On May 19, 2016, the Federal Trade Commission (“FTC)” issued an important clarification regarding how the agency will determine whether a foreign entity is classified as corporate or non-corporate for the purpose of the agency’s premerger notification program. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (also referred to as the “HSR Act”), parties to certain mergers or acquisitions must notify both the Federal Trade Commission and the U.S. Department of Justice prior to consummating the transaction. Under this program, whether a party to the transaction is a corporate or non-corporate entity (e.g., an LLC, partnership) can have significant implications for determining whether a filing is required and whether an exemption might apply. While evaluating party status has historically been straightforward for U.S. entities, foreign entities pose a number of challenges.
You know what they say: one man’s price is another man’s bundle. No? Well maybe they should, after this recent decision out of the Third Circuit in Eisai, Inc. v. Sanofi Aventis U.S., LLC involving allegedly exclusionary discounting. The court ultimately found Sanofi’s conduct was not unlawful. But the decision raises questions about how such conduct – a hybrid of price discounts and single-product bundling – will be treated going forward, at least in the Third Circuit.
At issue was Sanofi’s marketing of its anticoagulant drug Lovenox to hospitals through its Lovenox Acute Contract Value Program. Under the Program, hospitals received price discounts based on the total volume of Lovenox they purchased and the proportion of Lovenox in their overall purchase of anticoagulant drugs. A hospital that chose Lovenox for less than 75% of its total purchase of anticoagulants received a flat 1% discount regardless of the volume purchased. But when a hospital’s purchase of Lovenox exceeded that percentage, it would receive an increasingly higher discount based on total volume and percentage share, up to a total of 30% off the wholesale price. A hospital that did not participate in the Program at all was free to purchase Lovenox “off contract” at the wholesale price.
On May 17, 2016, Judge Emmet G. Sullivan (D.D.C.) issued a memorandum opinion explaining his decision to enjoin the Office Depot/Staples merger under Section 13(b) of the FTC Act. The court conducted a two-week trial in which the FTC called ten witnesses and 4000 exhibits were admitted into evidence, after which defendants opted to rest. The court found that the FTC “established their prima facie case by demonstrating that Defendants’ proposed merger is likely to reduce competition in the Business to Business (“B-to-B”) contract space for office supplies.” Defendants largely relied on Amazon’s development of on-line B-to-B services to replace or restore any reduction in competition resulting from the merger, but the court found that argument unpersuasive and enjoined the merger.
On April 27, 2016, Invibio—a supplier of polyetheretherketone (“PEEK”) used in medical implants—agreed to settle charges asserted by the Federal Trade Commission (“FTC”) that its exclusive supply contracts with medical device manufacturers, including some of the world’s largest, violated Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. This consent decree may signal a renewed interest at the agency to scrutinize exclusive contract arrangements. The decree also serves as a reminder that, while exclusive contracts are not per se unlawful, companies that have market power and use exclusive contracts face risks under the antitrust and consumer protection laws.
On May 9, 2016, U.S. District Judge John Jones III, of the Middle District of Pennsylvania, rejected a motion for preliminary injunction by the Federal Trade Commission (“FTC”) and the Pennsylvania Attorney General to halt the proposed merger between Penn State Hershey Medical Center (“Hershey”) and PinnacleHealth System (“Pinnacle”). The Court’s decision represents a potential setback for the FTC’s enforcement against hospital consolidation around the country. The opinion raises further questions about recent analyses endorsed by the agency and other federal courts when reviewing hospital mergers. The Court has extended the temporary restraining order in effect until May 27, 2016, to allow the FTC and the Attorney General to seek relief from the 3d Circuit.
On April 14, 2016, the U.S. Department of Justice and two West Virginia hospitals entered into a consent decree requiring the hospitals to cease allocating territories for marketing their healthcare services. The complaint and consent decree can be viewed here and here. This consent decree follows a similar consent decree that the DOJ entered into with three Michigan hospitals in June 2015, perhaps signaling the DOJ’s increased focused in policing allegedly anticompetitive agreements among hospitals and medical centers.
For the first time in its 101-year history, the Federal Trade Commission yesterday issued a policy statement outlining the extent of its authority to police “unfair methods of competition” on a “standalone” basis under Section 5 of the Federal Trade Commission Act. In a terse Statement of Enforcement Principles, the Commission laid out a framework for its Section 5 jurisprudence that was predictably tethered to the familiar antitrust “rule of reason” analysis but also sets forth a potentially expansive approach to enforcement. Indeed, the Commission’s approach could encompass novel enforcement theories premised on acts or practices that “contravene the spirit of the antitrust laws” as well as those incipient acts that, if allowed to mature or complete, “could violate the Sherman or Clayton Act.” Commissioner Ohlhausen’s lone dissent recognizes these potentially disconcerting developments for private industry. Read More
On July 30, 2015, the Ninth Circuit issued one of the most significant appellate opinions regarding standard essential patents (SEPs) subject to commitments to license on fair, reasonable and non-discriminatory (FRAND, or simply RAND) terms. In Microsoft Corp. v. Motorola, Inc. (Case No. 14-35393), the Court upheld determinations by U.S. District Court Judge James Robart (W.D. Wash.) as to (i) when a member of a Standard Setting Organization (SSO) is obligated to license that member’s SEP on FRAND terms, (ii) what the proper methodology is for calculating a FRAND royalty rate, and (iii) what remedies are available for breach of an obligation to license a SEP on FRAND terms. The affirmance represents a major victory for Microsoft and other SEP licensees, and provides significant guidance regarding future FRAND disputes.
On June 22, 2015, in a 6-3 decision in Kimble et al. v. Marvel Enterprises, LLC, 576 U.S. (2015), the United States Supreme Court reaffirmed its holding in Brulotte v. Thys, 379 U.S. 29 (1964), that it is per se patent misuse for a patentee to charge royalties for the use of its patent after the patent expires. While acknowledging the weak economic underpinnings of Brulotte, the Court relied heavily on stare decisis and Congressional inaction to overrule Brulotte in also declining to do so itself. Although Kimble leaves Brulotte intact, the decision restates the rule of that case and provides practical guidance to avoid its prohibition on post-expiration royalties. Critically, the Court appears to condone the collection of a full royalty for a portfolio of licenses until the last patent in the portfolio expires. In addition, the Court’s reasoning provides guidance as to how patent licensors can draft licenses to isolate the effect of a later finding that patents conveyed under those licenses were previously exhausted.
On June 17, 2015, the U.S. District Court for the Eastern District of Pennsylvania approved a consent order (the “Consent Order”) between the Federal Trade Commission and defendants Cephalon, Inc. and its parent, Teva Pharmaceutical Industries Ltd., resolved long-running antitrust litigation stemming from four “reverse payment” settlements of Hatch-Waxman patent infringement cases involving the branded drug Provigil®. Pursuant to its settlement with the FTC (the “Consent Order”), Cephalon agreed to disgorge $1.2 billion and to limit the terms of any future settlements of Hatch-Waxman cases. The FTC and its Staff have celebrated and promoted the terms of the settlement as setting a new standard for resolving reverse-payment cases. But their enthusiasm may be more wishful thinking than reality, and their speculation that the agreement may exert force on market behavior does not appear to be supported by a fair assessment of the state of the law. First, the restrictions on Cephalon’s ability to enter into settlements of Hatch-Waxman cases exceed anything a court has ever required, and conflict with settlement terms apparently approved in the U.S. Supreme Court’s seminal reverse-payment decision, Federal Trade Commission v. Actavis, 133 S. Ct. 2223 (2013). Second, the FTC’s use of disgorgement as a remedy remains controversial and Cephalon, despite initial opposition, might have voluntarily embraced that remedy as part of a strategy to achieve a global resolution of remaining private litigation. We write to put the Consent Order in perspective, so that industry participants can better assess its meaning.
In late May, the U.S. Court of Appeals for the Second Circuit issued the first appellate decision addressing the pharmaceutical industry practice called by some “product hopping”—a two-step process in which a drug approaching the end of its patent term is withdrawn or made less desirable to customers so that patients will switch to a successor product with more exclusivity remaining. In this way, drug manufacturers may seek to protect sales from generic competition. “Product hopping” cases are often analyzed under the antitrust rules developed to assess claims of “predatory innovation” or related conduct, as exemplified by well-known cases involving Microsoft and Kodak. In this article, just published in Law360, lawyers from Orrick’s Intellectual Property and Antitrust groups weigh in on the Second Circuit’s decision, focusing on aspects of the analysis that may not be applicable in different cases and contexts.
Last week, in In re Cipro Cases I & II, Case No. S198616, the Supreme Court of California adopted the United States Supreme Court’s application of the Rule of Reason to the antitrust analysis of so-called “reverse payment” patent settlements (and rejected plaintiffs’ arguments that settlement payments exceeding the costs of litigation or other services are per se unlawful), but also set forth a specific “structured” Rule of Reason analysis to be applied in analyzing such settlements. A copy of the decision can be found here.
On Feb. 25, 2015, the U.S. Supreme Court held, in a 6-3 decision, that a state board with a controlling number of decision-makers, who are active market participants in the occupation the board regulates, does not enjoy state action immunity from federal antitrust laws unless “the State has articulated a clear policy to allow the anticompetitive conduct, and, the State provides active supervision of [the] anticompetitive conduct.” N.C. State Bd. of Dental Exam’rs v. F.T.C., 135 S. Ct. 1101, 1112 (2015). (Click here for a copy of the opinion.)
On Apr. 15, 2015, the 11th Circuit affirmed a Federal Trade Commission ruling that McWane, Inc., the dominant producer of domestic pipe fittings, violated Section 5 of the FTC Act when it informed its distributors that unless they bought all of their domestic fittings from McWane, they would lose rebates and be cut off from purchases for 12 weeks. McWane, Inc. v. FTC, No. 14-11363 (11th Cir. Apr. 15, 2015).
The U.S. Court of Appeals for the 9th Circuit issued a landmark ruling on February 20, 2015, affirming a district court’s order blocking a merger between the St. Luke’s Health System (“St. Luke’s”) and the Saltzer Medical Group (“Saltzer”)—the largest independent multi-specialty physician group, including adult primary care, in Nampa, Idaho. See generally St. Alphonsus Med. Ctr.-Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775 (9th Cir. 2015). Of note, the 9th Circuit rejected using quality care improvements standing alone to defend a merger, reaffirmed the use of the Herfindahl-Hirschman Index (“HHI”) when assessing health care market concentration, and established a challenging standard for defending future clinical provider ventures.
On Mar. 17, 2015, the U.S. Supreme Court was provided an opportunity to review two decisions involving different applications of the Foreign Trade Antitrust Improvements Act (“FTAIA”) to Sherman Act claims based on a price-fixing conspiracy involving TFT-LCD panels. In a petition for certiorari filed that day, Motorola Mobility urged the U.S. Supreme Court to review a 7th Circuit ruling that the FTAIA blocked the majority of Motorola’s civil price-fixing claims against multiple manufacturers of TFT-LCD panels. At the same time, AU Optronics (a manufacturer of TFT-LCD panels) and two of its executives filed a certiorari petition requesting review of a 9th Circuit ruling that arguably diverged from the 7th Circuit opinion, holding that the FTAIA did not bar criminal antitrust claims against them. The Supreme Court now has an opportunity to clarify the meaning of the FTAIA and to resolve the arguably inconsistent circuit interpretations.
On Feb. 27, 2015, in In re Online DVD-Rental Antitrust Litig., 779 F.3d 914 (9th Cir. 2015), the U.S. Court of Appeals for the 9th Circuit affirmed a summary judgment for Netflix in an action alleging that Netflix conspired with Walmart to monopolize the online DVD rental market. The court found that the class of consumer plaintiffs had failed to establish antitrust injury.
On Mar. 25, 2015, the U.S. Circuit Court of Appeals for the 6th Circuit upheld a preliminary injunction against Eastman Kodak Company’s pricing policy for Versamark printer ink, finding that the plaintiff, Collins Inkjet Corporation, was likely to succeed on the merits of its claim that the pricing policy constitutes unlawful tying. Collins Inkjet Corp. v. Eastman Kodak Co., Case No. 14-3306, 2015 WL 1320675 (6th Cir. Mar. 25, 2015).
On Apr. 8, 2015, the U.S. Court of Appeals for the 3d Circuit vacated a district court order that had certified a class of direct purchasers of traditional blood reagents who asserted price-fixing claims under Section 1 of the Sherman Act. In re: Blood Reagents Antitrust Litig., No. 12-4067, 2015 WL 1543101 at *1 (3d Cir. Apr. 8, 2015).