Category: Antitrust & Trade Regulation

A Closer Look at the FTC’s Final Non-Compete Rule

On April 23, 2024, the Federal Trade Commission (FTC) issued its Final Non-Compete Agreement Rule (Final Rule), banning non-compete agreements between employers and their workers. The Final Rule will go into effect 120 days after being published in the Federal Register. This Final Rule will impact most US businesses, specifically those that utilize non-compete agreements to protect their trade secrets, confidential business information, goodwill, and other important intangible assets.

The Final Rule prohibits employers from entering or attempting to enter into a non-compete agreement with “workers” (employees and independent contractors). Employers are also prohibited from even representing that a worker is subject to such a clause. The Final Rule provides that it is an unfair method of competition for employers to enter into non-compete agreements with workers and is therefore a violation of Section 5 of the FTC Act.

There are few exceptions under the Final Rule. For senior executives, existing non-compete agreements can remain in force. However, employers are barred from entering or attempting to enter into a non-compete agreement with a senior executive after the effective date of the Final Rule. The Final Rule defines “senior executive” as a worker who is both (1) earning more than $151,164 annually and (2) in a “policy-making position” for the business. For workers who are not senior executives, existing non-competes are not enforceable after the effective date. If not invalidated all together, the Final Rule will likely have extensive litigation related to “policy-making position.” According to the current commentary on the Final Rule, the FTC will likely take the position that “senior executive” is a very limited definition.

Further, the Final Rule does not apply to non-competes entered into pursuant to a “bona fide sale of a business entity, of the person’s ownership interest in [a] business entity, or of all or substantially all of a business entity’s operating assets.” As a result, parties entering into transactions can continue to use non-compete agreements in the sale of a business. But transactional lawyers should note that any non-compete in a subsequent employment agreement with a seller will likely be subject to the Final Rule. The Final Rule also does not prohibit employers from enforcing non-compete clauses where the cause of action related to the non-compete clause occurred prior to the effective date of the Final Rule.

The Final Rule also states that agreements that “penalize” or “function to prevent” an employee from working for a competitor are banned and unlawful. For example, a non-disclosure agreement may be viewed as a non-compete when it is so broad that it functions to prevent workers from seeking or accepting other work or starting a business after they leave their job. Similarly, non-solicitation agreements may also be banned under the new rule “where they function to prevent a worker from seeking or accepting other work or starting a business after their employment ends.” The commentary makes clear that the enforceability and legality of these types of agreements will need to be analyzed on a case-by-case basis.

Under the Final Rule, employers are required to provide clear and conspicuous notice to workers who are subject to a prohibited non-compete. This notice must be sent in an individualized communication (text message, hand delivery, mailed to last known address, etc.) and indicate that the worker’s non-compete clause will not be enforced.

The Final Rule has already been challenged in at least two lawsuits, both filed in the state of Texas. The US Chamber of Commerce filed suit in the US District Court for the Eastern District of Texas seeking a declaratory judgment and an injunction to prevent the enactment of the Final Rule. A second suit, filed by Ryan, LLC, a tax services firm, was filed in the US District Court for the Northern District of Texas. Both suits raise similar arguments: (1) the FTC lacks authority to enact the rule due to the major questions doctrine; (2) the Final Rule is inconsistent with the FTC Act; (3) the retroactive nature of the Final Rule exceeds the FTC’s authority and raises Fifth Amendment concerns; and (4) the Final Rule is arbitrary and capricious. The US Chamber of Commerce has also filed a motion to stay the effective date of the Final Rule pending resolution of the lawsuit.

The very nature of how business entities protect their intangible assets is at risk, and the Final Rule will change the contractual dynamic of the employer-employee relationship.

© 2024 Jones Walker LLP
For more on the FTC Non-Compete Rule, visit the NLR Labor & Employment section.

Five Compliance Best Practices for … Conducting a Risk Assessment

As an accompaniment to our biweekly series on “What Every Multinational Should Know About” various international trade, enforcement, and compliance topics, we are introducing a second series of quick-hit pieces on compliance best practices. Give us two minutes, and we will give you five suggested compliance best practices that will benefit your international regulatory compliance program.

Conducting an international risk assessment is crucial for identifying and mitigating potential risks associated with conducting business operations in foreign countries and complying with the expansive application of U.S. law. Because compliance is essentially an exercise in identifying, mitigating, and managing risk, the starting point for any international compliance program is to conduct a risk assessment. If your company has not done one within the last two years, then your organization probably should be putting one in motion.

Here are five compliance checks that are important to consider when conducting a risk assessment:

  1. Understand Business Operations: A good starting point is to gain a thorough understanding of the organization’s business operations, including products, services, markets, supply chains, distribution channels, and key stakeholders. You should pay special attention to new risk areas, including newly acquired companies and divisions, expansions into new countries, and new distribution patterns. Identifying the business profile of the organization, and how it raises systemic risks, is the starting point of developing the risk profile of the company.
  2. Conduct Country- and Industry-Specific Risk Factors: Analyze the political, economic, legal, and regulatory landscape of each country where the organization operates or plans to operate. Consider factors such as political stability, corruption levels, regulatory environment, and cultural differences. You should also understand which countries also raise indirect risks, such as for the transshipment of goods to sanctioned countries. You also should evaluate industry-specific risks and trends that may impact your company’s risk profile, such as the history of recent enforcement actions.
  3. Gather Risk-Related Data and Information: You should gather relevant data and information from internal and external sources to inform the risk-assessment process. Relevant examples include internal documentation, industry publications, reports of recent enforcement actions, and areas where government regulators are stressing compliance, such as the recent focus on supply chain factors. Use risk-assessment tools and methodologies to systematically evaluate and prioritize risks, such as risk matrices, risk heat maps, scenario analysis, and probability-impact assessments. (The Foley anticorruption, economic sanctions, and forced labor heat maps are found here.)
  4. Engage Stakeholders: Engage key stakeholders throughout the risk-assessment process to gather insights, perspectives, and feedback. Consult with local employees and business partners to gain feedback on compliance issues that are likely to arise while also seeking their aid in disseminating the eventual compliance dictates, internal controls, and other compliance measures that your organization ends up implementing or updating.
  5. Document Findings and Develop Risk-Mitigation Strategies: Document the findings of the risk assessment, including identified risks, their potential impact and likelihood, and recommended mitigation strategies. Ensure that documentation is clear, concise, and actionable. Use the documented findings to develop risk-mitigation strategies and action plans to address identified risks effectively while prioritizing mitigation efforts based on risk severity, urgency, and feasibility of implementation.

Most importantly, you should recognize that assessing and addressing risk is an ongoing process. You should ensure your organization has established processes for the ongoing monitoring and review of risks to track changes in the risk landscape and evaluate the effectiveness of mitigation measures. Further, at least once every two years, most multinational organizations should be updating their risk assessment periodically to reflect evolving risks and business conditions as well as changing regulations and regulator enforcement priorities.

© 2024 Foley & Lardner LLP
For more on Risk Assessments, visit the NRL Corporate & Business Organizations section.

Congress Extends Statute of Limitations for Sanctions Violations

What Happened:

On April 24, 2024, President Biden signed into law the Fentanyl Eradication and Narcotics Deterrence (FEND) Off Fentanyl Act, as part of a national security legislative package, which, among other things, amended the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) to extend the statute of limitations for the enforcement of sanctions violations from five years to ten years (the Amendment). The ten-year statute of limitations applies to civil and criminal enforcement for all sanctions programs.

The Bottom Line:

The Amendment changes the lookback period for sanctions compliance from five years to ten years, impacting how sanctions compliance is treated internally at companies with international touchpoints, as well as counterparty diligence in corporate transactions. Companies will need to update their compliance programs to account for the extended period.

The Full Story:

IEEPA authorizes the President of the United States to impose economic sanctions by declaring a national emergency in response to any unusual or extraordinary threat to the national security of the United States that originates outside of the United States. IEEPA authorizes both civil enforcement actions and criminal prosecution against persons found to have violated US sanctions and previously established a five-year statute of limitations on enforcement.

As part of a broader national security package, President Biden signed into law the FEND Off Fentanyl Act on April 24, 2024. The Act requires the President to, among other things, impose sanctions under IEEPA on any person involved in the trafficking of Fentanyl through a forthcoming Fentanyl sanctions regime and amends IEEPA to extend the statute of limitations on enforcement to ten years. Critically, the extended statute of limitations under the Amendment applies not only to the forthcoming Fentanyl sanctions regime, but to almost all sanctions programs administered by the US Department of Treasury’s Office of Foreign Assets Control (OFAC). The Amendment also impacts other programs authorized under IEEPA, including some programs administered by the US Department of Commerce’s Bureau of Industry and Security (BIS), such as the Information and Communications Technology and Services (ICTS) Program, as well as other programs administered by the Department of Justice and Department of the Treasury.

The Amendment impacts compliance obligations for US companies and others seeking to comply with US sanctions. For example, OFAC regulations implementing US sanctions include record-keeping requirements for financial institutions with respect to certain transactions that currently track the previous five-year limitations period under IEEPA and it is likely that OFAC will amend its regulations to increase record-keeping requirements to ten years. Similarly, OFAC guidance on effective sanctions compliance has pegged recommended record retention periods to the five year limitations period. For example, the “safe harbor” for service providers under the prohibition on maritime services for Russian oil under the Russian oil price cap sanctions requires that persons retain records for five years. It is likely that OFAC will update its guidance to reflect the new ten-year limitations period following the Amendment and companies should carefully consider updates to sanctions compliance programs accordingly.

The Amendment does not address retroactive application. Retroactive criminal prosecution (i.e., for conduct currently beyond the prior five year limitations period) raises constitutional concerns. It is currently unclear whether OFAC will seek to bring civil enforcement actions for conduct already beyond the five-year limitations period.

The new ten-year limitations period should also be considered in conducting sanctions diligence on external counterparties. Companies will need to consider the longer lookback period when evaluating potential mergers and acquisitions and when seeking or providing representations and warranties involving sanctions compliance.

Copyright © 2024, Hunton Andrews Kurth LLP. All Rights Reserved.
by: Kevin E. Gaunt, Sevren R. Gourley, Eric R. Markus, William L. Newton of Hunton Andrews Kurth
For more news on the Fentanyl Eradication and Narcotics Deterrence (FEND) Off Fentanyl Act, visit the NLR Antitrust & Trade Regulation section.

FTC Moves to Strike Most Noncompetes: Considerations for Cannabis Companies

As Bradley previously reported, the Federal Trade Commission at the beginning of last year issued a notice of proposed rulemaking to effectively ban employee noncompete provisions as an unfair method of competition in violation of Section 5 of the FTC Act. Following a 16-month administrative process that drew more than 26,000 public comments, the FTC on April 23, 2024, issued its final rule that will, according to the FTC, “promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.”

Key Features of the Final Rule

Key features of the final rule include:

  • Defining “noncompete clauses” as a term or condition of employment that either “prohibits” a worker from, “penalizes” a worker for, or “functions to prevent” a worker from (a) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (b) operating a business in the United States after the conclusion of the employment that includes the term or condition.
  • Treating existing noncompetes differently depending on the category of worker.
    • For “senior executives,” existing noncompetes may remain in force. The term “senior executive” refers to workers earning more than $151,164 who are in a “policy-making position.” As so defined, the FTC estimates that senior executives represent less than 0.75% of all workers.
    • For all other categories of workers, existing noncompetes will be unenforceable following the effective date (i.e., 120 days following its publication on the Federal Register).
  • Banning new noncompetes for all workers following the effective date.
  • Requiring employers to provide “clear and conspicuous notice” to workers who are not senior executives and are subject to existing noncompetes that such provisions are no longer enforceable. The FTC included model language in the final rule that satisfies the notice requirements.
  • Excluding banks but not bank affiliates. Because the FTC does not have regulatory authority over banks, it does not apply to banks. The rule does apply to bank affiliates however as those entities are within FTC jurisdiction.
  • Excluding nonprofit entities. The final rule does not apply to nonprofit entities, such as nonprofit hospitals, as they fall outside of the jurisdiction of the FTC Act. The FTC notes, however, that not all entities that claim tax-exempt status in their tax filings are automatically outside of the scope of the final rule. Rather, the FTC applies a two-part test to determine whether the purported nonprofit is within the scope of the FTC Act, focusing on the source of the entity’s income and the destination of the income.
  • Excluding noncompetes in the sale of business context. The final rule generally does not apply to business owners upon the “bona fide” sale of a business. The final rule expanded the sale of business exception found in the proposed rule.
  • The final rule does not apply where a cause of action related to a noncompete accrued prior to the effective date of the final rule.

What Does the New Rule Mean for the Cannabis Industry in Particular?

The FTC contends that the final rule will benefit the U.S. economy by, among other things, increasing worker earnings, reducing healthcare costs, spurring new business formation, and enhancing innovation. But what will it mean for the U.S. cannabis industry specifically?

As we’ve written about before, there’s a significant amount of proprietary information that may give players in the cannabis space a competitive edge – e.g., customer lists, grow processes, or unique cannabinoid extracts, plants, and products. Because marijuana is still a Schedule I substance under the Controlled Substance Act, however, there are open questions about whether an entity engaged in marijuana-related commercial activity can avail itself of federal law protections, such as U.S. patent and trademark laws. If an entity cannot avail itself of those federal law protections, the ability to turn to state contract law becomes even more important to protect its investments. That’s where noncompetes could come in — going a long way to protect an individual from taking and utilizing a company’s or individual’s investments. The FTC final rule largely would put an end to the ability to use noncompete protections, save for the exceptions outlined above. That may be an even bigger blow to the cannabis industry as compared to other industries who can readily utilize federal law protections. On the other hand, the cannabis industry is largely transient and collaborative, and many cannabis companies and individuals in the industry may be willing to take the good with the bad when it comes to the absence of noncompete rules.

What’s Next?

First, the final rule is not yet in effect. It will go into effect 120 days after its publication in the Federal Register.

Second, we expect there will be significant legal challenges and efforts to halt the implementation of the rule.

The final rule was issued following a 3-2 vote by the commissioners, with the two newly appointed Republican commissioners – Melissa Holyoak and Andrew Ferguson – voting against the rule. In their prepared remarks, the dissenting commissioners questioned the FTC’s legal authority to take such sweeping action.

The final rule has already prompted a legal challenge. Shortly after the FTC’s public meeting approving the final rule, the U.S. Chamber of Commerce released a statement indicating its intent to “sue the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.” True to its word, the Chamber filed yesterday a Complaint for Declaratory Judgment and Injunctive Relief in U.S. District Court for the Eastern District of Texas (Chamber of Commerce of the United States of America v. Federal Trade Commission, Case No. 6:24-cv-00148 (E.D.Tex. filed April 24, 2024)). The lawsuit mounts a number of legal challenges to the final rule.

© 2024 Bradley Arant Boult Cummings LLP
For more on FTC Noncompete Ban, visit the NLR Labor & Employment section.

What the FTC’s Rule Banning Non-Competes Means for Healthcare

The FTC unveiled its long-awaited final rule banning most non-compete agreements during a live broadcast of a Commission meeting on April 23, 2024. The proposed rule, which was first announced in January 2023, underwent an extensive public comment process in which approximately 26,000 comments were received. According to the FTC, approximately 25,000 of these comments supported a total ban on non-competes. While there was some expectation that the final rule would be less aggressive than the proposed rule, that turned out not to be the case. By late summer 2024, most employers, except for non-profit organizations, will not be able to enforce or obtain non-competes in the U.S. except in extremely narrow circumstances. The new rule will take effect 120 days after it is published in the Federal Register. Assuming the rule is published this week, we can expect it to take effect by late August. That is, of course, if a court does not enjoin the rule first. Shortly after the rule was announced on April 23, the U.S. Chamber of Commerce stated its intention to sue the FTC. U.S. Chamber to Sue FTC Over Unlawful Power Grab on Noncompete Agreements Ban | U.S. Chamber of Commerce (uschamber.com) The first lawsuit challenging the new rule was filed on April 23, Ryan, LLC v. Federal Trade Commission, Case No. 3:24cv986 (N.D. Tex. Apr. 23, 2024). Among other relief, the Ryan suit seeks to have the rule vacated and set aside. There are significant legal questions concerning whether the FTC has the authority to take this action by rulemaking or whether this is best left to the legislative process. While some U.S. states have banned non-competes, many U.S. states have not banned them.

As written, the rule will have profound effects on virtually every industry, especially health care, where non-competes are common in physician and mid-level practitioner employment agreements. As several Commissioners indicated during the April 23 meeting, they are particularly concerned about non-competes in health care and believe this rule will save approximately $74-194 billion in reduced spending on physician services over the next decade.

Following is Nelson Mullins’ quick take on what health care employers need to know:

  1. The rule does not apply to non-profits. The basis for the rule making is Section 5 of the FTC Act, which doesn’t apply to non-profits. So, a non-profit health system that has non-competes with physicians or other workers is not impacted by the rule. Be aware, though, that the FTC may be looking to test whether some non-profit health systems are really operating as true non-profits. Tax exempt status alone will not be enough. We believe, however, that given significant and quantifiable charitable benefits that most non-profit systems provide, the FTC may be hard pressed to find a good test case within the non-profit health care industry.
  2. For all others, the rule bans all non-compete agreements for any worker, regardless of title, job function, or compensation, after the effective date. Thus, a for-profit health system or for-profit physician practice that uses non-competes will be significantly limited. The only non-competes that will be allowed to remain in force are non-competes for “Senior Executives” that were entered into before the rule becomes effective.
  3. The rule will take effect 120 days after it is published in the Federal Register. This will likely occur this week, so we expect the effective date to be approximately August 20, 2024.
  4. The rule rescinds existing non-competes for all workers who are not “Senior Executives.”
  5. “Senior Executive” is a narrowly-defined term meaning:
    1. a person in a policy making position; and
    2. who was paid at least $151,164 in the prior year.
  6. Existing non-competes for Senior Executives are not rescinded. New non-competes with Senior Executives entered into prior to the effective date are still allowed. However, no new non-competes with Senior Executives may be entered into after the effective date.
  7. “Policy-making position” means: President, CEO, or equivalent, or other person who has policy making authority, i.e., decisions that control a significant aspect of a business entity. Most clinicians will not meet the definition of “Senior Executive.”
  8. Non-senior executives who are now under a non-compete must be given notice by the effective date that their non-compete will not be, and cannot legally be, enforced. Model language for the notice is in the rule.
Copyright ©2024 Nelson Mullins Riley & Scarborough LLP
by: Denise M. Gunter, Carrie A. Hanger, Candace S. Friel of Nelson Mullins
For more news on the Implications of the FTC Noncompete Ban on Healthcare, visit the NLR Health Law & Managed Care section.

FTC Issues Report to Congress Highlighting Collaboration with State Attorneys General

On April 10, 2024, the Federal Trade Commission issued a report to Congress on the agency’s collaboration with state attorneys general highlighting current cooperative law enforcement efforts, best practices to ensure continued collaboration and legislative recommendations to enhance such efforts.

The report, directed by the FTC Collaboration Act of 2021, “Working Together to Protect Consumers: A Study and Recommendations on FTC Collaboration with the State Attorneys General” makes legislative recommendations that would enhance these efforts, including reinstating the Commission’s authority to seek money for defrauded consumers and providing it with the independent authority to seek civil penalties.

“Today’s consumer protection challenges require an all-hands-on-deck response, and our report details how the FTC is working closely with state enforcers to share information, stop fraud, and ensure fairness in the marketplace,” said FTC attorney Samuel Levine, Director of the Bureau of Consumer Protection. “We look forward to seeking new opportunities to strengthen these ties and confront the challenges of the future.”

In June 2023, the Commission announced a request for public information (RFI) seeking public comments and suggestions on ways it can work more effectively with state AGs to help educate consumers about, and protect them from, potential fraud. After reviewing and analyzing the comments received, the agency developed the report to Congress issued today. The report is divided into three sections: 1) The FTC’s Existing Collaborative Efforts with State
Attorneys General to Prevent, Publicize, and Penalize Frauds and Scams; 2) Recommended Best Practices to Enhance Collaboration; and 3) Legislative Recommendations to Enhance Collaboration Efforts.

The first section lays out the roles and responsibilities of the FTC and state AGs in protecting consumers from frauds and scams, provides an overview of their respective law enforcement authority, and discusses how federal and state enforcers share their information and expertise to facilitate effective communication and cooperation. It also provides a breakdown of the FTC’s
structure and a description of the Consumer Sentinel consumer complaint database, the largest such information-sharing network in the United States.

The second section details best practices used to enhance strong information-sharing between the FTC and its state law enforcement partners, discusses how the Commission coordinates joint and parallel enforcement actions with state AGs and other state consumer protection agencies, and presents ideas on expanding the sharing of expertise and technical resources between agencies.

Finally, the third section stresses the legislative need to restore the FTC’s Section 13(b) authority to seek equitable monetary refunds for injured consumers, presents ways to enhance collaboration and conserve resources by providing the FTC with the independent authority to seek civil penalties, and describes the agency’s need for clear authority to pursue legal actions against those who assist and facilitate unfair or deceptive acts or practices.

The Commission vote approving the report to Congress was 3-0-2, with Commissioners Melissa Holyoak and Andrew N. Ferguson not participating. Chair Lina M. Khan issued a separate statement, in which she was joined by Commissioners Rebecca Kelly Slaughter and Alvaro M. Bedoya. Commissioner Slaughter also issued a separate statement.

© 2024 Hinch Newman LLP
For more news on FTC’s collaboration with state attorneys, visit the NLR Antitrust & Trade Regulation section.

Regeneron v Novartis and Vetter: Walker Process Client Update

In an appeal that attracted a dozen amici, including the Department of Justice, the Federal Trade Commission, five states, and the District of Columbia, the Second Circuit gave the Walker Process antitrust doctrine a shot in the arm in a patent dispute related to pre-filled syringes (“PFSs”) used for injection of anti-VEGF biologic medicines into patients’ eyeballs (i.e., intravitreal injections).1 Under Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965), patentees who obtain patents through fraudulent behavior or inequitable conduct can be liable under the Sherman Antitrust Act. In a complaint filed in the Northern District of New York, Regeneron alleged Novartis and Vetter committed a Walker Process violation by obtaining and asserting patents for PFSs. The Second Circuit held that the district court made a mistake by dismissing Regeneron’s suit because it focused on the functional similarities in the markets for anti-VEGF medicines in PFSs and vials. In reversing, the Second Circuit held that the correct approach must focus on an economic market analysis rather than a functional market analysis, and that Regeneron’s complaint plausibly alleged that anti-VEGF PFSs constituted their own economic product market. As the amicus interest signals, the decision may have significant implications, both for the blockbuster market for anti-VEGF medicines and, more broadly, for defining the markets for different pharmaceutical methods of administration.

In its complaint, Regeneron alleges that in 2005, it had contracted with Vetter, a company providing pharmaceutical filling services, to collaborate on a PFS for its blockbuster anti-VEGF product, EYLEA.2 It alleges that its agreement with Vetter granted Regeneron ownership in any patent related to EYLEA PFSs. Id. Notwithstanding its agreement with Regeneron, Vetter later entered into a confidential agreement with Novartis to develop a PFS for anti-VEGF biologics, which are used to treat macular degeneration and other retinal conditions. Id. Indeed, both parties agree on the benefits of PFSs for patients and providers of anti-VEGF medicines—ease in administration, improved safety, and greater efficiency—compared to vials, which must be used to fill a separate syringe.3 Novartis has an anti-VEGF biologic, LUCENTIS, which Genentech markets in the United States.

Regeneron alleges that Vetter contributed to Novartis’s invention of U.S. Patent No. 9,220,631 (the “’631 Patent”) and that Novartis concealed Vetter’s contribution to inventorship from the PTO to avoid alerting Regeneron to its contractual violations. Id. Concealing inventorship from the PTO can constitute inequitable conduct and form the basis for a Walker Process claim. (Regeneron also alleges Novartis improperly withheld key prior art references from the PTO during prosecution.) Novartis’s resulting ’631 Patent specifically claims EYLEA’s active ingredient as a treatment for use in Novartis’s patented syringe.4 Regeneron contends that the defendants’ pattern of conduct delayed its entry into the PFS market, resulting in significant damages.5 Regeneron also alleges that, after the ’631 Patent issued, Vetter leaned on it in contract negotiations to enter a long-term deal and to agree not to challenge the validity of the ’631 Patent.6 Novartis sued Regeneron on the ’631 Patent in the ITC and the Northern District of New York in 2020, and there is a pending Federal Circuit appeal regarding the validity of the patent.7

The Second Circuit held that “the district court improperly concluded that Regeneron failed to plead adequately the existence of a distinct anti-VEGF PFS market because it… placed improper weight on the functional, rather than economic, similarities between anti-VEGF PFSs and vials.”8 Rather than look to the functional similarities in the markets for PFSs and vials (i.e., same drug, same medical condition), the Second Circuit held that the proper analysis was economic. That is, whether products are “reasonably interchangeable by consumers for the same purposes,” as assessed by examining “sufficient cross-elasticity of demand.”9 Regeneron’s complaint alleges that physicians transferred 80% of patients from vials to PFSs when they were offered for LUCENTIS. The Second Circuit found Regeneron’s allegation adequately pled a hypothetical monopoly market by pleading that the physicians’ switching behavior showed that a “small, but significant, price increase in the PFS version would not cause physicians to substitute the vial version for PFS.”10

Second, the Second Circuit held that the district court was wrong to decide that an antitrust market cannot be coextensive with a patent’s scope. Instead, “once an antitrust plaintiff has demonstrated that [1] a patent was obtained through fraud, it must [2] separately explain how the fraudulently obtained patent enabled the defendants to achieve market power within the relevant market.”11 Regeneron’s allegations regarding inventorship and improperly withheld prior art satisfied the “fraudulently obtained” prong of the test.12 Next, the Second Circuit found that Regeneron’s complaint adequately pled the “market power” prong, crediting Regenoron’s allegation that Novartis and Vetter attempted to use the ’631 patent to coerce Regeneron into a long-term exclusive PFS filling relationship and demanding other modifications to Regeneron and Vetter’s 2005 agreement.13

Why the Decision Matters

The Second Circuit’s decision stands out for two reasons. First, anti-VEGF biologics are a big business for innovator companies, biosimilar makers, and government payers. EYLEA’s total revenue for 2023 was nearly $5.9 billion.14 Roche, which through its subsidiary Genentech commercializes LUCENTIS in the US, reported $460 million CHF in 2023 revenue, down from approximately $1 billion CHF in 2022 after entry from two biosimilars, with more pending.15 Biosimilars referencing EYLEA are also pending FDA approval or in clinical trials.16 Government payers are naturally interested in age-related macular degeneration (AMD) medications: among Americans over 65, the CDC estimates that approximately 1.3 million have vision-threatening AMD, with another 10.9 million having milder AMD.17 Indeed, the state amici’s brief supporting Regeneron noted the states’ interest in the markets for AMD drugs.18

Second, and more broadly, a product’s presentation or method of administration—pill vs. liquid; standard vs. extended release; IV vs. subcutaneous injection—has major implications for patients, providers, and product lifecycle. Different methods of administration may expand a product’s commercial reach and, as this case shows, provide additional patent protection (and possibly market exclusivity). Antitrust scrutiny directed to narrowly defined markets for methods of administration—here PFSs—is noteworthy. The amicus brief from the DoJ and FTC makes clear that it is supporting neither side and “take[s] no position as to whether the complaint adequately pleads a relevant antitrust market or states an antitrust claim.”19 However, the Federal government’s amicus brief also stated that the district court erred in its decision, and the brief’s analysis of the proper market definition parallels the reasoning ultimately adopted by the Second Circuit.20

This decision relates to a motion to dismiss under Rule 12(b)(6), where the court only looks for a plausible, well-pled complaint. Novartis will have its day in court at the summary judgment and trial stages, where Regeneron will owe a higher burden of proof. However, antitrust claims are powerful tools because they carry the monetary risk of treble damages as well as the possibility of scrutiny from regulators. These risks must be weighed, not just by outside counsel and CLOs, but by CEOs and boards of directors.

Footnotes

[1] See Regeneron Pharm., Inc. v. Novartis Pharma AG et al., No. 22-427, slip op. at 1 (March 18, 2024). As the Second Circuit explains, “[t]he products in question are prescription medications used to treat the overproduction of vascular endothelial growth factor (‘VEGF’), a naturally occurring protein that, if overproduced, can lead to various eye disorders and, in some cases, to permanent blindness.”

[2] Slip op. at 9

[3] Id. at 8-9

[4] See ’631 Patent at Claim 12

[5] See slip op. at 10-11.

[6] Id. at 13-14.

[7] Id. at 15-16.

[8] Id. at 19.

[9] Id. at 20-21 (citing Brown Shoe Co. v. United States, 370 U.S. 294 (1962) and United States v. Am. Express. Co., 838 F.3d 179 (2d Cir. 2016)).

[10] Slip op. at 26; see, e.g., Am. Express, 838 F.3d at 199 (small but significant non-transitory increase in price (“SSNIP”) may demonstrate that the proposed market is relevant market).

[11] Slip op. at 30(citing Walker Process, 382 U.S. at 177).

[12] Id. at 30-31.

[13] Id. at 31-32. In addition to reversing the district court’s decision on the antitrust claim, the Second Circuit reversed the court’s dismissal of Regeneron’s claim for tortious interference with contract as time barred, crediting Regeneron’s equitable estoppel arguments.

[14] “Regeneron Reports Fourth Quarter and Full Year 2023 Financial and Operating Results,” Feb. 2, 2024, https://investor.regeneron.com/news-releases/news-release-details/regeneron-reports-fourth-quarter-and-full-year-2023-financial (last visited March 20, 2024).

[15] “Roche Finance Report 2023,” at 16, https://assets.roche.com/f/176343/x/3b1fb647e2/fb23e.pdf (last visited March 20, 2024).

[16] See, e.g., “New and Upcoming biosimilar launches,” at 6 https://www.cardinalhealth.com/content/dam/corp/web/documents/Report/cardinal-health-biosimilar-launches.pdf (last visited March 20, 2024).

[17] See “Prevalence of Age-Related Macular Degeneration (AMD), at Table 1, https://www.cdc.gov/visionhealth/vehss/estimates/amd-prevalence.html (last visited March 20, 2024).

[18] See Brief of Amici Curiae Nevada, District of Columbia, Illinois, Louisiana, Minnesota, and New Mexico as Amicus Curiae in Support of Plaintiff-Appellant, Regeneron Pharmaceuticals, Inc., Case 22-427, Dkt. 106 at 2.

[19] See Brief for the United States and the Federal Trade Commission as Amici Curiae in Support of Neither Party, Case 22-427, Dkt. 90 at 1.

[20] Id. at 12.

© Polsinelli PC, Polsinelli LLP in California
For more news on Patent Law, visit the NLR Intellectual Property law section.

The Antitrust Investigator Will See You Now: What Healthcare And Pharma Should Expect In A World Of Enhanced Antitrust Scrutiny

Highlights

  • Healthcare entities should expect heightened government scrutiny of mergers, acquisitions, and business behaviors that could be construed as restricting competition in healthcare and pharma
  • The FTC, DOJ, and HHS have advanced a “whole-of-government approach,” including data sharing, cooperative enforcement, and enhanced antitrust training
  • Businesses should take note of practices that are likely to trigger investigatory and enforcement actions

According to media reports, the Department of Justice (DOJ) has opened an antitrust investigation into UnitedHealth Group, which is the owner of the United States’ largest health insurer, UnitedHealthcare. The focus of the inquiry appears to be the relationship between the UnitedHealthcare insurance plan and one of its health services divisions, Optum, and the potential impact on rivals and consumers.

While tech giants have grabbed most of the headlines when it comes to enhanced antitrust scrutiny, this new matter is the DOJ’s second antitrust investigation into UnitedHealth Group in recent years, giving teeth to the administration’s claim that it has an aggressive antitrust policy in the healthcare sector.

In another example of increased antitrust scrutiny, the Federal Trade Commission (FTC) recently announced a new initiative in partnership with the DOJ and Department of Health and Human Services (HHS) to address what they consider to be the effects of anticompetitive behavior in the healthcare and pharmaceutical spaces. According to the government, these new efforts are aimed at lowering consumer costs and will include “partnering on new initiatives which include a joint Request for Information to seek input on how private-equity and other corporations’ control of health care is impacting Americans.”

Although interagency cooperation is the focus of the recent push to ramp up antitrust investigations and enforcement, each agency will still spearheaded their own regulatory activity.

Federal Trade Commission

FTC Chair Lina Khan has made it clear that her agency will devote more resources to enforcement in the healthcare industry, and emphasized that “safeguarding fair competition and rooting out unlawful business practices in health care markets is a top priority for the FTC.” In furtherance of these priorities, the commission has recently taken the following actions:

  • Orange Book Policy: The FTC challenged more than 100 patents held by pharmaceutical companies that they claim are inaccurately or improperly listed in the FDA’s Orange Book. The commission also released a policy statement explaining its renewed focus on Orange Book infractions.
  • Proposed Non-compete Rule: The FTC presented a new rule that would place a ban on non-compete clauses in employee contracts.

U.S. Department of Justice

Jonathan Kanter, Assistant Attorney General of the DOJ’s Antitrust Division, highlighted the division’s emphasis on the healthcare space when he said, “we are committed to weeding out anticompetitive practices and market consolidation that hinder Americans’ access to quality care at affordable rates, or deprive health care workers of fair wages and opportunity.” The following are just a few examples of how the DOJ has implemented this renewed focus:

  • Criminal Penalties: Recently, the DOJ’s Antitrust Division successfully secured a deferred prosecution agreement against Teva Pharmaceuticals, obtaining the largest monetary penalty ever (over $200 million) against a purely domestic producer that was allegedly operating an antitrust cartel.
  • Blocked Mergers: The Antitrust Division filed a suit to stop Aon plc’s $30 billion proposal to acquire Willis Towers Watson, two of the three largest brokers of health insurance and retirement benefits consulting. The companies later ceased their pursuit of the merger.

U.S. Department of Health and Human Services

HHS Secretary Xavier Becerra made his agency’s priorities clear when he recently stated that “the Biden-Harris Administration remains laser-focused on increasing access to high-quality, affordable health care for all Americans, like by making hearing aids available for sale over the counter and lowering prescription drug costs through the Inflation Reduction Act.” The department’s initiatives have included:

  • Ownership Transparency: For the first time, HHS, via the Centers for Medicare & Medicaid Services, made ownership data available on federal qualified health centers and rural health clinics on data.cms.gov. HHS hopes the release of this data will help catalyze enforcement actions by identifying common ownership.
  • Medicare Advantage Marketing: HHS also announced new efforts to crack down on what it considers “predatory marketing” that seeks to steer patients towards Medicare Advantage plans that “may not best meet their needs.”

Takeaways

In light of the government’s renewed focus on increased competition, expanded enforcement actions, access to quality care, more affordable services and products, and transparency of ownership in the healthcare and pharmaceutical industries, legal and compliance departments should consider being proactive about conducting thorough reviews of current practices. This is particularly true for mergers and acquisitions, competitive strategies, and pricing decisions, which are the business activities most likely to conflict with these recently energized regulatory bodies. Even healthcare providers with stellar compliance programs should expect to receive more frequent and targeted requests for information from enforcement authorities about their business partners, payors, and marketing practices.

© 2024 BARNES & THORNBURG LLP
For more news on Antitrust Enforcement in the Healthcare Sector, visit the NLR Health Law & Managed Care section.

Understanding How U.S. Export Controls Affect Manufacturers’ Hiring Practices

The U.S. government has adjusted export control regulations in an effort to protect U.S. national security interests. The revisions primarily affect export of electronic computing items and semiconductors to prevent foreign powers from obtaining critical technologies that may threaten national security. As manufacturers are facing increased demand for their products and critical labor shortages, they may find themselves seeking to hire foreign national talent and navigating U.S. export control and immigration and anti-discrimination laws.

Export Control Laws in United States

The primary export control laws in the United States are the International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR). Under these regulations, U.S. Persons working for U.S. companies can access export-controlled items without authorization from the U.S. government. U.S. Persons include: U.S. citizens, U.S. nationals, Lawful permanent residents, Refugees, and Asylees. Employers might need authorization from the appropriate federal agency to “export” (in lay terms, share or release) export-controlled items to workers who are not U.S. Persons, which the regulations call foreign persons. Employers apply for such authorization from either the U.S. Department of State or the U.S. Department of Commerce, depending on the item.

The release of technical data or technology to a foreign person that occurs within the United States is “deemed” to be an export to the foreign person’s “home country.” Whether an export license is required for a particular release may depend on both the nature of export controls applicable to the technology or technical data (including whether it is subject to the ITAR or EAR) and the citizenship of the foreign person.

Recent revisions to the EAR cover controls on advanced computing integrated circuits (ICs), computer commodities that contain such ICs, and certain semiconductor manufacturing items, among other controls. These revisions particularly affect semiconductor and chip manufacturers and exporters.

Intersection With Immigration and Anti-Discrimination Laws

The U.S. Immigration and Nationality Act (INA) and Title VII of the Civil Rights Act 1964 prohibit discrimination based on protected characteristics.

The INA prohibits discrimination based on national origin or citizenship, among other characteristics. Title VII prohibits discrimination based on race and national origin, which typically includes discrimination based on citizenship or immigration status. Furthermore, the INA prohibits “unfair documentary practices,” which are identified as instances where employers request more or different documents than those necessary to verify employment eligibility or request such documents with the intent to discriminate based on national origin or citizenship.

The intersection of export control laws, immigration, and anti-discrimination laws can create a confusing landscape for employers, particularly manufacturers or exporters of export-controlled items. Manufacturers and exporters, like all employers, must collect identity and employment authorization documentation to ensure I-9 compliance. At the same time, however, they must collect information relating to a U.S. Person in connection with export compliance assessments. To address these areas of exposure for employers, the U.S. Department of Justice’s Civil Rights Division released an employer fact sheet to provide guidance for employers that includes best practices to avoid discrimination.

Implications

To ensure compliance under these rules, employers should separate the I-9 employment authorization documentation process from the export control U.S. Person or foreign person identification process. Employers should implement or revisit internal procedures and provide updated training to employees.

The export rule revisions highlight the challenges for employers in avoiding discrimination when complying with export control laws. Manufacturers and exporters should review their compliance practices regarding U.S. export control, immigration, and anti-discrimination laws with experienced counsel. Employers should implement policies and procedures reasonably tailored to address export control compliance requirements while not engaging in discrimination on the basis of citizenship or national origin.

Jackson Lewis P.C. © 2024

by: Maurice G. Jenkins , Kimberly M. Bennett of Jackson Lewis P.C.

For more news on Export Control Laws, visit the NLR Antitrust & Trade Regulation section.

Year in Review: Criminal Enforcement by the DOJ Antitrust Division in 2023

Introduction

When it comes to antitrust criminal enforcement, 2023 will be remembered as the year when the US Department of Justice’s (DOJ) Antitrust Division redefined and tested the outer boundaries of its authority. Here is a look back at the key events that defined the DOJ’s year in criminal antitrust enforcement.

Losses in Labor Markets

The DOJ continued its focus on labor markets in 2023 by pursuing per se no-poach and wage-fixing prosecutions despite resounding resistance by fact finders. In these cases, the DOJ alleged that companies and executives restrained trade in labor markets in violation of Section 1 of the Sherman Act through agreements that restricted movement and suppressed the wages of workers.

Courts have allowed these per se no-poach and wage-fixing cases to survive the motion to dismiss stage of litigation, but the DOJ’s success has routinely ended there. In 2022, the DOJ tried its first criminal no-poach case in US v. DaVita, which was successfully defended by McDermott and resulted in a complete acquittal of both corporate and individual defendants. In 2023, the DOJ fared no better:

  • In US v. Manahe (D. Maine), the DOJ charged four business managers in an alleged conspiracy to fix the wages and restrict the hiring of personal support specialist workers for two months during the pandemic. The government presented evidence such as text messages discussing hourly wages and recordings of meetings between the defendants, while the defendants countered by showing that the discussed prices were not implemented, and a draft agreement went unsigned. The jury acquitted all four defendants following a two-week trial in March 2023.
  • As we previously reported, the DOJ suffered a blow in US v. Patel (D. Connecticut) in April 2023. During a four-week trial, the government alleged that defendants conspired to restrict the hiring and recruiting of skilled workers and engineers in the aerospace industry. The defense moved for a judgment of acquittal under Rule 29 of the Federal Rules of Criminal Procedure, an extreme lever that judges rarely pull to end a trial before it reaches the jury. Judge Victor A. Bolden granted the motion and acquitted all the defendants. He found that the engineers’ freedom to switch companies and the number of exceptions to the agreements could not support finding market allocation as a matter of law.
  • In November 2023, the DOJ stunningly moved to dismiss its own case alleging a conspiracy by outpatient medical care competitors not to solicit senior-level employees. The case was three years into litigation; in its motion, the DOJ simply stated that dismissal would conserve court time and resources. This was the DOJ’s last pending no-poach case against a corporation.

If the DOJ’s labor markets cases have a theme, it is this: If at first you don’t succeed, try, try again. Despite four straight losses and a voluntary dismissal, the DOJ remains undeterred in bringing additional criminal wage-fixing and no-poach suits. The Biden administration’s “whole of government” approach to enforcement means that shared resources and collaboration among agencies, including the DOJ and the National Labor Relations Board, will continue into 2024. Assistant Attorney General Jonathan Kanter left no doubt that the DOJ is doubling down on its executive authority despite a losing track record in court: “Let me confirm: We are just as committed as ever to, when appropriate, using our congressionally given authority to prosecute criminal violations of the Sherman Act in labor markets.” Addressing the Women’s White Collar Defense Association in December 2023, Deputy Assistant Attorney General Doha Mekki echoed, “We look forward to charging more no-poach and wage-fixing cases.”

Per Se Problems

The DOJ stumbled in a different per se setting in December 2023, when a three-judge panel on the US Court of Appeals for the Fourth Circuit affirmed fraud charges but reversed the per se bid-rigging conviction of a steel and aluminum manufacturing sales manager turned executive. In US v. Brewbaker, the appellate panel found that “caselaw and economics show that the indictment failed to state a per se antitrust offense as it purported to do.”

In its 2020 indictment, the DOJ alleged that Brent Brewbaker of Contech Engineered Solutions conspired with a North Carolina distributor and exclusive dealer, Pomona Pipe Products, to share total bid pricing information on North Carolina Department of Transportation (NCDOT) aluminum projects and use that information to purposefully submit losing bids. This allegedly appeased Pomona and maintained Contech’s status on NCDOT’s “emergency bid list.” Contech pled guilty, but Brewbaker continued to trial. A jury found him guilty of bid rigging and other fraud charges; he appealed.

The Fourth Circuit held that the DOJ’s indictment implicated Contech and Pomona as horizontal competitors in NCDOT aluminum projects and as vertical competitors through their manufacturer-dealer relationship, resulting in a “hybrid” restraint. The DOJ sought to isolate Contech’s role as a manufacturer and competing bidder for NCDOT aluminum projects, focusing solely on the horizontal nature of the restraint and subsequently arguing for per se treatment.

The panel did not accept the DOJ’s argument that the conspiracy itself involved only horizontal conduct and instead considered the parties’ competitive relationship, which involved both horizontal and vertical aspects. The panel found that “agreements that look otherwise identical in form produce different economic effects based on how the parties relate to one another,” and stated that the DOJ’s theory would “force . . . arbitrary and likely impossible line-drawing” to determine which “part” of the entity to consider. The court continued, “The Sherman Act doesn’t ignore reality; it treats the entire business entity as the single party it is. . . . Antitrust law does not turn on such artificial mental gymnastics.”

Under this premise, the court moved through an analysis of case law and economic rationale to determine appropriate scrutiny. Although there is no direct guidance on hybrid restraints in the bid rigging context, the panel contrasted the present case with Leegin Creative Leather Products, 551 U.S. 877 (2007), where the Supreme Court of the United States applied per se scrutiny to a price fixing case despite both horizontal and vertical elements. In Brewbaker, the court found instead that the restraint in the indictment should not have been subject to the per se standard based on precedent, nor would it invariably lead to anticompetitive effects upon economic analysis—all making per se scrutiny inappropriate. As a result, and in a blow to the DOJ, the court reversed Brewbaker’s Sherman Act conviction.

In Full (Strike) Force

The DOJ’s Procurement Collusion Strike Force (PCSF) succeeded in securing several guilty pleas and stiff penalties in 2023. The PCSF is tasked with training government personnel and enforcing antitrust and fraud laws related to government contract bidding, grants and program funding.

PCSF Director Daniel Glad spoke to the National Association of State Procurement Officials in November 2023, highlighting the state and agency partnerships that comprise the PCSF. He pushed for even greater collaboration with state officials in 2024 and coming years, noting the recent influx of funds from the Infrastructure Investment and Jobs Act, which authorized billions of dollars in transportation and infrastructure programs. Later that month, the PCSF held its first summit to discuss strategies, priorities and resources. As reported by the DOJ, attendees included 11 “law enforcement partners” from across the country and 22 US Attorneys’ Offices.

These partnerships have surely strengthened the PCSF, and it has an extensive track record of successful convictions and guilty pleas. Among them are the following:

  • In January 2023, military contractor Aaron Stephens pleaded guilty to rigging bids related to the maintenance and repair of military tactical vehicles, following his alleged co-conspirator Mark Leveritt’s guilty plea July 2022. In August 2023, Stephens received an 18-month prison sentence and a $50,000 criminal fine. Leveritt received a six-month sentence and a $300,000 fine.
  • Also in January 2023, a construction company owner received a 27-month sentence and was ordered to pay a $1.75 million fine for fraudulently securing government contracts meant for service-disabled veteran-owned small businesses.
  • A Metropolitan Transportation Authority (MTA) employee out of New York pleaded guilty to engaging in wire fraud related to MTA excess vehicle auctions. Assistant Attorney General Jonathan Kanter described the conduct as “stealing from the public” and promised that the DOJ would continue to “detect and punish” those who abuse the public trust. Two additional guilty pleas by fellow MTA employees followed.
  • An insulation contractor out of Connecticut was the seventh person sentenced in a bid rigging and contract fraud investigation, resulting in a 15-month prison sentence and a restitution fine of more than $1 million. The alleged scheme related to insulation contracting at both public and private institutions, including universities and hospitals.
  • In March 2023, a Georgia jury found three military contractors guilty of conspiring to defraud the United States and two counts of major fraud related to two years of conduct.
  • A construction company owner faced a 78-month prison sentence and an almost $1 million restitution fine for bid rigging and bribery involving the California Department of Transportation (Caltrans). Defendant Bill Miller previously pled guilty to recruiting others to submit sham bids and to paying almost $1 million in cash bribes to a Caltrans contract manager. The manager himself received a 49-month prison sentence and a similar restitution fine, and a co-conspirator who submitted false bids received 45 months in jail and a $797,940 restitution fine.
  • A Texas judge ordered corporate defendant J&J Korea to pay almost $9 million for wire fraud and conspiracy to restrain trade related to subcontract work for US military hospitals in South Korea. A grand jury indicted two corporate officers for the same conduct in 2022.
  • Three military contractors received their sentences in December 2023 following a jury trial related to their alleged procurement fraud scheme. The defendants’ sentences included prison, supervised release and fines ranging from $50,000 to $250,000.

In December 2023, the PCSF also secured a seven-count indictment using wiretap evidence to charge two forest firefighting services executives with bid rigging, allocating markets and fraud. Wiretap evidence is rarely used in cartel investigations and marks a meaningful step in PCSF’s investigative approach. PCSF likely has already begun obtaining wiretap evidence in other cases and, based on its success in 2023, will continue pursuing aggressive investigative and litigation strategies moving forward.

Partnerships and Collaboration

Taking the PCSF to the global stage, the DOJ announced a joint initiative with Mexico’s Federal Economic Competition Commission and the Canadian Competition Bureau to collaborate on “outreach to the public and business community about anti-competitive conduct, as well as on investigations, using intelligence sharing and existing international cooperation tools” in the run-up to the 2026 FIFA World Cup to be hosted across the three countries.

In addition to its international partnerships for the World Cup, the DOJ is tackling technology with global efforts. In November 2023, DOJ leaders met with G7 competition authorities in Tokyo to discuss competition in digital markets and enforcement priorities. This was one in a series of meetings among authorities that have taken place since 2019 with a goal of setting and issuing guidance on shared priorities for regulating competition in tech. Following the summit, the group published a “communique” grounded in concern around emerging technologies, including risks in the criminal realm. The leaders noted, “As firms increasingly rely on AI to set prices to consumers, there is risk that such tools could facilitate collusion or unfairly raise prices.”

This sentiment is consistent with statements made earlier in the year by DOJ leadership. For example, Principal Deputy Assistant Attorney General Doha Mekki highlighted the role of technology in information exchanges. She described the current “inflection point” of algorithms, data and cloud computing as creating new market realties. Assistant Attorney General Jonathan Kanter stated that artificial intelligence’s “boundless potential” comes with “risks [that] transcend borders.” The consistency of rhetoric and global dedication to tackling the risks of emerging technology signals a potentially busy 2024 in this space.

The DOJ also continued its practice of partnering with fellow domestic law enforcement agencies. For example, the DOJ secured three guilty pleas in August 2023 for bid rigging asphalt paving services contracts in Michigan from 2013 to 2021. The DOJ worked with the Offices of Inspector General for the US Department of Transportation and the US Postal Service, and highlighted the partnership in public statements on the pleas. Deputy Assistant Attorney General Manish Kumar said, “Along with our law enforcement partners, the division will continue to seek justice when corporations and their leaders deprive customers of fair and open competition.” Cross-agency collaboration is a hallmark of the DOJ’s criminal enforcement and there is no reason to believe this practice will change in 2024.

Anything but Generic Remedies

In August 2023, the DOJ announced that it had entered into two unprecedented deferred prosecution agreements (DPAs) to resolve price fixing charges in the generic drug industry against Teva Pharmaceuticals USA, Inc., and Glenmark Pharmaceuticals, Inc. Teva and Glenmark agreed to pay $250 million and $30 million, respectively, in criminal penalties and compliance monitoring, with Teva also obligated to donate $50 million worth of drugs to aid organizations. These agreements included divestitures of the companies’ product lines for the cholesterol drug pravastatin, alleged as central to the alleged price fixing conspiracy underlying the agreements. These arrangements are unusual for two reasons.

DPAs

First, DPAs are typically unfavored by the government and used as incentives for cooperation early in investigations. It is striking that the DOJ entered into these agreements in such an advanced stage of litigation, where five other corporations and three individuals had already admitted to the implicated conspiracy. DPAs are agreements between the government and defendants in which the defendants accept certain penalties in exchange for prosecutors stopping their pursuit of the underlying charges. Prosecutions are “deferred” indefinitely while defendants fulfill their end of the bargain. Although both DPAs and plea agreements involve admitting wrongdoing, DPAs allow defendants resolution without admission of legal guilt. In the event defendants fail to meet the terms of the agreement, the government resumes its prosecution and seeks convictions.

“Extraordinary” Remedial Measures

Second, both DPAs involved unheard of divestitures of product interests in the cholesterol drug pravastatin, with Teva’s DPA requiring an additional measure of $50 million in donated clotrimazole and tobramycin to humanitarian organizations. All three generic drugs were impacted by the charged conspiracy. This remedy is first of its kind—criminal antitrust enforcers historically have sought monetary and prison sentences only. However, DOJ criminal enforcers driving outside of their historic lane is not necessarily inconsistent or surprising. The current administration has repeatedly committed to “using the whole legislative toolbox” in litigation.

Deputy Assistant Attorney General Manish Kumar stated in October 2023 that these divestitures were appropriate in the “heavily regulated” context of generic pharmaceuticals, where a corporate conviction could have precluded Teva and Glenmark’s participation in federal drug programs to such an extent that the companies would have gone out of business. Of course, these are not the first defendants to face corporate convictions in heavily regulated industries, and they are not even the first to do so in this specific alleged conspiracy.

Whether this specific tool will build or break down competition, whether criminal enforcers are equipped to evaluate the impact of divestiture, and whether it is appropriate to test this novel approach in an industry with an alleged prolific conspiracy among major players and thus among potential buyers remains to be seen. For better or worse there will be more data points to answer these and other uncertainties: Kumar noted that the DOJ hopes to implement divestitures as criminal remedies “in other contexts” moving forward.

Investigation Nearing Its End

On November 16, 2023, in a surprising turn of events shortly after the DOJ announced the resolutions with Teva and Glenmark, the DOJ moved to dismiss a February 2020 indictment against Ara Aprahamian, a former senior executive of Taro Pharmaceutical Industries charged with fixing prices, rigging bids and allocating markets for generic drugs. The district court granted the motion to dismiss the indictment with prejudice. Prior to filing the motion, the DOJ had been preparing for a February 2024 criminal trial against Aprahamian. As a result of these recent actions, the DOJ has no remaining public proceedings in connection with its investigation of pricing in the generic drug industry. And, in December 2023, a district court overseeing the multidistrict civil litigation against generic drug manufacturers for the same alleged conduct terminated the DOJ’s intervenor status in the case. Thus, the DOJ’s nearly decade-long investigation of the generic drug industry appears to be ending.

Monaco on Mergers and Corporate Compliance 

In a speech at the Society of Corporate Compliance and Ethics’ Annual Compliance & Ethics Institute, Deputy Attorney General Lisa Monaco emphasized the importance of compliance programs and announced a safe harbor policy for voluntary self-disclosures of antitrust wrongdoing by companies engaged in mergers and acquisitions.

Compliance

Deputy Attorney General Monaco focused her remarks on the increased importance of, and scrutiny on, corporate compliance programs. She noted that under a new initiative, every resolution by the Criminal Division requires companies to add compliance-promoting criteria to compensation systems. She also shared that the Division is enacting “clawback credits” to incentivize tying executive compensation to compliance. Remaining focused on bottom lines, she warned: “Invest in compliance now or your company may pay the price—a significant price—later.” These sharp words are consistent with the DOJ’s increased rhetoric on and policy prioritization of compliance programs throughout 2023.

Mergers & Acquisitions Safe Harbor Policy

Deputy Attorney General Monaco also commented on the recently unveiled DOJ-wide safe harbor allowing companies to report misconduct by the companies they seek to acquire or merge with. The covered conduct must be discovered through the M&A process. Conduct that should have otherwise been disclosed or which could have been publicly known does not count. Conduct already known to the DOJ is not entitled to safe harbor protection either.

Monaco stated, “Going forward, acquiring companies that promptly and voluntarily disclose criminal misconduct within the Safe Harbor period [six months from date of closing], and that cooperate with the ensuing investigation, and engage in requisite, timely and appropriate remediation, restitution, and disgorgement [within one year of closing]—they will receive the presumption of a declination.” In line with remarks by enforcers earlier in the year, Monaco specifically highlighted cybersecurity, tech and national security as areas of heightened risk and thus heightened scrutiny. Corporations in these markets should take heed of the DOJ’s emphasis on corporate compliance in 2024.

Looking Ahead

In 2023, criminal antitrust authorities used novel approaches at every stage of enforcement—from charging decisions to partnerships, to litigation, to remedies— and they show no sign of slowing down in 2024. The emergence of new technologies and a policy promise to forego old guideposts takes the DOJ further from the familiar, and perhaps further from its expertise.

In a high-stakes election year and with an influx of federal funds in infrastructure and defense spaces, the DOJ will likely hit the accelerator sooner than it hits the breaks. Markets that impact maximum voters, including employment, tax-funded government contracts, national security and healthcare, are likely focuses. All considered, it is more important than ever for businesses and individuals to stay up to date on policy priorities, revamp and champion internal compliance programs, and seek agile counsel in the ever-changing landscape of criminal enforcement to avoid costly investigations.

© 2024 McDermott Will & Emery
For more on Antitrust Criminal Enforcement, visit the NLR Antitrust & Trade Regulation section.