Remarks

The 36th Annual Symposium on Associations and Antitrust "Trade Assocications and Antitrust: New Issues and Challenges in the New Millennium," presented by the Trade Association and Antitrust Law Committee of the Bar Association of the District of Columbia

Washington, D.C.

Date:
By: 
Orson Swindle, Former Commissioner

A. INTRODUCTORY REMARKS

1. The views that I express today are my own and not necessarily those of the Commission or any other Commissioner.

2. Philosophy of government that I try to apply to all actions I take as an FTC Commissioner:

  1. In general, let markets work unimpeded by government intrusion. Government officials are often in a poor position to impose their vision of how markets "should" operate; we are ill-suited to get into the business of trying to "design" or "fine-tune" markets. We should reserve government intervention to prevent or remedy situations that threaten the functioning of a free market (e.g., cases of fraud or collusion, anticompetitive mergers, etc.).
  2. Before I make any decision at the FTC, I try to add one final check once I've gone through all of the legal, economic, and policy analysis that underlies our actions. That last check is to ask myself, "Does this proposed action make common sense?" I always strive to apply a form of the Hippocratic Oath -- "First, do no harm." -- to my work as a Commissioner.

B. COMMENTS ON TRADE ASSOCIATION ISSUES

1. Not many recent FTC developments concerning trade associations, at least as far as antitrust is concerned.

  1. One prominent development, of course, was the Supreme Court's decision last year in California Dental Ass'n. As many of you may recall, the case began as an FTC challenge to certain rules and policies of the California Dental Association that were alleged to have unlawfully restrained dentists in that state from advertising price and non-price information concerning their services. On review of an appellate decision that had essentially upheld the Commission's decision, the Supreme Court rejected the Ninth Circuit's determination that the Commission's properly used a "quick look" rule-of-reason approach; the Supreme Court remanded the case to the court of appeals for further proceedings. Following that remand, the case was argued again before the Ninth Circuit on April 19, and we await the decision of that court.
  2. Some other recent FTC competition cases have involved associations of physicians, dentists, or pharmacists. For example, since late 1997 the Commission has settled cases involving allegations that:
    1. the College of Physician-Surgeons of Puerto Rico and three physician groups violated the antitrust laws when they collectively demanded price-related changes under Puerto Rico's health-care plan for the indigent;
    2. a pharmacy association in Puerto Rico fixed prices and engaged in an illegal boycott in order to obtain higher government reimbursement rates for pharmacy goods and services under Puerto Rico's managed care plan for the indigent;
    3. the Puerto Rico College of Dental Surgeons fixed the terms under which individual dentists would deal with health insurers, orchestrated boycotts to obtain higher reimbursement, and prevented truthful, nondeceptive advertising; and
    4. an independent practice association containing most general surgeons in the Austin, Texas, area and six competing general surgery practice groups conspired to restrain competition by refusing to deal with two health plans until the plans agreed to higher surgical rates.
  3. The FTC's Bureau of Competition also furnished comments a year ago to the Texas House of Representatives concerning an issue on which we have also commented at the federal level -- namely, a bill that would permit physicians to jointly negotiate contractual terms with health plans under certain circumstances. The Bureau's comment pointed out a number of anticompetitive effects that could well stem from this kind of legislation.
  4. One other recent case that I should mention involved swimming pool contractors in Bakersfield, California. The Commission's complaint, issued last November, alleged that 14 pool contractors in Bakersfield formed the "Southern Valley Pool Association" in 1998 and, through the medium of their new association, conspired to raise swimming pool construction prices and to boycott another groups -- called "owner-builders" -- that presented a competitive threat to traditional pool contractors. The Commission's consent order against these respondents forbids, among other things, agreements to fix or stabilize pool construction prices and conspiracies to boycott owner-builders.
  5. On the consumer protection side of the FTC, a case that garnered a lot of notice was American College for Advancement in Medicine, in which the Commission challenged deceptive advertising by a trade association concerning the provision of chelation therapy, a means of treating heart disease.

C. SOME OTHER COMPETITION DEVELOPMENTS AT THE FTC

As I said earlier, the Federal Trade Commission has not handled many antitrust matters involving trade associations in the last couple of years, and so I want to shift gears at this point and mention some other FTC antitrust developments of significance. What's striking is that, despite the public perception that Hart-Scott-Rodino investigations consume a huge proportion of our antitrust resources, we've recently been quite busy on the nonmerger front as well. Sometimes I don't know where the agency finds the time to cover this many issues.

Cases Against Drug Companies

I begin with a number of cases in the pharmaceutical industry that have garnered a great deal of public attention. I must be careful here, since some of these matters are in litigation, including one in adjudication before an FTC administrative law judge.

The Mylan litigation in U.S. district court here has gained much prominence. The Commission's complaint alleges that Mylan -- a leading generic drug producer -- illegally agreed with the supplier of active pharmaceutical ingredients (APIs) for two antidepressant drugs (lorazepam and clorazepate) that the supplier would not furnish APIs to firms trying to compete with Mylan. The complaint charges Mylan and various other defendants with restraint of trade, monopolization, and conspiracy to monopolize. Among other forms of relief, the Commission has asked to court to order Mylan to disgorge up to $120 million in illegally obtained profits. As many of you no doubt know, the district court ruled last year that under Section 13(b) of the Federal Trade Commission Act, this is a "proper case" in which to seek such relief. With the final pretrial conference scheduled for March 14, 2001, we're expecting the trial to begin next spring.

More recently, the Commission made news by issuing an administrative complaint in one matter, and accepting consent agreements in a second matter, that involve alleged agreements between a branded drug manufacturer and a generic firm for the latter to stay off the market in exchange for payments by the former.

The Commission issued a complaint against Hoechst (now merged with Rhone-Poulenc to form Aventis) and Andrx regarding their alleged agreement with respect to generic versions of a hypertension and angina drug called Cardizem CD. This case is pending before an FTC administrative law judge.

The Commission accepted consent agreements with Abbott and with Novartis's Geneva Pharmaceuticals subsidiary regarding their alleged agreement with respect to generic versions of a hypertension and benign prostatic hyperplasia drug called Hytrin. This settlement has been placed on the public record so that the Commission may receive comments.

Retailing Cases

Another area that is receiving increased antitrust attention of late is the retail sector. In 1998, the Commission issued a complaint and consent order against Fair Allocation System, a group of traditional ("brick-and-mortar") Chrysler dealers in Montana, Idaho, and Washington State who were threatening to refuse to perform warranty service on Chrysler cars purchased from an online auto dealer. The Commission's order requires Fair Allocation System and its members to stop this type of boycott activity.

This case may have been a harbinger of things to come in the antitrust field, given the changes that could be wrought in the marketplace by the seemingly exponential growth of online commerce.

Robinson-Patman enforcement is another retail-sector topic that has recently seen a mini-renaissance at the FTC. Considerable attention has been paid to the Commission's issuance in late April of a complaint and consent order against McCormick & Co. over the company's alleged price discrimination in spices. Basically, our order prohibits McCormick from engaging in price discrimination among competing customers, except when permitted by the Robinson-Patman Act (as when, for example, a "meeting competition" defense is available). My colleague Tom Leary and I dissented from the Commission's action because we doubted that the facts in the case justified use of the Morton Salt inference to establish competitive harm, and we also questioned whether the evidence otherwise sufficed to prove that McCormick's alleged discrimination made it more difficult for the disfavored grocery stores to compete with the favored stores.

Another issue that has implications for the retail sector is resale price maintenance (RPM). In March, the Commission announced a settlement of RPM charges against Nine West, a leading supplier of women's shoes. According to our proposed complaint, Nine West agreed with retailers to fix the prices of shoes and restricted retailers' opportunities to sell shoes at a discount. The proposed order would bar Nine West from engaging in such practices. (Nine West separately entered into a similar settlement with the states' attorneys general.)

Although Commissioner Leary and I -- acknowledging the continuing per se condemnation of minimum RPM as a matter of law -- voted with our colleagues to accept this consent agreement, we issued a separate statement questioning this per se rule. We noted that the Supreme Court's decision in State Oil v. Khan accorded rule of reason treatment to maximum RPM, and we noted the desirability of a judicial reassessment of the per se rule against its minimum counterpart. To paraphrase the statement that we issued: One can easily posit instances of minimum RPM -- like any other vertical restraint -- that involve a mixture of procompetitive and anticompetitive effects, and to my mind this undercuts the continuing validity of the per se rule against the practice.

The most recent FTC development in the retailing area is the announcement last week of consent agreements with the five largest distributors of prerecorded music in the United States. When finally issued, the Commission's orders against these firms -- requiring them to cease and desist from certain allegedly anticompetitive uses of a "minimum advertised price" policy -- are expected to yield very significant savings for consumers at the music store checkout counter.

Competitor Collaboration Guidelines

Early last month, the Department of Justice and the Commission announced the release of the final version of the Antitrust Guidelines for Collaborations Among Competitors. Many of you are probably familiar with the draft version of the Guidelines that the antitrust agencies issued for public comment last fall. Indeed, some of you may have submitted comments to us. I want to thank those of you who commented for your attention to this important topic and for the illuminating comments that we received. The final Guidelines issued early last month incorporated a number of revisions spurred by public commentary, and I believe that the product was improved through that process.

Although these Guidelines cover many issues that may arise from the formation and operation of competitor collaborations, they do not address certain issues arising from such collaborations -- for example, questions pertaining to membership in or access to a collaborative enterprise. Nevertheless, it is clear that these issues are likely to be of considerable importance to trade associations and their members and legal advisors, and we will certainly examine such questions as they arise in individual law enforcement matters.

Divestitures in Merger Cases

You have probably read and heard a great deal about trends in the Commission's handling of merger cases, especially with regard to fashioning relief. As you know, the Commission has examined a variety of options designed to fortify relief in merger cases, including insistence on the divestiture of an ongoing business; the use of up-front buyers; "crown jewel" provisions in orders; and trustees to help effectuate the divestiture. Many of these issues are discussed at length in the Bureau of Competition's Divestiture Study that the Commission publicly released last year.

In recent months, you may also have heard considerable discussion of whether some transactions simply may not be amenable to any type of consent settlement. Some of the press coverage of this issue has tended to say that some mergers and acquisitions -- unless abandoned, of course -- may inevitably be headed toward litigation, since the Commission may no longer be as willing as heretofore to accept a consent agreement.

There may indeed be some deals that just cannot be handled through any form of settlement, but I remain agnostic on this question. I haven't seen enough to convince me that there's a significant subset of transactions that cannot be cured by some type of consent. This is a question that each Commissioner will have to grapple with.

I do know, however, that the more exacting scrutiny that the Commission is giving to proposed merger settlements could well make it more difficult to resolve some of these cases than, say, a few years ago. We are taking the findings of the Divestiture Study seriously, and you can expect the Commission and the staff to look with a more jaundiced eye at some of the consent proposals that might have passed muster in the past.

D. WHAT'S IN STORE FOR THE FUTURE?

The breathtaking growth of online commerce in the last few years, coupled with the more recent phenomenon of "business-to-business" transactions over the Internet, poses some interesting questions in the antitrust and consumer protection fields with which the Commission deals. Some of the changes brought about by the rise of the Internet economy will transform how firms transact business. Other changes will affect -- indeed, are already affecting -- the behavior of consumers. Still others are already having an impact on how the FTC and other law enforcement agencies carry out their missions.

I'll begin with a brief observation about our old friend, the merger and acquisition business. One unsurprising sign of the changing times we live in is that more and more of our merger investigations seem to involve high-tech industries. Although the speed of technological change sometimes requires government antitrust enforcers to travel down a very steep learning curve just to get a handle on a particular line of business, I fully agree with a number of my colleagues at the FTC and in the Department of Justice that the antitrust principles that have served us well over more than 100 years retain their relevance and utility as we embark on a new century of enforcement.

Next, what about a topic that has gotten reams of press coverage in the last few months -- the burgeoning development of business-to-business (or "B2B") exchanges over the Internet? Many of you may have heard that the Commission will host a workshop on the B2B phenomenon on June 29. We plan to explore a number of aspects of the B2B issue from the perspective of sellers, purchasers, website designers and operators, antitrust lawyers and economists, and public policymakers. We expect this workshop to delve into a number of interesting questions, including:

  • What business reasons are likely to lead to the creation of B2B marketplaces?
  • What efficiencies are expected to be achieved through B2Bs?
  • How are prices determined in a B2B market?
  • How are these marketplaces governed and operated?
  • How will B2B marketplaces compete with one another?
  • Under what circumstances will B2Bs increase or diminish competition?

I'm particularly interested in how B2B exchanges -- and other cutting-edge developments of the "New Economy" -- will affect the dynamics of competition in affected markets. For instance:

  • As B2B markets take shape, what kinds of boycott issues will stem from the decisions of buyer or seller groups to admit or exclude aspiring members?
  • Will B2Bs that operate as auctions involve the sharing of information about prices (and other competitively sensitive aspects of competition) to an extent that should set off antitrust alarm bells?
  • Will B2B exchanges turn businesses at intermediate points in a chain of production and distribution -- what are commonly referred to as "middlemen" -- into endangered species?

I don't think that anyone has confident answers to these questions, but a number of people have started asking them rather pointedly. For further discussion of some of these issues, you may want to read the excellent piece by Rick Rule and his colleagues in the April 3 issue of Legal Times

E. CONCLUDING REMARKS