Antitrust and Health Care: FTC’s Off-Again, On-Again Challenge to Georgia Hospital Merger

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino, Wilson Sonsini Goodrich & Rosati

Consolidation in the health care industry, and the Federal Trade Commission’s (“FTC” or “Commission”) perspective on such activity, are being closely watched in antitrust law and policy circles. In April 2011, the FTC challenged the acquisition of Palmyra Park Hospital by Phoebe Putney Health System Inc. (“Phoebe”) in Albany, Georgia. The Commission argued that the combination would result in unduly high market shares (>85%) in the provision of acute care services in a six-county region and result in anticompetitive price increases. Shortly thereafter, the FTC sought and obtained a preliminary injunction (“PI”) from the United States District Court for the Middle District of Georgia halting the transaction pending trial. Typical enough. But here’s where our story starts to take some strange twists. What began that April in a federal district court is an adventure leading from the Supreme Court to local Georgia healthcare regulatory bodies…and possibly, back again. Here’s what happened.

Phoebe responded to the PI not by throwing itself into a trial on the merits, but rather by filing a motion to dismiss on the grounds that by virtue of the state action doctrine, Phoebe’s conduct was permissible. Generally, the state action doctrine provides that where (1) there is a clearly articulated state policy to displace competition and (2) there is active supervision by the state of the policy or activity, otherwise anticompetitive activity will be permitted. Here, Phoebe argued that because it was owned by the Hospital Authority of Albany-Dougherty County, and operated under Georgia’s Hospital Authorities Law, it was immune. Phoebe prevailed on its motion to dismiss in the district court and then again at the U.S. Court of Appeals for the Eleventh Circuit. Phoebe then completed its purchase of Palmyra, closing the transaction. Continue reading

True, not False: SCOTUS “Omnicare” Case Highlights Need for Clarity on Key Securities Class Action Issue

greeneddavisjGuest Commentary

Douglas W. Greene and Claire Loebs Davis, Lane Powell LLP

On November 3, 2014, the U.S. Supreme Court will hear oral argument in Laborers District Counsel Construction Industry Pension Fund v. Omnicare, Inc., which concerns the standard for judging the falsity of an opinion challenged in an action under Section 11 of the Securities Act of 1933. In the U.S. Court of Appeals for the Sixth Circuit decision under review (“2013 Omnicare decision”), the court held that a statement of opinion can be “false” even if the speaker genuinely believed the stated opinion. This holding is contrary to the U.S. Supreme Court’s decision in Virginia Bankshares, Inc. v. Sandberg, which held that a statement of opinion is a factual statement as to what the speaker believes—meaning a statement of opinion is “true” as long as the speaker genuinely believes the opinion expressed, i.e., if it is “subjectively” true.

We authored an amicus brief on a pro bono basis for Washington Legal Foundation (“WLF”) in Omnicare that emphasizes the importance of clarifying the standard for challenging “false” statements of opinion under all the federal securities laws, not just Section 11. WLF’s view that such clarification is needed was reinforced by an October 10, 2014 decision in a subsequently filed securities class action against Omnicare under Section 10(b) of the Securities Exchange Act of 1934. In re Omnicare, Inc. Sec. Litig. (“2014 Omnicare decision”). In the 2014 Omnicare decision, the Sixth Circuit appeared to embrace the proposition that a statement of opinion is not actionable if it is subjectively true—at least under Section 10(b)—but then held that the subjective falsity inquiry should be analyzed within the element of scienter. The opinion reflects the continued confusion that pervades analysis of this issue, jumbling subjective falsity with other concepts, and conflating the separate elements of falsity and scienter.

As part of its scienter analysis, the Sixth Circuit also grappled with another important question: whose state of mind counts for purposes of determining a corporation’s scienter? Although the Sixth Circuit believes the standard it enunciated constitutes a “middle ground” between restrictive and liberal tests among the federal circuit courts, its ruling misunderstands the nature of the scienter inquiry and conflicts with the Supreme Court’s 2011 ruling in Janus Capital Group, Inc. v. First Derivative Traders, and thus risks expanding corporate liability beyond the proper reach of Section 10(b).

After discussing the proper analysis of statements of opinion, and explaining errors in the 2013 Omnicare decision, we explain and analyze both holdings in the 2014 Omnicare decision. Continue reading

Ebola Vaccine and Treatment Makers Need Liability Protection

670px-ebola_virus_virionU.S. politicians and regulators, many of whom ordinarily trend toward hyper-caution on new drug reviews and approvals, are rushing forward with policies aimed at speeding up development of Ebola vaccines and treatments. These measures include coordinated research among public health officials and drug makers, Food and Drug Administration (FDA) pledges of regulatory assistance, and congressional interest in legislation to qualify Ebola-targeted products for an FDA priority-review program. Such cooperation is encouraging, but government also needs to take action on another R&D disincentive which, if left unaddressed, could completely undermine current efforts on Ebola and frustrate future cooperative management of unforeseen pandemics. Ebola vaccine and treatment manufacturers need to have protection from tort liability exposure.

Any medical procedure, pharmaceutical product, or vaccine may have adverse health risks in some instances. Drug manufacturers must consider those risks when deciding whether to invest millions of dollars for product R&D, and the Food and Drug Administration (FDA) must weigh those risks against the benefits when approving a treatment. Such risks, along with the high regulatory barriers and low economic incentives attendant to investing in rare diseases, likely have been factors that explain the dearth of Ebola vaccines and treatments.

The United States government has the motivation and the means to minimize or eliminate such liability risks. Federal health agencies are already directly involved in vaccine development, and they will no doubt also be the major purchasers of the resulting drugs. Those federal entities could include a provision in the R&D agreements or purchasing contracts that would substitute the government as a defendant in any resulting lawsuits against private businesses, or indemnify companies from tort liability. The former option is certainly superior to indemnification, which could require the vaccine and treatment producers to litigate cases and then seek reimbursement for the losses or settlements. The companies would also have to negotiate with the government over whether the indemnification would cover litigation costs, such as attorneys’ fees.

The federal government indemnified manufacturers in contracts for a smallpox vaccine after the September 11, 2001 terrorist attacks. The companies argued that the proposed indemnification was insufficient, and in April 2003, Congress added expanded liability protections to the Homeland Security Act of 2002. For the one-year period of the national smallpox vaccination program (2003-2004), individuals allegedly harmed by a government-purchased smallpox vaccine could only sue the federal government under the Federal Tort Claims Act. Congress could consider the passage of a similar law for Ebola vaccines. Continue reading

First Circuit Permits Challenge to Massachusetts Prior Restraint on Billboards

billboardIn recognition of Free Speech Week, the WLF Legal Pulse celebrates what may be the First Amendment’s greatest virtue: it protects speech that may be unpopular due to the nature of the speaker or the medium within which it is spoken. We do so by applauding an October 20 U.S. Court of Appeals for the First Circuit ruling that addressed a prior restraint on a method of communication that some disfavor—billboards—and that predominantly carries messages some consider unworthy of full constitutional protection—advertisements.

Unbridled regulatory authority. Section 302 of the Massachusetts Code of Regulations requires all outdoor advertisers to obtain both an operating license and a permit for each specific sign. The regulation vests the Director of the Office of Outdoor Advertising (“Director”) with broad discretion to grant, withhold, or revoke licenses and permits for billboards. Section 302 enumerates several factors that the Director “may” consider, including “health, safety, and general welfare” and “not [being] in harmony with the surrounding area.” The regulation, however, states the listed factors are non-exclusive and that the Director’s authority is “[w]ithout limitation.”

Van Wagner Communications, which lobbied against the 2012 amendments to Section 302, filed a facial challenge to the regulation in federal court, arguing that it imposed an unconstitutional prior restraint on the company’s speech. The U.S. District Court for the District of Massachusetts held that because the Director had approved Van Wagner’s license and all 70 of its permit requests over two years, the company suffered no injury and thus lacked standing to sue. Continue reading

Delaware Federal Court Sanction Rulings Offer Lessons for Patent Plaintiffs and Defendants

Kaminski_Jeffri_LRFeatured Expert Contributor – Intellectual Property (Patents)

Jeffri A. Kaminski, Venable LLP, with Briana Rizzo,* Venable LLP

*Editor’s Note: With this post we welcome the participation in The WLF Legal Pulse of Featured Expert Contributor on patent litigation and policy issues, Jeffri Kaminski.

The Delaware District Court, historically known as a venue friendly to patent holders, appears ready to fight back against the litigation strategies of Patent Assertion Entities (PAEs), or “patent trolls.” While the court has traditionally disfavored imposing fees and sanctions on unsuccessful Plaintiffs [1], several recent cases signal a major shift in the judicial perspective on what District Court Judge Richard G. Andrews calls “misleading and prejudicial” tactics. [2] Most notably, Parallel Iron LLC v. NetApp Inc. and Summit Data Systems, LLC v. EMC Corporation et al solidify a growing trend in the Delaware Circuit of both judicial discontent with PAE litigation tactics and a willingness to sanction such behavior.

A trend on the rise

The U.S. Supreme Court released its groundbreaking Octane Fitness, LLC v. Icon Health & Fitness, Inc. decision on April 29, 2014, lowering the standard of 35 U.S.C. § 285 “exceptional” behavior and enabling prevailing parties to obtain attorneys’ fees for behavior that merely “stands out from others with respect to the substantive strength of a party’s litigating position […] or the unreasonable manner in which the case was litigated.” While several cases immediately following Octane Fitness retained a traditional refusal to award fees, on September 12, 2014, Judge Andrews released three pro-defendant opinions on the matter, the most significant being Parallel Iron LLC v. NetApp Inc. Continue reading

U.S. Officals Continue Push for Broader International Consensus on Competition Enforcement

Botti2Featured Expert Contributor – Antitrust & Competition, U.S. Department of Justice

Mark J. Botti, Squire Patton Boggs (US) LLP with Anthony W. Swisher, Squire Patton Boggs (US) LLP

*Editor’s Note: With this post we welcome the participation in The WLF Legal Pulse of Featured Expert Contributor on Justice Department-related competition law and policy matters, Mark Botti. Mark is co-leader of Squire Patton Boggs’s Global Antitrust & Competition Practice Group and previously spent 13 years at DOJ’s Antitrust Division. 

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In 2001, the Department of Justice Antitrust Division (DOJ) declined to block the proposed merger of General Electric and Honeywell, allowing the deal to proceed with certain limited divestitures. Announced in October of 2000, that deal would bring together two significant players in a number of related market segments, including aircraft engines, avionics, and landing gear. Despite DOJ’s decision not to block the deal outright, the European Union reached a different result, forbidding the transaction under a “conglomerate merger” theory that has long been out of favor in the United States and has drawn significant criticism in the economic and legal literature.

These diverging enforcement decisions spawned a wave of criticism directed at both jurisdictions. How were multinational businesses in a global economy to order their affairs in the face of such conflicting enforcement theories and outcomes? Were they facing a “race to the bottom,” where the most aggressive enforcers effectively held a veto over the decisions of other competition agencies? Continue reading

High Court Should Not “DIG” Dart Cherokee Basin Case

supreme courtDart Cherokee Basin Operating Co. v. Owens, which raises right-of-removal issues under the Class Action Fairness Act (CAFA), is among the more important civil justice cases being heard by the Supreme Court this term. Legal commentators are virtually unanimous in concluding that the trial court adopted an overly restrictive standard governing removal of cases from state to federal court. Yet, as Columbia Law Professor Ronald Mann noted in a recent column for ScotusBlog, questioning during the October 7 oral argument revealed that the Court may be reluctant to decide the case at all. Every question posed to counsel for Petitioner focused on “vehicle” issues, not on the merits of his CAFA arguments. Several justices even suggested that the case might be dismissed as improvidently granted—which would be a terrible mistake.

On closer examination, the procedural posture issues that troubled the Court at oral argument turn out to be insubstantial; they should not dissuade the Court from addressing the Question Presented by the petition. Moreover, as explained in Washington Legal Foundation’s amicus brief, it is critical that the Court retain jurisdiction in this case to unwind the judicially created doctrine that motivated the mistake below in the first place. Dart Cherokee provides the Court an ideal opportunity to end the rule of construction whereby federal courts continue to narrowly construe federal removal statutes against the party seeking removal, contrary to Supreme Court precedent and despite the utter lack of any textual basis for doing so. Continue reading