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A Global Resource for Compliance Officers & Legal Advisors
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FTC Commissioner Wright’s Policy Statement Proposes Section 5 Limitations

by | Jun 20, 2013 | ,

by Michelle Lowery

On June 19, 2013, Commissioner Joshua Wright of the Federal Trade Commission (FTC) proposed a Policy Statement on the FTC’s enforcement authority under Section 5 of the FTC Act, which prohibits unfair methods of competition.  According to Commissioner Wright, the intent of his proposed Policy Statement is to initiate a discussion on the appropriate parameters of the FTC’s authority under Section 5.  Commissioner Wright expects that the proposed Policy Statement will end years of ambiguous Section 5 enforcement by articulating a clear standard of what types of conduct constitute an unfair method of competition.  The Policy Statement defines an unfair method of competition as “an act or practice that (1) harms or is likely to harm competition significantly and that (2) lacks cognizable efficiencies.”  Commissioner Wright explained that the definition as a whole allows the Commission to reach conduct not covered by the Sherman and Clayton Acts, is tied to modern jurisprudence on harm to competition as well as to the Horizontal Merger Guideline’s efficiencies standards, focuses on conduct that is most likely to harm consumers and reduces the risk of prosecuting pro-competitive behavior.

Commissioner Wright remarked that before the FTC will exercise its Section 5 authority, the conduct at issue must be outside the bounds of well-defined antitrust case law.  He further stated that the FTC should exercise this authority in areas where the Commission finds business practices that harm consumers through activities not yet reviewed by the courts.  Commissioner Wright foresees two broad areas of enforcement under Section 5: invitations to collude, and using unfair competition to acquire market power (where monopoly power might not exist).  According to Wright, before the Commission brings a case, it should examine both the magnitude and the probability of harm to competition to determine whether the conduct constitutes an unfair method of competition.  Even if the Commission concludes that conduct harms competition, the second prong of Wright’s proposed policy would restrict the Commission’s ability to prosecute if a cognizable efficiency exists.

For Commissioner Wright’s full discussion of the proposed Policy Statement, see: https://www.ftc.gov/speeches/wright/130619section5recast.pdf



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ACOs and Antitrust Are Aligned and Compatible, Says Commissioner Brill

by | Jun 13, 2013 | , , ,

by Carrie G. Amezcua

FTC Commissioner Julie Brill addressed attendees at the 2013 National Summit on Provider Market Power on June 11.  The focus of her remarks were on the intersection of antitrust, the Affordable Care Act (ACA) and Accountable Care Organizations (ACOs).  She first touched on the ACA.  Noting the empirical evidence shows that high concentration among health care providers has harmful competitive effects, she was optimistic that the exchanges that will be established as a result of the ACA will offer consumers a range of competing, affordable health care products and will encourage greater competition in local insurance markets. 

Turning to ACOs and antitrust, she stated that the FTC is starting to hear providers contend that the ACO program is a justification for their (alleged) anticompetitive activity.  Providers complain that the government is "talking out of both sides of their mouth" with Centers for Medicare & Medicaid Services (CMS) encouraging coordination via the ACO program and the antitrust agencies challenging coordination.  Commissioner Brill disagreed stating that "the goals of the ACA and antitrust enforcement are aligned and compatible."  She noted the extensive cooperation between CMS and the antitrust agencies.  She explained that the ACA requires coordination of care but that it "neither requires nor encourages to merger or otherwise consolidate," but like any collaboration short of a merger, they must do so in a way that does not violate antitrust laws.  Commissioner Brill also stated that ACOs are flourishing and only two provider groups have thus far sought antitrust guidance as permitted under the ACO Policy Statement from the agencies before forming the ACOs. 

Finally, Commissioner Brill emphasized that the FTC will continue to investigate provider collaborations or mergers where there may be competitive harm.  She made a point to clarify that the FTC evaluates all assertions of efficiencies and quality improvements but that parties must provide "good documentary evidence" to support these assertions.

Commissioner Brill’s speech is consistent with the posture and approach the agencies have been taking with regard to provider consolidations in the relatively new landscape being built by the ACA and formation of ACOs.  There is not yet enough data to see exactly how the ACA will affect providers from an antitrust perspective.  But providers can be certain that the agencies will continue to look closely at any consolidation or collaboration that may violate the antitrust laws, regardless of whether the activity was taken to try to comply with the ACA. 

The full speech can be found here.



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FTC Commissioner Wright Weighs In On Loyalty Discount Programs

by | Jun 5, 2013 |

by Daniel Powers

In a recent speech, Federal Trade Commission (FTC) Commissioner Joshua Wright jumped into the debate over the proper approach for analyzing the potential anticompetitive effects of loyalty discount programs.  Commissioner Wright signaled his strong preference for an approach based on exclusive dealing law rather than a framework rooted in a predatory pricing analysis.  Wright contended that recent FTC cases appeared to apply such an approach, and he asserted his belief that the Commission should consistently adopt this analytical approach in future cases.

The proper analytical approach to apply in loyalty discount cases has drawn attention recently as a result of the Third Circuit’s opinion in ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254 (3d Circuit 2012).  In that case, ZF Meritor brought a monopolization claim against Eaton related to Eaton’s contracts in the heavy-duty truck transmissions market.  In the late 1980s, Meritor first entered the market; Eaton had been the sole supplier for more than 30 years.  Within a decade, Meritor had gained approximately 17 percent share and had plans for further expansion tied to a joint venture with a German company that offered a transmission product not previously sold in the North American market. Eaton responded by entering into “long-term agreements” with the four direct purchasers of heavy-duty truck transmissions.  These agreements provided loyalty rebates to buyers that were conditioned on obtaining a certain specified share of the buyer’s needs – ranging from 70 to more than 90 percent – from Eaton.  ZF Meritor watched its market share drop dramatically following the conclusion of these agreements and ultimately exited the market after concluding that it would be unable to obtain and maintain the minimum market share necessary for viability.  The company’s monopolization suit against Eaton claimed that its competitive efforts were undermined by Eaton’s loyalty discount programs.

Eaton characterized ZF Meritor’s claim as one involving discounted pricing and contended that the proper test to assess any potential anticompetitive effect of this activity was the one elaborated by the Supreme Court in Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).  According to Eaton, the Brooke Group standard required ZF Meritor to show that Eaton’s prices were below a relevant measure of Eaton’s costs.  The Third Circuit surprised many when it refused to apply the Brooke Group test.  The court stated that Brooke Group was appropriate where “pricing itself operat[es] as the exclusionary tool,” but it was not the proper standard where, in this case, price was not the predominant exclusionary mechanism. 696 F.3d at 275.  The Supreme Court chose not to hear Eaton’s appeal of the Third Circuit’s decision. 

Commissioner Wright approved of the Third Circuit’s approach, indicating that he believes an exclusive dealing approach focused on how the challenged activities operate to raise rivals’ costs better accords with current economic research.  Not all economists agree.  A large group of economists submitted an amicus brief to the Supreme Court urging it to review the Third Circuit’s decision in ZF Meritor.  Commissioner Wright said, however, that he believed that the arguments in [...]

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FTC Wins NC Dental State Action Case

by | Jun 4, 2013 | ,

by Daniel Powers

On May 31, the Federal Trade Commission (FTC) recorded yet another victory in its continuing efforts to limit the scope and application of antitrust immunity under the state action doctrine.  The Fourth Circuit ruled that the North Carolina State Board of Dental Examiners’ efforts to block non-dentists from providing teeth-whitening services was not entitled to antitrust immunity because the Board’s activities were not actively supervised by the state.  North Carolina State Board of Dental Examiners v. Federal Trade Commission, Case No. 12-1172 (4th Cir. May 31, 2013).

The case focused on the activities of the North Carolina state agency, which is composed of several practicing dentists, a dental hygienist and a consumer representative.  The Board licenses dentists in the state and is otherwise empowered to take disciplinary measures against licensees.  Beginning in approximately 2003, in response to complaints from dentists practicing in the state, the Board opened numerous investigations into teeth-whitening services provided by non-dentists.  As a result of these investigations, the Board issued dozens of cease-and-desist letters to such service providers and sought to restrict the market to licensed dentists by other means.

The Board’s activity attracted the attention of the FTC, which 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.  A trial on the merits before an administrative law judge found the Board had violated the Act.  On appeal, the FTC affirmed and entered a final order enjoining the Board from, among other things, continuing to unilaterally issue extra-judicial orders to teeth-whitening services in North Carolina.  The Fourth Circuit’s decision came in response to the Board’s petition for review of the FTC’s order.

The Board maintained that it was a state entity created to regulate the practice of dentistry, which encompassed the teeth-whitening services.  Under the state action doctrine, private parties may claim immunity from the antitrust laws if they act according to a “clearly articulated and affirmatively expresses state policy,” and their behavior is “actively supervised by the State itself.”  California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc. (445 U.S. 97, 105 (1980).  Municipalities and sub-state entities benefit from a less restrictive test.  Such entities must act pursuant to a “state policy to displace competition with regulation or monopoly public service.”  FTC v. Phoebe Putney Health System, Inc., 133 S. Ct. 1003, 1010 (2013).  These entities are not required to demonstrate the “active state supervision” required under the two-prong Midcal test because with such entities there is little danger that their activities involve a private anti-competitive activities. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 47 (1985).

Relying on its status as a state entity, the Board maintained that it was not subject to the “active supervision” prong required under Midcal.  The FTC countered that entities like the Board, regulatory bodies made up of market participants, were subject to the stricter Midcal test.  The FTC focused on the need to [...]

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District Court Grants Temporary Restraining Order in Phoebe Putney Litigation

by | May 17, 2013 | , ,

by Carrie Amezcua

The next step of the on-going Phoebe Putney litigation is completed.  On Wednesday, April 15, the district court for the Middle District of Georgia granted the Federal Trade Commission’s (FTC) motion for a Temporary Restraining Order (TRO) in Federal Trade Commission v. Phoebe Putney Health System, Inc., No. 1:11-cv-58 (M.D. Ga.).  In its order, the court stated that the FTC "carried its burden of persuasion to establish the need for the imposition of the ‘extraordinary and drastic remedy’ of a TRO pending the outcome of the court’s decision on the [Preliminary Injunction] Motion."  The TRO prohibits Phoebe Putney Memorial Inc. from taking further steps to consolidate with Palmyra Park Hospital.  Further, the court stated "In response to Plaintiff’s request that the Court order Defendants to refrain from instituting any price changes, the Court ordered that Defendants are prohibited from making any price changes to existing contracts; however, said prohibition does not extend to the formation of any new contracts."  Richard A. Feinstein, Director of the FTC’s Bureau of Competition issued a brief statement on the district court’s ruling saying "We are pleased that the Court has issued a Temporary Restraining Order prohibiting any further steps to consolidate the two hospitals in Albany, and prohibiting any price changes to existing health-plan contracts, pending our Motion for Preliminary Injunction." 

The district court had granted a TRO the FTC filed in 2011 to stop the acquisition, but dissolved that TRO upon the district court’s finding that the transaction was exempt under the state action immunity doctrine.  The 11th Circuit affirmed, but in February of this year, the Supreme Court reversed holding that Georgia’s enabling statute did not clearly articulate an affirmatively expressed policy for displacing competition.    

The district court’s grant of the TRO is another victory for the FTC in this long litigation.  Now that the Supreme Court ruled the transaction is not exempt from the antitrust laws, the hospitals will have to defend what the FTC calls a merger to monopoly.  The TRO will stay in place until a hearing on the motion for Preliminary Injunction, which is scheduled for June 14, 2013.  The FTC has a successful track record in getting preliminary injunctions granted in hospital mergers, so it would not be surprising if the district court also granted the Motion for Preliminary Injunction.  This case is further evidence of the high priority the FTC places on challenging health care mergers it views as anticompetitive and shows the FTC is willing to commit resources over an extended period of time to challenge such mergers.

The administrative hearing is scheduled to begin July 15, 2013.  More information on the district court and adjudicative proceedings can be found at https://www.ftc.gov/os/caselist/1110067/index.shtm and https://www.ftc.gov/os/adjpro/d9348/index.shtm.



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FTC Issues Fiscal Year 2012 HSR Report

by | May 6, 2013 | , ,

by Carla A. R. Hine

Earlier this week, the Federal Trade Commission (FTC) issued its Hart-Scott-Rodino (HSR) report for fiscal year 2012 (FY2012), which summarizes enforcement actions and key statistics regarding number of filings, second requests and challenges.  The press release and a link to the report can be found here.

Filings were relatively flat from 2011 to 2012.  There were fewer second requests and there wasn’t a remarkable difference in the overall percentage of filings resulting in second requests (3.9 percent in 2011; 3.5 percent in 2012).  In 2012, the FTC issued more second requests than the U.S. Department of Justice (DOJ).  However, when looking at the number of second requests each agency issued as a percentage of the filings each agency was "cleared" to investigate, the FTC only issued second requests in 14.8 percent of the filings it was cleared to investigate, whereas the DOJ issued second requests in 40.8 percent of filings the agency was cleared to investigate.  Overall, it is hard to read too much into these statistics other than reportable transactions remain steady and there do not seem to be any wild swings in enforcement trends.

The report also notes that of 60 corrective filings (i.e., filings where the parties closed the transaction and later realized they should have filed), two resulted in enforcement actions with civil penalties ($500,000 and $850,000).



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North Carolina Legislature Passes Prohibition on MFNs in Health Care Contracts

by | May 2, 2013 | , ,

by Jeffrey Brennan and Carrie Amezcua

On Tuesday, the North Carolina legislature has enacted into law, pending the governor’s signature, a prohibition on the use of most favored nations (MFN) clauses in contracts between commercial health insurers and providers. 

The two-page bill, titled “Freedom to Negotiate Health Care Rates,” lists "prohibited contract provisions related to reimbursement rates."  The bill prevents a commercial health insurer from prohibiting a health care provider with which it contracts from entering into a contract with another insurer at equal or lower rates.  In addition, insurers are not permitted to require a provider to accept a lower rate from the contracting insurer, or to require a renegotiation of rates, in the event that the provider agrees to provide equal or lower rates to another commercial health insurer.  Next, the bill prohibits an insurer from terminating a provider that agrees to provide services at lower rates to another insurer.  An insurer is also prevented from requiring that a provider charge another commercial health insurer a higher rate.  Finally, insurers can no longer require that providers disclose the provider’s contractual rate with another health insurer.  

MFN clauses have been attracting attention in recent years, particularly in the health care field.  North Carolina’s bill follows closely on the heels of Michigan’s ban on MFN clauses passed in March 2013.  That action led the Department of Justice (DOJ) to file a motion asking the court to dismiss an antitrust suit against Blue Cross Blue Shield of Michigan (BCBSM), in which the DOJ alleged the MFN clauses in BCBSM’s contracts with hospitals stifled competition, raised health care costs and harmed consumers.  Ohio has a similar ban on MFN clauses. 

Last year, the DOJ and the Federal Trade Commission (FTC) held a public workshop specifically to discuss the competitive effects of MFN clauses.  The workshop featured panels discussing economic theories concerning MFN clauses and why they are used, and the legal treatment of and industry experiences with MFN clauses, among other topics. 

MFN clauses are evaluated under the antitrust law rule of reason, because, depending on the applicable facts and circumstances, such provisions have been found to have procompetitive or anticompetitive effects.  A recognized procompetitive feature of MFN clauses is lower transaction costs, which provides price stability over time and ensures that a buyer is not treated any worse than its rivals.  The DOJ argued in the BCBSM case, on the other hand, that the MFN clauses there reduced incentives to lower prices, facilitated coordination and prevented entry. 

Health care clients using or considering the use of MFN clauses should consult antitrust counsel to assess their legal risks in light of these developments.    



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FTC’s New Chairwoman Ramirez Says Health Care Continues To Be Top Priority

by | Apr 26, 2013 | , , ,

by Hillary Webber

In remarks made this week at the International Competition Network annual conference, Federal Trade Commission (FTC) Chairwoman Edith Ramirez stated that health care will continue to be a top priority for the FTC.   Referring to health care and hospital mergers in particular, she said that the Commission will "guard[] against what we consider to be consolidation that may end up having adverse consequences for consumers."  The Chairwoman’s comments indicate that the recent leadership change at the FTC from former Chairman Jon Leibowitz to Chairwoman Ramirez has not altered the Commission’s priorities.

Recent months have seen a flurry of FTC activity in the courts related to health care.  For example, two FTC cases came before the U.S. Supreme Court this term — the FTC’s challenge to Phoebe Putney’s acquisition of Palmyra Park Hospital in Georgia and the FTC’s challenge to "pay-for-delay" patent infringement litigation settlements between branded and generic pharmaceutical manufacturers. 

In February, the Supreme Court ruled that the state action doctrine did not immunize Phoebe Putney’s hospital transaction from federal antitrust scrutiny, and the FTC has subsequently filed renewed motions in federal district court to stop further integration of the two hospitals even as it prepares for a full administrative hearing on the merits that will begin in August. 

A decision on the "pay-for-delay" case is expected in June.  The Supreme Court’s ruling may have a large impact on further FTC efforts against what it perceives as anticompetitive efforts to delay generic drug entry.

Health care clients considering acquisitions are advised to consult antitrust counsel early in the transaction process.  Given the FTC and DOJ’s close scrutiny of health care transactions, early advocacy before the antitrust agencies is often critical to a deal closing on schedule.  



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Supreme Court Hears Oral Argument in “Pay-for-Delay” Patent Settlement Antitrust Case

by | Mar 27, 2013 | , ,

by Jeffrey Brennan and Glenn Engelmann

The Supreme Court’s ruling in Federal Trade Commission v. Actavis, Inc., will almost certainly have major implications for the viability of Federal Trade Commission and private suits alleging that pay-for-delay settlements are anticompetitive, and for the level of antitrust risk facing companies that enter into such settlements.

Click here to view Jeff Brennan discuss the case on PBS‘ “Nightly Business Report.” 

To read the full article, click here.



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Supreme Court Limits Availability of State Action Immunity from Federal Antitrust Liability

by | Feb 21, 2013 | ,

by Jeffrey W. Brennan, Ashley M. Fischer, David Marx, Jr., Stephen Wu and Christine G. Devlin

The Supreme Court decision in FTC v. Phoebe Putney Health System, Inc., makes clear that state action immunity from federal antitrust laws is disfavored, and local governmental, quasi-public and private entities can only qualify for the immunity under certain specific conditions.

To read the full article, click here.



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