On December 23, 2008, the Federal Trade Commission (FTC) announced a consent order settling charges that Inverness Medical Innovations, Inc. (Inverness) unlawfully maintained monopoly power in the consumer pregnancy test market when it acquired certain assets of rival ACON Laboratories, Inc., (ACON) in 2006. The consent order prevents Inverness from interfering with ACON’s digital consumer pregnancy test joint venture with Church & Dwight CO., Inc., (Church & Dwight) and requires Inverness to divest the water-soluble dye consumer pregnancy test assets that it acquired from ACON.
According to the FTC’s complaint, Massachusetts-based Inverness is the market leader in the research, development, manufacture, and sale of both analog and digital consumer pregnancy tests. Inverness maintains a 70 percent share of the U.S. consumer pregnancy test market and, at the time of the ACON acquisition, was one of only three independent firms in the digital consumer pregnancy test market. The company manufactures and sells consumer pregnancy tests under several brand names, including Clearblue, Accu-Clear, and FactPlus. ACON competed with Inverness in the consumer pregnancy test market. Before the acquisition, ACON was developing digital consumer pregnancy tests in a joint venture with Church & Dwight, Inverness’ largest competitor. ACON also had developed a new analog consumer pregnancy test using water-soluble dye technology.
In 2006, Inverness acquired several assets from ACON, including those related to its water-soluble dye technology and its digital pregnancy test joint venture with Church & Dwight. According to the FTC’s complaint, the acquisition enabled Inverness to maintain its monopoly power in the consumer pregnancy test market in violation of Section 5 of the FTC Act. With respect to digital pregnancy tests, the acquisition gave Inverness rights to ACON’s profits and intellectual property from its joint venture with Church & Dwight and imposed a covenant not to compete on ACON. With respect to water-soluble dye consumer pregnancy tests, Inverness simply ceased developing and marketing the test after the acquisition of the related assets. The complaint alleges that the acquisition therefore eliminated potential competition in each of these areas.
The consent order requires Inverness to divest ACON’s water-soluble dye assets to Aemoh Products, LLC, and prohibits Inverness from bringing infringement claims against other third-party manufacturers of consumer pregnancy tests that use its water-soluble dye technology. The consent order also prevents Inverness from interfering with ACON and Church & Dwight’s digital consumer pregnancy test joint venture by requiring Inverness to disclaim its rights to any intellectual property developed during the joint venture and by prohibiting Inverness from blocking ACON’s efforts to provide Church & Dwight with digital consumer pregnancy tests or test technology during the joint venture.
The FTC action illustrates several important points. First, as both federal antitrust agencies are doing increasingly, it involves a post-closing challenge to an acquisition -- highlighting the fact that even though a transaction may clear HSR review (or not be subject to such a review), it still may prompt an antitrust challenge subsequently. Second, the FTC’s concerns were not just with the acquisition itself, but with the related agreements that in its view hampered the ability or reduced the incentives of Church & Dwight to continue to offer new competing products. The FTC challenge illustrates how collateral agreements that parties make in connection with a transaction will be closely scrutinized and can raises competitive concerns.