|August 28, 2012|
Schiff Hardin LLP Antitrust and Trade Regulation Alert
FTC, DOJ Antitrust Division to Hold September 10 Workshop on Most Favored Nation Clauses
The Federal Trade Commission and the Antitrust Division of the Department of Justice will hold a workshop on September 10, 2012 to explore the uses of most-favored-nation clauses (MFNs) and the implications for antitrust enforcement and policy. The one-day event will feature several panels of academics, economists, private lawyers and industry representatives, each moderated by FTC or DOJ personnel.
MFNs are used in a wide variety of industries and contractual contexts. In most cases, a seller agrees to sell a product or service to a buyer at a price no higher than the price to any other buyer, now or during the term of the agreement. As a result, the buyer receives some level of assurance that it is receiving the lowest price now and will continue to do so throughout the agreement without the need for re-negotiation or monitoring. The seller also avoids the need for mid-contract re-negotiation while providing compensation to the buyer for something of value to the seller, such as promises of large or long-term purchases or assistance with product development.
Antitrust courts that have reached the competitive merits of MFNs have not found them anti-competitive, whether challenged under Sherman Act Section 1 or 2. The Seventh Circuit in Blue Cross & Blue Shield United v. Marshfield Clinic (65 F.3d 1406, 7th Cir. 1995) described MFNs as "standard devices by which buyers try to bargain for low prices... not price-fixing." The First Circuit described MFNs similarly in Ocean State Physicians Health Plan v. Blue Cross & Blue Shield (883 F.2d 1101, 1st Cir. 1989). Still, enforcers have obtained consent decrees against parties utilizing MFNs under a theory that they encourage coordinated pricing among competing buyers from the same seller or discourage discounting to other customers when the buyer is a large buyer. For example, the DOJ accepted a consent decree prohibiting enforcement of an MFN when the buyer was a health plan that had agreements with 85% of all dentists in Arizona (United States v. Delta Dental Plan, 1995 U.S. Dist. Lexis 9752 (D. Ariz 1995)).
Two recent DOJ actions have raised MFNs' antitrust profile. First, in 2010, DOJ and the State of Michigan sued Blue Cross Blue Shield of Michigan to prevent enforcement of MFN clauses in its agreements with more than half of the general acute care hospitals in Michigan. BCBSM insures more than nine times as many lives as its next largest competitor. The complaint has survived a motion to dismiss. Second, in 2012, DOJ accused Apple Inc. and five book publishers of conspiring regarding the pricing of e-books, including through use of an MFN clause that guaranteed that a book's price on Apple's iBookstore was no more than the price at Amazon.com. DOJ's proposed final judgment with three of the publishers forbids them from entering into an MFN with any e-book retailer.
The panels will explore economic theories and empirical evidence on the effects of MFNs; their legal treatment; and, perhaps most importantly, their use in the real world. The results of the workshop will help inform future treatment of MFNs by the agencies.
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