Antitrust Advocate

Antitrust Advocate

News, Developments and Practical Advice from Antitrust Leaders

FTC Weighs in on Upcoming Third Circuit ‘Product-Hopping’ Appeal

Posted in FTC Act, Sherman Act 1

Federal Trade Commission Doorway Sign“Product-hopping” refers to a practice employed by some brand-name pharmaceutical companies in which the company attempts to shift users from an older prescription drug that is going off-patent and will soon face generic competition to a newly introduced similar product from that company. Often, the new product will have a significant term of patent protection or other exclusivity remaining.

“Product-hopping” can be used to fend off generic competition, in part, because it prevents or delays “automatic substitution” by pharmacies. Under automatic substitution, a pharmacy filling a prescription can dispense a generic version of the prescribed drug—if one is available—absent a specific “dispense as written” instruction. Importantly, however, substitution is only allowed if the generic is an “AB-rated” equivalent to the branded drug, meaning that it has the same active ingredient, dosage, and form, and a similar absorption profile in the body. Therefore, by moving the market for an older drug facing imminent generic competition to a newer alternative for which no AB-rated equivalent exists, brand-name companies can potentially mitigate the severe drop in sales and profits that follows from automatic substitution by pharmacies. Continue Reading

Turing Pharmaceuticals Facing NY Antitrust Inquiry in Wake of 5,000 Percent Price Hike

Posted in Antitrust Litigation, Healthcare

Turing Pharmaceuticals is back in the news over its marketing and distribution of Daraprim, the anti-parasitic drug crucial for treating toxoplasmosis, which can be fatal to patients with compromised immune systems. As you have probably read by now, Turing recently acquired the rights to Daraprim and thereafter announced its intention to raise the cost of each pill from $13.50 to $750.00. This planned moved elicited a public outcry, including from Hillary Clinton and other presidential candidates. Ultimately, Turing head Martin Shkreli backed down, stating that the price would be lowered to an undisclosed amount.

However, Turing’s original announcement and resulting public scrutiny apparently also drew the attention of the New York Attorney General’s Office. It has been reported that the antitrust chief under AG Eric Schneiderman sent Shkreli and Turing a letter requesting that Shkreli contact the AG’s office to discuss Turing’s distribution channel. Reportedly, Turing does not permit Daraprim to be sold in retail pharmacies; rather, Turing distributes the drug through a small number of specialty pharmacies.

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FTC Addresses Sharing Economy Following June Workshop

Posted in Uncategorized

bigstock-Group-Holding-Hands-6471143Federal Trade Commission Chairwoman Edith Ramirez recently made statements regarding regulation of the developing “sharing economy” exemplified by on-demand apps and websites such as Uber and Airbnb that connect sellers of a service with buyers nearly instantaneously and without traditional middlemen.

Last week, in a speech at Fordham University Law School, Chairwoman Ramirez recognized that, in some instances, regulations directed at traditional business models are not well-suited to new methods of doing business as they are still being developed, and expressed concerns about “imposing legacy regulations on new business models.” That being said, she cautioned, regulators such as the FTC should still enforce protections that affect consumer health, safety, or privacy. Ramirez stated: “[W]e must allow … these new peer-to-peer business models to flourish,” however “targeted regulatory measures may be needed to ensure that these new business models have appropriate consumer protections; but they should be no greater than necessary to address those concerns.” She also candidly observed that the FTC is not immune from being swayed or influenced by the dominant, established industries they regulate. However, she noted that neither should the FTC only apply regulations to older companies and industries thereby implicitly “picking winners.” Continue Reading

Discriminating Tastes: Court Puts Long-running Robinson-Patman Act Case To Rest

Posted in Antitrust Compliance, Robinson-Patman Act

Pills_Money_iStock_000001346498LargeDescribed as the Rodney Dangerfield of the antitrust laws, the Robinson-Patman Act—which prohibits anticompetitive price discrimination—gets no respect. The Justice Department and the Federal Trade Commission unapologetically refuse to enforce the Act, and the FTC has called for its repeal. Courts often treat the Act with undisguised disdain; one court (quoting a law review article) said that “[n]o one, it appears, dwells longer than necessary in the land of Robinson-Patman.” The Act’s continued vitality derives from private antitrust cases, usually brought by customers who allege that a supplier has charged them higher prices than their competitors.

The antitrust laws welcome lower prices as the result of economic efficiency. The Robinson-Patman Act, however, discourages selective discounting in the name of fairness rather than efficiency. The antitrust laws seek to protect market-wide competition, not necessarily individual competitors. The Robinson-Patman Act, however, operates like a business tort law, and while it purports to protect competitive markets, it often is summoned to aid particular businesses. Continue Reading

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.

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If you have any questions about the material presented in this white paper, please contact Carl W. Hittinger at 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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