Antitrust Advocate

Antitrust Advocate

News, Developments and Practical Advice from Antitrust Leaders

Specific Guidance to Businesses Still Lacking in FTC Principles

Posted in FTC Act

Federal Trade Commission Doorway SignIn 1914, Congress passed the FTC Act, creating the Federal Trade Commission. Section 5 of the FTC Act declared “unfair methods of competition in or affecting commerce” to be unlawful and gave the FTC enforcement power over such “unfair methods.” Over 100 years later, that key language in Section 5 underlying the agency’s competition-related powers had never been the subject of any formal FTC guidance. Clearly, “unfair methods of competition” include Sherman and Clayton Act violations, and some argue that Section 5 reaches beyond those statutes. But exactly what kind of additional conduct falls within the FTC’s Section 5 powers has been a long-unsettled question.

On Aug. 13, the FTC finally issued a “Statement of Enforcement Principles” setting forth the general considerations to guide the FTC’s decision whether to exercise its “standalone” Section 5 authority, i.e., “unfair methods of competition” that would not otherwise violate the Sherman or Clayton acts. According to the statement, the FTC, when exercising its standalone Section 5 authority:

  • Will be guided by the public policy underlying the antitrust laws—the promotion of consumer welfare.
  • Will evaluate conduct using a framework “similar to the rule of reason,” meaning that challenged conduct “must cause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications.”
  • Will be less likely to act if enforcement under the Sherman or Clayton acts would be sufficient. Continue Reading

FTC Finally Offers ‘Principles’ Governing Section 5 Powers, but Specific Guidance to Businesses Still Lacking

Posted in FTC Act

Library of Congress - 177379356In 1914, Congress passed the FTC Act, creating the Federal Trade Commission. Section 5 of the FTC Act declared “unfair methods of competition in or affecting commerce” to be unlawful and gave the FTC enforcement power over such “unfair methods.” More than 100 years later, that key language in Section 5 underlying the agency’s competition-related powers had never been the subject of any formal FTC guidance. Clearly, “unfair methods of competition” include Sherman and Clayton Act violations, and some argue that Section 5 reaches beyond those statutes. But exactly what kind of additional conduct falls within the FTC’s Section 5 powers has been a long-unsettled question.

Read the white paper.

If you have any questions about the material presented in this white paper, please contact Carl W. Hittinger at chittinger@bakerlaw.com or 215.564.2898.

Ruling on Economic Favoritism Puts ‘NC Dental’ Back in Spotlight

Posted in Antitrust Exemptions & Immunities, Antitrust Litigation

ToothbrushIn a recent opinion, a divided panel of the U.S. Court of Appeals for the Second Circuit ruled that an economic regulation passed by a state agency solely to protect one group from competition would not violate the constitutional guarantees of due process or equal protection. The court noted that such action might still violate antitrust laws, but went no further since no antitrust claim had been raised in the case. At least in the Second Circuit, this decision raises the stakes in future cases interpreting the scope of state-action immunity under the antitrust laws.

Pure Economic Favoritism Not Unconstitutional

In Sensational Smiles LLC v. Mullen, No. 14-1381-cv (2d Cir. July 17, 2015), the Second Circuit upheld a 2011 declaratory ruling of the Connecticut State Dental Commission stating that various teeth-whitening procedures could be legally performed only by licensed dentists. Plaintiff Sensational Smiles LLC, a non-dentist teeth-whitening business, then received a letter from the state threatening legal action if it continued to provide teeth-whitening services. Sensational Smiles challenged the commission’s declaratory ruling as unconstitutional under the due process and equal protection clauses. Continue Reading

Better Late Than Never? FTC Finally Releases Guidance on Section 5

Posted in Sherman Act 5

After years of academic debate and internal deliberation, the Federal Trade Commission today unveiled a “Statement of Enforcement Principles” that generally describes conduct prohibited by Section 5 of the FTC Act.

Section 5 gives the FTC authority to take action against “unfair methods of competition.”  Legislative history indicates that it was left to the FTC to provide specific content to Section 5’s broad language. Since its enactment 100 years ago, however, little clarity has developed regarding what conduct does and does not qualify as an “unfair method of competition” that might subject an actor to enforcement proceedings, litigation, or penalties brought by the FTC.

It is widely understood that “unfair methods of competition” was intended to cover at least the same conduct that would violate the Sherman or Clayton Acts. But, in recent years, the scope of the FTC’s “standalone” Section 5 enforcement authority—Section 5-based challenges to conduct that would not necessarily violate the Sherman or Clayton Acts—has been a volatile topic, with many in the business and antitrust community calling for the FTC to provide guidance on the boundaries of its Section 5 authority.

FTC commissioner Joshua Wright joined the call for Section 5 guidance in June 2013, with a request that the FTC issue a policy statement defining the agency’s standalone Section 5 authority as covering acts or practices that harm or will likely harm competition and lack cognizable efficiencies. Congress also took an interest in the issue in October 2013, with six members of the House Judiciary Committee and two U.S. senators urging FTC chairwoman Edith Ramirez to issue guidance regarding its standalone Section 5 authority.

The calls for guidance came to a head at a BakerHostetler-sponsored Symposium on Section 5 this past February, when Commissioner Wright, during the keynote speech, challenged his follow commissioners to adopt formal Section 5 guidelines. He even took the step of proposing three possible definitions—differing only in their treatment of efficiencies—and announced that he would move the Commission to vote on which of the three to adopt. (Recordings of the Symposium can be found here.)

Following the Symposium and release of a BakerHostetler White Paper, the FTC today issued a policy statement providing guidance on Section 5. The Statement explains that, consistent with FTC precedent, the Commission will adhere to the following principles when deciding whether to use its standalone Section 5 authority to challenge unfair methods of competition:

  • The Commission will be guided by the public policy underlying the antitrust laws, namely, the promotion of consumer welfare;
  • The act or practice will be evaluated under a framework similar to the rule of reason, that is, an act or practice challenged by the Commission must cause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications; and
  • The Commission is less likely to challenge an act or practice as an unfair method of competition on a standalone basis if enforcement of the Sherman or Clayton Act is sufficient to address the competitive harm arising from the act or practice.

The Statement is notable for adopting a framework similar to the “rule of reason” for assessing unfair methods of competition under Section 5. This framework, developed under the antitrust laws over the past 125 years, generally balances the actual anti- and pro-competitive effects of challenged conduct, and is well understood by courts, competition agencies, the business community, and antitrust practitioners. In referring to consumer welfare and conduct likely to cause harm, however, the FTC also retains flexibility to apply its Section 5 authority to conduct that might not violate the antitrust laws under a traditional rule of reason analysis.

While the Statement provides guidance of the type that has been debated and sought for years, its sparse terms leave a number of questions about Section 5 unanswered, such as what constitutes “associated cognizable efficiencies” or “business justifications”? This lack of detail, plus disagreement with the process leading to the Statement, prompted Commissioner Maureen Olhausen to issue a forceful dissent from the Statement. Answers to these important questions will, no doubt, be the subject of additional debate and possibly litigation in the near future. Please come back for additional analysis and updates.

Further Reading:

FTC Announces “Enforcement Principles” Governing Section 5 Competition Authority” by Carl Hittinger

Patent Defeats Antitrust in Latest Test at Supreme Court

Posted in Antitrust Litigation, Patents, Sherman Act 2

Patent147631712In Kimble v. Marvel Entertainment, 576 U.S. ____ (2015), the U.S. Supreme Court considered whether to overturn Brulotte v. Thys, 379 U.S. 29 (1964), its 1964 decision holding that it was per se unlawful for a patent owner to charge royalties for use of a patented invention after the licensed patent has expired. In a 6-3 decision by Justice Elena Kagan, the court in Kimble concluded that it was required by stare decisis to affirm the Brulotte rule.

Petitioner Stephen Kimble had obtained a patent in 1990 on a Spider-Man-inspired toy that allowed the user to shoot “webs” made of foam string from his or her palm. After Marvel began marketing a similar product, Kimble sued for patent infringement. The case eventually settled. Under the terms of the settlement, Marvel purchased Kimble’s patent for a lump sum payment and a 3 percent royalty in perpetuity on future sales of any products covered by the patent. Though, apparently, neither party knew about the Brulotte decision during settlement negotiations, Marvel later discovered it and successfully obtained a declaratory judgment that its obligation to pay royalties to Kimble would end upon patent expiration in 2010. Continue Reading

“Ain’t Wastin’ Time No More”* — Doctors, Vets, and Lawyers in the Antitrust Crosshairs

Posted in Antitrust Exemptions & Immunities, Antitrust Litigation, Sherman Act 1

Antitrust_bigstock-Anticipation-And-Strategy-44442919Supreme Court Decision in North Carolina State Board of Dental Examiners v. Federal Trade Commission Prompts Legal Challenges to State Professional Boards

Earlier this month a Texas federal district court judge granted a motion by Teladoc, Inc. (Teladoc) for a preliminary injunction enjoining the Texas Medical Board (TMB) “from taking any action to implement, enact, and enforce” a TMB rule requiring doctors to conduct an in-person exam prior to telephonic diagnosis and treatment of patients, regardless of whether the exam is medically necessary. (Background on this and other disputes involving Teladoc and TMB is available here and here.

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Collusion Course: The Limits of Hot Documents

Posted in Antitrust Litigation, Sherman Act 1

Cell phonesDiscovery in antitrust cases often involves a search for smoking-gun documents. Those documents can consist of emails proving that competitors conspired to raise prices, removing the difficulties faced by prosecutors or civil plaintiffs in proving actual injury to competition. Such precious nuggets lead inexorably to near-automatic liability for the defendants. But what if the nugget turns out to be fool’s gold?

Such a not-so-hot document underpinned the recent affirmance of summary judgment for the defendants by the United States Court of Appeals for the Seventh Circuit, in a class action alleging price-fixing by the major providers of mobile telephone text messaging services.[1] Continue Reading

Join BakerHostetler Partners Edmund Searby and Danyll Foix for Webinar on Ethical Considerations in Class Action Litigation

Posted in BakerHostetler, Events

SEARBY_Edmund_CAM_1_11168FOIX_Danyll_CAM_1_3402BakerHostetler partners Edmund Searby and Danyll Foix will present during an upcoming webinar, “Ethical Considerations in Class Action Litigation Part 1: Pre-certification Concerns,” scheduled for Wednesday, June 10, 1:00pm-2:15pm EDT.

The presentation is the first half of a two-part series concerning ethical issues prior to certification of putative class action and those that must be overcome to ensure successful settlement.

FTC Failure to Adopt Section 5 Guidelines Still Hot-Button Issue

Posted in Antitrust Litigation, Sherman Act 5

Antitrust_bigstock-Anticipation-And-Strategy-44442919Section 5 of the FTC Act gives the Federal Trade Commission the authority to take action against “unfair methods of competition.” The act was enacted over 100 years ago, and its legislative history indicates that it was left to the FTC to provide specific content to this broad and general language. However, there is still little clarity today regarding what conduct qualifies and does not qualify as an “unfair method of competition” that might subject an actor to enforcement proceedings, litigation, and/or monetary penalties. It is generally agreed that “unfair methods of competition” was intended to cover conduct that would violate the Sherman Act or Clayton Act, as well as some additional conduct. In recent years, the scope of the FTC’s “standalone” Section 5 enforcement authority—addressing conduct that would not necessarily violate the Sherman Act or Clayton Act—has been a volatile topic, with many in the antitrust community calling for the agency to provide formal guidance addressing the boundaries of this authority.

In June 2013, FTC commissioner Joshua Wright issued a proposed policy statement that would have defined the agency’s standalone Section 5 authority as covering acts or practices that harm or will likely harm competition and lack cognizable efficiencies. Since that time, no action was taken by the commission regarding the proposed guidance. In February of this year, at the Baker & Hostetler-sponsored Symposium on Section 5, Wright again called for the commission to adopt formal Section 5 guidelines. He proposed three possible definitions—differing only in their treatment of efficiencies—and announced that he would ask his fellow commissioners to vote on which of the three to adopt. (Recordings of the symposium can be found here.) Continue Reading

Product Hopping and Antitrust: Mylan Court Dismisses Claims on Summary Judgment, Citing Need to Avoid Chilling Pharmaceutical Innovation

Posted in Antitrust Litigation, Patents, Sherman Act 1, Sherman Act 2

Drug - 100852326A recent summary judgment opinion from the Eastern District of Pennsylvania breaks new ground in the developing antitrust law on “product hopping” claims. “Product hopping” refers to the practice of changing the form or dosage of a branded drug without changing its underlying composition. Though drug manufacturers often make such changes for legitimate business reasons, they may also – thanks to the vagaries of the Hatch-Waxman Act and the Food and Drug Administration’s (FDA) approval processes – have the effect of preventing a generic competitor from entering the market as soon as it otherwise could have.

Back in February, this blog explained this dynamic and the resulting antitrust concerns about product hopping by branded drug manufacturers. We also surveyed the cases that had addressed such claims up to that time, noting that the only reported decisions were from district courts in the context of a motion to dismiss. With District Judge Paul Diamond’s April 16 opinion in Mylan Pharmaceuticals, Inc. v. Warner Chilcott Public Limited Company, Civ. No. 12-3824 (E.D. Pa.) – which granted summary judgment for the defendant branded drug manufacturer on all counts – we have the first extended analysis of antitrust liability for product hopping based on a fully developed factual record. The court’s reasoning is worth pondering, not least because the decision takes a clear stand on the proper relationship between innovation and antitrust law. Continue Reading