FTC Charges Two Firms That Control the Market for Laser Eye Surgery with Price-Fixing Conspiracy

The only two firms that market lasers to perform a new, and increasingly popular, vision correcting eye surgery, photorefractive keratectomy (“PRK”), were charged today by the Federal Trade Commission with price-fixing conspiracy. According to the Commission, the companies, Summit Technology, Inc. and VISX, Inc., are the only two firms legally able to market laser equipment to be used for PRK in the United States. Instead of competing with each other, the firms placed their competing patents in a patent pool and share the proceeds each and every time a Summit or VISX laser is used. In addition to charging price- fixing, the Commission has charged that VISX fraudulently acquired a key patent from the federal patent office. The results of these alleged illegal activities are higher prices and limited choice for consumers, the FTC said. The Commission is seeking an order that would require the parties to dissolve the patent pool so that the competing patents would no longer be held by a single entity, prohibit the firms from fixing the prices that doctors must pay to use the firms’ PRK lasers, and prevent VISX from enforcing its fraudulently acquired patent.

“Consumers were overcharged an estimated $30 million last year by the illegal activity of these two firms,” said William J. Baer, the Director of the FTC’s Bureau of Competition. “Summit and VISX sought to exempt themselves from the forces of competition by monopolizing the market for laser eye surgery and increasing the price of this important new procedure. The antitrust laws respect legitimately earned patent rights. But where the rights are abused or fraudulently obtained, we will act aggressively to protect consumers.”

Photorefractive keratectomy is a new surgical procedure, primarily used for correcting nearsightedness and astigmatism. It requires the use of a special laser to reshape a part of the eye’s cornea so that light focuses properly and images appear clearly. According to the Commission, the potential demand for PRK is vast. There are approximately 140 million people in the United States with vision problems. Most correct their vision with contact lenses or eyeglasses. The market for PRK is large and growing, however. In 1996, the first full year of operation for FDA-approved PRK lasers, Summit and VISX performed approximately 70,000 procedures in the United States. Some have forecast up to 500,000 PRK procedures will be conducted annually by the year 2000, the FTC said. The current price for PRK ranges from $1,500 to $2,250 per procedure.

According to the FTC, both Summit and VISX originally had developed their own technology for performing the laser eye surgery and had each sought patent protection. Instead of entering the market independently and competing with each other, they formed the patent pool, to which they each contributed their respective patents. The result, the agency charged, was to restrain competition in two ways. First, the firms no longer competed on price. The pool established a $250 licensing fee to be paid to the pool each and every time a laser produced by either firm was used to perform PRK. The proceeds from these license fees were then split between the two firms according to a predetermined formula, the Commission alleged. The effect of this per-procedure fee was that neither firm had an incentive to charge doctors less than $250 per procedure, the agency said.

The other effect of the pool was that the firms no longer had any incentive or ability to compete in the licensing of PRK technology -- neither firm could license its own technology without the approval of the other.

Summit sells excimer lasers for use in PRK in the United States and forty other countries. Summit is located in Waltham, Massachusetts. Its laser equipment received FDA approval in 1995.

VISX, located in Santa Clara, California, received FDA approval to market its exciter laser for PRK in 1996 and like Summit’s laser, it has been approved for treating mild to moderate nearsightedness. It also has been approved for treating mild to moderate astigmatism.

According to the FTC’s complaint outlining the charges, both Summit and VISX conspired to restrain commerce and created or maintained a monopoly by raising or fixing prices that physicians must pay to perform PRK procedures; raising the cost or preventing entry into the sale or leasing of PRK equipment; and by depriving consumers of the benefits of competition in the sale and leasing of PRK equipment.

In addition, the complaint alleges that VISX acquired a key patent by fraud before the patent office. According to the agency, VISX purposely identified the wrong person as the first to invent PRK in order to conceal fraudulent conduct by the original inventor. In addition, VISX broke the law, the FTC said, when it did not disclose previously published patents or publications that might prove that the claimed invention was not “novel,” a requirement of the patent laws.

Following trial by an administrative law judge, the FTC is seeking orders against Summit and VISX that would require the parties to dissolve the patent pool -- with the patents returning to the firm that contributed them -- so the competing patents would no longer be held by a single entity. They also would require Summit and VISX to allow users of their lasers to withdraw from their licensing agreements with VISX and Summit. The orders also would prohibit the firms from agreeing to fix the price that doctors must pay to use the firms’ PRK lasers, and the price that other laser manufacturers must pay to obtain licenses to the firms’ patents for PRK lasers; and would prohibit the firms from coordinating licensing decisions, including a prohibition against power in either party to veto licensing by the other party. The order against VISX would prohibit the enforcement of the patent allegedly acquired through fraud on the patent office.

The Commission vote to issue the administrative complaint was 5-0.

NOTE: The Commission issues a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the respondent has violated the law. The complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing.

Copies of the complaint and proposed order are available from the FTC’s Web site at: http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 25080; 202-326- 3128; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 951 0029)