FTC "FAILED TO SHOW" ABBOTT COLLUSION WITH INFANT FORMULA COMPETITORS

FTC "FAILED TO SHOW" ABBOTT COLLUSION WITH INFANT FORMULA COMPETITORS in supply bidding for the 1990 Puerto Rico Special Supplemental Food Program for Women, Infants and Children (WIC), a U.S. district court judge ruled on May 27. Deciding in favor of Abbott Labs in the case brought by the Federal Trade Commission in June 1992, U.S. District Court for the District of Columbia Judge Stanley Sporkin stated that "Abbott has submitted a plausible explanation for its...bid strategy and the government has failed to show by a preponderance of the evidence that its action was the result of collusion with its competitors."

The FTC complaint contained two counts, both alleging violations of Section 5 of the FTC Act. The first count alleged collusion between Abbott, Bristol-Myers Squibb's Mead Johnson subsidiary, American Home Product's Wyeth Labs subsidiary and the Puerto Rican Department of Health's procurement division, AFASS, to assure an open market system in Puerto Rico rather than a system where a sole entity supplies the program.

However, the May 27 decision states that "there is no direct evidence that Abbott communicated directly with Mead and Wyeth concerning the events in question."

In two rounds of bidding for the infant formula supply contract, Abbott's first successful bid was canceled by AFASS and the second bid, which resulted in an open market situation, became the subject of the FTC case. Judge Sporkin pointed out that "Abbott's first round bid was above reproach. In addition, Abbott's representatives acted admirably in immediately leaving a pre-bid conference where they believed competitors were improperly discussing price and market allocation issues."

While "FTC would have the court find that after behaving properly in two instances where its competitors did not so behave, Abbott changed its corporate mindset, and joined a collusive plan to submit a noncompetitive bid," the "court does not find that Abbott exhibited the 'conscious commitment to a common scheme' that is a required element of an illegal conspiracy," the court opinion states.

In the second count of the complaint, FTC argued that Abbott engaged in unfair competition by conveying information with an anticompetitive intent to AFASS and through AFASS to Mead Johnson and Wyeth. However, the ruling states, "overwhelming evidence shows conclusively that high-level AFASS officials on their own canceled Abbott's first competitive bid and arranged for a second round of bidding which resulted in the adoption of an open market system" with a substantially lower rebate by infant formula manufacturers, .40-.43, than the approximately $1.11 that was offered by Abbott in its first bid.

Judge Sporkin determined that "the evidence is clear that officials of the U.S. Department of Agriculture were fully aware of the inappropriate action taken by AFASS to defeat a sole source system...and despite this knowledge, USDA officials failed to act to assure an open and honest competitive bid system."

"Instead," the ruling asserts, "the government allowed an improper procurement to go into effect, costing the U.S. government millions of dollars of excess costs." The decision notes that evidence presented in the case indicated that the Puerto Rico government may have lost more than $21 mil. by not accepting Abbott's first bid, which included the $1.11 rebate but was based on a sole-source supply arrangement. As a "court of equity," Judge Sporkin stated, "it would be unconscionable to require Abbott to 'bail out' the government by underwriting the losses of this failed procurement program."

The FTC is "essentially asking this court to penalize Abbott for not doing the USDA's job," the ruling maintains. "Abbott was faced with the Puerto Rican government's strong bias against a sole source procurement system. Should Abbott have taken on the government of Puerto Rico by instituting a lawsuit challenging its action? The court thinks not."

"There is little doubt in this court's view that violative conduct occurred," Judge Sporkin said. However, the ruling points out, "by Wyeth and Mead's settlement of the charges against them, without trial, the good work of the FTC has largely gone unnoticed."

In 1992, Mead and Wyeth resolved FTC charges regarding their bidding practices in the Puerto Rico program without admitting wrongdoing. The settlement called for Mead and Wyeth to deliver a total of 3.6 mil. pounds of powdered infant formula to USDA for the WIC program. The total value of the settlement was estimated by Abbott in the range of $7.7 mil., the decision notes.

In its 1992 complaint, FTC estimated the 1990 U.S. market for infant formula at $1.6 bil., with Abbott controlling over half the market through its Ross subsidiary, which markets Similac and Isomil. Mead Johnson, marketer of Enfamil and Prosobee, has more than a 30% share of the infant formula market, according to the agency, and Wyeth has an 8% share with SMA and Nursoy. FTC began its inquiry into possible anti-competitive behavior among infant formula manufacturers at least two years prior to the announcement of the 1992 charges.

In October 1993, Abbott settled separate FTC charges that the company colluded with other infant formula manufacturers to prevent consumer advertising of infant formula products. Under the settlement, Abbott agreed not to work with competitors to restrict mass media advertising of such products directly to consumers ("The Tan Sheet" Nov. 1, 1993, p. 11).