Antitrust Law Daily Wrap Up, TOP STORY: Cardinal Health settles FTC’s monopolization claims for $26.8M, (Apr 20, 2015)

By Greg Hammond, J.D.

Cardinal Health, Inc., which allegedly operates the largest chain of radiopharmacies in the United States, has agreed to settle FTC charges that the company monopolized 25 markets for the sale of radiopharmaceuticals to hospitals and clinics, for $26.8 million. The settlement represents the second largest monetary settlement the Commission has obtained in an antitrust case (FTC v. Cardinal Health, Inc., File No. 101 0006, Case No. 15-cv-3031).

Radiopharmaceuticals are drugs containing a radioactive isotope combined with a chemical agent, which are used to perform diagnostic imaging procedures on patients. The complaint asserts that Cardinal’s monopolization scheme focused on blocking potential entrants from gaining rights to distribute heart perfusion agents (HPAs), which are used to perform heart stress tests. Sales of radiopharmaceuticals containing HPAs represent nearly 60 percent of a typical radiopharmacy’s revenue, the FTC claims.

Between 2003 and 2008, radiopharmacies could not profitably operate and compete in a local market without obtaining the right to distribute either Cardiolite (Bristol-Myers Squibb’s branded HPA) or Myoview (General Electric Co.’s HPA), the Commission alleged. Cardinal purportedly excluded potential entrants and maintained monopoly power in 25 geographic markets by obtaining the de facto exclusive right to distribute Cardiolite and Myoview.

The FTC released a statement, finding that Cardinal’s exclusion of potential rivals deprived its customers the benefits of competition and resulted in profits from monopoly prices it charged for all radiopharmaceuticals, including HPAs, in the relevant markets. “Importantly, there was no efficiency benefit or legitimate business justification for Cardinal simultaneously maintaining exclusive distribution rights to the only two HPAs then available in the relevant markets,” the Commission found.

The proposed settlement requires Cardinal to pay the Commission $25.8 million, which will be used for equitable relief. If finalized, the final order will prohibit Cardinal from entering into or participating in any exclusive agreement; coercing potential customers into purchasing, selling, or refraining from selling radiopharmaceuticals; or discriminating against, penalizing, or retaliating against a manufacturer.

Dissenting statements. FTC Commissioners Maureen K. Ohlhausen and Joshua D. Wright both released dissenting statements, finding that disgorgement is an improper remedy in this case. Specifically, Commissioner Wright disagreed with the Commission’s finding that there was no efficiency, benefit, or legitimate business justification.

“The Commission ignores the fact that Cardinal’s efforts to prevent Bristol-Meyers (sic) Squib from licensing Cardiolite to other radiopharmacies were not limited to the 24 markets in which Cardinal also held the right to distribute Myoview,” Wright wrote. “The tactics the Commission challenges could have been output-enhancing in these other markets. Without considering whether the alleged harm caused by Cardinal’s conduct outweighs any such efficiencies, I believe the inquiry into whether a matter is appropriate for disgorgement should end if the conduct to be challenged has a plausible efficiency justification.”

Commissioner Ohlhausen raised two broader policy concerns in her dissent: (1) the action highlights a lack of meaningful guidance provided by the FTC on the pursuit of disgorgement; and (2) the agency has strayed from its special mission to develop the antitrust laws.

“[T]he pursuit of disgorgement in this and other recent cases represents a significant departure from the agency’s traditional reliance on its cease-and-desist authority in antitrust cases,” Ohlhausen stated. “Even if the FTC has statutory authority to seek disgorgement in competition cases, it is a separate and more important policy question whether the Commission ought to use such authority with increasing frequency in a broader set of circumstances, including for conduct that was not a clear violation when undertaken. Overuse of this remedy fundamentally changes the nature of the agency and the role it was designed to play.”

The Statement of the FTC, which reflects the views of Chairwoman Ramirez and Commissioners Brill and McSweeny, disagrees with Ohlhausen’s and Wright’s dissents. “Although Cardinal ceased its unlawful conduct in 2008 because of independent market events, the fact remains that up until that time Cardinal suppressed competition in the relevant markets through its exclusionary tactics and charged its customers significantly higher prices,” the Statement said. “The imposition of injunctive relief alone would fail to adequately remedy the harm caused by Cardinal’s past conduct and would have insufficient deterrent effect. Furthermore, given statute-of-limitation hurdles that Cardinal almost certainly would raise in any private follow-on lawsuits, disgorgement may be the only realistic avenue for any victims of Cardinal’s anticompetitive conduct to obtain monetary redress.”

Companies: Cardinal Health, Inc.

MainStory: TopStory Antitrust FederalTradeCommissionNews