FTC Continues to Challenge Consummated Mergers

On July 7, the Federal Trade Commission (“FTC”) challenged Hologic Inc.’s 2005 purchase of Fischer Imaging Corporation’s breast cancer screening and diagnosis business. Hologic closed its $32 million transaction without reporting it to the FTC because Hologic’s acquisition of Fischer’s assets was not reportable under the Hart-Scott-Rodino Premerger Notification Act (“HSR Act”), as it was valued at less than the current $56.7 million filing threshold. Accordingly, the FTC did not have an opportunity to investigate the deal before the parties consummated the transaction.
In its complaint, the FTC alleged that Hologic’s acquisition of Fischer’s prone stereotactic breast biopsy systems (“SBBSs”) business harmed consumers by eliminating its only significant competitor for the sale of SBBSs in the United States. To settle the charges, Hologic is required to sell the Fischer prone SBBS assets to Siemens AG, a leader in the business of medical imaging.

The challenge serves as a powerful reminder that the mere fact that a deal is not HSR reportable does not mean that the transaction has been approved by the FTC or cleared from a potential challenge.

Background

On September 29, 2005, Hologic paid $32 million to acquire all of Fischer’s intellectual property and other assets related to its mammography and breast biopsy businesses, including patents, trademarks, and customer and vendor lists for Fischer’s prone SBBS product, MammoTest. Prone SBBSs are integrated systems that allow doctors to conduct highly precise, minimally invasive breast biopsies using X-ray guidance. Several other methods of performing breast biopsies exist, however, the FTC claims that none are viable economic substitutes for prone SBBSs. As a result of the acquisition, Fischer relinquished all of its rights to develop, market, and sell prone SBBSs in the United States.

According to the Commission’s complaint, the acquisition violated Section 7 of the Clayton Act and Section 5 of the FTC Act, by eliminating Hologic’s only significant competitor in the U.S. market for prone SBBSs. here is only one other firm, Giotto USA, that sells a prone SBBS in the United States. The FTC did not view Giotto as a significant competitor because it has only had a minimal number of sales in the past three years. The FTC also claims that it is unlikely that Giotto could significantly expand its sales because it does not have access to critical prone SBBS patents, and lacks the necessary infrastructure, track record, and reputation to compete effectively in this market. The FTC further contends that entry by other competitors in the U.S. prone SBBS marketplace. The FTC claims that tHologic’s patent portfolio in this area is so strong that it effectively makes entry into the U.S. market unlikely. In fact, Hologic’s MultiCare prone SBBS product, the only such product ever to compete effectively with Fischer’s MammoTest, could only compete in the U.S. market under a license to the Fischer patents that Hologic acquired as part of the settlement of patent infringement litigation.

Because Fischer was Hologic’s only significant competitor in the United States for prone SBBSs, this acquisition allegedly left Hologic with a virtual monopoly in the United States prone SBBS market.

The Commission approved a consent order designed to remedy the competitive harm resulting from Hologic’s acquisition of Fischer’s prone SBBS assets with a 5-0 vote. The Order requires Hologic to divest all of the prone SBBS- related assets Hologic acquired from Fischer to Siemens. Hologic will retain a license to Fischer’s prone SBBS patents to ensure that it can continue to compete in the U.S. prone SBBS market after the divestiture. The FTC claims that Siemens is well-positioned to manufacture and sell prone SBBSs in the United States, as it already is an established supplier of breast cancer-related imaging products.

Conclusion

The challenge is noteworthy for several reasons. First, the challenge reiterates that the FTC is serious about enforcing the antitrust laws against small mergers that do not meet the HSR thresholds. Second, it demonstrates that completed deals that slip beneath the FTC’s radar screen initially are fair game even if the FTC learns about them later. Third, the fact that a deal is not HSR reportable does not mean that no antitrust issues exist with the combination. Fourth, the Commission can and will challenge a consummated deal if it determines that the deal is anticompetitive. Fifth, the FTC has a particular interest in post-acquisition competitive effects of consummated mergers.

Therefore, parties to a consummated deal that raise significant antitrust issues and avoided HSR scrutiny, for whatever reason, should proceed with reasonable caution and closely monitor post-acquisition conduct. Moreover, corporate and private counsel should be aware of the likely consequences and the risks of consummating transactions that raise significant competitive issues. The risks may include: defending against costly and lengthy government investigations; reorganizing to the government’s demands of possible divestitures even after integration has taken place; and disgorging profits gained form the alleged anticompetitive merger.

Authored by

Andre P. Barlow
202-589-1838
abarlow@dbmlawgroup.com