Justice Dept. Stokes Antitrust Machinery
In the biggest crackdown on business abuses in a generation, the Justice Department is flexing its antitrust muscle with newfound vigor, fresh from a string of high-profile assaults on corporate icons.
American Airlines, Microsoft Corp., major credit card companies and European vitamin giants are just a few of the companies to face the recent wrath of regulators, part of a forceful campaign to fight alleged monopolies and price-fixing.
The aggressive posture has been driven by a mix of political opportunism, frustration with past missteps, attractive inducements to whistle-blowers and other factors.
“Make no mistake about it, this is a very ambitious agenda. It’s been 20 years since the government took on so many major figures of American commerce and accused them of abuse of power,” said George Washington University law professor William E. Kovacic, an antitrust specialist.
Despite all the Justice Department has done, however, some frustrated consumer advocates and antitrust experts question whether the high-profile attacks mask a more troubling trend. A number of multibillion-dollar telecommunications mergers have gone virtually unchallenged by the department, foreshadowing continued rate hikes in everything from cable television to phone service and computer software, some consumer advocates warned.
“Those are the cases that have much broader implications for the public, and [Justice Department regulators] have been much too timid,” said Gene Kimmelman, co-director of Consumers Union. “They’ve missed the boat.”
That criticism aside, however, few deny that the corporate community, both here and abroad, has been put on notice by the Justice Department’s tough talk and some impressive results.
“The message is, if you violate antitrust laws, it’s going to be very, very costly,” said Gary Spratling, head of criminal antitrust matters.
Indeed, one gauge of the trend--the amount of fines collected from antitrust violators--has increased sharply. Fines have ballooned from $26.8 million in 1996 to nearly a billion dollars already this year, a result of the Justice Department’s deliberate decision to go after big multinational firms and leave small-time price-fixers to local authorities.
Antitrust regulators have been able to move more forcefully in part because the Clinton administration is nearing an end and is less vulnerable to political criticism, some observers suggested.
Big, complicated cases often are launched in the waning days of a political administration after the evidence has been gathered and the political climate might not matter as much. The Justice Department’s 1969 landmark antitrust case against IBM Corp., for example, was launched in the waning days of the Lyndon B. Johnson administration, and it was quietly killed a decade later at the beginning of the Ronald Reagan administration.
Campaign Is Several Years in Making
Chief antitrust officer Joel I. Klein, meanwhile, has appeared more receptive to new ideas in economic theory and is close to Atty. Gen. Janet Reno.
The campaign is several years in the making. One attorney familiar with the process said that it has its roots in a losing effort in 1994 to prosecute a price-fixing case in the diamond industry.
The frustration and disappointment of that defeat prompted the department’s enforcement section to take stock of its methods, particularly those that bear on growing international markets. In recent years, antitrust regulators have moved forcefully to target international cartels, strengthen their contacts with overseas authorities and develop a leniency program for corporate whistle-blowers willing to cooperate.
“The amount of analysis that the antitrust agencies are doing is more elaborate,” and that takes time, said Phil Verveer, a veteran Washington antitrust lawyer who helped the government bring the case that, ultimately, in the early 1980s broke up the old AT&T; monopoly on telephone service.
With about 30 grand juries investigating international cartels in different industries, and hundreds of millions of dollars in fines already levied this year, “we’re now seeing the fruits of that focus,” Verveer said.
Indeed, the antitrust fines have been flying at a pace that would have made Theodore Roosevelt and his monopoly busters proud.
Earlier this month, the Justice Department reported a record antitrust fine of $135 million against a German company for fixing prices of graphic electrodes used in the steel industry. The next day, a German food manufacturer was slapped with a $36-million fine because of its scheme to jack up the prices of chemical preservatives used in processed foods.
And on Thursday, the record was broken again as Reno and Klein announced a $500-million fine against a Swiss vitamin maker for leading a decade-long price-fixing “cartel.” A $225-million fine also was levied against a German firm that conspired in the scheme.
That came on the heels of the department’s attack last week on the airline “hub” system. The Justice Department sued American Airlines for allegedly monopolizing service at its Dallas-Fort Worth base and driving out small carriers by slashing fares temporarily.
The lawsuit, the first of its kind against alleged airline “predatory pricing,” could have a broad effect on the major airlines but faces a tough battle in the courts. And not everyone thinks the government’s aggressive new tactics will help travelers.
The lawsuit could deter competition and drive up fares, said antitrust specialist Ernest Gellhorn, a law professor at George Mason University. “It’s dumb economics. The last thing we want to do is set up a bunch of antitrust laws that tie competitors’ hands behind their backs.”
Such trends worry Gellhorn and other free-market proponents. “If there’s one guiding philosophy” behind the department’s new antitrust vigor, he said, “it’s a certainty that government knows best.”
But Justice Department officials insisted that a staunch defense of consumers’ rights, not arrogance, is driving their recent assaults.
“Our focus is on market power, how it was acquired and whether it was misused,” Klein said in an interview.
The antitrust stakes are perhaps highest for the government in the Microsoft antitrust trial, which many observers see as a crucial test of the limits of corporate power in the Information Age, as well as a sign of how far the courts are willing to go in reining in anti-competitive behavior. After a three-month hiatus, the Microsoft trial resumes in Washington next month.
The stepped-up visibility of Klein’s operation comes amid a worldwide trend of industry deregulation that was supposed to lower prices and fuel more competitive markets in businesses ranging from airlines to telecommunications.
Nations from China to Brazil have opened up once-closed markets in a host of industries, contributing to a boom in international trading. But experts said that the boom has also increased the temptation for some companies to try to monopolize markets in hopes of reaping huge profits, as in the “vitamin cartel” case.
In light of such attempts to manipulate the market, some experts said that Justice’s aggressive stance is long overdue.
“I think [on balance] the stepped-up antitrust enforcement is good for consumers,” said Daniel M. Wall, a former department lawyer who founded Antitrust magazine. “In the Reagan years, the antitrust division was AWOL, and that can’t be good for consumers.”
Tough Scrutiny on Capitol Hill
Klein, who had worked as a Supreme Court clerk and a White House attorney, faced tough scrutiny on Capitol Hill after he was nominated to the antitrust post in 1997. Some lawmakers said they feared that he would go easy on big business. Sen. Ernest F. Hollings (D-S.C.) attacked him as “an antitrust fellow here who rolls over and plays dead.”
The criticism was fueled partly by Klein’s decision as acting head of the division to allow the $21-billion merger of Bell Atlantic Corp. and Nynex Corp. Indeed, he now acknowledges that the department has “obviously not challenged some key mergers,” including Bell Atlantic, AT&T;’s acquisition of cable giant Tele-Communications Inc. and Citicorp’s purchase of Travelers Group Inc.
But the department has successfully challenged several large mergers, including Lockheed-Martin Corp.’s proposed takeover of Northrup Grumman Corp., and Klein said that such mergers will continue to get tough scrutiny. And in reviewing merger applications, regulators have demanded written and oral follow-up information far more often in the last few years than they did a decade ago, department figures show.
“There clearly is a very strong bipartisan view in Congress that supports antitrust enforcement,” Klein said. “There is lots of concern about mergers to make sure they are fairly and thoroughly scrutinized.”
