The U.S. Court of Appeals for the Ninth Circuit affirmed an Idaho federal district court’s decision ordering the divestiture of a physician practice group that had been acquired by a competing health system. The case, which pitted the health system against private plaintiffs as well as the Federal Trade Commission and the state attorney general, illustrates some of the key issues hospitals and health systems must evaluate as they consider potential acquisitions.
On February 18, 2015, Commissioner Julie Brill spoke to students at the Tuck School of Business at Dartmouth concerning the Federal Trade Commission’s (FTC’s) recent data privacy and security enforcement, as well as the FTC’s interactions with international regulators in this area. In her prepared remarks, Commissioner Brill described ways she hopes the FTC and other regulators can improve their current data privacy enforcement regimes to “develop practical, effective, and interoperable frameworks that will allow data to be adequately protected.”
Commissioner Brill addressed the skepticism of those who believe the United States is the “Wild West” of data privacy, by highlighting the FTC’s enforcement of Section 5 of the Federal Trade Commission Act. However, she made clear that the U.S. “consumer privacy and data security framework can and should be improved.” She specifically endorsed President Obama’s proposed legislation as described during a recent visit to the FTC. These legislative proposals include strengthening the FTC’s existing data security enforcement tools by authorizing the FTC to obtain civil penalties from companies that break the law. Further, the White House and the FTC seek legislation that would provide consumers with greater transparency concerning how their data is collected and used by data brokers.
In addition to her comments concerning methods to improve the U.S. data security regime, Commissioner Brill described ongoing discussions with foreign data security regulators, especially those in Europe, concerning the global flow of personal data. Like their counterparts in the U.S., European regulators are in the process of drafting a new regulation to heighten data security protections and address the dynamic new ways companies are using personal data. As they modify their own data security frameworks, the FTC and foreign regulators are engaged in a dialogue concerning the interoperability of their data privacy laws. Both groups recognize the importance of the flow of data to their respective economies, but each seeks to protect the interests of consumers and companies under their own laws. Commissioner Brill is “optimistic” that agreements will be reached to promote the interoperability of the data privacy regimes.
As more companies create products that will collect and transmit personal data, there will likely be significant changes to the data privacy regimes attempting to protect consumers from harm. To avoid potential regulatory action, any company that collects, uses or shares consumers’ personal data should ensure that there are protections in place to secure personal data from breaches or hacks. In addition, companies should promote transparency by providing clear statements about their data collection and use to consumers.
On January 30, 2015, the Federal Trade Commission (FTC) announced a settlement of its investigation into Sun Pharmaceutical Industries Ltd.’s (Sun) acquisition of Ranbaxy Laboratories Ltd. (Ranbaxy) from Daiichi Sankyo Co., Ltd. Sun and Ranbaxy are both multinational pharmaceutical companies that produce a range of generic and branded drugs.
In its complaint, the FTC alleges the relevant product market to be “the development, license, manufacture, marketing, distribution, and sale of generic minocycline hydrochloride 50 mg, 75 mg, and 100 mg tablets (‘minocycline tablets’).” Ranbaxy is currently one of only three U.S. suppliers of the relevant doses of minocycline tablets, with Sun being one of a limited number of firms likely to enter the alleged market in the near future. The complaint further alleges that the acquisition would eliminate a potential future competitor and therefore tend to substantially lessen competition by foregoing or delaying Sun’s entry into the relevant market and increase the likelihood that the combined entity would reduce price competition.
To resolve the competitive concern, the FTC is requiring divestiture not only of the minocycline tablets but also a product outside of the alleged relevant market—minocycline capsules. In its aid to public comment, the FTC states that this out-of-market divestiture is necessary to ensure that the divestiture buyer “achieves regulatory approval to qualify a new [active pharmaceutical ingredient] supplier for its minocycline tablets as quickly as Ranbaxy would have.”
Once the FTC or U.S. Department of Justice determines that a competitive problem exists, the agency will seek potential remedies, including divestiture. A cornerstone principle the agencies apply in evaluating a proposed remedy is that the remedy must restore competition to the level that would have existed had the underlying merger or acquisition not proceeded. This case illustrates an application of that principle, where the FTC required the divestiture of the out-of-market assets because, in its view, if those assets were not included the remedy would have left the relevant product market less competitive than it would have been if Sun and Ranbaxy remained independent competitors.
Although not a common outcome, firms considering a transaction involving products subject to regulatory approval should take note of the potential for out-of-market divestitures when assessing a potential deal.
The FTC’s complaint and related documents can be found here.
In April 2014, the New York Public Service Commission’s (NY PSC) Reforming the Energy Vision (REV) initiative “propose[d] a platform to transform New York’s electric industry . . . with the objective of creating market-based, sustainable products and services that drive an increasingly efficient, clean, reliable, and customer-oriented industry.” In August 2014, the NY PSC staff submitted for public comment a straw proposal that built on the April proposal, “incorporating subsequent party working group efforts, party comments, and further deliberation by Staff.”
The straw proposal authorizes the establishment of Distributed System Platform (DSP) operators that would be responsible for balancing electricity supply and demand on local, lower-voltage distribution lines. The NY PSC expects this new structure to lead to innovations such as customer-owned solar arrays, energy storage units and demand reductions offered by customers. “Distributed energy resources” (DERs), as the innovations are known, would lead to lower costs, increased reliability, improved resiliency and decreased environmental impacts.
Prior to deregulation in New York, the same utility would frequently hold both the means of power generation and distribution, making it difficult for independent generators to access the power grid. Deregulation led to retention of distribution-utility monopolies but increased competition at the power-generation level.
As a proponent of that increased competition and fearing a reversion to an environment of discrimination in access, the staff of the Federal Trade Commission (FTC or the Commission) issued a comment in October 2014 in response to the straw proposal, addressing the potential anticompetitive effects of the new platform. Specifically, the FTC staff expressed concern regarding the potential effects of a distribution utility serving as its own DSP operator. Through the potential for “a rebundling of distribution and generation by allowing distribution utilities to invest extensively in DERs,” FTC staff fears that such DSP operators have the incentive and ability to raise the costs and risks for rival independent DERs and foreclose their access to the power grid. As an alternative, the FTC staff recommends using a competitive procurement process to determine the entities that will serve as the DSP operators. The FTC staff believes that this bidding process would allow a demonstration of how bidders would keep costs low, remove discriminatory incentives and provide other pro-competitive benefits.
The FTC staff’s comment also encouraged use of one or more independent DSP market monitors to enhance enforcement and monitoring efforts.
The FTC considers the analyzing and advocating for regulatory policies in the electric utility sector among its core competencies. The comments issued in response to the NY PSC straw proposal reinforce the Commission’s efforts to “encourage policies that promote the interests of consumers and rely on competition as much as possible.” While it is still unclear what will be the exact effect of these comments, one can conclude that the Commission’s posture toward these markets would be more accommodating if its comments are heeded and a more competitive structure is implemented.
Aerospace and defense contractors engage in a wide range of mergers, acquisitions and joint venture transactions, which are often subject to heightened antitrust scrutiny. This article highlights some of the leading antitrust factors that contractors should consider when contemplating M&A transactions in their unique industry.
In a speech at the American Antitrust Association (AAI) and Computer & Communications Industry Association (CCIA) Conference on Innovation, Patents and PAEs on December 10, 2014, Federal Trade Commissioner (FTC) Julie Brill reported that the FTC hopes to complete its study of patent assertion entities (PAEs) by the end of 2015. She cautioned against complacency, however, and said there is much Congress and enforcement agencies can do even before the study of so-called patent trolls is complete.
The FTC is currently conducting an extensive review of PAE activity, using its authority under Section 6 of the FTC Act. The Commission’s authority under section 6(b) enables it to conduct broad economic studies that do not have a specific law enforcement purpose. Under this provision the Commission may also publicize portions of the information it obtains where such publication would serve the public interest.
The FTC has devoted substantial attention to PAEs in recent years. It has hosted or co-hosted a number of workshops to explore PAE-related issues. Although workshop participants shared numerous anecdotes describing the increasing PAE activity, a common refrain in those workshops was the lack of comprehensive and reliable empirical evidence about the costs and benefits of PAE activity. The FTC study was conceived to help fill this gap.
Although the study is underway, Commissioner Brill urged Congress not to await its outcome before taking concrete reforms that could “make it more difficult for PAEs and others that seek to profit by bringing and threatening to bring frivolous patent infringement lawsuits.” She noted that Congress is currently considering several reform proposals. “There is no need to wait for completion of our 6(b) study to act on these and other key legislative patent reform proposals,” Commissioner Brill said. She also emphasized that the ongoing study will have no impact on appropriate law enforcement actions. She said that if the FTC, the Department of Justice or the states “uncover PAE activity that is in violation of current law, they should act expeditiously to take whatever enforcement actions are warranted to stop inappropriate PAE abuse.”
On October 2, 2014, the U.S. Department of Justice (DOJ) issued its first business review letter since issuing jointly with the Federal Trade Commission (FTC) the Agencies’ Antitrust Policy Statement on Sharing of Cybersecurity Information in April 2014 (the Policy Statement). The Policy Statement recognized that sharing cyber threat information is integral to defending against cyber-attacks. It states that cyber information sharing will be reviewed under a rule of reason analysis that focuses on the improved efficiency and security of cyber networks, the nature of the cyber information to be shared, and whether the information exchange is likely to harm competition.
CyberPoint International, LLC, requested the business review letter for its cyber intelligence data-sharing platform called TruSTAR. The TrueStar platform collects incident reports, anonymously submitted, that include technical information, targets of the attack, contextual information and remediation solutions, which help members analyze their organization’s risk and current defenses. The platform also contains a members-only forum where members can anonymously interact with the member that submitted a particular incident report, but requires as a prerequisite for participation a certification that members will not exchange “competitively sensitive information—such as recent, current, and future prices, cost data, or output levels—or otherwise attempt price or other coordination.” Members must also have a Dun and Bradstreet D-U-N-S number, be in good standing with local, state and federal government and agencies, as well as satisfy minimum technical performance criteria.
In analyzing the proposed data-sharing platform, the DOJ found significant that “the business purpose and nature of the information sharing agreement does not suggest competition or consumers will be harmed.” Notably, “the nature of the information that will be shared is unlikely to facilitate tacit or explicit price or other competitive coordination among competitors,” because “[t]he information to be shared through incident reports and the collaboration forum are very technical and is the type of information sharing contemplated by the . . . Policy Statement.” Specifically, “no competitively sensitive information about recent, current, and future prices, cost data, output levels, or capacity will be exchanged,” and “CyberPoint will obtain commitments from members that competitively sensitive information won’t be exchanged.” Therefore, the DOJ concluded that competitive harm was unlikely and that consumers would likely benefit from the lower cost and more efficient means of establishing network security.
The business review letter is available at https://www.justice.gov/atr/public/busreview/309071.pdf.
The Department of Justice (DOJ) Antitrust Division announced on September 16 that the DOJ and Federal Trade Commission (FTC) have entered into a new antitrust cooperation agreement with Colombia’s Superintendence of Industry and Commerce, stating that the “agreement will enable the antitrust agencies in the two countries to further enhance their law enforcement relationship.”
According to DOJ Assistant Attorney General Bill Baer, cooperation between the United States and Colombia is “critical to maintaining competitive markets in the Americas, particularly for economies as linked as ours.” The agreement contains provisions for enforcement cooperation and coordination, conflict avoidance and consultations for enforcement actions, and technical cooperation. It also contains a provision to maintain the confidentiality of any sensitive information.
The agreement, effective September 16, 2014, is similar to those previously entered into with other countries such as Brazil, Canada, Chile and Mexico, and does not change any current laws in either country. Antitrust agencies from both countries have already established a strong working relationship under the U.S.-Colombia Trade Promotion Agreement which was signed in 2006. “We look forward to working with the Superintendence to advance our shared goal of promoting convergence around sound competition policy throughout the hemisphere,” stated FTC Chairwoman Edith Ramirez.
North Carolina’s State Board of Dental Examiners has urged the U.S. Supreme Court to reject the Federal Trade Commission’s (FTC’s) “radical departure” from decades of established precedent that offers state actors immunity from antitrust scrutiny, arguing that the FTC’s approach contradicts the federalist principles that originally gave rise to the state action immunity doctrine.
Earlier this year, the Court agreed to consider whether the Fourth Circuit erred in upholding the FTC’s ruling against the Board. The Board presented its arguments in a brief submitted in advance of oral arguments, which are scheduled for October 2014.
The Board’s brief is but the latest salvo in a long-running battle with the FTC that dates back to 2010. The North Carolina state agency—which includes practicing dentists among its members—licenses dentists in the state and can take disciplinary measures against licensees. Approximately a decade ago, following complaints from dentists practicing in the state, the Board launched investigations into teeth-whitening services provided by non-dentists and ultimately issued dozens of cease-and-desist letters to such service providers. The FTC issued an administrative complaint in 2010 charging that the Board violated the FTC Act by acting to exclude non-dentist teeth whiteners from the market in North Carolina. Relying on its status as a state entity, the Board has maintained that it is immune from scrutiny under the antitrust laws. The FTC has argued that the presence of market participants on the board means the board is more akin to a private actor, which must be subject to active state supervision in order to benefit from immunity. The FTC maintains that such supervision is lacking here. The Fourth Circuit sided with the FTC in 2013, and the Supreme Court agreed to review that decision.
In its brief, the Board contends that the FTC’s position runs contrary to long-established precedent. The Board especially challenges the FTC’s arguments that state action immunity is available only where decisions are made by “disinterested public officials.” According to the Board, the FTC seeks to apply to public officials the test that is applicable to private actors seeking the benefit of state action immunity. The Board contends this is erroneous and that the federalist principles that justified prior state action immunity decisions render the self-interest of individual public officials irrelevant.
The Supreme Court’s resolution of this conflict could have significant repercussions for state regulatory bodies, many of which rely upon participation of professionals and other market participants. 23 states have filed an amici brief that similarly urges the Supreme Court to reverse the Fourth Circuit’s decision.
On July 30, 2014, the U.S. District Court for the District of Maryland denied Aegis Mobile LLC’s motion to quash a Federal Trade Commission (FTC) subpoena seeking information related to an investigation by the Competition Bureau of Canada (Competition Bureau). Aegis, based in Columbia, Maryland, contracted with the Canadian Wireless Telecommunications Association (CWTA) to collect and analyze the advertising used to promote the CWTA’s digital content. The Competition Bureau, alleging the advertising was false and misleading, asked the FTC to seek information from Aegis Mobile about its work for the CWTA. The FTC issued a subpoena for documents relating to the project using its power under the SAFE WEB Act.
The SAFE WEB Act enhances the FTC’s investigative and enforcement functions in information sharing, investigative assistance, cross-border jurisdictional authority and enforcement relationships. The FTC advocated the reauthorization of the Act by Congress in 2012, pointing to over 100 investigations with international components that the FTC had already performed. The FTC also pointed to figures suggesting cross-border fraud problems, including over 100,000 U.S. consumer complaints against foreign business in 2011.
One of the provisions of the SAFE WEB Act, 15 U.S.C. § 46(j), gives the FTC the authority to assist foreign authorities in investigating fraudulent and deceptive commercial practices, with certain exceptions. The FTC employed the SAFE WEB Act here, and in response Aegis Mobile, sought to quash the FTC’s subpoena on the grounds that Aegis Mobile was a “common carrier,” and would therefore be exempted from the subpoena. The court held that Aegis Mobile was not a common carrier and was subject to the FTC’s investigation.
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