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What the FTC Surescripts Suit Might Mean for the Tech Sector

In a case that has huge potential implications for the tech sector, the FTC just sued Surescripts, accusing it of abusing monopoly power. Surescripts offers software that lets hospitals and doctors send prescriptions electronically to pharmacies, and then connects the pharmacy with the patient’s insurance company to verify coverage. It processes well over a billion prescriptions per year. According to the FTC, Surescripts crafted an elaborate contract scheme that required pharmacies and insurers not to use similar services from any other company. And according to the complaint, Surescripts did this to avoid competition from new companies trying to enter the market, because Surescripts wanted to maintain its prices.

It’s an interesting case, and one to watch. But what does it tell us about the FTC’s approach to monopoly cases generally? That’s a dangerous game to play, as antitrust cases are highly fact-specific, and abuse of monopoly power cases are so rarely brought by the federal government (once every 2-3 years). We don’t know why the FTC chose this particular set of facts as one to challenge in federal court. But the 55-page, detailed complaint does offer some hints about how the agency is currently assessing anti-monopoly cases.

First, the complaint goes to great pains to describe how Surescripts may have harmed competition, and not just on price. It says that Surescripts reduced quality, stifled competition, suppressed competition, and stymied alternative business models. This seems like a signal to other tech companies that the FTC carefully scrutinizes all effects on competition, and low prices aren’t a get-out-of-jail-free card. Put differently, just because some tech companies offer their services to consumers for free does not mean that their actions are above the antitrust laws when there is harm to non-price factors like quality and innovation. Consumers deserve the full benefits of competition, a promise that profitable markets attract new entrants with new services, higher quality, and novel innovations.

The FTC seems to be sending the message that if they make it harder for businesses or people to start using a second platform, that conduct raises concerns about abuse of monopoly power.

Second, the FTC put its views about platform competition rather succinctly: “when a new platform starts, it can achieve critical mass either by getting customers who have not signed on to any platform or by getting customers from an existing platform. Customers of an existing platform face less cost and risk when they can use both their current platform and the new platform.” The FTC said that “because customers often prefer to avoid the cost and risk of a complete switch to an entrant, the entrant is most likely to win business” if customers can use both the dominant platform and a new one. The FTC is saying here that restricting people or businesses from using a second platform can be anticompetitive. I have to imagine that the FTC wrote this sentence very carefully, knowing it would be read by legal teams at all sorts of tech companies. Many of the tech firms that have been in the antitrust spotlight over the past year–Amazon, Google, Facebook, Apple, and Microsoft–have platforms with strong market shares. The FTC seems to be sending the message that if they make it harder for businesses or people to start using a second platform, that conduct raises concerns about abuse of monopoly power.

Third, the complaint carefully describes two markets on the Surescripts platform: one for routing prescriptions from doctors to pharmacies, and one for checking insurance coverage. Many tech companies operate similarly, bringing together buyers and sellers, or user eyeballs and advertisers, in a platform setting. The government can examine abusive practices on either side as a separate arena for harm, regardless of the potential benefits in a different market.

Fourth, the FTC’s complaint specifically calls out one agreement with another provider in the market: Surescripts got a potential competitor to agree not to enter the market, and to instead be a service provider for Surescripts. In-house antitrust lawyers at tech companies would be wise to check–quickly–whether they have any similar agreements with startups that restrict (either by the letter of the contract or by its effects) those startups from competing in the future.

Now the question is: will we see more abuse of monopoly power cases from the government, and is the tech sector in its sights? There is certainly political pressure to do so, with presidential candidates regularly calling for tech giants to be broken apart. Stay tuned.