• On March 4, the Federal Trade Commission filed a motion in U.S. District Court for the District of Columbia, pursuant to Section 7A(g)(2) of the Clayton Act, 15 U.S.C. § 18a(g)(2), to require Blockbuster, Inc. to comply with the statutory rules of the Hart-Scott-Rodino Act (“HSR”).

  In its motion, the FTC asked the court to act before March 11, 2005, the date on which Blockbuster contends that it is free to consummate its acquisition of Hollywood Entertainment Corporation. The Commission’s filing states that Blockbuster has not yet substantially complied with the Second Request because it provided insufficient and inaccurate pricing data. The HSR Act prohibits Blockbuster from proceeding with the acquisition until 30 days from the date it has substantially complied with the Second Request.

  The Commission is not asking the court to rule on whether the transaction would violate the antitrust laws. The Commission vote authorizing the staff to file the motion was 5-0.

• Under a consent order announced on March 2 by the FTC, Preferred Health Services, Inc. (“Preferred Health”), a physician-hospital organization consisting of more than 100 doctors and the Oconee Memorial Hospital in northwestern South Carolina, has been barred from collectively negotiating and fixing the prices it charges payors on behalf of its doctor members.

  According to the FTC, Preferred Health acts as a “contracting representative” for its member doctors, developing pricing contracts that it then presents to health plans and other payors. Because the organization’s doctors make up approximately 70 percent of the independently practicing physicians in and around Seneca, South Carolina, health plans must have access to many of its members to provide services for consumers. Accordingly, the FTC contends, the plans are forced to pay higher, collectively negotiated prices for health care services.

  The Commission’s consent order remedies the illegal conduct alleged in the complaint by prohibiting Preferred Health from entering into or facilitating any agreement between or among any physicians: 1) to negotiate with payors on any physician’s behalf; 2) to deal, or not to deal, or threaten not to deal with payors; 3) to designate the terms on which to deal with any payor; or 4) to refuse to deal individually with any payor, or to deal with any payor only through an arrangement involving Preferred Health. To reinforce these provisions, the order also bars Preferred Health from helping physicians exchange information regarding whether, or on which terms, to deal with a payor, and contains “fencing-in” relief that will be imposed for three years. This fencing-in relief prohibits Preferred Health from: 1) acting as an agent for any physicians in connection with health plan contracting; or 2) using an agent with respect to contracting.

• On March 1, the FTC announced it has allowed Cytec Industries, Inc.’s (“Cytec”) proposed $1.8 billion acquisition of the Surface Specialties Business of Belgium’s UCB S.A., provided Cytec divests UCB’s Amino Resins Business to a Commission-approved buyer within six months. According to the FTC’s complaint in this matter, for many years Cytec and UCB have been direct and substantial competitors in the market for amino resins, and absent the relief the consent order ensures, this competition would be lost and not easily replaced. The result, the FTC contends, would be higher prices for consumers in the markets for amino resins for industrial liquid coatings and adhesion promotion in rubber.

  Both Cytec and UCB manufacture and sell amino resins used for industrial liquid coatings and rubber adhesion promotion. The resins the companies make are used as cross-linking agents in thermoset surface coatings for a range of applications, including automotive coatings, coil coatings, can coatings, appliance coatings, and general maintenance coatings. Amino resins also are used, primarily in tires, to promote the adhesion of rubber to materials such as steel or fiber.

  According to the FTC’s complaint, the proposed acquisition would violate Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended, in the relevant markets for amino resins for industrial liquid coatings and adhesion promotion in rubber. The complaint states that for many years Cytec and UCB have been the two major competitors in these markets, competing with each other across a wide range of amino resin grades and applications. In addition, the markets for these products already are highly concentrated, and would become more so without the relief provided by the order.

• On February 28, FTC Chairman Deborah Platt Majoras announced that William Blumenthal will join the agency as General Counsel. Blumenthal, currently a partner in the antitrust and trade regulation practice at King & Spalding LLP, will replace John D. Graubert, who has served as Acting General Counsel since January.

• On February 23, the Commission, by a vote of 5-0, authorized publication of a notice of final rulemaking effecting amendments to the Hart-Scott-Rodino Rules (“HSR”) (16 C.F.R. Parts 801 – 803). This rulemaking finalizes the proposed rules published April 8, 2004, and responds to public comments addressing those proposed rules. The amendments reconcile, as far as practicable, treatment of unincorporated entities with treatment of corporate entities under the HSR rules. In particular, the amendments address acquisitions of interests in unincorporated entities; formations of unincorporated entities; and the application of certain exemptions, including the intraperson exemption. There are also minor ministerial changes to certain rules to adapt their application to both corporations and unincorporated entities.

• On February 18, the Commission approved the filing of an amicus brief jointly with the U.S. Department of Justice in the matter concerning Empagran, S.A. v. Hoffmann-LaRoche, Ltd., No. 01-7115 (D.C. Cir.). This brief has been filed in response to an order issued by the D.C. Circuit, which calls for the parties to address an issue not addressed by the Supreme Court’s decision in this case. The Commission vote approving the filing of the amicus brief was 4-0-1, with Chairman Deborah Platt Majoras recused.

• On February 17, Federal Trade Commission Chairman Deborah Platt Majoras announced two major staff changes within the FTC’s Bureau of Competition. First, Jeffrey Schmidt, formerly a partner of the Washington office of Pillsbury Winthrop LLP, will bring his antitrust expertise to the Commission as Deputy Director of the Bureau of Competition. Second, Jeffrey Brennan, most recently Assistant Director in charge of the Health Care Services and Products Division, has been promoted to Associate Director.

• On February 15, the FTC released a study on the strength of competition in the sale of prescription contact lenses. Congress required the study under the Fairness to Contact Lens Consumers Act (“FCLCA”), which was enacted to promote competition in the contact lens market by enhancing consumers’ ability to buy contact lenses from sellers other than their eye care practitioners (“ECP”s).

  The FTC’s study examines a variety of issues, including: 1) various types of manufacturer-seller relationships and their impact on competition; 2) the prices charged by contact lens sellers in different retail channels; 3) the effect of state regulations on competition in the sale of contact lenses; and 4) the impact of the FTC’s Eyeglass Rule on competition.

  The FTC’s study finds that consumers have the ability to choose between several retail options, other than their prescribing ECP, when purchasing contact lenses, due in part to the standardization of disposable soft contact lenses, along with the FCLCA-required prescription portability. The study concludes that independent ECPs account for the majority of sales, followed by national optical chains and mass merchandisers. The FTC’s study also examines several other issues that may affect competition in the contact lens market. According to the study, state licensing requirements that restrict consumers’ ability to buy contact lenses from out-of-state sellers or non-ECP sellers may limit competition and harm public health. The FTC’s study also notes that state restrictions on truthful advertising are likely to inhibit competition and limit consumers’ ability to make informed choices about their contact lens purchases. The FTC’s study additionally concludes that, by making it easier for consumers to comparison shop, the FTC’s Eyeglass Rule has had a positive impact on competition in the eyeglass market, which has lowered prices and increased consumer choice.

• On February 14, the FTC conditionally approved the $5.8 billion acquisition of RMC Group PLC (“RMC”) by Cemex, S.A. de C.V. (“Cemex”), subject to a proposed consent order that preserves competition in the highly concentrated ready-mix concrete market in metropolitan Tucson, Arizona. Under the proposed consent order, Cemex is required to divest RMC’s ready-mix concrete assets in the Tucson area to a Commission-approved buyer within six months of signing the consent order. If Cemex does not divest these assets, the FTC may appoint a monitor to oversee the sale. According to the FTC’s complaint, the proposed acquisition would violate Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended, by substantially lessening competition in the metropolitan Tucson, Arizona market for the manufacture and sale of ready-mix concrete. There are no close substitutes for ready-mix cement in its principle uses, which include the construction of building foundations.

  The complaint states that there are only three ready-mix concrete manufacturers in the highly concentrated metropolitan Tucson market. If the acquisition were allowed to proceed as proposed, the FTC contends, the market would become even more concentrated, with only two independent suppliers of ready-mix concrete remaining. As a result, the agreement likely would facilitate coordinated anticompetitive conduct between Cemex and its remaining competitor. Accordingly, the FTC contends that the acquisition, as originally proposed, would increase the likelihood that ready-mix concrete buyers in Tucson would be forced to pay higher prices and receive diminished service. In addition, the FTC believes that entry into the metropolitan Tucson ready-mix concrete market on a level sufficient to deter the likely anticompetitive effects of the proposed transaction is unlikely to occur in a timely manner. Among other reasons, entry into the ready-mix concrete market is difficult due to the limited availability of the raw materials that would be required to sustain new concrete operations at a sufficient scale to attract most customers. No new entry into the Tucson ready-mix concrete market has occurred in more than 10 years.

• On February 11, the Commission authorized the staff to file a brief as amicus curiae in Teva Pharmaceuticals USA, Inc. v. Pfizer, Inc., Case No. 04-1186 (Fed. Cir.) in support of Teva’s petition for rehearing or rehearing en banc. The case, which was recently ruled upon by a panel of the U.S. Court of Appeals for the Federal Circuit, involves the Hatch-Waxman Act. In an effort to market its generic version of Pfizer’s blockbuster drug Zoloft, Teva sued Pfizer challenging a patent on that drug. The district court dismissed Teva’s complaint for a declaratory judgment against Pfizer, and the Court of Appeals panel affirmed the ruling of the district court.

  Last year, the Commission filed an amicus brief in support of Teva’s appeal. The Commission’s brief, in support of Teva’s rehearing petition, states that the panel majority’s decision conflicts with two prior decisions of the Federal Circuit and one decision of the U.S. Supreme Court. The Commission vote authorizing the staff to file the amicus brief was 4-0-1, with Commissioner Pamela Jones Harbour recused. See lead article in March 2005 Edition of Antitrust Law Blog.

• On February 3, the FTC’s Bureau of Economics released an Economic Issues paper entitled, “Transparency at the Federal Trade Commission: The Horizontal Merger Review Process, 1996-2003.” The paper, which is available now as a link to this press release on the Commission’s Web site, supplements the FTC’s 2004 release of its horizontal merger investigations data and presents an econometric analysis of the agency’s merger review process between 1996 and 2003, using data from 151 transactions evaluated during that time.

  According to the paper, the Commission’s enforcement policy has been stable during the eight years studied. Using learning from concentration-based models, as well as models incorporating additional factors when data are available, the paper adds to the insights from the FTC’s 2004 data release. Further detail is provided for the review of the agency’s data-collection processes, including a presentation of summary statistics for the merger transparency data. The estimates produced by the models suggest that, in addition to the market structure variables, verified consumer complaints, market entry considerations, and in some cases, “hot” documents (documents associated with the merging parties that imply the merger is likely to be anticompetitive) affect the Commission’s enforcement decisions.

Authored by: Robert W. Doyle, Jr. 202-218-0030 rdoyle@sheppardmullin.com