The Federal Trade Commission (FTC) yesterday filed a complaint against the Hearst Trust and some of its subsidiaries, charging that they bought out the only competitor in a niche drug database market and then drastically raised prices.
In addition, the FTC complaint, filed in U.S. District Court in Washington, states that Hearst illegally withheld important information about the 1998 acquisition. That information is required for premerger antitrust review by the federal antitrust agencies under the Hart-Scott-Rodino Act.
The FTC, by a 3-2 vote, asked the court to order Hearst to forfeit its profits from the allegedly anticompetitive price increases. The suit would also force Hearst to create a competitor.
In a statement describing the filing, the FTC said that in 1998, Medi-Span of Indianapolis was Hearst's only competitor for electronic integratable drug information databases, also known as integratable drug data files.
Specifically, the suit names the following defendants: the Hearst Trust, a family-held trust based in New York; its subsidiary communications and entertainment company, The Hearst Corp., also in New York; and First DataBank, a wholly-owned Hearst Corp. subsidiary in San Bruno, Calif.
"This acquisition eliminated First DataBank's only significant competitor," said Molly Boast, acting director of the FTC's Bureau of Competition. "The commission will move aggressively not only to restore competition to the market, but also to deprive First DataBank of the monopoly profits it has enjoyed as a result of its grossly illegal conduct consisting of withholding key information in the premerger review process and buying its only competitor."
In a statement, First DataBank said it was disappointed with the ruling. "While First DataBank Inc. disagrees with today's FTC 3-2 decision, the company will continue to cooperate with the agency in reaching a resolution of the matter. We are surprised and disappointed that despite our earnest efforts to settle the matter, the agency has initiated litigation."
The databases contain clinical and pricing information on prescription and nonprescription drugs in a form that can easily be integrated with other electronic databases, such as pharmacists' records of their patients' medications. The integratable drug data files are used by pharmacists to get quick, automatic warnings of any dangerous interactions between newly prescribed drugs and other drugs their patients are already taking.
The government also accused Hearst of illegally omitting from its premerger filing several high-level corporate documents prepared to evaluate the Medi-Span acquisition and its competitive effects.
According to the lawsuit, Hearst belatedly provided the FTC with those documents after the price increases. That prompted the FTC to investigate the Medi-Span acquisition, according to the announcement.
Dissenting Commissioners Orson Swindle and Thomas B. Leary in a separate statement said they disagreed with the decision to send the action to federal court, sayying they believed the issue could have been resolved through further negotiation. The dissenters also said they opposed requiring the company to forfeit, or disgorge, its profits, saying that if a violation is proved, there are remedies that would ensure that the company doesn't benefit from possible wrongdoing.