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Obama Antitrust Leadership in Place

January 1, 0001

 

The Senate today confirmed the nomination of Christine Varney to the post of Assistant Attorney General for Antitrust. Her confirmation, along with the appointment of Jon Leibowitz as Chairman of the Federal Trade Commission on March 2, signifies that the key players in President Obama’s antitrust team are now in place.

Ms. Varney is a respected and distinguished antitrust practitioner with strong ties to the Democratic Party. Under the Clinton administration, Ms. Varney acted as Cabinet Secretary to the Office of the President (1993-1994) and served as a Commissioner with the Federal Trade Commission (1994-1997). During her time at the FTC, she was involved in the Commission’s effort to examine privacy issues in a rapidly changing global information age, and she took strong positions on issues that are particularly timely now. After her tenure as Commissioner, Ms. Varney re-joined Hogan & Hartson LLP as partner and head of the firm’s Internet Practice Group.

Chairman Leibowitz has a similarly impressive resume. Beginning in 1989, he spent over a decade as Chief Counsel to the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy, and Consumer Rights. From 1997 to 2000, he also served as Democratic Chief Counsel and Staff Director for the Antitrust Subcommittee. He has been an FTC Commissioner since September 2004. Chairman Leibowitz has appointed the following six senior staff members: Richard A. Feinstein (Director of the Bureau of Competition), David C. Vladeck (Director of the Bureau of Consumer Protection), Joseph Farrell (Director of the Bureau of Economics), Susan S. DeSanti (Director of Policy Planning), Jeanne Bumpus (Director of the Office of Congressional Relations), and Joni Lupovitz (Chief of Staff).

President Obama’s choices for these top two antitrust positions deliver on his campaign promise of vigorous enforcement of the antitrust laws including, thorough reviews of proposed mergers and acquisitions. We expect increased activity in several categories, including: retrospectives of consummated mergers, conduct and mergers in the pharmaceutical sector, retail price maintenance agreements, conduct and mergers in the energy and financial sectors, and data privacy and security issues. We also expect to see a convergence of the views of both agencies on the assessment of agreements between branded and generic pharmaceutical companies regarding delay of entry of new generic drugs and the assessment of unilateral conduct theories under Section 2 of the Sherman Act, areas in which the two agencies have diverged in recent years.

Mergers. The appointment of Varney and Leibowitz portends more aggressive merger enforcement, particularly at the Antitrust Division. This likely includes turning a more critical eye toward vertical mergers. While at the FTC, Ms. Varney emphasized that vertical mergers could raise competitive concerns, including creating or raising entry barriers and facilitating collusion in either the upstream or downstream market.

Ms. Varney commented during her confirmation hearing that she is open to conducting “retrospective studies” of previously approved mergers. David Wales, Acting FTC Director of the Bureau of Competition (scheduled to leave the FTC in May), communicated a similar message last month at the ABA Antitrust Spring Meeting. He noted that although the number of new Hart-Scott Rodino filings is down, the FTC continues to examine pending filings carefully and also would re-examine completed mergers, as appropriate.

Ms. Varney is a proponent of innovation market analysis, under which a reviewing agency examines a merger’s effect on investments in research and technology. During her tenure at the FTC in the 1990s, the Commission invoked innovative market analysis several times to require the licensing of one of the merging parties’ research units. This type of merger analysis may experience a resurgence under Ms. Varney’s leadership at the Division.

Chairman Leibowitz has also taken positions indicating that he favors a more expansive view of the types of acquisitions that should be considered anticompetitive and the remedies that should be available. For example, in the Ovation Pharmaceuticals case, Ovation purchased the rights to two drugs used for the treatment of life-threatening heart conditions in premature infants. At the time of the first purchase, Ovation did not have any competing product in the market and this initial acquisition was not challenged. Ovation subsequently purchased the rights to a second drug from another pharmaceutical company and raised its price by 1300 percent.

Based on the facts of the case, then-Commissioner Leibowitz concluded that “[i]t should be obvious that under the antitrust law a monopolist cannot buy a likely entrant product even if that product is not an exact substitute for the existing one.” More significantly, Leibowitz indicated that he would have supported Commissioner Rosch’s proposal to challenge Ovation’s acquisition of the first drug because the transaction eliminated a reputational constraint on the prices charged by the prior owner. In the same case, Leibowitz advocated invoking disgorgement as a remedy, explaining that “[r]ecent literature on the subject makes a persuasive case for seeking disgorgement more frequently” in antitrust cases.

Pharmaceutical Reverse-Payment Settlements. Challenging so called “pay-for-delay” settlement agreements, in which a pioneer drug firm pays a generic competitor not to offer its product, has long been a priority for Chairman Leibowitz. The FTC’s efforts to challenge these settlements have been hampered somewhat by its public dispute with the Department of Justice. During Ms. Varney’s confirmation hearing, she stated that she would work to re-align the positions of the Department of Justice and the Federal Trade Commission on this issue. She also indicated that she would consider supporting legislation to ban the practice, if necessary.

Resale Price Maintenance. The two agencies are likely to look for cases to bring challenging resale price maintenance plans under the framework established by the Supreme Court in Leegin, most likely where the manufacturer has a high market share and there is a strong case that the plan adversely affects consumers. When asked about Leegin during her confirmation hearing, Ms. Varney observed that the decision “left the Division a lot of room to prosecute resale price maintenance where it results in anticompetitive consequences.” She also indicated that she may be willing to support legislation overturning Leegin.

Privacy Issues. Given Ms. Varney’s expertise in privacy and data security, she is likely to support the FTC’s focus on the issues surrounding the online collection of data and its use in behavioral advertising. Mr. Wales noted that the FTC is currently interested in participating in hearings regarding privacy legislation.

Single Firm Conduct. Both Ms. Varney and Chairman Leibowitz are likely to pursue single-firm conduct much more aggressively than under the prior administration. In September 2008, DOJ issued a new report entitled Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act. Then-Commissioner Leibowitz joined Commissioners Harbour and Rosch in criticizing the Section 2 Report, commenting that “if adopted by the courts, [the Section 2 Report] will be a blueprint for radically weakened enforcement of Section 2,” and that it “would place a thumb on the scales in favor of firms with monopoly or near-monopoly power.” When asked about the Section 2 Report at her confirmation hearings, Ms. Varney committed to re-examine it with her staff and to determine whether it should be revised.

Expansion of Section 5 of the FTC Act. Chairman Leibowitz recently commented that he “strongly believe[s]” that the FTC should use Section 5 more expansively and noted its potential usefulness in standard-setting cases like N-Data as well as cases involving pharmaceutical companies’ efforts to protect the profits on branded drugs. Although Chairman Leibowitz advocates more aggressive use of the broad Section 5 prohibition against conduct that is not “normally acceptable business behavior,” he also has indicated that this enforcement should be directed at conduct that results in harm to consumers.

Too Big To Fail? During her confirmation hearing, Ms. Varney questioned whether “antitrust has failed if we’ve allowed institutions to be created that are too big to fail.” Her statement reverberated both with that audience and also with a House subcommittee audience the following week. On March 17, the House Judiciary Committee’s Subcommittee on Courts and Competition Policy held a hearing to address the intersection, if any, between antitrust law and consolidation in the financial services industry. Although the Subcommittee disclaimed a link between antitrust enforcement and institutions that are too large to fail, recent economic and political events—including the furor over AIG’s decision to make retention payments after receiving taxpayer funds—means that this question is likely to be the subject of further political debate and may be subject to further commentary from both the DOJ and FTC.