Antitrust Lawyer Blog

Commentary on Current Developments

On August 31, the Department of Justice’s Antitrust Division (“DOJ”) filed a lawsuit in the U.S. District Court for the Northern District of Illinois to block Deere & Company’s (“Deere”) proposed $190 million acquisition of Precision Planting LLC (“Precision Planting”) from Monsanto Company in order to preserve competition in the market for high-speed precision planting systems in the United States.

DOJ Complaint

High-speed precision planting is an innovative technology that enables farmers to plant corn, soybeans and other row crops at up to twice the speed of a conventional planter.

On August 26, 2016, the Federal Trade Commission (“FTC”) approved final amendments to the Hart-Scott-Rodino Premerger Notification Rules that allow HSR filings to be submitted on DVD and streamline the instructions to the Premerger Notification Form.  These updates will make the process of submitting HSR filings easier, more efficient and less burdensome.

The HSR Act gives the federal government the opportunity to investigate and challenge mergers that are likely to harm consumers before injury occurs.  The HSR Act requires that the parties to certain proposed transactions submit HSR filings to the FTC and Department of Justice. These filings comprise of an HSR Form, which contains information about each company’s business, and relevant business documents regarding competition.

Currently, all HSR filings are submitted in paper form. By allowing HSR filings to be submitted on DVD, the amendments eliminate the expensive and time-consuming printing and duplication of electronically maintained documents that are submitted to the antitrust agencies.

On August 25, 2016, the FTC announced that ON Semiconductor Corporation (“ON”) agreed to sell its Ignition Insulated-Gate Bipolar Transistor (“IGBT”) business in order to settle FTC allegations that its proposed $2.4 billion acquisition of Fairchild Semiconductor International, Inc. (“Fairchild”) is anticompetitive.

According to the complaint, the merged company would have a combined share of over 60% in the worldwide market for IGBTs specifically designed and calibrated for automotive ignition systems, or Ignition IGBTs.  Without a divestiture, it is likely that the proposed merger would substantially lessen competition in the worldwide market for Ignition IGBTs, resulting in higher prices and reduced innovation.  Ignition IGBTs are semiconductors that function as solid-state electronic switches in the ignition systems of automotive internal combustion engines.  They have to meet the demanding performance requirements and harsh environment of an automotive ignition system.

ON and Fairchild both develop, manufacture, and market a wide range of semiconductors.  They are each other’s closest competitors for Ignition IGBTs sold to automotive suppliers, who then incorporate Ignition IGBTs into the ignition systems that they sell to automakers.  The proposed consent order preserves competition by requiring ON to divest its Ignition IGBT business to Littelfuse, Inc. (“Littelfuse”) within ten days of the close of the transaction.  Littelfuse is buying the product portfolio of transient voltage suppression diodes, switching thyristors, and insulated gate bipolar transistors for automotive ignition applications for $104 million.  The divestiture will include design files and intellectual property that Littelfuse needs to manufacture ON’s Ignition IGBTs.  ON must also facilitate the transfer of its customer relationships to Littelfuse, and supply Ignition IGBTs for Littlefuse to sell to customers while Littelfuse sets up its manufacturing operations.  Littelfuse will  spend about $30 million at its semiconductor manufacturing facilities to upgrade production capabilities and add significant capacity to its China fabrication facility as the result of the purchase and production transfer.

On August 23, 2016, Senate Judiciary Committee Chairman Chuck Grassley announced a hearing on the increasing consolidation within the seed and chemical industry.

The hearing will be held in late September.  Senator Grassley said that “The seed and chemical industries are critical to agriculture and the nation’s economy, and Iowans are concerned that this sudden consolidation in the industry could cause rising input costs in an already declining agriculture economy.” The hearing will focus on the transactions currently being reviewed by antitrust regulators, and the current trend in consolidation of the seed and chemical industries.

While details have not been finalized, views from the companies under review by antitrust regulators, consumers and antitrust experts will all be represented at the hearing.  “In most instances when you have less competition, prices go up, and consumers pay more,” he said in an interview.

On August 16, 2016, Senator Charles Grassley (R-IA), chairman of the Senate Judiciary Committee, wrote a letter to FTC Chairwoman Edith Ramirez and DOJ Antitrust Division Head, Renata Hesse in which he expressed concerns regarding two major mergers in agricultural technology and seeds that could potentially hurt competition in the industry and make it harder for smaller companies to compete.

The senator urged the FTC, which is reviewing the purchase of Syngenta AG (“Syngenta”) by the China National Chemical Corporation (“ChemChina”), and the DOJ, which is analyzing the merger of The Dow Chemical Company (“Dow”) and E. I. du Pont de Nemours and Company (“DuPont”), to coordinate their reviews.  Senator Grassley wrote that “it is important that these transactions not be reviewed in isolation.”   He urged the DOJ and FTC to collaborate and to gain input from the Department of Agriculture as part of their analysis of the agricultural biotechnology and seed industry and the competitive impact of these deals.

Senator Grassley also expressed concern that “the convergence of these proposed transactions – as well as others currently being discussed – will have an enhanced adverse impact on competition in the industry and raise barriers to entry for smaller companies”; “further concentration in the industry will impact the price and choice of chemicals and seed for farmers, which ultimately will impact choice and costs for consumers”; and “further consolidation will diminish critical research and development initiatives.”

On Monday, August 1, 2016, five retail pharmacies filed a class action lawsuit against Express Scripts Inc., alleging that Express Scripts usurped patient prescription data gained from independent pharmacies through its pharmacy benefit management business to divert sales to its competing mail-order pharmacy.  According to the complaint, Express Scripts used the customer information provided to it by the independent pharmacies for insurance eligibility verification and collection purposes to determine when patients are eligible for prescription refills.  As alleged in the complaint, Express Scripts then fills the prescriptions using its mail-order pharmacy, often without the patient’s consent, and collects the insurance payments for itself.  Among other claims, the pharmacies are alleging unjust competition, breach of contract, violation of the Uniform Trade Secrets Act, and fraud.

On July 27, 2016, the Federal Trade Commission (“FTC”) cleared to generic pharmaceutical deals.

Mylan/Meda Deal

Mylan, N.V. agreed to divest the rights and assets related to two generic products to settle allegations that its proposed $7.2 billion acquisition of Meda AB would be anticompetitive.  Under the terms of the settlement agreement, Alvogen Pharma US, Inc. will acquire the rights and assets related to 400 mg and 600 mg felbamate tablets (used to treat refractory epilepsy) from Mylan, and Mylan must also relinquish its U.S. marketing rights for 250 mg carisoprodol tablets (used to treat muscle spasms and stiffness) to allow Indicus Pharma LLC to compete in the U.S. market.  See FTC Press Release.

On July 21, the U.S. Department of Justice’s Department of Justice (“DOJ”) and several state attorneys general filed two lawsuits, challenging two major health insurer mergers: (1) Anthem, Inc.’s (“Anthem”) proposed $48.4 billion purchase of Cigna Corporation (“Cigna”) and (2) Aetna Inc.’s (“Aetna”) planned $37 billion acquisition of Humana Inc. (“Humana”).

While the cases are substantially different, both complaints contain some similar allegations.  Both complaints describe the proposed mergers as consolidation of the “big five” insurers to the “big three, each of which would have almost twice the revenue of the next largest insurer.”   Taken together, they would cut the number of major health insurers from five to three, with UnitedHealth Group Incorporated (“UnitedHealth”) being the only other remaining large player.  Both complaints say the mergers will harm competition by “eliminating two innovative competitors – Humana and Cigna – at a time when the industry is experimenting with new ways to lower healthcare costs.”  Both complaints allege that the mergers will restrain competition in the sale of individual policies on the public insurance exchanges.

However, the cases are different in that they focus on different product and geographic markets and that the Anthem/Cigna complaint contains a monopsony claim while the Aetna/Humana complaint does not.  The Anthem/Cigna complaint alleges that that merger will restrain competition in the “purchase of healthcare services by commercial health insurers,” as well as the sale of commercial health insurance to national accounts and large-group employers, and the sale of individual policies on the public insurance exchanges.  The Anthem/Cigna complaint also includes an allegation that the merger would substantially increase Anthem’s ability to dictate the reimbursement rates it pays hospitals, doctors, and healthcare providers, threatening the availability and quality of medical care.  The DOJ alleges that Anthem already has bargaining leverage over healthcare providers and this acquisition would make the situation worse in 35 metropolitan areas.  This is otherwise known as a monopsony theory.   The Aetna/Humana complaint alleges anticompetitive effects only in the sale of Medicare Advantage policies to individual seniors and the sale of individual polices on the public exchanges.   The Aetna complaint does not charge a violation in the market for the purchase of healthcare services, and therefore does not rely on a monopsony theory.  Even where the complaints overlap with respect to product market as is the case with the sale of individual policies on the public insurance exchanges, the geographic markets are different.

Andre P. Barlow
Few missions are as important to the U.S. Department of Justice’s Antitrust Division as preventing anti-competitive mergers or permitting them with adequate conditions to prevent competitive harm. After all, a merger is forever — fixing it after the fact is too messy.

The DOJ is currently investigating Anheuser-Busch InBev SA/NV’s (“ABI”) acquisition of SABMiller PLC, the largest beer merger in history, as well as its proposed divestiture of SABMiller’s interest in the MillerCoors LLC Joint Venture to Molson Coors Brewing Company. These proposed transactions lock in place the two largest beer competitors in the United States while fundamentally changing the dynamics in the beer industry for smaller brewers, distributors, wholesalers and retailers. While ABI maintains that the proposed transactions do not change the competitive landscape, the DOJ knows better.

Indeed, the DOJ’s recent approach in approving Charter Communications Inc.’s acquisition of Time Warner Cable Inc. (“TWC”) and its related acquisition of Bright House Networks LLC to create New Charter, the merged firm, is instructive. Despite no geographic overlap in any local market, the DOJ required comprehensive behavioral conditions to prevent New Charter from engaging in future anti-competitive conduct against its smaller rivals. The DOJ should take the same tough and sophisticated approach to protecting consumers from the much larger ABI/SABMiller merger and the new ownership by Molson Coors, which will create two beer giants that will dwarf its rivals.

On May 31, 2016, the American Antitrust Institute (“AAI”), Food & Water Watch (“FWW”) and National Farmers Union (“NFU”) sent a letter to the Principal Deputy Assistant Attorney General, Renata Hesse, urging the Antitrust Division of the U.S. Department of Justice (“DOJ”) to challenge the proposed Dow/DuPont merger.

The letter details the groups’ analysis of the proposed merger, which would create the largest biotechnology and seed firm in the United States. According to the AAI, FWW, and NFU, this transaction would further consolidate an already highly concentrated biotechnology industry and would likely curtail innovation, raise prices, and reduce cultivation choices for farmers, consumers and the food system.

The groups urge the DOJ to critically review the implications of the deal. Their letter outlines three major areas of concern, including eliminating head-to-head competition in the corn and soybean markets, reducing vital innovation competition, and creating a large, integrated “platform” of traits, seeds, and chemicals that would make it harder for smaller biotechnology rivals to compete.