The Corner Newsletter, April 19, 2019: In Winning Pay-for-Delay Case, FTC Shows Difficulty in Enforcing Antitrust Law

Welcome to The Corner. In this issue, we discuss why the FTC had to spend two years proving that it was illegal for a drug monopolist to pay off its competitor. And we share two new feature articles by Open Markets team.

Open Markets’ Beth Baltzan Lays Out a Progressive Trade Policy

In a new essay for the Washington Monthly, Open Markets Fellow Beth Baltzan details how trade policy could be used to prevent corporations from abusing workers, dominating markets, and destroying the environment. Just another utopian, pie-in-the-sky scheme? Not really. In fact, this plan almost became law in 1948, as Baltzan details in her story about “the forgotten postwar liberal vision” as articulated in the Havana Charter, a postwar trade agreement largely authored by the Roosevelt and Truman administrations. In the end, the Senate failed to ratify the agreement. But as Baltzan writes, “We have the chance to make the system fit our purposes in the modern era.”

Open Markets’ Phil Longman On What the Privacy Debate Misses

Open Markets Editorial and Policy Director Phil Longman’s new article in the Washington Monthly, “Big Tech is Spying on Your Wallet,” details how a very old-school American approach may offer one of the best fixes for protecting the privacy of all Americans in today’s platform economy. As Longman details, the country confronted a similar problem in the past: railroads around the turn of the twentieth century routinely used the private information of their customers to discriminate in pricing and services. Longman show how some solutions from the period, including anti-discrimination laws as well as breaking up corporations that are too powerful, would help to solve today’s privacy problems.

Open Markets Calls on FTC to Block “Largest Pharmaceutical Merger in History”

In a press release on Wednesday, the Open Markets Institute called on the Federal Trade Commission to block Bristol-Myers Squibb’s acquisition of Celgene. The $74 billion purchase would be the “largest pharmaceutical merger in history and create a cancer drug giant,” according to Bloomberg. Open Markets Editorial and Policy Director Phil Longman said, “The American pharmaceutical industry is already highly concentrated which has resulted in soaring drug prices and declining innovation.” You can read the full press release here.

In Winning Pay-for-Delay Case, FTC Shows Difficulty in Enforcing Antitrust Law

In a 5-0 decision last month, the Federal Trade Commission (FTC) held the “pay-for-delay” agreement between generic drug maker Impax Laboratories and branded manufacturer Endo to be illegal, ending a suit that the agency brought in January 2017. Under the drug companies’ collusive arrangement, Impax agreed to delay introduction of a generic version of Endo’s Opana ER, an opioid pain medication. This preserved Endo’s monopoly over the drug in exchange for Endo promising not to compete against Impax when it eventually introduced its own generic version of the drug, as well as other conditional payments worth hundreds of millions of dollars.

In its remedy, the FTC has barred Impax from entering into future pay-for-delay agreements as well as any other agreements that would limit competition in this opioid market.

That sounds like a good result, and in the end it largely was. The two companies clearly did something wrong when they agreed not to compete against each other and shared the profit that they earned from their collusion. If a gas station paid a potential rival not to set up shop across the street, that would be illegal and likely result in criminal prosecution. Yet reaching a similar conclusion here took more than two years after the complaint was filed, required thousands of exhibits, dozens of witnesses, and multiple expert witnesses.

Why was this case so hard to prosecute?  One reason is that over the last 40 years judges have been increasingly applying what’s known as the “rule of reason standard.” Generally, this legal standard requires antitrust regulators to prove not just that a firm or firms engaged in a restrictive or exclusionary practice, but that it produced specific, demonstrable harms.  It also requires undertaking extensive, technical studies of market definition, market share, and market effects.

In 2013, the Supreme Court applied the rule of reason standard specifically to “pay-for-delay” deals in the drug industry. In FTC v. Actavis, a 5-3 majority ruled that these agreements might be illegal in certain cases, but stopped short of saying they were per se, or categorically, illegal.

In effect, the Supreme Court said that these pay-for-delay delays are not necessarily illegal, and required that enforcers show the adverse market effects of this collusion.  And that takes more and more work, especially as the FTC and judges become fearful of being reversed on appeal. According to Michael Kades of the Washington Center for Equitable Growth, who’s also a former FTC attorney who spent much of his twenty years at the agency working on pay-for-delay cases, the market definition and market power requirements especially, should take “three sentences,” not the seven pages that Commissioner Noah Phillips used in his opinion for the FTC. Showing that a drug maker has market power “shouldn’t be hard, but in the world of antitrust litigation we’ve made it hard.”

FTC Commissioner Rohit Chopra has criticized the rule of reason “for being highly difficult to administer.” The lack of clear rules means that corporations with deep pockets benefit because only they can afford complex litigation. As University of Tennessee law professor Maurice Stucke explains in a 2009 article in the UC Davis Law Review, “Because a rule-of-reason case is so costly to try, it is likely that fewer antitrust violations will be challenged” with the end result potentially “favor[ing] the players with greater resources.”

Given the judicial missteps in pay-for-delay cases, Congress is currently considering a law that would outlaw pay-for-delay settlements. The Protecting Consumer Access to Generic Drugs Act of 2019, introduced by Rep. Bobby Rush, D-Ill., “would make it much harder for them to be legal and much easier to prosecute,” explains Kades. The bill recently passed the House Energy & Commerce Committee by a voice vote and is in front of the House antitrust subcommittee.

We also need enforcers to claw back the money corporations gain through illegal collusion, which didn’t happen in the Impax case. Rush’s bill would give the FTC the power to fine colluding drug manufacturers for three times the amount of money they get through illegal pay-for-delay deals.

ANTI-MONOPOLY RISING:

• Speaker of the House Nancy Pelosi, D-Calif., told Kara Swisher on Swisher’s “Recode Decode” podcast that “the era of self-regulation” enjoyed by technology platforms “is over.” Besides suggesting that privacy legislation is coming, Pelosi said, “I’m a big believer in the antitrust laws, adding that Sen. Elizabeth Warren’s plan to break up platform monopolists is “a look that should be taken.” You can listen to or read a transcript of the podcast here.

• Sens. Cory Booker, D-N.J., and Ron Wyden, D-Ore., and Rep. Yvette D. Clarke, D-N.Y., introduced the Algorithmic Accountability Act last week, which would require firms to examine algorithms that produce “inaccurate, unfair, biased or discriminatory decisions” affecting Americans. “Algorithms shouldn’t have an exemption from our anti-discrimination laws. Our bill recognizes that algorithms have authors, and without diligent oversight, they can reflect the biases of those behind the keyboard,” Clarke said.

• Sens. Amy Klobuchar, D-Minn., and Marsha Blackburn, R-Tenn., wrote a letter to the Federal Trade Commission urging the agency to “use its existing authority to protect the privacy and security of consumers’ online data.” Additionally, the senators asked the FTC to “consider publicly disclosing whether it is conducting an investigation of Google and/or other major online platforms.”

• Sen. Bernie Sanders, I-V.T., called for a moratorium on mergers in the agricultural sector, telling HuffPost, “I think we’ve not only got to have that moratorium, but we have to go further … We have to start breaking them up.”

• Sens. Mark Warner, D-Va., and Deb Fischer, R-Neb., introduced the Deceptive Experiences To Online Users Reduction (DETOUR) Act last week, which would prohibit large internet platforms from using “dark patterns” or deceptive design tactics intended to manipulate users into giving up personal information.

• Sen. Elizabeth Warren, D-Mass., last Thursday proposed the “Real Corporate Profits Tax.” Her plan would create a new tax on the roughly 1,200 corporations that report over $100 million in profits to their investors: “That first $100 million is left alone, but for every dollar of profit above $100 million, the corporation will pay a 7% tax.”

• Sen. Edward Markey, D-Mass., introduced The Privacy Bill of Rights Act, which would include measures to prevent corporations from using personal information for illegal discrimination as well as require them to secure users’ data.

• In a podcast interview on Monday, Congresswoman Alexandria Ocasio-Cortez, D-N.Y., expressed concern that “social media poses a public health risk to everybody” and praised Massachusetts Sen. Elizabeth Warren’s plan to break up platform monopolists. “The fact that you are going to be both the platform and the vendor represents a very large antitrust problem,” the first-term representative said, “And the fact that they are consolidating and gobbling up 18 different business models into one is a huge issue.”

• At the Federal Trade Commission’s Competition and Consumer Protection in the 21st Century hearings last week, FTC Commissioner Rebecca Kelly Slaughter supported the use of merger retrospectives, or studies examining a merger after antitrust enforcers approve it, to inform merger enforcement. As Slaughter said on Twitter, “Errors may happen. We should try to minimize them, but to do that we need to identify them, correct them, and improve going forward. Retrospectives help with all three goals.”

• In his review of the Justice Department’s handling of CVS’s $70 billion acquisition of health insurer Aetna, Judge Richard Leon, a federal district judge in Washington, D.C., said that he would like to hear testimony from people who object to the transaction before approving the Justice Department’s settlement. “This is a matter of great consequence to a lot of people,” the senior judge said.

• The Boston Globe editorial board endorsed Elizabeth Warren’s plan to break up platform monopolies. “Warren’s proposal is not a silver bullet,” the paper writes of the Massachusetts senator’s plan, “but she’s onto something by challenging Silicon Valley giants. The era of self-policing must end; it’s time for reform and regulation in a substantive way.”

• Workers at four Amazon facilities in Germany went on strike for better pay and working conditions on Monday. Stefanie Nutzenberger, board member of Verdi, the German union representing the workers, said, “The employees are not giving up … They want to put an end to the arbitrariness of a company that puts pressure on its employees with stressful work and controls.”

• European Parliament passed a new “platform-to-business” law Wednesday that would require platforms like Google, Facebook, and Amazon “to be more transparent about their terms and conditions,” according to Reuters.

• The Italian Competition Authority announced Tuesday that it was opening an investigation into whether Amazon abused its dominant position in e-commerce and logistics services. The antitrust enforcer will study whether Amazon favored third-party sellers who participated in Amazon’s logistics service over third-party sellers who opted not to.

• The Netherlands’ Authority for Consumers and Markets said last week that it is opening an investigation into Apple after receiving “indications” from app developers that “Apple abuses its position in the App Store.”

• The International Monetary Fund released a new study earlier this month of over 900,000 firms in 27 countries.  It found “rising corporate market power” between 2000 and 2015 as shown by “rising markups [that] have contributed to some reduction in companies’ investment – a key ingredient to sustained growth.”

 

WHAT WE’VE BEEN UP TO:

• Barry Lynn spoke at the 8th Annual Foundation for European Progressive Studies-Initiative for Policy Dialogue’s Conference, “Rewriting the Rules for a More Progressive Trade and Investment Model.” The conference discussed what a progressive trade policy might look like today and in the future.

• The Daily Yonder republished Claire Kelloway’s Food & Power article covering hog corporations’ manipulation of corporate law and how “[t]he practice protects the assets of large corporations at the expense of rural communities.”

• Matt Stoller explained to The Washington Post that Sen. Elizabeth Warren is “bringing back old-school populism” with her extensive list of policy proposals. Stoller continued, “She is making the argument that markets are public institutions that have to be regulated. This is kind of a throwback that people haven’t heard in a long time.”

• Reporting on news that Facebook had pulled contact information from 1.5 million users’ email accounts, Business Insider quoted Sally Hubbard pointing out, “There are so many different potential violations at this point that I don’t know that FTC will investigate this latest … particularly because it’s under a lot of pressure to act on the Cambridge Analytica [incident].”

• A CommonWealth Magazine review of The Myth of Capitalism by Jonathan Tepper with Denise Hearn and The Curse of Bigness byOpen Markets board member Tim Wu credits Wu with focusing “narrowly but cogently on the rise and fall of antitrust enforcement in Washington.” The review also points to the Open Markets Institute as among the “think tanks and advocates waging the intellectual battle.”

VITAL STAT: 1,500,000

Number of Facebook users whose email contacts the social media giant “unintentionally uploaded” since May 2016. Business Insider reports, “The revelation comes after a security researcher noticed that Facebook was asking some users to enter their email passwords when they signed up for new accounts to verify their identities, a move widely condemned by security experts. Business Insider then discovered that if you entered your email password, a message popped up saying it was ‘importing’ your contacts without asking for permission first.”

WHAT WE’RE READING:

• A Crisis Wasted: Barack Obama’s Defining Decisions (RosettaBooks, Reed Hundt): How the Obama administration struggled to rise to the challenge of the financial crisis.

• “The Big Tech Companies are Smothering Small Start-Ups” (Financial Times, Alan Patricof): A venture capitalist explains how Amazon, Facebook, and Google hurt the small businesses that rely on them and why designating them as utilities and mandating non-discrimination could help.

• “A Convenient Life and a Good Life May Not Be the Same Thing,” (The Atlantic, Franklin Foer): Franklin Foer talks with outgoing EU Competition Commissioner Margrethe Vestager about Big Tech, antitrust, commerce, and capitalism.

Edited by Barry Lynn, Phil Longman, Sandeep Vaheesan, Sally Hubbard, Katherine Dill, Stella Roque, and Matthew Buck

Written by Barry Lynn, Phil Longman, Sandeep Vaheesan, and Matt Buck