UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

COMMISSSIONERS: Deborah Platt Majoras, Chairman

Thomas B. Leary
Pamela Jones Harbour
Jon Leibowitz

)
In the Matter of )
)
THE PROCTER & GAMBLE ) Docket No. C-4151
COMPANY, a corporation; )
) File No. 051-0115
and )
)
THE GILLETTE COMPANY, )
a corporation. )
)

COMMENT OF THE VOLUNTARY TRADE COUNCIL

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.

1 70 Fed. Reg. 58,411-58,414.

 Summary of Relevant Facts

On January 17, 2005, P&G signed an agreement to acquire complete control of

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

Commission pursuant to the Hart-Scott-Rodino Act, 15 U.S.C. § 18a(a). This began a

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

generally a prelude to enforcement action, and this case was no exception. On

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

illegally reduce competition in several markets, including “at-home teeth whitening

products” and “adult battery-powered toothbrushes.”4

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

buyer approved by the Commission. The Commission also appointed an interim

monitor to guarantee P&G’s compliance with the proposed Decision and Order and the

order to maintain assets.

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

recused. There is one vacancy on the Commission.5

The Commission’s Amended Quorum Rule

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

members of the Commission, constitutes a quorum for the transaction of business.”

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

otherwise did not participate in, a particular matter.

5 President Bush nominated William Kovacic to fill the vacancy on July 28, 2005. The Senate has yet to
act on this nomination.

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 On September 2, less than one month before issuing its complaint and

accompanying orders in the present matter, the Commission announced an amendment

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

Federal Register on September 8.7

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

Commission. In addition, Chairman Majoras’ husband remains an equity partner at

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

6 Federal Trade Commission, “Announced Orders for September 2, 2005” <available at

http://www.ftc.gov/opa/2005/09/fyi0565.htm>.
7 70 Fed. Reg. 53,296-53,297.
8 17 C.F.R. § 200.41.

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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

new rule—with a quorum of two commissioners—even though the amendment was

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

the number of members participating in the decision of a particular matter. This is an

important distinction, because the Commission often disposes of official business

through “written circulation” rather than formal meetings.11

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

“not otherwise constrained by statute.”12 The Commission’s enabling statutes do not

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

eliminate the need for quorum.

The previous Rule 4.14(b) followed the common parliamentary practice with

respect to quorum—namely, that a majority of members in office was necessary to

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

common-law rule’ respecting quorums.”15

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

are publicly known.

Regarding the first argument, it would be inconsistent with Commission rules to

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

Commission announced its new quorum rule on September 2.

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 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

Commissioner Swindle, or (2) either Chairman Majoras or Commissioner Harbour

withdrawing their earlier recusals and participating. The latter option could have been

justified by the Rule of Necessity, a common-law principle endorsed by the Supreme

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

must do so if the case cannot be heard otherwise.”17

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

jurisdiction for itself.

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

guaranteed to individual defendants—i.e., the right to counsel—but of the lawful

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

could no more assent to an order approved by a quorum-deficient Commission than

they could agree to an order from the Federal Communications Commission restricting

the sale of deodorant, a product outside of that agency’s jurisdiction.

The Commission is setting an unconstitutional precedent by changing the rules

applicable to a particular proceeding in the middle of that proceeding. If the

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

purpose of influencing the outcome. No respondent could enter an FTC investigation

with confidence that the rules will be consistent throughout the proceedings. This is

contrary to constitutional principles of due process, and in particular it violates the

Constitution’s express prohibition of ex post facto laws.19

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

from the September 29 decisions notwithstanding.

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

order lowering its quorum is presumptively valid for proceedings commenced

prospectively. But because the investigation of P&G and Gillette’s merger began well

before the Commission’s September 2 announcement of a rule change, the Commission

is bound by law to honor its previous quorum rule with respect to this case. The

Commission’s failure to do so despite having multiple alternatives available

demonstrates a wanton disregard for the rule of law, and consequently no proposed

order in this case can be within the “public interest.”

For the reasons discussed above, the orders announced by the Commission on

September 29 should be withdrawn, and the preceding complaint should be dismissed

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

Dated: October 19, 2005

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