Antitrust Chief Hits Resistance in Crackdown
Haraz N. Ghanbari/Associated Press
WASHINGTON — President Obama’s top antitrust official and some senior Democratic lawmakers are preparing to rein in a host of major industries, including airline and railroad giants, moving so aggressively that they are finding some resistance from officials within the administration.
The official, Christine A. Varney, the antitrust chief at the Justice Department, has begun examining complaints by the phone companies Verizon and AT&T that their rivals — major cable operators like Cablevision and Cox Communications — improperly prevent them from buying sports shows and other programs that the cable companies produce, industry lawyers said.
At the request of some lawmakers, notably Senator Bernard Sanders, independent of Vermont, Ms. Varney is examining whether small agricultural operations are being hampered unfairly by large food processors, particularly in the milk industry, congressional aides said.
Ms. Varney has also challenged agreements that the Federal Trade Commission and consumer groups say discourage pharmaceutical companies from marketing more generic drugs. And she is examining a settlement between Google and book publishers and authors to make more books available online.
The more aggressive antitrust policy was described in interviews with officials at the White House, the Justice Department, other agencies and Congress. It is a major policy reversal from the Bush administration, which did not prosecute cases in which some dominant companies engaged in potentially anticompetitive behavior, often because those officials maintained such behavior was not harmful to consumers.
Democrats have spent years trying to gain the support of businesses, and the policy changes under way may have long-term political implications for their party. Some companies would like to see more aggressive antitrust enforcement against their rivals, while others could be hurt by it.
In some cases, though, the new approach is being opposed by administration officials. Some fear that the crackdown is coming at a bad time, as corporate America reels from the recession. Other officials embrace the Bush administration’s view that larger companies and industry alliances can provide consumer benefits by making their businesses more efficient.
One clash played out recently when the Transportation Department, rejecting many of Ms. Varney’s recommendations, approved an antitrust immunity request involving a global alliance of nine airlines; Continental Airlines wanted to join the alliance to share routes, marketing and revenue.
The antitrust division argued the immunity was unnecessary for approving the newly reconstituted alliance and that it could lead to rates rising from 6 to 15 percent for many routes, according to public filings. The Transportation Department rejected that analysis for most of the routes and instead endorsed a policy popular during the Bush administration that favored such industry agreements out of a desire for efficiency.
The disagreement became so heated that the president’s chief economic adviser, Lawrence H. Summers, was called in to mediate.
Administration officials said that Mr. Summers did not take sides in the dispute but urged the two agencies to reach an agreement as they sought to balance the interests of the industry against those of consumers.
In a second area, senior Democrats are proposing legislation to eliminate an exemption from antitrust law for commercial railroad companies. It would give the antitrust division the authority to scrutinize the railroads for anticompetitive practices.
The proposal, by Senator Herbert Kohl of Wisconsin, who heads the antitrust subcommittee, and Senator John D. Rockefeller IV of West Virginia, the chairman of the Senate Commerce Committee, has been sought by a coalition of railroad shippers. But so far the administration has not taken a position on the measure.
In a third area, a White House effort to overhaul financial regulation, officials weighed but rejected a significant antitrust role as a way to reduce the size of large companies considered too big to be allowed to fail.
“The struggles between the expert agencies and the Justice Department get to the heart and soul of exactly what the competition policy of the Obama administration will be,” said Mark Cooper, an antitrust expert and director of research at the Consumer Federation of America, an advocacy group.
He added: “Now you have an antitrust division that cares about competition, and it is running up against the expert agencies that haven’t changed their attitudes yet.”
Ms. Varney returned to government after working as a partner at Hogan and Hartson, a Washington law firm. During the Clinton administration she served in the White House as Cabinet secretary and a commissioner at the Federal Trade Commission.
The antitrust division under Ms. Varney scrapped the Bush administration’s monopoly guidelines, which had sharply limited the government’s ability to prosecute large corporations that used their market dominance to elbow out competitors.
Now the division has opened inquiries in the financial services and wireless phone industries. The division’s wireless inquiry is looking at, among other things, whether it is legal for phone makers to offer a particular model, like the iPhone or the Palm Pre, exclusively to one phone carrier. It is examining the sharp increase in text-messaging rates at several phone companies. And it is scrutinizing obstacles imposed by the phone companies on low-price rivals like Skype.
Though Ms. Varney has the backing and encouragement of senior Democratic lawmakers in the House and Senate, some agencies have been less open to the change in policy.
In the case of the airline alliance, the Justice Department and consumer groups had maintained that it was potentially harmful to customers to grant such immunity and that it would not promote the opening of new markets because the flights involved routes to countries that had already approved “open skies” agreements. But Transportation officials sided with the airlines for many of the routes and criticized the department’s antitrust analysis.
In its July 10 order, the Transportation Department criticized the approach of the Department of Justice: “Were we to suddenly change our antitrust immunity and public interest approach, as D.O.J. suggests, the credibility of the U.S. government with its international aviation partners would be significantly compromised and our ability not only to reach new Open-Skies agreements but also to maintain those agreements that we have already achieved would be undermined.”
Senior Democrats on the House Judiciary Committee, concerned that the order gave short shrift to rigorous antitrust analysis, are preparing to hold a hearing soon. A pending major expansion of a different airline alliance, involving American Airlines, British Airways and Iberia Lineas Aereas de Espana SA, is expected to provoke further disagreement between the agencies.
Justice Department officials have also been urged by major commercial shippers to examine the potentially anticompetitive practices of the highly concentrated commercial railroad industry. But the department’s authority to examine that industry is curtailed by a law that gives such authority to another agency affiliated with the Transportation Department. That agency, the Surface Transportation Board, has traditionally been sympathetic to industry concerns.