Antitrust Lawyer Blog
On February 12, 2018, the Federal Trade Commission (“FTC”) filed an administrative complaint against Benco, Henry Schein, and Patterson, the three largest national full service dental supply distributors in the United States for allegedly conspiring to refuse to provide discounts to or otherwise serve buying groups representing dentists and against Benco for inviting a fourth competing distributor to take part in the illegal conspiracy. As is typical with FTC conduct cases, the complaint was brought under Section 5 of the FTC Act.
The FTC alleges that three distributors agreed to boycott buying groups, which sought discounts and lower prices for dental supplies and equipment on behalf of solo and small-group dental practices. The FTC further alleges that the agreement deprived solo and small-group dental practices from the benefits of participating in buying groups.
Benco and Henry Schein allegedly entered into an agreement whereby both distributors would refuse to provide discounts to or compete for the business of buying groups. The complaint details email, phone, and text communications between executives of the two companies evidencing the agreement, as well as attempts to monitor and ensure compliance with the agreement. On Oct. 1, 2013, a Benco executive called his counterpart at Henry Schein and “reaffirmed Benco’s commitment against buying groups.” After the call, neither distributor bid on a buying group contract. The FTC’s complaint also alleges that Patterson joined the illegal agreement.
In 2014 and 2015, the communications confirmed the existence of a conscious commitment to a common scheme.
- In June 2014, a Patterson executive wrote in a text message: “[W]e’ve signed an agreement that we won’t work with GPO’s.”
- In May 2015, a Benco employee rejected a buying group and said in an internal email: “The best part about calling these [buying groups] is I already KNOW that Patterson and Schein have said NO.”
- In June 2015, Benco’s informed a Benco sales representative: “We don’t allow [volume discount] pricing unless there is common ownership. Neither Schein nor Patterson do either.”
The complaint charges Benco, Henry Schein and Patterson of conspiring in violation of Section 5 of the FTC Act. The complaint further alleges that on multiple occasions, Benco invited Burkhart Dental Supply – a regional distributor and the fourth largest full-service distributor in the United States – to join the conspiracy against buying groups. The FTC’s complaint does not allege that Burkhart accepted the invitation or that any agreement was formed. Nevertheless, as a result of this invitation to collude, which would not otherwise be reached under the antitrust laws, the FTC separately alleges a count against Benco under Section 5 of the FTC Act.
The complaint seeks no monetary penalties, but calls for a “cease and desist” order barring the companies from “distorting prices” and undermining the ability of independent dentists to obtain lower prices. The remedy period would be effective for 15 years.
Typically, these conduct investigations result in negotiated settlements whereby the defendants agree to a cease-and-desist order, a remedy that is designed to stop the harmful conduct and prevent it from happening again. Here, the defendants do not find it in their interests to settle, even though the ultimate remedy if the FTC wins would be an order to prevent the harmful conduct from occurring in the future. The administrative trial is scheduled to begin on Oct. 16, 2018.
Observations:
The case demonstrates the FTC will use Section 5 to pursue unlawful conspiracies as well as unilateral conduct that falls short of an unlawful agreement, including invitations to collude. Section 5 of the FTC Act is broader than the Sherman and Clayton Acts because it captures conduct that violates “the spirit of the antitrust laws.” Here, some of the allegations and the detail provided in the complaint related to the conspiracy and unlawful agreement appear to support per se violations of Section 1 of the Sherman Act. In such situations, the FTC typically relies on the same standards that would be applied under the antitrust laws for those allegations. This is not the case when it comes to invitations to collude. Historically, the FTC has aggressively enforced invitations to collude under Section 5, however, all of these cases have been resolved through negotiated settlements meaning that they were not litigated. The FTC has taken the position that invitations to collude are per se violations of Section 5 because they serve no legitimate business purpose and are inherently suspect meaning that they are presumed to be anticompetitive. If this case actually gets litigated, the decision should provide more clarity regarding the FTC’s powers under Section 5.
Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com