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FTC reaches settlement with IDEXX Laboratories
Manufacturer no longer permitted to maintain exclusivity agreements with all top veterinary distributors.
Following a complaint issued by the U.S. Federal Trade Commission (FTC), IDEXX Laboratories, the largest manufacturer of veterinary diagnostic products, has agreed to terminate its exclusive agreement with one of the nation’s top three veterinary distributors. According to the FTC, IDEXX has been in violation of the Federal Trade Commission Act by entering into exclusive terms with its distributors, thereby creating a monopoly on diagnostic products in the market.
IDEXX Laboratories, based in Westbrook, Maine, manufactures point-of-care diagnostic products, including rapid assay tests and other equipment that allows veterinarians to obtain real-time results when diagnosing a medical condition in companion animal patients. According to the FTC, IDEXX has boasted a 70 percent share of the in-clinic diagnostics market annually from 2006 to 2011, far exceeding other firms that saw no more than a 20 percent share in similar markets during that time. The FTC also reports that more than 75 percent of veterinarians used point-of-care diagnostics as of 2009, spending approximately $500 million annually on the purchase of these products.
The majority of veterinarians buy their products from distributors who specialize in the companion animal veterinary market, and more than 75 percent of veterinarians identify Butler Schein Animal Health, Webster Veterinary Supply (which has changed its name to Patterson Veterinary Supply as of Jan. 1), MWI Veterinary Supply, Midwest Veterinary Supply or Victor Medical Company as their preferred distributor. Collectively, these distributors sell more than 85 percent of all products and supplies purchased by small animal veterinarians, according to the FTC. Of these, Butler Schein, Webster/Patterson, and MWI are regarded as top-tier distributors.
According to the FTC complaint, IDEXX, which uses all five leading distributors to market its products, entered into exclusive deals with each one, prohibiting them from carrying competitors’ point-of-care diagnostic testing products. The complaint states that IDEXX has employed its monopoly power, the threat of contract termination and explicit agreements to prevent these distributors from carrying rival point-of-care products they would otherwise sell. In doing so IDEXX blocked its competitors from an efficient and widely used distribution channel and forced them to engage in less convenient and more expensive alternatives, the FTC says.
In order to increase competition in the point-of-care veterinary diagnostic market, the FTC has proposed a consent order that prohibits IDEXX from maintaining exclusive arrangements with all of the top three national distributors. As part of this order, IDEXX signed a non-exclusive agreement with MWI Veterinary Supply, which went into effect as of January 2013, allowing MWI to carry both IDEXX and competitor products.
IDEXX may, however, maintain exclusive agreements with the other two leading distributors. If IDEXX or MWI terminates the agreement, the order states that IDEXX must give notice to the FTC and enter into a non-exclusive agreement with one of the other two distributors within 30 days. IDEXX will also be prohibited from retaliating against non-exclusive distributors, which could include withholding products or other threatening measures. Additionally, all future non-exclusive agreements must meet the requirements of the order, beginning with a two-year term and providing renewal terms of at least one year. The order will be in effect for the next 10 years unless otherwise stated.
In December 2012, the FTC announced a preliminary approval of the consent agreement. As per FTC protocol, a proposed draft complaint and the proposed consent agreement, along with the draft consent order, have been placed on public record for a 30-day comment period, which concludes on January 24, 2013. At that time the FTC will decide whether to finalize the order.
“We are very pleased that the commission has acted quickly in preliminarily approving the consent agreement that we reached with the Bureau of Competition staff just a couple of weeks ago,” said Jonathan Ayers, IDEXX Laboratories chairman and chief executive officer, in a company-issued statement. “While we admit no wrongdoing and continue to believe that our distribution practices do not violate the antitrust laws as these same practices have been upheld in previous litigation victories, this is another important step toward final resolution of the multi-year FTC investigation, which we now expect to occur early in 2013.”