Distribution, Competition, and Antitrust / IP Law

Archives for July 2013

Mad Men Meets Antitrust

Don Draper

Don Draper (Photo credit: Christina Saint Marche)

Steven Pearlstein, writing for the Washington Post’s Wonkblog in an article entitled “Don Draper, your antitrust attorney is on line 2,” argues that the proposed merger of advertising / p.r. firms Omnicom and Publicis is not a good idea, and further argues that the “failing business model” defense makes little sense:

antitrust law, at least in the United States, is meant to protect consumers, not companies. There is nothing in the antitrust law that says companies, or industries, that are threatened by disruptive innovation should be protected from extinction. The process of creative destruction, which the antitrust laws are meant to encourage, entails a fair amount of, well, destruction — of jobs, of companies, of shareholder value. It’s painful for some people, but, as we used to say at summer camp, “tough noogies.”

There’s nothing to prevent either Omnicom or Publicis from independently responding to these market changes by building up its already considerable digital marketing capabilities, or partnering or contracting with Google and Facebook if those repositories of consumer data are willing, or launching some sort of rival service if they are not.

I’m not familiar with the Omnicom / Publicis facts, and so express no opinion about them.  But the above argument I think misses the point.  If disruptive technologies (a.k.a. Google and Facebook) are both expanding the relevant market definition and making it difficult or impossible for two or more legacy firms to compete (a factual question), then antitrust law should in theory allow legacy firm mergers to maintain competition.  The alternative — and again, everything depends on the facts — is the possible loss of firms and increasing market concentration and market power.  The received wisdom is that result is not good for consumers.

In any event, it’s nice to see the issue debated in the Post.

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Why FTC v. Actavis Won’t Shift the Border Between IP and Antitrust Law

Actavis

Actavis (Photo credit: Wikipedia)

The Supreme Court’s recent decision in Federal Trade Commission v. Actavis, Inc., No. 12-416, ___ U.S. ___ (2013), has generated a lot of commentary recently. Some articles have suggested that the decision may expose certain intellectual property (IP) licensing decisions to antitrust scrutiny that prior to Actavis would have been immune from antitrust attack.  “Under Actavis, the question needs to be asked now whether a field of use restriction ‘within the scope of the patent’ raises significant antitrust concerns in particular circumstances.” See here.

But I think that it is unlikely that Actavis will be expanded beyond its peculiar confines to upset the traditional rule that patent licensing agreements that limit the field of use raise no antitrust issues.

In Actavis, the manufacturer of a brand name prescription drug brought a patent infringement suit against a generic drug manufacturer that intended to market an allegedly infringing version of the branded drug prior to the patent’s expiration. In the specific context of the Hatch-Waxman Act, the Court considered whether the Sherman Act ever could be violated by a payment by the brand name manufacturer (the patentee) to the generic manufacturer (the alleged infringer) as part of a settlement in which the generic manufacturer would agree not to market the generic versions of the drug for some period of time within the patent term.

The Court recognized that these unusual reverse payments are “quite different” from typical settlement agreements in that “a party with no claim for damages . . . walks away with money so it will stay away from the patentee’s market.” Slip Op. at 13. Accordingly, the Court concluded that such payments could, under certain limited circumstances, violate the antitrust Rule of Reason. In Actavis, the patent litigation “put the patent’s validity at issue, as well as its actual preclusive scope.” Slip. Op. at 8. Given this and other factors, “it would be incongruous to determine antitrust legality by measuring the settlement’s anticompetitive effects solely against patent law policy . . . .” Id. at 8-9.

Outside the peculiar context of the Hatch-Waxman Act, litigation over patent validity, and settlement agreements featuring reverse payments to stay away from a patentee’s market, there is simply no reason to question whether a licensing restriction within the scope of the patent grant could be an anticompetitive action under the antitrust laws.

What do you think?

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FTC Commissioner Urges Clear and Rational Definition of “Unfair Competition”

On June 19, FTC Commissioner Joshua Wright gave a speech proposing a policy statement regarding “unfair methods of competition” under Section 5 of the FTC Act.

Determining whether a company’s conduct violates Section 5 has in the past been difficult, given the substantial uncertainty about the test for “unfairness.”

Commissioner Wright’s proposal would, among other things, clarify that conduct challenged under Section 5 must have an anticompetitive effect (or is likely to cause such an effect).  “That is, it must harm the competitive process and thereby harm consumers.” In contrast, “harm to one or more competitors will not suffice.” Further, “[c]onduct that results in harm to competition, and in turn, in harm to consumer welfare, typically does so through increased prices, reduced output, diminished quality, or weakened incentives to innovate.”

Invitations to collude (prior to agreement being reached) and unfair methods to acquire market power (prior to acquisition) are examples of conduct that are “likely” to harm competition.  Such actions may not violate the Sherman Act, but under Commissioner Wright’s approach would still be subject to the FTC Act.  And so Commissioner Wright’s proposal would not make the FTC Act a mere redundancy, something that some opponents of clarifying Section 5 sometimes fear.

This rather simple-sounding clarification, if taken up by the FTC, would be most welcome.  If Congress and/or the FTC want to outlaw specific forms of unfair practices, they have the ability to enumerate them.  But leaving businesses to guess which practices are “unfair” is, well, . . . unfair.

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