Antitrust Roundup: Revolver Strikes Back, March-In Rights & Other News
While former FTC commissioner Noah Phillips defends private equity from antitrust lawsuits, the media attacks current Chair Lina Khan for … doing her job.
Top FTC Revolver Attacks His Former Employer’s Regulatory Authority
Last year, FTC commissioner Noah Phillips left the agency to join Cravath Swaine & Moore, the BigLaw firm that counts tech giants Amazon, Google, and Facebook among its corporate clients. This, of course, creates a massive conflict of interest, as these corporations often face regulatory scrutiny from the FTC and DOJ for their anti-competitive practices, and Phillips’ insider knowledge as a former commissioner gives them a leg up in efforts to avoid accountability.
With just a couple weeks left before the new year, Phillips, our 2022 Revolver of the Year, made his bid to be a repeat winner of our most prestigious award. In his latest hit job for corporate America, Phillips filed an amicus brief in support of the private equity firm Welsh Carson against his former employer. The FTC is suing U.S Anesthesia Partners (USAP), along with Welsh Carson and a slew of other private equity firms, alleging an anticompetitive scheme to consolidate the anesthesia services.
According to the FTC complaint, USAP was created by Welsh Carson with the explicit purpose of “consolidat[ing] practices with high market share” in prime markets. In this case, USAP targeted practices in Texas, as it deemed the market to be “fragmented” among small practitioners. Fragmented (read: competitive) markets benefit both patients and businesses as it allows insurers to negotiate lower prices. To private equity firms, however, this is seen as inefficient, representing an opportunity to “roll-up” the industry and squeeze profits from patients that require anesthesia. Roll-ups are a common tactic in the private equity playbook. They involve buying up competing companies in a market and merging them into one conglomerate, giving the private equity firm dominant influence over a specific marketplace, thus enabling profit extraction from consumers. These schemes can plague any and all markets, from anesthesia practices to sandwich shops (see our thread on the attempted roll-up of Big Sammie that the FTC is currently investigating.)
Phillips isn’t ignorant to the detrimental effects of roll-ups, he’s just paid handsomely to say otherwise. As FTC commissioner, Phillips joined in a unanimous decision to block the consolidation of veterinary clinics by private equity firm JAB Consumer Partners. The order forced JAB to divest from five clinics and seek prior approval from the Commission on future acquisitions near locations of clinics they already own.
Now that he is bought off by private equity, however, Phillips’ amicus brief expresses a view that is incompatible with his vote. His brief claims that private equity “greatly benefits the American economy” and efforts to regulate this consolidation will harm competition. He even goes so far as to cite the JAB case as an instance in which the FTC pursued “unprecedented legal theories,” calling the prior approval requirement an “unusual remedy” despite having signed onto the order himself. His own voting record proves that Phillips understands how roll-ups, and private equity more broadly, can harm the economy. Perhaps Phillips is confusing his own economic well being with that of the American public.
Phillips' brazen hypocrisy doesn’t stop there. He is also defending Tesla in a lawsuit brought by customers who allege that the company holds a monopoly over replacement parts and maintenance services, resulting in price gouging. This issue at hand is the “right-to-repair,” meaning the ability of product owners to either acquire the parts to fix a car yourself or seek out a third-party technician to provide maintenance, rather than being forced to go to an affiliate of the manufacturer. At the FTC, Phillips was again part of a unanimous decision that forced grill maker Weber-Stephens and power equipment company MWE Investments to recognize a consumer’s right to repair. It seems there is no opinion that Phillips holds strongly enough that he won’t flip-flop at the behest of corporate interests.
A Quick Update On March-In Rights
In further disappointing news, the Biden administration announced that it will not, at this time, be exercising “march-in” rights—the government’s ability to give patent rights for prescription drugs that it helped develop to third parties—to address exploitation in the pharmaceutical industry. Earlier this year our Ananya Kalahasti wrote in The American Prospect about the administration's refusal to use march-in rights to reduce the cost of Xtandi, a prostate cancer drug. Xtandi costs nearly $130 per unit in the US, compared to as low as $20 in other countries. Rather than making a determination about whether to march-in on Xtandi and other prescription drugs, the administration has been deliberating for two years as to whether it has the authority to march-in to lower the cost of prescription drugs altogether. They’ve finally confirmed what we already knew—the answer is yes—but the announced timeline for the administration to potentially act on this authority could extend into the next presidential term, endangering a process that should have already been wrapping up.
Announcing that the executive branch has the authority to reduce the cost of drugs like Xtandi is a positive step, but Biden needs to act quickly. While patients wait for action, they continue to pay exorbitant prices for life saving drugs. It’s disheartening that Biden chooses to kick the can on concrete action despite acknowledging that he could act now. On Thursday, the Commerce Department will issue its framework explaining when the federal government should exercise its march in rights. There will be a 60-day comment period in which the public, and pharmaceutical companies, can weigh in. We encourage our readers to use that comment period to urge the administration to utilize this ability to protect patients from price gouging corporations.
Other Antitrust News
The Biden Administration promised a whole of government approach to antitrust policy, and it appears the US Department of Agriculture received the message, as they are currently seeking to hire a Chief Competition Officer. Hiring a strong candidate for this position will be vital for the Biden Administration to continue its focus on antitrust enforcement as a vehicle to create a more equitable economic playing field. Biden’s executive order on competition specifically identified the agricultural industry as an area where consolidation has harmed the economy, giving the new hire solid ground to work on. A recent USDA report detailed how small farmers have suffered under increased concentration, where sellers can increase the cost of agricultural products and diminish the ability of farmers to sustain profitability. The Biden Administration needs to seize this opportunity to hire an aggressive regulator that will crack down on the pernicious corporate interests that plague small farmers, highlighting the contrast between an administration that fights for small businesses and one that protects monopolistic conglomerates.
These are fights that need to be picked, but corporate interests always strike back. FTC Chair Lina Khan is a prime example. As an appointee willing to take on the biggest corporations, namely Amazon and Meta, Khan has faced unrelenting backlash from the media, Republican representatives, and even Republican FTC colleagues. The latest attack comes from New York Magazine, where her critics are given space to undermine Khan, arguing that the unsuccessful cases brought by the FTC represent a failure of leadership. These critiques ignore the successes of the FTC under Khan, not to mention the intangible cooling effect that Khan’s willingness to pick fights has on mergers.
Don’t take our word on it–take the complaints of Wall Street seriously!
The volume of M&A activity has fallen sharply over the last year and dealmakers say the effect of President Joe Biden’s antitrust crackdown has also been felt in ways that won’t show up in the data. It’s not just the deals they attempt to stop — it’s the deals that never get proposed to a corporate board, for fear of having to subject their transactions to combative regulators.
“It’s been a sea change in the regulatory environment over the past two and a half years since the Biden Administration took office,” Roger Altman, the senior chair of investment bank Evercore, and a former Deputy Treasury Secretary under President Bill Clinton, said last month on CNBC. Antitrust officials have already stymied “a series of business combinations which would have gone ahead in a different environment.”
Regardless, the administration should not be deterred. The American people understand that mega corporations do not have their best interests at heart. We need appointees that opt to fight for the public and lose once in a while, rather than back down and allow capital interests to run roughshod over the economy.
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