United States: Federal Trade Commission
The US Federal Trade Commission (FTC) is an independent law enforcement agency, committed to enforcing the US antitrust laws to protect consumers from anticompetitive mergers and business practices.1 This chapter describes some of the FTC's recent competition enforcement and international collaboration efforts, as well as a portion of its policy and advocacy work. As global trade expands and companies operate across national borders, the need for consistent and analytically rigorous competition enforcement by governments around the world will continue to increase. To that end, the FTC increasingly works in partnership with its sister agencies around the world to promote sound competition practices and principles.
One of the FTC's principal responsibilities is to prevent mergers that may substantially lessen competition in violation of US law. In fiscal year 2017 (1 October 2016– 30 September 2017),2 the agency challenged 23 mergers in a broad array of industries. These industries included, among others, pharmaceuticals and medical devices, healthcare providers, industrial goods and chemicals, consumer goods and services, retail pharmacies, technology and energy.
During 2017, the parties abandoned six transactions after FTC staff informed the parties of its antitrust concerns, but before litigation was initiated. The parties abandoned one merger transaction after the FTC authorised a preliminary injunction (Draft Kings/FanDuel3). In that case, the FTC filed suit to block the merger of DraftKings and FanDuel because the merger would substantially reduce competition and lead to higher prices and lower quality for paid daily fantasy sports contests.
In two additional matters, both proposed hospital mergers, the merging parties abandoned their transaction after the FTC obtained a preliminary injunction on appeal in federal circuit court (Pinnacle/Hershey4 and Advocate/NorthShore5). In FTC v Penn State Hershey Medical Center, the FTC alleged that the combination of Penn State Hershey Medical Center and PinnacleHealth System would substantially reduce competition for general acute-care inpatient hospital services in and around Harrisburg, Pennsylvania and lead to reduced quality and higher costs for area employers and residents. The US Court of Appeals for the Third Circuit reversed a lower court finding and granted a preliminary injunction blocking the transaction.
In the other matter, the US Court of Appeals for the Seventh Circuit issued a significant ruling in FTC v Advocate Health System. The court reversed a lower court decision, ruling that the district court had mis-analysed the geographic market. It held that the district court had improperly:
• applied the hypothetical monopolist test;
• assessed evidence regarding patient preferences for local care; and
• focused on the number of patients who leave the market to receive care rather than the number who remain in the market.
In 2017, as in other years, many FTC merger enforcement actions resulted in negotiated settlements designed to maintain competition in the affected markets while allowing the merger to proceed. For instance, the FTC announced settlements in three mergers involving medical device products, such as a settlement with Abbot Laboratories and Alere Inc, requiring the divestiture of two point-of-care medical device product lines to remedy concerns that the acquisition would likely harm competition in the United States for those products.6 The FTC also reviewed a number of mergers between pharmaceutical manufacturers. For example, it required the divestiture of two types of generic pharmaceutical products in order to resolve charges that Baxter International's proposed acquisition of Claris LifeSciences Limited's injectable drug business would be anticompetitive.7 In addition, major chain retail pharmacies Walgreens and Rite Aid abandoned their original transaction in which Walgreens would acquire all of Rite Aid, stating publicly that they were abandoning the deal after being told they would be unable to gain government approval.8 The FTC subsequently examined and closed its investigation of a revised transaction whereby Walgreens would acquire roughly 1,900 Rite Aid stores, while Rite Aid would retain the majority of its network.
The FTC also acts to preserve competition in energy markets. For example, in the proposed merger between Alimentation Couche-Tard and CST Brands,9 the FTC ordered the divestiture of retail fuel outlets and related assets in 70 local markets in 16 metropolitan statistical areas in the United States to resolve its concerns that the acquisition of these fuel outlets would substantially lessen competition for the retail sale of gasoline and diesel in these markets. In the overlapping markets, the transaction would have substantially increased the market concentration, and in 10 of these markets, the transaction would have resulted in a monopoly.
Finally, the FTC also reviews vertical mergers and takes action when appropriate to preserve existing levels of competition. For instance, the FTC investigated concerns that semiconductor manufacturer Broadcom Limited's acquisition of Brocade Communications Systems would reduce competition in the worldwide market for fibre channel.10 The FTC imposed a firewall preventing Broadcom from using competitively sensitive information about the operations of Cisco to limit competition between Brocade and Cisco. The firewall prevents Broadcom from using competitively sensitive confidential information for any purpose other than manufacturing and selling critical inputs to Cisco.
In addition to its merger enforcement programme, the FTC maintains a robust programme to identify and halt anticompetitive conduct. In 2017, the FTC launched approximately seven investigations into potential monopolisation and brought several cases.
For instance, the FTC obtained an injunction in federal court in which Mallinckrodt ARD Inc – formerly Questcor Pharmaceuticals, Inc – agreed to pay US$100 million in equitable monetary relief to settle charges that Questcor illegally acquired the rights to develop a drug that threatened its monopoly in the US market for adrenocorticotropic hormone drugs.11
The FTC also charged Qualcomm Inc with using anticompetitive tactics to maintain its monopoly in the supply of a key semiconductor device used in cell phones and other consumer products. In a complaint filed in a federal district court, the FTC alleges that Qualcomm has violated the antitrust laws by using its dominant position as a supplier of certain baseband processors to impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers and to weaken competitors.12 The trial on these charges is scheduled to begin in January 2019.
The FTC also reached three settlements in 2017, including two involving trade association rules that restrained competition among the members. For example, in May 2017, the FTC approved a final order in which the American Guild of Organists agreed to eliminate rules that restricted its 15,000 member organists and choral members from competing for opportunities to perform.13 The guild also agreed to implement an antitrust compliance programme and stop recognising chapters that fail to certify their compliance with the order. In September 2017, the FTC approved a final order settling charges that the code of ethics of the National Association of Animal Breeders (NAAB), a non-profit trade association, restrained competition among its members.14 The order required NAAB to stop imposing anticompetitive restrictions on its members' advertising, and stop limiting their ability to disseminate truthful, non-deceptive information about their products and the products of their competitors.
International cooperation on competition cases under investigation in more than one jurisdiction can help to ensure compatible results and create efficiencies in the use of limited agency resources. In many cases, cross-border cooperation is greatly aided by international waivers of confidentiality from the firms under investigation. Confidentiality waivers enable communication that is more complete and allow coordination among competition agencies. This can expedite transaction review, saving agency resources and expediting transaction clearance.
In 2017, the FTC cooperated on 38 enforcement matters with counterpart agencies around the world, including in Australia, Austria, Belgium, Brazil, Canada, Chile, China, the European Union, Germany, Hungary, India, Ireland, Israel, Japan, Korea, Mexico, New Zealand, Singapore, South Africa, Taiwan and the United Kingdom. Those agencies reached compatible outcomes in all but one of the cases completed during the fiscal year. While the FTC will continue to strive for 100 per cent success, inconsistent outcomes remain possible, particularly as new antitrust agencies begin to assert their jurisdiction and cooperation on unilateral conduct matters expands.
Cooperation on merger cases can take many forms, including discussing industry context and background, comparing substantive approaches to market definition and competitive effects, participating in joint conference calls with the merging parties or third parties, and coordinating on merger remedies.
One recent and notable example of the FTC's cooperation efforts involved the proposed merger of Essilor International and Luxottica Group SpA in the optical industry.15 During the investigation, the FTC cooperated closely with the European Commission and the Canadian Competition Bureau, and coordinated with the competition authorities of Australia, Brazil, Chile, China, Israel, Mexico, Singapore and South Africa. Following an extensive review of the proposed merger, the FTC closed its investigation, and the European Commission, the Canadian Competition Bureau and other foreign counterpart agencies also declined to take action. The review of this merger is a great example of effective agency cooperation and engagement to learn about products, market definition, and other relevant competition issues, even if market conditions may differ in different jurisdictions.
Another example of significant international cooperation involved Abbott Laboratories' proposed acquisition of St. Jude Medical.16 To settle FTC charges that the proposed acquisition would likely be anticompetitive, Abbott agreed to divest two medical device businesses. The FTC's complaint alleges that without a remedy, the proposed transaction would harm competition in the US markets for vascular closure devices, which are used to close holes in arteries from the insertion of catheters, and for 'steerable' sheaths, which are used to guide catheters for treating heart arrhythmias. Without a remedy, the merger would cause significant harm to competition in these two markets. Throughout the investigation, FTC staff cooperated with staff of the antitrust agencies of the Brazil, Canada, China, the European Union, Israel, Korea and South Africa, including on the analysis of the proposed transaction and potential remedies, to reach a consistent outcome on an international scale.
The FTC continues to cooperate with foreign counterpart agencies on investigations of potential anticompetitive conduct. In 2017, the FTC cooperated with foreign competition agencies on four conduct investigations.
Competition research and advocacy
The FTC shares its expertise on competition issues with interested policymakers and the public through competition advocacy. These written advocacies provide guidance and recommendations about how to incorporate competition principles into laws, regulations or policies.
In 2017, the agency hosted three public workshops in broad areas of competition policy, including one event in connection with the Economic Liberty Task Force related to occupational licence portability.17 The FTC hosted an event that examined competition, innovation and consumer protection issues raised by hearing health and technology, especially hearing aids.18 Shortly thereafter, a federal law was passed directing the US Food and Drug Administration to develop a regulatory pathway for the sale of over-the-counter hearing aids, consistent with much of the discussion at the FTC workshop. The FTC also held its Ninth Annual Microeconomics Conference.19
The FTC continued to respond to requests for comment from local, state and federal entities to provide policymakers with a framework to analyse the potential competitive implications of pending governmental actions that may have a major impact on consumers.20 In 2017, staff filed 16 advocacy comments to federal and state regulators, individual legislators and other organisations. These advocacy comments addressed a variety of industries and competition issues, including telehealth, occupational licensing and scope of practice, energy sector transactions, certificates of need for healthcare entities and state granted exemptions to the antitrust laws, such as certificates of public advantage. Staff also submit amici briefs to federal courts on important areas of antitrust law in cases pending before the US Supreme Court (SmithKline Beecham Corp v King Drug Co of Florence,21 Visa Inc v Sam Osborn22 and Visa Inc v Mary Stoumbos23) and appellate courts (Amphastar Pharmaceuticals Inc v Momenta Pharmaceuticals, Inc24 and Mylan Pharmaceuticals Inc v Warner Chilcott PLC25).
The FTC also pursues its competition goals through other methods, such as education, research and study. For example, the FTC issued its report evaluating patent assertion entities, presenting data gathered from its authority under section 6(b) of the FTC Act.26 In addition, the FTC and US Department of Justice (DOJ) jointly issued updated Antitrust Guidelines for the Licensing of Intellectual Property.27 Finally, the agency issued a report resulting from its previous workshop discussing issues in the Sharing Economy. This report, 'The 'Sharing' Economy: Issues Facing Platforms, Participants, and Regulators', examines how buyers and sellers are increasingly using internet-connected devices such as smartphones and tablets to access a matchmaking platform that allows them to search for new services, secure a price point and complete a transaction.28
In 2017, FTC Commissioners and staff provided formal testimony before Congressional committees on competition issues on two occasions. In addition, FTC staff and Commissioners held numerous informal meetings with legislators and their staff.
Formal testimony included:
• on the competitive effects of occupational licensing (12 September 2017); and
• on the anticompetitive conduct in the pharmaceutical industry (27 July 2017).
In 2017, the FTC or FTC staff sent or filed 16 competition advocacy comments, including four amicus curiae briefs filed in federal court discussed above:29
• four comments addressed occupational licensing issues;
• three comments expressed concerns about efforts to provide antitrust immunity to an otherwise anticompetitive hospital merger;
• one comment supported regulatory reforms that would allow licensed speech; pathologists and audiologists to determine whether and when to provide telepractice services;
• one comment supported the reform of certificate-of-need laws that limit competition in the health care sector;
• one comment addressed the regulation of broadband internet access services;
• one comment supported the reform of electricity generator interconnection procedures and agreements; and
• one comment addressed market power analysis in wholesale electricity markets.
In addition to the topics that were the subject of formal written advocacy comments, FTC staff also engaged in informal competition advocacy covering the full range of subjects in which it has expertise. Notable examples include intellectual property, pharmaceuticals and biologic drugs, and health information technology.
International policy engagement
In addition to promoting cooperation in cases such as those described above, the FTC, together with the DOJ, works to promote convergence toward sound, effects-based economic analysis and in support of procedural fairness in connection with investigations. The FTC does this through multilateral competition organisations, policy dialogues with counterpart agencies, our technical assistance and International Fellows programme, and competition chapters of trade agreements.
The FTC plays a lead role in multilateral organisations, including the ICN, the OECD, the United Nations Conference on Trade and Development and the Asia-Pacific Economic Cooperation (APEC).
In the ICN, the FTC:
• is a long-serving member of the Steering Group;
• co-chairs the Merger Working Group where it co-leads a project updating and implementing the ICN's Recommended Practices on Merger Notification and Review Procedures and Recommended Practices on Merger Analysis, providing sound benchmarks for merger rules and procedures;
• leads the ICN's work implementing its signature guidance on providing due process in competition investigations;
• co-chairs the Advocacy and Implementation Network; and
• leads the 'ICN Training on Demand' project, which produces video training materials on competition law and practice.
In the OECD, the agency plays a key role in developing the Competition Committee's long-term themes, including the current projects on procedural fairness, intellectual competition in the digital economy, and competitive neutrality. It also conducted and oversaw an APEC-sponsored series of workshops on procedural fairness.
The FTC, often in collaboration with other parts of the US government, maintains dialogue with counterpart agencies and governments on a variety of challenging issues, including the intersection of competition law and intellectual property rights, the role of industrial policy and other non-competition policies, the territorial scope of competition law and remedies, and due process in antitrust investigations. For example, through dialogue with the Chinese antitrust agencies and government and consultation with US stakeholders and other US agencies, the FTC addresses issues posed by enforcement of the Chinese Anti-Monopoly Law. In addition, the FTC participates in US delegations that negotiate competition chapters of trade agreements such as the North American Free Trade Agreement.
The FTC maintains a robust technical assistance programme that assists newer competition agencies in the design and implementation of sound competition policy. During the past year, the FTC conducted 38 competition missions in 22 countries. This included placing resident advisers in the competition agencies of India, the Philippines and Ukraine, and conducting hands-on workshops on investigational skills. The resident advisers' work focused on the application of economic analysis in investigations and on merger notification procedures. The FTC also conducted competition workshops in numerous countries, from Argentina to Vietnam, along with regional programmes for Africa, Central America, Southeast Asia and Southeast Europe. The FTC also hosted 'international fellows' from nine foreign competition agencies. The fellows work directly with FTC staff to gain first-hand understanding of and experience with the practices and approaches that the FTC uses in its enforcement, which they then bring back to their agencies.
In 2017, the FTC provided policy advice to foreign competition agencies in 111 instances through consultations, written submissions, and comments on proposed laws and guidelines. The FTC's policy advice remains highly regarded and sought after by new and experienced competition agencies and by participants in international competition organisations and conferences.
Finally, in January 2017, the FTC and DOJ issued revised International Antitrust Guidelines, which provide guidance to businesses and practitioners on the agencies' international enforcement policies and related investigative tools and cooperation with foreign agencies.30 The guidelines update the 1995 Antitrust Enforcement Guidelines for International Operations and provide guidance to businesses engaged in international activities on questions that concern the agencies' international enforcement policy, as well as the agencies' related investigative tools and cooperation with foreign agencies.
The FTC remains committed to working with its counterpart agencies in the Americas and around the world, and will continue to use the full range of its enforcement, research, and advocacy tools to protect consumers and promote competition in 2019 and beyond.
1 The FTC shares jurisdiction with the Antitrust Division of the US Department of Justice to enforce the antitrust laws of the United States.
2 Throughout this document, date references to 2017 are to fiscal year 2017.
3 See In re DraftKings, Inc and FanDuel Ltd, Dkt. 9375, available at www.ftc.gov/enforcement/cases-proceedings/161-0174/draft-kings-inc-fanduel-limited.
4 See In re The Penn State Hershey Medical Center and PinnacleHealth Sys. Dkt. 9368, available at www.ftc.gov/enforcement/cases-proceedings/141-0191/penn-state-hershey-medical-centerpinnaclehealth-system.
5 See In re Advocate Health Care Network et al, Dkt. 9369, available at www.ftc.gov/enforcement/cases-proceedings/141-0231/advocate-health-care-network-advocate-health-hospitals.
6 See In re Abbott Laboratories and Alere Inc, File No. 161-0084, available at https://www.ftc.gov/system/files/documents/cases/1610084_abbott_alere_analysis.pdf.
7 See In re Baxter Int'l Inc et al, Dkt. No. C-4620, available at https://www.ftc.gov/system/files/documents/cases/baxter_claris_complaint.pdf.
8 See generally Statement of the acting director of FTC's Bureau of Competition Regarding the Walgreens/Rite Aid Transaction, available at www.ftc.gov/news-events/press-releases/2017/06/statement-acting-director-ftcs-bureau-competition-regarding.
9 In re Alimentation Couche-Tard Inc and CST Brands, Inc Dkt. C-4618 (final order issued 14 August 2017).
10 In re Broadcom Ltd and Brocade Comm. Sys. Inc, FTC File No. 171-0027, available at https://www.ftc.gov/system/files/documents/cases/1710027_broadcom_brocade_agreement.pdf.
11 See Fed. Tr. Com'n et al v Mallinckrodt ARD Inc. et al, 1:17-cv-00120 (DDC), available at https://www.ftc.gov/system/files/documents/cases/170118mallinckrodt_stipulated_final_order.pdf.
12 FTC v Qualcomm No. 5:17-cv-00220 (ND Cal. 17 January 2017), www.ftc.gov/enforcement/cases-proceedings/141-0199/qualcomm-inc.
13 See In re Amer. Guild of Organists, Dkt. C-4617, available at https://www.ftc.gov/system/files/documents/cases/american_guild_of_organists_decision_and_order_c4617.pdf.
14 See In re Nat'l Assoc. of Animal Breeders, Inc, Dkt. 151-0135, available at https://www.ftc.gov/system/files/documents/cases/151_035_naab_complaint.pdf.
15 See generally Statement of Federal Trade Commission Concerning the Proposed Acquisition of Luxottica Group by Essilor, available at www.ftc.gov/news-events/press-releases/2018/03/statement-federal-trade-commission-concerning-proposed.
16 In re Abbott Laboratories and St Jude Medical, Dkt. C-4600 (final order issued 23 February 2017).
17 See Streamlining Licensing Across State Lines: Initiatives to Enhance Occupational License Portability, 27 July 2017, available at www.ftc.gov/news-events/events-calendar/2017/07/streamlining-licensing-across-state-lines-initiatives-enhance.
18 See Now Hear This: Competition, Innovation, and Consumer Protection Issues in Hearing Health Care, 18 April 2017, available at www.ftc.gov/news-events/events-calendar/2017/04/now-hear-competition-innovation-consumer-protection-issues.
19 See Ninth Annual Fed. Tr. Com'n Microeconomics Conference, 3 November 2016, available at www.ftc.gov/news-events/events-calendar/2016/11/ninth-annual-federal-trade-commission-microeconomics-conference.
22 See https://www.ftc.gov/system/files/documents/amicus_briefs/supreme-court-united-states-visa-inc-et-al-petitioners-v-sam-osborn-et-al-visa-inc-et-al-petitioners/p082105_united_states_amicus_brief_in_visa_v_osborn.pdf.
23 See id.
24 See Amphastar Pharmaceuticals, Inc et al v Momenta Pharmaceuticals, Inc, No. 16-2113, available at https://www.ftc.gov/system/files/documents/amicus_briefs/amphastar-pharmaceuticals-inc-et-al-v-momenta-pharmaceuticals-inc-et-al/161108amphastar_v_momentaftc_amicus_brief_.pdf.
25 See Mylan Pharmaceuticals Inc v Warner Chilcott PLC, et al No. 15-2236, available at https://www.ftc.gov/system/files/documents/amicus_briefs/mylan-pharmaceuticals-inc-v-warner-chilcott-plc-ftc-amicus-brief/2016-1019_mylan-v-warner_chilcott_doryx_ca3_ftc_amicus_brief_supporting_rehearing.pdf.
26 See Patent Assertion Entity Activity: An FTC Study, October 2016, available at https://www.ftc.gov/system/files/documents/reports/patent-assertion-entity-activity-ftc-study/p131203_patent_assertion_entity_activity_an_ftc_study_0.pdf.
27 See Antitrust Guidelines for the Licensing of Intellectual Property, 12 January 2017, available at https://www.ftc.gov/system/files/documents/public_statements/1049793/ip_guidelines_2017.pdf.
28 See The 'Sharing' Economy: Issues Facing Platforms, Participants & Regulators, November 2016, available at https://www.ftc.gov/system/files/documents/reports/sharing-economy-issues-facing-platforms-participants-regulators-federal-trade-commission-staff/p151200_ftc_staff_report_on_the_sharing_economy.pdf.
30 See Antitrust Guidelines for International Enforcement and Cooperation, 13 January 2017, available at https://www.ftc.gov/system/files/documents/public_statements/1049863/international_guidelines_2017.pdf.