This episode is audio from the fireside chat with FTC Commissioner Rebecca Kelly Slaughter from the Engelberg Center's Hatch-Waxman at 40 and Beyond Symposium. It was recorded on September 26, 2024.
Commissioner Rebecca Kelly Slaughter, Federal Trade Commission
Daniel Francis, NYU School of Law
Announcer 0:00
Welcome to engelberg center live. A collection of audio from events held by the engelberg center on innovation Law and Policy at NYU Law. This episode is audio from the fireside chat with FTC Commissioner Rebecca Kelly Slaughter from the engelberg Center's hatch Waxman 40 and beyond symposium. It was recorded on September 26 2024
Daniel Francis 0:26
All right, well, hello and welcome. It is an enormous pleasure and honor to welcome to NYU Commissioner Rebecca Kelly Slaughter from the FTC. So Commissioner slaughter is not just a commissioner of the FTC. You are, I think the senior commissioner at the FTC. She is a graduate of Yale College and Yale Law School. She began her career in private practice, then went to the hill where she served as chief counsel to Senator Schumer, and then joined the FTC as a commissioner in May of 2018 which was great time to join the FTC, because that was when I arrived at the FTC as well, and I had the enormous pleasure of working for almost three years with Commissioner slaughter. So when it emerged that there was some possibility that she might be able to make time to join us for this event, I was thrilled, and I couldn't be happier to say on behalf of all of us at NYU commission, slaughter, welcome.
Commissioner Rebecca Kelly Slaughter 1:34
Thank you. It's really such a pleasure to be here with incredibly distinguished former colleagues, current colleagues, people I know from my work on the hill. But I'm going to take a moment to acknowledge that as incredibly impressive as all of you are, the highest pressure for me today comes because my aunt is here in the room. I don't often invite family to suffer through my professional endeavors, but I'm a native New Yorker, and so I have family in New York, and my aunt Barbara, come along is here, and I'm really excited, and now you guys have to make me look good in this conversation, so please.
Daniel Francis 2:18
So I want to start recognizing that the enormous frontier where pharmaceutical policy meets antitrust is big, complicated and undergoing a lot of action right now, I want to start with a topic that I know is really close to your heart, which is pharmaceutical mergers. So in antitrust, we tend to think of the world through the lens of relevant markets where close substitutes compete, and for drugs, those markets can be really narrow, which means that for a long time, the analysis of pharmaceutical mergers in the United States has involved targeting the very specific markets where the two parties drugs or pipeline drugs overlap, requiring that those business lines be sold off and then otherwise letting the merger proceed. And that's led, over the years, to quite a lot of m&a activity in the pharma space. And Commissioner, I know you've been pretty critical in the past of some of the ways that US antitrust has tended to react to those mergers, and for a number of years, you've been a leader in calling for a more expansive and sensitive approach to merger. And while you were serving as acting chair of the FTC a few years ago, I know you led an effort to put a bunch of people in a room and really try to rethink pharmaceutical merger policy in the United States. So let me start with a really general question, how is pharma merger policy going at the FTC, and is it changing? Well, thanks.
Commissioner Rebecca Kelly Slaughter 3:55
I agree that this is a really important topic. And let me start with what I think has worked well in the past, and where I think the staff at the FTC deserve an enormous amount of credit. Thinking about those narrow pharmaceutical markets that you reflected, Daniel is actually a very big deal. Understanding that a single drug can constitute a market was a very innovative way of thinking when the FTC started challenging pharma mergers where there were overlapping products or pipeline products, and so that's an important step forward. And the obligation that I think we have in pharma, but also in everything else we do, is to say, Okay, we're doing this. Are we doing it well? Is it working effectively? Are we looking at the whole picture? And it felt to me that we were doing a very good job of looking at pharmaceutical mergers along one axis, but not necessarily thinking about the entire ecosystem of pharmaceutical development. And and sales and M and A activity to make sure we're fully capturing all of the underlying incentives and making sure that our enforcement practice is as effective as possible. One thing that struck me a lot was that we have an entire division of the agency, the health care division that has spent decades largely challenging anti competitive conduct in pharmaceutical mergers, but we never gave any not in pharmaceutical mergers by pharmaceutical companies, but we never gave any thought to whether a merger might affect the incentives for companies to engage in or not engage in. That conduct could go either way, honestly, but we weren't doing that analysis. That was one thing that struck me. Were we thinking effectively about what divestitures were likely to be successful, and were we thinking effectively about the incentives for investment by other companies once an acquisition happened? So these are fine questions to ask. I think they're important questions to ask. And what I understood is, I might have the questions, but I certainly don't have the answers, and I wouldn't have them alone. And what would be important if we're going to have a rethink, is to get many smart people into rooms together to start thinking about these issues and asking these questions, because it is also clear to me that if you are going to have a change in approach, that change needs to be supported by broad research and in an academic activity. And so that was my goal, and started in starting this conversation bring different thinkers together to move forward, and I think we have moved forward very substantially. We've had a couple of outright challenges to pharmaceutical mergers Since 2021 The first was with respect to Amgen and the second was Sanofi maze. We ultimately settled the Amgen case, and Sanofi maze abandoned. Obviously, every case is very fact specific. You can't paint with too broad a brush, but I think we're looking at these matters with them with a broader lens than we had been taking in the past, and that's to the good
Daniel Francis 7:18
so you touch on something that I know merger enforcers have sort of been thinking about and struggling with for a while, which is during merger review as part of the process, is it a good idea for the government to try to figure out whether post merger, the company might do something separate that would itself be an antitrust violation? And there's kind of a standard response to that, the one sometimes here, which is, well, we'll spot that when it happens, and we'll take action to the extent that the company is going to violate the antitrust laws at time two, and so as a result, we shouldn't try to front load that exercise into time 1am, I right in thinking that you disagree with those folks?
Commissioner Rebecca Kelly Slaughter 8:00
Yeah, I do disagree with that. I don't think that's what the Clayton Act requires. The Clayton Act prohibits mergers that may substantially lessen may substantially lessen competition or tend to create a monopoly. And not just in the pharmaceutical space, but across the board, we're understanding that substantially lessen competition can include eliminating the threat of competition, and it can include mergers that would incentivize or facilitate anti competitive conduct. So for example, in the recent Exxon pioneer merger, the Commission entered in which is oil and gas, right, not pharmaceutical at all, but the commission entered into a settlement with the company that prohibited a board member of pioneer from taking a seat on Exxon's board, with an understanding that the management who is on the management of A merged company can affect how the company behaves that's not all that different an inquiry from what I had raised with respect to pharmaceutical companies in conduct. If there is a firm that has engaged in anti competitive conduct and the merger will result in a change of management for the merged firm that couldn't affect the likelihood of that merger to incentivize engaging in anti competitive conduct. So I think we're trying to look at, what are the on the ground facts? What is, what do we know from the companies themselves and the people involved in them about what's likely to happen, rather than what can we back into through sort of economic exercises exclusively.
Daniel Francis 9:45
So just thinking about that one thing as we look at our economic toolkit for analyzing, maybe pharma conduct in general, but certainly the effects of mergers is innovation, right? So everybody on both sides of the. Farmer antitrust conversation emphasizes how important innovation is that can be sometimes a really hard thing to make tractable in the context of a merger analysis. And you know, sometimes it's easier to predict a price increase or an output effect than it is to grapple with the risk or the promise that a merger might affect the chances of some important breakthrough in the pharma space. Is that something that you've spent time thinking about, do you have any views about whether antitrust enforcers are in a position to grapple meaningfully with innovation during pharma merger review, or whether they should focus on sort of other, perhaps more static things. Well,
Commissioner Rebecca Kelly Slaughter 10:41
I mean, I actually don't think it's very controversial for anyone to say that innovation reduction, innovation is a harm that can come from mergers, and it's a cognizable harm that I think everybody across the board, across the ideological spectrum, I think recognizes, and I will point to the Commission's case against Illumina for its proposed acquisition of Grail, which, for what it's worth, was voted out by the Commission unanimously while I was acting chair, and the Commission was split two, two. It was the case ultimately was resolved by the Commission, functionally unanimously, when the commission was three one, and then the commission finding that the merger was handy competitive, was upheld by unanimous fifth circuit panel, and I will note, very ably argued by anishinaa scopta, who is in the back of the room, and you'll hear from a little bit later. But that case was all about innovation. It was about a product that was not yet on the market, and the incentives of other companies to innovate and their ability to innovate. So I think it's my first thought is, yes, we care about innovation. Everybody agrees that we should care about innovation. My second thought is, okay, but what the question you're pointing fine. Becca, but how do you do that accurately? How can you be confident in it? I think we have a number of tools, one of which is economic modeling. And with economic modeling, you're absolutely right. Price effects are can be more quantifiable. Innovation effects are maybe more qualifiable than quantifiable, but that doesn't mean they're not cognizable. And economic analysis can help us think about innovation effects too. But that is not the only evidence we look at. When we do investigations, we look at documents, we look at data, we look at documents, we look at economics, and we look at testimony. And sometimes companies tell us they don't mean to, but they tell us exactly what they think about the innovation effects of a merger and the likelihood that it will foreclose innovation by competitors, and that's something we should take seriously, and it is something that we do take seriously. And it is not just us. Courts also take that evidence seriously. It's why I think some of the most compelling evidence in merger investigations is not sort of executive testimony, which can be very effective, but it's also there's an incentive for executives to say the things they do in murder testimony. But if you look at ordinary course documents, and again, this is not just pharmaceutical cases, this is across the board. When you look at ordinary course documents, companies will tell us a lot about what they think about their competitors and what they think about the likelihood of a transaction to affect their competitive incentives.
Daniel Francis 13:44
That makes a ton of sense. And that issue, which is sort of common, not just to Farmer mergers, but across the whole antitrust space, is actually a nice moment to pivot to another part of the pharma conversation. So some of what the FTC does is focused on mergers, but a lot of it's focused on conduct behavior, other than buying or merging with other companies. And what I think of as one of the great FTC success stories. Also, I don't know if Scott Hemphill is in here, but I also think this is a Scott Hemphill success story is the creation of the law of pay for delight. So this is the practice where an incumbent branded drug might pay off a generic entrant who's got a regulatory advantage in a way that even though the brand has a dodgy patent, will keep competition out of the market and harm consumers. And the FTC obviously led the effort to change the law really crack down on those practices in a way that I think pretty much everyone thinks of as a success. So I want to just take that as an entry point to pharma conduct. Some people have expressed the view that that problem is. Now been solved that it's kind of gone away. Companies have got the message they can't do this kind of thing. Other people say, Well, the same problem is just showing up in equivalent practices. Maybe the compensation might be in agreement not to launch an authorized generic so I want to ask for your take. Has that problem been fully solved this kind of flagship part of the pharma conduct space. Is it just wearing an unconvincing disguise now, or has it been totally wrapped up?
Commissioner Rebecca Kelly Slaughter 15:32
I think you asked two questions. Is it A or B? And I think Yes is the answer to that question, I think it's a little bit of both. It is not great when the agency has to keep bringing the same kind of case again and again. That suggests that the way in which we're bringing that case and the way in which that case is being resolved is not sending an effective deterrent message to the market. So we're continuing to see the same kind of conduct appear that's not that's not great for markets. The conduct is illegal and causing harm. It's not great for the agency because it means we're not using our resources efficiently and effectively, and both of those things are not great for the people that we serve. So it is true that we have brought fewer reverse settlement, reverse payment cases, because I think we're seeing fewer of the type of settle, egregious settlements that were so problematic as a result of the excellent work that the FTC staff did over many decades to challenge that conduct. It is also true that companies are very creative, and we have been and will continue to monitor the markets for things that are payments that don't appear like a blank check. You suggested no authorized generics. That was an issue in the impacts case, we will keep looking for other things like that. We get notified when there are settlements between brand and generic drugs over patent infringement litigation, and so we analyze those things, and we will keep doing it, and if we see new patterns evolving, emerging in the market, will certainly not hesitate to challenge them. But I do think it's a positive thing that you're seeing fewer of those cases now from the FTC, because it not only suggests it reflects the fact that the conduct that we had been seeing so broadly has been very effectively deterred.
Daniel Francis 17:33
That does sound like a great success story. It sounds like it's not complete whack a mall where the behavior continues, but just wears a different form. Sounds like some solution, but also new problems emerging in a way that's calling on the FTC to keep its sleeves rolled up, yeah, but
Commissioner Rebecca Kelly Slaughter 17:48
also turn the question around and say, if people are seeing conduct that looks like disguised reverse settlements, we want to know about that, you know you may be more attuned to things that are happening in the markets than we would be on our own, even just analyzing settlement so we rely on information from market participants to help target our enforcement actions effectively. So I don't pretend that I have perfect insight, and I'm always eager to learn more.
Daniel Francis 18:24
Hearing you put it that way, I can't help but ask, Do you have a sense of like, what the next pay for delay is? Are you hearing sort of a shape to the complaints and concerns from the world? Is it yet clear what the next flagship conduct spaces for the FTC, or is that just going to be a matter to emerge from litigation and complaints in the next
Commissioner Rebecca Kelly Slaughter 18:45
few years? Yeah, I don't know. I don't, actually, I don't. I don't have a clear thing in my mind that I am targeting in that particular area.
Daniel Francis 18:53
So let's turn to something that is emerging as an FTC pharma conduct priority, and that is the orange book. So for those who may not have spent much time with the orange book, do you wanna, just like give us a short overview of why the Orange Book is important and what the FTC is up to in this space?
Commissioner Rebecca Kelly Slaughter 19:10
Sure, so the Orange Book is the shorthand, and I will not be able to regurgitate the long hand for the listing in which the FDA keeps track of which patents apply to particular pharmaceutical products, and the orange book is supposed to be limited to sort of active ingredient patents. And about a year ago, the FDA, FTC, put out a policy statement with the support of the FDA, saying we're concerned that companies are over listing patents in the orange book in order to foreclose generic competition and keep prices high. And a lot of these patents were not on drugs themselves, but on delivery devices. For example, I. Um, this is not a brand new area of inquiry for the FTC. We did a study 20, over 20 years ago in 2002 that focused in part on Orange Book practices. So it's something that we've been taking a close look at. And after we put out the policy statement, we sent warning letters to a number of manufacturers, saying we were concerned that there were improperly listed patents in the orange book that were foreclosing generic competition, and these were for things like the cap strap on an inhaler. And I will tell you I have two asthmatic children, and when they were first being prescribed their inhalers. The doctor actually said, I want to give your kid this inhaler, but you should be aware it is really, really expensive, even though this drug has been on the market for a really, really long time, and it was a fascinating sidebar insight into even the way doctors are being sensitive to these things. So so we challenge some of these, and a number of companies immediately delisted some of their patents, bringing prices way down on really important drugs. We're also it has been publicly disclosed that we are investigating whether Teva has violated the FTC act through improper Orange Book listings, and we've also been participating, as with amicus briefs, in some private litigation over similar topics. Some of this can feel very esoteric, but at the end of the day, this kind of investigation and conduct is important because it's about whether people can afford the drugs they need in their lives. I think a lot about, I like, I like all the nuances of the law and the details of the things that we work on. But when I go to bed at night and when I get up in the morning and I'm thinking about, why are we doing this work, this is exactly why I find this work energizing, making sure that people can afford the drugs they need to literally breathe, that's a huge deal. Yeah.
Daniel Francis 22:11
I mean, when you put it like that, it's an it's an irresistible point, right? But the idea of kind of looking over the orange book and sort of intervening in this way is pretty novel, right, at least to the extent I'm familiar with it, although arguably part of a broader principle in antitrust, that if you abuse or misuse some kind of a regulatory tool or device in a way that amounts to a sham, That's pretty familiar way of violating the antitrust laws. But there's a view out there, right? The gosh, you know, these seem like pretty technical questions, like, is the FTC as such, maybe compared to someone or the FDA, like, well situated to lead that part of the fight? Do you have a reaction to that? Yeah.
Commissioner Rebecca Kelly Slaughter 22:59
I mean, I disagree that the FTC doesn't have the confidence to look at some of these issues. I do agree that they are technical and complicated. So is everything that we do. One of my children's kindergarten teachers had an expression when the kids would complain that something was too hard. She would just say, kindergartners can do hard things. And I think FTC attorneys can do hard things too. We can understand the law we do, and we should work with enforcement partners at the FDA, at the PTO across the government, we should take very, very seriously advocacy we receive from industry, from civil society, from people who are experts in a particular field. Those are important sources of input for us. But it's not rocket science at the end of the day, and we can parse through it, and we have for a very, very long time been involved in work that touches on the patent system. Because, you know, patents are fundamentally government granted monopolies. They're really important for innovation. Our patent system is like a crown jewel of the American government, and helps fuel the American innovation economy. It's super, super important that it be functioning well, that it be adequately protected, and equally, that it not be abused. And so that's something that we have to take seriously. And if we are policing around the edges of abuse, I think that's very much within the mandate of the FTC.
Daniel Francis 24:35
That makes plenty of sense. Do you see room for the PTO or the FDA to do more. I mean, we often hear sort about the whole of government approach to competition at the minute, do you see room for them to take a more active role in protecting competition with respect to
Commissioner Rebecca Kelly Slaughter 24:52
practices like this? Well, I don't. I am loathe to tell other government agencies what to do we I know con. Recently grapple with resource constraints and capacity constraints, and we're working within the limitations of our own statutory mandate. And I really believe that honorable government servants in all of these other agencies are doing the same thing the way the statute is structured. Orange Book listings don't get ex ante approval. I'm not sure it would be workable for the FDA to do. You know, the FDA said it depends on the manufacturers to accurately certify whether a patent is properly in the orange book. I'm not sure that it would be logistically, technically more from a resource constraint feasible to handle it more like a patent application in the first instance. But we're always eager to partner with other government agencies to share with them the things that we're seeing in the market, and to learn from them about how they are seeing things work.
Daniel Francis 25:59
That makes a lot of sense. It would be crazy of me, given the events of the last week, not to ask you a little bit about pharmacy benefit managers, PBMs. Do you want to just start very briefly? I mean, you know, many people in this room have spent a lot of time thinking a lot of thoughts about PBMs. Do you want to just like, give us a quick sketch of what P sketch of what PBMs are and why they matter to competition. Oh, sure.
Commissioner Rebecca Kelly Slaughter 26:26
So one of the challenges with this question is the complexity of the pharmaceutical distribution system in the US makes it very difficult to answer in cogent, concise sentence, but I think the best way to express it is that pharmacy benefit managers are intermediaries who negotiate with drug manufacturers on behalf of insurance plan sponsors for both the coverage of drugs and their pricing. And so the idea of a pharmacy benefit manager is that it can help reduce the net price that an insurance plan sponsor, and therefore the customers of the insurance plan will pay for a drug. And that's great. We would like to reduce drug prices. Everybody sounds pretty Yeah, that sounds like a terrific plan. And challenges we've had is that we have heard and not uniquely we, we Congress, every editorial board in America have heard numerous complaints that the PBM system is not working in the way that theory intends, and instead, in practice, is playing out in ways that can lead to higher drug prices For some patients, unfair reimbursement practices for some pharmacies and a number of other concerns. This is not a partisan issue. There's been bipartisan concern. It's not a parochial, not a regional issue. It sort of spans the country, and it's extremely complex. And so this is another area where disentangling the rhetoric from the facts is really what our obligation is, and we are trying to use all of the various tools that we have at the FTC to unpack what is actually happening in these markets in order to both provide more transparency to the public and hold companies accountable where we think their conduct goes outside the balance of the law.
Daniel Francis 28:42
So that's the perfect note to introduce what's been going on recently, as you may have seen, in July, the FTC issued a report that was pretty critical of PBMs. In fact, it was so critical that Express Scripts sued the FTC in defamation. Have you ever been sued in defamation before I
Commissioner Rebecca Kelly Slaughter 29:04
it turns out I've been sued a number of times in this job. I am very ably represented by other people in the government, such that I wasn't necessarily even aware of that. I think defamation was a new one for me. It's
Daniel Francis 29:21
pretty wild. I haven't really seen anything quite like that, and it's not obvious that you can sue a government agency for issuing a policy report, but, but let's, before we turn to the very recent enforcement action, let's just kind of pick up on the place where you had framed it, which is the sort of general place of PBMs in the drug price check. So, as you sort of put it in summing up like it seems super complicated, and the evidence on the effects of PBMs on prices seems ambiguous, and they often sort of accept large rebates from drug companies in exchange for treating their drug. More favorably, and it seems that much of that rebate, some gets shared, at least with insurance companies, some extent, with patients, but a bunch of it is not, and a bunch of it is kept by the PBMs, with the result that it's pretty difficult in most cases to figure out a specific impact on on price or output, but from some of the kind of more recent discussion you know, including some parts of the report, not suggesting approach defamation, but in some parts of the report, suggests that there's a sort of skepticism of the business model in a way that resembles some of the things that you know one occasionally hears About the private equity industry, but for those who are leading competition policy in the United States, sort of separate and apart from individual practices, there seems to be an idea that there's something wrong in the business model of the entities. Is that right? Or is that a misunderstanding of what the concerns are?
Commissioner Rebecca Kelly Slaughter 30:57
So I think there are two different ways to tackle that question. The first is, I think sometimes business model terms are used as shorthand, PBMs, private equity, you pointed out as shorthand to describe a particular type of practice that may be concerning, but they're imperfect shorthand. And I think people can get very emotionally involved with the use of the shorthand. I try to move away from that and think about, what are the actual practices about which we are concerned? The interim report that you pointed to really tries to lay that out and say, here is where, here is what the we are understanding about these markets. An important thing, I think that's documented in that report, is when I described the way the model is supposed to work of having a pharmacy benefit manager. There are a number of players, the insurance companies, the pharmacies, the PBMs, the drug manufacturers, a pattern that has evolved is that the three largest PBMs are also vertically integrated with insurance providers and pharmacies, and so that is a very different market dynamic than if all of these players were operating independently. And very important for us to understand how that can affect incentives. So I think so on the one hand, I think we shouldn't get too caught up in is the term problematically applied in an over Broadway. I think we should look at what are the actual practices about which were concerned the report, the interim report, lays out some of those things. And did you mention, have we gotten to the next step those in the last
Daniel Francis 32:49
sounds like a great moment to bring it up. Poor
Commissioner Rebecca Kelly Slaughter 32:53
Daniel and we were talking about this panel, I said, and he was trying to prepare. I said, Well, there's, there's going to be some news, I think, but I can't tell you what it is. You can't prepare for it, but fortunately, it is public in time for you to be able to prepare for it. So late last week, the FTC filed suit against the three largest PBMs and their GPO subsidiaries, alleging violations of the FTC act over the rebating practices that we were describing. And, you know, because it's active litigation, I don't want to get into it too much, but the complaint, I think, I think I can talk about what the complaint alleges, which would all have to be proven, but the short version of what the complaint alleges is that the this practice, that is this contracting practice that the PBMs have developed that is intended to lower net drug prices may be lowering drug prices for some set of insured, well insured customers, but the way it's doing that is incentivizing increasing list prices from manufacturers that will be offset against rebates that are paid to the PBMs. And the publicly available version of the complaint redacts the dollar values of those rebates, so I cannot tell you what those are, but there are dollar values that are associated with those rebates for the PBMs, and that is at the expense of the price that is paid for list price sensitive customers who include not only the uninsured, but people who are on insurance pan plans with extremely High co pays or high deductibles. And so the question is, Is that legal to have this one set of customers for whom the prices may be reduced at the to the profit of the PBMs and at the expense of the customers who are list price sensitive? Yes, one thing that I will note about this suit that I think is really interesting and important is it alleges not only a violation of the FTC act under competition law as an unfair method of competition, it also alleges that this conduct is an unfair or deceptive act or practice. That is what we traditionally think of as our consumer protection law. When the FTC filed suit in 20 what year was there from 2019 2019 I think it was 2019 against Martin Shkreli the pharma bro for raising the price of Daraprim, which is the only, yeah, only pharmaceutical, only available pharmaceutical to treat toxoplasmosis and people who can't take it die. He raised it like 4,000% says something huge, huge, astronomical number, and we alleged it that the conduct that supported that those price hikes was a violation of section one and section two of the Sherman Act. But I also thought that it should have been alleged that it was an unfair act or practice under the FTC act, an unfair act or practice is one that causes substantial injury that's not reasonably avoidable and not offset by countervailing benefits to consumers or competition. That's a very high standard under the law, but I think an important one to think about with respect to particular conduct around drug pricing, where patients who end up paying extremely high prices can be deprived of a drug, they don't have other choices, and they're certainly not benefiting from any increasing competition or benefit to other consumers. So it's an important case. It's going to, obviously have to move through the litigation process, and like I said, What's in the complaint are allegations that will have to be proven and evaluated, but I think it's an important step.
Daniel Francis 37:11
What you highlighted at the end there the use of what's traditionally been a consumer protection power the FTCs power to block unfair and deceptive acts and practices being used in a competition case that kind of left out from the complaint in a way that potentially has implications far broader than just certainly PBMs or a farmer. It really could signal a different approach to how the FTC thinks about its competition function. Do you see that? And again, you know not, not wanting to delve too deeply into this matter, as I know, it's under adjudication. But do you see this potentially as a path to the FTC taking sort of exploitation and exploitative abuses of dominance, which is something that's part sort of punished or prohibited in other jurisdictions, but not by us. Antitrust law. Is this the first step on a path in that direction, or is it sort of much more local to Parliament than that? Well,
Commissioner Rebecca Kelly Slaughter 38:08
I would say it's not necessarily prohibited by the Sherman Act or the Clayton act, but the FTC also issued a policy statement under Section five, addressing our unfair methods of competition jurisdiction that can reach some of that conduct. The question you're asking is, or do you get around that by using UDAP authority? Let me start by saying the pushback against using UDAP authority, around pricing power effectively is, well, you're just trying to implement price controls, and we don't have price controls under US statutes. You know, the way competition works and should work is that when one company raises a price, competitors come in with better prices, a more innovative product, and that the we will get back to a competitive equilibrium through the forces of free market competition. I love that idea. I want that to be how things work all the time. That should be what happens. That's what the theory tells us. That's not always what we see in practice, because sometimes there are barriers to entry, regulatory or otherwise that will prohibit that competitive discipline from affecting the market, and there is arbitrage around those regulatory barriers to entry, which you know, if this was some esoteric conversation about how companies are making money, fine, but the first prong of the unfairness test is causes substantial injury, and that is the first thing we would have to prove if we're documenting or alleging unfairness. And I think thinking about, where is the injury on whom is it falling? Is it substantial? How does it matter? Is a pretty. A significant disciplining effect. The last prong, which is offset by benefits to competition and consumers. That's where you would see the argument about competitive entry, disciplining the pricing. And that's the that's the benefit to competition. Raise price incentivizes entry by a competitor. Where you see that not happening or not able to happen is where you're more likely to be able to prove up unfairness, I think
Daniel Francis 40:25
so. And recognizing that somehow we only have five minutes left, which is terrifying and troubling in my heart, but that kind of tees up a broader question, right? So right now, there are a number of folks who think of us as being in the middle of a genuine revolution in the way that we think about antitrust, and reasonable minds disagree about whether and to what extent that's going on, but many of the senior antitrust officials in the current administration have emphasized, In various terms, something like a sort of clean break with the paradigms of the past and a significant change in enforcement policy. So let me just invite you, sort of taking pharma policy, Farmer antitrust as a frame to ask whether, in your view, there's really a new model here. I think of the traditional model as being sort of consumer welfare harms that are traditionally expressed through things like higher prices and worse quality and lost innovation and all that stuff. So I have a sort of pretty capacious view about what the old paradigm was, and I want it to be applied well, not badly, as we look at the work of the FTC and perhaps DOJ as well. Should we see in pharma or elsewhere, a new approach or just a refined version of what was going on
Commissioner Rebecca Kelly Slaughter 41:49
before? I think this is another yes question to your either or yes answer to your either or question. Consumer welfare is another one of those terms about which people get extremely emotional, and it means very different things to very different people. I think, as you reflected Daniel, across the board, there is an understanding that our antitrust law protects not only prices, but also innovation, entry, all these non price verticals, and that's extremely important. And and I've heard many times, well, the new antitrust enforcers don't care about prices. Of course, we do look at the complaints that we file. Of course we care about prices. The question is, you care exclusively about prices? No, we also care about innovation. But also look at some of the complaints that were filed under the last administration. Very much about innovation, too. The two areas where I think there is a real change is one, short term versus long term, I think a thing that we are thinking very seriously about is long term sustainability and viability in markets, and whether short term price effects will be offset by long term inhibition of competition in markets. And I don't think that the antitrust laws tell us that's something we should ignore. I think we do need to be thinking about that, and that is an important part of the analysis. The other way I think about it, and I think my perspective is different from some of my colleagues on the right is from an error risk analysis. I don't want to be wrong ever right. I really just prefer to be right all the time and everything. I also know that I am not and even the most brilliant, perfect antitrust Enforcer is not always going to be correct, because antitrust is very much a predictive exercise, and we do not have a perfect crystal ball. So the question is, if we might make mistakes, where should we preference those errors? Are we more are we in better shape if we always avoid type one errors, false positive government action against conduct that was probably innocuous, which is where I think we've been for a while. We want to avoid type one errors at all costs, at the expense of having more type two errors, a lack of intervention where intervention would have been warranted. That's what I worry a lot about. I do not think we should only have type two errors, either. I think we should have a balance in error risk, and that's really where I see a shift in thinking that's pretty fundamental.
Daniel Francis 44:44
So recognizing that we've covered a lot of ground, including sort of inside and now outside the pharma space, let me just put the spotlight back on pharmaceutical merger control or antitrust or enforcement policy. So. There anything that you wish people understood that they don't seem to get about what the FTC is doing, or wish they asked more when people are like asking you questions at conferences about, well, hey, a lot about this thing. Is there anything that you think sort of deserves Particular attention, either from the public or from the bar or even from Congress that right now is just not getting the attention. It says, Well, I
Commissioner Rebecca Kelly Slaughter 45:24
think the two things I would say are, we're at a moment where there is an enormous amount of energy and attention around antitrust in general, pharmaceutical in particular. That's great. I think that is so exciting. It leads to very vibrant debate, which I also think is extremely healthy and important, that can give the impression that there is this, like massive, widespread, partisan rift in the universe of the FTC and the fabric of the FTC, and we remain an agency where most of what we do continues to be on a bipartisan, unanimous basis. You think about and see the things that break down on party lines because they're more they're noisier, but there continues to be a huge amount of consensus, and finding that consensus continues to be very important to me, and I think to the agency generally. So that is the first thing that I wish people knew. And the second thing is, I think there's a lot of rhetoric around questions of big tech and zero price markets and AI and those things are important. They are things that we focus on, but really the degree to which we are extremely focused on the bread and butter issues that affect people's everyday lives are, that is, I think, the vast bulk of the work that we are doing, and it is where the FTC is an enormous workhorse, and it continues to be really important and really exciting, even if it doesn't always generate the same degree of headlines and controversy and interest.
Daniel Francis 47:02
That is a wonderful note on which to end. I see we're right at time, please join me in thanking commissioners.
Announcer 47:15
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