FTC Approves Merger of Pharmacy Benefits Managers Express Scripts and Medco

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC announced yesterday that it had closed its investigation into the proposed combination of two of the country’s three largest pharmacy benefit managers (PBMs) without taking action to challenge the transaction. On the same day, Express Scripts, Inc. announced that it had completed its acquisition of Medco Health Solutions.

Three of the four commissioners concluded that a violation of Sec. 7 of the Clayton Act neither had occurred nor was likely to occur as a result of Express Scripts’ acquisition of Medco. “While this transaction appears to result in a significant increase in industry concentration, nearly every other consideration weighs against an enforcement action to block the transaction.”

The transaction was not likely to produce unilateral or coordinated anticompetitive effects in the market for the provision of full-service PBM services to health care benefit plan sponsors, including public and private employers and unions, according to the Commission.

In addition to Express Scripts and Medco, competitors in the market included CVS Caremark—the nation’s second-largest PBM—as well as PBMs owned by large national health plans and some smaller standalone PBMs.

After analyzing the market, the Commission concluded that Express Scripts and Medco were not such close competitors that the elimination of one of these firms would allow the merged entity to unilaterally impose anticompetitive price increases. Medco and CVS Caremark focused on serving the nation’s largest employers, while Express Scripts’ customer base was more heavily skewed towards health plans and mid-size plan sponsors. Changes in the industry also meant that smaller PBMs and those owned by health plans were growing competitors for employer business.

Coordinated interaction among competitors in the market also was unlikely following the merger. The PBM industry was not necessarily conducive to coordination, it was noted.

The Commission also considered the concerns of retail and specialty pharmacies and concluded that there was little risk of the merged company exercising monopsony power. According to the Commission, there was no reason to believe that the merger would lead to lower reimbursement rates to retail pharmacies. Even if the transaction enabled the merged firm to reduce the reimbursement it offers to network pharmacies, there was no evidence that this would result in reduced output or curtailment of pharmacy services generally.

Moreover, evidence did not support concerns that the merged entity would exercise market power to demand more exclusive distribution arrangements from manufacturers of specialty drugs used to treat complex and rare conditions.

Dissent

Calling the transaction a “game changer,” Commissioner Julie Brill issued a dissent from the Commission’s decision to close the investigation. While Commissioner Brill expressed “some discomfort about unilateral effects” from the merger, she reserved her sharpest criticism of the transaction for the likelihood of coordinated effects. Pointing to statements of the parties, Commissioner Brill said: “[I]t is not difficult to conceive how the post-merger duopoly could pull its competitive punches when it comes to bidding for one another’s customers.” The commissioner called on the agency to conduct an analysis of the industry in three years to determine the transaction’s impact on prices to employers.

Reaction

Separately, Senator Herb Kohl (Wisconsin) issued a statement on April 2, saying that he expected the FTC “to carefully monitor the market to ensure that consumers are not harmed by loss of community pharmacies.” Kohl, Chairman of the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights, had sent a letter to FTC Chairman Jon Leibowitz on February 2, expressing his concerns about the proposed transaction.

Google Acknowledges FTC’s Investigation of Business

This posting was written by John W. Arden.

In a blog item posted this morning, Google Inc. acknowledged that the Federal Trade Commission has begun an investigation into its business.

“Yesterday, we received formal notification from the U.S. Federal Trade Commission that it has begun a review of our business,” the posting stated. “We respect the FTC’s process and will be working with them (as we have with other agencies) over the coming months to answer questions about Google and our services.”

The blog item (“Supporting choice, ensuring economic opportunity”) indicated that Google was still uncertain of “exactly what the FTC’s concerns are . . .” However, the Internet giant maintained that it intended to continue its practice of doing what is best for the user, providing the most relevant answers as quickly as possible, labeling advertisements clearly, operating transparently, and engendering loyalty rather than locking in users.

The agency investigation has been the subject of much discussion since the Wall Street Journal reported in its June 24 edition that the FTC was launching a “broad, formal” antitrust investigation into whether Google has abused its dominance in the Web search advertising market.

“The people familiar with the matter said issues in the FTC probe are expected to include whether Google searches unfairly steer users to the company’s own growing network of services at the expense of rival providers,” according the Journal article (“Feds to Launch Probe of Google”) by Thomas Catan and Amir Efrati.

Companies providing products and services on the Web have complained that Google’s dominant search engine gives it the power to determine which businesses succeed or fail. Google is alleged to have used others’ content without permission, manipulated search results to favor its own products, and acquired competitors that threaten its dominant position.

The investigation is expected to take at least a year and may or may not result in formal charges, according to the Journal.

Some commentators are comparing an antitrust probe of Google to the Justice Department’s antitrust investigation and lawsuit against Microsoft Corp. in the 1990s.

“If history is any guide, the probe may represent the beginning of the end of Google’s dominance,” writes Dan Lyons in an article in The Daily Beast. “That’s what happened to Microsoft. The software maker was never the same after going through a three-year antitrust trial brought against it by the Department of Justice. The trial ran from 1998 to 2001 and ended up with Microsoft agreeing to relatively minor settlement terms.”

The trial itself was such a distraction that Microsoft lost focus, “missing out on almost every big trend in tech—Internet search, digital music and movies, social networking, Internet advertising, tablet computers,” Lyons writes.

Google recently has been the subject of antitrust scrutiny. Late last year, the European Commission (EC) opened an in-depth antitrust investigation into Google’s method of displaying search results. The EC is attempting to determine whether Google search display practices were designed to shut out competitors.

Specifically, the EC is investigating whether Google abused its dominant market position in online search by (1) lowering the ranking of unpaid search results of so-called vertical search services and according preferential placement of its own vertical search services; (2) lowering the "Quality Score" for sponsored links of competing vertical search services and thereby influencing the price paid for advertising and the corresponding rankings; (3) imposing exclusivity obligations on advertising partners that prevent certain types of competing ads; and (4) restricting the portability of online advertising campaign data to competing online advertising platforms.

Earlier this year, the Department of Justice Antitrust Division filed suit to block Google’s $700 million acquisition of travel search provider ITA Software, Inc., a leading producer of airfare pricing and shopping systems used by travel companies such as Travelocity, Kayak, and Orbitz.

The Justice Department entered a proposed settlement agreement with Google, allowing the acquisition to proceed. Under the proposed settlement agreement, the company would be required to continue to license ITA’s software to airfare websites, to offer the websites ITA’s next generation product, to refrain from entering into agreements that would restrict airlines’ right to share booking information with Google’s competitors, and to establish internal firewalls to prevent unauthorized use of competitively sensitive information from ITA’s customers. (See Trade Regulation Talk, April 12, 2011.)

FTC Opens Investigation into Gasoline Prices

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The FTC is looking into the recent rise in prices at the gas pump. The agency disclosed the investigation in a June 20 letter to Senator Maria Cantwell (D, Wash.).

In a March 25 letter, a bi-partisan group of senators, led by Cantwell, asked the agency whether it was fully utilizing its “regulatory authority . . . to ensure that American consumers are paying a fair price for gasoline.”

At that time, the senators requested information on: (1) FTC efforts to enforce the Petroleum Market Manipulation Rule since it was finalized in 2009; (2) steps taken or planned to be taken by the Commission in response to recent price volatility in the petroleum market; and (3) FTC current and planned efforts to work with the Commodity Futures Trading Commission and other agencies to prevent fraud or deceit in the petroleum market.

In light of substantial increases in crude oil and refined petroleum product prices and profit margins this year and other developments, the FTC decided that an investigation was appropriate, according to a letter signed by FTC Chairman Jon Leibowitz.

“[T]he Commission has opened an investigation and has authorized the use of compulsory process to determine whether certain oil producers, refiners, transporters, marketers, physical or financial traders, or others (1) have engaged or are engaging in practices that have lessened or may lessen competition—or have engaged or are engaging in manipulation—in the production, refining, transportation, distribution, or wholesale supply of crude oil or petroleum products; or (2) have provided false or misleading information related to the wholesale price of crude oil or petroleum products to a federal department or agency.”

The agency is trying to determine whether there has been a violation of Section 5 of the FTC Act (CCH Trade Regulation Reporter ¶25,245), the Commission’s Petroleum Market Manipulation Rule (CCH Trade Regulation Reporter ¶38,065), or Sections 811 or 812 of the Energy Independence and Security Act of 2007 (CCH Trade Regulation Reporter ¶27,801; ¶ 27,802).

“The information to be secured through this investigation may include, but is not limited to, utilization and maintenance decisions, inventory holding decisions, product supply decisions, product import and export strategies and volumes, product output decisions, capital planning decisions, product margins and profitability, and any other information which may be relevant to determining whether there is a reason to believe that there have been violations of any of the foregoing statutes or of the Rule,” the letter states.

Oil and Gas Price Fraud Working Group

The FTC also said that it would continue to assist the recently announced federal/state Oil and Gas Price Fraud Working Group. The group was established to help identify civil or criminal violations in the oil and gasoline markets, and to ensure that American consumers are not harmed by unlawful conduct.

The group includes representatives from the Justice Department, the FTC, the Commodity Futures Trade Commission, the Department of the Treasury, the Federal Reserve Board, the Securities and Exchange Commission, the Department of Agriculture, the Department of Energy, and the states.

A press release, including the text of the letter from Commissioner Liebowitz, appears here on Senator Cantwell's website.

FTC Ends Investigation of Google “Street View” Data Collection Practices

This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.

The Federal Trade Commission has ended its investigation of Google’s data collection practices related to its “Street View” program, according to a letter sent to Google on October 27 by David Vladeck, the Director of the FTC’s Office of Consumer Protection.

Street View allows users of Google’s mapping service to view ground-level photographs of specific locations, which are taken by cameras attached to cars driven by Google employees.

In 2007, the company installed software on its Street View cars to collect data about wireless network access points for the purpose of improving its location-based services. Earlier this year, Google discovered that the software on the Street View cars had also been collecting some “payload” data contents of communications sent over unsecured wireless networks. Google asserted that the collection of payload data was inadvertent and that it had not used the data.

Vladeck said the FTC’s staff has concerns about the internal policies and procedures that gave rise to this data collection. In the FTC’s view, Google’s internal review processes were inadequate.

Google was urged to develop and implement procedures to ensure that it collects only information necessary to fulfill a business purpose, disposes of information no longer necessary to accomplish that purpose, and maintains the security of information collected.

Because Google had made assurances that it would improve its processes and would delete the payload data, the FTC decided to end its inquiry without assessing a fine or penalty.

Text of Vladeck’s letter appears here on the FTC website.

FTC Closes Investigation into Google-AdMob Merger

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The FTC will not challenge Google’s proposed acquisition of mobile advertising network company AdMob under federal antitrust law. After thoroughly reviewing the deal, the agency decided that it was unlikely to harm competition in the emerging market for mobile advertising networks.

Mobile ad networks, such as those provided by Google and AdMob, sell advertising space for mobile publishers, who create applications and content for websites configured for mobile devices, primarily Apple Inc.’s iPhone and devices that run Google’s Android operating system.

By "monetizing" mobile publishers’ content through the sale of advertising space, mobile ad networks play a vital role in fueling the rapid expansion of mobile applications and Internet content.

Apple’s Market Entry

In a May 21 statement issued in conjunction with the closing of its investigation into the transaction, the Commission said that, although combination of the two leading mobile advertising networks raised serious antitrust issues, the agency’s concerns ultimately were overshadowed by recent developments in the market, most notably the move by Apple to launch its own, competing mobile ad network.

In addition, a number of firms appear to be developing or acquiring smartphone platforms to better compete against the iPhone and Android systems. These firms would have a strong incentive to facilitate competition among mobile advertising networks, according to the FTC.

"As a result of Apple’s entry [into the market], AdMob’s success to date on the iPhone platform is unlikely to be an accurate predictor of AdMob’s competitive significance going forward, whether AdMob is owned by Google or not," the Commission’s statement explained.

Questions about Transaction

According to the FTC’s statement, evidence gathered by the agency raised important questions about the transaction. Google and AdMob have competed head-to-head for the past few years, with a notable increase in intensity during the past year. This competition has spurred innovation and allowed mobile publishers to keep a large share of the revenue generated from the sale of their ad space. The companies also have economies of scale that give them a major advantage over smaller rivals in the business, the statement says.

These concerns, however, were outweighed by recent evidence that Apple is poised to become a strong competitor in the mobile advertising market, having recently acquired Quattro Wireless and used it to launch its own iAd service.

In addition, Apple could leverage its close relationships with application developers and users, its access to a large amount of proprietary user data, and its ownership of iPhone software development tools and control over the iPhone developers’ license agreement to compete effectively.

The FTC announcement appears here on the Commission’s website, along with a statement, a closing letter to counsel for Google, Inc. and a closing letter to counsel for AdMob, Inc. These documents appear at CCH Trade Regulation Reporter ¶16,453.

Concerns About Combination

The Commission made its decision, despite public expressions of concerns that the combination would allow Google to leverage its dominance of the search advertising market into the emerging mobile advertising market.

On April 6, Senator Herb Kohl (D, Wis.) sent a letter to FTC Chariman Jon Leibowitz, urging the agency to closely scrutinize the acquisition. (See Trade Regulation Talk, April 8, 2010 posting).

Senator Kohl cautioned that the combination could result in higher mobile advertising prices and lower revenues for applications developers. The stakes were high in an emerging market where revenues are predicted to increase from $416 million in 2009 to $1.56 billion in 2013.

Kohl urged the Commission to safeguard consumer privacy if the deal were approved, since the combined company would gain access to “a treasure trove of data on millions of consumers’ behavior, search and product preferences.”

New York State Charges Intel with Monopolization

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Intel Corporation unlawfully maintained its monopoly in the market for x86 central processing unit (CPUs) in violation of New York’s Donnelly Act and Sec. 2 of the Sherman Act, the State of New York alleges in an 83-page complaint filed today in a federal district court in Delaware.

The state is seeking injunctive relief and damages on behalf of its governmental agencies as well as New York consumers who purchased products containing x86 CPUs.

According to the complaint, Intel “engaged in a systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power and prices in the market for x86 microprocessors, the ‘brains’ of Personal Computers (PCs).” Intel allegedly bribed and bullied computer makers in an effort to deprive Advanced Micro Devices, Inc. of distribution channels for its competing microprocessors.

“Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market,” said New York Attorney General Andrew M. Cuomo, in a statement announcing the complaint.

“Intel’s actions not only unfairly restricted potential competitors, but also hurt average consumers who were robbed of better products and lower prices," Cuomo charged."These illegal tactics must stop and competition must be restored to this vital marketplace.”

European Commission Fine

New York’s complaint follows a May 2009 European Commission (EC) decision fining the computer chip maker €1.06 billion (approximately $1.44 billion U.S.) for violating EC antitrust rules prohibiting the abuse of a dominant position. The EC found that Intel engaged in illegal anticompetitive practices to exclude competitors from the market of computer chips called x86 CPUs.

In addition to imposing the fine, the EC ordered Intel to cease the challenged practices. In September, the EC made public a redacted version of its May decision. Intel has announced that it was appealing the EC decision to the Court of First Instance of the European Community.

Federal Trade Commission Investigation

The Federal Trade Commission has also been conducting an investigation of Intel’s allegedly anticompetitive practices. Intel announced in June 2008 that the FTC had issued a subpoena related to its “business practices with respect to competition in the microprocessor market.”

At that time, the company explained that it had been working closely with the FTC since 2006 on an informal inquiry into competition in the microprocessor market and that it had provided the Commission staff with a considerable amount of information and thousands of documents.

Apple, Google Boards of Directors Lose Members as FTC Investigates Overlaps

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Google announced yesterday that a member of its corporate board of directors, who was also a member of Apple’s corporate board, had stepped down.

Google did not give a reason for the resignation of Dr. Arthur Levinson. However, it follows an August 3 announcement by Apple that Google's chief executive officer, Eric E. Schmidt, was stepping down from Apple's board.

At that time, Apple said that Schmidt's departure was a mutual decision and necessary in light of growing competition between the firms.

“Unfortunately, as Google enters more of Apple's core businesses, with Android and now Chrome OS, Eric's effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest,” said Steve Jobs, Apple's CEO.

FTC Reaction

In response to Google’s announcement about Levinson’s resignation, FTC Chairman Jon Leibowitz said:

“Google, Apple, and Mr. Levinson should be commended for recognizing that overlapping board members between competing companies raise serious antitrust issues and for their willingness to resolve our concerns without the need for litigation.”

Leibowitz added that the agency would “continue to monitor companies that share board members and take enforcement actions where appropriate.”

Government Challenges

The FTC disclosed in August that it was investigating Google/Apple interlocking directorates. Sec. 8 of the Clayton Act conditionally prohibits interlocking directorates in competing corporations. Yet, government challenges to the overlaps are rare.

Over the last few decades, there have only been a handful of government challenges. The most recent Department of Justice complaint alleging a Clayton Act, Sec. 8 violation was filed in 2007. In that case, the government challenged CommScope Inc.'s proposed $2.6 billion acquisition of Andrew Corporation to preserve competition for drop cable.

The government contended that the transaction would have given CommScope the ability to appoint directors to the board of Andes, a substantial competitor, in violation of Sec. 8 of the Clayton Act. The suit was resolved by a consent decree (2008-2 Trade Cases ¶76,247). (See December 10, 2007 entry, Trade Regulation Talk.)

Yesterday’s announcement by the FTC could signal a move toward greater scrutiny of interlocks, however, especially between high profile companies like Google and Apple.

The Google announcement appears here on the company website. Commissioner Leibowitz’s statement is available here.