Antitrust Division Takes Charge of Entertainment Industry
Which Federal Agency Should
Mergers and Why
by Steven John Fellman
NATO Washington Counsel
Department of Justice and the Federal Trade Commission announced
that all future entertainment industry and multimedia mergers and
acquisitions would fall under the exclusive jurisdiction of Justices
Antitrust Division. In order for NATO members to evaluate the meaning
of this decision, some background information is required.
Section 7 of the Clayton Act is the basic antitrust statute that
prohibits mergers or acquisitions where in any line of commerce
or in any activity affecting commerce in any section of the country,
the affect of such acquisition, of such stocks or assets, or of
the use of such stock by the voting or granting of proxies or otherwise,
may be substantially to lessen competition, or to tend to create
a monopoly. This statute was passed in 1914. At that time,
there were no movies, no television, no video games, no VCRs, no
DVDs, no computers, no Internet. The media was a far
cry from what it is today.
The Antitrust Division and the FTC each have the authority to enforce
this statute. Historically, the two agencies have adopted an informal
clearance procedure under which the agencies jointly agreed which
agency would take which case. These agreements resulted in an understanding
that where a case arose in a certain industry, it would be assigned
to the same antitrust agency as previous cases involving that industry.
As an example, for many, many years, cases involving the motion
picture industry all went to the Department of Justice rather than
exhibitors are more concerned that entertainment industry and
create restrictions on competition, then traditionally it would
be more beneficial to
give jurisdiction to the FTC.
Why should a
motion picture theatre company care whether merger cases go to the
Department of Justice or the Federal Trade Commission? Lets
go back and look at the language in the statute that we quoted above.
What does it mean to substantially lessen competition, or
tend to create a monopoly? What is a line of commerce?
The answer to these questions has changed significantly over the
years. Antitrust enforcement theories have tended to swing like
a pendulum. In the 60s and 70s, the antitrust agencies
were apt to question most mergers of companies of any significant
size. Today, both Justice and the FTC support the concept that increased
economic efficiency is in the interest of consumers and therefore
they approve mergers of giant companies as long as there still is
some competition in the industries involved. Although in recent
years both Republicans and Democrats have chosen not to challenge
large mergers, Republicans have tended to be more conservative in
this regard than Democrats. It is in this context that the issue
of whether Justice or the FTC challenges a specific merger becomes
of Justice falls under the control of the attorney general who is
appointed by the president. The Antitrust Division of the Department
of Justice is headed by an assistant attorney general who is also
appointed by the president. Each time the administration changes,
the attorney general and all the assistant attorneys general submit
their resignations so that the new president, with the consent of
the Senate, can appoint a new attorney general and new assistant
attorneys general. The economic philosophy of the party in power
The FTC is quite different, an independent regulatory agency headed
by five commissioners, one of whom is named chairman. No more than
three commissioners can be of any one party. Commissioners are appointed
by the president, with the consent of the Senate, for a 7-year term.
Once a commissioner is appointed, he or she can hold the seat of
commissioner for the entire 7-year period even if the administration
shifts. However, when the administration shifts, the newly elected
president is entitled to appoint a new chairman from among the sitting
commissioners. The old chairman isnt fired from the agency.
He or she just resumes the position of a regular commissioner.
If Justices Antitrust Division examines a merger and decides
to challenge it, an appropriate investigation is conducted, then
the staff makes a recommendation to the assistant attorney general.
The assistant attorney general then makes the decision of whether
or not to proceed with the litigation. In all but extraordinary
circumstances, the attorney general will support the assistant attorney
At the FTC, the procedure is more complex. After an appropriate
investigation, the staff makes a recommendation to the Commission,
i.e., all five commissioners. The decision to proceed with litigation
must be approved by a majority of the commission at a meeting at
which a quorum is present. Generally a quorum is three Commissioners.
If one or two of the commissioners recuses himself or herself because
of prior involvement with one of the parties to a transaction, it
is quite possible that the decision to proceed or not to proceed
will be made by commissioners who do not represent the current party
With this background, lets go back to the current issue between
the FTC, the Department of Justice, and Sen. Ernest Hollings (D-S.C.).
Current FTC chairman Timothy Muris, a Republican, and the current
assistant attorney general in charge of the Antitrust Division,
Charles James, another Republican, made an agreement that all entertainment
industry and multimedia mergers would go to the Department of Justice.
For Sen. Hollings and other consumer advocates, this meant that
the administration would have an unrestricted ability to determine
when a merger should be challenged. If the entertainment industry
and multimedia mergers were considered by the FTC, the Democrats
and the consumer advocates could be sure that Democratic Commissioners
would at least have a say in determining whether antitrust action
should be taken. Sen. Hollings argued that by taking the FTC out
of the picture there was a greater chance that mergers could be
pushed through without a meaningful review. Furthermore, since the
Democratically controlled Senate has an easier time making oversight
challenges to the activity of the FTC than it does to the Department
of Justice, Hollings would have liked to keep entertainment and
multimedia mergers in the hands of the FTC.
How does this play for motion picture exhibitors? If exhibitors
are in favor of more entertainment industry and multimedia mergers,
they will support giving the Antitrust Division exclusive authority
over such mergers. However, if exhibitors are more concerned that
entertainment industry and multimedia mergers may create restrictions
on competition, then traditionally it would be more beneficial to
give jurisdiction to the FTC.
Lets take a realistic look at the bottom line. When you review the
current enforcement philosophy of the FTCs Muris and assistant
attorney general James, you will find that both are very conservative.
The current enforcement practices of both the FTC and Justice leads
one to conclude that active merger enforcement policy is a thing
of the past in all but the most outrageous situations. In todays
context: Frankly Scarlett, I dont give a damn.