United States: DOJ Passes On Opportunity To Challenge Joint Purchasing Agreement

The Department of Justice Antitrust Division ("DOJ") recently released a business review letter stating its intention not to challenge the American Optometric Association's ("AOA") plan to expand group purchasing to optometric products including corrective lenses, eyeglass frames, and contact lenses. A business or other organization may submit a proposed action and receive a statement about whether DOJ intends to challenge the action under the antitrust laws. The AOA is a trade association of approximately 27,000 independent optometry doctors and other industry participants. Although some of the doctors compete to purchase optometric products, DOJ concluded AOA's plan is unlikely to harm consumers. This case is a reminder that the antitrust laws permit certain competitor collaborations, such as joint purchasing arrangements, that benefit consumers.

DOJ and Federal Trade Commission guidelines (in health care) state that joint purchasing does not raise antitrust concerns unless:

• the arrangement accounts for so large a portion of purchases that it can exercise market power by driving prices below competitive levels, or
•  the input products account for so a large portion of the total cost of the output products that participants sell such that the arrangement facilitates anticompetitive conduct, e.g., price fixing.

Those guidelines include a "safety zone" in which the agencies will not challenge joint purchasing, absent extraordinary circumstances, if the:

1. combined share of purchases is less than 35 percent of the relevant market, and
2. costs of the products are less than 20 percent of total revenues from all products that each competing participant sells.

AOA members comprised "significantly less" than 35 percent of optometric product sales. Although costs exceeded the 20 percent threshold, DOJ noted that joint purchasing outside the safety zone does not necessarily raise concerns. It cited additional AOA safeguards that "substantially, if not completely" eliminated risk of improper price coordination: (1) members are not required purchase through AOA; (2) a third party will negotiate prices with suppliers; and (3) price communications between AOA and individual members will be confidential as to each participant.

Although the antitrust laws limit certain joint conduct among competitors, DOJ's letter is a reminder that competitors can collaborate to benefit consumers. Properly structured, competitor collaborations can lead to improved volume discounts, lower transaction costs, lower prices, new or improved products or services, interoperable products, or improved access to otherwise unavailable products or services.