DOJ, FTC Review Most-Favored-Nation Clauses

Posted 10/17/2012
By Robert L. Redding Jr.

Insurers and other industry sectors have included Most-Favored-Nation (MFN) clauses for some time. The U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) have taken an interest in reviewing public policy regarding MFNs. In a joint press release, the DOJ and the FTC noted: “The most commonly used MFN provisions guarantee a customer that it will receive prices that are at least as favorable as those provided to other buyers of the same seller, for the same products or services. Although at times employed for benign purposes, MFNs can, under certain circumstances, present competitive concerns. This is because they may, especially when used by a dominant buyer of intermediate goods, raise other buyers’ costs or foreclose would-be competitors from accessing the market. Additionally, MFNs can facilitate collusion and stabilize coordinated pricing among sellers.”

Although the various industries using MFNs are much broader, the use of MFNs in the health care arena is drawing much regulatory attention. A recent workshop held by the DOJ and the FTC in Washington, D.C., included a discussion of various industry MFN usage, including health care, telecommunications, etc., but clearly the dominant voice of the day was health care.

The workshop included seminars and panels on:

• Economic Theories of MFNs: Harms and Efficiencies
• Empirical Evidence on Effects of MFNs
• Panel Discussion on the Economics of MFNs
• Legal Treatment of MFNs
• From Theory to the Real World
• Moving Forward – How Has Thinking About MFNs Evolved and Where Might It Go?

Federal regulators have demonstrated an interest in MFN clause policy of late. What was evident from the workshop is that public policy regarding MFN clauses is still evolving. There are a number of outstanding questions such as whether these clauses – in many business sectors a common practice – have a net benefit for consumers. The FTC and the DOJ have a difficult task in determining how to regulate MFN clauses to protect consumers and small businesses.

The level of importance for the MFN issue was quite evident at the workshop, with both senior DOJ and FTC staff in attendance and leading the discussions.

Sharis Pozen, assistant attorney general for the DOJ Antitrust Division, testified on Dec. 7, 2011, at a hearing held by the U.S. House of Represent­atives Com­mittee on Judiciary Subcommittee on Intellectual Property, Competi­tion and the Internet, stating:

“In another ongoing matter, the division has gone to court to stop Blue Cross Blue Shield of Michigan’s use and enforcement of ‘most-favored-nations’ clauses in its contracts with Michigan hospitals. We believe that these MFNs distort the competitive process by ensuring that Blue Cross’ competitors cannot obtain hospital services at prices comparable to what Blue Cross pays and by increasing the prices its competitors must pay for those services.”

The district court denied Blue Cross’ motion to dismiss this case. Blue Cross appealed the decision, but the 6th Circuit U.S. Court of Appeals denied the appeal to end the DOJ lawsuit.

ASA collision leaders are discussing the importance of MFN policy for collision repairers and how best to move forward. The November elections will have some impact on future MFN public policy with regard to the administration in place as well as future DOJ appointments. In addition, there could be some shuffling of authorization committee membership and leadership, on Capitol Hill, after November for the next Congress.

ASA includes antitrust and other important topics in its discussions during its Capitol Hill fly-ins in Washington, D.C., and will again in 2013.

Please go to ASA’s legislative website, www.TakingTheHill.com, to track important legislative and regulatory issues.

Bob Redding is the Automotive Service Association's Washington, D.C., representative. He is a member of several federal and state advisory committees involved in the automotive industry. For more information about the legislative activities of ASA, visit www.TakingTheHill.com.