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

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

Court Upholds FTC Rule for Pharma Patent License Transfers

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino,Wilson Sonsini Goodrich & Rosati

Last November, I wrote about a new Federal Trade Commission (FTC) rule which, in a change to long-standing policy, made the transfer of a license providing an exclusive licensee with “all commercially significant rights” over a patent within a therapeutic area reportable under the Hart-Scott-Rodino Act. In practice, this meant that licensing agreements which previously required only the signatures of the two parties, now required a waiting period and an FTC blessing.

Shortly before the rule was to become operative, the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry group representing biopharmaceutical researchers and biotechnology companies sued to block it. The group argued that the FTC had not observed the appropriate procedures under the Administrative Procedures Act and that the FTC lacked authority to issue an industry-specific rule rather than a rule of general application, among other claims.

In a lengthy opinion on May 30, 2014, Judge Beryl A. Howell of the United States District Court for the District of Columbia, sided with the FTC and tossed PhRMA’s claims, finding that the FTC had followed the correct processes, had a reasoned basis for creating and instituting this rule, and should be shown deference. This bottom line is this puts us right back to where the FTC hoped it would be back in November: the transfer of “all commercially significant rights” over a patent is a HSR-reportable event.

That’s the headline but there are at least two questions that result from the opinion worth pausing to consider. First, this rule continues to only apply to the pharmaceutical industry. There are virtually no other industries with HSR-specific rules applicable only to them. Does this mean the FTC plans to extend HSR-specific rules to other industries? Or is the pharma industry so important in its own right that proper antitrust enforcement demands a different set of rules? Only time will tell. More importantly, perhaps, the FTC has not defined the phrase “all commercially significant rights.” What are the contours of this definition? What’s included or excluded? How, if at all, will the FTC provide guidance to the pharma community? PhRMA has up to 60 days to appeal so this may not be the last word. Stay tuned.

Justices Should Decline Solicitor General’s Misguided Advice, Review State Antitrust Liability Case

oneokIn adopting the Natural Gas Act (NGA), Congress determined that wholesale natural gas pricing issues should be the exclusive preserve of the Federal Energy Regulatory Commission (FERC) and thus that State efforts to regulate the wholesale market were preempted.  Courts uniformly barred States from seeking to regulate any “practice . . . affect[ing]” the wholesale rates charged by natural gas companies—until a 2013 U.S. Court of Appeals for the Ninth Circuit decision that is the subject of a pending Supreme Court certiorari petition.  ONEOK, Inc. v. Learjet, Inc., No. 13-271.  The decision below would permit plaintiffs’ lawyers to proceed with antitrust challenges under state laws to industry practices that directly affected wholesale prices.  The court reasoned that preemption was inappropriate because the challenged practices also directly affected a small number of retail natural gas sales.

In response to an invitation from the justices, the Solicitor General of the United States last week filed a brief urging that certiorari be denied.  Interestingly, however, the Solicitor General’s brief agrees with the defendants (natural gas suppliers who engage primarily in wholesale transactions) that the Ninth Circuit’s anti-preemption ruling was dead wrong.  The Solicitor General recommends against Supreme Court review primarily because he concludes that other courts are unlikely to repeat the Ninth Circuit’s error, particularly with respect to transactions arising after Congress revised the NGA in 2005.  But in light of the Ninth Circuit’s fundamental misunderstanding of the scope of NGA preemption, I am far less sanguine that it will eventually see the error of its ways.  Unless review is granted, there is every reason to believe that the Ninth Circuit will adhere to its anti-preemption precedent in future cases.

On ten or more occasions every term, the justices request the views of the Solicitor General on whether the Court should grant specific certiorari petitions.  The Solicitor General correctly recognizes in his ONEOK brief that merely because the decision below was incorrect is not alone sufficient grounds to recommend that review be granted.  The Court has limited the size of its docket to about 75 cases per term.  The justices thus usually adhere to the dictates of Supreme Court Rule 10, which states that the Court generally will grant certiorari only in cases that raise an “important question of federal law” and that have decided the question in a manner that conflicts with a relevant decision of the Supreme Court or other appellate courts.  Accordingly, the Solicitor General not infrequently recommends that the Court deny a certiorari petition even though he concludes, as here, that the decision below was incorrectly decided.

But the Solicitor General’s principal rationale for recommending a denial of certiorari—that the Ninth Circuit’s error is of reduced importance because it is unlikely to be repeated—is subject to serious question.  The plaintiffs accuse natural gas traders of having manipulated privately published price indices in 2001-02.  Because buyers and sellers rely on those indices as reference points for pricing all types of natural gas transactions, the direct effect of the alleged manipulation was to raise wholesale natural gas prices.  While conceding that wholesale purchasers were barred by the NGA from challenging the alleged manipulation on state antitrust grounds, the Ninth Circuit held that preemption did not extend to suits brought by retail purchasers who challenged the very same manipulation, because retail sales fall outside of FERC’s jurisdiction.  The court concluded this despite the fact that the alleged manipulation unquestionably was a “practice . . . affect[ing]” wholesale prices within the meaning of the NGA.

Continue reading

WLF Briefing Addresses Antitrust Law Ramifications of “Patent Privateering”

PodiumPic1Patent Assertion and “Privateering”: When Do Antitrust Law Concerns Arise when the Patent Is the Product?

The recording of this Media Briefing program (held on May 21) can be viewed in its entirety online.  Click HERE.

Program focus:As federal antitrust officials continue to study the impact patent licensing and assertion have on market competition, concerns have been raised over “operating” companies’ relationships with patent-assertion entities. Can such “privateering” run afoul of antitrust laws or should regulators view such activity as a legitimate business practice at a time when patents are increasing seen as commodities?

Speakers:

 

Wall Street Journal’s “The Americas” Column References WLF Publication on Mexican Antitrust Proposal

Flag_of_Mexico_(reverse)In today’s Wall Street Journal, influential “The Americas” columnist Mary Anastasia O’Grady focuses on a troubling overhaul of Mexico’s competition laws in Mexico’s Anti-Market Antitrust Law ($). Ms. O’Grady references a March 14, 2014 WLF Legal Backgrounder, Proposed Change To Mexican Antitrust Law: Erecting A Barrier To Competition?, in her explanation of why the new law will chill competition and curtail investment.  She writes:

How troublesome are these provisions? A March 14 memo written by antitrust lawyers John Roberti and Meytal McCoy of Mayer Brown in Washington and published by the Washington Legal Foundation helps explain. It points out that a company may be cited for ‘barriers to competition’ if the regulator identifies ‘the existence of market dominance or concentration in a critical input and not necessarily the unlawful exercise of that power.’ In other words, there is no need to commit a violation to qualify as a monopolist. One only has to produce something that many people buy.

Mr. Roberti and Ms. McCoy warn that the law allows for ‘industry-wide investigations.’ These might end in ‘structural remedies and price regulation and could be imposed without any obligation to make company-specific findings of the existence of anticompetitive conduct or agreements.’ They further note that ‘this ‘barriers to competition’ concept is not found in competition regimes elsewhere in the world.’ Revisions to the law’s text in Congress did not resolve these issues.

Does FTC Glass Settlement Break the Efficiencies Mold?

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino,Wilson Sonsini Goodrich & Rosati

(Editors note: The Legal Pulse would like to (belatedly) congratulate Andrea on her promotion to partner, the announcement for which at the end of last year escaped our discovery)

As expected, on April 11, 2014, the Federal Trade Commission (“FTC”) announced the resolution of their investigation and administrative court challenge into the $1.7 billion acquisition of Saint-Gobain Containers, Inc. (“St. Gobain”) by Ardagh Group SA (“Ardagh”). In order to allow the transaction to proceed and resolve the pending administrative trial, Ardagh agreed to sell six of its nine glass container manufacturing plants in the United States to an FTC-approved buyer within six months, including all tangible and intangible assets, and customer contracts. (All pleadings and filings for all parties, including the original complaint, which argued that the acquisition would harm competition in the markets for glass containers used to package beer and spirits, are available online.)

The fact that this litigation was resolved via a divestiture of brick-and-mortar facilities in an industry like glass manufacturing is not news of note to this FTC observer. What is worthy of pause, however, is that the vote to approve this consent was not unanimous (it was 3-1) and that the efficiencies defense stands front-and-center in the dispute between the majority and minority.

For the majority, Chairwoman Ramirez and Commissioners Brill and Ohlhausen, found that the transaction as originally structured would have resulted in a violation of Section 7 of the Clayton Act. When presented with a carefully crafted remedy, these Commissioners believed that the remedy would “fully replace[ ] the competition that would have been lost in both the beer and spirits glass container markets had the merger proceeded unchallenged.” Thus, they voted to accept the settlement. Continue reading