The June 2022 issue of CPI Antitrust Chronicle includes the article by AAI’s Diana Moss: Market Power in Supply Chains. As supply chains have grown in sophistication and complexity, so too have the competition issues they raise. Years of consolidation and rising concentration in the critical middle segments of major supply chains have created market power “bottlenecks.” These bottlenecks have a number of important implications. For example, dominant firms and oligopolies in these middle markets can often exercise market power on both the buyer side and seller side. Moreover, strong incentives for players to bulk up to counter the bargaining power of suppliers and distributors has exacerbated consolidation, with serious implications for the stability and resiliency of supply chains—as we have seen during the COVID-19 pandemic. This article examines the problem of market power in supply chains using the pharmaceutical and food & agriculture sectors as mini-case studies. It highlights weak merger control in the U.S. as a source of the problem and key priorities for strengthening enforcement to address it.
AAI Asks Second Circuit for Clear Thinking When Pharmaceutical Markets Are Monopolized by Patent Fraud (Regeneron v. Novartis)
AAI has submitted an amicus brief urging the Second Circuit Court of Appeals to overturn a district court order granting a patent owner’s motion to dismiss a Walker Process fraud claim for failure to adequately plead a relevant product market.
In Regeneron v. Novartis, Novartis sued rival Regeneron alleging infringement of a patent on the use of pre-filled syringes containing a category of ophthalmic drugs used to treat conditions associated with degenerative eye disease and blindness. Regeneron counterclaimed under Section 2 of the Sherman Act, alleging that Novartis committed knowing and deliberate fraud when it procured the patent and did so to monopolize the market for pre-filled syringes containing the drug (“PFS market”). In Walker Process, the Supreme Court held that a plaintiff may maintain a Section 2 claim against a patentee who obtains an invalid patent by intentionally defrauding the Patent Office, provided the other basic elements of a Sherman Act claim are satisfied.
Prior to the launch of PFS products, doctors administered the ophthalmic drugs at issue using vials that were loaded into syringes manually. Regeneron alleged, among other things, that 80-90% of doctors have switched their patients from vials to pre-filled syringes, and that Novartis conceded in a sworn federal court filing that Regeneron’s launch of a PFS product caused the price of its own PFS product to “erode.” The district court dismissed Regeneron’s counterclaim because it believed a relevant market limited to syringes was implausible. The court held that a proposed relevant product market is suspect if the scope of the claimed market is identical to the scope of the patent rights on which a patent claim reads. It held that Regeneron’s proposed market was implausible because Regeneron did not explain why patients would not switch back to vials in the event of an increase in the price of pre-filled syringes.
The AAI brief argues that the district court fundamentally misunderstood and misapplied basic market definition principles and wrongly relied on a version of the “scope of the patent test” that the Supreme Court rejected in FTC v. Actavis. The brief explains that the district court was wrong to view relevant markets that are coterminous with patent grants suspiciously. Market definition focuses on the realities of actual demand substitution, not the functional interchangeability of products; whether customers would be willing to substitute to alternatives in place of a patented product is a fact-driven empirical question not amenable to resolution on a motion to dismiss. Not only is the fact that a product may be differentiated by patented features not dispositive; it is not relevant. Neither the fact of a patent grant, nor its scope, can shed any light on customer switching behavior for purposes of defining markets.
The brief also explains that the district court’s special pleading rule would lead to absurd results because it would prevent plaintiffs from pleading a required element of a Walker Process claim. Walker Process plaintiffs are required to plead and prove that the fraudulently procured patent is itself the source of the defendant’s monopoly power. Whenever the scope of the claimed relevant market is coterminous with the scope of a patent grant, the district court’s rule would effectively require plaintiffs to allege a logical impossibility—that the defendant both derives its monopoly power from the patent and does not.
The brief was written by AAI Vice President of Legal Advocacy Randy Stutz.
AAI Advisory Board Member Jack Kirkwood, joined by numerous other AAI Advisory Board members, also submitted an amicus brief on behalf of 46 professors of law, economics, business, and medicine urging reversal of the district court.
AAI Report Examines FTC’s Pharmaceutical Merger Policy in Light of Mounting Antitrust Violations, Calls for Overhaul of Commission’s Approach of Approving Mergers Subject to Divestitures
Prescription drugs safeguard Americans from numerous life-threatening maladies. Competition in pharmaceutical R&D, and for generic entry, produces essential drugs and ensures that medications are accessible and affordable. That promise is fading. There is mounting evidence that connects high market concentration and high drug prices. Price gouging for important drugs, conspiracies to fix generic drug prices, and ever more innovative schemes by branded drug manufacturers to keep generic rivals out of the market put merger control at center stage.
The AAI White Paper “From Competition to Conspiracy: Assessing the Federal Trade Commission’s Merger Policy in the Pharmaceutical Sector” examines a major root of this problem—the Federal Trade Commission’s (FTC’s) policy of settling virtually all challenged horizontal pharmaceutical mergers with consent orders requiring divestitures. This stands in contrast to agency decisions to seek injunctions to stop highly concentrative, harmful mergers—arguably the most effective remedy for fully restoring competition. AAI’s macro-analysis of pharmaceutical mergers challenged by the FTC between 1994-2020 (to date) reveals that many drug makers engaged in serial mergers and/or repeatedly went to the till to purchase divestiture assets in other challenged mergers. Many of these firms were subsequently acquired by other pharmaceutical manufacturers, sometimes shortly after purchasing divestiture assets.
The effect of the FTC’s policy has been the swapping of assets within a relatively small group of large and increasingly powerful firms. Just under 20% of all unique branded and generic firms that engaged in repeated mergers and acquisitions (M&A) and/or purchases of divestiture assets account for almost 45% of pharmaceutical assets “changing hands” from 1994-2020. Many of the very firms that were the most active in M&A, and as purchasers of divestiture assets, appear as defendants in private, state, and federal non-merger antitrust litigations and in federal criminal indictments. These accumulating lawsuits serve as powerful evidence that something has gone awry with merger policy in the pharmaceutical sector, leading to the exercise of market power by dominant firms and oligopolies.
The FTC’s role in managing the allocation and ownership of important pharmaceutical assets through its extraordinary approach toward merger control has unduly involved it in shaping the industry. This resembles a form of “industrial planning” rather than antitrust law enforcement, which is designed to deter future anticompetitive conduct and relies on market forces to determine market structures. The FTC’s policy has also deprived the antitrust community and public of important transparency. Because no challenged merger between 1994-2020 was litigated in federal court, there is no judicial record detailing how highly concentrative mergers were likely to have survived a presumption of illegality. There is thus no way to evaluate claims that pharmaceutical mergers were likely to have delivered lower prices through claimed cost savings or consumer benefits due to improved quality and innovation.
This White Paper begins with background on drug pricing and competition in the pharmaceutical supply chain. It then turns to the drug mergers themselves and the asset divestitures required in FTC consent orders. Next is an assessment of private, state, and federal antitrust cases against the companies involved in M&A and as buyers of divestiture assets. It concludes with policy recommendations on reframing competition policy in the pharmaceutical sector. The FTC, which has devoted considerable resources and expertise to understanding the pharmaceutical sector, should take the lead in reforming its own policy on merger control.
Competition problems in pharmaceuticals now rise to the level a public policy concern, addressable only through a coordinated policy response, of which stronger antitrust enforcement and legislative reform should be central components. The imperative for wholesale change in the FTC’s merger policy in the pharmaceutical sector is more pressing than ever. Only robust competition among drug makers will result in the availability and affordability of drugs more generally, but also essential drug therapies and vaccines relating to the COVID-19 pandemic.
From Medical Licensing to Health Insurance: Major Policy Issues That Will Shape the Future of Telehealth
In this podcast, AAI President Diana Moss talks with two experts about Telehealth and the many issues that it raises for the healthcare system, providers, and patients. These include policy questions around medical licensing, impact and equity, and competition. Telehealth is the distribution of health-related services and information via electronic and telecommunication technology. As a distinct modality, It allows for long-distance patient and clinician contact and the many elements, from patient care to remote admissions. The impact of the COVID-19 pandemic on Telehealth has been notable and health systems, payers, employers, and new entrants have worked to expand Telehealth services. AAI’s guests on this episode of Ruled by Reason will discuss the many questions surrounding Telehealth today. For example, how will health systems deliver complex healthcare services via Telehealth? Which population segments and practice areas are likely to drive future utilization? How will medical licensing policies affect Telehealth moving forward? And how does competition in the healthcare supply chain, especially in health insurance, impact the provision of Telehealth services?
MODERATOR:
Diana Moss, President, American Antitrust Institute
GUESTS:
Kim Horvath is Senior Legislative Attorney with the American Medical Association Advocacy Resource Center in Chicago. She is an expert on the legal and policy dimensions of state-level issues important to physicians and their patients, including health information technology, medical liability reform, physician-led team-based care, physician licensure, telemedicine, and truth in advertising.
Jenna Milaeger is Partner in the Goldberg Law Group in Chicago. She represents and advises doctors and other licensed health care providers on a range of administrative and business law matters. These include professional licensing, Medicare, Medicaid audits and fraud investigations, commercial payer audits and appeals, professional credentialing and peer review matters, and corporate compliance.
AAI President and Advisors to Speak at June 14-15 Federal Trade Commission/U.S. Dept. of Justice Workshop on Enforcing the Antitrust Laws in the Pharmaceutical Industry
AAI President, Diana Moss, and AAI Advisory Board members, Michael Carrier and Barak Richman, will speak at the upcoming joint FTC/DOJ workshop: The Future of Pharmaceuticals: Examining the Analysis of Pharmaceutical Mergers on June 14, 2022 and June 15, 2022. Moss will be joined on the panel, Concentration Levels in the Pharmaceutical Sector, by Patricia Danzon, Wharton School, University of Pennsylvania and Rena Conti, Boston University, Questrom School of Business. The panel will be moderated by Thomas DeMatteo, U.S. Department of Justice. AAI Advisor, Barak Richman, Duke University School of Law, will speak on the panel, Broken Fixes? Remedies in Pharmaceutical Mergers. Michael Carrier, Rutgers Law School, will speak on the panel Prior Bad Acts as Factors in Pharmaceutical Merger Reviews. On June 7, 2022, the FTC also announced a long overdue and welcome inquiry into the pharmacy benefit manager (PBM) industry under the agency’s 6(b) authority.
From the FTC website (condensed):
The Federal Trade Commission and the U.S. Department of Justice, Antitrust Division, will host a two-day public, virtual workshop to explore new approaches to enforcing the antitrust laws in the pharmaceutical industry. The workshop, organized by FTC and DOJ staff, offices of state attorneys general, and international enforcement partners, will take place virtually from 9:00am to 12:00pm EDT on Tuesday, June 14 and 9:00am – 11:30am on Wednesday, June 15. The workshop is the culmination of the Multilateral Pharmaceutical Merger Task Force, formed in March 2021 by then-Acting Chairwoman Rebecca Kelly Slaughter to consider how to address the varied competitive concerns that pharmaceutical mergers and acquisitions raise. Commissioner Slaughter’s keynote will start the first day of the workshop, followed by plenary sessions on market concentration in the pharmaceutical sector and merger remedies. The second day will feature sessions on innovation aspects of pharmaceutical mergers and how conduct by pharmaceutical companies affects merger analysis.
A selection of AAI work on competition and the pharmaceutical industry can be found at:
AAI Has Allergic Reaction to Misguided Decision in EpiPen Monopolization Case (Sanofi v. Mylan) (Amicus Brief – 2021)
From Competition to Conspiracy: Assessing the Federal Trade Commission’s Merger Policy in the Pharmaceutical Sector (Report – 2020)
AAI Urges Third Circuit to Preserve Product Hopping Case on Behalf of Victims of the Opioid Epidemic (In re Suboxone Antitrust Litigation) (Amicus Brief – 2020)
AAI Testifies on Behalf of Consumer Groups at Rare Tunney Act Hearing on Proposed Merger of CVS and Aetna (Letter to DOJ/Testimony – 2019)
Healthcare Intermediaries: Competition and Healthcare Policy at Loggerheads? (Report – 2012)
Selected works from AAI Advisors Carrier and Richman can be found at:
The Neglected Concern of Firm Size in Pharmaceutical Mergers (Antitrust L. J., forthcoming 2021)
Playing Both Sides? Branded Sales, Generic Drugs, and Merger Policy (Hastings L. J., 2020)
The Evolving Pharmaceutical Benefits Market (J. Am. Med. Assoc., 2018)
Pharmaceutical M&A Activity: Effects on Prices, Innovation, and Competition (Loy. U. Chi. L. J., 2017)
The High Costs of Growing Corn: How Growers are Squeezed by High Input Prices That Are Set by the Fertilizer Oligopoly
In this podcast, AAI President Diana Moss talks with two experts about corn, a leading U.S. crop. Many growers now face serious margin “squeezes.” They pay higher and higher prices to powerful oligopolies for inputs that are necessary to grow their crops. But growers then sell into markets where commodity prices are also often controlled by only a few firms, such as in animal proteins, and are subject to significant commodity price fluctuations. This episode of Ruled by Reason will focus on how growers are paying high prices for nitrogen fertilizer, a major input for growing corn. Economic studies, including a recent one authored by Dr. Joe Outlaw, a guest on this podcast, raise serious concerns about fertilizer prices. These prices have been set for years by a small group of powerful, global fertilizer producers. Other studies, including one done by AAI, indicate the likelihood that fertilizer producers more likely coordinate with each other, rather than compete. Anticompetitive fertilizer prices hurt corn growers and consumers, and imperil the stability and integrity of a vital agricultural supply chain. The podcast discussion touches on issues relating to the importance of fertilizer for growing corn for its many uses, how corn and fertilizer prices are related, the power of the fertilizer oligopoly, and how international trade issues exacerbate the situation.
MODERATOR:
Diana Moss, President, American Antitrust Institute
GUESTS:
Dee Vaughan is a Texas-based corn, cotton, sorghum seed, and wheat grower and a long-time, proactive supporter of Texas and U.S. agriculture. He currently serves as a director of the Texas Corn Producers Association, the Texas Corn Producers Board, and the Southwest Council of Agribusiness. Mr. Vaughan has worked extensively on policy and regulatory issues in the areas of farm policy, energy, transportation, and trade.
Dr. Joe Outlaw is a Regents Fellow, Professor and Extension Economist in the Department of Agricultural Economics at Texas A&M University. He also serves there as the Co-Director of the Agricultural and Food Policy Center. Dr. Outlaw’s research is focused on assessing the impacts of farm programs, risk management tools, renewable energy, and climate change legislation on U.S. agricultural operations.
Antitrust Experts Review New Data on Private U.S. Antitrust Enforcement, Identify COVID-19 Implications and Key Statistical Trends
The American Antitrust Institute and Professor Joshua P. Davis of the UC Hastings College of Law and the Berger Montague firm have released a Commentary on the Huntington National Bank and UC Hastings 2021 Antitrust Annual Report: Class Action Filings in Federal Court (2021 Report). The goal of the Commentary, The Role of Private Antitrust Enforcement in a Time of Change, is to identify major implications for private enforcement in the United States. Like the 2018, 2019 and 2020 Reports, the 2021 Report relies largely on data for private U.S. antitrust class actions available through Lex Machina, as well as supplemental data analysis. The 2021 Report extends the dataset to the thirteen-year period covering 2009-2021, thus allowing for a deeper analysis of private enforcement trends and their implications. The analysis provided in the AAI-UC Hastings Commentary highlights the importance of private antitrust enforcement in the U.S. system and the particularly important role played by the antitrust class action.
The Commentary makes several observations based on the new data and discusses potential implications for private enforcement. After three years of the COVID-19 pandemic, we may be seeing the virus’s impact on the timing of antitrust enforcement actions and their resolution. With consolidated antitrust class action filings down 40% from 2020 to 2021 and settlements also down according to both quantitative and qualitative metrics, not to mention a key indicator of delay—the time from the initial filing of a complaint to the order granting final settlement approval—trending upward, there are reasons to suspect the pandemic has taken its toll on private enforcement. In particular, we might note that the pandemic caused federal courts to suspend and delay trials, especially jury trials. That could explain why the time increased to resolve litigation, why the number of settlements decreased, or other apparent patterns. The data raise a number of questions, however, and further study is required. To fully appreciate the pandemic’s effect on private enforcement, a more granular analysis of the data would be needed to address patterns in proportional sizes of settlements, the influence of settlement size and the imminence of trial on case resolution, fluctuations in mean and median settlement amounts, and other factors.
The Commentary also discusses how new data in the 2021 report informs trends we have been monitoring over time. It observes that the average annual rate of change in filings shows variability over time. For example, based on data from 2009-2019, the average annual change in total filings was about 15% per year. But based on data from 2009-2020, this rate dipped slightly to about 14% per year. And for the 2009-2021 data, the rate fell even more to about 9% per year. The possible slowdown in filings may be accompanied by a more arduous journey through the courts as well.
Trends in the data also reveal interesting developments involving judgments on the pleadings. We see a 50% increase in filings that were decided on judgments on the pleadings from the 2009-2019 to 2009-2021 data. As a percentage of all defendant wins, this category increased by 14% with the addition of the 2020 and 2021 data. Yet the average time to resolution for those cases remained steady, at about 2.4 years. Meanwhile, at the same time, a decreasing proportion of defendants won on summary judgment. We see only about a 7% increase in filings that were decided on summary judgment between the 2009-19 to 2009-21 data. As a percentage of all defendant wins, this category decreased by almost 20% between the 2009-2019 to 2009-2021 data. It is possible this may reflect the impact of the COVID-19 pandemic, as defendants and courts sought to resolve cases on the merits without trial.
Another observation is that 2021 marked a further increase in recoveries above $100 million. Past reports have shown settlements between $10-$99 million and between $100-$499 million peaking around 2018 and falling off thereafter. While the 2020 numbers in these categories were higher than the recent low point of 2019, they remained substantially below average 2014-2018 levels. The 2021 increase may indicate a trend towards a return to 2014-2018 levels, however.
Finally, the new data offers takeaways concerning trends in antitrust class actions filed on behalf of different classes of plaintiffs. The percentage of the total settlements involving direct purchasers has declined by just over 25% between the 2009-2019 and 2009-2021 data, while indirect purchases cases have increased by close to 60%. Statistics for total settlement dollars obtained in direct and indirect purchaser cases parallel these trends. For example, the percentage of total settlement dollars obtained in direct purchaser cases decreased by almost 10% from the 2009-2019 to 2009-2021 data, while those for indirect purchaser cases increased by over 45%. The possible shift admits of several potential explanations. First, it may reflect an increased preference for, or an increased rate of success under, state versus federal antitrust law. Indirect purchaser actions for damages are permitted under the former and foreclosed by the latter. Second, the increased percentage of indirect purchaser settlements and amounts may reflect increasingly sophisticated data and statistical techniques allowing indirect purchasers to better trace the impact of anticompetitive conduct through the various levels of the market, making previously impractical suits more viable.
A third possibility is more troubling. Plaintiffs may be bringing more indirect purchaser claims—and fewer direct purchaser claims—because of judicial enthusiasm for pre-dispute mandatory arbitration clauses. Such clauses often force direct purchasers—who enter contracts with alleged antitrust violators—to pursue individual arbitration rather than collective litigation. Indirect purchasers, by contrast, often are not in contractual privity with the alleged antitrust violators and so are not subject to such arbitration clauses.
If forced arbitration does explain the shift from direct to indirect actions, that could bode poorly for antitrust enforcement. The 2021 Report shows that almost as many indirect purchaser class actions as direct purchaser class actions settled from 2009-2021—559 and 604, respectively—but the indirect purchaser class actions recovered only slightly more than one quarter as much as the direct purchaser class actions— about $6 billion as compared to about $23 billion.
Based in Washington, D.C., the American Antitrust Institute is an independent, nonprofit organization devoted to promoting competition that protects consumers, businesses, and society. It serves the public through research, education, and advocacy on the benefits of competition and the use of antitrust enforcement as a vital component of national and international competition policy.
The nonpartisan Center for Litigation and Courts (CLC) at the University of California, Hastings College of the Law was established in 2021 to expand the knowledge of civil litigation, alternative dispute resolution, and the courts; to disseminate that knowledge to the bench, bar, legal academy, and public; and to supply resources and guidance to members of the UC Hastings Law community interested in civil litigation.
AAI Paper Calls for Careful Analysis of Apple’s Security Justifications for App Store Restrictions to Avoid False Negatives
AAI has published a commentary on the appropriate antitrust analysis of Apple’s security-related justifications for its App Store restrictions. In Protection or Pretext? Structuring an Appropriate Antitrust Analysis of Apple’s Security Justifications for App Store Restrictions, AAI sets forth the proper allocation of evidentiary burdens and the role of less restrictive alternatives (LRAs) to assist Congress, the Biden Administration, and the federal courts, all of which are currently grappling with Apple’s restrictions and justifications in proposed legislation, investigations, or pending cases.
The commentary begins by explaining the competitive consequences of Apple’s decision to open its otherwise closed ecosystem to third-party app developers, with two key consequences for Apple. First, Apple created market competition that it must meet in order to prevent its own proprietary products and services from being displaced. Second, because Apple imposes numerous restrictions on app sales and distribution, Apple oversees this competition in the course of meeting it. By setting and policing the privacy, security, and other terms on which independent third-party developers may sell and distribute products through the App Store, Apple serves as a quasi-regulator of the app market, and its “regulatory” policies often have important implications for competition.
The commentary then discusses the challenges that arise when private market participants possess regulatory powers in the markets where they actively compete. Drawing a limited analogy to Supreme Court state-action cases involving state governmental delegations of regulatory authority to active market participants, the commentary observes that the Court applies heightened scrutiny when there is a structural risk that a private market participant will conflate the goal of a regulatory policy with the market participant’s own self-interest in earning monopoly profits. The Supreme Court’s analysis suggests policymakers are right to be carefully scrutinizing the security justifications for app store restrictions claimed by both Apple and Alphabet.
The commentary then discusses the nuances of allocating evidentiary burdens and analyzing LRAs in evaluating Apple’s restrictions and justifications under the rule of reason’s three-step burden-shifting approach. At step one, the plaintiff has the initial burden to prove that the challenged restraint has a substantial anticompetitive effect. At step two, if the plaintiff carries its initial burden, the burden then shifts to the defendant to show a procompetitive justification. At step three, if the defendant carries its burden, the burden then shifts back to the plaintiff to show that the procompetitive benefits could be reasonably achieved through less anticompetitive means.
Pretext first enters the equation at step two. Federal courts define a procompetitive justification as “a nonpretextual claim that [the defendant’s] conduct is indeed a form of competition on the merits because it involves, for example, greater efficiency or enhanced consumer appeal.” The commentary explains that the defendant, at step two, must produce evidence of a procompetitive justification that would allow a reasonable factfinder to rule out a pretextual explanation. If the defendant’s evidence of a procompetitive justification admits as easily of a pretextual explanation as not, then the defendant has not made the requisite evidentiary showing and has not carried its burden.
Placing this burden on the defendant makes sense because the evidence of efficiencies is almost always in the defendant’s control, and the defendant is therefore in the best position to come forward with the evidence. Moreover, because the plaintiff will have already established prima facie illegality at step one, the chances of a false positive are greatly diminished. Misallocating the burden by requiring the plaintiff to produce evidence of pretext, rather than requiring the defendant to show evidence that its restrictions are reasonably necessary to achieve a legitimate objective, raises a significant risk of false negatives.
The commentary also considers the role of LRAs at step two of the rule of reason. In the Epic Games v. Apple case, the district court wrongly assumed that LRAs only have relevance at step three, after the burden has shifted back to the plaintiff to counter the defendant’s rebuttal evidence. However, when an obvious LRA is unaccounted for the defendant’s showing at step two, before the plaintiff has had to introduce any rebuttal evidence, it prevents the defendant from carrying its burden of establishing a nonpretextual procompetitive justification. In that case, the burden should not shift back to the plaintiff; the case should end. Failing to consider the potential role of LRAs at step two can similarly manifest in the misallocation of burdens, leading to evidence being misconstrued.
In sum, if Apple’s App Store and other similar iOS restrictions harm competition, Apple should have the burden to establish that its security justifications are nonpretextual. The burden should be to produce evidence, likely to be within Apple’s control, from which a reasonable factfinder would rule out an illicit anticompetitive strategy masquerading as a legitimate, procompetitive regulatory policy. If the evidence suggests a pretextual explanation is as likely as a nonpretextual explanation, including because it fails to account for an obvious LRA before the plaintiff has had to adduce any rebuttal evidence of an LRA at step three of the rule of reason, the restrictions should be condemned.
The commentary was written by AAI Vice President of Legal Advocacy Randy Stutz.
AAI Asks USDA to Weigh in on Agricultural Biotechnology, Says Growers and Consumers Feel the Effects of Harmful Mergers
AAI filed comments today in United States Department of Agriculture Docket No. AMS-AMS-22-0025, a request for information on competition in markets for seeds and other agricultural inputs to support the USDA’s response to President Biden’s July 9, 2021 executive order on competition. AAI’s comments focus primarily on genetic seed traits and transgenic seed (“agricultural biotechnology”), and how consolidation has eroded and transformed competition in agricultural biotechnology markets. AAI’s comments explain how unchecked consolidation over several decades has led to a tight oligopoly of three vertically integrated companies that control the markets for seeds, seed traits, and their associated pesticides, and how the growing role of farming data compounds the competition issues resulting from this market structure.
AAI’s comments break down how a lack of effective competition between the Big 3 in agricultural biotechnology, combined with the rise of genetic seed trait technology, has reduced choice and innovation in seeds and seed traits available to farmers. Consolidation has fostered the elimination of the parallel path innovation and joint ventures that are critical to pathbreaking innovation in complex technology markets. At the same time, as the Big 3 have bought up smaller rivals, they have removed those rivals products from the market and neutered the potential for nascent competitors to grow into true alternatives. AAI also explains how the vertical integration of agricultural biotechnology markets has shifted competition from individual seeds and traits to competition between a limited number of integrated systems, raising barriers to entry and reducing choice.
AAI’s comments urge the USDA to both work proactively with antitrust agencies to carefully scrutinize further horizontal and vertical merger activity, particularly mergers involving nascent competitors, and to develop positive policies that will facilitate competition in these markets. Specifically, AAI proposes that USDA work to define property rights in farming data, develop technological standards and open-source resources for interoperability between seed trait systems, and develop rules to facilitation switching and portability between large systems.
AAI Highlights New Multidisciplinary Analysis of Price Maintenance in the U.S., EU, and China
The article, Modernizing Competition Policy and Law: The Impact of Marketing Developments on the Legal Treatment of Price Maintenance in the United States, the European Union, and China, was published on May 9, 2022 in the Journal of Public Policy & Marketing. The article’s co-authors are Riley T. Krotz (Rawls College of Business, Texas Tech University), Gregory T. Gundlach (Coggin College of Business, University of North Florida and AAI Director and Senior Fellow), and Diana L. Moss (AAI President).
Abstract
Competition policy and law toward price maintenance (e.g., resale price maintenance, unilateral price policies, minimum advertised prices) draws on scholarly perspectives and theory developed over a half century ago. Since that time, changes to marketing practice have caused scholars to question the practical relevance of the perspectives and theory and to call for the modernization of competition policy and law toward price maintenance. Responding to these calls, the authors examine three important developments in contemporary marketing practice and assess their impact on the legal treatment of price maintenance in the three largest economies: the United States, the European Union, and China. Their analysis reveals significant differences in how each jurisdiction is responding to (1) increasing market concentration and accompanying shifts in interfirm power, (2) advances in information technology and the commercial use of the internet, and (3) developments in cross-channel shopping and the rise of omnichannel distribution. Their findings pose implications for future public policy, marketing practice, and academic scholarship and contribute to the modernization of competition policy and law.
