FTC Promotes Competition in Health Care, High Tech, Energy Markets, Chairman Testifies

This posting was written by John W. Arden.

In testimony before a House subcommittee yesterday, Federal Trade Commission Chairman Jon Leibowitz highlighted the agency’s recent efforts to promote competition and benefit consumers in the pharmaceutical, hospital, high tech, and energy markets.

“As members of this Subcommittee well know, competitive markets are the foundation of our economy, and effective antitrust enforcement is essential for those markets to function well,” Leibowitz told the House Judiciary Subcommittee on Intellectual Property, Competition, and the Internet.

“Vigorous competition promotes economic growth by keeping prices down, expanding output and the variety of choices available to consumers, and promoting innovation.”

Pay-for-Delay Agreements

In the health care industry, the FTC has focused on ending anti-competitive "pay-for-delay" pharmaceutical agreements, blocking anticompetitive mergers, and developing policy guidance regarding new health-care collaborations, said Leibowitz.

One of the Commission’s top competition priorities has been ending anticompetitive "pay-for-delay" agreements—settlements of patent litigation in which a branded drug manufacturer pays a generic drug manufacturer to keep its product off the market for a time. “Settlements like these enable branded manufacturers to buy more protection from competition than the assertion of their patent rights alone would provide.”

For the last 15 years, the agency has taken the position that these pay-for-delay agreements violate the antitrust laws. Some courts have upheld these agreements, causing them to become commonplace.

Health Care Mergers

This year the FTC has brought several merger enforcement actions in the health care markets of hospitals, dialysis centers, pharmaceutical manufacturers, and pharmacies, said Leibowitz. The Commission also continues to review mergers between pharmaceutical manufacturers and is investigating a merger involving pharmacy benefits managers.

“With the costs of prescription drugs increasing faster than other health care costs, the Commission is committed to preventing pharmaceutical and related mergers that may allow companies to exercise market power by raising prices,” the chairman noted.

Technology Industries

The Commission has ongoing investigations into potentially anticompetitive conduct by dominant firms in high-profile, high-tech industries. In 2009, a Commission action against Intel Corporation alleged that the computer chip giant used exclusive dealing agreements that punished companies wanting to utilize or distribute competing products. This blocked competitors from reaching consumers with their products and unlawfully
maintained Intel’s monopoly, he said.

Another probe of the high-tech industry—involving the Google-AdMob merger—culminated in a Commission decision not to file a case. “Taking account of Apple’s anticipated entry into the market, the Commission determined that future competition in mobile advertising was not likely to be harmed by the merger.”

Energy Markets

In view of the importance of gasoline pricing to consumers and businesses, the FTC is conducting an investigation of petroleum industry practices and pricing. Among the issues under investigation are whether producers, refiners, transporters, marketers, or traders have:

(1) Engaged in practices that has lessened or may lessen competition in the production, refining. Transportation, distribution, or wholesale supply of crude oil or petroleum products or

(2) Provided false or misleading information about the wholesale price of crude oil or petroleum products to a federal department or agency.

The Commission monitors daily retail and wholesale prices of gasoline and diesel fuel in 20 wholesale regions and approximately 360 retail areas across the country.

Chairman Leibowitz also summarized the agency’s international initiatives and consumer protection enforcement actions, including those focused on Internet fraud and privacy.

Text of the Chairman’s prepared statement appears here on the FTC website.

Antitrust Agencies Defend Health Care Enforcement Efforts at Congressional Hearing

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

The FTC and Department of Justice were called upon to defend their records of antitrust enforcement in the health care industry by House Judiciary Committee Chair John Conyers (D, Mich.) at a hearing held yesterday by the Judiciary Committee’s Subcommittee on Courts and Competition Policy.

The hearing considered the role of antitrust in light of the health care reform effort. Conyers expressed concern that the enforcers were not following through with President Obama’s plan to reinvigorate antitrust enforcement in the health care area.

“Pay-for-Delay” Drug Patent Settlements

FTC Bureau of Competition Director Richard A. Feinstein delivered the FTC testimony. Chief among the anticompetitive tactics targeted by the FTC are “pay-for-delay” drug patent settlements, in which a branded drug company compensates a generic competitor for not bringing its lower-cost drug to market for a certain period of time, according to the agency’s testimony.

Agency challenges to mergers involving hospitals, drug manufacturers, and medical device makers were also discussed.

“The FTC has an important role to play: by protecting and promoting competition we can help to lower costs and improve quality,” Feinstein said. “Years of experience have shown us that continued effective antitrust enforcement is a necessary component of any plan to improve health care.”

The FTC testimony is available here at the FTC website.


Health Care Delivery, Insurance

Sharis A. Pozen, Chief of Staff and Counsel to the Assistant Attorney General in charge of the Department of Justice Antitrust Division, delivered a statement on behalf of the Antitrust Division. Pozen’s remarks focused on two areas:

(1) The importance of encouraging innovation and efficiency in health care delivery and the ways in which coordination and integration among health care providers can help achieve these goals while still preserving competitive markets; and

(2) The importance of measured, responsible antitrust enforcement in preserving open and vigorous competition in health insurance markets.

The Justice Department’s civil antitrust lawsuit against Blue Cross Blue Shield of Michigan alleging that the insurer used its dominance to impose anti-competitive “Most Favored Nation” provisions in its agreements with Michigan hospitals was cited as an example of the agency’s “measured enforcement to prevent . . . anticompetitive behavior.”

With respect to merger enforcement, Pozen warned that the Justice Department “will carefully review mergers in the health insurance industry and will continue to challenge those mergers that are likely to substantially lessen competition.”

Text of the remarks is available here on the Department of Justice Antitrust Division’s web site.


Accountable Care Organizations

Conyers spoke about the perceived disparity in prosecutorial treatment between health care providers on the one hand and health insurers on the other. He questioned the continuing need for antitrust immunity for health insurance companies, while physicians fear antitrust attack for coordinated activity.

Pozen noted that Accountable Care Organizations or ACOs are a good example of how providers might work together to provide more efficient, high-quality care without inhibiting competition. The Affordable Care Act permits the formation of ACOs to enable competing physicians and other providers to coordinate care for Medicare beneficiaries in an effort to improve quality and lower costs.

Pozen said that the Justice Department was actively working with Health and Human Services and the FTC as the ACO regulator process evolves. She added that the Justice Department was committed to “providing efficient, quick review to any new business model that plans to deliver integrated care.”

A video webcast of the hearing is available here on the House Judiciary Committee’s website.

Trade Regulation Tidbits

This posting was written by John W. Arden.

News, updates, and observations:

 A recent article in The Economist magazine asks whether the Obama Administration will back up its “tough talk” on antitrust enforcement (“Return of the Trustbusters,” August 27 print edition). “Companies are likely to find themselves scrutinised at least as intensively as they were under the administration of Bill Clinton, when many senior antitrust officials in the justice department and Federal Trade Commission (FTC) cut their teeth on a celebrated anti-monopoly lawsuit against Microsoft.” While new antitrust chief Christine Varney believes that the Bush Administration’s lax antitrust enforcement contributed directly to the economic crisis, that view is “debatable, to say the least,” according to the article. The Bush Administration did pursue cartel activity enthusiastically, obtaining record convictions, jail sentences, and fines, the story contends. Varney’s efforts to ramp up enforcement will face several obstacles, including the U.S. Supreme Court (which has issued several decisions narrowing trustbusters’ room to maneuver) and the “possible disagreement within Mr. Obama’s cabinet.” Given the “wretched state of the economy,” some administration officials are questioning whether to “risk upsetting the few bits that are growing strongly with gratuitous antitrust cases.” Text of the article appears here.

 On August 17, the American Antitrust Institute filed an amicus brief, urging the U. S. Court of Appeals in New Orleans to adopt a presumption of illegality for resale price maintenance agreements and to overturn the lower court's dismissal of the amended complaint filed in PSKS, Inc. v. Leegin Creative Leather Products, Inc. The brief, which appears here, also argues that the lower court erred in requiring the plaintiff to meet a strict test of market definition. In 2007, the Supreme Court reversed the Court of Appeals’ decision (PSKS, Inc. v. Leegin Creative Leather Products, Inc., 2006-1 Trade Cases ¶75,166), applying the per se rule to uphold an award of $3,975,000 to a retailer that was terminated by its manufacturer for discounting. The high court declared that vertical price restraints are no longer per se illegal, but instead should be evaluated under the rule of reason standard (2007-1 CCH Trade Cases ¶ 75,753).

 Maine’s new privacy law—which prohibits the collection of personal information for marketing purposes from a minor without parental consent and bans “predatory marketing” to minors—is being challenged in a lawsuit brought by media and online companies, including AOL, eBay, and Yahoo. The lawsuit, filed August 26 in the federal district court in Maine, claims that the law violates the First Amendment rights of adults, as well as minors and online operators. The Maine statute (“An Act to Prevent Predatory Marketing Practices Against Minors,” Public Law 230) was signed by the Governor on June 2, 2009, and will take effect on September 12, 2009. Text of the law appears here on the Maine State Legislature’s website. Further details about the law appear in an August 12, 2009 posting on Trade Regulation Talk.

Varney Discusses Antitrust Enforcement in Distressed Economy

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter, and John W. Arden.

Antitrust chief Christine A. Varney made headlines last week when she announced, in a May 11 speech, the withdrawal of the Antitrust Division’s controversial report on single firm conduct. (See Trade Regulation Talk, May 11, 2009).

However, Varney’s comments on other significant issues—from the role of antitrust enforcement in a distressed economy to the Antitrust Division’s enforcement agenda—were not widely reported.

In a speech to the Center for American Progress, the Assistant Attorney General suggested that “a combination of factors, including ineffective government regulation, ill-considered deregulatory measures, and inadequate antitrust oversight contributed to the current conditions.” In light of the state of the economy, antitrust enforcers can no longer “sit on the sidelines.”

Prior Economic Crises

Varney noted that the federal government’s response to the Great Depression was to pass legislation, such as the National Industrial Recovery Act, that effectively foreclosed competition by setting industry prices and wages, establishing production quotas, and imposing restrictions on entry.

“Competition was relegated to the sidelines, as the welfare of firms took priority over the welfare of consumers,” she said. “It is not surprising that the industrial codes resulted in restricted output, higher prices, and reduced consumer purchasing power.”

By 1937, the Roosevelt Administration got back in the game of antitrust enforcement on a nationwide scale. This newly vigorous enforcement became a cornerstone of the New Deal’s economic agenda.

Lessons Learned

“The lessons learned from this historical example are twofold,” she said. “First, there is no adequate substitute for a competitive market, particularly during times of economic distress. Second, vigorous antitrust enforcement must play a significant role in the Government’s response to economic crises to ensure that markets remain competitive.”

In recent years, firms have been given “room to run with the idea that markets self-police and that enforcement authorities should wait for the markets to self-correct.” However, it is clear that this self-correction has not occurred, the official said. Instead, markets are distorted, firms fail, and American consumers are failing with them.

“I believe that these extreme conditions require a recalibration of economic and legal analysis and theories, and a clearer plan for action,” Varney stated.

Section 2 Enforcement

Varney spoke of her intention to aggressively pursue enforcement of Section 2 of the Sherman Act and explained the reasons for withdrawing the 2008 report, entitled “Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act.”

“In my view, the greatest weakness of the Section 2 Report is that it raises many hurdles to Government antitrust enforcement,” she said. It raises the concern that the enforcers and courts may fail to distinguish between anticompetitive acts and lawful conduct and their actions may lead to “overdeterrence” of potentially procompetitive conduct, she observed.

“I do not share these concerns. I strongly believe that antitrust enforcers are able to separate the wheat from the chaff in identifying exclusionary and predatory acts. As Judge Posner explained, ‘antitrust doctrine is supple enough to take in stride the competitive issues presented by the new economy.’”

She also noted that the report went too far in evaluating the importance of preserving possible efficiencies and underestimated the importance of redressing exclusionary and predatory acts that harm competition, distort markets, and increase barriers to entry.

Rather than any specific test to govern Section 2 analysis, Varney recommended that the Antitrust Division go “back to basics” in evaluating single-firm conduct within the fundamental principles of antitrust enforcement.

Section 1 Cases

Varney added that “continued criminal and civil enforcement under Section 1 of the Sherman Act will also be an important part of the Antitrust Division’s response to the distressed economy.”

“With the higher levels of concentration and economic instability, markets are increasingly vulnerable to collusion and other fraudulent activity,” the Assistant Attorney General said.

On the civil front, the new antitrust chief will emphasize both merger and non-merger investigations and explore vertical theories in other new areas, such as those arising in high-tech and Internet-based markets.

Besides enforcing antitrust laws, the Division will be asked to contribute expertise to the Obama Administration’s broad reforms over numerous industries. “Indeed part of our efforts will be to foster inter-agency discussions regarding competition-related issues posed by existing and proposed regulations and policies, and to play an active role in competition advocacy.”

Text of the speech (“Vigorous Antitrust Enforcement in This Challenging Era”) appears at CCH Trade Regulation Reporter ¶50,242 and here on the Department of Justice Antitrust Division website.

Nominee Varney Describes Focus as Antitrust Chief

This posting was written by John W. Arden.

In a statement delivered in a confirmation hearing before the Senate Judiciary Committee on March 10, Christine Varney, nominee as Assistant Attorney General in charge of the Antitrust Division, described her focus and qualifications for the job.

“Strong antitrust enforcement and respect for our competition statutes are the primary safeguards of our distinctive free enterprise system,” said Varney, a Washington lawyer who served as Federal Trade Commissioner during the Clinton Administration. She set out three main areas on which she would focus if confirmed.

Areas of Focus

“First, we must rebalance legal and economic theories in antitrust analysis and enforcement,” she said. “The Antitrust Division can provide strong intellectual leadership in competition policy by advancing our collective understanding of competitive behavior and adapting our thinking to reflect our ever evolving markets.”

“Second, we need renewed collaboration between the Antitrust Division and the FTC, whose policies and processes have unfortunately diverged too frequently in recent years,” Varney observed. Such divergence and conflicts lead to uncertainty for consumers, businesses, and overseas antitrust enforcers.

“Third, we must continue our cooperation with worldwide antitrust authorities, discussing our differences with international enforcers respectfully and engaging with emerging antitrust regimes, such as China and India as they implement new antitrust laws.”

Antitrust Enforcement During Economic Crisis

Varney addressed the question of whether antitrust enforcement should be pursued in the current economic crisis. “I believe it is important to remember that robust antitrust enforcement is essential for the free market to function properly,” she said.

“In these tough economic times, more than ever, it is important to remember that clear and consistent antitrust enforcement—protecting competition and thus consumers while being conscious of the need for economic stability—is essential to a growing and healthy free market economy.”

The nominee expressed confidence that she is “well equipped” to meet the challenges of the position of chief antitrust enforcer. “I will approach the challenged we face from my unique vantage point as a former FTC Commissioner, which I believe will help me to bridge the gap that exists between the antitrust agencies on several crucial substantive and procedural issues.”

Varney’s written testimony appears here.

Merger Enforcement

The statement was followed by questions from the members of the Judiciary Committee, according to a posting to an ABA antitrust listserv by David Balto. Senator Herb Kohl (D-Wis.) asked Varney for her assessment of the "sharp cutback" in merger enforcement and enforcement against dominant firms during the Bush Administration. The nominee decline to discuss particular cases, but said she would enforce the law vigorously and stop horizontal mergers that cuase competitive harm.

Resale Price Maintenance

When asked about her view of the Supreme Court's decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., Varney said she was surprised by the decision but believed that the law allowed the Department of Justice room to prosecute resale price maintenance. If not, she might support further legislation on the issue.

DOJ Monopoly Report

Senator Russ Feingold (D-Wis.) asked if Varney would review and potentially repudiate the Department of Justice's September 2008 report on single firm monopoly conduct ("Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act”). The nominee responded that she would review the report and that she felt that the conclusions the report drew were not appropriate. She said she would work with te Division staff and the FTC to determine if the report should be revised or some other action taken.