Two recent Federal Trade Commission (FTC) enforcement actions—Your Therapy Source and Grifols—provide insight regarding the antitrust agencies' treatment of a topic garnering increasing attention: buyer power (so-called monopsony power) and buyer restraints, including in labor markets.
Monopsony power, or buyer power, is defined as significant market power in the purchase of a product or service, as contrasted with monopoly power, which is significant market power in the sale of a product or service. Monopsony power can also be used to describe situations involving varying degrees of buyer market power, including markets that have more than one powerful buyer (i.e., "oligopsonies"). The creation or maintenance of monopsony power through a merger or conduct can be unlawful under the federal antitrust laws.1
There has been a groundswell of recent interest in putative employer monopsony power and employer restraints in labor markets. Commentators posit that employer market power in labor markets has grown, leading to depressed wages, reduced hiring and output, and increased economic inequality.2 Commentators suggest that a number of factors have led to labor monopsonies, including the proliferation of employee non-compete agreements, implicit and explicit collusion among employers (including "no-poach" agreements), rising employer concentration, high transaction costs for switching jobs, and the decline of labor unions.3 Academics also argue that employer restraints on labor such as no-poach agreements—or agreements between employers not to hire or recruit each other's employees—are evidence of already-existing monopsony power.4
Coinciding with the rise of interest in putative labor monopsonies and employer restraints, the Department of Justice (DOJ) has brought a number of recent enforcement actions against alleged no-poach agreements between employers.5 In October 2016, the DOJ and FTC issued guidance6 for human resource professionals to ensure their companies' hiring practices comply with the antitrust laws and also jointly announced that the DOJ intends to investigate criminally no-poach or wage-fixing agreements with no legitimate efficiency justifications (so-called "naked" agreements).7
The antitrust agencies and broader antitrust community have also discussed tackling monopsony issues in merger reviews. FTC Chairman Joseph Simons and FTC Bureau of Competition Director Bruce Hoffman have suggested that the FTC will consider whether it should increase its scrutiny of potential labor monopsony issues in merger reviews.8 And, on July 31, 2018, the American Antitrust Institute released a white paper discussing employer restraints in the labor market, concluding that the antitrust community must "ramp up its attention" to mergers and conduct that have anticompetitive effects in labor markets.9 One forum for discussion of these topics is the upcoming FTC hearings on Competition and Consumer Protection in the 21st Century, which start in September 2018. The FTC has indicated it will discuss monopsony issues at the hearing, particularly with respect to labor markets.10
In the Matter of Your Therapy Source LLC
On July 31, 2018, the FTC, in cooperation with the Texas Office of the Attorney General, charged a Dallas/Fort Worth company that provides therapist staffing services to home health agencies, its owner, and the former owner of a competing staffing company with unlawfully colluding to limit pay for therapists and inviting other competitors to do the same.11
The two staffing companies were competitors in the contracting and employment of therapists. The FTC alleged that, starting in March 2017, the two companies shared, through text messages, therapist pay rate information and agreed to lower pay rates for therapists.12 Moreover, both staffing companies also allegedly reached out to other therapist staffing companies in the Dallas/Fort Worth area to gauge their interest in joining the agreement to limit pay for therapists.13
The FTC charged the respondents with violations of Section 5 of the Federal Trade Commission Act, which prohibits unfair methods of competition.14 In particular, the FTC accused respondents of unreasonably restraining competition to offer competitive pay rates to therapists, fixing or reducing pay rates for therapists, and depriving therapists of competition between therapist staffing companies.15 Concurrent with the filing of the administrative complaint, the respondents agreed to enter into a proposed consent order under which they agreed not to collude with competitors on contractor or employee pay, exchange compensation information with competitors, or invite competitors to collude on pay.16
In the Matter of Grifols S.A.
On August 1, 2018, a day after the FTC announced its action in Your Therapy Source, the FTC announced that it was requiring global healthcare company Grifols S.A. to divest blood plasma collection centers in three US cities, among other conditions,17 to resolve charges that Grifols' acquisition of Biotest US Corporation would be anticompetitive.18
The administrative complaint issued by the FTC alleged that Grifols and Biotest US were the only two buyers of human source plasma—a relevant product market according to the FTC—in three US cities.19 The FTC alleged that these three US cities constituted relevant geographic markets because plasma donors typically do not travel more than 25 minutes to donate plasma.20 Without the divestitures, the FTC contended that Grifols likely would be able to exercise market power by unilaterally decreasing donor fees in the three cities.21
1. The antitrust agencies are paying increased attention to monopsony power and buyer restraints in conduct cases and potentially also in merger reviews.
As indicated by recent enforcement actions by the antitrust agencies against wage-fixing and no-poach agreements, including in Your Therapy Source, the antitrust agencies are paying particularly close attention to employer restraints in labor markets. Even after the change in administrations, the antitrust agencies have continued to indicate they will prioritize deterrence of unlawful employer restraints in labor markets. For instance, the DOJ has indicated that investigations into no-poach and wage-fixing agreements, including criminal investigations, continue to be a focus,22 with one DOJ official remarking that it is "a little bit shocking" how many no-poach agreements he has seen since he joined the DOJ in 2017.23
The FTC's action in Grifols also suggests that the antitrust agencies may be paying closer attention to the issue of monopsony power in merger reviews. Historically, compared to mergers raising sell-side concerns, only a relatively small number of mergers have been challenged on the basis of buy-side concerns. While the FTC mentioned neither monopsony nor buyer power in its Grifols complaint and press release, it is clear that buy-side issues motivated the FTC's competitive concerns regarding the merger, at least in part. In its press release announcing the action, the FTC noted that, absent the prescribed divestitures, the proposed transaction would likely lead to worsened service and quality for blood plasma donors, longer wait times for donors, and lower donation fees.24 Likewise, shortly after the FTC's announcement, FTC Commissioner Rohit Chopra tweeted that "[m]any Americans living paycheck to paycheck need to sell their blood plasma to get by. FTC has acted to ensure a merger in this industry will not lead to monopsony power that lowers payments for plasma donors."25
The FTC's decision in Grifols may also offer clues regarding potential increased scrutiny of labor monopsony issues in merger reviews; the blood plasma donor market at issue in Grifols is analogous to a labor market, since both involve the exchange of individual services for pay. In the absence of more definitive guidance from the FTC or DOJ, however, it is not yet clear whether Grifols is merely an anomaly or part of a broader trend in merger reviews.
2. Remedies imposed as a result of naked wage-fixing or no-poach agreements vary, and may be subject to change.
In light of the FTC and DOJ's October 2016 announcement that the DOJ would begin to prosecute criminally naked wage-fixing or no-poach agreements, it may come as a surprise that the alleged conspirators in Your Therapy Source, whose alleged collusion started after the DOJ and FTC's announcement, were sued civilly by the FTC. One reason the FTC may have been pursued this case as a civil matter is that it involved an invitation-to-collude allegation—the DOJ, which has exclusive authority to enforce the federal antitrust laws criminally, cannot assert such a claim under Section 1 of the Sherman Act (though it has pursued invitations to collude as mail fraud26 and wire fraud,27 and under Section 2 of the Sherman Act28). But Your Therapy Source does not provide any indication that the DOJ will not criminally prosecute naked wage-fixing or no-poach agreements. Indeed, DOJ Assistant Attorney General for the Antitrust Division Makan Delrahim stated in public remarks in January 2018 that several criminal no-poach investigations were ongoing.29
Another potential area of interest is the particular remedy imposed by the FTC in Your Therapy Source. As is common practice by the FTC, the proposed consent order in Your Therapy Source enjoins all future collusive activity relating to employee or contractor wages by respondents, but does not require the alleged wrongdoers to admit fault or provide notice or pay restitution to the injured therapists. Commissioner Chopra issued a separate statement regarding the remedy, remarking that "the Commission would benefit from hearing from the public on whether it should follow this approach in this and future matters, especially those involving our country's growing 'gig economy.'"30The upcoming FTC hearings will address the FTC's use of its remedial authority.31 Given Commissioner Chopra's comment on the topic, the hearings likely will include a discussion of whether remedies should be more severe than one the FTC imposed in Your Therapy Source.
The recent FTC enforcement actions in Your Therapy Source and Grifols coincide with an expansion of interest by the antitrust agencies and broader antitrust community in putative monopsonies and buyer restraints, including in labor markets. Accordingly, companies should carefully consider potential buyer-side issues in their conduct and in their analysis of potential mergers and acquisitions. Companies should take particular care to ensure that their employees are aware of the risks of entering into labor-related agreements with competing employers.
© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.
1 See 15 U.S.C. §§ 1-2 (prohibiting anticompetitive agreements and exclusionary conduct, including by buyers); 15 U.S.C. § 18 (prohibiting mergers and acquisitions whose effect "may be substantially to lessen competition, or to tend to create a monopoly," including with respect to buyers); 15 U.S.C. § 45 (prohibiting "unfair methods of competition . . . and unfair or deceptive acts or practices," including with respect to buyers).
2 Suresh Naidu et al., Antitrust Remedies for Labor Market Power, Harv. L. Rev. (forthcoming).
4 Ioanna Marinescu & Herbert Hovenkamp, Anticompetitive Mergers in Labor Markets 5, Penn Law: Legal Scholarship Repository, Faculty Scholarship (Feb. 2018).
5 See, e.g., Complaint, United States v. Knorr-Bremse AG, No. 1:18-cv-00747 (D.D.C. Apr. 3, 2018).
6 US Dep't of Justice & Federal Trade Comm'n, Antitrust Guidance for Human Resource Professionals (Oct. 2016).
7 Press Release, US Dep't of Justice & Federal Trade Comm'n, Justice Department and Federal Trade Commission Release Guidance for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation (Oct. 20, 2016).
8 Pallavi Guniganti, FTC will look at labour monopsony, Hoffman says, Glob. Competition Review, June 8, 2018.
9 Randy Stutz, American Antitrust Institute, The Evolving Antitrust Treatment of Labor-Market Restraints: From Theory to Practice (July 31, 2018).
10 Federal Trade Comm'n, Hearings on Competition and Consumer Protection in the 21st Century (2018).
11 Complaint, Your Therapy Source LLC, No. 171-0134 (Federal Trade Comm'n July 31, 2018).
16 Decision and Order, Your Therapy Source LLC, No. 171-0134 (Federal Trade Comm'n July 31, 2018).
17 The FTC also required Grifols not to acquire any ownership interest in ADMA Biologics, Inc., a company that Biotest US Corporation previously had an ownership stake in, without prior notification because ADMA is a competitor to Grifols in the US market for hepatitis B immune globulin, a plasma-derived injectable medicine that provides hepatitis B antibodies for preventing hepatitis B infections.
18 Press Release, Federal Trade Comm'n, FTC Requires Grifols S.A. to Divest Assets as Condition of Acquiring Biotest US Corporation (Aug. 1, 2018).
19 Complaint at ¶¶ 11, 13, Grifols S.A., No. C-4654 (Federal Trade Comm'n July 31, 2018).
20 Press Release, Federal Trade Comm'n, FTC Requires Grifols S.A. to Divest Assets as Condition of Acquiring Biotest US Corporation (Aug. 1, 2018).
22 Barry Nigro, Deputy Assistant Attorney General, U.S. Dep't of Justice, Keynote Remarks at the American Bar Association's Antitrust in Healthcare Conference: A Prescription for Competition (May 17, 2018); Andrew Finch, Principal Deputy Assistant Attorney General, U.S. Dep't of Justice, Remarks at the Heritage Foundation: Trump Antitrust Policy After One Year (Jan. 23, 2018).
23 Leah Nylen, Number of no-poach agreements uncovered by DOJ 'shocking,'' official says, MLex, May 17, 2018.
24 Press Release, Federal Trade Comm'n, FTC Requires Grifols S.A. to Divest Assets as Condition of Acquiring Biotest US Corporation (Aug. 1, 2018).
25 Rohit Chopra (@chopraftc), Twitter (Aug. 1, 2018, 1:41 PM).
29 Matthew Perlman, Delrahim Says Criminal No-Poach Cases Are In The Works, Law360, Jan. 19, 2018.
30 Statement of Commissioner Rohit Chopra, Your Therapy Source LLC, No. 171-0134 (Federal Trade Comm'n July 31, 2018).
31 Federal Trade Comm'n, Hearings on Competition and Consumer Protection in the 21st Century (2018).
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