Key Themes: Antitrust and the Free Market

Slater highlighted the intersection of antitrust remedies and AI innovation, framing the current moment as an “inflection point” for both antitrust enforcement and technology policy. She argued that monopolization remedies should foster competition by opening markets to smaller tech firms while incentivizing large tech companies to innovate rather than exclude competitors. Drawing parallels between the advent of large language models (LLMs) and the internal combustion engine, she stressed that AI’s transformative potential depends on entrepreneurs having the freedom to innovate without monopolistic barriers.

“The antitrust laws are the free market laws,” Slater said, citing the Supreme Court’s ruling in N. Carolina State Bd. of Dental Examiners v. F.T.C. (2015), which underscores antitrust as a safeguard for economic freedom ([1]).

Historical Lessons in Antitrust Enforcement

Slater provided three historical examples to illustrate how antitrust remedies have spurred innovation:

1. Standard Oil Breakup (1911): President Theodore Roosevelt’s lawsuit against Standard Oil dismantled its monopoly, reducing oil prices and enabling industries like automotive and aviation to thrive. This case demonstrated that curbing monopolistic control fosters economic dynamism ([2], [3]).
2. AT&T Consent Decree (1956): The DOJ’s 1949 lawsuit against AT&T led to a settlement that opened access to transistor technology, catalyzing the growth of Silicon Valley firms like Intel and Fairchild. Gordon Moore, Intel’s co-founder, credited this decree for enabling the semiconductor industry’s rise ([4], [5]).
3. AT&T Breakup (1984): Under President Reagan, the DOJ broke up AT&T’s telephone monopoly, fostering competition in long-distance and wireless markets. This enabled innovations like the Carterfone and, later, the iPhone, showing how antitrust remedies can unlock adjacent markets ([6], [8], [10]).
4. Microsoft Decree (2001): The Bush-era settlement with Microsoft prevented the company from stifling competition in the Windows ecosystem, allowing companies like Google and Apple to grow. This case highlighted the importance of protecting “leapfrog competition” for transformative innovations ([11], [12], [13]).

Antitrust in the AI Era

Slater emphasized that today’s AI-driven technological race requires similar antitrust vigilance. Monopolists who hoard data, users, or platforms can stifle innovation, much like AT&T and Microsoft did in the past. She advocated for remedies that restructure access to these resources without picking winners, trusting the competitive process to drive growth. This approach, she argued, counters centralized models like China’s, which rely on state-backed monopolies ([1]).

Benefits for All Stakeholders

Slater concluded that antitrust enforcement benefits not only innovators but also monopolists and consumers. Post-breakup, Standard Oil’s successors (ExxonMobil, Chevron) and AT&T’s descendants (Verizon, AT&T) thrived, as did Microsoft after its decree. By fostering competition, antitrust remedies expand economic opportunities, lower prices, and drive innovation, ensuring America’s leadership in AI and beyond ([14], [15]).

Why This Matters for Antitrust and AI

Slater’s speech underscores the DOJ’s commitment to using antitrust enforcement to promote free market competition in the AI era. As LLMs and other AI technologies reshape industries, her insights highlight the need for policies that prevent monopolistic exclusion and empower entrepreneurs. For businesses, policymakers, and tech enthusiasts, her message is clear: robust antitrust remedies are essential for unleashing America’s innovation potential.

Andre Barlow

abarlow@dbmlawgroup.com

Citations:

1. N. Carolina State Bd. of Dental Examiners v. F.T.C., 574 U.S. 494 (2015).
2. Roosevelt, T., Special Message to the Senate and House (1906).
3. Standard Oil Co. v. United States, 221 U.S. 1 (1911).
4. Watzinger et al., How Antitrust Enforcement Can Spur Innovation (2020).
5. Wessner, C.W. (ed.), Capitalizing on New Needs and New Opportunities (2001).
6. Watzinger & Schnitzer, The Breakup of the Bell System (2022).
7. In re Use of the Carterfone Device, 13 F.C.C.2d 420 (1968).
8. Carstensen, P.C., Remedies for Monopolization (2012).
9. Heiner, D.A., Microsoft: A Remedial Success? (2012).
10. Hesse, R.B., Section 2 Remedies and U.S. v. Microsoft (2009).
11. United States v. Microsoft, 253 F.3d 34 (2001).
12. Comanor, W.S., Break ‘Em Up for Their Own Good (1992).
13. Id.

The settlement aimed to restore competition by ensuring that key assets, such as HPE’s Instant On business and Juniper’s AI Ops for Mist source code, remained available to competitors. The divestiture of the Instant On business to a DOJ-approved buyer within 180 days and the licensing of Mist AI software were designed to maintain competitive dynamics in the wireless local area network (WLAN) market, preventing the merged entity from dominating over 70% of the market alongside Cisco Systems. Industry perspectives, including comments from solution providers, suggest that these measures were seen as minor concessions that preserved the deal’s benefits while fostering competition, particularly against Cisco, by enabling a stronger, AI-driven networking portfolio for HPE.

To be sure, the effectiveness of these measures in fully restoring competition depends on the execution of the divestitures and licensing, as smaller competitors may still face challenges matching the scale of the merged HPE-Juniper or Cisco. That said, the licensing Juniper’s Mist AI software source code to independent competitors is a notable concession in the DOJ’s settlement with HPE and Juniper. This move was designed to facilitate new entry and maintain competition in the wireless local area network (WLAN) market.

The Mist AI software is a key component of Juniper’s portfolio, powering its cloud-managed, AI-driven networking solutions that optimize wireless performance and user experience. By requiring HPE to license this source code to competitors, the DOJ aimed to lower barriers for new or smaller players to develop competitive WLAN solutions, potentially fostering innovation and preventing the merged HPE-Juniper entity (with over 70% market share alongside Cisco) from stifling competition. This licensing could theoretically enable entrants to build or enhance AI-driven networking products without the need to develop comparable technology from scratch—a significant hurdle given the complexity and cost of AI-driven network management systems.

The effectiveness hinges on how accessible and affordable the licensing terms are in the future so the DOJ’s oversight will be very important. New entrants will likely need more that just access to the source code, they will need the technical expertise, infrastructure, and market reach to capitalize on the code. The settlement also required HPE to divest its Instant On wireless business to a DOJ-approved buyer within 180 days. This divestiture ensures that a standalone competitor retains a foothold in the market, potentially amplifying the competitive impact of the Mist AI licensing by giving an existing player immediate market presence. Fortunately, many of the competitors in the WLAN enterprise grade are actually significant competitors already.

This is clearly a strategic compromise that preserves HPE’s ability to compete with Cisco and globally while addressing DOJ concerns in the domestic market. The licensing of Mist AI could indeed spur innovation by enabling competitors to offer AI-driven solutions, potentially leading to new entrants or strengthening existing ones like Extreme Networks, Arista, Fortinet, or Ruckus. In short, giving up the Mist AI source code is a significant concession in that it creates an opportunity for new entry by lowering a key technological barrier. Whether it truly restores competition depends on how competitors leverage this access and navigate the broader market challenges. It’s a step toward leveling the playing field, but not a guaranteed win for new entrants against the industry’s heavyweights.

Lessons Learned

The recent settlement in the HPE-Juniper merger case offers insights into the DOJ’s approach to antitrust enforcement. Although the allegations in the complaint lacked a clear resolution, the settlement reflects a pragmatic decision by the DOJ to accept an imperfect remedy for a case with weak grounds for a full challenge.  The DOJ hailed the settlement as a victory, describing it as a novel approach to addressing unique challenges in merger cases. Notably, the DOJ considered the procompetitive benefits of the merger, particularly in the context of global competition. The agreed-upon remedy includes HPE’s divestiture of its global Instant On campus and branch WLAN business and at least one perpetual, non-exclusive license to Juniper’s Mist source code. This remedy modestly reduces market share in the enterprise-grade WLAN solutions market, but allows for new entrants to expand their enterprise grade WLAN offerings.  In addition, the divestiture and licensing must be completed within 180 days, with the possibility of 60-day extensions if needed, indicating the DOJ’s flexibility in finalizing the agreement.  This is also a departure from recent practice.  

Assistant Attorney General Slater’s stance against accepting inadequate remedies may still hold when a challenge is strongly supported by evidence. However, in this case, she demonstrated willingness to negotiate a less-than-ideal remedy for a merger that likely did not warrant being blocked. This decision aligns with the investigating staff’s view that the deal should not have been challenged initially.  The decision to settle rather than litigate, despite a weak legal case due to Juniper’s modest 6.5% market share, reflects a strategic choice to preserve agency credibility while enabling the merger and also aligns with the Trump administration’s “America First” agenda.

The key takeaways are that the DOJ is open to settling weaker cases with tailored remedies; the DOJ will consider procompetitive benefits, such as global market competitiveness so that can influence outcomes in future deals; and the DOJ is willing to use flexible timelines and pragmatic remedies reflecting a balanced approach to antitrust enforcement.    

Andre Barlow

202-589-1838

Facing a tight deadline before Slater’s confirmation, the DOJ filed suit to block the deal arguing it would harm competition in the enterprise-grade wireless local area network (WLAN) market.  While the DOJ’s intent to protect customers is a worthy goal, its case rests on a flawed premise, resting on a narrow view of the market that ignores robust competition and the broader strategic imperatives at play. Far from stifling innovation or choice, this acquisition would strengthen a key American player to rival Cisco domestically and, critically, counter Huawei globally.  For those reasons, DOJ’s litigation stance should be reconsidered.

Flawed Antitrust Concerns

The DOJ’s claim that the merger would overly concentrate the enterprise-grade WLAN market misreads the competitive landscape. The complaint paints HPE and Juniper as the second- and third-largest players behind market leader, Cisco, alleging their combination would leave just two firms controlling over 70% of enterprise-grade WLAN solutions. This analysis oversimplifies the competitive dynamics of the industry.

First, the European Commission and the UK’s Competition and Markets Authority, which both cleared the merger in 2024 after determining it posed no realistic threat to competition, confirm that the transaction does not raise competition concerns. In addition, the Biden Administration could have sued to block the merger but chose not to do so.

Second, the product market definition alleged by the DOJ is much too narrow.  Even the UK’s CMA did not find any functional or technical differences between WLAN products sold to large or smaller enterprises.

Third, the WLAN market is not a cozy oligopoly but a battleground where multiple players are vying for share. Cisco is more than twice as large as a combined HPE-Juniper with over 50% share for the past ten years.  Indeed, Juniper’s share is in the single digits and the combined firm’s share is less than 25%.  Companies like Extreme Networks, Arista, Fortinet, CommScope, and Ubiquiti, which make up approximately 25-30% of the DOJ’s narrowly defined market, have the technological muscle to reposition themselves, scale, expand, and rapidly grow share. Extreme Networks, for instance, powers WLAN for major enterprises like Kroger and universities, delivering secure, high-performance networks that rival those of HPE and Juniper. These firms are well-capitalized with proven deployments and R&D pipelines poised to exploit any opportunity. If HPE-Juniper raises prices or slacks on innovation, these competitors are ready to provide real choice to large enterprises including hospitals, campuses, and retailers.

Fourth, the DOJ’s focus on market share also ignores how enterprise WLAN works in practice. Large customers routinely solicit bids from multiple vendors, pitting solutions against one another in competitive request for proposals. This process keeps pricing in check and forces innovation, regardless of who merges with whom.  Juniper’s Mist platform and HPE’s Aruba have indeed competed head-to-head, but so have they with Cisco, Extreme, and others.

Fifth, the DOJ’s complaint includes a litany of inflammatory quotes from HPE’s executives’ documents, but not one deal document was cited. Notwithstanding their provocative nature, these statements have little grounding in the reality of competition.  Documents only matter if they are reliably predictive and relevant. The selective quoting of internal documents may suggest head-to-head competition, but any suggestion that the documents demonstrate that the merger would harm competition contradicts reality.  In reality, customers of HPE and Juniper may choose between the two companies as well as an entire host of alternatives including Cisco, Extreme Networks, Fortinet, and Arista.  The idea that merging HPE and Juniper would suddenly let them dictate terms overlooks the technological strength of the competitors and the bidding process. If anything, combining HPE’s scale with Juniper’s AI-driven tools could drive sharper pricing and faster feature rollouts to fend off these hungry rivals.

Finally, the DOJ is challenging this acquisition in the same district court where it lost its challenge to Oracle’s acquisition of Peoplesoft in 2014 because evidence that Oracle and PeopleSoft competed aggressively against each other was not enough to prove anticompetitive effects and that they competed in a three firm market was too narrow.

National Security and Global Competitiveness

The DOJ’s case overlooks the significant national security stakes involved in this merger. Huawei, the Chinese tech giant banned in the United States over espionage concerns since 2019, continues to dominate global telecom infrastructure markets with state-backed pricing strategies. HPE CEO Antonio Neri has framed this acquisition as essential to creating a robust U.S.-based alternative to Huawei.  A stronger HPE-Juniper would create a number-two player with the muscle to challenge Cisco at home while taking the fight to Huawei in global markets. The deal would create a “full stack” U.S. alternative to Huawei, combining HPE’s servers, storage, and Aruba networking with Juniper’s AI-native routing and telco expertise.  Integrating AI, security, and networking is a procompetitive move that bolsters national security by offering a robust Western option for global telcos and enterprises in AI driven and 6G markets. Without this deal, the U.S. risks ceding ground to Huawei, especially in emerging markets where 6G and IoT are reshaping connectivity.  Moreover, HPE and Juniper power critical U.S. infrastructure by supporting the Department of Defense and Department of Energy making the combination a matter of “core tech” that strengthens America’s technological sovereignty.

Unlocking Innovation

HPE and Juniper bring complementary strengths that could unlock significant efficiencies post-merger. HPE’s expertise in cloud computing and hybrid IT solutions pairs seamlessly with Juniper’s AI-native networking tools. Together, they could deliver unified platforms that simplify IT management for enterprises while accelerating advancements in AI-driven infrastructure. These aren’t abstract savings; they’re the kind of edge U.S. firms need to outpace Huawei’s one-stop-shop model.

A Call for Reevaluation

Blocking this merger risks weakening a U.S.-based champion at a time when global tech leadership and national security are at stake.  Slater should use her fresh perspective to reevaluate this litigation with an eye toward getting the antitrust analysis right and balancing competition policy with broader strategic imperatives. Blocking HPE’s acquisition of Juniper Networks is counterproductive because it risks reinforcing Cisco’s dominance, undermining U.S. competitiveness against global rivals, and stifling innovation. Slater should reconsider the DOJ’s litigation decision to ensure that antitrust enforcement facilitates not hinders the ingenuity of American companies.  Importantly, the acquisition does not substantially lessen competition because Extreme Networks and others are ready to fill any void for those customers looking for another source of enterprise grade WLAN products.  In conclusion, the DOJ should let this deal proceed for the sake of innovation, competition, and national security.

Andre Barlow

202-589-1838

The complaint alleges that Amazon “fair pricing policy” requires third-party sellers who sell products through Amazon to agree to what is really a most-favored-nation (“MFN”) provision. According to the complaint, this fair pricing policy restrains third-party sellers, which wish to sell on Amazon’s platform, from selling their products on other websites, including their own websites, at prices lower, or on better terms, than offered through Amazon. This fair pricing policy replaced Amazon’s price parity provision, but the claim is that this new policy has the same effect as Amazon’s old policy.  It is considered a platform most-favored nation agreement and allows for Amazon to penalize third parties found in violation of these policies. Allegedly, the provisions have the effect of creating a price floor with Amazon’s prices being the lowest. Because these third-party sellers incorporate Amazon’s fees – which can be up to 40% of the product’s price – into their prices, they are forced to inflate their product prices on other platforms since they must account for the fees in their sale price. The claim of the Office of the Attorney General is that this policy suppresses competition and unnaturally inflates prices for consumers across all online retail platforms. The complaint asserts that these unreasonably high fees are built into prices market wide, due to the alleged price floor caused by the most-favored nation provisions.

According to the complaint, Amazon allegedly violates D.C. antitrust law in a variety of ways. First, Amazon is alleged to be engaged in unlawful horizontal agreements because Amazon horizontally competes with many third-party sellers (i) as online retailers, and (ii) in particular products. Second, Amazon is alleged to be engaged in unlawful vertical agreements because the most-favored-nation provisions eliminate competition in online retail. Third, Amazon, accounting for 50-70% of all online retail sales and benefiting from network effects, is alleged to monopolize and attempt to monopolize the online retail sales market.

D.C. Attorney General Karl Racine has stated that the lawsuit is an attempt to end Amazon’s illegal use of price agreements which destroy competition and harm the company’s two million third-party sellers. The complaint states that these pricing agreements “are facially anticompetitive and allow Amazon to illegally build and maintain monopoly power in the online retail market in violation of the District of Columbia’s Antitrust Act.”

In 2019, Amazon faced scrutiny from the U.S. Congress and regulatory agencies regarding a clause in their contracts with third party sellers that was known as a price parity provision. Though the company removed this provision, it was then replaced with the similar fair pricing policy that is under scrutiny today.

Amazon has responded to the lawsuit stating that “the D.C. Attorney General has it exactly backwards – sellers set their own prices for the products they offer in our store.” While the complaint seeks to enjoin Amazon from engaging in this allegedly anticompetitive behavior, Amazon has stated that such relief “would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law.”

This case is noteworthy because there is not much litigation that has examined the anticompetitive effects of MFNs.  Without precedent indicating that price parity provisions or MFNs are anticompetitive, the DC AG, as the plaintiff, will have a difficult time showing how Amazon’s pricing policies result in anticompetitive effects.  Amazon will likely argue that the company’s pricing practices are pro-competitive or have no competitive effect.  MFN clauses are common in business. MFN clauses can be advantageous to a purchaser in that they eliminate the purchaser’s risk in negotiating a bad deal under unstable pricing conditions and are generally benign when the purchaser does not have market power.  But, Amazon’s MFN has been under scrutiny in the European Union so the DC AG is not on its own in scrutinizing the policy.  Indeed, when a monopolist or a firm with market power uses MFN clauses in its contracts, they can be illegal if they result in anticompetitive effects that harms the competitive process and results in increased prices overall.  For these reasons and more, MFN clauses alone are subject to the rule of reason—a lenient standard that requires a rigorous market analysis.  The difficulty in DC’s case is proving that Amazon has market power.  Market analysis or evidence needs to show that Amazon controls more than 50% of ecommerce.  Many third-party sellers are increasingly using other online platforms run by Etsy, Shopify, Facebook, Walmart Inc., eBay Inc., Target Corp., and others to reach new consumers in the wake of the pandemic.

Moreover, the lawsuit adds to increasing scrutiny over Amazon’s relationship with its third-party sellers, including a probe launched by the FTC in concert with the attorneys general around the country.  It is unclear why the District of Columbia’s lawsuit was filed before the other antitrust enforcers have completed their investigations other than politics.  In fact, D.C. Attorney General Racine is rumored to be in the running to be nominated to chair the Federal Trade Commission.  Even though this case currently involves only the D.C. AG, it still has important implications for the legal future of big tech companies and platforms. Facebook, Google, Apple, and Amazon have been under increased antitrust scrutiny in the United States for the past few years, indicating that federal and state antitrust enforcers will continue to scrutinize their conduct, actions and policies.

By Rachel Sims

The FTC has a long history of scrutinizing transactions in the pharmaceutical industry, but Commissioners’ statements demonstrate that they are not on the same page with regards to the analytical approach of analyzing pharmaceutical mergers and how to remedy the competitive problems that are identified.

The three Republican Commissioners in the majority adhere to the traditional framework, which examines actual competition between existing treatments and potential competition between existing and pipeline treatments, and then tailors very narrow remedies to address those competitive overlaps.

Background

AbbVie and Allergan compete in the manufacture and sale of pancreatic enzyme therapies for exocrine pancreatic insufficiency (“EPI”).  AbbVie’s Creon is a pancreatic enzyme therapy for EPI, a condition that results in the inability to digest food properly.  Creon is the market leader.  Meanwhile, Allergan’s Zenpep (pancrelipase) was a strong competitor in a concentrated market where the other two players have only one or two percent share.  Indeed, AbbVie and Allergan together control 95 percent of the market for these drugs.  As a result, the FTC concluded that the merger lessened competition in the market for treatment of EPI.

AbbVie and Allergan have investigative biologic drugs working their way through the U.S. Food and Drug Administration (“FDA”) approval process that are indicated to treat moderate to severe Crohn’s disease and ulcerative colitis.  AbbVie’s Skyrizi, an IL-23 inhibitor, is already on the market to treat moderate-to-severe psoriasis, but Skyrizi and Allergan’s IL-23 inhibitor, brazikumab, will potentially compete in the future.  The FTC alleges that the acquisition would eliminate future direct competition between AbbVie and Allergan in the development and sales in the United States of IL-23 inhibitor drugs for treatment of moderate-to-severe Crohn’s disease and moderate-to-severe ulcerative colitis.

Consent Agreement

Under the proposed consent agreement, AbbVie and Allergan are required to divest to Nestlé, S.A. (“Nestlé”) Allergan’s assets related to EPI drugs Zenpep and Viokace.  AbbVie and Allergan also are required to transfer to AstraZeneca plc (“AstraZeneca”) Allergan’s rights and assets related to brazikumab — its IL-23 inhibitor that is in development to treat moderate-to-severe Crohn’s disease and ulcerative colitis.

Commissioner Chopra and Slaughter‘s Dissents

Commissioners Rohit Chopra and Rebecca Slaughter, the two Democrats, continue to call for a fundamentally different approach to analyzing pharma mergers especially when the merger combines two firms that have engaged in a laundry list of egregious anticompetitive practices that have resulted in higher prices and less consumer choice.  Commissioner Chopra remains skeptical that the FTC’s traditional framework identifies the complete set of harms to patients and favors taking a more expansive approach to analyzing the full range of competitive consequences of pharmaceutical mergers.  Commissioner Slaughter agrees with Chopra’s dissent but also expresses concern about the lessening of innovation that occurs from a massive pharmaceutical merger.

Commissioner Chopra criticizes the FTC’s myopic approach to analyzing pharmaceutical mergers as he points out that “he agency’s default strategy of requiring merging parties to divest overlapping drugs is narrow, flawed, and ineffective”.  He added that “it misses the big picture, allowing pharmaceutical companies to further exploit their dominance, block new entrants, and harm patients in need of life-saving drugs.”

However, the main focus of his dissent is on the FTC’s willingness to accept “risky or questionable buyers”.  He questions whether Nestlé, the maker of candies such as KitKat is a suitable buyer for a prescription drug and whether the divestiture of a pipeline drug to AstraZeneca would actually restore competition.

His main complaint about Nestlé is that the company is not a pharmaceutical manufacturer so it lacks the experience necessary to succeed.  And, while the divestiture of brazikumab rids the overlap, AstraZeneca is getting the asset for nothing and Allergan will continue to pay for the development costs of the drug so AstraZeneca gets a “windfall”, has no financial stake in the development of brazikumab, and will have little to no financial incentive to market the product aggressively when and if it is ever approved.

Commissioner Chopra also notes that the FTC failed to account for the hurdles that AstraZeneca will face if brazikumab is ever approved.  AstraZeneca would have to contend with AbbVie’s rebate wall.  Chopra specifically states: “the Commission could have also taken steps to reduce a key barrier to entry and expansion for AstraZeneca by restricting AbbVie and Allergan’s contracting and rebating practices.  This would make it more likely that AstraZeneca would exercise its option to develop and bring brazikumab to market.  Importantly, in the immunology space, a key feature of competition is the ability for a market player to engage in ‘portfolio contracting’ and ‘bundled rebates’ across its portfolio of drugs.  The evidence in the investigation suggests that AbbVie currently uses its bargaining leverage from its blockbuster drug Humira to preference its other immunology drugs.  AbbVie’s rebating practices are suspicious in their own right, and certain aspects of these practices might be unlawful.”

Majority Statement

On the flip side, the majority took on Commissioner Chopra’s dissent with a very aggressive tone.  The majority said Chopra’s dissent “makes misleading claims about the staff’s investigation, the state of competition in the pharmaceutical industry, and the commission’s enforcement record in this industry,” and that it “relies on false assertions, misapplication of law, and specious logic.  It appears to have fully embraced the adage to “never let the truth get in the way of a good story”.  The majority points out that while Nestlé is the world’s largest food and beverage company, it has “tremendous financial resources”, a substantial U.S. sales infrastructure, and “contrary to Commissioner Chopra’s assertions — Nestlé is no stranger to the healthcare space.”  Additionally, the majority took on the part of Commissioner Chopra’s dissent, which raised concerns regarding the potential that the merged firm could use rebating practices to disadvantage AstraZeneca in bringing brazikumab to the market.  To that end, the majority stated that “in the context of a merger investigation, the role of a divestiture is to restore competition to the state that it would have been absent the merger, not to provide the divestiture buyer with advantages that Allergan would not have had.” Basically, the majority is saying that behavioral remedies are inappropriate because Allergan would have had similar hurdles to overcome.

Truth be told, the FTC has an enormous amount of flexibility in crafting remedies to ensure that competition is fully restored.  Here the majority takes a very narrow approach of simply transferring pipeline assets to a divestiture buyer without regard to whether the product will ever be marketed.  The decision is curious given that former Director of Bureau of Competition Bruce Hoffman publicly stated in a speech in 2018 that pipeline drug divestitures face a “startlingly high” rate of failure and as Chopra points out in his dissent, the FTC has a history of using behavioral conditions to support divestiture buyers.

That said, the majority believes that the consent fully resolves competitive harm from the merger because the divestitures handle the overlaps, both firms are strong in different areas, and there is no evidence the deal will result in higher prices and lost innovation.

Concluding Thoughts

The philosophical divide between the Republican and Democrat Commissioners is not a surprise given some of their past votes on merger approvals.  The fundamental conflict goes to the very heart of how the FTC should evaluate pharmaceutical mergers.  The majority – as well as the FTC staff – continues to use the standard traditional analytical framework.  They are making an evidentiary-based analysis as to whether the specific merger before them is likely to substantially lessen competition in a line of business.  The majority is concluding that the transaction should be allowed with narrowly tailored divestiture remedies that resolve the specific competitive concerns and shies away from using a broader and more comprehensive approach.

The Democratic Commissioners, on the other hand, believe that the FTC’s analytical approach is myopic and fails to address wide-ranging issues of competitive harm.  They believe that the healthcare markets are not competitive and that the FTC’s approach has led to increased consolidation and higher prescription drug prices so a change in approach may be necessary.  And to the extent that the FTC is going to accept divestiture remedies of specific products, the Democratic Commissioners believe the FTC should require divestiture buyers that will fully restore competition.

Here, Commissioner Chopra raises serious issues about both buyers.  There is certainly always a concern when the divestiture buyer does not replace the competitive intensity that is lost from the merger, and here, Nestlé’ is no Allergan.  The evidence also very clearly suggests that AstraZeneca is not financially committed to the pipeline drug that it is acquiring for “no money” and that certain conduct in the industry may prevent AstraZeneca from effectively marketing brazikumab.  Specifically, Commissioner Chopra shines a light on how AbbVie’s rebating and bundling practices may actually be monopolistic conduct that is anticompetitive, and he rightly questions whether the conduct should have been prohibited in the consent order.  While the Commissioners disagree on a lot, they certainly all should be in agreement that consumers should not have to bear the risk of a failed remedy.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

The Northern District’s opinion stated that “[t]he argument misses the point of plaintiff’s alleged injury: Plaintiff alleges she suffered depressed wages.” The court added that “[p]laintiff’s claim is akin to a supplier who sells at a reduced price due to the anti-competitive behavior of a cartel of buyers.”  The court also found that complaint sufficiently supported the claim that the policy’s effects could be isolated from broader economic conditions like the unemployment rate.  The court added that “[p]laintiff’s causation allegations are plausible due to basic principles of economics.”  Indeed, “[i]f fewer employers compete for the same number of employees, wages will be lower than if a greater number of employers are competing for those employees.”  So, the case will move forward.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

The countries named in the Petition are Bahrain, Brazil, Croatia, Egypt, Germany, Greece, India, Indonesia, Italy, Oman, Romania, Serbia, Slovenia, South Africa, South Korea, Spain, Taiwan, and Turkey.  In the petition, it alleges that these countries are “dumping,” meaning that they are exporting the product at issue, CAAS, at a lower market price than it would charge normally in its own market in its home country.

The alleged anti-dumping margins for each country are as follows:

Bahrain: 56.98 percent

Brazil: 30.23 percent to 44.20 percent

Croatia: 32.01 percent

Egypt: 31.5 percent

Germany: 37.22 percent

Greece: 61.25 percent

India: 122.8 to 151.0 percent

Indonesia: 32.12 percent

Italy: 28.97 percent

South Korea: 41.88 percent

Oman: 15.90 percent to 62.80 percent

Romania: 56.22 percent

Serbia: 40.61 percent

Slovenia: 30.88 percent

South Africa: 78.25 percent

Spain: 25.26 percent

Taiwan: 27.22 percent

Turkey: 42.45 percent

The product here, CAAS, is an aluminum product that is flat-rolled and could be used commercially in a variety of ways depending on the industry. It could be used in transportation, construction, or electrical work. The only use of CAAS that is outside of the scope of this petition is its use for aluminum cans.

Currently, the issue is under investigation by both the Department of Commerce and the International Trade Commission. The investigations will determine whether the imports are, in fact, injuring the U.S. trade industry through an unlawful dumping process.

If this product is of interest to you or your company could potentially be impacted, please contact Camelia Mazard, Esq. of Doyle, Barlow, and Mazard, PLLC for a consultation at either cmazard@dbmlawgroup.com or (202) 589-1837.

According to the New York Times, the smaller rivals, which have largely been publicly quiet until the hearing, finally stepped up to the plate and sounded off on big tech at a hearing in Boulder, Colorado.  The Congressional subcommittee heard stories of technology giants wielding their massive footprints and platforms as weapons, allegedly copying smaller competitors’ features or tweaking their algorithms in ways that stifle competition.

The pleas for regulatory relief resonated with lawmakers, led by Rep. David N. Cicilline (Democrat – Rhode Island), the chairman of the House’s antitrust subcommittee. Cicilline noted that “it has become clear these firms have tremendous power as gatekeepers to shape and control commerce online.”

The executives sounded off on big tech and the bipartisan committee encouraged them to testify about their stories.  The founder and CEO of PopSockets, explained how his company clashed with Amazon over policies that made it hard to sell his products on his preferred terms and prices.

Executives at Sonos, a high-end audio company, and Basecamp, which makes web-based product management tools allege that Google undermines smaller rivals. Sonos has sued Google, alleging patent infringement.  David Heinemeier Hansson the co-founder of Basecamp explained that its competitors have been purchasing ads on Google against the company’s own name, meaning people who search for Basecamp see rivals unless they scroll down their results page.  In other words, Hansson says that Google requires companies “to pay protection money” — or risk obscurity.

Tile makes Bluetooth trackers that can be attached to your personal possessions to help you keep track of them.  A Tile executive explained how Apple rolled out the “Find My” device tool — built into its operating system — that resembled Tile’s app used to find devices making it more difficult for Tile to compete.  From Tile’s perspective, it created a helpful tool for consumers, which was then copied by Apple and then Apple made its app the default on its devices, purposely hurting Tile’s business by making it more difficult for iPhone users to change their default settings, thus creating hurdles for Tile’s app that does not apply to Apple’s app. Tile wants a level playing field.

Along the lines of Tile wanting Apple to simplify what it claims is a too-complicated process right now, Apple shared a statement as part of the congressional hearing suggesting that a fix to this is coming soon. Per the statement shared by a CNBC reporter, Apple noted that:  “When setting up a new device, users can choose to turn on Location Services to help find a lost or misplaced device with ‌Find My‌ ‌iPhone‌, an app that users have come to rely on since 2010. Customers have control over their location data, including the location of their device. If a user doesn’t want to enable these features, there’s a clear, easy to understand setting where they can choose exactly which location services they want enabled or disabled. “…We’re currently working with developers interested in enabling the ‘Always Allow’ functionality to enable that feature at the time of setup in a future software update.”

Democrats and Republicans at the hearing sympathized with the executives.  There was little push back against the testimony of the small rivals.  Indeed, small rivals are encouraged to approach the DOJ Antitrust Division, FTC, and Congress about how the tech giants have used their powerful positions in search, e-commerce, online ads and smartphones to squeeze them out.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Most recently, on November 6, 2019, the Federal Trade Commission (“FTC”) issued an Opinion and Final Order in which the Commission upheld the Administrative Law Judge’s (“ALJ”) decision that Otto Bock HealthCare North America, Inc.’s (“Otto Bock”) acquisition of FIH Group Holdings, LLC (“Freedom”) was anticompetitive and that Otto Bock must divest Freedom’s entire business with the limited exceptions granted by the ALJ.  The Commission’s order was approved by all five commissioners and continues the trend of unwinding consummated acquisitions that are deemed to be anticompetitive.

Accordingly, buyers must be aware of the risks of closing a non-reportable transaction that eliminates competition.  Here are a couple of points to keep in mind:

First, Non-Reportable Transactions That Eliminate a Competitor May Raise Antitrust Scrutiny

Indeed, corporate executives that enter into non-reportable acquisitions of their competitors must be aware that in some cases these deals entail significant antitrust risk.  Just because the deal is not reportable under the HSR Act does not mean that the federal or state antitrust agencies won’t investigate, challenge, and unwind it.

Second, Size of Transaction Does Not Matter

The antitrust agencies can investigate and unwind a deal, no matter the size of the transaction.  The antitrust agencies have challenged consummated deals valued as low as $3 million (see George’s/Tysons,  Complaint, United States v. George’s Foods, LLC, No. 5:11-cv-00043 (W.D. Va. May 10, 2011).  Other small deals challenged by the agencies include Renown Health’s $3 and $4 million deals; a $5 million transaction (Complaint, United States v. Election Sys. & Software, Inc., No. 1:10-cv-00380 (D.D.C. Mar. 8, 2010); Magnesium Elektron/Revere Graphics, a $15 million deal; Charlotte Pipe/Star Pipe, a $19 million deal; Dun & Bradstreet’s $29 million deal;  BazaarVoice/Power Reviews; and the list goes on.

Third, Length of Transaction Has Been Closed Does Not Matter

The FTC has challenged a consummated transaction more than eight years after the transaction closed (see Complaint, Graco Inc., No. 101 0215 (F.T.C. Apr. 17, 2013).

Fourth, Disgorgement of Profits Is Possible

The agencies have sought disgorgement of profits earned from post-merger price increases to remedy the anti-competitive effects of a consummated merger.  For example, under the terms of the consent order in FTC v. Hearst Trust, Hearst agreed to disgorge $19 million in profits earned from price increases following its acquisition of MediSpan, Inc. (Final Order, FTC v. Hearst Trust, No. 1:01CV00734 (D.D.C. Nov. 20, 2001)).  In another example from the DOJ, U.S. v. Twin America, LLC, et. al, Twin America, Coach, and City Sights together were required to pay $7.5 million in disgorgement to remedy alleged violations of Section 7 of the Clayton Act, Section 1 of the Sherman Act, as well as New York State law, including the Donnelly Act (see Proposed Final Judgment, United States v. Twin America, LLC, Civil Action No. 12-cv-8989 (ALC) (GWG) (March 16, 2015)).  In one case, the DOJ and New York State sought disgorgement of defendants’ illegal profits earned from increased prices charged after the formation of an illegal joint venture that eliminated competition and created a monopoly in “hop-on, hop-off” bus tours in New York City.

How Does the Government Learn of Non-Reportable Anticompetitive Mergers?

In the absence of an HSR notification, the agencies become aware of possibly anticompetitive mergers through the companies own press releases, news reports, complaints from competitors or customers, information from other investigations, or, in some cases, self-reporting by the parties.

Background of Otto Bock/Freedom Deal

On September 22, 2017, Otto Bock and Freedom simultaneously executed a merger agreement and consummated their merger.  The transaction did not require a pre-merger notification filing in the United States so the FTC did not have a chance to evaluate whether the acquisition was anticompetitive prior to the closing.  But, shortly after the deal Otto Bock issued an ill advised press release that highlighted that the deal combined the #1 and #3 players in the field of prosthetics in the United States, led to market share gains and strengthened its leading position.  Believing that “antitrust issues had already been clarified”, they closed the deal and then Otto Bock took steps to integrate Freedom’s business, including personnel, intellectual property, know-how, and other critical assets.

Shortly after the closing, the FTC started an investigation and within three months took action by filing an administrative complaint seeking to unwind the merger.  At the same time, Otto Bock agreed with the FTC to hold the businesses separate during the litigation to preserve the acquired business from Freedom.  According to the FTC’s administrative complaint, the merging parties were head-to-head competitors in the manufacture of microprocessor prosthetic knees (“MPKs”) and the deal eliminated head-to-head price and innovation competition, removed a significant and disruptive competitor, and entrenched Otto Bock’s position as the dominant supplier of MPKs.

Otto Bock made a number of arguments in its defense.  First, it offered a divestiture of Freedom’s MPK assets to an identified buyer, which it argued eliminated the FTC’s allegations of purported harm.  The FTC, however, rejected the remedy as insufficient.  It also argued that the efficiencies would outweigh the procompetitive effects and that Freedom was a failing firm.

ALJ Decision in Otto Bock

On April 29, 2019, the ALJ upheld the FTC’s administrative complaint finding that the transaction substantially lessened competition in the relevant market for the sale of MPKs to prosthetic clinics in the United States.  The deal eliminated competition between Otto Bock and Freedom that spurred innovation and lower prices.  The ALJ found that Otto Bock’s divestiture remedy was insufficient and found that the appropriate remedy was the divestiture of all the assets acquired with the possible exception of certain foot products that are not necessary to competition in the relevant MPK market.  On May 8, 2019, Otto Bock filed a notice of appeal stating that it would appeal the entirety of the ALJ’s initial decision and order. 

Commission Opinion and Order

The Commission found that there was a presumption of harm based on high market shares and concentration levels.  In addition, the Commission found that the record evidence of competitive harm was compelling.  The evidence confirmed that Otto Bock possesses the leading share of U.S. MPK sales with the C-Leg 4 and showed that Otto Bock and Freedom vigorously competed against each other in terms of price and innovation competition.  Internal documents showed that they would respond against each other with price promotions and discounts.  If one came out with a new generation, the other would try to “leap frog” the other.  The evidence further demonstrated that Otto Bock viewed Freedom as a direct competitive threat and demonstrated that one of the reasons for the acquisition was to eliminate the development of Freedom’s new MPK, the Quattro, that had the nickname the “C-Leg Killer”.  Part of the reason for the acquisition was to make sure that no other competitor acquired Freedom’s Quattro.  In summary, the Commission upheld the ALJ’s decision that the acquisition substantially lessened competition and that to fully restore the competition lost from the acquisition, Otto Bock must divest Freedom’s entire business with the limited exceptions granted by the ALJ.

Lessons Learned

The FTC’s investigation, challenge, and successful litigation serve as a reminder to corporate executives and antitrust counsel that antitrust risks do not end once a deal closes, and that a transaction is not free of antitrust risks simply because the transaction is not reportable under the HSR Act.  The Commission’s Opinion and Order unwinding the merger further demonstrates the risks of closing a deal that presents significant antitrust concerns and makes clear that such challenges will continue to be pursued by the FTC.  The Commission’s Opinion and Final Order requiring a complete divestiture of the business that was acquired also makes clear that when the FTC is evaluating a proposed remedy that its goal is to fully restore competition.  When a buyer proposes to sell a carve out of assets instead of a whole business to a divestiture buyer, it must show how the partial divestiture of assets to the divestiture buyer restores competition.

Corporate and private counsel should be aware of the likely consequences and the risks of consummating transactions that raise significant competitive issues.  The risks may include: defending against costly and lengthy government investigations as well as government and private litigation; unwinding the merger through either complete or partial divestitures even after integration has taken place; and disgorging profits gained from the alleged anticompetitive merger.  Accordingly, before competitors execute a transaction agreement, counsel should conduct a preliminary assessment of whether the proposed transaction gives rise to substantive antitrust issues no matter the deal’s size.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

On the same day, Assistant Attorney General Makan Delrahim of the Antitrust Division of the U.S. Department of Justice (“DOJ”) said the DOJ is working with a group of more than a dozen state attorneys general as it investigates the market power of major technology companies.  Delrahim said at a tech conference that the government is studying acquisitions by major tech companies that were previously approved as part of a broad antitrust review announced in July of major tech firms with significant market power.  “Those are some of the questions that are being raised… whether those were nascent competitors that may or may not have been wise to approve,” he said.

On July 23, the DOJ said it was opening a broad investigation into whether major digital technology firms engaged in anticompetitive practices, including concerns raised about “search, social media, and some retail services online.”  The investigations appear to be focused on Alphabet Inc.’s Google, Amazon.com, Inc. and Facebook, Inc. (“Facebook”), as well as potentially Apple Inc.

More than a dozen states are expected to announce in the coming weeks that they are launching a formal probe.  “I think it’s safe to say more than a dozen or so state attorneys general (that) have expressed an interest in the subject matter,” Delrahim said.  In July, eight state AGs met with U.S. Attorney General William Barr to discuss the effect of big tech companies on competition, and various antitrust actions.

On August 19, the New York Attorney General’s office said it is continuing to “engage in bipartisan conversations about the unchecked power of large tech companies.”  North Carolina Attorney General Josh Stein is also “participating in bipartisan conversations about this issue,” his office said.  The DOJ is looking not only at price effects, but also at innovation and quality, and the next steps in its broad antitrust review would be seeking documents and other information.  Delrahim also said that after the July announcement, the companies under investigation “immediately reached out to work with us in a cooperative manner to provide information that we need as far as the investigation.  In June, the FTC told Facebook it had opened an antitrust investigation.  Last month, the FTC resolved a separate privacy probe into Facebook’s practices after the company agreed to pay a $5 billion penalty.

Thoughts

The states joining the DOJ’s and FTC’s investigations are not a surprise.  As many as 39 states have been raising antitrust concerns about the big tech firms with both the DOJ and FTC.  They have similar concerns regarding big tech as the federal antitrust agencies.  The issues relate to whether the markets for online advertising, search, social media, app sales and certain retail sectors are currently competitive.  The state AGs involvement in these investigations adds another layer of complexity for Google, Facebook, and Amazon.  This action by the state AGs should remind everyone that sound antitrust enforcement is not just a federal affair.  Indeed, many of the seminal antitrust cases including cases creating key principles of monopolization and merger law were brought by state attorneys generals.

State attorneys generals use the power under federal and their own state statutes to protect consumers against anticompetitive and fraudulent conduct in credit card, pharmaceutical, computer and many other markets crucial to consumers.

States have significant advantages over federal enforcers.  They are closer to the market and consumers and recognize the direct harm to consumers.  They have the ability to secure monetary damages.  States are often customers and victims of anticompetitive behavior.  State enforcers can bring combined antitrust and consumer protection cases.  And although each state has limited antitrust and consumer protection resources, states increasingly are using multi-state task forces to investigate and prosecute unlawful conduct.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Background

On October 2, 2017, Shire sued Allergan for its bundling and exclusive dealing arrangements with Medicare Part D plans that deny patients access to Xiidra® – Shire’s best-in-class, breakthrough drug to treat DED.

DED occurs when the eye does not produce enough tears or when tears are not of the correct consistency. The disease is evidenced by inflammation and damage to the ocular surface, resulting in blurry or fluctuating vision and eye fatigue. About one million Americans receive prescription drug treatment for DED. Shire’s Xiidra® and Allergan’s Restasis® are the only FDA-approved prescription drugs on the market for treatment of DED. There are no reasonable over-the-counter substitutes for treating DED. The FDA approved Shire’s Xiidra for treatment of both the symptoms and signs of DED. Restasis® was approved only for treatment of a specific symptom of DED—reduced tear fluid volume—which affects only 10 percent of those with DED.

Shire alleged that Allergan economically coerced Medicare Part D prescription drug plans to exclude Xiidra and maintain Restasis on a preferred formulary tier through financial incentives including rebates bundled across several Allergan Glaucoma drugs including Lumigan, Combigan, and Alphagan P.  These drugs have FDA approval for the treatment of high eye pressure in patients with glaucoma or ocular tension.

Medicare Part D is a prescription drug program for senior citizens. Participants in Part D can choose from a variety of health insurance plans. The list of drugs covered by a Medicare Part D plan is called the plan’s “formulary.” Formularies offer drugs in tiers that dictate the patient’s copayment. Drug manufacturers routinely provide rebates to obtain a preferred position on a plan’s formulary.  If a drug is not listed on a formulary, then it is considered “not covered” under the Medicare Part D plan.

Xiidra is approved to treat more signs and symptoms of dry eye disease than Allergan’s Restasis and also does not need to be used in conjunction with a topical steroid, which Allergan’s Restasis often does.  Shire also alleged that many patients using Restasis had adverse reactions or did not improve.

Despite the advantages of Xiidra, Shire alleged that payors did not have the economic incentive to switch to the new drug because they would lose rebates not just on Restasis, but on the rest of Allergan’s bundled drug portfolio that included glaucoma drugs.  As one plan told Shire, “You could give [Xiidra] to us for free, and the numbers still wouldn’t work.”

Shire also alleged that Allergan engaged in an exclusive dealing contract with another plan which barred the plan from offering Shire’s DED drug on its formulary. These contracting practices allowed Allergan’s Restasis to maintain a roughly 90% market share despite the entry of a new and improved drug. In a nutshell, the conditional rebates gave Allergan’s Restasis protection from competition and allowed Allergan to maintain its monopoly.

District Court Dismisses Shire’s Lawsuit

The federal district court, however, dismissed Shire’s lawsuit for two reasons. First, the district court held that Shire failed to plead a proper relevant market because the Medicare Part D dry eye disease market is “unduly narrow because it excludes others, notably commercial payers, to whom Plaintiff can sell Xiidra”. Second, Shire’s allegations that Allergan had agreements where it bundled its DED medication with other drugs and entered into exclusive agreements were insufficient to make out a case of anticompetitive conduct. Shire failed to allege that Allergan has “monopoly power over the” glaucoma drugs it allegedly bundled with Restasis or that Shire “did not have other available products that it could offer … as part of a bundled rebate” to Medicare Part D plans. As a result, Shire’s Sherman Act claims were dismissed.

 Thoughts:

Rebates offered across multiple prescription drugs to obtain preferred or exclusive position on a drug formulary can create a barrier to competition known as a rebate wall or trap.  Rebate walls block competition by coupling volume-based discounts across multiple products with punitive measures.  Contracts between drug manufacturers and payors that include bundling can be extremely effective at blocking competition and limiting formulary access to newer and more innovative therapies. However, as the district court put it, a fact sensitive analysis is required because “neither bundled rebates nor exclusive dealing contracts are inherently anticompetitive. In fact, both can be procompetitive.”  The judge is correct that the general rule is that bundled discounts are procompetitive, but the product in question relates to prescription drugs where patient choice is paramount.  Any threat to withhold rebates on the condition that Part D plans exclude Xiidra entirely from formularies would appear to be unlawful exclusionary conduct.  There is no procompetitive justification for the payment of rebates by a first-tier drug manufacturer for the complete exclusion of a competing drug from the formulary.

Prohibiting rebate walls is critical to providing seniors with access to more affordable medication that may be more efficacious.  Ultimately, patients lose access to choices of superior and more effective prescription drugs and, in some cases, are being delayed or denied the opportunity to obtain the most effective treatments for their individualized needs.  In addition, the district court judge was not impressed with the relevant product market.  But certainly, the sale of DED drugs to Medicare Part D plans is an important market to protect.  Competition in the Part D market is critically important as it serves a vulnerable population, our nation’s seniors, many of whom are on fixed incomes.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

While Congress has been grabbing the headlines by holding numerous hearings and introducing various legislative proposals aimed at lowering drug prices, the Trump Administration has introduced some consumer-friendly changes to Medicare that should change the way drugs are priced for seniors and encourage the use of generics and biosimilars.  First, the Centers for Medicare & Medicaid Services (“CMS”) proposes to change how insurance plans and PBMs conduct drug utilization management and structure drug formularies.  Second, the U.S. Department of Health and Human Services (“HHS”) proposes to eliminate the rebates that pharmacy benefit managers (“PBMs”) receive from drug manufacturers and to encourage that any rebates go directly to seniors at the point of sale.

These significant reforms are necessary as the stakes are high.  Since 2006, Medicare Part D spending has more than doubled to roughly $100 billion per year in 2017, and it is expected to climb as a growing and aging population of baby boomers becomes Medicare eligible.  Today, despite making up a modest proportion of Part D prescriptions, brand drugs account for some 84% of total Part D spending.  Generics, meanwhile, which make up most of the Part D prescriptions, account for only 16% of the total spending and saved the Part D program approximately $82 billion in 2017.

Those savings, however, could have been higher.  The formulary construction and contracting practices of both PBMs and Part D plans have cost seniors billions of dollars.  Part D plans have a lot of flexibility to design drug formularies and tier structure.  Historically, generics were placed in lower generic tiers and brands were placed in higher brand tiers.  This meant that seniors’ copays for generics were less than those for branded drugs so their out-of-pocket costs were lower when they purchased generic drugs.  Over time, Part D plans started to place generics in higher brand tiers.  And, in 2016, CMS announced a change to the formulary structure that explicitly allowed Part D plans to create a non-preferred tier, with higher copays, that could include both brands and generics.

The CMS change emboldened Part D plans to place generics and brands in the higher tier.  As a result, seniors have been faced with higher “branded” copays and out-of-pocket costs for generic drugs.  Indeed, recent studies from Avalere estimate that since 2015, seniors have paid nearly $22 billion in additional out-of-pocket costs for their prescription drugs, and seniors are paying approximately $1,000 more in out-of-pocket costs per year than they should be.

The change to formulary structure is costly enough, but matters become worse when PBM and plan incentives are considered.  Because of misaligned incentives that exist in the drug supply chain, PBMs and Part D plans seek out rebates based off escalating list prices of brand drugs.  Instead of offering seniors the best quality medicines at affordable prices, they are incentivized to implement plans designed to steer seniors from lower cost generics to branded drugs by comingling them on the same drug formulary tier.

The Administration’s proposal (1) to reverse CMS’s Part D formulary guidelines that allowed the practice of comingling generics on brand tiers and (2) to require plans to automatically include generic and biosimilar medicines on generic formulary tiers immediately after launch is a great first step in lowering drug prices for seniors.  According to HHS, besides raising seniors’ out-of-pocket costs, in 2017, this practice led to the federal government unnecessarily spending $9 billion on brand-name drugs that have a generic alternative.  HHS claims that if these prescriptions were dispensed as generics, the Medicare program would have saved $3 billion.  Moreover, implementing the current CMS proposal is estimated to save seniors approximately $4 billion in out-of-pocket costs per year.

The Administration’s proposal to eliminate rebates is also critical to lowering the cost of drugs for seniors.  The PBM market is not competitive: it lacks transparency and choice, while conflicts of interest abound.  Perversely, rebates create an incentive for PBMs to actually support higher list prices for brand drugs and sales of brand drugs over lower cost generics, which often result in higher copays for seniors.  It has been estimated that rebates cost seniors up to 30% more for their drugs.  Significantly, rebates have more than doubled in the last five years Indeed, rebates have more than doubled in the last five years and in 2018, pharmaceutical manufacturers paid $166 billion in rebates and price concessions to PBMs, insurers and the supply chain.  The PBMs pocket some of the rebates and pass some of the discounts to the Part D plans.  Seniors, who are purchasing drugs with high copays, though, do not see any significant benefits from the discounts so encouraging that discounts actually be passed on to them at the pharmacy counter is another major step in the right direction.

Implementing both of the Administration’s proposals is vital to the current and long-term success of the Medicare Part D program as they will have the effect of lowering Part D prices to seniors and the federal government.  They will also increase utilization of less expensive generics and biosimilars.  Medicare has been largely successful at moderating cost growth where there is generic competition, so regulations that make generics and biosimilars more accessible is critical to ensuring that patients have access to the therapies they need at lower out-of-pocket costs.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Under U.S. law, a domestic industry can petition the government to initiate an AD investigation into the pricing of an imported product to determine whether it is sold in the United States at less than fair value (i.e., “dumped”).  A domestic industry can also petition the initiation of a CVD investigation of alleged subsidization of foreign producers by their government.  Additional duties can be imposed if DOC determines that imported goods are dumped and/or subsidized, and if the ITC also determines that the domestic industry is materially injured or threatened with such injury by reason of subject imports.

If the ITC and DOC make preliminary affirmative determinations, U.S. importers will be required to post cash deposits in the amount of the AD and/or CVD duty rates for all entries on or after the date DOC’s preliminary determination is published in the Federal Register.  The preliminary AD/CVD rates can change in the final DOC determination, especially if foreign producers and their governments participate fully in the investigations.

Here the petition alleges that fabricated structural steel from Canada, China, and Mexico is being sold at less than fair value in the U.S. market and benefitting from countervailable subsidies. The alleged average dumping margins are 31.46 percent for Canada, 218.85 percent for China, and 41.39 percent for Mexico.

The products covered by this petition include carbon and alloy (including stainless) steel products such as angles, columns, beams, girders, plates, flange shapes, channels, hollow structural section shapes, base plates, plate-work components, and other steel products that have been fabricated for assembly or installation into a structure. Typical fabrication processes include cutting, drilling, welding, joining, bolting, bending, punching, pressure fitting, molding, adhesion, and other finishing processes. Fabricated structured steel is used in constructing structures such as buildings (commercial, office, institutional, and multi-family residential), industrial and utility projects, parking decks, arenas and convention centers, medical facilities, and ports, transportation, and infrastructure facilities.

Subject goods are classifiable under HTSUS 7308.90.9590, 7308.90.3000, and 7308.90.6000 and may also enter under HTSUS 7216.91.0010, 7216.91.0090, 7216.99.0010, 7216.99.0090, 7228.70.6000, 7301.10.0000, 7301.20.1000, 7301.20.5000, 7308.40.0000, 7308.90.9530, and 9406.90.0030.

The petition excludes fabricated steel concrete reinforcing bar under certain condition, fabricated structural steel used for bridges and bridge sections, pre-engineered metal building systems, and steel roof and floor decking systems designed and manufactured to Steel Deck Institute standards.

The Department of Commerce and the International Trade Commission will next determine whether to launch AD and CV duty and injury investigations, respectively, on these products. There are strict statutory deadlines associated with these proceedings, so affected companies that wish to protect their interests should contact trade counsel as soon as possible.

For more information, please contact

Camelia Mazard
(202) 589-1837
cmazard@dbmlawgroup.com

or

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

The Laws Should Reduce Patient Out-of-Pocket Spending by Eliminating Gag Clauses and Increase Drug Pricing Transparency

It is important to eliminate pharmacy gag clauses that prevent pharmacists from informing consumers of lower priced alternatives.  In a competitive market, we would expect providers would have the ability to guide consumers to the best products at the lowest cost.  The fact that PBMs had a practice of preventing pharmacies from disclosing this information means competition was not working as it should.

As consumers face rising prescription drug costs, the laws prohibiting PBMs from inserting provisions in their contracts with pharmacists that keep pharmacists from telling consumers about lower cost alternatives or that the cash price for a prescription drug may be less expensive than their insurance co-pay, should be welcomed by consumers.

The only purpose of the gag clause was to conceal the costs of prescription drugs from consumers at the pharmacy, causing consumers to pay more, with the only clear benefit going to the PBM’s bottom line.

Unfortunately, most consumers are not provided with a full set of information when purchasing a prescription drug.  It is not obvious to a consumer that sometimes the cheapest way to buy prescription drugs at the pharmacy is to pay cash rather than to use her insurance plan.  When those situations arise, a pharmacist should be allowed to do the right thing so consumers can make an informed purchase and save money.

Consumers have a right to know the costs of their prescription drugs.  Gag clauses serve no procompetitive purpose and their elimination is an important step towards increasing drug pricing transparency for consumers.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

States have significant advantages over federal enforcers.  They are closer to the market and recognize the direct harm to consumers.  They have the ability to secure monetary damages.  States are often customers and victims of anticompetitive schemes.  State enforcers can bring combined antitrust and consumer protection cases.  And although each state has limited antitrust and consumer protection resources, states increasingly are using multi-state task forces to investigated and prosecute unlawful conduct.

The strategic advantages of State Attorneys Generals are substantial. They have the authority to investigate and challenge mergers as well as the practices of PBMs under various federal and state laws including the False Claims Act (most states have enacted analogous false claims acts), state law deceptive trade practices acts, and the antitrust laws.

Much of the recent attention to escalating drug prices has focused on Pharmacy Benefit Managers (“PBMs”), the drug middlemen, who are driving up drug prices and reducing consumer choice.  Appropriately the President’ Blueprint to Reduce Drug Prices is focusing attention on how the lack of PBM competition and transparency permit PBMs to use their market power to drive up drug prices. In many cases, PBM customers such as states, health plans and employers do not receive the full benefit of these rebates because PBMs do not always classify certain fees as rebates.

Unfortunately federal antitrust enforcement has simply dropped the ball on PBM competition.  Over the past decade, the PBM industry has gotten stronger as it has undergone significant horizontal and vertical consolidation, leaving the market with just three large participants – Express Scripts, CVS Health, and OptumRx – that cover more than 85 percent of the PBM market.  And the FTC has opposed efforts by states to adopt sensible regulations.

PBM rebate schemes also interfere in the relationship between doctors and their patients.  PBMs often prevent consumers from getting the drugs they need or force consumers to switch drugs so they can secure higher rebates.  Consumers lose through higher prices, less choice and threatened health care.

In short, the current system is broken, federal enforcers are passive and we need strong enforcement by state attorneys generals to protect competition and consumers.

Fortunately the states are there to protect consumers and competition and they have tremendous interest in controlling drug spend.  States are clearly victims of these schemes as significant drug price increases take a substantial amount out of state budgets.  Indeed, the states have begun to take matters into their own hands.  In 2018, there have been more than 80 bills related to PBM regulation that were introduced in state legislatures across the country and 27 became law as of Aug. 1, 2018.  Some of this legislation relates to requiring PBMs to have a fiduciary duty to its health plans, prohibiting gag clauses or PBM contract provisions that limit a pharmacist’s ability to inform customers about the least expensive way for customers to purchase prescription drugs; prohibiting a PBM from setting patient copays at a higher level than the health plan’s cost of the drug; requiring rebate transparency; and limiting PBM requirements on independent pharmacies.

State AGs need to use their enforcement powers to stop the egregious practices harming consumers.  There are clear precedents for state action.  In the past decade a coalition of over 20 state attorneys generals brought a series of cases against the three major PBMs for manipulating the rebate process – switching patients to less safe, more expensive drugs in order to secure greater rebates.  Thousands of consumers were prevented from using the drugs they needed and that worked.  Ultimately the state cases were settled with penalties and damages of over $370 million.

The orders in these cases have expired and it seems that the PBMs have returned to their playbooks of misleading consumers and preventing them from getting the drugs they need. State AGs can obtain huge healthcare fraud settlements and judgments, which can provide an additional source of revenue for the states.  As PBMs are increasingly scrutinized by the federal and state authorities, State AG investigations and complaints are likely to increase.

While historically State AGs typically coordinate with the federal government, they can certainly act alone or along with other states.  Some State AGs with active enforcement agendas have sought to elevate their enforcement levels during periods when they have anticipated or perceived a reduction in federal enforcement.  The DOJ and FTC have had a light hand in terms of scrutinizing PBM conduct so State AGs seem to be filling the void.  Such an uptick in state level PBM enforcement is now in play and PBMs should take note of the resulting enhanced risk.

Ohio and other State AGs are preparing to increase their enforcement activities due to the slow progress by the federal government.  In July, Ohio Attorney General Mike DeWine put “PBMs on notice that their conduct is being heavily scrutinized, and any action that can be taken and proven in court will be filed to protect Ohio taxpayers and the millions of Ohioans who rely on the pharmacy benefits provided.”  Ohio’s investigation began at the end of 2017, and he expects the ongoing investigation to result in major lawsuits against PBMs.

In February 2018, Arkansas Attorney General Leslie Rutledge announced that she opened an investigation into CVS Caremark’s reimbursement practices after reviewing complaints of plummeting prescription medication reimbursement rates paid to local pharmacies.  She is concerned that the PBM’s “reimbursements do not cover the actual cost of the medications.”  If the local pharmacies’ prescription reimbursement rates are lower than their costs to purchase the drugs, they may eventually have to close their doors, which in turn, harms patients.

State AGs are essential to protecting consumers against anticompetitive PBM practices and making the drug prescription market work more efficiently.  Sound enforcement actions against PBMs that are behaving poorly are essential.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

The panelists included representatives from Association for Accessible Medicines (Jeff Francer), Mylan (Marcie McClintic Coates), Patients for Affordable Drugs (David Mitchell), and AARP (Leigh Purvis).  Watch the briefing here:  https://www.youtube.com/watch?v=9K3RQHB-oTE

They explained how one of most promising areas of drug research is the creation of generic biologic medicines, or biosimilars.  These drugs have great potential and often offer the best treatments for serious diseases such as cancer, multiple sclerosis, rheumatoid arthritis, and others.  Yet, today, there are only four biosimilars on the market in the United States.

What exactly are biologic medicines and biosimilars? Biologics are medicines extracted from a variety of natural sources–from humans, animals, or microorganisms. They include a great number of products such as vaccines, blood components, gene therapy, tissues, and recombinant therapeutic proteins. Biologics are fast becoming the future of pharmaceuticals.  Biologics make up 40% of drug spending in the United States and 70% of all drug price increases from 2010-2015.  This statistic demonstrates the growing importance of biologics and just how expensive they are.  Indeed, biologics are the cutting edge of current research, but they are often costly, sometimes as much as thousands of dollars per treatment. That renders them unaffordable even for those with comprehensive health insurance.

Enter biosimilars–biologic medicines that are approved by on data showing they are very similar to existing brand name biologics (called the reference products). Companies that make biosimilars must prove that their new drugs are just as safe and effective as the reference products. Some biosimilars can be designated as interchangeable with the reference products, which means they can be substituted for the brand name biologics.  And since biosimilars rely on information from the original drugs and don’t have to go through expensive new clinical trials, they are far less expensive than the original brand biologics.

The President’s Blueprint to lower prescription drug prices underscores the importance of expediting competition for generic and biosimilars to increase patient’s access to more affordable drugs.  The renegotiation of NAFTA, however, threatens to create new barriers and delay biosimilars from entering and competing in the United States.  Today, the United States has a 12-year market exclusivity period for brand name biologics, during which a biosimilar cannot be approved.  A biosimilar cannot be filed within the first four of those years.  The U.S. Federal Trade Commission has even found that exclusivity for biologics is unnecessary because biologics continue to keep most of their market share and price even after patent expiration.  Thus, there has been a push to reduce the exclusivity period in the United States so that patients could gain access to these important drugs sooner.  But, it has come to light that the renegotiation of NAFTA could very well create a situation that continues to delay generic and biosimilar access and may even alter companies’ decisions to pursue biosimilar markets altogether.  USTR recently announced an agreement with Mexico that would provide 10 years of data protection for biologics and an expanded scope of products eligible for protection.  The panelists claimed that the international trade agreement would set a floor in the United States.  The key to lowering drug prices for patients is by increasing competition through more access to safe, affordable generics, and biosimilars in the United States and around the world.  An international trade agreement with a 10 year exclusivity period would limit Congress’ ability to increase competition and reduce the costs of biologic drugs in the future.

Congress must vote to approve a revised NAFTA. Contact lawmakers now to oppose the inclusion of monopoly protections for brand-name drugs that keep prices for patients higher for longer and delays competition from more affordable generics and biosimilars.

Click on the link to take action.  https://p2a.co/5bmfkK5

Andre Barlow

Background on Pfizer/J&J

In September 2017, Pfizer filed an antitrust lawsuit under Sections 1 and 2 of Sherman Act alleging J&J engaged in exclusionary anticompetitive practices to keep Pfizer out of the market for infliximab products.

In 1999, J&J introduced the first infliximab product under the brand name Remicade, a biologic, which treats a variety of immune-mediated diseases. In 2016, Pfizer launched Inflectra as the first biosimilar to Remicade.

According to Pfizer’s allegations, within a week of Inflectra’s launch, J&J began to deploy its “Biosimilar Readiness Plan,” which allegedly involved a multi-pronged anticompetitive scheme including exclusive contracts and bundle rebates and multi-product bundling.   Pfizer’s allegation was that J&J threatened to withhold rebates (which often grow larger as performance metrics such as market share or volume rise, or which may be bundled together with rebates for other products) from insurers unless they agreed to exclude biosimilars from their formularies.  This is what Pfizer refers to as a “rebate trap”.

Exclusive Contracts: Pfizer alleges J&J sought and secured contractual commitments from commercial insurance companies to exclude Remicade biosimilars, such as Inflectra, from their plans.  These contracts made Remicade the exclusive infliximab product available to patients covered under those plans. At least 70% of commercially insured patients in the U.S. fall under plans that have adopted these express or de facto agreements to exclude Inflectra and other biosimilars.  As of September 2017, J&J maintained market share of over 96% of infliximab unit sales in the United States.

Bundling Rebates: Pfizer alleges J&J enticed insurers into accepting exclusive contracts via a rebate program that would provide discounts off Remicade’s increasing list price—but only so long as new patients are also given Remicade rather than Pfizer’s biosimilar, Inflectra. (bundling of new (contestable) and existing (noncontestable) patients)

Multi-Product Bundling: Pfizer alleges J&J bundled rebates across multiple products such that if an insurer refuses to grant exclusivity to Remicade, the insurer would be forced to pay a higher price on other J&J products in addition to Remicade.

Impact on Prices and Competition:

Pfizer alleges that both J&J’s net price accounting for rebates and other discounts continued to rise despite insurers and providers now having a lower-cost alternative in Pfizer’s Inflectra.  As a result, Pfizer claims that it has been prohibited from competing for at least 70% of all commercially insured patients in the United States.

Biosimilars:

Biosimilars are expected to be a key factor in efforts to contain prescription drug costs.  Biologics are complex, large-molecule medicines derived from living organisms and are used to treat a range of serious conditions, including rheumatoid arthritis, plaque psoriasis, Crohn’s disease, lymphoma, leukemia, breast cancer, and diabetes.  Biologics are among the most expensive prescription drugs in the United States and account for an increasing share of U.S. prescription drug costs.

The development of biosimilars is still a nascent industry.  But many industry experts and former Commissioner Gotlieb of the Food & Drug Administration (“FDA”) have expressed their views that increased competition from biosimilars could result in enormous benefits to the tune of $54 billion in savings between 2017 to 2026 for the U.S. healthcare system so making sure that biosimilars are allowed to compete on fair terms with higher priced branded biologic medicines is vitally important.  Some have indicated that the savings could be approximately $150 billion under the right conditions.  Exclusionary tactics through the use of a rebate wall threatens to stifle biosimilar competition and reduce patients access to affordable life saving drugs.

District Court’s Opinion

In J&J’s motion to dismiss, J&J argues that Pfizer failed to plead facts that constitute an antitrust injury.  J&J also identified a number of alternative reasons why Pfizer’s launch failed other than J&J’s conduct.  The district court found that Pfizer’s complaint sufficiently and plausibly alleges that it suffered an antitrust injury because it contained detailed allegations regarding J&J’s exclusionary terms with the nation’s largest insurers; the incentive structure that forces end payers and providers into accepting those terms; Pfizer’s efforts to compete (e.g., guarantee that Inflectra would cost less than Remicade); and showed how market participants on many levels are injured from J&J’s ability to sell Remicade without any competition.  With regards to bundled rebates, the district court noted that bundled rebates pose antitrust concern when a defendant forecloses competition from its product in a competitive market by linking it to a product on which it faces no competition. LePage’s Inc. v. 3M, 324 F.3d 141, 156 (3d Cir. 2003); SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1065 (3d Cir. 1978).The district court cited, SmithKline, noting the Third Circuit affirmed as an antitrust violation the defendant’s rebates based on the purchase of multiple products because the bundle, in effect, “insulated its product from true price competition.” 575 F.2d at 1065.  The district court noted the same was true in LePages’s, where the defendant “used its monopoly in transparent tape, backed by its considerable catalog of products, to squeeze” its competitor from the market. 324 F.3d at 157. Similar to exclusive dealing agreements, bundled rebate claims are analyzed under a rule of reason framework.

J&J relying on Eisai argued that Pfizer did not suffer antitrust injury because Pfizer did not allege that it was incapable of offering its own multi-product bundle and that bundling contestable and noncontestable patients cannot be an antitrust violation.  The district court rejected both arguments basically saying that discovery will show if Pfizer will have the facts to prove the theory of harm and Eisai lost on summary judgment because of a lack of factual support.

Takeaways:

Pfizer’s win is big step in the right direction.  Indeed, the ultimate outcome of this case will help define the scope of antitrust protections for biosimilars for years to come and may even determine the viability of the biosimilar industry.  This case demonstrates how some pharma manufacturers engage in contracting practices that create what is known as a rebate wall or trap.  This conduct may be anticompetitive if they block and delay the entry of biosimilars. When a rebate wall is successfully erected, an insurer faces strong financial disincentives to grant access to new and innovative therapies such as biosimilars, as doing so would result in punitive action that would result in the loss of hundreds of millions in guaranteed rebate dollars for the payor. This condition creates a “trap” for insurers which would otherwise be inclined to grant formulary access to biosimlars.

In many cases, these rebate traps prevent patients and physicians from seriously considering new medications at competitive prices.  The conditional rebate penalizes insurers if they use biosimilars because they would lose their rebates not only on the incumbent branded drug, but on all the products in which the rebate is bundled together.  Accordingly, these rebates are not discounts that benefit customers rather they are exclusionary tactics designed to stifle the entry of rivals.

In summary, rebate walls distort the workings of the free market, result in higher prices, and reduce patients’ access to affordable drugs.  Even worse, if J&J’s rebate trap is successful, it will provide other pharma manufacturers a roadmap on how to stifle stifle biosimilar competition and pharma manufacturers will have less incentives to develop biosimilars in the future.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Speedy Antitrust Approval

DOJ’s announcement of the settlement agreement is noteworthy because of the speed at which Disney was able to negotiate a remedy to a combination that raised a number of antitrust issues.  Though the parties received second requests on March 5, 2018, and Disney had only recently entered into a new agreement with 21CF on June 20, 2018, the DOJ and Disney were able to negotiate a divestiture worth approximately $20-23 billion within 6 months of review and 4 months after issuing information requests.  The dollar value of the Disney/21CF divestiture will likely double what the DOJ characterized as the largest divestiture in history in Bayer/Monsanto.

Disney was in a hurry to obtain antitrust approval because it is involved in bidding war with Comcast for the 21CF assets.  Indeed, Disney upped its offer on June 20^th because Comcast had started a bidding war for the 21CF assets on June 13^th.  Comcast has its own antitrust issues with its acquisition, but it was hoping to be on a level playing field with Disney in terms of the antitrust reviews at the DOJ. Indeed, Comcast said as much when it made its bid as it indicated that it had already provided documents and information to the DOJ in response to its civil investigative demand regarding the acquisition of 21CF assets.

Comcast was banking on the DOJ conducting a long drawn out second request investigation for Disney’s deal.  But, rather than conducting a lengthy review of the Disney/21CF deal, the DOJ entered into a quick settlement agreement.  This was surprising because the Disney/21CF deal raised a number of horizontal and vertical issues including increasing the size of its motion picture business, content library and cable programming, which would increase its bargaining leverage in negotiations with movie theatres and TV programmers on licensing fees, Multichannel programing distributors (MVPDs) and virtual MVPDs over affiliate fees for its channels, and video streaming services over licensing fees.  Moreover, Disney is taking control of Hulu and launching a number of subscription streaming businesses with the intent on foreclosing its content from rivals such as Netflix.  It could be that none of these issues amount to actual antitrust problems, but certainly they warrant some investigation.

Despite all of these other issues, the DOJ quickly focused on the overlap in cable sports programming.  The DOJ said in its Press Release that “to streamline agency clearance, Disney agreed to divest the 22 RSNs rather than continue with the Antitrust Division’s ongoing merger investigation.”  Anyone who has visited Disney World knows the value of fast passes.  Disney understands the value of time so it used a cooperative approach to get the greenlight for what appears to be the largest divestiture in history without an upfront buyer in record time.

Understanding that the DOJ’s major concern was the overlap in cable sports programming, Disney decided not to challenge that contention or negotiate a lesser divestiture, which would have lengthened the second request investigation many more months.  Disney likely could have argued that ESPN channels and local RSNs really do not compete head to head at all.  ESPN has market power as do the local RSNs to obtain increases in affiliate fees already.  Moreover, watching ESPN is no substitute for watching your home town team on the local RSN.  Disney, however, gave up on those arguments and agreed to a hefty structural remedy that took the issue off the table.

Makan Delrahim’s Editorial in the Washington Times Defending DOJ’s Fast Review

On July 12, 2018, Makan Delrahim wrote an editorial defending the speed in which Disney was able to negotiate a divestiture with the DOJ.  He noted that the divestiture agreement was a “victory for American consumers and should be heralded as an example of merger parties working effectively with Division investigators to resolve antitrust concerns.”  Delrahim noted that “each merger poses unique facts requiring unique market analysis.” He correctly stated that the pace of any review is largely in the hands of the merging parties, who control the timing of their Hart-Scott-Rodino (“HSR”) filings, as well as the pace and timing of compliance with the Division’s information requests.” He added that “parties can accelerate the review by pointing the Division to relevant information early in the investigation, promptly scheduling interviews, and remaining open to timely divestitures that resolve antitrust concerns.”

Competition Concern

The DOJ alleged that without the divestiture the acquisition would likely result in higher prices for cable sports programming licensed to MVPDs in each of the local markets that the RSNs serve.  As the DOJ explained, Disney (ESPN properties) and 21CF’s (RSNs) cable sports programming competed head to head.  The DOJ alleged that the ESPN properties and the 21CF’s RSNs compete to sell cable sports programming to MVPDs in various local markets across the United States.  Because of this competition, the complaint alleges that the proposed acquisition would likely result in MVPDs paying higher prices for cable sports programming in those local markets.

No Allegation of “Must Have” Programming

Interestingly, the DOJ did not allege that Disney or 21CF had “must have” programming.  Arguably, ESPN channels and RSNs would be considered “must have” programming for MVPDs and VMVPDs.  It could be that given Judge Leon’s Opinion in AT&T/Time Warner that the DOJ has given up on being able to prove that certain programming is “must have”.

No Upfront Buyer

Another interesting point is that the DOJ did not require an upfront buyer.  There could be good reasons for why no upfront buyer was necessary. Upfront buyers are usually required when the DOJ is not sure that any appropriate buyers exist or if all of the assets need to be divested to one buyer.  Here, there are numerous buyers and the DOJ decided that the RSNs can be sold to multiple buyers not to a single buyer.  In that scenario, Comcast could be a buyer for some RSNs located in geographic areas where it is not the incumbent cable provider; AT&T and Charter have very little in the RSN space and may want to buy other properties to gain a larger footprint; Discovery has international sports rights so they may be interested in some RSNs; Liberty Media has owned RSNs in the past; Youtube, Facebook, and Amazon may want to dip their toes into the RSN space; and Sinclair, which has a strong local presence in many markets and currently owns the Tennis Channel could be interested in some of the RSNs.

Lessons Learned

The DOJ’s quick settlement demonstrates that the DOJ is willing to streamline investigations if merging parties propose substantial structural fixes upfront.  The settlement and Mr. Delrahim’s editorial reminds merging parties that they control the timing and length of merger investigations.  Merging parties control how fast they file their HSR submissions and when they comply with the DOJ’s second requests.  Some merging parties take their time to comply, hold back submission of documents and information and delay offering any real significant divestitures until exhausting all of their economic arguments.  While the government gets a lot of blame for long antitrust reviews, merging parties are always in control of the timing.  This settlement agreement also demonstrates that the DOJ is willing to work with merging parties that are willing to cooperate in negotiating  a complete solution to a competition concern.  Consistent with its recent enforcement action in Bayer/Monsanto, the DOJ is willing to approve deals with significant divestitures.  Here, the divestitures are worth approximately $20-23 billion—more than double the size of the Bayer divestiture.  Finally, the settlement shows that the DOJ is willing to approve settlements without upfront buyers in situations where multiple buyers can acquire the divested assets, a single buyer is not necessary, and a number of potential buyers exist.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Generic Prices are Down, But Is that a Good Thing?

The short term effects appear good for the consumer, but the longer term effects could result in higher prices and drug shortages.  Today, 90% of U.S. prescriptions are for generic drugs not branded drugs, but in 2017, generics made up only 13% of all prescription spending.  Over the past several years, branded drug prices have been going up while generic drug prices have been going down.  Prices are so low that some generics are deciding to exit, stop producing and marketing certain drugs that are no longer profitable. If they exit, where will consumers get basic antibiotics and drugs that are no longer sold by the branded firms?

Powerful Buying Groups Are Squeezing the Generic Industry

Buyer muscle has become more visible in the generic pharmaceutical industry in the past five years as three buying groups control 90% of all generic prescription drug purchases.  From an antitrust perspective, there is usually nothing wrong when buying groups squeeze suppliers for lower prices. Indeed, hard bargaining by profit-minded buying groups can help drive down prices for consumers. But, under the antitrust laws, if dominant buying groups use their clout to distort the market and push prices to a level where the generic drug manufacturers can no longer profitably produce certain drugs, are forced to exit the market, or reduce output significantly, the antitrust authorities could take action to protect consumers.

Today, three buying groups include the top three wholesalers, top three pharmacy benefit managers (“PBMs”), 3 of 5 top insurers and the top five pharmacies.  ClarusOne Sourcing Services include McKesson, CVS Caremark, and Walmart. Walgreens Boots Alliance Development includes Walgreens, Express Scripts, ABC, and Cigna.  Red Oak Sourcing includes CVS, United, Aetna, Optum, and Cardinal.

Buying groups are typically used to help small businesses gain some bargaining leverage, but, that is not what is going on with these three buying groups. Here, the buying groups are populated with some of the most powerful firms in the United States.  Each on its own certainly has enough buying power to push prices down.  Combined, they may have too much buying power.  If prices are pushed down too low, generics may be forced to stop producing certain drugs and launching other drugs that are critical to patients and consumers.

Pricing Pressure Leads to Tough Choices for Generics

Because the generic drug industry is under pressure, firms are making tough choices.  The costs of doing business are high as getting a generic drug to market is difficult and complex. Development, FDA compliance and litigation costs keep going up while prices have been going down.  Generic drug manufacturers are rationalizing their portfolios because certain low margin drugs are not worth making any more.  While the number of ANDAs have increased, generic pharmaceutical firms are deciding not to launch new drugs because they cannot obtain a fair return on investment.  Generic firms are discontinuing drugs, closing down facilities, and reducing their work forces because profitability is going down. Inevitably, this will result in shortages of certain drugs that are important for consumers meaning that not only may prices go up in the long term but certain drugs may no longer be available.

Antitrust Enforcement May Be Necessary

The goal of the antitrust laws is to protect consumers.  The antitrust agencies need to take notice of how buying groups may be exercising monopsony power in the purchase of prescription drugs. There is certainly a tension as the goal is lower prices for consumers.  But, when there is evidence of exits and a reduction in output, the agencies may want to explore whether the generic industry is healthy.  Investigations into buying power is likely warranted.  Without any action, the situation will become worse and consumers will either lose access to critically important prescription drugs or face higher prices as choices will become more limited.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com

Background

On November 21, 2017, the U.S. Department of Justice’s (“DOJ”) Antitrust Division filed a complaint in federal court block AT&T’s acquisition of Time Warner Inc. (“Time Warner”).

On February 16, 2018, the DOJ and AT&T faced off at a hearing in front of Judge Leon regarding AT&T’s discovery requests related to internal communications between the White House and the DOJ and its identification of Makan Delrahim, the Assistant Attorney General (“AAG”) of the DOJ’s Antitrust Division, on its witness list for trial. AT&T’s discovery requests were in line with one of the company’s affirmative defenses in its Answer to the Complaint, namely that: “Plaintiff’s claim reflects improper selective enforcement of the antitrust laws.”

In front of Judge Leon, AT&T simply asked for a privilege log of communications between the DOJ and the White House, if any exist. The DOJ could have ended the discovery dispute by simply answering that no communications exist. But, the DOJ claimed that the discovery requests were actually broader and made a legal argument that the discovery is barred.

AT&T’s selective enforcement defense asserts that the DOJ singled out its deal.  First, the DOJ hasn’t litigated a vertical merger in 40 years. Second, in 2011, the DOJ approved Comcast’s JV with NBCUniversal, a vertical deal that raised largely the same concerns at issue in AT&T/Time Warner. Of course, that deal was resolved through behavioral remedies, which happens to be a pet peeve of Delrahim. The DOJ is not interested in resolving the current deal without a structural remedy.

The DOJ raised the issue of filing a motion to strike the selective enforcement defense, objecting to the discovery demands and objecting to Delrahim being put on the witness list. The DOJ argued that under the law, it is a high hurdle to obtain such discovery. First, AT&T has not been singled out. Despite not litigating a vertical merger case in 40 years, the antitrust agencies have challenged numerous vertical mergers over the years and have forcing parties to abandon their deals or enter into settlement agreements resolving the antitrust concerns.  Moreover, AT&T compares its case to Comcast/NBCU, which the DOJ actually challenged.

Judge Leon’s Ruling:

Judge Leon did not rule on the DOJ’s motion to strike the selective enforcement defense.  However, he might as well have.  He denied AT&T’s motion to compel the DOJ to provide privilege logs of communications between the White House and the DOJ and quashed AT&T’s discovery requests for those same communications.

Judge Leon focused on the Supreme Court’s decision in United States v. Armstrong to determine if the defendants should be able to obtain discovery related to the selective enforcement defense. Judge Leon said the D.C. Circuit has recognized that “prosecutors have broad discretion to enforce the law, and their decisions are presumed proper absent clear evidence to the contrary.” United States v. Slatten, 865 F.3d 767, 799 (D.C. Cir. 2017)(citing Armstrong). Order at 3. Judge Leon noted that it is a rigorous standard that defendants must meet to obtain discovery.  Under the standard, defendants must put forward evidence of discriminatory effect and intent. Order at 4.

Judge Leon stated that defendants “fall far short” of the necessary demonstration of selective enforcement. He went further to say that “it is difficult even to conceptualize how a selective enforcement claim applies in the antitrust context,” because of the uniqueness of each merger enforcement action. Order at 5. He noted that comparing Comcast/NBCU to A&T/Time Warner was unavailing given that the DOJ actually filed an enforcement action against Comcast and while there was a remedy for that deal, the FCC was involved to monitor it. Order at 5. He then hammered the defendants for trying to claim that the DOJ’s action against a vertical merger was somehow discriminatory when it is clear that this is not the first time the government has brought a vertical case. “While it may, indeed be a rare breed of horse, “it is not exactly a unicorn.” Order p. 6.

Observations:

According to Judge Leon, the selective enforcement defense may not be applicable in antitrust enforcement cases.  Undoubtedly, all antitrust defendants feel like they are being singled out as they point to past deals within the same industry that were approved by the antitrust agencies. But, the antitrust agencies have made it clear that each merger raises its own unique set of facts.

In raising the selective enforcement defense, AT&T was questioning the DOJ’s prosecutorial discretion. It had little, if anything, to do with the substantive claims that are being brought against the company. Antitrust is about law enforcement. The case is brought in front of a federal judge, and the court will decide whether the deal is anticompetitive.

The DOJ does not typically need to explain why it brings an enforcement action other than the deal raises competitive concerns that may substantially lessen competition. It can choose to challenge one merger but not another even when they raise similar issues. Further, it is entirely permissible for a new administration to change its merger enforcement priorities as well as how it remedies problematic mergers. The decision to sue-to-block rather than adopt conduct remedies is up to the DOJ’s own discretion even though that decision may have the appearance of being essentially ideological or political.

Judge Leon understands that every merger is unique to its own facts, not all mergers within the same industry should be treated similarly, and remedies used in one merger may not be appropriate in the next merger. Moreover, he was not about to compare AT&T to Comcast when he has not had the opportunity to study the facts related to the merger at hand. Based on the law, he made the right decision to keep everyone focused on the substantive antitrust issues.  Judge Leon is going to decide this case based on the economic realities of the video distribution and content markets and not on President Trump’s public battle with CNN.  While Trump’s political campaign promises may cast a shadow over the DOJ’s motivation for bringing the case, it should not influence the court’s decision on whether the acquisition is illegal or not.  Judge Leon will make the ultimate decision on whether the deal is anticompetitive and is unlikely to be distracted by the political noise.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com