[Federal Register Volume 78, Number 2 (Thursday, January 3, 2013)]
[Notices]
[Pages 300-303]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-31571]


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FEDERAL TRADE COMMISSION

[File No. 101 0023]


IDEXX Laboratories, Inc.; Analysis of Proposed Consent Order To 
Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order--embodied in the consent 
agreement--that would settle these allegations.

DATES: Comments must be received on or before January 24, 2013.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/idexxlabconsent online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``IDEXX, File No. 101 
0023'' on your comment and file your comment online at https://ftcpublic.commentworks.com/ftc/idexxlabconsent by following the 
instructions on the Web-based form. If you prefer to file your comment 
on paper, mail or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Room H-113 (Annex 
D), 600 Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Lisa Kopchik (202-326-3139), FTC, 
Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned 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 thirty (30) days. The 
following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for December 21, 2012), on the World Wide Web, 
at http://www.ftc.gov/os/actions.shtm. A paper copy can be obtained 
from the FTC

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Public Reference Room, Room 130-H, 600 Pennsylvania Avenue NW., 
Washington, DC 20580, either in person or by calling (202) 326-2222.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before January 24, 
2013. Write ``IDEXX, File No. 101 0023'' on your comment. Your 
comment--including your name and your state--will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to 
remove individuals' home contact information from comments before 
placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which * * * is privileged or confidential,'' as discussed in Section 
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 
4.10(a)(2). In particular, do not include competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/idexxlabconsent by following the instructions on the web-based 
form. If this Notice appears at http://www.regulations.gov/#!home, you 
also may file a comment through that Web site.
    If you file your comment on paper, write ``IDEXX, File No. 101 
0023'' on your comment and on the envelope, and mail or deliver it to 
the following address: Federal Trade Commission, Office of the 
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW., 
Washington, DC 20580. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before January 24, 2012. You can find more 
information, including routine uses permitted by the Privacy Act, in 
the Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted for public comment an 
Agreement Containing Consent Order to Cease and Desist (``Agreement'') 
with IDEXX Laboratories, Inc. (``IDEXX''). The Agreement seeks to 
resolve charges that IDEXX engaged in exclusionary conduct to maintain 
its monopoly power in the companion animal diagnostic testing equipment 
and supplies industry in violation of Section 5 of the Federal Trade 
Commission Act, 15 U.S.C. 45.
    Specifically, the proposed Complaint that accompanies the Agreement 
(``Complaint'') alleges that IDEXX has used its monopoly power to 
impose exclusive deals with its distributors. As a result, IDEXX has 
foreclosed rivals from key distribution channels and limited 
competition in the relevant market, leading to higher prices, lower 
output, reduced innovation and diminished consumer choice.
    The Commission anticipates that the competitive issues described in 
the Complaint will be resolved by accepting the proposed Order, subject 
to final approval, contained in the Agreement. The Agreement has been 
placed on the public record for 30 days for receipt of comments from 
interested members of the public. Comments received during this period 
will become part of the public record. After 30 days, the Commission 
will again review the Agreement and comments received, and will decide 
whether it should withdraw from the Agreement or make final the Order 
contained in the Agreement. IDEXX has already entered into a non-
exclusive distribution agreement with MWI Veterinarian Supply Co., Inc. 
(``MWI''), and that distribution agreement has been incorporated into 
the terms of the proposed Order.
    The purpose of this Analysis to Aid Public Comment is to invite and 
facilitate public comment concerning the proposed Order. It is not 
intended to constitute an official interpretation of the Agreement and 
proposed Order or in any way to modify their terms.
    The Agreement is for settlement purposes only and does not 
constitute an admission by IDEXX that the law has been violated as 
alleged in the Complaint or that the facts alleged in the Complaint, 
other than jurisdictional facts, are true.

I. The Complaint

    The Complaint makes the following allegations.

A. Industry Background

    Point of care (``POC'') diagnostic products include rapid assay 
tests, equipment and supplies that permit a companion animal 
veterinarian to test, diagnose and treat certain conditions such as 
heartworm during a single office visit. POC diagnostic products provide 
real-time results that cannot be obtained through other testing 
alternatives, such as services offered by outside reference labs.
    Veterinarians are the primary consumers of POC diagnostic products. 
Veterinarians use POC diagnostic products to assess the general health 
of animals and to identify pathologies. Veterinarians perform 
diagnostic testing at veterinary clinics with instruments or test kits 
manufactured and sold by IDEXX and its competitors. POC testing 
provides veterinarians and pet owners the medical advantage and 
convenience of almost-immediate results.
    As of 2009, more than 75% of veterinarians used POC diagnostic 
testing. Each year, veterinarians in the United States purchase 
approximately $500 million worth of POC diagnostic products.
    There are no close substitutes for POC diagnostic products. 
Although veterinarians can purchase some diagnostic services by sending

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specimens to outside laboratories, POC testing allows veterinarians to 
provide timely, state-of-the-art care. Veterinarians value faster 
results, particularly when testing is associated with emergencies, pre-
surgery, and for diagnoses of conditions that may require the 
veterinarians to perform follow-up testing or dispense or prescribe 
medicine as soon as possible.
    Nearly all veterinarians buy their supplies, including POC 
diagnostic products, from distributors who specialize in supplying 
companion animal veterinary clinics. Veterinarians overwhelmingly 
prefer to buy through distributors because of the efficiency and 
customer service they offer. Other purchasing options are less 
efficient and more costly.
    Most veterinarians buy a majority of their equipment and supplies 
from a preferred distributor. More than 75% of veterinarians name 
Butler Schein Animal Health (``Butler''), Webster Veterinary Supply, 
Inc. (``Webster''), MWI, Midwest Veterinary Supply, Inc. (``Midwest''), 
or Victor Medical Company (``Victor''), as their preferred distributor. 
Combined, these top tier distributors sell more than 85%, by revenue, 
of the products sold to companion animal veterinarians in the United 
States.
    Butler, Webster and MWI are recognized by manufacturers, 
distributors and veterinarians as the pre-eminent national companion 
animal veterinary supply distributors in the United States. There are 
no other distributors that provide equivalent levels of service to 
manufacturers and regularly visit veterinarians in as wide a geographic 
area as Butler, Webster or MWI. Midwest and Victor are large, regional 
distributors, also with strong reputations for high-quality service.
    IDEXX and other POC diagnostic product manufacturers use 
distributors because distributors provide important services to the 
manufacturer and are the most efficient way for the manufacturer to 
channel their products to veterinarians. Manufacturers who do not use 
distributors face more significant obstacles to sales, marketing and 
delivery than manufacturers who use distributors.
    The top tier distributors provide better services to their 
manufacturer clients than other distributors. Those better services can 
include, but are not limited to, more sales, better sales and inventory 
data transfer, more experienced sales representatives, better market 
forecasting, more timely payments, and more frequent visits to 
veterinarian clients.

B. The Respondent

    IDEXX Laboratories, Inc. is a corporation with its principal place 
of business located in Westbrook, Maine. IDEXX develops, manufactures 
and sells diagnostic products to veterinarians through distributors. 
IDEXX has monopoly power in the POC diagnostic products market.
    IDEXX's core business is companion animal diagnostics, including 
POC instruments and their related consumables, rapid assay test kits 
(SNAP(copyright) tests), digital radiography equipment, practice 
management software, and diagnostic services through wholly owned and 
operated reference laboratories. IDEXX's share of the POC diagnostic 
products market has been at least 70% during each of the past five 
years (2006-2011). No other firm had more than a 20% share of the 
relevant market in those same five years.

C. IDEXX's Conduct

    IDEXX bars its distributors from carrying any competing POC 
diagnostic testing products. IDEXX distributors include all three of 
the major, national distributors of these products and the two large, 
regional distributors named above. As noted previously, these 
distributors sell 85% of equipment and supplies that companion animal 
veterinarians buy through distributors.

D. Competitive Impact of IDEXX's Conduct

    Because IDEXX has a broad line of products and a dominant position 
in the POC market, large distributors need to carry the IDEXX line. 
While distributors need to carry the IDEXX line, they would prefer to 
carry competing products as well. However, by insisting that 
distributors make an ``all-or-nothing'' choice, IDEXX compels 
distributors to forgo competitors' products. The features of the market 
that make anticompetitive exclusion possible--IDEXX's status as a 
``must carry'' supplier coupled with its insistence on exclusivity--
have endured for many years, and thus the relatively short nominal 
duration of IDEXX's distribution contracts has not mitigated the 
anticompetitive effects of the exclusive deals.
    IDEXX's control of distributors means that it forecloses its 
competition from effectively and efficiently reaching large segments of 
the veterinarian market, and forces veterinarians to incur greater 
costs to obtain non-IDEXX products.
    IDEXX has used its monopoly power, the threat of termination, and 
explicit agreements to prevent those top tier distributors from selling 
rival POC diagnostic products that the distributors would otherwise 
choose to sell. As a result, IDEXX has foreclosed its competitors from 
distributors that sell over 85% of all products purchased through 
distribution by companion animal veterinary clinics in the United 
States, and those competitors are impeded from effectively and 
efficiently marketing their POC diagnostic products to veterinarians.
    IDEXX's exclusionary practices have blocked rivals from the most 
efficient sales channel. IDEXX has used its exclusionary practices to 
successfully diminish, marginalize or force its competitors from the 
U.S. market.
    IDEXX intentionally engages more distribution than it needs, even 
though that excess distribution is costly and inefficient for IDEXX. 
Nevertheless, IDEXX continues to engage the excess distribution because 
it allows IDEXX to block its rivals from using those distributors and 
insulates IDEXX from competition from its rivals. Thus, IDEXX maintains 
its monopoly and harms both distributors who would prefer to offer a 
greater variety of POC diagnostic products, and veterinarians who could 
buy cheaper, superior, and more convenient POC diagnostic products. 
IDEXX's exclusionary acts and practices require competing manufacturers 
to settle for less efficient means to sell their products to 
veterinarians.
    IDEXX's exclusionary acts and practices erect significant barriers 
to entry for those manufacturers that have developed, would otherwise 
have developed, or offered for sale POC diagnostic products that would 
compete with IDEXX products, thereby resulting in reduced choice for 
veterinarians.

II. Legal Analysis

    The offense of monopolization under Sec.  2 of the Sherman Act has 
two elements: (1) the possession of monopoly power in the relevant 
market; and (2) the willful acquisition, enhancement or maintenance of 
that power through exclusionary conduct.\2\ Exclusive dealing by a 
monopolist is condemned when the challenged conduct significantly 
impairs the ability of rivals to compete effectively with the 
respondent and thus limits the ability of those rivals to constrain the 
exercise of monopoly power.\3\
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    \2\ Verizon Commc'ns v. Law Offices of Curtis v. Trinko LLP., 
540 U.S. 398, 407 (2004); United States v. Grinnell Corp., 384 U.S. 
563, 570-71 (1966).
    \3\ See, e.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 
472 U.S. 585,605 & n.32 (1985) (exclusionary conduct ``tends to 
impair the opportunities of rivals'' but ``either does not further 
competition on the merits or does so in an unnecessarily restrictive 
way'') (citations omitted); Lorain Journal Co. v. United States, 342 
U.S. 143, 151-54 (1951) (condemning newspaper's refusal to deal with 
customers that also advertised on rival radio station because it 
harmed the radio station's ability to compete); United States v. 
Microsoft, 253 F.3d 34, 68-71 (DC Cir. 2001) (condemning exclusive 
agreements because they prevented rivals from ``pos[ing] a real 
threat to Microsoft's monopoly''); United States v. Dentsply, 399 
F.3d 181, 191 (3d Cir. 2005) (``test is not total foreclosure but 
whether the challenged practices bar a substantial number of rivals 
or severely restrict the market's ambit''); LePage's, Inc. v. 3M, 
324 F.3d 141, 159-60 (3d Cir. 2003) (same).

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    The Complaint alleges that IDEXX has monopoly power and used it to 
create competitive harm. IDEXX's policy of requiring exclusivity from 
its distributors has foreclosed its rivals from over 85 percent of 
available sales opportunities at this level of the distribution chain. 
This foreclosure is particularly significant because nearly all POC 
diagnostics are sold to veterinarians through distributors, and other 
channels to the veterinarians are inconvenient, impractical and more 
expensive for both the veterinarians and IDEXX's competitors.
    A monopolist may rebut a showing of competitive harm by 
demonstrating that the challenged conduct is reasonably necessary to 
achieve a pro-competitive benefit.\4\ Any proffered justification, if 
proven, must be balanced against the harm caused by the challenged 
conduct.\5\ In this case, however, no pro-competitive efficiency 
justifies IDEXX's exclusionary and anticompetitive conduct. Further, 
IDEXX cannot show that the exclusive arrangements were reasonably 
necessary to achieve a procompetitive benefit.
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    \4\ E.g., Microsoft, 253 F.3d at 59.
    \5\ Id.
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    A concern about interbrand free-riding also does not justify the 
substantial anticompetitive effects found here.\6\ Free-riding might 
occur if, for example, IDEXX provided a great deal of training or 
services to its distributors, and if the training or services help 
promote the product category as a whole rather than just IDEXX's 
product. In such an instance, promotion of the competitors' products 
would ``free-ride'' on IDEXX's activities. In this case, however, the 
vast majority of IDEXX's promotional efforts are relevant to IDEXX's 
products only, thereby reducing the risk of free-riding by IDEXX's 
competitors. While IDEXX's marketing efforts may generate some consumer 
interest in the product category as a whole--and not just in IDEXX's 
own products--this is a part of the natural competitive process. This 
type of consumer response does not raise a free-riding concern 
sufficient to justify the substantial anticompetitive effects found 
here.\7\
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    \6\ ``Interbrand free-riding'' occurs when a manufacturer 
provides services, training, or other incentives in the promotion of 
its products for which it cannot easily charge its dealer, and that 
dealer ``free-rides'' on these demand-generating services by 
substituting a cheaper, more profitable product made by another 
manufacturer that does not invest in comparable services. See 
generally, Howard P. Marvel, Exclusive Dealing, 25 J.L. & ECON. 1, 8 
(1982).
    \7\ See United States v. Dentsply Int'l, Inc., 277 F. Supp. 2d 
387, 445 (D. Del. 2003), aff'd in rel. part, 399 F.3d at 196-97; 
Marvel, Exclusive Dealing, 25 J.L. & ECON. at 8 (explaining that an 
interbrand free-riding justification ``does not apply if the 
promotional investment is purely brand specific. In such cases, the 
dealer will not be in a position to switch customers from brand to 
brand.'').
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III. The Order

    Together with the distribution agreement between IDEXX and MWI 
Veterinary Supply, Inc., signed in September 2012, the proposed Consent 
Order is designed to make the market for POC diagnostic testing 
products more competitive. Generally, the Order prohibits IDEXX from 
maintaining exclusive distribution arrangements with all three national 
distributors. Specifically, Part II of the Order addresses this core 
provision. Part III imposes reporting requirements for four years. 
Parts IV and V impose other reporting and compliance requirements. 
Unless otherwise indicated, the Order will expire in ten years.
    The Order defines the ``national distributors'' as Butler, MWI and 
Webster, so long as they continue to distribute companion animal POC 
diagnostic equipment and supplies. Starting in January, 2013, MWI can 
distribute both IDEXX products and competitive products. Either IDEXX 
or MWI can terminate the agreement. If the parties agree that MWI will 
return to an exclusive arrangement with IDEXX, IDEXX must have a non-
exclusive agreement with one of the two other national distributors.
    All future non-exclusive agreements between IDEXX and a national 
distributor must meet the requirements of the Order. Paragraph II.B 
requires that such an agreement begin with a two year term, and provide 
for additional renewal terms of at least one year; that IDEXX shall not 
urge, induce, coerce, threaten, pressure, penalize, withhold the sale 
of product, or otherwise retaliate against the non-exclusive national 
distributor in order to limit its sales of other manufacturers' 
products.
    Paragraph II.B also requires IDEXX to notify the Federal Trade 
Commission about the termination of any non-exclusive distribution 
agreement. Paragraph II.C orders that IDEXX show any future non-
exclusive distribution agreement to the Commission at least thirty (30) 
days before it is signed.
    Further, if the non-exclusive national distributor merges with, 
acquires, or is acquired by a distributor that has an exclusive 
distribution arrangement with IDEXX, the non-exclusive distribution 
agreement stays in effect.

    By direction of the Commission, Commissioner Ohlhausen 
abstaining.
Richard C. Donohue,
Acting Secretary.
[FR Doc. 2012-31571 Filed 1-2-13; 8:45 am]
BILLING CODE 6750-01-P