United States. Congress. Senate. Committee on the.

The Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) online

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Online LibraryUnited States. Congress. Senate. Committee on theThe Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) → online text (page 2 of 140)
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with virtual certainty, that Messrs. ]\IcGurk and Biddle will, in the
course of their employment, because that is what they're employed to
do, do everything that they can to push in the press, and in the trade
press, any statements made in this committee which are or could be
interpreted as being unfavorable to IBM: and it seems to me, "Sir.
Chairman, that that illustrates as well as any point can the problem
that I have with these hearings.

Now, if the committee will indulge me, I would like to comment
briefly on the broader subject of the work of the committee. I do so
because I am personally sympathetic with the need to review the pur-
poses and the enforcement ttiechanistos of governmental policy to-
w?frd competition. ' - ^ ^ ' .'' . ' ;

Xeitlier the Congress nor the ExfeGti#ve h^s'aielleiarl&iansistenh
thougfht-out philosophv with respect to laws governing competition —
what we loosely call "antitrust." The Sherman Act, perhaps wisely,
is cast in verv brond term.s and has evolved over the years in efrotts
to adjust to changing circumstances. In the course of this evolution,
problems have emerg^ed on which this comjiiittee could' usefully 'focus
attention.

I think it important that tlie Government attempt to articulate the
philosophy which underlies our governmental policies tovv-ard business
competition and the factors which should be taken into consideration
in its enforcement. At present there are conflicting and inconsistent
strains running through our antitnist laws as they have l)een inter-
]:)reted by Governm.ent officials and by courts. Indeed, jVIr. Chairman,
the record of your own hearings suggests the lack of a coherent phi-
losophy among those regarded as experts in the field.

At the bottom there are tAvo conflicting themes. One is that the
purpose of the law is to promote competition by protecting competitors
from the rigors of tough competition. While this is somewhat of a mer-
cantile view — everyone has a right to stay in business — it gets a more
appealing populist aura by often being presented as protecting small
competitors from lai'ge ones, whether or not this protection results in
benefits to the consumer. Undeniably this philosophy can have an emo-
tional ap]:)eal. but it may be quite inconsistent in concept ancl result
from a philosophy which holds that the objective of competition is
to promote the welfare of consumers by encouraging an economic sys-
tem in which there are rewards for those who are innovative, who can
achieve efficiencies, who can provide better products at lower prices.

Some resolution of this basic conflict has become more important
and more difficult as many new factors have entered the equation as a
result of new technology, industrial maturity, and a shrinking world.
Surely our philosophy of competition must take into account our more
general economic and political objectives, our ability to compete in



4839

world markets, the fact that other ^governments may not share our
economic views or may have conflicting objectives in terms of trade,
commerce, and investment. The efforts by this committee to consider
such problems are to be applauded. But, as the committee knows, much
more work and analysis needs to be done.

Xot only are these problems important to clarify and resolve but
the business community has an interest in their discussion, analysis,
and resolution. I thinlc, too, that this committee has an interest in enlist-
ing the efforts of the business community in that work. Unfortunately,
much of the business community regards itself in an adversary position
with the committee — and understandably.

The proposed legislation is cast in terms which promote confronta-
tion rather than objective inquiry. Not only does this adversely affect
business cooperation in matters important to that community, but it
promotes committee investigations and hearings on precisely the issues
which are currently the subject of judicial and administrative hear-
ings, again in an adversary context which is bound to be viewed as
unfair and prejudicial by defendants.

Let me turn briefly from tlie pliilosophy of laws regulating com-
petition to enforcement mechanisms. Clearly, enforcement suffers not
only from lack of a coherent philosophy and conflicting interpreta-
tions, but also from the lack of consistent and purposeful administra-
tion. And each aggravates the other.

From the national viev.-point. enforcement lies largely in the hands
of the assistant attorney general in charge of the Antitrust Division
of the Department of justice and the members, especially the chair-
man, of the Federal Trade Commission. Both operate with very little
e-uidance from more senior administration officials or the Congress,
There is no g-uarantee that these policy officials agree on objectives —
or even jurisdiction — and the rapid turnover of policymaking person-
nel in both the Department and the Commission in relation to the
time consumed in investigation and litigation virtually insures uneven-
ness and inconsistency in enforcement.

And, in my experience at least, tliere is no satisfactory mechanism
for insuring that enforcement takes account of other economic objec-
tives of a particular administration or of the Congress.

Xow, all that would be chaotic enough, but it is in fact much worse.
The growth of private treble damage suits in the past two decades
has meant that a number of private attorneys, representing private
clients and not necessarilv the public interest, have been promoting
interpretations of the antitrust laws consistent with both their client's
interests and their ovrn large contingent fees. Each such decision
creates legal jn-ecedent and this serves to develop economic policy
removed from congressional oversight and Executive sui)ervision
which placinc: it in the hands of some 450 district court judo-es, who
unavoidably, have different degrees of experience in economic theory
and business practices, and who must formulate their decisions in a
framework of facts and policies articulated by private counsel.

I do not have problems with private treble damage cases vrhere the
issues involved are unlawfu.l practices: price fixing, asTeements not
to compete, discriminatory pricing, and so forth. Here it may be use-
ful to engage the efforts of the private bar. But where the issues in-
volve structure— where the lawfulness of a particvdar practice totally



4840 j

depends on definitions of monopoly power, market and fundamental
economic analysis, it is unwise to leave development of basic national
economic policy to a process as unstructured and uno-uided as private
litio-ation. And I regard it as particularly dangerous to the serious
public interest where the lawyers involved may have a huge financial
stake in the decision itself.

There are problems, too, with the treble damage suits which may
follow a successful antitrust victory by the Department of Justice.
Such suits im]30se huge, and perhaps senseless, burdens on an already
overburdened judiciary. I say "senseless" for three reasons : The dam-
ages involved are always speculative, involving guesses which in other
contexts would be regarded as inappropriate for resolution by either
judge or juiy. The trebling of such damages is from a plaintiff^s view-
point a pure windfall in a context where there is little public interest
in proliferating litigation after the basic economic policy has clearly
been established by the relief granted in the underlying^ governmental
proceedings. In this context it is again the lawyei-s who benefit the
most at the expense of an overworked Federal judiciai-y.

My opposition to treble damage cases following a successful Gov-
ernment antitrust case does not stem from any belief that defendants
who are found guilty of criminal practices should not be severely
punishe^l. They should be. Existing fines are, I believe, far smaller
than desirable, and genuinely severe fines, accompanied by equitable
relief, should serve to deter unlawful practices, which is. after all, the
Tinderlving purpose of the statutes.

Finally, the committee is well advised to consider, as it is consider-
ing, Avhether or not judicial enforcement in the first instance is the best
way of administering laws affecting competition. Federal courts are
presentlv overburdened with work, these cases are large and complex,
and theie is little provision in present law for judges to secure ade-
quate professional assistance and help in complex economic litigation.
In addition — and this fact goes to more than the w^ork of the com-
ji-iittee — Federal judges are grievously underpaid for the importance
of their work and the experience and skill which w^e must attract to
the bench. In addition, in many parts of the country court faxiilities
are woefully inadequate; the Southern District of New York is one
where that situation is particularly bad.

These are difficult problems, Mr. Chairman, particularly in the po-
litical and economic climate prevailing today, and I don't have
satisfactory answers to many.

I do believe that the work of the committee will be most productive
when it is directed to clarification of the basic objectives of our philos-
ophy of competition and to the mechanisms of its implementation, and
least productive when it appears to be examining precisely the issues
which are subject to current litigation and which, inevitably, result
in partisan approaches to problems which are important to all of us
to resolve in nonpartisan ways.
Thank vou, Mr. Chairman.

Senator Hart. Thank you very much, ]\Ir. Katzenbach. You voice
even more explicitly in your statement the concern and the reason.^,
that move vou so strongly to urge that we delay.

I would" like to have 'printed in the record an exchange of corre-
spondence that occurred between you and I on that point.



4841

Mv. Katzexbacii. Certainly, ]Mr. Chairman.

[The documents referred to appear as exhibit 1 at the end of Mr.
Katzenbach's oral testimony.]

Senator Hart. This, I know, is not the center of your concern, but
in partial response, if in your judgment balance could be added to this
record from witnesses known to you who are not on the schedule, we
would Vv-elcome j'our giving their names.

]Mr. Katzexbacii. I appreciate that, Mr. Chairman, but as you
know, we have listed some 400 people who will testify in the Govern-
ment case and I would not wish any of those witnesses to testify here
before they testify there. Of course, that testimony will be available to
this committee.

Senator Haet. I wonder if there has ever been a congressional
hearing as thorough as a good lawsuit.

Mr. Katzexbacii. I don't know the answer to that. I would sug-
gest — Mr. Chairman, as you and I know very well, Senator Hruska
as well — really extensive hearings by the Senate Judiciary Committee
with respect to the 1904 Civil Rights Act.

Senator Hart. And they were not as detailed as the Civil Eights
Commission finding.

]Mr. Katzexbach. Mv. Chairman, I think on a subject like this it
is extremely important that you do have adequate infoi-mation on a
very difficult economic subject.

If I may say so, I do not believe that it would be possible for your
present stall', in the time this committee has operated and if tliey
devoted the totality of their attention to the computer industry, to have
on that single mdustry a very adequate understanding; and I don't
believe that they would claim to liave very much at all.

I don't think that's a good basis for legislation. I think if you are
going to undertake this kind of a task the Senate should give to this
committee the resources that it genuinely needs to do the study and
work to resolve basic economic policy.

Senator PIart. I really suffer the same discomfort as I suffered in
the very first set of hearings I attended in this committee.

It was back in 1059 and literally, the first hearings were on the steel
industry. Along with others, I asked questions of steelmakers. I didn't
feel very comfortable.

The next set of hearings had to do with some bills that treated profes-
sional team sports. I listened to my colleagues ask questions. It just
happened that I had some experience in that field and thouglit, '"Good
God, how dumb" those questions were.

Tliis problem affects the whole function of Congress and I wish we
could be experts and close down and revievv steel and review sports,
but we can't.

Mr. Katzex'bach. Senator, is that really important ?

Senator Hart. Xo; but j'ou suggested we ought to wait until vre
know fully.

]\Ir. Katzexbacii. No. Senator. I said if you think it is important
that you know every industry in detail, j'ou should wait and get that
information. I'm raising a different question now.

I'm saying, Shouldn't the function of this committee be not to deier-
mine wliat should be done about the computer industry or any otlicr in-
dustry, but shouldn't your attention be focused on how those problems



4842

are being dealt with in the Government today, shonldn't you focus your
attentioii on the ])roblem of how are those administered and enforced?

Shouhl there be a Federal Trade Commmission and an Antitrust
Division in the Department of Justice? Should they be done in the
courts ? Should there be a commission to do this ? What is the expertise
of the staff of the Federal Trade Commission? How do they handle
cases ? How do they make decisions ?

Senator Hart. The honest, forthright answer, although unwise po-
litically, would be if we had thought of that first, I bet we could have
spent 2 years on that.

Mr. Katzenbacii. Productively.

Senator Haet. Yes; we think we are doing a constructive job. Xow
let me get to a point that you referred to in your testimony.

You, for a few years, had an intimate view of antitrust litigation,
massive and complex. How can we speed up that process and still as-
sure due process ?

JNIr. Katzenbacii. Well, sir, I think, myself, and I expressed this
view wlien I w^as in the Department of Justice, that much of what is
done there and the time that it takes is because of the Department's
aporoach to cases itself.

They, to a very great extent; overprepare their cases. They don't
put adequate resources into a particular case. ISIuch of what they do is
simply in response to private complaints. Little of it has to do with the
basic structure of industry.

I can remember one instance, and I will leave out tlie name of the
defendant, where a criminal case w\as brought by the Antitrust Divi-
sion, and then they came up to me with some papei-s and said they
wanted to do a great deal more discovery.

I said, ''You should be ready for trial. You've brought a criminal
case. There's no excuse for the Government not being ready for trial
in 90 days."

They said, "Oh, it'll take us 2 more years to prepare this case." xind
they had brought a criminal indictment against a large company.

I said they could not do that. They had to prepare their case. They
ended up dismissing that case, after they got adequate information.

But time and time again, I think the problem was — and it relates
to the politics of it — that the head of the Antitrust Division likes to
bring a big case and get credit for it and a lot of publicity.

It means you're very active. You're very popular with those who
w^ant antitrust law enforced. All you have to do is bring the case.

You're almost never around at trial. You're there at the takeoff, but
you're never tliere at the landing and somebody else is there at that
time.

When w^e went to the Department of Justice, when I went into the
Department of Justice, at first we had a whole bunch of cases which
Bob Kennedy had to end up dismissing; cases in which there simply
was inadequate evidence, cases that had been brought, in my ]*ud.o:ment,
by the prior administration to create a reputation of vigorous law en-
forcement. And it's very ]Dainful to dismiss those cases because tlie
people who've been in there in the past say, "I don't know wdiy they're
dismissing them. It was a good case when I was there. I don't know
why it isn't a good case ]iow."



4843

I think that has to be avoided. I think there is politics not in the
partisan sense, but I think the liead of the Antitrust Division, tlie
head of the Federal Trade Commission, makes his reputation in a
short period of time and then goes out and eai-ns a lot of money in
private practice, but he makes it from bringing cases; he doesn't make
it from pushing those cases, from prosecuting those cases, and from
finishing those cases.

A case in which I'm involved was under investigation by the De-
partment of Justice for almost 2 3"ears before it was brought, and that
was 5^/2 years ago.

Senator Hart. I ask this question not to suggest I doubt your
answer, but do you think there continues to be a need as a matter
of public policy for a law that penalizes market dominance when
exercised abusively or aggressively ^

Mr. Katzenbach. I think, Senator, that the purpose of the anti-
trust laws, or present laws, or any future legislation, ought to be
twofold.

I tliink there are some practices, as there are today, which ought
to be simply outlawed and made criminal, and as to those, I have no
problem at all.

With respect to what you refer to as market dominance, I think
there the question is not one of penalizing success if success has been
gained in legitimate ways and should not be so viewed.

There, I think, the issue is what structure in that industry, the
present one or what other one, will best serve the economic objectives
of the countiy ; and I have no problem where that restrains progress,
where tjiat keeps prices higher than prices ought to be, where the
consumer does not benefit from that, where it, in effect, is non-
competitive.

I have no problem with saying that industry should be restructured
so it would be competitive. I don't think that should be regarded as
penalizing someone.

I think that should be regarded as restructuring the industry be-
cause the public interest so requires.

Senator Hart. "Well, you have commented on the varying levels of
exi;)erience and attitude of the district court judges.

Do you feel that the decision as to whether — not calling it punish-
ment or penalizing — restructuring can be handled by these 450 judges ?

JNIr. Kx\.tzexbach. Under present circumstances, I have serious
doubts about it, in part, because I think the law itself is not terribly
clear as applied in complex situations and because, of course, the
experience of those judges varies so greatly.

There are judges who clearly would be competent to decide those
cases. Tliere are judges whom I think are less competent.

I would personally think that in theory it would be better to have
a specialized court or administration of the type that you suggest in
your bill.

As I've said to you before, less formally, my problem with that is
can you attract people of the requisite skill and wisdom and training
and background to stay in those positions long enough to accomplish
those purposes ?



4844

Senator Hart. I'm glad we share the feeling that a specialized
tribunal could be more eiTective and consistent. The second question is,
could you keep them. Almost as a footnote, you made a comment in
your testimony about the judicial pay scale. You have to do something
about that.

]Mr. Katzenbach. You really should. We're losing the best judges.
Some are being lost, and many cannot be attracted at the current salary
scale for Federal judges ancl it is inadequate; they are embarrassed
by lack of funds ; they look at what their colleagues are making in the
private bar, and it is a real serious problem.

Senator Hart. You don't agree with everything I do, but I voted as
a big spender on the judicial pay bill.

Mr. Katzexbach. Senator, I agree with almost everji:hing you do.
There's only one big exception.

Senator Hart. We are now confronted with a meeting of the full
committee in executive session. We did not learn about it until long
after scheduling these hearings.

We just got notice of it yesterday, we have to interrupt. ]My im-
pression is it will not be for very long. Let me see if I can get one more
question in.

You talked about the desirability of strong fines for clearly improper
conduct and suggested the need to increase the amount that could be
applied.

Senator Hruska and I have joined in seeking to achieve that. Your
testimony, I'm sure, will help to persuade our colleagues.

You don't say anything about a jail sentence as a deterrent in these
tilings. I have become convinced that a brief jail sentence for some-
one like you and me is a whale of a lot more deterring than an even
longer jail sentence for some fellow that was bom in one of those blind
alleys and finds jail more comfortable than where he had to live.
How do you feel about the deterrent effect of an occasional vice
president spending 30 days in jail ?

Mr. Katzenbach. I think it would be useful. In these days a lot of
respectable people are going to jail.

Senator Hart. And not going to jail.

Mr. Katzexbach. And not going to jail. I Avould be for it. Senator.
I don't mean to be facetious. I think if a person violates a clearcut law-
he fixes prices with a competitor — he must know that's wrong, and I
think they should be personally punished.

The reason I wanted a big fine and do want a big fine for that is I
think the only Avav you're going to get com])anies, some companies at
least, to really police their own practices is to put a genuine penalty on
them for that kind of clear conduct. The only kind of conduct that
])robably should be prescribed by the criminal laws is clear violations,
price fixing, that sort of thing.

Senator Hart. Thanks very much. I'm sorry, we will have to recess.

[Whereupon, a brief recess was taken.]

Senator Hart. Tlie committee will be in ordei'. Senator Hruska ?

Senator Hruska. ]Mr, Katzenl)ach, it is with great interest that I
listened to your testimony and, frankly, I think it has a great deal
of merit to it philosophically as well as in a practical way. In a
practical sense there is a pending case.

And the impact of these hearings upon that case, of course, cannot
be evaluated now, but only in the future. In all frankness, I might



4845

observe at this point that I am not in sympatliy with tlie ireneral
objectives or the merits of the pending bill, wliich was placed tliis
morning into the i-ecord once again.

Sometimes I am accnsed of prejudging the case, not having heard
all the evidence. To observations of that kind I say any degree of
prejudgment or lack of official temperament in that regard is_ of
small consequence compared to that conflict of interest that arises
within the breaths and' in the minds of the author of the l)ill who
chairs this conmiittee. And certainlv, he has a bias in favor of the
bill.

I am entitled to my own judgment on it. and in a little while some
of the questiou-s which I ask will bear out the principal reasons why
I am against this bill.

May I ask you, Mr. Katzcnbach: Is this case in New York being-
tried l)y the court or by a jury ?

]\Ir. Katzenbacii. Just to the court.

Senator Hruska. So, presumably, any of the press notices, either
in the trade journals or otherwise, would have lesser impact than if
it were a jury case where the panel would get to that material —
improperly, perhaps, but get to it.
Is that a fair observation?

Mr. Katzexbach. Yes; as I said in my statement I am sure it will
not influence the judne.

Senator Hruska. How long will this trial take from now on, starting
in October?

Mr. IvATZEXBACH. It is very difficult to make that estimate, Senator.
I don't know how many days the court will sit. I don't laiow whetlier
the Government intends to call all its witnesses.

If all of the witnesses are called by both sides, and if the court sits
4 or ,5 daj's a week, it will go over a year.

Senator Hruska. How long did the case in Oklahoma City take ?
]Mr. Katzenbacii. About G weeks.

Senator Hruska. "\Mien was this trial started ? When was the peti-
tion signed and filed ?

Mr. Katzexbach. In the Govei-nment case ?
Senator Hruska. In the Ncav York case.

Mr. Katzex^bacit. The petition was signed on Januarv IT, 1969, the
last full day of the Jolmson administration. It v^-as the Friday before
Mr. Nixon was inaugurated on the Monday.
Senator Hruska. "Who signed it ?

]Mr. Katzexbach. It was signed by the then Attorney General,
Ivamsey Clark. That came, I believe, as something of a surprise not
only to IBM 1 )ut to Pi-esidcnt Johnson.

Senator Hruska. In your testimony you observe that one purpose



Online LibraryUnited States. Congress. Senate. Committee on theThe Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) → online text (page 2 of 140)