Otto Bock Healthcare North America, Inc.

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF OTTO BOCK HEALTHCARE NORTH AMERICA, INC.

Docket No. 9378. Order, July 9, 2018 Order denying respondent’s motion to withdraw the Matter from adjudication for the purpose of considering a consent settlement.

OPINION AND ORDER OF THE COMMISSION On December 20, 2017, the Commission issued an administrative complaint alleging that the agreement for Otto Bock Healthcare North America, Inc. (“Otto Bock” or “Respondent”) to purchase FIH Group Holdings, LLC (“Freedom”) violated Section 5 of the FTC Act, and that consummation of that transaction on September 22, 2017 violated Section 5 of the FTC Act and Section 7 of the Clayton Act. According to the Complaint, the agreement and consummated transaction had the effect of substantially reducing competition in the market for microprocessorcontrolled prosthetic knees (“MPK”) sold to prosthetic clinics in the United States. In its Answer to the Complaint, Respondent denied that the merger harmed consumers or competition, and asserted affirmative defenses, including, inter alia, an averment that Otto Bock’s “planned divestiture of the microprocessor controlled prosthetic knee business of Freedom addresses any conceivable anticompetitive effect.” Am. Ans. at Seventh Affirmative Defense. Discovery has been completed, and the hearing before the administrative law judge is scheduled to begin on July 10, 2018.

On June 19, 2018, Respondent filed a Motion to Withdraw Matter from Adjudication for Consideration of Proposed Settlement (“Respondent’s Motion”). Respondent’s Motion contends that an asset purchase agreement to divest Freedom’s microprocessor knee business to {The Ohio Willow Wood Company (“OWW”)} would resolve any anticompetitive concerns asserted in the Complaint. Respondent seeks an order withdrawing the matter from adjudication and staying all proceedings before the administrative law judge while the Commission evaluates a proposed consent order based on the proposed asset purchase agreement. Finding that there is a reasonable possibility of settlement, Chief Administrative Law Judge D. Michael Chappell certified Respondent’s Motion to the Commission, pursuant to procedures specified in Commission Rule of Practice 3.25(c), 16 C.F.R. § 3.25(c). Complaint Counsel oppose Respondent’s Motion. Complaint Counsel contend that {the proposed divestiture would not divest a viable, ongoing business} and would not remedy the effects of the allegedly unlawful merger. Complaint Counsel’s Response to Respondent’s Motion to Withdraw Matter from Adjudication for Consideration of Proposed Settlement at 2, 6 (“Complaint Counsel’s Response”). According to Complaint Counsel, {the assets covered by the proposed divestiture are “insufficient because they do not include, for example, (1) unfettered rights to key intellectual property, (2) critical employees necessary for development and marketing, (3) all of the equipment used in development and production, and (4) prosthetic foot assets that are essential to restoring competition.”} Id. at 6. Moreover, Complaint Counsel maintain, {OWW lacks the marketing, engineering, and 521 OTTO BOCK HEALTHCARE NORTH AMERICA, INC. Interlocutory Orders, Etc.

complementary assets needed to compensate for the alleged shortcomings of the divestiture package}. Id. at 7.

Rule 3.25(c) leaves the determination of whether to grant a motion to withdraw to the Commission’s discretion. Federal Trade Commission, Rules of Practice, 74 Fed. Reg. 20205, 20206 (May 1, 2009). That discretion is informed in part by the Commission’s policy favoring, and the public interest in, expeditious resolution of the Commission’s adjudicative proceedings. See Order Denying Respondents’ Motion to Stay and Temporarily Withdraw this Matter from Adjudication, In re Tronox Ltd, Docket No. 9377 (FTC May 16, 2018) (“Tronox Order”); see also 16 C.F.R. §§ 3.1, 3.11(b)(4), 3.41, 3.46, 3.51-52. When the Commission issued its Complaint, it found reason to believe that Otto Bock and Freedom had executed a merger agreement in violation of the FTC Act, and had consummated a merger in violation of the FTC Act and the Clayton Act, and it is now in the public interest that the allegations in the Complaint be resolved expeditiously.

Here we are not persuaded to withdraw the matter from adjudication. Respondent and Complaint Counsel have very different opinions regarding the adequacy of the current divestiture proposal, and the related factual disputes appear significant. As things currently stand, the potential for quick, successful resolution of remaining issues and acceptance of a consent agreement is not sufficient to warrant withdrawal, particularly given that the hearing before the administrative law judge is set to begin imminently.

Negotiations between Complaint Counsel and Respondent appear to be ongoing. Complaint Counsel state that that they offered a counter-proposal to an earlier {term sheet for Respondent’s proposed divestiture with OWW} on April 18, but have heard no response. Complaint Counsel’s Response at 2. Although Respondent’s motion attached a subsequently executed asset purchase agreement, Respondent’s Motion suggests the possibility of addressing Complaint Counsel’s concerns through a variety of mechanisms including {“limited concessions of certain foot products that might be divested to OWW in addition to” Freedom’s microprocessor prosthetic knee products}. Respondent’s Motion at 8. Under these circumstances, the appropriate next step is further negotiation between Respondent and Complaint Counsel, not withdrawal of the matter from adjudication. As we recently stated in another adjudicative proceeding, “[S]settlement discussions should be with Complaint Counsel, not the Commission.” Tronox Order at 2.

Accordingly, IT IS HEREBY ORDERED that Respondent’s Motion to Withdraw Matter from Adjudication for Consideration of Proposed Settlement is DENIED; and IT IS FURTHER ORDERED that the evidentiary hearing in this proceeding shall commence on July 10, 2018, as previously scheduled.

By the Commission.

VOLUME 166 Interlocutory Orders, Etc.