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Antitrust Agencies Provide Guidance for Competitor Collaborations in Healthcare Sector as COVID-19 Outbreak DeepensMarch 25, 2020
As confirmed cases of novel coronavirus (COVID-19) passed the 50,000 mark in the United States, the two federal antitrust enforcement agencies announced new policies and reiterated existing guidelines for business collaborations in the healthcare space.
In a Joint Statement issued on March 24, 2020, the US Department of Justice’s (DOJ) Antitrust Division and the Federal Trade Commission’s (FTC) Bureau of Competition emphasized that “there are many ways [by which] firms, including competitors, can engage in procompetitive collaboration that does not violate the antitrust laws.” To facilitate these collaborations, the Agencies (the “Agencies”) announced the following policy changes in relation to COVID-19:
Expedited review under the DOJ’s Business Review program and the FTC’s Advisory Opinion program. Both Agencies provide a path whereby businesses may seek antitrust review of proposed collaborations: the DOJ provides for “business reviews,” while the FTC allows firms to seek “advisory opinions.” Under either program, businesses may submit information concerning a proposed joint venture or collaboration (as specified in 28 C.F.R. § 50.6(5) for the DOJ and in 16 C.F.R. §1.2(a) for the FTC), and the Agency will generally respond with its views on the venture or collaboration. While a business review letter or an advisory opinion condoning a practice does not preclude the DOJ or FTC from later challenging the practice under the antitrust laws, the Agencies are generally unlikely to do so. The DOJ has never brought a criminal enforcement action against a practice that was the subject of full and true disclosure in the business review process.
Ordinarily, it takes several months for the DOJ or FTC to respond to a request for business review or advisory opinion. But according to the Joint Statement, the Agencies “will aim to respond expeditiously to all COVID-19-related requests, and to resolve those addressing public health and safety[,] within seven (7) calendar days of receiving all necessary information.” To provide additional clarity to the marketplace, the Agencies will continue to publish business review letters and advisory opinions publicly. Past DOJ business review letters are available here, and past FTC advisory opinions are available here.
Expedited processing of National Cooperative Research & Production Act filings. Under the National Cooperative Research & Production Act (NCRPA), 15 U.S.C. §§ 4301 et seq., standards-setting organizations and joint ventures engaged in research and development or production activities may obtain limited antitrust protections by disclosing their arrangements to the Agencies. Specifically, a joint venture may submit a notice to both the DOJ and FTC that identifies the name of the venture, lists its members, discloses the location of the venture’s production facilities (if applicable), and describes the venture’s nature and objectives. The filer should include a draft Federal Register notice describing the venture. If the Agencies accept the submission as complete, they will publish the Federal Register notice. The NCRPA provides that joint ventures that comply with this process will enjoy the following protections:
- If challenged in court, the venture’s activities will be assessed under the antitrust rule of reason rather than the per se rule.
- Private plaintiffs may not seek treble damages in an action challenging the joint venture’s activities. Recovery is limited to actual damages.
- If the joint venture prevails over a private plaintiff in an antitrust suit, the venture may be able to recover its attorneys’ fees.
In the Joint Statement, the Agencies commit to “expeditiously process filings under the [NCRPA],” but do not specify a particular time frame.
In addition to announcing the expedited review procedures outlined above, the Agencies reiterated existing guidelines for competitor collaborations. These include the following:
The Agencies’ Antitrust Guidelines for Collaborations Among Competitors approve healthcare and pharmaceutical collaborations that benefit consumers. The Agencies recognize that actual and potential competitors may have legitimate, procompetitive reasons to join forces for purposes of research and development, production, marketing, distribution, sales, or purchasing. As the Competitor Collaboration Guidelines underscore, one of the central questions is the effect of the collaboration on price, output, and quality. If the collaboration expands output, reduces prices, or enhances quality, service, or innovation, it is likely to be deemed procompetitive. But if the collaboration merely allows competitors to increase prices above competitive levels, restrict output, or reduce quality, service, or innovation, it is more likely to run afoul of the antitrust laws.
In the context of the COVID-19 crisis, firms considering a collaboration or joint venture should be able to articulate how the arrangement would allow them to increase the supply of essential goods (e.g., facemasks, ventilators, household staples) to the marketplace, reduce prices to their customers or to consumers, provide enhanced service, and/or develop new products (e.g., rapid COVID-19 testing, pharmacological treatments). For example, as the Agencies point out, “businesses may need to temporarily combine production, distribution, or service networks to facilitate production and distribution of COVID-19-related supplies they may not have traditionally manufactured or distributed.” This kind of integration can help maximize output of needed supplies and ensure their efficient distribution.
Pharmaceutical companies and medical device manufacturers should be encouraged in particular by the Competitor Collaboration Guidelines’ recognition that “[m]ost” R&D collaborations are procompetitive, as “the combination of complementary assets, technology, or know-how, an R&D collaboration may enable participants more quickly or more efficiently to research and develop new or improved goods, services, or production processes.” As this suggests, the Agencies are more likely to condone partnerships between competitors with complementary capabilities or resources—such as where one firm brings its technical expertise to the table, and the other offers its superior manufacturing process.
Joint purchasing arrangements among healthcare providers do not raise antitrust concern—so long as guidelines are observed. The Agencies reiterated that, under the 1996 Statement of Antitrust Enforcement Policy in Health Care, joint purchasing arrangements among healthcare providers may “increase the efficiency of procurement and reduce transaction costs.” However, providers should adhere to the following principles:
- Market power “safety zone”: Joint purchasing agreements are unlikely to be susceptible to antitrust challenge where (1) the total purchases account for less than 35% of the total sales of the purchased product or service in the relevant market, and (2) the cost of the products or services purchased accounts for less than 20% of the total revenues from all products or services sold by each provider participating in the arrangement.
- Purchasing freedom: Joint purchasing arrangements are less likely to raise antitrust concern where participants are not required to make all purchases of a particular product or service through the arrangement. That said, members can be asked to commit to purchase a voluntarily-specified amount through the arrangement, so that volume discounts or other favorable terms can be negotiated.
- Independent negotiators: Antitrust risk is reduced where negotiations are conducted on behalf of the joint purchasing arrangement by an independent employee or agent who is not also an employee of one of the participants in the arrangement.
- Confidential communication: Communication between the purchasing group and each individual participant should be kept confidential and not discussed with, or disseminated to, other participants.
Collaboration on terms other than price, wages, output, and costs is generally permissible. The Agencies emphasized that “sharing technical know-how, rather than company-specific data about prices, wages, outputs, or costs, may be ‘necessary to achieve the procompetitive benefits of certain collaborations.’” By the same token, healthcare providers may collaborate with respect to “suggested practice parameters,” such as “standards for patient management developed to assist providers in clinical decision making.”
The Agencies will continue monitoring the healthcare sector for civil and criminal antitrust violations. The Agencies signaled that they will not hesitate to “pursue civil violations of the antitrust laws, which include agreements between individuals and business to restrain competition through increased prices, lower wages, decreased output, or reduced quality as well as efforts by monopolists to use their market power to engage in exclusionary conduct.” The DOJ, for its part, expressed its intent to prosecute criminal violations—namely, agreements among competitors to fix prices or wages, rig bids, or allocate markets.
Even before the COVID-19 pandemic, the Agencies were incredibly active in the healthcare and pharmaceutical space. The following enforcement actions are illustrative of the kinds of cases the Agencies may pursue:
- Price-fixing: The DOJ has investigated price-fixing among generic drug manufacturers. So far, three pharmaceutical companies and four individuals have been charged with criminal violations.
- Pretextual competitor collaborations: The FTC has brought civil enforcement actions alleging that pharmaceutical companies have entered into collaborations as a pretext for anticompetitive activity. For instance, a joint development or marketing deal negotiated in conjunction with a patent settlement agreement may be seen as a vehicle for effectuating a “reverse payment” (or “pay for delay”) agreement. The FTC has characterized these so-called “side deals” as one of the “most pernicious and common forms of reverse payments.”
- Restrictive agreements that enhance market power: Earlier this year, the FTC and New York Attorney General brought an enforcement action against Vyera Pharmaceuticals, alleging that the company entered “restrictive distribution agreements” that precluded competitors from obtaining samples needed to develop generic versions of Daraprim, Vyera’s blockbuster drug—thereby allowing Vyera to maintain its Daraprim monopoly.
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The Agencies appear committed to providing businesses with the predictability and confidence they need to deliver vital products, services, and innovation during this time of crisis—but gray areas and pitfalls remain. Attorneys in O’Melveny’s Antitrust & Competition Practice are available to counsel those in the pharmaceutical and healthcare industries who are facing down the COVID-19 outbreak.
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