VoluntaryTrade.org

When the Federal Trade Commission challenges a merger, the process is stacked heavily in the Commission's favor. The FTC doesn't have to follow constitutional due process or even the normal rules of evidence. An accusation that a merger is "anti-competitive" carries a presumption of guilt. Still, the FTC has been thwarted in some of its recent efforts to impose its will on the marketplace, so for its latest merger challenge, the FTC decided to stack the deck even further by eliminating the independence of the agency's administrative hearing process.

Normally there's a two-track system for FTC merger challenges. First the FTC petitions a district (Article III) court for a preliminary injunction to prevent the merger's completion while the FTC assigns its own complaint to an administrative law judge. The ALJ, a career civil servant, hears testimony and arguments presented by FTC staff prosecutors (known as "complaint counsel") and defense lawyers. Then he issues an initial decision that complaint counsel or the defendant may appeal . . . to the FTC commissioners. If the FTC rules against the defendant, which it has in 100% of cases adjudicated dating back to at least 1996, the defendant may file a petition for review with the U.S. Court of Appeals.

In the Inova case, however, the FTC wants to bypass its administrative law judge and appointed one of its own commissioners, J. Thomas Rosch, to function as the ALJ. In a two-page order, the FTC explained that 'based on his 40 years of experience as a trial lawyer, predominantly in the context of complex competition law cases," Rosch was "the best available candidate to sit as a trier of fact in this case."

FTC rules do allow a commissioner to act as an ALJ, but there is no recent precedent for such an action. There is, however, a recent history of the FTC's chief administrative law judge, Stephen J. McGuire, ruling against the FTC and its staff in key cases. In 2002 McGuire dismissed the FTC's monopolization complaint against Rambus Incorporated. And last year, McGuire dismissed the FTC's complaint against a Michigan real estate brokerage group in a challenge to the Commission's efforts to impose new regulations on multiple-listing services. The FTC also faced a setback last year when a district court refused to grant a preliminary injunction that would have stopped Whole Foods Markets acquisition of Wild Oats Markets.

Without further explanation from the FTC, it's reasonable to infer that the Commission did not want to risk losing a merger challenge before an independent ALJ or an uncooperative district judge. Rosch is a career antitrust lawyer whose interests coincide with those of the FTC staff. It's hard to imagine a scenario where he dismisses a complaint brought by the staff he oversees and approved by his three fellow commissioners. In contrast, Judge McGuire and the Article III judges who have ruled against the FTC are not members of the antitrust community; they possess a modicum of independence that somewhat levels the playing field for defendants.

It's also unclear how the FTC arrived at its decision to appoint Rosch. The FTC says Rosch did not participate in the decisions to issue the complaint against Inova or appoint him ALJ. Does this mean Rosch never participated in any of the preliminary discussions about whether to issue the complaint? Did his office not receive the same memos from staff and other commissioners? And at what point did someone suggest shunting McGuire and letting Rosch handle the trial? (And who made the suggestion?)

There's a lot more questions. But don't expect any answers forthcoming from the FTC. 

Another troublesome aspect of this decision is that it reduces the number of commissioners who will hear the eventual appeal from four to three. (Former commissioner Deborah Majoras resigned last month, and her seat is unlikely to be filled before the next president takes office.) With Rosch recused from any intra-commission appeal, only two of the three remaining commissioners need find the Inova-Prince William merger illegal. Under normal circmustances, with McGuire sitting as ALJ and Rosch with the other commissioners, that majority increases from two to three. The FTC deliberately has reduced its quorum so that less than a majority of the commissioners in office (and not recused due to a conflict of interest) can rule. It's fishy to say the least.

You can read the FTC's press release on the appointment of Commissioner Rosch to preside over the Inova-Prince William case at this link. You can also learn more about the Inova-Prince William merger from the companies' merger website.