On May 21, a California federal judge ruled in favor of the Federal Trade Commission (FTC) in its suit against Qualcomm in a much-anticipated decision, concluding that Qualcomm violated the FTC Act by maintaining its monopoly position as a modem chip supplier through a number of exclusionary practices, including refusing to license standard essential patents (SEPs) on fair, reasonable and non-discriminatory (FRAND) terms. Qualcomm likely will appeal the decision to the US Court of Appeals for the Ninth Circuit, but in the meantime, the court’s sweeping decision is likely to affect the course of dealing between SEP-holders and licensees. The decision is likely to substantially affect the ways in which SEP-holders take their technology and associated components that they manufacture to market.
The first quarter of 2019 proved to be as active as ever for antitrust regulators in both the United States and Europe. In the United States, vertical merger enforcement was the focus of a few high-profile matters. The US DOJ has been working on an update to the Non-Horizontal Merger Guidelines, possibly providing clarification for merging parties.
Meanwhile in Europe, although the European Commission cleared a number of merger control proceedings with remedies, the European Commission also blocked two transactions during the first quarter of 2019.
Antitrust regulators in the United States and Europe were very active in the final quarter of 2018 closing a large number of cases requiring in-depth investigations. In the United States, regulators continue their focus on the potential need to update their methods of reviewing high-tech transactions with public hearings on the future of antitrust enforcement.
In Europe, recent reviews of Takeda’s acquisition of Shire and the creation of a joint venture between Daimler and BMW show a focus on how transactions will impact innovation for new products.
The Federal Trade Commission (FTC) submitted comments supporting the Food and Drug Administration’s (FDA) guidance for assessing whether a pharmaceutical company petitioner is misusing the citizen petition process to delay approval of a competing drug.
WHAT HAPPENED:
The FDA released revised draft guidance intended to discourage pharmaceutical companies from gaming the citizen petition process.
The FTC expressed approval of the considerations the FDA will use to determine whether a petition was submitted to delay or inhibit competition.
The considerations the FDA will use include:
The petition was submitted unreasonably long after the petitioner learned or knew about the relevant information;
The petitioner submitted multiple and/or serial petitions;
The petition was submitted close to the expiration date of a known patent or exclusivity;
The petition’s scientific positions were unsupported by data or information;
The petition was the same or substantially similar to a prior petition to which the FDA had already substantively responded;
The petitioner had not commented during other opportunities for input;
The petition requested a standard more onerous or rigorous than the standard applicable to the petitioner’s drug product; and
Other relevant considerations, including the petitioner’s history with the FDA.
WHAT THIS MEANS:
Each of the FTC commissioners testified during Senate confirmation hearings that scrutinizing health care and pharmaceutical companies would remain a top priority of the Commission.
The FTC’s support of the FDA guidance appears to be part of a broader agenda to actively pursue sham petitions and discourage attempted abuses that seek to use Noerr-Pennington immunity as a shield in an administrative setting.
In 2017, the FTC filed a lawsuit in federal court alleging that Shire ViroPharma Inc. (Shire) violated antitrust laws through repeated use of sham petitioning.
Though the district court dismissed the FTC’s complaint, the FTC has lodged an appeal and appears committed to reining in alleged abuses of the citizen petition process.
Going forward, citizen petitions are likely to face even more scrutiny. Under the revised draft guidance, once the FDA determines that a petition was submitted primarily to delay competition, it will refer that determination to the FTC. Potentially anticompetitive petitions will now face two rounds of review by federal regulators.
The Department of Justice (DOJ) announced last week that it and the State of North Carolina have reached a settlement with Carolinas Healthcare System / Atrium Health relating to provisions in contracts between the health system and commercial insurers that allegedly restrict payors from “steering” their enrollees to lower-cost hospitals. The settlement comes after two years of civil litigation, and serves as an important reminder to hospital systems and health insurers of DOJ’s continued interest in and enforcement against anti-steering practices.
WHAT HAPPENED:
On June 9, 2016, the DOJ and the State of North Carolina filed a complaint in the Western District of North Carolina against the Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas Healthcare System, now Atrium Health (Atrium).
In its complaint, DOJ accused Atrium of “using unlawful contract restrictions that prohibit commercial health insurers in the Charlotte area from offering patients financial benefits to use less-expensive health care services offered by [Atrium’s] competitors.”
DOJ alleged that Atrium held approximately a 50 percent share of the relevant market and was the dominant hospital system in the Charlotte area. DOJ defined the relevant product market as the sale of general acute care inpatient hospital services to insurers in the Charlotte area.
DOJ alleged that Atrium used market power to negotiate high rates and impose steering restrictions in contracts with insurers that restrict insurers from providing financial incentives to encourage patients to use comparable lower-cost or higher-quality providers. Such financial incentives include health plan designs that charge consumers lower out-of-pocket costs (such as copays and premiums) for using top-tier providers that offer better value, or for subscribing to a narrow network of providers.
Atrium also allegedly prevented insurers from offering tiered networks with hospitals that competed with Atrium in the top tiers, and imposed restrictions on insurers’ sharing of value information with consumers about the cost and quality of Atrium’s health care services compared to its competitors. These “steering restrictions” allegedly reduced competition and resulted in harm to consumers, employers, and insurers in the Charlotte area.
Atrium allegedly included these steering restrictions in its contracts with the four largest insurers who in turn provide coverage to more than 85 percent of commercially insured residents in the Charlotte area.
On March 30, 2017, the court denied Atrium’s motion for judgment on the pleadings, finding that the government met its initial pleading burden. Atrium had argued that the complaint failed to properly allege that the contract provisions actually lessened competition or lacked procompetitive effects.
More than a year later, on November 15, 2018, DOJ announced that the State of North Carolina and DOJ had reached a settlement with Atrium, which prohibits Atrium from continuing its practices of using alleged steering restrictions in contracts with commercial health insurers. The proposed settlement also prevents Atrium from “taking actions that would prohibit, prevent, or penalize steering by insurers in the future.” The agreement lists certain prohibitions and permissions for Atrium; for example, that Atrium [...]
Recently, a federal district court in California granted partial summary judgment for the US Federal Trade Commission (FTC) in an important intellectual property and antitrust case involving standard essential patents (SEP). The court’s decision requires an SEP holder to license its SEPs for cellular communication standards to all applicants willing to pay a fair, reasonable and non-discriminatory (FRAND) rate, regardless of whether the applicant supplies components or end-devices. The decision represents a significant victory for the FTC in enforcing its views of an SEP holder’s commitments to license patents on FRAND terms.
Today, Assistant Attorney General Makan Delrahim announced a series of reforms with the express goal to resolve most merger investigations within six months of filing. The reforms seek to place the burden of faster reviews not only on the Antitrust Division of the Department of Justice (DOJ), but also on the merging parties.
The DOJ will require fewer custodians, take fewer depositions, and commit to shorter time-periods in exchange for merging parties providing detailed information to the DOJ early in the investigation in some cases before a Hart-Scott-Rodino (HSR) filing is made. AAG Delrahim believes that merging parties need to avoid “hid[ing] the eight ball” and work with the DOJ in good faith to remedy transactions that raise competitive concerns.
By announcing these reforms, the DOJ acknowledges that merger reviews are taking longer in recent years. AAG Delrahim cited a recent report noting that the length of merger reviews has increased 65 percent since 2013 and that the average length of a significant merger review is now roughly 11 months. AAG Delrahim believes an assortment of factors contribute to the increasing length of reviews including larger quantities of documents produced during a Second Request, increasing numbers of transactions with international implications, and the DOJ’s insistence on an upfront buyer for most consent orders. (more…)
A recent settlement shows that the US Federal Trade Commission (FTC) will use its enforcement authority to target employer collusion in the labor market.
WHAT HAPPENED
The FTC brought a complaint against a medical staffing agency, Your Therapy Source, LLC, and the owner of a competing staffing agency, Integrity Home Therapy, for allegedly agreeing to reduce the rates they would pay to their staff. Simultaneously, the FTC settled the case with a consent order that forbids the parties from any future attempt to exchange pay information or to agree on the wages to be paid to their staffs.
This was the first FTC wage-fixing enforcement action since the FTC and US Department of Justice (DOJ) issued their joint Antitrust Guidance for Human Resource Professionals in October 2016. That guidance stated that naked wage-fixing and no-poach agreements—e.g., agreements separate from or not reasonably necessary to a larger legitimate collaboration between the employers—are per se illegal under the Sherman Act.
The respondents in the Your Therapy Source case are staffing agencies that allegedly provided therapists such as physical therapists, speech therapists and occupational therapists to home health agencies on a contract basis. The respondents were responsible for recruiting the therapists and paying them a “pay rate” per visit or per patient.
According to the complaint, the alleged unlawful agreement began when one home health agency unilaterally notified Integrity that it was going to reduce the “bill rates” that it paid Integrity for its therapists, thus cutting into Integrity’s profit margins. Integrity’s owner then reached out through one of his therapists to the owner of Your Therapy Source and the two exchanged information about their respective rates paid to therapists. The two firms then reached an agreement via text message to reduce the rates they paid therapists.
Once the respondents had reached the agreement to reduce therapists’ pay, Integrity’s owner allegedly reached out via text to four other competing therapy-staffing agencies to solicit their participation in the agreement.
The FTC’s complaint alleged that this conduct violated Section 5 of the FTC Act, which prohibits unfair and deceptive acts and practices.
WHAT THIS MEANS
Wage-fixing cases have been notable in the health care industry, with prior DOJ enforcement against a hospital buying group and several class actions against health care providers in the 2000s that alleged the fixing of nurses’ pay.
Companies should strictly avoid colluding with other firms on wages, salaries, fringe benefits or other remuneration paid to workers. Companies should also exercise extreme caution in information exchanges regarding wages and benefits, which can lead to improper agreements or result in independent antitrust liability if not properly supervised.
Firms should be mindful of the DOJ/FTC’s joint guidance on information sharing in the health care industry (see link at p. 50), which also provides a useful template for how the US antitrust agencies will analyze information sharing more generally. The joint [...]
On April 27, 2018, the United States Senate confirmed President Trump’s five nominees for Commissioners of the Federal Trade Commission (FTC). Three are Republicans: Chairman Joseph Simons, Noah Phillips and Christine Wilson, and two are Democrats: Rohit Chopra and Rebecca Slaughter. The Senate’s vote returns the FTC to a full complement of Commissioners for the first time under the Trump Administration. Of note to participants in the health care sector: the FTC shares civil antitrust law enforcement jurisdiction over the health care industry with the Department of Justice Antitrust Division, but takes the lead when it comes to the health care provider, pharmaceutical and medical device industries. (more…)
The Federal Trade Commission (FTC) recently announced that it has challenged a merger between Wilhelmsen Maritime Services (Wilhelmsen) and Drew Marine Group (Drew) because of an overlap in service to “global fleet customers,” a narrow customer segment that purchases marine water treatment chemicals and services.
WHAT HAPPENED:
The FTC issued an administrative complaint and filed a complaint in federal court seeking a temporary restraining order and preliminary injunction, asserting that Wilhelmsen’s proposed $400 million acquisition of Drew would significantly reduce competition in the market for marine water treatment chemicals and services used by global fleets.
The FTC enforcement action focuses on a narrow sub-segment of customers, global fleet customers, that buys marine water treatment chemicals and services.
The FTC distinguished global fleet customers from other marine water treatment chemical customers on the basis that:
(1) global fleets have specialized needs that only a few suppliers can meet (turn-key global sales, service and delivery capabilities, as well as consistent and reliable product supply); and
(2) these customers seek out suppliers via requests for proposal and direct negotiation and therefore potential suppliers can price discriminate to that subset of customers.
Because of the specific needs of global fleet customers and because global fleet suppliers can identify which customers are seeking service for global fleets, suppliers are able to price discriminate to the global fleet customer set.
The FTC alleged a harm to competition because their investigation showed Wilhelmsen and Drew are each other’s closest competitors based on company documents, statements by the business personnel, and bid data showing that the companies are most frequently the first and second choice for global fleet customers. In addition, the FTC noted that Wilhelmsen and Drew would control at least 60 percent of the market with the next largest competitor having less than a 5 percent share.
The FTC complaint disparaged the remaining market participants as unable to practicably compete with Wilhelmsen and Drew to service global fleets because they are perceived as offering lower quality products with less reliability, having more limited service capabilities, and failing to price competitively.
WHAT THIS MEANS:
The FTC’s enforcement action continues a trend of applying price discrimination markets. These markets are characterized by: (1) buyers with special requirements that only select suppliers can service; and (2) sellers who can identify the buyers with those special requirements and selectively price based upon the knowledge of those special needs.
Antitrust enforcement of price discrimination markets lead to narrower product market definitions. Therefore, applying price discrimination markets may result in antitrust enforcers challenging mergers that appear lawful when viewed as a broader market.
There is increased risk of price discrimination markets being applied by antitrust enforcers in industries in which:
The customers’ end uses differ for the same product;
Merging companies’ documents recognize distinctions among customer groups; and
Groups of customers require unique product characteristics.
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