Antitrust Lawyer Blog Commentary on Current Developments

Articles Posted in FTC Antitrust Highlights

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 August 7, 2018, the FTC’s Bureau of Competition announced a new new Model Timing Agreement for its merger reviews.  This is part of its initiatives to streamline its merger review process.

New FTC Model Timing Agreement

Merger investigations typically involve timing agreements, which provide an agreed-upon framework for the timing of certain steps in the investigation. Timing agreements provide the FTC staff with notice of when the parties plan to close the deal. Both parties and staff benefit from having such a framework established shortly after issuance of the Second Request as it allows staff and the parties to engage in substantive discussions with more certainty about the timing.

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 June 5, 2018, the Federal Trade Commission (“FTC”) announced that Northrop Grumman’s (“Northrop”) $7.8 billion acquisition of aerospace and defense contractor Orbital ATK, a vertical merger that combined a supplier with its customer, could proceed so long as the Northrop agreed to certain behavioral remedies.

According to the complaint, Northrop is one of four companies capable of supplying the U.S. government with missile systems, including tactical missiles, strategic missiles and missile defense interceptors.  Orbital ATK is the premier supplier of solid rocket motors (“SRMs”), which propel missiles to their intended targets and are an essential input for missile systems.  The FTC’s complaint alleges that Northrop’s proposed acquisition of Orbital ATK would have reduced competition in the market for missile systems purchased by the U.S. government, resulting in less innovation and higher prices. The FTC was concerned that Northrop could raise prices on the motors on competitors or withhold them altogether, both of which the agency said would give the merged firm a clear advantage for missile contracts.  Additionally, “the acquisition creates a risk that the proprietary, competitively sensitive information of a rival (solid rocket motor) supplier supporting Northrop’s missile system business could be shared with Northrop’s vertically integrated SRM business.”

To resolve the vertical competition concerns, the FTC required several behavioral or conduct remedies.  First, Northrop was required to supply SRMs to competitors on a non-discriminatory basis.  Second, Northrop was required to separate the operation of its SRM business from the rest of the company’s operations with a firewall.  Third, the settlement agreement provides for the U.S. Department of Defense (“DOD”) to appoint a compliance officer to oversee Northrop’s conduct pursuant to the settlement.  Fourth, the FTC required the merging parties to implement a compliance program and create regular compliance reports, to be submitted to the FTC, the DOD and the compliance officer.  The FTC said that by ensuring that other missile suppliers can continue to compete, the settlement preserves the procompetitive benefits of the transaction while addressing the potential anticompetitive harms.

While there is much discussion about controlling prescription drug prices, the undeniable trend in the generic drug industry is that prices have been trending down for the past several years.

Generic Prices are Down, But Is that a Good Thing?

The short term effects appear good for the consumer, but the longer term effects could result in higher prices and drug shortages.  Today, 90% of U.S. prescriptions are for generic drugs not branded drugs, but in 2017, generics made up only 13% of all prescription spending.  Over the past several years, branded drug prices have been going up while generic drug prices have been going down.  Prices are so low that some generics are deciding to exit, stop producing and marketing certain drugs that are no longer profitable. If they exit, where will consumers get basic antibiotics and drugs that are no longer sold by the branded firms?

On April 27, 2018, the FTC announced that Amneal Pharmaceuticals LLC (“Amneal”) may complete its acquisition of an equity share in Impax Laboratories Inc. (“Impax”) so long as Impax divests its rights and assets for ten products to three separate companies.

The FTC concluded that the proposed acquisition would have reduced competition in three markets where both Amneal and Impax competed: (1) generic desipramine hydrochloride tablets; (2) generic ezetimibe and simvastatin immediate release (“IR”) tablets; and (3) generic felbamate tablets.

The FTC also concluded that the proposed acquisition would reduce future competition in seven markets where Amneal or Impax is a current competitor and the other would have been likely to enter the market absent the acquisition: (1) generic aspirin and dipyridamole extended release (“ER”) capsules; (2) generic azelastine nasal spray; (3) generic diclofenac sodium and misoprostol delayed release (“DR”) tablets; (4) generic erythromycin tablets; (5) generic fluocinonide-E cream; (6) generic methylphenidate hydrochloride ER tablets; and (7) generic olopatadine hydrochloride nasal spray.

On March 19, 2018, the Federal Trade Commission (“FTC”) filed an administrative complaint to block CDK Global’s ( “CDK”) proposed acquisition of Auto/Mate.  The FTC alleged that the deal would violate Sections 5 of the FTC Act and 7 of the Clayton Act.  The parties to the deal abandoned the deal after being faced with a lawsuit.

Background

CDK and Auto/Mate supply dealer management systems (“DMS”) software to franchise new car dealerships. Car dealerships use DMS software, a mission-critical business software to manage nearly every aspect of their business including payroll, accounting, financing and inventory.  They track their services, prices, and other crucial functionalities.  The top two DMS software providers, CDK, which had 41% and Reynolds & Reynolds (“Reynolds”), which had 29%, combined for about a 70% share of the DMS software market. The big two are the highest priced, and have similar business models, which include long-term contracts and significant initial and monthly fees for third-party applications (app) vendors to integrate with their respective DMS. Dealertrack, Autosoft and Auto/Mate also had competitive DMS offerings as well as others. Auto/Mate was a very small competitor with only 6% of the market.  After the deal, CDK’s market share would have been 47%.

On March 7, 2018, the United States Federal Trade Commission (“FTC”) announced it entered into a settlement agreement with Air Medical Group allowing it to acquire AMR for $2.4 billion.

The two providers of ambulance services agreed to divest inter-facility air ambulance transport services in Hawaii to resolve FTC concerns that their proposed merger would likely harm competition among air ambulance transport services that transfer patients between medical facilities on different Hawaiian islands.

According to the FTC’s complaint, Air Medical Group and AMR Holdco are the only two providers of air ambulance services in Hawaii that transport patients between medical facilities on different islands.  Patients depend on these services when they need medical or surgical care that is not available in their local communities, according to the complaint.  Without a remedy, the acquisition is likely to lessen competition and will tend to create a monopoly in the market for inter-facility air ambulance services in Hawaii, in violation of U.S. antitrust laws.  The merger as proposed would also increase the likelihood that consumers, third-party payers, or government health care providers would be forced to pay higher prices or experience a degradation in service or quality, according to the complaint.  The FTC alleges that new entry into the market for inter-facility air ambulance transport services, or expansion by existing firms in adjacent businesses would not be likely, timely, and sufficient to restore the lost competition without a remedy.

On March 5, 2018, the United States Federal Trade Commission (“FTC”) filed an administrative complaint alleging that J.M. Smucker Co.’s (“Smucker”) proposed $285 million acquisition of Conagra Brands, Inc.’s (“Conagra”) Wesson cooking oil brand may substantially lessen competition and reduce competition for canola and vegetable oils in the United States.

Smucker currently owns the Crisco brand, and by acquiring the Wesson brand, it would control at least 70% of the market for branded canola and vegetable oils sold to grocery stores and other retailers.  Smucker and Conagra both manufacture and sell a wide range of food products, including canola and vegetable oil, other types of oils, and shortening.  The FTC also claims that other branded canola and vegetable oils available in the United States, such as Mazola and LouAna, each control only a small share of the market, and do not hold the same brand equity.  Furthermore, building sufficient brand equity to expand would require substantial investment and take at least several years.

Under the proposed acquisition, Smucker would obtain all intellectual property rights to the Wesson brand, as well as inventory and manufacturing equipment.

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