Enforcement agencies and courts in the United States and Europe have long dealt with high-profile antitrust cases in the pharmaceutical sector. However, until recently, major antitrust or merger cases in the medical device sector were relatively few and far between. This has changed significantly in the past few years, with agencies on both sides of the Atlantic, and across Asia, considering several high-profile medical device mergers. Indeed, the sector looks set to be a focus of enforcement and litigation activity throughout 2015 and beyond. In this short update, we identify ten key antitrust-related developments, or areas of focus, for medical device companies to look out for in the United States, the European Union and China in 2015.
1. Close review of medical device mergers. The FTC has been stepping up its review of mergers in this space, focusing in particular on implants and orthopedic products. Antitrust observers are watching closely to see how the agency defines relevant product markets—often the determining issue in a merger review. With the intense focus on healthcare costs generally, there is unlikely to be any letup in the scrutiny of mergers in the medical device sector.
2. The interface of intellectual property rights and antitrust law. Intellectual property continues to play a major role in antitrust litigation, enforcement and policy. High-tech firms in other sectors have long fought over the question of when the assertion of intellectual property rights constitutes a misuse of those rights subject to the antitrust laws. Patents play an important role in the medical device sector and the interface of intellectual property rights and antitrust law will likely be a major focus in this area for years to come. As with the review of mergers, expect healthcare costs to be considered as part of the enforcement equation.
3. Exclusive dealing and monopolization. The law on monopolization and exclusive dealing continues to evolve. Indeed, it remains one of the most contentious and unresolved areas of antitrust law. The appellate courts are split on some of the basic questions of what standards to apply to a firm’s dealings with downstream partners and under what circumstances it is illegal to induce loyalty from customers. Some of the largest pieces of litigation in this area have involved medical devices. The Supreme Court is long overdue to intervene; if or when it eventually agrees to do so, such intervention may well be in the context of medical devices given the amount of ongoing litigation.
4. New Commissioner for Competition Margrethe Vestager to make her priorities clear. Commissioner Vestager’s first few months in office since November 2014 have largely been taken up by prior cases and crisis management. In the course of 2015, expect her to set her own agenda, to identify priority areas for enforcement, and to make her style and approach clearer. It is impossible to know where the next enforcement priority might be, but given her focus on consumers and the ongoing squeeze on healthcare spending in most EU Member States, industries that supply to healthcare providers may find themselves towards the top of the list of potential targets.
5. Detailed European Commission reviews of medical device mergers. In addition to the U.S. agencies’ focus on medical device mergers, the European Commission’s reviews of recent (and ongoing) transactions have been among the most lengthy and complex reviews in recent years. There is every reason to expect the Commission to continue to look in great detail at strategic transactions in the medical device sector, so parties considering transactions will need to consider – at a very early stage – how any review might pan out. Parties contemplating strategic transactions will also likely be contemplating whether they might need to divest any business lines in order to secure expeditious approval from the Commission. For third parties active in the medical device sector but not party to the main transaction, such divestments often present significant opportunities to acquire business lines at discounted prices. There is also a potential opportunity for competitors to secure commitments from merging parties on open access and interoperability for medical devices.
6. The interface of new technology and antitrust law. As in the U.S., a lot of enforcement activity in Europe focuses on the assertion of intellectual property rights and on technology foreclosure issues. An interesting developing area is applications ('apps') that turn smartphones into medical devices. Pending investigations by the European Commission that include allegations of app foreclosure or app store dominance may also be relevant to medical device apps.
7. Member States will start implementing private antitrust damages directive. 2015 will see several Member States begin to take steps towards implementing into national law the requirements set out in the EU’s controversial 2014 directive on private antitrust damages. The directive is set to transform the antitrust litigation landscape in the EU. Medical device companies will want to make sure that they are properly prepared both to guard against claims from third parties and to bring claims against suppliers where appropriate.
8. Greater clarity on critical distinction between restrictions of competition “by object” and restrictions “by effect”. 2013 and 2014 saw a number of controversial and conflicting approaches being taken both at European Commission and European Court of Justice level in relation to the critical distinction between restrictions of competition “by effect” (where the agency or claimant must prove the anti-competitive effects of the conduct in question) and restrictions of competition “by object” (where, crucially, anti-competitive effects can be presumed). With the scope of “by object” restrictions being critical to ongoing cases before both the Commission and the EU Courts, medical device companies will be well-served to make sure they are up to date throughout 2015 on the very latest in this key battleground in EU competition law.
9. Shift in focus for antitrust enforcement. Each year, the Chinese Government tends to select a small number of industries on which to focus its antitrust enforcement efforts. In 2014, the Chinese Government focused much of its enforcement efforts on the pharmaceutical industry and initiated investigations into most major multinational pharmaceutical companies. These investigations have not resulted in the imposition of any penalties and it is widely suspected that in 2015, the Chinese Government will shift its focus to another sector (or other sectors). The medical device sector may well be towards the top of the list of potential targets.
10. China’s healthcare reforms may affect antitrust enforcement. In China, antitrust policies are often intertwined with other government policies. Ongoing and pipeline reforms to China’s healthcare sector may affect antitrust enforcement in the medical device sector in at least two ways. First, the Chinese Government has announced that it will significantly relax regulation of the pricing of drugs and medical devices. This means the authorities will be more likely to use antitrust enforcement powers to regulate the prices of drugs and medical devices, which are widely depicted in the media and by the Government as being “inflated” or “excessively high”. Second, with the Chinese Government’s top priority for its healthcare reforms being to expand coverage and increase affordability, there will be even greater pressure on the authorities to use antitrust enforcement to bring about reductions in the prices of products supplied to healthcare providers.