[Federal Register: July 6, 1994]
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FEDERAL TRADE COMMISSION
[File No. 941 0019]
The Dow Chemical Company, et al.; Proposed Consent Agreement With
Analysis To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement.
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SUMMARY: In settlement of alleged violations of federal law prohibiting
unfair acts and practices and unfair methods of competition, this
consent agreement, accepted subject to final Commission approval, would
require, among other things, Marion Merrell Dow to license its
dicyclomine formulations and production technology to a third party,
and to contract manufacture dicyclomine for the third party while that
party awaits the Food and Drug Administration approval to sell its own
dicyclomine. The consent agreement also would prohibit future
acquisition of any dicyclomine manufacturing, production or
distribution capabilities without prior Commission approval.
DATES: Comments must be received on or before September 6, 1994.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT:
Ann Malester or Claudia Higgins, FTC/S-2224, Washington, DC 20580.
(202) 326-2682.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby
given that the following consent agreement containing a consent order
to cease and desist, having been filed with and accepted, subject to
final approval, by the Commission, has been placed on the public record
for a period of sixty (60) days. Public comment is invited. Such
comments or views will be considered by the Commission and will be
available for inspection and copying at its principal office in
accordance with Section 4.9(b)(6)(ii) of the Commission's Rules of
Practice (16 CFR 4.9(b)(6)(ii)).
Agreement Containing Consent Order
The Federal Trade Commission (``Commission''), having initiated an
investigation of the Acquisition of certain stock of Rugby-Darby Group
Companies, Inc. (``Rugby'') by Marion Merrell Dow Inc. (``MMD''), a
subsidiary of The Dow Chemical Company (``Dow'') (collectively referred
to as ``Proposed Respondents''), and it now appearing that Proposed
Respondents are willing to enter into an Agreement Containing Consent
Order (``Agreement'') to license certain assets, contract manufacture
dicyclomine tablets and capsules, cease and desist from certain acts,
and provide for certain other relief:
It is hereby agreed by and between Proposed Respondents, by their
duly authorized officers and their attorneys, and counsel for the
Commission that:
1. Proposed Respondent Dow is a corporation organized, existing,
and doing business under and by virtue of the laws of the state of
Delaware, with its principal place of business located at 2030 Dow
Center, Midland, Michigan, 48674.
2. Proposed Respondent MMD is a subsidiary of Dow, and is a
corporation organized, existing, and doing business under and by virtue
of the laws of the state of Delaware, with its principal place of
business located at 9300 Ward Parkway, Kansas City, Missouri, 64114.
3. Proposed Respondents admit all the jurisdictional facts set
forth in the draft of complaint here attached.
4. Proposed Respondents waive:
(a) Any further procedural steps;
(b) The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
(c) All rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement;
and
(d) Any claims under the Equal Access to Justice Act.
5. This agreement shall not become part of the public record of the
proceeding unless and until it is accepted by the Commission. If this
agreement is accepted by the Commission it, together with the draft of
complaint contemplated thereby, will be placed on the public record for
a period of sixty (60) days and information in respect thereto publicly
released. The Commission thereafter may either withdraw its acceptance
of this agreement and so notify the Proposed Respondents, in which
event it will take such action as it may consider appropriate, or issue
and serve its complaint (in such form as the circumstances may require)
and decision, in disposition of the proceeding.
6. This agreement is for settlement purposes only and does not
constitute an admission by the Proposed Respondents that the law has
been violated as alleged in the draft of complaint here attached, or
that the facts as alleged in the draft complaint, other than
jurisdictional facts, are true.
7. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Section 2.34 of the
Commission's rules, the Commission may, without further notice to
Proposed Respondents, (1) issue its complaint corresponding in form and
substance with the draft of complaint here attached and its decision
containing the following Order to license and to cease and desist in
disposition of the proceeding, and (2) make information public with
respect thereto. When so entered, the Order shall have the same force
and effect and may be altered, modified, or set aside in the same
manner and within the same time provided by statute for other orders.
The Order shall become final upon service. Delivery by the United
States Postal Service of the complaint and decision containing the
agreed-to Order to Proposed Respondents' addressed as stated in this
agreement shall constitute service. Proposed Respondents waive any
right they may have to any other manner of service. The complaint may
be used in construing the terms of the Order, and no agreement,
understanding, representation, or interpretation not contained in the
Order or the agreement may be used to vary or contradict the terms of
the Order.
8. Proposed Respondents have read the proposed Complaint and Order
contemplated hereby. Proposed Respondents understand that once the
Order has been issued, they will be required to file one or more
compliance reports showing they have fully complied with the Order.
Proposed Respondents further understand that they may be liable for
civil penalties in the amount provided by law for each violation of the
Order after it becomes final.
Order
I
It is ordered that, as used in this Order, the following
definitions shall apply:
A. ``Dow'' means The Dow Chemical Company, its predecessors,
subsidiaries, divisions, groups and affiliates controlled by Dow, and
its respective directors, officers, employees, agents and
representatives, and their respective successors and assigns.
B. ``MMD'' means Marion Merrell Dow Inc., its predecessors,
subsidiaries, divisions, groups and affiliates controlled by MMD, and
its respective directors, officers, employees, agents and
representatives, and their respective successors and assigns.
C. ``Rugby'' means Rugby Group, Inc., its predecessors,
subsidiaries, divisions, groups and affiliates controlled by Rugby, and
its respective directors, officers, employees, agents and
representatives, and their respective successors and assigns.
D. ``Respondents'' means Dow and MMD.
E. ``Commission'' means the Federal Trade Commission.
F. ``Acquisition'' means the acquisition by Respondents of certain
Rugby stock that is the subject of a stock purchase agreement dated
October 4, 1993.
G. ``Rugby intangible dicyclomine assets'' means those assets
relating to the manufacture and sale of dicyclomine tablets and
capsules acquired in the Acquisition that are not part of Rugby's
physical facilities or other tangible assets, including but not limited
to all formulations, patents, trade secrets, technology, know-how,
specifications, designs, drawings, processes, quality control data,
research materials, technical information, management information
systems, software, the Drug Master file, and all information relating
to United States Food and Drug Administration (``FDA'') approvals.
H. ``Potential New Entrant'' means the person(s) for whom MMD shall
contract manufacture, and to whom MMD shall sell, dicyclomine tablets
and capsules and license the Rugby intangible dicyclomine assets. The
Potential New Entrant must be a generic or a branded pharmaceutical
manufacturer with manufacturing facilities approved by the FDA for the
manufacture of generic or branded pharmaceutical products in the United
States.
I. ``Dicyclomine tablets and capsules'' means pharmaceutically
acceptable finished tablets and capsules consisting of either 10mg or
20mg of dicyclomine hydrochloride U.S.P. manufactured under an approved
New Drug Application (``NDA'') or an approved Abbreviated New Drug
Application (``ANDA'') for sale in the United States and that have
received at least an AB rating by the FDA.
J. ``Contract manufacture'' means the manufacture of an unlimited
volume of dicyclomine tablets and capsules by MMD for sale to a
Potential New Entrant in finished packaged form suitable for commercial
sale in the United States.
K. ``Finished packaged form'' means packaged in all forms required
by the Potential new Entrant so as to optimize sales and distribution
of the product, including but not limited to inscribing the name and
identification codes of the Potential New Entrant on the packaging of
dicyclomine capsules or tablets, and packaging the dicyclomine tablets
and capsules in units required by the Potential New Entrant, as
permitted by Rugby's existing ANDA.
L. ``Formulation'' means any and all information, including both
patent and trade secret information, technical assistance and advice,
relating to the manufacture of dicyclomine tablets and capsules that
meet United States Food and Drug Administration approved specifications
therefor.
II
It is further ordered that:
A. Within twelve (12) months from the date this Order becomes
final, MMD shall enter into an agreement (hereinafter ``Agreement''),
in good faith:
1. To license to the Potential New Entrant in perpetuity a non-
exclusive right to the Rugby intangible dicyclomine assets at no
minimum price; and
2. To contract manufacture and deliver in a timely manner the
volume of dicyclomine tablets and capsules requested by the Potential
New Entrant, at a price not to exceed 48% of the Average Wholesale
Price of Rugby's dicyclomine tablets and capsules in effect as of July
2, 1993.
MMD shall enter into such Agreement to license and contract
manufacture only with a Potential New Entrant that receives the prior
approval of the Commission, and only in a manner that receives the
prior approval of the Commission and that is consistent with the
purposes of this Order. The purposes of this Order are: (a) to provide
the means for establishing an ongoing, viable enterprise to replace the
competition in the dicyclomine tablet and capsule market alleged in the
Commission's Complaint to have been eliminated by the Acquisition; and
(b) to remedy the lessening of competition alleged in the Commission's
Complaint to have resulted from the Acquisition.
B. The Agreement shall require the Potential New Entrant to submit
to the Commission a certification attesting to the Potential New
Entrant's good faith intention and actual plan to obtain FDA approval
of its own NDA or ANDA for the manufacture and sale of dicyclomine
tablets and capsules in an expedited manner. The Agreement shall
terminate in the event that the Potential New Entrant fails to sell or
discontinues the sale of contract manufactured dicyclomine tablets and
capsules prior to obtaining FDA approval, or abandons its efforts or
fails to obtain FDA approval of its own NDA or ANDA for dicyclomine
tablets and capsules within seven (7) years from the date the
Commission approves the Agreement.
C. The Agreement shall require the Potential New Entrant to submit
to the Commission a verified written report setting forth in detail its
efforts to sell contract manufactured dicyclomine tablets and capsules
and to obtain FDA approvals necessary for manufacturing its own
dicyclomine tablets and capsules. The Agreement shall require such
report to be submitted one (1) year from the date the Agreement becomes
effective and annually thereafter until contract manufacturing ceases.
The Agreement shall also require the Potential New Entrant to report to
the Commission at least thirty (30) days prior to its discontinuing the
sale of contract manufactured dicyclomine tablets and capsules or
abandoning its efforts to obtain FDA approvals necessary for
manufacturing its own dicyclomine tablets and capsules.
D. MMD shall deliver dicyclomine tablets and capsules to the
Potential New Entrant within two (2) months from the date the
Commission approves the Potential New Entrant and the Agreement. The
Potential New Entrant shall have the right to continue to purchase
dicyclomine tablets and capsules from MMD pursuant to the Agreement
until six (6) months after the date that the Potential New Entrant
obtains FDA approval of its own NDA or ANDA for the manufacture and
sale of dicyclomine tablets and capsules in the United States.
E. MMD shall make representations and warranties to the Potential
New Entrant that the contract manufactured dicyclomine tablets and
capsules meet the United States Food and Drug Administration approved
specifications therefor and are not adulterated or misbranded within
the meaning of the Food, Drug and Cosmetic Act, 21 U.S.C. 321, et seq.
MMD shall agree to indemnify, defend and hold the Potential New Entrant
harmless from any and all suits, claims, actions, demands, liabilities,
expenses or losses alleged to result from the failure of the
manufactured dicyclomine tablets and capsules to meet the
specifications. This obligation shall be contingent upon the Potential
New Entrant giving MMD prompt, adequate notice of such claim,
cooperating fully in the defense of such claim, and permitting MMD to
assume the sole control of all phases of the defense and/or settlement
of such claim, including the selection of counsel. This obligation
shall not require MMD to be liable for any negligent act or omission of
the Potential New Entrant or for any representations and warranties,
express or implied, made by the Potential New Entrant that exceed the
representations and warranties made by MMD to the Potential New
Entrant.
F. Upon reasonable notice from and at the option of the Potential
New Entrant, MMD shall provide information, technical assistance and
advice sufficient to assist the Potential New Entrant in obtaining FDA
approval for the manufacture and sale of dicyclomine tablets and
capsules. Such assistance shall include reasonable consultation with
knowledgeable employees of MMD and training at the Potential New
Entrant's facility for a period of time sufficient to satisfy the
Potential New Entrant's management that its personnel are appropriately
trained in the manufacture of dicyclomine tablets and capsules.
G. While the obligations imposed by Paragraphs II.A, II.D or
Paragraph III of this Order are in effect, Respondents shall take such
actions as are necessary to maintain the viability and marketability of
the Rugby intangible dicyclomine assets and the tangible assets needed
to contract manufacture and sell dicyclomine tablets and capsules and
to prevent the destruction, removal, wasting, deterioration or
impairment of any of the Rugby intangible and tangible assets relating
to the manufacture of dicyclomine tablets and capsules except in the
ordinary course of business and except for ordinary wear and tear that
does not affect the viability and marketability of the Rugby intangible
and tangible assets.
III
It is further ordered that:
A. MMD shall consent to the appointment of a trustee by the
Commission to terminate MMD's prior Agreement, if any, and to enter
into a new Agreement on behalf of MMD with a Potential New Entrant
selected by the trustee if:
1. MMD has not entered into an Agreement to contract manufacture
dicyclomine tablets and capsules and to license the Rugby intangible
dicyclomine assets to a Potential New Entrant within twelve (12) months
as provided for in Paragraph II of this Order; or
2. The Potential New Entrant terminates the Agreement to contract
manufacturer, fails to sell, or discontinues the sale of contract
manufactured dicylomine tablets and capsules in the United States prior
to obtaining FDA approval of its own NDA and ANDA for the manufacture
and sale of dicyclomine tablets and capsules; or
3. The Potential New Entrant abandons its efforts or fails to
obtain FDA approval of it own NDA or ANDA for diclyclomine tablets and
capsules within seven (7) years from the date the Commission approves
the Agreement.
In the event the Commission or the Attorney General brings an
action against Respondents to enforce this order pursuant to section
5(l) of the Federal Trade Commission Act, 15 U.S.C. section 45(l), or
any other statute enforced by the Commission, MMD shall consent to the
appointment of a trustee in such action. Neither the appointment of a
trustee nor a decision not to appoint a trustee under this Paragraph
shall preclude the Commission or the Attorney General from seeking
civil penalties or any other relief available to it for any failure by
Respondents to comply with this Order.
B. If a trustee is appointed by the Commission or a court pursuant
to Paragraph III.A of this Order, MMD shall consent to the following
terms and conditions regarding the trustee's powers, duties,
authorities, and responsibilities:
1. The Commission shall select the trustee, subject to the consent
of MMD, which consent shall not be unreasonably withheld. The trustee
shall be a person with experience and expertise in acquisitions and
divestitures. If MMD has not opposed, in writing, including the reasons
for opposing, the selection of any proposed trustee within ten (10)
days after notice by the staff of the Commission to MMD of the identity
of any proposed trustee, MMD shall be deemed to have consented to the
selection of the proposed trustee.
2. Subject to the prior approval of the Commission, the trustee
shall have the exclusive power and authority to enter into an Agreement
as specified in Paragraph II of this Order.
3. Within ten (10) days after appointment of the trustee, MMD shall
execute a trust agreement that, subject to the prior approval of the
Commission and, in the case of a court-appointed trustee, of the court,
transfers to the trustee all rights and powers necessary to permit the
trustee to enter into the Agreement required by Paragraph II of this
Order.
4. The trustee shall have twelve (12) months from the date the
Commission approves the trust agreement described in Paragraph III.B.3
to terminate any prior Agreement and to enter into the Agreement
specified in Paragraph II of this Order, which Agreement shall be
subject to the prior approval of the Commission. If, however, at the
end of the twelve (12) month period the trustee has submitted a plan or
believes that the Agreement required by Paragraph II of this Order can
be entered into within a reasonable time, the twelve (12) month period
may be extended by the Commission or, in the case of a court-appointed
trustee, by the court; provided, however, the Commission my extend the
twelve (12) month period only two (2) time and for no longer than
twelve (12) months each time.
5. The trustees shall have full and complete access to the
personnel, books, records, facilities and technical information related
to the manufacture of dicyclomine tablets and capsules and to the Rugby
intangible dicyclomine assets, or to any other relevant information, as
the trustee may reasonably request. Respondents shall cooperate with
any reasonable request of the trustee. Respondents shall take no action
to interfere with or impede the trustee's ability to enter into the
Agreement required by Paragraph II of this Order. Any delays in
entering into the Agreement required by Paragraph II of this Order
caused by Respondents shall extend the time under Paragraph III.B.4 for
entering into the Agreement required by Paragraph II of this Order in
an amount equal to the delay, as determined by the Commission or, for
the court-appointed trustee by the court.
6. The trustee shall use his or her best efforts to negotiate the
most favorable price and terms available in each contract that is
submitted to the Commission, subject to MMD's absolute and
unconditional obligation to enter into the Agreement required by
Paragraph II of this Order at no minimum price. The Agreement shall be
made in the manner and with a Potential New Entrant as set out in
Paragraph II of this Order; provided, however, if the trustee receives
bona fide offers from more than one Potential New Entrant, and if the
Commission determines to approve more than one such Potential New
Entrant, the trustee shall enter into an Agreement as required by
Paragraph II of this Order with the Potential New Entrant selected by
MMD from among those approved by the Commission.
7. The trustee shall serve, without bond or other security, at the
cost and expense of MMD, on such reasonable and customary terms and
conditions as the Commission or a court may set. The trustee shall have
authority to employ, at the cost and expense of MMD, such consultants,
accountants, attorneys, investment bankers, business brokers,
appraisers and other representatives and assistants as are reasonably
necessary to carry out the trustee's duties and responsibilities. The
trustee shall account for all monies derived from the Agreement
required by Paragraph II of this Order and all expenses incurred. After
approval by the Commission and, in the case of a court-appointed
trustee, by the court, of the account of the trustee, including fees
for his or her services, all remaining monies shall be paid at the
direction of MMD and the trustee's power shall be terminated.
8. Respondents shall indemnify the trustee and hold the trustee
harmless against any losses, claims, damages, liabilities, or expenses
arising out of, or in connection with, the performance of the trustee's
duties, including all reasonable fees of counsel and other expenses
incurred in connection with the preparations for, or defense of any
claim whether or not resulting in any liability, except to the extent
that such liabilities, losses, damages, claims, or expenses result from
the misfeasance, gross negligence, willful or wanton acts, or bad faith
by the trustee.
9. If the trustee ceases to act or fails to act diligently, a
substitute trustee shall be appointed in the same manner as provided in
Paragraph III.A of this Order.
10. The Commission or, in the case of a court-appointed trustee,
the court, may on its own initiative or at the request of the trustee
issue such additional orders or directions as may be necessary or
appropriate to enter into the Agreement required by Paragraph II of
this Order.
11. The trustee shall report in writing to MMD and to the
Commission every sixty (60) days concerning the trustee's efforts to
enter into the Agreement required by Paragraph II of this Order.
IV
It is further ordered that for a period of ten (10) years from the
date this Order becomes final, Respondents shall not acquire, without
the prior approval of the Commission, directly or indirectly, through
subsidiaries, partnerships, or otherwise:
(a) Any stock, share capital, equity, leasehold or other interest
in any concern, corporate or non-corporate, presently engaged in, or
within the two years preceding such acquisition engaged in, the
manufacture, production, distribution or sale of dicyclomine tablets
and capsules in the United States; or
(b) Any assets currently used for or previously used for (and still
suitable for use for) the manufacture and production of dicyclomine
tablets and capsules in the United States from any concern, corporate
or noncorporate, presently engaged in, or within the two years
preceding the acquisition engaged in the manufacture, production,
distribution or sale of dicyclomine tablets and capsules in the United
States.
Provided, however, that the obligations imposed by this Paragraph
shall not terminate while the obligations of Paragraphs II or III are
in effect.
V
It is further ordered that:
A. Within sixty (60) days after the date this Order becomes final
and every sixty (60) days thereafter until the Commission has approved
a Potential New Entrant, MMD shall submit to the Commission a verified
written report setting forth in detail the manner and form in which it
intends to comply, is complying, or has complied with Paragraphs II and
III of the Order. MMD shall include in its compliance reports, among
other things that are required from time to time, a full description of
the efforts being made to comply with Paragraphs II and III of this
Order, including a description of all substantive contacts or
negotiations for entering into the Agreement required by this Order,
including the identity of all parties contacted. MMD shall include in
its compliance reports copies of all written communications to and from
such parties, all internal memoranda, and all reports and
recommendations concerning the Agreement required by Paragraph II of
this Order.
B. One (1) year from the date this Order becomes final and annually
for the next nine (9) years on the anniversary of the date this Order
becomes final, and at such other times as the Commission may require,
Respondents shall file a verified written report with the Commission
setting forth in detail the manner and form in which they have complied
and are complying with Paragraphs II, III and IV of this Order.
Provided, however, that the obligations imposed by this Paragraph
shall not terminate while the obligations of Paragraphs II or III are
in effect.
VI
It is further ordered that, for the purpose of determining or
securing compliance with this Order, and subject to any legally
recognized privilege, upon written request and on reasonable notice to
Respondents, Respondents shall permit any duly authorized
representatives of the Commission:
A. Access, during office hours and in the presence of counsel, to
inspect and copy all books, ledgers, accounts, correspondence,
memoranda and other records and documents in the possession or under
the control of Respondents, relating to any matters contained in this
consent order; and
B. Upon five (5) days notice to Respondents, and without restraint
or interference from Respondents, to interview officers or employees of
Respondents, who may have counsel present, regarding such matters.
VII
It is further ordered that either Respondent shall notify the
Commission at least thirty (30) days prior to any change in either
Respondent such as dissolution, assignment or sale resulting in the
emergence of a successor, the creation or dissolution of subsidiaries
or any other change that may affect compliance obligations arising out
of the Order.
Analysis of Proposed Consent Order to Aid Public Comment
The Federal Trade Commission (``Commission'') has accepted
provisionally an agreement containing a proposed Consent Order from The
Dow Chemical Company (``Dow'') and Marion Merrell Dow Inc. (``MMD''), a
subsidiary of Dow, under which MMD would be required to manufacture and
supply the drug dicyclomine for a potential new entrant and to provide
the dicyclomine formulation and other intangible assets to expedite
that potential new entrant's entry as a manufacturer into the
dicyclomine market. In addition, under the proposed Consent Order the
potential new entrant would be required to certify its good faith
intention to manufacture dicyclomine.
The proposed Consent Order has been placed on the public record for
sixty (60) days for reception of comments by interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
agreement and the comments received and will decide whether it should
withdraw from the agreement or make final the agreement's proposed
Order.
On October 4, 1993, MMD and Rugby-Darby Group Companies, Inc.
(``Rugby'') signed an agreement whereby MMD acquired all of the stock
of Rugby's generic pharmaceutical business. The proposed compliant
alleges that the acquisition violates Section 7 of the Clayton Act, as
amended, 15 U.S.C. 18, and Section 5 of the FTC Act, as amended, 15
U.S.C. 45, in the market for dicyclomine hydrochloride capsules and
tablets in the United States.
The proposed Consent Order would remedy the alleged violation by
establishing a new entrant into the U.S. market for dicyclomine
capsules and tablets to replace the competition lost as a result of the
acquisition. The proposed Consent Order would require MMD to enter into
an agreement with a potential new entrant within twelve (12) months
from the date the proposed Consent Order becomes final.
The agreement would require MMD to manufacture and supply
dicyclomine, as well as to license the relevant dicyclomine technology,
to a Commission approved potential new entrant. MMD must continue to
supply the potential new entrant with dicyclomine until the potential
new entrant has begun manufacturing dicyclomine with FDA approval, or
for seven (7) years, whichever is shorter. The price at which MMD may
contract to supply dicyclomine to the potential new entrant may not
exceed 48 percent of the Average Wholesale Price charged by Rugby as of
July 2, 1993. The potential new entrant must certify its good faith
intention and actual plan to obtain FDA approval to manufacture
dicyclomine capsules and tablets for sale in the U.S. In the event that
MMD fails to enter into such an agreement with a potential new entrant,
or that the potential new entrant discontinues or fails in its efforts
to obtain FDA approval to manufacture dicyclomine within seven (7)
years, the proposed Consent Order provides that MMD shall consent to
the appointment of a trustee by the Commission. The trustee will be
responsible for locating a potential new entrant that will obtain the
necessary approvals and sell dicyclomine into the U.S. market.
The proposed Order will also prohibit for a period of ten (10)
years, Dow and MMD from acquiring any interest in assets used for the
development, manufacture or sale of dicyclomine without prior approval
from the Commission. The proposed Order will also require MMD to
provide to the Commission a report of its compliance with the
provisions of the Order within sixty (60) days following the date this
Order becomes final, and every sixty (60) days thereafter until the
Commission has approved a potential new entrant.
One year from the date the Order becomes final and annually
thereafter for nine (9) years, Dow and MMD will be required to provide
to the Commission a report of their compliance with the Consent Order.
The Consent Order also requires Dow or MMD to notify the Commission at
least thirty (30) days prior to any change in the structure of Dow or
MMD resulting in the emergence of a successor.
The purpose of this analysis is to facilitate public comment on the
proposed Order, and it is not intended to constitute an official
interpretation of the agreement and proposed Order or to modify in any
way their terms.
Donald S. Clark,
Secretary.
Dissenting Statement of Commissioner Mary L. Azcuenaga
In The Dow Chemical Company, File No. 941-0019
Today, the Commission accepts for comment a consent agreement
settling charges that Marion Merrell Dow's consummated acquisition of
certain stock in the Rugby-Darby Group Companies, Inc. would
substantially lessen competition in the United States market for
dicyclomine hydrochloride capsules and tablets. I support the
allegations in the complaint that the acquisition created a monopoly in
the manufacture and sale of dicyclomine hydrochloride capsules and
tablets, and I have reason to believe the acquisition violated the law.
I dissent because I find the remedy insufficient. Ideally, the
Commission would have sought to enjoin the transaction. Although it did
not seek a preliminary injunction, the Commission still should seek
through administrative litigation divestiture of assets sufficient to
create a viable, independent dicyclomine business. Administrative
litigation takes time but affords a much higher likelihood of obtaining
effective relief by divestiture of an ongoing enterprise than does a
technology license designed to induce new entry.
The order requires Marion Merrell Dow to grant a nonexclusive
license to certain intangible dicyclomine assets, including patents and
technology, and for up to seven years to sell to the person acquiring
the license dicyclomine tablets and capsules at a price not exceeding
48 percent of the average wholesale price on July 2, 1993. Technology
licenses tend to be highly regulatory and less effective than
divestitures in restoring competition. Further, because of the great
difficulty government agencies have in specifying competitive market
prices, it is highly questionable whether requiring sales of
dicyclomine at a Commission-specified maximum price will provide
consumers with interim relief from the monopoly. Indeed, since the
Commission granted early termination of the Hart-Scott-Rodino waiting
period on July 12, 1993, it seems entirely possible that the price on
July 2 reflected the impending merger to monopoly and was already
supra-competitive.
Concurring Statement of Commissioner Deborah K. Owen on Proposed
Consent Agreement With Marion Merrell Dow Inc., File No. 941-0019
The Commission is accepting for public comment a proposed consent
agreement with Marion Merrell Dow Inc. (``MMD''), the manufacturer of
Bentyl, a drug commonly prescribed for the treatment of certain
gastrointestinal disorders. In October 1993, MMD acquired Rugby-Darby
Group Companies, Inc. (``Rugby''), a manufacturer of numerous
pharmaceutical products, including a generic version of Bentyl:
dicyclomine hydrochloride. The proposed complaint alleges, inter alia,
that this acquisition ``created a monopoly in the manufacture of
dicyclomine hydrochloride capsules and tablets.'' Complaint VIII(c). I
am writing separately in order to explain one aspect of my analysis of
this case, and to raise some questions concerning the proposed remedy.
A threshold issue in analyzing this merger is whether MMD's Bentyl
and Rugby's generic dicyclomine are in the same product market. On the
one hand, it may seem obvious that two drugs deemed to be bio-
equivalent by the Food and Drug Administration, must be in the same
relevant product market. On the other hand, branded drugs and their
generic counterparts typically vary dramatically in price, suggesting
that consumers may not view the products as equivalent or
interchangeable.
As indicated in the Merger Guidelines, the Commission approaches
the issue of market definition by asking what products, if any,
constrained the price of MMD's Bentyl (and Rugby's generic dicyclomine)
at the time of the merger. If, in response to a small but significant
increase in the price of Bentyl, enough customers would switch to
generic dicyclomine (or, if in response to a small but significant
increase in the price of generic dicyclomine, enough customers would
switch to Bentyl) to make the price increase unprofitable, then the two
products are deemed to be in the same market. Whether a particular
branded drug and any generic versions are in the same market may vary
over time, and depends in part upon their relative prices at the time
of the merger. In general, where the price differential between the
branded product and the generic product is great, the products are more
likely to be in separate markets.\1\ Conversely, where the price gap
between the branded product and the generic product is relatively small
(for example, where there is only one generic version available to
consumers), the products are more likely to be in the same market.
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\1\This price differential may be greatest where there is
intense price competition among different generic versions of a
drug. In this situation, the branded drug may not serve as a
significant constraint on the price of the generic versions; that
is, a five or ten percent increase in the (very low) price of the
generic drugs would not be defeated by sales lost to the (much
higher priced) branded drug. And in this situation, the next best
substitute for the branded drug (from the perspective of those
consumers who are uninterested in low priced generics) may be
another branded drug. Under the Merger Guidelines, the branded and
generic drugs may then be viewed as occupying separate product
markets.
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The proposed consent agreement aims to establish a new competitor
in the U.S. dicyclomine market to replace the competition lost as a
result of MMD's allegedly illegal acquisition. Specifically, MMD is
required to license certain dicyclomine production technology to a
Commission-approved licensee that avows a good faith intention to
obtain FDA approval to independently manufacture dicyclomine for sale
in the United States. Further, MMD must supply dicyclomine to the
potential new entrant for up to seven years, until such time as the
licensee has begun manufacturing dicyclomine on its own.
I am concerned about the terms of this Commission-mandated supply
agreement. The proposed consent order provides that the price at which
MMD may contract to supply dicyclomine to the potential entrant may not
exceed 48 percent of the average wholesale price charged by Rugby as of
July 2, 1993.\2\ This is in effect a form of government price
regulation, and is apt to result in a significant misallocation of
resources. It is particularly troubling that the maximum transfer price
is fixed by the Commission's order for up to seven years, and (unlike
market-based prices) does not vary with either changes in demand or
changes in the costs of production. If the costs of production come to
exceed the transfer price, then the licensee may have an incentive to
delay the opening of its own production facility, and hence delay the
return of true, market-based competition.
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\2\My view, based upon the evidence assembled during this
investigation, is that the July 2, 1993 price did not reflect the
exercise of any market power gained as a result of the then
impending MMD/Rugby transaction, but reflected other factors.
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Furthermore, the fixed transfer price may actually be in effect for
longer than seven years. For example, if the original licensee fails
after seven years to obtain FDA approval, then a replacement licensee
may be selected by a trustee. This second licensee is entitled to
purchase dicyclomine from MMD at the same fixed price. Given the
Commission's recent experience in the Institut Merieux (File No. C-
3301) and Promodes (Docket No. 9228) matters, the prospect of another
seemingly interminable and complicated compliance proceeding disturbs
me.
I hope that during the public comment period the Commission will
receive advice on the wisdom and workability of the proposed supply
agreement. In particular, I am interested in considering alternate ways
of structuring the price term. Is there a practical way, under a
revised order, to permit the price term to vary should the costs of
production or demand vary?\3\ Or would the uncertainties of future cost
and demand changes be better accomodated if MMD and the licensee were
free to negotiate a price term (perhaps subject to Commission
approval)? Finally, what is the optimal duration for the supply
agreement? Specifically, how long should it take a licensee, acting
diligently, to obtain required FDA approvals and commence manufacturing
dicyclomine? At this time, I am not confident that the appropriate
maximum duration for the MMD supply agreement should be as long as
seven years. Public comment on these issues may be of significant value
to the Commission not only in this matter, but more generally as the
agency seeks to devise effective antitrust remedies for the
pharmaceutical, and other industries.
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\3\Would it be desirable to use the producer price index or some
other index as a proxy for the costs of production?
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Statement of Commissioner Dennis A. Yao
In The Dow Chemical Company, File No. 941 0019
I voted to accept for public comment the proposed consent agreement
in this matter because I believe it represents a viable solution to the
potential anticompetitive effects that resulted from Marion Merrell
Dow's (``MMD'') acquisition of Rugby Holding, Inc. (``Rugby''). The
acquisition created a monopoly in the market for dicyclomine tablets
and capsules by combining the only two manufacturers of the branded and
generic product. The proposed consent has the potential of establishing
a second competitor through the grant of a nonexclusive license by MMD
of certain intangible dicyclomine assets. The order also sets a maximum
price at which MMD is allowed to sell dicyclomine tablets and capsules
to the licensee for up to seven years. The goal is to replace the
competition lost from the dicyclomine market as quickly as possible by
establishing a new entrant in the market. The order is the best
mechanism to provide quick relief.
The order sets a ceiling of 48% of the average wholesale price on
July 2, 1993, as the maximum price at which MMD is allowed to sell
dicyclomine tablet and capsules to the licensee. The July 2, 1993,
wholesale price offers the best available approximation of the price
that would exist in a market consisting of only one manufacturer of the
branded and one manufacturer of the generic product. The 48% is based
on our best approximation of the margin that a generic distributor of
another manufacturer's product needs to make a profit. Furthermore, the
July 2 price is the firs price increase that reflected the exit of two
generic competitors. The timing of the merger announcement and the
price increase could suggest that the price on July 2nd were also
influenced by the impending merger; however there is no evidence of
this. If the ceiling is higher than one would prefer, the licensee and
licensor could conceivably arrive at a transfer price that somewhat
reduces their incentives to fully compete. Unfortunately, there is no
other non-arbitrary method for setting the maximum allowable price, nor
would it be easy to determine such a price. The provision, however,
does serve the basic purpose of providing the licensee a chance to
succeed without injecting a regulator's version of competition into the
market.\1\
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\1\I think indexing for inflation might have been more
appropriate given the seven year period over which the ceiling would
be in effect.
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I have a mild concern that the licensee will not have sufficient
incentives to begin manufacturing dicyclomine on its own under the
order. A potential licensee could enter the licensing agreement for a
short period of time with the intention of taking advantage of the
profit available for selling the licensed product but without the
intention of manufacturing dicyclomine on its own. Alternatively, a
licensee might initially intend to elf-manufacture, but change its
strategy at some later date and sell only the licensed product.\2\ In
this particular instance, no reasonable fixes to the licensee incentive
problem seem available. Therefore, on balance, I support the order
because, at a minimum, it should achieve the necessary intermediate
relief. Permanent relief, such as divestiture, may not be as needed in
this instance because there is a good possibility of future entry,
albeit untimely.
\2\Such a change of strategy could come about because of the
entry of others, or by unanticipated problems associated with
gaining FDA approval, or self-manufacturing.
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[FR Doc. 94-16279 Filed 7-5-94; 8:45 am]
BILLING CODE 6750-01-M