[Federal Register Volume 59, Number 128 (Wednesday, July 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-16279]


[[Page Unknown]]

[Federal Register: July 6, 1994]


=======================================================================
-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \3\Would it be desirable to use the producer price index or some 
other index as a proxy for the costs of production?
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \1\I think indexing for inflation might have been more 
appropriate given the seven year period over which the ceiling would 
be in effect.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

[FR Doc. 94-16279 Filed 7-5-94; 8:45 am]
BILLING CODE 6750-01-M