The Federal Trade Commission today announced a proposed settlement to resolve competitive concerns arising from Medtronic, Inc.'s proposed acquisition of Physio-Control International Corporation's automated external defibrillator ("AED") business. Medtronic, one of the world's leading suppliers of medical devices, does not currently manufacture AEDs. It does, however, have an ownership interest in SurVivaLink Corporation, a direct competitor of Physio-Control. This relationship gives Medtronic the ability to influence and exert some control over the business of SurVivaLink, as well as gain access to SurVivaLink's competitively sensitive information, the FTC alleged. The U.S. market for AEDs is highly concentrated, the agency said. As a result, Medtronic's agreements with SurVivaLink and its acquisition of Physio-Control would cause anticompetitive harm in the market for the research, development, manufacture and sale of AEDs and could result in increased prices and reduced innovation, the agency charged. The proposed settlement, which is subject to public comment, would convert Medtronic into a passive investor in SurVivaLink, thereby ending Medtronic's potential to exercise control over SurVivaLink or gain access to any competitively sensitive information.
AEDs are portable, automated devices used in emergency situations by persons with limited medical training to diagnose and treat persons suffering from sudden cardiac arrest. There are only three significant competitors in the U.S. market for AEDs: (1) Physio-Control; (2) Hewlett-Packard/Heartstream; and (3) SurVivaLink. Entry into this market is unlikely, the agency said, and would not be timely because of the time and expense required to design and develop a competitively viable product, obtain approvals from the U.S. Food and Drug Administration, and establish a sales and distribution network.
Medtronic, based in Minneapolis, Minnesota, specializes in implantable and interventional therapies, including implantable pacemaker systems, implantable tachyrhythmia management devices, ablation systems, hydrocephalic shunts, and balloon angioplasty products.
Medtronic also makes bradycardia pacemakers and implantable cardioverter defibrillators.
Physio-Control, based in Redmond, Washington, manufactures and markets a broad line of non-invasive emergency cardiac defibrillator and vital assessment devices used for the early detection and treatment of life-threatening events arising from heart disease and trauma. Physio-Control is the leading producer of AEDs, with approximately a 60 percent share of the U.S. AED market. Physio-Control sells its products to a diverse group of customers such as hospitals, fire departments, emergency medical technicians and governments.
Medtronic has an investment agreement with SurVivaLink, a Minneapolis, Minnesota, company that has been marketing AEDs since 1995. Pursuant to this agreement, Medtronic was given the explicit right to name a member to SurVivaLink's Board of Directors and to receive certain non-public competitively sensitive information, the Commission said. Medtronic also has the right to receive certain non-public competitively sensitive information under Minnesota law. In addition, Medtronic has the right as a shareholder in SurVivaLink to vote on all matters requiring a shareholder vote.
According to the Commission's complaint outlining the charges, the effects of the acquisition, if consummated, would be to substantially lessen competition in the market for AEDs. Specifically, the acquisition would eliminate direct competition between SurVivaLink and Physio-Control by bringing the two competitors under the influence or control of Medtronic, thereby: increasing the likelihood of coordinated interaction; reducing innovation; and ultimately increasing prices for automated external defibrillator customers.
The proposed consent order to remedy the charges would make Medtronic a passive investor in SurVivaLink and would prevent Medtronic from exercising its right to name a member to SurVivaLink's Board of Directors. The proposed order also would prevent Medtronic from exercising its rights, pursuant to its investment agreement with SurVivaLink or under Minnesota law, to receive non-public competitively sensitive information relating to SurVivaLink.
The proposed settlement also would limit Medtronic's ability to vote on any matter that requires a vote of SurVivaLink's shareholders by requiring Medtronic to delegate its voting rights to be voted in a manner proportional to the votes of all other shareholders in the same class. Medtronic also would be prohibited from proposing any corporate action or participating in any business decisions of SurVivaLink. In addition, Medtronic would be prevented from increasing its ownership interest in SurVivaLink without providing prior written notice to the Commission.
Finally, the proposed consent order would require Medtronic to return to SurVivaLink any documents that contain any trade secrets, commercial information or financial information relating to SurVivaLink.
The Commission vote to accept the proposed consent agreement for public comment was 4-0.
An analysis of the proposed agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: 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 $11,000.
Copies of the complaint, the proposed consent order and an analysis of the proposed consent order to aid public comment are available from the FTC's web site at: http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 9810324)