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The 126th Annual Meeting of the New York State Bar Association
New York, N.Y.
Orson Swindle, Former Commissioner


I'm delighted to have this opportunity to address the New York State Bar Association on a number of antitrust subjects that have kept the Federal Trade Commission very busy in recent months, and that promise to remain hot topics for the foreseeable future. Before I proceed, I should point out that my remarks tonight reflect solely my views and do not necessarily represent the views of the Commission or any other Commissioner.

I'm also pleased to be here on a night when David Boies is once again recognized as the unparalleled litigator that he is. I congratulate David on the award he received tonight, and there's no doubt that we will continue to see him leading the charge in a wide spectrum of cutting-edge cases. (I'm also delighted that David didn't have to scrimp and save to make it to tonight's ceremony, given the FTC's well-known differences of opinion with him over counsel fees in a certain antitrust case.)

In tonight's remarks I want to touch on a number of FTC cases and other activities that many of you have no doubt read about. What I'm going to discuss might at first blush look like a smorgasbord of antitrust enforcement and policy issues with no apparent overarching theme. Given that these cases and other activities stem from such disparate areas of the economy as health care, food retailing, and vacation cruises, that impression is understandable. But I hope that my remarks reveal that there is an overarching theme to all of this - that the ever-shifting kaleidoscope of industries and issues with which the Federal Trade Commission must deal requires us to respond with agility and creativity, even while remaining true to the legal and economic principles that are the bedrock of our work. And it isn't just the mix of industries that shifts over time: even in a particular industry, we sometimes witness rapid changes in market dynamics that require us to be correspondingly nimble.

I'll begin with a matter that we handled recently and that garnered a lot of public and media attention - the cruise line merger investigation. I'll also discuss another merger case that continues to generate controversy - Wal-Mart's acquisition of Supermercados Amigo in Puerto Rico. Later, I'll discuss some of our work in the health care field, including some of our competition and consumer advocacy efforts.


Early last October, following one of the most fact-intensive and analytically rigorous inquiries in its history, the Commission closed its investigation of two proposed transactions in the cruise industry - the proposed dual listed company deal involving Royal Caribbean and P&O Princess, and the competing (and originally hostile) offer by Carnival Cruises to acquire Princess.

As most of you probably know, the three Commissioners in favor of closing the investigation, as well as the two who dissented, issued public statements that lay out in considerable detail our reasons for and against closing the investigation. For their candor and thoroughness, these statements have garnered praise from members of the public, even from those who raised concerns about the proposed mergers during our investigation. If our public statements left any stone unturned, you might need a magnifying glass to find it.

We examined a number of important issues in connection with the Royal Caribbean/Princess and Carnival/Princess deals, including:

  • What is the relevant product market in this case? Is it limited to cruising? Is it all vacations? Is it something else? And what is the relevant geographic market implicated by these deals?

  • If either proposed transaction goes forward, is the merged firm likely to be able to exercise market power unilaterally?

  • If either deal goes forward, will the firms remaining in the market likely be in a position to engage in anticompetitive coordinated interaction? For example:

  • Will either acquisition eliminate a maverick firm whose competitive behavior presently stands in the way of coordination?

  • In the wake of either transaction, will the firms remaining in the market be in a better position to collude in terms of prices, industry capacity, or the amenities offered on cruises?

As our statement makes clear, the majority was satisfied that neither a unilateral nor a coordination story had merit in this case. This is not the place to rehash the details of our analysis, but I think it is important to emphasize, as other FTC officials have in recent speeches, one of the key things this case stands for: that we don't make a decision - whether to sue, settle, or close - unless we have undertaken a painstaking review of the evidence and the legal and economic analyses that go into an investigation. Chairman Muris has referred on several occasions to the paramount role that "stubborn facts" play in our work. This case provides an excellent illustration that no matter what one might have thought about these transactions at the outset, there would be no substitute for a rigorous evaluation of the facts uncovered in the investigation. On the basis of such an evaluation, we decided to close the investigation.

As I see it, the substance of our analysis - and the analysis of the dissenting Commissioners - was the heart of the matter. But we also tried to do something important - and somewhat unusual - in terms of the process: I think all of us wanted the Commission to be (to use an overused term) as "transparent" as possible about the reasons for the action we took. The majority and dissenting statements contained a degree of factual and analytical detail that I don't believe has been seen often (if at all) in such documents, and I hope that you and the public at large found them valuable.


Last November, the Commission announced its acceptance of a consent agreement in settlement of its challenge to Wal-Mart's acquisition of Supermercados Amigo, the largest supermarket chain in Puerto Rico. Under the settlement, Wal-Mart is required to divest four stores in three locales in Puerto Rico to Supermercados Maximo. The consent agreement was placed on the public record for comment, and the Commission must now decide whether to issue the final order against Wal-Mart or take some other action.

One aspect of this case that attracted a fair amount of attention was the Commission's definition of the relevant product market. As you know, market definition is often one of the trickiest aspects of a merger case, and supermarket mergers in recent years have presented the Commission with some interesting challenges. One of the key questions that we've faced is whether "non-traditional" food retailing outlets such as club stores should be considered "in" the market for purposes of assessing market structure and entry conditions. In my experience, the prudent path to follow is the one that counsels against categorically including or excluding any class of retailer and that, instead, evaluates each transaction - and thus each market definition exercise - on its own terms.

Following an intensive investigation of Wal-Mart's proposed acquisition of Amigo, we included club stores in the relevant markets for the first time in a supermarket investigation. In my view, we did so simply because close scrutiny of the competitive dynamics of food retailing in Puerto Rico clearly demonstrated the role played by club stores (as well as other competitors such as supercenters). To anyone who says that this finding is evidence of some sort of sea change in how the FTC analyzes grocery mergers, I would say it was no such thing. Rather, as I said at the outset, all it shows is the Commission's application of a consistent legal and economic framework to changing - sometimes rapidly changing - markets. Joe Simons, the Director of our Bureau of Competition, said pretty much the same thing when we announced the settlement in November: "While this is the first 'supermarket' investigation in which the Commission has included club stores in the market definition, it does not indicate a change in policy. Instead, it underscores the fact that the Commission conducts merger investigations on a case-by-case basis, considers all of the relevant facts, and makes an informed decision based on those facts."


The Commission has been quite busy in the pharmaceuticals industry since March 2000, and I expect more cases to arise in this area. Although a principal objective of the 1984 Hatch-Waxman Act was to intensify competition between pioneer and generic drug companies, firms in the industry recently started to realize that they can profit from reaching agreements that blunt competition between a branded manufacturer and its generic rivals (and sometimes even between one generic company and another). And as I will explain later, we have also taken enforcement action against single-firm behavior - largely involving the Food and Drug Administration's "Orange Book" - that appeared likely to harm competition.

Our earliest cases in this area were Abbott/Geneva (in which a consent agreement was announced in March 2000) and Hoechst/Andrx (in which we announced issuance of an administrative complaint in March 2000 and announced a consent agreement in April 2001).

Abbott/Geneva involved an alleged agreement between a branded and a generic manufacturer of terazosin hydrochloride (brand name: Hytrin), a hypertension and prostate drug, pursuant to which a branded manufacturer (Abbott) paid a generic firm (Geneva) to stay off the market.

Hoechst/Andrx involved an alleged agreement between a branded and a generic manufacturer of once-a-day diltiazem (brand name: Cardizem CD), a drug for hypertension and angina, pursuant to which a branded manufacturer (Hoechst Marion Roussel, now known as Aventis) paid a generic firm (Andrx) to stay off the market.

Both cases were settled with orders that, among other things, prohibit respondents from entering into these kinds of agreements.

On the same day that the Commission announced its Hoechst/Andrx settlement (April 2, 2001), we announced issuance of an administrative complaint against Schering-Plough, Upsher-Smith, and American Home Products (now known as Wyeth).

I can't talk much about this case, since the litigation involving Schering-Plough and Upsher-Smith is still pending at the Commission. In fact, we heard oral argument in the case just a little over two weeks ago.

I can say, however, that the Commission's complaint alleged that Schering, a brand-name manufacturer of a potassium chloride supplement known as K-Dur 20, entered into separate agreements with Upsher-Smith and with the ESI-Lederle subsidiary of American Home Products. Upsher-Smith and ESI-Lederle both developed generic versions of K-Dur 20. According to the complaint, the agreements were designed to keep those generic products off the market.

The case was withdrawn from adjudication with respect to American Home Products in the fall of 2001, and last February the Commission announced that it had reached a settlement of the case with AHP.

Meanwhile, the administrative law judge hearing the case against remaining respondents Schering and Upsher ordered that the complaint be dismissed last June. The staff prosecuting the complaint have appealed from the ALJ's order, and the oral argument that we heard on January 7 stemmed from that appeal.

The cases I've described involved alleged agreements between a branded and a generic firm. The Commission subsequently unearthed a questionable arrangement between two generic manufacturers of Adalat CC, a drug for the treatment of hypertension and angina.

According to the Commission's complaint in the case of Biovail and Elan, the two firms reached an agreement pursuant to which they would refrain from competing with each other in the markets for the 30 mg and 60 mg dosages of Adalat CC. Under this agreement, Biovail would have diminished incentives to introduce its own 30 mg product in competition with Elan's established 30 mg dosage. The agreement also gave Elan a substantial incentive not to launch a 60 mg product in competition with Biovail's 60 mg product.

Our consent order, which we issued just last August, requires the termination of the Biovail/Elan agreement and also prohibits each respondent from entering into similar agreements in the future.

You've no doubt noted that all of the pharmaceutical matters I've described to this point involved alleged agreements not to compete. As I said earlier, however, we've also found that antitrust problems in this industry can arise through the conduct of a single actor.

The Commission brought another case last year against Biovail, but this case involved the hypertension medication Tiazac (also a once-a-day diltiazem). Our complaint alleged a number of actions that Biovail took to cement its alleged monopoly in the U.S. market for Tiazac, including the acquisition of an exclusive patent license from DOV Pharmaceuticals and the initiation of patent litigation against Andrx pursuant to that patent.

The core of this case, however, involved allegations that Biovail had wrongfully listed that patent in the FDA's "Orange Book" - and had made misleading statements to the FDA - for the purpose of blocking generic competition in the Tiazac market.

The consent order that we issued last October places several obligations on Biovail. The most important features of the order are a prohibition of wrongful listings in the Orange Book and a requirement that Biovail divest certain patent rights back to DOV.

The listing of patents in the Orange Book raises the issue of whether such listings are protected under the Noerr-Pennington doctrine. The Commission filed an amicus brief in the Buspirone litigation, which is pending in the Southern District of New York. We took the position that such listings are not immune, because, among other things, the government does not perform an independent review of the propriety of the listing. The district court agreed with the FTC's position and denied defendant's motion to dismiss, notwithstanding defendant's claim that its Orange Book listings enjoyed Noerr immunity. (No doubt you've seen recent news reports about Bristol-Myers Squibb's desire to settle private and state litigation involving Buspirone and Taxol.)

Partly as an outgrowth of our enforcement actions, we also conducted a Generic Drug Study to examine whether the conduct we've challenged amounts to only isolated instances of unlawful behavior, or instead indicates more pervasive practices in the drug industry. I don't have time to get into the details of the Study's conclusions and recommendations, but I thought I would mention it as an example of other tools that we sometimes employ in carrying out our mission.

The last thing I'll mention in connection with the pharmaceuticals area is a part of the vigorous program of competition and consumer advocacy that the Commission has maintained over many years. This is another arrow in a quiver that also contains litigation, investigations, amicus briefs, and the like. Under this program, the full Commission or its staff files comments on the competitive and consumer implications of legislative and regulatory proposals before a variety of state legislative bodies as well as numerous federal and state regulatory authorities. We believe we can get a great deal of bang for the buck if we file incisive comments expressing the pro-competition, pro-consumer viewpoint when legislation or regulation is being developed. We have been particularly active in this regard in the last couple of years.

For instance, we commented recently on an issue of importance to members of the public who take prescription drugs - in other words, virtually everyone. We submitted a comment concerning the FDA's proposed rule governing patent listing requirements and the application of 30-month stays on Abbreviated New Drug Applications ("ANDAs"). The FDA proposed to amend its existing rules by allowing only one 30-month stay of FDA approval for any Abbreviated New Drug Application. (This differs from the FDA's previous position, which was that the Hatch-Waxman Amendments allow multiple 30-month stays of an ANDA's approval date.)

In our comment, we said that this proposed change would go a good way toward dealing with an issue identified in the Generic Drug Study that I mentioned earlier - the problem of pharmaceutical companies' manipulation of the 30-month stay provision as a mechanism to delay generic competition. We noted, however, that the proposal unveiled in our Study is more stringent than the FDA's in that, unlike the FDA's proposal, ours does not necessarily guarantee any 30-month stay of ANDA approval. Rather, as recommended by our Study, a 30-month stay would be granted only on those patents that the pioneer firm filed with the FDA before the generic firm filed its ANDA.

The FDA's Proposed Rule also clarified the types of patents that must (and must not) be listed in the Orange Book. Our comment to the FDA supported that agency's proposal to prohibit companies from listing patents claiming packaging, metabolites, and intermediates.

In addition, we urged the FDA to refine its product-by-process listing requirements to clarify that patents claiming a novel process for producing a known product may not be listed in the Orange Book even if the claims of the patent are in product-by-process form.

We also suggested that patents claiming a form of the drug substance different from that approved through the NDA - so called "polymorph patents" - should not be listed in the Orange Book.

Finally, we encouraged the FDA to address the issue of double-patenting identified in our Generic Drug Study. We suggested that the FDA prohibit the listing of patents with a terminal disclaimer in the Orange Book and require an additional question concerning these patents in its proposed enhanced certification procedure.


I hope that this discussion of some of the FTC's recent antitrust work has conveyed a sense of the breadth and rich intellectual content of our work. With my wonderful colleagues and our incredibly talented and dedicated staff, this is a great time to be working at the Commission. Even after more than five years on the job, I continue to be amazed at how challenging, interesting, and enjoyable our work is. And I appreciate the opportunity to share some of this enjoyment with this distinguished audience.

Thank you.