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Antitrust M&A Snapshot | Q4 2023

Topics covered in this edition:

  • New Merger Guidelines Released
  • FTC Focused on Pharmaceutical Companies
  • FTC Targets “Moat-Building” Mergers
  • Fifth Circuit Fuels FTC’s Vertical Mergers Agenda
  • FTC Losing Streak Reverses During the Fourth Quarter
  • Ex post Review in the Merger Control Sphere Occurring More and More Frequently

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The Fix Is In – Key Learnings From Recent Vertical Merger Challenges

Vertical mergers are inherently more difficult for the government to litigate than horizonal mergers. After not litigating a vertical merger case since the 1970s, the Federal Trade Commission and the US Department of Justice have recently tried several matters.

In this Westlaw Today article, Jon Dubrow, Stephen Wu, Matt Evola and Bailey Sanders discuss key insights from these cases and provide useful guidance for companies contemplating such transactions.

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Antitrust M&A Snapshot | Q2 2023

Topics covered in this edition:

  • FTC Unveils Proposal Detailing Significant Changes to Hart-Scott-Rodino Act Merger Notifications
  • Assa Abloy Settlement Raises Questions on Litigating the Fix and DOJ Consent Decrees
  • Pharmaceutical Industry Remains in Regulators’ Crosshairs
  • “Whole of Government” Competition Mandate Can Impact Deals the FTC and DOJ Do Not Challenge
  • FTC’s Constitutionality Comes Under Fire—Again
  • Divergent Viewpoints in Video Games Sector: Microsoft’s Takeover of Activision Blizzard
  • New Merger Simplification Package from the EC

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FTC Releases Proposed Changes to Premerger Notification Form and Process

The Federal Trade Commission (FTC) has proposed, for comment, significant changes to the information and documents to be submitted with premerger filings—even in transactions that do not raise significant antitrust issues. The changes proposed may not take effect and may be different when finalized. But if promulgated as proposed, every Hart-Scott-Rodino (HSR) filing will be more difficult and time-consuming, and transactions that might raise even marginal antitrust issues will require significant up-front work.

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Antitrust M&A Snapshot | Q1 2023

Topics covered in this edition:

  • Christine Wilson Resigns as FTC Commissioner
  • FTC/Department of Justice Horizontal Merger Guidelines Delayed
  • Agencies Maintain Focus on Private Equity, Especially in Healthcare
  • Continuing a Trend: FTC Loses Challenge to Meta’s Acquisition of Within
  • Agencies Continue to Challenge Transactions Outright Rather than Negotiate Settlements
  • New Regulatory Burden: The EU Foreign Subsidies Regulation Enters into Force
  • A New Route for Complainants: ECJ Towercast Ruling Confirms Non-Notifiable Acquisition Can Be Abuse of Dominant Position
  • CMA’s New Leadership Team Focuses on Digitalisation and Supply Chain Issues Impacting Consumers

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Heard at the 2023 Spring Meeting: Part 2

The American Bar Association’s Antitrust Law Section held its annual Spring Meeting in Washington, DC, on March 29–31, 2023. The Spring Meeting sessions featured updates from federal, state, and international antitrust enforcers and thought-invoking discussions on leading antitrust issues facing the business community today. Following Part 1, this post summarizes key takeaways from the second portion of the Spring Meeting, including updates regarding premerger notification filings, labor markets, state antitrust enforcement, compliance programs, national security, consumer protection, interlocking directorates, and remedies.

FTC Zeros in on Missing Material in HSR Filings

  • Federal Trade Commission (FTC) Bureau of Competition Director Holly Vedova underscored the consequences of failing to submit Item 4 material in HSR filings. She noted the FTC will bounce filings found to have missing Item 4 documents. If the waiting period has not expired and newly surfaced documents change the scope of the request, the FTC may issue a Second Request. If the waiting period has expired when consequential missing material is realized, the FTC will require a corrective filing for the original transaction and may impose “significant” civil penalties.
  • Vedova also reminded practitioners that changes in a merger agreement can require an additional HSR filing. If material changes are made before the waiting period expires, parties should proactively reach out to the FTC to inquire as to whether further action is needed. Parties may need to amend their original filing or submit a new one entirely.

Labor Markets Remain High Priority

  • The antitrust enforcement agencies have promised continued, fervent action in labor markets. In keeping with this promise, this January, the FTC issued a proposed rule that would make it illegal to enter into or maintain noncompete agreements with employees or independent contractors.
    • FTC Chair Lina Khan emphasized that noncompetes impede business dynamism, innovation, and entry, and eliminating noncompetes is estimated to return $300 billion back into the pockets of American workers.
    • FTC Commissioner Rebecca Kelly Slaughter pointed to California as an innovator in labor market enforcement, citing its prohibition on noncompetes. FTC enforcers encouraged the continued submission of public comments on the proposed rule. The comment period is set to close on April 19, 2023.
    • Wisconsin Assistant Attorney General Gwendolyn Cooley also noted that enforcing noncompetes has been a hallmark of state enforcement, especially in New York and Washington, and additional states are considering legislation that would ban noncompetes.
  • The Department of Justice (DOJ) Antitrust Division’s Acting Director of Criminal Enforcement Emma Burnham and the Chief of DOJ’s Criminal II Section James Fredericks noted practitioners should expect an uptick in criminal cases in the labor and employment space. DOJ Antitrust Division’s Deputy Assistant Attorney General Jonathan Kanter stressed that antitrust crimes focused on workers are just as important as those focused on consumers.
  • New York’s antitrust chief, Elinor Hoffman, indicated that New York is focused on labor issues, including no-poach agreements and noncompete clauses that may arise during merger reviews. [...]

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Heard at the 2023 Spring Meeting: Part 1

The American Bar Association’s Antitrust Law Section recently held its annual Spring Meeting in Washington, DC, featuring updates from federal, state, and international antitrust enforcers and in-depth commentary on leading antitrust issues facing the business community today. This post recaps key takeaways from the first portion of the Spring Meeting.

CIVIL ENFORCEMENT AND MERGER REVIEW: US DEPARTMENT OF JUSTICE (DOJ) PRIORITIES

  • Aggressive Enforcement by Any Other Name: DOJ Antitrust Division Deputy Assistant Attorney General Hetal Doshi characterized DOJ’s enforcement posture as “not aggressive enforcement, just enforcement,” but nevertheless opined that the Department’s past practice of erring on the side of under-enforcement has “ill-served” the public.
  • Whole-of-Government Means Whole-of-Government: The Division’s Deputy Assistant Attorneys General Maggie Goodlander and Michael Kades highlighted that various federal statutes other than the antitrust laws confer the power to act to preserve competition. They emphasized DOJ’s intent to pursue sweeping enforcement priorities to execute President Biden’s recent executive order calling for a whole-of-government approach to protecting competition, including by working in conjunction with other federal agencies like the Departments of Defense, Transportation, and Agriculture.
  • Enforcement Priorities Include Technical Violations of HSR Act, Spoliation, Gun-Jumping: Deputy Assistant Attorney General Goodlander emphasized DOJ’s intent to pursue vigorously violations of the HSR Act, including failures to make required premerger notification filings, failures to provide all Item 4 documents, and “gun-jumping” caused by concerted action prior to the satisfaction of the HSR Act’s waiting period. Goodlander also commented on DOJ’s intent to scrutinize merging parties’ conduct during the due diligence phase to investigate whether parties are using due diligence to conceal and accomplish anticompetitive conduct. Other DOJ officials further emphasized that DOJ and the Federal Trade Commission (FTC) are working to ensure that the agencies’ investigations are not harmed by the use of third-party ephemeral communication platforms and to penalize spoliation of evidence contained in such messaging applications.
  • Hostility Toward Freely Granted Divestitures in Merger Investigations: Deputy Assistant Attorneys General Doshi and Andrew Forman conveyed the high bar merging parties face when they offer structural or behavioral remedies, including divestitures, to resolve or head off a DOJ challenge to a merger or acquisition. Doshi and Forman pointed to instances where divestitures and/or carveouts offered in merger transactions have failed and “the American people bear the risk” of anticompetitive harms and asserted that “the idea that a divestiture can cure the feared antitrust issues can’t rest on our hopes of what might happen in the future after the deal and divestiture closes.”
  • Consent Decrees Face Much Stricter Scrutiny: Deputy Assistant Attorneys General Forman, Goodlander, and Kades emphasized the “exacting standard” that must be applied when DOJ is considering entering into a consent decree to resolve a merger challenge. According to the Department officials, the antitrust laws prohibit mergers that may substantially lessen competition, which means that for a consent decree to resolve antitrust concerns, it must eliminate the possibility that a merger could cause harm—an “extremely high bar.”
  • Updated Merger Guidelines to Focus on Relevant [...]

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DOJ Signals Heightened Scrutiny on Information Exchanges and Competitor Collaborations

WHAT HAPPENED

On February 3, 2023, the US Department of Justice’s (DOJ) Antitrust Division announced the withdrawal of three policy statements related to antitrust enforcement in healthcare. Although the withdrawn statements focus on healthcare, DOJ’s decision to withdraw these statements will have broad impacts across industries.

The three policy statements, issued in 19931996, and 2011, relate to competitor collaboration and information sharing, and established “safety zones” of activities shielded from antitrust scrutiny. The 1996 Statements of Antitrust Enforcement in Health Care (1996 Statements) were revised and expanded upon the 1993 Statements. Though ostensibly related to healthcare, the guidance has been relied upon by all industries and understood to cover all manner of competitively sensitive information. Two of the safety zones most often relied on by companies relate to competitor exchanges of price and cost information, and competitor joint purchasing arrangements.

Information Exchanges

The safety zone on information exchanges (Statement 6 of the 1996 Statements) stated that, in general, the agencies would not challenge an exchange of price or cost information (e.g., employee compensation) if the following three conditions were met:

  1. The exchange is managed by a third party (e.g., a trade association or consultant).
  2. The information is more than three months old.
  3. The exchange has five or more participants contributing data, and no individual participant’s data represents more than 25% of any statistic; and no individual participant’s data can be identified.

Companies have relied on this safety zone in conducting surveys and benchmarking related to pricing, supply costs, and salaries. These surveys have served as critical compliance tools. Organizations exempt from federal income tax often use surveys to demonstrate fair market value compensation to safeguard against claims of private inurement and private benefit. Similarly, healthcare companies routinely use benchmarking studies to demonstrate fair market value compensation for compliance with fraud and abuse laws.

Group Purchasing Organizations

The safety zone on joint purchasing arrangements (Statement 7 of the 1996 Statements) stated that, in general, the agencies would not challenge joint purchasing arrangements (e.g., group purchasing organizations (GPOs)) if the following two conditions were met:

  1. The purchases account for less than 35% of the total sales of the purchased product or service.
  2. The cost of the products or services purchased jointly accounts for less than 20% of the participants’ revenues.

DOJ cited changes in the healthcare landscape as the rationale for withdrawing these policy statements, specifically indicating that the statements were “overly permissive” on information sharing. In a speech the day before DOJ’s announcement, Principal Deputy Assistant Attorney General (DAAG) Doha Mekki stated that the safety zone factors “do not consider the realities of a transformed industry” and “understate the antitrust risks of competitors sharing competitively sensitive information.” DAAG Mekki explained that:

  • Information exchanges managed by third parties can have the same anticompetitive effects—and the use of a third party enhances anticompetitive effects.
  • New algorithms and AI learning increase the competitive value of historical information (more [...]

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Antitrust M&A Snapshot | Q3 2022

In the United States, the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) lost four merger challenges (Illumina/GRAIL, UnitedHealth/Change Healthcare, U.S. Sugar/Imperial Sugar and Booz Allen/EverWatch) in September. The losses demonstrate that parties willing to litigate can have success in court. The absence of “smoking gun” documents and lack of a presumption of anticompetitive effects (based on market shares and concentration) made these cases very difficult for the government. The judges in these cases tended to credit structural and behavioral remedies that the government felt were insufficient and were persuaded by real-world testimony from executives and third parties contradicting the government’s theories of changed economic incentives from the transactions.

In July 2022, the European Parliament published the final text of the European Union’s upcoming instrument to address distortive foreign subsidies, following a provisional political agreement reached between the EU lawmakers in June (Foreign Subsidies Regulation). The Foreign Subsidies Regulation introduces a new mandatory screening mechanism including notification obligations and the European Commission’s right of ex officio investigations, which will have a considerable impact on M&A transactions and procurement procedures.

The Foreign Subsidies Regulation will enter into force once it is formally adopted by EU lawmakers and published in the Official Journal. It will become directly applicable across the European Union six months after entry into force. The notification obligations will start to apply nine months after entry into force. The Commission also is currently drafting procedural rules on how to notify transactions, how to calculate time limits, and the process for preliminary reviews and in-depth probes when there is a suspicion of distortive foreign subsidies.

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Antitrust M&A Snapshot | Q2 2022

In the United States, parties continue to be cautious in litigating challenged transactions. Since January 2021, the US Federal Trade Commission (FTC) and Department of Justice (DOJ) filed lawsuits (or threatened to sue) to block 16 transactions. Of those transactions, 12 were abandoned and six are in various stages of litigation. The data suggest that the FTC’s and DOJ’s aggressive merger enforcement policy is raising the stakes for parties to potential mergers and acquisitions, including an increased willingness by the agencies to litigate potentially problematic transactions.

Between May 6 and June 3, 2022, the European Commission (Commission) held a public consultation to seek views on the draft revised Merger Implementing Regulation (Implementing Regulation) and the Notice on Simplified Procedure. This consultation was launched in the context of the Commission’s review process of the procedural and jurisdictional aspects of EU merger control.

On April 20, 2022, the UK government proposed new measures to boost consumer protection rights and competition rules. In particular, the UK government’s reforms aim to strengthen the Competition & Markets Authority’s (CMA) powers and alleviate burdens on smaller companies.

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