The Texas Attorney General has settled its challenge to an agreement among sellers of dental supplies that, in the State's view, prevented competition by a new entrant in Texas. This case is a reminder that even local activities may be the subject of antitrust enforcement by state attorneys general, if not by the U.S. antitrust agencies—the Department of Justice and Federal Trade Commission.
The defendant was Benco Dental Supply Company, which sells and distributes consumable dental supplies throughout Texas. Traditional dental supplies distributors like Benco usually employ sales representatives who deal directly with dentists and participate in trade shows, such as the annual meeting of the Texas Dental Association ("TDA"). In 2013, TDA launched "TDA Perks Supplies," an online sales platform, in a partnership with SourceOne Dental. TDA Perks Supplies sells dental supplies online—and at a discount—to TDA member dentists, bypassing traditional distributors like Benco.
According to the Texas Attorney General, Benco and some of its competitor distributors, recognizing that TDA Perks Supplies had introduced a disruptive new business model, developed a collective response to limit this new competition. Benco and its coconspirators allegedly agreed (1) to boycott the annual TDA meeting in 2014 and (2) to pressure other distributors and manufacturers to discontinue supplying TDA Perks Supplies. The alleged means of this pressure included, among other things, terminating relationships with distributors and manufacturers that continued to supply TDA Perks Supplies. As a result of this pressure, distributors and manufacturers discontinued their relationships with TDA Perks Supplies, cutting off its access to the dental supply products.
Following a year-long investigation, the Attorney General brought an enforcement action, claiming that the conduct by Benco and its coconspirators was an unreasonable restraint of trade, violating the Texas Free Enterprise and Antitrust Act, and seeking an injunction and a fine. Benco settled with the Texas Attorney General and agreed not to engage in similar conduct in the future and to make a $300,000 payment in lieu of civil penalties. For three years, Benco must furnish to the State a log of oral and written communications between Benco and any other dental supplier relating to the distribution or sales of dental supplies. Finally, Benco agreed to conduct annual antitrust compliance training for personnel with responsibility for sales or pricing of dental supplies and to provide the State with the training materials. Benco did not admit liability.
This action by the Texas Attorney General is just one example of recent enforcement activity by Texas and other states in matters that are particularly local and pursued independently of any effort by the federal enforcers. The Benco matter in particular highlights the importance of antitrust law compliance programs even for company operations that are limited to one state.
A copy of the petition can be found here, and a copy of the April 9, 2015, final judgment can be found here.
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