Designing an Effective Pandemic Response that Minimizes Lasting Harm to Competition

On March 24, 11 days after President Trump declared the COVID-19 pandemic a national emergency, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) issued a joint statement regarding COVID-19.[1] While on the one hand stating that the Agencies “stand ready to pursue civil violations of the antitrust laws” in the face of the pandemic, the statement also indicated that the Agencies would “account for exigent circumstances in evaluating efforts to address the spread of COVID-19 and its aftermath.” The Agencies specified that “joint efforts, limited in duration and necessary to assist patients, consumers, and communities affected by COVID-19 and its aftermath, may be a necessary response [to COVID-19].” Toward that end, the Agencies announced an expedited procedure for firms to obtain specific guidance on proposed collaborations.

AAI has previously cautioned that stronger antitrust safeguards are needed in the government’s response to the COVID-19 crisis.[2] This commentary highlights the biggest risks to competition in the government’s COVID-19 response. AAI believes that it is possible to preserve and protect competitive markets for the long term while enabling immediate solutions to the current crisis, but only by vigilantly guarding against these risks and designing policy to mitigate them. This commentary suggests guideposts for the antitrust policy response that will ensure markets remain competitive once we emerge from this pandemic.

Subsequent Exemptions and Warnings

On April 4, pursuant to the procedures referenced in the March 24 statement, DOJ issued an expedited Business Review Letter (BRL) to a collection of health care companies (the “Requesting Parties”) blessing their proposal to collaborate in the manufacture and distribution of personal protective equipment (PPE). The Requesting Parties described their proposed cooperation in broad strokes as involving everything from coordinating supply to negotiating prices.

In its BRL, the DOJ relies heavily on the fact that “[t]he Requesting Parties’ primary collaborative activity in these areas occurs at the direction of, and in the presence of FEMA, HHS, other government entities, and their agents.” The BRL acknowledges that the collaboration is expected to continue without direct involvement from the government, but cites to the Requesting Parties’ commitment to follow certain safeguards in their private meetings and discussions on matters of coordination. “In sum,” the letter states, “according to the Requesting Parties, their collaborations will be focused on, and limited to, facilitating the U.S. Government’s efforts to respond to the unprecedented COVID-19 pandemic” and “will only last for as long as such efforts are necessary for the welfare of Americans” and will dissolve upon “resolution of the COVID-19-related disruptions and the disbanding of the related U.S. Government response initiatives.”

In the BRL, DOJ separately addresses the aspects of the collaboration directly involving FEMA and HHS versus those aspects where FEMA and HHS personnel will not be directly involved. The former conduct, according to the BRL, is immune from antitrust scrutiny under the state action doctrine[3] or because it “offer[s] unique benefits.” The latter conduct, according to the BRL, “may benefit” consumers, is “in ‘support [of] the mission of FEMA and other agencies,” and “is limited in scope and duration, necessary to address COVID-19-related scarcity, and will not extent beyond what is required to facilitate the availability of needed supplies.” Accordingly, DOJ concludes that “it appears as if the procompetitive aspects of any arrangement far outweigh any potential harm.”

Perhaps in recognition of the competitive concerns raised by the April 4 BRL or in response to reports of anticompetitive labor practices in response to COVID-19,[4] on April 13, the DOJ and FTC issued a second joint statement, this time “affirming the importance of competition for American workers” and “announc[ing] that they will protect competition for workers on the frontlines of the Coronavirus Disease 2019 (COVID-19) response in the United States by enforcing the antitrust laws against those who seek to exploit the pandemic to engage in anticompetitive conduct in labor markets.” The statement strongly condemns anticompetitive labor practices, and warns that “[c]ompanies and individuals involved in the hiring, recruiting, retention, or placement of workers should be aware that anticompetitive conduct runs the risk of civil and/or criminal liability.” The Agencies note that they are cooperating closely with other agencies on this issue and that they have established a Procurement Collusion Strike Force, “an interagency partnership created to combat antitrust crimes and related schemes affecting procurement, grant, and program funding.”

Finally, although President Trump announced in mid-March that he intended to invoke the Defense Production Act of 1950 (DPA) in response to COVID-19, he did not direct action under that Act until March 27, when he used it to force General Motors to step up ventilator production.[5]  The DPA provides for an exemption from criminal and civil liability under the U.S. antitrust laws, when certain procedures are invoked, but President Trump has not yet acted under those provisions.[6]

The Implications of Immunized Coordination

The real and immediate need for creative, collaborative, and forceful solutions to the life-and-death challenges posed by the COVID-19 pandemic is undeniable. The FTC and DOJ should be commended for quickly issuing much-needed guidance to industry, affirming the continued application of the antitrust laws, and providing expedited procedures to ensure that the timing of agency review does not stand as a roadblock to emergency measures. The Agencies’ strong condemnation of anticompetitive labor practices on April 13 is particularly important.[7]

Nevertheless, more needs to be done to guard against the very real risk that, in accounting for the exigencies of the current situation in the short term, decisions will be made that will have anticompetitive effects persisting long after COVID-19 has been vanquished. The primary risks to competition from the response to this crisis include the following:

• Use of the COVID Crisis as a Shield for Harmful Conduct: For every company or group of companies that legitimately seeks to aid the pandemic response through collaboration, experience tells us there will be another that attempts to use this crisis as an excuse to engage in anticompetitive conduct unrelated or tangentially related to the pandemic response. This concern is particularly acute given the track record of anticompetitive behavior in many of the markets implicated by the pandemic response:

• • Hospitals. Hospitals have a long track record of anticompetitive mergers, labor practices, and contracting practices. The hospital industry has seen an unprecedented wave of consolidation in recent years, further exacerbating incentives and opportunities for anticompetitive conduct.[8]
  • Health Insurers. Likewise, the increased concentration in the health insurance markets has left consumers with fewer choices and companies with more opportunities to collude and/or unilaterally exercise and extend their market power. A long line of cases and investigations demonstrate the history of anticompetitive conduct.[9]
  • Pharmaceuticals. The pharmaceutical industry is currently the subject of several sweeping antitrust investigations and lawsuits by state and federal authorities. This is another industry with a long history of anticompetitive behavior with many repeat players.[10]
  • Medical Device and Equipment Manufacturers. As we recently discussed in a separate commentary, consolidations and killer acquisitions have left the medical device and equipment industry much less diverse and competitive than it used to be.[11]
  • Agriculture. With an upending of the restaurant supply chain, the disruption of global agriculture markets, and the tremendous and increasing load on food banks, agriculture is deeply affected by the pandemic and a significant part of the response to it. Rapid consolidation in agriculture has produced high concentration in markets such as processing with a reputation of anticompetitive conduct and a track record of collusion.[12]
  • Tech. Tech companies are likewise expected to be implicated by this policy as, for example, Google and Apple are collaborating on contact tracing app.[13] Investigation and criticism of anticompetitive conduct in the tech industry has only increased in recent years.[14]  The growth of dominant firms, through flexing their existing market power and through serial acquisitions has been a primary concern, but coordinated conduct has also been a repeated issue.[15]

• Coordinated Conduct that Continues Beyond the Public Health Crisis: There is unlikely to be a clear endpoint to the impact of COVID-19.  We can expect companies will use the COVID-19 epidemic as a justification for conduct or collaborations well after the most intense period of the crisis has passed. While it appears that, unfortunately, COVID-19 will be affecting us for some time, that does not mean we will continue to experience the sort of spikes in demand and overwhelmed hospitals that might justify collaborations that would not otherwise be considered procompetitive.  Nevertheless, if companies interpret the government’s guidance about the epidemic to provide an open-ended license to collaborate, we could see an increase in “collaboration” not justified by the need to meet the crisis.

• Establishing New Channels of Coordination: Experience tells us that once executives and companies establish relationships and habits of coordinating with one another, those channels of coordination are likely to endure and to be used repeatedly to facilitate cooperation over competition.[16]  By allowing competitors to collaborate in the short-term to address pandemic issues, those competitors (and their executives) will establish new relationships that we can expect will lead to future coordination unrelated to COVID-19. It would be deeply ironic if coordination and consolidation permitted due to this crisis is allowed to develop into ongoing coordination and consolidation that deepens and ossifies trends in market consolidation and anticompetitive conduct that have contributed to the severity of the current shortages.[17]

• Degradation of Antitrust Standards: The Agencies’ guidance to date has been ambiguous about how the COVID-19 crisis will factor into its antitrust analysis.  Such ambiguity risks undermining existing antitrust standards and established criteria for determining whether conduct is anticompetitive. If standards are altered or stretched to accommodate COVID-19, particularly where such accommodation is not express, there is a real risk of permanent degradation of antitrust standards. Existing laws (such as the Defense Production Act) and existing exemptions and immunities doctrines (such as the state action doctrine) allow for the elevation of other social values above competition where warranted.  But they do so by requiring processes, procedures, accountability, and precise criteria to ensure that risks like those discussed above are mitigated and not by modifying or disregarding antitrust standards.

Taking Steps to Mitigate Risks to Competition

The existence of risk does not mean that antitrust authorities should ignore the pandemic and pretend that it is business as usual; it clearly is not.  Rather, steps should be taken to mitigate these risks while taking account of the highly unusual circumstances presented by COVID-19.

1. Reiteration That the Antitrust Laws Remain Fully in Force: The Agencies must clarify that no conduct will be immunized due to the COVID-19 pandemic, unless immunity is expressly granted through the processes and procedures set forth in the Defense Production Act.  That Act, which was designed for just such a scenario, provides detailed procedures with chains of accountability and reporting requirements for immunizing companies’ conduct from the antitrust laws.[18]  At a minimum, where those procedures are not adhered to, the Agencies should clarify that the antitrust laws remain firmly in force.

2. More Precision in Guidance: Likewise, the Agencies should take care to avoid deeming conduct procompetitive (and, therefore, not in violation of the antitrust laws) or inadvertently expanding existing exemptions or immunities from antitrust law on the theory that the current emergency requires elevating other concerns above competition.  As discussed above, other avenues in the law better provide for that sort of value balancing.  For example, the DOJ’s BRL to McKesson and other medical supply distributors does not make clear where it is relying on the state action doctrine (versus other unspecified immunities) and does not provide any detail about how it concluded that McKesson’s proposed collaboration satisfied the well-established legal tests for application of that doctrine.[19]

3. Sunset Provisions: Require companies seeking business review letters under the expedited procedures to provide a date certain by which they will either terminate the cooperative conduct at issue or seek additional review from the Agencies.  The Agency guidance rightly states that any collaborations undertaken to assist with addressing the COVID-19 pandemic should be “of limited duration.”  But the only expedited BRL issued to date relies on the companies’ representation that their collaboration “will only last for as long as such efforts are necessary for the welfare of Americans.”  This is insufficient to guard against the risk that collaborations will continue after the exigencies of the current situation have abated and is too vague to have legal force.  Because we cannot know exactly how long these exceptional circumstances will continue, a “sunsetting” provision or something like it is necessary to allow for continued accountability and also flexibility.

4. Ongoing Targeted Guidance: Continue to issue targeted guidance along the lines of the April 13 joint statement to highlight particular areas where abuse is being detected and to re-affirm that the Agencies are monitoring abuse and stand ready to vigorously prosecute it.  This, of course, must be followed by actual enforcement in order to be meaningful.

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[1] Federal Trade Comm’n & U.S. Dep’t of Justice, Joint Antitrust Statement Regarding COVID-19 (March 24, 2020).

[2] Announcement, American Antitrust Institute, AAI Calls for Stronger Antitrust Safeguards in Government Responses to COVID-19 Crisis” (March 24, 2019), https://www.antitrustinstitute.org/aai-calls-for-stronger-antitrust-safeguards-in-government-responses-to-covid-19-crisis/.

[3] The state action doctrine is rooted in federalism and sovereign immunity concerns and generally “confer[s] immunity on anticompetitive conduct by the States when acting in their sovereign capacity.”  North Carolina State Bd. of Dental Examiners v. F.T.C., 574 U.S. 494, 503 (2015) (citing Parker v. Brown, 317 U.S. 341, 350-51 (1943)). 

[4] See, e.g., Kelly House, Michigan Nurses Getting Fat Pay Raises or Pink Slips in Coronavirus Crisis, Bridge (April 14, 2020) (“The urgent need for critical care workers combined with the skyrocketing price of temporary labor has forced hospital administrators to collaborate across systems by borrowing workers on a temporary basis from hospital systems that have workers to spare.”) (quoting the Michigan Health & Hospital Association), available at https://www.bridgemi.com/michigan-health-watch/michigan-nurses-getting-fat-pay-raises-or-pink-slips-coronavirus-crisis.

[5] Zolan Kanno-Youngs & Ana Swanson, Wartime Production Law Has Been Used Routinely, but Not With Coronavirus, The New York Times (March 31, 2020).

[6] 50 U.S.C. § 4558(1).

[7] See Letter from Am. Antitrust Inst. to Makan Delrahim & Michael Murray (May 2, 2019) (detailing anticompetitive conduct in labor markets, including “no-poaching” agreements), available at https://www.antitrustinstitute.org/wp-content/uploads/2019/05/AAI-No-Poach-Letter-w-Abstract.pdf.

[8] See Thomas L. Greaney & Barak D. Richman, Consolidation in Provider and Insurer Markets: Enforcement Issues and Priorities (AAI white paper, June 12, 2018), available at https://www.antitrustinstitute.org/wp-content/uploads/2018/09/AAI_Healthcare-WP-Part-I_6.12.18.pdf; Jacqueline C. Lien, Bad Behavior: Health Insurance Mega-Mergers, 15 Hastings Bus. L.J. 129 (2019) (detailing mergers and anticompetitive conduct among health insurers); Press Release, U.S. Dept. of Justice, Justice Department Files Motion to Dismiss Antitrust Lawsuit Against Blue Cross Blue Shield of Michigan After Michigan Passes Law to Prohibit Health Insurers from Using Most Favored Nation Clauses in Provider Contracts, available at https://www.bridgemi.com/michigan-health-watch/michigan-nurses-getting-fat-pay-raises-or-pink-slips-coronavirus-crisis.

[9] See Cory Capps, Laura Kmitch, Zenon Zabinski, & Slava Zayats, The Continuing Saga of Hospital Merger Enforcement, 82 Antitrust L.J. 441 (2019) (detailing the history of hospital mergers over the last three decades); Laura Garcia,

3 San Antonio Hospital Systems Settle Nurses’ Wages Lawsuit, San Antonio Express-News (Jan. 29, 2020); Katie Thomas, The New York Times, Sutter Health to Pay $575 Million to Settle Antitrust Lawsuit (Dec. 20, 2019), available at https://www.nytimes.com/2019/12/20/health/sutter-health-settlement-california.html.

[10] See American Antitrust Institute, State of Antitrust Enforcement and Competition Policy in the U.S. 17-18 (April 14, 2020) (detailing litany of antitrust enforcement actions against pharmaceutical manufacturers in recent years), available at https://www.antitrustinstitute.org/work-product/antitrust-enforcement-report/.

[11] See Diana L. Moss, Can Competition Save Lives? The Intersection of COVID-19, Ventilators, and Antitrust Enforcement, (AAI white paper, March 31, 2020), available at https://www.antitrustinstitute.org/can-competition-save-lives-the-intersection-of-covid-19-ventilators-and-antitrust-enforcement/; Diana L. Moss, Healthcare Intermediaries: Competition and Healthcare Policy at Loggerheads? (AAI white paper, May 7, 2010), available at https://www.antitrustinstitute.org/wp-content/uploads/2012/05/AAI-White-Paper-Healthcare-Intermediaries.pdf.

[12] See generally, Diana L. Moss, Consolidation in Agriculture and Food: Challenges for Competition Enforcement, Concurrences 1-2016 (detailing the history of consolidation and collusion in agriculture in the United States).

[13] See, e.g., Shannon Bond, Getting Back to Normal: Big Tech’s Solution Depends on Public Trust, NPR (April 14, 2020), available at https://www.npr.org/2020/04/14/834460127/apple-google-team-up-to-develop-cellphone-data-contact-tracing.

[14] Press Release, Federal Trade Comm’n, FTC to Examine Past Acquisitions by Large Technology Companies (Feb. 11, 2020); Steve Lohr, Google Antitrust Investigation Outlines by State Attorneys General, The New York Times (Sept. 9, 2019), available at https://www.nytimes.com/2019/09/09/technology/google-antitrust-investigation.html.

[15] See, e.g., Complaint, United States v. Adobe Systems, Inc, et al., 1:10-cv-01629 (D.D.C. Sept. 24, 2010).

[16] See John M. Connor, Recidivism Revealed: Private International Cartels 1990-2009, Competition Pol’y Int’l 101 (Autumn 2010) (finding that cartel recidivism is common and :appears to be increasing rapidly);  Douglas H. Ginsburg & Joshua D. Wright, Antitrust Sanctions, Competition Pol’y Int’l 3, 15 (Autumn 2010) (repeated conviction of the same companies for cartels “tends to suggest there is a problem with recidivism).

[17] See Diana L. Moss, Can Competition Save Lives? The Intersection of COVID-19, Ventilators, and Antitrust Enforcement, (AAI white paper, March 31, 2020), available at https://www.antitrustinstitute.org/can-competition-save-lives-the-intersection-of-covid-19-ventilators-and-antitrust-enforcement/.

[18] 50 U.S.C. § 4558(1).

[19] For private parties to gain immunity under the state action doctrine, their conduct must “result from procedures that suffice to make it the State’s own.”  North Carolina Bd. of Dental Examiners v. F.T.C., 574 U.S. 494, 506 (2015).  Under the longstanding Midcal test, this requires both that “the State has articulated a clear…policy to allow the anticompetitive conduct” and that “the State provides active supervision of the anticompetitive conduct.” Id. citing California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980).