Antitrust Lawyer Blog Commentary on Current Developments

Articles Tagged with antitrust

On March 5, 2018, Sparton Corporation (“Sparton”) announced the termination by Sparton and Ultra Electronics Holdings plc (“Ultra”) of their July 7, 2017 merger agreement.

According to Sparton, during the review of the proposed merger by the United States Department of Justice (“DOJ”), the United States Navy (“Navy”) expressed the view that instead of the parties proceeding with the merger, each of Sparton and Ultra should enhance its ability to independently develop, produce and sell sonobuoys and over time work toward the elimination of their use of the companies’ ERAPSCO joint venture for such activities. DOJ staff then informed Sparton and Ultra that it intended to recommend that the DOJ block the merger. The parties expected the DOJ would follow this recommendation and seek an injunction in court to block the merger. As a result of the view of the Navy and the DOJ’s position, Ultra and Sparton determined it was in the best interests of the parties to proceed to terminate the merger agreement.

Also according to Sparton, the parties understand that the DOJ intends to open an investigation to evaluate their ERAPSCO joint venture. Sparton said that based on historical practice, the company anticipates the Navy will assist in funding Sparton’s transition to independently develop, produce and sell sonobuoys.

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.

On March 1, 2018, Essilor International S.A. (“Essilor”) and Luxottica Group S.p.A. (“Luxottica”) announced that the proposed combination between the two companies has been cleared by both the FTC and the EC without conditions.

Critics raised concerns about the merged company’s shutting out competitors, which would leave consumers with fewer options and less freedom of choice.  For example, if the merged firm bundles together frames and lenses for sale in its Lenscrafters stores, other lens manufacturers will lose sales.  Independent stores might also be left out or excluded from the markets.  The concern was not just in these critics’ imagination as Luxottica has a history of shutting out its rivals.  Year ago, Luxottica and Oakley had a disagreement about pricing, and Luxottica stopped Oakley’s products in their stores. Oakley’s stock price collapsed, and it was later bought by Luxottica. Critics also claimed the merger eliminated competition between the two companies and ends the possibility of future competition. Essilor had started promoting its own sunglasses and online sales, and Luxottica was beginning its own lens manufacturing.  The two firms were expanding into each other’s markets and competing against each others, which would have driven down prices, improved quality, and helped consumers.  Given the decisions by the FTC and EC, that competition will never occur.

According to the FTC in its statement to close its investigation of the merger, the evidence did not support a conclusion that Essilor’s proposed acquisition of Luxottica violates federal antitrust laws: “FTC staff extensively investigated every plausible theory and used aggressive assumptions to assess the likelihood of competitive harm.  The investigation exhaustively examined information provided by a wide and deep swath of market participants, as well as the parties’ own documents and data.  Assessing the likely competitive effects of a proposed transaction is a fact-specific exercise that takes into account the current market dynamics, which may be different in the future.  Here, however, the evidence did not support a conclusion that Essilor’s proposed acquisition of Luxottica may be substantially to lessen competition in violation of Section 7 of the Clayton Act.”  The FTC vote to close the investigation and issue the closing statement was 2-0.

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.