On November 1, 2019, the Federal Trade Commission (FTC) upheld the decision of an administrative law judge (ALJ), finding that the non-reportable acquisition of FIH Group Holdings, LLC (Freedom) by Otto Bock HealthCare North America, Inc. (Ottobock) was likely to substantially lessen competition.
Ottobock and Freedom are both manufacturers of prosthetic knees, and they both offer microprocessor-equipped prosthetic knee products. Prior to the acquisition, Ottobock and Freedom competed vigorously and were the first and third largest manufacturers by revenue of microprocessor-equipped prosthetic knees in the United States. In a transaction that was not reportable under the Hart-Scott-Rodino Act, Ottobock acquired Freedom on September 22, 2017, and the merged firm possessed at least an 80 percent share of the relevant market.
On December 20, 2017, the FTC filed a complaint against Ottobock, alleging that the acquisition violated federal antitrust law. The ALJ held a 31-day trial on the merits and determined that the acquisition was likely to substantially lessen competition, ordering Ottobock to divest substantially all of Freedom’s assets to a buyer approved by the FTC. Following oral argument before the FTC this past July, the Commissioners, in a 67-page opinion, unanimously upheld the ALJ’s findings and order. The Commissioners concluded that as a result of the merger between two competitors, “anticompetitive effects have indeed already occurred,” and “the Acquisition is likely to cause future anticompetitive effects in the form of higher prices and less innovation for amputee patients and prosthetic clinic customers.”
Ottobock has until December 31, 2019, to decide whether to file a petition for review of the FTC’s final order and opinion with a U.S. court of appeals. Ottobock released a statement indicating that it is “considering all options to protect [its] ability to deliver greater consumer choice, improve product quality, and fuel innovation.”
This is the first time the current Commissioners, in place since September 2018, have ordered the unwinding of a consummated acquisition, and it serves as an important reminder that even non-reportable transactions are subject to the scrutiny of the FTC under federal antitrust law. Whether this case demonstrates increased antitrust enforcement from the FTC remains to be seen, but it will be important to monitor future developments, including the outcome of any petition for review filed by Ottobock. Skilled antitrust counsel can assist parties in identifying these risks and evaluating the competitive effects of a potential transaction. To discuss the implications of the FTC decision and how it may affect FTC review of non-reportable mergers going forward, please contact one of the authors or the Reed Smith attorney with whom you regularly work.
