MEMORANDUM

JUNE 20, 1969. Subject: Response to Commissioner Nicholson's Memorandum of June 10, 1969, "Budget Plans of the Bureau of Restraint of Trade for Fiscal 1971.” To: Commission.

From: Bureau of Restraint of Trade.

This memorandum will undertake to relate the efforts of each of the divisions of this Bureau to what the Bureau conceives to be its overall objectives in response to Commissioner Nicholson's memorandum of June 10, 1969.

In evaluating the projects in which the divisions of this Bureau are engaged and/or propose to be engaged in fiscal 1971, and in order to make judgments or choices as to the relative merits of the divisional budget requests, which must include both project and non-project manpower commitments, the Bureau has little alternative but to apply essentially the same concepts with respect to its responsibilities and objectives as in the past. We realize that workload and economic demands require a shifting of emphasis and manpower from time to time where the need is considered greatest, and this has been and will continue to be done.

Fundamental differences in concept and approach may well result in different "evaluation" judgments as between members of the Commission and this Bureau, and, indeed, between the Bureau and its individual divisions.

We are reluctant to involve this memorandum with statements of Bureau position which are not the specific subject of Commission request or which may themselves involve propositions beyond the scope of this memorandum. We believe, however, that at least some statement of basic concepts are relevant here, if for no other purposes than to provide the Commission with specific propositions for review which will enable it to guide the Bureau with appropriate direction at this time.

This Bureau proceeds on the assumption that it constitutes an enforcement unit within the Commission with its primary responsibility in the enforcement of those laws prohibiting unfair methods of competition involving trade restraining acts or practices, which Congress has directed this Agency to enforce. Simply stated, we conceive that, to the extent available resources permit, it is the mission as well as the duty of this Bureau to enforce the laws within the Commission's jurisdiction in each area of responsibility assigned to it by the Commission. Each of these areas of responsibility involves trade restraints which, we believe, are of particular significance to overall antitrust and trade regulation enforcement. It is our understanding, in the absence of Commission instructions to the contrary, that it is the Bureau's mission to maintain substantial and effective efforts in each of these areas of responsibility.

It is essentially for this reason that in past Bureau submittals we have recommended a reasonable balance in the allocations of mnpower among the several divisions on the basis of the manpower needs relevant to each division's area of enforcement. Since the responsibilities of each division in its area of enforcement far exceed the manpower allocations which may be made on the basis of realistic expectations, we have not recommended the disproportionate allocation of manpower to one division, or to one area of responsibility, on a basis which will seriously impair the ability of other divisions, or the Bureau, to function effectively in even other area of enforcement responsibility.

The increasing acceleration of the merger movement within the economy in recent years, for example, increases the need for additional attorneys in that Division. Some transfers of personnel from other divisions and from other bureaus to ease this crisis are being made. This does not mean, however, that the rate or significance of trade law violations otherwise, are to any extent abating. On the contrary, even antimerger enforcement itself may incline companies to other anticompetitive measures. Enforcement actions against mergers in the dairy and allied grocery products industries, as an illustration, appear to have increased traffic on other roads which lead to concentration. Diseriminations in price relative to the supply of food products to major chain purchasers, the effect of which is to squeeze out smaller competitiors in either the primary or secondary levels of trade, move in precisely the same direction. A balanced enforcement program is, in the Bureau's view, not only warranted but essential.

The problems of non-competition in already highly concentrated industries certainly merit the Commission's attention and study. The problems in many other industries, however, where practices exist which, in general course, can

operate to ultimately produce additional and more widespread concentration, should not be neglected in the process. General enforcement remains urgently needed in each area of our responsibility.

The Bureau realizes, of course, that only a relatively small and selective coverage can be provided with respect to discriminatory practives generally, and with respect to the bulk of general trade restraint matters. However, substantial manpower must be committed to hand such matters, even on a minimum scale. It is the Bureau's view that a significant prophylactic effect, promoting general compliance with the law, is generated by selective consideration of existing anticompetitive practices at a variety of marketing levels and in a spectrum of industries.

"Evaluations" as to the relative merits of the budget requests of the several divisions as an integral part of the overall Bureau effort, are influenced by the foregoing considerations. For one thing, preventive measures are hard to equate with corrective measures. Further, a single evaluation basis for project and non-project work commitments between divisions, in the form of a constant or consistent common denominator, is not available. The "value" factors are often different in their application to the work commitments of the various divisions. The Division of Accounting is essentially a service division, whose manpower needs are related to the nature and volume of the work of the enforcement divisions.

The basic manpower needs of the Division of Compliance are similarly related to the work results of the enforcement divisions. With the professional personnel assigned the Division of Compliance being as limited as it is, little more can be accomplished than the effectuation of compliance with the Commission's current orders as they become final. Section 7 orders, individually, require the greatest work commitment, but Section 2 Clayton Act orders and Section 5 FTC Act orders also require substantial manpower assignment. If the Commission's orders are to be made effective, the Compliance Division must at least obtain sufficient information as to the nature and extent of initial compliance as will provide reasonable assurance to the Commission with respect to the effectiveness of each such order. This initial responsibility, however, represents the primary workload of the Division, and leaves too little of its staff available for its other responsibilities. In fact this is the most seriously understaffed division of the Bureau at this time.

On occasion, satisfactory reports of compliance cannot be secured by means of correspondence. Field investigations are then necessary to determine the nature and extent of initial compliance. Such investigations add to the backlog of matters in the field and compete for available manpower. The value or significance of compliance investigations may not be limited to the nature of the practices which originally grounded the order, however. A further consideration, involving the necessity to maintain enforcement integrity with respect to Commission orders, is also presented.

Manifestly, the significance of some matters within the jurisdiction of the Compliance Division, exceed that of others. We regard compliance with the outstanding TBA orders, dairy industry orders, and pending civil penalty actions, as constituting the division's highest priority matters.

The enforcement activities of the other three divisions of the Bureau are based upon their individual expertise, experience and enforcement concepts. Such activities are, of course, subject to the direction first of the Bureau and ultimately of the Commission. Such activities may be expanded, contracted or redirected as required. The Bureau regards the activities of these three divisions as interdependent and complementary. The information submitted by each of these divisions is necessarily addressed essentially to its own area of enforcement. The Bureau has reviewed this material from the point of view of the extent to which contributions are made to the Bureau's overall effort.

As appears from a review of the material submitted by the enforcement divisions, some confusion of terms is indicated, between the concept of interproject "evaluation" on the one hand, and "selection of alternatives" on the other.

Each of the divisions, except General Trade Restraints, assumed that choices between "alternative" courses of action contemplated procedural choices only, e.g., consent orders versus litigation, or, a case-by-case approach versus industrywire enforcement-policy declarations, etc. The Division of General Trade Restraints, on the other hand, in its memorandum responding to requests for further information from Commissioner Jones, advances a proposal to proceed on a broad front against concentrated industries, on the basis of existing struc

ture, oligopoly power distribution and non-competitive price levels. In discussing its proposal, the Division provides its evaluation formula for alternative choices between concentrated industries against which to proceed. Its evaluation method would measure public interest by quantifying, in terms of dollar amounts, the difference between so-called monopoly-level prices and a lower competitive-level of prices.

Where acts, practices or methods of competition are the basis for a proceeding. however, other methods of evaluation frequently must be used. To "nip in the bud" a potentially dangerous trade restraining practice, has merit not reasonably quantifiable by any method which we are able to suggest. Proceedings which eliminate practices which have the tendency to destroy competition require different bases for evaluation. Cases supported by evidence disclosing clear violations of law must be evaluated differently than first impression cases grounded exclusively on economic theory.

In discussing planning procedures, proposals for the re-casting of antitrust enforcement and associated matters, the Division of General Trade Restraints provides the Commission copies of certain memoranda as appendices. The Bureau approves development of new processes and approaches as advanced by Division of General Trade Restraints, but has not concurred in the specific recommendations or reasoning of that Division. To indicate the Bureau's position with respect to them, we are forwarding herewith memoranda by the Bureau on these matters. These are attached as Appendix 1 through Appendix 4. The recommended breakfast cereal investigation is still under review at Bureau level and when forwarded will include the Bureau's evaluation.

Each of the divisions of the Bureau has made an intensive and sincere effort to supply all of the information requested and in the form believed to be desired. The burden of attempting to assemble and present this volume of information in so short a time has been considerable. It is hoped that the extreme expedition with which the task has been done has not resulted in too great a cost in clarity of exposition or completeness.

The areas of activity which the Bureau considers of greatest significance, analyzed in some detail within the several divisional memorandum-reports, are evaluated from the point of view of overall Bureal effort. In order of priority they are as follows:

1. Grocery Products, involving Section 7 and Section 2 Clayton Act applications and Section 5 of the FTC Act. Associated matters, with various subindustry breakdown, are active in each enforcement division. We will always be as active in this field as we have manpower to commit, and it still won't be enough.

2. Automotive Parts, involving Section 7 and Section 2 Clayton Act applications and Section 5 of the FTC Act. Each of the enforcement divisions is substantially committed, and will be for as long as we can foresee.

3. Apparel, involving Section 7 and Section 2 of Clayton Act and Section 5 of the FTC Act. Mergers and containment practices by manufacturers of synthetic and natural fibers present the most significant problems.

4. Compliance with TBA orders, under Section 5 of the FTC Act, is considered of great importance and should be vigorously supported.

5. Special Studies and Activities, including Section 7 Conglomerate Merger Study, the study of high concentration industries, the Pre-Merger Notification Program, and the implementation of outstanding enforcement policy statements. These will be active in both fiscal 1970 and 1971.

6. Reciprocity, a practice cutting across industry lines in both Section 5 and Section 7. Consideration of reciprocity is currently active and promises to become more so in future years.

7. Lumber and Building Supplies under Section 7. The rash of acquisitions among manufacturers of such vital products as construction materials creates a threat to the public interest which the Bureau regards as of great importance. 8. Hearing Aid Industry under Section 5. The thrust of priorities in this industry, affecting the consumer group least able to pay, provides it with great public interest, and represents, by example, the concern of the Commission with consumer oriented restraint of trade matters.

9. Cement Industry under Section 7. This is an area in which the Commission is already deeply committed. At least through fiscal 1971 its priority must remain high.

10. LP-Gas Industry involves both Section 5 and Section 2 and will require considerable manpower commitments.

11. Publishing Industry involves Section 2.

12. Newspaper and TV Advertising involves Section 5.

APPENDIX 1

Subject: Memorandum of March 25, 1969, from Chief Division of General Trade

Restraints.

To: John N. Wheelock, Executive Director.

From: Cecil G. Miles, Director, Bureau of Restraints of Trade.

With your transmittal slip of March 27, 1969, you referred to me "for recommendation" a memorandum of March 25, 1969, addressed to you by Mr. Rufus Wilson, Chief, Division of General Trade Restraints of this Bureau, commenting on the memorandum by Mr. John Hurley of January 3, 1969 on Planning New Investigations.

Your reference included the transmittal slip to you of March 26, 1969 from Mr. Hurley suggesting, among other things, that it be determined whether or not Mr. Wilson's memorandum represents the Bureau's position. Mr. Wilson's memorandum is an extremely well-written, instructive and useful paper, but it does not represent the Bureau's position. Our position with respect to Mr. Hurley's memorandum of January 3, 1969 is set out in some detail in our memorandum to you of February 4, 1969.

We also transmitted with our memorandum of February 4, comments by each of the enforcement divisions of this Bureau concerning Mr. Hurley's memorandum of January 3. In order to highlight their reactions, I am quoting below a short excerpt from the comments by each of them:

Division of Compliance: “While I recognize the desirability of applying, as a matter of effective planning, a rationalized distinction between the investment concept and operational planning, I must confess that I find Mr. Hurley's memorandum to contain certain questionable premises."

Division of Mergers: "The problems involved in determining alternative courses of action, using the tools of factoring out costs, guaging benefits, and assessing ultimate advantages or disadvantages, are not practical within this Division unless there is a great deal more background, or intelligence information available for accomplishing this type of appraisal."

Division of General Trade Restraints: “Certainly it can be said that our investigational planning is not as ethereal as the recommendations in the subject memorandum."

Division of Discriminatory Practices: "We doubt that this proposal, as it relates to investigations of non-competitive industries, has general application to all of the Divisions in the Bureau of Restraint of Trade." The following excerpt from our memorandum of February 4, which is amplified by detailed discussion therein, fairly reflects, we believe, the Bureau's basic position, then and now, with respect to Mr. Hurley's memorandum of January 3:

"The Bureau has heretofore submitted for Commission consideration a proposed planning and priorities program. That proposed program incorporates concepts both of interproject evaluation and choice alternatives in the institution of Bureau investigations. Insofar as the memorandum by Mr. Hurley advocates use of these concepts and insofar as definitions of terms and citations of general economic and planning principles are concerned, we have no quarrel with it. However, Mr. Hurley assumes a one-dimensional objective with respect to institution of investigations by this Bureau with which we cannot agree. Accordingly, the suggestions incorporated in this latest memorandum, as well as those contained in his earlier memorandum of August 27, 1968, appear to us to have little, if any, practical application."

At my request, Mr. Bartley T. Garvey, the Program Officer for this Bureau, studied Mr. Wilson's memorandum, and has submitted to me his memorandum of April 3, 1969, commenting with respect thereto. I am in agreement with the comments contained in M Garvey's memorandum, and it is transmitted herewith.

APPENDIX 2

MEMORANDUM

APRIL 3, 1969.

Subject: Mr. Wilson's memorandum of March 25, 1969.
To: Cecil G. Miles, Director, Wilmer L. Tinley, Assistant Director, Bureau of
Restraint of Trade.

From: Bartley T. Garvey, program officer, Bureau of Restraint of Trade.

Mr. Hurley suggests that comments be provided ja response to his query as to whether Mr. Wilson's memorandum of March 25, 1969, concerning "Planning New Investigations," represents the Bureau's position. As for my own position, I would comment as follows:

I consider the Wilson memorandum an extremely well-written, instructive and useful paper. I don't agree with its conclusions, but I have no quarrel with most of its substance.

It is, as a matter of fact, a much more articulate, knowledgeable and better oriented version of what Mr. Hurley himself has been endeavoring to propound in the course of several memoranda on this same subject, heretofore submitted through Mr. Wheelock to this Bureau.

One of the members of Mr. Wilson's staff, Mr. Charles Mueller, some time ago evidenced considerable interest in the matter of the essentially monopolistic characteristics of the breakfast cereal industry as providing a challenging example of a "non-competitive" industry. I told him that a recommendation for investigation of this industry, as a pilot proposition, to determine whether Section 5 of the F.T.C. Act could be found broad enough to successfully challenge such noncompetitive practices, would be enthusiastically supported at least by me. I believe that it is both appropriate and desirable that Section 5 should be thus tested.

The conclusion that a separate office should be set-up forthwith to initiate such "structural" cases, however, I consider premature and presently unwarranted. Even less do I agree to Mr. Hurley's earlier proposal that the principal manpower of the Bureau of Restraint of Trade be shunted to such activity.

These proposals, I think, assume that if a little medicine appears efficacious for a particular malady, a great deal will surely result in instant health. We still have a great deal of anti-competitive virus extant, however, and no sure cure of the malady of non-competition is in context here, only experimental treatment. In over-committing manpower to a course of action that may well prove fruitless, other areas, where actual beneficial results can continue to be achieved, have to be abandoned.

I would like to see a suitable test case brought, challenging under Section 5 of the F.T.C. Act, oligopolistic practices which are non-collusive in the traditional sense, but which, because antithetical to competitive processes, need remedy, by containment of the major industry members relative to promotional or other practices foreclosing new entry, or by divestiture.

If successful in such a test case, a major manpower commitment to this area might well be justified. Until then, a major commitment of manpower, without any present assurance of initial success, appears to me a very injudicious course. As to the second aspect of the proposal (also in line, I believe, with Mr. Hurley's own thinking) identification and analysis of certain structural characteristics which might disclose violation-prone industries, is recommended. Here again, I have no quarrel with the concept in appropriate application, but do not endorse the conclusion reached.

Certainly valuable contributions to planning can be provided in recommendations for high priority projects through apprehension and analysis of economie forces which may exist within an industry conducive to anti-competitive practices, such as price-fixing. Until a date of further development of the art. however, I would not recommend that the Commission issue price fixing “guides" or price fixing "enforcement policy statements" based exclusively on the inferences of such data. The distinction between collusion-prone high-concentration industries, and high-concentration industries whose members need not affirmatively conspire in order to minimize effective price competition, is not sufficiently clear, as I see it. to so predetermine areas of enforcement action. Conclusions so reached relative to discriminatory practices or exclusive dealing, would seem to me even less certain.

The last conclusion in Mr. Wilson's memorandum, is to the effect that the Commission, with the aid of an adequately staffed and competent planning office might itself initially determine the broad areas of economic study and enforcement action to which the agency's resources should be committed. I would endorse this suggestion.

I believe, in line with the above suggestion, that the Bureau of Restraint of Trade should remain strictly enforcement oriented and committed to some degree of enforcement responsibility with respect to all of the statutes Congress has been fit to empower the agency to administer in the antitrust and trade regulation field. To this end, in addition, within-bureau planning remains as an imperative because in each statutory area we are undermanned. The Bureau's responsibilities also include the need for as wide as possible a dispersion of enforcement attention throughout the economy, attention to incipient restraints which may be costly if permitted further to develop, and at least selective consideration of individual complaints of law violation whether from Congressional sources or otherwise.