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Curtain falls on Leibowitz's tenure atop the FTC

by William McConnell  |  Published February 15, 2013 at 10:50 AM

ftc227x128.jpgFederal Trade Commission Chairman Jon Leibowitz stepped down from the commission Thursday, Feb. 14, after more than eight years at the agency. He joined the commission in September 2004 and was named chairman in March 2009.

Leibowitz's time at the commission was marked by a resurgence in FTC and Department of Justice litigation over mergers and other competition matters.

Particularly noteworthy was the FTC's success challenging regional hospital mergers, which began under his predecessor William Kovacic in 2008 with a case that forced Inova Health System in Northern Virginia to abandon its plan to buy Prince William Health System.

The first major case under Leibowitz's watch involved allegations of anticompetitive practices by Intel Corp. The suit, which resulted in a settlement prohibiting Intel from using threats, bundled prices, or other offers to inhibit the sale of competing processing chips, was brought not under the Sherman and Clayton antitrust acts traditionally enforced by both the FTC and the DOJ but under the more flexible powers granted only to the commission under Section 5 of the FTC Act. Although the law does not allow the FTC to impose fines or seek jail time, it does allow the agency to order a stop to "unfair and deceptive" practices.

Leibowitz vowed to make more use of Section 5, so it's fitting that the last major action during his tenure was using those powers again to force Google Inc. to live up to its obligation to license standard-essential patents acquired in the company's 2012 purchase of Motorola Mobility Holdings Inc. and to let companies that advertise on Google's website have more flexibility to use rival search engines.

The FTC also suffered some notable courtroom defeats during Leibowitz's tenure. One loss came when judges rejected the FTC's attempt to stop Laboratory Corp. of America Holdings Inc.'s takeover of Westcliff Medical Laboratories Inc., and another involved a case to break up Lundbeck Inc.'s purchase of the second of only two drugs used to treat a deadly infant disease. In both cases, the judges found that the FTC hadn't properly defined the relevant market.

The final words on Leibowitz's stewardship of the commission have yet to be written. Two important cases remain before the Supreme Court. One, concerning the FTC's attempt to break up a hospital merger in Albany, Ga., would affect the FTC's power to overrule anticompetitive actions approved by state and local governments. That case was argued late last year and a decision is expected shortly. The other would determine the legality of "pay for delay" settlements between makers of branded pharmaceuticals and generic competitors. Leibowitz has made a priority of stopping these deals, in which generic companies are paid to drop patent challenges and delay their entry into a particular drug market. Federal court circuits have split on the issue and the Supreme Court has agreed to hear one of the cases later this year.

Bolstering consumer protection and privacy have also been priorities. FTC settlements with Google and Facebook Inc. require comprehensive privacy programs and allow consumers to opt-in when material privacy changes are made, and prohibit privacy misrepresentations. The commission also established guidelines for businesses' privacy practices and updated the Children's Online Privacy Protection Rule by requiring that companies get parents' permission before collecting personal information from their children under 13.

Before coming to the commission, Leibowitz served as Democratic chief counsel and staff director for the U.S. Senate Antitrust Subcommittee from 1997 to 2000. Immediately before arriving at the commission, he was vice president for congressional affairs for the Motion Picture Association of America. He is married to Washington Post columnist Ruth Marcus and they have two daughters. Leibowitz recently sat down to discuss his tenure at the FTC and some to the issues he has addressed.

The Daily Deal: What did you hope to accomplish as chairman and have you been successful?

Jon Leibowitz: When I became chairman of course I knew something about antitrust and something about consumer protection and privacy. But still I really spent the first year listening to a great number of people to learn which issues made sense for the greatest number of people for us to focus on. Remember, I had four years of being a commissioner, which was terrific training to be chairman. I got to learn how the agency worked. As an agency we have always been consensus-driven and bipartisan, especially by Washington standards and it's always been my sense the best chairmen are.

I served under two terrific chairs -- Deborah Majoras and Bill Kovacic. The best chairmen have been ones like them who were in the antitrust agencies, left, and then came back with a sense of what they could accomplish and how the agencies worked. It was also the same for their predecessors Tim Muris and Bob Pitofsky, who had multiple stints at the FTC. I didn't have that but I would say my four-year apprenticeship made it much easier to take the helm because it's an exhilarating but exhausting job. If you have a sense of what you want to accomplish going in, it's easier to effectuate your agenda.

One of the great things about this job is there's no shortage of important and interesting issues that touch on Americans' lives. When I became chairman I went to the other commissioners to think about issues we wanted to highlight

We decided a fight against "last dollar" fraud should be at the top of the list. It was the beginning of the Great Recession and there were lots of malefactors going from one scam to another -- foreclosure rescue scams, debt consolidation fraud, stimulus fraud. Another was consumer privacy and of course we brought big cases, used our rulemaking authority to protect children, wrote a major report that called for more privacy by being more transparent on policies and instituting a "do not track" option.

Another was priority was supervision of technology markets and it was not long after I became chairman that we brought our case against Intel. And I feel good that we concluded [the tenure] by bringing the patent abuse case against Google. And then a priority was also healthcare. We're spending 18% of GDP on healthcare -- that's unaffordable and unacceptable.

We had a very robust and collaborative effort and we made progress in all these areas and a variety of others too, which is why I felt it was a good time to leave. We've done most of the things we wanted to do at the beginning of 2009, and if we haven't accomplish them they are about to be resolved. It's a good time for someone else to take the helm.

It's been a couple decades since the FTC had a case before the Supreme Court and now you've got two.

We should feel good about that, especially if we win. We're cautiously optimistic about both cases. Something we always believe in here is certainty for business. So, for example, while we certainly want outcomes we support in [both cases], either way they will give the business community some certainty about what the rules of the game will be. On "pay for delay" we were a lonely eminence for a while. A lot of people were telling us it was time to give up and it was the commission itself -- all of us -- who agreed that should bring another case and make it clear to the Supreme Court that there was a circuit split that needed to be addressed.

We're coming up on three years since the FTC and the DOJ revised their merger guidelines. They spelled out the economic tools the agencies use to measure the competitive effects of a merger and give more leeway in deciding how any particular market is defined. How have they worked so far?

The merger guidelines have worked out well. We had so many stakeholders in the antitrust bar like [former DOJ antitrust chief] Jim Rill who were instrumental in previous guidelines and who were very supportive of where we came out. And thus far, the courts seem to have adopted them. It's a more sophisticated framework than what we had before. I think they will stand test of time but we'll need 10 years to know for sure. They also help companies understand how we and the [DOJ's] antitrust division review deals. Apparently AB Inbev didn't read them closely. [Anheuser-Busch InBev SA/NV's plan to acquire Mexico's Grupo Modelo SAB de CV is being challenged in court by the DOJ.]

The FTC has been pretty active with merger litigation, but the results have been mixed. How would you characterize the recent track record?

If you win all your cases it means you're not trying the hard ones. If you're losing all the time you really need to rethink why you have this job. We've been pretty successful in hospital cases and other merger cases. We've lost some, too. It's a testament to the fact that we will bring cases where we think appropriate. Each case you want to win but you should never bat a thousand. If you're not willing to litigate early on you send a signal to the business community that they can muscle things through and that's not good for competition or American consumers.

You've long talked about the FTC Act's Section 5 powers being in the commission's tool kit, but there have been questions about how useful it would be in court.

It was very, very helpful in reaching the outcomes we did in the Intel and Google cases. If we had used the antitrust laws against Google in the patent case there would have been hurdles because previous cases suggest that an exclusionary act being challenged needs to be the one that got you monopoly power. Here, to the extent Motorola Mobility and then Google reneged on licensing commitments, that action happened long after the [licensing agreement] was established. So the exclusionary act didn't necessarily give them market power. This is a perfect example where we could clearly use our Section 5 authority to accomplish a goal that everyone recognizes is very important.

Do you think future chairmen will employ Section 5 as aggressively?

In talking to counterparts in Europe and a number of companies in the market place I think this case is going to be a template for similar settlements and will reduce to some extent the mischief we've seen around patents more broadly than just licensing commitments for standard-essential patents. Executives at companies will tell you they wish the billions and billions spent on buying defensive patent portfolios could go to R&D instead. So I think we've made a small step in the right direction.

It seems there's disagreement between the FTC and the DOJ on the issue. The Google settlement implies that patent holders almost never can go to court to block competition when they've made licensing commitments to standard setting bodies. A recent DOJ policy statement says there might be instances when a license holder is right to go to court.

I think there's a lot of consistency between those two policies and I think we will see more consistency with the antitrust division and the European Union going forward.

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Tags: Deborah Majoras | Facebook Inc. | Federal Trade Commission | FTC | Google Inc. | Inova Health System | Intel Corp. | Jon Leibowitz | Laboratory Corp. of America Holdings Inc. | Lundbeck Inc. | Motorola Mobility Holdings Inc. | Prince William Health System | Westcliff Medical Laboratories Inc. | William Kovacic

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