Antitrust Law Daily Wrap Up, ANTITRUST NEWS: FTC should seek to eliminate competitor control of market entry: Ohlhausen, (May 29, 2015)

By John W. Arden, J.D., LL.M.

Speaking to The Global Antitrust Economics Conference today, FTC Commissioner Maureen K. Ohlhausen argued against competitor control of market entry and urged the agency to seek to eliminate such situations.

Competitor control arises when “would-be entrants are effectively required to obtain permission from incumbent competitors to enter or expand within a particular market,” she said. This problem was present in three recent FTC victories in the courts—North Carolina Dental, Phoebe Putney, and McWane, according to Ohlhausen.

“Whether it is due to a law or regulation, the decision of a financially-interested state board, or conduct by a monopolist looking to maintain its market power, new entrants to a market generally should not have to get their competitors’ permission to compete,” the Commissioner said in prepared remarks. “That such permission is effectively required in an increasing number of situations is inconsistent with the free-market principles that ought to guide our economic policies.”

One of the clearest examples of this “Brother, May I?” problem occurs in the state licensing of professionals, Ohlhausen observed. In these instances, the FTC’s concern has been the artificial and unjustified barriers to entry created by licensing boards composed of active participants in the very markets they regulate.

North Carolina Board of Dental Examiners. In the North Carolina Board of Dental Examiners case, the FTC filed an administrative complaint, charging that the Board—through its dentist-members—was colluding to exclude non-dentists from competing with dentists in the provision of teeth whitening services, she explained.

“As everyone in this audience is aware, our case ended up at the Supreme Court, which ruled in the Commission’s favor earlier this year, holding that ‘a state board on which a controlling number of decisionmakers are active market participants in the occupation the board regulates must satisfy Midcal’s active supervision requirement in order to invoke state-action immunity.’”

Phoebe Putney. Another example of a market entrant needing to obtain permission from a competitor is found in certificate-of-need laws. Under these laws, suppliers of health care services must seek approval from a state entity to enter the market, Ohlhausen noted. In the Phoebe Putney case, the FTC challenged a merger involving a local hospital authority in Albany, Georgia. Calling the deal a “virtual merger to monopoly,” the Commission litigated the case all the way to the U.S. Supreme Court, which decided in the agency’s favor.

“To be immune from the antitrust laws under the state action doctrine, private and other non-sovereign entities must demonstrate that the state ‘clearly articulated and affirmatively expressed’ a policy displacing competition and thus allowing the otherwise anticompetitive conduct at issue,” she stated. “The Court held that a general grant of corporate powers to a sub-state entity, such as a hospital authority, is insufficient by itself to satisfy the clear articulation prong of Midcal. The challenged transaction, thus, was not immune from antitrust scrutiny, and the case was remanded for further proceedings.”

The FTC and Department of Justice Antitrust Division had long advocated that states consider the costs that certificate-of-need laws may impose on health care consumers, according to the Commissioner.

McWane. Rather than involving state regulation, this third case involved private conduct by a monopolist that was not justified by a cognizable efficiency. In McWane, the Commission found that a company had used an exclusive dealing policy to prevent its sole rival from meaningfully competing, thus maintaining its monopoly for domestically-manufactured ductile iron pipe fittings, according to Ohlhausen.

“The thrust of the case was that McWane, with over 90 percent market share, had imposed a policy on distributors that required them to purchase all of their domestic fittings from McWane; otherwise, they would lose their rebates and be cut off altogether.” In finding liability on the exclusive dealing count, the FTC determined that McWane had monopoly power in the domestic fittings market and that its restrictions substantially foreclosed the rival’s access to the sales channel, resulting in harm to competition and consumers in the domestic fittings market. The Commission rejected the two efficiency justifications offered by McWane. This decision recently was upheld by the Eleventh Circuit.

The Commissioner concluded that targeted antitrust enforcement and advocacy, supported by sound economic analysis, can help limit the damage caused by these “Brother, May I?” problems. “I also hope that my call to reduce these barriers, which particularly harm those on the bottom rung of the economic ladder, will encourage others to take up the challenge.”

News: Antitrust FederalTradeCommissionNews