William Kovacic, who steps down from the Federal Trade Commission Sept. 25, has tackled antitrust law from nearly every possible angle. He has served on the FTC since January 2006, including a stint as chairman from March 2008 until March 2009. But Kovacic began playing a key role in antitrust policy long before his appointment to the commission.
In fact, he was present at the creation of the current merger review framework 35 years ago. As a law school fellow with the Senate Judiciary Committee's Antitrust and Monopoly Subcommittee, he assisted in drafting the Hart-Scott-Rodino Act of 1976, which established the premerger notification process requiring that companies inform antitrust regulators of their plans to merge. The law imposed a minimum 30-day waiting period on consummating a deal above a certain transaction value and allowed the government to extend a premerger review by issuing a second request for information.
After graduating from Columbia University Law School in 1978, Kovacic went to work for the planning office of the FTC's Bureau of Competition and was assigned to one of the first major merger reviews carried out under the Hart-Scott-Rodino process: Mobil Oil Co.'s failed hostile takeover of Marathon Oil Co. Kovacic left the commission staff in 1983 for a three-year stint in private practice in Bryan Cave LLP's Washington office, where he specialized in antitrust and government contracts law. He then served on the faculty of the George Mason University School of Law from 1986 until 1999, when he was named the E.K. Gubin Professor of Government Contracts Law at George Washington University Law School. Kovacic returned to the FTC in 2001 when he was named general counsel. He served in that post until 2004. He returned to GWU until President George W. Bush appointed him FTC commissioner in 2006.
Kovacic also has helped other governments set up antitrust regimes, including Armenia, Benin, Egypt, El Salvador, Georgia, Guyana, Indonesia, Kazakhstan, Mongolia, Morocco, Nepal, Panama, Russia, Ukraine, Vietnam and Zimbabwe. Since January 2009 he has been vice chairman for outreach at the International Competition Network.
Kovacic's wife, Kathy Fenton, is also a prominent antitrust attorney. As a partner at Jones Day, her clients have included Bayer AG, CBS Corp., Chevron Corp., DirecTV Inc., Liberty Media Corp., Procter & Gamble Co., Reynolds American Inc., SABMiller plc and Sirius XM Radio Inc. She also has served as chair of the American Bar Association Section of Antitrust Law and editorial chair of the Antitrust Law Journal.
In a recent interview with The Deal magazine's Washington bureau chief Bill McConnell, Kovacic looked back on some of the cases he faced and the evolution of antitrust law in the U.S.
The Deal magazine: You've had a front-row seat to the creation of today's merger review regime and to nearly every major development since then. Has everything worked out as the authors in Congress and the FTC intended?
William Kovacic: It took two years and two rounds of public comment for the FTC to implement the rules for the Hart-Scott-Rodino Act. Even with all that effort, everyone greatly underestimated how hard it would be to apply the law. No one had a sense of all the difficult judgments that would come up in the routine administration of the notification requirements, like questions about whether specific transactions were to be counted or not and how exemptions would be applied.
The most severe test occurred in October 1981 when Mobil Oil announced they were going to buy Marathon Oil. The purchase would combine the second-leading refiner in the U.S. with the 16th. It sounds a little bit quaint today, but this was the first truly immense transaction the FTC had examined. There had been other big ones, but none that attracted such intense scrutiny and involved such sprawling operations. We didn't have any idea what we were in for.
On the day before Thanksgiving, a very large truck pulled up, and the delivery people said, "We have over 500 cartons of materials for you. Where would you like them to go?" Nobody knew this was coming. Boxes were stacked up in various offices. It was a chaotic process just to decide where to put them and how to go through them.
Do you think the companies intended to overwhelm you with information so you couldn't review the merger effectively?
We asked for large categories of materials. In the early years there was a degree of risk aversion against missing an issue, so the second request to the companies was relatively broad. But there may have been a bit of strategy on their part too, a gamesmanship where, because we asked for lots of stuff, they gave us the universe and all it contains to see how we would handle it.
How well did you handle it?
We filed for a preliminary injunction to delay the merger, and Marathon did the same in a private suit. The [federal] district court granted our PI and Marathon's. It nearly crushed us, but we came out of that extremely stressful process beginning to understand what a really big deal it would be to organize and manage merger review teams.
You and other U.S. regulators have been active in helping other countries establish merger review regimes. How does being active at the beginning in the U.S. color your work with foreign officials today?
When I talk to people in India and China about what's involved -- how long it takes to put in place a mechanism for doing these reviews -- I try to warn that there is a tendency to underestimate how long it's going to take.
As a commissioner you pushed the agency to issue closing statements explaining why a merger review turned out as it did, even if there was no decision to litigate and the merger was approved.
Every time you close a file after issuing a second request you ought to explain why, and not just in one page, but a more elaborate discussion to what led you to stand down. In the 1990s, the FTC on one occasion issued a closing statement -- the approval of Boeing's takeover of McDonnell Douglas. Since then there have been a few dozen occasions, but it's well short of what ought to be the standard, which is every time you do a second request on a merger or a civil investigative demand on a nonmerger. We have a ways to go before we get there, but I think it would be much more informative to the outside world. That kind of explanation is much more important now that we have the merger guidelines -- we're coming up on one year since they were revised. The new guidelines were an opportunity not only to reset the content of the guidance itself but also to reset the process we use to review mergers and to commit ourselves to the habit of fuller disclosure.
You've advocated eliminating differences between the FTC's and the Justice Department's merger review procedures. Why is that important?
We ought to make sure we have common themes and that the two sets of umpires are using the same strike zone and calling pitches the same way. If we don't make progress in this area, what we lose is coherence, which is a critical element in a world where other jurisdictions are working very hard to improve their regimes.
You want the two ships to change course at the same time, and with the new guidelines we have done that in some areas. But agencies should also establish common training programs for new attorneys and economists. There should be regular consultations between merger groups of the two agencies to talk in detail about what we've learned from recent mergers. Some conversations take place, but not that deep, routine integration. Every time one agency's leadership gives a speech about implementation of the guidelines, that's a text that ought to be shared with the other agency before the speech is given.
In your time on the commission, which cases have been most significant?
The court's refusal to give a preliminary injunction in Arch Coal was the biggest disappointment. The cases with the most significant doctrinal impact are Chicago Bridge and Whole Foods, and the cases with the largest practical impact were Inova Health System and CCC-Mitchell.
Inova Health System, which the parties abandoned in spring 2008, was the first time in quite a while that we were able to back parties down in a hospital merger case. CCC-Mitchell was the first time in a long, long time that we received a litigated preliminary injunction stopping a deal.
Why do you see Whole Foods as significant? Though you ultimately won the case, the divestiture was puny.
The remedy in that case ultimately has to be seen as insignificant. So much time had passed by the time the commission had the final order, it was extremely difficult to achieve feasible remedies. But measured by doctrinal impact, it's a significant event. The case brings into clear relief the difference between the FTC's position in preliminary injunction matters and the position of the Department of Justice.
Meaning the FTC has a lower bar for winning a preliminary injunction halting a merger while it conducts an in-house trial against a deal?
When Congress created the [administrative trial] mechanism in 1973 as part of the Trans-Alaska Pipeline Act, it unmistakably established a distinctive FTC mechanism for reviewing mergers. In practice, however, that theoretical difference has really been unimportant. Until Whole Foods, it's been hard to find instances in which a court has said the FTC's burden in getting a preliminary injunction is not quite as heavy. In most instances district judges ruling on FTC cases did the same thing they did in Department of Justice cases.
Are you sure other judges will follow the lead of the Whole Foods case?
It's still hard to say. I think it was important in CCC-Mitchell. In that case the judge said if it were his choice alone, he wouldn't enjoin, but that's not his role here.
OK, the FTC now has a better chance of winning a preliminary injunction stopping a merger while it carries out a merger trial. Is that a good thing?
As to the larger question over whether it is sustainable to have a merger review system where dissimilar standards are applied depending on the identity of the public prosecutor, I think the answer is no. The next question, though, is under what standard should merger reviews be conducted.
Should merger review be combined under one agency?
I think ultimately there's a benefit to the U.S. of unifying its system of antitrust oversight, to have a simplification of the public enforcement framework. It's going to take me a while to decide what the residual system ought to look like. But to have the existing framework with the degree of decentralized authority split between the FTC and DOJ, along with parallel concurrent reviews by the Federal Energy Regulatory Commission, the independent agencies, the ability of the state governments to challenge any transaction, and private rights of action by individuals, is not ideal.
You can merge the FTC and DOJ, but the political obstacles to that are such that only a shock to the system would galvanize Washington to get that done. So the rationalization will have to come in the form of greater integration of activity between the Department of Justice and the FTC, the federal agencies and the states. Every day we don't do it is a day we lose ground to our foreign counterparts.
What other changes should the agencies make to merger reviews?
One continuing source of concern is that the agencies carefully and narrowly define what information they need in a second request for information and from whom it should be obtained. This has been a concern since the late 1970s. Simplifying information demands would have two benefits -- it would be less costly for firms, and if we stop asking for more information than we need, we can better digest the information we do get.
President Bush named you chairman after Deborah Majoras left the commission, but you went back to being a plain old commissioner when President Obama was elected. Was it a difficult adjustment to become a commissioner again?
The commission is like five occupants in an automobile. There's only one driver, but the other occupants think they would be better drivers. It's more fun to be driving than just watching. The goal should be to make sure the ensemble works effectively as a team, but compared to being chairman, being a commissioner is not quite as interesting.
Early in your tenure as chairman, you testified to Congress that the agency needs better technology to meet the demands of the digital age, particularly because of the enormous volume of merger documents being delivered to the agencies electronically. Has there been progress on that front?
That is still on the wish list. Merger documents are not being delivered in trucks anymore, and we need better computer networks, more printers, storage capacity, better databases and data sets and safeguards for catastrophic loss of capacity.
It's the only way we will be able to increase our productivity over time, but the pressure to satisfy immediate operational needs is so huge and crushing that it becomes very attractive to defer the long-term capital investment in IT systems.
What are your plans when you return to George Washington University?
I look forward to being part of the center for competition policy and researching and writing on topics I care about: How do we measure effectiveness of merger remedies? Are the agencies doing a good job? How do we fill out that report card? There's a strong tendency in our field, because we can measure it, to judge performance by activity levels.
I want to develop methodologies that look at output of cases and economic outcomes. How do you improve the merger review process, achieving the same or better regulatory results at lower costs, with greater coherence throughout the entire system? I would like to come up with a scorecard that measures and grades these things.
I also look forward to continuing to be active in organizations involved in standard setting globally and working with new competition systems.
I'm also interested in studying government contracting and the behavior of organizations, especially government organizations that have long-term needs and short-term employees. My time at the FTC has given me a long list of possibilities and lots of good material.