Join members of the BakerHostetler Antitrust and Competition Team on Monday, April 13, 2020 for a webinar where they will examine criminal and civil antitrust risks and the best practices businesses should follow to protect themselves, including an exploration of the immunities offered by the Defense Production Act, the Pandemic and All-Hazards Preparedness Act and the state action immunity doctrine. The DOJ/FTC expedited review process will also be discussed. Click here to register.
COVID-19 continues to spread exponentially, leading to shortages in medical supplies – from personal protective equipment such as facemasks and respirators to ordinarily ubiquitous cleansers and sanitizers. As attempts to “flatten the curve” (slow the infection rate) show mixed results, and import disruptions contribute to the growing shortage of medical supplies, manufacturers and suppliers are asking: “How can we collaborate with industry stakeholders to expedite production, streamline distribution and get equipment to the neediest healthcare providers?”
Attorney General William Barr warned in March that the federal antitrust laws will be enforced even during national emergencies. There is a risk that seemingly harmless agreements to resolve equipment shortages and supply chain disruptions could be viewed as per se violations of the Sherman Act and result in criminal prosecution. For example, the following collaborations could be risky, depending on companies’ competitive relationships: coordinating sales and distribution of products to the neediest customers and regions, collectively purchasing vital inputs, setting price caps to prevent price gouging, exchanging sales and production figures, and coordinating supply chains. Still, antitrust enforcers have not been tone-deaf to the exigencies created by the pandemic. Nor is the federal government powerless to adjust the application of the antitrust laws should they hinder a robust response.
The Enforcement Agencies Expedite Review of Collaborations: On March 24, 2020, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) issued a joint statement highlighting collaboration’s role in fighting the coronavirus: “Addressing the spread of COVID-19 will require unprecedented cooperation between federal, state, and local governments and among private businesses to protect Americans’ health and safety.” The agencies “wish to make clear to the public that there are many ways firms, including competitors, can engage in procompetitive collaboration that does not violate the antitrust laws.”
To promote a collaborative response, the agencies have committed to expedite requests for business review letters and advisory opinions impacting the COVID-19 response. The agencies plan to provide guidance within seven calendar days of receiving all necessary information. The joint statement also reminds companies of safety zones that rarely pose antitrust concerns. For example:
- Typically, R&D collaborations are procompetitive and therefore generally not illegal.
- The sharing of “technical know-how,” unlike the risky sharing of confidential data about prices, wages, outputs or costs, “may be necessary to achieve the procompetitive benefits of certain collaborations” and is therefore usually acceptable.
- Absent extraordinary circumstances, healthcare providers may safely develop “suggested practice parameters – standards for patient management developed to assist providers in clinical decision-making.”
- Healthcare providers may securely enter into joint purchasing agreements to increase procurement efficiency and reduce transaction costs.
Lastly, the joint statement reminds the healthcare industry that the antitrust laws generally permit lobbying the federal government to use its emergency authority “insofar as those activities comprise mere solicitation of governmental action with respect to the passage and enforcement of laws.” This includes lobbying the Trump administration to activate the Defense Production Act and the Pandemic and All-Hazards Preparedness Act – both of which allow the executive branch to insulate pandemic-related collaboration from the antitrust laws.
The Defense Production Act’s Antitrust Defense: The Defense Production Act (DPA) was passed in 1950 by the Truman administration to mobilize the American economy for the Korean War. After September 11, 2001, the DPA has come to serve a role in public health and safety crises as well. Its preambulatory policy declaration denotes the breadth of reach: “Congress finds that the security of the United States is dependent on the ability of the domestic industrial base to supply materials and services for the national defense and to prepare for and respond to military conflicts, natural or man-caused disasters, or acts of terrorism within the United States.”
At its core, the DPA permits the executive branch to order companies to prioritize government contracts related to national emergencies; prohibit hoarding of designated emergency materials; control the distribution of products, services and facilities; and issue guaranteed loans to business first responders to expand their production capacity. On March 18, 2020, the Trump administration activated the DPA and a week later granted the secretary of the Department of Human Services authority to order a major auto manufacturer “to accept, perform, and prioritize contracts or orders for the number of ventilators that the Secretary determines to be appropriate.” Since then, the administration has invoked the DPA to counter hoarding of medical equipment and to prioritize the production of face masks and ventilators.
Moreover, on March 27, the administration issued an executive order setting in motion an administrative process that could result in granting narrow antitrust immunity to companies involved in “voluntary agreements” or “plans of action” to respond to the national crisis resulting from COVID-19. For immunity to apply, the president or a delegate appointed by him, upon finding that “conditions exist which may pose a direct threat to the national defense or its preparedness programs,” must, in consultation with industry participants, draft a “voluntary agreement” or a “plan of action.” The agreement or plan must be in writing, must contain rules governing the plan, and must be submitted to Congress, and the delegate must certify that the agreement or plan is necessary to respond to the threat. The DOJ, upon consultation with the FTC, must also certify that the agreement or plan is narrowly tailored, meaning its purpose cannot be achieved via less-competitive means. The DPA also has detailed notice-and-comment-like administrative procedures, though it remains to be seen how flexible these may be during a time-sensitive response to a national emergency.
Once approved, private sector collaboration pursuant to the agreement or plan must be monitored by the attorney general and the FTC chairperson to ensure it remains loyal to the agreement or plan’s purpose and to ensure “the protection and fostering of competition and the prevention of anticompetitive practices and effects.” Meetings of parties to the agreement or plan must be transcribed, and documents, records, and data related to the agreement or plan must be retained and made available for inspection by the DOJ and the FTC upon “reasonable notice.” The DOJ and the FTC have the right to be present at “meetings to carry out any voluntary agreement or plan of action.”
Assuming these and some other prerequisites are met, the DPA provides a defense to civil or criminal antitrust liability under both federal and state antitrust laws so long as (a) the conduct in question “was specified in, or was within the scope of, an approved voluntary agreement initiated by the President and approved in accordance with this section or a plan of action adopted under any such agreement and approved in accordance with this section” and (b) the president or a designee “authorized and actively supervised the voluntary agreement or plan of action.”
Used appropriately, the DPA’s antitrust defense could complement the federal government’s COVID-19 response. For example, the Trump administration may consider bestowing antitrust immunity on companies that prioritize sales of personal protection equipment to healthcare providers in the hardest-hit geographic areas, individuals confirmed to have COVID-19 and susceptible populations, thereby curbing the recent phenomenon of healthy individuals hoarding them.
Pandemic and All-Hazards Preparedness Act: The Pandemic and All-Hazards Preparedness Act (PAHPA) provides another avenue to facilitate a collaborative response to COVID-19. Under PAHPA, the secretary of Health and Human Services “may conduct meetings and consultations with persons engaged in the development of . . . a qualified pandemic or epidemic product for the purpose of the development, manufacture, distribution, purchase, or storage of a countermeasure or product.” The law grants antitrust protection for participation in such meetings. It also permits the attorney general, in consultation with the FTC chairperson, to grant antitrust protection for “conduct in accordance with a written agreement” initiated by the HHS under the DPA. As with immunity under the DPA, antitrust exemptions under PAHPA must be narrowly tailored to avoid “any substantial anticompetitive effect that is not reasonably necessary for ensuring the availability” of the products involved.
As COVID-19 continues to spread, collaboration will be a key strategy to curb its worst effects. The enforcement agencies should continue to provide expedited guidance to companies leading the charge. Similarly, the Trump administration should consider the benefits of granting antitrust exemptions to expedite private industry’s response. A word of warning, though: Companies interested in the DPA and PAHPA antitrust defenses should remember these exemptions are narrow, are only available if the federal government gets involved and require the supervision of the enforcement agencies. Nevertheless, companies should be aware of their contours in case they get a call from the federal government asking for help in responding to the pandemic. Stay tuned.