The Federal Trade Commission (FTC) recently announced that Invibio, which sells high-performance polymer for medical implants, has settled charges that the company monopolized sales to medical device makers through unlawful exclusive supply agreements.¹

Exclusive arrangements are generally recognized as pro-competitive by antitrust regulators. However, depending on the factual circumstances, they are not without risk. The FTC's most recent complaint in this area offers a few reminders of factors that influence the antitrust risk analysis.

Invibio's Supply Agreements and the FTC's Complaint

As alleged in the FTC's complaint, Invibio was the first supplier of implant-grade polyetheretherketone (PEEK) used for human implants.² Beginning in 1999, when it was still the only supplier, Invibio sold its PEEK products to medical device makers under "long-term" contracts, many of which included exclusivity requirements.³

In 2010 and 2013, with the encouragement of customers that were seeking alternative suppliers, Solvay and Evonik, respectively, obtained FDA approval for competing PEEK products and began offering lower prices to medical device makers.⁴

Invibio allegedly responded by seeking even broader exclusivity provisions⁵ in its supply agreements.⁶ In order to induce customers to accept these exclusivity terms, Invibio allegedly:

• Offered all or nothing contracts⁷ with terms that medical device customers could not refuse because other PEEK manufacturers did not have regulatory approval for all medical devices
• Threatened to not sell device makers new brands of Invibio PEEK, unless the customers agreed to purchase their main brand of PEEK on an exclusive basis
• Threatened to withhold Invibio's FDA Master File and other regulatory support, unless the device maker entered into an exclusive agreement
• "Where necessary," offered small price discounts in exchange for exclusivity

The FTC concluded that through these actions, Invibio engaged in unlawful monopolization. In particular, the exclusivity terms foreclosed "rivals from a substantial portion of available sales opportunities in the relevant market and prevented those rivals from competing effectively."⁸ This reduced competitors' incentives to innovate and prevented PEEK consumers from exercising a meaningful choice among suppliers. The FTC also concluded that any pro-competitive benefits of the contracting terms "could have been achieved through less restrictive means."⁹

In order to resolve the FTC's concerns, Invibio agreed to a settlement¹⁰ that forbids Invibio from:

• Adopting or implementing any agreement or policy that results in an exclusive relationship with customers
• Retaliating against customers that choose to use an alternative PEEK supplier
• Enforcing existing exclusivity provisions against customers that meet certain qualifications
• Including minimum purchase requirements, retroactive volume discounts,¹¹ or any other terms that would create de facto exclusivity in future contracts

In addition, the consent decree requires Invibio to implement an antitrust compliance program.

Guideposts for Exclusive Agreements

The FTC case against Invibio offers three takeaways for companies that are seeking, or that are subject to, exclusive agreements:

First, evidence of coercive behavior increases antitrust risk. There are no bright-line rules, but in this case, the FTC noted that "Invibio extracted exclusivity terms from customers both by threatening to withhold critical supply or support services and by offering minor inducements."¹² Certainly, the likelihood of an antitrust inquiry increases significantly if the other parties to agreements inform the agency that they felt compelled to accept exclusivity provisions.

Second, existing contracts can have new risk as industries change, especially if a firm uses its contracting practices to actively resist that change. The FTC's complaint notes that when PEEK was introduced, many of Invibio's contracts contained exclusivity terms and that these terms "went unchallenged by customers."¹³ Indeed, at that point, Invibio was the only PEEK supplier. However, when Invibio's customers learned of new suppliers, "[t]his dynamic started to change" and medical device companies wanted the option of using additional suppliers.¹⁴ In response to this changing dynamic, Invibio responded by making its contracts more restrictive.

Third, and related to the point above, market dynamics matter. In this case, Invibio held a 90 percent share in a highly regulated industry with high barriers to entry. Solvay and Evonik were able to obtain FDA approvals, enter the market, and offer consumers lower prices. However, Invibio was nonetheless able to maintain its monopoly and expand exclusivity terms.

As noted at the outset, exclusive agreements have many well-recognized and pro-competitive benefits. Nevertheless, depending on the factual circumstances, exclusive contracts can create antitrust risk. Thus, such arrangements should be considered in the context of the relevant industry, its market dynamics, and the agreements' competitive effects.