[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]




 
                   SMALL BUSINESS COMPETITION POLICY:
                  ARE MARKETS OPEN FOR ENTREPRENEURS?

=======================================================================

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                           SEPTEMBER 25, 2008

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 110-115


Available via the GPO Website: http://www.access.gpo.gov/congress/house



                     U.S. GOVERNMENT PRINTING OFFICE
44-254 PDF                 WASHINGTON DC:  2008
---------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800  
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001


                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
CHARLES GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington              SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas                 STEVE KING, Iowa
DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa                   DAVID DAVIS, Tennessee
YVETTE CLARKE, New York              MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana              VERN BUCHANAN, Florida
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii

                  Michael Day, Majority Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               VERN BUCHANAN, Florida, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                     MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)

  
?

           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     VERN BUCHANAN, Florida

                                 ______

            Subcommittee on Rural and Urban Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DAVID DAVIS, Tennessee
HANK JOHNSON, Georgia

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLES GONZALEZ, Texas              MARY FALLIN, Oklahoma, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES

Kovacic, Hon. Willam E., Chairman, Federal Trade Commission......     3
Hazel, Dr. William, Jr. MD, Secretary of the Board of Trustees, 
  American Medical Association...................................    19
Rubin, Dr. Jonathan, Partner, Patton Boggs, LLP., on behalf of 
  the American Antitrust Institute...............................    21
Hilal, Mr. Said, President, Applied Medical Resources Corp., 
  Rancho Santa Margarita, CA, on behalf of the Medical Devices 
  Manufacturers Association......................................    23
Lowe, Mr. Aaron, Vice President, Automotive Aftermarket Industry 
  Association....................................................    24
MacLoed, Mr. William, Partner, Kelley Drye & Warren, LLP.........    27

                                APPENDIX


PREPARED STATEMENTS:
Velazquez, Hon. Nydia M..........................................    43
Chabot, Hon. Steve...............................................    45
Kovacic, Hon. Willam E., Chairman, Federal Trade Commission......    46
Hazel, Dr. William, Jr. MD, Secretary of the Board of Trustees, 
  American Medical Association...................................    70
Rubin, Dr. Jonathan, Partner, Patton Boggs, LLP., on behalf of 
  the American Antitrust Institute...............................    82
Hilal, Mr. Said, President, Applied Medical Resources Corp., 
  Rancho Santa Margarita, CA, on behalf of the Medical Devices 
  Manufacturers Association......................................    90
Lowe, Mr. Aaron, Vice President, Automotive Aftermarket Industry 
  Association....................................................    99
MacLoed, Mr. William, Partner, Kelley Drye & Warren, LLP.........   106

STATEMENTS FOR THE RECORD:
Kolter, Mr. Bill, Vice President, Biomet, Inc., Warsaw, IN.......   113
Balto, Mr. David, Senior Fellow, Center for American Progress and 
  the Consumer Federation of America.............................   116

                                  (v)

  


                   SMALL BUSINESS COMPETITION POLICY:

                  ARE MARKETS OPEN FOR ENTREPRENEURS?

                              ----------                              


                      Thursday, September 25, 2008

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
1539, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chair of the Committee] Presiding.
    Present: Representatives Velazquez, Altmire, Cuellar, 
Hirano, Clarke, Chabot, Shuster, and Westmoreland.
    Chairwoman Velazquez. Good morning.
    I call this hearing of the House Small Business Committee 
to order. Competition is the crux of our economy. It not only 
drives innovation and development, but it also spurs invention. 
After all, you don't often see new products originating in 
unchallenged industries. Rather they come from diverse sectors 
that promote a wide range of options. In a free market economy, 
it is crucial that all businesses, large and small, have a 
level playing field. The FTC is charged with making sure that 
happens. With this in mind, it is important for the commission 
to be engaged and prevent industries from isolating themselves. 
A lack of competition does not benefit the economy and it 
certainly does not benefit the taxpayer.
    In recognizing this fact the FTC already has a number of 
antitrust provisions in place. The commission's Bureau of 
Competition for example uses both administrative and judicial 
means for enforcing regulations. In this morning's hearing we 
will discuss the FTC's efforts to promote competition and its 
role in spurring small business development.
    Competition is a powerful catalyst for financial growth. 
This is particularly true for America's entrepreneurs who 
thrive in an open economy. Competition is the key that allows 
small businesses to unlock new markets and expand existing 
industries. It lowers prices and raises the bar for quality, 
largely because it forces other companies to step up to the 
plate and elevate their standards. At the end of the day an 
entrenched business has little incentive to offer competitive 
values. Small firms, on the other hand, have every motivation 
to do so.
    On top of lowering consumer costs, competition also 
promotes invention. Startups have historically led the lion's 
share of industry innovation. From the tech boom of the mid-
1990s to the green energy revolution of today, entrepreneurs 
are the business world's best innovators. They are always 
looking to meet emerging needs and offer fresher, better 
choices. In order to remain competitive, big brands are then 
forced to either innovate on their own or otherwise increase 
the values. Either way, consumers enjoy more choices.
    Competition does more than level the playing field. It 
stimulates the economy. This is particularly true for America's 
small businesses whose survival depends on access to an open 
marketplace. If monopolies are permitted to dominate entire 
industries, then they have little incentive to innovate or 
contribute to economic expansion. That is why it is so 
important that competition be protected for entrepreneurs. 
Without the opportunities that it affords, these small firms 
will not be able to do what they do best, drive innovation, 
create jobs and spur financial growth.
    I would like to take this opportunity to thank today's 
witnesses in advance for their testimony, and I look forward to 
hearing their thoughts on this issue.
    With that, I yield to Ranking Member Chabot for his opening 
statement.
    [The statement of Chairwoman Velazquez is included in the 
appendix at page 43.]
    Mr. Chabot. Thank you, Madam Chairman. And thank you for 
holding this important hearing examining the antitrust laws in 
the United States.
    I might note that I had the honor to be the ranking member 
of the antitrust task force of the Judiciary Committee for much 
of the past Congress, and so it is an area that I have a 
significant amount of interest in; I would like to say some 
expertise, but definitely an interest, and so I do appreciate 
having this hearing.
    Enforcement of the antitrust laws play a key role in 
maintaining open competition, an environment in which small 
businesses thrive because of their attention to customer 
service and nimbleness in making business decisions. The 
Committee has a longstanding and long interest in examining the 
competitiveness of markets and the impact of the Sherman 
Antitrust Act and Federal Trade Commission Act on small 
business. However, the Committee has not examined these matters 
in nearly two decades. And in light of the report issued last 
year by the Antitrust Modernization Commission, it seems timely 
for the Committee to turn its attention to aspects of market 
competition that fall within the confines of the antitrust 
laws. So I commend the chairwoman for doing that.
    The Supreme Court has stated that, quote, the unrestrained 
interaction of competitive forces will yield the best 
allocation of our economic resources; the lowest prices, the 
highest quality and the greatest material progress, unquote. In 
short, competitive free markets represent the cornerstones of 
American progress and the success of our democracy. The 
antitrust laws were established to protect these precious 
values.
    By providing a mechanism to ensure that competition is not 
unreasonably hindered, the antitrust laws can be seen as 
further bracing the competitive foundation of this country. The 
Antitrust Modernization Commission was created by Congress to 
examine whether laws written more than 100 years ago were 
appropriate and continue to be for the modern economy. The 
commission's conclusion that the antitrust laws are basically 
sound is one I fully support.
    That being said does not eliminate the possibility for 
improvements, either in the actual legislative language of the 
laws or more rational enforcement of the existing laws. An 
issue that may not have raised competitive concerns 20 years 
ago might be one for the agencies charged with antitrust 
enforcement to reexamine. For example, the joint guidelines 
issued by the Department of Justice and the Federal Trade 
Commission on health care have not been evaluated in nearly 20 
years. If this Committee can examine changes in the health care 
market and the impact of mergers on industry concentration, 
then it may make sense for the antitrust enforcement agencies 
to reassess their guidelines on antitrust enforcement. As with 
the Antitrust Modernization Commission, they may find that 
these guidelines are sound, but periodic review certainly may 
be warranted.
    Of course, such reevaluations need not result in any 
modifications to any antitrust law enforcement by the Federal 
Trade Commission or the Department of Justice. However, good 
management suggests that standards developed by the government 
should be reevaluated on a periodic basis; otherwise, it is 
conceivable that government enforcement of the antitrust laws 
may not serve their purpose of ensuring competition given the 
changes in market conditions. I look forward to the thoughtful 
discussion from the witnesses and their ideas on how to ensure 
that small businesses will face a free competitive market.
    And I again thank you Madam Chairwoman for holding this 
hearing, and I yield back.
    [The statement of Ranking Member Chabot is included in the 
appendix at page 45.]
    Chairwoman Velazquez. Thank you.
    And it is my pleasure to welcome the Honorable William 
Kovacic. The Honorable William Kovacic was designated Chairman 
to the Federal Trade Commission on March 30, 2008. Prior to 
this appointment, he was a commissioner with the FTC. The 
Federal Trade Commission is the only Federal agency with both 
consumer protection and competition jurisdiction in broad 
sectors of our economy.
    Welcome.

   STATEMENT OF THE HONORABLE WILLIAM E. KOVACIC, CHAIRMAN, 
                    FEDERAL TRADE COMMISSION

    Mr. Kovacic. Thank you, Madam Chairwoman, Ranking Member 
Chabot, Congressman Westmoreland and Members of the Committee.
    I am very grateful for the opportunity to be here today to 
discuss the FTC's role in addressing competition policy, small 
business, and new entrepreneurship. I have submitted a 
statement on behalf of the Commission for the record, and what 
I have to say today represents my own views, not necessarily 
those of my colleagues.
    I completely share the Chairwoman's view about the 
importance of new business development and the role that new 
entrepreneurship has played in providing a uniquely powerful 
source of vitality and rejuvenation for our economy. And I 
believe it would be fair to say that if my colleagues were here 
with me today they would agree with that sentiment completely.
    What I would like to do is to highlight three ways in which 
I think our agency today and in the future will be seeking to 
preserve what Mancur Olson, the economist who served for so 
many years at the University of Maryland, in talking about new 
business development described as an enabling environment for 
new entrepreneurship. The first thing that we try to do is to 
challenge private restrictions upon behavior under the 
antitrust laws that tends to do two things: We challenge 
behavior that tends to raise the costs of key inputs on which 
small businesses and large businesses rely, inputs that have a 
uniquely significant role in the growth and development of 
small businesses. Examples include the work that we do in the 
professions to ensure that professional services are priced at 
relatively low rates and feature innovative means of delivery 
so that small and large businesses alike are able to achieve 
cost reductions.
    The second form of conduct we attack is behavior that 
unreasonably restricts access to the market. Where private 
actors and incumbent firms band together, for example, to deny 
opportunities for innovative new firms to gain access to the 
market, a number of our cases have challenged that behavior. 
Our current program which involves real estate is but one 
example of areas where we have sought to ensure the innovative 
new models of providing important services get a test in the 
marketplace on the merits.
    The second area that is a key area of our concern involves 
what I would call research and advocacy. Because Congress 
entrusted us not simply with enforcement authority but saw our 
role to be very much that of providing research, being a 
convenor of events, we take this role very seriously in 
providing advice to other public institutions, to challenge and 
force a rethink of restrictions on entry into the market that 
we regard to be unnecessary to achieve legitimate policy goals 
and that unduly restrict access to the market. That has been a 
major focus of our work involving Internet sales of wine and 
other products.
    An increasing focus of our work is to inform policy 
development. That is to focus on emerging trends and, where 
necessary, to engage in a probing reassessment of what we have 
done. That was the ranking member's comment about the 
importance of always reevaluating the wisdom of what we have 
done. And for myself, given the work that I have done in the 
area of development economics in other countries around the 
world, an increasing concern for me is why poverty persists in 
areas of severe economic disadvantage and where it might be 
possible for our programs to focus more carefully on artificial 
impediments to the market in parts of our country in which we 
see persistent, difficult, and often unsuccessful efforts by 
entrepreneurs to enter the market. I am not suggesting we will 
find precise and always successful solutions to that, but I 
think the general questions of economic disadvantage and new 
business development tend to be extremely important concerns to 
me. I will use the resources as well as I can of our agency to 
promote efforts to explore that. The last is to provide 
guidance and information to entrepreneurships. To provide 
guidance, we prepare a number of materials for small businesses 
that might not be able to afford the elegant services of a 
fairly costly law firm by which people, in relatively plain and 
simple terms--and I would like to present these for your record 
as an illustration of what we do--can understand what the 
mandates of the law are and, through consumer protection 
measures such as the franchise rule, to ensure that new 
businesses contemplating entry into the market have a better 
informed judgment of what lies ahead for them.
    This is a snapshot of our program. I welcome the 
opportunity to address your comments and questions. And I hope 
this is the first of a number of occasions in which we can 
carry on a conversation about this important area of concern.
    Thank you, Madam Chairman.
    [The statement of Mr. Kovacic is included in the appendix 
at page 70.]
    Chairwoman Velazquez. Thank you, Mr. Chairman.
    I hear you, hear you talk about agreeing with us regarding 
the importance of promoting new business through business 
development. I would like to hear from you with more 
specificity, from your perspective, how does the presence of 
small firms in the marketplace benefit consumers? And in 
particular, what steps has the FTC taken to actively work with 
the small business community on competition issues besides 
showing me the guidance that is going to be made part of the 
record?
    Mr. Kovacic. I would say one of the most important 
benefits, though not the only one, is the one that you 
highlighted in your comments before. And that is the importance 
of innovation, the significance of having the new idea, the new 
form of organization come into the marketplace. In many 
instances, it is the small entrepreneur, it is the individual 
perhaps working in a large organization who has the idea about 
how to enter. So I would underscore that as being perhaps the 
most important single benefit to consumers.
    A large number of our programs seek to make sure that there 
are not artificial obstacles placed in the way of these 
individuals. And we do work through a fairly broad program of 
consultation with a variety of groups outside our walls. 
Academics who study these circumstances, trade associations 
before whom we appear regularly to discuss our programs, and to 
learn from the convening of workshops and programs - these are 
all measures by which we seek to make sure that we understand 
what is taking place in these communities and can make 
effective policies to address these concerns.
    Chairwoman Velazquez. Enforcement of our Nation's antitrust 
laws is critical to maintaining a level playing field and, of 
course, keeping markets open for small businesses. What kind of 
anticompetitive conduct do you see as posing the biggest threat 
to small firms, and how is the FTC working to counter these 
threats to entrepreneurs?
    Mr. Kovacic. I would say the single threat that strikes me 
as most important, though not the only, is where you have 
incumbent providers of a service seeing a threat by a new 
service provider who in particular threatens to topple the 
existing structure of things by doing something new and 
innovative, where the incumbent providers either ban together 
on their own to take measures to keep that person out, or they 
go to public institutions that have the power of law through 
regulation or statute to keep these individuals out. We bring a 
number of cases that challenge the private restrictions, we use 
our advocacy program to approach public institutions and say 
that is harmful.
    But I would say at the same time, we have a similar concern 
about the capacity of a single dominant enterprise to do the 
same thing acting on its own. I put first in the hierarchy the 
collective effort to exclude. I would add to that instances in 
which a single firm, either using private means or again going 
to public authorities and saying keep the threat off my back, 
both of those are important to us.
    Chairwoman Velazquez. I understand you are going to be 
holding a series of hearings to mark the 100th anniversary of 
your agency. Are you planning to hold any hearings with the 
small business sector?
    Mr. Kovacic. In a number of instances, I expect 
representatives of small business groups or individuals who 
started small and became large to address issues associated 
with the development of small business. I expect that will be a 
perspective. And we will be seeking it not only with the 
community at home but overseas, too, to tap experiences that 
foreign jurisdictions have had in trying to promote an enabling 
environment for their firms, too.
    Chairwoman Velazquez. Why is it so difficult just to design 
one hearing to listen to small business issues as they relate 
to antitrust laws?
    Mr. Kovacic. I found that since we are having perhaps a 
total of over a dozen individual events - and I am glad to 
discuss more with you and the Committee about whether the 
structure of these programs might be reconsidered - I find it 
useful to have them as part of a larger mix of organizations to 
say, let me tell you how my own situation is similar to or 
different from the others. I welcome the opportunity to speak 
with you, your colleagues and your staff about considering 
whether this assumption is a sound one.
    Chairwoman Velazquez. I welcome that.
    The Justice Department recently issued a report on single 
firm conduct. While the FTC and the DOJ held nearly 20 joint 
hearings, the FTC refused to sign the report. The FTC's dissent 
stated the policies in the report placed the interest of 
monopolies ahead of consumers and downplaying the risk of 
under-enforcement. How do the commission's views differ from 
DOJ on monopoly policy?
    Mr. Kovacic. I had my own statement in response, but I will 
try to say what I think my colleagues might agree with to put 
my finger on one thing. My sense is that the modern path of our 
jurisprudence, especially Supreme Court jurisprudence over the 
past 30 years, has been one of giving dominant enterprises 
progressively greater freedom to make business choices as they 
wish; and that the zone of exposure that they face for 
exclusionary conduct has been shrinking progressively over 
time. For myself, I don't see dominant enterprises today with 
being faced with particularly severe risks to their behavior 
over time. And with respect not only to dominant firms but 
other areas of our jurisprudence, I think the Supreme Court's 
efforts in particular to respond to what they think are 
infirmities in private rights of action are starting to 
encumber public enforcement authorities, too.
    Chairwoman Velazquez. So that explains why you didn't 
sign--
    Mr. Kovacic. That goes to the heart of my own views. And I 
suspect my colleagues wouldn't disagree with me, in fairly 
direct terms, you have seen as well, their own more specific 
concerns about the Justice Department report.
    Chairwoman Velazquez. Last year, we held a hearing on 
health care antitrust laws in this Committee, and there has 
been a concern among small businesses regarding the lack of 
enforcement of antitrust laws by the FTC and the DOJ. While 
consolidations are up, the rate of merger challenges ranks 
among the lowest in modern history. Why have antitrust 
enforcement activities plummeted during this administration, 
and what are the consequences for entrepreneurs and consumers?
    Mr. Kovacic. I hear that comment a lot, but it doesn't 
remind me at all of the agency I work for. I think a careful 
examination, and I will speak for my own agency, with respect 
to merger policy in particular, enforcement has been every bit 
as robust as it was in the decade before. And I would be happy 
to review with you in more detail what I think the numbers 
show. But I would even go farther to say that, when you look at 
a number of measures that we have pursued in the Federal 
Courts, if anything, we have been trying to extend the zone in 
which we look at individual transactions at greater detail. So 
it doesn't really capture the agency that I am talking about, 
and I think that it is not just my intuition. Again, I would be 
delighted to have a conversation with you and the Committee 
about this.
    Chairwoman Velazquez. I guess that, in 2007, The Wall 
Street Journal disagreed totally with you when it said that the 
Federal Government has nearly stepped out of the antitrust 
enforcement business leaving companies to mate as they wish. 
Isn't it true that consolidation is up?
    Mr. Kovacic. I don't know that members of the Committee 
would agree with me completely, but I would ask you to accept 
the possibility that there are times when journalists lapse and 
perhaps don't always get it exactly right.
    Chairwoman Velazquez. Okay. Answer my question, is 
consolidation up or not?
    Mr. Kovacic. No, no, I think not - and not above levels in 
the areas that we are looking at that prevailed in the decade 
before. Now, we can have a larger conversation about whether--
    Chairwoman Velazquez. Okay. So let me ask you, in the area 
of health care insurers is consolidation up or not?
    Mr. Kovacic. I know there have been a number of 
transactions but I don't see the ultimate level of 
consolidation to be at a range that would not have been 
permitted in the previous decade too. Now, I think it is a 
valid point for discussion about whether things are at the 
right level.
    Chairwoman Velazquez. You are telling me that consolidation 
with insurers is not up in this country.
    Mr. Kovacic. I am saying the level of consolidation is up.
    Chairwoman Velazquez. What is the level of consolidation? 
Can you be more specific?
    Mr. Kovacic. The health insurer sector is not one that we 
oversee when it comes to mergers and acquisitions. I don't have 
the specific data on trends available there. But this is 
something that I would be glad to discuss in more length. The 
Department of Justice has been the agency that has looked at 
health care consolidation. But my impression from a distance is 
that they are using well accepted standards to examine 
transactions. I think a useful focal point for discussion would 
be to look. And we would be glad to engage in that discussion 
about specific areas or types of transactions that perhaps 
ought not to have been allowed. That is a valid point for 
consideration.
    Chairwoman Velazquez. Last October, the Committee held a 
hearing on how the market power of insurers is harming the 
ability of physicians to care for patients. As chairman, what 
are your plans to examine this issue?
    Mr. Kovacic. We have been having a number of workshops that 
deal with efforts of individual physicians to provide care. 
This is an issue that I expect will continue to be a focal 
point for our own research and for these public deliberations. 
So I expect that it is an issue that will remain high on our 
agenda.
    Chairwoman Velazquez. And you examine this by conducting 
workshops?
    Mr. Kovacic. We conduct workshops. It is an argument that 
is often raised in our enforcement efforts with regard to what 
we believe to be impermissible forms of collaboration among 
physicians.
    Chairwoman Velazquez. So let me ask you, can you explain to 
us why in the past 7 years have all nonmerger enforcement 
actions involved health care providers with virtually no 
enforcement involvement involving health insurers?
    Mr. Kovacic. For ourselves, the insurance portfolio itself 
is one that has been the province of the Department of Justice. 
That is in the rough distribution of authority that we have 
over matters, that--
    Chairwoman Velazquez. Isn't it true that the administration 
has focused more on antitrust enforcement activities on 
physicians but not on insurers?
    Mr. Kovacic. With our area of authority, our focal points 
have been physicians and hospitals.
    Chairwoman Velazquez. I will come back in the second round.
    And I will recognize Mr. Chabot.
    Mr. Chabot. Thank you.
    Chairman Kovacic, just a couple of questions. Are there 
procedural changes that you would recommend or that you think 
that we should consider that they be made in the antitrust laws 
that would increase competition in the marketplace, and if so, 
what type of things do you think that we should consider?
    Mr. Kovacic. One thing that I would take a careful look at, 
Congressman, is the full spectrum of exemptions that now affect 
commercial activity in our country. I think, for myself, and it 
is a fairly familiar list, I think that one of the suggestions 
of the AMC report was that exemptions that be a significant 
focus of attention. I think that would be useful. I also think 
it would be very helpful for Congress to consider eliminating 
specific curbs on our authority to act. We have recommended, 
for example, that the common carrier exemption be reconsidered. 
There are limitations in our legislation that curb our capacity 
to do certain types of studies involving insurance unless we 
have approval first from the Congress. So two focal points I 
would mention: one, exemptions generally; and second, I think 
specific limitations on our own authority to act.
    Mr. Chabot. The FTC, as you mentioned, generally doesn't 
support legislation concerning the granting of exemptions from 
the antitrust laws. Would you consider such exemption 
appropriate in a market in which either the purchaser or the 
seller already has an exemption from antitrust laws?
    Mr. Kovacic. Generally speaking, no. We would certainly 
examine and consider specific arguments, as well as the context 
in which they are offered, but we would generally not. And as I 
suggested before, in the spirit of the AMC report, we would 
like to go back and reexamine in many instances the sensibility 
of the exemptions that already exist.
    Mr. Chabot. Let me ask you about kind of a specific example 
here. And you can answer it to the degree that you feel is 
appropriate. Is the bowl, the College Bowl Championship Series 
in college football, in your opinion, does it constitute a 
contractor conspiracy to restrain trade since certain 
universities have contracts with certain bowl sponsors that 
exclude other institutions of higher education from 
participation?
    Mr. Kovacic. Owing to a very important limit on our 
jurisdiction, Congressman, that is not one that I have looked 
at a great deal. If you were to take away to a large extent the 
not-for-profit exemption that excludes our consideration of 
these issues, I would like for us to be in the position to know 
more about this and give you a fuller answer. And, in my own 
view, not-for-profit institutions are educational institutions 
but they are also large entertainment providers. The extent to 
which the not-for-profit exclusion keeps us from looking at 
that sector of the economy, I think, is unwise. That is the 
carve-out from our jurisdiction that I would applaud Congress 
reconsidering.
    Mr. Chabot. And another somewhat specific example is the 
auto manufacturers and the fact that they don't provide 
independent auto repair shops with key computer codes and other 
pertinent repair information. Would that be considered a 
reasonable restraint of trade or could you comment on that 
area?
    Mr. Kovacic. Yes, Congressman. I think the general trend in 
doctrine since the early 1990s has been one of giving original 
equipment manufacturers a greater measure of control over how 
the distribution of know-how takes place downstream with 
respect to their own retail outlets and to independents as 
well. It seemed in the early 1990s that our Supreme Court was 
giving a fairly broad charter for competition law to take a 
look more closely at these arrangements. The lower courts since 
then have backed off some of those suggestions. I would say 
that it is comparatively difficult to establish under existing 
doctrine a cause of action for those types of restrictions. I 
would say, as my predecessor mentioned I think 2 years ago in a 
hearing, we think there is a great deal of promise at a minimum 
to use the process of voluntary industry cooperation in 
negotiations that have taken place before to see if there might 
be a sensible result achieved between the original equipment 
manufacturers and the independent repair shops.
    Mr. Chabot. Thank you.
    And then, finally, related to the McCarran-Ferguson Act, 
could you comment on the imbalance in bargaining position 
relative to physicians in hospitals and their inability to 
negotiate contracts with health insurers? And the Chairwoman, 
to her credit, has been very focused on trying to do what we 
can in this Committee to improve affordable, accessible health 
care to small business folks. And that is one of the things, in 
traveling around my district, is one of the things I hear over 
and over again. One of the greatest challenges of small 
business folks is providing affordable health care for their 
employees. So could you discuss physicians in hospitals and 
their ability or inability to negotiate when it comes to the 
health care company?
    Mr. Kovacic. I know this has been a contentious point. It 
is one we look at in great detail, whether we are looking at 
hospital mergers or collaborations involving physicians. Our 
sense in many instances is that physician groups in hospitals 
in fact have strong countervailing power when they deal with 
insurance companies. My larger plea is to put us in a position 
to be able to address these phenomena more competitively. I am 
not fond at all and I speak for myself, of the McCarran-
Ferguson exemption. I think that is very much worth a rethink 
by this body. Again, -you find in our statute a limitation 
imposed in the early 1980s that curbs our ability to do 
research and studies concerning the business of insurance 
without a fairly elaborate process of approvals, I think it 
would be time to put us in a position to examine and rethink 
some of the positions I have been suggesting to you. It would 
be helpful if that were disbanded.
    Mr. Chabot. Thank you very much.
    Madam Chair, I yield back my time.
    Chairwoman Velazquez. Ms. Hirono.
    Ms. Hirono. None at this time.
    Chairwoman Velazquez. Mr. Westmoreland.
    Mr. Westmoreland. Thank you, Madam Chair.
    Mr. Chairman, where does intellectual property rights come 
into play when you are trying to weigh competition, where does 
that come in?
    Mr. Kovacic. Increasingly the perspective of the 
competition agencies, certainly going back to the mid-1990s, 
has been to treat intellectual property as a valuable form of 
property right on a plane with other forms of valuable 
property; that is, to regard the property in ideas as being an 
extremely important asset, just as we could point to other 
forms of physical property. There has been a trend to regard 
those property rights as being extremely important and to take 
a great deal of care to see in what respects the specific 
character of property in ideas dictates any variation or 
adjustment in the way in which we enforce the laws. T000his has 
been a matter of pressing concern for both of the competition 
agencies, certainly going back a long period of time, but 
intensely since the mid-1990s when the agencies revised their 
antitrust IP guidelines.
    Mr. Westmoreland. I have got an iPod, and it quit working, 
and so I took it to where I bought it. And they told me that I 
would have to take it back to Apple to get it looked at, that 
they didn't have the ability to do it, that only an Apple store 
could do it. Would you think that when Apple sells an iPod, 
that they need to give you a manual of how you could repair it 
yourself, or is that some type of antitrust something that I 
have got to go back--there is only one place I can take it? Is 
that an antitrust--if I have a complaint with you, can I call 
you and tell you that I can only get my iPod--
    Mr. Kovacic. My phone is 202-326--(laughing) I think it 
depends from our point of view on at least two things: One is, 
with respect to that device, do you have other choices in the 
marketplace? That is, let's assume there are a number of them, 
and they chose a policy that irritated and frustrated you. I 
suspect your reaction and mine might be the next time I was 
thinking of buying things, I am not going to buy this device 
from them. In fact, I remember that producer's name, I am not 
going to buy anything from them because they made my purchasing 
experience worse.
    A second thing we would look at carefully is, why the 
limitation? One argument that would depend on a more careful 
factual evaluation, is assumptions we might make about the care 
with which individuals who would be able to do the repairs. If 
one could make a good argument that it took a highly 
specialized type of individual with a good deal of training to 
do that right, we might think that there is a greater basis for 
restricting who could do that, because if it doesn't work after 
the repair, you are going to look at the name on the device and 
you will probably remember that rather than that it was Bill's 
Repair Shop that did the work on it. That is the kind of issue 
that we would spend a great deal of time looking at in careful 
detail.
    Mr. Westmoreland. The aftermarket, which the ranking member 
mentioned, as far as automobile repairs, you mentioned an 
independent industry group, I guess, that handles some of the 
complaints that would come from an automotive repair shop or 
whatever as far as getting some of these codes or whatever for 
repair. Do you know from that group how many complaints have 
been filed in a year, and the total number of repairs done to 
automobiles once they leave that showroom floor, and what 
percentage is done by who?
    Mr. Kovacic. I don't know those numbers, Congressman.
    I know that, indirectly, one thing we track very carefully 
is how many complaints come our way. And certainly over the 
past 12 months, with respect to end users, the consumers you 
were referring to before in your other example, we have not 
received complaints of this type. Occasionally we get them. I 
am not acquainted with what the experience within the dispute 
resolution process itself has been. Certainly if the Committee, 
you or other researchers, have data on that, that we ought to 
be focusing on, I would welcome the chance to do that.
    Mr. Westmoreland. Would you be surprised if I told you that 
of 500 million post-warranty service orders are done each year, 
75 percent of those are done by independent repair services; 25 
percent by new car dealers? And I think that there was less 
than 100 complaints last year that was filed with the National 
Automotive Service Task Force. That doesn't seem like a large 
number when you think of those repairs. Do you think that you 
have any trained staff enough? Because I understand in some of 
the hearings they had last year, I didn't attend any of the 
hearings, but my understanding was they wanted your agency to 
be involved in this, do you think that you have got the staff, 
the trained personnel to investigate, respond, compile, update 
these stats and statistics and innovations that are in the 
automobile industry every year?
    Mr. Kovacic. One of the reasons that we have found it 
helpful to explore the sorts of alternative dispute resolution 
in the industry, voluntary industry cooperation mechanisms that 
you described before, is that it is a way to see if we can get 
good solutions that doesn't involve that kind of commitment of 
resources. I would add that there have been a number of areas 
in which Congress has asked us at different times by statute to 
take on demanding new challenges. We have a pretty good history 
of responding to those challenges with resources that Congress 
has generously provided us. So I wouldn't say immediately that 
it would be an easy thing for us to do. I think some of these 
other paths are certainly worthy of further exploration. But 
were the choice to be made to ask us to do it, it has been a 
highly adaptable and successful process by which we have taken 
on major challenges.
    Chairwoman Velazquez. Would the gentleman yield for a 
second?
    Mr. Westmoreland. Yes.
    Chairwoman Velazquez. I hear you when you talk to us about 
listening and voluntary agreement and workshops. He is asking 
you about complaints that have been raised. Can you talk to us 
about any specific action taken on behalf of small businesses 
regarding enforcement of antitrust laws?
    Mr. Kovacic. Many of our cases involving real estate, 
professional services, restrictions on the use of the Internet, 
has--
    Chairwoman Velazquez. And specifically on the issue that he 
raised.
    Mr. Kovacic. On the issue of auto repair, no, we haven't. 
We have done investigations.
    Chairwoman Velazquez. And?
    Mr. Kovacic. We haven't brought any cases. We do look at 
the complaints carefully. As I mentioned before, the existing 
legal framework on which an antitrust complaint would be 
premised imposes some extremely demanding standards, in my 
view, about bringing cases. But we have taken complaints that 
have come to us, Madam, with the greatest care.
    Chairwoman Velazquez. I yield back.
    Mr. Westmoreland. And I thank the Chairwoman for bringing 
that up because I think it is important to know that you have 
looked at some of these cases. And I am assuming you are saying 
that they haven't risen to the level of where you feel like 
there has been any action needed or necessary from the FTC?
    Mr. Kovacic. That is correct.
    Mr. Westmoreland. Madam Chairman, I will yield back the 
balance of my time and thank you.
    Chairwoman Velazquez. Mr. Altmire.
    Mr. Altmire. Thank you, Madam Chair.
    Mr. Chairman, thank you for being here.
    Mr. Kovacic. Thanks for the chance to do this.
    Mr. Altmire. Of course. I wanted to focus on antitrust law 
and get your opinion on something more than anything else. 
There was a recent Justice Department paper that said, and I 
quote, the fundamental reason we favor competition over 
monopoly is that competition tends to drive markets to a more 
efficient use of scarce resources. So I was wondering, in your 
opinion, given the scope of this Committee, how does 
participation of smaller firms in the market increase economic 
efficiency?
    Mr. Kovacic. I think the economy and the jurisdiction that 
provides an environment in which the best ideas get a test in 
the market is the jurisdiction that is going to be more 
prosperous than others. Quite often, the good idea, whether it 
is about a product, about how to deliver an existing product, 
how to organize a particular form of business entity, those 
ideas often come from new entrepreneurs, so that the 
competition of new entrepreneurs in a number of different 
settings is a tremendous spur to economic progress. Antitrust 
enforcement and a collection of policies that I would call 
competition policy have a tremendous contribution to make. This 
Committee's work is part of that.
    Mr. Altmire. In your opinion, do you see any correlation or 
anything you want to add about what we are dealing with as a 
Congress with a larger financial market and where smaller firms 
would fit into that?
    Mr. Kovacic. Financial services is an area where Congress 
decades ago decided that, with the most limited exceptions, the 
FTC does not participate. That is one of the major carve-outs 
from our jurisdiction. There are some areas where we act. With 
respect to the larger phenomena that this body has been 
focusing on in recent days and the upheaval in that sector, 
those are institutions, for the most part, that are beyond the 
scope of our examination.
    Mr. Altmire. Thank you.
    I have no further questions Madam Chair.
    Chairwoman Velazquez. Mr. Shuster.
    Mr. Shuster. Thank you, Madam Chair.
    And thank you for being here today. And sorry I didn't hear 
your testimony earlier and didn't hear some of the earlier 
questions, so if I ask any that are redundant, please let me 
know.
    But my colleague from Georgia mentioned intellectual 
property rights, and in full disclosure, I should say I am a 
former automobile dealer, so I know firsthand the situation 
here. And my question deals with, what are the rights of, when 
you are viewing these cases, on investment in not only the auto 
manufacturer investing huge sums of capital to develop these 
products and parts but the auto dealer, who is also investing 
thousands and millions of dollars in some cases on repair 
facilities, and that they should have that competitive 
advantage in my view. If I am spending the money, I am the one 
who has to sign a deal with the auto manufacturer to carry 
their product line, what weight is given to that and how am I 
protected to make sure my investment is protected when you come 
into a situation?
    Mr. Kovacic. Something that you have certainly observed 
from your previous life in that sector is that the automobile 
sector in North America, I think we might say, is pretty 
competitive.
    Mr. Shuster. Extremely.
    Mr. Kovacic. During my childhood growing up in southeastern 
Michigan, there were four companies you talked about; three big 
ones, American Motors on the fringe and a couple of quaint 
things called Volkswagen Beetles driving around. That is not 
the industry we see today, is it? Notice how many choices for 
original equipment consumers have. A basic assumption we would 
make as a starting point is that those manufacturers have every 
possible incentive to get things right with respect to the 
design of the distribution system. And generally speaking, 
providing incentives for them to invest in improving that 
distribution system is an important value to be recognized.
    At the same time, if I were to go back to my home at George 
Washington University where if I weren't doing this I would be 
teaching contracts in the first semester, I don't doubt that 
there are instances in which you see disagreements between the 
manufacturer and the dealer about that relationship over time. 
Perhaps you had some of those yourself.
    Mr. Shuster. Every day.
    Mr. Kovacic. Every day. And generally, in our country, with 
respect to those kinds of disagreements, that has largely been 
the province of contract law. It is not that the disappointed 
dealers invariably are marching into courtrooms to wage battles 
over time. There can be instances in which the manufacturer or 
perhaps a dealer can behalf opportunistically to exploit 
certain investments that are made. But contract law has 
generally been the province where we examine that. I think 
because our courts and our Supreme Court has been concerned 
about those incentives to invest, they have tended to impose 
fairly demanding requirements on antitrust plaintiffs, 
including us, who would want to upset or challenge activity and 
behavior that is taking place in the course of that 
relationship.
    Mr. Shuster. The notion that it is anticompetitive out 
there because the dealers or the manufacturers aren't giving 
out that information to me is a ruse I believe because, as my 
colleague stated, of the 500 million repairs, 70 to 80 percent 
of them are done by independent shops. Also, within, I am sure 
within 45 minutes of where we sit today, you can get any car 
that you--a Toyota, a Ford, a Chrysler--you can get it repaired 
by several, multiple dealerships around the area, so the 
competition is robust. Firsthand, there were 45 Chrysler 
dealers within 45 minutes of my store.
    Mr. Kovacic. Congratulations (laughing).
    Mr. Shuster. So the idea that there is not competition, 
would you agree with that? I mean, there is robust competition 
between automobile dealers.
    Mr. Kovacic. I believe there is. And I wouldn't denigrate 
the role that independents have. Sometimes independents, and I 
suspect it was your experience, too, sometimes they see a 
better way to do this. And we would be interested and we do 
examine and take seriously the examination of why they would 
not receive access. And there are instances in which we would 
be doubting of that. But generally speaking if we compare the 
automobile sector that we know today to the automobile sector 
of, well, my childhood, it has been a dramatic transformation 
in the direction of better choices for consumers.
    Mr. Shuster. And I think you make an excellent point. 
Before I was in the automobile business I worked with Good Year 
Tire and Rubber Company and spent time in their real time 
operations, which are independent operators. And many times you 
do find that they can find a better way or more efficient way 
to repair an automobile. So I have seen it from both sides, and 
I just--this legislation that I think we are talking about is, 
just seems to me it is not necessary because there is robust 
competition, there is information provided to the independent 
garages, and it is maybe not perfect information flow, but it 
gets out there. So I appreciate your time today. Thank you. And 
I yield back.
    Chairwoman Velazquez. Ms. Hirono.
    Ms. Hirono. Thank you Madam Chair.
    Mr. Chairman I don't know if you have had a chance to read 
the statement of the American Medical Association.
    Mr. Kovacic. I have, Madam.
    Ms. Hirono. You have.
    Mr. Kovacic. Yes.
    Ms. Hirono. So their concern is, in these challenging 
times, where mainly small practices, solo practices, are trying 
to figure out ways to keep going, the scrutiny on physician 
collaboration through network arrangements, their statement 
indicates that the FTC has put a very high bar on these kinds 
of arrangements to the point where most physicians are not able 
to avail themselves of these kinds of arrangements. Would you 
like to comment on that?
    Mr. Kovacic. Yes, Madam. I would disagree. We can debate 
what the high bar is. I think we have applied sensible 
standards. And I think to a degree that I would disagree with 
the very thoughtful people who put that statement together. I 
would disagree with their characterization of how carefully we 
have been reviewing and considering arguments about what kinds 
of integration of activity promote desirable marketplace 
consumer ends. We think we have been very attentive to 
arguments based on efficiencies, based on what the antitrust 
laws consider to be procompetitive justifications to arguments 
that would justify different types of collaboration.
    But let's suppose I am wrong, and I don't think I am. We 
have also been engaged in a fairly intensive effort in recent 
years to reexamine those assumptions. We have had two workshops 
that deal directly with this issue within the past 12 months. 
We are engaged in continuing conversations with the AMA. So 
while I think there is enormous flexibility and sensitivity in 
our system to the assessment of these kinds of arguments, we 
are always inclined to reassess and to continue a discussion 
with not simply the industry but with other interested groups 
to make sure we have got things right. And I look forward to 
continuing that discussion with the AMA, with other service 
providers and with others who are experts in following 
developments in the sector.
    Chairwoman Velazquez. Will the gentlelady yield for a 
second?
    Ms. Hirono. Yes.
    Chairwoman Velazquez. I would welcome your refreshing 
position about reconsidering, because in the past, people have 
said that they were not wrong and there were a lot of people 
who asked us to vote for the war based on weapons of mass 
destruction. Well, they were wrong. Maybe you are wrong. So I 
would like for you later on before you leave that you identify 
the member of your staff who will stay here to listen to the 
second panel.
    Mr. Kovacic. I would say there will be several of my 
colleagues who will be here to hear the second panel. I would 
offer one thing that I ask the Committee to think about; it is 
rare in the areas in which we enforce the responsibilities that 
you have given to us, that the people we sue, and in the 
mergers we seek to challenge, it is very rare for the parties 
in those transactions to say, "my goodness, the FTC was right." 
They almost invariably say we are wrong. If the suggestion by 
any industry group or group of parties that we are wrong was 
ever taken to be a certifying mark of the correctness of their 
position, we would be out of business.
    Chairwoman Velazquez. Well, given the track record in terms 
of enforcement and the number of cases, that is an open 
question.
    Mr. Kovacic. I don't think for this agency it is, Madam. I 
say whether you are looking at numbers of cases, whether you 
are looking at outcomes, having watched my agency for the past 
three decades, I stack it up happily against any other.
    Chairwoman Velazquez. I yield back.
    Ms. Hirono. Thank you, Madam Chair.
    I would like to continue. With regard to the physician 
collaboration of these kinds of arrangements, is FTC scrutiny 
based on Section 5 of the FTC Act or of Section 7 of the 
Clayton Act?
    Mr. Kovacic. We enforce both, Congresswoman.
    Ms. Hirono. With regard to these collaborations? Because 
Section 7 has to do with mergers and acquisitions.
    Mr. Kovacic. The framework in Section 7 also picks up 
contractual arrangements, what might be called joint ventures, 
that fall short of an actual combination of ownership. So we 
use both instruments. I would say the tendency over time has 
been for the analytical techniques used in both areas to 
converge so that, in many ways with slight variations, we are 
asking the same basic questions about likely competitive harm, 
market power, and procompetitive justifications.
    Ms. Hirono. So those are the three major issues that you 
are concerned with with these physician collaborations, because 
clearly they can't be engaging in any kind of a price fixing 
activity, is that correct?
    Mr. Kovacic. Generally speaking, there is a breathtakingly 
serious prohibition against efforts by direct rivals to set 
prices.
    Ms. Hirono. Yes, that is per se.
    Mr. Kovacic. Yes. But there are qualifications to that. And 
our antitrust jurisprudence and our policy have recognized 
them; we recognize them. There are instances in which 
restrictions which, if they were standing on their own with 
nothing else, might very well put you in front of a Grand Jury 
and send you to prison can be justified, and we take those 
justification arguments very seriously.
    Ms. Hirono. Well, having just read through the AMA 
testimony, it is a little difficult for me to understand how it 
is that a group of physicians who have to compete on the basis 
of price and other ways, that somehow these kinds of 
arrangements would not pass scrutiny. It is sort of hard for me 
to understand.
    Mr. Kovacic. But might we agree that if any group of 
service providers do nothing else but say, "let's raise our 
rates," without anything else we would be very suspicious of 
those arrangements. So the real issue is, is there something 
else going on beyond just the decision to raise rates? That is 
really the issue about which we have a disagreement with the 
AMA, but it is also precisely the focal point of the continuing 
discussion that we look forward to having with them.
    Ms. Hirono. I think with the concern that we have that the 
high cost of health care, that any reassessment on your part as 
to how you are going to enforce these kinds of arrangements I 
think is a welcome statement.
    Mr. Kovacic. I do pledge us to engage in that discussion, 
which I would say has been a characteristic of our practice for 
decades.
    I would reiterate that, at the moment, yes, to the dismay 
of the AMA's statement, we think that we have things set in the 
right place, but we are neither arrogant nor stubborn to think 
that there is not always room to continue the discussion and 
reevaluate. When facts and knowledge change, so do we.
    Ms. Hirono. Thank you.
    I yield back, Madam Chair.
    Chairwoman Velazquez. Ms. Clarke.
    Ms. Clarke. Thank you very much, Madam Chair and Ranking 
Member Chabot; and thank you, Mr. Chairman, for your insights 
today.
    I wanted to sort of turn to some of the current financial 
crisis and its impact on minority and female-owned 
disadvantaged businesses and whether the Commission is 
monitoring what impact this is having on that sector of our 
economy in terms of its capacity to compete, whether you would 
share some of your insights with us.
    Mr. Kovacic. Congresswoman, a limiting condition for us 
with respect to most of the service providers that have been 
the focal point of the upheaval in recent weeks and months is 
that these institutions are beyond our jurisdiction. Congress 
decided in roughly a century ago and in subsequent legislation 
that our jurisdiction did not include the financial services 
sector. There are limited exceptions to that. So this is 
basically a sector we do not study, being faithful to the 
limitations in our statute.
    Ms. Clarke. I think maybe my question was misunderstood.
    Mr. Kovacic. I am sorry.
    Ms. Clarke. I understand there are jurisdictional issues, 
but, within your purview, there are going to be businesses that 
are going to be impacted by this. And I wanted to know whether 
the Commission has begun to take a look at that. Because, 
ultimately, everyone outside of the financial sector is going 
to have to readjust for competition, given the credit crunch. 
And these are also the major employers of so many Americans. So 
while we are up here rushing to the rescue, I am assuming 
everyone else is looking at what the ramifications are for 
their particular domain.
    Mr. Kovacic. Let me give you one I expect will be 
significant for us in exercising our authority to look at 
mergers, at questions of dominance, at questions of agreements. 
A major source of strength in our economy historically has been 
the strength of its capital markets. It is the capacity of 
individuals to raise funds by issuing stock, by getting loans 
and issuing debt. We make major decisions in individual cases 
depending upon how readily we think new firms can enter the 
market or how existing entrepreneurs and organizations can 
expand.
    To the extent that the turmoil and recent experience may 
adjust or dictate an adjustment in those assumptions about how 
capital markets operate, that is certain to affect the way in 
which we evaluate the significance of an individual merger and 
the possibility that new firms will be able to come into the 
market and challenge them. So I see that as being a fairly 
powerful implication.
    Ms. Clarke. Mr. Chairman, the concern is who ends up at the 
end of day at the table able to participate in those 
activities, which is why I turn to the most vulnerable sector 
of our small business environment, which is that of women-
owned, minority owned disadvantaged businesses.
    It would be helpful to make sure that, as you look at 
particularly joint ventures and globalization, where these 
companies have always been disadvantaged, that we take a look 
at what the impact is going to be or what we project what the 
impact will be so that we can look at the other vehicles we 
have through our purview to be of support to them in this time 
of financial instability.
    I was wondering whether your Commission would be in fact 
highlighting or looking at that and sort of cautioning or 
sending out a warning so that we can react as quickly as 
possible.
    Mr. Kovacic. Congresswoman, this traditionally has not been 
part, this specific set of issues, especially the range of 
concerns about which individuals are able to participate in the 
market and to what extent are historically excluded groups able 
to get access to the market has not been part of the 
traditional antitrust analysis. For myself, I find this issue 
to be a compelling one, and the question of how historically 
disadvantaged groups do get access to the market and 
participate is one that interests me intensely.
    I have in mind us doing some things that will look at these 
issues and especially the extent to which existing policies or 
programs impede the ability of people unnecessarily to get to 
the market. It is an issue that I would welcome discussing 
beyond the scope of this hearing. I would welcome the 
opportunity to discuss with you and your colleagues and with 
your staff perhaps more specifically how my own interest in 
making this a topic of research might coincide with some of 
your own concerns. I would be quite willing to do that on my 
own with you or with colleagues of yours who would like to 
explore this more fully.
    Ms. Clarke. Thank you very much.
    I yield back, Madam Chair.
    Chairwoman Velazquez. Mr. Chabot.
    Chairman, thank you so very much for being here this 
morning; and if you at least for the record name one of your 
staff persons who will be remaining in the room.
    Mr. Kovacic. Yes, I would be happy to. Would you allow me 
to glance back at them to make sure that the person I name will 
willingly nod and say yes.
    Do we have a volunteer?
    Ah, we have three: Kim Vandecar, who is with our Office of 
Congressional Relations and I think well-known to this office. 
We have David Narrow, who is from our health care group, Bureau 
of Competition. We have Neil Averitt from our Policy and 
Evaluation Office in the Bureau of Competition.
    That is an awesome contingent. Not only will they report 
faithfully on what you have to say, they will offer their own 
thoughtful interpretation, too. We will be in good hands.
    Chairwoman Velazquez. Thank you, and the gentleman is 
excused.
    Mr. Kovacic. Thank you, Madam.
    Chairwoman Velazquez. I ask the second panel to please come 
forward.
    Gentleman, welcome.

  WITNESS PANEL II: WILLIAM HAZEL, JR., M.D., JONATHAN RUBIN, 
          SAID HILAL, AARON LOWE, and WILLIAM MacLEOD

    Chairwoman Velazquez. It is my pleasure to welcome Dr. 
William Hazel, Jr. Dr. Hazel is a member of the Board of 
Trustees of the American Medical Association. Dr. Hazel is an 
orthopedic surgeon in private practice from Northern Virginia. 
He is here to testify on behalf of AMA, which is an 
organization that advocates on issues vital to the Nation's 
health; and it is the United States' largest physicians group.
    Chairwoman Velazquez. Welcome. You will have 5 minutes.

  STATEMENT OF WILLIAM HAZEL, JR., M.D., SECRETARY, BOARD OF 
             TRUSTEES, AMERICAN MEDICAL ASSOCIATION

    Dr. Hazel. Good morning, Madam Chair, Ranking Member 
Chabot, members of the Small Business Committee and staff.
    I am Dr. Bill Hazel. I am an orthopedic surgeon in practice 
over in Fairfax, Virginia, and a member of the board of the 
AMA; and I appreciate having the opportunity to testify this 
morning on small business competition policy.
    The health care marketplace has changed dramatically over 
the past decade. Frankly, the FTC guidelines have not kept 
pace. Current antitrust policies are barriers that slow 
physician collaboration and hinder our ability to participate 
in a full spectrum of health care initiatives. They have also 
perpetuated an imbalance in the market so that health insurers 
are able to force physicians to accept contracts that often 
impede optimal patient care.
    The health care antitrust environment has evolved in three 
significant ways.
    Number one, current FTC policy discourages physician 
clinical integration efforts. The FTC guidelines and advisory 
opinions to date require a level of financial investment that 
is impractical for physicians in solo and small group 
practices, in other words, about 75 percent of the physicians 
in the country.
    Number two, widespread health plan consolidation has eroded 
the market and severely limited our ability to advocate for 
ourselves and our patients. In the last decade, there have been 
400 insurer mergers. Only three were challenged by the DOJ, 
only three of 400; and these mergers have benefited no one but 
executives and shareholders. And the proof is that premiums 
across the country have increased, out-of-pocket patient 
expenses have gone up, and physician payment has declined.
    The third issue is that professional market and regulatory 
developments are encouraging physicians to collaborate, to 
collaborate on the purchase and use of health information 
technology and quality improvement initiatives.
    Allowing a more flexible approach to physician joint 
contracting would address these market changes and, in fact, 
would be pro-competitive. Allowing physicians to jointly 
contract would increase competition in the insurance market.
    Creating physician panels is time consuming, and it is 
expensive. It can be a barrier to entry for new insurers 
through physician joint contracting new payers to gain access 
to panels of physicians with wide geographic and specialty 
distribution. When the physicians themselves undertake the 
initial task of the network formation, payers may substantially 
reduce their costs of entry and expansion.
    Joint contracting would also lead to more equitable, 
better-informed contracts. Most physician practices simply 
don't have the resources to analyze payers' contracts. By 
pooling resources we can spread the costs associated with 
analyzing these contracts and negotiate for improved contracts 
for our patients.
    Finally, joint contracting would allow physicians to create 
networks that would facilitate collaboration on health 
information technology and programs designed to monitor patient 
care and quality improvement that folks such as you are 
encouraging us to do even now.
    Acquiring, implementing, sustaining information technology 
requires extensive financial investments by physicians, but the 
Congressional Budget Office has documented that health insurers 
are the entities that benefit from cost savings associated with 
these systems. Allowing physicians to negotiate jointly with 
payers would help us reallocate these cost savings 
appropriately and pay for the services.
    Similarly, many physicians lack the ability to participate 
in quality improvement initiatives. By teaming up in networks, 
small and solo practices can gain the scale necessary for care 
coordination and appropriate data aggregation that allows us to 
implement these initiatives.
    Now current antitrust policy is clearly out of step with 
the changing health care marketplace. This led to overly 
aggressive enforcement against physicians in certain cases, 
limited opportunities for physicians to collaborate in other 
cases, and it has permitted unfettered, unfettered health 
insurer consolidation.
    The FTC must update these policies. As the chairman 
indicated, we are currently discussing with the FTC the 
guidelines on physician joint contracting, which we believe 
should allow small practices to collaborate on health 
information technology and health care quality improvement 
initiatives. Furthermore, the DOJ must challenge health insurer 
mergers more aggressively. These steps would restore balance to 
the health care market and ensure an innovative and efficient 
health care system.
    Thank you, Madam Chair and members.
    Chairwoman Velazquez. Thank you, Dr. Hazel.
    [The statement of Dr. Hazel is included in the appendix at 
page 70.]
    Chairwoman Velazquez. Our next witness is Dr. Jonathan 
Rubin. Dr. Rubin is a partner at the law firm Patton Boggs. Dr. 
Rubin concentrates in antitrust litigation and counseling. He 
is here to testify on behalf of the American Antitrust 
Institute. The AAI is an advocacy organization that seeks to 
increase the role of competition and assure that competition 
works and challenges abuses of concentrated economic power.
    Welcome.

  STATEMENT OF JONATHAN RUBIN, PARTNER, PATTON BOGGS LLP, ON 
           BEHALF OF THE AMERICAN ANTITRUST INSTITUTE

    Mr. Rubin. Thank you, Chairwoman, Ranking Member Chabot and 
members of the Committee.
    I am Jonathan Rubin. I am an antitrust lawyer with the firm 
of Patton Boggs here in Washington, D.C., and one of about a 
hundred members of the Advisory Board of the nonprofit 
organization, the American Antitrust Institute. The AAI's Web 
site is www.antitrustinstitute.org. I appreciate the 
opportunity to testify today.
    My task is fairly limited. It is to present the major 
recommendations that appear in the upcoming report, entitled 
The Next Antitrust Agenda: The American Antitrust Institute's 
Transition Report on Competition Policy to the 44th President. 
The report will be published in October and will be provided to 
the Committee.
    My remarks today reflect solely the position of AAI and not 
that of Patton Boggs or any of its clients.
    The antitrust laws are among America's greatest 
contributions to the field of political economy. The AAI 
strongly believes that government ought to promote competition 
in free markets and that the Nation's antitrust laws can and do 
precisely that if they are aggressively and creatively 
employed.
    Believing in competitive free markets is one thing however, 
but the facts on the ground may be very different.
    Two opposing forces constantly pull on the economy. On the 
one side is the urge by the government to control the private 
sector through regulation, and on the other side is a strong 
belief that free markets and laissez faire policies foster 
efficient economic growth and protect the private sector from 
counterproductive governmental control.
    Neither path provides a complete policy prescription.
    Over-regulation protects inefficient competitors and 
operates as a drag on the economy, and complete laissez-faire 
risks a lawless jungle operating without regard for justice.
    Antitrust occupies the middle ground between these polar 
possibilities and frequently offers nuanced instruments with 
which to steer markets back to an even keel when market 
failures occur. It is in this middle ground that opportunities 
for small businesses are often created--or destroyed.
    This inherent need for balance in antitrust is reflected in 
the positions advocated in the AAI Transition Report, the most 
important recommendations of which are itemized in my written 
testimony. I will use my remaining time instead to characterize 
where we are and where we need to go in the view of AAI.
    As a general matter, the AAI applauds and encourages 
deregulation in industries in which ill-advised and overly 
intrusive regulatory structures are less efficient than an 
unregulated market. In the view of the AAI Transition Report, 
however, current antitrust policy worries too much about 
intervening incorrectly, risking false positives, and not 
enough about failing to intervene when necessary, risking false 
negatives. Antitrust is about predicting market outcomes, and 
predictions will sometimes be proven incorrect. AAI sees no 
reason to suppose a priori that false positives are inherently 
more injurious to an efficient economy than are false 
negatives.
    Current antitrust doctrine is also unabashed in its disdain 
for the capabilities of agencies, courts and lay juries to 
resolve antitrust disputes correctly, and expansive in its 
estimation of the costs of administering the resolution of such 
disputes. AAI believes that this lack of confidence in courts 
and juries is not justified. Limiting access to the courthouse 
often disadvantages private antitrust plaintiffs, who are 
frequently small and medium sized businesses.
    The AAI also believes that viewing single-firm issues 
exclusively through the lens of neoclassical price theory and 
assessing competitive injury solely in terms of its effect on 
price or quantity imposes artificial limitations on the scope 
of the antitrust enterprise. Consumer choice, variety, 
diversity, quality, convenience and innovation, these are all 
also legitimate values worthy of protection in the defense of 
competition by the operation of the antitrust laws.
    In short, current antitrust policy leads to an overly 
noninterventionist standard of contact that the AAI rejects.
    As a case-by-case form of regulation charged not with 
promoting competition but with eliminating impediments to it, 
antitrust exerts an influence on business conduct even where no 
action is taken. And the mere threat of antitrust liability 
deters anti-competitive conduct.
    No matter which party will control Congress or who the 
President will be, the AAI's advice to the next administration 
is the same:
    Antitrust analysis should be brought more in line with a 
broader body of modern economic knowledge and made better 
equipped to deal with the realities of modern markets; more 
resources and personnel should be devoted to the skillful 
deployment of antitrust enforcement as a policy instrument to 
maintain competitive markets; and the institutions, substantive 
rules and procedures of antitrust should be rejuvenated, 
particularly as they pertain to the treatment of single-firm 
conduct.
    I thank the Committee for your attention and would be 
pleased to answer any questions you may have.
    Chairwoman Velazquez. Thank you, Dr. Rubin.
    [The statement of Mr. Rubin is included in the appendix at 
page 82.]
    Chairwoman Velazquez. Our next witness is Mr. Said Hilal. 
He is the President of the Applied Medical Resources 
Corporation in Rancho Santa Margarita, California. Applied 
Medical is a company dedicated to meeting the innovative needs 
of progressive surgeons and clinicians. He is here to testify 
on behalf of the Medical Device Manufacturers Association. 
Since 1992, MDMA provides education and advocacy assistance to 
innovative and entrepreneurial medical technology companies.
    Welcome.

 STATEMENT OF SAID HILAL, PRESIDENT, APPLIED MEDICAL RESOURCES 
 CORPORATION, RANCHO SANTA MARGARITA, CALIFORNIA, ON BEHALF OF 
          THE MEDICAL DEVICE MANUFACTURERS ASSOCIATION

    Mr. Hilal. Thank you, Madam Chairwoman.
    Madam Chairwoman, Ranking Member Chabot and members of the 
Committee, I address this Committee on behalf of Applied 
Medical and the nearly 200 members of the Medical Device 
Manufacturers Association, as well as the countless other 
smaller medical device companies in this Nation who face 
significant challenges accessing the hospital market.
    Innovation in the medical device arena is fueled by small 
companies working with clinicians, scientists and engineers to 
enhance the quality of care. Applied develops and sells devices 
for progressive, minimally invasive surgery.
    Back in 1988, we set out to create a company that can 
improve both healthcare and the financial outcomes of new 
modalities; and we did. In the process, we invented and 
innovated many procedures and many devices that achieved these 
end targets. But clinicians do not have access to the best and 
most cost-effective innovation, mainly because of the anti-
competitive practices of dominant suppliers and certain 
hospital group purchasing organizations, or GPOs.
    Now, originally, GPOs were established to help small 
hospitals aggregate their purchasing power by combining them 
together, by banding together; and, instead, they have become 
the marketing arm of dominant suppliers and failed to achieve 
the intended goal of lower cost.
    This is because back in 1986 Congress created a safe harbor 
from the Medicare anti-kick back statute and permitted 
suppliers to fund the GPOs. Until that time, GPOs functioned 
more like cooperatives funded by their own members. But once 
the GPOs began to rely on key suppliers, on giant suppliers for 
funding, they lost the ability to independently review products 
and, in many situations, GPOs contracted with the suppliers who 
paid the most fees, fees that are actually percentages of the 
total contract price. So the question, would a GPO go with a 
$20 million price or discounted price of say $10 million when 
they are collecting 5 percent on either? Or are we creating a 
conflict here?
    Giant suppliers very quickly picked up on this and 
manipulated this situation to lock out smaller suppliers. We at 
Applied have had the good fortune to be able to fight back. We 
had the staying power. It cost us dearly, and it took 10 years 
to break into the market, before the market even opened up a 
little bit for us to get into it. But for every Applied there 
are countless small medical technology companies that continue 
to be totally foreclosed.
    To start restoring competition in the healthcare industry, 
it is imperative that Congress repeal the GPO safe harbor and 
move GPOs back to the hospital-funded model independent of the 
large suppliers. According to Harvard's competition expert 
Michael Porter, there is no valid reason for buying groups to 
accept financing or any payment from suppliers.
    Speaking of those dominant suppliers, while ending the 
supplier kickbacks to GPOs would actually provide a better 
competitive landscape, it is but the starting step. Small 
companies in health care face monopolies and duopolies that 
engage directly in anti-competitive activities, including 
predatory pricing and bundling of related and unrelated 
products.
    We have repeatedly suffered from the predatory market 
powers of giant companies, regardless of their respective 
market share in the contested arena. But Applied and hundreds 
of companies like Applied have suffered the most from the total 
absence of oversight and enforcement in certain areas. And in 
the face of the latest predatory approaches by large monopolies 
and duopolies, our antitrust laws have been watered down or 
shelved, while the new practices and tactics have taken hold.
    At a time when the Department of Justice and the Federal 
Trade Commission should be taking a more proactive oversight 
role, the recent DOJ report takes the wrong direction and 
creates additional safe harbors, not less, for the monopolies 
at the expense of competition, consumers and innovation. This 
is not the direction the U.S. Government should be taking. 
Progressive European and Australian agencies are way ahead of 
us in these areas, and they are dealing with violators firmly. 
We can and must do better.
    In conclusion, these practices by dominant suppliers and 
some GPOs individually and collectively damage open competition 
and increase the cost of health care. By repealing the GPO's 
safe harbor and providing proper oversight and enforcement over 
maintaining monopolies and large lock-step duopolies, I believe 
we can benefit patients, hospitals, customers, healthcare and 
providers.
    Thank you very much.
    Chairwoman Velazquez. Thank you, Mr. Hilal.
    [The statement of Mr. Hilal is included in the appendix at 
page 90.]
    Chairwoman Velazquez. Our next witness is Mr. Aaron Lowe. 
He is the Vice President of Government affairs for the 
Automotive Aftermarket Industry Association.
    The motor vehicle aftermarket is a significant sector of 
the U.S. Economy, employing approximately 4.5 million people. 
The AAIA represents more than 100,000 repair shops, part stores 
and distribution outlets.
    Welcome.

 STATEMENT OF AARON LOWE, VICE PRESIDENT, GOVERNMENT AFFAIRS, 
          AUTOMOTIVE AFTERMARKET INDUSTRY ASSOCIATION

    Mr. Lowe. Thank you, Madam Chair; and thank you, members of 
the Committee. I am pleased to present this testimony on this 
very important issue.
    As you said, our industry represents the independent 
aftermarket. It is everything that happens to a car once it 
leaves a new car showroom.
    Since the invention of the vehicle, the U.S. has had the 
most competitive vehicle aftermarket in the world, as has 
already been stated in this hearing. Americans currently have a 
wide array of choices in vehicle repair, whether it is going 
back to the dealer or to the thousands of independent repair 
shops that are in every community in this Nation. This 
competition has kept car owners and not the vehicle 
manufacturers in the driver's seat when it comes to making 
choices regarding vehicle repair destinations.
    While we are proud of our service to the American motoring 
public, we are extremely concerned that the dynamics are 
changing and that our independent shops are being placed at a 
competitive disadvantage. This change has nothing to do with 
the efforts that our independents are investing in servicing 
the public, but rather the attempts, whether intentional or 
not, by manufacturers to use technology to obtain a competitive 
advantage for their dealer network, an advantage that dealers 
have been unable to gain through customer service or price. 
Left unchecked, we will soon see the car companies controlling 
decisions as to where cars are repaired and not by the person 
who has spent their hard-earned money to purchase that vehicle.
    The U.S. Congress foresaw the role that technology would 
play in the repair market back in the late '80s when the Clean 
Air Act was being debated. Back then, the Act required that on-
board diagnostic computers be put on every car to monitor the 
emission systems and to alert the car owner to an emissions 
defect. While it was anticipated these OBD systems would ensure 
that cars would operate more effectively in use regarding 
pollution, they were also concerned that car companies would 
use this technology to keep the independent aftermarket out by 
making access to these computers proprietary and forcing the 
independent service provider out of the market.
    Therefore, provisions were added in the 1990 Act that would 
require on-board computers be accessible without the need for 
proprietary tools and that any information needed to repair the 
emission system be made available to the independent 
aftermarket. While this provision did permit car companies to 
retain trade secrets, the legislation specified that no 
information may be withheld if that information was provided 
either directly or indirectly to the new car dealer.
    However, the gains made by the Act have been tempered in 
the last several years by the fact that the computers that are 
now being installed in vehicles that go well beyond emissions, 
monitoring and controlling nearly every function of the vehicle 
from safety to entertainment. Further, new technologies are 
coming quickly down the pike that could provide the vehicle 
manufacturers with even more competitive advantage when it 
comes to repairing a customer's vehicle.
    It is with this in mind that AAIA and the Coalition for 
Auto Repair Equality and a number of consumer groups are 
strongly supporting passage of the Motor Vehicle Owners Right 
to Repair Act. Introduced by Edolphus Towns, right to repair 
ensures that all information and tools provided to the new car 
dealer by the car company are also made available to the 
independent aftermarket. The information would not be free but 
would be provided at, hopefully, a fair and reasonable price.
    This bill would not prohibit new technology but rather, 
similar to the Clean Air Act, ensure that the use of technology 
on vehicles would not act to the detriment of competition in 
the aftermarket and, in the end, the consumer.
    Car companies have strongly opposed passage of right to 
repair based on two contentions: one, that all the information 
is already available and, two, that this is a veiled approach 
by the independent aftermarket to obtain the trade secrets of 
the car companies.
    AAIA and CARE do not dispute the fact that the car 
companies have done a better job in making information tools 
available to our industry. However, much of this progress does 
not come due to their willingness to ensure competition for 
customers but, instead, EPA service information rules and 
political pressure that has been brought on them by 
consideration of this right to repair legislation.
    Should Congress ultimately decide not to enact right to 
repair legislation, we have little doubt that car companies 
will be under extensive commercial pressure to cut our industry 
out of access to information.
    Why are we concerned? Car companies and dealer franchises 
are now making significantly more money on their parts and 
service industry part of the market. According to NADA, even 
though dealership parts and service department sales comprise 
11.8 percent of a typical dealer's total sales, it contributes 
48 percent of the total operating profit. New car sales make up 
60 percent of total sales, but only contribute 35 percent to 
total profit. Absent legislation, the need by car companies and 
their dealers to maximize profits from parts and service will 
override, in the long run, any current cooperation we may be 
receiving.
    As to the allegations that our industry is looking for 
access to trade secrets, one only needs to look at the 
composition of our industry to understand why this is not true. 
Many of the companies who have produced parts for our industry 
and the vehicle aftermarket are the same companies that supply 
car companies with the original equipment parts. In other 
words, the part in the aftermarket box may be the same as the 
part in the original equipment box, just the label is 
different. And, oh, yeah, the cost may be considerably less.
    Further, maybe most importantly, the bill provides 
significant protections for the car company trade secrets, only 
requiring them to make available to the aftermarket, the same 
information they make available to the dealer network. This is 
similar to the Clean Air Act provisions protecting car company 
trade secrets.
    It is important to note that since the promulgation of the 
Clean Air Act 1990 amendments, there has never been 
intellectual property dispute regarding an EPA requirements for 
emissions-related information or tools.
    Madam Chairwoman and members of the Committee, America's 
car owners are already being hit with much higher fuel costs 
which are making it more difficult to use their vehicle for 
even the most basic necessities. Should the competitive market 
disappear, car owners will find the cost of car ownership 
shooting up even further. After all, they bought the car. They 
should be able to obtain the repairs where they would like to 
get them accomplished, whether it is themselves or an 
independent shop or a dealer.
    Thank you again for the opportunity to present this 
testimony, and I am open to respond to any questions that you 
may have.
    Chairwoman Velazquez. Thank you, Mr. Lowe.
    [The statement of Mr. Lowe is included in the appendix at 
page 99.]
    Chairwoman Velazquez. Our next witness is Mr. William 
MacLeod. He is a partner at the law firm of Kelly Drye & 
Warren. His practice focuses on competition law, trade 
regulation, advertising privacy and security. He is also co-
Chair of the Antitrust Practice Group.
    Prior to that, he held positions such as Director of the 
Bureau of Consumer Protection at the FTC and advisor to the 
Assistant Attorney General Antitrust Division in the U.S. 
Department of Justice.
    Welcome, sir.

 STATEMENT OF WILLIAM MacLEOD, PARTNER, KELLY DRYE & WARREN LLP

    Mr. MacLeod. Thank you very much, Madam Chairman.
    I am William MacLeod, and in addition to the experience you 
described I would also note that I represent many thousands of 
small businesses both directly and through their trade 
associations, but I am here today on my own. I am not speaking 
on behalf of them, which gives me the rare privilege of being 
able to say what I think on the basis of my experience, both 
inside and outside the Federal Trade Commission.
    And, Madam Chairwoman, I commend you for calling this 
hearing today. I believe this is a most important subject for 
all of the constituents and the stakeholders around the FTC to 
remember and reassess on a regular basis. And that is, does the 
FTC have the power it needs and does the FTC have the 
wherewithal to exercise that power?
    In the gist of my testimony on the first point, I believe 
that it is almost beyond dispute now that the FTC has probably 
the most powerful weapon that the government has given any 
authority to protect competition and consumers; and that is 
Section 5 of the Federal Trade Commission Act. This section is 
so broad and gives the Commission the kind of power to address 
almost any perceived anti-competitive problem, as well as any 
perceived consumer protection problem the agency might assess.
    I believe that for the Federal Trade Commission it is in 
fact often ironically a detriment, a disadvantage when the 
Commission is given a specific authority to address some narrow 
character or some narrow aspects of the jurisdiction. And the 
reason why is because this broad power of the FTC Act that 
allows the Commission to basically assess whether the costs of 
some practice it sees in the marketplace outweigh the benefits. 
If the Commission stops using that power and starts enforcing 
narrow and specific grants of authority, that broad problem 
will begin to atrophy. I can give you some examples shortly.
    I also made a point in my testimony that I think the most 
important limitation the Federal Trade Commission faces is the 
limitation of resources, and this limitation of resources is 
something that we faced when I was there. And, of course, it is 
something that any government agency is always going to face 
because our government has limited resources.
    I would add to that today, on the basis of the testimony 
that you have already heard, my concurrence with many of the 
comments that the other significant constraint the Commission 
faces is the constraint of exemptions and exclusions from its 
jurisdiction.
    I myself on behalf of small businesses have occasionally 
gone to the Commission and asked the Commission to look into 
this particular anti-competitive activity or that anti-
competitive activity only to be told by the Commission staff 
they were concerned this activity came too close to an 
exemption that had been written into the law or an exclusion 
from the exclusion jurisdiction.
    I think that it is almost always a benefit to an industry 
and to a sector, even if it is regulated by some other 
particular agency of jurisdiction, for the Commission to have 
the ability to shine the light of its unfairness authority and 
its unfair methods of competition authority on the practices 
that may be going on in that sector.
    On another point that is related to the restraints that the 
Commission faces on its budget, when I was a Director of the 
Bureau of Consumer Protection, we were occasionally tasked with 
the assignment of writing rules and regulations to implement 
various statutory mandates that the Commission received. I 
believe the Commission, if anything, is writing more rules and 
more regulations today; and to an enforcer of the consumer 
protection and competition laws, what that tells the Commission 
is that the cops that would otherwise be on the beat are going 
to be back at their desks and they are going to be deciding how 
to address comments and how to draft rules and how to respond 
to rulemaking proposals.
    I would commend the Committee for calling the attention of 
the Commission to those areas that need attention and telling 
the Commission to get its cops out on the beat and start 
bringing the cases. I can tell you from my experience at the 
Commission and I can tell from you my experience since I have 
left the Commission that there are a number of senior and a 
number of energetic junior and a number of policymaking 
officials in between who are ready, willing and able to hear 
the complaint of a small business, of a medium-sized business, 
of an entrepreneur, of an innovator who is facing a barrier to 
compete. Those businesses will receive a very warm welcome at 
the FTC, and I believe they will also receive very warm 
welcomes if they are given the opportunity to reach outside the 
narrow scope of what the FTC may do.
    Finally, I think that it is a very easy proxy for what the 
FTC should be doing to ask the FTC again, again and again, are 
you raising or are you lowering the barriers for small 
businesses and for entrepreneurs to compete and to enter into 
businesses? If your law enforcement action lowers barriers, you 
are likely helping competition. If you are raising barriers, 
and sometimes unfortunate FTC enforcement has raised barriers, 
but if you are lowering barriers you are almost certainly 
helping competition.
    Madam Chairwoman, members of the Committee, that concludes 
my prepared testimony, I would be glad to answer any questions 
that you might have. Thank you very much.
    Chairwoman Velazquez. Thank you, Mr. MacLeod.
    [The statement of Mr. MacLeod is included in the appendix 
at page 106.]
    Chairwoman Velazquez. Thank you all for your testimony. It 
was very enlightening.
    I hope that the staff from the Commission is paying close 
attention because, apparently, we have two set of witnesses 
here, one from the Commission and the witnesses that are on the 
ground dealing with the lack of enforcement and a level playing 
field.
    Dr. Hazel, you spoke in your testimony that the health care 
marketplace has changed dramatically in the last 10 years; and 
it was exactly in 1996 when the DOJ-FTC statement of health 
care antitrust policy was last updated. As a physician, how 
have you seen the medical marketplace change in the past 12 
years? And how should enforcement policies of the DOJ and FTC 
be updated to reflect those changes?
    Dr. Hazel. Boy, how do you begin with a question like that?
    We have changed in so many ways, but I think pertinent to 
this Committee a couple of things has happened, as pointed out 
in the testimony. Number one is that the insurers have grown 
larger, and they have consolidated. And you can begin to see 
evidence in places such as New Jersey where some of that 
happens. Premiums actually go up, instead of down; and there is 
evidence out there. I can present the Committee with evidence 
about the market consolidation.
    We have seen the physicians have gone from being in a 
fairly strong position over the years to a fairly weak position 
in terms of negotiating on behalf of patients and making 
medical decisions and appealing concerns and complaints through 
processes. So we need the ability to have contractual 
discussions with plans.
    But, even more, if you look at what I believe we all think 
now and recognize are the issues of health care costs, we need 
to look at how health information technology can help us as a 
tool. We need to look at the quality improvement initiatives, 
and those take a critical mass of physicians to actually be 
effective. Could you imagine being the first one to buy a fax 
machine? Somebody was, but without others involved in it, it 
wasn't particularly useful. So in order to do that and to make 
it effective, we have to have the ability for physicians to 
organize together and deal with insurers around the issues of 
health information technology and quality improvement.
    Chairwoman Velazquez. Mr. MacLeod, I know you mentioned 
that you deal with small businesses, but can you comment about 
the statement made by Dr. Hazel that there has been 400 mergers 
and only three antitrust cases have been brought up. How does 
that compare to the previous Commission?
    Mr. MacLeod. Well, the mergers, as I believe the chairman 
of the Commission mentioned, in the insurance industry are 
monitored by the Antitrust Division. However, I have seen some 
of the material that the American Medical Association has 
provided the Commission, and some of the concentration numbers 
that the AMA has pointed out are numbers that would be giving 
the antitrust authorities some cause for further concern and 
consideration.
    A very important point to make, and this actually is part 
of my entry barrier test, I believe the American Medical 
Association makes a very good point when it notes that the 
antitrust enforcement against physicians should take into 
account the fact that if a few positions or a group of 
physicians gets together to accomplish some objective 
efficiently and it not creating any barrier to entry to other 
physicians, that should not raise serious antitrust concerns. 
There is a very good opportunity I think here for a little 
balancing of the playing field when it comes to looking at the 
physician combinations.
    Under the antitrust laws, it is sometimes forgotten in the 
drive always to find a lower price for a service or a lower 
price for a good, the antitrust laws protect the sellers into a 
marketplace as well as the buyers from a marketplace. And the 
same economic implications, the same inefficiencies and the 
same distortions occur if prices are suppressed to a level 
where we see sellers leaving a marketplace or sellers simply 
refusing or finding it impossible economically to provide their 
services.
    That is a very important part of what I heard from the 
American Medical Association, and I think that is a very 
worthwhile aspect for the antitrust agencies to consider.
    Chairwoman Velazquez. I am interested to hear from you what 
do you make of about the fact that FTC refused to sign the 
Justice Department's recent report on monopoly policy? So it is 
a clear indication that there is a split between the agencies. 
As a former bureau director at the FTC, have you ever seen this 
kind of disagreement before? And will this lead to an 
inconsistent antitrust enforcement policy between the agencies?
    Mr. MacLeod. That an a very ironic and timely question, 
Madam Chairwoman. Because when I started at the Federal Trade 
Commission, something very similar happened back in 1982 when 
the Antitrust Division first issued its merger guidelines and 
the guidelines were issued before the Federal Trade Commission 
had the chance to work out every potential disagreement that it 
might have over the substance of the guidelines. In the end, 
the agencies both were able to converge their enforcement 
policies and philosophies, and I expect we will something of 
the same thing here.
    I don't expect to see different enforcement policies coming 
out of the agencies with respect to single firm conduct. 
However, it is pretty clear that over the last few years there 
has been more activity at the Federal Trade Commission with 
respect to non-merger and non-price-fixing behavior than there 
has been at the Department of Justice, and I think the FTC is 
still the primary source for that kind of adjustment.
    Chairwoman Velazquez. Thank you.
    I will come back in a second round, so let me recognize Mr. 
Westmoreland.
    Mr. Westmoreland. I thank the Chairlady.
    Mr. Lowe, you represent the Automotive Aftermarket Industry 
Association. Do you also represent CARE?
    Mr. Lowe. I am testifying on their behalf this time. I 
don't represent them as a paid lobbyist or anything.
    Mr. Westmoreland. But you are testifying on their behalf. 
Do you know if the Automotive Aftermarket Industry Association 
or CARE has ever ran any advocacy ads against any member of 
this Committee and maybe somebody that is here today?
    Mr. Lowe. AAIA's has never done that. I could not speak for 
any other group.
    Mr. Westmoreland. You could not speak for any other group. 
We are under oath today, right?
    Chairwoman Velazquez. No.
    Mr. Westmoreland. Okay.
    How many people are on your Board of Directors?
    Mr. Lowe. I think we have 30, 35. I think it is a fairly 
large board.
    Mr. Westmoreland. How many of those are in the automotive 
repair business, are repairers?
    Mr. Lowe. On the board? We have one representative that is 
a repair shop owner, and then we have a separate division that 
just represents repair shops.
    Mr. Westmoreland. How many Board of Directors?
    Mr. Lowe. Just one.
    Mr. Westmoreland. Just one out of thirty-five?
    Mr. Lowe. We have distributors, manufacturers, reps. We 
have all different aspects of the industry. We are very 
vertically integrated.
    Mr. Westmoreland. But this is called right to repair bill 
that you are interested in and you only have one repairer on 
the board of 35; is that correct?
    Mr. Lowe. Right, but they also represent a division that 
has repair shops.
    Mr. Westmoreland. I know. I am just talking about your 
Board of Directors.
    How many independent repairers have ever been chairman of 
your board?
    Mr. Lowe. I don't believe in--we have been--I don't 
remember having one.
    Mr. Westmoreland. Do you know of any that you can recall?
    Mr. Lowe. I said I didn't--I don't think we have had one.
    Mr. Westmoreland. Let me ask you this. Do you use any 
third-party information providers? Or do you know if that one 
repairer has ever brought it up at a board meeting that they 
use any third-party information providers?
    Mr. Lowe. I couldn't tell you if that has come up at a 
board meeting. I am sure that most repair shops use third-party 
information providers.
    Mr. Westmoreland. Have you ever heard of any problems of 
them getting information from any of these third-party 
providers?
    Mr. Lowe. Yes, not from that board member but other repairs 
shops.
    Mr. Westmoreland. So other people have complained about 
being able to getting information from the third party?
    Mr. Lowe. Yeah, they said the information might be missing, 
and they have faxed them and found that that information was 
not available from the OE so it couldn't be provided to them.
    Mr. Westmoreland. Do you know if any of your members of 
your organization actually own the third providers, the third-
party information providers?
    Mr. Lowe. On our Board of Directors?
    Mr. Westmoreland. No, anybody that belongs to your group.
    Mr. Lowe. Our membership? Yeah, I think that, definitely, 
we have memberships from all aspects of the industry.
    Mr. Westmoreland. How about AutoZone?
    Mr. Lowe. Yes, they are a member of ours.
    Mr. Westmoreland. They own Alldata?
    Mr. Lowe. Correct.
    Mr. Westmoreland. How about NAPA Auto Parts?
    Mr. Lowe. Yes, they are a member of ours.
    Mr. Westmoreland. Do they own any part of any of these 
third parties?
    Mr. Lowe. I am sorry. I can't remember.
    Mr. Westmoreland. They do.
    Mr. Lowe. Okay.
    Mr. Westmoreland. They do.
    Let me ask you this, have they ever told you that any of 
these cannot obtain information to repair vehicles?
    Mr. Lowe. They said the independent third parties have all 
run into problems obtaining information at one time or the 
other.
    Mr. Westmoreland. Well, do you realize that these 
aftermarket providers, these information providers tell 
repairers that they can get them the information that they need 
to repair the vehicles?
    Mr. Lowe. In a lot of cases they do. They provide a very 
cost-effective way for repair shops to get information. If they 
were to rely on simply purchasing information from the OEs, it 
would be way over their price level to try to compete. So, 
yeah, they do provide a very cost-effective solution for most 
independent repair shops.
    Mr. Westmoreland. For most?
    Mr. Lowe. A large--almost all of them, yeah.
    Mr. Westmoreland. But if I understand correctly, there was 
a third-party group set up to handle something where they 
couldn't get this information and out of the 500 million 
repairs, only 100 people complained to that group. Do you think 
that number is correct?
    Mr. Lowe. It is hard to know what the exact number is. I 
would say it is probably fairly low mainly because the source 
of information, the National Automotive Task Force, which is I 
guess what you are referring to, is made up or comprised of 
manufacturers. And what they do is they take information 
requests from an independent. They then funnel the request to 
the proper OE. It is up to the car company to respond to that 
independent repair shop.
    Then, once they respond, which can take weeks or months, it 
could include the information or it could be, well, we are not 
going to provide that information.
    The problem is an independent repair shop with the car in a 
bay doesn't have weeks or months, it has hours to try to repair 
that car. So I think what has happened is that there is a 
credibility issue with NASTF and they don't have time to spend 
to make that complaint to NASTF. I need to make sure the 
information is available now.
    I think NASTF, as long as there are mandatory requirements 
to have information, can serve a role of discussing these 
issues. But, without that, NASTF just is an information 
clearinghouse, but it doesn't resolve the issue of right to 
repair. It is a step in the right direction, but it doesn't 
resolve the issue.
    Mr. Westmoreland. But out of the 500 million repairs done, 
100 complaints have gone to that group. Do you know how many of 
those have not been satisfied?
    Mr. Lowe. Well, the way they count it, as I understand it, 
is that a resolution is an answer but not necessarily the 
answer that resolves the issue. We have sent complaints to 
NASTF, and it took weeks before they even acknowledged they 
even got them. And then they sent it back to us saying they 
weren't provided in the proper format, and they had to be 
reformatted.
    This is not the answer. These are companies, small 
businesses that operate in a very tight time frame. If you 
bring your car in to get it repaired, you want it back the next 
day. You don't want to wait to have it repaired.
    Mr. Westmoreland. No, I understand. I completely understand 
that, but I had that iPod that I haven't gotten repaired yet.
    Mr. Lowe. If you find a place to get iPods repaired, let me 
know.
    Mr. Westmoreland. I will, brother.
    Now, let me ask you this. I asked my staff to look into 
this because I think this is important and it is something I 
looked into, although I don't serve on the Energy and Commerce 
Committee. One of the organizations that you are testifying for 
here today ran ads against me, and I was hoping that you knew 
about it, because I was going to get some clarification on some 
of them. You do represent the parts distributor; is that 
correct?
    Mr. Lowe. Yes, that is correct.
    Mr. Westmoreland. Has any part distributor filed a 
complaint with an NASTF about not being able to get any 
information that you are aware of?
    Mr. Lowe. Not that I am aware of. But I don't see every 
complaint, so I couldn't tell you.
    Mr. Westmoreland. Has it been something brought up at the 
board meetings? Is there a big problem that you all have had?
    Mr. Lowe. Parts manufacturing is not the issue. The issue 
is at the service end. The parts distributors are concerned 
with making sure that they have a customer left at the end of 
the day.
    Mr. Westmoreland. From what I have read of your proposal, 
or at least the bill, you want the purchaser to make a decision 
at the point of sale as to who is going to repair his car. Have 
you read the bill?
    Mr. Lowe. Yes.
    Mr. Westmoreland. Is that an accurate statement?
    Mr. Lowe. At the point of sale of the car?
    Mr. Westmoreland. Yes.
    Mr. Lowe. No, that is not our intention. Our intention is 
when the car owner is on the road and he has had it for a 
while--I mean, for warranty repairs he or she will go back to 
the dealer. After that point, we want the car owner just to 
have a choice of where to go to have it repaired.
    Mr. Westmoreland. I understand. But if this computer is 
supposed to be speaking between the owner of the car and the 
dealer, I am assuming, who sold them the car, if he says you 
need a brake job, you need to call your repair agent at so-and-
so, he's got to know where to get that information to that 
person; is that not correct?
    Mr. Lowe. Are you talking then about telematic systems; is 
that correct?
    Mr. Westmoreland. That was in your testimony.
    Mr. Lowe. Oh, okay, I am sorry. What I am referring to is 
the telematic systems. And, yeah, I guess at that point 
somewhere down the line we would like the car owner to make 
that decision, but we would like them to have the decision of 
where that information goes and not have the manufacturer 
determine that.
    Chairwoman Velazquez. Time has expired.
    Mr. Westmoreland. Thank you, Madam Chair.
    Chairwoman Velazquez. Ms. Hirono.
    Ms. Hirono. Thank you, Madam Chair.
    Mr. MacLeod, I agree with you that Section 5 of the FTC is 
a very, very broad mandate that the FTC can use. So in your 
testimony you indicated that, as we are concentrating on 
helping the small businesses, that one area that the FTC should 
really look at is focusing on barriers to entry for small 
businesses. And I think--I'll get back to you--but, Mr. Rubin, 
is that what you were referring to when you said that the AAI 
report and its emphasis on looking at vertical relationships 
and the impact that vertical relationships can pose to barriers 
to entry? Are you kind of on the same page of looking at 
barriers to entry as a way that we can--the FTC enforcement can 
really help small businesses? Are you talking about the same 
things here?
    Mr. Rubin. With the caveat that I don't think there is any 
particular concentration on which portion of the antitrust laws 
ought to be employed.
    The main thrust of the idea is that vertical relationships 
as a problem for entry, as an anti-competitive problem, have 
pretty much fallen by the wayside. Whether it is Section 5, 
Section 2, even Section 1 has traditionally been used in 
vertical problems. I don't think that matters much. The 
important thing is that vertical relationships deserve, in the 
view of the AAI report, to be revitalized as a subject.
    Ms. Hirono. And vertical relationships--to look at vertical 
relationships, that is within the purview of the FTC Act, is it 
not?
    Mr. Rubin. Certainly.
    Ms. Hirono. So with regard to small businesses both of you 
would agree that the enforcement by the FTC should focus on 
those kinds of relationships, vertical relationships as a 
barrier to entry? Mr. MacLeod?
    Mr. MacLeod. Yes, I think that a good way from a 
competitive standpoint to look at vertical relationships is to 
ask the question whether a vertical relationship begins to 
foreclose small businesses and entrants into a market from 
access to the channels of distribution. And if it does, the 
antitrust laws are very well-equipped to take care of those.
    The antitrust laws are less likely, obviously, to look at a 
vertical relationship between a small seller and a small buyer. 
There does need to be some sort of market effect of these 
things. But, beyond that, the antitrust laws and especially the 
Federal Trade Commission Act are well-equipped to investigate 
and prosecute areas where the competition is being harmed.
    Ms. Hirono. Is resale price maintenance per se a violation 
of the FTC laws?
    Mr. MacLeod. It is not a per se violation of the FTC laws. 
And, indeed, the Federal Trade Commission Act doesn't typically 
apply the pro se rule. That is typically considered under the 
Sherman Act.
    But just last month the Supreme court--a little bit longer 
ago now--in the last term the Supreme Court had decided to 
return resale price maintenance to a rule of reason approach, 
and that means that for future prosecutions and for a practical 
matter this is what the agencies have been doing for years. The 
agencies will look to see whether or not the resale price 
maintenance involved is on balance benefiting or harming 
competition.
    And the answer I think you can think of in very simple 
terms. If I were to start a small business tomorrow baking 
cookies and I had a couple of distributors to sell those 
cookies on the mall, there would not be a real issue to be 
concerned about if I were asking my distributors to charge a 
dollar a cookie. It is a very different issue if one is 
comprising virtually an entire market and is fixing for that 
entire market the price their retailers would charge.
    Ms. Hirono. So based on the competitive strength of whoever 
is imposing the resale price maintenance--basically, it would 
be, I guess, the supplier--would you agree that it should be 
pro se--once that determination is made, that resale price 
maintenance should be per se a violation? Would both you agree 
with that?
    Mr. MacLeod. No, I think at that point we are out of the 
realm of per se and we are asking ourselves, if there was a 
market effect, would we condemn the practice? And I think the 
answer there is very easily reached under the rule of reason.
    So the pro se rule, there are areas where the courts have 
adopted, modified pro se rules, and they very seldom enhance 
the antitrust analysis. It is much easier to say something is 
either always wrong or something will be wrong when we can 
identify there is a competitive harm done from it.
    Ms. Hirono. I think I am getting a little too esoteric 
here. We are talking about FTC enforcement, and I would like to 
ask the two of you, with regard to the current FTC enforcement 
that supports small businesses and lowers barriers to entry, do 
you think the kinds of actions that they have been taking over, 
say, the last 10 years promote, help small businesses because 
they are looking at barriers to entry?
    Mr. Rubin. If I may respond, Congresswoman, the key event 
with respect to resale price maintenance is the Supreme Court 
decision in Leegin of a couple months ago wherein the Court 
ruled that the correct analysis for resale price maintenance 
was under the rule of reason, rather than per se unlawful as it 
had been theretofore.
    The problem as the AAI sees it in their report is that this 
is an open-ended analysis and requires more structure. They 
advocate that there should be a presumption that resale price 
maintenance is inherently suspect. And if there is a mechanism 
to reign in the otherwise open-ended analysis of the rule of 
reason we believe that would be more helpful in ameliorating 
resale price maintenance.
    Ms. Hirono. I appreciate that discussion. Actually, my 
question was whether the current FTC enforcement addresses what 
you were talking about, Mr. MacLeod, barriers to entry. Because 
we're here to try to support and help small businesses. So is 
that the kind of enforcement that the FTC is engaging in the 
entire realm of enforcement that they can engage in? Are they 
placing enough emphasis on stopping barriers to entry and 
thereby helping small businesses?
    Mr. MacLeod. I would like to see more, and I think the 
Federal Trade Commission itself has said that it would like to 
do more as well. It has set very ambitious goals for itself in 
bringing these kinds of cases. They have a brand new director 
in charge of the Bureau of Competition branch that investigates 
these cases, and I think we can expect to see from the FTC some 
more activity in this regard.
    It is very hard--I also make this point in my statement--
for us sitting on the outside to know exactly in any individual 
case whether the FTC got it right or got it wrong. The last 
case the FTC brought in the non-merger area, at least the last 
significant controversial one, the commissioners themselves 
disagreed. So it is sometimes difficult to know whether or not 
the FTC is following the rule to go where the harm is worse and 
try to address that harm, but that is exactly where I think 
they are trying to head.
    Chairwoman Velazquez. Time has expired.
    Mr. Shuster.
    Mr. Shuster. Thank you, Madam Chair.
    My first question to Mr. Rubin and Mr. MacLeod, the FTC 
operates under laws that, some of them, are 100 years old or 
maybe older. Is there a need for an update in these laws? 
Because society has changed. Technology has changed. Mr. Rubin, 
I am afraid you are going to give me a dissertation on it, but 
are there needs to update the rules and regulations the FTC 
operates under?
    Mr. Rubin. I didn't realize my reputation was quite that 
bad.
    Mr. Shuster. You had a doctor in front of there, so I 
figured there was a Ph.D. Behind it.
    Mr. Rubin. The AAI report and I would point out that the 
Antitrust Modernization Commission report as well does not see 
any need for textual revision of any major sort to the 
antitrust laws. It is a judicially implemented body of law. 
Because markets change, because conduct changes, the world 
changes very fast, this is an appropriate use in the view of 
the AAI.
    Mr. MacLeod. Let me see if I can make that shorter, no.
    Mr. Shuster. I appreciate that.
    The other question, Mr. MacLeod, you said, and I think this 
is accurate, that when Congress puts narrowly defining laws, 
laws that are very narrow, that is something you believe 
diminishes the FTC's ability, is that accurate?
    Mr. MacLeod. I think so. When the Commission has a strength 
that it stops using and instead becomes an agency looking at a 
narrow mandate, that strength begins to atrophy.
    Mr. Shuster. Mr. Rubin?
    Mr. Rubin. Yes, I concur with that statement.
    Mr. Shuster. I don't know how familiar you are with the 
right to repair law, but is that a law narrowly defining the 
issue for the FTC?
    Mr. Rubin. I don't believe that the AAI report specifically 
addresses that proposal. I believe that the AAI as an 
organization does support the right to repair bill as it 
stands. As far as whether that is narrow enough, I am not sure 
I can give an opinion on that.
    Mr. Shuster. Mr. MacLeod.
    Mr. MacLeod. Well, I am not familiar with that law, but the 
question I would have about the law is whether it really would 
give the Commission more power to address anti-competitive or 
unfair acts and practices than the FTC Act already gives the 
Commission.
    Mr. Shuster. Mr. Lowe, you say there is a problem out 
there, but the facts don't seem to bear that out. I am looking 
at reports that the National Automotive Service Task Force in 
2006 received 32 service information requests; in the year 
2005, 48; in 2006 of those 32, 31 were resolved. And we are 
talking about 500 million automotive service repair events. 
That doesn't seem to me that that is a big problem.
    As a former automobile dealer, it was frequent that my 
service manager would call the auto manufacturer up and say, 
hey, we need to get some information here. There is always 
information problems. But that to me seems minuscule. And yet 
you are proposing legislation you say is going to correct the 
problem that really don't seem to exist to me. Can you expound 
upon that?
    Mr. Lowe. Well, I think the discussion I had with 
Congressman Westmoreland kind of highlights the problem in that 
I really don't see that NASTF has an accurate measure of the 
repair problem out there that we are seeing when we talk to our 
members in the field.
    I think, you know, this is what we see happening right now 
in the industry. Our industry, when they run into a problem 
repairing the car, they don't want to tell their customer they 
can't fix that car. They either find some way, either a friend 
at the dealership or they have a relationship with the 
dealership over the table or under the table, but they find a 
way to repair that car.
    Our members are problem solvers. They are not people who 
like to whine. That is my job. They like to make sure they get 
that car repaired without the customer knowing. Because once 
that customer loses trust in that repair shop, they are going 
to start going to the dealer, and that is a big, big concern to 
every individual small shop. These guys they have been building 
these shops and they are family owned shops. They might be in 
it for generations. They are running into more and more 
roadblocks. They are still in there and fighting, but we are 
concerned it is going to be in the long term a losing battle. 
So we do see a problem, but we only see the problem growing in 
the future.
    Mr. Shuster. I guess that is my problem with what you are 
saying. You say that folks--and I know, many, many service 
repair operators and owners and have the greatest respect for 
them. This is not about me being against them. It is me being 
against what I think you are trying to say to us. I hear you 
are whining, but it is not coming from the automotive repair 
people. Because, in fact, you have very few members on your 
board or association who actually repair cars or automobiles.
    The Automotive Service Association is really the 
institution or association that represents the thousands and 
thousands of people who actually fix cars in this country and 
are opposed to your legislation. So I do hear whining, and I 
think it is coming from the big part manufacturers, the NAPAs 
and the AutoZones.
    And so, again, I think I know where you are coming from 
here. In fact, you--
    Chairwoman Velazquez. Time has expired.
    Mr. Lowe. Can I respond to his statement?
    Chairwoman Velazquez. The time has expired.
    Ranking Member Chabot.
    Mr. Chabot. Thank you, Madam Chair.
    I will limit my time to 5 minutes. I will let the gentleman 
continue, if he'd like to.
    Mr. Shuster. I'd appreciate that.
    AutoZone--and, again, I have to tell you I know NAPA 
distributors and have great regard for them, but I don't hear 
them requesting this. They haven't requested this to me in this 
legislation.
    But you have AutoZone which owns AllData repair, which is a 
service that you talked about with Mr. Westmoreland. And you 
have an ad here. First it says the number one OEM source of 
information--online repair information, and you have an 
automotive garage, a guy by the name of Jeff Cosand: I couldn't 
get by without AllData. I have used it for over 10 years, and 
it is rare that I can't find what I need on OEM information--
that I need. OEM information is the gold standard. That's 
especially true for wiring designs.
    I mean, you have AutoZone out there saying, we are 
advertising. We have a system that we can provide you, the 
small repair people, with all the information you need. It is 
rare. It is successful.
    So, again, knowing many, many people in the repair business 
and someone who has owned a dealership and worked in automotive 
repair, most technicians don't want to mess with wire 
schematics. Because it is time consuming. It is not profitable. 
They would rather put brakes on. They'd rather put a muffler 
on. They would rather do those kinds of jobs that they can turn 
quick and be more efficient in their timing.
    So, again, it is pretty clear to me that you are not 
representing the repair industry. You are representing the 
manufacturers and the distributors of automotive parts.
    So, again, the facts don't bear it out. The industry that I 
know that repairs them, they don't support it. So, again, I 
think this is not a very good piece of legislation. And there 
is tremendous competition out there for this business. So I 
just don't think the facts bear out your position on this.
    Mr. Chabot. Reclaiming my time, and I will allow you to 
answer.
    Mr. Lowe. Sir, the Automotive Service Association certainly 
represents some repair shops. I think out of hundreds of 
thousands of repair shops around the country they do represent 
12,000. Six thousand of those are body shops, and so half of 
those are mechanical shops. Our membership is around 20,000 
repair shops. Most of the State groups, repair associations, a 
great many of them support right to repair. In fact, I think 
the Automotive Service Association is the only group that 
doesn't support right to repair.
    I would say that some of our members do repair, do brakes 
and mufflers, as you say. But a lot of them do very 
sophisticated repairs and are very interested in getting repair 
information, of course, so I am not sure I agree with your 
characterization of our industry.
    Mr. Chabot. Thank you.
    Dr. Hazel, I know there has been for quite some time 
criticism of the antitrust laws relative to how it has impacted 
physicians and their inability to join together and negotiate 
so that you arguably don't have the clout to negotiate with the 
health care insurance companies, et cetera. Would you like to 
comment on that or elaborate in any way?
    Dr. Hazel. Yes, sir, I would, as the representative of the 
human aftermarket industry here. I am glad that we have 
broadened this conversation again.
    Actually, sir, we are not here to talk about a change in 
the law. We are here to talk about a change in the guidelines, 
in the enforcement policy. And what we are looking for is a 
situation where there is clarity for physicians in how these 
rules are going to be enforced, when you see what happens when 
the rules are not clear as to what is okay and what is not.
    There have been two approval levels. Let's look at two 
groups that have gone to the FTC to get approval for 
collaboration. One is GRIPA in Rochester, New York. These are 
large organizations that took lots of money and a long time to 
go through their approval process, and that is not likely to 
happen most places. And where there is doubt on the part of 
physicians we are going to opt generally. And what you have 
seen, the reason there are so few of these, is we don't want 
the government in whatever capacity coming into the offices. We 
are worried about that.
    So what we are looking for is FTC to work with us to 
clarify the guidelines so that we can collaborate in getting 
health information technology and you do quality improvement, 
but we are not looking at this point for a change in the law.
    Mr. Chabot. Thank you.
    Madam Chair, I yield back.
    Chairwoman Velazquez. Mr. Hilal, for more than 20 years now 
group purchasing organizations have been exempt from the anti-
kickback statute of the Social Security Act. How does the 
special legal status of GPOs make it difficult for 
entrepreneurs to compete for business from hospitals? And I 
will ask that Mr. MacLeod or Dr. Rubin, if you have any 
comments regarding the same question.
    Mr. Hilal. Thank you. It has distorted the purchasing 
process. Any company that has kickbacks in its decision making 
is going to miss on choosing the best product at the best 
price. This is why anti-kickback laws were there, and this is 
why they are especially needed in health care.
    So by carving this out, by introducing a third factor, 
which is how much commission is the third party going to make 
on the way of that decision, and if that commission is based on 
the volume or the size of the contract, then you can see the 
distortions that can come in.
    The example I gave in my introductory comment was $20 
million or $10 million, 5 percent on one or the other can 
distort some opinions and some decisions. And in so doing, if 
we go back to the large manufacturers and large suppliers, they 
usually have the higher market share and wider product 
offering. So if we are here to see how that impacts 
entrepreneurs and their companies, there is no doubt that they 
will be crowded out. They have been crowded out, and they 
continue to be.
    Chairwoman Velazquez. Mr. MacLeod.
    Mr. MacLeod. Yes, I think the antitrust concern is 
potentially related, but it is, of course, different as well. 
Under the antitrust laws, if a particular health care 
organization, whether it is a hospital or some other entity, 
chooses to buy one device or one drug over another drug, even 
if it is a bad decision or a mistake, there is not much the 
antitrust laws have to say about that.
    What raises concerns about GPOs, of course, is that large 
numbers potentially reaching a significant share of a market 
would make the same mistake; and we have seen many reports of 
that kind of decision thereby preventing the ability of a new 
manufacturer of a device or a company offering a new therapy or 
a new drug or a new service to be foreclosed from an entire 
market.
    I actually represented a physician in a case in which--it 
wasn't a GPO, but it was the same kind of situation--where the 
physician believed that there was a combination among the 
hospitals and physicians in an entire area that prevented him 
from providing his radiology services.
    It becomes a serious antitrust problem when the market 
begins to close down to someone who has a better mousetrap to 
offer, with apologies to the marvelous devices and other 
services that the health care industry provides.
    Chairwoman Velazquez. So do you think there is a basis for 
FTC to look into it?
    Mr. MacLeod. Oh, I would think that if there is a free road 
for the FTC to look into this area that the Commission, both 
from the commissioners down to the staff, would be delighted to 
do so. Of course, I don't speak for them, but I can tell you 
when I was there I would have loved to have had my hands on 
this.
    Chairwoman Velazquez. Dr. Rubin.
    Mr. Rubin. I don't think I have that much to add to what 
Mr. MacLeod said, other that when the government is involved in 
large purchasing decisions we don't need a competition agency 
necessarily to consider competition issues. I think that is the 
point that the AAI report makes, that competition is an 
American policy, and it deserves to be considered by everyone.
    Chairwoman Velazquez. Mr. MacLeod, I understand that you 
have experience in international antitrust policies. I would 
like to get your perspective regarding which antitrust 
regulatory regimes around the world do you think are the most 
effective to keeping markets open to entrepreneurs and what can 
we learn from them?
    Mr. MacLeod. I think the most effective one is still right 
here in the United States, Madam Chairwoman; and I think that 
it has done a remarkable service around the world. As Chairman 
Kovacic testified, he himself has been one of the ambassadors 
of the United States in explaining antitrust laws to emerging 
economies, as well as to more mature market economies. And that 
the provisions that we have under the Sherman Act, the Federal 
Trade Commission Act and our other antitrust laws are the same 
sorts of provisions that other countries can adopt very 
beneficially for their own market economies.
    Mr. Hilal. My comment on this from the trenches, please.
    Three years ago, venture capital went on notice, put us all 
on notice they are no longer going to invest in entrepreneurial 
start-up companies, if they can no longer get these companies 
to the marketplace. So, yes, we are the bastion of free 
markets. We are the bastions of entrepreneurship. But let's not 
bruise something that is really working for this Nation. We 
lead the world in medical device and innovation, but we are 
stifling it.
    Chairwoman Velazquez. Dr. Hazel, you know we are in the 
midst of a Presidential election; and health care is one area 
where both candidates are offering their vision to reform 
health care. But a particular area is IT. Everyone talks about 
how IT has the great potential to improve the quality of care 
for patients, as well as reduce costs. However, the adoption of 
health IT requires a degree of cooperation among the provider 
community. Are FTC policies discouraging physicians from 
getting together to cooperate on health IT?
    Dr. Hazel. Yes, ma'am. The answer to your question is, I 
believe, yes.
    Chairwoman Velazquez. How is that?
    Dr. Hazel. Clearly, we think that health information 
technology has a lot of promise, as mentioned earlier, as a 
tool for looking at outcomes, improving efficiencies and so 
forth. The issues that we face--I both have been president of a 
practice that has 35 physicians in Northern Virginia and also 
chair a regional health information organization in Northern 
Virginia, so I am one of the believers.
    The issue is really one of partly expense and the savings 
that accrue from the things that we are trying to do and trying 
to promote. For instance, in your Medicare budget, you have a 
3-year payment of 2 percent for e-prescribing in an effort to 
reduce medical errors. You have to have systems that work to do 
that. You have to have it on the physicians side and on the 
pharmacy's side and so forth. So the point being is they take 
some investment. They have to be maintained, updated, operated. 
And the savings accrue to payers. In the case of Medicare, 
theoretically, it is to the government. And what we don't have 
is an equivalent.
    You were kind enough to put a 2 percent kick in the 
Medicare payments for you prescribing for 3 years. We don't 
have a similar thing in the private sector side. So as we use 
some of the savings to afford the technology, we have to work 
with payers to do that.
    Does that answer your question?
    Chairwoman Velazquez. Yes.
    Mr. Chabot, do you have any other questions?
    Mr. Chabot. No further questions.
    Chairwoman Velazquez. I want to thank all of you. This has 
really been a very interesting hearing. I was pleased to see 
Mr. Westmoreland. I guess that I have to bring another witness 
that has done any kind of political campaign intervention to 
get them to come here.
    But, in any case, this antitrust issue is very important 
for this Committee, especially at a time when we see how the 
economy is struggling. And in this case we are all asking that, 
based on the law, that the agencies do what is right to make 
sure that we all have a level playing field specifically for 
small businesses that are the drivers of our economy and that 
are creating the jobs that we need to get this economy growing 
again.
    With that, I ask unanimous consent that members will have 5 
days to submit a statement and supporting materials for the 
record.
    Without objection, so ordered.
    This hearing is now adjourned. Thank you.
    [Whereupon, at 12:27 p.m., the Committee was adjourned.]

    [GRAPHIC] [TIFF OMITTED] T4254.001
    
    [GRAPHIC] [TIFF OMITTED] T4254.002
    
    [GRAPHIC] [TIFF OMITTED] T4254.003
    
    [GRAPHIC] [TIFF OMITTED] T4254.004
    
    [GRAPHIC] [TIFF OMITTED] T4254.005
    
    [GRAPHIC] [TIFF OMITTED] T4254.006
    
    [GRAPHIC] [TIFF OMITTED] T4254.007
    
    [GRAPHIC] [TIFF OMITTED] T4254.008
    
    [GRAPHIC] [TIFF OMITTED] T4254.009
    
    [GRAPHIC] [TIFF OMITTED] T4254.010
    
    [GRAPHIC] [TIFF OMITTED] T4254.011
    
    [GRAPHIC] [TIFF OMITTED] T4254.012
    
    [GRAPHIC] [TIFF OMITTED] T4254.013
    
    [GRAPHIC] [TIFF OMITTED] T4254.014
    
    [GRAPHIC] [TIFF OMITTED] T4254.015
    
    [GRAPHIC] [TIFF OMITTED] T4254.016
    
    [GRAPHIC] [TIFF OMITTED] T4254.017
    
    [GRAPHIC] [TIFF OMITTED] T4254.018
    
    [GRAPHIC] [TIFF OMITTED] T4254.019
    
    [GRAPHIC] [TIFF OMITTED] T4254.020
    
    [GRAPHIC] [TIFF OMITTED] T4254.021
    
    [GRAPHIC] [TIFF OMITTED] T4254.022
    
    [GRAPHIC] [TIFF OMITTED] T4254.023
    
    [GRAPHIC] [TIFF OMITTED] T4254.024
    
    [GRAPHIC] [TIFF OMITTED] T4254.025
    
    [GRAPHIC] [TIFF OMITTED] T4254.026
    
    [GRAPHIC] [TIFF OMITTED] T4254.027
    
    [GRAPHIC] [TIFF OMITTED] T4254.028
    
    [GRAPHIC] [TIFF OMITTED] T4254.029
    
    [GRAPHIC] [TIFF OMITTED] T4254.030
    
    [GRAPHIC] [TIFF OMITTED] T4254.031
    
    [GRAPHIC] [TIFF OMITTED] T4254.032
    
    [GRAPHIC] [TIFF OMITTED] T4254.033
    
    [GRAPHIC] [TIFF OMITTED] T4254.034
    
    [GRAPHIC] [TIFF OMITTED] T4254.035
    
    [GRAPHIC] [TIFF OMITTED] T4254.036
    
    [GRAPHIC] [TIFF OMITTED] T4254.037
    
    [GRAPHIC] [TIFF OMITTED] T4254.038
    
    [GRAPHIC] [TIFF OMITTED] T4254.039
    
    [GRAPHIC] [TIFF OMITTED] T4254.040
    
    [GRAPHIC] [TIFF OMITTED] T4254.041
    
    [GRAPHIC] [TIFF OMITTED] T4254.042
    
    [GRAPHIC] [TIFF OMITTED] T4254.043
    
    [GRAPHIC] [TIFF OMITTED] T4254.044
    
    [GRAPHIC] [TIFF OMITTED] T4254.045
    
    [GRAPHIC] [TIFF OMITTED] T4254.046
    
    [GRAPHIC] [TIFF OMITTED] T4254.047
    
    [GRAPHIC] [TIFF OMITTED] T4254.048
    
    [GRAPHIC] [TIFF OMITTED] T4254.049
    
    [GRAPHIC] [TIFF OMITTED] T4254.050
    
    [GRAPHIC] [TIFF OMITTED] T4254.051
    
    [GRAPHIC] [TIFF OMITTED] T4254.052
    
    [GRAPHIC] [TIFF OMITTED] T4254.053
    
    [GRAPHIC] [TIFF OMITTED] T4254.054
    
    [GRAPHIC] [TIFF OMITTED] T4254.055
    
    [GRAPHIC] [TIFF OMITTED] T4254.056
    
    [GRAPHIC] [TIFF OMITTED] T4254.057
    
    [GRAPHIC] [TIFF OMITTED] T4254.058
    
    [GRAPHIC] [TIFF OMITTED] T4254.059
    
    [GRAPHIC] [TIFF OMITTED] T4254.060
    
    [GRAPHIC] [TIFF OMITTED] T4254.061
    
    [GRAPHIC] [TIFF OMITTED] T4254.062
    
    [GRAPHIC] [TIFF OMITTED] T4254.063
    
    [GRAPHIC] [TIFF OMITTED] T4254.064
    
    [GRAPHIC] [TIFF OMITTED] T4254.065
    
    [GRAPHIC] [TIFF OMITTED] T4254.066
    
    [GRAPHIC] [TIFF OMITTED] T4254.067
    
    [GRAPHIC] [TIFF OMITTED] T4254.068
    
    [GRAPHIC] [TIFF OMITTED] T4254.069
    
    [GRAPHIC] [TIFF OMITTED] T4254.070
    
    [GRAPHIC] [TIFF OMITTED] T4254.071
    
    [GRAPHIC] [TIFF OMITTED] T4254.072
    
    [GRAPHIC] [TIFF OMITTED] T4254.073
    
    [GRAPHIC] [TIFF OMITTED] T4254.074
    
    [GRAPHIC] [TIFF OMITTED] T4254.075
    
    [GRAPHIC] [TIFF OMITTED] T4254.076
    
    [GRAPHIC] [TIFF OMITTED] T4254.077
    
    [GRAPHIC] [TIFF OMITTED] T4254.078
    
    [GRAPHIC] [TIFF OMITTED] T4254.079
    
    [GRAPHIC] [TIFF OMITTED] T4254.080
    
    [GRAPHIC] [TIFF OMITTED] T4254.081
    
    [GRAPHIC] [TIFF OMITTED] T4254.082
    
    [GRAPHIC] [TIFF OMITTED] T4254.083
    
    [GRAPHIC] [TIFF OMITTED] T4254.084
    
    [GRAPHIC] [TIFF OMITTED] T4254.085
    
    [GRAPHIC] [TIFF OMITTED] T4254.086
    
    [GRAPHIC] [TIFF OMITTED] T4254.087
    
    [GRAPHIC] [TIFF OMITTED] T4254.088
    
    [GRAPHIC] [TIFF OMITTED] T4254.089