A N T I T R U S T D I V I S I O N C S ONGRESSIONAL UBMISSION FY 2014 P B ERFORMANCE UDGET Antitrust Division FY 2014 Congressional Budget Submission Table of Contents I. Overview 2 A. Introduction 2 B. Issues, Outcomes, and Strategies 3 C. Full Program Costs 16 D. Performance Challenges 17 I. Summary of Program Changes 18 III. Appropriations Language and Analysis of Appropriations Language 19 IV. Program Activity Justification 20 A. Decision Unit: Antitrust 20 1. Program Description 20 2. Performance and Resource Tables 25 3. Performance Measurement Framework 30 4. Performance, Resources, and Strategies 31 5. Exemplar - Criminal 36 6. Exemplars – Civil 41 V. Program Offsets by Item 45 VI. Exhibits 46 A. Antitrust Division Organization Chart B. Summary of Requirements C. FY 2014 Program Increases/Offsets by Decision Unit D. Resources by DOJ Strategic Goal and Strategic Objective E. Justification for Base Adjustments F. Crosswalk of 2012 Availability G. Crosswalk of 2013 Availability H. Summary of Reimbursable Resources I. Detail of Permanent Positions by Category J. Financial Analysis of Program Changes K. Summary of Requirements by Grade L. Summary of Requirements by Object Class I. Overview A. Introduction The Antitrust Division is committed to its mission to promote economic competition through enforcing and providing guidance on antitrust laws and principles. Its vision is an environment in which U.S. consumers receive goods and services of the highest quality at the lowest price and sound economics-based antitrust enforcement principles are applied. The Division supports the Department’s Strategic Goal II, Objective 2.6, “Protect the federal fisc and defend the interests of the United States.” In recent years, the Division has aggressively pursued far-reaching criminal cartel activity and important civil matters while reviewing a large number of premerger filings, many involving complex issues and global conglomerates. Merger volume steadily increased from 2003 through the first half of 2008, falling off at the end of 2008 based upon global economic conditions. Beginning in late 2009, as credit markets recovered and cash-rich companies regained business confidence, merger volume momentum gained speed and continues to increase in fiscal year 2013. To administer its caseload, the President’s Budget includes $160,410,000 in FY 2014, reflecting annual cost adjustments of $823,000 over the FY 2012 enacted level. It is critical that the Division have adequate resources to keep abreast of a workload, which more and more involves large, multi-national corporations and anticompetitive behaviors that are pervasive and difficult to detect. By protecting competition across industries and geographic borders, the Division’s work serves as a catalyst for economic efficiency and growth with benefits accruing to both American consumers and American businesses. Electronic copies of the Department of Justice’s Congressional Budget Justifications and Capital Asset Plan and Business Case exhibits can be viewed or downloaded from the Internet using the Internet address: http://www.justice.gov/02organizations/bpp.htm. • From FY 2009 through the end of FY 2012, as a result of the Division’s efforts, over $3.2 billion in criminal fines were obtained from antitrust violators. • The Division is a key participant on the President’s Financial Fraud Enforcement Task Force, detecting and prosecuting mortgage fraud, securities and commodities fraud, and illegal schemes preying on funds designated to assist in America’s ongoing economic recovery as part of the American Recovery and Reinvestment Act. (see pg. 36) • Intellectual property issues involving patents, copyrights, trademarks, or trade secrets are instrumental in the Division’s work. Invention and innovation are critical in promoting economic growth, creating jobs, and maintaining our competitiveness in the global economy. Antitrust laws ensure new proprietary technologies, products, and services are bought, sold, traded and licensed in a competitive environment. Page 2 B. Issues, Outcomes, and Strategies Fundamental changes continue in the business marketplace, including the expanding globalization of markets, increasing economic concentration across industries, rapid technological change, significantly expanding numbers of business bankruptcies and failing firms, and substantial government investment in business enterprise. These factors, added to the existing number and intricacy of our investigations, significantly impact the Division’s overall workload. Many current and recent matters demonstrate the increasingly complex, large, and international nature of the matters encountered by the Division, as the following table and exemplars indicate. Enforcement Major Matter Exemplars Program Criminal Financial Fraud Enforcement (see Exemplar - pg.36) DOJ Strategic Goal II (Real Estate, Municipal Bonds and Economic Recovery) Objective 2.6 Automobile Parts (see Exemplar – pg 39) AT&T, Inc./T-Mobile USA, Inc. (see Exemplar – pg 41) Civil Merger/Non-Merger H&R Block, Inc./2SS Holdings, Inc. (TaxACT), (see DOJ Strategic Goal II Exemplar - pg. 42) Objective 2.6 American Express, MasterCard and Visa – Credit Card Merchant Restraints (see Exemplar - pg. 44) Globalization Corporate leaders continue to seek a global presence as an element of long-term economic success, and more companies are transacting a significant portion of their business in countries outside of where they are located. For example, in the United States international trade (defined as exports and imports of goods and services) was $4.9 trillion in FY 2012.1 The internationalization of the business marketplace has had a direct and significant impact on antitrust enforcement in general, and specifically, on the Antitrust Division’s workload. A significant number of the premerger filings received by the Division involve foreign acquirers, acquirees, major customers and competitors, and/or divestitures. 1 United States Department of Commerce, Bureau of Economic Analysis, AU.S. International Trade in Goods and Services@, http://www.bea.gov/newsreleases/international/trade/2012/pdf/trad1012.pdf, December 2012. Page 3 This also impacts our criminal enforcement program. The Division has witnessed a tremendous upsurge in international cartel activity in recent years. The Division places a particular emphasis on combating international cartels that target U.S. markets because of the breadth and magnitude of the harm that they inflict on American businesses and consumers. Of the grand juries opened through the end of FY 2012, approximately 67 percent were associated with subjects or targets located in foreign countries. Of the approximate $7.8 billion in criminal antitrust fines imposed by the Division between FY 1997 and the end of FY 2012, approximately 97 percent were imposed in connection with the prosecution of international cartel activity. In addition, approximately 65 foreign defendants from France, Germany, Japan, South Korea, Taiwan, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom have served, or have been sentenced to serve, prison sentences in the United States as a result of the Division’s cartel investigations. The Division’s criminal enforcement program overall, including enforcement against international cartels, has resulted in an increase in criminal fines. Up until 1994, the largest corporate fine imposed for a single Sherman Act count was $6 million. Today, fines of $10 million or more are commonplace, including many fines in excess of $100 million. In FY 2012, total criminal antitrust fines obtained reached a record $1.1 billion. Contributing to that total was a September 2012 sentence against AU Optronics Corporation. As a result of Division enforcement efforts, AU Optronics Corporation – a Taiwan-based liquid crystal display (LCD) producer – was sentenced to pay a $500 million fine for its participation in a five-year conspiracy to fix the prices of thin-film transistor LCD panels sold worldwide. The $500 million fine matches the largest fine ever imposed against a company for violating the U.S. antitrust laws. In addition, Yazaki Corp. agreed to plead guilty and pay a $470 million criminal fine in January 2012 for auto parts price fixing, representing the second largest criminal fine for an antitrust violation. The impact of these heightened penalties has been an increase in the participation of large firms in the Division’s Corporate Leniency Program, bringing more and larger conspiracies to the Division’s attention before they can inflict additional harm on U.S. businesses and consumers. As discussed above, our work no longer takes place solely within the geographic borders of the U.S. In our enforcement efforts we find parties, potential evidence, and impacts abroad, all of which add complexity, and ultimately cost, to the pursuit of matters. Whether that complexity and cost results from having to collect evidence overseas or from having to undertake extensive inter-governmental negotiations in order to depose a foreign national, it makes for a very different, and generally more difficult investigatory process than would be the case if our efforts were restricted to conduct and individuals in the U.S. The markets and competitors affecting U.S. businesses and consumers are more international in scope, and the variety of languages and business cultures that the Division encounters has increased. Consequently, the Division must spend more for translators and translation software, interpreters, and communications, and Division staff must travel greater distances to reach the people and information required to conduct an investigation effectively and expend more resources to coordinate our international enforcement efforts with other countries and international organizations. Page 4 International Competition Advocacy - The Antitrust Division is actively working with international organizations to encourage the adoption, regulation, and enforcement of competition laws as worldwide consensus continues to grow that international cartel activity is pervasive and is victimizing consumers everywhere. Total cartel sales of $1.2 trillion in 2005 contained illegal overcharges of $300 billion, a 25 percent premium paid for by consumers and businesses worldwide.2 The Antitrust Division’s commitment to detect and prosecute international cartel activity is shared with foreign governments throughout the world, resulting in the establishment of antitrust cooperative agreements among competition law enforcement authorities across the globe. To date, the Division has entered into antitrust cooperation agreements with twelve foreign governments – Australia, Brazil, Canada, Chile, China, the European Union, Germany, India, Israel, Japan, Mexico and Russia. In addition, antitrust authorities globally are becoming increasingly active in investigating and punishing cartels that adversely affect consumers. The Division is a strong advocate for effective anti-cartel enforcement around the world. As effective global cartel enforcement programs are implemented and criminal cartel penalties adopted, the overall detection of large, international cartels increases along with the Division’s ability to collect evidence critical to its enforcement efforts on behalf of American consumers. In the past decade, dozens of jurisdictions have increased penalties for cartel conduct, improved their investigative powers and introduced or revised amnesty programs. For example, Canada and Mexico have recently adopted or strengthened criminal sanctions for hard core cartel conduct. In addition, jurisdictions such as Australia, Canada and New Zealand have made revisions to their cartel amnesty policies making them more consistent with the United States. 2 Connor, John M. “Statistics on Modern Private International Cartels, 1990-2005”, The American Antitrust Institute - Working Paper 07-01, January 10, 2007. Page 5 Efforts such as these help enhance global antitrust enforcement and reduce the burden on law abiding companies that operate in international markets. In addition, they promote international uniformity and help bring cartel prosecution in line with international best practices. The Division continues to prioritize international cooperation, procedural fairness and, where appropriate, antitrust policy convergence and pursues these goals by working closely with multilateral organizations, strengthening its bilateral ties with antitrust agencies worldwide, and working with countries that are in the process of adopting antitrust laws. In October 2001, with leadership from the Antitrust Division, the International Competition Network (ICN), comprised of competition authorities from 13 jurisdictions, was launched. The Division continues to play an important role in achieving consensus, where appropriate, among antitrust authorities on sound competition principles and also provides support for new antitrust agencies in enforcing their laws and building strong competition cultures. As of 2012, the ICN has grown to include 123 agencies from 108 jurisdictions. The eleventh annual conference of the ICN was held in Rio de Janeiro, Brazil in April 2012 where ICN members adopted new materials on how to assess market dominance, resolve cartel cases and manage competition projects effectively. Page 6 Intellectual Property Invention and innovation are critical in promoting economic growth, creating jobs, and maintaining our competitiveness in the global economy. Intellectual property laws create exclusive rights that provide incentives for innovation. Antitrust laws ensure that new proprietary technologies, products, and services are bought, sold, traded and licensed in a competitive environment. Together, antitrust enforcement and the protection of intellectual property rights create an environment that promotes the innovation necessary for economic success. Issues involving patents, copyrights, trademarks, or trade secrets, arise in the Division’s antitrust enforcement investigations, international competition advocacy, interagency initiatives, business review letters, and amicus filings in court cases. Three of these areas are highlighted below. Patent Assets in Antitrust Cases - Recently there have been a number of proposed acquisitions that involve significant patent assets. The Division analyzes these issues closely to ensure competition is protected and invention and innovation are advanced. For example, in February 2012, the Antitrust Division closed its investigations of Google’s acquisition of Motorola Mobility and another investigation that also involved the acquisition of a very significant patent portfolio after concluding neither acquisition was likely to violate Section 7 of the Clayton Act. These portfolios included patents that had been declared essential to a standard in the wireless industry, and for which the prior owner had made certain licensing commitments. The Division thoroughly examined the acquiring firms’ incentives and ability to exploit ambiguities in those commitments to raise rivals’ costs or foreclose competition. During the course of the Division’s investigations, several of the principal competitors involved in the transactions—Google, Apple and Microsoft—made commitments concerning their licensing policies for patents that have been declared essential to a standard, and which were encumbered by licensing commitments. The commitments made by Apple and Microsoft substantially lessened the Antitrust Division’s concerns about potential anticompetitive use of the patents. The Antitrust Division observed that Google’s commitments did not provide the same direct confirmation of its intended licensing policies. Page 7 Although the Division concluded that the acquisitions of these patent portfolios were not likely to substantially lessen competition, the Division noted its concerns about the potential inappropriate use of the declared standards-essential patents to disrupt competition and specifically limited its conclusion to the transfer of ownership rights and not to the exercise of those transferred rights. Since closing these investigations, the Division has continued to monitor closely the use of declared standards-essential patents for which the owner has made licensing commitments. International Advocacy - The Division regularly engages in international competition advocacy projects promoting the use of sound analysis of competition when issues involving intellectual property rights arise in multinational fora, such as the World Intellectual Property Organization, the Organization for Economic Cooperation and Development, and the Asian Pacific Economic Cooperation, and in foreign jurisdictions, such as China. To ensure that U.S. businesses may appropriately utilize their important intellectual property rights, it is crucial that other jurisdictions approach the intersection of antitrust and intellectual property in ways that promote both competitive markets and respect for intellectual property rights. The Division devotes substantial time and effort to advocating that all jurisdictions enforce competition laws in ways that create the right incentives for innovative activity to take place. Interagency Initiatives - Standard-setting activities can play a critical role in promoting innovation and are often used in information and communications sectors to facilitate interoperability of complementary products. The Division seeks to ensure that the standard-setting process, including the use of intellectual property in that process, is not used in a manner that harms consumers. The Division regularly participates in interagency activities that promote competition advocacy where antitrust, intellectual property, and standards issues are implicated. DOJ-FTC Workshop - In December 2012, the Department of Justice and the Federal Trade Commission (FTC) held a joint public workshop on patent assertion entity (PAE) behavior, as distinct from “non-practicing entity” (NPE) activity, such as developing and transferring technology. By contrast, PAE activities often include purchasing patents from existing owners and seeking to maximize revenues by licensing the intellectual property to (or litigating against) manufacturers who are already using the patented technology. The workshop provided a forum for industry participants, academics, economists, lawyers, and other interested parties to discuss the evolution of economic and legal analyses of PAE behavior, including patent acquisitions and licensing activity. The workshop consisted of a series of panels examining, among other topics, PAE behavior, the economics of IP licensing, industry experiences with PAE behavior, economic and legal theories and empirical work concerning PAE activity, and the potential efficiencies and harms to innovation and competition that this activity may generate. Page 8