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FTC Challenges Graco Inc.’s Proposed Acquisition of Rival ITW Finishing LLC

Seeking to maintain competition in markets for key industrial finishing equipment, the Federal Trade Commission challenged Graco Inc.’s proposed $650 million acquisition of ITW Finishing LLC from Illinois Tool Works Inc., a rival producer of equipment used to apply paints and other liquid finishes to a variety of manufactured goods. According to the FTC, the proposed deal would hurt competition and lead to higher prices and reduced innovation for the North American manufacturers who rely on this equipment.

The FTC has issued an administrative complaint against Graco Inc., Illinois Tool Works Inc. and ITW Finishing LLC seeking to stop the deal. The FTC will file a separate complaint in federal district court in the District of Columbia seeking an order to halt the transaction temporarily, pending the FTC’s administrative proceeding and any subsequent appeals.

The companies manufacture industrial liquid finishing equipment, which is used to apply liquid finishes to nearly every manufactured product, from cars to wood cabinets to major appliances. A consistent high-quality finish is critical to the manufacturing process. Manufacturers need reliable, proven finishing equipment and access to local service, whenever a problem arises. Graco Inc. and ITW allegedly dominate markets for this equipment.

“Liquid finishing equipment is critical to manufacturers. Only three significant competitors sell and service it in North America, with Graco Inc. and ITW together dominating this field,” said Richard Feinstein, Director of the FTC’s Bureau of Competition. “Combining competitors in these markets would be a bad deal for manufacturers and consumers, and would leave them facing higher prices and reduced innovation.”

According to the FTC’s complaint, the specific product markets that will be harmed by Graco Inc.’s acquisition of ITW include the manufacture and sale of:

liquid finishing pumps for industrial uses;
liquid finishing spray guns, which apply paint and other liquid coatings to surfaces in industrial uses;
proportioners, which mix and blend paint with catalysts and other liquids before applying the coating in industrial uses;
circulation pumps for paint systems in automotive assembly plants; and
industrial liquid finishing equipment for resale.

The FTC charges that if the proposed acquisition were completed, the combined firm would control a dominant share of all North American sales of industrial liquid finishing equipment and have a monopoly specifically in the market for circulation pumps used in paint systems in the automobile industry.

The FTC’s complaint also alleges that the proposed transaction would end the close competition between Graco Inc. and ITW, its largest competitor, reduce or eliminate the substantial one-time price breaks and other discounts both firms offer to distributors, and lessen Graco Inc.’s incentives to develop new products after the merger. The competition lost by the acquisition, the complaint states, could not be easily replaced, as Exel North America, the firm in the market with a distant third place in sales, as well as other fringe firms, lack the brand acceptance and distribution to challenge a combined Graco/ITW. Significant hurdles and barriers would also deter new competitors from entering the markets.

The Commission vote to issue the administrative complaint and authorize staff to file a complaint seeking a temporary restraining order and preliminary injunction in federal district court was 4-0. A public version of the administrative complaint will be available on the agency’s website shortly, and the evidentiary hearing is scheduled before an administrative law judge at the FTC, beginning on May 15, 2012.

NOTE: The Commission issues or files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the named parties have violated the law. The administrative complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing by an administrative law judge.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an email to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.

(FTC File No. 111-0169)
(Graco-ITW.final)

FTC Settlement Requires “U.S. Homeowners Relief” Defendants to Pay Millions, Bans Them from Debt and Mortgage Relief Business

Six defendants have agreed to settle Federal Trade Commission charges that they participated in a fraudulent mortgage modification and foreclosure relief scheme. The settlement orders require five defendants to pay back millions in ill-gotten gains, and permanently ban all six from selling any mortgage assistance or debt relief products. The settlements with the U.S. Homeowners Relief defendants are part of the agency’s ongoing crackdown on frauds targeting consumers in financial distress.

Acording to the complaint filed last year by the FTC, the defendants touted a “Government Mortgage Relief Program” that would supposedly reduce mortgage payments as part of the “Obama Act” or the “federal stimulus program,” even though the defendants had no affiliation with the government. Claiming a 90 percent or higher success rate, they charged consumers up to $4,250 and promised to reduce their mortgage payments, their interest rates, and sometimes even their principal loan amounts. The FTC also alleged that although the defendants promised full refunds if they were unsuccessful, once consumers paid the fee, they received nothing, did not get refunds, and the defendants did not respond to their calls or e-mails. According to the complaint, the defendants disconnected their telephones and changed the name of their business while continuing to make promises and take money from other consumers.

The defendants claimed to have established relationships with lenders that enabled them
to obtain loan modifications on favorable terms, according to the FTC complaint. In mailers that appeared to be tailored to individual recipients, the defendants allegedly led consumers to believe that they could receive a loan modification by stating that the consumers had been “PRE-SELECTED” because their loan situation met the defendants’ criteria, and by actually specifying the consumers’ new 30-year fixed payment.

The settlement order against Aminullah Sarpas and New Life Solutions Inc. imposes a $3.9 million judgment; the order against Damon Grant Carriger, DLD Consulting, LLC, and D.G.C. Consulting, Inc. imposes a judgment of $2.1 million. The settlement order against Macie Majeco Bain imposes a $3.6 million judgment that is suspended. All six defendants are banned from providing debt relief and mortgage assistance services, prohibited from making misrepresentations about other products and services, required to back up any claims they make about the benefits, performance, and efficacy of financial products, and required to comply with the Telemarketing Sales Rule.

Litigation continues against Paul Bain, and defaulting corporate defendants U.S. Homeowners Relief, Inc., Waypoint Law Group, Inc., and American Lending Review, Inc.

The Commission has advice for consumers about mortgage, foreclosure rescue, and debt settlement scams. For more information see: Your Home.

The Commission voted 4-0 to approve the proposed consent orders against Aminullah
Sarpas and New Life Solutions, Inc.; and Damon Grant Carriger, DLD Consulting, LLC, and D.G.C. Consulting, Inc. The third proposed consent order, against Macie Majeco Bain, was approved 3-1 with Commissioner J. Thomas Rosch dissenting. The proposed consent orders were approved by the U.S. District Court for the Central District of California on December 1, 2011 (Aminullah Sarpas and New Life Solutions, Inc.; and Macie Majeco Bain;) and December 6, 2011 (Damon Grant Carriger, DLD Consulting, LLC, and D.G.C. Consulting, Inc.).

NOTE: Consent orders are for settlement purposes only and do not constitute an admission by the defendant that the law has been violated. Consent orders have the force of law when approved and signed by the District Judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook and follow us on Twitter.

(FTC File No. X100050)
(U.S. Homeowners Relief NR)

Lane Labs Found in Contempt of Court Order Barring Deceptive Health Claims

A federal judge has ruled in favor of the Federal Trade Commission, finding supplement marketer Lane Labs-USA Inc., and its president Andrew Lane in contempt of a court order that bars them from making deceptive health claims.

In 2000, the FTC originally charged Lane Labs with making unsupported and false claims that BeneFin and Skin Answer, a shark cartilage product and a skin cream, could prevent, treat, or cure cancer, and were clinically proven to do so. Lane Labs and Andrew Lane settled the charges by agreeing to a court order that barred them from making unsupported health claims about any food, drug, or dietary supplement.

In 2007, the FTC filed civil contempt charges against the defendants alleging that they violated the 2000 order based on their advertising and marketing of AdvaCAL, a calcium supplement the defendants touted as vastly superior to competing calcium products and prescription drugs used to treat osteoporosis. The charges were filed in the U.S. District Court for the District of New Jersey.

The district court ruled last month that the defendants violated the 2000 order by making unsupported claims that AdvaCAL is three-to-four times more absorbable than other calcium supplements, and distorting the results of tests and studies on AdvaCAL and competing calcium supplements. The district court also rejected the defendants’ claim that they substantially complied with the order, because their violations were not merely technical or inadvertent.

The recent decision follows an October 2010 ruling from the Third Circuit Court of Appeals overturning the district court’s original denial of the FTC’s contempt motion. The appeals court determined that the defendants had violated the order by making unsupported claims that AdvaCAL was comparable or superior to prescription drugs. The appeals court then sent the case back to the district court, which ruled last month that the defendants were in contempt. The district court will rule later on the amount of monetary damages for which the defendants are liable.

The FTC has more information on this topic for consumers. See Miracle Health Claims: Add a Dose of Skepticism.

(FTC File No. 982 3558) (Civ. No. 00CV3174)

FTC Approves Trustee’s Request for a 90-Day Extension of Deadline to Sell Tops Supermarket in Bath, New York; FTC’s 2011 Report Concludes U.S. Ethanol Market Remains Unconcentrated

FTC Approves Trustee’s Request for a 90-Day Extension of Deadline to Sell Tops Supermarket in Bath, New York

The Federal Trade Commission has approved an application by the Divestiture Trustee in the Tops Markets matter, The Food Partners requesting a 90-day extension of the deadline to sell one former Penn Traffic supermarket located at 404 West Morris Street in Bath, New York. The sale is required under an FTC order settling charges that Tops Markets’ January 2010 acquisition of the bankrupt Penn Traffic Company supermarket chain would be anticompetitive.

The Trustee made the request to extend the deadline in connection with the Trustee’s pending application seeking Commission approval to sell the Bath Store to Moran Foods, Inc., d/b/a Save-A-Lot, Ltd. The Trustee’s proposed sale of the Bath Store remains subject to Commission approval. The Commission’s decision extends the deadline for the Trustee to sell the Bath store from December 27, 2011, until March 26, 2012.

The Commission vote approving the deadline extension was 4-0. (FTC File No. 101-0074, Docket No. C-4295; the staff contact is Elizabeth A. Piotrowski, Bureau of Competition, 202-326-2623; see press release dated August 4, 2010.)

FTC’s 2011 Report Concludes U.S. Ethanol Market Remains Unconcentrated

The market for fuel ethanol in the United States remains unconcentrated, with 164 firms nationwide either producing ethanol or likely to be in production in the next 12 to 18 months, according to the Federal Trade Commission’s 2011 report on the state of U.S. ethanol production.

The FTC report is the agency’s seventh annual report on ethanol market concentration. In it, staff calculated market concentration for the ethanol production industry using different measures. The staff concluded that as of September 2011, there were four more ethanol producers in the United States than at the time of the FTC’s 2010 report on U.S. ethanol production. The largest ethanol producer’s share of capacity decreased slightly to 11.5 percent of domestic ethanol production capacity – below the 12 percent share in 2010, and remaining below the largest producer’s capacity share between 2005 and 2007, which ranged from 26 percent in 2005 to 16 percent in 2007.

The annual reports are required by the Energy Policy Act of 2005. The 2011 report is available on the FTC’s website and as a link to this press release. It was submitted to Congress and the Administrator of the U.S. Environmental Protection Agency, as required by the Act. The Commission vote to issue the 2011 report, which was prepared by the staff of the Bureaus of Competition and Economics, was 4-0. (FTC File No. P063000; the staff contact is John H. Seesel, Associate General Counsel for Energy, Office of the General Counsel, 202-326-2702.)

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to [email protected], or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.

(FYI 47.2011.wpd)

FTC Protects Consumers by Requiring Valeant to Sell Three Prescription Drugs as Condition to Acquire Rival Dermatology Businesses from Sanofi and Johnson & Johnson

Protecting competition in the market for three topical dermatology drugs, the Federal Trade Commission has approved orders requiring Valeant Pharmaceuticals International, Inc. to divest three drugs used to treat different skin ailments, as conditions of acquiring Ortho Dermatologics, Inc. from Johnson & Johnson, and Dermik Laboratories, Inc. from Sanofi.

Under the settlements, Valeant will sell the manufacturing and marketing rights to drug products that treat acne and actinic keratosis, a pre-cancerous skin lesion, to Mylan Pharmaceuticals Inc. Valeant also will sell the marketing rights to a drug that treats fine line wrinkles to Spear Pharmaceuticals, Inc. Both settlements preserve competition and prevent higher prices that likely would have resulted from the acquisitions.

The proposed settlement orders with Valeant [Decision and Order in FTC File No. 111 0215, Decison and Order in FTC File No. 111 0216] are part of the FTC’s ongoing efforts to promote competition in the health care sector. This effort will benefit U.S. consumers by keeping drug prices low while preserving quality and choice of products and services.

Dermik. Valeant proposes to acquire Dermik, Sanofi’s dermatological unit, for approximately $425 million. According to the FTC’s complaint, Valeant’s acquisition of Dermik would illegally reduce competition in the U.S. market for two topical skin-care drugs: 1) BenzaClin and its generic equivalent, a combination of two drug agents (one an antibiotic and the other an antimicrobial) that are used to treat common acne, and 2) topical fluorouracil cream, known as topical 5FU, which is used to treat actinic keratosis, a pre-cancerous lesion resulting from years of extensive sun exposure.

The FTC alleges the proposed transaction would cause significant harm to consumers of BenzaClin and 5FU by eliminating the direct and substantial competition that currently exists between Valeant and Sanofi (via its Dermik unit) for these products. Specifically, Valeant’s acquisition of Dermik would eliminate competition between Dermik’s branded BenzaClin and its closest competitor – the only generic equivalent of BenzaClin available in the United States. The acquisition also would give Valeant control over three topical 5FU products for actinic keratosis, Valeant’s branded Efudex, Dermik’s branded Carac, and Valeant’s authorized generic version of Efudex. These acquisitions, the FTC alleges, would lead to higher prices for consumers.

To resolve the FTC’s concerns as to BenzaClin, the proposed settlement order requires Valeant to sell to Mylan all rights to generic BenzaClin. Mylan currently manufactures and markets generic BenzaClin, under the terms of a licensing agreement with Valeant. In addition, as to 5FU, the settlement requires Valeant to license to Mylan the rights to manufacture and market the authorized generic version of Efudex. Both divestitures also require Valeant to transfer all marketing, research, and development rights of the drugs to Mylan.

Ortho Dermatologics. Valeant proposes to acquire Ortho Dermathologics, a division of Johnson & Johnson’s Janssen Pharmaceuticals, Inc., for approximately $345 million. Valeant and Ortho sell competing prescription tretinoin emollient creams, which are topical products derived from Vitamin A and used to treat fine line wrinkles. Valeant, under contract with Spear Pharmaceuticals, sells a branded treatment, called Refissa, as well as a generic version of the drug.

As originally proposed, Valeant’s acquisition of Ortho would have given the company a monopoly in tretinoin emollient cream and thus likely would have led to higher prices for consumers, the FTC complaint alleges. To remedy this concern, the proposed order settling the FTC’s charges would require Valeant to return all marketing rights to Refissa and the generic tretinoin emollient cream to Spear Pharmaceuticals.

The Commission votes approving the two complaints and proposed consent orders were each 4-0. The proposed orders will be published in the Federal Register shortly, and will be subject to public comment for 30 days, until January 12, 2012, after which the Commission will decide whether to make them final. Comments on Dermik can be submitted separately from comments on Ortho Dermatologics.

NOTE: The Commission issues a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the respondent has violated the law. A consent order is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call
202-326-3300, send an email to [email protected], or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.

(FTC File Nos. 111-0216, Ortho Dermatologics; 111-0215, Dermik)
(Valeant.final)

Statement by FTC Competition Bureau Director Richard FeinsteinRegarding U.S. Court of Appeals for the Eleventh Circuit Ruling in the Matter of Phoebe Putney

For Release

December 9, 2011

The Director of the Federal Trade Commission’s Bureau of Competition, Richard Feinstein, issued the following statement regarding today’s ruling by the U.S. Court of Appeals for the Eleventh Circuit in the Matter of Phoebe Putney Health System Inc., in which the FTC challenged Phoebe Putney’s proposed acquisition of rival Palmyra Park Hospital, Inc. from HCA, in Albany, Georgia. The FTC alleged that the deal will allow the combined Phoebe/Palmyra to raise prices for general acute-care hospital services charged to commercial health plans, substantially harming patients and local employers and employees. On June 27, a federal judge with the U.S. District Court for the Middle District of Georgia granted Phoebe Putney’s motion to dismiss the FTC’s complaint. The FTC subsequently appealed that ruling to the United States Court of Appeals for the Eleventh Circuit. Today, the appeals court denied the Commission’s appeal.

“The Eleventh Circuit agrees with the Commission that this deal will create a monopoly and eliminate competition. We remain very concerned that it will raise healthcare costs dramatically in Albany, Georgia. We are considering all our options.”

(Phoebe-Putney.final)

Contact Information

MEDIA CONTACT:

Office of Public Affairs
202-326-2180

FTC To Provide Refunds to Victims of Bogus Scareware Scam

Starting this week, more than 300,000 consumers who were victims of a “scareware” scam will receive refunds resulting from Federal Trade Commission settlements with Innovative Marketing and other parties involved in the scheme. Several defendants agreed to surrender more than $8 million total in ill-gotten gains to settle FTC charges that they used deceptive ads to trick consumers into thinking their computers were infected with viruses or spyware, and then sold them software programs such as Winfixer, Drive Cleaner, and XP Antivirus to “fix” their non-existent problem.

Consumers who receive checks must cash them within 60 days. The average amount of the checks will be $20, however the exact amounts will be based on the amount of individual loss. The FTC never requires consumers to pay money or provide information before redress checks can be cashed.

Approximately 320,000 checks will be mailed by the FTC’s settlement administrator, Epiq Systems. Consumers who believe they are entitled to a refund or have questions may call the settlement administrator toll free at 1-877-853-3541 or visit www.FTC.gov/refunds for more information.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics. Like the FTC on Facebook and follow us on Twitter.

FTC Puts Conditions on LabCorp’s Acquisition of Rival Orchid Cellmark, Inc.

The Federal Trade Commission will require laboratory testing companies Laboratory Corporation of America Holdings (LabCorp) and Orchid Cellmark Inc. (Orchid) to divest a portion of Orchid’s paternity testing business, to resolve the FTC complaint alleging that LabCorp’s $85.4 million acquisition of Orchid would have an anticompetitive impact in the market for paternity testing services used by government agencies.

The proposed settlement with LabCorp and Orchid is the most recent example of the FTC’s ongoing effort to promote competition in the health care sector, which benefits U.S. consumers by keeping prices low while preserving quality and choice of products and services.

The FTC’s complaint alleges that LabCorp’s acquisition of Orchid would illegally reduce competition in the U.S. market for paternity testing services provided to government agencies. Under the proposed settlement order, the portion of Orchid’s U.S. paternity testing business that is focused on sales to government agencies, and related assets, will be sold to another testing company, DNA Diagnostics Center (DDC).

Government agencies contract with laboratory testing companies to provide DNA testing services, and use those tests to resolve paternity issues. LabCorp and Orchid are the two most significant providers of these paternity testing services in the country, and have an overwhelming majority of that $27 million market. They consistently have been head-to-head competitors for these contracts, the FTC complaint alleged.

Under the proposed settlement, Orchid will provide certain contract and service information needed by DDC to compete in the market, and LabCorp will provide assistance in assigning all current government paternity testing contracts to DDC. The settlement also requires LabCorp to service existing government contracts for paternity testing until the paternity testing business is successfully transferred and Orchid’s government contracts are assigned to DDC. In addition, DDC will have access to the staff and facilities at Orchid’s Dayton, Ohio, facility and LabCorp will not be allowed to keep any of Orchid’s confidential business information for use in competitive endeavors.

The Commission vote approving the complaint and proposed consent order was 4-0. The proposed order will be published in the Federal Register shortly, and will be subject to public comment for 30 days, until January 9, 2012, after which the Commission will decide whether to make it final.

(FTC File No. 111-0155)
(LabCorp.final)

FTC Testifies Before House Judiciary Subcommittee on Agency’s Work to Promote Competition and Benefit Consumers

In testimony today before a U.S. House of Representatives Judiciary Subcommittee, the Federal Trade Commission detailed its work to promote competition and benefit consumers, including preventing anticompetitive mergers, restricting “pay-for-delay” pharmaceutical agreements that increase prescription drug costs, stopping anticompetitive hospital mergers, and promoting competition in the high-technology and energy markets.

Testifying on behalf of the Commission before the Subcommittee on Intellectual Property, Competition, and the Internet, FTC Chairman Jon Leibowitz told the Subcommittee that competitive markets are the foundation of the U.S. economy, and effective antitrust enforcement is essential for those markets to function well.

“Vigorous competition promotes economic growth by keeping prices down, expanding output and the variety of choices available to consumers, and promoting innovation,” Leibowitz said. “The FTC has jurisdiction over a wide swath of the economy, so we focus on sectors where our actions will do the greatest good for the greatest number of consumers, including energy, technology, and, of course, health care.”

The FTC’s competition work falls into three broad categories: merger review, investigations of anticompetitive conduct, and competition policy analysis. According to the testimony, one of the FTC’s top competition priorities remains ending anticompetitive pay-for-delay agreements between brand-named drug companies and their generic competitors. These anticompetitive agreements keep low-cost generic drugs off the market and impose substantial costs on consumers, businesses, taxpayers, and government.

The testimony also outlines the FTC’s recent work to stop anticompetitive health care mergers. In particular, the FTC has redoubled its efforts to prevent anticompetitive hospital mergers, and the Commission currently has three legal challenges to proposed hospital mergers pending in administrative litigation.

The testimony also addresses antitrust oversight in technology industries, including how competition law can keep up with a rapidly evolving marketplace. It concludes by describing the FTC’s work in monitoring energy markets and outlining the Commission’s international competition efforts, as well as consumer protection highlights such as the agency’s continued focus on protecting financially distressed consumers and ensuring privacy protections.

The Commission vote approving the testimony and its inclusion in the formal record was 4-0.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to [email protected], or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter..

(FTC File No. P859910)
(Antitrust Testimony.final.wpd)

FTC Concludes North Carolina Dental Board Illegally Stifled Competition by Stopping Non-Dentists From Providing Teeth Whitening Services

The North Carolina State Board of Dental Examiners illegally thwarted competition by working to bar non-dentist providers of teeth whitening goods and services from selling their products to consumers, according to a unanimous Opinion and Final Order issued by the Federal Trade Commission.

The Commission held that the Dental Board sought to, and did, exclude non-dentist providers from the market for teeth whitening services, in violation of Section 5 of the Federal Trade Commission Act. The Commission found that the Dental Board’s conduct constituted concerted action, and that the Dental Board had failed to advance a legitimate procompetitive justification for its conduct. The Commission found liability under both an abbreviated (or “quick look”) approach, as well as under a full, “rule of reason” antitrust analysis.

The Dental Board’s illegal actions led to higher prices and reduced choices for consumers, according to the Commission.

The Commission’s Final Order requires the Dental Board to cease ordering non-dentists to stop providing teeth whitening products or services. The Final Order also requires the Dental Board to stop informing non-dentist teeth whitening providers and certain other persons that it is illegal for non-dentists to provide teeth whitening products or services.

The FTC’s decision upholds a July 2011 Initial Decision by Chief Administrative Law Judge D. Michael Chappell and adopts with minor changes the order entered by Judge Chappell. The FTC issued its Opinion and Final Order on December 2, 2011, meeting a self-imposed deadline designed to expedite the agency’s administrative trial process. Under the FTC’s Revised Rules of Practice, which were finalized in April 2009, the Commission must issue its ruling within 100 days after a case is argued before the Commission. In this case, the Commission issued its decision 35 days after oral argument.

The Dental Board. The Dental Board is a state agency created to regulate the practice of dentistry in North Carolina. It consists of eight members, including six licensed dentists. Any person who wants to practice dentistry in the state must be licensed by the Dental Board. The Dental Board has no authority over non-dentists but may ask a state court to determine that particular conduct constitutes the unauthorized practice of dentistry and issue an injunction.

The administrative complaint, which was issued in June 2010, alleged that the Dental Board sent dozens of letters instructing non-dentist teeth whitening providers that they were practicing dentistry illegally, and ordering them to stop. The Dental Board also threatened or discouraged non-dentists who were considering opening teeth whitening businesses. The complaint also alleged that the Dental Board sent letters to mall owners and property management companies urging them not to lease space to non-dentist teeth whitening providers.

According to the complaint, the Dental Board’s actions reduced the availability of teeth- whitening services in North Carolina and constituted an anticompetitive conspiracy among the dentists on the Dental Board. The complaint included proposed relief intended to stop the Dental Board’s allegedly illegal conduct and to ensure that North Carolina consumers benefit from competition between dentists and non-dentists for teeth whitening services.

The complaint also challenged the Dental Board’s claim that its conduct is protected from federal antitrust scrutiny by the state action doctrine, which exempts some conduct by boards from antitrust oversight if that board is actively supervised by the state. In February 2011, the FTC denied a Dental Board motion to dismiss the complaint on these grounds.

In an Initial Decision issued July 14, 2011, the ALJ found that non-dentists compete with dentists to provide teeth whitening services in North Carolina and that the Dental Board’s concerted action to exclude non-dentist-provided teeth whitening services from the market had a tendency to harm competition. The ALJ further found that the Dental Board’s action had no valid pro-competitive justification and constituted an unreasonable restraint of trade and an unfair method of competition. He accordingly issued an order requiring the Dental Board to stop engaging in the challenged conduct.

The Final Opinion and Order. In its Opinion, the Commission concluded that the Dental Board violated of Section 5 of the FTC Act, and agreed with the ALJ that the Dental Board’s conduct “constituted concerted action, . . . had a tendency to harm competition and did in fact harm competition,” and had no legitimate pro-competitive justification.

The Commission concluded that the Dental Board’s conduct could be deemed illegal under the “inherently suspect” mode of analysis because the challenged conduct had a clear tendency to suppress competition and lacked any countervailing procompetitive virtue. In addition, the Commission found that there was direct evidence of anticompetitive effects.

The Final Order bars the Dental Board from:

directing a non-dentist provider to stop providing teeth whitening goods or services;
prohibiting, restricting, impeding, or discouraging the provision of teeth whitening goods or services by a non-dentist provider;
communicating to a non-dentist provider that it is violating, or has violated, the Dental Practice Act by providing teeth whitening goods or services, or that providing such services would violate the Act;
communicating to a prospective non-dentist provider that it would violate the Dental Practice Act by providing teeth whitening goods or services, or that providing such services would violate the Act;
communicating to a commercial property lessor (such as a mall operator) or any other third party that the provision of teeth whitening services by a non-dentist provider is a violation of the Dental Practice Act, or that any non-dentist provider is violating the Act by providing such services;
communicating to any prospective manufacturer, distributor, or seller of teeth whitening services used by non-dental teeth whitening providers that providing such services is a violation of the Dental Practice Act; and
inducing, urging, encouraging, assisting, or attempting to induce anyone to do anything that would violate the provisions listed above.

The Final Order specifically does not prohibit the Dental Board from investigating other non-dental providers for suspected violations of the State’s Dental Practice Act, filing a court action against a non-dentist for alleged violations of the Act, or communicating its belief or opinion regarding whether a particular method of teeth whitening may violate the Dental Practice Act.

The Commission vote approving the Opinion and Final Order was 3-0, with Commissioner Julie Brill recused. The Dental Board may file a petition for review with the U.S. Circuit Court of Appeals within 60 days of service of the Final Order.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to [email protected], or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.

(FTC Docket No. 9343)
(NC Dental.final.wpd)

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