FTC Developments Archives - Page 25 of 48

FTC Developments

FTC Testifies Before Congress on Impact of Patent Hold-up on Competition and Standard-Essential Patents

by Emily Townsend | Jul 31, 2013 | FTC Developments, IP Antitrust

On July 30, 2013, Suzanne Munck, Chief Counsel for Intellectual Property at the Federal Trade Commission (FTC), testified before the Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights, on the impact of patent hold-up on competition, and standard-essential patents (SEPs). The hearing covered standard-essential patent disputes and antitrust law.

Ms. Munck’s testimony focused on SEPs that a patent holder has committed to license on reasonable and non-discriminatory (RAND) terms. The hold-up, in this context, is the potential that a SEP holder violates its RAND commitment, and then uses the leverage acquired from the standard setting process to negotiate higher royalties or other favorable terms after the standard’s adoption than it could have beforehand. She explained that patent hold-up is harmful because it can deter innovation, discourage the adoption of standards, reduce the value of standard setting and pass on excess costs to consumers.

To mitigate the threat of patent hold-up she testified that the FTC has “advocated for remedies in district courts and at the International Trade Commission (ITC),” submitted statements to the Federal Circuit and the ITC expressing its concerns, and pursued enforcement actions related to standard setting activity. Specifically related to enforcement, she commented on the FTC’s ability to use its Section 5 authority when someone claims infringement for intellectual property that is unenforceable or expired, or when someone threatens to sue without any intent to sue.

Ms. Munck concluded with the following remarks: “[T]he Commission believes that competition and intellectual property laws work together to promote innovation. Voluntary consensus-based standard setting facilitates this purpose; however, including patented technology in a standard creates the potential for patent-hold up. The Commission will continue to advocate before the federal courts and the ITC for policies that mitigate the potential for patent hold-up, and will bring enforcement actions where appropriate.”

North Carolina Dentists Seek Rehearing En Banc After Losing Bid for Antitrust Immunity

by Emily Townsend | Jul 19, 2013 | FTC Developments, Healthcare Antitrust

by Lincoln Mayer

North Carolina’s dentists were not smiling when a three judge panel of the U.S. Court of Appeals for the Fourth Circuit sided with the Federal Trade Commission in a challenge to the State Board of Dental Examiners’ policy that only dentists could perform teeth whitening. On July 15, 2013, the board filed a petition asking the full court to reconsider the panel’s May 31, 2013 decision. N.C. State Bd. of Dental Examiners v. FTC, No. 12-1172.

The dispute centers on whether the state action doctrine shields the board’s policy from antitrust scrutiny. That doctrine holds that state actors need only show that the state had a clearly articulated policy to displace competition with regulation. However, private parties invoking the doctrine must also show that they are actively supervised by the state. The Fourth Circuit panel concluded that since the board is composed of licensed dentists who have a financial interest in the market and are answerable to other members of the profession with a similar interest, the board needed to demonstrate active state supervision. The board countered that it is a state agency and therefore does not need to satisfy this additional requirement.

The North Carolina State Bar, and the National Association of Boards of Pharmacy together with the North Carolina Board of Pharmacy and North Carolina Board of Physical Therapy Examiners, submitted amici briefs supporting the dental board’s petition.

Barry Diller to Pay $480,000 Fine for Failure to File HSR

by Emily Townsend | Jul 2, 2013 | FTC Developments

by Carla A. R. Hine

The Federal Trade Commission (FTC) announced a settlement today with Barry Diller for failing to file a Hart-Scott-Rodino (HSR) notification in connection with his acquisition of shares of Coca-Cola over the course of 2010-2012. Diller will pay $480,000 in civil penalties.

Diller acquired Coca-Cola voting securities, and as a result of those acquisitions, held Coca-Cola shares valued in excess of the HSR thresholds, but did not file or observe the HSR waiting period. Diller made corrective filings over a year ago, which alerted the FTC to HSR Act violations. Diller had previously made a corrective filing in a separate transaction, and the FTC did not impose a penalty at that time but did note that “Mr. Diller is accountable for instituting an effective program to ensure full compliance with the [HSR] Act’s requirements.” Here, Diller only made the corrective filings after in-house counsel for Coca-Cola inquired as to whether an HSR filing was required for his most recent acquisition.

The FTC noted specifically that Diller’s acquisition did not fall within the “investment only” exemption – which generally exempts acquisitions of voting securities where the acquirer will hold less than 10 percent of the voting securities of the issuer and will remain a passive investor – because Diller intended to “participate in the formulation, determination, or direction of the basic business decisions of Coke” as a Coca-Cola board member.

This announcement follows the FTC’s June 20 announcement that MacAndrews & Forbes agreed to pay $720,000 in connection with its failure to file HSR. Like Diller’s situation, MacAndrews & Forbes also had a prior violation of the HSR Act in connection with a separate transaction. While not an official enforcement policy, the FTC appears to give first-time offenders one free pass, but will impose civil penalties where subsequent violations occur.

Institutional investors, executives and directors should take note of this case. Some institutional investors may be able to take advantage of the “investment only” exemption where their holdings remain below 10 percent and they do not take an active role in the business decisions of the company. However, the “investment only” exemption does not apply to executives or directors (like Diller) who may acquire shares on the open market or in connection with compensation packages.

HSR Rules on Automatic Withdrawal of Filings

by Emily Townsend | Jul 1, 2013 | FTC Developments

by Carla A. R. Hine

Following the publication of proposed rules back in February, the Federal Trade Commission (FTC) has issued final rules to establish procedures for the withdrawal of Hart-Scott-Rodino (HSR) filings. The rules, which do not differ from those originally proposed in February, codify the informal “pull and refile” practice parties sometime use to allow an agency an additional 30 days to review a transaction (in the hopes of staving off a Second Request).

The rules also establish a procedure for automatically withdrawing HSR filings when parties make certain filings with the Securities and Exchange Commission (SEC) announcing that a transaction has been abandoned. In the interest of not spending resources on "hypothetical" transactions, HSR filings will be automatically withdrawn when, in the case of a tender offer (TO), the tender offer has expired, terminated or has otherwise been withdrawn, resulting in a filing of an amended Schedule TO with the SEC. In the case of a non-tender offer, an HSR will be automatically withdrawn whenever an agreement between parties is terminated and results in the filing of a Form 8-K with the SEC. Any subsequent transaction between the parties, if reportable, would be subject to a new filing and new filing fee. This rule will not let parties continue the HSR process with deals that may or may not revive themselves. The automatic withdrawal mechanism will not apply to transactions involving non-publicly traded companies and certain foreign companies.

“Reverse Payment” Settlements Subject to Greater Antitrust Scrutiny: Implications of Supreme Court FTC v. Actavis Ruling

by McDermott Will & Emery | Jun 21, 2013 | FTC Developments

by Jeffrey W. Brennan

By rejecting the “scope of the patent” test and holding that reverse payment patent settlements “can sometimes violate the antitrust laws,” the Supreme Court of the United States subjects such settlements to greater antitrust scrutiny. But, by establishing the rule of reason as the operative standard for adjudicating the cases, with the burden of proof on the plaintiff, the Supreme Court rejected the Federal Trade Commission’s position that reverse payment settlements are “presumptively anticompetitive” and that the burden should be on defendants to overcome the presumption at trial. Companies considering reverse payment settlements should evaluate a number of practical factors that may determine their level of antitrust risk.

Read the full article here.

$720,000 Civil Penalty for Failure to File HSR

by Emily Townsend | Jun 21, 2013 | DOJ Developments, FTC Developments, Mergers & Acquisitions

by Carla A. R. Hine

Today the Department of Justice (DOJ), on behalf of the Federal Trade Commission (FTC), announced a settlement with MacAndrews & Forbes for failing to file Hart-Scott-Rodino (HSR) in connection with the acquisition of voting securities of Scientific Games (SG). MacAndrews & Forbes, which is a wholly-owned holding company of Ronald Perelman, will pay $720,000 for failing to file HSR.

MacAndrews & Forbes had filed HSR and observed the waiting period for a prior acquisition of SG voting securities. Under the HSR Rules, a buyer that has filed HSR and observed the waiting period can continue to acquire voting securities of an issuer valued up to the next notification threshold for a period of five years following expiration of the HSR waiting period. (The relevant notification thresholds in acquisitions of less than 50 percent of the voting securities are $50 million, $100 million and $500 million, each of which are adjusted annually.) However, if the buyer will pass the next notification threshold, or acquire additional stock after the five year period expires, a new HSR filing is required. The HSR size-of-transaction is determined by valuing what a buyer will hold as a result of the transaction. In other words, the buyer needs to look at the value of the voting securities of an issuer it currently holds aggregated with the value of the stock it will acquire. The value of publicly traded stock, such as SG’s, is determined by looking at the lowest closing quotation price in the preceding 45 calendar days. As such, if a stock goes up in value over time, even acquisitions of small tranches of shares can put an acquiring person above a notification threshold.

That is what happened in MacAndrews & Forbes’s case. It had filed HSR in February 2007 and the five year period in which it could make additional acquisitions expired when it acquired an additional 800,000 shares, valued at $6.5 million, in June 2012. This acquisition, when aggregated with the value of SG stock MacAndrews & Forbes already held, exceeded the filing threshold. MacAndrews & Forbes realized the inadvertent failure to file, and submitted a corrective filing in September 2012. The takeaways here are to remember that HSR thresholds consider both what a buyer already holds in addition to what else it will acquire, and that subsequent potential HSR obligations need to be monitored over time.

To view the press release, click here.

To view the complaint, click here.

FTC Commissioner Wright’s Policy Statement Proposes Section 5 Limitations

by Emily Townsend | Jun 20, 2013 | FTC Developments, Monopolization/Abuse of Dominance

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

ACOs and Antitrust Are Aligned and Compatible, Says Commissioner Brill

by Emily Townsend | Jun 13, 2013 | FTC Developments, Healthcare Antitrust, Joint Ventures/Competitor Collaboration, Mergers & Acquisitions

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.

FTC Commissioner Wright Weighs In On Loyalty Discount Programs

by Emily Townsend | Jun 5, 2013 | FTC Developments

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 Daniel Powers | Jun 4, 2013 | FTC Developments, Healthcare Antitrust

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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