ANTITRUST ALERT
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
Federal Trade Commission
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FTC Staff Comments on New York State Proposal to Transform Power Distribution

by | Dec 30, 2014 | ,

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.



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Aerospace & Defense Series: Leading Antitrust Considerations for M&A Transactions

by | Dec 18, 2014 | , , ,

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.

Read the full article.



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FTC Initiates Inquiry Into Patent Assertion Entities

by | Oct 4, 2013 | , ,

by William Diaz

Last week, the Federal Trade Commission (FTC) announced its decision to seek public comment on a proposal to gather information from approximately 25 patent assertion entities (PAE).  The agency defines a PAE as a company whose business model focuses primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technologies.  The FTC also anticipates seeking information from approximately 15 other entities asserting patents in the wireless communications sector, including manufacturers and other non-practicing entities or licensing organizations.  None of the PAEs or other firms has been identified by the FTC.

In late 2012, the FTC and Department of Justice conducted an industry workshop on the impact of PAEs on innovation and competition.  Workshop participants identified numerous potential harms, but noted the lack of empirical data on PAE activities.  The FTC now proposes to collect such data pursuant to its information-gathering authority under Section 6(b) of the FTC Act.  The full scope of the information the FTC will seek is described in the official notice, which is can be found here.  Public comments will be accepted for 60 days following publication in the Federal Register.



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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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Deputy Director Dafny: FTC focuses on Diversion Ratios, Not Geographic Markets for Hospital Mergers

by | Oct 4, 2012 | , ,

by Stephen Wu

During an American Bar Association (ABA) program on antitrust and health care issues on October 1, 2012, U.S. Federal Trade Commission (FTC) Deputy Director for Health Care and Antitrust, Leemore Dafny, said that the FTC will focus on how patients purportedly react to price increases, as measured by "diversion ratios," when deciding which hospital mergers to investigate further for potential anticompetitive effects. 

Dafny stated that the FTC will focus on diversion ratios rather than geographic markets because relying on geographic market overlaps in hospital mergers may do a poor job of identifying the true source of potential competition problems.  Instead, the FTC has and will continue to evaluate hospital mergers to look at whether patients would be willing and able to substitute one hospital for the other if one hospital decided to raise prices for services, using the diversion ratio or the proportion of patients who would switch between them in response to a change in prices.  Importantly, the diversion ratio does not rely on any one particular geographic market definition to give the FTC what it believes to be an accurate idea of how a hospital merger might affect competition. 

To the extent the FTC considers geography, its staff begins by examining the primary service area of the hospitals – the area from which the hospitals draw about 75 percent of their patients – when conducting a preliminary evaluation of a merger to determine whether overlaps exist.  According to Dafny, the more significant the overlaps, the higher the likelihood of a potential competition problem.



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FTC Names Dafny Deputy Director of the Agency’s Bureau of Economics

by | Jun 14, 2012 | ,

by Stephen Wu

On June 12, 2012, the Federal Trade Commission (FTC) announced the appointment of Leemore Dafny to assume the newly created position of Deputy Director for Health Care and Antitrust, effective August 1, 2012.

Dafny is an Associate Professor of Management and Strategy at the Kellogg School of Management of Northwestern University, where she has served on the faculty since 2002.  She is a microeconomist whose research focuses on competition in health care markets.

Her appointment to a newly created position signals the FTC’s continuing focus on the U.S. health care industry for antitrust scrutiny and, if anything, an effort to increase its expertise/jurisdiction over health care in relation to the U.S. Department of Justice.  According to economists with whom McDermott regularly works, clients should not expect a change in the FTC’s enforcement posture as a result of her appointment, but Dafny should bring a broader perspective given her work with health insurance markets, experience the FTC is currently lacking. 

The FTC’s press release announcing Dafny’s appointment can be found here.



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CEO Fined for H-S-R Act Violation on Acquisition of Stock-Based Compensation

by | Jan 31, 2012 | ,

by Joseph Winterscheid

In December 2011, the United States Department of Justice (DOJ) announced that a public company chief executive officer (CEO) will pay a $500,000 civil penalty to settle charges that he violated Hart-Scott-Rodino Act (H-S-R Act) premerger reporting and waiting period requirements.  The DOJ, acting at the request of the Federal Trade Commission, charged the executive for failing to satisfy the H-S-R Act’s requirements before acquiring common stock under the company’s stock-based compensation program.  The CEO allegedly exceeded the H-S-R Act filing threshold ($59.8 million when the alleged violation occurred) upon the vesting of outstanding restricted stock units awards and the reinvestment of dividends and short term interest through his 401(k) account.

Violations of the H-S-R Act’s reporting and waiting period requirements are subject to fines of up to $16,000 per day.  The DOJ’s recent enforcement action illustrates the potentially costly consequences of a failure to consider H-S-R Act compliance in connection with investment planning for corporate executives (and other individuals) who will hold or acquire stock valued in excess of the H-S-R Act’s notification threshold (currently $66 million and moving to $68.2 million effective February 27, 2012), and that violations may occur under somewhat obscure circumstances.  In this connection, it is also important to remember that the relevant valuation is determined by reference to the total value of the voting securities that will held following any given acquisition of shares.  Thus, for example, if an executive already holds shares valued at $65,999,999, a reporting obligation could be triggered by acquiring just one additional share.  Likewise, if the executive’s existing holding has already crossed the $66 million valuation threshold through appreciation, any further acquisitions could trigger a reporting obligation.               



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Update on Reverse Payment Settlements

by | Nov 7, 2011 | , ,

by William Diaz, Raymond A. Jacobsen, Joseph F. Winterscheid and Jeffrey W. Brennan

On October 31, 2011, a California state court of appeal affirmed a lower court’s ruling upholding a "reverse payment" (pay-for-delay) settlement between Bayer (Bayer) AG and Barr Pharmaceuticals (Barr).  Bayer had sued Barr for patent infringement pertaining to the latter’s planned production of a generic form of Bayer’s Cipro.  The case was settled with Bayer paying Barr to delay entry until the expiration of Bayer’s patent in 2004.  Thereafter, consumers filed a class action lawsuit challenging the settlement agreement under California’s state antitrust laws.  The appellate court upheld the settlement agreement because it concluded that the agreement did not restrain competition beyond the scope of the Bayer patents.  This court’s ruling is consistent with the predominant view among the courts that these agreements do not violate the antitrust laws when the period of the delay and products at issue are within the scope of the relevant patents.

For years the Federal Trade Commission (FTC) has expressed serious concerns about reverse payment settlements.  Most recently, on October 25, 2011, the FTC released the findings of its study into the prevalence of these agreements and their effects on consumers.  The FTC noted that "pharmaceutical companies continued a recent anticompetitive trend of paying potential generic rivals to delay the introduction of lower-cost prescription drug alternatives for American consumers …drug companies entered into 28 potential pay-for-delay deals in FY 2011 (October 1, 2010 through September 30, 2011).  The figure nearly matches last year’s record of 31 deals and is higher than any other previous year since the FTC began collecting data in 2003.  Overall, the agreements reached in the latest fiscal year involved 25 different brand-name pharmaceutical products with combined annual U.S. sales of more than $9 billion."  This latest report demonstrates the FTC’s continued commitment to enforcement in this area.  Further, the FTC’s Chairman has continued to urge Congress to pass legislation that restricts reverse payment settlements.

These recent events highlight the need to work closely with antitrust counsel to ensure that any settlement agreements are properly vetted and take into account the latest antitrust developments.



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FTC Hosts Workshop on Preventing Patent “Hold-Ups” in Standard-Setting

by | Jun 23, 2011 | ,

by Stefan M. Meisner and James B. Camden

The FTC recently hosted a workshop on preventing patent “hold-ups” in standard-setting.  Panelists addressed and evaluated the three main tools currently used by SSOs to prevent patent hold-ups: patent disclosure rules, ex ante disclosure of licensing terms by patent holders, and RAND commitments.  The FTC has yet to formally comment on the workshop, but may prepare a report discussing the issues raised in this project.

To read the full article, click here.



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