Antitrust Advocate

Antitrust Advocate

News, Developments and Practical Advice from Antitrust Leaders

CFIUS Report Reflects Continued Need to Plan for Government Scrutiny of Cross-border Transactions

Posted in CFIUS

The Committee on Foreign Investment in the United States (CFIUS) recently reported its 2013 activities, confirming the continuation of its heightened review and investigation of certain foreign direct investments in U.S. businesses.

CFIUS, a panel of high-level Washington bureaucrats, was described in a prior post. CFIUS reviews and investigates mergers and acquisitions that could result in foreign control of entities engaged in interstate commerce in the United States and determines (or recommends to the U.S. president) whether to disallow or block transactions when there is credible evidence that they threaten national security, which was covered in a prior post. Continue Reading

FTC’s Appellate Win Reflects Focus on Health Care Consolidation

Posted in Antitrust Litigation, Articles, FTC Act, Healthcare, Merger

In an important victory for the Federal Trade Commission in the appellate courts, the U.S. Court of Appeals for the Ninth Circuit recently affirmed last year’s decision from the District of Idaho in Saint Alphonsus Medical Center v. St. Luke’s Health System, No. 14-35173, in which the FTC successfully sued to undo a 2012 merger of two health care providers in Nampa, Idaho.

As reported in this column last year, the FTC—joined by the state of Idaho and certain competitor hospitals—filed an action in the U.S. District Court for the District of Idaho in 2013 to unwind a merger between St. Luke’s Health Systems, an Idaho health care system, and Saltzer Medical Group, an Idaho-based physician group. St. Luke’s operated several hospitals in Idaho and employed 500 physicians, including eight primary care doctors based in Nampa. Saltzer employed 16 primary care doctors in Nampa. After years of negotiation regarding potential affiliation, St. Luke’s acquired the assets of Saltzer in December 2012. Following the Saltzer acquisition, St. Luke’s controlled 80 percent of the adult primary care physicians in Nampa. The FTC’s complaint asserted that the combination violated Section 7 of the Clayton Antitrust Act, which prohibits mergers if “the effect of the acquisition may be substantially to lessen competition, or tend to create a monopoly.”

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FTC Commissioner Wright Calls for Vote on Section 5 Guidelines

Posted in BakerHostetler, Events, Sherman Act 5

B-yaPLiUYAEWOTdFTC Commissioner Joshua Wright, during yesterday’s keynote speech at BakerHostetler’s Section 5 Symposium, announced his plan to call for the FTC Commissioners to vote on three proposed definitions of Section 5’s “unfair methods of competition.”

Covering the Section 5 Symposium and Commissioner Wright’s announcement, Global Competition Review wrote:

“Joshua Wright will ask his four Federal Trade Commission colleagues to vote next week on three different definitions of section 5 of the FTC Act and perhaps formally pin down, for the first time in 100 years, what an ‘unfair method of competition’ is.”

Also covering the event, Law360 wrote:

“A stable definition of what constitutes an ‘unfair method of competition’ would provide businesses with important guidance about what conduct is lawful and what conduct is unlawful under Section 5,” [Commissioner Wright] said, at a conference held by BakerHostetler. “The benefit of added business certainty is less important than ensuring Section 5 enforcement actions — including consents — actually reach and deter anti-competitive conduct rather than chill pro-competitive conduct.”

BakerHostetler’s antitrust attorneys will be analyzing Commissioner Wright’s proposal and its implications for practitioners and the business community. Stay tuned.

Symposium on Section 5 of the Federal Trade Commission Act

Posted in Events

Companies and institutions may be vulnerable to FTC claims of antitrust or consumer fraud violations without realizing it. Learn how to help prevent such potentially damaging issues through a groundbreaking, BakerHostetler-sponsored symposium on Section 5 of the Federal Trade Commission Act on Thursday, Feb. 26, 2015, from 8:30 a.m. – 5:15 p.m. at The Willard InterContinental in Washington, D.C.

Section 5 broadly prohibits “[un]fair methods of competition” and “unfair or deceptive acts or practices.” It has been aggressively used by the FTC in recent years to challenge sales and marketing conduct by companies as being antitrust or consumer fraud and deception violations. The FTC has challenged conduct that might otherwise be permissible under the Sherman Antitrust Act, an interpretation some courts have endorsed in the past. Recent public investigations against major companies have ensued, seeking consent decrees as well as restitution and disgorgement of profits. Congress has also joined the debate about Section 5, calling for guidelines, which some commissioners have proposed. These important developments have thrust Section 5 back into the sphere of antitrust and unfair competition enforcement, thereby compelling companies and their counsel to take prudent steps to protect themselves from Section 5 prosecutions.

Continue Reading

To Report or Not to Report, That Is the CFIUS Question

Posted in CFIUS, Government Investigations, Merger, Merger Review, Premerger Notification

With the complexities inherent in many cross-border transactions – from cultural differences to the growing number of competition authorities demanding paperwork – the last thing one may want to think about is whether to submit a voluntary report of a transaction to the Committee on Foreign Investment in the United States (CFIUS). The recent decision to block a transaction on CFIUS grounds, however, demonstrates that CFIUS should not be overlooked. So, deciding whether to report to CFIUS is one more issue that should be considered when doing transactions.

CFIUS

CFIUS reviews certain mergers or acquisitions that could result in foreign control of entities engaged in interstate commerce in the United States, and determines, or recommends to the president, whether to disallow or block transactions when there is credible evidence that they threaten national security. (This process was explained in detail in a prior post.)

The CFIUS process begins with a voluntary filing seeking review of a proposed (or consummated) transaction that is covered by CFIUS regulations. Unlike the Hart-Scott-Rodino process, there is no filing threshold or other definitive criteria that mandate notice to the CFIUS. Rather, the parties to a transaction determine themselves whether and when to provide a notice. Depending on the nature of the transaction, deciding whether to submit notice to CFIUS can raise a number of strategic considerations that can impact the outcome of the transaction at issue. Continue Reading

“Oh help me, please doctor, I’m damaged”*—What does the Future Hold for Hospital-Physician Acquisitions?

Posted in Government Investigations, Healthcare, Merger Review

With the ink still drying on the Ninth Circuit’s opinion affirming the Idaho federal district court’s order requiring St. Luke’s Health System to unwind its acquisition of Saltzer Medical Group—a for-profit, physician-owned, multi-specialty group comprising approximately 44 physicians located in Nampa, Idaho—you may ask what the decision means for other providers?  Hospitals considering future acquisitions of physician groups, and those that the Federal Trade Commission may view as having failed to make good on promises to improve care without hiking prices, better take notice.

The Ninth Circuit affirmed that the district court did not err in holding St. Luke’s would likely use its post-merger power to negotiate higher reimbursement rates from insurers for primary care physician services.  This shows the theory of harm articulated by the FTC in hospital merger cases—that a transaction can increase bargaining leverage with health insurance plans resulting in higher reimbursement—is fully applicable to physician acquisition cases.

The Ninth Circuit also affirmed that the district court did not err in holding “the claimed efficiencies”—improved patient care resulting from a “team of employed physicians with access to Epic, the electronic medical records system used by St. Luke’s”—“were not merger-specific.”  The appellate court went on to say that “even if we assume the claimed efficiencies were merger-specific, the defense would nonetheless fail” because St. Luke’s “did not demonstrate that efficiencies resulting from the merger would have a positive effect on competition.”

In other words, St. Luke’s did not show how the claimed efficiencies would “create a more efficient combined entity and thus increase competition.”  This makes it clear that unless one can “clearly demonstrate” the claimed efficiencies will allow more effective competition through “lower prices, improved quality, enhance services, or new products,” affiliation models short of employing physicians need to be considered where a proposed deal may raise competitive concern.

What are some of the affiliation models short of employing physicians?  There are several, including (1) physician advisory council, (2) advanced medical directorship, (3) co-management, (4) Professional Services Arrangement (“PSA”), and (5) a PSA/Management Services Agreement (“MSA”).  Each of these arrangements carries a set of strategic, economic, and operational dimensions for both parties to consider.

What should you do if you are considering an acquisition?  You should hire antitrust counsel and consultants (economic and others) early in the process to help assess and understand the competitive dynamics and the potential benefits of the proposed transaction.  It may well be the case that the proposed transaction raises no competitive concern.  Most do not.  With some upfront work, you will be able to identify any that do raise concern and position them so they may become doable in the end.

*Dear Doctor by Mick Jagger and Keith Richards

“And they’re closing all the factories down”* — Going Dark During a Merger Review

Posted in Merger, Merger Review

Demand in your industry has been declining for years, the decline is projected to continue for the foreseeable future, and you are one of the few cost-effective manufacturers around. You just inked a deal to buy a competing manufacturer, and you are working hard to get your deal cleared through the merger review process. But with the continued decline in demand causing inefficient manufacturers to close or idle plants and your own order book being down, continuing to run one of your plants that has been unprofitable for a number of years and is unlikely to become profitable in the future looks like a losing proposition. What do you do? What if you are the seller instead? These are not just hypotheticals, but real-world scenarios.

On January 3, 2014, for example, Verso Paper Corporation agreed to acquire NewPage Holdings Inc. for approximately $1.4 billion. At that time, Verso and NewPage were two of the largest producers of coated paper in North America. Verso operated two mills, and NewPage operated eight mills. In October 2014, during the Department of Justice review of the transaction, Verso announced it would close its mill in Bucksport, Maine. In the press release announcing the closure, Verso’s CEO said that the mill had been unprofitable for a number of years and likely would continue to be unprofitable in the future. In December, Verso announced it had reached an agreement to sell the soon-to-be-shuttered mill to a company that demolishes and recycles old mills. Continue Reading

‘Product-Hopping’ Can Be Snagged Under the Antitrust Laws

Posted in Antitrust Litigation, Articles

The Drug Price Competition and Patent Term Restoration Act, more commonly known as the Hatch-Waxman Act, together with the patent laws, attempt to advance the competing goals of preserving pharmaceutical companies’ incentives to make the staggering investments necessary to bring new, improved drugs to market, as well as fostering lower prices through competition from generic versions of branded drugs. Developing and bringing to market new, better drugs requires enormous investments in research and development. To protect the branded-drug manufacturers’ incentives to make those investments, the Hatch-Waxman Act established an extension of the term for patents relating to drugs that were subject to lengthy regulatory delays and could not be marketed prior to regulatory approval, even though the term of the patent covering the drugs was running. Pharmaceutical companies depend on the higher prices they can often charge while their drugs are under the exclusivity protection of a patent—or other statutorily granted exclusivity, such as for orphan drugs—to recoup their investments in bringing the branded drug to market.

On the other hand, the Hatch-Waxman Act promotes price competition by allowing generic drug manufacturers to obtain expedited approval of the generic counterparts to previously approved branded drugs. The generic drug companies may enter the market using a streamlined application process—an Abbreviated New Drug Application (ANDA)—under which the generic drug manufacturer may rely on data from clinical trials and other costly procedures already done by the branded drug companies, in order to make the showing necessary for ANDA approval—that the proposed generic drug is, in fact, the bioequivalent of the branded drug. Continue Reading

The FTC’s Section 5 Authority Discussed in Article by BakerHostetler Antitrust Attorneys

Posted in Antitrust Litigation, Articles, Sherman Act 5

BakerHostetler antitrust attorneys Carl Hittinger and Jeffry Duffy authored the article, “FTC Section 5 in 2014: An Unexpected Attack, A New Frontier,” published in Law360 on December 22. The authors cover the FTC’s push to exercise its Section 5 authority in new areas; ever since Section 5 of the Federal Trade Commission Act was created more than 100 years ago, there has been controversy over how far the FTC’s jurisdiction extends. Two examples from the past year highlight this controversy and the FTC’s data security settlements despite its source of authority being under attack, as well as its victory in obtaining a first-ever settlement and consent decree with a “patent troll” using Section 5 authority. The two matters, LabMD and LabMD v. FTC and MPHJ Technology Investments are examined in detail before the authors look forward to 2015. There are still unresolved conflicts regarding the adoption of written guidelines for the Section 5 authority as opposed to a case-by-case approach, and the effect of the new Democratic commissioner’s arrival on this dispute as well as other priorities is unknown.

Read the article.

Save the Date: Section 5 Symposium

Posted in BakerHostetler, Events, Sherman Act 5

You may be vulnerable to FTC claims of antitrust or consumer fraud violations without realizing it. Learn how to help prevent such potentially damaging issues through a groundbreaking, BakerHostetler-sponsored symposium on Section 5 of the Federal Trade Commission Act on Thursday, Feb. 26, 2015, in Washington, D.C.

TIME:
8:30 a.m. – 4:30 p.m. – Program

4:30 p.m. – 6:30 p.m. – Cocktail Reception

Invitation with additional event details to follow. Please email Cassie Blaine with questions.

Section 5 broadly prohibits “[un]fair methods of competition” and “unfair or deceptive acts or practices.” It has been aggressively used by the FTC in recent years to challenge sales and marketing conduct by companies as being antitrust or consumer fraud and deception violations. The FTC has challenged conduct that might otherwise be permissible under the Sherman Antitrust Act, an interpretation some courts have endorsed in the past. Recent public investigations against major companies have ensued seeking consent decrees as well as restitution and disgorgement of profits. Congress has also joined the debate about Section 5 calling for guidelines, which some commissioners have proposed. These important developments have thrust Section 5 back into the sphere of antitrust and unfair competition enforcement, thereby compelling companies and their counsel to take prudent steps to protect themselves from Section 5 prosecutions.

This Section 5 Symposium will bring together present and former representatives from the three branches of government to discuss and debate the origins, past and present use, and future parameters of Section 5 as a renewed enforcement vehicle. Presenters at the symposium include:

Joshua Wright, FTC Commissioner
Maureen Ohlhausen, FTC Commissioner
Deborah Feinstein, Director of the FTC’s Bureau of Competition
William Kovacic, former FTC Chairman
Terry Calvani, former FTC Commissioner
Significant others who have extensive experience with Section 5

This all-day symposium, available for CLE credit*, will also be offered via webinar and available afterwards as a webcast. The Section 5 Symposium invitation is forthcoming. If you would like to be included on the list of invitees, please email Cassie Blaine at cblaine@bakerlaw.com.

*CLE credit is pending in Illinois, Ohio, Pennsylvania, and New York.