Company Will Allow Major Distributor to Carry Competing Products
The largest U.S. supplier of diagnostic testing products used by small animal veterinarians, IDEXX Laboratories, Inc., has agreed to drop its exclusive-dealing arrangements with a top distributor, resolving FTC charges that it was using the exclusive arrangements to stifle competition.
IDEXX has agreed to a settlement order that prohibits concurrent exclusive distribution arrangements with the three national distributors of point-of-care (POC) diagnostic testing products. According to the FTC’s complaint, IDEXX has used its dominant market power to reduce competition by threatening to drop the distributors if they carried other companies’ products that compete with IDEXX products.
IDEXX, headquartered in Westbrook, Maine, develops, manufactures, and sells diagnostic products to veterinarians. According to the FTC, IDEXX has monopoly power in the market for POC diagnostic products, including rapid assay tests, equipment and supplies that allow vets for small animals (pets) to test, diagnose, and treat conditions such as heart worm in a single visit. POC diagnostic products allow vets to provide consumers with real-time results that cannot be obtained by other services, such as outside labs.
IDEXX’s main business is in pet diagnostics, including POC products and related items, such as rapid assay test kits and digital x-ray equipment. According to the FTC, IDEXX’s share of the POC diagnostics market has been at least 70 percent between 2006 and 2011, with no other firm having more than a 20 percent market share during that time.
More than three-quarters of vets in the United States use POC diagnostic testing, and each year vets buy approximately $500 million worth of these products. More than 85 percent of all products and supplies that small-animal vets purchase through distribution are sourced through one of IDEXX’s five top distributors. Of these, three are recognized as the pre-eminent distributors in the United States: 1) Butler Schein Animal Health; 2) MWI Veterinary Supply Co.; and 3) Webster Veterinary Supply, Inc.
The FTC charged that IDEXX dominates the POC testing market, and that it engaged in monopolistic conduct by barring its distributors from carrying any competing POC diagnostic testing products. According to the agency, distributors have no choice but to agree to carry IDEXX’s products exclusively to avoid termination by IDEXX. The company’s exclusionary conduct has blocked its rivals from this sales channel, often marginalizing them or forcing them out of the market. Distributors are the most efficient and easiest way to market POC diagnostic products to vets.
The proposed order prohibits IDEXX from maintaining concurrent exclusive distribution agreements with all three top tier distributors for the next 10 years. IDEXX will be prohibited from retaliating against non-exclusive distributors, withholding products, or using other means to limit the distributor’s sales of other manufacturer’s products. In addition, all future non-exclusive agreements between IDEXX and one of the three national distributors must meet the requirements of the proposed order, and will begin with a two-year term, followed by renewal terms of at least one year.
Finally, IDEXX must notify the FTC if it terminates any non-exclusive distribution agreement, and must show any future agreements to the agency 30 days before they are signed. IDEXX signed an agreement with MWI in September 2012 that will allow MWI to distribute other companies’ products beginning on January 1, 2013. The FTC order ensures competition will continue even if that agreement ends.
The Commission’s vote approving the complaint and proposed settlement order was 4-0-1, with Commissioner Maureen Ohlhausen abstaining. The order will be subject to public comment for 30 days, until January 24, 2013, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Comments can be submitted electronically.
NOTE: The Commission issues a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the respondent has violated the law. A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $16,000.
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