereafter
rendered in any civil or criminal proceeding brought by or on behalf
of the United States under the antitrust laws to the effect that a
94TH CONGRESS
HOUSE OF REPRESENTATIVES
REPORT
2d Session
No. 94-1373
ANTITRUST PREMERGER NOTIFICATION ACT
JULY 28, 1976.-Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
Mr. RODINO, from the Committee on the Judiciary,
submitted the following
REPORT
together with
ADDITIONAL VIEWS
[To accompany H.R. 14580]
The Committee on the Judiciary, to whom was referred the bill
(H.R. 14580) to amend the Clayton Act to provide for premerger
notification and waiting requirements, and for other purposes, having
considered the same, report favorably thereon with an amendment and
recommend that the bill as amended do pass.
The amendment is as follows:
Strike out all after the enacting clause and insert the following:
That this Act may be cited as the "Antitrust Premerger Notification Act."
NOTIFICATION AND WAITING PERIOD
SEC. 2. The Clayton Act (15 U.S.C. 12 et seq.) is amended by inserting immedi-
atelv after section 7 of such Act the following new section
"SEC. 7A. (a) Except as exempted pursuant to subsection (c), no corporation
shall acquire, directly or indirectly, any voting securities or assets of any other
corporation, unless each such corporation (or in the case of a tender offer, the
acquiring corporation) files notification pursuant to rules under subsection
(d) (1) and the waiting period described in subsection (b) (1) has expired, if-
"(1) the acquiring corporation or the corporation, any voting securities
or assets of which are being acquired, is engaged in commerce or in any
activity affecting commerce;
(2) (A) any voting securities or assets of a manufacturing corporation
which has annual net sales or total assets of $10,000,000 or more are being
acquired by a corporation which has total assets or annual net sales of
$100,000,000 or more;
(B) any voting securities or assets of a nonmanufacturing corporation
which has total assets of $10,000,000 or more are being acquired by a corpo-
ration which has total assets or annual net sales of $100,000,000 or more; or
"(C) any voting securities or assets of a corporation with annual net sales
or total assets of $100,000,000 or more are being acquired by a corporation
with total assets or annual net sales of $10.000,000 or more; and
57-006
2
3
"(3) as a result of such acquisition, the acquiring corporation would
issuing corporation or such greater per centum as may be provided by the
hold-
"(A) 25 per centum or more of the voting securities or assets of the
Federal Trade Commission under subsection (d)(2) (C) ;
"(9) acquisitions of voting securities issued by any corporation if, as a
acquired corporation, or
"(B) an aggregate total amount of the voting securities and assets
result of such acquisition, the voting securities acquired would not increase,
of the acquired corporation in excess of $20,000,000.
directly or indirectly, the acquiring corporation's share of outstanding voting
securities of the issuing corporation;
"(b) The waiting period under subsection (a) shall-
"(A) begin on the date of the receipt by the Federal Trade Commission
"(10) acquisitions, solely for the purpose of investment, of voting securi-
and the Assistant Attorney General of the completed notification required
ties pursuant to a plan of reorganization or dissolution, or of assets, by any
under subsection (a) and, if such notification is not completed, the reasons
bank, banking association, trust company, investment company, or insurance
company, in the ordinary course of its business;
therefore; and
"(11) acquisitions of voting securities by any bank trust depart-
"(B) end on the thirtieth day after the date of such receipt or on such
later date as may be set under subsection (e) or (g) (2), except that in the
ment, trust company, or other entity, if such department, trust company, or
entity is acting in the capacity of a trustee, executor, guardian, conservator,
case of cash tender offers, such period shall end on the twenty-first day after
or otherwise as a fiduciary, and is voting or investing such voting securties
the date of such receipt, or on such later date as may be set under subsection
for the benefit of another person or entity, except that any such beneficiary
(e) (2) (B).
"(2) The Federal Trade Commission and the Assistant Attorney General may,
shall not be exempt by virtue of this paragraph from the requirements of
this section; and
in individual cases, terminate the waiting period specified in paragraph (1) and
"(12) such other acquisitions, transfers, or transactions, as may be ex-
allow any corporation to proceed with any acquisition subject to this section
empted by the Federal Trade Commission under subsection (d) (2) (B).
by publishing in the Federal Register a notice that neither intends to take any
"(d) The Federal Trade Commission, with the concurrence of the Assistant
action within such period with respect to such acquisition.
Attorney General and by rule in accordance with section 553 of title 5, United
"(3) As used in this section-
States Code—
"(A) The term 'Assistant Attorney General' means the Assistant Attor-
"(1) shall require that the notification required under subsection (a) be
ney General in charge of the Antitrust Division of the Department of Justice.
in such form and contain such documentary material relevant to a proposed
(B) The term 'voting securities' means any stock or other share capital
acquisition as is necessary and appropriate to enable the Federal Trade
presently entitling the owner or holder thereof to vote for the election of
Commission and the Assistant Attorney General to determine whether such
directors of a corporation.
acquisition may violate the antitrust laws; and
"(4) The amount or percentage of voting securities or assets of one corpora-
(2) may-
tion which are acquired or held by another corporation shall be determined by
"(A) define the terms used in this section
aggregating the amount of percentage of such voting securities or assets held
"(B) exempt classes of corporations and acquisitions, transfers, or
or acquired by the acquiring coporation and each affiliate thereof. For purposes
transactions which are not likely to violate section 7 of this Act from
of this paragraph, the term 'affiliate' means any person who controls, is con-
the requirements of this section;
trolled by, or is under common control with, a corporation.
(C) increase the percentage amount specified in subsection (c) (8) ;
"(5) The conversion of stock or other share capital which are not voting secur-
and
ities into stock or other share capital which are voting securities shall be deemed
(D) prescribe such other rules as may be necessary and appropriate
an acquisition for purposes of this section.
to carry out the purposes of this section.
"(c) The following classes of transactions are exempt from the requirements
"(e) (1) The Federal Trade Commission or the Assistant Attorney General
of this section-
may, prior to the expiration of the 30-day waiting period, or in the case of cash
"(1) acquisitions of goods or realty transferred in the ordinary course
tender offers, the 21-day waiting period, specified in subsection (b) (1) of this
of business;
section, require the submission of additional information or documentary mate-
"(2) acquisitions of bonds, mortgages, deeds of trust, or other obligations
rial relevant to an acquisition by any corporation subject to this section, or by
which are not voting securities;
any officer, director, agent, or employee of such corporation.
"(3) acquisition of voting securities or assets of a corporation with re-
(2) (A) Except as provided in subparagraph (B) with respect to cash tender
spect to which the acquiring corporation owns more than 50 per centum
offers, the Federal Trade Commission or the Assistant Attorney General may,
of such voting securities or assets prior to such acquisition;
in its or his discretion, extend the 30-day waiting period specified in subsection
"(4) transfers to or from a Federal agency or a State or political sub-
(b) (1) of this section for an additional period of not more than 20 days after
division thereof;
the date on which the Federal Trade Commission or the Assistant Attorney
"(5) transactions specifically exempted from the antitrust laws by law
General, as the case may be, receives (i) all the information or documentary
or by actions of any Federal agency authorized by law, if copies of any
material submitted pursuant to a request under paragraph (1) of this subsec-
information and documentary material filed with any such agency are con-
tion, and (ii) if such request is not fully complied with, a certification of the
temporaneously filed with the Federal Trade Commission and the Assistant
reasons for such noncompliance. Such additional period may be further extended
Attorney General;
only by the United States district court, upon an application by the Federal
"(6) transactions which require agency approval under section 18(c) of
Trade Commission or the Assistant Attorney General pursuant to subsection
the Federal Deposit Insurance Act (12 U.S.C. 1828 or section 3 of the
Bank Holding Company Act of 1956 (12 U.S.C. 1842) ;
(g) (2).
"(B) With respect to cash tender offers, the United States district court may.
"(7) transactions which require agency approval under section 4 of the
Bank Holding Company Act of 1956 (12 U.S.C. 1843), section 403 or 408 (e)
upon application of the Federal Trade Commission or the Assistant Attorney
General-
of the National Housing Act (12 U.S.C. 1726 and 1730a), or section 5
"(i) extend the 21-day waiting period specified in subsection (b) (1) of
of the Home Owners' Loan Act of 1933 (12 U.S.C. 1464), if copies of any
this section until there is substantial compliance with a request under para-
information and documentary material filed with any such agency are con-
temporaneously filed with the Federal Trade Commission and the Assistant
graph (1) of this subsection, and
"(ii) grant such other equitable relief as the court in its discretion deter-
Attorney General:
"(8) acquisitions, solely for the purpose of investment, of voting securities
mines necessary,
"if the court determines that the Federal Trade Commission or the Assistant
if, as a result of such acquisition, the voting securities acquired or do not
Attorney General requested the submission of additional information or docu-
exceed either 10 per centum of the outstanding voting securities of the
mentary material pursuant to subsection (e) (1) within 15 days after the date
of receipt of the original notification required under subsection (a) and such
4
5
request was not substantially complied with within the 21-day waiting period
SHORT TITLES FOR SHERMAN ACT AND CLAYTON ACT
specified in subsection (b) (1).
"(f) If a proceeding is instituted by the Federal Trade Commission alleging
SEC. 3. (a) The Act entitled "An Act to protect trade and commerce against
that a proposed acquisition violates section 7 of this Act, or an action is filed
unlawful restraints and monopolies", approved July 2, 1890 (15 U.S.C. 1 et seq.),
by the United States, alleging that a proposed acquisition violates such section 7,
is amended by adding immediately after the enacting clause the following: "That
or section 1 or 2 of the Sherman Act, and the Commission or the Assistant Attor-
this Act may be cited as the 'Sherman Act'.".
ney General files a motion for a preliminary injunction against the consummation
(b) The Act entitled "An Act to supplement existing laws against unlawful
of such proposed acquisition, together with a certification that it or he believes
restraints and monopolies, and for other purposes", approved October 15, 1914
that the public interest requires relief pendente lite, in the United States district
(15 U.S.C. 12 et seq.), is amended by-
court for the judicial district in which the respondent resides or does business in
(1) inserting "(a)" after "That" in the first section; and
the case of the Federal Trade Commission, or in which such action is brought in
(2) adding at the end of the first section the following new subsection
the case of the Assistant Attorney General-
"(b) This Act may be cited as the 'Clayton Act'.".
"(1) upon the filing of such motion, the chief judge of such district court
shall immediately notify the chief judge of the United States court of appeals
EFFECTIVE DATES
for the circuit in which such court is located, who shall designate a United
States district judge to whom such action shall be assigned for all purposes;
SEC. 4. (a) The amendment made by section 2 of this Act shall take effect
180 days after the date of enactment of this Act, except that subsections (d) (1)
and
(2) the motion for a preliminary injunction shall be set down for hear-
and (d) (2) of section 7A of the Clayton Act (as added by section 2 of this Act)
shall take effect on the date of enactment of this Act.
ing by the district judge SO designated at the earliest practicable time, shall
take precedence over all matters except older matters of the same char-
(b) Section 3 of this Act shall take effect on the date of enactment of this
Act.
acter and trials pursuant to section 3161 of title 18, United States Code,
I. PURPOSE
and shall be in every way expedited.
"(g) (1) Any corporation or any officer or director thereof who fails to comply
with any provision of this section shall be liable to the United States for a civil
The purpose of H.R. 14580 is to amend the federal anti-merger law,
penalty of not more than $10,000 for each day during which such corporation,
Section 7 of the Clayton Antitrust Act (15 U.S.C. § 18), by establish-
directly or indirectly, holds any voting securities or assets, in violation of this
section. Such penalty may be recovered in a civil action brought by the United
ing premerger notification and waiting requirements for corporations
States.
planning to consummate very large mergers and acquisitions. The bill
"(2) If any corporation or officer, director, agent, or employee thereof fails
in no way alters the substantive legal standard of Section 7: That
to substantially comply with the notification requirement of subsection (a) or
statute's longstanding prohibitions against acquisitions that may sub-
any request for the submission of additional information or documentary ma-
terial under subsection (e) (1) of this section within the waiting period specified
stantially lessen competition or tend to create a monopoly, remain un-
in subsection (b) (1) and as may be extended under subsection (e), the United
affected by this measure.
States district court shall have jurisdiction to-
H.R. 14580 will, however, strengthen the enforcement of Section 7
"(A) order compliance;
by giving the government antitrust agencies a fair and reasonable
"(B) extend the 30-day waiting period specified in subsection (b) (1)
and as may have been extended under subsection (e) until there has been
opportunity to detect and investigate large mergers of questionable
substantial compliance; and
legality before they are consummated. The government will thus have
(C) grant such other equitable relief as the court in its discretion deter-
a meaningful chance to win a premerger injunction-which is often
mines necessary,
the only effective and realistic remedy against large, illegal mergers-
upon application of the Federal Trade Commission or the Assistant Attorney
General.
before the assets, technology, and management of the merging firms
(h) Any information or documentary material filed with the Assistant At-
are hopelessly and irreversibly scrambled together, and before compe-
torney General or the Federal Trade Commission pursuant to this section shall
tition is substantially and perhaps irremediably lessened, in violation
be exempt from disclosure under section 552 of title 5, United States Code, and
of the Clayton Act.
no such information or documentary material may be made public, except as
may be required in any administrative or judicial action or proceeding.
(i) (1) Failure of the Federal Trade Commission OF the Assistant Attorney
II. SUMMARY OF REPORTED BILL
General to take any action under this section shall not bar the institution of any
proceeding or action with respect to such acquisition at any time under any
The first section establishes the bill's short title.
other section of this Act or any other provision of law.
Section 2 establishes the premerger notification and waiting
"(2) Nothing contained in this section shall limit the authority of the Assistant
requirements.
Attorney General or the Federal Trade Commission to secure from any person
documentary material, oral testimony, or other information under the Antitrust
Subsection (a) prohibits corporations from acquiring the voting
Civil Process Act, the Federal Trade Commission Act, or any other provision
securities or assets of other corporations, unless both corporations give
of law.
advance notice of the acquisition to the Federal Trade Commission and
"(j) Beginning not later than January 1, 1978, the Federal Trade Commission,
after consultation with the Assistant Attorney General, shall annually report
the Justice Department, pursuant to subsection (d), and wait until the
to the Congress on the operation of this section. Such report shall include an
expiration of the premerger waiting period set forth in subsection (b).
assessment of the effects of this section, recommendations for any desirable re-
But these notification and waiting provisions apply only if three re-
visions of this section, any rules promulgated under this section, any action
quirements of substantiality are satisfied: (1) either corporation's
taken under this section, and, in cases of acquisitions subject to this section
against which the Assistant Attorney General or the Federal Trade Commission
activities are "in" commerce or "affect" commerce; (2) the acquiring
took no action under this section prior to the expiration of the waiting period
corporation has total assets or annual sales of $100 million or more,
specified in this section, a statement of the reasons for such failure to act.".
and the acquired corporation has total assets or annual sales of $10
6
7
million or more and (3) the acquiring corporation purchases at least
III. HISTORY, BACKGROUND, AND NEED
25% of the voting securities or assets of the acquired firm, or at least
$20 million of its voting securities and assets.
At present, mergers and acquisitions violate section 7 of the Clayton
Subsection (b) provides that the premerger waiting period begins
Act if they "may substantially lessen competition," or "tend to create
when the government receives the completed notification form, and
a monopoly" in any line of commerce, in any section of the country.
ends thirty days later. A special, shortened, 21-day waiting period is
Most violations of this legal standard occur when large corporations
provided for mergers consummated by cash tender offers, because of
merge with, buy out, or otherwise acquire their competitors, suppliers,
the unique time constraints involved in such mergers.
or distributors. These mergers are illegal because they eliminate actual
Subsection (c) exempts a variety of acquisitions that either pose no
or potential competition by small or medium-sized independent firms,
anticompetitive threats under Section 7, or are already subject to
or deprive other companies of needed supplies or outlets, while help-
advance antitrust review. Included are certain purchases of voting
ing the acquiring corporation achieve uncontested monopoly power in
securities and assets "solely for the purpose of investment" or "in the
national, regional, or local markets.
ordinary course of business," and bank mergers, and acquisitions in
In this way, the first great illegal monopoly, the Standard Oil of
other regulated industries.
New Jersey empire, was established Standard Oil simply bought up
Subsection (d) requires the FTC, with the concurrence of the As-
most of its competitors through a series of acquisitions, until its
sistant Attorney General in charge of the Antitrust Division, to
dominance in the oil industry was unquestioned.
specify by rule the information which must be supplied on the pre-
Though the Supreme Court broke up the Standard Oil monopoly in
merger notification form.
1911, Congress remained concerned over the dangerous economic, so-
Subsection (e) permits the government to request additional infor-
cial, and political effects that result when control of an entire industry
mation relevant to a planned acquisition, beyond that submitted in the
is concentrated in fewer and fewer hands. These concerns, and the be-
initial notification form, within the 30-day waiting period. If such a
lief that democracy can be preserved only by dispersing and decentral-
request is made, the two agencies may extend the waiting period for
izing economic and financial power, together with other dismaying
up to twenty days after receipt of the additional data, in order to
records of turn-of-the-century monopolistic excesses that were un-
analyze it and prepare a possible case based upon it. However, in the
checked by the Sherman Act, directly led to the enactment of section
case of a cash tender offer, such additional requests must be made
7 of the Clayton Act in 1914.1
within the first 15 days after notification; and the entire waiting period
Unlike the Sherman Act, Section 7 of the Clayton Act was meant to
can in no event extend beyond 21 days.
deal with potential, probable monopolies-not actual, completed ones.
Subsection (f) provides that if the government files an action chal-
Thus, both Congress and the courts have repeatedly emphasized that
lenging a proposed merger, and seeks injunctive relief, the courts shall
section 7 is an "incipiency" statute: It is intended to halt monopolies
give expedited consideration to the action.
and restraints of trade in their initial stages, before they ripen into
Subsection (g) authorizes civil penalties of up to $10,000 per day
full-scale Sherman Act violations. As the preamble to the original
for violations of this bill's requirements. It further provides that if any
Clayton bill proclaimed, its purpose was "to prohibit certain trade
corporation subject to this section fails to comply substantially with a
practices which
singly and in themselves are not covered by the
premerger request for relevant information, the federal district courts
Sherman Act
and thus to arrest the creation of trusts, conspira-
may order compliance, and enjoin the pending merger until substan-
cies and monopolies in their incipiency and before consummation." 2
tial compliance is achieved.
At present, both the Antitrust Division and the Federal Trade Com-
Subsection (h) provides that premerger information submitted
mission have the authority, under 15 U.S.C. § 25 and 15 U.S.C. §53 (b),
under this section is confidential, and may not be disclosed, except in
to halt impending mergers before their consummation by seeking a
judicial or administrative proceedings.
temporary restraining order and a preliminary injunction from the
Subsection (i), the savings provision, provides that a failure to in-
federal courts. But the government carries the burden of proof in
voke this section's authority does not prevent the government from tak-
premerger injunction proceedings, and must demonstrate a "reasonable
ing action under other specified laws.
probability that it will prevail on the merits of its Clayton Act chal-
Subsection (j) requires the FTC and the Justice Department to re-
lenge." 3 Focused as it is on probabilities, this standard for injunctive
port annually to the Congress on their activities pursuant to this
relief is little different from the steep one forced by the government at
section.
Section 3 (a) provides that the Sherman Act may be SO cited, in
1 United States V. Von's Grocery Co., 384 U.S. 270, 274-76 (1966)
2 Cf. Brown Shoe Co. V. United States, 370 U.S. 294, 328 (1962), where the Supreme
honor of its principal author, Senator John Sherman.
Court stressed that "Congress used the words 'may be substantially to lessen competition'
Section 3 (b) provides that the Clayton Act may be SO cited, in honor
to indicate that its concern was with probabilities, not certainties."
8 United States V. Atlantic Richfield Co., 297 F. Supp. 1061 (S.D.N.Y. 1969) . United
of its chief sponsor, Congressman Henry D. Clayton.
States V. Ingersoll-Rand Co., 218 F. Supp. 530 (W.D.Pa. 1963), aff'd, 320 F. 2d 509 (C.A.3
1963).
8
9
a trial on the merits-where the issue is whether the merger probably
To illustrate, in 1955, the nation's leading agricultural magazine,
lessens competition to a substantial degree, or tends to create a
Farm Journal, acquired its chief rival, Country Gentleman. Essen-
monopoly.
tially what was acquired-except for several printing presses-was the
Yet, without advance notice of an impending merger, data relevant
list of Country Gentleman's subscribers. After consummation, the pub-
to its legality, and at least several weeks to prepare a case, the govern-
lication of Country Gentleman was halted by its new owners, who, not
ment often has no meaningful chance to carry its burden of proof, and
surprisingly, quickly and successfully solicited new subscriptions to
win a preliminary injunction against a merger that appears to violate
Farm Journal from most of the former Country Gentleman readers.
section 7.
When the FTC subsequently ruled the merger illegal, nothing was left
The weight of this burden cannot be overemphasized. Merger cases,
to divest, for, as the FTC judge frankly acknowledged, "All the juice
especially large ones, turn on detailed factual data and careful eco-
has now been extracted from the fruit.' 5
nomic analysis and judgments. As the Supreme Court has pointed out:
The prospects for a successful divestiture are also impaired when-
ever the acquiring firm makes considerable improvements to the ac-
The courts have, in the light of Congress' expressed intent,
quired assets, by utilizing the newly-acquired technology and person-
recognized the relevance and importance of economic data that
nel. When the divestiture order is finally entered, the acquiring firm
places any given merger under consideraton within an in-
can often retain the improvements, and divest only the originally-
dustry framework almost inevitably unique in every case.
Statistics reflecting the shares of the market controlled by the
acquired facilities-which, by virtue of intervening market changes,
have by then become obsolete, if not useless.⁶
industry leaders and the parties to the merger are, of course,
In other cases, the acquiring firm may compete in several different
the primary index of market power; but only a further ex-
amination of the particular market-its structure, history
markets, which may be distinct or closely related; and the same may
be true of the acquired firm. It thus commonly happens that these two
and probable future-can provide the appropriate setting for
companies are direct or potential competitors only in one or a few
judging the probable anticompetitive effect of the merger." 4
of their different product lines. Since their merger illegally lessens
H.R. 14580 does not eliminate this requirement of particularized
competition only in these "overlapping" or shared markets, the gov-
factual proof in merger cases, nor does it ease in any way the tradi-
ernment can often win only a "partial divestiture" order, limited to
tional burden of proof that must be borne by the government when it
the area of overlap. Yet only the established, existing competitors in
seeks equitable relief.
this narrow product market will generally have the interest, experi-
But the bill is based on two fundamental propositions: First, the
ence, and funds to purchase and successfully operate the narrow class
weight of this burden of proof, together with the present lack of any
of divested assets. Such a partial divestiture is, from a competitive
premerger notification and waiting requirements, has meant that many
standpoint, senseless-an illegal acquisition by one large rival is os-
large and illegal mergers have been successfully consummated in re-
tensibly redressed by a court-ordered sale of the remnants to another
cent years, before the government had any realistic chance to chal-
large rival.⁷
lenge them.
In all these cases, the result is the same: The acquired firm is never
Second, experience has shown that after consummation occurs, many
restored as a vigorous, independent competitor, and the damage to the
large mergers become almost unchallengable. The government may
marketplace is never repaired.
well file suit, and ultimately win the subsequent litigation on the merits
Thus, divestiture cases are rarely successful. Even worse, they are
of its Clayton Act case, by gaining a final judicial declaration of the
staggeringly expensive and seemingly interminable. The average di-
merger's illegality.
vestiture case lasts more than five years, and all the while, the acquir-
Yet by the time it wins the victory-and the government is success-
ing firm retains the illegal profits and other fruits of the acquisition,
ful in the vast majority of its litigated merger cases-it is often too
and its anticompetitive effects pervade the marketplace, injuring com-
late to enforce effectively the Clayton Act, by gaining meaningful re-
petitors and consumers alike.
lief. During the course of the post-merger litigation, the acquired
A prime reason for the tortuous pace of most diverstiture proceed-
firm's assets, technology, marketing systems, and trademarks are re-
ings is that the negotiation and execution of the divestiture sale is
placed, transferred, sold off, or combined with those of the acquiring
largely in the hands of the violator. Rarely will the acquiring firm
firm. Similarly, its personnel and management are shifted, retrained,
swiftly attempt to sever its own illegal acquisition-which has gener-
or simply discharged.
ally become an integral part of its operations by the time a divestiture
In these ways, the acquiring and acquired firms are, in effect, ir-
is entered.
reversibly "scrambled" together. The independent identity of the ac-
quired firm disappears. "Unscrambling" the merger, and restoring the
5 In re Farm Journal, 53 F.T.C. 26, 50 (1956).
6 In re Union Carbide Corp., 59 F.T.C. 614 (1961).
acquired firm to its former status as an independent competitor is
7 In re Brillo Manufacturing Co., FTC Docket No. 6657 (1963).
difficult at best, and frequently impossible.
4 Brown Shoe, supra, 370 U.S. 294 (1962).
H. Rept. 94-1373-2
10
11
The most recent unfortunate example is the Papercraft litigation.8
There, the illegal merger was consummated in 1967, with Papercraft's
H.R. 14580 achieves this goal by requiring advance notice, together
purchase of CPS Industries, Inc. In 1968 the FTC filed a challenge to
with specific economic data on the merger, and a short, 30-day waiting
the merger, won on the merits, and gained a divestiture order in 1971.
period for the very largest corporate mergers--about the 150 largest
Yet more than four years later, Papercraft had still not managed
out of the thousands that take place every year. If the initial notifica-
to divest CPS, because it had been unable to find a "suitable buyer."
tion form reveals "problem areas," the government can request addi-
The reason Papercraft refused to sell CPS for less than $37.5 mil-
tional data during the 30-day period, and thereby extend the waiting
lion-even though CPS was purchased for only $5 million, had a book
period until the government receives the response, and for up to 20
value of only $7 million, and an appraised value of $14.9 million.
days thereafter SO that the response may be analyzed.
Thus, simply by rejecting repeated offers of $13 million, $15 million,
Requests made after the expiration of this 30-day period cannot
$20 million (in cash), and $25.5 million Papercraft managed to retain
operate to extend the waiting period. Thus, if no request for additional
CPS Industries for almost a decade after the illegal acquisition. And
information has been made by the time the period ends, the merger
Papercraft's strategy of delay has been amply rewarded: In the years
cannot be halted unless the government goes into court, carries its
since 1967, CPS contributed more than $11 million in profits to Paper-
burden of proof, and wins an injunction.
craft's treasury.
It is expected that a corporation to which a request for additional
The prospect of such profits, and the strong probability that the
information is made will be co-operative SO as to expedite the passing
government will ultimately win only a partial or "token" divestiture
of the waiting period. However, if a corporation is requested to
order, unfortunately provide clear incentives for speedily consummat-
provide information which it believes is burdensome, irrelevant, or
ing suspect mergers, and then protracting the ensuing litigation. At
privileged, it may forward to the government, together with all the
best, the offending firm will be allowed to keep its acquisition by agree-
information that it is submitting, a certification of the reasons why
ing to make no further acquisitions; at worst, it will only be required
it is not fully complying with the request. When the government
to divest its acquisition to another firm, often at a hefty profit over the
receives both the submission and certification, the 20-day period for
original purchase price.
analyzing the submission starts to run. On the expiration of the 20-
Even in the few cases where full divestiture is successfully achieved,
day period, the waiting period ends and the merger may be consum-
the "victory" is likely to be so costly that it is pyrrhic: Thus, the
mated, unless prior to that time the government secures injunctive re-
litigation spawned by the El Paso Natural Gas merger lasted seven-
lief because the corporation has failed substantially to comply with the
teen years, and went to the Supreme Court six times, before the il-
government's request.
legally-acquired firm was sucessfully divested. But the costs-to the
If these premerger reporting requirements were imposed on every
firms, the courts, and the marketplace-were immense.9
merger, the resulting added reporting burdens might more than offset
To avoid the worst of these protracted exercises in futility is the
the decrease in burdensome divestiture trials. That is why H.R. 14580
major purpose of this bill. Merger litigation simply need not always
applies only to approximately the largest 150 mergers annually These
continue for years and even decades-but if it takes place after con-
are the most likely to "substantially lessen competition"-the legal
summation, it generally will, for the acquiring firm has no incentive
standard of the Clayton Act. They are by far the most difficult to un-
to litigate the issues speedily.
scramble. They inflict the greatest damage to the marketplace. And
In contrast, pre-consummation merger litigation proceeds rapidly
they generally require many months and even years of advance plan-
and expeditiously, because all parties have a paramount interest in a
ning, SO the impact of this bill on them will be minimal.
quick resolution of the case. Thus, in U.S. V. AMAX,10 less than two
Hence, smaller, illegal mergers may still be consummated, despite
months elapsed between the filing of the government's complaint, and
passage of this bill, and there may still be lengthy divestiture trials in
the filing of the court's written opinion. This happened only because
future years-but surely this bill represents a reasonable step in the
the suit was promptly instituted and tried before the merger's con-
right direction. It will help prevent the consummation of so-called
summation; and this in turn was possible only because the defendants
"midnight" mergers, which are designed to deny the government any
voluntarily agreed to postpone consummation until an expedited trial
opportunity to secure preliminary injunctions. It will ease burdens on
was completed.
the courts by forestalling interminable post-consummation divestiture
In sum, the chief virtue of this bill is that its provisions will help
trials, And it will advance the legitimate interests of the business com-
to eliminate endless post-merger proceedings like the El Paso and
munity in planning and predictability, by making it more likely that
Papercraft cases, and replace them with far more expeditious and
Clayton Act cases will be resolved in a timely and effective fashion.
effective premerger proceedings. It can be done, and the savings will
be considerable, as the AMAX case indicates.
CASH TENDER OFFERS
8 U.S. V. Papercraft Corp., 1975 CCH Trade Cases, 60,314 (W.D.Pa.).
H.R. 14580 provides a special, shortened 21-day waiting period for
9 The expense of preparing new debt instruments for the divested firm in El Paso exceeded
$500,000-for printing costs alone.
mergers consummated by means of cash tender offers.
10 402 F. Supp. 956 (D.C. Conn. 1975).
Unlike most mergers, which are amicably negotiated by the man-
agement of the two firms, cash tenders enable the acquiring or "raid-
12
13
ing" company to "bypass" the management of the acquired, "target"
ment agencies with a realistic opportunity to review the antitrust im-
company, and purchase that company directly from its shareholders.
plications of a cash tender, before it is consummated. In fact, since
If the offering price is well above current market value, the share-
cash tender offers are almost always made in a hostile setting, where
holders of the target company will generally sell in order to gain
the target company opposes the raiding company's offer, it is quite
sizable profits; and the target company's management will then be
probable that the target company will eagerly come forward with
ousted by the raiding company.
whatever relevant information it has that would be helpful to anti-
Thus, the very possibility of a successful cash tender offer may exert
trust authorities. This increased cooperation should help to ease any
it pro-competitive influence in the marketplace by keeping incumbent
difficulties the FTC and the Justice Department will necessarily meet
management "on their toes," and by forcing them to keep their firm
in completing their evaluation within this shortened time period.
efficient and successful. If they fail to utilize their firm's full potential
and keep its earnings as high as possible, a raiding company-believ-
CONCLUSION
ing that more efficient and innovative policies might increase the target
firm's future profits-may try to take it over by means of a cash tender
Finally, the Committee emphasizes that H.R. 14580 is not new or
offer.
hastily-drawn legislation. In fact, similar premerger notification and
But cash tenders depend on speed and surprise. If months go by,
waiting bills were sponsored by this Committee's former Chairman
the target company's incumbent management can often frustrate a
Emanuel Celler, and passed by a unanimous vote in the House of
cash tender offer, by establishing "lifetime" employment contracts for
Representatives during the 84th Congress. Similar bills were also
themselves, or by arranging a more favorable "defensive" merger, or
passed by the Senate Judiciary Committee during the 84th Congress;
by other means.
by the House Judiciary Committee during the 85th Congress; and
That is why Congress, in 1968 and 1970, after fully considering the
by the Senate Antitrust and Monopoly Subcommittee on three prior
nature and purpose of cash tenders, passed the Williams Act, which
occasions. In five successive messages to Congress, President Eisen-
imposes only a ten-day pre-consummation waiting period on cash
hower urged adoption of such legislation. Chairman Rodino himself
tenders.11 Concededly, the purpose of this ten-day waiting period was
filed the Committee's Report on the 1961 premerger notification and
not to permit the antitrust enforcement agencies to assess the antitrust
waiting bill, which was strongly backed by Attorney General Robert
implications of a cash tender acquisition. Instead, it was intended to
F. Kennedy.
give investors protection against fraud, by providing them at least
H.R. 14580 was introduced by Committee Chairman Rodino, and is
ten days to weigh the merits of the offer before accepting it.
co-sponsored by eleven of the thirteen members of the Monopolies
Nevertheless, it is clear that this short waiting period was founded
Subcommittee.
on congressional concern that a longer delay might unduly favor the
In its present form, it is supported by President Ford, Attorney
target firm's incumbent management, and permit them to frustrate
General Levi, Antitrust Division Chief Thomas E. Kauper, the Fed-
many pro-competitive cash tenders. This ten-day waiting period thus
eral Trade Commission's Paul Rand Dixon, the American Bar Asso-
underscores the basic purpose of the Williams Act-to maintain a
ciation, and many others. It parallels in many respects the premerger
neutral policy towards cash tender offers, by avoiding lengthly delays
notification and waiting provisions of H.R. 8532, as passed by the
that might discourage their chances for success.
Senate on June 10 by a vote of 67 to 12.
However, the purposes of this bill would be frustrated by limiting
the waiting period to only ten days, for it is simply impossible to ana-
IV. COMMITTEE ACTION
lyze the antitrust implications of a cash tender offer in this short time.
In addition, some of the largest stock acquisitions in recent years have
On March 10, 1976, the Committee's Monopolies and Commercial
been accomplished through cash tender offers. Indeed, cash tenders
Law Subcommittee held merger oversight hearings, which examined
almost always involve exceptionally large corporations, and may thus
current problems in merger enforcement, and favored testimony by
present serious anticompetitive problems. Accordingly, the antitrust
Thomas E. Kauper, Assistant Attorney General in charge of the Jus-
enforcement agencies have a proper and legitimate interest in assess-
tice Department's Antitrust Division, and Paul Rand Dixon, the
ing the legality of proposed cash tenders under the antitrust laws.
Acting Chairman of the Federal Trade Commission.
H.R. 14580 therefore attempts to strike a balance between the ten-
1.
On April 8, 1976, Committee Chairman Rodino introduced H.R.
day Williams Act waiting period, and the thirty-day premerger wait-
13131, a bill to establish premerger notification, waiting, and stay re-
ing period established by this bill for all other kinds of mergers and
quirements. The Monopolies Subcommittee held hearings on this meas-
acquisitions. This "compromise" 21-day waiting period for cash tend-
ure on May 6 and May 13. Testimony was presented by seven witnesses,
ers should not unduly inhibit them, since more than three-fourths of
including attorneys in private practice, professors of economics, and
all cash tenders offers require more than 217 days for consummation.
representatives of the American Bar Association and the U.S. Cham-
At the same time, this 21-day period provides the antitrust enforce-
ber of Commerce. Other witnesses included the FTC's former Chief
Economist, and Emanuel Celler, the Committee's former Chairman.
11 Or, in the event the offer is for "any and all shares," a seven-day waiting period.
In addition, further written statements on the measure were received
15
14
from the U.S. Chamber of Commerce, the American Bankers Asso-
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
ciation, the Federal Trade Commission, and the Justice Department.
In compliance with clause 3 of Rule XIII of the Rules of the House
In public session on June 25, the Monopolies Subcommittee marked
of Representatives, changes in existing law made by the bill as re-
up H.R. 13131, and by voice vote ordered that, as amended, the bill
ported, are shown as follows. (existing law proposed to be omitted is
be reintroduced and reported favorably to the full Committee on the
enclosed in black brackets, new matter is printed in italic, existing
Judiciary. Reintroduced as H.R. 14580, the bill was considered and
law in which no change is proposed is shown in roman)
amended in public session on July 27, 1976, by the full Committee,
which by a roll call vote of 29 to 0, with one Member voting "present,"
THE ACT OF OCTOBER 15, 1914
ordered that H.R. 14580, as amended, be reported favorably to the
House.
AN ACT To supplement existing laws against unlawful restraints and
monopolies, and for other purposes
V. INFORMATION SUBMITTED PURSUANT TO RULES X AND XI
Be it enacted by the Senate and House of Representatives of the
A
United States of America in Congress assembled, That (a) "antitrust
laws," as used herein, includes the Act entitled "An Act to protect
The Committee, in considering H.R. 14580, made no specific over-
trade and commerce against unlawful restraints and monopolies,"
sight findings pursuant to clause 2(b) (1) of Rule X. However, both
approved July second, eighteen hundred and ninety; sections seventy-
the Monopolies Subcommittee and the full Committee gave extensive
three to seventy-seven, inclusive, of an Act entitled "An Act to reduce
consideration to testimony and other materials presented during the
taxation, to provide revenue for the Government, and for other pur-
Subcommittee's merger oversight hearing on March 10, 1976, and its
poses," of August twenty-seventh, eighteen hundred and ninety-four;
hearings on H.R. 13131 held in May 1976.
an Act entitled "An Act to amend sections seventy-three and seventy-
six of the Act of August twenty-seventh, eighteen hundred and ninety-
B
four, entitled 'An Act to reduce taxation, to provide revenue for the
Government, and for other purposes,' approved February twelfth,
No new budget authority is provided.
nineteen hundred and thirteen; and also this Act.
"Commerce," as used herein, means trade or commerce among the
C
several States and with foreign nations, or between the District of
Columbia or any Territory of the United States and any State,
No estimate or comparison was received from the Director of the
Territory, or foreign nation, or between any insular possessions or
Congressional Budget Office, and none is necessary, as no budget
other places under the jurisdiction of the United States, or between
authority is provided.
any such possession or place and any State or Territory of the United
D
States or the District of Columbia or any foreign nation, or within
the District of Columbia or any Territory or any insular possession
No related oversight findings and recommendations have been made
or other place under the jurisdiction of the United States: Provided,
by the Committee on Government Operations under clause 2(1) (3)
That nothing in this Act contained shall apply to the Philippine
(D) of Rule XI.
Islands.
E
The word "person" or "persons" wherever used in this Act shall
be deemed to include corporations and associations existing under
Inflationary Impact Statement.
Pursuant to clause 2(1) (4) of Rule XI, the Committee concluded
or authorized by the laws of either the United States, the laws of
that there will be no inflationary impact on the national economy. In
any of the Territories, the laws of any State, or the laws of any
fact, because the bill will help to prevent large, illegal mergers, and
foreign country.
will thereby eliminate the long-enduring and often irreparable anti-
(b) This Act may be cited as the "Clayton Act".
competitive damage they inflict on the nation's markets, H.R. 14580
*
*
will help to make the American economy more competitive and effi-
SEC. 7. That no corporation engaged in commerce shall acquire,
cient, with resulting lower prices and costs. Moreover, by replacing
directly or indirectly, the whole or any part of the stock or other
costly and interminable post-merger divestiture proceedings with
share capital and no corporation subject to the jurisdiction of the
expeditious premerger litigation, this bill will ease burdens on the
Federal Trade Commission shall acquire the whole or any part of the
courts, and reduce the costs of government merger enforcement
assets of another corporation engaged also in commerce, where in any
actions.
line of commerce in any section of the country, the effect of such
16
17
acquisition may be substantially to lessen competition, or to tend to
create a monopoly.
SEC. 7A. (a) Except as exempted pursuant to subsection (c), no
No corporation shall acquire, directly or indirectly, the whole or
corporation shall acquire, directly or indirectly, any voting securities
any part of the stock or other share capital and no corporation subject
or assets of any other corporation, unless each such corporation (or
to the jurisdiction of the Federal Trade Commission shall acquire
in the case of a tender offer, the acquiring corporation) files notifica-
the whole or any part of the assets of one or more corporations engaged
tion pursuant to rules under subsection (d) (1) and the waiting period
in commerce, where in any line of commerce in any section of the
described in subsection (b) (1) has expired, if-
country, the effect of such acquisition, of such stocks or assets, or of
(1) the acquiring corporation or the corporation, any voting
the use of such stock by the voting or granting of proxies or otherwise,
securities or assets of which are being acquired, is engaged in
may be substantially to lessen competition, or to tend to create a
commerce or in any activity affecting commerce;
monopoly.
(2) (A) any voting securities or assets of a manufacturing cor-
This section shall not apply to corporations purchasing such stock
poration which has annual net sales or total assets of $10,000,000
solely for investment and not using the same by voting or otherwise
or more are being acquired by a corporation which has total assets
to bring about, or in attempting to bring about, the substantial lessen-
or annual net sales of $100,000,000 or more;
ing of competition. Nor shall anything contained in this section pre-
(B) any voting securities or assets of a nonmanufacturing cor-
vent a corporation engaged in commerce from causing the forma-
poration which has total assets of $10,000,000 or more are being
tion of subsidiary corporations for the actual carrying on of their
acquired by a corporation which has total assets or annual net
immediate lawful business, or the natural and legitimate branches or
sales of $100,000,000 or more; or
extensions thereof, or from owning and holding all or a part of the
(C) any voting securities or assets of a corporation with annual
stock of such subsidiary corporations, when the effect of such forma-
net sales or total assets of $100,000,000 or more are being acquired
tion is not to substantially lessen competition.
by a corporation with total assets or annual net sales of $10,000,000
Nor shall anything herein contained be construed to prohibit any
or more; and
common carrier subject to the laws to regulate commerce from aiding
(3) as a result of such acquisition, the acquiring corporation
in the construction of branches or short lines SO located as to become
would hold-
feeders to the main line of the company SO aiding in such construction
(4) 25 per centum or more of the voting securities or assets
or from acquiring or owning all or any part of the stock of such branch
of the acquired corporation, or
lines, nor to prevent any such common carrier from acquiring and
(B) an aggregate total amount of the voting securities and
owning all' or any part of the stock of a branch or short line con-
assets of the acquired corporation in excess of $20,000,000.
structed by an independent company where there is no substantial
(b) (1) The waiting period under subsection (a) shall-
competition between the company owning the branch line so con-
(A) begin on the date of the receipt by the Federal Trade Com-
structed and the company owning the main line acquiring the property
mission and the Assistant Attorney General of the completed
or an interest therein, nor to prevent such common carrier from extend-
notification required under subsection (a) and, if such notification
ing any of its lines through the medium of the acquisition of stock
is not completed, the reasons therefor; and
or otherwise of any other common carrier where there is no substantial
(B) end on the thirtieth day after the date of such receipt or
competition between the company extending its lines and the company
on such later date as may be set under subsection (e) or (g) (2),
whose stock, property, or an interest therein is SO acquired.
except that in the case of cash tender offers, such period shall end
Nothing contained in this section shall be held to affect or impair
on the twenty-first day after the date of such receipt, or on such
any right heretofore legally acquired: Provided, That nothing in this
later date as may be set under subsection (e) (2) (B).
section shall be held or construed to authorize or make lawful any-
(2) The Federal Trade Commission and the Assistant Attorney
thing heretofore prohibited or made illegal by the antitrust laws, nor
General may, in individual cases, terminate the waiting period spe-
to exempt any person from the penal provisions thereof of the civil
cified in paragraph (1) and allow any corporation to proceed with any
remedies therein provided.
acquisition subject to this section by publishing in the Federal Reg-
Nothing contained in this section shall apply to transactions duly
ister a notice that neither intends to take any action within such period
consummated pursuant to authority given by the Civil Aeronautics
with respect to such acquisition.
Board, Federal Communications Commission, Federal Power Com-
(3) As used in this section-
mission, Interstate Commerce Commission, the Securities and
(A) The term "Assistant Attorney General" means the As-
Exchange Commission in the exercise of its jurisdiction under section
sistant Attorney General in charge of the Antitrust Division of
10 of the Public Utility Holding Company Act of 1935, the United
the Department of Justice.
States Maritime Commission, or the Secretary of Agriculture under
(B) The term "voting securities" means any stock or other
any statutory provision vesting such power in such Commission.
share capital presently entitling the owner or holder thereof to
Secretary, or Board.
vote for the election of directors of a corporation.
H. Rept. 94-1373-3
18
19
(4) The amount or percentage of voting securities or assets of one
of assets, by any bank, banking association, trust company, in-
corporation which are acquired or held by another corporation shall be
vestment company, or insurance company, in the ordinary course
determined by aggregating the amount or percentage of such voting
of its business;
securities or assets held or acquired by the acquiring corporation and
(11) acquisitions of voting securities by any bank trust depart-
each affiliate thereof. For purposes of this paragraph, the term 'af-
ment, trust company, or other entity, if such department, trust
filiate' means any person who controls, is controlled by, or is under
company, or entity is acting in the capacity of a trustee, executor,
common control with a corporation.
guardian, conservator, or otherwise as a fiduciary, and is voting
(5) The conversion of stock or other share capital which are not
or investing such voting securities for the benefit of another per-
voting securities into stock or other share capital which are voting
son or entity, except that any such beneficiary shall not be exempt
securities shall be deemed an acquisition for purposes of this section.
by virtue of this paragraph from the requirements of this section;
(c) The following classes of transactions are exempt from the re-
and
quirements of this section-
(12) such other acquisitions, transfers, or transactions, as may
(1) acquisitions of goods or realty transferred in the ordinary
be exempted by the Federal Trade Commission under subsection
course of business;
(d) (2) (B).
(2) acquisitions of bonds, mortgages, deeds of trust, or other
(d) The Federal Trade Commission, with the concurrence of the
obligations which are not voting securities;
Assistant Attorney General and by rule in accordance with section 553
(3) acquisitions of voting securities or assets of a corporation
of title 5, United States Code-
with respect to which the acquiring corporation owns more than 50
(1) shall require that the notification required under subsection
per centum of such voting securities or assets prior to such
(a) be in such form and contain such documentary material rele-
acquisition;
vant to a proposed acquisition as is necessary and appropriate to
(4) transfers to or from a Federal agency or a State or political
enable the Federal Trade Commission and the Assistant Attorney
subdivision thereof;
General to determine whether such acquisition may violate the
(5) transactions specifically exempted from the antitrust laws
antitrust laws; and
by law or by actions of any Federal agency authorized by law,
(2) may-
if copies of any information and documentary material filed with
(A) define the terms used in this section;
any such agency are contemporaneously filed with the Federal
(B) exempt classes of corporations and acquisitions, trans-
Trade Commission and the Assistant Attorney General;
fers, or transactions which are not likely to violate section 7
(6) transactions which require agency approval under section
of this Act from the requirements of this section;
of the Federal Deposit Insurance Act (12 U.S.C. 1828(c))
(C) increase the percentage amount specified in subsection
or section 3 of the Bank Holding Company Act of 1956 (12 U.S.C.
(c) (8); and
1842);
(D) prescribe such other rules as may be necessary and
(7) transactions which require agency approval under section 4
appropriate to carry out the purposes of this section.
of the Bank Holding Company Act of 1956 (12 U.S.C. 1843),
(e) (1) The Federal Trade Commission or the Assistant Attorney
section 403 or 408(e) of the National Housing Act (12 U.S.C.
General may, prior to the expiration of the 30-day waiting period, or
1726 and 1730a), or section 5 of the Home Owner's Loan Act of
in the case of cash tenders offers, the 21-day waiting period, specified
1933 (12 U.S.C. 1464), if copies of any information and docu-
in subsection (b) (1) of this section, require the submission of addi-
mentary material filed with any such agency are contemporane-
tional information or documentary material relevant to an acquisition
ously filed with the Federal Trade Commission and the Assistant
by any corporation subject to this section, or by any officer, director,
Attorney General;
agent, or employee of such corporation.
(8) acquisitions, solely for the purpose of investment, of voting
(2) (A) Except as provided in subparagraph (B) with respect to
securities if, as a result of such acquisition, the voting securities
cash tender offers, the Federal Trade Commission or the Assistant At-
acquired or held do not exceed either 10 per centum of the out-
torney General may, in its or his discretion, extend the 30-day waiting
standing voting securities of the issuing corporation or such
period specified in subsection (b) (1) of this section for an additional
greater per centum as may be provided by the Federal Trade Com-
period of not more than 20 days after the date on which the Federal
mission under subsection (d) (2) (σ);
Trade Commission or the Assistant Attorney General, as the case may
(9) acquisitions of voting securities issued by any corporation
be, receives (i) all the information or documentary material submitted
if, as a result of such acquisition, the voting securities acquired
pursuant to a request under paragraph (1) of this subsection, and (ii)
would not increase, directly or indirectly, the acquiring corpora-
if such request is not fully complied with, a certification of the reasons
tion's share of outstanding voting securities of the issuing
for such noncompliance. Such additional period may be further ex-
corporation;
tended only by the United States district court, upon an application by
(10) acquisition, solely for the purpose of investment, of voting
the Federal Trade Commission or the Assistant Attorney General pur-
securities pursuant to a plan of reorganization or dissolution, or
suant to subsection (g) (2).
20
21
(B) With respect to cash tender offers, the United States district
(A) order compliance;
court may, upon application of the Federal Trade Commission or the
(B) extend the 30-day waiting period specified in subsection
Assistant Attorney General-
(b) (1) and as may have been extended under subsection (e) until
(i) extend the 21-day waiting period specified in subsection (b)
there has been substantial compliance; and
(1) of this section until there 28 substantial compliance with a
(C) grant such other equitable relief as the court in its discre-
request under paragraph (1) of this subsection, and
tion determines necessary,
(ii) grant such other equitable relief as the court in its discre-
upon aplication of the Federal Trade Commission or the Assistant
tion determines necessary,
Attorney General.
if the court determines that the Federal Trade Commission or the
(h) Any information or documentary material filed with the Assist-
Assistant Attorney General requested the submission of additional
ant Attorney General or the Federal Trade Commission pursuant to
information or documentary material pursuant to subsection (e) (1)
this section shall be exempt from disclosure under section 552 of title 5,
within 15 days after the date of receipt of the original notification
United States Code, and no such information or documentary material
required under subsection (a) and such request was not substantially
may be made public, except as may be required in any administrative
complied with within the 21-day waiting period specified in subsection
or judicial action or proceeding.
(b) (1).
(i) (1) Failure of the Federal Trade Commission or the Assistant
(f) If a proceeding is instituted by the Federal Trade Commission
Attorney General to take any action under this section shall not bar
alleging that a proposed acquisition violates section 7 of this Act, or
the institution of any proceeding or action with respect to such acquisi-
an action is filed by the United States, alleging that a proposed acqui-
tion at any time under any other section of this Act or any other pro-
sition violates such section 7, or section 1 or 2 of the Sherman Act, and
vision of law.
the Commission or the Assistant Attorney General files a motion for a
(2) Nothing contained in this section shall limit the authority of the
preliminary injunction against the consummation of such proposed
Assistant Attorney General or the Federal Trade Commission to se-
acquisition, together with a certification that it or he believes that the
cure from any person documentary material, oral testimony, or other
public interest requires relief pendente lite, in the United States dis-
information under the Antitrust Civil Process Act, the Federal Trade
trict court for the judicial district in which the respondent resides or
Commission Act, or any other provision of law.
does business in the case of the Federal Trade Commission, or in which
(j) Beginning not later than January 1, 1978, the Federal Trade
such action is brought in the case of the Assistant Attorney General-
Commission, after consultation with the Assistant Attorney General,
(1) upon the filing of such motion, the chief judge of such dis-
shall annually report to the Congress on the operation of this section.
trict court shall immediately notify the chief judge of the United
Such report shall include an assessment of the effects of this section,
States court of appeals for the circuit in which such court is lo-
recommendations for any desirable revisions of this section, any rules
cated, who shall designate a United States district judge to whom
promulgated under this section, any action taken under this section,
such action shall be assigned for all purposes; and
and, in cases of acquisitions subject to this section against which the
(2) the motion for a preliminary injunction shall be set down
Assistant Attorney General or the Federal Trade Commission took no
for hearing by the district judge 80 designated at the earliest prac-
action under this section prior to the expiration of the waiting period
ticable time, shall take precedence over all matters except older
specified in this section, a statement of the reasons for such failure to
matters of the same character and trials pursuant to section 3161
act.
of title 18, United States Code, and shall be in every way
*
*
expedited.
(g) (1) Any corporation or any officer or director thereof who fails
to comply with any provision of this section shall be liable to the
ACT OF JULY 2, 1890
United States for a civil penalty of not more than $10,000 for each
day during which such corporation, directly or indirectly, holds any
AN ACT To protect trade and commerce against unlawful restraints and
voting securities or assets, in violation of this section. Such penalty
monopolies
may be recovered in a civil action brought by the United States.
Be it enacted by the Senate and House of Representatives of the
(2) If any corporation or officer, director, agent, or employee thereof
United States of American in Congress assembled, That this Act may
fails to substantially comply with the notification requirement of sub-
be cited as the "Sherman Act".
section (a) or any request for the submission of additional inf ormation
or documentary material under subsection (e) (1) of this section within
the waiting period specified in subsection (b) (1) and as may be ex-
tended under subsection (e), the United States district court shall have
jurisdiction to-
ADDITIONAL VIEWS OF HON. JOHN F. SEIBERLING
With two small exceptions, I fully support H.R. 14580 as amended
by the Committee. I think that the legislation will be very beneficial
to the Federal agencies responsible for the enforcement of the antitrust
laws, specifically of section 7 of the Clayton Act (which prohibits
certain anticompetitive mergers and acquisitions) and section 5 (a)
of the FTC Act (which prohibits unfair methods of competition and
unfair or deceptive acts or practices in commerce).
The first problem I find with H.R. 14580 is the particular threshhold
size requirements which must be exceeded before a proposed acquisi-
tion has to be reported to the Justice Department and the FTC. Spe-
cifically, subsection 7A (a) (3) requires reporting only if-
"As a result of such acquisition, the acquiring corporation
would hold-
(A) 25 per centum or more of the voting securities or
assets of the acquired corporation, or
'(B) an aggregate total amount of the voting securities
and assets of the acquired corporation in excess of $20,000,000.
I do not object to establishing some reasonable threshhold size re-
quirements. The proper limits, in my view, are 10 percent and $10
million. I believe that the bill's limits of 25 percent and $20 million
are unreasonably high and that they will permit many significant ac-
quisitions to go unreported.
According to the majority report, H.R. 14580 is intended to give
the Justice Department and the FTC a "fair and reasonabe oppor-
tunity to detect and investigate large mergers of questionable legality
before they are consummated." In my view, 10 percent and $10 million
limits are more consistent with this stated purpose than are 25 percent
and $20 million limits, and they are also more consistent with the
10 percent figure used in proposed subsection 7A (c) (8) exemption
of acquistions for purposes of investment. As I understand the bill,
the purpose of the 10 percent figure in the investment exemption is to
screen out certain acquisitions which may reasonably be considered
de minimis while requiring the reporting of significant transactions,
including those which the acquiring corporations claim to be for pur-
poses of investment. The whole purpose of the bill is to enable the
Justice Department and the FTC to evaluate the purpose and effects
of all proposed significant acquistions.
A stockholder doesn't need 50 percent of the stock in most corpora-
tions to gain effective control. Most large publicly-owned corporations
can be controlled with far less than 25 percent of the stock, in fact.
As a general rule, the larger the value of a corporation (as measured
by the total value of its stock), the smaller the percentage of stock
required for effective control.
This is precisely why a number of important Federal statutes pre-
sume control of a corporation by any holder of 10 percent of the stock.
The Federal Deposit Insurance Act (12 U.S.C. 1817 (j)), for instance,
requires the reporting of any change in control of an FDIC bank, but
specifies that a holding of less than 10 percent shall not be considered
(23)
24
control. Section 13 of the Securities Exchange Act of 1934 (15 U.S.C.
78m) requires that the beneficial owner of 5 percent or more of the
stock of certain corporations report certain information about acquisi-
tions and holdings to the SEC. And section 16 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78p) requires that any inside traders
of the stock of certain corporations (including officers and directors
and owners of 10 percent or more of the stock in a corporation) report
certain information about acquisitions and holdings to the SEC.1
The 25 percent and $20 million limitations in H.R. 14580, it should
be noted, would not require the reporting of any acquisition which
would give the acquiring company any of the following holdings:
25 percent of a corporation with stock or assets valued at $80
million.
20 percent of a corporation with stock or assets valued at $100
million.
10 percent of a corporation with stock or assets valued at $200
million.
5 percent of a corporation with stock or assets valued at $400
millión.
2 percent of a corporation with stock or assets valued at $1
billion.
These figures may, in fact, represent. control of a corporation. In
some cases they will, and in some cases they won't. The point is that
they may, and the fact that they may is precisely why the 25 percent
and $20 million figures are too high.
The figures create an unreasonable loophole when combined with
the provisions of proposed subsection 7A (c) (11), which exempts en-
tities acting in a fiduciary capacity from the bill's reporting require-
ments. Under the bill in its present form, for example, no corporation
would have to report an acquisition through a broker acting as a
fiduciary for five oil companies of all the stock or assets of another oil
company whose stock or assets were valued at $100 million. Such an
acquistition might be highly anticompetitive, but the bill does not en-
sure that the Justice Department or the FTC will learn about it prior
to or even after its consummation. Reducing the bill's threshhold size
limits to 10 percent and $10 million would reduce the possibility of a
similar acquisition going unreported, and would somewhat narrow
this potential loophole.
The second problem I have with H.R. 14580 is that it requires the
reporting only of acquisitions by corporations. While section 7 of the
Clayton Act is concerned only with acquisitions by corporations, sec-
tion 5 (a) of the FTC Act is concerned with acquisitions by any "per-
son, partnership, or corporation." H.R. 14580's limitation to corpora-
tions, therefore, does not have the full scope of the FTC Act. I think
that it would be generally desirable for the Justice Department and
the FTC to have the opportunity to review significant corporate ac-
quisitions by persons (including natural persons, associations, and-
very importantly-foreign governments) and by partnerships. While
there may not be many such acquisitions annually, they may well have
a significant anticompetitive impact. I would hope that, in this respect,
the bill's scope would be broadened appropriately before enactment
into law.
JOHN F. SEIBERLING.
1 Not all Federal statutes presume control with 10 percent ownership. The Investment
Company Act of 1940 (15 U.S.C. 80a-2(9)), for instance, presumes control with 25 per-
cent ownership.
94TH CONGRESS
HOUSE OF REPRESENTATIVES
REPORT
2d Session
No. 94-1343
ANTITRUST CIVIL PROCESS ACT AMENDMENTS OF 1976
JULY 15, 1976.-Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
Mr. RODINO, from the Committee on the Judiciary,
submitted the following
REPORT
together with
ADDITIONAL VIEWS
[To accompany H.R. 13489]
The Committee on the Judiciary to whom was referred the bill (H.R.
13489) to amend the Antitrust Civil Process Act to increase the ef-
fectiveness of discovery in civil antitrust investigations, and for other
purposes, having considered the same, report favorably thereon with
amendments and recommend that the bill as amended do pass.
The amendments are as follows:
On the first page, immediately after line 4, insert the following:
DEFINITIONS
Page 3, line 8, after "state" insert "in appropriate detail".
Page 8, line 20, strike out "said" and insert "such".
Page 12, line 16, strike out "transcripts or" and insert "transcripts
of".
Page 15, line 19, strike out "Antitrut" and insert "Antitrust".
Page 17, line 9, strike out "subject to" and insert "subject of".
The text of the reported bill appears in this report in Appendix I.
I. PURPOSE AND SCOPE
The purpose of H.R. 13489 is to amend the Antitrust Civil Process
Act of 1962 (15 U.S.C. 1311 et seq.), to provide the Justice Depart-
ment's Antitrust Division with all the basic investigative tools neces-
sary for effective and expeditious investigations into possible civil
violations of the federal antitrust laws.
*57-006
2
3
These fact-finding tools include the authority to compel the sub-
The power to conduct premerger investigations, in particular, is
mission of documents, answers to written interrogatories, and oral
necessary to implement the Congressional policy established in the
testimony from any person having information relevant to a possible
federal antimerger law, section 7 of the Clayton Act. As the courts
civil antitrust violation. Similar investigative powers are exercised
have repeatedly emphasized, that Act is intended to arrest illegal
by nearly forty important federal law enforcement agencies, includ-
monopolies and restraints of trade "in their incipiency," before they
ing the Federal Trade Commission, which shares with the Division
ripen into full-scale Sherman Act violations. Thus, Clayton section 7
the duty of enforcing the federal antitrust laws, and many other
prohibits mergers and acquisitions which "may" lessen competition,
Executive-branch and independent regulatory agencies. Equal
or "tend" to create a monopoly. Yet the courts will not enjoin the
powers are also held by the chief antitrust enforcement officers of
consummation of such illegal mergers, unless the Division makes a
nineteen states.
persuasive factual showing of their anticompetitive effects. Without
All of these three investigative tools are traditional and familiar
recourse to these basic investigative powers, the Division cannot
features of federal civil litigation: Each one is routinely available
speedily gather these crucial facts and promptly present them to a
to any civil litigant, including the Division, to help develop the
federal judge in time to halt a suspect merger.
relevant facts after a civil complaint is filed and post-complaint
To ensure against any abuse of these basic and long-needed investi-
discovery commences.
gative powers, H.R. 13489 also includes expansive and detailed safe-
Nevertheless, because of restrictions set by the 1962 Antitrust Civil
guards to protect every recipient of a CID from unwarranted or un-
Process Act, the Division's existing civil, pre-complaint investiga-
reasonable governmental intrusion. These safeguards include a full
tive authority is limited to a special kind of civil subpoena, known
right to counsel during any CID oral examination, and a right to
as a civil investigative demand, or CID. These CIDs can compel
refuse to answer any question if it violates "any Constitutional or
only:
other legal right or privilege." Every CID recipient also may challenge
(1) The submission of documents;
CIDs that are oppressive, unreasonable, irrelevant, or otherwise im-
(2) From corporations, partnerships, and other non-natural
proper under appropriate civil or criminal standards, and has a right
to judicial review by the courts in case of any dispute over the legality
persons; (3) That are suspected violators of the antitrust laws, and are
of a CID. The bill requires that strict confidentiality be accorded to
thus direct "targets" of a civil investigation;
all CID investigative files in order to protect the reputation and stand-
(4) If a past or present violation is under investigation.
ing of witnesses, as well as their trade secrets and proprietary financial
H.R. 13489 broadens these limited, current investigative powers by
data. It also provides an absolute right for CID witnesses to review,
authorizing the Division to issue CIDs for:
correct, and inspect transcripts of their testimony, and sets forth other
(1) Documents, and answers to written interrogatories, and oral
appropriate safeguards.
testimony;
(2) From businesses and natural persons;
II. SUMMARY OF REPORTED BILL
(3) From "targets" and "non-target" third parties with relevant
information, such as the target's competitors, officers, franchisees,
The first section establishes the bill's short title.
Section 2 broadens the definitions set forth in the 1962 Act in three
distributors, or customers;
(4) During investigations of past or present violations, and during
significant ways: First, the "under investigation," or "target" restric-
investigations of "incipient" violations, such as proposed mergers
tion set by the 1962 Act is eliminated. Thus, federal anirust investi-
that cannot constitute a completed offense until they are consum-
gators will be empowered to demand relevant information from "any
mated at some future date.
person," whether that person is a "target" of the investigation, or
Oral testimony, as well as information from third parties, is
simply an unimplicated third party. Second, in addition to their cur-
frequently crucial to an antitrust investigation. Yet, far too often,
rent authority to investigate past or present violations, the bill gives
the Division cannot determine whether or not a civil complaint would
antitrust investigators authority to inquire into "any activities in
be justified because it does not receive voluntary cooperation from
preparation for a merger, acquisition, joint venture, or similar transac-
persons who know the relevant facts.
tion, which, if completed, may violate the antitrust laws." Third,
In these cases, the Division is left facing two equally unsatisfactory
natural persons, as well as corporations and other legal entities, are
alternatives: Either abandon the inconclusive investigation for lack
made subject to civil investigation.
of solid facts, or else file a "skeleton" complaint, and hope the facts
Section 3 re-enacts the Division's existing authority to issue CIDs
revealed during pre-trial discovery will support the charges, not
for documents, and provides it with new authority to issue CIDs for
refute them. This troubling dilemma has long confronted the
answers to written interrogatories and oral testimony. This section
Division, and has constantly hindered both its investigations and
also sets forth the strict standards which must be met by each CID;
its enforcement efforts. H.R. 13489 will resolve this dilemma. and
provides detailed procedures for compliance with CIDs; and estab-
will permit the Division to make a more informed judgment on
lishes careful safeguards for all recipients of CIDs, including com-
whether or not to institute a civil suit.
prehensive rights to object to any CID, and the right to counsel during
any CID oral examination.
4
5
Section 4 establishes detailed controls over the Division's use of CID
Such investigative powers are also held by all House and Senate
information, in order to protect the confidentiality of these investiga-
Committees and Subcommittees; many Presidential and "blue rib-
tive files.
bon" investigative commissions; and the chief antitrust enforce-
Section 5 adds a new provision to the 1962 Act, which permits the
ment officials of nineteen States. Surely the widespread prevalence of
Division to extend the time within which any CID recipient may file
these powers reflects a universal recognition that effective law enforce-
his own petition challenging a CID's legality. This will give the Divi-
ment in the public interest depends on thorough and complete
sion and businessmen more time to resolve possible disputes "out of
investigations.
court." This section also protects all CID information from public
Attorney General Levi persuasively stated the Antitrust Division's
disclosure under the Freedom of Information Act. Existing provisions
need for these new tools in his letter of February 13, 1975, transmitting
of the 1962 Act, governing pre-enforcement judicial review of dis-
this measure to the Speaker of the House of Representatives:
puted CIDs, are unchanged.
No field of litigation involves facts more complex and
Section 6 makes the criminal penalties set by the 1962 Act for ob-
records more extensive than are found in the Government's
structing compliance with a CID for documents equally applicable
antitrust cases. The task of amassing the voluminous data es-
to willful obstruction in cases of CIDs for answers to written inter-
sential to successful antitrust enforcement is of considerable
rogatories and oral testimony.
magnitude.
Section 7 provides that the authority conferred by H.R. 13489 shall
Insofar as it went, enactment in 1962 of the Antitrust Civil
become effective upon enactment.
Process Act provided a signal benefit to the Government's
civil investigations by authorizing production of relevant
III. BACKGROUND
documents from corporations, associations, partnerships, or
H.R. 13489 has strong bipartisan support. It is co-sponsored by
other legal entities not natural persons, under investigation.
Chairman Rodino and eleven of the thirteen Members of the Commit-
But the limitations on the scope of the demand have left the
tee's Monopolies Subcommittee, and is vigorously endorsed by Presi-
Act far from meeting essential investigatory needs of the De-
dent Ford, U.S. Attorney General Edward H. Levi, and Antitrust
partment's Antitrust Division.³
Division Chief Thomas E. Kauper.1
There are four apparent alternatives to the use of compulsory in-
In a letter to Chairman Rodino, dated March 31, 1976, President
vestigative authority, but all are unsatisfactory and inadequate:
(1) The Division might rely on the voluntary cooperation of the
Ford stated:
party under investigation. However, as might be expected, investi-
During the last year and a half, my Administration has
gated parties often refuse to cooperate by providing the Division with
supported effective, vigorous, and responsible antitrust en-
the evidence that might seal the case against them. More importantly,
forcement.
Assuring a free and competitive economy is a
as was noted in the 1955 Report of the Attorney General's National
keystone of my Administration's economic program.
Committee to Study the Antitrust Laws, "A government agency should
In October 1974, I announced my support of amendments
not be in a position of sole dependence upon voluntary cooperation for
to the Antitrust Civil Process Act which would provide impor-
discharge of its responsibilities."
tant tools to the Justice Department in enforcing our anti-
(2) The Division might try to empanel a grand jury, as it currently
trust laws. My Administration reintroduced this legislation
does in criminal antitrust investigations, and use the sweeping, com-
at the beginning of this Congress and I strongly urge its
pulsory powers of that investigative body to unearth evidence of civil
favorable consideration.
violations. But the U.S. Supreme Court has virtually eliminated the
This legislation does not establish any novel, untested powers. All
Antitrust Division's power to utilize the grand jury as a civil in-
the investigative tools provided in H.R. 13489 have long been em-
vestigative tool. In United States V. Proctor & Gamble, 356 U.S. 677
ployed by many Executive-branch law enforcement agencies-includ-
(1958), Justice Douglas concluded that "if the prosecution were using
ing the Departments of Labor, Agriculture, Health, Education and
criminal procedures to elicit evidence in a civil case, it would be
Welfare, Commerce, Transportation, and the Treasury-and by many
flouting the policy of the law." That is because such a use of the grand
regulatory and administrative agencies-including the Securities Ex-
jury would subvert the Division's policy of proceeding criminally
change Commission, the Interstate Commerce Commission, the Federal
only against flagrant, willful offenses, and would debase the law "by
Power Commission, the Federal Communications Commission, the
tarring respectable citizens with the brush of crime when their deeds
Civil Aeronautics Board, the Federal Trade Commission, the Inter-
involve no criminality." 5
national Trade Commission, the National Labor Relations Board, the
Small Business Administration, the Federal Reserve Board, the Fed-
2 As recently as June 4. 1976, the Senate agreed by a vote of 73-0 to establish a blue-
ribbon "Antitrust Review and Revision Commission," directed to study the Federal antitrust
eral Deposit Insurance Corporation, the Federal Maritime Commis-
laws and report to the President and Congress any revisions in them it deems advisable.
With little rebate, the Senate granted this Commission precisely the same investigative
sion, the Veteran's Administration, and the Railroad Retirement
powers provided in this bill; these were characterized by Senator Javits, the sponsor of the
Board, among others.
Commission, as "the usual routine subpena [powers]." See June 4, 1976, Cong. Rec.,
S. 8562-3.
3 See Executive Communications, infra.
4 Report of the Attorney General's National Committee to Study the Antitrust Laws,
1 See Executive Communications, infra.
Report No. 176, p. 343 (1955).
5 Ibid, p. 342.
6
7
Undeniably, the great bulk of the Antitrust Division's efforts are
Throughout these "case studes," the same problems appear and re-
consumed in civil litigation, in which there is no realistic prospect of
appear: Thus, in premerger investigations, the Division now has no
any criminal action whatsoever. Hence, in these many cases, the Di-
compulsory powers whatever, and voluntary cooperation is all too often
vision is absolutely barred from using a grand jury as an investigative
non-existent. In such cases, the Division is left with the choice of
tool.
abandoning its investigation, or else filing a complaint on incomplete
(3) The Division might try to "borrow" the Federal Trade Com-
or unreliable market data.
mission's broad civil investigative powers, by requesting the FTC to
Even if voluntary cooperation in premerger investigations is forth-
conduct an investigation under the FTC Act, 15 U.S.C. § 49. How-
coming, it may be delayed until it is too late to halt an anticompetitive
ever, the Division has no clear statutory authority to "borrow" the
merger.
FTC's investigative tools, and the Commission itself is not required
And while the Division can compel the submission of documents dur-
to "loan" them. In any event, both agencies view such "borrowing" as
ing investigations of possible Sherman Act violations, documents may
a wholly unsatisfactory procedure, since it would place new demands
be inconclusive by themselves, or non-existent. Corporations have be-
on the FTC's limited resources, while simultaneously reducing the
come very sophisticated about not creating or preserving documentary
power of Antitrust Division attorneys to maintain control over their
evidence. In such cases, oral testimony and answers to written inter-
investigations. Both the courts ⁶ and the 1962 House Report on the
rogatories offer the only means of ascertaining the relevant facts.
bill that ultimately became the current Antitrust Civil Process Act
In other cases, key corporate officials may agree to be interviewed
have pointed out that because of these drawbacks, this "alternative"
by the Division, but because these officials are not under oath, and
has rarely, if ever, been utilized.
there is no formal record of the interview, the usefulness of this ap-
(4) The Division might file a "skeleton" complaint, and use the
proach is limited.
broad deposition, interrogatory, and document production powers that
In many cases, information that is crucial to the investigation may
then become available under the discovery provisions of the Federal
only be obtained from third party witnesses, such as the target com-
Rules of Civil Procedure. But, the commencement of an action with a
pany's competitors, suppliers, franchisees, patent licensees, and cus-
"skeleton" complaint, with the aim of resorting to post-complaint dis-
tomers. Trade associations, in particular, may be the only repositories
covery under the Federal Rules and thereafter amending and fleshing
of the detailed market data needed by the Division. Yet commonly
out the complaint, is obviously a poor practice. It is often wasteful of
third parties refuse to cooperate voluntarily with the Division.
the time and effort of all concerned. It may be that there is no legal
The case studies reveal that without oral testimony from natural
cause of action. and that a full investigation will reveal just that. Thus,
persons, and evidence in the hands of third parties, antitrust investi-
because of their speculative approach and unduly prejudicial impact,
gators often cannot make an informed judgment on whether or not a
investigations by means of "skeleton" complaints have been universally
civil complaint should be filed. Yet the Division should not be required
condemned as a perversion of the Federal Rules of Civil Procedure.8
to guess. It should not be forced to either engage in a "fishing expedi-
Testimony that the Division's limited existing powers are inade-
tion"-by filing a civil complaint "on a hunch"-or else abandon the
quate was presented to the Monopolies and Commercial Law Subcom-
investigation, along with its enforcement responsibilities.
mittee by Assistant Attorney General Thomas E. Kauper, in charge
Indeed, as many witnesses recognized during the hearings on this
of the Antitrust Division. On May 8, 1975, he emphasized that
measure, H.R. 13489 should be the instrument of more enlightened
The limited scope of the Act substantially impairs our in-
antitrust enforcement, since the thorough pre-complaint investiga-
vestigative effectiveness by limiting civil investigative de-
tions this bill will authorize would in many cases disclose facts that
mands to current or past alleged violations, to legal entities
would lead the Government to file no action whatsoever. In fact, this
not natural persons, to documentary material, and to parties
often happens with CID investigations under the present 1962 Act.
under investigation.
The Division's figures reveal that approximately 1300 of the 1600
CIDs for documents it has issued since 1962 ultimately resulted in no
The Subcommittee thereupon requested Mr. Kauper to present a
action, and many of these 1300 investigations conclusively and clearly
specific and detailed showing of instances in which recent civil anti-
vindicated potential defendants.
trust investigations by the Division were hindered or thwarted for
In each of these many cases, the CID process has benefitted every-
want of the investigative powers contained in this bill. On January
one-the courts, the Division, and the potential defendants. The more
22. 1976, Mr. Kauper forwarded to the Subcommittee a representative
thorough precomplaint investigations that H.R. 13489 will make pos-
list of investigations that were substantially impeded by the current
sible will yield similar benefits in the future.
restrictions on Division investigations.9
IV. SAFEGUARDS
Petition of Gold Bond Stamp Co., 221 F. Supp. 391 (1963).
Y
House Report No. 1386. 87th Cong., 2d Sess. (1962).
S
See Judicial Conference of the United States, Report on Procedure In Antitrust and
While it is clear to the Committee that the Antitrust Division needs
Other Protracted Cases. 13 F.R.D. 62. 67 (1951): The Report of the Attorney General's
National Committee to Study the Antitrust Laws. Report No. 176, pp. 344-345 (1955)
the expanded investigative powers provided by H.R. 13489, it is
and Siegel. "The Antitrust Civil Process Act," 10 Villanova Law Review 413, 416, Spring
equally clear that the need for effective law enforcement must be bal-
965.
9 See Executive Communications, infra.
anced against the rights of businesses and individuals to be free from
8
9
unwarranted and unreasonable government intrusion. The Commit-
Amendment privilege against unreasonable searches and seizures,
tee therefore determined to include in H.R. 13489 appropriate safe-
which is enjoyed by both corporations and natural persons; the Fifth
guards to protect the legitimate rights and interests of every person
Amendment privilege, which can be claimed only by natural persons;
subjected to investigation.
the attorney-client privilege; the "work-product" privilege; and any
These protections include a full right to counsel during any CID
other lawful privilege. The Committee notes that this bill neither ex-
oral examination; a right to refuse to answer any question if it violates
pands nor limits these privileges; their scope and application remain
"any Constitutional or other legal right or privilege;" a right to ob-
within the province of the judicial branch.
ject under either grand jury subpoena standards or appropriate civil
These rights and privileges may be raised against any CID, not
discovery standards; a right to judicial review by the courts in case
just CIDs for oral testimony. This is made clear by section 5 (b) of
of any dispute; strict confidentiality of all CID investigative files in
the 1962 Act, which is unchanged by this bill: Section 5 (b) extends
order to protect witnesses' reputations, trade secrets and proprietary
to all CID recipients the same protections set forth in section 3 (i) (5)
financial data; an absolute right on the part of CID witnesses to re-
(A), by authorizing the federal courts to refuse enforcement of any
view, correct, and inspect the transcripts of their oral testimony; and
CID that violates "any Constitutional or other legal right or privilege"
other safeguards. These are detailed below.
of the CID recipient.
RIGHT TO COUNSEL
GROUNDS FOR OBJECTIONS
CID recipients have an unlimited right to counsel while preparing
The nature of the "legal rights" CID recipients may assert is de-
their responses to CIDs for documents and answers to written inter-
tailed in sction 3 (c), which sets forth the additional grounds for ob-
rogatories. It is equally important that this fundamental right be
jections to CIDs:
fully available to witnesses subjected to CIDs for oral testimony. Ac-
cordingly, section 3 (i) (5) (A) provides that:
No such demand shall require the production of any docu-
ment, the submission of any information, or any oral testi-
Any person compelled to appear under a demand for oral
mony if such document, information, or testimony would be
testimony pursuant to this section may be accompanied,
protected from disclosure under-
represented, and advised by counsel. Counsel may advise
(1) the standards applicable to subpenas or subpenas duces
such person, in confidence, either upon the request of such
tecum issued by a court of the United States in aid of a grand
person or upon counsel's own initiative, with respect to any
jury investigation, or
question asked of such person. Such person or counsel may
(2) the standards applicable to discovery requests under
object on the record to any question, in whole or in part, and
the Federal Rules of Civil Procedure, to the extent that the
shall state for the record the reason for the objection. An ob-
application of such standards to any such demand is appro-
jection may properly be made, received, and entered upon the
priate and consistent with the provisions and purposes of this
record when it is claimed that such person is entitled to refuse
Act.
to answer the question on grounds of any constitutional or
other legal right or privilege, including the privilege against
These twin protections reflect the nature of the Division's investiga-
self-incrimination.10
tive function as detailed in Petition of Gold Bond Stamp Co., 221 F.
Supp. 391 at 395 (D. Minn 1963), aff' 325 F.2d 1018 (8th Cir. 1964)
The right to refuse to answer on grounds of the privilege against
self-incrimination is especially crucial, because CID investigations
[In] determining the reasonableness of the [Division's civil
may uncover evidence of criminal violations of the Sherman Act, such
investigative] demand, the limitations placed on grand jury
as "hard-core" price fixing. In that event, the Division may invoke
and civil discovery cases have to be considered.
"The in-
its present grand jury authority, and undertake a criminal investiga-
vestigative function, in searching out violations with a view to
tion. If it does SO, its civil investigative powers cease; but any pre-
securing enforcement of the Act, is essentially the same as the
viously-collected CID evidence may, if relevant, be presented to a
grand jury's, or the court's in issuing other pre-trial orders
grand jury. Section 7 of the 1962 Act SO provides, and it remains un-
for the discovery of evidence, and is governed by the same
changed by this bill.
limitations.' Oklahoma Press V. Walling, 327 U.S. at 216."
In any event, H.R. 13489 entitles all CID witnesses to raise "any
The 1962 Antitrust Civil Process Act expressly incorporated the
Constitutional or other legal right or privilege" in the course of the
"grand jury subpoena" standard of protection for CID recipients. But
investigation. Included among these "privileges" are the Fourth
that Act did not clearly authorize CID objections under the "civil dis-
covery" standard set forth in this bill. Instead, section 5 (e) of the 1962
10 These provisions are intentionally modeled after the "right to counsel" provisions of
the Administrative Procedure Act. 5 U.S.C. § 555 "A person compelled to appear in person
Act merely provided that "the Federal Rules of Civil Procedure shall
before an agency or representative thereof is entitled to be accompanied represented. and
apply to any petition under this Act." But this language is ambiguous:
advised by counsel" after the FTC Rules. 16 CFR $ 2.9. governing the rights of wit-
nesses in FTC investigations: "Counsel for a witness may advise his client. in confidence.
It is not clear whether it makes the "civil discovery" standards avail-
and upon the initiative of either himself or the witness, with respect to any question asked
of his client.
able only if civil discovery is attempted in the course of and ancillary
H. Rept. 94-1343-2
10
11
to court disputes over CIDs, or whether, in addition, it means that CID
H.R. 13489, which limits service of CIDs to persons with documents
recipients can raise the same objections to CIDs that civil litigants
or information "relevant to a civil antitrust investigation."
can raise against civil discovery requests. Legislative history and court
CID's, like grand jury subpoenas, may also be quashed if they are
decisions under the 1962 Act fail to provide guidance. Thus, in order to
not issued "in good faith." 23 Elaborating this important requirement
resolve this doubt in favor of protecting CID recipients, the Commit-
of "good faith," other courts have ruled that objections to CIDs may
tee adopted the express language of section 3(c).
be sustained if the Justice Department issued the CID "with fraudu-
Consequently, CID recipients will be permitted to premise objections
lent and improper motives;" 24 if the CID "was inspired by and was
not only on the basis of precedents under the 1962 Act, but also on the
in aid of an inquiry of a legislative and political nature being pur-
basis of precedents under the grand jury subpoena standard and the
sued by an individual member of Congress, since issuance and service
civil discovery standard as well.
of the CID therefore was an abuse of process and an improper use
According to these precedents, the demand must not be too broad and
of the ACPA 25 or if the CID was "part of a plan to utilize the full
sweeping.¹ The information sought must have some materiality to
forces of the U.S. Government and the Department of Justice to intim-
the investigation being conducted.¹² The demand must be limited to a
idate and harass" the CID recipients.²
reasonable time period.¹³ The documents or information requested
Objections may also be proper if the CID "does not sufficiently state
must be described with sufficient definiteness SO that the person served
the alleged violation;' 27 or if the CID unreasonably seeks informa-
may know what is wanted.14 The burden of complying with the de-
tion that has already been provided to another Federal agency, such
mand must not be to great. 15 The demand may not be used to secure
as the FTC.
privileged communications. Trade secrets may be obtained,16 but pro-
CID recipients may also refuse to comply with any CID if the
tective orders are available to guard against their prejudicial disclos-
Division has no jurisdiction to conduct an investigation-which will
ure in any subsequent proceedings.¹⁷
be the case if the activities at issue enjoy a clear exemption from the
Most of these standards have constitutional origins, and stem from
antitrust laws. However, such challenges to jurisdiction are not per-
the Fourth Amendment prohibition against "unreasonable searches
mitted under the "grand jury subpoena" or "civil discovery" stand-
and seizures." 18 But such subpoenas must also conform to Federal
ards of this bill; rather, they stem from the bill's express limitation
Rule of Criminal Procedure 17 (c), which provides that a court may
of CID powers to investigations of civil antitrust violations.³⁰
quash or modify the subpoena-or, under this bill, a CID-if compli-
The Committee does recognize that the inflexible application of post-
ance would be "unreasonable or oppressive."
complaint, civil discovery standards to pre-complaint investigations
Moreover, a demand may be quashed if the information sought "is
might be inappropriate in certain instances. In particular, the civil
not shown to be necessary in the prosecution of the case 19 or if the
discovery standards are tailored to meet the requirements of formal,
government is engaged "in an unlimited, exploratory investigation
adversary, adjudicatory proceedings. Unlike investigations, adjudica-
whose purposes and limits can be determined only as it proceeds." 20
tions feature detailed pleadings setting forth specific allegations and
Furthermore, the relevancy of the entire demand may be ques-
responses. The issues will necessarily be more narrowly-drawn and
tioned,21 as well as particular paragraphs of the CID. Additionally,
well-defined than they can possibly be during an investigation.
this standard of relevance is expressly set forth in section 3(a) of
Thus, the grand jury subpoena standard, tailored as it is to reflect
the broader scope and less precise nature of investigations, may in this
11 Brown V. United States, 276 U.S. 134 (1928), and Application of Harry Alexander,
one respect seem to be a more appropriate standard for antitrust in-
Inc., 8 F.R.D. 559 (S.D.N.Y. 1949).
12 Hale V. Henkel, 201 U.S. 43 (1906), and Schwimmer V. United States, 232 F.2d 855
vestigations than a rigidly-applied, post-complaint civil discovery
(8th Cir. 1956)
13 Brown V. United States, supra; In re Eastman Kodak Co., 7 F.R.D. 756 (D.Mass.
1947).
23 "It is recognized that the facts in each individual case are the determining factors.
14 Brown V. United States, supra; United States V. Medical Society, 26 F. Supp. 55
More important than the formal results in these cases are the tests laid down for determin-
(D.D.C. 1938).
ing reasonableness, e.g., the type and the extent of the investigation the materiality of
15 United States V. Watson, 266 Fed. 736 (N.D. Fla. 1920) ; In re Grand Jury Investiga-
the subject matter to the type of investigation the particularity with which the documents
tion, 33 F. Supp. 367 (M.D.N.C. 1940).
are described the good faith of the party demanding the broad coverage a showing of need
16 United States V. Medical Society, supra; Petition of Borden Co., 75 F. Supp. 857 (N.D.
for such extended coverage. Application of Linen Supply Companies, 15 F.R.D. 115
Ill. 1948) Application of Radio Corp. of America. 13 F.R.D. 167 (S.D.N.Y. 1952).
(S.D.N.Y. 1953) (Emphasis added).
17 Upjohn Company V. Lewis Bernstein, 1966 CCH Trade Cases. 171,830 (D.D.C.).
24 American Pharmaceutical Association V. McLaren. 344 F. Supp. 9 (E.D. Mich. 1971).
18 CIDs issued under the 1962 Act have repeatedly survived Fourth Amendment chal-
25 In re Emprise Corporation, 344 F. Supp. 319 (S.D.N.Y. 1972) and Petition of Cleve-
lenges, most notably in Petition of Gold Bond Stamp Co,, 221 F.Supp. 391 (D.Minn.
land Trust Co., 1972 CCH Trade Cases. T 73.911 (N.D. Ohio).
1963). aff'd., 325 F.2d 1018 (8th Cir. 1964). Significantly, the Gold Bond court analogized
26 Chattanooga Pharmaceutical Association V. U.S. Department of Justice, 358 F.2d 864
the disputed CID to administrative supoenas issued by the Secretary of Labor and the
(6th Cir.. 1966).
Federal Trade Commission. The former was upheld in Oklahoma Press Publishing Co. V.
27 Huster Co. V. U.S., 338 F.2d 183 (9th Cir. 1964).
Walling, 327 U.S. 186 (1946), since "the gist of the [Fourth Amendment] protection is in
21 This objection was unsuccessfully raised in Petition of CBS, 235 F. Supp. 684 (S.D.N.Y.
the requirement that the disclosure sought shall not be unreasonable.' 327 U.S. 186.
1964).
208. The latter was upheld in U.S. V. Morton Salt Company, 338 U.S. 632 (1957), because
29 Chattanooga Pharmaceutical Association supra (the now-defunet "fair trade" exemp-
"It is sufficient if the inquiry is within the authority of the agency. the demand is not too
tion) Amateur Softball Association of America V. U.S. 1972 CCH Trade Cases. Y 74.188
indefinite, and the information sought is reasonably relevant." 338 U.S. 632, 652. The
(10th Cir.) (the asserted "amateur sports" exemption) Texas State Board of Public Ac-
Gold Bond CID was, that court expressly concluded, squarely within these two Supreme
countanoy V. U.S., U.S. Sup. Ct., No. 75-531, cert. denied, 12/15/75 (the "state action"
Court "guideposts." 221 F.Supp. 391, 396.
exemption).
19 Hale, supra.
30 But the Committee stresses that the scope of many antitrust exemptions is not pre-
20 In re Grand Jury Investigation (General Motors Corp.) 174 F.Supp. 393 (S.D.N.Y.
cisely clear: and many others. especially those among the regulated industries and what
1959).
were formerly termed "the learned professions,' are currently being narrowed by statute or
21 In re American Medical Association, 26 F.Supp. 58 (D.D.C. 1938).
judicial rulings. In these amny cases, the applicability of an asserted exemption may well be
22 In re United Shoe Machinery Corp., 73 F.Supp. 207 (D.Mass. 1947).
a central issue in the case. If SO, the mere assertion of the exemption should not be allowed
to halt the investigation.
12
13
standard would be. Yet it seems equally inappropriate to apply only a
be disclosed to his chief competitors; and he would be opened to eco-
criminal, grand jury standard to civil investigations, conducted under
nomic retaliation from the targets of the investigation. Even disclosure
the Antitrust Civil Process Act.
of the mere fact of a CID investigation-much less disclosure of the
To resolve this dilemma, and to preserve maximum protections for
substance of the inquiry-would often cast unfair and prejudicial
CID recipients without impeding antitrust investigations, section 3 (c)
aspersions on the integrity of the CID recipient.
(2) therefore requires that the application of civil discovery standards
In sum, to permit CID objections based upon conflicting procedural
be "appropriate" and "consistent" with the purpose of this Act, which
requirements of the Federal Rules would nullify many provisions of
is to increase the effectiveness of antitrust investigations. As long as
this bill, and utterly invalidate the Act. That is why section (c) (2)
this qualification is recognized, the federal judiciary may treat objec-
requires that objections against CIDs raised under the discovery pro-
tions to CIDs much like objections to civil discovery requests.
visions of the Federal Rules of Civil Procedure be "appropriate" and
One category of discovery objections permitted under the Federal
"consistent with the provisions" of the Antitrust Civil Process Act.
Rules of Civil Procedure, however, may not be raised against a CID:
These are "purely procedural" objections that are based not on the
RIGHT TO PRE-ENFORCEMENT JUDICIAL REVIEW
burdensome or irrelevant nature of the CID, but instead on the various
procedural requirements of the Civil Rules that conflict and are in-
Like any other civil administrative subpoena, a CID has no com-
consistent with those specifically set by the Antitrust Civil Process
pulsory force unless and until a federal judge upholds its legality, by
Act.
issuing an order enforcing compliance.
One obvious example lies in F.R.Civ.P. 30(a), which permits oral
Thus, if a CID recipient objects to all or any part of a CID:
depositions only after a complaint has been filed, and an action
(1) The recipient may refuse to produce the objectionable docu-
formally commenced. But this procedural requirement will never be
ments, answer the objectionable interrogatories, or respond to the as-
met in the case of a CID, which is by definition a pre-complaint tool.
sertedly improper question, or line of questioning. But the CID recip-
Because it thus conflicts with the authority conferred by this Act, this
ient must comply with all unobjectionable portions of the CID.
"procedural" objection may not be raised against a CID.
(2) If it chooses, the Antitrust Division may go to a U.S. district
Another example is F.R.Civ.P. 30(b) (1), which requires that any
court, and seek enforcement of the CID under section 5 (a) of the Act.
"party" give prior notice of an oral deposition to all other "parties,"
Alternately, the CID recipient may choose to "leapfrog" the Division
who may then attend and participate in the deposition, and cross-
into court, by himself filing a petition to quash the CID, under section
examine the witness testifying there. But an objection based on this
5 (b) of the Act.
requirement could not be raised against a CID, because this Act spe-
(3) After a de novo hearing on the nature of the investigation and
cifically requires that all persons except the antitrust investigator, the
all the objections to the CID, the district court will apply the "grand
stenographer, the witness, and his counsel, be excluded from a CID
jury subpoena" and "civil discovery" standards of protection, and
oral examination.
uphold, modify, or entirely set aside the disputed CID.
In addition, non-witnesses are not formal "parties" to an investiga-
(4) Under section 5 (d) of the Act, this decision by the district
tion. They have never been entitled to participate in an investigation
court is a "final order" under 28 U.S.C. § 1291. Whoever loses-either
by receiving prior notice of any witness' oral examination, nor by in-
the CID recipient or the Division-has an absolute right to appeal
tervening in the investigation, nor by confronting and cross-examining
this ruling to the appropriate U.S. court of appeals.
witnesses during the investigation. These rights of notification, inter-
(5) Even if the CID recipient loses in the district court, nothing
vention, confrontation, and cross-examination are adversary in nature,
happens if a stay pending appeal is entered; assertedly objectionable
and apply as a matter of due process only during adjudicatory pro-
documents are not produced, interrogatories are not answered, and no
ceedings, such as a civil antitrust suit. Indeed, these rights have never
oral testimony can be compelled.
been mandated in non-public investigations, whether conducted by
(6) Whoever loses in the court of appeals can ask the U.S. Supreme
Congressional committees,32 grand juries,⁸³ independent regulatory
Court to review that ruling. The Supreme Court, in its discretion, may
agencies,³⁴ Executive-branch officials,35 or state law enforcement
review the ruling by certiorari.
agencies.⁸⁶ If such rights were granted to non-witnesses, the confiden-
(7) While section (d) of the Act authorizes contempt of court
tiality of the investigation would be hopelessly compromised; the wit-
sanctions for disobedience to a court order enforcing any CID, this
ness' trade secrets and confidential proprietary data would necessarily
punishment may be imposed only after all appeals that are taken have
ended in favor of the CID's legality.⁸
31 Appendix to Hannah V. Larche, 363 U.S. 454 (1960).
82 Rule XI of the U.S. House of Representatives, § 712.
37 There is one exception: In case a CID witness refuses to answer on the basis of his
as Hannah, supra, at 448; Fed. R. Crim. P. 6(e).
privilege against self-incrimination, section 3(1) (5) (b) authorizes the Justice Depart-
84 35 Peterson V. Richardson, 370 F. Supp. 1259 (N.D. Texas 1973), citing Hannah, and
Appendix to Hannah, supra.
ment to apply for a grant of immunity from prosecution on the basis of his testimony,
in accordance with the comprehensive immunity provisions of 18 U.S.C. % 6001-6003,
tipholding HEW investigation of medicare fraud by physician; and Womer V. Hampton,
which authorize the immunization of witnesses before all federal agencies. If the court
496 F.2d 99 (5th Cir. 1974), citing Hannah, and upholding Army Corps of Engineers
grants immunity to the witness pursuant to 18 U.S.C. % 6002, the witness is then re-
investigation of bribery.
U.S. ex rel. Catena V. Elias, 465 F. 2d 765 (3rd Cir. 1972), investigation of official
quired to answer. If the witness still refuses to answer, the court may hold him in con-
corruption by New Jersey State Commission of Investigation. citing Hannah; and Londer-
tempt; but the witness nevertheless retains the right to appeal any such contempt order-
holm V. American oil Co., 202 Kan. 185. 446 P. 2d 754 (1968). which upholds the Kansas
CID statute, and rejects a "target's" claim that it is entitled to participate in the CID
investigation.
14
15
The Committee believes this system of judicial review of CIDs could
witness may appeal the denial of a copy of his transcript, under sec-
not be made more fair and thorough. Strong evidence that the Division
tion 5(c) of the Act.
has responsibly discharged its current CID powers lies in the fact
This good cause" transcript access test is identical to the transcript
that out of 1,700 CIDs for documents issued by the Division since
access provisions of the Administrative Procedure Act, 5 U.S.C.
1962, less than fifteen have ever resulted in disputes before a court.
§ 555 (c), which governs investigations by all federal agencies.
Speculative fears of overbearing and inquisitorial demands are not
Furthermore, not only the witness, but also his counsel or other
borne out by this commendable record.
"duly authorized representative" may always examine any docu-
ments, answers to interrogatories, or transcripts of testimony produced
STATEMENT OF CONDUCT UNDER INVESTIGATION
by the witness-so long as the witness consents, in accord with section
4(c) (3).
Any concern that the CID oral examinations authorized by this bill
RIGHT To DISCOVER CID INFORMATION
might be virtually unlimited in scope, with a CID witness receiving
only a vague description of the general subject matter of the inquiry,
In accord with section 4, information submitted pursuant to a CID
is unfounded.
will remain confidential, and will be available to no one during the in-
Section 2(b) (1), as amended by the Committee, expressly provides
vestigation except Division attorneys, the CID recipient, his counsel,
that each CID shall "state in appropriate detail the nature of the
and under certain circumstances, the FTC. However, if a civil action
conduct
or activities
which are under investigation and the
based on the CID information is subsequently commenced, the defend-
provision of law applicable thereto.' 38
ants in the civil action may invoke their full discovery rights under
the Federal Rules of Civil Procedure, and obtain CID information
RIGHT To INSPECT AND CORRECT TRANSCRIPTS
relevant to their defense, in accordance with those rules. They will
thus be fully able to protect their rights at trial by interrogating,
Section 3(i) (4) provides that:
cross-examining, and impeaching CID witnesses, both during pre-trial
When the testimony is fully transcribed, the transcript shall
discovery, and at the trial itself. 40
be submitted to the witness for examination and shall be read
However, as the Division's statistics reveal, about three-fourths of
to or by him, unless such examination and reading are waived
all CID investigations never culminate in civil or criminal proceed-
by the witness and by the parties. Any changes in form or
ings-instead, most investigations simply clear suspected violators of
substance which the witness desires to make shall be entered
any wrongdoing. In these many cases, CID investigative files will
upon the transcript by the officer with a statement of the
remain permanently confidential, and barred from public disclosure—
reasons given by the witness for making them.
the Freedom of Information Act notwithstanding-under section (c)
of this bill.41
This power to review and correct his transcript is an important
safeguard for a CID witness. It is supplemented by an additional pro-
40 But the scope of civil discovery is not unlimited: The information sought must
vision of section 3 (i) (4), which provides that
either "relevant to claims or defenses" in the pending action, or else "reasonably cal-
enlated" to lead to relevant evidence, F. R. Civ. P. 26(b) (1). And the court has broad
Upon payment of reasonable charges therefor, the investi-
discretion to set limits and conditions upon discovery, for example, by issuing a protec-
tive order under F.R. Civ. P. 26(c) to guard "any person" from "annoyance, embarrass-
gator shall furnish a copy of the transcript to the witness
ment. oppression, or undue burden of expense." The Committee stresses that nothing in
this bill in any way alters the postcomplaint procedures established by the Federal
only, except that the Assistant Attorney General in charge of
Rules.
the Antitrust Division may for good cause limit such witness
41 Under section 4(c) of the 1962 Act, the Division must return original CID docu-
ments to the CID recipient who produced them. but the Division may retain copies of
to inspection of the official transcript of his testimony.
these original documents. Section 4(c) (1) of this bill follows the 1962 Act, and requires
the Division to return only original documents-not copies. During Subcommittee and
Thus, this bill gives any CID witness an absolute right to inspect the
full Committee debate on H.R. 13489, it was claimed that retention of copies and other
information obtained by a CID enables the Division to compile "dossiers" on CID recip-
transcript of his CID testimony. Significantly, no grand jury witness
ients. However, the Committee is persuaded that such information will largely consist
of impersonal. economic data on business contracts and practices. rather than material
has such a right.
of an intimate. personal nature. Moreover, retention of such information serves an im-
In most cases, the CID witness will also routinely receive a copy of
portant and legitimate law enforcement purpose, for It often includes facts of long-
term and continuing significance to the Division, like the details of patent licensing
his transcript. However, in investigations where there is a possibility
agreements or long-term exclusive supply contracts. Retention of copies in these in-
stances will avoid needless, future "rounds" of CIDs. Such information is also important
of witness intimidation, economic reprisal, or the "programmed"
for consistent and evenhanded enforcement It details business practices that have
formulation of a common defense by possible co-conspirators who
survived past scrutiny, as well as those that have not, and by referring to them, the
Division may easily be able to vindicate similar practices that come under investigation
"tailor" their testimony to match the evidence held by the government,
at some future time. Such equitable treatment may be impossible if the Division is im-
mediately stripped of all such information once it closes an investigation. Nor has
the Assistant Attorney General may find "good cause" sufficient to deny
there been any documented instance, much less any allegation, that the Division has
the CID witness a copy of his transcript.⁸⁹ Even in that event, the CID
abused its powers under the 1962 Act to retain copies of CID documents. Nor does reten-
tion of copies interrupt the business operations of the CID recipient, for he continues
to hold the originals. Finally. it is plain that great administrative burdens would be
The statement must be reasonably specific, but. as the court noted in Gold Bond
Imposed upon the Division were it required to return all such information. much of
Stamp Co., supra, "Necessarily, therefore, the nature of the conduct must be stated in
which may even have been incorporated in internal departmental memoranda. Such
general terms. To insist upon too much specificity with regard to the requirement of this
burdens are imposed upon no other federal agency. For these reasons, the "dossier"
section would defeat the purpose of the Act, and an overly strict interpretation of this
amendment was rejected.
section would only breed litigation and encourage everyone investigated to challenge the
sufficiency of the notice.' Gold Bond, supra, at 397.
38 U.S. V. Rose, 215 F .2d 617 (3d Cir. 1954).
16
17
THESE POWERS ARE APPROPRIATE FOR A PROSECUTOR
and to identify the Antitrust Division custodian who will receive
The claim has been made that while it may be entirely proper to
the documents.
give these investigative powers to an "independent regulatory agency,"
Section 3(b) (3: Establishes similar requirements for CIDs for an-
it is improper to grant them to a "prosecutor," who is under the con-
swers to written interrogatories.
trol of the executive branch of government. Such a grant, it is claimed,
Section (b) (4) : Requires that CIDs for oral testimony state the
is "alien to our legal traditions." 42
date, time, and place of the oral testimony, and specify the antitrust
This contention ignores the fact that these same powers have long
investigators who will conduct the oral examination, and the custodian
been exercised by the chief antitrust prosecutors of nineteen different
who will receive the transcript.
states. No court in any of those states has ever accepted this argument,
Section (c) : Prohibits CIDs from requiring any documents, in-
and invalidated these state prosecutorial powers.4 Significantly, while
formation, or testimony that may not be disclosed pursuant to a grand
many of these state CID statutes were first enacted many years ago-
of Civil Procedure.
jury subpoena or a civil discovery request under the Federal Rules
Texas (1903), Arizona (1912), North Carolina (1913), Florida
(1915)-many others are of recent origin-Illinois (1969), New Jersey
without the United States.
Section 3 (d) : Provides for service of CIDs upon persons within and
(1970), Connecticut (1971), New Hampshire (1973), Virginia (1974).
And many of the early state statutes have been recently re-enacted,
entities. Section 3 (e) (1) : Sets requirements for serving CIDs upon business
e.g., Florida (1973), and Arizona (1974).
Moreover, this same objection can be raised against the Division's
current CID authority, and it has been decisively rejected by the
persons. Section 3 (e) (2) : Sets requirements for serving CIDs upon natural
federal courts.44
Section 3 (f) : Sets requirements for proof of service of CIDs.
Furthermore, such powers are not held only by "independent regu-
latory agencies." Many executive-branch law enforcement officials also
for documents.
Section 3 (g) : Establishes requirements for compliance with CIDs
routinely use these very same investigative power-including the Sec-
Section 3 (h) : Establishes similar requirements for compliance with
retaries of the Treasury, Labor, HEW, Transportation, and Agricul-
CIDs for answers to written interrogatories.
ture. These officials have the power to refer evidence of civil and
Section 3(i) (1) : Establishes procedures governing CID oral exam-
criminal violations of law, uncovered in the course of their civil investi-
inations. The "officer authorized to administer oaths and affirmations"
gations, to the U.S. Attorney General.45
will typically be the stenographer who records the testimony and for-
The Committee therefore rejects the claim that these powers are
wards the transcript to the antitrust investigator.
inappropriate for a prosecutor.
Section 3 (i) (2) : Requires the antitrust investigator to exclude
everyone from the CID oral examination except the CID witness, his
V. SECTION-BY-SECTION EXPLANATION OF H.R. 13489
counsel, and the stenographer. The Publicity In Taking Evidence Act
of 1913 accordingly shall not apply to CID oral examinations.
Section 2(c) : Defines "antitrust investigation" to mean any inquiry
Section (i) (3) : Establishes venue for CID oral examinations.
into possible completed or continuing antitrust violations, or any in-
quiry into planned mergers and acquisitions that might, upon future
Section 3 (i) (4) : Requires that CID witnesses be permitted to re-
consummation, violate the antitrust laws.
of their transcript, unless there is good cause to limit them to an in-
view and correct the transcript of their testimony, and receive a copy
Section 2(f) : Defines "person" to include natural persons as well as
spection of their transcript.
legal entities.
Section (h) : Defines "custodians" who will maintain confidentiality
Section 3(i) (5) (A) : Grants every CID witness an absolute right
to be represented and advised by counsel throughout the CID oral
of CID investigative files in accord with section 4.
Section 3 (a) : Authorizes issuance of CIDs for documents, answers
examination, and permits the CID witness or his counsel to object
to written interrogatories, and oral testimony, to any person, whether
to any question on the basis of "any constitutional or other legal right
or privilege."
a target or nontarget, who has information relevant to a civil antitrust
investigation.
Section 3(i) (5) (B) : Authorizes the immunization of any CID wit-
Section 3 (b) (1) : Requires each CID to state the nature of the con-
self-incrimination. ness who refuses to answer on grounds of the privilege against
duct or activities under investigation.
Section 3 (b) (2) : Requires CIDs for documents to describe the ma-
Section 3(i) (6) : Grants witnesses in CID oral examinations the
terials sought with definiteness and certainty, to prescribe return dates,
proceedings. standard witness fees provided by law to witnesses in other federal
42 S. Rpt. No. 803, Part II, 94th Cong., 2d Sess. (1976), p. 196
Section 4(a) : Requires the Assistant Attorney General in charge of
48 See, inter alia, Londerholm V. A merican on Co., supra.
44 Hyster V. U.S., 338 F. 2d 183, 186 (9th Cir. 1964).
files. the Antitrust Division to appoint custodians for CID investigative
45 In some cases, federal statutes expressly require that they do so, e.g., 29 U.S.C.
1 308(1).
Section 4(b) : Authorizes the custodian to inspect and copy original
the CID recipient may submit copies instead of original documents.
documents produced pursuant to a CID. To avoid business disruption,
H. Rept. 94-1343-3
18
19
Section (c) (1) : Requires that the custodian take possession of all
on Monopolies and Commercial Law held four days of hearings on
CID investigative files, and be responsible for their use, and the return
H.R. 39 in May and July of 1975. Testimony was presented by Assist-
of original documents to the CID recipient pursuant to section 4(e).
ant Attorney General Thomas E. Kauper, in charge of the Antitrust
Section (c) (2) : Permits the custodian to make copies of CID inves-
Division, and by representatives of the U.S. Chamber of Commerce:
tigative files for official use by Division personnel.
the Business Roundtable; the Association of the Bar of the City of
Section (c) (3) : Permits the custodian to disclose CID information
New York; and the Corporate Accountability Research Group. The
only (A) to Division personnel for official use; (B) to the CID reci-
Subcommittee received additional written statements on H.R. 39 from
pient who produced the information, and his counsel or other author-
the National Association of Manufacturers, the Consumers Union, the
ized representative; (C) to any person, upon the consent of the CID
Administrative Office of the United States Courts, the Department of
recipient, in the case of documents and answers to interrogatories;
Commerce, the Department of Justice, and President Gerald R. Ford.
and (D) in the case of transcripts, to any person, upon the consent
In public session on April 30, 1976, the Subcommittee on Monopolies
of the CID witness, unless that witness is himself limited to an
and Commercial Law marked up H.R. 39 and ordered 8 to 0 that, as
inspection of his transcript.
amended, the bill be introduced and reported favorably to the full
Section 4(d) (1) : Permits the custodian to deliver CID investiga-
Committee on the Judiciary. Reintroduced as H.R. 13489, the bill was
tive files to Justice Department attorneys, who in accord with their
considered and amended in public session on May 18, 1976, by the full
official duties may use these files in civil antitrust cases, before grand
Committee on the Judiciary, which by unanimous voice vote, a quorum
juries investigating possible criminal antitrust violations, and in fed-
being present, ordered that H.R. 13489, as amended, be reported favor-
eral regulatory and administrative agency proceedings.
ably to the House.
Section 4(d) (2) : Gives the custodian the discretionary power to
deliver CID investigative files to the Federal Trade Commission, in
VII. INFORMATION SUBMITTED PURSUANT TO RULES X AND XI
response to a written request by the FTC. All restrictions on Justice
Department use of these files apply equally to the FTC.
A
Section 4 (e) : Upon written request by the CID recipient who
produced any CID documentary material, and upon the completion
The Committee, in considering H.R. 13489, made no specific over-
of the CID investigation or any subsequent court action, grand jury
sight findings pursuant to clause 2 (b) (1) of Rule X. However, where
proceeding, or federal administrative agency proceeding involving
relevant, the Subcommittee has drawn on material from its merger
such CID documents, the original documents shall be returned to
oversight hearings of March 10, 1976, and from its hearings on H.R. 39
CID recipient who produced them.
held in May and July of 1975.
Section 4(f) : Establishes "housekeeping" provisions governing the
B
transfer of CID files between successive CID custodians.
Section 5 (a) Adds a new provision to the 1962 Antitrust Civil
No new budget authority is provided.
Process Act, which permits the Division to extend the time within
C
which a CID recipient may file his own petition challenging a CID's
legality. This will give the Department and businessmen more time to
No estimate or comparison was received from the Director of the
resolve possible CID disputes "out of court."
Congressional Budget Office, and none is necessary, as no budget
Section 5 (b) : Conforming change, to extend the custodian's current
authority is provided.
duties regarding CID documentary material to embrace answers to
D
written interrogatories and transcripts of oral testimony as well.
Section 6: Makes criminal penalties set by 1962 Act for obstructing
No related oversight findings and recommendations have been made
compliance with a CID for documents equally applicable to willful
by the Committee on Government Operations under clause 2(b) (2)
obstruction in cases of CIDs for answers to written interrogatories
of Rule X.
and oral testimony.
E
Section 7: Provides that H.R. 13489 will be effective upon the date
of enactment.
Inflationary Impact Statement.
VI. COMMITTEE ACTION
Pursuant to clause 2(1) (4) of Rule XI, the Committee concluded
that there will be no inflationary impact on the national economy. In
On April 4, 1974, the Department of Justice transmitted to the
fact, because this bill improves antitrust enforcement, it will result
Speaker of the House a bill to amend the Antitrust Civil Process Act,
in a more competitive and efficient economy, and resulting lower prices
which was introduced as H.R. 13992 by Committee Chairman Rodino.
and costs. Further, it will result in a saving of time, manpower, and
No action was taken on this bill during the 93d Congress, but without
money by making Antitrust Division investigations more efficient and
any changes, it was re-transmitted on February 13, 1975, and reintro-
expeditious.
duced in the 94th Congress as H.R. 39. The Judiciary Subcommittee
20
21
VIII. EXECUTIVE COMMUNICATIONS
tion to the specific investigation to which the issued demand relates
THE WHITE HOUSE,
and any case resulting therefrom. Cf. Upjohn V. Bernstein (D.D.C.
Washington, D.C., March 31, 1976.
Civ. Action No. 1322-66, 1966).
The draft bill specifically authorizes the Department of Justice
Hon. PETER W. RODINO, Jr.,
to extend the period in which persons served may judicially contest
Chairman, the Committee on the Judiciary,
a demand, thereby protecting the rights of the latter while facilitating
House of Representatives, Washington, D.C.
compliance with the demand and lessening the possibility of litigating
DEAR CHAIRMAN RODINO: During the last year and a half, my Ad-
the question of the legality of the demand. Our proposal would spe-
ministration has supported effective, vigorous, and responsible anti-
cifically sanction the Government's present practice of extending
trust enforcement. In December 1974, I signed legislation increasing
the time for production, thereby affording opportunity for partial
penalties for antitrust violations. In addition, I have submitted several
production, possibly obviating the need for full production, and avoid-
legislative proposals for regulatory reform which would expand com-
ing resort to the court by either the person served or the Government.
petition in regulated industries. Assuring a free and competitive econ-
The Department's existing practice of requiring certification of com-
omy is a keystone of my Administration's economic program.
pliance would also be specifically sanctioned by the draft bill.
In October 1974, I announced my support of amendments to the
A major objective of the proposed legislation, the production of
Antitrust Civil Process Act which would provide important tools to
oral testimony, would be obtained by a somewhat modified Adminis-
the Justice Department in enforcing our antitrust laws. My Adminis-
trative Procedure Act process providing for the presence of the wit-
tration reintroduced this legislation at the beginning of this Congress
ness' counsel in a limited role with a restricted right to raise
and I strongly urge its favorable consideration.
objections.
I have asked the Department of Justice to work closely with your
Broadening the Act to cover oral testimony would introduce no
Committee in considering this antitrust legislation. I would hope that
novel, untried concepts in antitrust enforcement. Arizona, Connecti-
the result of this cooperation will be effective and responsible antitrust
cut, Florida, Hawaii, Illinois, Kansas, Louisiana, Maine, Missouri,
legislation.
New Hampshire, New Jersey, New York, North Carolina, Oklahoma,
Sincerely,
GERALD R. FORD.
South Carolina, Texas, Virginia, Wisconsin, and Puerto Rico have
given their Attorneys General (in the case of Puerto Rico, the Secre-
tary of Justice) the power to seek the attendance of witnesses to give
OFFICE OF THE ATTORNEY GENERAL,
oral testimony in antitrust investigations prior to initiation of any
Washington, D.C., February 13, 1975.
suit or proceeding.1
These jurisdictions also extend the civil investigative subpoena
The SPEAKER,
House of Representatives,
power in antitrust investigations to individuals as well as to artifi-
Washington, D.C.
cial persons, and provide for service upon persons capable of pro-
DEAR MR. SPEAKER: Enclosed for your consideration and appro-
viding testimony relevant to the investigation, whether or not they
priate reference is a legislative proposal "To amend the Antitrust
are the actual target of the investigation. The draft bill would utilize
Civil Process Act to increase the effectiveness of discovery in civil
the provisions of the federal immunity statute to bring natural per-
antitrust investigations." An identical proposal was transmitted to
sons producing evidence within the reach of a civil investigative
demand.
the Congress in the last session of the Ninety-third Congress.
The Antitrust Civil Process Act, 76 Stat. 548, 15 U.S.C. 1311,
In the area of trade regulation at the federal level, section 9 of the
which presently applies solely to the production of documents by
Federal Trade Commission Act confers on the Commission power to
persons (other than natural persons) under investigation, would be
compel oral testimony in the course of its investigations. Among de-
extended by this proposal to (1) include persons (including natural
partments and other agencies whose heads, members, or employees
persons) in addition to those under investigation, who may have in-
have statutory authority to compel attendance and testimony of wit-
formation relevant to a particular antitrust investigation, and to (2)
nesses in the course of investigations pertinent to laws which they ad-
permit the service of written interrogatories and the taking of oral
minister are Agriculture, HEW, Labor, Treasury, AEC, CAB, FAA,
testimony. The draft bill would also clarify the Act by correcting the adverse
1 Ariz. Rev. Stats.. Ann., title 44, chap. 10. sec. 44-1406; Conn. Gen. Stats. Ann., title
35, chap. 624, sec. 35-42; Fla. Stats. Ann., title XXXI, chap. 542, sec. 11; Hawaii Rev.
Stats., title 26, chap. 480, sec. 480-18; III. Ann. Stats., chap. 38, sec. 60-7.2; Kan. Stats.
effect of a Ninth Circuit Court of Appeals decision, which held that
Ann., chap. 50, sec. 50-153 La. Rev. Stats., title 51, Recs. 143, 144; Me. Rev. Stats.,
civil investigative demands may issue only to require the production
title 10. chap. 201, sec. 1107 (eriminal actions only) Rev. Stats. Mo., Chap. 416, sec.
416-310; N.H. Rev. Stats. Ann., title XXXI, chap. 356, sec. 356-10; N.J. Stats. Ann., title
of documents relating to current or past, but not incipient, violations.
56, chap. 9, sec. 56:9-9; N.Y. Consol. Laws, chap. 20, art. 22, sec. 343; N.C. Gen. Stats.,
United States V. Union Oil Company of California, 343 F. 2d 29 (9th
chap. 75, sec. 75-10; Okla. Stats. Ann., title 79, chap. 1. sec. 29; Code of Laws of S.C.,
title 66. chap. 2, art. 6, sec. 66-111; Texas Codes Ann., Bus. and Commerce Code, title 2,
Cir., 1965). The Act would also be clarified by removing any doubt
chap. 15, sec. 15.14: Code of Va., title 59.1. chap. 1, sec. 59.1-9.10: Wise. Stats. Ann., title
14, chap. 133, sec. 133.06 P.R. Laws Ann., title 10, chap. 13, sec. 271.
that it permits the use of evidence in investigations and cases in addi-
23
22
FCC, FPC, FMC, ICC, NLRB, Railroad Retirement Board, Tariff
DEPARTMENT OF JUSTICE,
Washington, D.C., January 22, 1976.
Commission, and VA.2
Nor is precedent lacking for extending the investigatory power to
Hon. PETER W. RODINO, Jr.,
incipient violations. The acts of Hawaii, Illinois, Missouri, New Jer-
Chairman, Subcommittee on Monopolies and Commercial Law, Com-
sey, New York, and Virginia for example, specifically authorize the
mittee on the Judiciary, House of Representatives, Washington,
use of civil investigative subpoenas in investigations of incipient
D.C.
DEAR CHAIRMAN RODINO: When I appeared before your Subcommit-
violations. No field of litigation involves facts more complex and records
tee on Monopolies and Commercial Law to testify in support of H.R.
more extensive than are found in the Government's antitrust cases.
39, Mr. Mazzoli requested that I supply the Subcommittee with specific
The task of amassing the voluminous data essential to successful
instances in which the Department's antitrust investigations were
antitrust enforcement is of considerable magnitude. Insofar as it
hindered or thwarted by the absence of investigatory authority that
went, enactment in 1962 of the Antitrust Civil Process Act provided
H.R. 39 would provide. See Hearings Before the Subcommittee on
a signal benefit to the Government's civil investigations by authoriz-
Monopolies and Commercial Law of the Committee on the Judiciary,
ing production of relevant documents from corporations, associa-
House of Representatives, 94th Cong., 1st Sess. 37-38 (1975).
tions, partnerships, or other legal entities not natural persons, under
We have reviewed our experience under the Antitrust Civil Process
investigation. But the limitations on the scope of the demand have
Act of 1962 with attorneys in our litigating sections and have compiled
left the Act far from meeting essential investigatory needs of the
a representative list of investigations that have been impeded because
Department's Antitrust Division.
of restrictions upon our pre-complaint authority. These case studies,
The refusal of industry sometimes to cooperate voluntarily in anti-
which are similar in form to materials prepared for the Congress in
trust investigations, which gave rise to the Antitrust Civil Process
connection with the 1962 legislation, are attached to this letter as
Act, is the reason today that more effective civil discovery means are
Appendix A. As the attached examples reveal, investigatory difficulties
needed. The same reasons that supported enactment of the Civil
caused by limitations on our pre-complaint authority fall into reason-
Process Act speak for the Act's expansion. Although the grand jury
ably identifiable patterns that may be conveniently summarized.
can be used in investigation of criminal violations under the Sherman
The inability of the Department to issue a civil investigative demand
Act, the Clayton Act is not a criminal statute, and the grand jury
(CID) to parties who have important information but are not under
is unavailable where only a civil action is contemplated. Often it is
investigation has been a recurring problem, particularly in merger
not desirable to bring companion criminal and civil suits; the facts
investigations. Under the Clayton Act, in order for the government to
may not warrant criminal sanctions, or the urgency for civil relief may
prove that the effect of a merger will be substantially to lessen com-
make it unfeasible to risk the delay that very likely would attend
petition, it must demonstrate relevant geographic and product markets.
the bringing of both types of actions. In other situations it may appear
Competitors, trade associations, and suppliers or customers will fre-
at the outset that the evidence may not meet the test for a criminal
quently have the market data essential to resolving these factual issues.
In a variety of differing contexts, as the attached examples document,
case.
The proposed bill would simply make available to the Attorney
these third parties have refused to supply us with this information
General the same antitrust investigatory powers in civil investiga-
voluntarily.
tions that he now has in criminal investigations, and provide him with
The absence of necessary product or market data is often a deter-
authority similar to that of the Federal Trade Commission.
minative factor in our decision whether to file a civil complaint. Fur-
For the reasons set forth above, I urge the Congress to give this
thermore, in many merger investigations it is important that we be
legislative proposal its early and favorable consideration.
able to move quickly and file suit before the transaction is consum-
The Office of Management and Budget has advised this Department
mated in order to avoid problems associated with divestiture in the
that enactment of this proposal would be in accord with the program
event we are successful in establishing the illegality of the proposal.
of the President.
In these situations it is especially important that the Department be
Sincerely,
able to go directly to parties that we know possess needed information
EDWARD H. LEVI,
even if it could be shown that the information would be available
Attorney General.
from less accessible sources.
More generally, the deposition authority that H.R. 39 would confer
3 There are over three dozen provisions in the United States Code authorizing the tak-
on the Department would contribute very significantly to our ability
ing of compulsory testimony. Among them are: 7 U.S.C. 15. 222. 499m, 610, 855, 2115
(Agriculture) 12 U.S.C. 1820 (banking agencies) 15 U.S.C. 49 (FTC) 15 U.S.C. 77s. 78n,
to make a fully informed decision whether or not to bring suit. It
79r. 80a-41, 80b-9 (SEC) 15 U.S.C. 717m (FPC) 16 U.S.C. 825f (FPC) 18 U.S.C.
835 (ICC) 19 U.S.C. 1333 (Tariff Commission) 26 U.S.C. 7602 (Treasury): 27 U.S.C.
would be most valuable as a supplement to existing authority by per-
202(c) (Treasury) 29 U.S.C. 161 (NLRB) 29 U.S.C. 209, 308, 521 (Labor) 33 U.S.C.
mitting antitrust investigators to question corporate officials when an
506 (Transportation) 38 U.S.C. 3311 (VA) : 42 U.S.C. 405 (HEW) 42 U.S.C. 2201
(AEC) 45 U.S.C. 362 (R.R. Retirement Board) 46 U.S.C. 826. 1124 (FMC) 47 U.S.C.
examination of documents has produced an inconclusive or ambiguous
409 (FCC) ; 49 U.S.C. 12, 916, 1017 (ICC) ; and 49 U.S.C. 1484 (CAB).
24
25
picture of the transaction or policy under investigation. Deposition
§ 49, can be used in investigations directly analogous to those pursued
authority, of course, may be absolutely crucial with respect to cor-
by the Department. The powers conferred by H.R. 39 are thus certainly
porate policies that are pursued but are never reduced to writing.
not unique. A representative list of states, departments, and agencies
Corporate officials may also find that depositions are less burden-
possessing similar investigatory authority was contained in our March
some than requests for documents. Resort to oral examination to sup-
5, 1975, letter to you which may be found in the Hearings at pages 185-
plement written submissions would not only allow antitrust investiga-
186. We have sought to supplement that information in Appendix B.
tors to make a more informed judgment of when suit is or is not
Even though the powers conferred by H.R. 39 are not unique, the
warranted, but would also facilitate far better utilization and con-
bill contains comprehensive safeguards that protect against govern-
servation of Department resources than is possible under present law.
mental overreaching. A recipient of a CID may seek to quash the CID
The Department's need for authority to take depositions may also
in court by showing that it is oppressive, unreasonable, irrelevant, or
arise in two more specific contexts. First, in some cases a company's
has been issued in bad faith. A witness has the right to the presence
policies as expressed in writing vary materially from practices actually
and advice of counsel during any deposition. He may refuse to answer
followed. For example, a company frequently adopts and circulates to
any question on the grounds of privilege, self-incrimination, or other
its executives a written directive condemning various anticompetitive
lawful grounds. All refusals to answer must be honored unless the
practices while at the same time informally encouraging such anti-
government attorney can obtain a judicial order compelling an answer.
competitive conduct by exerting strong pressures upon employees to
The testimony of a witness must be transcribed, and he has a right to
meet unrealistic sales quotas. There may also be occasions in which to
review and correct the transcript. The witness may also obtain a copy
protect itself a company feels compelled to assume a particular public
of the transcript except in very limited circumstances.
position in writing but declines to follow that policy in reality. By
If the Department ultimately files a civil complaint based upon
authorizing the Department to obtain only written documents, restric-
information obtained pursuant to a CID, the defendant's discovery
tions in existing law create the possibility that decisions whether or
rights would be governed by the Federal Rules of Civil Procedure.
not to bring suit may be based upon erroneous perceptions of the anti-
Thus the rights of witnesses regarding depositions under H.R. 39 are
competitive impact of particular business policies. The availability of
virtually identical to witnesses deposed pursuant to the Federal Rules
deposition authority would significantly reduce this risk.
of Civil Procedure and substantially exceed the rights of grand jury
Second, deposition authority is needed when documents are simply
witnesses. This is important since civil complaints have accounted for
not available for whatever reason as, for example, if they have been
about 70% of the Department's cases in recent years.
destroyed. The issuance of a CID is not normally the first step in our
The most peculiar argument of opponents to H.R. 39 is that repre-
investigatory process. Antitrust investigators generally first seek to
sentatives of all target companies should be permitted to participate
obtain information informally from industry sources, other govern-
in depositions and cross examine witnesses. Such a concept is un-
mental agencies, or the target company itself. However, the specific
workable in practice, and unprecedented in concept.
prohibition against destruction of documents, 18 U.S.C. § 1505, applies
As I explained in greater detail in my letter to you of November 19,
only after a CID has been issued. If a business learns of an investiga-
1975, it would be impossible to provide every target of an inves-
tion before issuance of a CID and destroys incriminating documents,
tigation with an opportunity to participate in every deposition hear-
then an antitrust investigation may be completely thwarted. In this or
ing pursuant to a CID simply because of the targets of a particu-
other situations when documents do not exist, deposition authority may
lar investigation are not known until substantial material and in-
provide the only method for reconstructing the company policy or
formation have been obtained. It is often very difficult to determine
specific transactions and thus permit a meaningful investigation.
precisely when a company becomes a target, and companies that are
During my testimony I also indicated a continuing willingness to
targeted late in the investigation will, of course have had no oppor-
work with the Subcommittee and respond to whatever issues might
tunity to participate in depositions that were taken earlier. Amend-
arise with respect to H.R. 39 during the hearings. To the extent that
ment of H.R. 39 to provide such a right would therefore raise many
there was a common theme in the testimony of persons opposed to H.R.
complex procedural and substantive problems that could only delay
39, it was a concern that expansion of the Department's pre-complaint
timely investigations.
investigatory powers would be a unique threat to the civil liberties of
The mere presence of representatives of target companies at depo-
business.
sitions could itself produce counterproductive and anti-competitive
The enactment of H.R. 39 would confer upon the Department less
consequences. When the Department investigates possible collusive
comprehensive investigatory powers than are presently exercised by
conduct, many of the companies involved are competitors. Assuming
an increasing number of state Attorneys General (e.g., New Jersey,
they could be identified, if representatives of all targets are present
Illinois and Texas), numerous executive departments (e.g., Depart-
during depositions, then an officer of one company may be divulging
ment of Labor), and many independent regulatory agencies (e.g., Se-
business strategies and policies not only to antitrust investigators but
curities and Exchange Commission and Federal Trade Commission).
also to his chief business rivals. The Department is sensitive to the
Some witnesses before the Subcommittee sought to distinguish the
legitimate business interest in confidentiality of trade secrets and busi-
FTC's authority by noting the differences between its statutory man-
ness practices and has therefore recommended that CIDS be specif-
date and the Department's. However, the FTC's powers, 15 U.S.C.
ically exempted from the Freedom of Information Act. Adoption of
H. Rept. 94-1343-4
26
an adversary procedure for depositions is inconsistent with this legiti-
mate interest. The presence of representatives of targets would also dis-
courage third party witnesses from cooperating with antitrust in-
vestigators. An employee, customer, or supplier whose economic sur-
vival is dependent upon the target will be reluctant to divulge in-
formation if he fears retaliation.
APPENDIX A
The presence and participation of counsel for the targets at depo-
sitions of other parties would turn the investigatory process into an
"CASE STUDIES" DEMONSTRATING NEED FOR ADDITIONAL PRE-COM-
adversary proceeding and thereby delay and complicate every in-
PLAINT INVESTIGATORY POWERS
vestigation. As Chief Justice Warren noted for the Supreme Court in
1960 in an analogous context, "The Federal Trade Commission could
1. We are currently involved in an investigation of one of the
not conduct an efficient investigation if persons being investigated were
largest mergers, in terms of dollar value, to date. An analysis of
permitted to convert the investigation into a trial.' Hannah V. Larche,
the competitive impact of the merger in several key markets will
363 U.S. 420, 446. This applies equally well to antitrust investigations
determine whether a suit under the Clayton Act will be filed. It
conducted by the Department of Justice.
is most important that this analysis take into account the most
It is important to remember that the Department's objective at the
comprehensive and reliable data available. In one of these markets,
pre-complaint stage of the investigation is not to "prove" its case but
information necessary for a definitive analysis is not available from
rather to make an informed decision on whether or not to file a com-
public sources. However, there is an industry trade association which
plaint. In over 80% of our investigations in which CIDs are issued, we
reportedly compiles detailed sales and market information annually
ultimately decide not to file a case. There can be no doubt that this is
from its members. We have requested the association to provide
preferable to filing complaints based upon sketchy or inaccurate in-
this information voluntarily but it has refused. Without this data
formation. If a complaint is filed, the defendant will have the right
the result may be a lawsuit based on potentially unreliable figures
to appear and defend fully against the allegations, but the legitimate
from some private sources in the industry or a decision not to pro-
investigatory purposes of H.R. 39 would be destroyed if it required
ceed because of insufficient data.
trial-type adversary procedures.
2. In 1975, two large industrial corporations informed the Anti-
The hearings disclose a number of additional narrow objections
trust Division that a joint venture between the two would be estab-
to H.R. 39, many of which appear to be based upon a misunderstand-
lished by an agreement to be signed approximately six weeks later.
ing of Departmental policy, the mechanics of an antitrust investiga-
The joint venture would manufacture products involving billions
tion, or the provisions of H.R. 39. An attempt has been made to re-
of dollars in sales in an already highly concentrated market. Anti-
spond to these matters in Appendix B.
trust counsel for the parties offered to provide us with selected
I would welcome the opportunity to provide your Subcommittee
documents containing relevant industry data. Some documents re-
and staff with any additional information or assistance that may help
vealed positions taken by company personnel which appeared in-
you in proceeding expeditiously with this bill.
consistent with positions taken by the companies during negotia-
Sincerely,
tions. In addition, throughout the investigation, there was a con-
THOMAS E. KAUPER.
cern that a comprehensive review of the parties' files would have
Assistant Attorney General, Antitrust Division.
produced important information not available in the selective docu-
ments provided by counsel. It would have been extremely helpful
to have been able to obtain a broader file disclosure and to depose
company personnel on crucial market issues. In short, we had to analyze
this important and complex transaction almost entirely on the basis
of documents selected by counsel with an assumed bias in the out-
come of our evaluation.
3. Some time ago, the Division learned of a contract between two
firms which seemed to involve an agreement by the companies not
to compete. An investigation was opened and a CID was issued
to both parties seeking documents concerning the possible anti-com-
petitive agreement. One document suggested that officials of both
companies had met privately, and it appeared that competitive con-
cessions had possiblv been made. No such meeting was recorded in
any documents produced pursuant to the CID. The possibility of
interviewing these officials has been considered but we have found
in similar situations that the disadvantages of not having the parties
under oath and the absence of a formal record of the interview limits
(27)
29
28
the usefulness of this approach. A comprehensive analysis of this
volved amounted to $200 million a year. The top four firms that manu-
matter requires the ability to depose these two individuals under oath
facture this product have approximately 80 percent of the market.
to determine the circumstances under which the contract was nego-
Market analysis problems abound in this area due to complex product
technology. Two firms that make the specific product involved have
tiated.
4. We are currently investigating the acquisition by a foreign
refused to allow their personnel to be interviewed. This lack of coop-
company of a domestic firm which manufactures certain chemical
eration has largely frustrated this investigation.
products. It appears that the acquisition may eliminate competition in
9. We have received complaints that a large service corporation has
several markets involving particular chemical products. One of these
engaged in what may be a tying arrangement, i.e., it sells its service
markets is very highly concentrated, i.e., the top four firms may
only to customers that agree to purchase related products. A CID was
control as much as 90 percent of the market. However, analysis of
issued to the company, and, after a court struggle, documents were sub-
the competitive impact of the transaction in that market has been
mitted. However, the investigation is now stalled because the docu-
very difficult because of the technical nature of the products involved.
ments are inconclusive. If the oral testimony of persons who have ne-
The companies argue that these products are easily produced by
gotiated the relevant contracts could be taken under oath, we could
any company with a broad chemical product line. We have sought
accurately determine whether there has been an anti-competitive effect
market data from the two companies to clarify the situation, but
or purpose. The parties have refused to cooperate voluntarily.
both companies have denied that the information exists in docu-
10. In 1970 we issued a CID to a trade association which, because
mentary form and have refused to have their officials interviewed.
of a protracted court fight, was not enforced until 1973. Documents we
With the power to depose company officials or to propound inter-
did receive were dated and some were ambiguous. Moreover, there are
rogatories on these issues, we could properly evaluate the competitive
some difficult factual questions concerning the possibly anti-competi-
tive practices flowing from the relationship of the national trade asso-
issues. 5. In mid-1975, the Division investigated an important acquisi-
ciation to local affiliates. Documents have been simply inconclusive on
tion involving large manufacturers of consumer products. The trans-
these questions. In lieu of another documentary request with its conse-
action was eventually terminated when the Division expressed its
quent burden on the association and on the government, it would be
opposition. However, that decision was made without the benefit
more efficient and convenient for all concerned if we could have up-
of industry data which three major competing manufacturers re-
dated our investigation through depositions and interrogatories. The
fused to provide voluntarily. This data was readily accessible and
investigation remains open and will require a substantial input of re-
would not have unduly burdened the companies. Because of the
sources to complete.
lack of cooperation this investigation took far more time and effort
11. We are currently investigating a very important service industry
than it would have if we could have obtained appropriate data, and
to determine whether certain common practices in the industry are in
our conclusions were reached without the benefit of all relevant in-
effect disguised price fixing in violation of the Sherman Act. Because
formation. 6. We are currently investigating the merger of two very large do-
of the market power of the target of this investigation, its customers
have been extremely reluctant to talk freely and fully with the staff.
mestic corporations. One key issue is whether technology utilized to
If we had the power to obtain the oral testimony under oath of officials
produce certain products is transferable from one product area to an-
of these purchasing companies, we would now be in a much better posi-
other. A large United States company manufactures products in both
tion to evaluate this complex matter.
relevant areas but has refused to furnish us with information neces-
12. In 1972 we investigated a proposed acquisition involving agricul-
sary to assess the technology transfer issue. The ability to depose tech-
tural products. The acquiring company declined to comply with a let-
nical personnel may be crucial here since documents alone may be in-
ter request. We then served a CID on it, and the company initially took
sufficient to answer the complex technological questions raised.
the position that it would not comply in viey of the ruling in United
7. Several years ago, we issued a CID to a professional association
States V. Union Oil Company of California, 343 F2d 29 (9th Cir.
to determine whether association members had compiled and utilized a
1965). That case holds that parties to an unconsummated merger can-
fee schedule. Shortly before the CID was served but after the associa-
not be forced to comply with a CID because the statute does not apply
tion learned of our investigation, it formally rescinded its fee schedule.
to "future" violations. The reluctant company did eventually "volun-
Counsel for the association argued that the matter was moot and that
tarily" produce some of the material we had demanded, but we were
the investigation therefore should be terminated. Because of the cir-
unable to put together the facts in time to make an intelligent decision
cumstances under which the schedule had been withdrawn, it was nec-
on whether or not to sue before the merger was consummated. Thus,
essary to determine whether the members had in fact ceased using it.
our ultimate decision not to challenge this acquisition was delayed until
One member was interviewed by the staff, but the results were incon-
after consummation because of our inability to obtain necessary infor-
clusive since the interviewee was under no obligation to answer the
mation quickly.
questions fully and accurately. Authority to depose members would
13. An investigation was commenced into possible restrictive busi-
have allowed us to determine the motivation and effectiveness of the
ness practices employed by some companies pursuant to which they
alleged repeal of the fee schedule.
would not deal with a particular class of subcontractors. Although
8. We are currently investigating a significant merger of two direct
there was written evidence of such a policy, documents produced by
competitors in the plastics industry. Sales of the specific product in-
30
each company provided an insufficient basis upon which to determine
whether the firms had in fact complied with this policy. (The fact of
compliance was crucial to a determination of actual anti-competitive
effect.) Many of the documents relevant to the firms' policy were am-
biguous, and there were some indications that this was intentional be-
cause of pressures brought to bear upon the companies from conflicting
APPENDIX B
sources. It would have been extremely helpful to have deposed officials
of these companies in order to determine precisely the policies and
During the Hearings on H.R. 39, held last May and July, op-
tranactions of the firms involved. We were able to interview company
ponents of H.R. 39 raised five major objections: that the investigative
officials only after repeated requests. Initial refusals by the company
authority H.R. 39 would provide is largely unprecedented, and im-
delayed the investigation significantly.
proper if vested in an agency whose primary responsibility is law en-
14. Several years ago we conducted an investigation into possible
forcement; that H.R. 39 contains inadequate safeguards against pos-
anti-competitive practices and procedures on the part of major inte-
sible prosecutorial abuse; that authority to obtain precomplaint oral
grated oil companies with regard to the acquisition of rights to crude
testimony infringes the rights of innocent third parties; that target
oil owned by the government. The question of access to pipeline facili-
companies are entitled to full participation in precomplaint investiga-
ties by independents was also part of this investigation. It was not a
tions; and that CID authority should not be available to assist the
criminal investigation because it was not clear whether the bidding
Department's participation in regulatory proceedings. This memo-
patterns were the result of legitimate joint ventures or to what extent
randum examines each of these arguments and demonstrates that none
the situation was the result of Interior Department bidding procedures.
can withstand critical analysis.
We undertook the investigation without the use of existing CID author-
I. Many Federal executive and regulatory agencies, and State At-
ity, and most of the oil companies cooperated fully. However, the in-
torneys General, already possess investigative powers comparable to
vestigation took much longer than was necessary because one oil com-
those embodied in H.R. 39, for use in business-related law enforcement
activities.
pany refused to cooperate. It took approximately a year for this com-
pany to produce a limited number of documents, during which time
A. One objection to H.R. 39 that was raised repeatedly in the hear-
we unsuccessfully sought to arrange interviews. If we had had the
ings was the alleged uniqueness of the CID authority that would re-
power to depose appropriate officials of the uncooperative oil com-
sult from enactment of the bill. This particular objection was un-
pany, we could have avoided much of the time and effort spent in a
expected. Our letter to you, dated March 5, 1975, listed a large number
of states possessing substantially equivalent tools of investigation for
futile attempt to secure important information.
possible violations of the various state antitrust laws. (See Hearings,
p. 184, n. 1). We also noted the many provisions of federal law that
grant a wide variety of government agencies comparable or greater
powers of investigation, designed to assist the law enforcement re-
sponsibilities of those agencies. (See Hearings, p. 186, n. 2).
We have emphasized that the additional civil investigative tools
we seek through enactment of H.R. 39 are neither novel nor excep-
tionally broad; rather they are virtually identical to those long vested
in the Federal Trade Commission. Opponents of the bill have con-
tended, however, that such investigative authority may be proper
for an administrative agency such as the FTC, but not for the Attorney
General, whose responsibilities are primarily those of law enforcement.
This argument fails to recognize that the FTC has important civil
law enforcement responsibilities and uses its full investigative powers
in discharging them. Commission adjudicative proceedings lead to
cease and desist orders. Violations of such orders are enforceable either
by contempt proceedings, if the order has been enforced on appeal by
a federal court, or by civil actions in which federal courts may impose
penalties up to $10,000 for each violation. The Commission is also
directed to refer evidence of possible criminal conduct obtained in its
investigations to the Attorney General for possible prosecution.
The argument that investigative tools appropriate for the FTC
and other administrative agencies are improper when given to the At-
torney General has already been answered by the Court of Appeals
for the Ninth Circuit. Rejecting a broad constitutional challenge to
the existing CID statute, the court noted
(31)
32
33
In this case, Hyster makes much of the fact that the At-
tigations provide active assistance to the Department or the United
torney General, whose duties include prosecution, is the
States Attorneys in prosecutions resulting from such referrals.
party on whom the power to demand is conferred. The theory
This investigative authority has long existed, and has been retained
is that while it may be proper to confer such authority upon
and expanded through subsequent Congressional amendments. Con-
the Federal Trade Commission
or the Administrator of
gress has recently recognized again the need for investigative author-
the Wage and Hour Division of the Department of La-
ity in government agencies. Creating the Energy Research and Devel-
bor
or on other "quasi-judicial" or "administrative"
opment Agency and the Nuclear Regulatory Commission in 1974,
bodies or officers, it is not proper to confer it upon the At-
Congress retained the investigative authority possessed by the AEC
torney General.
(42 U.S.C. 2201 and gave additional specific investigative au-
We are not convinced. The FTC and the Administrator
thority to the NRC (42 U.S.C. § 5846).
have investigative and enforcement powers and duties,
C. After further review of the state statutes, we have identified
primarily civil in nature. So do many other commissions and
another state, Washington, that has precomplaint investigative au-
administrators.
So does the Attorney General under the
thority for antitrust enforcement (Rev. Code of Washington, Title
antitrust laws.
He also has the duty to institute
19, Sec. 19.86.110). We also discovered that the Missouri statute has
prosecutions.
been amended (Rev. Stats. Mo. Chap. 416, sec. 416.091).
We have no doubt that it is within the power of adminis-
Many of these state laws are of recent origin. Three states have
trators or administrative boards or commissions, if in the
recently enacted state antitrust laws: Washington, chapter 19.86-
course of authorized investigations they uncover evidence of
amended 1970; the "New Jersey Antitrust Act," effective 1970; and
the commission of crimes, to refer that evidence to the Attor-
the Virginia "Fair Trade Act" in 1974. The New Jersey and Virginia
ney General. In some cases, Congress has expressly conferred
statutes have provisions comparable to those in HR. 39. Under those
such authority
In our case the Act, section 4(d)
laws any person may be subpoenaed, persons may be deposed and
authorizes delivery of documents to an attorney authorized to
documents obtained. And, in at least one respect, both the New Jersey
appear before a grand jury in a proceeding involving anti-
and Virginia laws are broader than H.R. 39. Any incipent violation
trust violations.
of the state antitrust law may be investigated-not just "mergers
The fact that the Attorney General can himself institute a
or similar transactions" as would be authorized by H.R. 39.
prosecution, instead of referring the information to someone
In addition, many other states have authority to investigate inci-
else, may be a distinction, but we do not think that it makes
pient violations-Hawaii, Illinois, Missouri, New Jersey, New York,
a constitutional difference. He is still a public officer, exercis-
Virginia and Washington. Also many other states have investigative
ing functions conferred upon him by law. There is no pre-
authority to obtain the production of documents and testimony from
sumption that he will abuse his powers, quite the contrary,
witnesses: Arizona, Connecticut, Kansas, Louisiana, Maine, New
and there certainly is no showing that he is doing SO in this
Hampshire, North Carolina, Puerto Rico, and South Carolina. Some
case. Hyster Co. V. United States, 338 F.2d 183, 186 (9 Cir.
of these provisions relating to testimony are very old-Arizona,
1964).
Kansas, Louisiana, Maine, and North Carolina-others more recent.
B. As noted in our March 5, 1975 letter, there are over three dozen
There has been much litigation concerning these state statutes. Deci-
provisions in the United States Code authorizing government agen-
sions can be found both upholding the authority of the state officials
cies (other than the Department of Justice) to obtain compulsory
to employ these useful tools, and also protecting the rights of the
testimony. There are penalties for failure to comply. For example,
persons subject to subpoena. One recent case is particularly pertinent
two agencies that are charged with investigation of business activi-
to claims that H.R. 39 would provide unique powers.
ties are the Securities and Exchange Commission and the Internal
In State ex rel. Lorderholm V. American Oil Co., 202 K. 185, 446
Revenue Service. The SEC may depose witnesses and secure docu-
P.2d 754, 757 (1968), the Supreme Court of Kansas observed that the:
ments, investigate incipient violations, and unlike H.R. 39, may seek
procedure here involved is an historically well-known
substantial fines and criminal penalties for failure to comply.1 The
legislative device enabling the state's chief law enforcement
Internal Revenue Service may subpoena any person, and examine
officer to gather information necessary for effective enforce-
books and documents.2 These agencies are expressly authorized to
ment of our antitrust laws. The proceding is not adversary
initiate civil enforcement proceedings, either in their own names or
but is ex parte; it is investigative and not adjudicatory. Of
through the Department of Justice, and to refer evidence of criminal
course, facts uncovered through it may lead to an adjudicatory
violations of their statutes to the Attorney General (see, e.g., 15
hearing, civil or criminal, the same as information disclosed
U.S.C. 77u). And agency attorneys who have conducted these inves-
by any other method of investigation. That which the cor-
porate appellants are really asserting is the right to be present
1 See 15 U.S.C. §§ 77s, 77x, 77yyy, 78ff, 78u, 79r, 79z-3, 80a-41, 80a-48, S0b-9, and
80h-17.
during the attorney general's investigation. The right to an
26 U.S.C. 7602. The investigative nature of this authority is stressed by the long
standing provision that provides for up to 3 years in jail for persons who "obstruct or
adjudicatory hearing includes the right to counsel. But we
impede" by corruption or threats of force the work of the Treasury investigator.
know of no constitutional right in anyone to be present at an
34
35
investigation simply because his conduct is the subject of the
inquiry and he may be in the future prosecuted as a result of
scarcely more than a dozen reported cases in which a recipient has
information developed during the investigation. A witness
found it necessary to invoke the assistance of a federal court to protect
appearing in an inquisition could well be a former employee
its perceived rights and privileges. Since all existing safeguards are
of a corporation or he could be a person without any business
carried forward by H.R. 39, there is no reason to expect any different
result if the bill is enacted.
connection with the corporation; in either event we know of
no right in the corporation to be notified of the proceeding,
B. Opponents of H.R. 39 have raised the spectre of innocent parties
to appear thereat or to be represented by counsel. It is true
being forced to expose themselves to contempt citations in order to
vitally relevant information concerning violations of our anti-
obtain appellate review of court orders enforcing CIDs. Such claims
trust laws may sometimes be secured only through the testi-
are based on a misunderstanding of the ACPA. 15 U.S.C. ex-
mony of employees or agents of those corporations suspected
pressly provides that a final order enforcing, modifying or setting
aside a CID shall be appealable pursuant to 28 U.S.C. 1291. This sec-
of irregularities.
tion is unchanged by H.R. 39. A petition to enforce, or to modify or
The court then held that "where an employee is questioned about
set aside a CID is an original proceeding in district court. No other dis-
possible antitrust law violations by his corporate employee the cor-
pute is before the court in such a proceeding. The court's order resolv-
poration has no constitutional right to be represented by counsel."
ing the dispute thus presented is necessarily final and appealable. To
II. Safeguards in present law and H.R. 39 effectively guarantee that
our knowledge no person subject to an order enforcing a CID has
investigative powers will not be abused.
found it necessary to place himself in contempt as a predicate to seek-
A. Present law (15 U.S.C. 1314(b)) authorizes any CID recipient
ing appellate review.
to petition a district court to modify or set aside the demand, basing
C. 15 U.S.C. 1312 requires that all CIDs be issued by the Attorney
his claim on "any constitutional or other legal right of such person."
General or the Assistant Attorney General in charge of the Antitrust
15 U.S.C. 1312(c) forbids any CID requirement which would be un-
Division. The authority is not further delegable. In practice this means
reasonable if contained in a grand jury subpoena. H.R. 39 would pre-
that all CIDs are reviewed and approved personally by the Assistant
serve these protections; it would also specifically authorize a CID re-
Attorney General. This is not the Division's practice with respect to
cipient to refuse to comply with its demands "on grounds of privi-
grand jury subpoenas, which are usually approved only by the section
lege, or self-incrimination or other lawful grounds." Additionally, the
or field office chief who supervises the investigating attorney. Thus the
Department has proposed to amend 15 U.S.C. 1312(c) to provide a
statutory requirement insures that CIDs receive closer scrutiny and
right of objection to written interrogatories which impose "an undue
more extensive review than grand jury subpoenas. Indeed, even if this
or oppressive burden."
were not required by statute it would probably be the practice in any
Existing case law establishes broad standards for reviewing CIDs
event; the policy issues raised by civil investigations are likely to be
and grand jury subpoenas. All recognized objections to these subpoenas
more subtle and complex than those presented by the type of hard-
would be available under H.R. 39 to third parties as well as to investi-
core offense which the Division prosecutes criminally.
gatory targets, and could be raised in opposition to a CID seeking oral
We believe that this factor is highly relevant in assessing broad
testimony.
claims that CID powers are likely to be abused, and that H.R. 39 would
Opponents of H.R. 39 frequently express concern that precomplaint
confer an inquisitorial power on the Division more sweeping than that
investigatory powers are subject to abuse. But case law shows that
possessed by a grand jury.
courts will not permit use of CIDs to conduct "fishing expeditions."
D. A well-established basis for objecting to a CID is a claim that it
An appropriate ground for objection to a CID is that the Department
seeks material irrelevant to the proper scope of the investigation. See
lacks jurisdiction over the activities under investigation by reason of
Materials Handling Institute V. McLaren, 426 F. 2d 90 (3d Cir. 1970).
an antitrust exemption (see Texas Board of Public Accountancy V.
Opponents of H.R. 39 have alleged, however, that this affords a hollow
United States, - F. 2d - (5th Cir. 1975). cert. den. 12/15/75; Ama-
right to persons subject to oral deposition, since they would be afforded
teur Softball Assn. V. United States, 467 F. 2d 312 (10th Cir. 1972)
no basis to know the scope of the intended questioning or its relevance
Chattanooga Pharmaceutical Assn. V. United States, 358 F. 2d 864 (6th
to the investigation.
Cir. 1966) ; and the courts have closely scrutinized allegations that an
In fact, a person from whom oral testimony is sought will rarely,
antitrust investigation has been improperly motivated (see American
if ever, be in doubt about the nature of the inquiry. We contemplate
Pharmaceutical Assn. V. United States, 344 F. Supp. 9 (E.D. Mich.
that a notice for the taking of a CID deposition will almost invariably
1971) ; United States V. United States Gypsum Co., 1974 Trade Cases,
be preceded, or accompanied by, a CID for documents. This procedure
175, 352 (W.D. Pa) ; Petition of Cleveland Trust Co., 1972 Trade
is sound investigative practice. It enables the investigator to prepare
Cases, 175, 352 (W.D. Pa.).
himself for the deposition and to focus his questions. A CID seeking
The limitations and protections embodied in the ACPA are obvi-
documents serves a purpose analogous to a bill of particulars, stating
ously substantial ones, and the Division has always taken them very
the nature of the conduct under investigation and describing the classes
seriously. Perhaps the best evidence that there has not been abuse is the
of documents sought with sufficient specificity to permit their identifi-
fact that, of nearly 1700 CIDs issued in the past 13 years, there are
cation. Such CID requests will serve the same function in defining the
scope of investigation under H.R. 39 as they do under present law.
36
37
In rare instances oral testimony unrelated to documentary evidence
official" in an FTC investigational hearing. He has no authority to
may be sought. Counsel for the prospective deponent, however, will
compel answers, or to impose sanctions for noncooperation. The deci-
surely insist upon adequate foreknowledge of the scope of inquiry to
sion to answer particular questions, or terminate the entire proceeding,
permit a determination of relevance before agreeing to produce his
always lies within the discretion of deponent and his counsel.
client for deposition. The antitrust investigator has strong incentives
B. H.R. 39 affords any deponent the right to obtain a copy of his
to satisfy that legitimate need, since failure of a witness to cooperate
transcribed testimony, except that for good cause shown he may be
voluntarily can only delay or impede the investigation.
limited to inspection of the official transcript. The burden of establish-
Finally, of course, no testimony can be compelled under H.R. 39
ing good cause would be upon the Department. This is a significant
except by order of a Federal district court. Such an order will not
right, not afforded to grand jury witnesses; at least one supporter of
issue unless the Department establishes the propriety of the investiga-
the legislation has suggested that it may impede investigations by fa-
tion, the reasonable scope of the inquiry, the relevance of the informa-
cilitating dissemination among target companies who can thus orches-
tion sought by deposition, and the absence of any other valid objection.
trate a joint defense. (See Hearings, at p. 151). This is undoubtedly
III. H.R. 39, and amendments proposed by the Department of
true, but it is also true that any witness who wishes to cooperate with
Justice, protect the rights of recipients of CID demands for oral
potential defendants is always free to do so.
testimony.
The Department favors retaining the witness' right to obtain a
A. Several witnesses opposing H.R. 39 have focused on the allegedly
copy of his testimony. Our purpose in seeking authority to compel
inquisitorial nature of provisions for the taking of oral testimony.
oral testimony from third parties is investigative, not to coerce or
They have analogized a CID deposition proceeding to a grand jury
entrap innocent parties. A witness may always choose not to obtain
proceeding, and suggested that it would lack the essential protections
a copy, if he fears that he may be forced to reveal it to a target of the
afforded by the grand jury procedure. These allegations have greatly
investigation such as an employer or major customer or supplier.
distorted the nature of the precomplaint deposition, and ignored the
C. Perhaps implicitly recognizing the adequacy of safeguards for
careful safeguards provided in H.R. 39 and our suggested amendments.
witness' rights, some opponents of H.R. 39 advance the somewhat in-
Under H.R. 39, a person compelled to appear to give oral testimony
consistent suggestion that enactment may make antitrust enforcement
may be accompanied by counsel, who may interpose himself between
more complex, costly and time-consuming by adding a preliminary
the questioner and his client when he believes the questioning threatens
stage of adversary proceedings, litigation and appeals involving dep-
his client's interest. This protection is not afforded a grand jury wit-
ositions and interrogatories. The short answer is that such has not
ness. Under H.R. 39, counsel may object on the record when he be-
been the history of CID investigations. We are confident it will not
lieves the deponent is entitled to refuse to answer a question "on the
be in the future.
grounds of privilege, self-incrimination or other lawful grounds." He
As noted earlier, fewer than one percent of the nearly 1700 CIDs
may advise his client to refuse answers to any or all questions pro-
issued by the Antitrust Division have required adjudication by the
pounded. In either event, the witness' silence must be respected, unless
courts. One reason is the disincentive to litigate at the investigatory
the government attorney obtains a district court order compelling an
stage unless it is absolutely necessary. One important element of
answer. The proceeding to obtain such an order would be fully adver-
efficient investigation is timeliness; resort to the courts to enforce
sary, and the deponent would have the right to counsel.
our demands, even when successful, inevitably delays the inquiry
The deponent may also clarify or complete answers "otherwise equiv-
while the evidence becomes stale, and the activities under investiga-
ocal or incomplete on the record" at the conclusion of the examination.
tion may lose their immediate importance.
The Department has proposed an amendment to H.R. 39, to permit
We have every interest in tailoring our demands to satisfy the legiti-
the deponent to examine his transcribed testimony and to request
mate concerns of recipients, SO that compliance will be expeditious and
the hearing officer to enter changes on the transcript, provided rea-
voluntary. This interest is even stronger with respect to CID's directed
sons for such changes are indicated. Counsel would obviously be avail-
to third parties under H.R. 39. While target companies may employ
able to assist the witness in examining and completing the record.
resistance to prevent disclosure to the Department of illegal acts,
The Department has also proposed an amendment which would
there will be little reason to suspect third parties of being SO motivated.
exclude from the examination all persons except the deponent, his
In most cases, therefore, it should be possible to reach an accommoda-
counsel, the hearing officer and the stenographer. This is in large part
tion between our needs and the interests of the CID recipient, without
a protection for the witness, enabling him to preserve, to the extent he
resort by either side to litigation.
SO desires, the confidentiality of his testimony. It obviously affords no
IV. Adversary participation by target companies in precomplaint
opportunity for the investigator to intimidate these witnesses; the
investigations would be unprecedented, unworkable, and unnecessary
presence of counsel protects against this.
to the protection of legitimate interests.
The hearing officer is not a Department official, but a neutral party,
A. Those who oppose extension of CID authority to include the
with authority to administer oaths in the jurisdiction. In most in-
obtaining of oral or written testimony from third parties urge that
stances the stenographer will also serve as hearing officer, as is the
any such authority should be conditioned on a right of counsel for the
practice in depositions under the Federal Rules of Civil Procedure. His
target to notice of such proceedings, an opportunity for adversary
function is essentially a housekeeping one, much like the "presiding
participation, and access to materials and transcripts collected. The
38
39
Department of Justice is convinced that such an amendment to H.R. 39
Second, when the deponent testifies at trial and is subject to cross-
would destroy the utility of any deposition power for the following
examination concerning his CID statements, those statements are ad-
reasons:
(1) At the preliminary stages of an investigation it is impossible to
missible as non-hearsay if (1) consistent with his trial testimony, and
(2) offered to rebut a charge of recent fabrication or improper in-
know who the targets are since the objective at this point is to deter-
mine whether an antitrust violation has occurred and if so, who has
fluences or motive. Again, there is no unfairness to the defendant be-
committeed the violation. Thus, as a practical matter it would be
cause the admissible CID statements are subject to full cross-
examination.
impossible to implement this recommendation.
C. Insistence on participation by the target at the investigative stage
(2) The participation of representatives of the target would greatly
is grounded in part on the allegation that our purpose in seeking ad-
complicate and delay the progress of the investigation. Assuming that
ditional civil investigative authority is to gather information in cases
the targets could be identified, it is not uncommon for an investigation
we have already decided to file. But once we have satisfied ourselves
to involve a large number of potential defendants. The presence of
that a violation exists which merits prosecution, the civil discovery
attorneys for each target would certainly bog down the investigation.
rules are fully adequate for that purpose. Where our pre-complaint in-
(3) The mere presence of representatives of the target would dis-
vestigatory tools are inadequate today, as the cases discussed in Ap-
courage third parties from cooperating with antitrust investigators.
pendix A illustrate, is in affording us sufficient information to make
The target could retaliate against such parties, who might be employees
a reasoned determination as to whether a violation exists which should
of the target, competitors or customers. An employee, customer, or
be prosecuted.
supplier whose economic survival is dependent on the target is unlikely
Since enactment of the ACPA, only fifteen percent of our CID in-
to be comfortable in giving adverse information about the target in its
vestigations have resulted in the filing of cases. From our perspective.
presence. Yet they are most likely to possess the needed information
one vital purpose of pre-complaint investigation is establishment to
about antitrust violations.
our satisfaction that a violation does not exist. This permits redeploy-
(4) The participation of the target would provide it with specific
ment of limited resources to more productive use. At present we too
detailed knowledge of where the investigation is headed. The target
often face the Hobson's choice of closing promising investigations for
could thus destroy crucial documents or fabricate a defense on the
want of sufficient evidence of violation, or filing weak cases in the
basis of that knowledge, thereby thwarting the investigation.
expectation that such evidence will be developed in post-complaint
The proposed participation of the target at the precomplaint stage
pretrial discovery.
is unprecedented in American jurisprudence whether one looks to civil
The Division's ability to file civil actions to trigger pretrial dis-
or criminal analogies. Courts have consistently held that no such
covery is an unacceptable alternative to adequate pre-complaint in-
right exists at the investigatory stage. See, e.g., Hannah V. Larche, 363
vestigatory tools. To file suit solely to trigger discovery rights would
U.S. 420 (1960). It would transform the pre-complaint investigation
be an abuse of the judicial process. "The compulsory processes of the
into a mini-trial; the investigatory function would be converted into
judicial system should not be made available for other than judicial
an adversary proceeding.
purposes.
[A plaintiff] cannot pretend to bring charges in order
Except for preventing the detection of antitrust violations, the
to discover whether actual charges should be brought." Judicial Con-
target has no substantial interest in participating at this stage since it
ference of the United States, Procedure in Anti-trust and Other Pro-
will have a full opportunity to present a defense if suit is filed. Pre-
tracted Cases, 13 F.R.D. 62, 67 (1951). Moreover, the decision to sue
complaint statements would generally be inadmissible in subsequent
commits Division resources to expensive litigation, and burdens over-
litigation as hearsay. The government would be required to prove its
crowded court dockets with cases likely to be complex and time-con-
case in court at which time the target would have every opportunity
suming. And the mere announcement of such a suit commands exten-
to make its defense.
sive public attention, which may adversely affect named defendants,
B. It has been asserted by some that under the new Federal Rules
no matter what the outcome of the litigation.
of Evidence, Rule 802 (d) (1), CID oral deposition testimony would be
We believe that providing the Division with necessary tools for
admissible at trial as proof of the matters asserted. It is argued that this
effective pre-complaint investigation will substantially benefit both the
rule is unfair to the defendant because he had no opportunity to cross-
business community, by reducing the risk of unwarranted prosecutions,
examine the witness during the oral deposition.
as well as the public interest, by increasing prosecutions of major vio-
Rule 802 (d) (1) would authorize the introduction of CID oral
lations. It is clear that interjection of the target into an adversary
deposition testimony as non-hearsay only in two limited circumstances.
role at the investigative stage would defeat both objectives.
First, when the deponent testifies at trial, is subject to cross-exami-
V. Use of CID authority to support participation in regulatory
nation concerning his CID statements, and those statements are in-
proceedings would advance the public interest in a competitive
consistent with his trial testimony, then the CID statements are ad-
economy.
missible to prove the truth of the matters asserted. No unfairness is
A. H.R. 39 would authorize the Antitrust Division to use its CID
involved in this case because the defendant may cross-examine the de-
investigative powers to gather information relevant to our participa-
ponent concerning his CID statements.
tion in pending administrative or regulatory agency proceedings. This
40
41
authority is sought in recognition of the Division's expanding role as
U.S. DEPARTMENT OF JUSTICE,
an advocate of procompetitive policies in proceedings before the
W ashington, D.C., May 17, 1976.
agencies.
Hon. PETER W. RODINO, Jr.,
The economic importance of this activity is substantial; approxi-
Chairman, Committee on the Judiciary, House of Representatives,
mately 20% of the GNP is currently subject to regulation. The Fed-
Washington, D.C.
eral Trade Commission has recognized the importance of this activity,
DEAR MR. CHAIRMAN: On April 28, 1976, the Subcommittee on Mo-
and recently commenced its own program of participation on com-
nopolies and Commercial Law favorably reported H.R. 39 to the Com-
petitive issues before administrative and regulatory bodies. Obviously
mittee on the Judiciary. During the course of its deliberations, the
the Commission's investigative powers, similar to those we seek in
Subcommittee considered and rejected an amendment that would have
H.R. 39, are available to it in this effort.
changed existing statutory provisions governing retention of copies
B. Some have objected to this authority because it would give
of CID material by the Department of Justice.
the Department broader discovery powers than may be available
The Department of Justice strongly supports the Subcommittee's
to other parties in a proceeding. But the Department does not par-
action on this issue.
ticipate on the same footing as other parties, who are asserting their
Under present law, the Department is specifically authorized to
private interests in obtaining a benefit or protection from the reg-
make copies of documentary material submitted pursuant to a CID,
ulators. Our interest is as an advocate, often the only one, of the public
§ (c) of the Antitrust Civil Process Act, 15 U.S.C. § 1313 (c). At the
interest in maximizing competition in the determination of regulatory
conclusion of an investigation or a case arising therefrom, the Depart-
policy. Where our arguments are unpersuasive for want of adequate
ment is required to return materials to the person who produced them.
supporting data available only in the files of private parties without
However, § (e) of the Act, 15 U.S.C. § 1313 (e), specifically permits
incentive or duty to produce it, it is the public interest which suffers.
the Department to retain copies of documents it has made pursuant to
It is also argued that use by the Division of CID powers would
§ 4(c).
nullify the host agency's ability to control discovery proceedings
The Department strongly opposes any amendment that would alter
under its own rules. We believe this exaggerates the situation. It should
this statutory scheme by requiring it to return all copies it has made
be emphasized that all information SO gathered to assist our participa-
of CID materials, for the following reasons:
tion would be subject to examination by other parties and the agency
1. Retention of this material serves an important and legitimate
to the same extent as other information sought to be entered in the
law enforcement purpose.-The Antitrust Division of the Depart-
record of the proceeding. Moreover, we anticipate that we would most
ment of Justice is organized into litigating sections that have respon-
often make use of CID information in rulemaking proceedings, of
sibility for enumerated commodities or industries. In order to develop
industry-wide consequence, where agency procedures are usually in-
familiarity with these commodities or industries, it is important for
formal, and no discovery is provided for by agency statutes or rules.
Department attorneys to have ready access to historical data describing
It is true that under H.R. 39 the scope and propriety of a CID
the organization and operation of various industries. The Department
investigation would be subject to determination by a federal judge,
routinely destroys copies it has made of CID data, but some of it is
rather than an administrative law judge. We would not agree, however,
retained in order to provide information on industry structure and
with the argument that federal judges are less qualified than the
common practices or to assist the Department in applying the law
ALJ's to evaluate relevance and other issues in the context of the
consistently within a given commodity or industry classification. This
regulated industry involved. On the contrary, we would expect federal
information generally involves impersonal market or economic data
judges, especially those sitting in districts where major corporations
and thus does not present the kinds of concerns ordinarily associated
maintain their principal places of business, and where discovery con-
with governmental nformation-gathering activities.
tests are most often decided, to be fully competent to assess the merits
2. Companies are not prejudiced or injured by the present statutory
of highly sophisticated commercial issues. And this procedure has
scheme.-The present statute carefully minimizes the potential for dis-
its parallel in Federal civil practice today district courts where dis-
ruption of business operations in antitrust investigations. A recipient
covery is sought may be called upon to rule on objections in cases being
of a CID may supply the Department with copies of documents in
litigated under the control of courts in other districts.
lieu of originals, § 4(b), 15 U.S.C. § 1313(b), thus assuring continuity
Finally, it is suggested that existing inadequacies in agency dis-
of business operations; of course, even if the recipient decides to give
covery rules should be addressed directly, through legislation to
original documents to the Department, it may first make copies for
amend those rules. We agree, and would view with favor such an
internal use. Companies have no proprietary interest in copies of CID
effort. As a practical matter, however, such piecemeal reform is a long-
material made by the Department during the course of its investiga-
term project at best. Permitting the Division to supplement agency
tions.
discovery rules where necessary promises more immediate benefits to
3. There has been no allegation, let alone documented instance, of
the public interest in promoting competition in regulated industries.
abuse arising under this statutory scheme.-Since enactment of the
42
43
Antitrust Civil Process Act of 1962, the Department has issued about
ing whether any person is or has been engaged in any antitrust
1700 CIDs, yet the hearings on the Civil Process Act amendments in
violation or in any activities in preparation for a merger, acquisi-
the House and the Senate do not disclose any claim that the Depart-
tion, joint venture, or similar transaction, which, if completed,
ment's retention policy has been abused or utilized unfairly. In light of
may violate the antitrust laws;
the searching consideration of these amendments undertaken by both
(d) The term "antitrust violation" means any act or omission
Houses of Congress, the deficiency in the record indicates that change
in violation of any antitrust law or any antitrust order;
is not warranted.
(e) The term "antitrust investigator" means any attorney or
The Department believes that the Subcommittee properly defeated
investigator employed by the Department of Justice who is
efforts to amend the Antitrust Civil Process Act so as to require the
charged with the duty of enforcing or carrying into effect any
Department to return, in addition to originals and copies submitted in
antitrust law;
lieu of originals, all copies of CID material that it makes in the course
[(f) The term "person" means any corporation, association,
of its antitrust investigations. We encourage the Committee on the
partnership, or other legal entity not a natural person;
Judiciary to reject any similar attempt that may be advanced during
(f) The term "person" means any natural person, partnership,
its consideration of H.R. 13489 (as H.R. 39 has been renumbered).
corporation. association, or other legal entity;
Sincerely,
(g) The term "documentary material" includes the original or
JOE SIMS,
any copy of any book, record, report, memorandum, paper, com-
Deputy Assistant Attorney General Antitrust Division.
munication, tabulation, chart, or other document; and
(h) The term "custodian" means the [antitrust document] cus-
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
todian or any deputy custodian designated under section 4(a) of
this Act.
In compliance with clause 3 of Rule XIII of the Rules of the House
CIVIL INVESTIGATIVE DEMAND
of Representatives, changes in existing law made by the bill, as re-
ported, are shown as follows (existing law proposed to be omitted is
Sec. 3. (a) Whenever the Attorney General, or the Assistant At-
enclosed in black brackets, new matter is printed in italic, existing law
torney General in charge of the Antitrust Division of the Department
in which no change is proposed is shown in roman) :
of Justice, has reason to believe that any person [under investigation]
may be in possession, custody, or control of any documentary material,
ANTITRUST CIVIL PROCESS ACT
or may have any information, relevant to a civil antitrust investiga-
tion, he may, prior to the institution of a civil or criminal proceeding
*
*
*
*
thereon, issue in writing, and cause to be served upon such person, a
civil investigative demand requiring such person to produce such docu-
DEFINITIONS
mentary material for [examination] inspection and copying or repro-
duction or to answer in writing written interrogatories or to give oral
SEC. 2. For the purposes of this Act-
testimony concerning documents or information or to furnish any
(a) The term "antitrust law" includes:
combination of such documents, written answers, or oral testimony.
(1) Each provision of law defined as one of the antitrust
[(b) Each such demand shall-
laws by section 1 of the Act entitled "An Act to supplement
[(1) state the nature of the conduct constituting the alleged
existing laws against unlawful restraints and monopolies, and
for other purposes", approved October 15, 1914 (38 Stat.
antitrust violation which is under investigation and the provision
of law applicable thereto;
730, as amended; 15 U.S.C. 12), commonly known as the
Clayton Act;
(2) describe the class or clauses of documentary material to be
(2) The Federal Trade Commission Act (15 U.S.C. 41 and
produced thereunder with such definiteness and certainty as to
permit such material to be fairly identified;
the following) ; and
(3) prescribe a return date which will provide a reasonable
(3) Any statute hereafter enacted by the Congress which
period of time within which the material SO demanded may be
prohibits, or makes available to the United States in any
court of the United States any civil remedy with respect to
assembled and made available for inspection and copying or
reproduction: and
(A) any restraint upon or monopolization of interstate or
(4) identify the custodian to whom such material shall be
foreign trade or commerce, or (B) any unfair trade practice
made available.
in or affecting such commerce;
(b) The term "antitrust order" means any final order, decree,
[(c) No such demand shall-
or judgment of any court of the United States, duly entered in
((1) contain any requirement which would be held to be un-
reasonable if contained in a subpena duces tecum issued by a court
any case or proceeding arising under any antitrust law;
(c) The term "antitrust investigation" means any inquiry con-
of the United States in aid of a grand jury investigation of such
ducted by any antitrust investigator for the purpose of ascertain-
alleged antitrust violation; or
44
45
(2) require the production of any documentary evidence which
jurisdiction of any court of the United States, in such manner as the
would be privileged from disclosure if demanded by a subpena
Federal Rules of Civil Procedure prescribe for service in a foreign
duces tecum issued by a court of the United States in aid of a
country. To the extent that the courts of the United States can assert
grand jury investigation of such alleged antitrust violation.]
jurisdiction over such person consistent with due process, the United
(b) Each such demand shall-
States District Court for the District of Columbia shall have the same
(1) state in appropriate detail the nature of-
jurisdiction to take any action respecting compliance with this Act
(A) the conduct constituting the alleged antitrust viola-
by such person that such court would have if such person were person-
tion, or
ally within the jurisdiction of such court.
(B) the activities in preparation for a merger, acquisition,
(e) (1) Service of any such demand or of any petition filed under
joint venture, or similar transaction, which, if completed, may
section 5 of this Act may be made upon a partnership, corporation,
violate the antitrust laws,
association, or other legal entity by-
which are under investigation and the provision of law applicable
[(1)] (A) delivering a duly executed copy thereof to any
thereto;
partner, executive officer, managing agent, or general agent there-
(2) if it is a demand for production of documentary material,
of, or to any agent thereof authorized by appointment or by law
(A) describe the class or classes of documentary material
to receive service of process on behalf of such partnership, corpo-
to be produced thereunder with such definiteness and cer-
ration, association, or entity;
tainty as to permit such material to be fairly identified; and
[(2)] (B) delivering a duly executed copy thereof to the prin-
(B) prescribe a return date or dates which will provide a
cipal office or place of business of the partnership, corporation,
reasonable period of time within which the material 80 de-
association, or entity to be served; or
manded may be assembled and made available for inspection
[(3)] (C) depositing such copy in the United States mails, by
and copying or reproduction; and
registered or certified mail, return receipt requested, duly ad-
(σ) identify the custodian to whom such material shall be
dressed to such partnership, corporation, association, or entity
made available; or
at its principal office or place of business.
(3) if it is a demand for answers to written interrogatories,
(2) Service of any such demand or of any petition filed under sec-
(A) propound with definiteness and certainty the written
tion 5 of this Act may be made upon any natural person by-
interrogatories to be answered; and
(A) delivering a duly executed copy thereof to the person to
(B) prescribe a date or dates at which time answers to
be served; or
written interrogatories shall be made; and
(B) depositina such copy in the United States mails, by regis-
(C) identify the custodian to whom such answers shall be
tered or certified mail, return receipt requested, duly addressed
made available; or
to the person to be served at his residence or principal office or
(4) if it is a demand for the giving of oral testimony,
place of business.
(A) prescribe a date, time, and place at which oral testi-
(f) A verified return by the individual serving any such demand or
mony shall be commenced; and
petition setting forth the manner of such service shall be proof of
(B) identify the antitrust investigator or investigators
such service. In the case of service bv registered or certified mail,
who shall conduct the oral examination and the custodian to
such return shall be accompanied by the return post office receipt of
whom the transcript of such examination shall be made avail-
delivery of such demand.
able.
(g) The production of documentary material in response to a de-
(c) No such demand shall require the production of any document,
mand served pursuant to this section shall be made under a sworn
the submission of any information, or any oral testimony if such docu-
certificate by the person, if a natural person, to whom the demand is
ment, information, or testimony would be protected from disclosure
directed or, if not a natural person, by a person or persons having
under-
knowledge of the facts and circumstances relating to such production,
(1) the standards applicable to subpenas or subpenas duces
to the effect that all of the documentary material described by the
tecum issued by a court of the United States in aid of a grand jury
demand which is in the possession, custody, or control of the person
investigation, or
to whom the demand is directed has been produced and made available
(2) the standards applicable to discovery requests under the
to the oustodian.
Federal Rules of Civil Procedure, to the extent that the applica-
(h) Each interrogatory in a demand served mursuant to this section
tion of such standards to any such demand is appropriate and
shall be answered separately and fully in writing under oath, unless
consistent with the provisions and purposes of this Act.
it is objected to, in which event the reasons for objections shall be stated
(d) (1) Any such demand may be served by any antitrust investi-
in lieu of an answer, and it shall be submitted under a sworn certificate
gator or by any United States marshal or deputy marshal, at any place
by the person, if a natural person, to whom the demand is directed or,
within the territorial jurisdiction of any court of the United States.
if not a natural person, by a person or persons responsible for answer-
(2) Any such demand or any petition filed under section 5 of this
ing each interrogatory, to the effect that all information required by
Act may be served upon any person who is not within the territorial
46
47
the demand which is in the possession, custody, or control of the person
when it is claimed that such person is entitled to refuse to answer the
to whom the demand is directed has been furnished.
question on grounds of any constitutional or other legal right or
(i) (1) The examination of any person pursuant to a demand for
privilege, including the privilege against self-incrimination. If such
oral testimony served under this section shall be taken before an officer
person refuses to answer any question, the antitrust investigator con-
authorized to administer oaths and affirmations by the laws of the
ducting the examination may petition the district court of the United
United States or of the place where the examination is held. The
States pursuant to section 5 of this Act for an order compelling such
officer before whom the testimony is to be taken shall put the witness
person to answer such question. Such person shall not otherwise ob-
on oath or affirmation and shall personally, or by someone acting under
ject to or refuse to answer any question, and shall not by himself or
his direction and in his presence, record the testimony of the witness.
through counsel otherwise interrupt the oral examination.
The testimony shall be taken stenographically and transcribed. pon
(B) If such person refuses to answer any question on grounds of
certification the officer before whom the testimony is taken shall
the privilege against self-incrimination, the testimony of such person
promptly transmit the transcript of the testimony to the possession of
may be compelled in accordance with the provision of part V of title
the antitrust investigator conducting the examination.
18, United States Code.
(2) The antitrust investigator or investigators conducting the exam-
(6) Any person appearing for oral examination pursuant to a de-
ination shall exclude from the place where the examination is held all
mand served under this section shall be paid the same fees and mile-
other persons except the person being examined, his counsel, the officer
age which are paid to witnesses in the district courts of the United
before whom the testimony is to be taken, and any stenographer taking
States.
such testimony. The provisions of the Act of March 3, 1913 (ch. 114, 37
Stat. 731; 15 U.S.C. 30), shall not apply to such examinations.
[ANTITRUST DOCUMENT CUSTODIAN] CUSTODIAN OF DOCU-
(3) The oral testimony of any person taken pursuant to a demand
MENTS, ANSWERS, AND TRANSCRIPTS
served under this section shall be taken in the judicial district of the
United States within which such person resides, is found, or transacts
SEC. 4. (a) The Assistant Attorney General in charge of the Anti-
business, or in such other place as may be agreed upon between the anti-
trust Division of the Department of Justice shall designate an antitrust
trust investigator conducting the examination and such person.
investigator to serve as [antitrust document] custodian of documen-
(4) When the testimony is fully transcribed, the transcript shall be
tary material, answers to interrogatories, and transcripts of oral testi-
submitted to the witness for examination and shall be read to or
mony made available to him under section 3 of this Act, and such addi-
by him, unless such examination and reading are waived by the wit-
tional antitrust investigators as he shall determine from time to time
ness and by the parties. Any changes in form or substance which the
to be necessary to serve as deputies to such officer.
witness desires to make shall be entered upon the transcript by the
(b) Any person, upon whom any demand [issued] under section 3
officer with a statement of the reasons given by the witness for mak-
of this Act for the production of documentary material has been duly
ing them. The transcript shall then be signed by the witness, unless
served, shall make such material available for inspection and copying
the parties by stipulation waive the signing or the witness is ill or
or reproduction to the custodian designated therein at the principal
cannot be found or refuses to sign. If the transcript is not signed by
place of business of such person (or at such other place as such cus-
the witness within thirty days of its submission to him, the officer
todian and such person thereafter may agree and prescribe in writing
shall sign it and state on the record the fact of the waiver or of the
or as the court may direct, pursuant to section 5(d) of this Act) on the
illness or absence of the witness or the fact of the refusal to sign to-
return date specified in such demand ( or on such later date as such cus-
gether with the reason, if any, given therefor. The officer shall certify
todian may prescribe in writing). Such person may upon written
on the transcript that the witness was duly sworn by him and that
agreement between such person and the custodian substitute for
the transcript is a true record of the testimony given by the witness
copies] copies for originals of all or any part of such documentary
and promptly send it by registered or certified mail to the investiga-
material [originals thereof]
tor. Upon payment of reasonable charges therefor, the investigator
[(c) The custodian to whom any documentary material is so deliv-
shall furnish a copy of the transcript to the witness only, except that
ered shall take physical possession thereof, and shall be responsible
the Assistant Attorney General in charge of the Antitrust Division
for the use made thereof and for the return thereof pursuant to this
may for good cause limit such witness to inspection of the official
Act. The custodian may cause the preparation of such copies of such
transcript of his testimony.
documentary material as may be required for official use under regu-
(5) (A) Any person compelled to appear under a demand for oral
lations which shall be promulgated by the Attorney General. While
testimony pursuant to this section may be accompanied, represented,
in the possession of the custodian, no material SO produced shall be
and advised by counsel. Counsel may advise such person, in confidence,
available for examination, without the consent of the person who pro-
either upon the request of such person or upon counsel's own intia-
duced such material, by any individual other than a duly authorized
tive, with respect to any question asked of such person. Such person
officer, member, or employee of the Department of Justice. Under
or counsel may object on the record to any question, in whole or in
such reasonable terms and conditions as the Attorney General shall
part, and shall state for the record the reason for the objection. An
objection may properly be made, received, and entered upon the record
prescribe, documentary material while in the possession of the cus-
48
49
todian shall be available for examination by the person who produced
ized official or employee of the Department of Justice under regulations
such material or any duly authorized representative of such person.
which shall be promulgated by the Attorney General. Such material,
[(d) Whenever any attorney has been designated to appear on be-
answers, and transcripts may. be used by any such officer or employee
half of the United States before any court or grand jury in any case
in connection with the taking of oral testimony pursuant to this Act.
or proceeding involving any alleged antitrust violation, the cus-
(3) The custodian shall not make available for examination any
todian may deliver to such attorney such documentary material in the
documentary material, answers to interrogatories, or transcripts of
possession of the custodian as such attorney determines to be required
oral testimony, or copies thereof, except-
for use in the presentation of such case or proceeding on behalf of
(A) as permitted under paragraph (2) of this subsection;
the United States. Upon the conclusion of any such case or proceed-
(B) as permitted under such reasonable terms and conditions as
ing, such attorney shall return to the custodian any documentary
shall be promulgated by the Attorney General, to the person who pro-
material SO withdrawn which has not passed into the control of such
duced such material, answers, or oral testimony, or his duly author-
court or grand jury through the introduction thereof into the record
ized representative upon the request of such person;
of such case or proceeding.
(σ) with respect to such materials and answers, to any other per-
[(e) Upon the completion of (1) the antitrust investigation for
son, with the consent of the person who produced such material or
which any documentary material was produced under this Act, and
answers; or
(2) any case or proceeding arising from such investigation, the cus-
(D) with respect to transcripts of oral testimony, to any other per-
todian shall return to the person who produced such material all such
son, with the consent of the person who produced such transcripts,
material (other than copies thereof made by the Department of Jus-
unless the person who produced such transcripts is limited to inspec-
tice pursuant to subsection (c)) which has not passed into the control
tion of the official transcript of his oral testimony pursuant to section
of any court or grand jury through the introduction thereof into the
3(i) (4) of this Act.
record of such case or proceeding.
(d) (1) Whenever any attorney of the Department of Justice has
[(f) When any documentary material has been produced by any
been designated to appear (A) before any court or grand jury in any
person under this Act for use in any antitrust investigation, and no
case of proceeding involving any alleged antitrust violation, or (B)
such case or proceeding arising therefrom has been instituted within
before any Federal administrative or regulatory agency in any
a reasonable time after completion of the examination and analysis
proceeding, the custodian of any documentary material, answers to
of all evidence assembled in the course of such investigation, such
interrogatories, or transcripts of oral testimony may deliver to such
person shall be entitled, upon written demand made upon the Attorney
attorney such documentary material, answers to interrogatories, or
General or upon the Assistant Attorney General in charge of the
transcripts of oral testimony for official use in connection with any
Antitrust Division, to the return of all documentary material (other
such case or any such proceeding as such attorney determines to be
than copies thereof made by the Department of Justice pursuant to
required. Upon the completion of any such case or any such proceed-
subsection (c)) so produced by such person.
ing, such attorney shall return to the custodian any such materials,
[(g) In the event of the death, disability, or separation from service
answers, or transcripts 80 delivered which have not passed into the
in the Department of Justice of the custodian of any documentary
control of such court, grand jury, or Federal administrative or regu-
material produced under any demand issued under this Act, or the
latory agency through the introduction thereof into the record of such
official relief of such custodian from responsibility for the custody
case or such proceeding.
and control of such material, the Assistant Attorney General in charge
(2) The custodian of any documentary material, answers to inter-
of the Antitrust Division shall promptly (1) designate another anti-
rogatories, or transcripts of oral testimony may deliver to the Federal
trust investigator to serve as custodian thereof, and (2) transmit
Trade Commission, in response to a written request, copies of such
notice in writing to the person who produced such material as to the
documentary material, answers to interrogatories, or transcripts of
identity and address of the successor SO designated. Any successor
oral testimony for use in connection with an investigation or proceed-
SO designated shall have with regard to such materials all duties and
ing under the Commission's jurisdiction. Such material, answers, or
responsibilities imposed by this Act upon his predecessor in office with
transcripts may only be used by the Commission in such manner and
regard thereto, except that he shall not be held responsible for any
subject to such conditions as apply to the Department of Justice under
default or dereliction which occurred before his designation as
this Act.
custodian]
(e) If any documentary material (other than copies thereof) has
(c) (1) The custodian to whom any documentary material, answers
been produced in the course of any antitrust investigation by any per-
to interrogatories, or transcripts of oral testimony are delivered shall
son pursuant to a demand under section 3 of this Act and-
take physical possession thereof, and shall be responsible for the use
(1) any case or proceeding before any court or grand jury
made thereof and for the return of documentary material, pursuant
arising out of such investigation, or any proceeding before any
to this Act.
Federal administrative or regulatory agency involving such mate-
(2) The custodian may cause the preparation of such copies of such
rial, has been completed, or
documentary material, answers to interrogatories, or transcripts of
(2) no case or proceeding, in which such material may be used,
oral testimony as may be required for official use by any duly author-
has been commenced within a reasonable time after completion
50
51
of the examination and analysis of all documentary material and
upon which the petitioner relies in seeking such relief, and may be
other information assembled in the course of such investigation,
based upon any failure of such demand to comply with the provisions
the custodian shall, upon written request of the person who produced
of this Act, or upon any constitutional or other legal right or privilege
such material, return to such person any such material which has not
of such person.
passed into the control of any court, grand jury, or agency through
(c) At any time during which any custodian is in custody or control
the introduction of such material into the record of such court, grand
of any documentary material, answers to interrogatories, or tran-
jury, or agency.
scripts of oral testimony, delivered by any person in compliance with
(f) In the event of the death, disability, or separation from service
any such demand, such person may file, in the district court of the
in the Department of Justice of the custodian of any documentary
United States for the judicial district within which the office of such
material, answers to interrogatories, or transcripts of oral testimony
custodian is situated, and serve upon such custodian a petition for an
produced under any demand issued pursuant to section 3 of this Act,
order of such court requiring the performance by such custodian of any
or the official relief of such custodian from responsibility for the cus-
duty imposed upon him by this Act.
tody and control of such material, answers, or transcripts, the As-
(d) Whenever any petition is filed in any district court of the
sistant Attorney General in charge of the Antitrust Division shall
United States under this section, such court shall have jurisdiction to
promptly (1) designate another antitrust investigator to serve as cus-
hear and determine the matter SO presented, and to enter such order or
todian of such material, answers, or testimony and (2) transmit in
orders as may be required to carry into effect the provisions of this
writing to the person who produced material, answers, or testimony
Act. Any final order SO entered shall be subject to appeal pursuant
pursuant to a demand under section 3 of this Act, notice as to the iden-
to section 1291 of title 28 of the United States Code. Any disobedi-
tity and address of the successor so designated. Any successor desig-
ence of any final order entered under this section by any court shall be
nated under this subsection shall have with regard to such material,
punished as a contempt thereof.
answers, or transcripts all duties and responsibilities imposed by this
(e) To the extent that such rules may have application and are not
Act upon his predecessor in office with regard thereto, except that he
inconsistent with the provisions of this Act, the Federal Rules of Civil
shall not be held responsible for any default or dereliction which oc-
Procedure shall apply to any petition under this Act.
curred before his designation.
(f) Any material provided pursuant to any demand issued under
this Act shall be exempt from disclosure under section 552 of title 5,
JUDICIAL PROCEEDINGS
United States Code.
SEC. 5. (a) Whenever any person fails to comply with any civil
investigative demand duly served upon him under section 3 or when-
ever satisfactory copying or reproduction of any such material cannot
be done and such person refuses to surrender such material, the Attor-
SECTION 1505 OF TITLE 18, UNITED STATES CODE
ney General, through such officers or attorneys as he may desig-
nate, may file, in the district court of the United States for any
§ 1505. Obstruction of proceedings before departments, agencies,
and committees
judicial district in which such person resides, is found, or transacts
business, and serve upon such person a petition for an order of such
Whoever corruptly, or by threats or force, or by any threatening
court for the enforcement of this Act, except that if such person
letter or communication, endeavors to influence, intimidate, or impede
transacts business in more than one such district such petition shall
any witness in any proceeding pending before any department or
be filed in the district in which such person maintains his principal
agency of the United States, or in connection with any inquiry or in-
place of business, or in such other district in which such person trans-
vestigation being had by either House, or any committee of either
acts business as may be agreed upon by the parties to such petition.
House, or any joint committee of the Congress; or
(b) Within twenty days after the service of any such demand upon
Whoever injures any party or witness in his person or property on
any person, or at any time before the [return] compliance date speci-
account of his attending or having attended such proceeding, inquiry,
fied in the demand, whichever period is shorter, or within such period
or investigation, or on account of his testifying or having testified to
exceeding twenty days after service or in excess of such compliance
any matter pending therein or
date as may be prescribed in writing, subsequent to service, by the
Whoever, with intent to avoid, evade, prevent, or obstruct compliance
antitrust investigator named in the demand, such person may file, in
in whole or in part with any civil investigative demand duly and prop-
the district court of the United States for the judicial district within
erly made under the Antitrust Civil Process Act or section 1968 of this
which such person resides, is found, or transacts business, and serve
title willfully removes from any place, conceals, destroys, mutilates,
upon such [custodian] antitrust investigator a petition for an order
alters, or by other means falsifies any oral testimony, written in forma-
of such court modifying or setting aside such demand. The time al-
tion, or documentary material which is the subject of such demand,
lowed for compliance with the demand in whole or in part as deemed
or attempts to or solicits another to do so; or
proper and ordered by the court shall not run during the pendency
Whoever corruptly, or by threats or force, or by any threatening
of such petition in the court. Such petition shall specify each ground
letter or communication influences, obstructs, or impedes or endeavors
52
53
to influence, obstruct, or impede the due and proper administration of
the law under which such proceeding is being had before such depart-
which are under investigation and the provision of law applicable
ment or agency of the United States, or the due and proper exercise of
thereto;
the power of inquiry under which such inquiry or investigation is being
(2) if it is a demand for production of documentary material,
had by either House, or any committee of either House or any joint
(A) describe the class or classes of documentary material
committee of the Congress-
to be produced thereunder with such definiteness and cer-
Shall be fined not more than $5,000 or imprisoned not more than five
tainty as to permit such material to be fairly identified; and
years, or both.
"(B) prescribe a return date or dates which will provide
APPENDIX I
a reasonable period of time within which the material so
demanded may be assembled and made available for inspec-
That this Act may be cited as the "Antitrust Civil Process Act
tion and copying or reproduction; and
Amendments of 1976".
"(C) identify the custodian to whom such material shall
DEFINITIONS
be made available; or
"(3) if it is a demand for answers to written interrogatories,
SEC. 2. Section 2 of the Antitrust Civil Process Act (15 U.S.C. 1311)
(A) propound with definiteness and certainty the written
is amended-
interrogatories to be answered and
(1) by amending subsection (c) to read as follows:
'(B) prescribe a date or dates at which time answers to
(c) The term 'antitrust investigation' means any inquiry con-
written interrogatories shall be made; and
ducted by any antitrust investigator for the purpose of ascertain-
"(C) identify the custodian to whom such answers shall
ing whether any person is or has been engaged in any antitrust
be made available or
violation or in any activities in preparation for a merger, acquisi-
"(4) if it is a demand for the giving of oral testimony,
tion, joint venture, or similar transaction, which, if completed, may
'(A) prescribe a date, time, and place at which oral testi-
violate the antitrust laws;".
mony shall be commenced; and
(2) by amending subsection (f) to read as follows:
"(B) identify the antitrust investigator or investigators
(f) The term 'person' means any natural person, partnership,
who shall conduct the oral examination and the custodian to
corporation, association, or other legal entity;"
whom the transcript of such examination shall be made avail-
(3) by amending subsection (h) to read as follows:
able.
(h) The term 'custodian' means the custodian or any deputy
"(c) No such demand shall require the production of any document,
custodian designated under section 4(a) of this Act.".
the submission of any information, or any oral testimony if such docu-
ment, information, or testimony would be protected from disclosure
CIVIL INVESTIGATIVE DEMANDS
under-
SEC. 3. Section 3 of such Act (15 U.S.C. 1312) is amended to read as
"(1) the standards applicable to subpenas or subpenas duces
follows:
tecum issued by a court of the United States in aid of a grand jury
"CIVIL INVESTIGATIVE DEMANDS
investigation, or
"(2) the standards applicable to discovery requests under the
"SEC. 3. (a) Whenever the Attorney General, or the Assistant At-
Federal Rules of Civil Procedure, to the extent that the applica-
torney General in charge of the Antitrust Division of the Department
tion of such standards to any such demand is appropriate and
of Justice, has reason to believe that any person may be in possession,
consistent with the provisions and purposes of this Act.
custody, or control of any documentary material, or may have any
'(d) (1) Any such demand may be served by any antitrust investi-
information, relevant to a civil antitrust investigation, he may, prior
gator, or by any United States marshal or deputy marshal, at any
to the institution of a civil or criminal proceeding thereon, issue in
place within the territorial jurisdiction of any court of the United
writing, and cause to be served upon such person, a civil investigative
States.
demand requiring such person to produce such documentary material
(2) Any such demand or any petition filed under section 5 of this
for inspection and copying or reproduction or to answer in writing
Act may be served upon any person who is not within the territorial
written interrogatories or to give oral testimony concerning documents
jurisdiction of any court of the United States, in such manner as the
or information or to furnish any combination of such documents,
Federal Rules of Civil Procedure prescribe for service in a foreign
written answers, or oral testimony.
country. To the extent that the courts of the United States can assert
(b) Each such demand shall-
jurisdiction over such person consistent with due process, the United
"(1) state in appropriate detail the nature of-
States District Court for the District of Columbia shall have the same
(A) the conduct constituting the alleged antitrust vio-
jurisdiction to take any action respecting compliance with this Act by
lation, or
such person that such court would have if such person were personally
"(B) the activities in preparation for a merger, acqui-
within the jurisdiction of such court.
sition, joint venture, or similar transaction, which, if com-
(e) (1) Service of any such demand or of any petition filed under
pleted, may violate the antitrust laws,
section 5 of this Act may be made upon a partnership, corporation,
association, or other legal entity by-
54
55
"(A) delivering a duly executed copy thereof to any partner,
taken shall promptly transmit the transcript of the testimony to the
executive officer, managing agent, or general agent thereof, or to
possession of the antitrust investigator conducting the examination.
any agent thereof authorized by appointment or by law to receive
(2) The antitrust investigator or investigators conducting the
service of process on behalf of such partnership, corporation, asso-
examination shall exclude from the place where the examination is
ciation, or entity;
held all other persons except the person being examined, his counsel,
(B) delivering a duly executed copy thereof to the principal
the officer before whom the testimony is to be taken, and any stenog-
office or place of business of the partnership, corporation, associa-
rapher taking such testimony. The provisions of the Act of March 3,
tion, or entity to be served; or
1913 (ch. 114, 37 Stat. 731; 15 U.S.C. 30), shall not apply to such
(C) depositing such copy in the United States mails, by regis-
examinations.
tered or certified mail, return receipt requested, duly addressed to
(3) The oral testimony of any person taken pursuant to a demand
such partnership, corporation, association, or entity at its prin-
served under this section shall be taken in the judicial district of the
cipal office or place of business.
United States within which such person resides, is found, or transacts
(2) Service of any such demand or of any petition filed under
business, or in such other place as may be agreed upon between the
section 5 of this Act may be made upon any natural person by-
antitrust investigator conducting the examination and such person.
(A) delivering a duly executed copy thereof to the person
"(4) When the testimony is fully transcribed, the transcript shall
to be served; or
be submitted to the witness for examination and shall be read to or
"(B) depositing such copy in the United States mails, by regis-
by him, unless such examination and reading are waived by the witness
tered or certified mail, return receipt requested, duly addressed
and by the parties. Any changes in form or substance which the wit-
to the person to be served at his residence or principal office or
ness desires to make shall be entered upon the transcript by the officer
place of business.
with a statement of the reasons given by the witness for making them.
(f) A verified return by the individual serving any such demand
The transcript shall then be signed by the witness, unless the parties
or petition setting forth the manner of such service shall be proof of
by stipulation waive the signing or the witness is ill or cannot be found
such service. In the case of service by registered or certified mail, such
or refuses to sign. If the transcript is not signed by the witness within
return shall be accompanied by the return post office receipt of deliv-
thirty days of its submission to him, the officer shall sign it and state
ery of such demand.
on the record the fact of the waiver or of the illness or absence of the
" (g) The production of documentary material in response to a
witness or the fact of the refusal to sign together with the reason, if
demand served pursuant to this section shall be made under a sworn
any, given therefor. The officer shall certify on the transcript that the
certificate by the person, if a natural person, to whom the demand
witness was duly sworn by him and that the transcript is a true record
is directed or, if not a natural person, by a person or persons having
of the testimony given by the witness and promptly send it by reg-
knowledge of the facts and circumstances relating to such production,
istered or certified mail to the investigator. Upon payment of reason-
to the effect that all of the documentary material described by the
able charges therefor, the investigator shall furnish a copy of the
demand which is in the possession, custody, or control of the person
transcript to the witness only, except that the Assistant Attorney Gen-
to whom the demand is directed has been produced and made avail-
eral in charge of the Antitrust Division may for good cause limit such
able to the custodian.
witness to inspection of the official transcript of his testimony.
(h) Each interrogatory in a demand served pursuant to this sec-
"(5) (A) Any person compelled to appear under a demand for oral
tion shall be answered separately and fully in writing under oath,
testimony pursuant to this section may be accompanied. represented,
unless it is objected to, in which event the reasons for objections shall
and advised by counsel. Counsel may advise such person, in confidence,
be stated in lieu of an answer, and it shall be submitted under a sworn
either upon the request of such person or upon counsel's own initiative,
certificate by the person, if a natural person, to whom the demand
with respect to any question asked of such person. Such person or
is directed or, if not a natural person, by a person or persons respon-
counsel may object on the record to any question, in whole or in part,
sible for answering each interrogatory, to the effect that all informa-
and shall state for the record the reason for the objection. An objection
tion required by the demand which is in the possession, custody, or
may properly be made, received, and entered upon the record when it
control of the person to whom the demand is directed has been
is claimed that such person is entitled to refuse to answer the question
furnished.
on grounds of any constitutional or other legal right or privilege, in-
'(i) (1) The examination of any person pursuant to a demand for
cluding the privilege against self-incriminaton. If such person refuses
oral testimony served under this section shall be taken before an
to answer any question, the antitrust investigator conducting the
officer authorized to administer oaths and affirmations by the laws of
examination may petition the district court of the United States pursu-
the United States or of the place where the examination is held. The
ant to section 5 of this Act for an order compelling such person to
officer before whom the testimonv is to be taken shall put the witness
answer such question. Such person shall not otherwise object to or
on oath or affirmation and shall personally, or by someone acting
refuse to answer any question, and shall not by himself or through
under his direction and in his presence, record the testimony of the
counsel otherwise interrupt the oral examination.
witness. The testimony shall be taken stenographically and tran-
(B) If such person refuses to answer any question on grounds of
scribed. Upon certification the officer before whom the testimony is
the privilege against self-incrimination, the testimony of such person
56
57
may be compelled in accordance with the provisions of part V of title
(D) with respect to transcripts of oral testimony, to any other
18, United States Code.
person, with the consent of the person who produced such tran-
" (6) Any person appearing for oral examination pursuant to a de-
scripts, unless the person who produced such transcripts is limited
mand served under this section shall be paid the same fees and mileage
to inspection of the official transcript of his oral testimony pursu-
which are paid to witnesses in the district courts of the United States.'
ant to section 3(i) (4) of this Act.
"(d) (1) Whenever any attorney of the Department of Justice has
CUSTODIAN OF DOCUMENTS, ANSWERS, AND TRANSCRIPTS
been designated to appear (A) before any court or grand jury in any
case or proceeding involving any alleged antitrust violation, or (B)
SEC. 4. Section 4 of such Act is amended to read as follows:
before any Federal administrative or regulatory agency in any pro-
ceeding, the custodian of any documentary material, answers to inter-
"CUSTODIAN OF DOCUMENTS, ANSWERS, AND TRANSCRIPTS
rogatories, or transcripts of oral testimony may deliver to such at-
torney such documentary material, answers to interrogatories, or tran-
"SEC. 4. (a) The Assistant Attorney General in charge of the Anti-
scripts of oral testimony for official use in connection with any such
trust Division of the Department of Justice shall designate an anti-
case or any such proceeding as such attorney determines to be re-
trust investigator to serve as custodian of documentary material, an-
quired. Upon the completion of any such case or any such proceeding,
swers to interrogatories, and transcripts of oral testimony made avail-
such attorney shall return to the custodian any such materials, answers,
able to him under section 3 of this Act, and such additional antitrust
or transcripts SO delivered which have not passed into the control of
investigators as he shall determine from time to time to be necessary to
such court, grand jury, or Federal administrative or regulatory agency
serve as deputies to such officer.
through the introduction thereof into the record of such case or such
"(b) Any person, upon whom any demand under section 3 of this
proceeding.
Act for the production of documentary material has been duly served,
(2) The custodian of any documentary material, answers to inter-
shall make such material available for inspection and copying or re-
rogatories, or transcripts of oral testimony may deliver to the Federal
production to the custodian designated therein at the principal place
Trade Commission, in response to a written request, copies of such
of business of such person (or at such other place as such custodian
documentary material, answers to interrogatories, or transcripts of
and such person thereafter may agree and prescribe in writing or as
oral testimony for use in connection with an investigation or proceed-
the court may direct, pursuant to section 5 (d) of this Act) on the re-
ing under the Commission's jurisdiction. Such material, answers, or
turn date specified in such demand (or on such later date as such cus-
transcripts may only be used by the Commission in such manner and
todian may prescribe in writing). Such person may upon written
subject to such conditions as apply to the Department of Justice under
agreement between such person and the custodian substitute copies for
this Act.
originals of all or any part of such documentary material.
(e) If any documentary material (other than copies thereof) has
(c) (1) The custodian to whom any documentary material, answers
been produced in the course of any antitrust investigation by any
to interrogatories, or transcripts of oral testimony are delivered shall
person pursuant to a demand under section 3 of this Act and-
take physical possession thereof, and shall be responsible for the use
((1) any case or proceeding before any court or grand jury
made thereof and for the return of documentary material, pursuant to
arising out of such investigation, or any proceeding before any
this Act.
Federal administrative or regulatory agency involving such ma-
(2) The custodian may cause the preparation of such copies of such
terial, has been completed, or
documentary material, answers to interrogatories, or transcripts of
"(2) no case or proceeding, in which such material may be
oral testimony as may be required for official use by any duly author-
used, has been commenced within a reasonable time after comple-
ized official or employee of the Department of Justice under regula-
tion of the examination and analysis of all documentary ma-
tions which shall be promulgated by the Attorney General. Such mate-
terial and other information assembled in the course of such
rial, answers, and transcripts may be used by any such officer or em-
investigation,
ployee in connection with the taking of oral testimony pursuant to this
the custodian shall, upon written request of the person who produced
Act.
such material, return to such person any such material which has not
"(3) The custodian shall not make available for examination any
passed into the control of any court, grand jury, or agency through
documentary material, answers to interrogatories, or transcripts of
the introduction of such material into the record of such court, grand
oral testimony, or copies thereof, except-
jury, or agency.
(A) as permitted under paragraph (2) of this subsection:
(f) In the event of the death, disability, or separation from service
(B) as permitted under such reasonable terms and conditions
in the Department of Justice of the custodian of any documentary ma-
as shall be promulgated by the Attorney General, to the person
terial, answers to interrogatories, or transcripts of oral testimony
who produced such material, answers, or oral testimony, or his
produced under any demand issued pursuant to section 3 of this Act,
duly authorized representative, upon the request of such person;
or the official relief of such custodian from responsibility for the
(C) with respect to such materials and answers, to any other
custody and control of such material, answers, or transcripts, the As-
person, with the consent of the person who produced such material
sistant Attorney General in charge of the Antitrust Division shall
or answers; or
promptly (1) designate another antitrust investigator to serve as
58
custodian of such material, answers, or testimony and (2) transmit
in writing to the person who produced material, answers, or testimony
pursuant to a demand under section 3 of this Act, notice as to the
identity and address of the successor SO designated. Any successor
designated under this subsection shall have with regard to such ma-
terial, answers, or transcripts all duties and responsibilities imposed
ADDITIONAL VIEWS OF MESSRS. McCLORY, WIGGINS,
by this Act upon his predecessor in office with regard thereto, except
HUTCHINSON, FISH, COHEN, MOORHEAD, ASHBROOK,
that he shall not be held responsible for any default or dereliction
HYDE, AND KINDNESS
which occurred before his designation.".
We object to those provisions in the bill that would permit the De-
JUDICIAL PROCEEDINGS
partment of Justice to compile dossiers on individuals in their business
SEC. 5. (a) The first sentence of subsection (b) of section 5 is amend-
affairs as well as on corporations themselves. We do not object to the
authority granted by the bill to the Department to obtain informa-
ed to read as follows:
"Within twenty days after the service of any such demand upon
tion relevant to an antitrust investigation. But once the Department's
any person, or at any time before the compliance date specified in the
purpose in originally securing the information has ceased, when litiga-
demand, whichever period is shorter, or within such period exceed-
tion is at an end or the investigation has been dropped, we believe that
ing twenty days after service or in excess of such compliance date as
the Department should no longer retain the information merely to
may be prescribed in writing, subsequent to service, by the antitrust
monitor the business affairs of individuals and corporations alike.
investigator named in the demand, such person may file, in the district
The Committee rejected an amendment offered by Mr. McClory in
court of the United States for the judicial district within which such
Subcommittee and re-offered by Mr. Wiggins on his behalf in full
person resides, is found, or transacts business, and serve upon such
Committee which would have required the Department to return all
antitrust investigator a petition for an order of such court modifying
information it held when such information became no longer neces-
sary for current law enforcement purposes. The Committee took this
or setting aside such demand.".
(b) Subsection (c) of section 5 is amended by inserting ", answers
action by a 17-11 roll call vote on the basis of three arguments: (1)
to interrogatories, or transcripts of oral testimony," after "material".
that retention of the information was useful for the Department in
(c) Section 5 is further amended by adding at the end thereof the
monitoring antitrust activities, (2) that there had been no history of
complaints or abuse, and (3) that the subject matter of the information
following: '(f) Any material provided pursuant to any demand issued under
was not likely to be "personal."
this Act shall be exempt from disclosure under section 552 of title 5,
The first point needs little comment. Dossiers always facilitate
law enforcement, and antitrust law enforcement is no exception. A
United States Code.".
library of dossiers would obviate the need to demonstrate anew that
CRIMINAL PENALTY
the information is relevant to any subsequent investigations. We
SEC. 6. The third paragraph of section 1505 of title 18, United
do not consider this a matter of administrative economy but a circum-
States Code, is amended-
vention of the very safeguards the bill carefully provides. What the
(1) by inserting "oral testimony, written information, or" before
majority has said by its action is that once an item of information is
"documentary material"; and
furnished in an antitrust investigation, a right to retain copies of that
(2) by inserting ", or attempts to or solicits another to do so" after
information vests in the Department in perpetuity. We find that result
"subject of such demand".
both unnecessary and undesirable.
EFFECTIVE DATE
It should be noted that this right in perpetuity vests whether or not
the information ultimately turns out to be, in fact, relevant. Thus
SEC. 7. The amendments to the Antitrust Civil Process Act made by
information which was never relevant to the case ultimately fashioned
this Act shall take effect on the date of enactment of this Act. Any
by the Department may be retained indefinitely. This right devolves
such amendment which provides for the production of documentary
upon the Department even though it was originally mistaken in its
material, answers to interrogatories, or oral testimony shall be effective
belief that the information was relevant; ironically, such a right would
with respect to any act or practice without regard to the date on
not obtain where the Department knew the truth all along, that the
which it occurred.
information was irrelevant.
Second, the majority contended that there was no history of com-
plaints or abuse under current practice. This argument likewise does
not withstand scrutiny. Current practice is dictated by the Anti-
trust Civil Practice Act of 1962, which limits CID's exclusively to
corporations under investigation. The bill would expand CID au-
thority to include human beings who are not under investigation but
who may possess relevant information.
(59)
60
The short answer to the majority's argument is that it is the change
in the current practice proposed by the bill that makes the McClory
amendment more necessary than ever. Under current practice it is
not possible to abuse individuals' rights of privacy, SO limiting is the
law. The safeguard of the McClory amendment finds its compulsion
in the possibilities for abuse created by the bill.
Moreover, under current practice, corporations under investigation
have had no basis to complain to the Department because retention of
the information is blessed with express statutory authorization. In
1962, when Congress granted this authorization, it was thought that
Fourth Amendment values were confined to a criminal law context.
It was not until 1967 that the Supreme Court held that a search war-
rant might be necessary in an administrative context, declaring: "It
is surely anomalous to say that the individual and his private property
are fully protected by the Fourth Amendment only when the individ-
ual is suspected of criminal behavior." Camara V. Municipal Court,
387, U.S. 523, 530 (1967). Since the 1962 Act did not appreciate this
anomaly, complaints to the Department would have been fruitless.
The forum for such complaints is the Congress, and the time to con-
sider making a change in the law is now.
The third argument of the majority was that the information in-
definitely retained was not likely to be "personal". We believe that the
argument is incorrect and, if correct, irrelevant. It appears to us that
the argument is a disguised statement of the "anomalous" position
questioned by the Supreme Court. It suggests that the law should not
be so much concerned with protecting privacy as with preventing em-
barrassment. But individuals who have nothing to hide have an equal
claim to the law's protection. We do not find it a relevant distinction
that the information retained be either personal or not personal. Nor
can we. understand why an individual's business affairs are less personal
than his illegal affairs.
Moreover, it should not be forgotten that Sherman Act violations
may justify criminal penalties. The information demanded by a CID
may be incriminating. Certainly, such information is "personal". Yet
under the Committee bill the Department may retain it forever.
We believe that individuals in all their affairs, including business
affairs, have the right to be left alone with the exception that govern-
ment for good reason may make a minimal, necessary intrusion for
the purpose of executing its assigned functions. We believe that once
the reason for the intrusion has ceased, the intrusion itself must like-
wise cease.
Therefore, once the Department no longer needs the information
for current investigation or litigation, its reason for obtaining the
information has run its course and the information-either originals
or copies-should be returned.
ROBERT McCLORY.
CHARLES E. WIGGINS.
EDWARD HUTCHINSON.
HAMILTON FISH, Jr.
WILLIAM S. COHEN.
CARLOS J. MOORHEAD.
JOHN M. ASHBROOK.
HENRY J. HYDE.
THOMAS N. KINDNESS.
H.R.8532
Minety-fourth Congress of the United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Monday, the nineteenth day of January,
one thousand nine hundred and seventy-six
An Act
To improve and facilitate the expeditious and effective enforcement of the
antitrust laws, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That this Act may
be cited as the "Hart-Scott-Rodino Antitrust Improvements Act of
1976".
TABLE OF CONTENTS
TITLE I-ANTITRUST CIVIL PROCESS ACT AMENDMENTS
Sec. 101. Definitions.
Sec. 102. Civil investigative demands.
Sec. 103. Custodian of documents, answers, and transcripts.
Sec. 104. Judicial proceedings.
Sec. 105. Criminal penalty.
Sec. 106. Effective date.
TITLE II-PREMERGER NOTIFICATION
Sec. 201. Notification and waiting period.
Sec. 202. Effective dates.
TITLE III-PARENS PATRIAE
Sec. 301. Parens patriae actions by State attorneys general.
Sec. 302. Conforming amendments.
Sec. 303. Consolidation.
Sec. 304. Effective date.
Sec. 305. Short title to certain antitrust laws.
TITLE I-ANTITRUST CIVIL PROCESS ACT
AMENDMENTS
DEFINITIONS
SEC. 101. Section 2 of the Antitrust Civil Process Act (15 U.S.C.
1311) is amended—
(1) in subsection (a)-
(A) by inserting "and" after the semicolon at the end of
paragraph (1);
(B) by striking out paragraph (2) and redesignating
paragraph (3) as paragraph (2) ; and
(C) by striking out " (A)' and ", or (B) any unfair trade
practice in or affecting such commerce" in paragraph (2) (as
redesignated by subparagraph (B)).
(2) by amending subsection (c) to read as follows:
(c) The term 'antitrust investigation' means any inquiry con-
ducted by any antitrust investigator for the purpose of ascertain-
ing whether any person is or has been engaged in any antitrust
violation or in any activities in preparation for a merger, acquisi-
tion, joint venture, or similar transaction, which, if consummated,
may result in an antitrust violation;".
(3) by amending subsection (f) to read as follows:
(f) The term 'person' means any natural person, partnership,
corporation, association, or other legal entity, including any per-
son acting under color or authority of State law;".
(4) by amending subsection (h) to read as follows:
(h) The term 'custodian' means the custodian or any deputy
custodian designated under section 4(a) of this Act.".
H. R. 8532-2
CIVIL INVESTIGATIVE DEMANDS
SEC. 102. Section 3 of the Antitrust Civil Process Act (15 U.S.C.
1312) is amended to read as follows:
"CIVIL INVESTIGATIVE DEMANDS
"SEC. 3. (a) Whenever the Attorney General, or the Assistant
Attorney General in charge of the Antitrust Division of the Depart-
ment of Justice, has reason to believe that any person may be in pos-
session, custody, or control of any documentary material, or may have
any information, relevant to a civil antitrust investigation, he may,
prior to the institution of a civil or criminal proceeding thereon, issue
in writing, and cause to be served upon such person, a civil investigative
demand requiring such person to produce such documentary material
for inspection and copying or reproduction, to answer in writing
written interrogatories, to give oral testimony concerning documen-
tary material or information, or to furnish any combination of such
material, answers, or testimony.
(b) Each such demand shall-
"(1) state the nature of-
'(A) the conduct constituting the alleged antitrust viola-
tion, or
" (B) the activities in preparation for a merger, acquisition,
joint venture, or similar transaction, which, if consummated,
may result in an antitrust violation,
which are under investigation and the provision of law applicable
thereto;
" (2) if it is a demand for production of documentary material-
'(A) describe the class or classes of documentary material
to be produced thereunder with such definiteness and certainty
as to permit such material to be fairly identified;
'(B) prescribe a return date or dates which will provide a
reasonable period of time within which the material SO
demanded may be assembled and made available for inspec-
tion and copying or reproduction; and
"(C) identify the custodian to whom such material shall
be made available; or
(3) if it is a demand for answers to written interrogatories—
'(A) propound with definiteness and certainty the written
interrogatories to be answered;
'(B) prescribe a date or dates at which time answers to
written interrogatories shall be submitted and
'(C) identify the custodian to whom such answers shall be
submitted; or
" (4) if it is a demand for the giving of oral testimony-
(A) prescribe a date, time, and place at which oral
testimony shall be commenced and
(B) identify an antitrust investigator who shall conduct
the examination and the custodian to whom the transcript of
such examination shall be submitted.
(c) No such demand shall require the production of any documen-
tary material, the submission of any answers to written interrogatories,
or the giving of any oral testimony, if such material, answers, or testi-
mony would be protected from disclosure under-
"(1) the standards applicable to subpenas or subpenas duces
tecum issued by a court of the United States in aid of a grand
jury investigation, or
H. R. 8532-3
(2) the standards applicable to discovery requests under the
Federal Rules of Civil Procedure, to the extent that the applica-
tion of such standards to any such demand is appropriate and con-
sistent with the provisions and purposes of this Act.
(d) (1) Any such demand may be served by any antitrust investi-
gator, or by any United States marshal or deputy marshal, at any place
within the territorial jurisdiction of any court of the United States.
" (2) any such demand or any petition filed under section 5 of this
Act may be served upon any person who is not to be found within the
territorial jurisdiction of any court of the United States, in such man-
ner as the Federal Rules of Civil Procedure prescribe for service in a
foreign country. To the extent that the courts of the United States
can assert jurisdiction over such person consistent with due process, the
United States District Court for the District of Columbia shall have
the same jurisdiction to take any action respecting compliance with
this Act by such person that such court would have if such person
were personally within the jurisdiction of such court.
(e) (1) Service of any such demand or of any petition filed under
section 5 of this Act may be made upon a partnership, corporation,
association, or other legal entity by-
(A) delivering a duly executed copy thereof to any partner,
executive officer, managing agent, or general agent thereof, or to
any agent thereof authorized by appointment or by law to receive
service of process on behalf of such partnership, corporation, asso-
ciation, or entity;
" (B) delivering a duly executed copy thereof to the principal
office or place of business of the partnership, corporation, associa-
tion, or entity to be served; or
" (C) depositing such copy in the United States mails, by regis-
tered or certified mail, return receipt requested, duly addressed to
such partnership, corporation, association, or entity at its prin-
cipal office or place of business.
(2) Service of any such demand or of any petition filed under sec-
tion 5 of this Act may be made upon any natural person by-
(A) delivering a duly executed copy thereof to the person to
be served or
((B) depositing such copy in the United States mails. by regis-
tered or certified mail, return receipt requested, duly addressed to
such person at his residence or principal office or place of business.
(f) A verified return by the individual serving any such demand or
petition setting forth the manner of such service shall be proof of such
service. In the case of service by registered or certified mail, such
return shall be accompanied by the return post office receipt of deliv-
ery of such demand.
" (g) The production of documentary material in response to a
demand served pursuant to this section shall be made under a sworn
certificate, in such form as the demand designates, by the person, if
a natural person, to whom the demand is directed or, if not a natural
person, by a person or persons having knowledge of the facts and
circumstances relating to such production, to the effect that all of the
documentary material required by the demand and in the possession,
custody, or control of the person to whom the demand is directed has
been produced and made available to the custodian.
'(h) Each interrogatory in a demand served pursuant to this
section shall be answered separately and fully in writing under oath,
unless it is objected to, in which event the reasons for the objection
shall be stated in lieu of an answer, and it shall be submitted under
H.R. 8532-4
a sworn certificate, in such form as the demand designates, by the
person, if a natural person, to whom the demand is directed or, if not
a natural person, by a person or persons responsible for answering
each interrogatory, to the effect that all information required by the
demand and in the possession, custody, control, or knowledge of the
person to whom the demand is directed has been submitted.
"(i) (1) The examination of any person pursuant to a demand for
oral testimony served under this section shall be taken before an
officer authorized to administer oaths and affirmations by the laws of
the United States or of the place where the examination is held. The
officer before whom the testimony is to be taken shall put the witness
on oath or affirmation and shall personally, or by someone acting
under his direction and in his presence, record the testimony of the
witness. The testimony shall be taken stenographically and transcribed.
When the testimony is fully transcribed, the officer before whom the
testimony is taken shall promptly transmit a copy of the transcript
of the testimony to the custodian.
"(2) The antitrust investigator or investigators conducting the
examination shall exclude from the place where the examination is
held all other persons except the person being examined, his counsel,
the officer before whom the testimony is to be taken, and any stenog-
rapher taking such testimony. The provisions of the Act of March 3,
1913 (Ch. 114, 37 Stat. 731; 15 U.S.C. 30), shall not apply to such
examinations.
(3) The oral testimony of any person taken pursuant to a demand
served under this section shall be taken in the judicial district of the
United States within which such person resides, is found, or transacts
business, or in such other place as may be agreed upon by the antitrust
investigator conducting the examination and such person.
"(4) When the testimony is fully transcribed, the antitrust investi-
gator or the officer shall afford the witness (who may be accompanied
by counsel) a reasonable opportunity to examine the transcript; and
the transcript shall be read to or by the witness, unless such examina-
tion and reading are waived by the witness. Any changes in form or
substance which the witness desires to make shall be entered and
identified upon the transcript by the officer or the antitrust investiga-
tor with a statement of the reasons given by the witness for making
such changes. The transcript shall then be signed by the witness, unless
the witness in writing waives the signing, is ill, cannot be found, or
refuses to sign. If the transcript is not signed by the witness within
thirty days of his being afforded a reasonable opportunity to examine
it, the officer or the antitrust investigator shall sign it and state on the
record the fact of the waiver, illness, absence of the witness, or the
refusal to sign, together with the reason, if any, given therefor.
(5) The officer shall certify on the transcript that the witness was
duly sworn by him and that the transcript is a true record of the
testimony given by the witness, and the officer or antitrust investigator
shall promptly deliver it or send it by registered or certified mail to
the custodian.
(6) Upon payment of reasonable charges therefor, the antitrust
investigator shall furnish a copy of the transcript to the witness only,
except that the Assistant Attorney General in charge of the Antitrust
Division may for good cause limit such witness to inspection of the
official transcript of his testimony.
"(7) (A) Any person compelled to appear under a demand for oral
testimony pursuant to this section may be accompanied, represented,
and advised by counsel. Counsel may advise such person, in confidence,
H. R. 8532-5
either upon the request of such person or upon counsel's own initiative,
with respect to any question asked of such person. Such person or
counsel may object on the record to any question, in whole or in part,
and shall briefly state for the record the reason for the objection. An
objection may properly be made, received, and entered upon the record
when it is claimed that such person is entitled to refuse to answer the
question on grounds of any constitutional or other legal right or privi-
lege, including the privilege against self-incrimination. Such person
shall not otherwise object to or refuse to answer any question, and
shall not by himself or through counsel otherwise interrupt the oral
examination. If such person refuses to answer any question, the anti-
trust investigator conducting the examination may petition the dis-
trict court of the United States pursuant to section 5 of this Act for
an order compelling such person to answer such question.
"(B) If such person refuses to answer any question on grounds of
the privilege against self-incrimination, the testimony of such person
may be compelled in accordance with the provisions of part V of title
18, United States Code.
"(8) Any person appearing for oral examination pursuant to a
demand served under this section shall be entitled to the same fees and
mileage which are paid to witnesses in the district courts of the United
States.".
CUSTODIAN OF DOCUMENTS, ANSWERS, AND TRANSCRIPTS
SEC. 103. Section 4 of such Act is amended to read as follows:
"CUSTODIAN OF DOCUMENTS, ANSWERS, AND TRANSCRIPTS
"SEC. 4. (a) The Assistant Attorney General in charge of the Anti-
trust Division of the Department of Justice shall designate an anti-
trust investigator to serve as custodian of documentary material,
answers to interrogatories, and transcripts of oral testimony received
under this Act, and such additional antitrust investigators as he shall
determine from time to time to be necessary to serve as deputies to
such officer.
"(b) Any person, upon whom any demand under section 3 of this
Act for the production of documentary material has been duly served,
shall make such material available for inspection and copying or repro-
duction to the custodian designated therein at the principal place of
business of such person (or at such other place as such custodian and
such person thereafter may agree and prescribe in writing or as the
court may direct, pursuant to section 5 (d) of this Act) on the return
date specified in such demand (or on such later date as such custodian
may prescribe in writing). Such person may upon written agreement
between such person and the custodian substitute copies for originals
of all or any part of such material.
'(c) (1) The custodian to whom any documentary material, answers
to interrogatories, or transcripts of oral testimony are delivered shall
take physical possession thereof, and shall be responsible for the use
made thereof and for the return of documentary material, pursuant to
this Act.
(2) The custodian may cause the preparation of such copies of such
documentary material, answers to interrogatories, or transcripts of
oral testimony as may be required for official use by any duly author-
ized official or employee of the Department of Justice under regula-
tions which shall be promulgated by the Attorney General. Notwith-
H. R. 8532-6
standing paragraph (3) of this subsection, such material, answers, and
transcripts may be used by any such official or employee in connection
with the taking of oral testimony pursuant to this Act.
'(3) Except as otherwise provided in this section, while in the pos-
session of the custodian, no documentary material, answers to interrog-
atories, or transcripts of oral testimony, or copies thereof, so produced
shall be available for examination, without the consent of the person
who produced such material, answers, or transcripts, by any individ-
ual other than a duly authorized official or employee of the Department
of Justice. Nothing in this section is intended to prevent disclosure to
either body of the Congress or to any authorized committee or sub-
committee thereof.
"(4) While in the possession of the custodian and under such reason-
able terms and conditions as the Attorney General shall prescribe, (A)
documentary material and answers to interrogatories shall be avail-
able for examination by the person who produced such material or
answers, or by any duly authorized representative of such person, and
(B) transcripts of oral testimony shall be available for examination by
the person who produced such testimony, or his counsel.
(d) (1) Whenever any attorney of the Department of Justice has
been designated to appear before any court, grand jury, or Federal
administrative or regulatory agency in any case or proceeding, the cus-
todian of any documentary material, answers to interrogatories, or
transcripts of oral testimony may deliver to such attorney such
material, answers. or transcripts for official use in connection with any
such case, grand jury, or proceeding as such attorney determines to be
required. Upon the completion of any such case, grand jury, or pro-
ceeding, such attorney shall return to the custodian any such material,
answers, or transcripts SO delivered which have not passed into the
control of such court, grand jury, or agency through the introduction
thereof into the record of such case or proceeding.
(2) The custodian of any documentary material, answers to inter-
rogatories, or transcripts of oral testimony may deliver to the Federal
Trade Commission, in response to a written request, copies of such
material, answers, or transcripts for use in connection with an investi-
gation or proceeding under the Commission's jurisdiction. Such mate-
rial, answers, or transcripts may only be used by the Commission in
such manner and subject to such conditions as apply to the Department
of Justice under this Act.
'(e) If any documentary material has been produced in the course
of any antitrust investigation by any person pursuant to a demand
under this Act and-
'(1) any case or proceeding before any court or grand jury aris-
ing out of such investigation, or any proceeding before any
Federal administrative or regulatory agency involving such
material, has been completed, or
'(2) no case or proceeding, in which such material may be used,
has been commenced within a reasonable time after completion
of the examination and analysis of all documentary material and
other information assembled in the course of such investigation,
the custodian shall, upon written request of the person who produced
such material, return to such person any such material (other than
copies thereof furnished to the custodian pursuant to subsection (b)
of this section or made by the Department of Justice pursuant to sub-
section (c) of this section) which has not passed into the control of
any court, grand jury, or agency through the introduction thereof
into the record of such case or proceeding.
H. R. 8532-7
"(f) In the event of the death. disability, or separation from service
in the Department of Justice of the custodian of any documentary
material, answers to interrogatories, or transcripts of oral testimony
produced under any demand issued pursuant to this Act, or the official
relief of such custodian from responsibility for the custody and con-
trol of such material, answers, or transcripts, the Assistant Attorney
General in charge of the Antitrust Division shall promptly (1) desig-
nate another antitrust investigator to serve as custodian of such
material, answers, or transcripts, and (2) transmit in writing to the
person who produced such material, answers, or testimony notice as to
the identity and address of the successor SO designated. Any successor
designated under this subsection shall have with regard to such mate-
rial, answers, or transcripts all duties and responsibilities imposed by
this Act upon his predecessor in office with regard thereto, except that
he shall not be held responsible for any default or dereliction which
occurred prior to his designation.".
JUDICIAL PROCEEDINGS
SEC. 104. (a) Section 5 (a) of such Act is amended by striking out
", except that if" and all that follows down through the end of the
sentence and inserting in lieu thereof a period.
(b) The first sentence of subsection (b) of section 5 of such Act is
amended to read as follows: "Within twenty days after the service of
any such demand upon any person, or at any time before the return
date specified in the demand, whichever period is shorter, or within
such period exceeding twenty days after service or in excess of such
return date as may be prescribed in writing, subsequent to service, by
any antitrust investigator named in the demand, such person may file,
in the district court of the United States for the judicial district within
which such person resides, is found, or transacts business, and serve
upon such antitrust investigator a petition for an order of such court
modifying or setting aside such demand."
(c) The second sentence of subsection (b) of section 5 is amended by
striking out the period at the end thereof and by inserting in lieu
thereof: " except that such person shall comply with any portions
of the demand not sought to be modified or set aside.".
(d) Subsection (c) of section 5 is amended by striking out "deliv-
ered" and inserting in lieu thereof "or answers to interrogatories deliv-
ered, or transcripts of oral testimony given".
(e) Section 5 is further amended by adding at the end thereof the
following:
"(f) Any documentary material, answers to written interrogatories,
or transcripts of oral testimony provided pursuant to any demand
issued under this Act shall be exempt from disclosure under section
552 of title 5, United States Code.".
CRIMINAL PENALTY
SEC. 105. The third paragraph of section 1505 of title 18, United
States Code, is amended to read as follows:
"Whoever, with intent to avoid, evade, prevent, or obstruct com-
pliance, in whole or in part, with any civil investigative demand duly
and properly made under the Antitrust Civil Process Act, willfully
withholds, misrepresents, removes from any place, conceals, covers up,
destroys, mutilates, alters, or by other means falsifies any documentary
material, answers to written interrogatories, or oral testimony, which
is the subject of such demand; or attempts to do SO or solicits another
to do so; or".
H. R. 8532-8
EFFECTIVE DATE
SEC. 106. The amendments to the Antitrust Civil Process Act and
to section 1505 of title 18, United States Code, made by this title shall
take effect on the date of enactment of this Act, except section 3(i) (8)
of the Antitrust Civil Process Act (as amended by this Act) shall take
effect on the later of (1) the date of enactment of this Act, or (2)
October 1, 1976. Any such amendment which provides for the produc-
tion of documentary material, answers to interrogatories, or oral testi-
mony shall apply to any act or practice without regard to the date
on which it occurred.
TITLE II-PREMERGER NOTIFICATION
NOTIFICATION AND WAITING PERIOD
SEC. 201. The Clayton Act (15 U.S.C. 12 et seq.) is amended by
inserting immediately after section 7 of such Act the following new
section:
"SEC. 7A. (a) Except as exempted pursuant to subsection (c), no
person shall acquire, directly or indirectly, any voting securities or
assets of any other person, unless both persons (or in the case of a
tender offer, the acquiring person) file notification pursuant to rules
under subsection (d) (1) and the waiting period described in subsec-
tion (b) (1) has expired, if-
(1) the acquiring person, or the person whose voting securities
or assets are being acquired, is engaged in commerce or in any
activity affecting commerce;
(2) (A) any voting securities or assets of a person engaged in
manufacturing which has annual net sales or total assets of
$10,000,000 or more are being acquired by any person which has
total assets or annual net sales of $100,000,000 or more;
'(B) any voting securities or assets of a person not engaged in
manufacturing which has total assets of $10,000,000 or more are
being acquired by any person which has total assets or annual net
sales of $100,000,000 or more; or
"(C) any voting securities or assets of a person with annual
net sales or total assets of $100,000,000 or more are being acquired
by any person with total assets or annual net sales of $10,000,000
or more; and
(3) as a result of such acquisition, the acquiring person would
hold-
"(A) 15 per centum or more of the voting securities or
assets of the acquired person, or
"(B) an aggregate total amount of the voting securities
and assets of the acquired person in excess of $15,000,000.
In the case of a tender offer, the person whose voting securities are
sought to be acquired by a person required to file notification under
this subsection shall file notification pursuant to rules under subsec-
tion (d).
"(b) (1) The waiting period required under subsection (a) shall-
"(A) begin on the date of the receipt by the Federal Trade
Commission and the Assistant Attorney General in charge of the
Antitrust Division of the Department of Justice (hereinafter re-
ferred to in this section as the 'Assistant Attorney General') of-
"(i) the completed notification required under subsection
(a), or
H. R. 8532-9
" (ii) if such notification is not completed, the notification
to the extent completed and a statement of the reasons for
such noncompliance,
from both persons, or, in the case of a tender offer, the acquiring
person; and
((B) end on the thirtieth day after the date of such receipt (or
in the case of a cash tender offer, the fifteenth day), or on such
later date as may be set under subsection (e) (2) or (g) (2).
" (2) The Federal Trade Commission and the Assistant Attorney
General may, in individual cases, terminate the waiting period speci-
fied in paragraph (1) and allow any person to proceed with any
acquisition subject to this section, and promptly shall cause to be pub-
lished in the Federal Register a notice that neither intends to take
any action within such period with respect to such acquisition.
" (3) As used in this section-
(A) The term 'voting securities' means any securities which at
present or upon conversion entitle the owner or holder thereof
to vote for the election of directors of the issuer or, with respect
to unincorporated issuers, persons exercising similar functions.
(B) The amount or percentage of voting securities or assets
of a person which are acquired or held by another person shall be
determined by aggregating the amount or percentage of such
voting securities or assets held or acquired by such other person
and each affiliate thereof.
(c) The following classes of transactions are exempt from the
requirements of this section-
'(1) acquisitions of goods or realty transferred in the ordinary
course of business;
" (2) acquisitions of bonds. mortgages, deeds of trust, or other
obligations which are not voting securities;
" (3) acquisitions of voting securities of an issuer at least 50 per
centum of the voting securities of which are owned by the acquir-
ing " person prior to such acquisition;
(4) transfers to or from a Federal agency or a State or politi-
cal subdivision thereof;
"(5) transactions specifically exempted from the antitrust laws
by Federal statute;
(6) transactions specifically exempted from the antitrust laws
by Federal statute if approved by a Federal agency, if copies of
all information and documentary material filed with such agency
are contemporaneously filed with the Federal Trade Commission
and the Assistant Attorney General;
"(7) transactions which require agency approval under section
18 (c) of the Federal Deposit Insurance Act (12 U.S.C. 1828 (c)
or section 3 of the Bank Holding Company Act of 1956 (12 U.S.C.
1842) ;
(8) transactions which require agency approval under sec-
tion 4 of the Bank Holding Company Act of 1956 (12 U.S.C.
1843), section 403 or 408(e) of the National Housing Act (12
U.S.C. 1726 and 1730a), or section 5 of the Home Owners' Loan
Act of 1933 (12 U.S.C. 1464), if copies of all information and
documentary material filed with any such agency are contem-
poraneously filed with the Federal Trade Commission and the
Assistant Attorney General at least 30 days prior to consummation
of the proposed transaction;
"(9) acquisitions, solely for the purpose of investment, of
voting securities, if, as a result of such acquisition, the securities
H. R. 8532-10
acquired or held do not exceed 10 per centum of the outstanding
voting securities of the issuer;
"(10) acquisitions of voting securities, if, as a result of such
acquisition, the voting securities acquired do not increase, directly
or indirectly, the acquiring person's per centum share of outstand-
ing voting securities of the issuer;
166 (11) acquisitions, solely for the purpose of investment, by any
bank, banking association, trust company, investment company,
or insurance company, of (A) voting securities pursuant to a plan
of reorganization or dissolution; or (B) assets in the ordinary
course of its business; and
"(12) such other acquisitions, transfers, or transactions, as may
be exempted under subsection (d) (2) (B).
"(d) The Federal Trade Commission, with the concurrence of the
Assistant Attorney General and by rule in accordance with section 553
of title 5, United States Code, consistent with the purposes of this
section-
"(1) shall require that the notification required under subsec-
tion (a) be in such form and contain such documentary material
and information relevant to a proposed acquisition as is necessary
and appropriate to enable the Federal Trade Commission and the
Assistant Attorney General to determine whether such acquisition
may, if consummated, violate the antitrust laws; and
(2) may-
"(A) define the terms used in this section;
"(B) exempt, from the requirements of this section, classes
of persons, acquisitions, transfers, or transactions which are
not likely to violate the antitrust laws; and
"(C) prescribe such other rules as may be necessary and
appropriate to carry out the purposes of this section.
"(e) (1) The Federal Trade Commission or the Assistant Attorney
General may, prior to the expiration of the 30-day waiting period
(or in the case of a cash tender offer, the 15-day waiting period)
specified in subsection (b) (1) of this section, require the submission
of additional information or documentary material relevant to the
proposed acquisition, from a person required to file notification with
respect to such acquisition under subsection (a) of this section prior
to the expiration of the waiting period specified in subsection (b) (1)
of this section, or from any officer, director, partner, agent, or
employee of such person.
" (2) The Federal Trade Commission or the Assistant Attorney
General, in its or his discretion, may extend the 30-day waiting period
(or in the case of a cash tender offer, the 15-day waiting period) speci-
fied in subsection (b) (1) of this section for an additional period of
not more than 20 days (or in the case of a cash tender offer, 10 days)
after the date on which the Federal Trade Commission or the Assist-
ant Attorney General, as the case may be, receives from any person
to whom a request is made under paragraph (1), or in the case of ten-
der offers, the acquiring person, (A) all the information and documen-
tary material required to be submitted pursuant to such a request, or
(B) if such request is not fully complied with, the information and
documentary material submitted and a statement of the reasons for
such noncompliance. Such additional period may be further extended
only by the United States district court, upon an application by the
Federal Trade Commission or the Assistant Attorney General pursu-
ant to subsection (g) (2).
H. R. 8532-11
"(f) If a proceeding is instituted or an action is filed by the Federal
Trade Commission, alleging that a proposed acquisition violates sec-
tion 7 of this Act or section 5 of the Federal Trade Commission Act, or
an action is filed by the United States, alleging that a proposed acqui-
sition violates such section 7 or section 1 or 2 of the Sherman Act, and
the Federal Trade Commission or the Assistant Attorney General (1)
files a motion for a preliminary injunction against consummation of
such acquisition pendente lite, and (2) certifies to the United States
district court for the judicial district within which the respondent
resides or carries on business, or in which the action is brought, that
it or he believes that the public interest requires relief pendente lite
pursuant to this subsection-
"(A) upon the filing of such motion and certification, the chief
judge of such district court shall immediately notify the chief
judge of the United States court of appeals for the circuit in which
such district court is located, who shall designate a United States
district judge to whom such action shall be assigned for all pur-
poses; and
((B) the motion for a preliminary injunction shall be set down
for hearing by the district judge SO designated at the earliest prac-
ticable time, shall take precedence over all matters except older
matters of the same character and trials pursuant to section 3161
of title 18, United States Code, and shall be in every way
expedited.
"(g) (1) Any person, or any officer, director, or partner thereof, who
fails to comply with any provision of this section shall be liable to the
United States for a civil penalty of not more than $10,000 for each day
during which such person is in violation of this section. Such penalty
may be recovered in a civil action brought by the United States.
(2) If any person, or any officer, director, partner, agent, or
employee thereof, fails substantially to comply with the notification
requirement under subsection (a) or any request for the submission of
additional information or documentary material under subsection
(e) (1) of this section within the waiting period specified in subsection
(b) (1) and as may be extended under subsection (e) (2), the United
States district court-
"(A) may order compliance;
(B) shall extend the waiting period specified in subsection
(b) (1) and as may have been extended under subsection (e) (2)
until there has been substantial compliance, except that, in the
case of a tender offer, the court may not extend such waiting period
on the basis of a failure, by the person whose stock is sought to
be acquired, to comply substantially with such notification require-
ment or any such request; and
"(C) may grant such other equitable relief as the court in its
discretion determines necessary or appropriate,
upon application of the Federal Trade Commission or the Assistant
Attorney General.
'(h) Any information or documentary material filed with the
Assistant Attorney General or the Federal Trade Commission pur-
suant to this section shall be exempt from disclosure under section 552
of title 5, United States Code, and no such information or documentary
material may be made public, except as may be relevant to any admin-
istrative or judicial action or proceeding. Nothing in this section is
intended to prevent disclosure to either body of Congress or to any
duly authorized committee or subcommittee of the Congress.
H. R. 8532-12
"(i) (1) Any action taken by the Federal Trade Commission or the
Assistant Attorney General or any failure of the Federal Trade Com-
mission or the Assistant Attorney General to take any action under
this section shall not bar any proceeding or any action with respect to
such acquisition at any time under any other section of this Act or any
other provision of law.
" (2) Nothing contained in this section shall limit the authority of
the Assistant Attorney General or the Federal Trade Commission to
secure at any time from any person documentary material, oral testi-
mony, or other information under the Antitrust Civil Process Act, the
Federal Trade Commission Act, or any other provision of law.
"(j) Beginning not later than January 1, 1978, the Federal Trade
Commission, with the concurrence of the Assistant Attorney General,
shall annually report to the Congress on the operation of this section.
Such report shall include an assessment of the effects of this section,
of the effects, purpose, and need for any rules promulgated pursuant
thereto, and any recommendations for revisions of this section.".
EFFECTIVE DATES
SEC. 202. (a) The amendment made by section 201 of this Act shall
take effect 150 days after the date of enactment of this Act, except that
subsection (d) of section 7A of the Clayton Act (as added by section
201 of this Act) shall take effect on the date of enactment of this Act.
TITLE III-PARENS PATRIAE
PARENS PATRIAE ACTIONS BY STATE ATTORNEYS GENERAL
SEC. 301. The Clayton Act is amended by inserting immediately
following section 4B the following new sections:
"ACTIONS BY STATE ATTORNEYS GENERAL
"SEC. 4C. (a) (1) Any attorney general of a State may bring a
civil action in the name of such State, as parens patriae on behalf of
natural persons residing in such State, in any district court of the
United States having jurisdiction of the defendant, to secure monetary
relief as provided in this section for injury sustained by such natural
persons to their property by reason of any violation of the Sherman
Act. The court shall exclude from the amount of monetary relief
awarded in such action any amount of monetary relief (A) which
duplicates amounts which have been awarded for the same injury, or
(B) which is properly allocable to (i) natural persons who have
excluded their claims pursuant to subsection (b) (2) of this section,
and (ii) any business entity.
"(2) The court shall award the State as monetary relief threefold
the total damage sustained as described in paragraph (1) of this
subsection, and the cost of suit, including a reasonable attorney's fee.
'(b) (1) In any action brought under subsection (a) (1) of this
section, the State attorney general shall, at such times, in such manner,
and with such content as the court may direct, cause notice thereof
to be given by publication. If the court finds that notice given solely
by publication would deny due process of law to any person or persons,
the court may direct further notice to such person or persons according
to the circumstances of the case.
H. R. 8532-13
"(2) Any person on whose behalf an action is brought under
subsection (a) (1) may elect to exclude from adjudication the portion
of the State claim for monetary relief attributable to him by filing
notice of such election with the court within such time as specified in
the notice given pursuant to paragraph (1) of this subsection.
"(3) The final judgment in an action under subsection (a) (1) shall
be res judicata as to any claim under section 4 of this Act by any
person on behalf of whom such action was brought and who fails to
give such notice within the period specified in the notice given pursuant
to paragraph (1) of this subsection.
(c) An action under subsection (a) (1) shall not be dismissed or
compromised without the approval of the court, and notice of any
proposed dismissal or compromise shall be given in such manner as
the court directs.
"(d) In any action under subsection (a)-
"(1) the amount of the plaintiffs' attorney's fee, if any, shall
be determined by the court; and
"(2) the court may, in its discretion, award a reasonable attor-
ney's fee to a prevailing defendant upon a finding that the State
attorney general has acted in bad faith, vexatiously, wantonly,
or for oppressive reasons.
"MEASUREMENT OF DAMAGES
"SEC. 4D. In any action under section 4C(a) (1), in which there
has been a determination that a defendant agreed to fix prices in
violation of the Sherman Act, damages may be proved and assessed
in the aggregate by statistical or sampling methods, by the computa-
tion of illegal overcharges, or by such other reasonable system of
estimating aggregate damages as the court in its discretion may permit
without the necessity of separately proving the individual claim of,
or amount of damage to, persons on whose behalf the suit was brought.
"DISTRIBUTION OF DAMAGES
"SEC. 4E. Monetary relief recovered in an action under section
4C(a) (1) shall-
"(1) be distributed in such manner as the district court in its
discretion may authorize; or
(2) be deemed a civil penalty by the court and deposited with
the State as general revenues;
subject in either case to the requirement that any distribution proce-
dure adopted afford each person a reasonable opportunity to secure his
appropriate portion of the net monetary relief.
"ACTIONS BY ATTORNEY GENERAL OF THE UNITED STATES
"SEC. 4F. (a) Whenever the Attorney General of the United States
has brought an action under the antitrust laws, and he has reason to
believe that any State attorney general would be entitled to bring an
action under this Act based substantially on the same alleged violation
of the antitrust laws, he shall promptly give written notification
thereof to such State attorney general.
(b) To assist a State attorney general in evaluating the notice or
in bringing any action under this Act, the Attorney General of the
United States shall, upon request by such State attorney general, make
H. R. 8532-14
available to him, to the extent permitted by law, any investigative files
or other materials which are or may be relevant or material to the
actual or potential cause of action under this Act.
"DEFINITIONS
"SEC. 4G. For the purposes of sections 4C, 4D, 4E, and 4F of this
Act:
"(1) The term 'State attorney general' means the chief legal
officer of a State, or any other person authorized by State law to
bring actions under section 4C of this Act, and includes the Corpo-
ration Counsel of the District of Columbia, except that such term
does not include any person employed or retained on-
(A) a contingency fee based on a percentage of the mone-
tary relief awarded under this section or
(B) any other contingency fee basis, unless the amount of
the award of a reasonable attorney's fee to a prevailing plain-
tiff is determined by the court under section 4C(d) (1).
'(2) The term 'State' means a State, the District of Columbia,
the Commonwealth of Puerto Rico, and any other territory or
possession of the United States.
"(3) The term 'natural persons' does not include proprietor-
ships or partnerships.
"APPLICABILITY OF PARENS PATRIAE ACTIONS
"SEC. 4H. Sections 4C, 4D, 4E, 4F, and 4G shall apply in any State,
unless such State provides by law for its nonapplicability in such
State.".
CONFORMING AMENDMENTS
SEC. 302. The Clayton Act (15 U.S.C. 12 et seq.), is amended—
(1) in section 4B (15 U.S.C. 15b), by striking out "sections 4 or
4A" and inserting in lieu thereof "section 4, 4A, or 4C";
(2) in section 5(i) (15 U.S.C. 16(i)), by striking out "private
right of action" and inserting in lieu thereof "private or State
right of action"; and by striking out "section 4" and inserting in
lieu thereof "section 4 or 4C"; and
(3) by adding at the end of section 16 (15 U.S.C. 26) the fol-
lowing: "In any action under this section in which the plaintiff
substantially prevails, the court shall award the cost of suit,
including a reasonable attorney's fee, to such plaintiff.".
CONSOLIDATION
SEC. 303. Section 1407 of title 28. United States Code, is amended
by adding at the end thereof the following new section:
"(h) Notwithstanding the provisions of section 1404 or subsection
(f) of this section, the judicial panel on multidistrict litigation may
consolidate and transfer with or without the consent of the parties,
for both pretrial purposes and for trial, any action brought under
section 4C of the Clayton Act.
EFFECTIVE DATE
SEC. 304. The amendments to the Clayton Act made by section 301
of this Act shall not apply to any injury sustained prior to the date
of enactment of this Act.
H. R. 8532-15
SHORT TITLES FOR CERTAIN ANTITRUST LAWS
SEC. 305. (a) The Act entitled "An Act to protect trade and com-
merce against unlawful restraints and monopolies", approved July 2,
1890 (15 U.S.C. 1 et seq.), is amended by adding immediately after
the enacting clause the following: "That this Act may be cited as
the Sherman Act'.".
(b) The Act entitled "An Act to supplement existing laws against
unlawful restraints and monopolies, and for other purposes", approved
October 15, 1914 (15 U.S.C. 12 et seq.), is amended by-
(1) inserting "(a)" after "That" in the first section; and
(2) adding at the end of the first section the following new
subsection:
"(b) This Act may be cited as the 'Clayton Act'.".
(c) The Act entitled "An Act to promote export trade, and for
other purposes", approved April 10, 1918 (40 Stat. 516; 15 U.S.C. 61
et seq.) is amended by adding at the end thereof the following new
section:
"SEC. 6. This Act may be cited as the 'Webb-Pomerene Act'.".
(d) The Act entitled "An Act to reduce taxation, to provide revenue
for the Government, and for other purposes", approved August 27,
1894 (28 Stat. 509; 15 U.S.C. 8 et seq.), is amended by adding at the
end thereof the following new section:
"SEC. 78. Sections 73, 74, 75, 76, and 77 of this Act may be cited as
the 'Wilson Tariff Act'.".
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.
FOR IMMEDIATE RELEASE
September 30, 1976
Office of the White House Press Secretary
THE WHITE HOUSE
FACT SHEET
HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976 (H.R. 8532)
President Ford signed the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 today. He noted that this legislation will contribute
to the Administration's overall competition policy of vigorous anti-
trust enforcement and regulatory reform.
This Act:
--
Broadens powers of the Department of Justice in conducting
antitrust investigations.
Requires advance notice to the Justice Department and the
Federal Trade Commission of major corporate mergers and
acquisitions.
--
Authorizes state attorneys general to file suits to recover
damages to citizens of the states resulting from certain
antitrust violations.
MAJOR PROVISIONS
Title I. Antitrust Civil Process Act Amendments
This title adopts Administration-sponsored legislation to amend
the Antitrust Civil Process Act of 1962. It authorizes the
Department of Justice to issue a pre-complaint subpoena--
called a Civil Investigative Demand ("CID") -- not only on targets
of the investigation, as permitted under current law, but also to
third parties (e.g., suppliers and customers) who have information
relevant to an investigation. The bill would also allow the
Department to obtain, not only documentary evidence as under current
law, but also answers to oral and written questions from recipients
of such a CID. These amendments also provide safeguards, including
right to counsel by the recipient of the CID, to assure that these
powers are not abused.
Title II. Premerger Notification
H.R. 8532 requires companies with assets or sales in excess of
$100 million to notify the Department of Justice and the Federal
Trade Commission in advance of the acquisition of, or merger with,
any company with assets or sales in excess of $10 million. This
will allow the antitrust enforcement agencies sufficient time to
investigate the competitive consequences of major mergers and
acquisitions and, if necessary, to obtain injunctive relief before
steps have been taken toward consolidation of the operations.
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2
Title III. Parens Patriae
H.R. 8532 would authorize state attorneys general to bring suits
in Federal district court on behalf of state residents for viola-
tions of the antitrust provisions of the Sherman Act.
Mandatory treble damages would be awarded in successful suits and
would either be distributed to individuals in a manner approved
by the court or deposited with the state as general revenues.
In price-fixing cases, damages could be proved in the aggregate
by using statistical sampling or other measures without the
necessity of proving damages to each individual on whose behalf
the suit was brought.
The bill prohibits state attorneys general from hiring outside
lawyers on a contingency fee based on a percentage of the award.
However, it would allow private attorneys to bring suit on
behalf of the state and their fees would be determined by the court.
SUMMARY
In his signing statement, the President noted that the first
two titles of the bill--the Antitrust Civil Process Act amendments
and premerger notification--were desirable. In addition, the
President reiterated his concerns with the potential for abuse
of the parens patriae title and said that its implementation
would be carefully reviewed to assure that it was responsibly
enforced.
# # #
FOR IMMEDIATE RELEASE
September 30, 1976
Office of the White House Press Secretary
THE WHITE HOUSE
STATEMENT BY THE PRESIDENT
After careful reflection, I am signing into law today
H.R. 8532 -- the Hart-Scott-Rodino Antitrust Improvements
Act of 1976. This bill contains three titles, two of which
my Administration has supported and one -- the "parens
patriae" title -- which I believe is of dubious merit.
COMPETITION AND ANTITRUST POLICIES
I am proud of my Administration's record of commitment
to antitrust enforcement. Antitrust laws provide an important
means of achieving fair competition. Our nation has become
the economic ideal of the free world because of the vigorous
competition permitted by the free enterprise system. Compe-
tition rewards the efficient and innovative business and
penalizes the inefficient.
Consumers benefit in a freely competitive market by
having the opportunity to choose from a wide range of products.
Through their decisions in the marketplace, consumers indicate
their preferences to businessmen, who translate those preferences
into the best products at the lowest prices.
The Federal Government must play two important roles in
protecting and advancing the cause of free competition.
First, the policy of my Administration has been to
vigorously enforce our antitrust laws through the Antitrust
Division of the Department of Justice and the Federal Trade
Commission. During an inflationary period, this has been
particularly important in deterring price-fixing agreements
that would result in higher costs to consumers.
Second, my Administration has been the first one in forty
years to recognize an additional way the Federal Government
vitally affects the environment for business competition.
Not only must the Federal Government seek to restrain private
anti-competitive conduct, but our Government must also see to
it that its own actions do not impede free and open competition.
All too often in the past, the Government has itself been a
major source of unnecessary restraints on competition.
I believe that far too many important managerial decisions
are made today not by the marketplace responding to the forces
of supply and demand but by the bureaucrat. Government regula-
tion is not an effective substitute for vigorous competition in
the American marketplace.
In some instances government regulation may well protect
and advance the public interest. But many existing regulatory
controls were imposed during uniquely transitory economic
conditions. We must repeal or modify those controls that
suppress rather than support fair and healthy competition.
During my Administration, important progress has been made
both in strengthening antitrust enforcement and in reforming
government economic regulation.
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In the last two years, we have strengthened the Federal
antitrust enforcement agencies. The resources for the Anti-
trust Division and the Federal Trade Commission's Bureau of
Competition have been increased by over 50 percent since
Fiscal Year 1975. For the Antitrust Division, this has been
the first real manpower increase since 1950. I am committed
to providing these agencies with the necessary resources to
do their important job.
This intensified effort is producing results. The
Antitrust Division's crackdown on price-fixing resulted in
indictment of 183 individuals during this period, a figure
equalled only once in the 86 years since enactment of the
Sherman Act. The fact that the Division presently has pend-
ing more grand jury investigations than at any other time
in history shows these efforts are being maintained.
To preserve competition, the Antitrust Division is
devoting substantial resources to investigating anti-
competitive mergers and acquisitions. At the same time,
the Division is litigating large and complex cases in two
of our most important industries -- data-processing and
telecommunications.
The cause of vigorous antitrust enforcement was aided
substantially when I signed the Antitrust Procedures and
Penalties Act of 1974, making violation of the Sherman Act
a felony punishable by imprisonment of up to three years for
individuals, and by a corporate fine of up to $1 million.
Also, in December 1975, I signed legislation repealing
Fair Trade enabling legislation. This action alone, according
to various estimates, will save consumers $2 billion annually.
On the second front of reducing regulatory actions that
inhibit competition, I have signed the Securities Act Amend-
ments of 1975 and the Railroad Revitalization and Regulatory
Reform Act, which will inject strong doses of competition into
industries that long rested comfortably in the shade of federal
economic regulation.
My Administration has also sponsored important legislative
initiatives to reduce the regulation of other modes of trans-
portation and of financial institutions. An important element
of my regulatory reform proposals has been to narrow antitrust
immunities which are not truly justified. Although Congress
has not yet acted on these proposals, I am hopeful that it
will act soon. All industries and groups should be subject
to the interplay of competitive forces to the maximum extent
feasible.
A measure of my commitment to competition is the Agenda
for Government Reform Act which I proposed in May of this
year. This proposal would require a comprehensive, disciplined
look at ways of restoring competition in the economy. It would
involve in-depth consideration of the full range of federal
regulatory activities in a reasonable -- but rapid -- manner
that would allow for an orderly transition to a more competitive
environment.
This competition policy of regulatory reform and vigorous
antitrust enforcement will protect both businessmen and con-
sumers and result in an American economy which is stronger,
more efficient and more innovative.
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3
HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976
I believe the record of this Administration stands as
a measure of its commitment to competition. While I continue
to have serious reservations about the "parens patriae" title
of this bill, on balance, the action I am taking today should
further strengthen competition and antitrust enforcement.
This bill contains three titles. The first title will
significantly expand the civil investigatory powers of the
Antitrust Division. This will enable the Department of
Justice not only to bring additional antitrust cases that
would otherwise have escaped prosecution, but it will also
better assure that unmeritorious suits will not be filed.
These amendments to the Antitrust Civil Process Act were
proposed by my Administration two years ago, and I am pleased
to see that the Congress has finally passed them.
The second title of this bill will require parties to
large mergers to give the Antitrust Division and the Federal
Trade Commission advance notice of the proposed mergers.
This will allow these agencies to conduct careful investi-
gations prior to consummation of mergers and, if necessary,
bring suit before often irreversible steps have been taken
toward consolidation of operations. Again, this proposal
was supported by my Administration, and I am pleased to see
it enacted into law.
I believe these two titles will contribute substantially
to the competitive health of our free enterprise system.
This legislation also includes a third title which would
permit state attorneys general to bring antitrust suits on
behalf of the citizens of their states to recover treble
damages. I have previously expressed serious reservations
regarding this "parens patriae" approach to antitrust
enforcement.
As I have said before, the states have authority to
amend their own antitrust laws to authorize such suits in
state courts. If a state legislature, representing the
citizens of the state, believes that such a concept is sound
policy, it ought to allow it. I questioned whether the
Congress should bypass the state legislatures in this
instance. To meet in part my objection, Congress wisely
incorporated a proviso which permits a state to prevent
the applicability of this title.
In price-fixing cases, this title provides that damages
can be proved in the aggregate by using statistical sampling
or other measures without the necessity of proving the
individual claim of, or the amount of damage to, each person
on whose behalf the case was brought. During the hearings
on this bill, a variety of questions were raised as to the
soundness of this novel and untested concept. Many of the
concerns continue to trouble me.
I have also questioned the provision that would allow
states to retain private attorneys on a contingent-fee basis.
While Congress adopted some limitations which restrict the
scope of this provision, the potential for abuse and
harassment inherent in this provision still exists.
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4
In partial response to my concerns, Congress has narrowed
this title in order to limit the possibility of significant
abuses. In its present form, this title, 1f responsibly
enforced, can contribute to deterring price-fixing violations,
thereby protecting consumers. I will carefully review the
implementation of the powers provided by this title to assure
that they are not abused.
Individual initiative and market competition must remain
the keystones to our American economy. I am today signing
this antitrust legislation with the expectation that it will
contribute to our competitive economy.
# # #