81 FR 51885 - Victrex, plc; Invibio, Limited; and Invibio, Inc.

FEDERAL TRADE COMMISSION

Federal Register Volume 81, Issue 151 (August 5, 2016)

The Commission has approved a final consent order in this matter, settling alleged violations of federal law prohibiting unfair methods of competition, and has issued a Statement of the Commission. The attached Analysis to Aid Public Comment and Statement of the Commission describe both the allegations in the Complaint and the terms of the Decision and Order.

[Federal Register Volume 81, Number 151 (Friday, August 5, 2016)]
[Notices]
[Pages 51885-51888]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-18565]


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FEDERAL TRADE COMMISSION

[File No. 1410042; Docket No. C-4586]


Victrex, plc; Invibio, Limited; and Invibio, Inc.

AGENCY: Federal Trade Commission.

ACTION: Consent Order and Statement of the Commission.

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SUMMARY: The Commission has approved a final consent order in this 
matter, settling alleged violations of federal law prohibiting unfair 
methods of competition, and has issued a Statement of the Commission. 
The attached Analysis to Aid Public Comment and Statement of the 
Commission describe both the allegations in the Complaint and the terms 
of the Decision and Order.

DATES: Issued on July 13, 2016.

SUPPLEMENTARY INFORMATION: 

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission has approved a final consent order 
with Victrex plc and its wholly owned subsidiaries Invibio Limited and 
Invibio, Inc. (collectively, ``Invibio''). Invibio makes and sells 
implant-grade PEEK, a high-performance polymer contained in implantable 
devices used in spinal interbody fusion and other medical procedures. 
The order seeks to address allegations that Invibio used exclusive 
supply contracts to maintain its monopoly power in the market for 
implant-grade PEEK, in violation of Section 5 of the Federal Trade 
Commission Act, 15 U.S.C. 45.
    The order requires Invibio to cease and desist from enforcing most 
exclusivity terms in current supply contracts and generally prohibits 
Invibio from requiring exclusivity in future contracts. The order also 
prevents Invibio from adopting other mechanisms, such as market-share 
discounts or retroactive volume discounts, to maintain its monopoly 
power.
    The order was placed on the public record for 30 days in order to 
receive comments from interested persons. Comments received during this 
period became part of the public record. After the public comment 
period, the Commission determined to make the proposed order final.
    The purpose of this analysis, which was placed on the Commission 
Web site on April 27, 2016, was to facilitate public comment on the 
proposed order. It is not intended to constitute an official 
interpretation of the complaint, the consent agreement, or the order, 
or to modify their terms in any way. The consent agreement is for 
settlement purposes only and does not constitute an admission by 
Invibio that the law has been violated as alleged in the complaint or 
that the facts alleged in the complaint, other than jurisdictional 
facts, are true.

II. The Complaint

    The complaint makes the following allegations.

A. Industry Background

    Implant-grade PEEK has properties, such as elasticity, 
machinability, and radiolucency, that are distinct from other materials 
used in implantable medical devices, such as titanium and bone. These 
properties make PEEK especially suitable for many types of implantable 
medical devices, particularly spinal interbody fusion devices. Invibio 
was the first company to develop and sell implant-grade PEEK. The 
United States Food and Drug Administration (``FDA'') first cleared a 
medical device containing Invibio PEEK in 1999. Upon introducing 
implant-grade PEEK, Invibio sold the product to its medical device 
maker customers under long-term supply contracts, many of which 
included exclusivity requirements.
    For a number of years, Invibio was the only supplier of implant-
grade PEEK. In the late 2000s, however, first Solvay Specialty Polymers 
LLC (``Solvay'') and then Evonik Corporation (``Evonik'') took steps to 
enter the market. The FDA cleared the first spinal implant device 
containing Solvay PEEK in 2010, and the first one containing Evonik 
PEEK in 2013.

B. Invibio's Use of Exclusivity Terms To Impede Competitors

    Invibio responded to Solvay's and Evonik's entry by tightening and 
expanding the scope of exclusivity provisions in its supply contracts 
with medical device makers. Invibio did this to impede Solvay and 
Evonik from developing into effective rivals. Invibio knew that if 
Solvay and Evonik could gain reputation and experience, in particular, 
by developing supply relationships with leading medical device makers, 
this would validate their status as PEEK suppliers with other potential 
PEEK buyers and ultimately lead to significant price competition--
painful for Invibio but beneficial to medical device makers.
    Invibio extracted exclusivity terms from customers both by 
threatening to withhold critical supply or support services and by 
offering minor inducements. For example, Invibio threatened to withhold 
access to new brands of its PEEK and to Invibio's FDA master file if a 
customer declined to purchase exclusively from Invibio. Where 
necessary, Invibio offered small price discounts in exchange for 
exclusivity.
    Due to Invibio's efforts, nearly all medical device makers that 
purchase PEEK from Invibio do so under contracts that impose some form 
of exclusivity. Although precise exclusivity terms vary, they generally 
take one of three forms: (1) Requiring the use of Invibio PEEK for all 
PEEK-containing devices; (2) requiring the use of Invibio PEEK for a 
broad category of PEEK-containing devices; or (3) requiring the use of 
Invibio PEEK for a list of identified PEEK-containing devices. Even 
where exclusivity terms apply at the device level, i.e., to a list of 
specified devices, the foreclosure effect is substantial: The list 
often includes nearly every device in the customer's portfolio and the 
customer thus cannot source substantial volumes of PEEK from Invibio's 
competitors. Taken together, Invibio's exclusive contracts foreclose a 
substantial majority of PEEK sales from Invibio's rivals.

C. Invibio's Monopoly Power

    Both direct and indirect evidence demonstrate that Invibio has 
monopoly power in the market for implant-grade PEEK. Invibio has priced 
its PEEK substantially higher than competing versions of PEEK, without 
ceding material market share, and has impeded competitors through its 
exclusive contracts. In addition, Invibio has consistently held an 
over-90% share of a relevant market with substantial entry barriers, 
which indirectly evidences its monopoly power. PEEK has distinctive 
properties from other materials used in spinal and other implants. 
Physician preferences typically drive the choice of materials used in 
an implant, and these preferences largely reflect material properties 
rather than price. Other materials are therefore not sufficiently

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close substitutes to prevent a monopolist PEEK supplier from profitably 
raising prices. The relevant product market is therefore no broader 
than implant-grade PEEK, i.e., PEEK that has been used in at least one 
device cleared by the FDA.

D. Competitive Impact of Invibio's Conduct

    Through its exclusive contracting strategy, Invibio has maintained 
its monopoly power and harmed competition by marginalizing its 
competitors. In addition, Invibio's exclusive contracts have prevented 
its customers from exercising a meaningful choice between implant-grade 
PEEK suppliers and from enjoying the full benefits of competition, 
including price competition.
    Invibio's exclusivity terms have prevented Solvay and Evonik from 
achieving a significant volume of implant-grade PEEK sales, 
notwithstanding their offering of significantly lower prices. Invibio 
has also excluded Solvay and Evonik from forming supply relationships 
with key medical device makers. As a result, Solvay and Evonik have 
been unable to achieve significant market share and have consistently 
missed sales targets. There is a significant risk that continued 
enforcement of Invibio's exclusive contracts would preclude Solvay and 
Evonik from achieving sufficient returns to justify future investments, 
including in innovative technologies. Without those investments, the 
firms would be even less effective competitors in the future.
    Additionally, Invibio's exclusive contracts have deprived medical 
device makers of the opportunity to make a meaningful choice among 
competing suppliers and thereby enjoy the benefits of price, 
innovation, and quality competition. Even medical device makers that 
would not have switched to a competitor of Invibio would have benefited 
from a more competitive market. In addition, many medical device makers 
prefer to have more than one source of PEEK in order to mitigate risk 
and for other commercial benefits. Absent Invibio's exclusivity 
requirements, a significant number of device makers would contract with 
Solvay or Evonik to secure lower-priced PEEK and additional or 
alternate sources of supply. However, medical device makers locked into 
long-term exclusive contracts have been precluded from pursuing their 
preferred procurement strategy.

III. Legal Analysis

    Monopolization is among the ``unfair methods of competition'' 
prohibited by Section 5 of the FTC Act.\1\ A firm unlawfully maintains 
monopoly power when it ``engage[s] in anti-competitive conduct that 
reasonably appears to be a significant contribution to maintaining 
monopoly power.'' \2\
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    \1\ See, e.g., McWane, Inc. v. FTC, 783 F.3d 814, 827 n.10 (11th 
Cir. 2015), cert. denied 577 U.S.--(Mar. 21, 2016).
    \2\ McWane, 783 F.3d at 833 (internal quotation marks and 
citations omitted); accord United States v. Dentsply Int'l, Inc., 
399 F.3d 181, 187 (3d Cir. 2005); United States v. Microsoft Corp., 
253 F.3d 34, 79 (D.C. Cir. 2001) (en banc) (citing 3 Philip E. 
Areeda & Herbert Hovenkamp, Antitrust Law ] 651c, at 78 (1996)).
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    Exclusive dealing by a monopolist may be condemned when it ``allows 
[the] monopolist to maintain its monopoly power by raising its rivals' 
costs sufficiently to prevent them from growing into effective 
competitors.'' \3\ Of particular relevance is whether an exclusive 
dealing policy has ``foreclose[d] competition in such a substantial 
share of the relevant market so as to adversely affect competition.'' 
\4\ To be unlawful, exclusive dealing need not have foreclosed all 
competition from the market.\5\
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    \3\ McWane, 783 F.3d at 832 (citing XI Philip E. Areeda & 
Herbert Hovenkamp, Antitrust Law ] 1804 a, at 116-17 (2011)); accord 
Dentsply, 399 F.3d at 191; Microsoft, 253 F.3d at 69-71; see also In 
re McWane, Inc., No. 9351, 2014 WL 556261 at *19, *28 (F.T.C. Jan. 
30, 2014) (exclusive dealing by a monopolist may be unlawful where 
it ``impair[s] the ability of rivals to grow into effective 
competitors that might erode the firm's dominant position'' or 
``denie[s] its customers the ability to make a meaningful choice'') 
(internal quotation marks and citations omitted), aff'd, McWane, 
Inc. v. FTC, 783 F.3d 814 (11th Cir. 2015).
    \4\ ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 271 (3d Cir. 
2012); see also Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 
327 (1961) (``In practical application, even though a contract is 
found to be an exclusive-dealing arrangement, it does not violate 
the section unless the court believes it probable that performance 
of the contract will foreclose competition in a substantial share of 
the line of commerce affected.'').
    \5\ Dentsply, 399 F.3d at 191.
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    The factual allegations in the complaint support a finding of 
monopolization. Invibio's exclusivity strategy has not prevented entry 
entirely. But its exclusivity terms--whether full exclusivity terms or 
terms that apply at the product or product category level across a wide 
range of products--have foreclosed its rivals from a substantial 
portion of available sales opportunities in the relevant market and 
prevented those rivals from competing effectively. Among the foreclosed 
sales opportunities are key customers that would validate the 
reputations of Solvay and Evonik as legitimate rivals of Invibio, 
notwithstanding their more recent entry into the market. Invibio's 
exclusionary conduct has also reduced incentives to innovate and 
prevented PEEK consumers from exercising a meaningful choice among 
suppliers.
    A monopolist may rebut a showing of competitive harm by 
demonstrating that the challenged conduct is reasonably necessary to 
achieve a procompetitive benefit.\6\ Any proffered justification, if 
proven, must be balanced against the harm caused by the challenged 
conduct.\7\ Here, no procompetitive efficiencies justify the scope of 
Invibio's exclusionary and anticompetitive conduct. Any procompetitive 
benefit could have been achieved through less restrictive means.
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    \6\ See, e.g., Microsoft, 253 F.3d at 59.
    \7\ Id.
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IV. The Consent Order

    The Decision and Order remedies Invibio's anticompetitive conduct 
and imposes certain fencing-in requirements in order to prevent de 
facto exclusivity between Invibio and its customers.
    Paragraph I of the order defines the key terms used throughout the 
rest of the order.
    Paragraph II addresses the core of Invibio's anticompetitive 
conduct. Paragraph II.A prohibits Invibio from adopting or implementing 
any agreement or policy that results in ``exclusivity'' with customers. 
``Exclusivity'' is defined to include any limit or prohibition by 
Invibio on its customers dealing with a competing implant-grade PEEK 
supplier or any requirement by Invibio that a customer use only Invibio 
PEEK in (1) all of its devices, (2) in any group of devices, or (3) in 
any one device. The order thus applies to all forms of exclusivity that 
appear in Invibio's contracts.
    Under Paragraph II.A, Invibio may not require exclusivity for any 
new contract, except in the limited circumstances set forth in 
Paragraph II.E (described below). Further, Invibio may not enforce 
exclusivity terms in an existing contract with any medical device maker 
that chooses to use an alternate implant-grade PEEK supplier instead of 
Invibio for any or all future devices. In addition, Paragraph II.A, in 
conjunction with Paragraph II.F (described below), prohibits Invibio 
from enforcing provisions in an existing contract that would prevent a 
medical device maker from using other suppliers of implant-grade PEEK 
for any device, or from switching suppliers for any current device, 
provided that the device maker agrees to the tracking requirements 
contained in Exhibit C of the order. The

[[Page 51887]]

tracking requirements are designed to accommodate Invibio's concerns, 
related to potential product liability actions, about maintaining the 
ability to identify devices that use Invibio PEEK and are generally 
consistent with industry practice.
    Paragraph II.B prohibits Invibio from retaliating against customers 
for using or preparing to use an alternate PEEK supplier. Prohibited 
retaliation includes cutting off PEEK sales or withholding access to 
regulatory support.
    Paragraph II.C contains provisions designed to prevent de facto 
exclusivity in the future. For all new contracts, Invibio may not 
require minimum purchases, either as a condition of sale or as a 
condition for receiving important contract terms or services, other 
than as described in Paragraph II.D. Invibio may not offer volume 
discounts that are applied retroactively once a customer reaches a 
specified threshold. For example, Invibio may provide a discount on 
sales beyond 100 units but it may not lower the price of the first 99 
units if and when the customer buys the 100th unit. Invibio may, 
however, provide certain discounts and non-price incentives designed to 
meet competition.
    Paragraph II.D allows Invibio to condition its provision of certain 
types of extraordinary support to a customer for new devices on minimum 
purchase requirements for three years after the date of FDA clearance 
for such devices, so long as the minimum purchase amounts to less than 
30 percent of the customer's implant-grade PEEK requirements for the 
device(s) that received the support. Extraordinary support excludes 
routine services such as maintaining and granting access to Invibio's 
FDA master file.
    Paragraph II.E contains provisions designed to allow for 
procompetitive collaboration with a customer and preserve Invibio's 
incentives to innovate, including through investments that may be 
susceptible to free-riding by competitors. The paragraph allows Invibio 
to enter into a mutually exclusive contract with a customer when 
Invibio and the customer have engaged in the joint development of a new 
product that has required the contribution of significant capital, 
intellectual property rights, or labor by both Invibio and the 
customer, or when a customer asks that Invibio manufacture a custom 
component to the customer's specifications. Current PEEK sales subject 
to such contracts represent a small portion of the relevant market. 
Nonetheless, several limitations apply under this paragraph. The 
contracts must be: In writing, time-limited, applicable only to the 
jointly developed or custom product, and notified to the Commission. 
Invibio may not tie the availability of other forms, grades, or types 
of PEEK to a customer's willingness or agreement to enter into this 
type of contract. Further, sales resulting from these exclusive 
contracts may not account for more than 30 percent of Invibio's total 
annual sales.
    Paragraph II.F allows Invibio to maintain limited exclusivity in 
existing contracts if customers do not agree to certain tracking 
requirements. Specifically, Invibio may enforce specified product-level 
exclusivity terms in existing contracts if the customer does not accept 
the terms set forth in Exhibit C to the order, thereby agreeing: (1) 
Not to mix (commingle) PEEK from different suppliers in a single unit 
of a device; (2) to maintain records that identify which supplier's 
PEEK is used in any batch of devices that are dual-sourced; and (3) to 
notify Invibio in the event of an adverse event related to Invibio's 
PEEK. These tracking requirements are generally consistent with 
existing industry practice.
    Paragraph III requires Invibio to implement an antitrust compliance 
program, which includes providing notice of the order to Invibio's 
customers. Paragraphs IV-VI impose reporting and other compliance 
requirements.
    The Decision and Order will expire on July 13, 2036.

Statement of the Federal Trade Commission

    The Commission has approved a final consent order settling charges 
that Victrex plc, together with its subsidiaries Invibio Limited and 
Invibio, Inc. (collectively ``Invibio''), violated Section 5 of the 
Federal Trade Commission Act by using exclusive supply contracts to 
maintain Invibio's monopoly power in the market for a high performance 
polymer used in medical implants known as polyetheretherketone or PEEK. 
Our order aims to facilitate price competition, spur innovation, and 
provide medical device makers with a meaningful choice among PEEK 
suppliers. This enforcement action reflects our commitment to intervene 
when a dominant firm employs exclusionary practices to maintain its 
monopoly power and harm competition.
    It is well established that exclusive dealing can promote or harm 
competition, depending on the circumstances.\1\ The Commission 
therefore examines exclusive dealing under the rule of reason to 
determine whether the probable net effect of an exclusive dealing 
policy is to benefit or harm competition. In particular, we focus on 
evidence that the suspect conduct has affected or is likely to affect 
prices, output, quality, innovation, and consumer choice. Because its 
legality turns on its impact on competition, an exclusive dealing 
policy may be lawful when used by a firm in a competitive market, but 
unlawful if a monopolist uses the policy to maintain its dominant 
position, for example, by diminishing its rivals' ability to 
compete.\2\ We have reason to believe that the latter occurred here.
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    \1\ See, e.g., McWane, Inc. v. FTC, 783 F.3d 814, 827-28 (11th 
Cir. 2015), cert. denied, 136 S. Ct. 1452 (2016); United States v. 
Dentsply Int'l, Inc., 399 F.3d 181, 187 (3d Cir. 2005); Ilya R. 
Segal & Michael D. Whinston, Exclusive Contracts and Protection of 
Investments, 31 RAND J. Econ. 603, 603 (2000); Eric B. Rasmusen, J. 
Mark Ramseyer & John S. Wiley, Jr., Naked Exclusion, 81 Am. Econ. 
Rev. 1137, 1137-38 (1991), as corrected by Ilya R. Segal & Michael 
D. Whinston, Naked Exclusion: Comment, 90 Am. Econ. Rev. 296, 307 
(2000).
    \2\ See, e.g., Dentsply, 399 F.3d at 187 (``Although not illegal 
in themselves, exclusive dealing arrangements can be an improper 
means of maintaining a monopoly.'').
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    Invibio was the first, and for several years the only, PEEK 
supplier in the market. We charge that, when faced with the entry of 
two new rivals in the late 2000s, Solvay Specialty Polymers LLC and 
Evonik Corporation, Invibio sought to lock up its customers and lock 
out these rivals. Invibio recognized that denying Solvay and Evonik 
access to the largest and most influential customers was critical to 
preventing the two entrants from validating their reputations in the 
market and achieving the experience needed to pose a serious threat to 
Invibio's market dominance.
    As described in our complaint, Invibio had entered into long-term 
exclusive contracts with nearly every medical device maker producing 
implants using PEEK. We allege that, to prevent Solvay and Evonik from 
gaining scope, experience, and supply relationships, Invibio tightened 
the exclusivity terms of its supply agreements. Some of these 
provisions explicitly require the use of Invibio's PEEK for all of a 
customer's PEEK-containing devices, while others impose exclusivity for 
a list of product categories or designated products that often comprise 
nearly every PEEK-containing device in a customer's portfolio.
    Invibio threatened customers that resisted its demand for 
exclusivity with retaliation, including termination of the

[[Page 51888]]

PEEK supply for all of a device maker's products, lack of access to new 
types of PEEK developed by Invibio, and the loss of necessary 
regulatory support. In certain cases, Invibio provided customers with a 
small price discount or other benefit in exchange for exclusivity. 
Notably, both Solvay and Evonik offered PEEK at prices significantly 
below those charged by Invibio, lower even than prices reflecting 
discounts Invibio offered to secure customer exclusivity.
    As alleged in the complaint, this strategy worked. Even after 
Solvay and Evonik's entry, Invibio still accounted for approximately 90 
percent of implant-grade PEEK sales. Invibio's exclusive dealing policy 
foreclosed a substantial majority of PEEK sales for which its rivals 
otherwise could have competed. The evidence shows that Invibio has been 
able to charge supracompetitive prices to many device makers 
notwithstanding Solvay and Evonik's entry. Largely limited to competing 
for small or start-up device makers that do not have exclusive 
contracts with Invibio, Solvay and Evonik missed their respective sales 
targets. Absent the Commission's enforcement action, Invibio's conduct 
would continue to deny Solvay and Evonik the opportunity to contest 
most sales opportunities. They would be unable to achieve sales volumes 
sufficient to incentivize continued investment in the business that 
would yield further innovations in PEEK technology. Importantly, 
Invibio has failed to identify any procompetitive justification that 
would offset the harm that its exclusive supply contracts inflicted on 
competition.
    In order to safeguard competition, the Commission's order generally 
prohibits Invibio from entering into exclusive supply contracts and 
from preventing current customers from using an alternative source of 
PEEK in new products. The order also prohibits Invibio from imposing 
contract terms that would deter a customer from purchasing additional 
units of PEEK from a rival. In general, Invibio may neither condition 
price or other sales terms on a customer's purchase of a specified 
portion or percentage of its PEEK requirements from Invibio, nor offer 
volume discounts that are applied retroactively once a customer's total 
purchases of Invibio PEEK reach a specified threshold. Invibio may, 
however, offer volume discounts that are not retroactive.
    At the same time, we recognize that collaborative research and 
development efforts involving a PEEK supplier and a device maker 
present a different set of issues, including potential concerns about 
free riding. Consequently, our order leaves room for limited exclusive 
arrangements where Invibio and a device maker jointly research and 
develop new or custom PEEK products or devices.
    In sum, our order appropriately addresses Invibio's exclusionary 
conduct, provides its rivals a meaningful opportunity to compete, and 
opens the door for price competition, innovation, and more choice for 
PEEK customers.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2016-18565 Filed 8-4-16; 8:45 am]
 BILLING CODE 6750-01-P