81 FR 51885 - Victrex, plc; Invibio, Limited; and Invibio, Inc.
FEDERAL TRADE COMMISSION Federal Register Volume 81, Issue 151 (August 5, 2016)
Federal Register Volume 81, Issue 151 (August 5, 2016)
| Page Range | 51885-51888 | |
| FR Document | 2016-18565 |
[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] ======================================================================= ----------------------------------------------------------------------- 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. ----------------------------------------------------------------------- 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 [[Page 51886]] 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\ --------------------------------------------------------------------------- \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)). --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \6\ See, e.g., Microsoft, 253 F.3d at 59. \7\ Id. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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.''). --------------------------------------------------------------------------- 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
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General Counsel; Richard S. Jones, The order was placed on the public knew that if Solvay and Evonik could
Atlanta Regional Director; William R. record for 30 days in order to receive gain reputation and experience, in
Tobey, Chief Counsel; Kimberly D. comments from interested persons. particular, by developing supply
Moseley, Executive Director, Federal Comments received during this period relationships with leading medical
Service Impasses Panel; and Bruce became part of the public record. After device makers, this would validate their
Gripe, Chief Operating Officer, Office of the public comment period, the status as PEEK suppliers with other
Special Counsel. Commission determined to make the potential PEEK buyers and ultimately
Dated: August 3, 2016. proposed order final. lead to significant price competition—
Sarah Whittle Spooner,
The purpose of this analysis, which painful for Invibio but beneficial to
was placed on the Commission Web site medical device makers.
Executive Director.
on April 27, 2016, was to facilitate Invibio extracted exclusivity terms
[FR Doc. 2016–18614 Filed 8–4–16; 8:45 am] from customers both by threatening to
public comment on the proposed order.
BILLING CODE P withhold critical supply or support
It is not intended to constitute an
official interpretation of the complaint, services and by offering minor
the consent agreement, or the order, or inducements. For example, Invibio
FEDERAL TRADE COMMISSION to modify their terms in any way. The threatened to withhold access to new
[File No. 1410042; Docket No. C–4586] consent agreement is for settlement brands of its PEEK and to Invibio’s FDA
purposes only and does not constitute master file if a customer declined to
Victrex, plc; Invibio, Limited; and an admission by Invibio that the law has purchase exclusively from Invibio.
Invibio, Inc. been violated as alleged in the Where necessary, Invibio offered small
complaint or that the facts alleged in the price discounts in exchange for
AGENCY: Federal Trade Commission. exclusivity.
complaint, other than jurisdictional
ACTION:Consent Order and Statement of facts, are true. Due to Invibio’s efforts, nearly all
the Commission. medical device makers that purchase
II. The Complaint PEEK from Invibio do so under
SUMMARY: The Commission has
The complaint makes the following contracts that impose some form of
approved a final consent order in this
allegations. exclusivity. Although precise
matter, settling alleged violations of
exclusivity terms vary, they generally
federal law prohibiting unfair methods A. Industry Background take one of three forms: (1) Requiring
of competition, and has issued a Implant-grade PEEK has properties, the use of Invibio PEEK for all PEEK-
Statement of the Commission. The such as elasticity, machinability, and containing devices; (2) requiring the use
attached Analysis to Aid Public radiolucency, that are distinct from of Invibio PEEK for a broad category of
Comment and Statement of the other materials used in implantable PEEK-containing devices; or (3)
Commission describe both the
medical devices, such as titanium and requiring the use of Invibio PEEK for a
allegations in the Complaint and the
bone. These properties make PEEK list of identified PEEK-containing
terms of the Decision and Order.
especially suitable for many types of devices. Even where exclusivity terms
DATES: Issued on July 13, 2016. implantable medical devices, apply at the device level, i.e., to a list
SUPPLEMENTARY INFORMATION: particularly spinal interbody fusion of specified devices, the foreclosure
Analysis of Agreement Containing devices. Invibio was the first company effect is substantial: The list often
Consent Order To Aid Public Comment to develop and sell implant-grade PEEK. includes nearly every device in the
The United States Food and Drug customer’s portfolio and the customer
I. Introduction Administration (‘‘FDA’’) first cleared a thus cannot source substantial volumes
The Federal Trade Commission has medical device containing Invibio PEEK of PEEK from Invibio’s competitors.
approved a final consent order with in 1999. Upon introducing implant- Taken together, Invibio’s exclusive
Victrex plc and its wholly owned grade PEEK, Invibio sold the product to contracts foreclose a substantial
subsidiaries Invibio Limited and its medical device maker customers majority of PEEK sales from Invibio’s
Invibio, Inc. (collectively, ‘‘Invibio’’). under long-term supply contracts, many rivals.
Invibio makes and sells implant-grade of which included exclusivity C. Invibio’s Monopoly Power
PEEK, a high-performance polymer requirements.
contained in implantable devices used For a number of years, Invibio was the Both direct and indirect evidence
in spinal interbody fusion and other only supplier of implant-grade PEEK. In demonstrate that Invibio has monopoly
medical procedures. The order seeks to the late 2000s, however, first Solvay power in the market for implant-grade
address allegations that Invibio used Specialty Polymers LLC (‘‘Solvay’’) and PEEK. Invibio has priced its PEEK
exclusive supply contracts to maintain then Evonik Corporation (‘‘Evonik’’) substantially higher than competing
its monopoly power in the market for took steps to enter the market. The FDA versions of PEEK, without ceding
implant-grade PEEK, in violation of cleared the first spinal implant device material market share, and has impeded
Section 5 of the Federal Trade containing Solvay PEEK in 2010, and competitors through its exclusive
Commission Act, 15 U.S.C. 45. the first one containing Evonik PEEK in contracts. In addition, Invibio has
The order requires Invibio to cease 2013. consistently held an over-90% share of
and desist from enforcing most a relevant market with substantial entry
exclusivity terms in current supply B. Invibio’s Use of Exclusivity Terms To barriers, which indirectly evidences its
contracts and generally prohibits Invibio Impede Competitors monopoly power. PEEK has distinctive
mstockstill on DSK3G9T082PROD with NOTICES
from requiring exclusivity in future Invibio responded to Solvay’s and properties from other materials used in
contracts. The order also prevents Evonik’s entry by tightening and spinal and other implants. Physician
Invibio from adopting other expanding the scope of exclusivity preferences typically drive the choice of
mechanisms, such as market-share provisions in its supply contracts with materials used in an implant, and these
discounts or retroactive volume medical device makers. Invibio did this preferences largely reflect material
discounts, to maintain its monopoly to impede Solvay and Evonik from properties rather than price. Other
power. developing into effective rivals. Invibio materials are therefore not sufficiently
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close substitutes to prevent a III. Legal Analysis notwithstanding their more recent entry
monopolist PEEK supplier from Monopolization is among the ‘‘unfair into the market. Invibio’s exclusionary
profitably raising prices. The relevant methods of competition’’ prohibited by conduct has also reduced incentives to
product market is therefore no broader Section 5 of the FTC Act.1 A firm innovate and prevented PEEK
than implant-grade PEEK, i.e., PEEK unlawfully maintains monopoly power consumers from exercising a meaningful
that has been used in at least one device when it ‘‘engage[s] in anti-competitive choice among suppliers.
cleared by the FDA. A monopolist may rebut a showing of
conduct that reasonably appears to be a
competitive harm by demonstrating that
D. Competitive Impact of Invibio’s significant contribution to maintaining
the challenged conduct is reasonably
Conduct monopoly power.’’ 2
necessary to achieve a procompetitive
Exclusive dealing by a monopolist
benefit.6 Any proffered justification, if
Through its exclusive contracting may be condemned when it ‘‘allows
proven, must be balanced against the
strategy, Invibio has maintained its [the] monopolist to maintain its
harm caused by the challenged
monopoly power and harmed monopoly power by raising its rivals’
conduct.7 Here, no procompetitive
competition by marginalizing its costs sufficiently to prevent them from
efficiencies justify the scope of Invibio’s
competitors. In addition, Invibio’s growing into effective competitors.’’ 3 Of
exclusionary and anticompetitive
exclusive contracts have prevented its particular relevance is whether an
conduct. Any procompetitive benefit
customers from exercising a meaningful exclusive dealing policy has
could have been achieved through less
choice between implant-grade PEEK ‘‘foreclose[d] competition in such a
restrictive means.
suppliers and from enjoying the full substantial share of the relevant market
benefits of competition, including price so as to adversely affect competition.’’ 4 IV. The Consent Order
competition. To be unlawful, exclusive dealing need The Decision and Order remedies
not have foreclosed all competition from Invibio’s anticompetitive conduct and
Invibio’s exclusivity terms have the market.5
prevented Solvay and Evonik from imposes certain fencing-in requirements
The factual allegations in the in order to prevent de facto exclusivity
achieving a significant volume of complaint support a finding of between Invibio and its customers.
implant-grade PEEK sales, monopolization. Invibio’s exclusivity Paragraph I of the order defines the
notwithstanding their offering of strategy has not prevented entry key terms used throughout the rest of
significantly lower prices. Invibio has entirely. But its exclusivity terms— the order.
also excluded Solvay and Evonik from whether full exclusivity terms or terms Paragraph II addresses the core of
forming supply relationships with key that apply at the product or product Invibio’s anticompetitive conduct.
medical device makers. As a result, category level across a wide range of Paragraph II.A prohibits Invibio from
Solvay and Evonik have been unable to products—have foreclosed its rivals adopting or implementing any
achieve significant market share and from a substantial portion of available agreement or policy that results in
have consistently missed sales targets. sales opportunities in the relevant ‘‘exclusivity’’ with customers.
There is a significant risk that continued market and prevented those rivals from ‘‘Exclusivity’’ is defined to include any
enforcement of Invibio’s exclusive competing effectively. Among the limit or prohibition by Invibio on its
contracts would preclude Solvay and foreclosed sales opportunities are key customers dealing with a competing
Evonik from achieving sufficient returns customers that would validate the implant-grade PEEK supplier or any
to justify future investments, including reputations of Solvay and Evonik as requirement by Invibio that a customer
in innovative technologies. Without legitimate rivals of Invibio, use only Invibio PEEK in (1) all of its
those investments, the firms would be devices, (2) in any group of devices, or
1 See, e.g., McWane, Inc. v. FTC, 783 F.3d 814,
even less effective competitors in the (3) in any one device. The order thus
827 n.10 (11th Cir. 2015), cert. denied 577 U.S.—
future. (Mar. 21, 2016).
applies to all forms of exclusivity that
Additionally, Invibio’s exclusive 2 McWane, 783 F.3d at 833 (internal quotation appear in Invibio’s contracts.
contracts have deprived medical device marks and citations omitted); accord United States Under Paragraph II.A, Invibio may not
makers of the opportunity to make a
v. Dentsply Int’l, Inc., 399 F.3d 181, 187 (3d Cir. require exclusivity for any new contract,
2005); United States v. Microsoft Corp., 253 F.3d 34, except in the limited circumstances set
meaningful choice among competing 79 (D.C. Cir. 2001) (en banc) (citing 3 Philip E.
forth in Paragraph II.E (described
suppliers and thereby enjoy the benefits Areeda & Herbert Hovenkamp, Antitrust Law
¶ 651c, at 78 (1996)). below). Further, Invibio may not enforce
of price, innovation, and quality 3 McWane, 783 F.3d at 832 (citing XI Philip E. exclusivity terms in an existing contract
competition. Even medical device Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1804 with any medical device maker that
makers that would not have switched to a, at 116–17 (2011)); accord Dentsply, 399 F.3d at
chooses to use an alternate implant-
a competitor of Invibio would have 191; Microsoft, 253 F.3d at 69–71; see also In re
McWane, Inc., No. 9351, 2014 WL 556261 at *19, grade PEEK supplier instead of Invibio
benefited from a more competitive for any or all future devices. In addition,
*28 (F.T.C. Jan. 30, 2014) (exclusive dealing by a
market. In addition, many medical monopolist may be unlawful where it ‘‘impair[s] the Paragraph II.A, in conjunction with
device makers prefer to have more than ability of rivals to grow into effective competitors
Paragraph II.F (described below),
one source of PEEK in order to mitigate that might erode the firm’s dominant position’’ or
‘‘denie[s] its customers the ability to make a prohibits Invibio from enforcing
risk and for other commercial benefits. meaningful choice’’) (internal quotation marks and provisions in an existing contract that
Absent Invibio’s exclusivity citations omitted), aff’d, McWane, Inc. v. FTC, 783 would prevent a medical device maker
requirements, a significant number of F.3d 814 (11th Cir. 2015).
from using other suppliers of implant-
4 ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254,
device makers would contract with
mstockstill on DSK3G9T082PROD with NOTICES
271 (3d Cir. 2012); see also Tampa Elec. Co. v. grade PEEK for any device, or from
Solvay or Evonik to secure lower-priced Nashville Coal Co., 365 U.S. 320, 327 (1961) (‘‘In switching suppliers for any current
PEEK and additional or alternate practical application, even though a contract is device, provided that the device maker
sources of supply. However, medical found to be an exclusive-dealing arrangement, it agrees to the tracking requirements
device makers locked into long-term does not violate the section unless the court
believes it probable that performance of the contract contained in Exhibit C of the order. The
exclusive contracts have been precluded will foreclose competition in a substantial share of
from pursuing their preferred the line of commerce affected.’’). 6 See, e.g., Microsoft, 253 F.3d at 59.
procurement strategy. 5 Dentsply, 399 F.3d at 191. 7 Id.
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![51888 Federal Register / Vol. 81, No. 151 / Friday, August 5, 2016 / Notices
PEEK supply for all of a device maker’s issues, including potential concerns comment to the following address:
products, lack of access to new types of about free riding. Consequently, our Federal Trade Commission, Office of the
PEEK developed by Invibio, and the loss order leaves room for limited exclusive Secretary, Constitution Center, 400 7th
of necessary regulatory support. In arrangements where Invibio and a Street SW., 5th Floor, Suite 5610
certain cases, Invibio provided device maker jointly research and (Annex D), Washington, DC 20024.
customers with a small price discount develop new or custom PEEK products FOR FURTHER INFORMATION CONTACT:
or other benefit in exchange for or devices. Alexis Gilman (202–326–2579) or Dan
exclusivity. Notably, both Solvay and In sum, our order appropriately Ducore (202–326–2526), Bureau of
Evonik offered PEEK at prices addresses Invibio’s exclusionary Competition, 600 Pennsylvania Avenue
significantly below those charged by conduct, provides its rivals a NW., Washington, DC 20580.
Invibio, lower even than prices meaningful opportunity to compete, and SUPPLEMENTARY INFORMATION: Pursuant
reflecting discounts Invibio offered to opens the door for price competition, to Section 6(f) of the Federal Trade
secure customer exclusivity. innovation, and more choice for PEEK Commission Act, 15 U.S.C. 46(f), and
As alleged in the complaint, this customers. FTC Rule 2.34, 16 CFR 2.34, notice is
strategy worked. Even after Solvay and By direction of the Commission. hereby given that the above-captioned
Evonik’s entry, Invibio still accounted
Donald S. Clark, consent agreement containing consent
for approximately 90 percent of
Secretary. order to cease and desist, having been
implant-grade PEEK sales. Invibio’s
[FR Doc. 2016–18565 Filed 8–4–16; 8:45 am] filed with and accepted, subject to final
exclusive dealing policy foreclosed a
substantial majority of PEEK sales for BILLING CODE 6750–01–P
approval, by the Commission, has been
which its rivals otherwise could have placed on the public record for a period
competed. The evidence shows that of thirty (30) days. The following
Invibio has been able to charge FEDERAL TRADE COMMISSION Analysis to Aid Public Comment
supracompetitive prices to many device describes the terms of the consent
[File No. 151 0175]
makers notwithstanding Solvay and agreement, and the allegations in the
Evonik’s entry. Largely limited to Koninklijke Ahold N.V. and Delhaize complaint. An electronic copy of the
competing for small or start-up device Group NV/SA; Analysis To Aid Public full text of the consent agreement
makers that do not have exclusive Comment package can be obtained from the FTC
contracts with Invibio, Solvay and Home Page (for July 22, 2016), on the
Evonik missed their respective sales AGENCY: Federal Trade Commission. World Wide Web, at http://www.ftc.gov/
targets. Absent the Commission’s ACTION: Proposed Consent Agreement. os/actions.shtm.
enforcement action, Invibio’s conduct You can file a comment online or on
SUMMARY: The consent agreement in this paper. For the Commission to consider
would continue to deny Solvay and matter settles alleged violations of
Evonik the opportunity to contest most your comment, we must receive it on or
federal law prohibiting unfair methods before August 22, 2016. Write ‘‘In the
sales opportunities. They would be of competition. The attached Analysis to
unable to achieve sales volumes Matter of Koninklijke Ahold N.V. and
Aid Public Comment describes both the Delhaize Group NV/SA File No. 151–
sufficient to incentivize continued allegations in the complaint and the
investment in the business that would 0175—Consent Agreement’’ on your
terms of the consent order—embodied comment. Your comment—including
yield further innovations in PEEK in the consent agreement—that would
technology. Importantly, Invibio has your name and your state—will be
settle these allegations. placed on the public record of this
failed to identify any procompetitive
DATES: Comments must be received on proceeding, including, to the extent
justification that would offset the harm
that its exclusive supply contracts or before August 22, 2016. practicable, on the public Commission
inflicted on competition. ADDRESSES: Interested parties may file a Web site, at http://www.ftc.gov/os/
In order to safeguard competition, the comment at https:// publiccomments.shtm. As a matter of
Commission’s order generally prohibits ftcpublic.commentworks.com/ftc/ discretion, the Commission tries to
Invibio from entering into exclusive aholddelhaizeconsent online or on remove individuals’ home contact
supply contracts and from preventing paper, by following the instructions in information from comments before
current customers from using an the Request for Comment part of the placing them on the Commission Web
alternative source of PEEK in new SUPPLEMENTARY INFORMATION section site.
products. The order also prohibits below. Write ‘‘In the Matter of Because your comment will be made
Invibio from imposing contract terms Koninklijke Ahold N.V. and Delhaize public, you are solely responsible for
that would deter a customer from Group NV/SA File No. 151–0175— making sure that your comment does
purchasing additional units of PEEK Consent Agreement’’ on your comment not include any sensitive personal
from a rival. In general, Invibio may and file your comment online at https:// information, like anyone’s Social
neither condition price or other sales ftcpublic.commentworks.com/ftc/ Security number, date of birth, driver’s
terms on a customer’s purchase of a aholddelhaizeconsent by following the license number or other state
specified portion or percentage of its instructions on the web-based form. If identification number or foreign country
PEEK requirements from Invibio, nor you prefer to file your comment on equivalent, passport number, financial
offer volume discounts that are applied paper, write ‘‘In the Matter of account number, or credit or debit card
retroactively once a customer’s total Koninklijke Ahold N.V. and Delhaize number. You are also solely responsible
purchases of Invibio PEEK reach a Group NV/SA File No. 151–0175— for making sure that your comment does
mstockstill on DSK3G9T082PROD with NOTICES
specified threshold. Invibio may, Consent Agreement’’ on your comment not include any sensitive health
however, offer volume discounts that and on the envelope, and mail your information, like medical records or
are not retroactive. comment to the following address: other individually identifiable health
At the same time, we recognize that Federal Trade Commission, Office of the information. In addition, do not include
collaborative research and development Secretary, 600 Pennsylvania Avenue any ‘‘[t]rade secret or any commercial or
efforts involving a PEEK supplier and a NW., Suite CC–5610 (Annex D), financial information which . . . is
device maker present a different set of Washington, DC 20580, or deliver your privileged or confidential,’’ as discussed
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Document Created: 2016-08-05 06:43:52
Document Modified: 2016-08-05 06:43:52
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| Action | Consent Order and Statement of the Commission. | |
| Dates | Issued on July 13, 2016. | |
| FR Citation | 81 FR 51885 |
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