Antitrust Lawyer Blog Commentary on Current Developments

Articles Tagged with antitrust

On February 21, 2018, Judge Leon ruled against AT&T Inc.’s (“AT&T”) ability to discover evidence that would support its selective enforcement defense.

Background

On November 21, 2017, the U.S. Department of Justice’s (“DOJ”) Antitrust Division filed a complaint in federal court block AT&T’s acquisition of Time Warner Inc. (“Time Warner”).

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.

On February 2, 2018, Bruce Hoffman, the Federal Trade Commission’s (“FTC”) acting Director of the Bureau of Competition, announced at the Global Competition Review Seventh Annual Antitrust Law Leaders Forum that the FTC will no longer accept divestitures of inhalant and injectable pipeline drugs in pharmaceutical mergers.  Historically, the FTC had accepted divestiture of pipeline asset to remedy potential competition concerns.  Hoffman said that the FTC is making changes to how it resolves anticompetitive pharmaceutical mergers because past divestitures of assets in the research and development pipeline did not work out well for inhalants and injectables, which are known to be difficult and complex to manufacture.

The past history of problems with divestitures in this area indicated to the FTC that divesting ongoing manufacturing assets rather than pipeline assets that have not come to market places greater risk of failure on the merging firms rather than consumers.  Accordingly, in situations in which the parties to the transaction own both an established inhalant or injectable that is currently being manufactured and an overlapping pipeline inhalant or injectable, the FTC will seek a divestiture of the manufactured product that is already on the market.  The FTC, for example, may require the divestiture of contract manufacturing capabilities rather than other assets, such as research and development assets.

The FTC is taking the stance because of an internal study that revealed that the rate of failure for divestitures of complex pipeline products was “startlingly high”.  Apparently, divestiture buyers have had difficulty in actually getting the complex pipeline assets to market. Not surprisingly, a divestiture buyer could struggle to reliably manufacture a complex pharmaceutical product, which harms its ability to ultimately bring the product to market.  Indeed, all kinds of things can go wrong when trying to launch a complex pharmaceutical product.  For instance, the divestiture buyer of pipeline assets could have difficulty obtaining final FDA approvals including the OK to actually manufacture the product.

On January 26, 2018, the head of the Antitrust Division, Makan Delrahim delivered remarks to the NY State Bar where he discussed his views on behavioral remedies and consent decrees.

He noted that the Division’s recent consent decrees reflect several provisions designed to ensure the Division can meaningfully enforce them.  Delrahim stated that the DOJ’s approach will be to enter into consent decrees only when the DOJ can effectively enforce them, and when the DOJ enters into consent decrees, to enforce them effectively.

Consent decrees should be used consistent with a view of the Antitrust Division as a law enforcement agency, not a regulatory one. Faced with a violation, the Antitrust Division has an obligation to the public to ensure any settlement contains meaningful relief and that the settling parties obey its terms.  He said that “filing a consent decree that would be difficult to enforce certainly minimizes litigation risk and provides for a quick win in the press, but it goes without saying that the unenforceable decree provisions would not vindicate the Division’s duty to protect competition.”

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”).

On September 22, 2017, Otto Bock and Freedom simultaneously executed a merger agreement and consummated their merger.  Since closing the acquisition, Otto Bock took steps to integrate Freedom’s business, including personnel, intellectual property, know-how, and other critical assets.

According to the FTC’s administrative complaint, the merging parties are head-to-head competitors in the manufacture of prosthetic knees with microprocessors that adapt the joint to surface conditions and walking rhythm.  Specifically, the FTC alleges that Otto Bock and Freedom engaged in intense price competition as well as offered dueling improvements in innovation.  The deal eliminated head-to-head competition between the two companies, removed a significant and disruptive competitor, and entrenched Otto Bock’s position as the dominant supplier.

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.