“Antitrust law has long recognized that collaborations among market participants, including competitors, can be pro-competitive even when not focused on fighting a pandemic… But antitrust also recognizes that collaborations can have anticompetitive results by reducing competition and its benefits with little or no offsetting benefits to consumers.”
The novel coronavirus pandemic has upended our lives, creating a far-from-normal “new normal.” And it has also given rise to countless collaborations between and among universities, hospitals, medical centers, pharma companies and others to pool their talent and resources to discover, test, manufacture and distribute diagnostics, treatments, vaccines, personal protective equipment and other resources needed to fight the pandemic.
Antitrust law poses no risk to these collaborations, so long as they remain focused on their core missions. But at the same time, antitrust law recognizes that in cooperating and exchanging information and insights for those missions there is the potential for “spill-over effects” that can create antitrust risk.
The trick is to know where that dividing line is and to avoid crossing over it.
The Dividing Line
Antitrust law has long recognized that collaborations among market participants, including competitors, can be pro-competitive even when not focused on fighting a pandemic. As a more prosaic example, buying groups, which allow smaller companies to aggregate their buying to get the same volume discounts collectively that bigger companies get individually, have been recognized as pro-competitive for 50 years because they allow smaller companies to compete more effectively against bigger companies and thus – both directly and indirectly – offer lower prices and better variety to consumers.
The Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC) have long provided a great deal of guidance on these issues, both individually and jointly:
- Twenty-five years ago, the FTC issued guidelines for collaboration in healthcare, which recognized the efficiencies and benefits to consumer patients of various collaboration arrangements in the healthcare ecosystem based on decades of policy approaches and court decisions
- Twenty years ago, the DOJ and FTC issued Antitrust Guidelines for Collaborations Among Competitors, also based on decades of policy approaches and court decisions.
But antitrust also recognizes that collaborations can have anticompetitive results by reducing competition and its benefits with little or no offsetting benefits to consumers, or have results directly contrary to the interests of consumers. Collaboration in research, for example, can enhance public welfare by enabling breakthroughs the individual participants could not have made individually, but can also be contrary to the public welfare by limiting each participant’s incentives to pursue its own theories and approaches, thereby reducing rather than enhancing innovation.
With some specific exceptions, collaborations are analyzed under the rule of reason, an approach that takes account of all relevant factual and economic information about the market in which the collaboration occurs, the participants in the collaboration, and the likely effects of the collaboration. This is an intense case-by-case analysis, the direct opposite of a one-size-fits-all rigid set of rules.
The Role of Antitrust in a Pandemic
Obviously, the coronavirus and resulting disease, COVID-19, have created a “new normal,” but that doesn’t mean that antitrust no longer applies; antitrust doesn’t shelter in place during a pandemic. So how will antitrust deal with the need for cooperation and collaboration to fight the pandemic?
First, note that the CARES Act does not provide any antitrust exemption or modification of standards for the analysis of collaborations and other joint activities related to COVID-19.
Second, keep in mind that collaborations among entities in different parts of a supply chain inherently raise fewer antitrust concerns than collaborations among competitors. So, collaborations between producers and distributors are unlikely to raise concerns, unless one side or the other of that equation is so large that it could drive out of business producers or distributors on the other side.
Third, whether a particular collaboration is likely to pass antitrust muster –whether and how much risk there is to the participants – is ordinarily determined by those participants’ own in-house or outside counsel.
Fourth, on March 24, DOJ and the FTC provided an overview of guidance for joint activity to address the coronavirus pandemic, pointing to several of their prior publications in which one or both agencies have said:
- As a general matter, when firms collaborate on research and development this “efficiency-enhancing integration of economic activity” is typically procompetitive. (Antitrust Guidelines for Collaborations Among Competitors, page 31.)
- 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.” (Antitrust Guidelines for Collaborations Among Competitors, page 15.)
- Similar information was provided by the Federal Trade Commission (FTC) in Information Exchange: Be Reasonable, discussing the “safety zones” around information sharing).
- They will not challenge, absent extraordinary circumstances, providers’ development of suggested practice parameters – standards for patient management developed to assist providers in clinical decision making – that also may provide useful information to patients, providers and purchasers. FTC and DOJ Statement of Antitrust Enforcement Policy in Health Care (1996, at page 41).
- Most joint purchasing arrangements among healthcare providers, such as those designed to increase the efficiency of procurement and reduce transaction costs, do not raise antitrust concerns. (Statement of Antitrust Enforcement Policy in Health Care, page 53, also explaining circumstances in which joint purchasing arrangements may raise concerns.)
- The antitrust laws would generally permit private lobbying addressed to the use of federal emergency authority, including private industry meetings with the federal government to discuss strategies on responding to COVID-19, “insofar as those activities comprise mere solicitation of governmental action with respect to the passage and enforcement of laws.” (Eastern Railroad Conference v. Noerr Motors, 365 U.S. 127, 138 (1961). The FTC discussed the applicability and limits of this doctrine in Enforcement Perspectives on the Noerr-Pennington Doctrine: An FTC Staff Report (2006).
Finally, the Antitrust Division’s long-standing Business Review Letter (BRL) process enable parties to a proposed collaboration to get at least a preliminary determination. But there are two factors that would have limited the utility of the process for the quick decisions needed today:
- The FTC has had no similar process for proposed collaborations in industries in which it normally takes the lead in enforcement; and
- The Antitrust Division’s Business Review Letter process normally takes anywhere from 6-12 months or more.
Fortunately, both enforcement agencies have solved these problems, as announced on March 24 in statements by both DOJ and the FTC, promising to respond to all proposals addressing public health and safety within seven calendar days.
And true to that promise, DOJ announced that it had reviewed and approved the first COVID-19 related request for a business review letter in just six calendar days. The subject was a proposal by a consortium of medical supply distributors (McKesson, Owens & Minor, Cardinal Health, Medline Industries, and Henry Schein, Inc.) to support FEMA’s “Project Airbridge” to help the federal agencies “expedite and increase manufacturing, sourcing, and distribution of personal- protective equipment (PPE) and coronavirus-treatment-related medication.”
That was certainly helpful in demonstrating that it was possible, during this pandemic, for entities to get a very rapid determination from the DOJ that the agency would not challenge their proposed cooperation. But how much assurance other proposed collaborations can take from this approval likely is limited by the very specific facts of the collaboration, as set out in the Business Review Letter DOJ issued: “the “primary collaborative activity will occur at the direction of, and in the presence of FEMA, HHS, other government entities, and their agents” This close government involvement largely drove DOJ’s approval.
The primary legal rationale for DOJ’s approval was based on the fact that the federal government, including its agencies, are not subject to the antitrust laws. Courts have extended this immunity to conduct by private parties when (i) the collaboration is compelled by an agreement with a federal agency or a clearly defined federal government policy and (ii) a federal agency supervises the conduct.
In this collaboration:
- The companies will be acting under explicit agreements with the federal government (FEMA).
- FEMA and its agents will be actively directing and supervising their conduct.
- Any determinations of prices, wages, output, quality, bids, or allocations will only occur if at FEMA’s direction.
In addition, the parties proposed additional safeguards, which were important in gaining DOJ approval:
- The collaborations will not be used to increase prices or reduce output or quality.
- Exchanges of information will be made directly by each party with the U.S. Government rather than by the parties with each other.
- The collaboration will end promptly when the exigent circumstances it is intended to address have ended.
- Any competitively sensitive information acquired by the Requesting Parties will be “sequestered” and not referenced or used by the parties going forward.
Two final points. First, DOJ made clear that “This letter should not be interpreted as applying to any matter other than the Proposed Conduct as it relates strictly to, or arises directly out of, the COVID-19 pandemic.”
Second, as in any BRL, the statement by the DOJ is not that “this is okay,” but rather is much more modest: “This letter expresses the Department’s current enforcement intention in the exercise of its prosecutorial discretion.”
That means something like, “based on what we know now, and assuming the information you gave us is accurate, and if you actually do exactly what you said you would do, and in light of the fact that our opinion is ‘the outcome of an expedited, temporary review procedure that is necessarily less thorough than ordinary business review procedures,’ then we have no present intention to enforce against you.”
That’s not a guarantee, but it’s not nothing.
So, the bottom line is that, if structured and conducted thoughtfully in the context of antitrust law and policy, collaborations can help address the health problems the country faces and the business problems we are facing in the new world of COVID-19.
But if your cooperation and collaboration spill over into other exchanges of information, agreements and joint actions, you may be subject to antitrust liability, which can have consequences ranging from civil lawsuits to criminal prosecutions.
Knowing the difference between safe and spillover is the key to fighting the pandemic and safeguarding your enterprise while avoiding antitrust risks.
To hear more on this topic, listen to the archived recording of IPWatchdog’s recent webinar, “Drug Repurposing and Diagnostics in the Age of COVID-19.”
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