Antitrust Lawyer Blog

Commentary on Current Developments

On a day, that President Trump’s Department of Justice approved CVS’ acquisition of Aetna, allowing the vertical integration of a pharmacy benefit manager with a health insurer, he signed two bills into law intended to lower patients’ prescription costs: the Know Your Lowest Prices Act and the Patient Right (S. 2553) to Know Drug Prices Act (S. 2554). The bills prohibit health insurers and pharmacy benefit managers (“PBMs”) from including so-called “gag clauses” in contracts with pharmacies. The clauses ban pharmacists from notifying patients when they could pay less for medicines without using their health insurance than they would for their copayment.

The Laws Should Reduce Patient Out-of-Pocket Spending by Eliminating Gag Clauses and Increase Drug Pricing Transparency

It is important to eliminate pharmacy gag clauses that prevent pharmacists from informing consumers of lower priced alternatives.  In a competitive market, we would expect providers would have the ability to guide consumers to the best products at the lowest cost.  The fact that PBMs had a practice of preventing pharmacies from disclosing this information means competition was not working as it should.

On September 5, 2018, Judge Trevor N. McFadden of the United States District Court for the District of Columbia granted the Federal Trade Commission’s request for a preliminary injunction preventing Tronox Ltd. (“Tronox”) from completing its proposed $2.4 billion acquisition of National Titanium Dioxide Company Ltd. (“Cristal”) until after a final ruling in the FTC’s administrative proceedings challenging the deal.  Federal Trade Commission v. Tronox Ltd. (D.D.C. Sept. 12, 2018).  It is a huge victory for the FTC.

Background

On February 21, 2017, Tronox inked a deal to buy Cristal for $1.67 billion and a 24% stake in the new entity. The transaction would have created the largest TiO2 company in the world, based on titanium chemical sales and nameplate capacity.

Changes in the economy, technology, international business, and data collection have all converged to make the FTC rethink its enforcement priorities going forward. In the spirit of the 1995 Pitofsky Hearings, the FTC on September 13, 2018 kicked off the first day of hearings on Competition and Consumer Protection in the 21st Century at Georgetown University Law Center. The public hearings are expected to open the debate up to the public and experts so the FTC can formulate a modern antitrust enforcement and consumer protection agenda.

The first day of hearings was broken into three panel discussions which broadly discussed the current landscape of antitrust law, U.S. economic competitiveness, and consumer protection and data privacy. The discussions focused on process and substance and how best to reframe FTC priorities to deal with complex 21st century issues.

Panelists drew lines in the sand when it came to whether the FTC is successfully navigating the landscape in an era of mega-mergers. Some panelists took the “populist” view that FTC’s merger guidelines are unhealthy for the overall economy and consumer welfare. The FTC has been guided by the “consumer welfare standard” when it comes to mergers, and has accommodated mergers that increase efficiencies and provide benefits in the form of lower prices to consumers.  Those in favor of the consumer welfare standard want to avoid a ‘big is bad’ mentality while keeping the interests of consumers in mind.  Proper antitrust enforcement is about protecting consumers, and protecting the competitive process, not about protecting competitors.  Some panelists argued, however, that the consumer welfare standard has failed to take into account important social concerns like privacy, rising social and income inequality, and decreased economic competition and dynamism. They pointed to recent studies seeming to vindicate the view that the FTC needs to reorient its enforcement procedures because the economy appears to be more concentrated and less dynamic than it used to be.

On Friday, September 14th, a Congressional briefing was held regarding the renegotiation of NAFTA and how certain changes under discussion could end up undermining the President’s Blueprint to lower drug prices in the United States by extending pharma monopolies.  One of the provisions under discussion would increase brand-name drug exclusivity.  Imposing additional brand-name drug exclusivity only keeps already high brand drug prices out of reach for patients for longer.

The panelists included representatives from Association for Accessible Medicines (Jeff Francer), Mylan (Marcie McClintic Coates), Patients for Affordable Drugs (David Mitchell), and AARP (Leigh Purvis).  Watch the briefing here:  https://www.youtube.com/watch?v=9K3RQHB-oTE

They explained how one of most promising areas of drug research is the creation of generic biologic medicines, or biosimilars.  These drugs have great potential and often offer the best treatments for serious diseases such as cancer, multiple sclerosis, rheumatoid arthritis, and others.  Yet, today, there are only four biosimilars on the market in the United States.

On August 2, 2018, the DOJ’s Antitrust Division announced that it would begin a review of legacy consent decrees “regulat[ing] how certain movie studios distribute films to movie theatres.”  The Paramount Consent Decrees have been in place for almost 70 years.  U.S. v. Paramount, 334 U.S. 131 (1948).  The Supreme Court decision forced major studios to sell their theater chains. Since that ruling, the Paramount decrees, have governed the way that studios do business with exhibitors. The decrees have prohibited certain “motion picture distribution practices, including block booking (bundling multiple films into one theatre license), circuit dealing (entering into one license that covered all theatres in a theatre circuit), resale price maintenance (setting minimum prices on movie tickets), and granting overbroad clearances (exclusive film licenses for specific geographic areas).”

The DOJ has indicated its review will take into account the changes in the identity of movie theatre owners, the increased number of movie theaters in a geographic area, the increased number of screens in movie theaters, and increased number of viewing platforms available to consumers.  The review is part of the Antitrust Division’s initiative to terminate long-standing antitrust judgment, including many that have no termination date.

“The Paramount Decrees have been on the books with no sunset provisions since 1949. Much has changed in the motion picture industry since that time,” Makan Delrahim, the DOJ’s antitrust chief, said in a statement. “It is high time that these and other legacy judgments are examined to determine whether they still serve to protect competition.” 

On June 27, 2108, the Department of Justice’s Antitrust Division announced that The Walt Disney Company (“Disney”) agreed to divest 22 regional sports networks (“RSNs”) to resolve antitrust concerns with its approximately $71 billion acquisition of certain assets from Twenty First Century Fox (“21CF”).

Speedy Antitrust Approval

DOJ’s announcement of the settlement agreement is noteworthy because of the speed at which Disney was able to negotiate a remedy to a combination that raised a number of antitrust issues.  Though the parties received second requests on March 5, 2018, and Disney had only recently entered into a new agreement with 21CF on June 20, 2018, the DOJ and Disney were able to negotiate a divestiture worth approximately $20-23 billion within 6 months of review and 4 months after issuing information requests.  The dollar value of the Disney/21CF divestiture will likely double what the DOJ characterized as the largest divestiture in history in Bayer/Monsanto.

On July 6, 2018, the Office of the U.S. Trade Representative (USTR) announced procedures for requesting product exclusions from the  25% tariff imposed on certain Chinese goods under Section 301.

The announcement of exclusion procedures coincided with the imposition of the first phase of tariffs on July 6, 2018 covering 818 tariff subheadings listed in USTR’s Federal Register notice on June 20. https://www.gpo.gov/fdsys/pkg/FR-2018-06-20/pdf/2018-13248.pdf. The tariffs were imposed following USTR’s investigation of the Chinese government related to technology transfer, intellectual property and innovation. The goods identified relate to  industrial sectors that are part of China’s Made in China 2025 initiative.

Interested persons have until October 9, 2018 to request a product exclusion. Requests will be open for response within 14 days after the request is posted in USTR’s docket number USTR-2018-0025 at www.regulations.gov. Replies to responses will be due 7 days after the close of the 14-day response period.

On June 20, 2018, the Federal Trade Commission (“FTC”) announced that it will hold a series of public hearings on whether broad-based changes in the economy, evolving business practices, new technologies, or international developments might require adjustments to competition and consumer protection enforcement law, enforcement priorities, and policy.  The multi-day, multi-part hearings will take place this fall and winter.

It is expected that a lot of time will be devoted to the dominant digital two sided platforms (Google, Facebook, and Amazon) as well as the associated network effects.  The FTC is interested in learning more about how their conduct hinders competition and innovation or how their services actually benefit consumers and enhance competition and innovation.

The hearings and public comment process will provide opportunities for FTC staff and leadership to listen to interested persons and outside experts representing a broad and diverse range of viewpoints.  Additionally, the hearings will stimulate thoughtful internal and external evaluation of the FTC’s near- and long-term law enforcement and policy agenda.  The hearings may identify areas for enforcement and policy guidance, including improvements to the agency’s investigation and law enforcement processes, as well as areas that warrant additional study.

On March 15, 2018, the Department of Justice’s Antitrust Division filed a modified proposed final judgment (“MPFJ”) and responded to amici briefs filed in the Antitrust Procedures and Penalties Act (“Tunney Act”) proceedings regarding the DOJ’s settlement agreement that allowed Anheuser Busch InBev SA/NV’s (“ABI”) to acquire SABMiller.  In other words, the consent decree that was signed on July 20, 2016 between the Obama DOJ and the merging parties has yet to be approved by a federal court. One would think that the DOJ would move quicker on finalizing a consent decree that allowed the largest beer merger in history proceed.  But, here we are just about at the two-year mark without a finalized decree.

The DOJ permitted the merger of the two largest global brewers, which without a remedy threatened to reduce head-to-head competition between Anheuser Busch InBev SA/NV’s (“ABI”) and MillerCoors in local markets throughout the country.  The DOJ alleged that the elimination of competition between ABI and MillerCoors would increase ABI’s incentive and ability to disadvantage its remaining rivals – in particular, brewers of high-end beers that serve as an important constraint on ABI’s ability to raise its beer prices – by limiting or “impeding the distribution” of their beers, likely resulting in increased prices and fewer choices for consumers.   This allegation is significant because “effective distribution is important for a brewer to be competitive.”

To resolve these competitive concerns, the DOJ’s Proposed Final Judgment required the divestiture, which permanently cemented a duopoly where two suppliers exert control over approximately 85-90% of the distributors in the United States.  The DOJ further acknowledged in its Competitive Impact Statement (“CIS”) that ABI and Molson Coors have business arrangements and contacts throughout the world and that the divestiture may actually facilitate coordination.  Because of the increased likelihood of coordinated anticompetitive effects, the DOJ alleged that the merger “would increase ABI’s incentive and ability to disadvantage its beer rivals by impeding the distribution of its beers.”  Accordingly, the DOJ sought behavioral remedies, which are designed to keep beer distribution independent and open as well as to level the playing field for ABI’s high end rivals.

On June 18, 2018, T-Mobile and Sprint filed initial papers with the FCC.  The parties made a number of arguments on why their deal should pass regulatory muster.

First, T-Mobile and Sprint argue that they need the deal to compete with the Big Two (AT&T and Verizon) – the combined firm would be able to take advantage of efficiencies and economies of scale to bring technological innovations (5th generation (5G)) to the market faster to provide customers with better broadband services at a lower cost.  Thus, customers would benefit from the merger through lower prices and investments to their network.  The parties basically acknowledge that it is a four to three deal.

Second, the parties argue that the wireless market is no longer as concentrated because an abundance of competition exists or will exist in the near future as cable companies, Google, and others are increasingly entering this space. Even using current technologies, Comcast has rolled out low-cost wireless service to its cable customers that rides on Verizon’s network.  So the argument goes that this isn’t a case of going from 4 to 3 wireless companies – there are now at least 7 or 8 big competitors in this converging market.  There is a lot of reasons why long time staffers at the FCC and DOJ might be skeptical of this claim.