North America Competition Currents | January 2021
1. FTC approves Otto Bock HealthCare North America, Inc.’s application to divest assets in prosthetic knee merger.
On Dec. 1, 2020, the FTC announced its approval of an application by prosthetics manufacturer Otto Bock HealthCare North America Inc. to divest certain assets it acquired when it consummated its acquisition of FIH Group Holdings LLC (Freedom Innovations), including all microprocessor prosthetic knee (MPK) products and technology.
Otto Bock completed its acquisition of Freedom Innovations in September 2017, and FTC filed an administrative complaint in December of that year. In November 2019, upholding an administrative law judge’s decision, the FTC unanimously found that the merger was anticompetitive, and it issued the final order requiring Otto Bock to divest the Freedom Innovations business, with limited exceptions. The Commission vote to approve the application was 5-0.
2. FTC sues to Block Procter & Gamble’s acquisition of Billie, Inc.
On Dec. 8, 2020, the agency filed an administrative complaint and authorized a suit in federal court to block Procter & Gamble’s proposed purchase of Billie Inc., which sells women’s razors, saying the deal would eliminate an expanding competitive threat to P&G – the market-leading supplier of women’s and men’s razors, with brands like Gillette, Venus, and Joy. According to the FTC, Billie sells a “mid-tier” women’s system razor targeted at Generation Z and Millennial women, including through marketing attacking the practice of pricing women’s razors higher than comparable men’s razors. The FTC alleges that the deal also halted Billie’s anticipated expansion into brick-and-mortar retail stores, which would have intensified competition between Billie and P&G at retail locations.
“Billie saw an opportunity to challenge P&G's position as the market leader by finding underserved, price and quality conscious customers, and building an innovative brand,” Conner said. “As its sales grew, Billie was likely to expand into brick-and-mortar stores, posing a serious threat to P&G. If P&G can snuff out Billie’s rapid competitive growth, consumers will likely face higher prices.”
The administrative trial is scheduled to begin June 22, 2021.
3. FTC approves final order imposing conditions on Stryker Corp.’s acquisition of Wright Medical Group N.V.
On Dec. 11, 2020, following a public comment period, the agency approved a final order settling charges that medical device company Stryker Corp.’s proposed acquisition of competitor Wright Medical Group N.V. would violate federal antitrust law. According to the complaint, the proposed acquisition would likely result in substantial competitive harm to consumers in the U.S. markets for total ankle replacements and finger joint implants. Commission staff and UK Competition and Markets Authority staff together analyzed the proposed transaction and coordinated on potential remedies. The final order requires Stryker and Wright to divest to DJO Global all assets associated with Stryker’s total ankle replacements and finger joint implants. 4.
FTC conditions E. & J. Gallo Winery’s acquisition of assets from Constellation Brands, Inc. on package of remedies. On Dec. 23, 2020, the agency announced that wine and spirits maker E. & J. Gallo Winery agreed to divest several product lines and remove certain others from its deal with competitor Constellation Brands, Inc., to settle agency charges that the combination would violate federal antitrust law by harming competition in numerous beverage product markets. The FTC alleged that the proposed acquisition would eliminate head-to-head competition and constrain competition in six product markets: entry-level on-premise sparkling wine; low-priced sparkling wine; low-priced brandy; low-priced port; low-priced sherry, and high color concentrates (HCCs), giving the combined company a “significant majority” of market share in each product market.
Constellation agreed to remove its entry-level, on-premise sparkling wine brand, J Roget, and its low-priced sparkling wine brand, Cook’s, from the deal. The proposed remedy requires Constellation to take all actions necessary to retain and maintain the full economic viability, marketability, and competitiveness of its J Roget and Cook’s assets for four years and appoints a monitor to oversee the settlement obligations. Additionally, Constellation will divest its Paul Masson brandy brand HCC business to other competitors, and Gallo will do the same for its Sheffield Cellars and Fairbanks low-priced port and sherry brands.
B. The Department of Justice (DOJ) requires divestiture of Tufts Health Freedom Plan as Condition to closing merger of Harvard Health Care and Tufts Health Plan.
On Dec. 14, 2020, the DOJ announced that it would require Harvard Pilgrim Health Care and Tufts Health Plan to sell the latter’s commercial health insurance business in New Hampshire as a condition to closing the merger. The DOJ’s complaint, joined by the New Hampshire attorney general’s office, alleged that Harvard Pilgrim and Tufts are two of the top three providers of group health insurance plans in New Hampshire for employers with up to 50 full-time workers and those with between 50 and 100 workers, and that both the smaller and the larger businesses have benefited from direct competition between the companies.
“This merger, as originally structured, likely would have led to higher prices, poorer quality, and reduced choice for many consumers throughout the state,” Assistant Attorney General Makan Delrahim of the Antitrust Division said. “Today’s settlement with its divestiture will ensure that small groups and CRC groups continue to benefit from the competition that has enabled them to purchase the health insurance plans for their employees at competitive prices in the state.” New Hampshire Attorney General Gordon J. MacDonald said in a statement that the state has some of the highest health care costs in the country and that the deal as initially proposed could have led to even higher costs for consumers.
After review of the parties’ respective footprints in Massachusetts, the DOJ determined that the merger was not likely to harm competition in that state. The divestiture will also require the parties to provide transition services to the buyer and an opportunity to hire key employees.
C. U.S. Litigation.
1. Lifewatch Services, Inc. v. Blue Cross Blue Shield Association, et al., 12-CV-05146 (E.D. Pa., Dec. 29, 2020).
The Eastern District of Pennsylvania dismissed a complaint by LifeWatch Services Inc. against Blue Cross Blue Shield Association (BCBS) and five plan administrators alleging that BCBS violated federal antitrust laws in a conspiracy to deny coverage of LifeWatch’s telemetry monitor products. For more than 10 years, at least 30 BCBS insurance plans have abided by a policy that denies coverage of telemetry monitors, devices that detect changes in cardiac rhythm. “The insurers reached this decision despite multiple medical studies concluding that telemetry monitors are effective and, in some cases, superior to other cardiac monitoring devices,” the court explained. LifeWatch, a seller of telemetry monitors, claimed that BCBS violated the Sherman Act in its denial to cover LifeWatch’s telemetry monitors. In May 2016, BCBS moved to dismiss the complaint, arguing that the plaintiff failed to state a claim and lacked antitrust standing and that the McCarran-Ferguson Act gives BCBS immunity from antitrust liability; the court agreed that the plaintiff failed to allege anticompetitive effects and dismissed the complaint. Judges for the Third Circuit Court of Appeals, after examining the case, ruled that LifeWatch had “plausibly pled an agreement between the Blue Plans and the Association that unreasonably restrains trade in the national market for outpatient cardiac monitors” and reversed a previous dismissal of the case. Third Circuit judges commented that while they reversed the dismissal, they believed that BCBS “may be exempt from liability under the McCarran-Ferguson Act,” and remanded so that BCBS’s associated argument could be considered, according to court documents. Under McCarran-Ferguson, the defendant must establish its immunity from antitrust liability. The court explained that conduct that renders a defendant exempt is such that “(1) ‘constitutes the business of insurance,’ (2) is ‘regulated by state law,’ and (3) does not ‘amount to a boycott, coercion, or intimidation.’” The first two criteria are in dispute by the parties.
On remand, the district judge found that BCBS satisfies the first criterion because “the insurance contract between Blue Cross and its subscribers, by excluding from coverage all telemetry treatment under all circumstances, allocates the risk between the parties,” the services offered in BCBS subscriber contracts are “integral to the policy relationship,” and, although BCBS is technically an association and not itself an insurer, “it owns the rights to Blue Cross and Blue Shield trademark names and licenses those trade names and trademarks to insurance plans,” rendering the association an insurance industry entity under McCarran-Ferguson.
2. In re Lantus Direct Purchaser Antitrust Lit., No. 16-cv-12652 (D. Mass. Dec. 22. 2020).
A federal judge refused to narrow a class action lawsuit accusing Sanofi-Aventis US LLC of suppressing competing versions of its diabetes drug Lantus, rejecting the company’s claim that the named plaintiff, FWK Holdings LLC, lacked standing to challenge actions Sanofi took after FWK stopped buying the drug. U.S. Magistrate Judge Judith Gail Dein ruled that FWK, a drug wholesaler, had standing to pursue the claims because it was part of a single alleged scheme, in which Sanofi is said to have falsely claimed patent protection for Lantus in submissions to the Food and Drug Administration. In October 2020, Sanofi moved to dismiss all of FWK’s claims related to actions that happened after June 2016, which include some of the Orange Book patent listings and the lawsuits against Merck and Mylan. It argued that FWK lacked standing to pursue those claims because it admittedly bought no Lantus after June 2016, and so could not have been injured. Judge Dein rejected that argument, finding that FWK had “alleged a continuous scheme” that “continued to cause harm to class members after June 2016,” and that allegations of individual acts by Sanofi could not be considered on their own. “They are not separate and distinct claims requiring the named plaintiff to have personally suffered resulting injury,” she said.
3. State of Texas et al v. Google, Inc. No. 20-cv- 00957 (ED Tex. Dec. 16, 2020).
On Dec. 16, 2020, 10 states, led by Texas, filed a lawsuit alleging that certain “Big Tech” companies reached an illegal deal to maintain a “chokehold” over the lucrative digital advertising market. “[Defendant] repeatedly used its monopolistic power to control pricing, engage in market collusions to rig auctions in a tremendous violation of justice,” Texas Attorney General Ken Paxton said in a video posted on Twitter announcing the lawsuit. A spokesperson for the Defendant called Paxton’s suit “meritless” and said the company had “invested in state-of-the-art ad tech services that help businesses and benefit consumers.” “Digital ad prices have fallen over the last decade,” the spokesperson added. “Ad-tech fees are falling too. [The Company’s] ad-tech fees are lower than the industry average. These are the hallmarks of a highly competitive industry.” This latest lawsuit is separate from an antitrust case that the Justice Department and 11 state attorneys general filed in October 2020 involving market power in the online search market.
A. COFECE recommends that banks break up Mexico’s credit card ‘near-monopoly.’
On Dec. 16, 2020, COFECE recognized a lack of competition in the settlement and processing of credit card payment network in Mexico due to probable barriers to competition that generate costs and anticompetitive requirements for the entry of new participants in the market. There are only two settlement and processing of card payment companies in Mexico – E-Global and Prosa – both owned by banks.
After assessing the competition conditions, the main findings of COFECE are as follows:
There is a sole card payment network that sets rules which preclude coexistence with other payment networks with lower fees and better services.
There are anticompetitive requirements that increase the entry costs of new participants in the existing payment network or in a new one.
Eight banks are co-owners of the clearinghouses in charge of the payment network; ownership gives the banks information that other banks do not have, granting a competitive advantage.
In contrast to other countries, in Mexico the obligation to guarantee the daily liquidity of the transactions does not fall on the clearinghouses – which process the payments and know the risks of each operation – discouraging the entry of other investment and monitoring systems to detect risks to the security of the payment network.
According to the Preliminary Opinion, these conditions generate the following anticompetitive effects:
Lack of security, technology, and innovation that results in frequent interruptions in the payment network
Regulatory obstacles for new clearinghouses with different payment networks.
High fees charged by banks to businesses for receiving a card payment, reducing interest on businesses in accepting cards, since they must bear this cost.
The co-ownership of the shareholder banks in the clearinghouses gives the banks access to information from other participants, constituting an undue advantage since they can anticipate the business strategies of their competitors.
To eliminate these barriers, the Preliminary Opinion proposes to divest 51% of the shares of E-Global and Prosa, in addition to recommending the Bank of Mexico and the National Banking and Securities Commission eliminate the regulatory obstacles detected and issue regulations that ensure competition.
B. COFECE criticizes new rules for import and export permits granted by the ministry of energy: hydrocarbons and petroleum products.
On Dec. 21, 2020, COFECE sent a non-binding opinion to the Ministries of Energy (Sener) and Economy (SE) on those agencies’ Preliminary Draft of the Agreement aimed at regulating the import and export of petroleum products, hydrocarbons, and petrochemicals.
COFECE indicates that the Preliminary Draft:
Eliminates import permits that are valid for 20 years and replaces them with others for only five years, reducing incentives to invest in transport and storage infrastructure, and strengthening the dominant position of the Mexican State-owned Oil company (Pemex) in the market;
Without justification, grants wide discretion to Sener to adjust the import and export volumes of petroleum products and petrochemicals contemplated in the permit;
Establishes an automatic denial of the permits without the need to justify and explain to the applicant the reasons for not granting them;
Establishes unclear and onerous requirements for the application of permits and grants wide discretion to Sener in its revocation and expiration.
COFECE estimates that competition in the oil products market would be seriously hampered, since the Preliminary Draft could complicate and make it more expensive to obtain gasoline import permits. COFECE stresses that because Pemex is the only company that produces oil products in the national territory, in the gasoline retail market it only faces competition through imports made by other companies.