Benco Dental Supply Co.

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

IN THE MATTER OF BENCO DENTAL SUPPLY CO., HENRY SCHEIN, INC., AND PATTERSON COMPANIES, INC.

Docket No. 9379. Order, November 26, 2018 Order identifying facts, which are deemed established for purposes of this proceeding. ORDER SPECIFYING FACTS WITHOUT SUBSTANTIAL CONTROVERSY Pursuant to Rule 3.24(a)(5) of the Federal Trade Commission’s Rules of Practice, 16 C.F.R. § 3.24(a)(5), the Commission hereby specifies the following statement of facts that appear without substantial controversy. Accordingly, IT IS ORDERED that the following facts shall be deemed established for purposes of this proceeding:

1. Patterson has been distributing dental equipment (e.g., X-Ray and CAD/CAM machines, digital radiography sensors, and integrated operatory treatment centers), and consumable supplies (gloves, cotton rolls, rinse cups, disposable syringes) for over 140 years. See https://www.pattersoncompanies.com/who-we-are/default.aspx#section=history. 2. Patterson has more than 70 local branches. See https://www.pattersoncompanies.com/ who- we-serve/default.aspx#section=animal.

3. {Solo and small practices account for the vast majority of Patterson’s customer base.} Patterson Exhibit 5 (PDCO 00023794, slide 21).

4. {In general, Patterson gives its sales representatives wide latitude in providing discounts. Patterson sales representatives have a variety of mechanisms by which to confer discounts, including the ability to re-price products manually to a penny over cost.} CX0317 (Rogan IH Tr. 140:14-141:16).

5. Corporate dental practices, known as “dental service organizations” (“DSOs”), {have grown since the 2008-09 financial crisis.} Patterson Exhibit 5 (PDCO 00023794, slide 39).

6. In some cases, corporate DSOs buy local practices and employ the dentists. See http://www.oralhealthworkforce.org/wp-content/uploads/2017/09/OHWRC_Trends_in_ Dental_Service_Organization_Model_2017.pdf.

7. In recent years, {some dentists have affiliated themselves to form “buying groups.”} Patterson Exhibit 5 (PDCO 00023794, slide 49).

553 BENCO DENTAL SUPPLY CO.

Interlocutory Orders, Etc.

8. {Unlike corporate DSOs, those “buying groups” typically do not create a separate corporate entity and do not have common ownership. Instead, each member dentist continues to own and run his or her own practice.} Patterson Exhibit 4 (McFadden 6- 21-2018 FTC Dep. 97:6–25; 138:5–22); Patterson Exhibit 2 (Rogan 7-13-2018 FTC Dep. 220:10–221:8).

9. Patterson launched its Special Markets division in {September} 2013 to manage large accounts. Patterson Exhibit 47 (PattersonDental 00024687); Patterson Exhibit 48 (PattersonDental 00024688).

10. {On September 4, 2013, Neal McFadden sent an email with the subject “Special Markets Announcement” attaching a memorandum. The memo, with the subject “Patterson Special Markets (PSM) Definition,” was from Neal McFadden, identified as “President, Special Markets” and Dave Misiak, identified as “Vice President, Sales.” The recipients were listed as “Regional Managers, Branch Managers.” The memo read, in part:

In June we announced the formation of our new Patterson Special Markets (PSM) Division. While we are still in the process of building out the infrastructure, we wanted to give you some guiding principles around our definition of this “special market” and how it will affect current and future business.

Effective immediately, current dental corporations with 15 or more owner operated/affiliated locations and a minimum of $600,000 in potential merchandise will qualify. Government, institutions and schools could also quality to work with PSM. These high volume accounts are asking for a single-source contact for all of their needs, including reporting, rebates and formulary updates. It is our goal to accommodate these requests and aggressively grow our business within this space. This definition will not include group purchasing organizations (GPOs).} CX0158-001, 002 (PDCO 00031277-78).

11. Neal McFadden testified at his deposition that {“In my career of 21-plus years at Patterson, I cannot remember us dealing with one single buying group.”} Patterson Exhibit 4 (McFadden 6-21-2018 FTC Dep. 76:25-77:3). 12. {On February 4, 2013, Brenton Mason sent an email to a number of individuals with the subject “New Mexico Dental Cooperative purchasing.” That email read, in part:

Frank Montoya, Jason Chapman and I are in the process of starting a dental Cooperative. Thus was are working together with our local private practice dental office owners to compete with the national VOLUME 166 Interlocutory Orders, Etc.

large corporations in the dental field. We as small businesses are well aware of the studies showing the corporate dentistry role over the next l 0 years. Furthermore, Walmart has provided us with a case study to evaluate the survival of the independent dental offices. Thus we have partnered with Patterson Dental to provide the individual office the same opportunities as the larger corporations.} CX0056-004-005 (BDS-FTC00009445-6).

13. On February 8, 2013, Benco’s Charles Cohen sent Patterson’s Paul Guggenheim a message forwarding an email chain including the email from {Brenton Mason}. Cohen’s message read, in part: “Just wanted to let you know about some noise I’ve picked up from New Mexico. FYI: Our policy at Benco is that we do not recognize, work with, or offer discounts to buying groups (though we do work with corporate accounts) and our team understands that policy.” CX0056-001 (BDS-FTC00009442). 14. A few hours later, Guggenheim replied to Cohen, in part: “Thanks for the heads up. I’ll investigate the situation. We feel the same way about these.” CX0090-001 (PDCO 00010912).

15. In early 2013, Patterson’s Chesapeake branch manager was approached by Atlantic Dental Cooperative (“ADC”). CX0093-001 (PDCO 00051886). 16. {Patterson decided not to bid to be ADC’s preferred supplier.} Id.; Patterson Exhibit 1 (Fruehauf 7-10-2018 FTC Dep. 114:7–115:6).

17. {On February 27, 2013,} David Misiak sent Patterson’s {Anthony Fruehauf} an email message {with a bcc to Paul Guggenheim}. That message read, in part: These co op situations can be very challenging so stay connected. You may have to help him at the meeting communicate our position verbally to the reps. It’s in their best interest long term as well not to take our business in that direction. When I get these calls directly I politely say that I appreciate the opportunity, but currently we [don’t] participate with group purchasing organizations. Be cautious so that reps don’t miss communicate our position.

Continue to help Devon stay out of this with grace. {Adding value is the absolute key. Regarding his concern, Devon will be judged very kindly if he leads through this and helps the customers and reps grow their business.} Confidential and not for discussion ..our 2 largest competitors stay out of these as well. If you hear differently and have specific proof please send that to me.

555 BENCO DENTAL SUPPLY CO.

Interlocutory Orders, Etc.

CX0093-001 (PDCO 00051886) (emphasis in original); see also Patterson Exhibit 14 (Misiak 7-25-2018 FTC Dep. 128:1– 128:10).

18. On June {6,} 2013, Patterson’s Paul Guggenheim, {identified as “President” of Patterson Dental Supply,} sent an email to Benco’s Chuck Cohen. The email read, in part:

Reflecting back on our conversation earlier this year, could you shed some light on your business agreement with Atlantic Dental Care? {I understand they are a group of 55 dentists in and around Chesapeake Va. being led by a practice management consultant that your team has signed a supply agreement with.} I’m wondering if your position on buying groups is still as you articulated back in February? Let me know your thoughts ….Sometimes these things grow legs without our awareness! CX0095-001 (PDCO 00010955).

19. {On June 8, 2013,} Chuck Cohen sent an email to Paul Guggenheim. That email read, in part:

As we’ve discussed, we don’t recognize buying groups. {On the Atlantic Dental Care situation, here’s our understanding after several in-depth conversations… 1. There are 32 practices that have legally merged together. 2. The new company is owned by the former practice owners. 3. They are in the process of rebranding all the offices Atlantic Dental Care.

4. They have a board of directors made up of some of the stakeholders that makes the decisions.

Although they’re in the early stages of the process, we believe this meets our criteria for a large group practice. We’ve asked to see the merger documents once they are completed, to confirm that they’ve really become a legally merged entity, and we’re going to continue monitoring the process to ensure that ADC delivers on their commitment to us. Happy to discuss in more detail, if you’d like.} CX3412-001 (PDCO 00010959).

20. {On June 10, 2013,} Paul Guggenheim sent an email to Chuck Cohen. That email read, in part: “{Sounds good Chuck.} Just wanted to clarify where you guys stand.” CX3301-001 (PATTERSON0001594).

VOLUME 166 Interlocutory Orders, Etc.

21. On August {4,} 2013, Patterson’s Tim Rogan sent an email to {Neal McFadden, with a cc: to David Misiak and Josh Killian and the subject “Re: Fw: GPO Request.”} That message read, in part: “We don’t need GPO’s in the dental business. Schein, Benco, and Patterson have always said no. I believe it is our duty to uphold this and protect this great industry.” CX0106-001 (PDCO 00027980). 22. On September 3, 2013, David Misiak sent an email message to {Scott Anderson and Paul Guggenheim, with the subject “Fw: GPO/Burkhart Relationship.”} The message read, in part:

{I would not currently classify these as a big threat to the business but the GPO noise has been pretty loud from the field. We have said no at every turn, including to Delta dental. Benco has also crept into a few of these.} My guidance has been to politely say no [to buying groups] and w[ea]ther the storm with these.

CX3074-001 (PDCO 00021091).

23. On November 20, 2013, Patterson’s Tim Rogan sent an email message to Patterson employee {Jennifer Hannon}. That email read, in part: “We don’t sell to buying groups. Let’s talk live.” CX3168-001 (PDCO 00028046). 24. On October 23, 2014, Neal McFadden sent an email message {to James Stewart, with a cc to Amy Barlage and Dave Misiak.} The message read, in part: “As a rule we are trying our best to steer clear of all buying groups.” CX3128-001 (PDCO 00026075). 25. Patterson declined to work with Kois Buyers Group. CX0321 (Kois, Jr. IH Tr. 76:15- 77:7); CX3084-001 (PDCO 00029940).

26. {On January 14, 2015, Patterson’s Anthony Fruehauf, identified as “Southeast Region Manager,” sent an email message to Neal McFadden with the subject “Livello Group.” That message read, in part: “There is a Dr Narducci in Orlando that you may remember. He has formed a GPO and has been purchasing through HSSM. He came back to us and asked that we bid as he is displeased with Schein services etc.”} CX3045-001 (PDCO 00026110).

27. That same day, Neal McFadden sent an email to Anthony Fruehauf. That email read, in part: “does he own all these offices - - if not then he is a GPO - - we don’t deal with GPO’s – {I will let you know.”} Id.

28. {On May 20, 2015, Neal McFadden sent an email to Amy Barlage and Lawrence Schmidt, with a cc: to Robert Murphy, Michael Cormier, Kristin Sammarco, and Dave Misiak, with the subject “RE: UOBG GROUP.” That message read, in part: 557 BENCO DENTAL SUPPLY CO.

Interlocutory Orders, Etc.

We currently have little appetite to deal with the buying groups as we feel they compete directly with the branches and reps. With that being said, I will follow Dave Misiak’s lead here. We have said no many times in order to remain pure in our intent and consistent across the company. If the local branch wants to do something here then that’s fine by me but I cannot work with our manufacturers on securing special pricing for a buying group that has no ownership in their clients.} Patterson Exhibit 54 (PDCO 00026237).

29. Smile Source approached Patterson in late 2013. {After a meeting between the firms,} Patterson declined to work with Smile Source. CX0147-001 (PDCO 00021163); CX0297-001 (PDCO 00021213).

30. {Several years later, Patterson submitted a bid for the Smile Source buying group. Smile Source rejected that bid in favor of Schein.} Patterson Exhibit 61 (Mauer 8-9- 2018 FTC Dep. 54:3-56:9; 64:4-9); Patterson Exhibit 14 (Misiak 7-25-2018 FTC Dep. 154:23– 156:2); Patterson Exhibit 8 (Lepley 7-24-18 FTC Dep. 37:9–13); Patterson Exhibit 62 (Rogan IH Tr. 397:16-399:19).

31. In October 2013, the Texas Dental Association (“TDA”) created the TDAPerks buying group. Patterson Exhibit 166 (PattersonDental00033124). 32. {On October 23, 2013, Patterson’s Clint Edens, listed as “South Central Region Manager,” sent an email to David Misiak, with a cc: to Tim Rogan and the subject “Re: Fw: Texas Supply Grey market and the TDA.” That message read, in part: I have yet to contact TDA formally as we are still gathering information, however our payment for the TDA booths is due by the end of October/early November. I am committed to pulling from the TDA if they do not discontinue competing with us via TDAPerks. We will not pay until this is resolved.} Patterson Exhibit 186 (PATTERSON 0000941).

33. On {January 21, 2014,} Dave Steck, identified as “Vice President & General Manager” of Henry Schein Dental, sent an email to Patterson’s David Misiak with the subject “Texas.” The message read, in part: “I’ll be calling you to let you know about our decision on the matter we recently discussed in the next couple of days.” CX0112-001 (PDCO 00013330).

34. That same day, David Misiak sent an email forwarding that message and stating: “He already told me they were out. Full blown!” Patterson’s Tim Rogan replied: “That sucks. You should call him. ‘Thought I could trust you’ type of conversation.” CX0112-001 (PDCO 00013330).

VOLUME 166 Interlocutory Orders, Etc.

35. {By January 21, 2014,} Patterson had chosen not to attend TDA’s 2014 annual meeting. Patterson Exhibit 186 (PATTERSON 0000244, PATTERSON 0000941). 36. A few weeks before TDA’s annual meeting, Cohen (Benco) emailed Sullivan (Schein) and Guggenheim (Patterson) on the same chain, forwarding an article promoting TDAPerks. CX1062-001 (BDS-FTC00001789). Guggenheim created a calendar entry to call Cohen about the article. CX0101-001 (PDCO 00011057). 37. {On September 19, 2014, Neal McFadden sent an email message to Patterson’s Michael Weatherly, with a cc: to Rich Lake, Neal McFadden, Brook Hilzendager, Amy Barlage, and Adam Quade, with the subject “Re: Tralongo.” The message read, in part: “Tralongo is not a special markets account. This is a buying group. So, if the branch wants to pay the $5000 and attend they Are [sic] more than welcome to. But we will not be attending as a special markets group.”} Patterson Exhibit 53 (PDCO 00026064).

38. In depositions in this matter, Patterson employees have denied participating in a conspiracy with Benco and Schein to boycott “buying groups.” Patterson Exhibit 13 (Anderson 7-19-2018 FTC Dep. 161:23–162:23); Patterson Exhibit 7 (Guggenheim 7-17- 2018 FTC Dep. 400:24–404:11); Patterson Exhibit 14 (Misiak 7-25-2018 FTC Dep. 314:18–316:2); Patterson Exhibit 2 (Rogan 7-13-2018 FTC Dep. 257:20–22, 261:17–19); Patterson Exhibit 8 (Lepley 30(b)(6) 7-24-2018 FTC Dep. 111:7–113:16); Patterson Exhibit 64 (Nease 6-15-2018 FTC Dep. 127:19–22; 134:24–135:10). By the Commission.

559 CHINA NATIONAL CHEMICAL CORPORATION Interlocutory Orders, Etc.