Deals in pharma, elsewhere prompt US DOJ-FTC conflict as DOJ seeks greater role

14 October 2019 12:19pm

10 October 2019, by Jenna Ebersole and Joshua Sisco

Pharmaceutical industry mergers traditionally fall in the US Federal Trade Commission’s bailiwick, but the US Department of Justice over the last year has instead pushed to review some of those deals, along with other deals customarily examined by the FTC, MLex has learned.

Prolonged battles between the regulators have created uncertainty and delay for some merging companies, and the disputes have stoked frustration among staffers at the agencies, it is understood.

The DOJ made a play for GlaxoSmithKline’s joint venture with Pfizer, as well as Apple’s acquisition of most of Intel’s smartphone modem business, MLex has learned. Both deals appeared to fall within the historical purview of the FTC, and the commission ultimately reviewed and greenlit both of them.

This type of interagency battling between the US's two antitrust agencies has long happened behind closed doors, but recently spilled into public view as the FTC and DOJ have feuded over which agency will take the lead on certain investigations.

The agencies use a so-called ‘clearance process’ to decide which of them will review a merger if both sides believe they have a claim based on their past expertise. Historically, the process has often been resolved at the staff level but sometimes disputes escalate to higher-level officials at the agencies.

Over the last year the process has been particularly fraught and involved officials above the staff level, it is understood.

According to FTC Chairman Joe Simons’ calendars — which MLex obtained via a public records request — he has had several meetings with Bureau of Competition staff related to clearance issues. There were meetings in February, April and May of this year.

With Apple-Intel, the companies never received any objection from either agency, but did not know which one had jurisdiction until shortly before the FTC cleared the deal.

Pharma deals involving biologics have been one particular area of tension, but the FTC has also sought to review deals seemingly outside of its traditional focus, it is understood, including at least one each in the defense and agriculture industries.

In the casino industry, it is understood the DOJ sought to review one merger last winter despite the FTC’s longtime experience. The battle contributed to the acquirer’s decision to pull and refile merger paperwork, it is understood, even though the FTC ultimately got the deal and cleared it without a second request.

A medical device deal also drew a push for review from the DOJ, again despite FTC expertise

For most transactions, it had been immediately obvious whether the deal will go to the DOJ or FTC based on the agency’s past expertise. There were always some conflicts, however, as when market dynamics have shifted, the market hasn’t previously been reviewed by either agency or multiple markets are involved.

The DOJ and FTC have fought over deals that fall into a gray area and others that are more clear-cut, it is understood. It isn’t clear whether either the DOJ or FTC has succeeded in gaining a foothold to investigate mergers in an industry traditionally reviewed by the other one.

Even so, conflicts for a variety of mergers have at times extended so late into the initial waiting period that the FTC or DOJ doesn’t have enough time left to review it before the waiting period expiration, after which the deal would be automatically approved. As a result, staff asks the companies to pull and refile merger paperwork to kick off a new waiting period.

As recently as last week, a company was forced to pull and refile paperwork due to such a conflict, it is understood.

In many cases, companies that don’t believe their deals raise problems file paperwork and don’t hear from either agency for weeks. As a result, they expect their deals to be cleared.

Instead, they get a call just before the waiting period has expired with a pull-and-refile request. If they don’t agree, they are threatened with a more in-depth review — a so-called 'second request.' And because staff has had little time to try to identify potential issues, such requests for more information would tend to be expansive and cover companies' full product portfolios, rather than narrowly focusing on problem areas.

Complying is expensive, and companies have little choice but to pull and refile when the agencies ask them to do so.

In at least one of the early cannabis industry deals, the process for deciding which agency would review it was lengthy, MLex has learned. But the cannabis deals involved a new and dynamic industry and both agencies had a potential basis for a claim given that the DOJ traditionally handles agriculture mergers while the FTC reviews retail transactions.

The DOJ has ultimately investigated the cannabis deals and routinely issued second requests for more information on the transactions.

The pharma disputes are different in that the FTC’s expertise in the area has long been well-established. It isn’t clear that any of the major pending pharma deals — Bristol-Myers Squibb-Celgene, AbbVie-Allergan and Roche-Spark — were caught up in squabbles. Each of those transactions is under review at the FTC.

AbbVie pulled and refiled the Allergan merger paperwork, but MLex has reported the tactic was used to narrow the issues rather than because of a clearance dispute.

But in one pharma transaction, a fight between the FTC and DOJ lasted long enough that the companies were forced to pull and refile their merger paperwork, it is understood. Eventually the FTC reviewed the deal and quickly granted early clearance during the second waiting period.

Both agencies declined to comment on the fights.

MLex also reported last fall that battles for deals was dragging out merger reviews and in some cases forcing companies to pull and refile their antitrust paperwork.

Weeks later, FTC Chairman Joe Simons and DOJ antitrust chief Makan Delrahim said they were cooperating to create a new process that would expedite decisions within the initial merger waiting period.

But in January, several antitrust attorneys publicly confirmed that many pull-and-refiles were the result of clearance disputes between the agencies, including in at least one retail deal that would be expected to fall into the FTC’s expertise.

Fights over which agency will handle an antitrust investigation also occur outside the merger context.

The DOJ and FTC earlier this year agreed to split up probes into the Big Tech companies. But some in the FTC feel the DOJ has reneged on the agreement after it announced in July that it was undertaking a broad antitrust inquiry into online markets.

Last month during questioning at a US Senate oversight hearing, Simons and Delrahim acknowledged that the process for deciding which agency will handle investigations has broken down.

“I cannot deny that Mr. Simons' and my time is wasted on these kind of squabbles,” Delrahim said.

With additional reporting by Leah Nylen