US: Federal Trade Commission

This year, the Federal Trade Commission commemorates its centennial as an independent law enforcement agency, dedicated to protecting consumers from anti-competitive mergers and business practices. This chapter details the Commission’s key enforcement efforts, including ongoing litigation, as well as important decisions and policy initiatives of the past year.

Enforcement

Merger filings¹ were down slightly in 2013 year compared with the year before, dropping 7 per cent to 1,286 adjusted transactions. The FTC issued second requests in 25 merger investigations in fiscal year 2013, up from 20 the year before. As in most years, fewer than 4 per cent of Hart–Scott–Rodino filings resulted in second request. The Commission brought 23 merger enforcement actions, and entered negotiated settlements requiring divestitures to preserve competition in 18 matters. In four other matters, the companies abandoned their plans.

One merger case remains in litigation in federal court. In March 2013, the Commission, together with the Idaho attorney general, filed a joint complaint in federal district court challenging Idaho-based St Luke’s Health System’s consummated acquisition of Saltzer Medical Group.² The federal district court permanently enjoined the acquisition, finding that the combination of the two largest providers of adult primary care physician services in the Nampa, Idaho area would increase St Luke’s ability and incentive to demand higher reimbursement rates from commercial health plans. Although the court acknowledged St Luke’s efforts to move to an integrated care model more tailored to improving patient outcomes, it noted, ‘there are other ways to achieve the same effect that do not run afoul of the antitrust laws and do not run such a risk of increased costs’.³ The case is on appeal.

The Commission also filed a federal court action to block Ardagh Group’s proposed $1.7 billion acquisition of rival glass manufacturer Saint-Gobain Containers, charging that the acquisition would combine two of the three largest US manufacturers of glass beer and spirits containers.⁴ After months of pre-trial preparation, Ardagh stipulated to a preliminary injunction, and ultimately agreed to divest six plants and related assets to a Commission-approved buyer.

Finally, after more than four years of litigation, the Commission obtained a significant remedy in the consummated merger of Polypore International and Microporous. In 2009, the complaint charged that Polypore’s completed acquisition of Microporous substantially reduced competition in four North American end-use markets for battery separators. On review, the Commission found likely anti-competitive effects in three of the markets, warranting divestiture of all the Microporous assets Polypore had acquired.⁵ In December 2013, the Commission approved the divestiture of the Microporous assets to a new buyer, restoring competition for the different types of battery separators to their pre-merger state.⁶

Many Commission consent agreements resolved competitive concerns in industries that have been a mainstay of FTC enforcement activity: oil and gas,⁷ supermarkets,⁸ funeral homes,⁹ hospitals¹⁰ and pharmaceuticals.¹¹ But the FTC also investigates markets that involve new and innovative products. For example, Thermo Fisher Scientific Inc, a leading manufacturer of products used in scientific research, agreed to sell assets to settle charges that its proposed $13.6 billion acquisition of Life Technologies Corporation would have eliminated close competition between the companies in the markets for small interfering ribonucleic acid (siRNA) reagents, cell culture media and cell culture sera.¹² During the course of its investigation, Commission staff worked closely with its counterparts from antitrust agencies across the world, including Australia, Canada, China, the European Union, Japan and Korea, resulting in the Commission and the European Commission announcing GE Healthcare as the approved divestiture buyer on the same day.

For many years, the Commission has been concerned about the elimination of a potential competitor in generic pharmaceutical markets, where either one firm has an FDA-approved generic product and the other firm is working to introduce another generic version, or the merging firms are two of only a limited number of likely entrants. In either scenario, the competitive concern is that the acquisition would likely delay the introduction of a generic version and deprive consumers of the increased competition and likely price reductions that would have resulted from the likely entry.¹³ The Commission has also identified concerns in pharmaceutical mergers where no firm has a commercially available product yet the merging parties are two of only a few likely entrants into a future market.¹⁴

Outside the pharmaceutical arena, the Commission filed suit against Pinnacle Entertainment Inc’s proposed acquisition of Ameristar Casinos, in part because the acquisition would reduce competition for casino customers in the Lake Charles, Louisiana market where Pinnacle already operated a casino and Ameristar had begun building a new casino, scheduled to open in the near future.¹⁵ Pinnacle agreed to divest all assets associated with the development and construction of Ameristar’s new casino to a Commission-approved acquirer that would continue to develop the casino and compete with Pinnacle in the future, as Ameristar would have absent the merger.

A merger may also threaten competition in a future market if both firms have ongoing entry efforts. For instance, the Commission acted to preserve competition in a likely future market in connection with Nielsen’s proposed acquisition of Arbitron Inc.¹⁶ The Commission alleged that the merger would eliminate future competition between the two firms in the emerging market for national syndicated cross-platform audience measurement services. In response to strong customer interest, both firms were working to develop national syndicated cross-platform audience measurement services that would accurately measure viewership across multiple platforms, such as television and online. The Commission alleged that the elimination of future competition between Nielsen and Arbitron in this market would increase the likelihood that Nielsen would exercise market power and cause US advertisers, advertisement agencies and media programmers to pay higher prices.¹⁷

Although the vast majority of its merger enforcement matters involve horizontal mergers, the Commission will take action to prevent anti-competitive harm in vertical mergers, as it did this year with regard to General Electric’s (GE) acquisition of Avio.¹⁸ GE, through its joint venture CFM International, and Pratt & Whitney are the only engine manufacturers for Airbus’s A320neo aircraft and compete head-to-head for sales of the aircraft. Avio is the sole designer for the accessory gearbox (AGB) on the Pratt & Whitney PW1100G engine for the Airbus A320neo aircraft. The Commission alleged that GE’s acquisition of Avio would substantially lessen competition by giving GE the ability and incentive to disrupt the design and certification of the AGB designed by Avio for rival aircraft manufacturer Pratt & Whitney, thereby reducing competition in the sale of engines for the A320neo. To resolve these concerns, the Commission’s consent order prohibits GE from interfering with Avio’s design and development work on the AGB for the Pratt & Whitney PW1100G engine, or accessing Pratt & Whitney’s proprietary information about the AGB that is shared with Avio. The GE/Avio matter is yet another example of Commission staff working closely with the European Commission throughout the investigation.

The Commission has continued its vigorous enforcement of the antitrust laws to protect consumers from anti-competitive business practices. One of the most important antitrust developments of the last year was the Supreme Court’s decision in FTC v Actavis, Inc,¹⁹ which overturned the ‘scope-of-the-patent’ test, and cleared the way for antitrust scrutiny of anti-competitive pay-for-delay drug-patent settlements. Following the Supreme Court’s decision, the Commission continues to pursue its claims in two pending pay-for-delay matters currently in litigation (Actavis and FTC v Cephalon),²⁰ and monitors private litigation of pay-for-delay agreements for opportunities to provide Commission experience and expertise by filing amicus briefs.²¹

FTC staff filed administrative complaints against three US makers of ductile iron pipe fittings for unlawful collusion, information exchange and exclusionary conduct. Staff also charged that McWane violated the antitrust laws by excluding competitors from a separate market limited to domestic fittings.²² The Commission found that McWane wilfully engaged in anti-competitive conduct that allowed it to maintain its monopoly in the domestic fittings market after Star entered the market in 2009.²³ In particular, the Commission found that McWane’s exclusive dealing policy ‘foreclosed Star and other potential entrants from accessing a substantial share of distributors’, and ‘created a strong economic incentive for distributors to reject Star’s products, artificially diminishing Star’s competitive prospects in the domestic fittings market’. As a result, Star was unable to achieve the sales necessary to compete effectively and threaten McWane’s monopoly.

The Commission also charged the two leading suppliers of propane exchange tanks with illegally coordinating to reduce the amount of propane in their tanks sold to a key customer. The administrative complaint alleges that, together, Blue Rhino and AmeriGas controlled approximately 80 per cent of the market for wholesale propane exchange tanks in the United States, and in 2008, each decided to implement a price increase by reducing the amount of propane in their exchange tanks from 17 pounds to 15 pounds without a corresponding reduction in the wholesale price.²⁴ After Walmart refused to accept the fill reduction, Blue Rhino and AmeriGas allegedly colluded by secretly agreeing that neither would deviate from their proposal to reduce the fill level to Walmart, which had the effect of raising the price per pound of propane to Walmart, and likely to the ultimate consumers. This case remains in litigation.

The Commission entered into several important settlement agreements resolving charges of anti-competitive business practices. In two matters announced the same day, the Commission settled charges that certain provisions in two separate trade associations’ codes of ethics had interfered with fundamental aspects of competition among each association’s members, such as restricting members from soliciting clients from rival music teachers²⁵ and restraining members from competing against each other on price, disparaging each other through advertising, and soliciting legal support professionals for employment.²⁶ Similarly, ski equipment manufacturers Marker Völkl (International) GmbH and Tecnica Group SpA settled FTC charges that they had illegally agreed not to compete for one another’s ski endorsers or employees.²⁷

The Commission also obtained relief for an improper information exchange between two competitors providing hair restoration services. The FTC alleged that for at least four years, Bosley, Inc had exchanged competitively sensitive, non-public information about its business operations with Hair Club, a competing national manager of medical and surgical hair restoration services.²⁸ The information exchanged by the companies’ CEOs included details about future product offerings, surgical hair transplantation price floors and discounts, plans for business expansion and contraction, and current business operations and performance. The FTC charged that direct and repeated exchange of competitively sensitive, non-public information was an unfair method of competition in violation of Section 5 of the FTC Act.

Competition policy work

Beyond the Commission’s enforcement efforts, competition advocacy continues to be a staple in the Commission’s toolkit for promoting policies that rely on competition as much as possible to enhance consumer welfare. Through reports, testimony and advocacy filings, the FTC provides policymakers with a framework to analyse policy choices in light of their impact on competition. This year, advocacy projects included a policy paper on the scope of practice rules for Advanced Practice Registered Nurses,²⁹ comments to local taxi regulators encouraging proposals to facilitate new and beneficial forms of competition for the passenger services,³⁰ as well as comments on proposed ride-sharing regulations,³¹ and direct-to-consumer car sales.³²

Another ongoing project is to examine trends in health-care markets. The Commission hosted a two-day workshop, ‘Examining Health Care Competition’,³³ to study certain activities that may affect competition in the evolving health-care industry, including developments related to the professional regulation of health-care providers; innovations in health-care delivery; advancements in health-care technology; measuring and assessing health-care quality; and price transparency of health-care services.

The Commission also has proposed undertaking a study into the activities of patent assertion entities (PAEs), a subject the FTC first examined in its 2011 Report, ‘The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition’.³⁴ Industry observers have provided anecdotal evidence of the potential harms and efficiencies of PAE activity, but many stressed the lack of more comprehensive empirical evidence. In an attempt to collect such data, the Commission invited public comment on a proposed study using its authority under Section 6(b) of the FTC Act to gather qualitative and quantitative information on PAE acquisition, litigation and licensing practices.³⁵

International work

With competition laws and agencies in approximately 130 jurisdictions, it is particularly important that agencies seek to ensure that the international competition system functions coherently. The FTC continues to lead efforts to promote convergence toward sound and effective antitrust enforcement internationally. In addition to our recent international enforcement cooperation efforts noted above, we play a lead role in multilateral fora, such as the International Competition Network (ICN), OECD, UNCTAD and APEC. For example, the FTC is a member of the ICN’s Steering Group and co-chairs its Agency Effectiveness Working Group. One ongoing project focuses on the investigative process, and the working group intends to produce international guidance on procedural fairness issues such as transparency, meaningful engagement with parties and confidentiality.

The FTC also has developed working relationships with important new competition agencies in countries such as China and India. Earlier this year, a high-level FTC and DoJ delegation, including Chairwoman Ramirez, held its second Joint Dialogue with China’s three competition agencies, at which senior officials addressed antitrust policy and practice issues with the goal of promoting understanding and convergence toward sound practice. We have followed this up with additional exchanges, visits and seminars with Chinese counterparts.

The FTC continues its robust programme of international competition technical assistance to encourage the development of legal frameworks and policies based on sound competition principles and international good practices. In the past fiscal year, the FTC conducted 38 competition training missions and hosted 47 competition officials from 24 jurisdictions as International Fellows. These fellows work directly with FTC staff to gain first-hand appreciation of the practices and approaches that the FTC uses in its enforcement, with the expectation that they will bring this learning back to their agencies. The FTC also works with other US government agencies on issues at the intersection of law and policy and continues to play an active role in US delegations that negotiate competition chapters in proposed free trade agreements, including the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.

Conclusion

Looking forward to the second century, the FTC will continue to preserve competition for the benefit of consumers by preventing the accumulation or exercise of undue market power, as well as agreements among competitors that harm consumers by undermining the competitive process. Using the tools of enforcement, advocacy and education, the Commission will work to support free markets so that consumers have choices and competition drives the development of new and better products and services.

Notes

1. We use the term mergers to cover various forms of transactions, including acquisitions, joint ventures and other collaborations.
2. FTC and State of Idaho v St Luke’s Health Sys, Ltd, 1:12-cv-00560-BLW (D. Id. filed 13 March 2013), available at www.ftc.gov/system/files/documents/cases/140124stlukesfindings.pdf.
3. Id at 3.
4. See In the Matter of Ardagh Group SA, Saint-Gobain Containers, Inc, and Compagnie de Saint-Gobain, Dkt 9356 (1 July 2013).
5. Opinion of the Commission, In the Matter of Polypore International, Inc, Dkt 9327, at 38 (13 December 2010), available at www.ftc.gov/sites/default/files/documents/cases/2010/12/101213polyporeopinion.pdf.
6. See Fed. Trade Comm’n, Press Release, ‘FTC Approves Polypore International’s Application to Sell Microporous to Seven Mile Capital Partners; Sale Will Unwind Illegal 2008 Acquisition’ (18 December 2013), available at www.ftc.gov/news-events/press-releases/2013/12/ftc-approves-polypore-internationals-application-sell-microporous.
7. In the Matter of Tesoro Corporation, Dkt C-4405 (17 June 2013).
8. In the Matter of Bi-Lo Holdings, Inc, Dkt C-4440 (25 February 2014); In the Matter of AB Acquisition Inc, Dkt C-4424 (23 December 2013).
9. In the Matter of Service Corporation International and Stewart Enterprises, Inc, Dkt C-4423 (23 December 2013).
10. In the Matter of Community Health Systems, Inc and Health Management Associates, Inc, FTC File No. 131-0202 (22 January 2014).
11. See, eg, In the Matter of Actavis and Warner Chilcott, Dkt C-4414 (27 September 2013); In the Matter of Mylan Inc, Agila Specialties Global Pte Ltd, Agila Specialties Private Ltd, and Strides Arcolob Ltd, Dkt C-4413 (26 September 2013); In the Matter of Endo Health Solutions, Inc and Boca Life Sciences Holdings, LLC, Dkt C-4430 (30 January 2014).
12. In the Matter of Thermo Fisher Scientific Inc and Life Technologies Corp, Dkt C-4431 (31 January 2014). See also In the Matter of Honeywell International, Inc, Dkt C-4418 (13 September 2013) (market for 2D scan engines).
13. In the Matter of Actavis and Warner Chilcott, Dkt C-4414 (27 September 2013); see also In the Matter of Mylan Inc, Agila Specialties Global Pte Ltd, Agila Specialties Private Ltd, and Strides Arcolob Ltd, Dkt C-4413 (26 September 2013).
14. In the Matter of Endo Health Solutions, Inc and Boca Life Sciences Holdings, LLC, Dkt C-4430 (30 January 2014).
15. In the Matter of Pinnacle Entertainment, Inc and Ameristar Casinos, Inc, Dkt 9355 (29 May 2013).
16. In the Matter of Nielsen Holdings, NV and Arbitron, Inc, Dkt C-4439 (20 September 2013).
17. Fed. Trade Comm’n, Statement of the Commission In the Matter of Nielsen Holdings, NV and Arbitron Inc, Dkt C-4439 (20 September 2013), available at www.ftc.gov/sites/default/files/documents/cases/2013/09/130920nielsenarbitroncommstmt.pdf. But see Fed. Trade Comm’n, Dissenting Statement of Commissioner Wright In the Matter of Nielsen Holdings, NV and Arbitron, Inc (20 September 2013), available at www.ftc.gov/sites/default/files/documents/cases/2013/09/130920nielsenarbitron-jdwstmt.pdf.
18. In the Matter of General Electric Co, Dkt C-4411 (13 July 2013).
19. 133 S. Ct. 2223 (2013).
20. No. 08-2141 (E.D. Pa. filed 13 February 2008).
21. See, eg, FTC News Release, ‘FTC Submits Proposed Amicus Brief Concerning ‘No-Authorized-Generic’ Commitments in Drug Companies’ Patent Settlements’ (16 August 2013), available at www.ftc.gov/news-events/press-releases/2013/08/ftc-submits-proposed-amicus-brief-concerning-%E2%80%9Cno-authorized.
22. In the Matter of McWane, Inc and Star Pipe Products Ltd, Dkt 9351 (4 January 2012); In the Matter of Sigma Corp. Dkt C-4347 (4 January 2012). Sigma and Star both previously settled related FTC charges.
23. Opinion of the Commission, In the Matter of McWane, Dkt 9351 (6 Febuary 2014), available at www.ftc.gov/system/files/documents/cases/140206mcwaneopinion.pdf.
24. In the Matter of AmeriGas and Blue Rhino, Dkt No. 9360 (27 March 2014).
25. In the Matter of Music Teachers National Association Inc, FTC File No. 131-0118 (16 December 2013).
26. In the Matter of California Association of Legal Support Professionals, FTC File No. 131-0205 (16 December 2013).
27. In the Matter of Tecnica Group, SpA, and In the Matter of Marker Völkl, FTC File No. 121-0004 (27 May 2014).
28. In the Matter of Bosley, Inc, Aderans America Holdings, Inc, and Aderans Co, Ltd, Dkt C-4404 (8 April 2013).
29. Fed. Trade Comm’n, Policy Perspectives: Competition and the Regulation of Advanced Practice Nurses (March 2014), available at www.ftc.gov/system/files/documents/reports/policy-perspectives-competition-regulation-advanced-practice-nurses/140307aprnpolicypaper.pdf.
30. FTC Staff Comments Before the District of Columbia Taxicab Commission Concerning Proposed Rulemakings on Passenger Motor Vehicle Transportation Services (7 June 2013), available at www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-staff-comments-district-columbia-taxicab-commission-concerning-proposed-rulemakings-passenger/130612dctaxicab.pdf. See also FTC Staff Comment to Anchorage Assembly Member Debbie Ossiander, Concerning AO NO. 2013-36, Proposing Changes to the Regulatory Framework for the Licensing and Permitting of Taxicabs, Limousines, and Other Vehicles for Hire (23 April 2013), available at www.ftc.gov/policy/policy-actions/advocacy-filings/2013/04/ftc-staff-comment-anchorage-assembly-member-debbie.
31. FTC Staff Comment to the Honorable Brendan Reilly Concerning Chicago Proposed Ordinance O2014-1367 Regarding Transportation Network Providers (15 April 2014), available at www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-honorable-brendan-reilly-concerning-chicago-proposed-ordinance-o2014-1367/140421chicagoridesharing.pdf.
32. See, eg, FTC Staff Comment Before the New Jersey General Assembly Regarding Assembly Bills 2986, 3096, 3041 and 3216, Which Would Create Limited Exceptions to New Jersey’s Prohibition on Direct-to-Consumer Sales by Manufacturers of Automobiles (16 May 2014), available at www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-new-jersey-general-assembly-regarding-assembly-bills-2986-3096-3041-3216-which/140516nj-autoadvocacy.pdf.
33. Workshop materials are available at www.ftc.gov/news-events/events-calendar/2014/03/examining-health-care-competition.
34. Fed. Trade Comm’n, The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition (March 2011), available at www.ftc.gov/sites/default/files/documents/reports/evolving-ip-marketplace-aligning-patent-notice-and-remedies-competition-report-federal-trade/110307patentreport.pdf.
35. 79 Fed. Reg. 28,715 (19 May 2014).