higher cost, which is a cost to society as well as to the firm. If the higher cost is
prohibitive, all efficiencies expected from merger will be lost.
The preferences of firms contemplating conglomerate acquisitions can only
be explained on grounds of differential efficiency. By frustrating this prefer-
ence, the Merger Act, like the Concentrated Industries Act, operates on the
principle that industrial fragmentation is to be preferred for its own sake to
industrial efficiency. If we agree that antitrust is about consumer welfare, I
cannot accept such a principle ; indeed, I cannot even understand it.
THE PATENT LICENSING ACT
We have given too little attention to the patent field for me to be able to agree
to the changes proposed. In particular, the proposal that a patentee who licenses
one applicant must license all upon equal terms seems ill-advised. It assumes,
without any theoretical or empirical support, that such a practice (even when
there is no price, territory, or output restriction in the license) is a method of
cartelization. It assumes further, contrary to what we know of analogous busi-
ness contexts, that there are no valuable efficiencies in an exclusive dealing
policy. Though we have not studied the matter sufficiently to permit a confident
estimate either way, our present information suggests that this requirement is
a mistake.
THE REmSION OF THE ROBINSON-PATMAN ACT
I sympathize with the attempt to make the Robinson-Pa tman Act a more ra-
tional statute, but three factors prevent me from agreeing whole-heartedly to this
revision. First, the coverage of the Act ought not to be extended to services.
Second, I doubt that the sections defining injury to competition will have the
effect of substantially confining the enforcement agencies and the courts. Third,
a number of us probably think that the entire Act should be repealed and I think
we should say so.
THE REPEAL OP THE MILUEB-TYDINGS AND M'GUIEE ACTS
Contrary to the Task Force Report's wholly unsupported assertion, the case
against resale price maintenance is not at all persuasive. From the consumer
point of view, there is a case against resale price maintenance when it is no more
than a cover for a dealer cartel, but there is a strong case for the practice when a
manufacturer desires to use it to improve his dealers' performance. I would rec-
ommend federal legislation approving the latter form of resale price maintenance,
whether or not a State Fair Trade law has been complied with, as entirely con-
sistent with the purposes and the spirit of antitrust.
331
OTHEK MATTERS
I agree with the recommendations that a 10-year limit be set upon attempts to
undo old mergers, that antitrust decrees be limited to 10 years duration (through
I think the court should not have the power to renew the decrees for additional
periods), and that the regulated industries should be studied with a view to sub-
stituting antitrust and market controls for regulation where possible. As to the
other matters discussed, we have too little information to make recommenda-
tions. I know at least that I do.
SEPARATE STATEMENT OF PAUL W. MAC AVOY
I would like to offer some comparative reflections on the two major recom-
mendations — the Concentrated Industries Act and the Merger Act.
The reason for drafting these Acts is that they move us forward establishing
and preserving competitive conditions throughout the economy. There is neces-
sarily some hesitancy in pursuit of such an asijiration, because there are costs
imposed by radical new legislation in disrupting continuing institutions or dis-
locating resources. There may also be costs in the long run from operating at com-
petitive but less than eflBcient scale. But these costs are overweighed by the bene-
fits of reduced price-cost margins, increased efiiciency and growth, that mark
highly competitive industries. As I understand the argument, the general good
overweighs particular losses.
The report on the (Concentrated Industries Act makes this argument quite
strongly. Economic evidence, from a large nimiber of research articles and mono-
graphs on the relation of concentration to industry performance, provides a
sound basis for predicting general effects from reducing industry concentration.
The lack of evidence indicating general loss of eflSciencies from deconcentration
furnishes further strong support for this policy. There is substantial basis on
which to conclude that "remedies to reduce concentration should be made avail-
able as part of a comprehensive antitrust policy." More work remains to be done
to establish that oligopolies of four or five firms can be expected to restrict output
and raise price under most or all market conditions, but the evidence presently
available is strong enough to provide rationale for this legislation.
There does not seem to be a similar factual basis for the Merger Act. There is no
set of research materials showing a relationship between concentration of general
economic activity in conglomerates and anticompetitive behavior. This evidence is
necessary if "the case" for new legislation is to be as comprehensive as that for
the Concentrated Industries Act — if there is to be a general expectation of in-
creased competition from changing the present patterns of conglomerate growth.
The lack of such evidence is not oversight. A thorough review of existing litera-
ture produces no such finding; some preliminary, extremely new material from
Charles Berry at Princeton University may well establish the opposite case, or
that the recent growth patterns of conglomerates — including patterns precluded
by the proposed Act — have added to the competitiveness of industry structure.
Another round of research may bring findings that substantiate the opposite ; but
those require a much higher level of economic research activity than now exists.
In place of factual support for the Merger Act, we have some very delicately
worded assertions : "Potentially anticompetitive mergers may be allowed to pro-
ceed because economic theory and analytical foresight are inadequate to predict
anticompetitive effects in .«pecific cases. . . ." This is a problem of concern in all
aspects of behavior of firms in private markets. I would propose, if it were to
be taken seriously, that we move from a market economy to one of state regula-
tion to minimize this risk. More serious is the fear that, without new legislation,
the courts will extend existing law because of objections based on considerations
other than effects on competition, leading to "distortions which would result in
uncertainties in enforcement and unfairness to those affected." The means for
preventing such distortions is to pass a law not quite as bad as "free form" court
interpretations ; on this ground, the Merger Act surely qualifies, but it still may be
second best to alternative legislation which better defines the problem and con-
trives means for solving it. That is to say that I do not think this Merger Act,
while suflBcient for preventing the court from acting unfairly, is necessarily the
best means for doing so.
332
I would propose that a moratorium be put on both court decisions and legisla-
tion on conglomerates by the establishment of a Presidential Commission to in-
quire into the purpose and effects of conglomerate mergers. This commission
would be made up of eminent lawyers and economists with the full time staff as-
sistance necessary to carry out full-scale research into conglomerate activity.
The form and content of the work done would have to be similar to recent
investigations by government into the securities markets. They would analyze
statistics and case studies that would provide authoritative bases for recommen-
dations to Congress of new legislation. The process of preparing their Report
would raise the level of inquiry and the volume of evidence by its mere existence ;
the findings would be subject to the cross-examination of the experts in both
economic and legal professions. They should be of the quality and range of those
we had available to us on the behavior of oligopolies.
In retrospect, I have the feeling that the Task Force did well with problems
on which documentation was available in some profusion. At least I am proud of
my colleagues for their proposals in the Concentrated Industries Act, the revision
of the Robinson-Patman Act, and the now patent legislation. But the device of
the secret task force does not work well when there is no evidence. Personal im-
pressions where no evidence exists are not enough to produce legislation that
meets the needs of the economy.
SEPARATE STATEMENT OF RICHARD E. SHERWOOD
Procrustean is the most polite adjective I can find for the bulk of the Task Force
report and recommendation. Mechanistic tests may be easy for enforcement agen-
cies and courts to apply, but that is a feeble reason for abandoning the require-
ment of proof of actual or probable adverse competitive effects in concrete market
situations as a predicate to remedies for drastic as dissolution, divestiture or
compulsory patent licensing.
The Task Force has done no case studies on corporate concentration, conglom-
erate mergers or patent licensing, yet the report speaks as if there were a solid
body of evidence in support of each of its recommendations. In my view, bigness
is neither presumptively bad nor good ; oligopoly is neither presumptively bad
nor good ; conglomerate mergers between large firms and leading firms are neither
presumptively bad nor good ; and single patent licenses are neither presumptively
bad nor good. Each may, in actual market contexts, be appropriate for attack by
the Justice Department or the Federal Trade Commission. But in the present
state of economic and legal knowledge, the sweeping condemnation which the
Task Force has accorded them appears to be rooted in dogmas I do not share.
Moreover, the remedies which the Task Force would apply could have a poten-
tially disruptive impact upon American economic life and growth in which poten-
tial mischief far outweighs demonstrable benefits.
(1) Concentrated Industries. The Task Force report proposes a statute which
would place a blanket prohibition (together with a requirement of a substantial
reduction of concentration in the direction of individual market shares of 12%
or less) upon any market structure in which, for a prescribed period of years,
four or fewer firms had an aggregate market share of 70% or more and industry
sales exceeded $500,000,000. The proposed statute has no defenses (or discretion)
except as to relief, and a firm could resist dissolution or divestiture only if it
could demonstrate aflSrmatively that such remedies "would result in substantial
loss of economies of scale," whatever that may mean.
I see no reason for imposing such a strait-jacket on big business.* Rather, it
is my view that the government now has the power to seek a panoply of equitable
relief, on a "shared monopoly" theory under section 2 of the Sherman Act, against
the dominant firms in any oligopoly industry where it believes that concentration
has produced stagnant market behavior and where it believes that the proposed
relief would result in more vigorous competition, lower prices, technological inno-
vation and other benefits to consumers. If the Supreme Court were to refuse to
apply section 2 to such a shared monopoly, I would then recommend that section
^ It would apply, for example, to industries as diverse as aircraft and cereal preparations,
and to each oligopolist regardless of its profitability, market behavior, or increasing or de-
creasing market share.
333
2 be amended or a new statute enacted empowering the government to proceed
where oligopoly conditions have produced a susbtantial lessening of competition.
As I see it, the difference between the Concentrated Industries Act and the
selective approach I have sketched is the difference between a bludgeon and a
scalpel.
(2) Conglomerate Mergers. The Task Force has recommended a statute which
would prohibit flatly any acquisition by a large firm (a firm with $500 million
in annual sales or $250 million in assets) of any "leading firm" (a firm with a
market share greater than 10% in a market where four or fewer firms have
50% of the market and industry sales exceed $100 million). The Task Force has
adduced no evidence that conglomerate mergers have resulted, in general (or in
specific), in any lessening of competition in any industry. On the other hand, one
certainly cannot say that conglomerate mergers are always procompetitive. Thus,
again, the proposed statute tinkers, drastically and unnecessarily, with an eco-
nomic phenomenon which deserves neither sweeping condemnation or uncritical
approval.
In my view, section 7 of the Clayton Act (buttressed by section 1 of the Sher-
man Act) provides an adequate weapon to attack those conglomerate mergers
which may have an adverse effect upon competition. For example, if it can be
demonstrated that acquisition by a large firm of a leading firm would tend to
impair the ability of other firms to compete or discourage independent entry
into an industry, the Justice Department could and should appropriately attack
the acquisition.
If, on the other hand, there is no evidence that the acquisition of a leading
firm by a large firm will have any substantial adverse impact upon the industry
in which the acquisition takes place, then there is no reason for banning the
merger. In other word.«, enforcement agencies should be required to do their
economic homework on conglomerate mergers, without benefit of per se rules.
(3) Patent Licensing. I agree with the changes recommended by the Task
Force in i>atent licensing except for the requirement that a licensor, if it licenses
anyone, must license everyone. Few of the members of the Task Force have
had any experience in patent licensing or patent litigation. I certainly have not.
There may be instances in which a refusal to license more than one company
constitutes part of a scheme for market division, price fixing, or other anti-
competitive behavior. But there may also be instances where a licensor, in the
exercise of business judgment, has concluded that he will maximize exploitation
of a patent (i.e., the largest output of effort by those licensed) if a relatively
few licensees participate in its exploitation. The draft statute would require of
every patent license either (a) that the licensor be big enough so that it need
not license anyone, (b) that the licensor sell the patent to someone who is big
enough, or (c) that the licensor license everyone. Such tampering with corporate
decision-making requires proof I have not seen.
(4) Other Matters.
(a) I agree with the proposed revision of the Robinson-Pa tman Act, though
as a matter of technique I would urge that the Federal Trade Commission
pursue powerful buyers with greater frequency than it has.
(b) I agree with the recommendations as to greater information being made
available to antitrust enforcement agencies so that their decisions will be better
informed.
(c) I agree with the recommendation as to premerger notification and setting
a 10-year limit on attempts to undo old mergers.
(d) I agree that antitrust decrees should be limited to ten years in duration.
(e) I agree that the Miller-Tydings and McGuire Acts should be repealed
so that .state-sanctioned fair trade price-fixing would become unlawful.
One final note. The Task Force has been too kind to the enforcement agencies
and to the courts. The Antiti'ust Division has shown limited imagination and
strategic planning in its program for enforcement of the antitrust laws. And it
has entered into a number of consent decrees (and obtained a number of litigated
decrees) which have done little or nothing to remedy the evils against which they
were fashioned. At least as much can be said of the Federal Trade Commission.
As a result, cases have been brought that should never have been brought. And
other cases have been broug'ht in which the relief was irrelevant or absurd. The
courts come off no better than the enforcement agencies. Many decisions may
334
be justified in result but have been accompanied by opinions which are illogical
or unintelligible. Other decisions have been both wrong and badly reasoned.
Judicial bias against bigness in the Section 7 sector has resulted in a retreat
from hard economic and legal analysis to the lotus-land of percentage tests.*
The performance of the courts, and in particular the Supreme Court, bespeaks
the desirability of amending the Expediting Act so as to permit the Courts of
Appeals to review, hopefully in depth, district court decisions. Such review may
not be superior to Supreme Court review, but it cannot be more cursory, and
the Supreme Court would continue to be available for ultimate discretionary
review.
1 A lotus-land now codified In Mr. Turner's guidelines.
REPORT OF THE ABA COMMISSION
TO STUDY THE
FEDERAL TRADE COMMISSION
The views expressed in this Report are those of the Commission
to Study the FTC. This Report has not been considered by the
Board of Governors of the American Bar Association and pending
approval by that Board cannot be considered an ofEicial Report of
the Association.
September 15, 1969
(335)
MEMBERS OF THE COMMISSION
Miles W. Kirkpatrick
Chairman
Jack Gref.nbi rg
Richard A. Posner
Paul G. Bower
Ira M. Millstein
Carl A. Auerbach
Jesse W. Markham
Charles E. Stewart, Jr.
Frederick M. Rowe
Thomas E. Harris
Ellen Ash Peters
Allan C. Holmes
John D. French
Carl H. Fulda
Dr. RETi'v Bock
Harlan M. Blake
Robert Pitofsky
Commission Counsel
(336)
LETTER OF TRANSMITTAL
September 15, 1969
Bernard G. Segal, President
American Bar Association
1155 East 60th Street
Chicago, Illinois 60637
Dear Mr. Segal:
It is my privilege to submit herewith the Report of this Commission
which will be, as I understand it, presented by you to the Board of
Governors of the ABA for consideration and approval.
As you will recall, this Commission was appointed in April of this
year pursuant to the request of President Nixon that the ABA under-
take a study and professional appraisal of the FTC. The ABA was
requested to furnish a Report in response to the President's request by
September 15th. I am pleased that the Commission has been able
to accomplish its purpose by that date, and I am concurrently submitting
a copy of our Report to the White House. We realize, of course, that our
Report must be submitted to and approved by the Board of Governors
before it becomes an official report of the ABA.
The Report has been joined in by 15 of the 16 members of the
Commission. There are also submitted herewith two Separate State-
ments. One of the Separate Statements contains views supplemental to
those set forth in the Commission's Report and the author has also
subscribed to the Report itself. The other Separate Statement includes
some views of the one member of the Commission who did not join in
the Commission's Report.
I would be remiss if I did not express my appreciation for the op-
portunity to serve on this Commission. The Commission was truly a
working group, and each member gave greatly of his time, energy, and
skills throughout the Summer. The Report is the result of a full inter-
change of views between all members of the Commission, each contribut-
ing substantially to the final Report.
I wish also to express my appreciation and that of the entire Com-
mission for the assistance of the Commission's Counsel, Professor Robert
Pitofsky, and his able staff. He and his staff were unstinting in their
devotion of professional skill of the highest order to the accomplish-
ment of the Commission's work.
I trust that the enclosed Report will represent a useful contribution
and will furnish to the President of the United States the appraisal for
which he turned to the American Bar Association.
Sincerely yours,
cc: William T. Gossett, Esq.
(337)
36-138 O - 69 - 23
Miles W. Kirkpatrick
Chairman
»
CONTENTS
PAGE
I. SUMMARY 1
II. INTRODUCTION 4
A. ABA Commission History and Working Procedures 4
B. Profile of the FTC 5
C. Prior Studies of the FTC 9
III. OVERALL EVALUATION OF WORK PRODUCT AND
STAFF 12
A. Planning Procedures 12
B. Statistical Measure of FTC Performance 16
1. Comparative Output of the FTC: 1961-1969 16
a. Investigational Stage 16
b. Formal Proceedings 19
c. Voluntary Compliance Program 22
d. Compliance Activities 23
e. Evaluation of Comparative Data 25
2. Allocation of Resources 26
C. Delay 28
1. Pending 7-Digit Investigations 29
2. Investigations Pending in Field Offices 30
3. Complaints Pending Litigation 81
4. Evaluation of Comparative Data 32
D. Evaluation of Commission Staff 32
E. Conclusions 34
IV. THE PROBLEM OF LEADERSHIP 35
(339)
340
11
PAGE
V. EVALUATIONS OF FTC PERFORMANCE IN SPECIFIC
AREAS AND RECOMMENDATIONS FOR FUTURE
PROGRAMS 36
A. Consumer Protection 36
1. Existing Programs 38
a. Deceptive Labeling 38
b. False and Deceptive Advertising 40
c. Bureau of Textiles and Furs 45
d. Retail Frauds 49
2. Proposals for New Initiatives 54
a. Pilot Project for Prevention and Study of Retail
Marketing Abuses 55
b. Sanctions 62
B. Antitrust Activity: The Clayton, Robinson-Patman, and
FTC Acts 64
1. Continuation of Concurrent Jurisdiction 64
2. Coordination between the Department of Justice and
the FTC 65
a. Long-Term Planning and Coordination 66
b. Governing Criteria in Allocating Responsibility . . 66
3. Appraisal of Specific Aspects of FTC Enforcement
Activity 67
a. Robinson-Patman Enforcement 67
b. Distribution Problems 68
c. Merger Enforcement 68
C. Economic Studies and Reports 69
1. Boundaries of the FTC's Investigatory Powers 69
2. Present Organization of the Economic Staff of the FTC 70
3. Evaluation and Recommendations 71
a. Organization of Economic Functions 72
b. Procedures and Standards for Hiring 73
c. Generation and Use of Data 74
d. Experimenting with Outside Advice 74
341
111
PACE
VI. ADDITIONAL PROPOSALS FOR MODIFICATION OR
IMPROVEMENT OF THE FTC 75
A. Problems of Confidentiality and Ex Parte Dealings at the
FTC 75
B. Policy Planning 77
1. Attack on the Backlog of Pending Matters 77
2. Planning for the Future— Office of Program Review . . 78
a. Agency-Wide Evaluation of Allocation of Resources 78
b. Criteria for Staff Decisions 79
c. Proposals for Agency Action 80
3. Tracking Matters within the FTC 81
C. Delegation of Authority ... 81
1. Authority to Delegate and Present Exercise of That
Authority 81
2. Evaluation and Recommendations 82
Appendix 85
Concurring Statement of John D. French 90
Separate Statement of Richard A. Posner 92
I. SUMMARY
The Federal Trade Commission, an independent regulatory agency
established in 1914, is assigned the responsibility of administering a
wide variety of antitrust and trade regulation laws. Over the past 50
years, a succession of independent scholars and other analysts have
consistently found the FTC wanting in the performance of its duties
by reason of inadequate planning, failure to establish priorities, ex-
cessive preoccupation with trivial matters, undue delay, and unnecessary
secrecy.
This present ABA Commission was appointed by President William
T. Gossett of the American Bar Association, at the request of President
Nixon, to undertake an appraisal of the "present efforts of the Federal
Trade Commission in the field of consumer protection, in its enforce-
ment of the antitrust laws, and of the allocation of its resources between
these two areas."
The FTC of the 1960's is probably superior to most of its predecessors,
but continues to fail in many respects. Through lack of effective direction,
the FTC has failed to establish goals and priorities, to provide necessary
guidance to its staff, and to manage the flow of its work in an efl&cient and
expeditious manner.
All available statistical measures of FTC activity show a downward
trend in virtually all categories of its activities in the face of a rising
budget and increased staff. Moreover, present enforcement activity rests
heavily on a voluntary compliance program devoid of effective surveil-
lance or sanctions. It thus appears that both the volume and the force of
FTC law enforcement have declined during this decade.
We believe that the FTC has mismanaged its own resources. Through
an inadequate system of recruitment and promotion, it has acquired