DOJ Signs Off On First COVID-19 Competitor Collaboration
April 10, 2020
On April 4, 2020, the Department of Justice announced its first blessing of a competitor collaboration aimed at fighting the COVID-19 pandemic.
On March 30, 2020, five major medical supply companies sought DOJ confirmation that their joint efforts to accelerate manufacture and distribution of personal-protective equipment (PPE) and medications do not violate the antitrust laws. The companies—McKesson Corporation, Owens & Minor Inc., Cardinal Health Inc., Medline Industries Inc., and Henry Schein Inc. (the “Distributors”)—explained that they embarked on the collaboration at the request of the Federal Emergency Management Agency (FEMA) and the Department of Health and Human Services (HHS). Under the expedited review process the DOJ and Federal Trade Commission announced last month (the “Joint Guidance”), the Division issued a Business Review Letter (BRL) just five days later, indicating that “the Department presently does not intend to challenge” the collaboration.
According to the BRL, the Division concluded that the procompetitive benefits of the collaboration (such as increased supply in a time of scarcity), as well as health benefits, “far outweigh any potential harm.” Letter at 9. The Division also found that any risk of anticompetitive harm was mitigated by the fact that “[t]he proposed conduct is limited in scope and duration, necessary to address COVID-19-related scarcity, and will not extend beyond what is required to facilitate the availability of needed supplies.” Id. The BRL makes clear that this is a special case—not only because of the public health crisis, but also because the private parties entered the collaboration “with and at the direction of” the government. Id. at 5.
The Division considered another mitigating factor to be that interfirm communications will mostly occur “in the presence of” FEMA and HHS. Id. at 5. But since government representatives might not be on every call, the Division required the Distributors to proceed according to certain safeguards, including that they:
- collaborate only to further government pandemic fighting efforts;
- refrain from using the collaboration to increase prices or reduce output or quality;
- share competitively sensitive information only with the government and not with each other;
- sequester any competitively sensitive information they do acquire and not use it going forward; and
- dissolve the collaboration once the crisis has passed.
Letter at 6, 10.
Normally, the regulations governing the business review process only allow the Division to announce its enforcement intentions as to “proposed business conduct.” 28 CFR 50.6(2). (emphasis added). Here, FEMA and HHS had already been working with these companies and others on endeavors such as Project Airbridge, an effort to accelerate the shipment of medical supplies from overseas and distribute them to the places in the country that need it most. In light of the “current exigencies,” the Division made an exception to its policy and issued a BRL even though the collaboration is already “ongoing.” Letter at 2 n.4. The Division’s position remains in place for one year, at which point the requesting parties can ask the DOJ to “reiterate” its enforcement intentions. Id. at 2.
These are not normal times. As the Division put it in the BRL, “[t]he circumstances that led to this request are exceptionally pressing and unlikely to recur frequently.” Letter at 3. Still, this medical supply collaboration might be a special case. First, the collaborators are working at the express direction of the government. The BRL’s legal analysis noted several ways that this tilted the scales in favor of declining to challenge the collaboration, including the potential availability of Noerr-Pennington immunity for any joint efforts to influence agency policy. Letter at 7, 10. Second, a collaboration to source and supply PPE and other medical supplies goes to the heart of a pressing and well-publicized public health need, rather than ancillary economic effects of the pandemic.
The DOJ or FTC’s analysis might differ if it considers a competitor collaboration that does not relate to health care. We may find out before long, given the havoc that COVID-19 is wreaking in every corner of the economy and the fact that the Joint Guidance applies to “individuals and businesses in any sector of the economy that are responding to this national emergency.” (Emphasis added.) Query whether the agencies might reach a different conclusion when considering competitor collaborations that lack direct government involvement or arise in other sectors of the economy.
The BRL highlights an important distinction in the types of information that competitors can share. One rationale for approving the collaboration is that the distributors can “[h]elp FEMA and HHS understand competitive prices” for the supplies at issue. Letter at 5. Yet the BRL also prohibits the parties from sharing competitively sensitive information with each other. Certainly joint communications among the distributors, even if government representatives are in the loop, will involve some exchange of price information. The key distinction appears to be that the parties must not exchange any “sensitive forward-looking competitive information.” Letter at 10. This tracks the standard rule that discussion of future prices are particularly deserving of scrutiny under the antitrust laws.
Business Review Letter: https://www.justice.gov/opa/press-release/file/1266541/download
Robins Kaplan post on DOJ-FTC guidelines: https://www.robinskaplan.com/resources/publications/2020/03/doj-and-ftc-announce-expedited-review-of-collaborations-aimed-at-covid19
DOJ Antitrust Division Business Review Procedure at 28 CFR 50.6: https://www.law.cornell.edu/cfr/text/28/50.6
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