The Competitive Enterprise Institute (CEI) published a new paper by former Federal Trade Commission (FTC) Chairman Timothy J. Muris and former director of FTC’s Bureau of Economics Bruce Kobayashi. In Screening Out Innovation: Vertical Merger Principles and the FTC’s Misapplication in the Illumina-GRAIL Case, Muris and Kobayashi detail the appropriate standards for analyzing vertical mergers and argue the FTC’s recent challenge to the merger between Illumina and GRAIL misapplies those standards in failing to support its contention the transaction would reduce competition in an innovation market through foreclosure.
Illumina and GRAIL are both healthcare companies working on making lifesaving cancer screening available to patients. They are not competitors – rather the companies produce complementary products and services. Illumina is a leading provider of next generation DNA sequencing (NGS) platforms, GRAIL researches and develops NGS-based oncology tests, including a multi-cancer early detection (MCED) test. Illumina actually founded GRAIL in 2015 and spun it off as a stand-alone company in 2017 while retaining a minority stake.
On September 20, 2020, Illumina signed an agreement and plan of merger with GRAIL and on March 30, 2021 the FTC filed an administrative complaint alleging the merger would reduce competition “in the market for the research, development, and commercialization of MCED tests.” The FTC’s theory of harm rested on a speculative theory of foreclosure in an alleged “pre-commercial” market.
After analyzing the FTC’s arguments, Muris and Kobayashi find the vertical merger would produce downward pricing pressure from the elimination of double marginalization and verifiable and merger-specific efficiency justifications in the near term not likely to be outweighed by the FTC’s speculative and far-in-the-future foreclosure harms. They also conclude the FTC’s theory of “standalone harm to innovation through future exclusion of hypothetical competitors in a pre-commercial market” lacks merit.
Screening Out Innovation co-author and former FTC Chairman Timothy J. Muris said:
“Illumina and GRAIL are not competitors, they produce complementary products and services that have the potential to make lifesaving cancer screening available to patients. It would be tragic if the FTC’s misapplication of the appropriate standards for evaluating a vertical merger were to delay the American people access to such an important lifesaving breakthrough in cancer treatment for the benefit of a hypothetical future competition.”
CEI President and CEO Kent Lassman said:
“Muris and Kobayashi make a timely and important contribution to today’s antitrust debate. Defending the consumer welfare standard has never been more urgent; the cost of delay in the merger of Illumina and GRAIL will be measured in lives lost to cancer. It is crucial to rely on empirical analysis rooted in the effects on consumers instead of making up vertical merger guidelines on the fly. The Federal Trade Commission relies on theoretical harm to competitors and would do lasting damage to consumers who rely on innovative new products.”
Director of CEI’s Center for Technology and Innovation Jessica Melugin said:
“Muris and Kobayashi’s treatment of the Federal Trade Commission’s challenge to the Illumina-GRAIL merger is enlightening reading for policymakers, lawyers, and journalists seeking a richer understanding of today’s contentious antitrust policy landscape. Crucial insights from these venerated experts in the fields of law and economics range from specifics of the case to broader points about the dangers of antitrust reform.”
Timothy J. Muris is currently a George Mason University Foundation Professor of Law at the Antonin Scalia Law School, where he has been on the faculty since 1988. He is also senior counsel at Sidley Austin, LLP. The firm has lobbied on the Illumina-GRAIL merger. Muris is not a lobbyist, and represents clients in a wide variety of antitrust, consumer protection, and regulatory matters. Muris was chairman of the FTC from June 2001 through August 2004, Director of the FTC’s Bureau of Consumer Protection from 1981 to 1983, Director of the Bureau of Competition from 1983 to 1985, and Assistant to the Director of the Office of Policy Planning & Evaluation from 1974 to 1976. He is the only person to serve as Director of both of the FTC’s enforcement Bureaus. Muris is also the author of over 130 books, monographs, and articles addressing issues in economics and law, especially antitrust law, raised over the course of his work at, study of, and representation of clients before the FTC.
Bruce H. Kobayashi is currently the Paige V. and Henry N. Butler Professor of Law and Economics at the Antonin Scalia Law School, where he has been on the faculty since 1992. He was Director of the Federal Trade Commission’s (FTC) Bureau of Economics from May 2018 to December 2019. He also was the founding director of the Global Antitrust Institute and has taught antitrust economics to hundreds of foreign competition officials and judges. Kobayashi has also served as an instructor for the Law and Economics Center’s Judicial Education Program at George Mason University, where he has taught economics to hundreds of U.S. federal and state judges. He has authored over 70 books, monographs, and articles addressing issues in law and economics, including the application of economics to antitrust, intellectual property, and consumer protection law.