Company with First-to-Market Product Settles Antitrust Claims with Federal Government

PakpongICCH444 (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia CommonsOne of the key features of capitalism, as the concept is generally understood in our society, is competition. Consumers benefit from a competitive marketplace, and they suffer when businesses use anticompetitive practices. Congress began enacting laws to curb monopolistic and other anticompetitive practices, known as antitrust laws, in the late nineteenth century. Having a monopoly is not, by itself, necessarily a violation of antitrust law. Antitrust law deals with actions or practices that prevent competition. The Federal Trade Commission (FTC) brought a case against a company that was first to market with a new medical product, alleging that it used exclusive contract terms to prevent competitors from entering the market for that product. The company agreed to cease these practices in a recently announced settlement. In the Matter of Victrex plc, et al., No. 141-0042, consent order (FTC, Apr. 27, 2016).

In an ideally competitive market, consumers may choose among competing companies for a particular good or service, leading to the success of the companies that provide the “best” experience for consumers. In this context, the “best” is really just whatever consumers en masse—i.e., the “market”—want. When one company dominates a market, however, it no longer has to compete for customers, so it arguably lacks the incentive to give consumers what they want. This can result in higher prices, diminished quality, and other problems.

A single, monopolistic company might engage in anticompetitive practices that prevent other companies from entering the market, such as contracts with exclusivity clauses that prohibit a company’s customers or vendors from doing business with its competitors. Multiple companies might act together to limit competition, such as by fixing prices or by dividing geographic areas between themselves. The federal Sherman Antitrust Act of 1890, 15 U.S.C. § 1 et seq., prohibits a wide range of anticompetitive practices. The FTC Act, 15 U.S.C. § 41 et seq., prohibits “unfair methods of competition,” which can overlap with antitrust law.

The respondent in Victrex is a polymer manufacturer based in the United Kingdom, which manufactures a polymer used in medical devices known as polyetheretherketone (PEEK). It was the first company to get PEEK to market for this purpose. Only two other companies in the world, according to the FTC, have attempted to compete with the respondent in the sale of PEEK.

The FTC alleged that the respondent used “long-term supply contracts” with medical device manufacturers to achieve and maintain dominance of the PEEK market. Victrex, complaint at 2. This occurred both before and after the competitors’ entry into the market. The respondent allegedly “coerce[d] or induce[d] device makers to accede to exclusivity terms,” which prohibited them from obtaining PEEK from other suppliers. Id.

Under the settlement agreement between the respondent and the FTC, new contracts cannot contain an exclusivity clause, and such clauses in existing contracts will not be enforceable. The respondent also may not retaliate against customers, such as by “withholding access to regulatory support,” for using “an alternate PEEK supplier.” Victrex, consent order at 5.

Samuel C. Berger practices business law in Northern New Jersey and New York City. We offer fixed-fee legal-service packages to businesses and business owners, which enable them to better understand their legal rights and obligations, and to run their businesses more efficiently and effectively. To schedule a confidential consultation with a skilled and experienced business advocate, contact us today online, at (201) 587-1500, or at (212) 380-8117.

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Photo credit: PakpongICCH444 (Own work) [CC BY-SA 4.0], via Wikimedia Commons.