Articles Posted in Coronavirus and Antitrust

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Author: Jarod Bona

The Coronavirus crisis has created an unusual situation for the world, but also for antitrust and competition law. People around the globe are trying to cooperate to solve and move past the crisis, but cooperation among competitors is a touchy subject under antitrust and competition laws.

Of course, cooperation between or among competitors isn’t unheard of, even during non-crisis times. Joint ventures are prevalent and often celebrated, companies will often license their technology to each other, and the existence of certain professional sport leagues, for example, depend entirely upon cooperation among competing and separately owned teams. Indeed, the Department of Justice Antitrust Division and FTC have published guidance (in 2000) on collaborations among competitors.

Human beings everywhere are working together to defeat the Coronavirus and that will require cooperation, sometimes even among and between competitors. It is unlikely that antitrust and competition law will get in the way of that. Indeed, the Antitrust Division of the Department of Justice issued a Business Review Letter confirming that certain competitors can cooperate “to expedite and increase manufacturing, sourcing, and distribution of personal-protective equipment (PPE) and coronavirus-treatment-related medication.”

At the same time, the foundations of antitrust and competition law—the “faith in the value of competition,” as articulated by the US Supreme Court in National Society of Professional Engineers—is the motor that will accelerate us toward solutions.

Private enterprise and the incentives inherent within it have created the foundations and the machinery to “science” our way out of this crisis. Over-coordination through a central planner will detract from that because we would lose the feature of massive a/b testing, or really a/b/c/d/e/etc. testing, that comes from a bottom-up, decentralized approach to creating and distributing resources.

So—at least in my opinion—antitrust and competition law should maintain their role in supporting competition during this crisis (and the FTC agrees with me). But—as is already true of antitrust and competition law—when there is a strong pro-competitive reason for cooperation among competitors, the courts and antitrust agencies can adjust to let that conduct go forward (and they have here).

And once we are past this crisis, I suspect that antitrust and competition law will become an even more popular area of discussion because of the likely greater concentration of markets resulting from government intervention.

In the meantime, here are some articles that our antitrust team has written about antitrust, competition, and the Coronovirus Crisis:

 

 

 

 

Also, Steven Cernak is heavily quoted in this article from MiBiz: Coronavirus price gouging spurs efforts to rein in ‘bad actor’ resellers.

Finally, we recommend that read the blog series from our friends at Truth on the Market entitled “The Law, Economics, and Policy of the Covid-19 Pandemic.” Lots of outstanding work by very smart people.

The other part of this, of course, is the economy. With stay-at-home orders throughout the country, there is a lot less commerce happening.

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Author: Steven Cernak

On March 24, 2020, the FTC and DOJ Antitrust Division issued a joint statement regarding their approach to coordination among competitors during the current health crisis. The agencies announced a streamlining of the usual lengthy Advisory Opinion or Business Review Letter processes for potentially problematic joint efforts of competitors. The statement also confirmed that the antitrust laws had not been suspended and, for instance, price fixing would still be prosecuted.

More importantly, however, the agencies reminded businesses that many kinds of joint ventures of competitors have long been allowed, even encouraged, under the antitrust laws. That message might have been lost in the blizzard of reports and client alerts focusing on the changes to the processes to judge only the riskiest joint efforts. Especially in economic crises, businesses should consider if certain joint ventures with others in their industry, including competitors, might be good for both the businesses and their customers. As explained below, the U.S. auto industry has been using such joint ventures for decades.

Joint Ventures

The term “joint venture” can cover any collaborative activity where separate firms pool resources to advance some common objective.  When that joint activity among competitors is likely to lead to faster introduction of a new product, lower costs, or some other benefits to be passed on to customers, antitrust law will balance those benefits with any loss of competition.  Two specific types of joint ventures—research & development and production—have received particular antitrust encouragement. Below, lessons from both types are explored using examples from the auto industry.

Research & Development Joint Ventures

The FTC and DOJ have described joint R&D as “efficiency-enhancing integration of economic activity” and, generally, pro-competitive. Getting scientists and engineers from competing firms to share data, test results, and best practices on basic areas that each company can then build on to create or improve competitive products can save money and reduce time to market.

GM, Ford and then-Chrysler started doing joint R&D on battery technology and other basic building blocks of motor vehicles in 1990. In 1992, all these efforts were put under the umbrella of the United States Council for Automotive Research or USCAR.  Through USCAR and other joint efforts, these fierce competitors cooperate on technologies like advanced powertrains, manufacturing and materials, and various types of energy storage and then compete on their applications in their vehicles.

Similarly, GM and Ford shared design responsibilities for advanced 9- and 10-speed transmissions. After the cooperating on design, each company then manufactured the transmissions and competed on the vehicles that used them.

Production Joint Ventures

In 1983, GM and Toyota formed a production-only joint venture, NUMMI, to produce vehicles for each parent that were then marketed separately. In 1984, the FTC barely approved the joint venture and insisted on an Order imposing reporting requirements and limits on communication.  By 1993, the FTC had grown comfortable with NUMMI’s operation and so unanimously voted to vacate the Order as no longer necessary given changed conditions.

NUMMI’s success in navigating through antitrust concerns led to other production joint ventures in the industry including a Ford-Mazda one for vehicles, a Chrysler-Mitsubishi-Hyundai joint venture on engines, and a GM-Chrysler joint venture on manual transmissions. None of them were as controversial or received the same level of antitrust scrutiny as NUMMI.

The National Cooperative Research and Production Act

At about that same time as NUMMI’s formation, Congress was clarifying the antitrust laws to ensure that certain cooperative efforts that could benefit consumers were not inappropriately stifled by the antitrust laws. In 1984, the National Cooperative Research Act confirmed that most R&D joint ventures would be judged under the rule of reason. To further encourage such pro-competitive cooperation, the law also allowed the parties to file a very short notice describing the joint venture with the FTC and DOJ. Once such a notice is published in the Federal Register, any antitrust liability for the joint venture and its parents is limited to actual, not treble, damages and attorney fees. In 1993, the law was expanded to cover certain joint production ventures and standard development organizations and retitled the National Cooperative Research and Production Act or NCRPA.

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Authors: Aaron Gott and Jarod Bona

The United States is in lockdown to “flatten the curve” of COVID-19 cases because our hospital system has even less capacity to handle a surge of cases than Italy—where overload has led physicians to have to make tough decisions about which patients deserve treatment priority. New York, the U.S. epicenter of the coronavirus, is expected to reach capacity in a matter of days and some hospitals have already exceeded their intensive-care capacity.

Hundreds of thousands of people may die directly as a result of inadequate hospital capacity in the United States, which is at its lowest in decades. In fact, the U.S. had nearly 8 hospital beds per 1,000 people in 1970, a number that has steadily declined to 2.9 per 1000 people today. Our elected officials have issued orders and recommendations that have our economy screeching to a halt, while Congress is considering unprecedented economic relief measures in the trillions of dollars to soften the fallout.

What put us in this position? There are many reasons. But one major culprit that is at least partially to blame for our current predicament has been nearly 50 years in the making: state certificate of public need laws (often called CON laws) that artificially limit the supply of hospital beds and medical equipment.

In 1974, Congress passed the National Health Planning Resources Development Act, which encouraged states to enact certificate-of-need laws for medical capital investment. Nearly every state enacted them. State bureaucrats, rather than the free market, would thereafter determine whether we “need” more ICU capacity, more testing labs, and more equipment like ventilators. The idea behind CON laws, proven wrong long before COVID-19, is that allowing states to control supply would reduce runaway healthcare costs and improve access to care.

Here is how a CON law generally works: it is illegal (often with criminal consequences) to build any kind of medical facility or make a capital medical equipment purchase without first obtaining a certificate allowing you to do so from the state health agency. It can cost millions of dollars and take several years to get one, if you can get one at all. In some states, your competitors have a right to object to the issuance of the certificate. In the worst states, monopolist and oligopolist hospital systems prevent competition because they have such a stranglehold on state bureaucrats and processes that most would-be competitors don’t even bother trying to get a certificate of need.

New York, by the way, is one of those states that still has a draconian certificate of need law on its books. New York requires a certificate of need for the “establishment, construction, renovation and major medical equipment acquisitions of health care facilities.” Any project that would add new hospital and/or ICU beds would require a certificate of need, and it is likely that adding new ICU-grade ventilators would also require a certificate of need because they individually cost tens of thousands of dollars.

New York has just 3,200 ICU beds but expects it will need between 18,600 and 37,200 to handle the expected wave of hospitalizations.

As antitrust and competition lawyers, certificate of need laws long have been on our minds. They are terrible, immoral policies even in the best of times.

We’re not alone in this thinking: even Congress quickly saw the error of its ways. In 1984, recognizing that the program was a failure, Congress repealed the provisions that encouraged certificate of need laws. Some states repealed their CON laws in the years since, but 35 states still have them on the books, largely because monopolist and oligopolist healthcare systems don’t like competition, and they have lobbying strangleholds over many state legislatures.

For years, the U.S. Department of Justice Antitrust Division and the Federal Trade Commission have jointly pleaded for states to repeal their anticompetitive certificate of need laws (and criticism of CONs features prominently in their comprehensive guide on improving competition in healthcare). Yet states still have them, and courts have often refused to strike them down under the U.S. Constitution despite their disastrous effect on interstate commerce.

One example is Colon Health Centers v. Hazel, a case by our friends at the Institute of Justice challenging the constitutionality of Virginia’s parochial certificate-of-need law under the dormant Commerce Clause. The plaintiffs in that case sought to open state-of-the-art clinics with MRI machines and CT scanners that would improve and cheapen certain types of cancer screenings, but they could not do so without first risking millions of dollars in a certificate of need process that was likely to be contested by existing providers, eventually resulting in denial.

We filed an amicus brief on behalf of law and economics scholars in that case to argue that states’ claims of cost-controlling benefits of CON laws are unsupported by empirical evidence. Nevertheless, the Fourth Circuit upheld the law on summary judgment, finding that the putative benefits of the law were not speculative (even in the face of evidence showing no such benefit), and that those benefits outweighed the effect the law has on interstate commerce.

That case may have been decidedly differently if it were heard today.

Now, in the face of an unprecedented pandemic and an economy that has come screeching to a halt as a result of shelter-in-place orders and social distancing recommendations—put in place primarily to “flatten the curve” and avoid the overload our inadequately supply of healthcare facilities—these laws have proven not just ineffective, but completely unconscionable.

More importantly, CON laws could now prevent us from quickly building up temporary medical infrastructure to deal with the surge of cases. We cannot rely on government alone to rise to the occasion with military resources; CON laws must get out of the way so that private enterprise can help fill in the gaps.

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Author: Steven Cernak

Like many crisis situations, the Coronavirus Pandemic has created concerns and even outcry about price gouging for certain products.

If your company manufactures one of these products and your dealers and retailers have suddenly jacked up prices for them, what can you do?

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