The collaboration between pharmaceutical giants puts antitrust law at risk.
The White House held a press conference in March to celebrate a “landmark collaboration” between pharmaceutical companies and competitors Johnson & Johnson and Merck. The two companies had announced that they “entered into multiple agreements to support efforts to expand manufacturing capacity and supply of COVID-19 medicines and vaccines.”
At the press conference, President Joseph R. Biden said that his administration brokered the partnership. As described by the Biden Administration, the government “helped forge a historic manufacturing collaboration between two of the largest U.S. health care and pharmaceutical companies.”
“Some may view this corporate partnership as the coming together of rivals,” said Merck CEO Kenneth Frazier at the press conference. “But in these extraordinary times,” he continued, “we are colleagues, not competitors.” This spirit of comradeship in the pharmaceutical industry is a textbook antitrust nightmare. Both Johnson & Johnson and Merck have a long history of antitrust violations. Their collaboration in the face of COVID-19 normalizes collusive arrangements that pharmaceutical companies frequently form.
Collaborations among competitors are the principal concern of antitrust law. As Justice John Paul Stevens explained in a 2010 landmark antitrust opinion, concerted action between competitors “deprives the marketplace of independent centers of decision-making that competition assumes and demands.” Still, collaborations between competitors—horizontal arrangements in antitrust parlance—are not unusual and can be beneficial.
Horizontal arrangements often advance the competitive process and expand economic possibilities. Accordingly, in March 2020, the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission issued a joint statement observing that the pandemic would “require unprecedented cooperation between federal, state, and local governments and among private businesses to protect Americans’ health and safety.” Consistent with this approach, in July 2020, the Justice Department announced that it would not challenge efforts by several pharmaceutical companies “to share information about manufacturing facilities and other information that could enable them to expedite the production of monoclonal antibody treatments that are determined to be safe and effective to treat COVID-19.”
The problem lies in the federal government’s casual approach to collaborations among competitors. Antitrust enforcement policies permit such collaborations when “adequate safeguards have been put in place to avoid even the inadvertent ‘chilling’ of competition.”
The partnership between Johnson & Johnson and Merck is a potential example of a beneficial collaboration among business rivals. The depictions of the collaboration by the companies themselves and by the Biden Administration, however, make no reference to any antitrust safeguards. This attitude creates a misleading impression that collaborations among pharmaceutical companies tend to advance innovation and are unlikely to harm competition.
For example, at the press conference, President Biden declared that it is “clear” that “this is a historic, nearly unprecedented collaboration.” He compared the partnership to the collaborative efforts of American industries during World War II when companies took to heart the war’s slogan, “we are all in this together.” To borrow from President Biden’s remarks, “when one automaker did not have the capacity to build enough jeeps, … a competitor stepped in to help. Competing airline makers teamed up, and they produced parts for each other and gave the American pilots, as a consequence of that, control of the skies.”
This kumbaya over industry collaborations, the President implied, is the American way to overcome challenges by competitors “coming together to help write a more hopeful chapter” for our future. The idea that industrial cooperation is the key to prosperity is indeed rather old. But the American experiments with this vision have failed miserably.
In the first half of the 20th century, the United States suspended antitrust enforcement several times under the assumptions that competition is ruinous and that the protection of the competitive process was not desirable in times of crisis. For example, approving the suspension of antitrust enforcement during World War II, President Franklin D. Roosevelt wrote that, unless the war effort were “successful, the anti-trust laws, and indeed all American institutions, would become quite academic.”
Nine years earlier, President Roosevelt signed into law the National Industrial Recovery Act that intended to stimulate recovery from the Great Depression. The statute partially suspended antitrust enforcement and created a regulatory framework for government-sponsored industrywide cartels, under the premise that “business competition” did not permit recovery, but if all companies “in each trade … agree to act together,” the American people “could raise their heads again.”
There are many studies of the relaxation of antitrust enforcement during national emergencies. Among scholars, there is a broad consensus that collaborations could be necessary to mitigate the costs of large-scale crises. There is also a broad consensus that political unwillingness to invest in resilience has persistently contributed to the costs of national crises. Likewise, unthoughtful endorsements of collaborations among competitors have proved to have corrosive effects on competition norms and antitrust enforcement.
The 20th century suspensions were very flawed and very costly. Even today, antitrust enforcers, practitioners, and scholars identify large-scale crises as conditions conducive to government-sponsored cartels and excessive relaxation of antitrust enforcement standards. The Biden Administration’s depictions of collaborations among rivals epitomize the problem.
Still, the bigger concern is the superficial political commitments to antitrust enforcement. Over the past decade, in the pursuit of votes and attention, politicians and commentators have mobilized public anxieties about large corporations and, specifically, big tech. Other threats to market competition—such as cozy relations among companies—have received little attention.
The nuanced nature of arrangements among competitors is too complex for sound bites and too tedious for tweets. Attacks on titans are not and have never been synonymous with antitrust enforcement because collusion is the “supreme evil of antitrust.”
One way to summarize the peculiar glorification of partnerships among competitors is that, in the competition over public attention, antitrust enforcement often loses. And, indeed, the neglect of antitrust enforcement is a chronic problem in America.