At the recent Antitrust in Health Care conference in Arlington, Virginia, representatives from the Federal Trade Commission and U.S. Department of Justice Antitrust Division discussed important health care and antitrust topics. Speakers stressed that the Affordable Care Act is not an opportunity for anticompetitive consolidation and conduct. Providers and payers alike should continue to analyze every acquisition, collaborative arrangement, contract or unilateral action under the traditional framework of antitrust law.
On May 2, 2014, the Federal Trade Commission (FTC) filed an amicus brief with the U.S. Court of Appeals for the Third Circuit requesting that the court reverse the district court’s decision in Lamictal Direct Purchaser Antitrust Litigation, finding that a “no authorized generic” agreement between branded and generic drug makers does not qualify as a “payment,” and is therefore not an antitrust violation. Such agreements arise in patent settlements when a branded drug maker agrees to not issue its own authorized-generic alternative when the generic company begins to compete.
The FTC has taken the position that the “no authorized generic” agreements are akin to reverse payment settlements. In FTC v. Actavis, Inc., the Supreme Court clarified that reverse payment settlements can violate the antitrust laws and are to be reviewed under the rule of reason. In a reverse payment settlement, the branded drug maker pays the generic drug maker to drop its patent claim and not sell the generic drug.
In the Lamictal case, the issue in question was what constituted a payment and therefore, what types of settlements are considered to be subject to antitrust scrutiny. On one hand, the FTC holds the position that a “no authorized generic” agreement is valuable compensation to the generic drug maker in exchange for abandoning a patent challenge. The FTC is concerned that unless “no authorized generic” agreements are subject to antitrust laws, drug makers will simply avoid Actavis by structuring patent settlements to exclude cash payments.
The district court, on the other hand, found that a “no authorized generic” agreement is not a cash or other payment that would make the settlement subject to antitrust scrutiny. One of the primary concerns of classifying this type of agreement as a payment is that nearly all patent settlements include valuable compensation for a party, so almost every patent settlement would raise concerns that the agreement is anticompetitive.
The U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) announced on Tuesday, May 6, that the agencies will jointly hold a public workshop on June 23, 2014, to consider the economic effects and antitrust law treatment of conditional pricing arrangements.
Conditional pricing arrangements, such as loyalty discounts or bundled product discounts, are programs through which a seller may discount prices based upon a buyer purchasing specific volumes of or combinations of products. Loyalty discounts are practices by which a seller charges a buyer a lower price for purchasing a certain volume of a product or products. In bundling, another common pricing arrangement, a seller may offer several products for sale as one combined product, often charging less for the combined product than the sum of the prices of the component products.
Courts have been concerned that loyalty discounts and bundled discounting could be anticompetitive if utilized to exclude competitors from a market or to facilitate a predatory pricing scheme.
Despite these concerns, loyalty discounts and product bundling can also be procompetitive. Both programs can produce efficiencies. For example, by selling a greater volume of products or certain products together, a firm may reduce shipping or marketing costs. Further, these practices decrease prices through discounts, and courts have long recognized that “cutting prices to increase business often is the very essence of competition.”
No clear legal standard has been established for determining which conditional pricing arrangements are anticompetitive. For loyalty discounts, courts have attempted to articulate a standard by evaluating the economic theory that loyalty programs can facilitate exclusive dealing or predatory pricing schemes. For bundled discount practices, courts are split among three different legal standards, and a fourth was recommended by the Antitrust Modernization Commission in 2007.
The agencies have welcomed the public to submit comments on conditional pricing practices on its website. Comments are being accepted through August 22, 2014.
After receiving a draft complaint and a stipulated order from the Federal Trade Commission (FTC) banning its allegedly deceptive letters to infringers of its scanning technology, MPHJ Technology Investments LLC (MPHJ) filed suit against the FTC in the Western District of Texas, alleging violations of the First Amendment. The complaint alleged that the FTC’s investigation prevented MPHJ from its government-granted right to enforce its patent, a form of free speech under the Bill of Rights. On March 28, 2014, the FTC filed a motion to dismiss the complaint, and MPHJ filed its response on April 18, 2014.
The FTC argued in its motion to dismiss that the controversy was not ripe for suit because there had been no final agency action, that MPHJ was not immune from suit because patent enforcement activity is not protected by the First Amendment and that the FTC is not looking to prevent MPHJ from sending letters, only looking to prevent the deceptive statements within those letters.
MPHJ contended in its response that the FTC’s draft complaint was a sufficient “credible threat” of suit to make the case ripe for adjudication. MPHJ’s patent enforcement conduct included a threat to sue the alleged infringers, and it was this conduct, in part, that was subject to the FTC investigation and also protected by the First Amendment. MPHJ argued that in order to sue it under Section 5 of the FTC Act, the FTC must overcome the First Amendment protection for plaintiffs in a lawsuit from allegations of misconduct related to bringing that suit, which applies unless the suit brought was “objectively baseless.” MPHJ argued that the FTC has not overcome the burden of showing objective baselessness, because in its investigation of MPHJ’s conduct, it concluded only that the letters threatening to sue infringers were “deceptive.” According to MPHJ, allowing the type of enforcement activity pursued by the FTC would prevent patent holders like MPHJ from threatening to sue infringers. MPHJ further argued that the District of Nebraska entered a preliminary injunction against the attorney general when faced with identical facts.
The case is MPHJ Tech. Inv., LLC v. FTC, case number 6:14-cv-00011, pending before the U.S. District Court for the Western District of Texas.
10 months after President Obama nominated her, Terrell McSweeny has been confirmed as the fifth FTC commissioner. The vote was 95-1 for McSweeny with David Vitter, a Republican from Louisiana, voting against her nomination.
McSweeny’s confirmation marks the first time in history that four women have served as FTC commissioners at the same time. It also gives the FTC its full complement of commissioners (now three Democrats and two Republicans), which may increase the number of matters that move forward to investigation and may help to resolve matters more quickly. A full panel of commissioners will be key in several upcoming large mergers, including a plan by food distributor Sysco Corp to merge with rival U.S. Foods Inc., and a proposed combination of grocery chains Kroger and Harris Teeter.
Prior to the FTC, Ms. McSweeny served at the DOJ on many high-profile matters such as the Anheuser-Busch InBev NV-Grupo Modelo SAB de CV merger and the merger between American Airlines Inc. and US Airways Group Inc. She also worked on the DOJ’s e-books price-fixing suit against Apple Inc. and its work on the International Trade Commission’s decision to block the import of Apple Inc. products based on Samsung Electronics Co. Ltd.’s standard-essential patents.
Her experience at the DOJ will carry over to the FTC and will likely increase the cooperation between the two agencies. Her prior work at the DOJ in particular, as well as at her former law firm, O’Melveny Myers, gives her experience on an issue the FTC is currently pursuing on patent assertion entities, pay-for-delay arrangements and privacy issues.
Previously, Ms. McSweeny advised three presidential candidates on domestic policy and related matters. In 2008, she worked for Vice President Biden in various capacities including domestic policy issues.
During the last several years, the Federal Trade Commission (FTC) has taken an active role in antitrust enforcement in the health care industry, particularly with respect to hospital and physician group acquisitions. Last week, the FTC held a two-day public workshop to examine new trends and developments in the health care industry related to professional regulations of health care providers, health information technology, new care delivery models, quality measurements and pricing transparency and how those developments may affect competition. Health care providers should anticipate increased FTC scrutiny of these trends and how they affect health care costs, quality, access and care coordination.
Section 5 of the Federal Trade Commission (FTC) Act confers broad enforcement powers on the Commission to prohibit “unfair methods of competition.” In her February 13, 2014 keynote address to the Competition Law & Economics Symposium at George Mason law school, FTC Chairwoman Edith Ramirez argued that it would be a mistake for the Commission to circumscribe its authority by issuing guidelines for Section 5 enforcement. While Chairwoman Ramirez “do[es] not object to guidance in theory,” she believes any guidance should be descriptive rather than prescriptive.
Other commissioners, however, have strongly backed providing companies with a clearer set of rules. Commissioner Maureen K. Olhausen has said that she would refuse to support any Section 5 enforcement actions until the FTC establishes guidelines, while Commissioner Joshua D. Wright has already proposed such guidelines.
Section 5 may confer broader powers than the Sherman Act and Clayton Act in theory, but many courts have in practice treated Section 5 as coterminous with these other antitrust statutes and the far more extensive body of caselaw interpreting them. Whether the FTC can extend its power with Section 5 may depend on the specific circumstances of any action. Invoking Section 5, however, is a somewhat fraught exercise for the Commission, which would not want an unfavorable court decision that could tie its hands in the future. Indeed, Chairwoman Ramirez made a point of saying that for “most of [its] antitrust cases,” the FTC has no need of Section 5.
The scope of Section 5 may remain uncertain, but one can be sure the debate will continue.
On February 6, 2014, the Federal Trade Commission (FTC) released its opinion and final order against McWane Inc., finding the company unlawfully maintained its monopoly by excluding competitors. McWane Inc. is the largest domestic supplier of ductile iron pipe fittings, which are used in municipal and regional water distribution systems to change water flow or allow connectivity for hydrants, valves and water meters.
The administrative complaint alleged that McWane conspired with two of its competitors that altogether supply the majority of domestic fittings, to raise and stabilize prices. Additionally, McWane was alleged to have excluded its competitors from the domestic pipe fittings market in order to unlawfully maintain its monopoly in violation of antitrust laws.
The Commission found McWane liable for unlawfully maintaining its monopoly in domestic pipe fittings, which constitute a separate market because many local, state and federal regulations required special fittings. Consequently, imported products were not substitutable and domestic distributors required access to special fittings to supply all the project needs of their customers. While one of McWane’s competitors sold the commonly used fitting sizes and configures that could be used in nearly 80 percent of projects, as a new entrant, it did not sell more specialized fittings. Knowing that the competitor did not supply a full line of pipe fittings, McWane established an unlawful exclusive dealing program. Under McWane’s “Full Support Program,” it threatened that distributors purchasing domestic fittings from Star would be prohibited from purchasing domestic fittings from McWane. Thus, McWane was able to unlawfully maintain its monopoly by “foreclose[ing] [its competitor] and other potential entrants from accessing a substantial share of distributors.” The Commission further found that McWane “created a strong economic incentive for distributors to reject Star’s products, artificially diminishing Star’s competitive prospects in the domestic fittings market.”
While the Commission’s opinion found McWane liable for unlawfully maintaining its monopoly, the remaining counts in the administrative complaint were dismissed for a variety of reasons. Although the two commissioners found McWane engaged in price-fixing behavior, the counts were dismissed in the public interest due to a lack of majority position. The Commission’s final order precludes McWane from requiring exclusivity from its distributors, but still permits McWane to lure customers through discounts, rebates and other price and non-price incentives.
On January 13, 2014, MPHJ Technology Investment LLC (MPHJ) filed a seven-count complaint against the Federal Trade Commission (FTC) alleging various constitutional and other violations, including violations of MPHJ’s First Amendment rights and violations of the Separation of Powers Doctrine.
The FTC began an investigation into MPHJ’s business practices and in December 2013 served MPHJ with a draft complaint. The FTC’s complaint alleges that MPHJ sent 16,000 demands to small companies to pay $1,000 per employee to license MPHJ’s patents over document scanning equipment. In particular, the FTC took issue with two statements in the demands. The first was that MPHJ would file suit if the company did not respond and the second was that many companies with similar technology promptly paid licensing fees upon notification of the infringement. These statements were both false, according to the FTC, because MPHJ never intended to file suit and never actually filed suit against any recipient and also because MPHJ only sold 17 out of the 16,000 demanded licenses. Therefore, the FTC contends MPHJ’s demand letters constitute deceptive business practices.
MPHJ filed its complaint against the FTC in response to the FTC’s draft complaint. MPHJ alleges that its patents are valid, that they are being infringed by thousands of companies, that it has a right to enforce those patents, that the first step to doing so is sending demand letters to infringers, and that those demands may legally contain a threat to sue for infringement. MPHJ’s complaint states that the FTC has not contradicted or even disagreed with any of these assertions. Instead, according to MPHJ, the FTC’s position is that a litigation threat not followed by a prompt lawsuit is a violation on its own. In any event, MPHJ alleges the FTC does not have jurisdiction to interfere with MPHJ’s patent activity because the letters at issue do not meet the commerce requirement for Section 5 enforcement. Moreover, MPHJ alleges that the right to enforce a federally granted patent is covered under the First Amendment right to petition the government. As such, its patent enforcement activity is a petition to the government, and protected by the Noerr-Pennington doctrine. MPHJ also charges the FTC with failing to do the requisite pre-suit investigation to find infringement as required under Federal Rule of Civil Procedure 11.
MPHJ’s complaint was filed in the Western District of Texas as MPHJ Tech. Inv. LLC v. FTC et. al., Case No. 6:14-cv-00011.
On January 17, 2014, the Federal Trade Commission (FTC) announced revised, higher Hart-Scott-Rodino (HSR) pre-merger notification filing thresholds. The FTC adjusts the HSR thresholds annually to represent the increase or decrease in GNP. These revised thresholds will become effective 30 days from the date on which notice is published in the Federal Register, which should occur within the next week. As such, we expect that these new thresholds will become effective by late February. Once we know the precise effective date for these adjusted thresholds, we will publish an On The Subject that can be distributed to clients. Clients with transactions pending may benefit from the higher threshold if the transaction closes on or after the effective date and ultimately falls below the revised threshold.
Most notably, the size-of-transaction threshold, which frequently determines whether a transaction requires an HSR notification, will increase from $70.9 million to $75.9 million. Other thresholds will increase as well, including thresholds for the size-of-person test, filing fees and certain exemptions. The revised thresholds are as follows:
Original Threshold
2014 Adjusted Threshold
$10 million $15.2 million $50 million $75.9 million $100 million $151.7 million $110 million $166.9 million $200 million $303.4 million $500 million $758.6 million
Generally, a transaction requires an HSR notification if it meets the applicable size-of-transaction and/or the size-of-person tests, described briefly below, and does not fall within any exemptions.
A transaction meets the size-of-transaction test if, as a result of the transaction, the acquiring party holds assets, voting securities or a controlling interest in a non-corporate entity valued in excess of
$50 million, as adjusted ($75.9 million upon the effective date of these revised thresholds), assuming the size-of-person test is met, or
$200 million, as adjusted ($303.4 million upon the effective date of these revised thresholds) — this threshold applies to transactions even if the size-of-person test below is not met.
For the size-of-person test, upon the effective date of these revised thresholds, a transaction resulting in the acquiring party holding assets, voting securities or a controlling interest in a non-corporate entity valued at $75.9 million or more, but less than $303.4 million, is generally reportable if one party has net sales or total assets of at least $10 million, as adjusted ($15.2 million upon the effective date of these revised thresholds), and the other party has net sales or total assets of at least $100 million, as adjusted ($151.7 million upon the effective date of these revised thresholds).
Although the filing fees for HSR notifications will not change at this time (although this is something currently under review), the thresholds (based upon the size-of-transaction) that determine the correct filing fee will also adjust:
Filing Fee
Size-of-Transaction
$45,000 $75.9 million, but less than $151.7 million $125,000 $151.7 million, but less than $758.6 million $280,000 $758.6 million or more
Again, these revised thresholds will become effective 30 days after publication of notice in the Federal Register.
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