Antitrust Law Daily Benco and Patterson illegally conspired to refuse to deal with dental products buying groups
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Wednesday, October 16, 2019

Benco and Patterson illegally conspired to refuse to deal with dental products buying groups

By Peter Reap, J.D., LL.M.

An Administrative Law Judge has concluded that Benco and Patterson conspired in a per se violation of Section 5 of the FTC Act, but that Complaint Counsel failed to prove a conspiracy involving a third dental products distributor, Henry Schein, Inc.

In an FTC administrative proceeding against three major dental supply companies, Benco Dental Supply Company, Henry Schein, Inc., and Patterson Companies, Inc., alleging a conspiracy in violation of Section 5 of the FTC Act, Chief Administrative Law Judge (ALJ) D. Michael Chappel has ruled in an Initial Decision that Benco and Patterson illegally conspired in a per se violation of Section 5 of the FTC Act to refuse to offer discounted prices or otherwise compete for the business of dental buying groups, but that the Complaint Counsel failed to prove a conspiracy involving a third dental products distributor, Henry Schein, Inc. Furthermore, as to the remaining alleged violation, the Complaint Counsel failed to meet its burden of proving that Benco invited a fourth distributor, Burkhart Dental Supply Company, to collude in a joint agreement to refuse to provide discounts to or otherwise compete for the business of buying groups. Adopting most of the proposed order submitted by the Complaint Counsel, the ALJ’s order prohibits Benco and Patterson from entering into an agreement or understanding with a distributor relating to conducting business with a buying group and preventing or discouraging any dental practice from joining or endorsing a buying group (In the Matter of Benco Dental Supply Co., October 15, 2019, Chappell, M.).

The FTC’s complaint alleged that Benco, Henry Schein, Inc. (Schein), and Patterson conspired to "refuse to offer discounted prices or otherwise negotiate with" organizations of independent dentists referred to in the complaint as buying groups. The Complaint Counsel’s theory was that Benco, Schein, and Patterson (the Distributors) viewed buying groups as a threat; that Benco adopted a policy in the mid-1990s that prohibited discounting to, or doing business with, buying groups; that, as the smallest of the Distributors, Benco feared that its policy would be futile if Patterson and Schein started to discount to buying groups; and that Benco communicated with Patterson and Schein to "ensure that Patterson and Schein agreed to the same" policy of not dealing with buying groups. The Complaint Counsel further argued that a concerted refusal to discount to buying groups amounts to an agreement to limit discounting and/or an agreement to boycott buying groups, both of which are illegal per se.

The complaint alleged that this agreement violated Section 5 of the FTC Act as either a per se violation (First Violation), an "inherently suspect" violation (Second Violation), or a violation under a truncated rule of reason (Third Violation). An additional count (Fourth Violation) charged Benco with inviting a competitor to collude in an agreement to refuse to provide discounts to or otherwise compete for the business of buying groups, and that this conduct of Benco constitutes an unfair method of competition in violation of Section 5. On September 14, 2018, Patterson filed a motion for summary decision, which was denied in an opinion and order issued November 26, 2018.

Benco and Patterson agreement. The ALJ found that February 2013 and June 2013 emails between Benco and Patterson constituted evidence of exchanges of assurances and a confrontation about perceived cheating followed by reassurance, which supported finding an agreement between Benco and Patterson. Patterson’s conduct following the February 2013 exchange of assurances, in effectively adopting a blanket policy of summarily refusing to deal with buying groups, without evaluation, further supported a finding of an agreement between Benco and Patterson. Based on the entire record, the Complaint Counsel met its burden of showing that it is more likely than not that Benco and Patterson entered into an agreement to refuse to provide discounts to or otherwise compete for the business of buying groups of independent dentists.

The evidence proved that Benco and Patterson agreed to refuse to offer discounted prices to buying groups or otherwise negotiate with buying groups. Such a horizontal agreement to eliminate discounts is illegal per se, according to the ALJ. When "horizontal restraints involve agreements between competitors not to compete in some way, [the Supreme Court] concluded that it did not need to precisely define the relevant market to conclude that these agreements were anticompetitive." Ohio v. American Express Co., 138 S. Ct. 2274, 2285 n.7 (2018). Here, the Benco-Patterson agreement not to deal with buying groups is a horizontal agreement "not to compete in some way," and therefore, it was not necessary "to precisely define the relevant market" to conclude that this agreement is anticompetitive. Id. Accordingly, an analysis of the relevant product market, the relevant geographic market, or market power was not required, the ALJ explained. Because the agreement between Benco and Patterson is a per se violation of the antitrust laws, it was not necessary to determine whether the agreement is also a violation under an inherently suspect analysis or truncated rule of reason analysis. Thus, it was unnecessary to reach the Second and Third Violations alleged, the ALJ observed.

Schein. The evidence failed to persuasively demonstrate that Schein conspired with Benco, or with Benco and Patterson, to refuse to discount to or otherwise negotiate with buying groups, as alleged in the complaint, the ALJ decided. Because the evidence was not sufficiently persuasive and did not provide sufficient weight to meet the Complaint Counsel’s burden of proving that an agreement involving Schein was more likely than not, the complaint was dismissed as to Schein.

Invitation to collude. The complaint alleged a Fourth Violation against Respondent Benco only, based on an alleged invitation to collude. Specifically, Benco allegedly invited Burkhart "to collude in a joint agreement to refuse to provide discounts to or otherwise compete for the business of [b]uying [g]roups of independent dentists." The evidence presented in support of the alleged invitation to collude was conflicting and ambiguous, the ALJ determined, and thus, the Fourth Violation was dismissed.

Remedy. The record in this case amply supported entry of a cease and desist order, the ALJ held. Although the evidence showed that Benco and Patterson started discounting to at least some buying groups beginning in 2015 and 2016, it was not apparent from the record that the agreement between Benco and Patterson not to deal with buying groups has been permanently terminated. Given that Benco and Patterson denied the existence of any agreement, neither Benco nor Patterson asserted that it has terminated or abandoned such agreement.

The ALJ’s order prohibits Benco and Patterson from entering into or participating in any agreement with any other dental supply distributor relating to business with buying groups; from inducing or encouraging another distributor to enter into or participate in a prohibited agreement; and from communicating buying group-related business information to a distributor. The order requires each company to maintain an antitrust compliance program and file specified compliance reports. The terms under the order will terminate in 15 years.

The ALJ’s Initial Decision is subject to review by the full FTC by its own motion, or at the request of any party. The Initial Decision will become the decision of the Commission 30 days after it is served upon the parties, unless a party files a timely notice of appeal, or the agency places the case on its own docket for review or stays the effective date of the decision.

The case is Docket No. 9379.

Attorneys: Lin W. Kahn for the FTC. Geoffrey D. Oliver (Jones Day) and Howard Scher (Buchanan Ingersoll & Rooney PC) for Benco Dental Supply Co. Colin Kass (Proskauer Rose, LLP) and John P. McDonald (Locke Lord LLP) for Henry Schein, Inc. Joseph Ostoyich (Baker Botts L.L.P.) and James J. Long (Briggs and Morgan) for Patterson Companies, Inc.

Companies: Benco Dental Supply Co.; Henry Schein, Inc.; Patterson Companies, Inc.

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