Competition Matters Blog Posts

Antitrust by association(s)

Thu, 01 May 2014 12:34:44 +0000

Antitrust by association(s) cwarner May 1, 2014 | 8:34AM

Antitrust by association(s)

Geoffrey Green, Bureau of Competition

Antitrust enforcers have always been concerned about the potential for harm arising from the activities of trade groups made up of competitors. From its earliest days, the FTC has examined the conduct of trade associations. For example, here’s a passage from the FTC’s first annual report circa 1916:

One of the most important questions of trade policy at the present time relates to the practice of trade associations. Their activities are of a varied character, and many of them are of great benefit not only to the branch of trade concerned therein, but also to the public. Nevertheless, their activities have sometimes involved them in practices which have been condemned by the courts as violations of the antitrust laws.

In one of its very first decisions, FTC v. Association of Flag Manufacturers of America, 1 FTC 55 (1918), the newly-formed FTC ordered a voluntary association of flag manufacturers to stop engaging in concerted efforts to raise the prices of American flags sold in the U.S. Once the collusive scheme was exposed and halted by the FTC, the trade association dissolved, having had no purpose other than coordinating prices among its members.

It is a fundamental principle of antitrust law that competitors – whether businesses or individuals – cannot join together to limit the way that they offer products or services to potential customers, especially where there is no legitimate business purpose other than avoiding competition. Strictly speaking, competitors are expected to compete.

Today’s trade associations typically serve many legitimate purposes, and from an antitrust perspective, most trade association activities are procompetitive or benign. But sometimes, trade association rules, codes, or bylaws can cross the line into forbidden antitrust territory. When such conduct or rules regulate or restrict the activities of members, it pays to remember that they will be viewed by antitrust enforcers and courts as joint decision-making by otherwise independent competitors. Trade association conduct or rules that restrict competition in a way that harms consumers will continue to invite antitrust scrutiny.

Last month, the FTC made final two orders prohibiting unreasonable trade association rules. In one case, an association of legal support professionals not only banned comparative ads but also prevented members from offering discounted rates to another member’s clients or recruiting another member’s employees without giving prior notice. In the other case, the code of ethics of an association of music teachers prevented members from soliciting clients from a rival, in effect preventing members from offering services to students who were already taking lessons from another member.

In a statement released when the cases were announced, the Commission explained the harm created by these types of restrictive trade association rules:

Competing for customers, cutting prices, and recruiting employees are hallmarks of vigorous competition. Agreements among competitors not to engage in these activities injure consumers by increasing prices and reducing quality and choice. Absent a procompetitive justification, these types of restrictions on competition are precisely the kind of unreasonable restraints of trade that the Sherman Act was designed to combat.

Each association agreed to settle the FTC charges and to change its rules.

These cases serve as a reminder that the Commission, as it was a century ago, remains vigilant about trade association activity that restrains competition among the members without a legitimate business justification. If you are a member of a trade association or provide counsel to one, remember that there are no special antitrust rules for trade associations. Trade association rules, codes, or bylaws that seek to override the normal give-and-take among competing members may interfere with the competitive process and risk antitrust review. When in doubt, trade associations may apply for a staff advisory opinion regarding proposed rules that potentially raise antitrust concerns.

As the FTC celebrates its centennial year, it’s worth recalling old-time antitrust principles that still guide modern-day trade group collaboration. In future blog posts, we will address other aspects of trade association activity that have long been the subject of antitrust enforcement, such as group boycotts, advertising restrictions, information exchange, and exclusive membership benefits.

Reforming the Pre-Filing Process for Companies Considering Consolidation and a Change in the Treatment of Debt

Thu, 26 Aug 2021 18:06:40 +0000

Reforming the Pre-Filing Process for Companies Considering Consolidation and a Change in the Treatment of Debt jwolf August 26, 2021 | 2:06PM

Reforming the Pre-Filing Process for Companies Considering Consolidation and a Change in the Treatment of Debt

Holly Vedova, Bureau of Competition

As the FTC continues to experience a massive surge in planned merger deals, we are looking at every step of the merger filing process to identify ways to streamline and maximize our efficiency. Under the Hart-Scott-Rodino Act (“HSR” or the Act), companies are required to file notice of mergers over a certain size before they can close the deal. This is not an application process – it is for law enforcement purposes.

The HSR Act does not require companies to file notice with the FTC and DOJ for every deal ahead of time. It sets out a general framework for transactions that are covered and gives the FTC the authority to write rules, with the concurrence of the DOJ, to provide more specific guidance as to which deals qualify. The FTC is currently in the process of working with the DOJ to update its existing merger filing rules.

However, outside of the formal rules, agency staff also provide “informal interpretations” in response to questions from firms about whether specific types of transactions are covered. These interpretations are not reviewed or authorized by the Commission, and do not carry the force of law.

The Bureau is concerned that some of these informal interpretations may not reflect modern market realities or the policy position of the Commission. We are currently in the process of reviewing the voluminous log of informal interpretations to determine the best path forward. However, it is worth noting one initial example of where the informal interpretation program missed the mark.

Under the Hart-Scott-Rodino rules, parties generally need to file if the transaction is valued over a certain dollar-value threshold. However, previous informal interpretations gave the impression that companies could avoid filing by paying off a target company’s debt, instead of paying the company with cash.

It appears that some merging parties have responded by structuring deals in ways that they believe fall outside of the filing requirements. Target companies may be incentivized to take on debt just before an acquisition, so that the acquiring company can retire the debt as part of the deal. These deals then are not being reported to the FTC and the DOJ, which means that merging parties are effectively sidestepping the law and avoiding accountability.

Herein lies the problem of unintended consequences with informal interpretations. Despite the agency’s clearly stated assertion that informal interpretations are not a legal determination, companies appear to rely on them as a substitute or supplement for their own legal analysis. In practice, this means that informal interpretations regarding instances that companies may not have to file are being treated by merging parties as if they are legal exemptions.

That outcome is not aligned with either the statute or the agency’s stated instructions. It is the Commission’s responsibility, with the concurrence of the DOJ, to determine whether and when reporting exemptions are appropriate, through rules or formal interpretations of those rules. As a law enforcement agency, the FTC must be mindful of helping firms avoid accountability, even indirectly.

Effective September 27, 2021, the Bureau will begin to recommend enforcement action for companies that fail to file when retirement of debt is part of the consideration for the deal. The details of this change can be accessed via this link.

FTC launches first Web API to make Early Terminations more accessible

Mon, 25 Jun 2018 21:42:59 +0000

FTC launches first Web API to make Early Terminations more accessible rcuster June 25, 2018 | 5:42PM

FTC launches first Web API to make Early Terminations more accessible

Chris Noonan Sturm, Website Manager

An important aspect of the FTC’s Premerger Notification Program is the granting of early terminations. Any person filing an HSR form may request that the waiting period be terminated before the statutory waiting period expires, allowing the parties to consummate their deal. Such a request for “early termination” (ET) is granted only if both the FTC and Department of Justice Antitrust Division complete their review and determine not to take any enforcement action during the waiting period.

The FTC publishes an online notification of early terminations that have been granted, which is updated almost every weekday and consistently ranks among the most-viewed pages on FTC.gov.

To make this data even more accessible, we now also offer the Early Termination Notices via a Web API (Application Programming Interface) endpoint.

An API is a means of offering a dataset so web developers can query, gather, and manipulate the data via their own applications or systems. Federal government agencies are encouraged to take a machine-readable approach to providing information by making high-value data and content available through Web APIs, supporting open standards and interoperability. Providing this information through Web APIs makes data assets freely available for use within agencies, between agencies, in the private sector, and by citizens.

Purpose of the Early Termination Notices API Endpoint

The Early Termination Notices API endpoint enables developers to show real-time or historical ETs data on websites, mobile apps, or other computer programs. For example, a developer could choose to create a filterable search on an external website that would allow users of that site to manipulate the data in real time without requiring users to download a standalone CSV file containing the data. The API gives developers access to not just the most recent notices, but also historical notices going back to January, 1999.

Developers who wish to use the Early Termination Notices API endpoint can find the technical details on our site.

Compliance with FTC Goals and President’s Management Agenda

The creation of this Web API helps the FTC comply with laws and directives that require agencies to offer their data and content in machine readable formats. The launch of the FTC Web API and Early Termination Notices API endpoint aligns with the FTC’s goals as established in its 2016 Open Government Plan and with the FTC’s 2018-2022 Strategic Plan’s objective to provide consumers and businesses with knowledge and tools that provide guidance and prevent harm.

The launch of this API endpoint and the FTC’s ongoing efforts to robustly share data and content aligns with the President’s Management Agenda, released by the Office of Management and Budget in March 2018. Data, accountability and transparency is one of the agenda’s three drivers of government transformation (see page 17 of agenda PDF), providing tools to deliver results to the public and hold agencies accountable to taxpayers.

More About Early Termination Data

Early termination notices list the identifying number, date of early termination, acquiring person, acquired person, and any acquired entities. It’s important to note that not all filed transactions request or are granted ET.

In some instances, after an investigation involving a Request for Additional Information and Documentary Material (Second Request) has been issued, the investigating agency will determine that no further action is necessary and terminate the waiting period before full compliance with the Second Request is made. A grant of ET may also be made after the parties agree to a consent order with the investigating Agency, whether or not there was Second Request compliance.

The list of transactions that have been granted early termination is only a subset of the transactions filed each year. Generally, the fact that a filing has been made is confidential by statute. Only if one (or both) of the parties to the transaction has requested ET, and that request has been granted, will notice be made. If neither party requests early termination, or the request is not granted, the fact that a filing has been made will remain confidential.

Interested parties may also monitor the FTC’s Twitter feed to find out when new notices have been published. They are also available via an RSS feed.

Plans for Future FTC API endpoints

The work done to build this API lays the foundation for seizing more opportunities to produce machine-readable and accessible FTC content for the public and government agencies through the addition of more endpoints. Future API endpoints could involve sharing data related to Do Not Call or syndicating consumer and business education content to broaden its dissemination. We’re interested in hearing your ideas for future API endpoints to enable wider sharing of FTC data and information. Please [email protected]">email us.

More FTC Data on Data.gov

The FTC has also increased the number of datasets it provides to the public on Data.gov, the federal government’s open government portal, and has improved and standardized its pages on data.gov. Additional information on the FTC’s commitment to open government principles can be found on our Open Government page.

FTC releases agenda for Data To Go virtual workshop

Thu, 10 Sep 2020 16:12:13 +0000

FTC releases agenda for Data To Go virtual workshop [email protected] September 10, 2020 | 12:12PM

FTC releases agenda for Data To Go virtual workshop

Kate White, Bureau of Consumer Protection, and Andrea Zach, Bureau of Competition

“Take out” takes on a whole new meaning when it involves your data. Consumers and industry members are giving more thought to the issue of data portability – the ability of consumers to move data (such as emails, contacts, calendars, financial information, health information, favorites, friends, or content posted on social media) from one service to another or to their own files. That’s the topic of a September 22, 2020, virtual event, Data To Go: An FTC Workshop on Data Portability.

There’s one thing notable from the outset about the workshop. It’s a joint project of the FTC’s Bureau of Competition and Bureau of Consumer Protection. That makes sense, given that the issues surrounding data portability have implications both for competition and consumer protection.

The FTC isn’t alone in its interest in this issue. Both Europe’s General Data Protection Regulation (GDPR) and California’s Consumer Privacy Act (CCPA) provide consumers with data portability rights. Other regulators have adopted new policies requiring the transfer of certain kinds of information to consumers and to the businesses they choose to provide them services – for example, banks and health care providers. And major technology companies have created the Data Transfer Project with the goal of creating an open-source, service-to-service data portability platform.

Data portability offers obvious conveniences, but porting data comes with risks. The workshop will address questions such as the potential benefits to consumers and competition of data portability, the potential risks to consumer privacy and how those risks might be mitigated, how to best ensure the security of personal data that is being transmitted from one business to another, the merits and challenges of interoperability, and who should be responsible for ensuring interoperability.

Join us on September 22th for Data To Go, where FTC staff and guest speakers will explore the potential benefits and challenges to consumers and competition raised by data portability. Check out the recently released agenda to see the breadth of perspectives we’ll bring to this issue during our virtual event. Here’s a preview of what we have planned.

Andrew Smith, Director of the Bureau of Consumer Protection, will open the workshop at 8:30 AM Eastern Time.

Panel #1 will feature experts from around the globe who will discuss data portability initiatives, including GDPR and CCPA.

Panel #2 will explore case studies from the financial and health care sectors, including new health IT rules from the U.S. Office of the National Coordinator of Health Information Technology (ONC) and the UK’s Open Banking Initiative.

Panel #3 will discuss the benefits and risks of data portability, with an eye toward the twin aims of protecting consumers and promoting competition.

Panel #4 will consider the challenges of data security, privacy, standardization, and interoperability.

Ian Conner, Director of the Bureau of Competition, will offer closing remarks at 2:45 ET.

Data To Go, which is free and open to the public, will be webcast live. You don’t need to pre-register, and you can watch from the webcast link that will go live moments before the 8:30 ET start time on September 22nd. After the event, a video of the day’s discussions will be posted on the Data To Go page.

Leadership Changes in Mergers Divisions

Wed, 07 Oct 2020 14:31:20 +0000

Leadership Changes in Mergers Divisions sfelder October 7, 2020 | 10:31AM

Leadership Changes in Mergers Divisions

Ian R. Conner, Bureau of Competition

I am pleased to announce several leadership changes in the Bureau's Mergers I and Mergers IV Divisions.

Mark Seidman has been named as the Acting Assistant Director for the Mergers IV Division. Mark has served as Deputy Assistant Director for Mergers IV for the past six years. Prior to becoming Deputy Assistant Director, Mark served as Counsel to the Director under former Bureau Directors Debbie Feinstein and Rich Feinstein. Mark joined the Commission in 2005 as an attorney in the Mergers I Division, after graduating from George Washington Law School. During his time with the Commission, Mark also served on a detail to the U.S. Attorney's Office for the District of Columbia.

Steve Mohr has been named as Acting Deputy Assistant Director for the Mergers I Division. Steve previously served as a Counsel to the Director. Prior to joining the Front Office, Steve was an attorney in Mergers I where he was the co-lead trial counsel in the Bureau's successful challenge to Otto Bock's acquisition of Freedom. Steve received the Commission's Louis D. Brandeis Award in 2015, which recognizes outstanding litigators at the Commission.

Emily Bowne has been named as Acting Deputy Assistant Director for the Mergers IV Division. Emily previously served as a Counsel to the Director. Prior to joining the Front Office, Emily was an attorney in Mergers IV. She has served on trial teams for the Commission's successful challenges in Sanford/Mid Dakota and Advocate/NorthShore. Emily received the Commission's Stephen Nye Award in 2016, which recognizes an attorney whose overall work performance far exceeds what is usually expected of a relatively new legal practitioner.

The Bureau is fortunate to have a strong pool of talent at the Commission from which to choose our leadership. We are excited for the continued strong leadership in these Divisions.

FTC Milestone: A New Age Dawns for the FTC’s Competition Work

Fri, 20 Feb 2015 15:58:10 +0000

FTC Milestone: A New Age Dawns for the FTC’s Competition Work rcuster February 20, 2015 | 10:58AM

FTC Milestone: A New Age Dawns for the FTC’s Competition Work

Kelly Signs, Bureau of Competition

As anyone of a certain age can attest, the 1970’s were all about change. Hairstyles and hemlines were obvious signs, but in the world of antitrust, change came in the form of applying competition standards to the “learned professions,” and new thinking about the role of competition in helping contain health care costs.

Professionals as Competitors
Two Supreme Court decisions from the 1970’s fundamentally changed the application of competition policy to professional services: Goldfarb* v. Virginia State Bar, which swept away the learned professions exception to the antitrust laws, and National Society of Professional Engineers v. United States, which struck down the Society’s ban on competitive bidding. The latter case contained this sweeping directive from the Court:

The assumption that competition is the best method of allocating resources in a free market recognizes that all elements of a bargain—quality, service, safety, and durability—and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers. Even assuming occasional exceptions to the presumed consequences of competition, the statutory policy [contained in the Sherman Act] precludes inquiry into the question whether competition is good or bad. (435 U.S. 679, 695 (1978)).

In keeping with the times, the FTC also turned its attention to restrictions on competition adopted by professional associations, including the country’s largest professional group, the American Medical Association. In December 1975, the Commission filed an administrative complaint against the AMA, charging that the association’s “Principles of Medical Ethics” unreasonably restrained trade by banning advertising and solicitation, among other things. Although the contested provisions did not directly set prices among the members, the FTC found that “ethical principles of the medical profession have prevented doctors and medical organizations from disseminating information on the prices and services they offer, severely inhibiting competition among health care providers.” 94 F.T.C. at 1005-06.

For instance, based on the extensive record developed in the administrative trial, the Commission found that the AMA’s ban on advertising prevented doctors from providing the public with truthful information about the price, quality, or other aspects of their service (such as office hours, acceptance of Medicare assignment or credit cards, or house-call services). The Commission noted that a ban on truthful advertising especially disadvantaged HMOs, an emerging health care plan format that needed to advertise precisely because they were unfamiliar to consumers. While acknowledging that self-regulation designed to prevent false or deceptive advertising is generally procompetitive, the Commission rejected the AMA’s argument “that the best way to interdict false and deceptive advertising and overreaching by physicians is to proscribe practically the full spectrum of advertising and solicitation activities.”

The Second Circuit affirmed the Commission’s final order with minor modifications, 638 F.2d 443. By the time the case reached the Supreme Court, AMA had abandoned any claim that its conduct was lawful. The only issues it contested were jurisdictional issues and the Court’s 4-4 vote meant those rulings would stand. 455 U.S. 676 (1982)

By the early 1980’s, when the Supreme Court ruled in Arizona v. Maricopa County Medical Society that an agreement among physicians to set maximum prices charged to policyholders was a per se violation of the Sherman Act, antitrust law had come to view professionals much like any other competitor. In the decades to come, the Commission would apply competition principles to challenge other horizontal restraints that were likely to harm consumers by restricting competition among professionals. By some estimates, well over one hundred FTC cases can trace their origin to the AMA case.

Building a Foundation by Digging into Data
While FTC competition lawyers prepared the case against the AMA, staff elsewhere at the Commission embarked on an ambitious research agenda, conducting industry-wide studies and issuing public reports on health care competition policy. These reports analyzed the disadvantages of certain regulations and advocated for market-based solutions designed to infuse more competition into health care markets as one means to reduce health care price “inflation.”

In particular, FTC staff closely examined the effect of regulatory restrictions on competition. In one ground-breaking study, the Bureau of Economics compared not only relative prices but also relative quality of optometric services across differing regulatory environments. This 1980 Report countered arguments that advertising forced professionals not only to lower prices but also to degrade service in order to meet competition. Based on various measures of quality developed jointly with national eye care professional organizations (thoroughness of the exam; accuracy of the prescription, and workmanship of the glasses), FTC staff found compelling evidence that regulations restricting truthful, non-deceptive advertising did not enhance service quality. Rather, the study found that prices were lower in cities where some optometrists advertise, but that the quality was about the same as compared to cities that did not allow advertising.

Meanwhile, staff in the Bureau of Consumer Protection examined the effects of state laws barring pharmacists from advertising the prices of prescription drugs. In 1975, BCP issued a report on Prescription Drug Price Disclosure, which was cited by the Supreme Court in striking down such laws under the First Amendment. See Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748, 754 n.11, 765 n. 20 (1976). Another BCP study examined the effects of state “anti-substitution” laws, which prevented pharmacists from dispensing a lower-cost generic drug unless the physician specifically prescribed the drug by its non-proprietary name. Staff Report to the Federal Trade Commission on Drug Product Selection (1979). FTC staff worked with the FDA to draft a model state law to assist states in reforming their regulations to encourage competition and facilitate consumer access to lower cost generic drugs.

Add to the list of notable FTC developments of the 1970’s: the birth of the Bureau of Competition’s Health Care Division. This group of lawyers and investigators has been responsible for much of the FTC’s competition work in health care over the past four decades—from stopping group boycotts by providers and issuing industry guidance on health care collaborations to litigating pay-for-delay cases.

Unlike bellbottom jeans and shag haircuts, the FTC’s health care initiatives during the 1970’s were no fad .The Commission’s litigation and research efforts during this decade laid a strong foundation for analyzing competition and consumer protection issues in health care markets in the decades to come. Today, the Commission continues to promote competition in health care markets, prevent false and deceptive health claims, and ensure consumers have good information to make choices about health care products and services.

*Lewis Goldfarb was an attorney in the FTC’s Bureau of Consumer Protection when he and his wife sought bids for a title examination that under Virginia law could only be performed by an attorney. When all the bids came back at the minimum fee suggested by the Fairfax County Bar Association, the Goldfarbs brought this antitrust suit, claiming the minimum fee schedule constituted illegal price fixing.

For further reading

Carl F. Ameringer, The Health Care Revolution: From Medical Monopoly to Market Competition, University of California Press (2008).

Everything Old is New Again: Health Care Competition in the 21^st Century, speech by former Chairman Timothy J. Muris, November 7, 2002

Thoughts on ‘Leveling the Playing Field’ in Health Care Markets, speech by former Chairman Robert Pitofsky, February 13, 1997

Making the Second Request Process Both More Streamlined and More Rigorous During this Unprecedented Merger Wave

Tue, 28 Sep 2021 12:08:08 +0000

Making the Second Request Process Both More Streamlined and More Rigorous During this Unprecedented Merger Wave jwolf September 28, 2021 | 8:08AM

Making the Second Request Process Both More Streamlined and More Rigorous During this Unprecedented Merger Wave

Holly Vedova, Bureau of Competition

Given the recent surge in merger filings and the Commission’s obligation to protect Americans from illegal transactions, the Bureau of Competition is instituting new process reforms to best use its limited resources. These reforms build on other enhancements the Bureau announced in an August blog post.

The Hart-Scott-Rodino (HSR) Act requires that companies provide the FTC and Department of Justice with advance notice of certain transactions above a certain threshold, to provide the agencies 30 days to pursue an initial investigation and to determine whether additional information is needed to assess the legality of the transaction. If the FTC or DOJ seeks additional information through what is known as a “second request,” the law forbids merging firms from consummating a transaction until the companies have substantially complied with the additional investigatory request. When the FTC issues a second request, FTC staff typically engage in negotiations (sometimes quite extensive) with merging companies to tailor the scope of search to meet the specific needs of our investigation, and to consider modifications requested by the companies under investigation.

Mergers and acquisitions have hit an all-time high. Mergers filed with the antitrust agencies have doubled from 2010 to 2020 to nearly 2,000 deals a year. In the first eight months of 2021 alone, 2,436 acquisitions have already been filed with the agencies, meaning that right now these eight months have already seen many more filings than most other years. Based on the trend in these numbers, we project that we may hit 3,500 merger filings before the end of the year. There is no question now that this is going to be a record-setting year. This merger wave – which includes anticompetitive transactions that should have never been contemplated – has taxed federal antitrust agencies. Between 2010 and 2016, FTC and DOJ funding stagnated in nominal terms, and, in real terms, effectively declined. In 2017 and 2018, the FTC’s full-time employee headcount declined, and it remains roughly two-thirds of what it was 40 years ago. And, since the 1990’s, the scope of investigation and litigation discovery has expanded exponentially, with voluminous electronic submissions demanding substantial staff resources.

At the same time, evidence is mounting that this resource strain is complicating the agencies’ effort to challenge all anticompetitive deals. Researchers are seeing concerning evidence of anticompetitive transactions that either were not challenged by the antitrust agencies or that were resolved through remedies that failed. President Biden’s Executive Order on Competition also recently noted that “decades of industry consolidation have often led to excessive market concentration,” which has contributed to a host of downstream harms. It is therefore incumbent on us as enforcers to streamline our processes in ways that better enable us to scrutinize, detect, and challenge illegal deals.

Given all these factors, the FTC will be making several changes to how we investigate mergers and acquisitions, as well as assessing our second requests and improving our second request negotiations.

First, we are seeking to ensure our merger reviews are more comprehensive and analytically rigorous. Cognizant of how an unduly narrow approach to merger review may have created blind spots and enabled unlawful consolidation, we are examining a set of factors that may help us determine whether a proposed transaction would violate the antitrust laws. Providing heightened scrutiny to a broader range of relevant market realities is core to fulfilling our statutory obligations under the law. To better identify and challenge the deals that will illegally harm competition, our second requests may factor in additional facets of market competition that may be impacted. These factors may include, for example, how a proposed merger will affect labor markets, the cross-market effects of a transaction, and how the involvement of investment firms may affect market incentives to compete.

Second, staff will only consider requests for modifications after the companies under investigation have provided certain foundational information. Companies under investigation must first identify and describe the business responsibilities of employees and agents responsible for relevant lines of business, as well as those employees responsible for negotiating, analyzing, or recommending the transaction. Companies must also provide basic information about how they maintain data that is responsive to specifications in the second request. These changes should allow FTC staff to quickly focus on possible production challenges for both documents and data. To engage in productive compliance discussions, companies will need to be forthcoming with this base-level information.

Third, the FTC’s second requests will now require each company under investigation to provide information about how it intends to use e-discovery tools before it applies those tools to identify responsive materials. Complete and accurate information is critical in any investigation and there are substantial benefits to ensuring up front that e-discovery processes will identify required information. In addition, this change will more closely align the FTC’s model second request with that of the Department of Justice.

Fourth, the Bureau is aligning its practice with respect to privilege logs more closely with the Department of Justice’s practice. A privilege log is a chart providing basic information about documents or groups of documents that are being withheld as attorney-client privilege, providing information such as the author and the reason the document is privileged. Information provided in privilege logs is an important component in many investigations and review of full privilege logs can help to ensure that relevant information is withheld only on a well-grounded claim of legal privilege. Consequently, the Bureau is discontinuing the option to submit a “partial privilege log” that companies under investigation have submitted pursuant to previous guidance. Such partial submissions make it impossible to review the assertions of privilege that targets are making. Nevertheless, staff will remain open to modifications in appropriate circumstances.

Finally, the Commission has adopted a new internal practice to ensure that second requests and other requests for information are securely accessible to all Commissioners and relevant agency offices. Until now, second requests were generally not accessible to other Commissioners and were provided only at the Chair’s discretion and direction. Recognizing the need to maintain the confidentiality of these documents, the agency scoped out a process for sharing second requests within an existing and secure infrastructure. Moving forward, it is now official FTC policy that Bureau staff will provide the full Commission with access to second requests and voluntary access letters by uploading them into a secure system.

As we review our practices, we anticipate revising the Model Second Request that is posted on our website to reflect these and other changes in the near future. We will continue to assess ways in which second request compliance processes could be updated and improved, as always with the objective of balancing legitimate concerns about burden against the FTC’s need to fulfill its statutory obligations.

Joining the issues on the high road

Mon, 13 May 2019 16:40:24 +0000

Joining the issues on the high road rcuster May 13, 2019 | 12:40PM

Joining the issues on the high road

Bruce Hoffman and Heather M. Johnson, Bureau of Competition

The great majority of attorneys appearing before the Commission share a sense of practicing at the height of our profession. They engage with Commission staff on pressing issues of fact, antitrust law and economic theory in matters of great importance to consumers and our economy. For a few, however, there may be perceived opportunities to seek an advantage in the debate through misrepresentation of key facts. For those few, we want to remind practitioners that attorneys appearing in an investigation or administrative proceeding owe a duty of candor and professionalism to the Commission and its staff. The Commission’s Rules require no less, and provide for public reprimands, sanctions, and even disbarment from Commission practice for attorneys who fail to uphold the high standards our profession requires.

Commission Rule 4.1(e) outlines certain scenarios in which an attorney can be reprimanded, suspended, or disbarred from practicing before the Commission. Under Commission Rule 4.1(e)(1)(i)(C), “obstructionist, contemptuous, or unprofessional conduct during the course of any Commission proceeding or investigation” will not be tolerated. The Commission added this language to its Rules in 2012, consistent with similar provisions adopted by other federal agencies, to clarify that obstreperous behavior could warrant and result in serious consequences.

Likewise, under Commission Rule 4.1(e)(1)(i)(D), the Commission may reprimand, suspend, or disbar from practice before the Commission any attorney who has “knowingly or recklessly given false or misleading information, or has knowingly or recklessly participated in the giving of false information to the Commission or any officer or employee of the Commission.” The Rule further clarifies that “knowingly giving false or misleading information includes knowingly omitting material facts necessary to make any oral or written statements not misleading in light of the circumstances under which they were made.” Rule 4.1(e) applies to all matters pending before the Commission, at all stages of a matter, whether in Part 2 or Part 3.

While this behavior is the exception rather than the rule, we have seen circumstances where internal documents expressly contradict representations made by counsel and clients during investigations. We understand that this could happen for innocent reasons – for example, counsel (or even senior business people at clients) may simply be unaware of particular documents – but there have been cases where the innocent explanation seemed implausible. In such cases, whether involving deliberate misconduct or recklessness, we will consider taking action.

It should not be necessary to point out that misstatements are rarely, if ever, effective. We are able to verify most key facts from the many different sources of information available to us. As a result, misrepresentations rarely persuade. Further, they can undermine counsel’s or a party’s arguments in not only the pending matter, but in subsequent appearances at the Commission. Misstatements also can delay resolution of a matter as they may trigger second-guessing of other representations. They may place additional burdens on third parties where the FTC either needs to go back and reconfirm information, or seek new information as a result of a misrepresentation.

The legal profession thrives on integrity. The ABA Model Rules recognize that while there is no duty to inform an opposing party of relevant facts, “a lawyer is required to be truthful when dealing with others on a client’s behalf … Misrepresentations can also occur by partially true but misleading statements or omissions that are the equivalent of affirmative false statements.”

We welcome zealous representation of clients. We expect that counsel practicing before the Commission will “play hard” on behalf of their clients. But Commission rules require fair play, so that Commission decisions are made on the basis of sound evidence. It is better to acknowledge and address difficult facts, or to concede that your information may not be perfect, than to conceal or misrepresent the facts or overstate your knowledge.

MMA Reports: No tricks or treats—just facts

Tue, 27 Oct 2020 21:15:33 +0000

MMA Reports: No tricks or treats—just facts [email protected] October 27, 2020 | 5:15PM

MMA Reports: No tricks or treats—just facts

Brad Albert, Armine Black, and Jamie Towey, Bureau of Competition

With the passage of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Congress required pharmaceutical companies to file certain patent settlement agreements with the FTC. Given the FTC’s unique role in reviewing these submissions, going back to 2004, staff of the Bureau of Competition publishes fiscal year MMA reports on the types of terms used in these settlements. These reports, and the data they contain about filing numbers and trends, have been cited by courts, policymakers, and academics. But questions have come up about how to interpret the reports. This blog post highlights three facts about the MMA reports to address divergent interpretations.

The Origin of MMA Reports

Congress enacted the MMA filing requirements in 2003 to address an emerging trend of brand companies paying generic patent challengers large sums in patent settlements (also referred to as reverse payments). Since 2018, the MMA also requires pharmaceutical companies to file certain agreements involving biologics and biosimilars.

The MMA promotes FTC antitrust enforcement by providing the agency with a means to identify reverse-payment agreements that may raise antitrust concerns. In 2013, the Supreme Court confirmed that patent settlements are subject to antitrust scrutiny and that some agreements may violate the antitrust laws. See FTC v. Actavis, Inc., 570 U.S. 136 (2013). The Court distinguished settlements that “allow[] the generic manufacturer to enter the patentee’s market prior to the patent’s expiration, without the patentee paying the challenger to stay out prior to that point” from settlements that “induce the generic challenger to abandon its claim with a share of [the patentee’s] monopoly profits that would otherwise be lost in the competitive market.” Id. at 154, 158. The first category of settlements—those in which the value transferred is only a non-exclusive license to sell the litigated generic product before patent expiration—do not, without more, raise antitrust concerns. A second category of settlements—those with payments and restriction on generic entry—may raise antitrust concerns because they may allow the brand and the generic to benefit from an extended period of monopoly profits at the expense of consumers who are denied lower-cost generics.

The FTC’s MMA reports provide statistics on the prevalence of key settlement terms, such as whether the generic agrees not to sell a product for some period and whether the brand compensates the generic.

Three Facts About MMA Reports

1. The FTC carefully reviews and tracks the evolution of terms in pharmaceutical patent settlements.

When reverse-payment agreements first emerged in the late 1990s and early 2000s, transfers of value to the generic appeared primarily as large cash payments to the generic, either alone or as part of a purportedly independent business transaction. Over time, settlements included other ways for a brand company to provide a generic company significant value that did not involve cash payments. Most notably, some potentially anticompetitive payments took the form of exclusive licenses, exclusive supply deals, and explicit “no-AG” commitments (in which the brand committed not to sell an authorized generic, or AG, for some period). Because these value transfers could compensate generics for agreeing to abandon their patent challenges for a share of the brand’s monopoly profits, FTC staff has consistently tracked these as compensation in its MMA reports, beginning with the FY 2005 report. Courts later confirmed that these types of value transfers can present the same antitrust concerns as cash payments and thus may also be unlawful. See, e.g., King Drug Co. of Florence v. SmithKline Beecham Corp., 791 F.3d 388, 404 (3d Cir. 2015).

As early as FY 2008, MMA reports began to identify certain terms that did not explicitly compensate the generic company, but might operate as compensation. For example, FTC staff explained in its FY 2008 report how a royalty that declines based on additional generic entry might act as a no-AG commitment. Beginning in FY 2013, MMA reports started systematically tracking this and similar terms, categorizing them as “possible compensation.”

Some have expressed concern that the evolution of the MMA reports is a sign that FTC staff is failing to recognize the various ways that a complex arrangement may provide compensation to the generic patent challenger. But the “possible compensation” category arose precisely because of the increasing complexity of some pharmaceutical settlement agreements and need for facts beyond the face of the agreements to assess their true nature and likely effects. The FTC staff will continue to identify and report new terms that may act as compensation from the brand company to the generic company for agreeing to stay off the market. And importantly, a lack of action by the Commission or its staff with respect to a filed agreement does not signify an implicit approval of the agreement or a lack of antitrust concern.

2. The MMA reports do not assess the legality of agreements.

The purpose of the FTC’s MMA reports is to provide objective information about the types of terms contained within the four corners of the submitted settlement agreements. The reports do not draw conclusions about the legality of specific agreements. Thus, an agreement may be categorized in an MMA report as containing “explicit compensation” but not be unlawful. For example, in recent years, an increasing number of agreements categorized as containing explicit compensation involve only minimal payments to the generic company for saved litigation expenses. Under Actavis, these agreements are unlikely to raise antitrust concerns. At the same time, an agreement categorized as “possible compensation” may pose significant antitrust concerns. Determining whether a particular agreement is likely to be anticompetitive generally requires an investigation into the specific facts and circumstances surrounding the agreement and the competitive landscape. This type of detailed information is not contained in the MMA filings that companies submit. Staff assessments of likely competitive harm are simply outside the scope of the FTC’s MMA reports.

3. Antitrust enforcement has not impeded settlements.

In a previous blog post, we showed that the data does not support pre-Actavis predictions by the pharmaceutical industry and others that subjecting reverse-payment patent settlements to antitrust scrutiny would deter companies from settling patent litigation or even filing generic drug applications in the first place. To the contrary, the number of settlements has increased significantly since Actavis, and they involve an increasing number of branded products subject to patent challenges by generic drug makers. Similar predictions are now offered to oppose new state efforts to police drug patent settlements.

But recent data on MMA filings belie these predictions. For instance, since a California pharmaceutical patent settlement law took effect at the beginning of this year, the most common patent settlements—those in which the generic agrees not to sell for some period but then gets a non-exclusive license to enter prior to patent expiration without compensation—have not disappeared. To the contrary, the MMA filings from the first nine months of 2020 indicate that such settlements appear to have increased slightly since the law took effect as compared to the same period in 2019.

Having objective data to assess such arguments is an important benefit of the MMA filing requirements, in addition to the important function MMA filings serve as a critical investigative screening tool for the antitrust agencies.

FTC Milestones: Making the case for reform of public utility holding company laws

Tue, 18 Nov 2014 18:18:10 +0000

FTC Milestones: Making the case for reform of public utility holding company laws cwarner November 18, 2014 | 1:18PM

FTC Milestones: Making the case for reform of public utility holding company laws

Kelly Signs, Bureau of Competition

From its earliest days, the Commission has used its authority under Section 6 of the FTC Act to gain a deep understanding of competitive conditions in a variety of industries. In its first two decades alone, the FTC produced more than 100 studies or responses to general inquiries, most often pursuant to Congressional resolutions or Presidential orders. Information and insight gained in these inquiries generated policy recommendations to tackle the pressing needs of the nation in the face of changing market conditions. As explained in the Commission’s Annual Report for 1936:

“these inquiries have supplied not only valuable information bearing on conditions, developments, and trends in interstate trade and industrial development, but have thrown light on the need for and wisdom of legislation for corrective action. The public need for such fact-finding studies in this increasingly complex economic era grows greater, irrespective of different economic and political philosophies.”

By most measures, the Commission’s most important public hearings during these early days examined the conduct and structure of public utility holding companies. These extensive hearings began in 1928 and concluded seven years later, generating 96 volumes of reports.

The inquiry focused on abusive conduct by holding companies and their affiliates, such as issuing securities based on inflated asset values, overcharging for services provided by affiliates to the regulated utility, and unsound or unnecessary financial structures or practices that prevented oversight by state regulators. According to the Commission’s annual report (page 120), “the Commission’s reports and recommendations, focusing congressional attention upon certain unfair financial practices in connection with the organization of holding companies and the sale of securities, were among the influences which brought about enactment of such remedial legislation as the Securities Act (1933), the Public Utility Holding Company Act (1935), the Federal Power Act (1935), and the Natural Gas Act (1938).”

A couple of interesting historical notes about these hearings. First, they had a curious origin. The hearings were directed by a Senate resolution, which diverted the hearings to the FTC in lieu of hearings in the Senate, the preferred venue for several progressive Senators who were initially skeptical of the FTC’s ability to review financial and securities abuses related to the proliferation of holding companies. To the Senators’ surprise and the agency’s credit, the Commission’s efforts did much to dissipate those concerns. Another unusual feature of the hearings was the direct involvement of an FTC Commissioner, Edgar McCulloch. A former Chief Justice of the Arkansas Supreme Court, McCulloch personally conducted the hearings until his death in 1933. In addition, the lead FTC investigator, Robert Healy, left the FTC to become one of the first Commissioners of the newly-formed Securities and Exchange Commission. (The FTC enforced the Securities Act of 1933 until the SEC was created in 1934.) Finally, the hearings were highly publicized: for instance, in May 1931, the New York Times devoted five page-one headlines to revelations about ties between utilities companies and newspapers.

The public utilities hearings helped establish the agency’s core competency in analyzing and advocating for regulatory policies in the electric utility sector, a critical task that continues at the FTC today. The Commission shares its expertise in electric power markets to encourage policies that promote the interests of consumers and rely on competition as much as possible. The Commission provides comments to state utility commissions, state legislatures, the Department of Energy, and the Federal Energy Regulatory Commission; issues staff reports on electric power industry restructuring at the wholesale and retail levels; and participates in working groups with other federal agencies, such as the Electric Energy Market Competition Task Force, which issued a Report to Congress in the spring of 2007. To learn more about the FTC’s competition advocacy before federal and state electricity regulatory agencies, here’s a list of comments going back to 1985.

Next FTC Milestone: Consumer protection debuts at the Supreme Court

For further reading:

Federal Trade Commission, Summary Report on Economic, Financial, and Corporate

Phases of Holding and Operating Companies of Electric and Gas Utilities, Washington:

Government Printing Office, 1935.

The development of the FTC’s electricity competition advocacy program is chronicled in "The Federal Trade Commission and Electric Power Industry Restructuring," National Regulatory Research Institute Quarterly Bulletin, 21:1 (Autumn 2000), pp. 1 26, and "Joining the Electric Industry Policy Debate at the State Level," in Amato, G., and L. Laudati, Eds., The Anticompetitive Impact of Regulation, Northhampton, MA., Edward Elgar, 2001, pp. 378 393, both by John Hilke.

On the legislation of the 1930s and the influence of the FTC’s hearings:

Richard Lowett, George Norris: The Persistence of a Progressive 1913-1933 (1971).

Michael E. Parrish, Securities Regulation and the New Deal (1970).

Scott James, Presidents, Parties, and the State: A Party System Perspective on Democratic Regulatory Choice, 1884-1936 (2000).

On press coverage of the Commission’s hearings and other activities:

Marc Winerman, History through Headlines, 71 Antitrust L.J. 871 (2005).