FTC Charges Hearst Trust with Acquiring Monopoly in Vital Drug Information Market

Commission Will Ask Court for Divestiture and Disgorgement of Illegal Profits

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The Federal Trade Commission today charged The Hearst Trust, a family-held trust based in New York, New York; communications and entertainment company The Hearst Corporation, also in New York, which The Hearst Trust owns; and First DataBank, a wholly-owned Hearst Corp. subsidiary based in San Bruno, California, with illegally acquiring a monopoly over a key type of drug information database used by pharmacists, other health care professionals, hospitals, and health plans, through Hearst's 1998 acquisition of its main competitor in that market, Medi-Span.

The Commission's complaint, to be filed in the U.S. District Court for the District of Columbia, alleges that the acquisition violated Section 5 of the FTC Act and Section 7 of the Clayton Act by allowing The Hearst Trust, The Hearst Corporation, and First DataBank (collectively hereafter referred to as "Hearst") to monopolize the market, resulting in "drastic" price increases for such databases. The Commission also charges Hearst with violating subsection (a) of Section 7A of the Clayton Act by illegally withholding important information about the Medi-Span acquisition that is required for pre-merger antitrust review by the federal antitrust agencies under the Hart-Scott-Rodino Act ("HSR").

The Commission will ask the Court to order Hearst to create a new competitor to replace Medi-Span. The Commission also calls on the Court under the FTC Act and the HSR Act to order Hearst to forfeit its profits from the anticompetitive price increases that followed the Medi-Span acquisition of its only competitor - which was consummated as a direct result of Hearst's failure to supply pre-merger review documents.

"This acquisition eliminated First DataBank's only significant competitor," said Molly Boast, Acting Director of the FTC's Bureau of Competition. "The Commission will move aggressively not only to restore competition to the market, but also to deprive First DataBank of the monopoly profits it has enjoyed as a result of its grossly illegal conduct consisting of withholding key information in the pre-merger review process and buying its only competitor."

The complaint focuses on the market for electronic integratable drug information databases, also known as "integratable drug data files." These databases contain comprehensive clinical and pricing information on prescription and non-prescription drugs in a form that can easily be integrated with other electronic databases, such as pharmacists' records of their patients' medications. Pharmacists, physicians, hospital staff, and health plans use integratable drug data files to help them provide high-quality, cost-effective patient care. Most notably, integratable drug data files are needed for pharmacists to get quick, automatic warnings of any dangerous interactions between newly-prescribed drugs and other drugs their patients are already taking. Pharmacists cannot get such automatic alerts using non-integratable drug information such as reference books.

According to the Commission's complaint, at the time of the Medi-Span acquisition, First DataBank and Medi-Span, located in Indianapolis, Indiana, were significant competitors in the drug data file market and the companies faced little or no competition from anyone else. Strong competition between the companies helped hold down prices, and improve product and service quality. After Hearst acquired Medi-Span, drug data file customers faced drastic price increases, sometimes well over one hundred percent. Virtually all of those customers were unable to turn to alternative sources for their drug data needs, and were forced to pay the higher prices imposed by Hearst. No new alternative sources for such data have entered the market in the years since Hearst's "enormous" price increases took effect, according to the Commission.

The Commission also alleges that Hearst violated pre-merger notice rules designed to help prevent anticompetitive acquisitions like the Medi-Span acquisition. Before acquiring Medi-Span, Hearst filed a HSR pre-merger notification report form with the Commission and the Justice Department for the Medi-Span acquisition. Pre-merger notice is generally required by federal law for significant corporate acquisitions to allow the antitrust agencies to conduct a full antitrust review before the acquisition is completed.

The Commission alleges that Hearst illegally omitted from its pre-merger filing several high-level corporate documents prepared to evaluate the Medi-Span acquisition and its competitive effects. Hearst was required to provide those documents to the antitrust agencies to help them determine whether a full pre-merger antitrust review of the acquisition was needed. According to the Commission's complaint, Hearst belatedly provided the Commission with those documents only well after the "extraordinary" price increases that followed prompted the Commission to investigate the Medi-Span acquisition.

The Commission vote to authorize the staff to file the complaint was 3-2, with Commissioners Orson Swindle and Thomas B. Leary dissenting.

Chairman Pitofsky, joined by Commissioners Sheila F. Anthony and Mozelle W. Thompson, issued the following separate statement detailing their views on the matter: "The remedy of disgorgement should be sought by the Commission in competition cases only in exceptional circumstances. Here, the allegations of the complaint - that the defendant acquired its only real competitor with the intent to monopolize the market, withheld documents from the government that would have disclosed that fact, and after achieving monopoly raised prices to consumers drastically - justifies that relief. The alternative, which would simply restore competition by divesting illegally acquired assets, is inadequate because it allows the respondent to walk off with profits gained as a result of its allegedly illegal behavior."

Commissioner Leary, joined by Commissioner Swindle, issued a separate statement on their grounds for his dissenting vote in the matter. In the statement, Commissioners Leary and Swindle said: "We have reason to believe that the proposed defendants in this matter have engaged in particularly egregious violations of Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act. Accordingly, we would have supported an administrative complaint to address these issues. We also believe, based on the evidence currently before us, that substantial civil penalties are appropriate for Hearst's apparent violations of Section 7A of the Clayton Act.

"We dissent, however, from the Commission's decision to file its own complaint in federal court at this time. We believe that continued negotiations with the respondents would likely result in an agreement on substantial penalties for the apparent violations of Section 7A and a prompt divestiture that would help to restore competition in the market, as well as other appropriate relief that would reduce the prospect of continuing consumer harm.

"We particularly dissent from the Commission's decision to seek disgorgement in this situation. Without expressing a view on whether that extraordinary remedy should ever be available in an antitrust case, we believe that, if a violation is proved, existing private remedies are adequate to ensure that respondents do not benefit from any possible wrongdoing and that their customers can be made whole."

Copies of the statement of Chairman Pitofsky, Commissioners Anthony and Thompson and the statement of Commissioners Leary and Swindle are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. A copy of the complaint will be available upon filing in court. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC Matter No. 991-0323)

Contact Information

Media Contact:
Eric London,
Office of Public Affairs
(202) 326-2180
Staff Contact:
Molly Boast and Richard Feinstein,
Bureau of Competition
(202) 326-3300