Continuity and Change Were FTC Themes for 2009

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

In a speech to attendees of the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C. in March, the newly-appointed FTC Chairman Jon Leibowitz said that he intended to build on the accomplishments of past FTC chairs and that there
would be continuity in enforcement.

The pledge for continuity was reiterated by Leibowitz in September at Fordham University’s annual conference on international antitrust law and policy. At that time, however, Leibowitz said that in addition to continuity, there would be change.

Merger Enforcement

There was continuity in merger enforcement. The agency wrapped up its challenge to specialty grocer Whole Foods Market, Inc.’s acquisition of rival Wild Oats Markets, Inc. in March 2009. The case was originally filed in 2007, when the parties announced their intention to merge.

In addition, the FTC approved two major mergers in the pharmaceutical industry. In October, the FTC conditionally approved Pfizer, Inc.’s proposed $68 billion acquisition of Wyeth, and Schering-Plough Corporation was permitted to proceed with its proposed $41.1 billion acquisition of Merck & Co. Inc. Outside the pharmaceuticals sector, the FTC approved the combination of Japanese consumer electronics makers Panasonic Corporation and Sanyo Electric Co., Ltd.

Administrative challenges also led parties to abandon mergers in 2009. The agency blocked the combination of providers of drycast hardscape sold at home improvement centers.

Two mergers in the health care area were abandoned. CSL Limited’s proposed $3.1 billion acquisition of Talecris Biotherapeutics Holdings Corporation was called off after the agency challenged the deal on the ground that it would substantially reduce competition in the U.S. markets for plasma-derivative protein therapies. And Thoratec Corporation abandoned its proposed $282 million acquisition of rival HeartWare International, Inc., after the FTC charged that the transaction would substantially reduce competition for left ventricular
devices.

Also in the health care area, Southwest Virginia’s dominant hospital system agreed to settle an FTC challenge to its 2008 acquisition of an outpatient imaging center and an outpatient surgical center.

Monopolization, Unfair Methods of Competition

In discussing change at the FTC in his Fordham address, Leibowitz talked about challenging monopolization and expanding the agency’s use of its authority to prohibit unfair methods of competition under the FTC Act.

The agency’s December complaint against computer chip maker Intel Corporation for monopolization can be seen as an example of change at the agency.

The FTC announced on December 16 that it had issued an administrative complaint against Intel for monopolizing the markets for central processing units and creating a monopoly in the markets for graphics processing units. The vote to issue the complaint was 3-0, with Commissioner William E. Kovacic recused.

Commissioner J. Thomas Rosch issued a separate statement, in which he concurred in part and dissented in part. Commissioner Rosch said that he concurred in the issuance of a complaint based on pure FTC Act, Section 5 claims, but dissented on public policy grounds to the extent the complaint contained Sherman Act, Section 2 ‘‘tag-along’’ claims.

Pfizer’s Acquisition of Wyeth Clears Antitrust Hurdles

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

Pfizer, Inc.’s proposed $68 billion acquisition of Wyeth was conditionally approved by the Federal Trade Commission (FTC) today. The agency signed off on the combination of the pharmaceutical giants, subject to divestitures aimed at preserving competition in multiple U.S. markets for animal pharmaceuticals and vaccines.

The FTC alleged that, if the acquisition were to proceed as proposed, it could have had anticompetitive effects in 21 U.S. markets for vaccines, antibiotics, and other treatments for animals. It was determined, however, that the transaction did not raise anticompetitive concerns in the markets for human pharmaceuticals.

In announcing the complaint and proposed consent order, the FTC took the somewhat unusual step of issuing a separate statement. Commission statements are more commonly issued when the agency seeks to explain a decision not to take an action or when there are dissenting views. In this matter, there were no dissents. Only two commissioners approved the proposed settlement, with Commissioners Pamela Jones Harbour and William E. Kovacic recused.

The statement was issued by the Commission to explain [the] decision, provide greater visibility into this important investigation, and, in the event that there are future such transactions, describe the framework . . . used in [the] analysis.”

The Commission’s statement noted that the transaction involved the combination of the largest prescription pharmaceutical company in both the United States and the world (Pfizer) and the twelfth-largest prescription pharmaceutical company in the United States (Wyeth). It explained the agency’s investigation into the competitive effects analysis of the acquisition with respect to markets for human pharmaceuticals, including Alzheimer’s disease treatments.

While it was determined that the merger was not likely to substantially reduce competition or potential competition in any relevant human health market in which Pfizer and Wyeth might compete, the Commission expressed its intention to monitor the markets and continue to evaluate future transactions “to ensure that any merger or acquisition does not undermine the pharmaceutical industry’s competitiveness.”

International Approvals

Canada’s Competition Bureau also approved the transaction today, subject to the divestiture of a significant number of animal health products. The U.S. and Canadian approvals are the last significant antitrust hurdles for the acquisition. Today’s settlements follow clearances from competition authorities in Europe in July, and more recently in China and Australia in September. Approval in each of these jurisdictions was also conditioned on the divestment of certain animal health assets. The FTC’s announcement noted that the U.S. agency’s cooperation with its foreign counterparts.

Details of the complaint and proposed consent order, In the Matter of Pfizer
Inc. and Wyeth, FTC Dkt. C-4267, appear on the FTC website and will appear at CCH Trade Regulation Reporter ¶16,376.

The statement of the Canada Competition Bureau appears on the Competition Bureau's website.

U.S. Supreme Court Orders Another Look at Drug Ad Case

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In a suit asserting that advertising of the prescription drug Nexium violated the consumer protection statutes of the 50 states, the U.S. Supreme Court has vacated a lower court’s decision that the state law claims were federally preempted.

In August 2007, the U.S. Court of Appeals in Philadelphia held that the state law claims were preempted by the federal Food, Drug, and Cosmetic Act and regulations of the Food and Drug Administration (Pennsylvania Employees Benefit Trust Fund v. Zeneca, Inc., CCH Advertising Law Guide ¶62,622; CCH State Unfair Trade Practices Law ¶31,463).

According to a class action complaint, drug manufacturer Zeneca misleadingly advertised Nexium as superior to Prilosec (another Zeneca drug) for treating gastroesophageal reflux disease. The patent for Prilosec was due to expire in 2001.

The appellate court took the position that allowing generalized state consumer fraud laws to dictate the parameters of false and misleading advertising in the prescription drug context would pose an undue obstacle to both Congress's and the FDA's objectives in protecting the nation's prescription drug users.

The Supreme Court remanded the case to the appellate court for further consideration in light of the Court’s March 4, 2009 decision in Wyeth v. Levine, No. 06-1249. In Wyeth, the Court upheld a jury verdict of liability against a pharmaceutical manufacturer (Wyeth) in a case based on Vermont common law claims of negligence and strict liability for failure to warn of the dangers of injecting an anti-nausea drug directly into a patient’s vein.

Federal Preemption

In rejecting Wyeth’s contention of federal preemption, the Court observed that if Congress thought state law suits posed an obstacle to its objectives, it surely would have enacted an express preemption provision for prescription drugs at some point during the Food, Drug, and Cosmetic Act’s 70-year history. But despite the 1976 enactment of an express pre-emption provision for medical devices, Congress has not enacted such a provision for prescription drugs. Its silence on the issue, coupled with its certain awareness of the prevalence of state tort litigation, was viewed by the Court as powerful evidence that Congress did not intend FDA oversight to be the exclusive means of ensuring drug safety and effectiveness.

What effect, if any, the Wyeth decision will have upon the preemption issue in the Nexium case must now be determined by the U.S. Court of Appeals in Philadelphia.

Further details on the Court’s March 9 summary decision vacating and remanding Pennsylvania Employees Benefit Trust Fund v. Zeneca, Inc., No. 07-822, will be reported in CCH Advertising Law Guide and CCH State Unfair Trade Practices Law. The March 9 order list appears here.