The Justice Department and the Federal Trade Commission have been promoting the adoption of new guidelines that would give them a greater ability to block anti-competitive mergers. Now DOJ may also be taking a tougher stance with regard to the other main branch of antitrust enforcement: prosecuting price-fixing conspiracies that harm consumers.
DOJ’s Antitrust Division has just announced the resolution of a case brought against generic drug giant Teva Pharmaceuticals and a smaller Indian producer called Glenmark Pharmaceuticals for conspiring to fix the price of pravastatin, a cholesterol medication. Teva was also charged with anti-competitive behavior with regard to two other drugs. Teva was compelled to pay a criminal penalty of $225 million and to donate drugs worth $50 million to humanitarian organizations. Glenmark was penalized $30 million.
Along with the fines, which in Teva’s case is well above the norm in DOJ Antitrust Division actions, the agency imposed a novel penalty: requiring the two companies to divest their pravastatin business line. And although the criminal charges were softened by allowing Teva and Glenmark to enter into deferred prosecution agreements, the DOJ included a blunt warning that “both companies will face prosecution if they violate the terms of the agreements, and if convicted, would likely face mandatory debarment from federal health care programs.”
Forcing a company to leave a business in which it has engaged in misconduct can be a more effective punishment than monetary penalties, which large corporations can usually absorb with little difficulty. This is an especially appropriate approach in prosecuting companies that have shown themselves to be repeat offenders.
Among the more than 240 companies shown in Violation Tracker to have faced criminal charges brought by the Antitrust Division since 2000, there are about half a dozen which have been penalized more than once. One of those is the Swiss bank UBS, which in 2011 paid $160 million to resolve allegations of engaging in anti-competitive practices in the municipal bond market but was offered a non-prosecution agreement. The following year, UBS was accused of manipulating the LIBOR interest rate benchmark and paid penalties totaling $500 million. While a subsidiary had to plead guilty, the parent company was offered another non-prosecution agreement.
Antitrust enforcers should leave the use of financial penalties to private litigation. As I showed in a report called Conspiring Against Competition published earlier this year, class action lawsuits brought by the victims of price fixing have yielded $55 billion since 2000, more than twice as much as the penalties collected by federal regulators.
Among the most frequently sued companies were Teva and its subsidiaries, which paid out a total of $1.4 billion in 19 different class actions. Most of these involved an indirect form of price fixing in which companies collude to delay the introduction of lower-cost generic alternatives to expensive brand-name drugs.
Government regulators should use their power not just to put a dent in an egregious price-fixer’s bottom line but to force the company out of a market in which it failed to follow the rules.