ANTITRUST ALERT
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
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THE LATEST: Enforcers Continue Recent Focus on Innovation Concerns with Emerson/Pentair Consent Agreement

by and | May 4, 2017 | , ,

The FTC’s recent consent agreement addressing concerns regarding Emerson Electric Co.’s (Emerson) acquisition of Pentair Plc (Pentair) demonstrates a continued focus on whether transactions will reduce the incentive for merging parties to develop new, innovative products in the future. This is the latest in a string of cases which show that when the antitrust regulators raise innovation concerns, the merging parties need to propose a remedy that will involve the necessary research and development resources for the products at issue.

WHAT HAPPENED:
  • The FTC alleged that the acquisition combines the two largest suppliers of switchboxes, which monitor and control certain valves that regulate the follow of liquids through pipes in industrial applications.
  • The FTC found that switchbox customers have a distinct preference for Pentair’s and Emerson’s switchbox brands, which account for approximately 60 percent of the switchbox market in the United States.
  • The FTC was concerned that the transaction would reduce innovation in the switchbox industry.
  • The parties reached a consent agreement whereby Emerson would divest Pentair’s switchbox manufacturer subsidiary, including all facilities, personnel, and intellectual property associated with Pentair’s design and manufacturing of switchboxes.
WHAT THIS MEANS:
  • The Emerson/Pentair transaction is the latest in a string of transactions where regulators in the US and the EU have raised concerns that a transaction would lead to less innovation in the relevant market.
    • In 2015, Applied Materials abandoned its acquisition of Tokyo Electron after the DOJ raised concerns that the transaction would lessen competition for products in the merging parties’ pipelines and decrease the incentive for innovation generally.
    • The DOJ’s 2016 complaint to block the Halliburton/Baker Hughes transaction emphasized that the merging parties “possess unrivaled product portfolios, research and innovation capabilities, and the scope and scale necessary to address the most difficult technological challenges facing the oil and gas industry they serve.”
    • In March of this year, the European Commission cleared the merger of Dow and DuPont on the condition that the merging parties would divest DuPont’s global pesticide research and development division due to concerns that the transaction would have reduced the number of players that “are globally active throughout the entire research and development (R&D) process.”
  • These cases show two significant trends:
    • First, the agencies are likely to investigate not only reductions in competition among existing products, but also whether potential transactions combine competing innovation sources in an industry.
    • Second, regulators with innovation concerns will seek remedies that divest stand-alone business units that deal with the products at issue, including any necessary research and development resources. Merging parties that are structured with separate research and development departments that address multiple product lines may need to develop a creative solution that alleviates a regulator’s concerns about future innovation.


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McDermott Releases 1Q2017 Antitrust M&A Snapshot

by and | Apr 21, 2017 | , , , ,

McDermott’s Antitrust M&A Snapshot is a resource for in-house counsel and others who deal with antitrust M&A issues but are not faced with these issues on a daily basis. In each quarterly issue, we will provide concise summaries of Federal Trade Commission (FTC), Department of Justice (DOJ) and European Commission (EC) news and events related to M&A, including significant ongoing investigations, trials and consent orders, as well as analysis on the trends we see developing in the antitrust review process.

Read McDermott’s 1Q2017 M&A Snapshot.



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Bag Fee Case Highlights Antitrust Risk Of Public Statements

by and | Apr 12, 2017 | , , ,

For publicly traded companies, earnings calls are routine business events, as are press releases, speeches, investor conferences and trade association meetings. However, in the world of antitrust law, words uttered in these situations can provide fodder for plaintiffs to claim that instead of providing information for investors and the public, the communication’s purpose was to invite competitors to unlawfully collude. In the past several years, allegations that competitors used public statements to carry out a price-fixing agreement have been a common thread in antitrust class actions and multidistrict litigations.

Recently, a federal district court granted summary judgment in an antitrust case based on earnings calls in the airline industry. While the defendants ultimately prevailed, the case stands as a reminder to publicly traded companies to be mindful of antitrust considerations in earnings calls and other public communications.

Read the full article.

Originally published in Law360.com, April 11, 2017.



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THE LATEST: Losing Bidder for Pharmaceutical Triggers FTC Investigation, Fix, and $100 Million Fine in Non-HSR-Reportable Transaction

by and | Mar 13, 2017 | , , ,

A private lawsuit filed by Retrophin Inc. (Retrophin), under then-CEO Martin Shkreli, likely triggered an investigation by the FTC into a consummated transaction.  Both the private lawsuit and the FTC complaint resulted in settlement.  In addition, the FTC levied a $100 million penalty.

WHAT HAPPENED:
  • In 2013, Questcor Pharmaceuticals, Inc. (Questcor) acquired the U.S. rights to Synacthen Depot (Synacthen) from Novartis (Mallinckrodt later acquired Questcor).
  • Questcor’s $135 million deal with Novartis out-bid several companies seeking to acquire Synacthen, including biopharmaceutical company Retrophin, who bid $16 million for the Synacthen license.
  • In 2014, Retrophin (under then-CEO Martin Shkreli) filed suit against Questcor, alleging that the purpose of the transaction between Questcor and Novartis was to eliminate competition for Achthar, Novartis’ ACTH drug used to treat infantile spasms and nephrotic syndrome, by shutting down Synacthen.
  • Retrophin’s case was settled in 2015 with Mallinckrodt (who acquired Questcor in the interim) paying Retrophin $15.5 million.
  • There are reports that the FTC challenged the consummated transaction of Questcor/Novartis following Retophin’s lawsuit. The FTC’s challenge recently resulted in a $100 million monetary payment and licensing of Synacthen for treatment of infantile spasms and nephrotic syndrome to an FTC approved licensee.
WHAT THIS MEANS:
  • Even if a transaction is non-reportable under the Hart-Scott-Rodino (HSR) Act, the FTC or DOJ may open an investigation into the transaction. The Questcor/Novartis transaction was not reported under the then-existing HSR rules because Novartis, the licensor, retained some manufacturing rights to Synacthen.
  • The FTC and DOJ may learn about potentially anticompetitive transactions in numerous ways, including HSR filings, news reports, complaints from disgruntled customers or competitors, private litigation involving the transaction, and as shown here, from the losing bidder.
  • HSR clearance or a determination that a transaction is not HSR reportable does not mean that the transaction is free and clear of government antitrust investigations or private litigation.


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THE LATEST: Occupational Licensing—Do We Need to Protect “the Public from Rogue Interior Designers Carpet-Bombing Living Rooms with Ugly Throw Pillows?”

by and | Mar 9, 2017 | ,

The Federal Trade Commission (FTC) has looked at licensing boards many times in the past and advocated for regulations with less restriction that promote competition.  There are numerous examples of antitrust regulators’ interest in occupational licensing and competition concerns, including Advanced Practice Registered Nurses in the VA, non-lawyers in the provision of legal services, and dental regulatory boards.  Acting Chairman Maureen Ohlhausen recently gave a speech at the Antonin Scalia Law School addressing economic liberty, including a critique of occupational licensing where she stated, “I challenge anyone to explain why the state has a legitimate interest in protecting the public from rogue interior designers carpet-bombing living rooms with ugly throw pillows.”

WHAT HAPPENED:
  • Acting Chairman Ohlhausen reiterated her view that occupational licensing inhibits economic liberty. “Market dynamics will naturally weed out those who provide a poor service, without danger to the public.  For many other occupations, the costs of added regulation limit the number of providers and drive up prices.  These costs often dwarf any public health or safety need and may actually harm consumers by limiting their access to beneficial services.”
  • In the 1950s, less than five percent of jobs required a license. Today, approximately 25 to 30 percent of jobs require a license.
  • Different states regulate different occupations, and licensing requirements for the same occupations often vary significantly among states.
  • In her speech, Acting Chairman Ohlhausen said she is creating an Economic Liberty Task Force within the FTC. This task force will focus on occupational licensing regulations.
WHAT THIS MEANS:
  • We will likely see an increase in FTC actions involving licensing boards, such as in North Carolina Dental, where it is not the state itself acting but self-interested active market incumbents who impose occupational licensing requirements that limit competition.
  • The FTC Task Force will seek to “eliminate and narrow overbroad occupational licensing restrictions that are not narrowly tailored to satisfy legitimate health and safety goals.”
  • The FTC will help states identify problematic occupational licensing and reforms that promote reciprocity among states. We could see a roll back of occupational regulations.
  • Licensing boards and those who are involved in licensing regulations should examine the ways in which the regulation affects or could affect competition, whether there is evidence that a regulation is necessary to achieve the targeted policy goal, whether the regulation is narrowly tailored to meet the policy goal, and whether a less restrictive alternative is available to achieve the policy goal and benefit competition.


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THE LATEST: FTC Fixes Consummated Pharma Transaction Involving Pre-Phase 3 Product Because It Eliminated a “Nascent Threat”—Tacks on $100 Million Disgorgement Penalty

by and | Mar 7, 2017 | , ,

The Federal Trade Commission (FTC) challenged a consummated transaction using a monopolization theory to allege that the acquisition would eliminate “nascent” competition for therapeutic adrenocorticotropic hormones (ACTH) in the United States.

WHAT HAPPENED:
  • Questcor Pharmaceuticals, Inc.’s (Questcor) H.P. Acthar Gel (Acthar) is the only ACTH product sold in the US, is the standard of care for infantile spasms and is indicated for several other diseases.
  • In 2013, Questcor acquired the US rights to Synacthen Depot (Synacthen) from Novartis. Questcor was subsequently acquired by Mallinckrodt.
  • Synacthen is pharmacologically very similar to Acthar, as the active ingredient in both drugs is an ACTH molecule.
  • At the time of the acquisition by Questcor, Novartis’ Synacthen had been used safely and effectively for decades in Europe, Canada and other parts of the world to treat patients suffering from infantile spasms and other diseases. Synacthen had not yet begun US clinical trials.
  • The FTC alleged a monopolization theory—that Questcor had “extinguished a nascent competitive threat to its monopoly” by outbidding several other companies who were interested in bringing Synacthen to market in the US to compete with Questcor’s Acthar.
  • Then FTC Chairwoman Edith Ramirez (she has since resigned) noted that Questcor had a history of taking advantage of its monopoly, repeatedly raising the price of Acthar “from $40 per vial in 2001 to more than $34,000 per vial today—an 85,000 percent increase.”
  • The FTC settlement requires a $100 million monetary payment and that Mallinckrodt (Questcor was acquired by Mallinckrodt) license Synacthen for treating infantile spasms and nephrotic syndrome to an FTC approved licensee.
WHAT THIS MEANS:
  • In some circumstances, an action by a monopolist to block a nascent threat to its monopoly can violate the antitrust laws.
  • Typically, the FTC does not challenge pharmaceutical overlaps involving pharmaceuticals that have not yet entered Phase 3 clinical trials because there is still significant uncertainty that a product will ultimately come to market.
  • The FTC appears to have made an exception to its typical practice because Synacthen was anticipated to gain US approval easily and compete significantly with Acthar. Synacthen was approved outside the US for decades and was understood to be a safe and effective ACTH treatment.
  • The FTC may bring an action at any time under Section 7 to determine the legality of an acquisition. However, the FTC challenged this consummated transaction under a Section 2 theory of monopolization. The FTC has many tools to challenge actions under the antitrust laws.


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THE LATEST: FTC Determines Behavioral Remedies are Sufficient to Fix Offshore Natural Gas Pipeline Overlap

by | Mar 2, 2017 | ,

The Federal Trade Commission (FTC) recently granted US antitrust clearance for Enbridge’s acquisition of Spectra after the parties agreed to behavioral commitments to remedy an overlap for natural gas pipeline transportation from the wellhead in three markets off the coast of Louisiana (Green Canyon, Walker Ridge and Keathley Canyon).

WHAT HAPPENED:
  • The merging parties each own interests in competing natural gas pipelines – Enbridge is the sole owner of the Walker Ridge Pipeline; and Spectra holds a minority interest (~7.6%) in the Discovery Pipeline via its interests in DCP Midstream.
  • As part of Spectra’s minority interest in the Discovery Pipeline, Spectra had access to detailed information on the pipeline’s pricing and other competitively sensitive information. In addition, Spectra had board voting rights over the pipeline’s significant capital expenditures including expansions needed to connect to new wells.
  • FTC determined that in certain areas within each of the three geographic markets, the Walker Ridge and Discovery Pipeline were the closest pipelines to new wellheads in development and therefore the lowest priced options.
  • In granting antitrust clearance, the FTC required that Enbridge and Spectra erect firewalls such that information related to the Walker Ridge Pipeline would not be shared with any of Spectra’s partners in the Discovery Pipeline and that Discovery Pipeline information is not shared with any Enbridge individuals involved in the Walker Ridge Pipeline business.
  • The FTC also required any board members appointed by Enbridge or Spectra to DCP Midstream recuse themselves from any vote pertaining to the Discovery Pipeline, unless the vote involves expanding the Discovery Pipeline beyond natural gas pipeline services in the Gulf of Mexico or changing the entities’ ownership interests in the Discovery Pipeline.
WHAT THIS MEANS:
  • FTC could investigate and require remedies in overlaps involving minority ownership interests (even when less than 10%), particularly when the overlapping entities are close competitors and the acquisition would give access to competitively sensitive information and control over the entity.
  • The FTC continues to apply narrow product and geographic market definitions in oil and gas cases. Here the FTC alleged relevant markets involving natural gas pipeline transportation in particular areas in the Gulf of Mexico.
  • While the FTC has stated a strong preference for structural remedies when fixing horizontal overlaps, there are situations in which the FTC will conclude that a behavioral remedy is sufficient.


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THE LATEST: Learnings from Merger Remedies Study Underscores FTC’s Heightened Focus on Remedy Packages and Proposed Buyers

by and | Feb 22, 2017 | ,

WHAT HAPPENED:
  • In early February, the FTC released its Merger Remedies Study (the Study), which focused on transactions from 2006-2012 in which the FTC found a competitive problem that did not require a block outright, and allowed the transaction to gain clearance so long as the merging parties agreed to what the FTC determined were appropriate remedies to restore competition to the impacted market.
  • Via case study method, questionnaires and data, the FTC analyzed the outcomes of 89 remedial orders and self-critiqued its success in restoring competition and used the learnings to refine its internal best practices.
  • The report serves as an update to practitioners for understanding what is required to develop an effective remedy package, what qualities the FTC seeks in a buyer of the remedy package and how the FTC will seek to implement the remedy.
WHAT THIS MEANS:
  • On balance, the Study supported the FTC’s current practices.
  • Remedy packages consisting of an ongoing business were all successful—which confirms FTC’s long-held conviction that these kinds of divestitures are highly likely to succeed in restoring competition.
  • There will be heightened focus when the remedy package consists of selected assets (that is, not an ongoing business) and a heightened focus on the financing/funding of the divestiture buyer.
  • In these situations, merging parties should expect a fact intensive inquiry by the FTC, the potential for the FTC to seek larger asset packages that include products outside of the competitive problem area (if needed to make the proposed buyer competitive) and increased information sharing with the proposed buyer (and future competitor) to transition the business.
  • FTC has a strong preference for proposed buyers with experience and strong financial commitment to the business. These kinds of proposed buyers are more effective at securing the right personnel, understanding what’s needed to effectively compete (e.g., assets, supply agreements, production processes) and implementing the transition.


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The LATEST: FTC “Second Requests” to be Narrower in Scope under Ohlhausen’s Leadership

by , and | Feb 17, 2017 | ,

Transactions that meet the Hart-Scott-Rodino thresholds for notification must be reported to the Federal Trade Commission (“FTC”) and Department of Justice. Where a notified transaction raises competition concerns, the reviewing agency may decide to launch an in-depth investigation and request additional information from the merging parties, known as a “Second Request,” which can take several months and cost companies millions of dollars to fully respond. Under FTC Acting Chairwoman Maureen Ohlhausen’s leadership, however, the burden of a Second Request may decrease, as she intends to narrow their scope.

WHAT HAPPENED:
  • Acting Chairwoman Ohlhausen has signaled that Second Requests will be more limited under her leadership, based on comments made on February 15, 2017 at a Washington conference.
  • The standard for initiating a Second Request will not change. However, once initiated, Second Requests will be narrower in scope, in terms of markets assessed and data requested from companies.
WHAT THIS MEANS:
  • The standard used by the FTC to initiate such investigations will not change; thus, complex transactions raising competition concerns will likely still face a Second Request.
  • However, the time and cost associated with complying with a Second Request may be reduced, which will be good news for companies who may face a shorter review at a lower cost.
  • This business-friendly approach is consistent with Commissioner Ohlhausen’s guiding principles of “regulatory humility, […] the power of competitive markets, and a devotion to empiricism” and her objective to “minimiz[e] the burdens on legitimate businesses”. As such, it may be one of further changes to come in FTC enforcement.

The FTC’s Path Ahead.

Statement of Acting FTC Chairman Ohlhausen on Appointment by President Trump.



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Flurry of Antitrust Merger Enforcement Actions as Obama Presidency Comes to a Close

by | Feb 2, 2017 | , ,

The Federal Trade Commission (FTC) and Antitrust Division of the Department of Justice (DOJ) announced several antitrust enforcement actions in advance of the inauguration of President Trump, including settlements for failures to file under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), a challenge to an unreportable deal and a settlement of a “gun-jumping” claim under the HSR Act. These cases illustrate the importance of compliance with the often complex reporting, waiting period and substantive aspects of antitrust laws in connection with acquisitions of various types, whether or not those acquisitions require premerger reporting. Failure to comply can result in significant financial penalties.

Two HSR “Failure to File” Settlements. On January 17, 2017, the FTC announced two settlements for failures to submit HSR filings and observe the statutory waiting period under the HSR Act prior to consummating acquisitions that met the relevant thresholds. The HSR Act requires notification of certain acquisitions of voting securities, assets and non-corporate interests if the value held as result of the transaction is in excess of certain notification thresholds and size of person thresholds (if applicable), and the transaction is not otherwise exempt. Parties to reportable transactions must observe the statutory waiting period prior to closing. If they fail to file, or otherwise do not observe the waiting period under the HSR Act, the parties may be liable for civil penalties of up to $40,654 per day (which was recently increased from $40,000, effective February 24, 2017).

In the first settlement, Ahmet Okumus agreed to pay $180,000 in connection with failing to notify for his purchases of voting securities of Web.com Group, Inc. (Web.com). According to the complaint, in September 2014, Okumus acquired voting securities of Web.com and as a result, held approximately 13.5 percent of the voting securities of Web.com. Okumus continued to acquire voting securities of Web.com through November 2014. Okumus did not file an HSR notification prior to making these acquisitions, relying on the “investment only” exemption, which exempts acquisitions resulting in holdings of 10 percent or less of the issued and outstanding voting securities if the shares are held solely for the purpose of investment (see 15 U.S.C. § 18a(c)(9) and 16 C.F.R. § 802.9). However, because Okumus held in excess of 10 percent, this exemption was not applicable. In late November of 2014, Okumus made a corrective filing that allowed him to acquire additional Web.com voting securities for approximately five years, provided that the value of the voting securities he held as a result of any acquisition did not exceed the $100 million (as adjusted) notification threshold. In a letter that accompanied his corrective filing, he indicated that the failure to file was inadvertent. The FTC did not seek civil penalties in that instance.

In June of 2016, Okumus began acquiring additional voting securities of Web.com. Later that month he acquired 236,589 voting securities of Web.com, and as a result of that acquisition, Okumus held voting securities valued (per the HSR rules) in excess of the $100 million (as [...]

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