Legal Library: Cases and Proceedings

In late 2008, the Commission issued a consent order to restore competition in the market for oral long-acting opioids (LAOs). The FTC intervened in King Pharmaceutical’s proposed $1.6 billion acquisition of rival drug-maker Alpharma Inc. because the transaction would have joined the two leading producers of morphine sulfate oral LAO’s in the United States, a market which was already highly concentrated and which had annual sales of $4 billion in 2007. In order to maintain competition in the market, the Commission’s consent order requires King to divest its Kadian business to Actavis, a company which already manufactured the drug for King, and which could then produce a generic equivalent of the drug sooner than would have been permitted under King’s patent, which would not have expired until 2010.

The Commission challenged the conduct of AllCare IPA, alleging that AllCare restrained competition in fee-for-service contracts by fixing prices and other contract terms with payers, engaging in collective negotiations over the terms and conditions of dealing with payers, and preventing group members from negotiating with payers except on terms approved by All Care. The Commission issued a consent order prohibiting All Care from entering into agreements between or among physicians: 1) to negotiate on behalf of any physician with any payer; 2) to refuse to deal, or threaten to refuse to deal, with any payer; 3) to designate the terms, conditions, or requirements upon which any physician deals, or is willing to deal, with any payer, including, but not limited to price terms; 4) not to deal individually with any payer, or not to deal with any payer through any arrangement other than one involving All Care.

In order to restore competition in the U.S. market for consumer pregnancy tests, the Commission effectively reversed a consummated transaction in which Inverness Medical Innovations, a 70% market share holder, purchased the assets related to the development of a water-soluble dye based pregnancy test from ACON Laboratories in order to protect its monopoly power in the market. According to the Commission’s complaint, Inverness restrained competition in two ways. First, Inverness issued covenants not to compete to ACON, took profits from ACON’s joint venture with Church & Dwight, and purchased intellectual property rights which would restrict ACON from developing competing products. Second, Inverness limited product innovation by purchasing, but not using, the water-soluble dye test technology purchased from ACON, one of the only companies utilizing that technology. The Commission’s consent order ended any restrictions Inverness had over the joint venture between ACON and Church & Dwight, and required that Inverness divest its assets relating to the water-soluble dye technology, and its related pregnancy test product.

Enforcing the mandatory premerger notification filing provisions under the Hart-Scott-Rodino Antitrust Improvements Act, the Commission filed a complaint in Federal District Court charging ESL Partners and ZAM Holdings, two investment funds, with failing to make timely filings prior to making two acquisitions. The acquisitions in question were the purchase of blocks of AutoZone, Inc.’s shares in September and October of 2004. According to the Commission’s complaint, the acquisition met the filing threshold established in the HSR act, and thus was required to file. ESL and ZAM agreed to pay civil penalties of $525,000 and $275,000 respectively to settle the Commission’s charges.

The Commission issued an administrative complaint to block CCS Corporation’s proposed $85 million acquisition of Newpark Environmental Services. According to the complaint, the proposed transaction was anticompetitive because it would consolidate two of the leading providers of waste disposal services for the offshore oil and natural gas exploration and production industry in the Gulf Coast Region, leading to higher prices and decreased service levels. In response to the complaint, CCS, a subsidiary of Red Sky, threatened to close down its operations in the Gulf Coast should the acquisition not receive the necessary regulatory approvals. The Commission filed for a preliminary injunction, and temporary restraining order in federal court. As a result, the parties abandoned the transaction, and the Commission dismissed its administrative complaint.

There is a related administrative proceeding.

In October of 2008, the Commission issued a consent order to settle charges that Golf Galaxy, a subsidiary of Dick’s Sporting Goods Inc., entered into an illegal agreement with Golf Canada to allocate the market for golf merchandise in the United States and Canada. The agreement barred Golf Canada from opening stores in the United States in exchange for privileged business information from Golf Galaxy, including blueprints, merchandising plans, and sales reports. The Commission’s consent order prevents Golf Galaxy from further dividing or allocating the market, and rendered its 2004 non-compete agreement with Golf Canada unenforceable.

The Commission charged that Agrium, Inc.’s $2.65 billion proposed acquisition of UAP Holding Corporation would substantially lessen competition in the market for the retail sale of bulk fertilizer and, in some cases, related services by farm stores, in several local markets in Michigan and Maryland. The Commission’s order requires the divestiture of seven farm stores, five UAP stores in Michigan, and two Agrium locations on the eastern shore of Maryland.

The Commission challenged Fresenius Medical Care’s proposed purchase of an exclusive sublicense for the manufacture and supply of the drug Venofer to US dialysis clinics from Daiichi Sankyo Company. Venofer is an intravenously administered iron sucrose preparation used primarily to treat iron-deficiency anemia in dialysis patients with chronic kidney disease. The agreement would have given Fresenius, the largest operator of dialysis clinics in the country, the ability to artificially inflate its internal costs for Venofer, and effectively increase Medicare reimbursement payments for all buyers of the drug. In order to settle these concerns about anticompetitive self-dealing, the Commission issued a consent order restricting Fresenius from reporting internally inflated Venofer prices by mandating that the current market price for the drug be used in reporting the average selling price to Medicare.

The Commission challenged Pernod Ricard SA’s proposed $9 billion acquisition of V&S Vin & Spirit as harmful to competition among suppliers of “super-premium” vodka. The proposed deal would have merged the two leading brands, Absolut and Stolichnaya, and allowed Pernod to raise prices profitably on both brands. Additionally, the complaint alleges that the markets for cognac, domestic cordials, coffee liqueur, and popular gin would be subject to anticompetitive effects because sensitive pricing and promotion information for Beam Global Brands, a competitor in these product markets, would be available to Pernod after the acquisition as a result of Beam’s joint venture with V&S. The Commission settled the charges by requiring Pernod to divest its distribution interests in Stolichnaya Vodka, and to erect a firewall to prevent the sharing of any competitively sensitive information from Beam Global Brands with Pernod employees.