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FTC Accuses First-to-Market Manufacturer of Anticompetitive Practices

Federal antitrust law is intended to protect the competitiveness of the marketplace, based in part on the idea that competition benefits consumers. In a genuinely competitive market, consumers give their business to the company that best meets their wants and needs. Businesses therefore have incentives to be responsive to consumer demands, such as keeping prices low or maintaining a high quality of goods or services. Antitrust law prohibits practices aimed at suppressing or preventing competition. A business that has a monopoly in a particular market does not violate antitrust law solely by virtue of its monopoly, but any activity that prevents competitors from entering the market is likely to draw the attention of regulators. The Federal Trade Commission (FTC), which enforces laws against unfair competition, recently settled a claim alleging anticompetitive practices against a company that was first to market with a polymer used in medical devices. In the Matter of Victrex plc, et al., No. 141-0042, consent order (FTC, Apr. 27, 2016).

BusinessThe Sherman Antitrust Act of 1890, 15 U.S.C. § 1 et seq., established a system of federal laws against anticompetitive business practices. A company that holds a monopoly violates this law if it prevents new entrants to the market, such as by requiring customers to sign contracts with an exclusivity clause stating that they will not do business with any competitors. A company might unlawfully attempt to become a monopoly by selling a product at a loss in order to drive out competitors, a practice known as “dumping.” Two or more companies might violate antitrust law by colluding in a way that prevents competition, such as price-fixing. The FTC Act, 15 U.S.C. § 41 et seq., overlaps somewhat with federal antitrust law in its prohibition on unfair competition.

The respondent in Victrex is a United Kingdom-based manufacturer of polymer products. It was first to market with implant-grade polyetheretherketone (PEEK), a polymer used in implanted medical devices, in the late 1990s. According to the FTC, two other companies began manufacturing implant-grade PEEK in the late 2000s. These potential competitors offered the product to medical device manufacturers at a much lower price, but they were unable to gain much of the market. In 2014, the FTC claimed, the respondent still had more than 90 percent of global sales of implant-grade PEEK.

The FTC’s complaint alleged that the respondent used exclusivity clauses in its contracts with medical device manufacturers to keep competitors out of the market. These clauses effectively barred the respondent’s customers from purchasing implant-grade PEEK from other suppliers. The respondent allegedly used a variety of strategies to compel its customers to agree to exclusivity, including withholding its support in customers’ efforts to obtain regulatory approval for products containing implant-grade PEEK. The FTC claimed that these practices were “unfair methods of competition” in violation of § 5 of the FTC Act. 15 U.S.C. § 45.

The parties entered into a settlement agreement in late April 2016. It states that any new contract between the respondent and a customer may not contain exclusivity provisions, and any exclusivity clauses in existing contracts are not enforceable. It also prohibits the respondent from retaliating against any customer that purchases implant-grade PEEK from a competitor, such as by withholding regulatory support.

Business transactions attorney James G. Schwartz has represented Bay Area businesses and business owners for more than 38 years. We assist clients in a wide variety of litigation and transactional matters, helping them understand their rights and protecting their interests. To schedule a free and confidential consultation with a knowledgeable and experienced business advocate, contact us today online or at (925) 463-1073.

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Photo credit: Roland Mattern (user:Roland1952) [Public domain], via Wikimedia Commons.