Monitors: Expert eyes and ears in Commission orders

The ability to appoint a monitor is an important tool in building a successful merger remedy. The boilerplate-style language FTC uses in merger orders when appointing a monitor belies the unique and varied roles that monitors play in assuring that the order maintains or restores competition. Here’s some background and insight into some of the ways the FTC uses monitors.

Many FTC merger orders contain complex remedies – something other than a straightforward divestiture of an ongoing business. For instance, in some circumstances, our competitive concerns may lend themselves to a highly tailored resolution that eliminates the likelihood of competitive harm while letting the non-problematic aspects of the deal to go forward. To be successful, these complex remedies typically require significant, and often highly technical, post-order cooperation and commitment from the merged entity—a company that will compete with the new owner of the divested assets.

To ensure the success of these remedies, the Commission often appoints a third-party monitor. A monitor is especially helpful in orders that pose possible technical complexities associated with the transfer of assets or intellectual property, or with the performance of other functions, such as ensuring performance of supply agreements, providing assistance to the new firm, or maintaining assets pending divestiture. An effective monitor can be extremely useful in identifying issues early, resolving disputes before they become significant, and ensuring that the merged firm complies with the order.

For example, appointing a monitor is standard practice in orders resolving competition concerns in pharmaceutical mergers. Pharmaceutical divestitures can take years to complete and require moving production assets (possibly including delicate biological materials), obtaining multiple FDA approvals, transferring reams of scientific records and information, or maintaining multi-year supply agreements until the acquirer is able to produce and market the divested products. For example, a 2013 Commission order required divestiture and transfer of eleven products to four acquirers. More recently, the Commission ordered divestiture of two products in late-stage clinical development, requiring the transfer of regulatory approvals and assets related to ongoing clinical trials and manufacturing processes.

Due to the complexity of these transfers, monitors in pharmaceutical cases typically have scientific backgrounds and decades of experience in the pharmaceutical industry. This enables them to gauge the efficacy of the respondents’ transition plans and evaluate the causes of any problems along the road. Relying on the assistance of expert monitors enhances FTC staff’s ability to evaluate the progress of complex, multi-step divestitures and accurately evaluate whether a glitch may--or just as importantly may not--indicate a compliance problem.

Monitors are also useful for orders involving on-going conduct obligations, such as firewall provisions intended to limit the exchange of competitively sensitive information. Firewall provisions are common in orders resolving concerns presented by a vertical acquisitions. For example, in 2010, The Coca-Cola Company and PepsiCo, Inc. each sought to acquire a major independent bottler. The bottlers also bottled and distributed the carbonated soft drink products of rival DrPepper Snapple Group, Inc. To prevent the proposed acquisitions from allowing Coke or Pepsi, at the concentrate level, to obtain inside information about a major competitor, the FTC required each company to set up firewalls and other procedures to prevent its concentrate-level business from obtaining competitive information learned from its bottling group about DrPepper’s marketing plans.

Establishing and maintaining an effective firewall in a company as large as Coke or Pepsi is a significant undertaking. And verifying that the procedures put in place are adequate and working requires specialized knowledge and experience. To ensure the effectiveness of the firewall provisions, the Commission appointed monitors for these orders who could provide that expertise. One monitor is former food company senior counsel who consults with corporations on compliance and competition issues. The other served in senior executive positions at several large companies and a soft drink bottling company. These monitors have provided Commission staff with invaluable insight and evaluation regarding each company’s compliance with the Commission’s orders.

Monitors also can spot and address potential compliance concerns as they arise, which can happen in an order with a complex remedy. For example, our merger orders generally require a respondent to provide proprietary know-how and other assistance to a buyer. Sometimes the  respondent objects to providing particular requested assistance, arguing that providing the assistance will give an acquirer unnecessary and competitively sensitive proprietary information about the respondent. A monitor can discuss the matter confidentially with both parties and assist Commission staff in determining whether the requested assistance is required under the Order. This helps resolve such issues at an early stage, thereby avoiding potential competitive harm and the possibility of an order violation. 

Although a monitor provides valuable factual reports and expert guidance, the monitor is not responsible for evaluating whether an Order has been violated or interpreting the meaning of Order provisions—that job remains with the Commission. Nonetheless, monitors can be invaluable to ensuring that the order is effective in transferring business assets to the buyer and preventing any loss of competition due to the merger.