Thursday, November 10, was a big day for the FTC asserting its competition authority, from an announcement to strengthen FTC enforcement of Section 5 to weighing in on hiring restrictions. These stories, plus warnings of limited options for medication, an upcoming open Commission meeting, and more, after the jump.
Thursday, November 10, 2022
Bureau of Competition: Section 5
- The FTC issued a statement that broadened the agency’s policy of enforcing fair competition. The statement asserted that “Section 5 reaches beyond the Sherman and Clayton Acts to encompass various types of unfair conduct that tend to negatively affect competitive conditions.” Rather than continue to use the Sherman Act’s “rule of reason” test when applying Section 5, the Commission will use rulemaking and enforcement to put businesses on notice of how to compete lawfully. The FTC will consider “significant general principles” for determining whether an act constitutes an unfair method of competition, apparently on a sliding scale. First, “the conduct must be a method of competition.” This is conduct “undertaken by an actor in the marketplace,” which directly or indirectly implicates competition. Second, the conduct must be unfair. This is conduct that “goes beyond competition on the merits.” Two important criteria are considered in this standard. The first consideration is whether the action is “coercive, exploitative, collusive, abusive, deceptive, predatory, or involve the use of economic power of a similar nature.” The second consideration is whether the action “tend[s] to negatively affect competitive conditions —whether by affecting consumers, workers, or other market participants.” This condition focuses on whether the conduct “has a tendency to generate negative consequences,” not only on actual harm.
- The Commission voted 3-1 to approve the new policy statement. Commissioner Christine S. Wilson voted no. Chair Lina M. Khan was joined by Commissioners Rebecca K. Slaughter and Alvaro M. Bedoya in issuing a statement. Commissioner Bedoya was joined by Chair Khan and Commissioner Slaughter in issuing a statement. Commissioner Wilson issued a dissenting statement starkly opposing the majority’s statement for several reasons, including that the statement gives the Commission broad authority without providing practical guidance to companies. Commissioner Wilson also asserted that the statement rejects foundational antitrust precedent.
Bureau of Competition: Hiring Restrictions
- The FTC and the Department of Justice (“DOJ”) filed an amicus brief with the U.S. Court of Appeals for the Seventh Circuit in two cases in which former McDonald’s employees sued McDonald’s USA, LLC alleging that hiring restrictions prevented them from earning higher wages. The brief emphasized the Sherman Act’s role in protecting workers. The brief further argued that unless the challenged hiring provision is “ancillary” to the franchise agreement, a horizontal employee-allocation agreement is per se unlawful.
- While the government’s brief agreed that the district court applied the correct framework for analyzing horizontal restraints, the FTC and DOJ disagreed with the lower court’s application of the ancillary-restraints doctrine and interpretation of Nat’l Collegiate Athletic Assn. v. Alston, 141 S. Court 2141 (2021). First, the brief argued that the lower court failed to apply an element of the ancillarity defense: the challenged provision must be “reasonably necessary” to achieve a procompetitive objective. Second, the brief concluded that Alston did not change the per se standard. The Commission voted 3-1 to file the amicus brief with the DOJ with Commissioner Christine S. Wilson as the single no vote.
Bureau of Competition: Drug Competition
- The FTC filed an amicus brief with the U.S. District Court for the District of Delaware in a case between two pharmaceutical companies. Plaintiff Jazz Pharmaceuticals, Inc., listed its narcolepsy drug in the FDA’s Orange Book and thereafter sued defendant Avadel Pharmaceuticals, LLC, for patent infringement. The lawsuit triggered an automatic 30-month stay of the FDA’s approval of Aavdel’s competing drug. The brief warns of harm to consumers when a patent is improperly listed in the Orange Book, which significantly delays introduction of generic drugs into the market. This delay of generics can result in higher prices for the patent drug and a reduction in the consumer’s options for medication. The brief stated generally that a patent that only claims a method of distribution rather than use of a drug fails to meet Orange Book criteria. The brief concluded that Jazz’s patent at issue should be delisted if the patent does not claim a method of use. The Commission voted 4-0 to approve filing the amicus brief.
FTC Operations: Open Commission Meeting
- FTC Chair Khan announced an open Commission meeting will take place virtually on Thursday, November 17, 2022, at 1:00 p.m. ET. The tentative agenda includes voting on whether to issue an Advance Notice of Proposed Rulemaking on the Business Opportunity Rule. There will be time at the beginning for the public to address the Commission. To address the Commission at the meeting, members of the public must sign up. Individuals may register to speak or submit prerecorded comments until November 15 at 8:00 p.m. ET. A link to the meeting will be posted on FTC.gov before the meeting begins. The event will be recorded and posted along with comments.
Bureau of Competition: E-Cigarettes
- As an update to our earlier post, the FTC Commission granted Altria Group, Inc.’s (“Altria”) motion for official notice of termination of its non-compete agreement with Juul Labs Inc. (“Juul”). The Commission also took official notice of Altria’s September 30, 2022 Form 8-K Report to the SEC. The Commission found that the Form 8-K Report was material per Commission Rule 3.43(f), was not subject to reasonable dispute, and was therefore subject to official notice. The report states that “Altria has exercised its option to be released from its non-compete obligations.”