Antitrust Lawyer Blog Commentary on Current Developments

Articles Posted in FTC Antitrust Highlights

Historically, the FTC and DOJ have sought to unwind consummated mergers that are deemed to be anticompetitive.  During Trump’s first year in office, the FTC and DOJ have demonstrated their willingness to unwind anticompetitive mergers that somehow sneaked by the regulators.

FTC Seeks to Unwind Merger of Prosthetic Knee Manufacturers

On December 20, 2017, the FTC filed an administrative complaint to unwind the merger of Otto Bock HealthCare North America, Inc., (“Otto Bock”) and FIH Group Holdings, LLC (“Freedom”), two manufacturers of prosthetic knees equipped with microprocessors that adapt the joint to surface conditions and walking rhythm.  In September 2017, the parties simultaneously signed a merger agreement and consummated the merger without the FTC having an opportunity to review the deal.  Apparently, the merger was not HSR reportable.  According to the FTC, the merger eliminated direct and substantial competition between head to head competitors that engaged in intense price and innovation competition.  While the litigation is ongoing, the parties agreed to a Hold Separate and Asset Maintenance Agreement, which prevents them from continuing the integration of the two businesses.  The FTC did not allege any violation of the HSR ACT.

On December 20, 2017, the FTC issued an administrative complaint seeking to unwind a merger between prosthetic knee manufacturers Otto Bock HealthCare North America, Inc. (“Otto Bock”) and FIH Group Holdings, LLC (“Freedom”).

Background

On September 22, 2017, Otto Bock and Freedom simultaneously executed a merger agreement and consummated their merger.  Within four days of the acquisition, Freedom noted in its September 26, 2017 press release that “Otto Bock strengthens its position in prosethetics” and that the deal combined the #1 and #3 players in the field of prosethetics in the United States.  It further went on to state that “antitrust issues have already been clarified” so they closed the merger and Otto Bock then took steps to integrate Freedom’s business, including personnel, intellectual property, know-how, and other critical assets.

On December 15, 2017, a federal district court granted the Federal Trade Commission’s (“FTC”) and North Dakota Attorney General’s request for a preliminary injunction against Sanford Health’s proposed acquisition of Mid Dakota Clinic, a large multispecialty group, pending the FTC’s administrative trial on the merits scheduled for January of 2018.  FTC v. Sanford Health, et al., Case. No. 1:17-cv-00133 (D. N.D. Dec. 15, 2017).

Background

In June of 2017, the FTC and the North Dakota Attorney General sued to block the merger of the two largest physician groups in Bismarck and Mandan, North Dakota.  The FTC alleged that the two groups had based on physician headcount at 75 percent of the physicians for adult primary care physician services, pediatric services, and obstetrics and gynecology services, and 100 percent of the general surgery physician services in the Bismarck-Mandan area.  The merger would eliminate competition between them and substantially lessen competition in the four markets.

On December 14, 2017, the Federal Communications Commission (FCC) voted 3-2 to adopt the Restoring Internet Freedom Order and in doing so, scrapped its net neutrality rules that were put in place in 2015.

Net Neutrality is a principle that allows for an open and free internet.  The Internet Service Providers (ISPs”) are the gatekeepers to all content on the internet.  Net Neutrality rules prohibited ISPs from unfairly discriminating against others by speeding up, slowing down, throttling, or blocking the delivery of internet traffic.  Net Neutrality is what gives users the freedom as they browse through web pages, apps or any other content available on the internet.

By scrapping the FCC’s Net Neutrality rules, ISPs will be free to act without burdensome regulations, which imposed substantial costs, chilled investment, and lessened innovation. ISPs, however, will be required to disclose information about their practice to consumers, entreprenuers, and the Commission, including any blocking, throttling, paid prioritization, or affiliated prioritization.  While the FCC is returning to a light touch approach, its action restores the FTC’s jurisdiction to act when ISPs or broadband providers get out of line through unfair, deceptive, or anticompetitive acts.

On December 6, 2017, Senator Elizabeth Warren sharply criticized the state of antitrust enforcement in a speech at the Open Markets Institute.

She said that antitrust enforcers adopted the Chicago School principles, which narrowed the scope of the antitrust laws and allowed mega-mergers to proceed resulting in many concentrated industries.  She believes that antitrust enforcers already have the tools to reduce concentrated markets and that they simply must start enforcing the law again.

Senator Warren’s recommendations included stronger merger enforcement, cracking down on anticompetitive conduct and increasing agency involvement in defending competition.

On December 5, 2017, the Federal Trade Commission (“FTC”) issued an administrative complaint challenging Tronox Limited’s proposed acquisition of Cristal, a merger of two of the top three suppliers of chloride process titanium dioxide (“TiO2”) in the North American market.

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.

On November 22, 2017, the FTC announced that retail fuel station and convenience store operator Alimentation Couche-Tard Inc. (“ACT”) agreed to divest three fuel stations in Alabama to settle FTC charges that ACT’s proposed acquisition of Jet-Pep, Inc. (“Jet-Pep”) would violate federal antitrust law.

Under the terms of the deal, ACT will acquire ownership or operation of 120 Jet-Pep fuel outlets with convenience stores – 18 via Circle K, a wholly-owned subsidiary of ACT, and 102 via CrossAmerica Partners LP, over which Circle K has operational control and management.

According to the complaint, the acquisition would increase both the likelihood of successful coordination among the remaining firms and the likelihood that ACT will unilaterally exercise market power in three local retail fuel markets.  The complaint alleges that without a remedy, the acquisition of Jet-Pep by ACT would reduce the number of independent market participants from three or fewer in Brewton, Monroeville, and Valley, Alabama.

On November 3, 2017, the FTC announced that Red Ventures and Bankrate agreed to a divestiture of Bankrate’s Caring.com business unit to settle FTC charges that their $1.4 billion merger would likely harm competition in the market for third-party paid referral service for senior living facilities.

According to the FTC’s complaint, Red Ventures was not itself present in that market.  Nevertheless, the FTC was concerned that two of Red Ventures’ largest private equity shareholders: Silverlake Partners and General Atlantic jointly own A Place for Mom.com, which allegedly competes with Bankrate’s Caring.com, which competes in the market for third-party paid senior living facilities referral services.  A Place for Mom.com, the largest provider of such services, and Caring.com is the second largest provider.  In addition to their 34% equity interest in Red Ventures, General Atlantic and Silver Lake Partners have two of the seven seats on Red Ventures’ board, approval rights over two other seats and approval rights over significant capital expenditures.

According to the complaint, a Place for Mom.com and Caring.com are each other’s closest competitors, competing for national and local business.  Other competitors in the U.S. market for third-party paid referral services for senior living facilities comprise a much smaller fringe.  The complaint alleges that the two Red Venture shareholders have the collective ability to significantly influence management of Red Venture and Caring.com.  Thus, if consummated, the transaction may increase the chance for Red Ventures to unilaterally exercise market power and the potential for coordinated interaction between Caring.com and A Place for Mom.

On September 27, 2017, the FTC announced that Integra LifeSciences Holdings Corp. (“Integra”) and Johnson & Johnson (“J&J”) agreed to a divestiture of five neurosurgical medical device product lines to settle FTC allegations that Integra’s proposed $1 billion acquisition of J&J’s Codman Neuro division (“Codman”) would negatively impact competition in those markets.

Competitive Issue

Both companies supply a range of devices used in operative neurosurgery, hydrocephalus management and neuro-critical care.  According to the FTC’s complaint, the acquisition as it was proposed would likely harm competition in the U.S. markets for (1) intracranial pressure monitoring systems, where Integra and Codman are the only significant suppliers of these systems, together accounting for 94% of the U.S. market; (2) cerebrospinal fluid collection systems, where Integra and Codman are two of the only three competitively significant suppliers of these collection systems in the United States, together accounting for 71% of the market; (3) non-antimicrobial external ventricular drainage catheters, where Integra and Codman are two of the only three competitively significant suppliers of these catheters in the United States, together accounting for 46% of the market; (4) fixed pressure valve shunt systems, where Integra and Codman are two of the only three competitively significant suppliers of these catheters, accounting for a combined 38% of the U.S. market; and (5) dural grafts, where Integra and Codman together control 75% of the U.S. market.

On September 19, 2017, Valero Corporation (“Valero”) abandoned its acquisition of two northern California bulk petroleum terminals from Plains All American Pipeline (“Plains”) after the California state attorney general filed a lawsuit in the Northern District of California against Valero’s proposed acquisition.  The lawsuit was filed on July 8, 2017, a day after the FTC decided not to take any action against the transaction.

Background of Case 

Valero is a refiner and retailer of gas in California and through the acquisition, it was seeking to add Plain’s storage and distribution terminals in Richmond and Martinez, California.  California alleged that the transaction would allow Valero to control the last independently operated gathering line in the state with available capacity.  Part of the state’s argument was that the acquisition would eliminate Plains as a maverick competitor.  California alleged that Valero’s acquisition would permit the vertically integrated refiner to reduce competitor access to the distribution terminals, which would result in increased fuel prices at retail gas stations.  California alleged that Valero would be able to recoup lost terminal profits (after withholding access from competitors) through a downstream increase in gas prices.  California also alleged that once all the fuel terminals were vertically integrated, there would be a higher risk of coordination among Valero and other vertically integrated providers to similarly reduce supply into the terminal and increase prices at gas stations.