Professional Documents
Culture Documents
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In the Matter of )
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THE PROCTER & GAMBLE ) Docket No. C-4151
COMPANY, a corporation; )
) File No. 051-0115
and )
)
THE GILLETTE COMPANY, )
a corporation. )
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The Voluntary Trade Council (VTC), acting under 16 C.F.R. § 2.34 and a Federal Register
notice dated October 6, 20051, hereby files the following public comment in response to the
Federal Trade Commission’s proposed Decision and Order in the above-captioned matter.
Introduction
This comment will address the procedures employed by the Commission in approving its
Complaint and proposed Decision and Order against Procter & Gamble (P&G) and Gillette.
Specifically, VTC will discuss whether the Commission had the legal authority to act in this
case given the recusal of two commissioners. Because this comment has been prepared before
VTC has had the opportunity to review the substance of the Commission’s complaint and
proposed order, we reserve the right to file additional comments later addressing the merits.
Gillette through an exchange of common stock valued at $57 billion.2 Shortly thereafter,
P&G and Gillette each filed required pre-merger notification reports with the
statutory waiting period preventing P&G and Gillette from completing their merger.
On or about March 25, the Commission, acting under 15 U.S.C. § 18a(e), issued a
request for additional information about the merger.3 Such “second requests” are
September 29, the Commission issued a Complaint alleging the merger violated Section
7 of the Clayton Act, 15 U.S.C. § 18, and by extension Section 5 of the Federal Trade
Commission Act, 15 U.S.C. § 45. The Complaint said the merger, as proposed, would
To appease the Commission’s objections, P&G and Gillette agreed not to contest the
Complaint, and they signed an Agreement Containing Consent Orders that included
the proposed Decision and Order. Under the Agreement, P&G will sell product lines
and make additional concessions to preserve the status quo in the markets identified by
2 Chris Isidore, “P&G to buy Gillette for $57B,” CNN/Money (Jan. 28, 2005) <available at
http://money.cnn.com/2005/01/28/news/fortune500/pg_gillette/>.
3 Procter & Gamble news release (March 22, 2005) <available at
http://www.pginvestor.com/phoenix.zhtml?c=104574&p=irol-
newsArticle&ID=687902&highlight=>.
4 Compl. ¶ 21.
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the Commission. The Commission issued a separate order that requires P&G to
“maintain the viability” of the product lines to be sold until they are transferred to a
monitor to guarantee P&G’s compliance with the proposed Decision and Order and the
On September 30, the Commission issued a press release announcing the adoption
of the four documents discussed above—the Complaint, the proposed Decision and
Order, the Order to Maintain Assets, and the Interim Monitor Agreement—by a vote of
2-0-2. Commissioners Thomas Leary and Jon Leibowitz voted in favor of the orders,
and Chairman Deborah Majoras and Commissioner Pamela Jones Harbour were
At the time that the Commission commenced its investigation of the P&G-Gillette
merger, Rule 4.14(b) of the Commission’s rules of practice stated: “A majority of the
Until the departure of Commissioner Orson Swindle on June 30, 2005, this meant a
quorum was three of the five serving commissioners. With only four commissioners in
office since July 1, a quorum under the above rule would still be three commissioners.
This would be the case even if one or more commissioners were recused from, or
3
On September 2, less than one month before issuing its complaint and
to Rule 4.14(b).6 The new rule states: “A majority of the members of the Commission in
office and not recused from participating in a matter (by virtue of 18 U.S.C. § 208 or
otherwise) constitutes a quorum for the transaction of business in that matter.” The
new rule was approved by a vote of 4-0 and became effective upon its publication in the
In its Federal Register notice, the Commission offered two justifications for the new
Rule 4.14(b): First, the new rule would “allow the Commission to act in more situations
than did its former rule”; and second, “in reducing quorum numbers by virtue of
recusals as well as vacancies, the FTC is following the approach taken by the SEC in
1995.”8
As noted above, Chairman Majoras and Commissioner Harbour are recused from
participating in the this case. Chairman Majoras recused herself because she was
formerly a partner at Jones Day, the law firm that represents P&G before the
Jones Day. Commissioner Harbour recused herself, because her husband represents
Johnson & Johnson, a company that has an interest in the outcome of the P&G-Gillette
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merger.9
Under the old Rule 4.14(b), a quorum was not present to act in this matter, because
only two commissioners could participate. But the Commission took action under the
announced several months after the P&G-Gillette merger was officially reported.
Analysis
Something is rotten here. The Commission changed its rules during a merger
review when, under the existing rule, there was not a quorum that would enable the
Commission to take official action. The question is not whether the Commission has the
right to alter its quorum—the presumption is that it does—but rather, whether the
Commission may alter a rule that affects the due process rights of the subjects of an
ongoing administrative proceeding. VTC submits that in this case, the Commission
acted contrary to law, and accordingly the orders against P&G and Gillette are null and
void.
In legislative assemblies, quorum refers “to the number present, not to the number
voting.”10 But in regulatory agencies such as the Commission, quorum ordinarily means
9 See Cecile Kohrs Lindell, “FTC Recusals Create Complications,” TheDeal.com (Oct. 4, 2005).
10 Robert’s Rules of Order Revised § 63 (1915).
11 See 16 C.F.R. § 4.14.
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The courts have held that a federal agency may determine its own quorum when
specify a quorum. Section 1 of the FTC Act, 15 U.S.C. § 41, states: “A vacancy in the
Commission shall not impair the right of the remaining Commissioners to exercise all
the powers of the Commission.” But this provision only authorizes the Commission to
act with less than five members in office. It does not specify a quorum, nor does it
The previous Rule 4.14(b) followed the common parliamentary practice with
transact business. This rule was consistent, for example, with the statutory quorum of
the Federal Communications Commission13 and the constitutional quorum for both
houses of Congress.14 The Commission itself acknowledged in its notice adopting the
new Rule 4.14(b) that its former rule “reflected the ’almost universally accepted
The Commission’s principal justification for amending Rule 4.14(b) was that a lower
quorum would “allow the Commission to to act in more situations than did its former
rule.”16 Given that the orders in this case were in the process of being adopted when the
new rule was adopted, and given that no other orders of the Commission announced
12 Falcon Trading Group v. SEC, 102 F.3d 579 (D.C. Cir. 1996).
13 47 U.S.C. § 154(h).
14 U.S. Const. art. I, § 5, cl. 1.
15 70 Fed. Reg. 53,296-53,297 (citing FTC v. Flotill Products, Inc., 389 U.S. 179, 183-184 (1967)).
16 Id.
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since September 8 have been decided with a quorum of less than three commissioners,
it is likely that the Commission had directly anticipated the outcome of this case when it
adopted the new rule. The adoption of the amendment, therefore, was timed to ensure
that this case could be decided with a quorum of only two commissioners.
Such quorum tampering might be dismissed as harmless for two reasons. First, the
Commission could argue that quorum is determined at the time of action, which in this
case is the date the complaint and accompanying orders were adopted (September 29),
and it is irrelevant what quorum would have been at the start of the investigation.
Second, counsel for P&G and Gillette never publicly objected to the application of the
new quorum rule. The fact that both companies signed an agreement not to contest the
complaint and accompanying orders thus constitutes a waiver of any due process
violation that may have occurred. Neither objection is defensible under the facts as they
consider this matter as having begun on September 29. The Commission’s proceedings
began by law when P&G and Gillette made their required pre-merger notifications
sometimes in January 2005. The Commission’s first official action then came on March
25, when it issued a request for additional information. Subsequently, a proposed order
was negotiated between the Commission and P&G and Gillette. The timeline of those
negotiations is not publicly known, but it is highly unlikely that they began before the
7
From the date of Commissioner Swindle’s departure on June 30, the Commission
did not have a quorum to proceed in this matter. Once quorum was lost, there was only
two valid means of regaining it: (1) the confirmation and participation of a successor to
withdrawing their earlier recusals and participating. The latter option could have been
Court, which provides “although a judge had better not, if it can be avoided, take part
in the decision of a case in which he has any personal interest, yet he not only may but
Alternatively, in the absence of a quorum, the Commission could have referred this
matter to the Antitrust Division of the Department of Justice, which has concurrent
statutory authority over merger reviews. The Commission’s complaint alleges that the
P&G-Gillette merger, as originally proposed, would violate Section 7 of the Clayton Act,
15 U.S.C. § 18. The Antitrust Division could have investigated this allegation and
brought the same charge before a United States district court with proper jurisdiction.
There was no need for the Commission to engage in quorum tampering to retain
Nor does P&G and Gillette’s waiver of due process absolve the Commission of its
duty to adhere to the old quorum rule. This is not merely an issue of protecting rights
17 United States v. Will, 449 U.S. 200, 213 (1980) (quoting F. Pollack, A First Book of Jurisprudence 270 (6th ed.
1929).
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composition of the body exercising jurisdiction and entering judgment. Even if P&G
and Gillette had expressly stipulated to the Commission acting with less than a
quorum, this would not have cured the “plain defect” in the composition of the
Commission that approved the complaint and accompanying orders.18 The respondents
they could agree to an order from the Federal Communications Commission restricting
Commission can reduce its quorum ex post for the purpose of retaining jurisdiction,
then it can alter any substantive rule during the course of an investigation for the
with confidence that the rules will be consistent throughout the proceedings. This is
Finally, it is noteworthy that the two commissioners who are recused from this case
nevertheless participated in the September 2 decision to alter the quorum rule. Because,
as discussed above, the Commission was well aware of the fact that it lacked quorum in
this case under the old rule, the decision by Chairman Majoras and Commissioner
18 See, cf., Nguyen v. United States, 539 U.S. 69, 80-81 (2003) (holding that a court of appeals panel
including a non-Article III judge could not lawfully act even though the remaining judges constituted
a quorum.)
19 U.S. Const. art. I, § 9.
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Harbour to vote on the new rule constituted an indirect participation in this case. Their
votes on September 2 made it possible for the two non-recused commissioners to act on
September 29. Accordingly, Chairman Majoras and Commissioner Harbour may have
violated 18 U.S.C. § 208, the recusal statute cited by the Commission in its new quorum
rule, because they participated “personally and substantially” in this case, their recusals
Conclusion
The Commission is free to determine its rules consistent with its authorizing
statutes. Because no quorum is specified in the FTC Act, the Commission’s September 8
prospectively. But because the investigation of P&G and Gillette’s merger began well
is bound by law to honor its previous quorum rule with respect to this case. The
demonstrates a wanton disregard for the rule of law, and consequently no proposed
For the reasons discussed above, the orders announced by the Commission on
with prejudice.
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Submitted for Your Consideration,
/s/
Skip Oliva
President & CEO
THE VOLUNTARY TRADE COUNCIL
Post Office Box 100073
Arlington, Virginia 22210
(703) 740-8309
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