Antitrust Division chief William Baer today defended the Justice Department's settlement with US Airways and American Airlines before skeptical members of Congress, who questioned the reasons for bringing the case and the terms of the divestiture.
Members of the House Judiciary Committee's Subcommittee on Regulatory Reform, Commercial and Antitrust Law also questioned Federal Trade Commission Chairwoman Edith Ramirez about the agency's use of Section 5 of the FTC Act, which forbids unfair or deceptive acts of commerce, as well as potential FTC action against so-called "patent trolls."
The Justice Department on Nov. 12 announced a tentative settlement with US Airways and American to allow their $11 billion merger to go forward. The airlines agreed to divest takeoff and landing slots and gates at seven major airports, including Washington Reagan National and LaGuardia in New York.
Representative John Conyers (D-Mich.) said he was “concerned” about the settlement, since only four domestic airlines—United, Delta, Southwest and the new American—will control more than 80 percent of the market. “They’ll have an even greater incentive to raise fares and fees because consumers will have fewer choices,” he said.
Rep. Blake Farenthold (R-Texas) also questioned settlement provisions that call for selling the divested slots to low cost carriers such as Southwest and JetBlue. “It seems like it’s giving preference to low cost carriers,” he said. “At what point is it appropriate for the government to pick winners and losers?”
And subcommittee chair Spencer Bachus (R-Ala.) wondered why DOJ sued to block the deal in the first place, since the “department has approved several similar or even more problematic mergers in the past,” he said. “It appears to me to be a case of overcompensating for past omissions.”
“DOJ did nothing about Delta,” added Representative Steve Cohen (D-Tenn.), referring to the 2008 merger with Northwest, which he said was “nothing short of a disaster for Memphis.”
Unruffled, Baer defended the settlement, which he said was “actually better than a full-stop injunction. Why would I say such a thing? It’s because a full-stop injunction would have kept the legacy carriers in their current position, which was already pretty cozy. We did not see lots of meaningful competition on price, on service, on ancillary fares like baggage fees.”
He continued, “Where there was significant competition and expansion … was where the low cost carriers over the last 10 or 15 years had begun to establish a presence. But the problem is that the low cost carriers don’t fly everywhere, and one reason they don’t is that they can’t get access at key airports, like LaGuardia, like National. You open up those airports just a little bit … [and] we think there’s real opportunity here to positively change the competitive dynamic.”
Members pressed Ramirez about the FTC’s use of Section 5 in standalone cases—ones in which the Sherman or Clayton antitrust acts are not also invoked. In recent years, for example, the FTC has used Section 5 to investigate Google Inc. and sue Intel Corp.
Conyers said that critics “contend that the FTC’s use of its authority under Section 5 of the FTC Act has been inappropriate to the extent that it reaches conduct that doesn’t violate the Sherman or the Clayton Acts. And they contend that the FTC’s failure to issue guidelines on its use of Section 5 creates uncertainty and is simply unfair.”
Ramirez responded that Congress “very deliberately granted the FTC authority to go beyond the literal scope of the antitrust laws under its Section 5 authority.” But she said the agency has “used that authority in a very limited and restrained way.” She continued, “I also don’t believe that the way we’ve used it has created any uncertainty to the extent that it limits pro-competitive behavior … and I also believe we’ve provided appropriate guidance about what motivates our use of Section 5.”
Last month, House Judiciary Committee Chairman Bob Goodlatte (R-Va.), along with Bachus, Farenthold and five other members of Congress, sent a letter to Ramirez urging the FTC to issue Section 5 guidelines, which they said would “allow businesses to develop lawful competition policies and encourage critical innovation.” Act.
The FTCs two Republican commissioners, Maureen Ohlhausen and Joshua Wright, have also urged the agency to issue guidance.
Members asked Ramirez about the FTC’s ongoing study of patent trolls, which she said based on comparable past studies is likely to take 1 1/2 to 2 years to complete. “Could we maybe get the FTC to take a little more aggressive approach to protecting consumers in this area?” asked Farenthold.
“We’re aware of the issue, we’re looking at it closely,” Ramierz said. “If we find that there is either anticompetitive conduct by [patent assertion entities] or conduct that comes within our consumer protection authority under Section 5, we will in fact take action.”