c:documents and settingsjonathan rubinmy ...˘ ˇ ˆ a project of the american antitrust institute...

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� �� A Project of the American Antitrust Institute with support from the Utah Attorney General

June 2005

Peter AndersonExecutive Director,Center for a Competitive Waste Industry

Jonathan L. RubinSenior Research Fellow, American Antitrust Institute

REDACTED PUBLIC VERSION

American Antitrust Institute 2919 Ellicott St., N.W., Washington, D.C. 20008-1022

(202) 276-5002 • www.antitrustinstitue.org

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Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

I. Introduction: A toolkit for state antitrust enforcers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. Medical waste: Generation, removal, and treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

A. Generation of medical waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. Types of medical waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22. Medical waste generators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

B. The removal of medical waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

C. The technology for the treatment of medical waste . . . . . . . . . . . . . . . . . . . . . . . . 5

1. High-temperature thermal processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

a. Incineration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5b. Plasma arc pyrolysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. Low-temperature thermal processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

a. Autoclaves and rotoclaves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7b. Irradiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3. Biological and chemical treatments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

III. The regulatory environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

A. The Medical Waste Tracking Act of 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9B. The Clean Air Act Amendments of 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9C. OSHA standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11D. State regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

IV. The medical waste disposal industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

A. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15B. Industry consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Contents ii

V. Definition of the relevant market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

A. The market for removal services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

1. The product market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172. The geographic market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

B. The market for treatment services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

1. The product market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172. The geographic market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

C. Additional considerations in market definition . . . . . . . . . . . . . . . . . . . . . . . . . . 17

VI. Integrated removal and treatment service firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

VII. Anticompetitive features of the markets for medical waste . . . . . . . . . . . . . . . . . . . . . . . 24

A. Barriers to entry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24B. Barriers to entry into the removal market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

1. Constraints on the availability of treatment services . . . . . . . . . . . . . . . . 242. Exclusive dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

a. “Evergreen” provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24b. Exclusivity conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

C. Barriers to entry into the treatment market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24D. Market power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

1. Market power in the removal services market . . . . . . . . . . . . . . . . . . . . . 242. Market power in the treatment services market . . . . . . . . . . . . . . . . . . . . 25

a. Stericycle’s Western States acquisitions . . . . . . . . . . . . . . . . . . . 25b. Stericycle’s Northeast Acquisition . . . . . . . . . . . . . . . . . . . . . . . . 25

VIII. Building an antitrust claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

A. Substantial lessening of competition through unlawful merger, Clayton Act §7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

1. Market definition, share and concentration . . . . . . . . . . . . . . . . . . . . . . . 272. Anticompetitive effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Contents iii

a. Unilateral effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28b. Coordinated effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

3. Entry conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294. Pro-competitive efficiencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295. The “failing firm” defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

B. Monopolization and attempted monopolization, Sherman Act §2 . . . . . . . . . . . 30

1. Denial of access to “essential” treatment facilities . . . . . . . . . . . . . . . . . 30

a. First Trinko defense: Refusals to deal in intermediate goods—or without a prior course of dealing—are not actionable . . . . . . . . . . . . . . . . . 31

b. Second Trinko defense: Refusal-to-deal requires the defendant to sacrifice short-term profits . . . . . . . . . 31

c. Third Trinko defense: Forced sharing does not require additional investment in capacity or non-administrable remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

2. Evergreen provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313. Exclusivity conditions and requirements contracts. . . . . . . . . . . . . . . . . . 31

C. Agreement to allocate customers or territories, per se violation ofSherman Act §1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

1. Per se or rule of reason analysis? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312. Are the parties horizontal competitors? . . . . . . . . . . . . . . . . . . . . . . . . . . 323. What is the central purpose of the agreement? . . . . . . . . . . . . . . . . . . . . 33

a. The proffered business justification . . . . . . . . . . . . . . . . . . . . . . . 33b. The nature and disposition of the swapped assets . . . . . . . . . . . . 34c. The structure of the transaction . . . . . . . . . . . . . . . . . . . . . . . . . . 34d. The market impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34e. The nature of the express non-competition agreement . . . . . . . . 34

4. Agreements of limited scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

IX. Remedial measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

A. Divestiture and other structural remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Contents iv

B. Compulsory access to treatment facilities,establishment of new treatment capacity, and other remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

C. Disgorgement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

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Executive Summary

Developments in the medical waste disposal business over the past decade have led to anindustry that suffers from considerable competitive distortion. In some cases, antitrust authoritieshave had to intervene to correct abuses of market power. As a fairly “low tech” industry relianton trucks and local or regional treatment plants or transfer stations, market conditions can varywidely by geographic locale.

Antitrust authorities in disparate sections of the country, therefore, may face similarpatterns of collusive or exclusionary conduct in the medical waste disposal industry. For eachenforcement authority to “start from scratch” when investigating such competitive distortions isusually an unavoidable inefficiency. This AAI Toolkit for State Intervention in the Medical WasteDisposal Industry represents an attempt to counter this inefficiency, and to sensitize enforcementauthorities to the kinds of competition problems that have arisen outside of their respectivejurisdictions.

Funded by a grant from the State of Utah out of funds obtained in connection with thesettlement of a case against medical waste firms in the inter-mountain region, the Toolkit isintended to familiarize enforcement authorities with the technology and structure of the industryand some of the legal theories and authorities that are likely to be relevant to an investigation inthis sector. An appendix contains documents related to recent governmental and private actions.

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I. Introduction: A toolkit for antitrust enforcers

Support for this project—a “toolkit” for stateor federal antitrust investigations andprosecutions in the medical waste disposalindustry—was provided for by the AttorneyGeneral Litigation Fund created by the UtahAntitrust Act, § 76-10-922, Utah Code Ann.(Supp. 2002). The project came about in 2003after negotiated settlements were reachedbetween the Utah Attorney General, Mark L.Shurtleff, and the industry’s dominant medicalwaste disposal services provider, Stericycle, Inc.(hereinafter, “Stericycle”) and its then largestcompetitor, BFI Waste Systems of NorthAmerica, Inc. (“BFI”).

The State of Utah sued Stericycle and BFI inthe United States District Court for the Districtof Utah for entering into “illegal agreements toallocate customers, divide market territories,agree and conspire not to compete, and attemptto monopolize the markets for collection anddisposal of medical waste” in the inter-mountainstates of Utah, Colorado, and Arizona.

Consent decrees were entered against eachcompany within days of the filing of thecomplaint. Both negotiated judgments sought tofacilitate future competition in the industry, butwith BFI having exited the medical wastedisposal business in 1999 with no plans to re-enter, this was something of a challenge.Therefore, as part of the sanction against it, theAttorney General arranged for BFI to fund an

independent autoclave facility and to donate$100,000.00 to the promotion of competition inthe medical waste disposal industry.

In the process of investigating and prosecutingthe case, the office of the Attorney General ofUtah learned that potential antitrust problemslurked elsewhere in the country, not just in theinter-mountain region. Accordingly, a decisionwas made to use part of the settlement proceedsas a grant to the American Antitrust Institute(“AAI”) to study and report on the competitiveconditions in the U.S. medical waste disposalindustry.

To perform the economic analysis, AAIengaged the Center for a Competitive WasteIndustry of Madison, Wisconsin. The result ofthat collaboration is this “toolkit” for antitrustenforcement intervention in the medical wastedisposal industry. Given the advantages of inter-jurisdictional cooperation on investigations withcommon parties and circumstances, this report isintended to provide practical guidance forantitrust authorities dealing with the medicalwaste industry.

The authors are indebted to Wayne Klein ofthe office of the Attorney General of Utah andEllen Cooper the Office of the Attorney Generalof Maryland for comments on an earlier draft. Ofcourse, the authors are solely responsible for allerrors.

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EXAMPLES OF MEDICAL WASTES • Soiled or blood-soaked

bandages • Culture dishes and other

glassware • Discarded surgical gloves

after surgery • Discarded surgical

instruments (e.g. scalpels) • Needles used to give shots or draw blood • Cultures, stocks, swabs used to innoculate

cultures • Removed body organs (e.g. tonsils, appendices,

limbs) • Lancets used to draw blood samples

II. Medical waste: Generation, removal, and treatment

II.A. Generation of medical waste.

Towards the second half of the NineteenthCentury, industrializing societies began todiscard major volumes of things that hadpreviously been reused and also created wholenew categories of solid waste. By the TwentiethCentury, these discards had become a torrent.Amidst the growing mountains of garbage,several distinct types of waste slowly emerged,including construction and demolition debris,hazardous waste, household and commercialwaste, industrial process waste, and medicalwaste, the subject of this report.

When disposed of, each of them, to varyingdegrees, caused significant health andenvironmental impacts. But, during the criticaltake-off phase of industrialization, most capitalwas reinvested back into further expansion, and,consequently, these waste disposal externalitiesremained largely unaddressed for almost acentury. Between 1880 and 1980, minorremedial efforts were largely limited to movingthe problem further away from direct exposureto people.

The modern environmental movement, whichgrew out of wilderness protection, emergedsometime between the publication of SilentSpring in 1963 and the first Earth Day in 1970.Early reforms focused on air and waterpollution. Not until the 1980s did public heathand environmental regulations begin to seriouslyaddress solid waste. But these noble efforts alsoproduced the significant potential for theinnately fragmented and locally based wasteindustry to consolidate and acquire marketpower. And, because each type of waste tailoredsafe disposal procedures to its

particular attributes, the regulatory structureswound up effectively creating discrete marketsfor each type of waste.

The volume of medical waste in the U.S. as of2001 is estimated to be 2,700,000 tons per year,which compares to the 103,050,000 tons ofcommercial waste and 125,950,000 tons ofresidential municipal solid waste annually.

In most geographic markets, the number ofhospitals and large out-patient clinics that havemore than incidental loads is not large. Ametropolitan area of a half-million people mightnot have more than 100 major medical wastegenerator sites.

II.A.1. Types of medical waste.

Medical wastes are those discards from healthcare facilities that require special treatment to beneutralized in order to protect the public fromdisease. As defined by the EnvironmentalProtection Agency (“EPA”), this includes anysolid waste generated in the diagnosis, treatment,or immunization of people or animals, or inmedical research, or in the production or testingof medicines.

Section 2: Medical waste: Generation, removal, and treatment 3

FIGURE 2 FIGURE 1

There are a number of different types ofmedical waste. Just like any other institutionalfacility, most of what medical facilities disposeof is commonly thought of as garbage (e.g., foodscraps, uncontaminated cardboard and officepapers) that does not require specializedhandling due to any inherently dangerousattribute. The pie chart in Figure 1 shows thedominant place of trash in the medical sector’swaste stream. Eighty-five percent is essentiallycommercial trash, and about 15% is segregatedfor special handling.

Special waste is broken down further bysubcategory, as shown in the columnar chart inFigure 1. The sector’s special waste streamconsists of infectious waste (e.g,. usedsyringes)(71%), pathological, chemotherapy, andpharmaceutical waste (“PCP”) (e.g,.unrecognizable body parts and tissues andcompounds used in cancer and other therapies)(12%), and hazardous waste (e.g., mercury)(18%). What this report refers to as “medicalwaste” includes both “infectious” and PCPwaste. A fourth category of “waste” is made upof recognizable body parts, which are usuallytreated at a crematorium.

Hazardous waste is further subdivided toseparate small amounts of low-level radioactivewaste that are subject to the separate jurisdictionof the Nuclear Regulatory Commission(“NRC”).

Caution should be taken in interpreting thefigures. Even though 15% of the waste stream issegregated for special treatment, the level of careused to separate the two streams may have beeninsufficient. Some observers estimate that asmuch as 50% or more of the special wasteconsists of everyday trash, which suggests thatthe true amount of infectious waste is more inthe order of 7% - 9% of the total discarded. Thetrend, however, is clearly in the direction ofgreater efficiency in sorting by medical wastegenerators. The pressure for cost containmenthas grown in the health care industry and theprice for medical waste disposal has increased.

Thus, conditions have shifted to providefacilities with greater incentives to morecarefully sort the medical waste stream.


FIGURE 3

II.A.2. Medical waste generators.

Many different types of medical facilitieseither diagnose, test, prevent or treat a widevariety of diseases in people and animals. Theyinclude hospitals, blood banks andpharmaceutical manufacturers. These are the“large” customers, those with substantialvolumes of discards at each site. Due to theirsize, they may have the option of treating someor all of their medical waste in-house.

Smaller clinics, long term care and out-patientcare facilities, and doctor, dentist andveterinarian offices have been characterized asthe alternate care market. Though once a minorpart of the facilities providing medical services,the alternative care market is growing as healthcare becomes increasingly specialized. Unlikethe large customer, the quantities generated byan alternative care facility can be relativelysmall, sometimes only requiring pick-up onceevery few weeks.

Figure 2 shows the facilities in 1997 whichgenerated medical waste broken down by thenumber of each type of facility and by the

revenue-weighted size of each. The distinctionbetween large and small medical wastegenerators is often drawn at 200 pounds ofinfectious waste per month.

Medical facilities discarded approximately2,700,000 tons in 1997, 24% from the alternatecare market and 74% from the large facilities. Abreakdown of the proportion of waste byquantity from among the different categories ofmedical waste generators is shown in Figure 3.

Typically, smaller facilities have not had thescale to purchase the equipment necessary totreat their own medical wastes in-house.Hospitals, on the other hand, either individuallyor jointly, have the potential to economicallytreat their medical wastes in- house.

II.B. The removal of medical waste

Removal services collect untreatedmedical waste in trucks from medical wastegenerators and transport it to a facility where itis off-loaded for transfer to long-haul semi-trucks and taken to a distant treatment plant, oroff-loaded directly at the treatment plant, wherethe infectious pathogens are destroyed.

The business of removing regulated medicalwaste (“RMW”) from facilities that generate itdepends on a network of garaged collectionvehicles that operate on fixed routes to pick upwaste from the customers’ sites. The vehicles aregenerally 50 cubic yard capacity with rear liftsfitted onto a medium duty truck that mayaltogether cost approximately $50,000 (as of2004). Record keeping requirements pertain insome states because the waste are infectious, butthat does not appear to pose a substantial burden.Typically, then, there are no structural barriers toentry into the removal business, that is, thesimple collection and transportation of medical


waste, other than access to adequate treatmentservices. For some isolated facilities not nearany regular collection route, even packageexpress shippers have been known to transportmedical waste.

The fact that a medical waste removal servicehinges on a network of trucks dispatched from acentral garage and some distance to an off-loading site might lead one to expect that thegeographic market definition reflectscorresponding geographic limitations. This hasbeen seen in the solid waste industry, where therelevant economic and antitrust marketdefinitions are “metropolitan” in character.

The geographic market for removal ofmedical waste, however, is not the same as forsolid waste, which is, generally, the metropolitanlevel. While not in any sense a national market,removal of medical waste does not exhibit thesame high density structure of solid waste whichmakes that market distinctly local. Garbage isusually set out in a single set-out receptacle ordumpster at the curb for ease of loading.Collection is done in a large compacting, oftenautomated, vehicle that makes several stops ablock, each stop lasting one-half a minute to afew minutes, and, with its large payloads,staying on the route for half a day or more.

Medical waste, however, is typically set asideinside in multiple boxes or carts, and often arenot set outside for convenient collection. Thecollection vehicle is smaller and prohibited byregulations from having compacting capability.The stops are typically in different parts of townand do not exhibit much density, with stopsoften taking a half hour.

The result is that, in the absence of sufficientcustomer density in a local area, the geographicmarket for medical waste can be wider than it is

for ordinary solid waste.

II.C. The technology for the treatment ofmedical waste.

Medical waste is usually hauled directly tonearby treatment facilities which have thecapability to destroy infectious pathogens.However, if the closest treatment facility is notnear the collection routes, a transfer facility isused to off-load the medical waste from thecollection vehicle to a semi truck for longhauling, sometimes hundreds of miles, to atreatment facility. After treatment, the residualbyproducts are usually disposed of in aconventional landfill.

Many approaches to treating infectious wastehave been employed. Treatment facilities canemploy only one of four basic processes:thermal, irradiation, chemical, and biological.Three methods are in general commercialapplication: incinerators, autoclaves andmacrowave irradiation.

II.C.1. High-temperature thermalprocesses.

Thermal processes use heat to destroypathogens, and are differentiated according towhether they are high-temperature or low-temperature technologies. High-temperatureincineration usually takes at 1,500�F. Highertemperatures result in the near total destructionof the waste, but tend to exhibit toxicity in theform of toxic air emissions and ash byproducts.Incineration is currently in commercial use,while plasma arc technology remains nascent.

II.C.1.a. Incineration.

Historically, medical waste incinerators weredesigned to be all-purpose, relatively cheap, on-


site units for disposing of the entire waste streamfrom hospitals, and later were joined by largerincinerators operated by subsidiaries of WMIand BFI (now owned largely by Stericycle) toprovide service to health care facilities thatoutsourced handling of their medical wastes.

Because incinerators take significant time topre-heat in order to attain the necessary hightemperatures, they need to be operatedcontinuously for long periods to be profitable.The fact that high-capacity operation is neededto maximize efficiency and improve profits putsdownward pressure on prices. This downwardprice pressure is magnified if the incinerator isoperating at less than full capacity, the markethas several providers, and supply exceedsdemand for incineration. In the mid-1990s, thetwo waste disposal giants that also dominatedthe medical waste disposal industry, owned 59large commercial medical waste incinerators. Asa result of regulatory mandates and greatertechnological efficiency in less costlyalternatives, many of those facilities are nowclosed.

Burning at high temperatures reduces themass of the waste by 90%, leaving ash residue tobe disposed of in a landfill. When hazardouswastes are burned the byproducts could includedioxins, furans, hydrochloric acid, mercury, leadand cadmium that are dangerous to people’shealth. The hazardous compounds also maymake the ash too hazardous to be disposed of inless expensive municipal landfills, and insteadwill be required to be sent to more expensivehazardous waste disposal sites.

Since unregulated hospital incinerators wererelatively inexpensive, few of the discards frommedical facilities are thought to have beenseparated into discrete infectious, hazardous, orsolid waste fractions before being disposed of in

large incinerators.

The fact that the rules no longer permitcommingling of hazardous and infectious wastehas opened up a market for lower heat forms oftreatment. Once hazardous waste has to beseparated from the infectious wastes sent fortreatment, then lower temperature technologiesbecame adequate to the task.

Whatever the technical merits of incineration,EPA’s air pollution emission regulations(effective in 2000, see Section III, infra) severelycircumscribed its role in future medical wastemarkets. On-site “self-help” incinerators havebeen largely shut down.

The large commercial burn units are sunkinvestments that are often fully depreciated.Technically, they might be upgraded to meet thenew rules and continue operating, but increasingpolitical opposition in some states forced manyhospital incinerators to shut down even thoughit would not have been uneconomic to complywith the EPA regulations.

Hospitals that previously burned internallyhave been largely shifted to the outsourcedmarket for commercial medical waste service.The years between 1999 and 2002 saw adramatic shift from on-site treatment of hospitalmedical waste to outsourced disposal. Certainly,one reason for this is the requirement in the EPArules for pollution control devices that cannot bepractically met by small on-site hospitalincinerators.

II.C.1.b. Plasma arc pyrolysis.

Plasma arc systems are advanced forms ofpyrolysis which produce temperatures ranging


from 3,000°F (1650°C) to as high as 21,000°F(11,600°C) with a plasma-arc torch to generatethe plasma energy. Plasma pyrolysis is arelatively new technology that has very littletrack record. At these temperatures, the waste isdestroyed, forming a product gas, referred to assyn gas. Energy can be recovered from theproduct gas by using it as supplemental fuel toproduce steam or hot water in co-generation orsimply burned in a flare. In the future, theproduct gases that are rich in hydrogen ormethane could be used in conjunction with fuelcells to produce clean electricity.

Because of their extremely high temperatures,plasma-based technologies are, in principle,capable of destroying a wide range of infectious,PCP, and some hazardous wastes (notincluding, for example, mercury). From atechnical standpoint, plasma systems can treatthe same types of waste as an incinerator, butwith substantially fewer emissions of concern.

II.C.2. Low-temperature thermalprocesses.

Low-temperature thermal processes includeautoclaves, which use steam and operate below750�F, or micro- or macro-wave irradiation.

II.C.2.a. Autoclaves and rotoclaves.

An autoclave uses steam sterilization todisinfect medical waste. Waste, often ground up,is loaded into a chamber and the temperature andpressure are raised for a certain period of time inorder to kill pathogens in the waste. Someautoclave units create a vacuum, passing theexhaust air through a high-efficiency filter,before introducing steam. By using a vacuum,

heat is transferred more efficiently to the waste.

Because autoclaves involve the use of steam,there is potential for generating extensivecontaminated liquid effluent that may bereleased to sewers or local waterways if the carefacilities did not fully segregate its hazardouswastes. When regulatory enforcement or properhousekeeping is used, this potential problemshould be substantially reduced.

A promising extension of autoclaving isrotoclaving. A rotoclave is a class of autoclaveswith additional mechanical processes, such asshredders, mixing arms, or compactors, to makethe waste unrecognizable, reduce volumes, andenhance the efficiency of the treatment. Byadding the capability for shredding along withsterilizing, the residue which is landfilled is bothfree of pathogens as well as being no longerrecognizable in the sterilized residual.

Less expensive autoclaves are feasible nowthat hazardous waste must be separated.According to the EPA, the cost of processing aton of medical waste in a regulated incineratorwith pollution control devices is approximately$700, nearly twice as expensive as autoclaves.New investment in regulated incinerators cannotcompete with autoclaving when the latter isviable under the applicable regulations. Not onlyis less of an investment required to establish anautoclave, but a non-incinerator treatmentfacility can be more quickly site-permitted.

II.C.2.b. Irradiation.

Irradiation involves ionizing radiation todestroy microorganisms. Microwaves (high-frequency irradiation) and macrowave (low-


frequency irradiation) use an oscillating energyfield of radio waves to heat medical waste totemperatures that destroy pathogens.

Some of Stericycle’s treatment plants use atreatment process it calls electro-thermaldeactivation (“ETD”). The company claims thatETD is preferable to autoclaves and microwavesbecause low-frequency radio waves canpenetrate deeper than high-frequency waves andthere are fewer regulated emissions. If theseclaims are true, the burden of siting, controllingemissions, and other costs to establish newtreatment capacity should be less than that fornew entrants.

When fashioning a remedy against a violationby a medical waste defendant, therefore,consideration should be given to imposing anaffirmative duty on the part of the company toestablish additional ETD treatment capacity, asdiscussed in Section IX, infra.

II.C.3. B i o l o g i ca l an d c h e mi c a ltreatments.

Chemical processes use disinfectants todestroy pathogens or chemicals to react with thewaste. Biological processes use enzymes todecompose blood, other liquid medical wastes,spoors, and other organic matter.

Chemical precesses are not in commercial useand seem to hold out only limited promise as a

supply of future treatment capacity. Biologicaltreatment, on the other hand, while not yetgenerally accepted as safe, has a much greaterpotential for commercialization. New, small-scale biological treatment systems are capable oftreating significant types of blood and liquidinfectious waste in-house at substantially lowercosts.

Biological treatment, however, has beencontroversial. A years-long effort to havebiological treatment of medical wastestandardized by Underwriters Laboratory (“UL”)ended in defeat in 2004 in part due to oppositionfrom the Medical Waste Institute, the tradeassociation for commercial medical wasteservice providers.

Petitioning governmental bodies is generallyimmunized from antitrust scrutiny under theNoerr-Pennington doctrine (see EasternRailroad Presidents Conference v. Noerr MotorFreight Inc., 365 U.S. 127 (1961) and UnitedMine Workers v. Pennington, 381 U.S. 657(1965)). Nonetheless, efforts to affect theoutcome of private, standard settingorganizations may be subject to antitrust liabilityin certain circumstances, see Allied Tube &Conduit Corp. v. Indian Head, Inc., 486 U.S.492 (1988).

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III. The regulatory environment

Historically, hospitals incinerated theirmedical waste in-house. The remaining ashresidues were disposed of as part of the generalsolid waste that was largely serviced by third-party trash companies. Environmentalregulations have now made it uneconomical totreat medical waste in-house.

For decades, medical waste was burned on-site in hospital incinerators without pollutioncontrol equipment. Special handling was notgenerally used. The modern regime of regulatedmedical waste did not begin until the public,reacting to several jarring health events,demanded that discarded body parts, syringes,blood soaked bandages and other infectiouswastes be segregated and accorded extra care.

III.A. The Medical Waste Tracking Act of1988.

In the summers of 1987 and 1988, whilepublic attention was riveted on the Mobrogarbage barge as it embarked on its epic, FlyingDutchman-like journey in a fitful attempt todispose of a load of Long Island trash, televisionnews was filled with graphic pictures of syringesand other bagged medical waste washing up onNew Jersey beaches.

The images quickly became the target for latenight comedians, and, soon thereafter, publicrevulsion led Congress to pass the MedicalWaste Tracking Act of 1988. The new lawestablished a two-year demonstration program,

in which New York, New Jersey, Connecticutand Rhode Island participated, requiring medicalwaste to be tracked from its point of origin to itsultimate disposal.

The regulations promulgated under theMedical Waste Tracking Act expired on June21, 1999. The actual standards for trackingmedical waste were in effect from June 1989 toJune 1991 in New York, New Jersey,Connecticut, Rhode Island, Puerto Rico. Somestates have continued the tracking requirements.

III.B. The Clean Air Act Amendments of1990.

Before about 1990, health care workers wereunderstandably more focused on life and deathdecisions for their patients than they were onsegregation of trash, infectious waste andhazardous wastes. Hospital incinerators werepresumably fed hazardous wastes along withalmost everything else, which explains one ofthe reasons that EPA identified Medical WasteIncinerators (“MWIs”) as the largest knownsource of mercury emissions, emitting more thanmunicipal waste combustors and coal-firedelectric utility boilers.

Since then, EPA regulations have beena d o p t e d t h a t r e q u i r e h a z a r d o u swaste—chemicals that exhibit ignitability,corrosiveness, reactivity, and/or toxicity—to beincinerated separately from infectious medical


FIGURE 4

waste.

The Clean Air Act Amendments of 1990(“CAAA”) were enacted in response tonumerous concerns about the state of thenation’s air, including organized protests againstserious uncontrolled emissions of dioxins,mercury and other harmful compounds fromhospital incinerators.1 The EPA was directed toadopt rules that would require hospitals to installcostly new pollution control technologies ontheir incinerators, although such regulationswere not adopted until 1997, and did not takeeffect until 2002.

In 1995, when more than 2,000 hospitals stillincinerated their own medical waste on site,EPA proposed new source air pollution rules formedical waste incinerators under the CAAA –rules which added major costs that wound upclosing most of the incinerators. In an earlierstudy from 1994 the EPA had found that the30% of hospitals with an estimated 2,400

medical waste incinerators were “the largestknown source of dioxin emissions, emittingmore than municipal waste combustors,hazardous waste incinerators, and cement kilns.”The EPA stated:

In addition to dioxin, M[edical] W[aste]I[ncinerators] also emit significantquantities of heavy metals including lead,cadmium, and mercury. ... MWIs have beenidentified as the largest known source ofmercury emissions, emitting more thanmunicipal waste combustors and coalfiredelectric utility boilers. The MWIs also emitnitrogen oxides (a contributor to ozonesmog), particulate matter, sulfur dioxide,and other acid gases.2

The regulations finally adopted by the EPA in1997 established stringent pollution controldevice requirements on medical incinerators thatmade on-site burning uneconomical for manywaste generators. EPA’s final medical wasteincinerator rule in 1997 required the maximumachievable control technologies (MACT) toreduce emissions from medical wasteincinerators of particulate matter, sulfur dioxide,hydrogen chloride, nitrogen oxides, carbonmonoxide, lead, cadmium, mercury and dioxinsof between 80% and 96%. As shown in Figure 4,the costs to operate a large hospital incineratorthat previously cost $120,000 a year to run,could, EPA estimated, increase by $300,000 tooperate the newly required air pollution controldevices and another $95,000/yr. to monitor forcompliance – all together, a 429% increase. Thecosts for smaller incinerators was unaffordabledue to a lack of scale.

142 U.S.C. §7401 et seq., and 40 C.F.R. PART 60SUBPART A. 260 Fed. Reg. 10656 (February 27, 1995).


FIGURE 5

The new rules not only created a need toupgrade pollution control devices on medicalincinerators, but also to better restrict the typesof wastes that they received. Since the rules ofthe Occupational Safety and HealthAdministration (“OSHA”) require spent suppliescontaminated with blood to be labeled as “redbag” waste and disposed of separately fromregular trash, the EPA rules meant thathazardous constituents of the medical wastestream had to be diverted from the red bags andsent to licensed hazardous waste landfills.

Thus, the 1997 rules revealed anotherinefficiency in how medical waste was handledat most hospitals. Dangerous discards frommedical facilities included hazardous waste,such as mercury, that is not destroyed, as arepathogens, by burning. Generating facilitieswere forced to go to the time and expense ofimproving their housekeeping practices toseparate hazardous waste from medicalinfectious wastes, which leads to a potentialefficiency gain in the process of medical wastedisposal with implications for the medical wasteindustry.

At the time that EPA promulgated its rules,there were about 2,300 hospital incinerators ofvarious sizes and the two waste disposal giants,WMI and BFI, owned 59 large commercialmedical waste incinerators. Analysts at the timeestimated that the new rules would generateapproximately $150 million in new outsourcedbusiness for the medical waste industry, underthe expectation that 80% of on-site incineratorswould close down. That would have been a 15%boost to the revenues of the, then, $1 billion ayear industry.

A subsequent analysis of the effect of the1997 rule on in-house hospital incinerators byLehman Brothers found that of the 2,316hospital and medical waste incinerators EPAverified in 1995 when it first proposed themedical waste rule, 463 were originallyanticipated to stay open, 195 actually remainedwhen the rule took effect in 2002, and only 108were expected to continue operating by thefollowing year. That represented a substantiallygreater than 95% decline in on-site capacity totreat hospitals’ medical wastes than the original80% projection. See Figure 5.

Although hospitals continue to have thecapability to internalize treatment of most oftheir medical wastes, the stricter medical wasteincinerator regulations EPA promulgated in1997 had the practical effect of convincing mostof the 2,000 hospitals to close their incinerators;many of them out-sourced the task of removingand treating their infectious waste.

III.C. OSHA standards.

AIDS had been recognized since 1981, but for


years its elusive epidemiology and resistence toa cure made health care workers extremelynervous. A poll in 1986 in Nursing Life,followed by dozens of others, revealed as manyas half would refuse to minister to the afflicted.

In response to the growing concern over thespread of HIV infection, OSHA adopted itsBloodborn Pathogen Standard to protect healthworkers and calm their fears. Along withrequirements for protective clothing, the rulesalso require the segregation of spent suppliescontaminated with blood into red bag waste forseparate disposal.3

The succession of EPA and OSHArequirements substantially increased the costs forhospitals with their own incinerators to complywith the new rules, forcing most hospitals tooutsource the treatment of their medical waste.The price of medical waste disposal servicesoffered by the large solid waste disposal firmswas constrained to some extent by a competitivefringe that offered low cost collection andautoclave treatment. However, neither theseautoclave systems nor the large incineratorscould treat the hazardous waste generated bymedical facilities, so hospitals were forced tosegregate their hazardous wastes for alternativetreatment.

This segregation reduces the primaryremaining objective of medical waste treatmentto neutralization of pathogens, for whichexpensive, high-heat incinerators are notnecessary. The complete destruction ofpathogens in a variegated stream of medicalwaste from which hazardous materials have been

removed is a less demanding function that canbe accomplished with substantially lessexpensive low-heat processes using steam,microwaves or radio waves, without expensivepollution control equipment.

Autoclaves, the most common technique, doexhibit significant scale efficiencies (at least thetotal capital requirements are less, as are thepublic health concerns when operated properly).The waiting time for securing siting approval isalso shorter.

III.D. State regulations.

Many states require that recognizable bodyparts be either interred or cremated. Some statesfurther require that unrecognizable human tissueand PCP waste be either burned in an incineratoror, alternatively, destroyed in another approvedhigh temperature process.

According to one study, 27 states have someregulation that requires specialized, hightemperature treatment of PCP waste.4 Thesestate-level treatment requirements may be basedon considerations of the social norm rather thanon economic efficiency, and can have asignificant impact on competition. In particular,such regulations may be an important element inevaluating the barriers to entry in a given marketfor medical waste services. There are a limited

329 C.F.R. §1910.1030.

4The survey was reported by Health Care Without Harm,in Non-Incineration Medical Waste TreatmentTechnologies: A Resource for Hospital Administrators,Facility Managers, Health Care Professionals,Environmental Advocates, and Community Members(August 2001), Appendix at p. 99 (State Regulations forPathological Waste), which was conducted by JessicaNelson of the Institute for Agriculture & Trade Policy.


number of medical waste incinerators, and sitinga new facility can be difficult, time consuming,and all but impossible in most parts of thecountry. Most of the medical waste incineratorsthat remain after EPA imposed strict controls onemissions in 1996 are under the control of thedominant national medical waste disposalprovider, Stericycle.

We reproduce that survey below in Table 1,with the caveat that the details for any particularstate should be verified by reviewing theapplicable regulations. These regulations are ripefor modernization to account for advances intreatment technologies. Until then, however,they are likely to play some role in thecompetitive analysis in the related jurisdictions.


Table 1: States with Regulations That Require Incineration of Certain Medical Waste

1. Alabama Recognizable human tissue Ala. Reg. 335-13-7.08(2)(b)(2)

2. Arizona Recognizable human tissue Az. Admin Cd R18-13-1405 D.1, E.2

3. Arkansas PCP

4. California Recognizable human tissue, PCP Ca. Hlth Sfty Cd., Sec. 118220

5. Colorado Recognizable human tissue Colo. Sld. Wste. Reg., 1004-2, Sec.13.4.4

6. Connecticut PCP Ct. Gen Stat., 22a-209(c)(b)(2)

7. Delaware PCP Del., Sld Wst Reg. Sec. 11, Pt 1,K,2

8. Georgia Recognizable human tissue Ga. Env. R, 391-3-4-.15.6(c)

9. Hawaii Recognizable human tissue, PCP Haw., Admn R. 11-104-5(c)4, -9(d)

10. Kentucky PCP 902 Ky. A Reg 20:016 3(10)(h)(3)(b)

11. Louisiana Recognizable human tissue La. San Cd., 27:025-7

12. Maine PCP Me. R., 06-096, Ch 900, Sec. 10A

13. Massachusetts PCP (solid), Certain human tissue 105 C.Ma.R. 480.200E

14. Michigan PCP Mi. Med Wa. Rg. Act, Sec. 13811(C)

15. Montana Recognizable human tissue Mon C. Ann., 75-10-1005(4)(c)

16. New Hampshire Recognizable human tissue N.H. C.Ad. R. Env-Wm 2604.08

17. New Mexico Recognizable human tissue 20 NM Ad C 9.1-706(D)(5)

18. New York Recognizable human tissue NY Cd, R&R, Tit. 6 360-10.5(b)

19. North Carolina PCP NC R. 1203 (a)(3)

20. Ohio PCP O Ad Cd., 3745-27-32(D)(1)(f)

21. Oregon PCP Or. Rev Stat. 459.395(1)

22. Pennsylvania Human anatomical remains Pa Cd., 273.511(C)(2)

23. Rhode Island PCP (except bodily fluids) R.I. Reg., 15.07(C)(2)

24. South Carolina Recognizable human tissue S.C. Reg. R.61.105.T(5)(b)

25. Texas Human tissue and remains Tx. Ad. Cod. R. 1.136(4)

26. West Virginia Recognizable human tissue W.Va. 64 CSR 56

27. Wisconsin Recognizable human tissue Wis Ad Cd, 526.11(2)(a)

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IV. The medical waste disposal industry

IV.A. Background.

The cascade of medical waste regulationsimposed on the health-care industry occurred atthe same time the delivery of health careservices was becoming increasingly stratifiedthrough outpatient clinics and smaller facilitiesthat do not have the resources to treat their ownmedical waste internally. Both the newregulatory burdens and the stratification inhealth care delivery constituted a sea-change inthe medical industry toward outsourcing theremoval and treatment of medical waste to third-party service providers.

Growth in demand for medical waste disposalservices was especially pronounced among smallgenerators which do not have the scale to installautoclaves in-house, and are faced with noalternative but to use third-parties to take theirinfectious wastes to approved treatmentfacilities.

Reacting to these changes, beginning in 1988and increasingly through the 1990s, manygarbage collection companies movedaggressively to extend the scope of theiroperations to enter the medical waste market.They were emboldened by the belief that therewould be economic and marketing efficienciescaptured by bundling both services to largecustomers. Moreover, the closure of a majorityof on-site hospital incinerators left in operationprimarily large off-site units operated bycompanies that could afford to retrofit their unitswith capital improvements mandated by theregulations, such as secondary chambers, high

efficiency wet scrubbers with activated carbon,and the training and qualifying of staff to runand monitor updated facilities. Originally, thoseunits were owned by Browning Ferris Industries(“BFI”) and Waste Management, Inc. (“WMI”),the two dominant firms in municipal solid wastedisposal.

IV.B. Industry consolidation.

At the beginning of the 1990s the medicalwaste market appeared to be highly competitive,even in the face of an increasing regulatoryenvironment. By the end of the decade, however,the market wound up becoming extremelyconsolidated, with only one company left with a“national” reach.

Had the solid waste consolidators not exited,the market for medical waste would haveremained far more competitive because theirpresence would have perpetuated the continuedoperation of high fixed cost treatment facilities,and thus continued overcapacity. However,investors in the national garbage companieswere too impatient to accept the depressed profitmargins being realized by the trash firmsremained in the medical waste disposal market.

In 1996 WMI sold its medical business toStericycle for $10.7 million, increasingStericycle’s capacity by 35%. Four monthsearlier, Stericycle had gone public, raising $27.7million from Wall Street, and it only spent down$5.5 million of the cash it had just raised for theacquisition.


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This was a telling indication of the sheerintensity and peremptory nature of the problemsthe solid waste companies were experiencing.Barely one year after EPA first proposed toughhospital incinerator rules in 1996 that raisedwaste industry hopes of increased demand andhigher prices, the once dominant trash firmsexited the industry.

Following WMI’s lead, most of the garbagecompanies exited the medical waste market in1997, the very same year EPA promulgated thefinal air rules. Regional Carting, SuperiorServices, and Rumpke Container Service soldtheir medical waste lines to Stericycle, as well.To do so at a time when new regulations mademid-term prospects five years in the future sobright, seemed incongruous. Three explanationshave been offered.

First, waste disposal firms appear to havereached the conclusion that the synergiesbetween the trash and medical waste removalbusinesses had not materialized. Contrary totheir anticipation, hospitals had not beendisinclined to contract with different providersfor different services in order to secure the bestprice. Stericycle’s CEO Mark Miller boasted that“I think that what the solid waste companieshave realized is, bundling [their trash andmedical waste services to hospitals] doesn’twork that way.”

Second, were they to remain in the market, thesupply of medical waste services wouldcontinue to exceed demand, leading to low

margins for years in the future. After too manyquarters of disappointing returns, private equitypools acted to throw out the management teamsof first WMI in 1998 and then BFI in 1999 byfinancially backing the management of muchsmaller and narrowly focused USA Waste andAllied Waste to acquire the giants.

Third, medical waste was just too small a partof the business of general waste companies toinvest for the long haul. Even BFI, the trashhauler most committed to expanding its scopeinto medical waste, only received 3% of itsrevenues from that line of business.

Alone, only BFI hung on for awhile,anticipating higher prices when EPA’s medicalwaste incinerator rule became effective in 2002.But, its long-term strategic planning came fornaught before that date when Allied Wasteacquired BFI in 1999. Lenders had onlybankrolled the smaller Allied’s takeover of thefar larger BFI based on its commitment to shednon-core and underperforming assets as soon aspossible both to produce the highest returns butmostly to raise cash so that it could pay downthe enormous debt it had taken on in order tocomplete the acquisition of such a largercompany. Consequently, Allied sold BFI’smedical waste assets to Stericycle concurrentwith its buy out of BFI, in the process triplingthe size of Stericycle and eliminating the onlyother national competitor.


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V. Definition of the relevant markets

A competition analysis begins with a tentativedefinition of the relevant product and geographicmarkets. As a legal matter, an identified marketis the first step in alleging collusive,anticompetitive or exclusionary conduct and thenature of its effect on competition. Pleading andproving a relevant antitrust market is usuallyconsidered elemental to a prima facie case,although its importance will vary depending onthe nature of the available evidence and otherfactors. As a practical matter, all Clayton Act §7unlawful merger cases are judged with referenceto a defined market and the volume or revenueshares of the market participants. This is likelyalso to be the case in most Sherman Act cases inthe medical waste industry.

The DOJ-FTC Merger Guidelines5 approachmarket definition from the perspective ofdemand substitution factors, i.e., possibleconsumer responses. Starting with the smallestpossible group of competing products, theanalysis asks whether a hypothetical monopolistcould profitably impose a small but significantand non-transitory increase in price (“SSNIP”).6

The case law has come to regard 5% as a “smallbut significant” price increase. See U.S. v.Sungard Data Sys., Inc., 172 F.Supp.2d 172, 182(D. DC, 2001).

By contrast, the NAAG Merger Guidelinesdefine the relevant product market bydetermining the customers who purchase theproducts of the merging firms and expanding themarket “to include suitable substitutes for theproduct which are comparably priced.”7

V.A. The market for removal services.

V.A.1. The product market.

V.A.2. The geographic market.

V.B. The market for treatment services.

V.B.1. The product market.

V.B.2. The geographic market.

V.C. Additional considerations in marketdefinition.

The role of market definition in an antitrustproceeding will depend on the nature of theoffense and the type of available proof. Forinstance, in a monopolization case in whichdirect evidence of market power is unavailable,the plaintiff will have to rely on circumstantialevidence of market power and potentialanticompetitive effect. The same is usually trueof the analysis of proposed mergers. This

5Horizontal Merger Guidelines, U.S. Department ofJustice and the Federal Trade Commission, (April 2,1992, as revised April 8, 1997) (hereinafter, “MergerGuidelines”).

6Id., at §1.11

7Horizontal Merger Guidelines of the NationalAssociation of Attorneys General §3.1 (March 10, 1987,as revised March 30, 1993) (hereinafter “NAAG MergerGuidelines”).


ordinarily entails pleading and proving arelevant antitrust market and the market sharesof the alleged violator and its competitors. Insuch cases, market definition is not only requiredto frame the analysis and the allegations, (andtherefore elemental to a prima facie case), butthe antitrust market accepted by the finder offact may ultimately prove to be dispositive.

On the issues of whether a firm has marketpower, whether its conduct caused harm tocompetition, or is engaged in a combination ormerger that substantially lessens competition,the complainant will usually bear the burden ofdefining one (or more) relevant product andgeographic markets.

In other cases the market definition may beless controlling. These include offenses that arecharged as per se offenses—(i.e., price fixing,some group boycotts, and market or customerallocations, all violations of §1 of the ShermanAct)—as well as offenses in which directevidence of market power and exclusionaryeffect is available (most commonly arising in thecontext of §2).

“Less controlling” does not mean irrelevant,however. Not all cases falling under the per secategory get per se treatment.

Similarly, not all rule of reason cases shouldrequire market definitions and the calculation ofmarket shares. In Indiana Dentists, the SupremeCourt stated that “the purpose of the inquiriesinto market definition and market power is todetermine whether an arrangement has thepotential for genuine adverse effects oncompetition.”8 The inquiry into market power is“but a ‘surrogate for detrimental effects.’”9 Theupshot of Indiana Dentists is that proof of actualanticompetitive effect—such as a reduction ofoutput or an increase in prices—can obviate theneed for an inquiry into market power. “Theabsence of proof of market power des not justifya naked restriction on price or output” which,once demonstrated, must be justified “even inthe absence of a detailed market analysis.”10

8FTC v. Indiana Federation of Dentists, 476 U.S. 447,460 (1986).

9Id., quoting P. Areeda, Antitrust Law, ¶1511, P. 429(1986).

10Id., quoting National Collegiate Athletic Assn. v. Boardof Regents of Univ. of Okla., 468 U.S. 85 (1984)(quotingP. Areeda,supra, that “the rule of reason can sometimesbe applied in the twinkling of an eye.”)

VI. Integrated removal and treatment service firms

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VII. Anticompetitive features of the markets for medical wastedisposal

VII.A. Barriers to entry.

Both relevant product markets—removal andtreatment services—may be protected by one ormore barriers to entry. Over the years, theprecise economic meaning of a barrier to entryhas evolved.11 McAfee, Mialon and Williamsdistinguish between an economic and anantitrust barrier to entry. They put forward thefollowing definitions:

a. An economic barrier to entry is a costthat must be incurred by a new entrantand that incumbents do not or have nothad to incur;

b. An antitrust barrier to entry is a costthat delays entry and thereby reducessocial welfare relative to immediate butequally costly entry.

These definitions focus on the costdifferentials that keep competitive challengers ata distance. The second definition suggests thatthe timing of entry plays key role in theapplication of the concept to antitrust analysis.

VII.B. Barriers to entry into the removalmarket.

VII.B.1. Constraints on the availabilityof treatment services.

VII.B.2. Exclusive dealing.

VII.B.2.a. “Evergreen”provisions

VII.B.2.b. Exclusivity conditions.

VII.C. Barriers to entry into thetreatment market.

VII.D. Market power.

Market power and monopoly power are oftenused interchangeably. Monopoly power is thepower to control prices or exclude competitionin a relevant market.12

VII.D.1. Market power in the removalservices market.

Sherman Act §2 monopolization law requirespossession of market power (or a dangerousprobability of attaining it) in an identifiedmarket. Monopoly power in the adjacentupstream market may explain claimedexclusionary conduct meant to affect thedownstream market. But, if the monopolizationclaim is directed at a lack of competition forretail business, a demonstration of marketpower—or the dangerous probability of

11See R. Preston McAfee, Hugo M. Mialon & Michael A.Williams, 2004, “What Is a Barrier to Entry?” 94 Amer.Econ. Rev. (Pap & Proc.) 461, 463 (discussing sevendefinitions of a barrier to entry, illustrating the “rich andconfused heritage in economics” of the concept.)

12United States v. E.I du Pont de Nemours & Co., 351U.S. 377, 389 (1956).


achieving it—in the removal market will berequired.

VII.D.2. Market power in the treatmentservices market.

VII.D.2.a. Stericycle’s western statesacquisitions.

Just after acquiring the disposal business ofArizona-based Envirotech in late 1997,Stericycle entered into a set of asset sale andswap agreements with BFI.

Two years later, Stericycle acquired BFI’smedical waste business, including incinerators inNorth Salt Lake, Utah, and Phoenix andcustomers in California.

In late 2001, Stericycle acquired IntegratedEnvironmental Systems (“IES”) which operatedan incinerator in Oakland, California, the lastoperating incinerator in the state.

In January, 2003, Utah successfullychallenged the 1997 asset swap agreements as anunlawful market allocation scheme and a per seviolation of §1 of the Sherman Act. When anasset swap transaction lacks an efficiencyjustification, it may be nothing more than asubterfuge to disguise a market allocation. TheConsent Decree included an injunction againstthe North Salt Lake incinerator requiringStericycle to provide access to it to third-partyhaulers. Follow-on private class-action customerantitrust litigation is the multidistrict litigation,In re: Medical Waste Services AntitrustLitigation, pending in federal court in Utah. Suitwas also brought by an independent haulers inJohnson v. Stericycle. (Table 3, rows 2 and 3,

respectively).

When Stericycle attempted to close theChandler, Arizona facility in March, 2003, theArizona Attorney General obtained an injunctionrequiring Stericycle to continue operations on anopen access basis (Table 3, row 4). A follow-onprivate suit was brought in NAFTAEnvironmental v. Stericycle and BFI (Table 3,row 5).

By March, 2003, Stericycle had closed itsOakland, California incinerator, requiringmedical waste to be hauled to North Salt Lake.California medical facility waste generatorsbrought a class-action against Stericycle, Stoll v.Stericycle, Inc. (Table 3, row 6).

VII.D.2.b. S t e r i c y c l e ’ s N o r t h e a s tAcquisitions.

In October, 2002, Stericycle acquiredBridgeview, Inc., operator of an incineratorlocated in Morgantown, Pennsylvania. Stericyclealso entered into a plan of merger with SchererHealthcare, Inc., whose subsidiaries includedBio Waste Systems, Inc. and Medical WasteSystems, Inc. The former operated a transferstation at Haverhill, Massachusetts. TheConnecticut Attorney General expressed concernthat the simultaneous acquisition of these twonortheast tipping stations for medical waste waslikely substantially to lessen competition for thesale of medical waste “hauling, transfer andprocessing services in New England.” Stericycleentered into an “Assurance of Discontinuanceand Voluntary Compliance,” in which itundertook to divest the Haverhill transferstation, honor existing contracts for treatment atthe Morgantown plant, and unwind an equity


investment made by Bridgeview in MedicalWaste Management, Inc. of New England and itsaffiliate, Environmental Management, Inc.

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VIII. Building an antitrust claim

Anticompetitive conduct often violates anumber of prohibitions at once. Thus, whenStericycle and BFI allocated Arizona toStericycle and Colorado and Utah to BFI, forexample, the same conduct that supported a perse §1 Sherman Act claim for allocating marketsalso supported a monopolization claim under §2,and, given the concerted nature of the conduct,also a conspiracy to monopolize.

VIII.A. Substantial lessening ofcompetition through unlawfulmerger, Clayton Act §7

The acquisition of stock or assets by adominant firm is unlawful under §7 of theClayton Act [15 U.S.C. §18] if “the effect ofsuch acquisition may be substantially to lessencompetition, or to tend to create a monopoly.”

The presence of the verb “may” in the statuteindicates that the legal finding in a §7 case isbased on a forecast. Modern forecastingimplements a probabilistic model; in antitrustanalysis, the evidence bearing on the likelihoodof competitive harm in the post-merger period isusually a matter to be weighed by the trier offact. Plaintiffs must prove a §7 violation by apreponderance of the evidence.13

VIII.A.1. Market definition, share, andconcentration.

The analysis begins with a definition of therelevant product and geographic markets,determination of the market shares of the firmsactive in the market, and whether there is a levelof concentration sufficient to trigger thepresumption of competitive harm set forth inU.S. v. Philadelphia Nat. Bank, 374 U.S. 321(1963).

Under Philadelphia Nat. Bank a post-mergermarket share of 30% or higher gives rise to apresumption of illegality in the sense that itsuffices to prove a prima facie case. Defendantsmay rebut such a presumption by showing thatthe market-share analysis does not accuratelyreflect the probable effects on competition orthat efficiencies resulting from the merger maybe relevant.

The Merger Guidelines specify safe harborsbased on the Herfindahl-Hirschman Index(“HHI”) as an aid to identifying when aproposed transaction will not raise antitrustconcerns because it takes place in aunconcentrated market.14 The HHI is calculatedby summing the squares of the individual marketshares of all the market participants.

The Merger Guidelines divide the HHI scaleinto three regions: markets with HHI below1,000 are characterized as unconcentrated;markets with HHI between 1,000 and 1,800 are

13See U.S. v. Oracle Corp., 331 F.Supp.2d 1098, 1109(N.D.Cal., 2004) (“To establish a section 7 violation,plaintiffs must show that a pending acquisition isreasonably likely to cause anticompetitive effects.” [citingcases]) 14Merger Guidelines, §1.5.


moderately concentrated; and, markets with HHIabove 1,800 are highly concentrated.

The “delta-HHI” is the change in the HHIoccasioned by the merger. Where the post-merger market is unconcentrated, the Agenciesconsider anticompetitive effects to be unlikely.Where the post-merger market is moderatelyconcentrated, a delta-HHI of less than 100 isconsidered not to have adverse competitiveeffects; if the delta-HHI is greater than 100, themerger will raise significant competitiveconcerns. Finally, where the post-merger marketends up being highly concentrated, a delta-HHIof 100 or more will create a presumption that themerger is “likely to create or enhance marketpower or facilitate its exercise;” a delta-HHIbetween 50 and 100 raises significantcompetitive concerns.15

As a practical matter, market definition andindustry concentration are central to a mergercase and may often be dispositive. Courts thatare critical of the structural approach inPhiladelphia Nat. Bank and the MergerGuidelines must nonetheless follow thestructural approach of contemporary merger law.In U.S. v. Oracle, a challenge by the AntitrustDivision and several states to the Orcale-PeopleSoft merger, a court critical of thestructural approach in the Merger Guidelinesrejected the plaintiffs’ market definitions,leaving the court with little or no market share orindustry concentration evidence. In rulingagainst the government and several states, thecourt noted that the plaintiffs

carry the burden of proving market shares

and concentration in order to invoke thepresumptions of the case law or to sustaina showing in accordance with theGuidelines. The court cannot furnish itsown statistics. Without the benefit ofpresumptions, the burden remains uponplaintiffs to come forward with evidence ofactual anticompetitive effects.16

VIII.A.2. Anticompetitive effects.

With respect to the likelihood ofanticompetitive effects, both the accretion ofmarket power and the facilitation of collusioncan arise in the medical waste industry.

VIII.A.2.a. Unilateral effects.

Where merging partners will “merge tomonopoly” in a well-defined market, thelikelihood of unilateral effects in the form ofprice increases is obvious. Most cases are not asclear cut. One likely scenario is that the post-merger market will consist of a dominant firmwith a competitive fringe.

The key ingredient for any successful mergerchallenge based on unilateral effects is theability to identify a particular group or class ofcustomers who are likely to be harmed as aconsequence of the accretion of market powerresulting from the merger. This even applies inmarkets involving highly differentiated orspecialized products.

15Merger Guidelines, §1.51. 16331 F.Supp.2d at 1165.


VIII.A.2.b. Coordinated effects.

The post-merger market may be soconcentrated that coordinated interaction wouldbe facilitated by the merger. The MergerGuidelines define “coordinated interaction” as“actions by a group of firms that are profitablefor each of them only as a result of theaccommodating reactions of the others.”17

A merger violates §7 when it threatens todiminish competition by enabling the firms inthe market “more likely, more successfully, ormore completely to engage in coordinatedinteraction that harms consumers.”18

VIII.A.3. Entry conditions.

Under the Merger Guidelines, “if entry wouldbe timely, likely, and sufficient in its magnitude,character and scope to deter or counteract thecompetitive effects of concern,” the merger willnot violate §7.19

Entry conditions in the removal servicemarket (see Section VII, supra) hinge largely onthe availability of treatment services for off-loading collected RMW. Potential competitionin the removal service market can be aconstraining force only if there is adequatelyavailable treatment for the waste collected by anew entrant evaluating the prospect of entry.Moreover, the use of evergreen contracts alsopresents a formidable barrier to potential

competitors. Even if a potential competitor hasa source for treatment of the waste (or sets up anautoclave), the competitor will not succeedunless it can gain access to existing generators ofwaste.

Entry barriers in the treatment market arelargely regulatory in nature, and can imposequite significant costs and delays.

VIII.A.4. Pro-competitive efficiencies.

“Cognizable efficiencies” are defined in theMerger Guidelines as “merger-specificefficiencies that have been verified and do notarise from anticompetitive reductions in outputor service.”20

VIII.A.5. The “failing firm” defense.

The rescue of a failing firm—the last two stepin the analysis under the MergerGuidelines—has its genesis in the narrowdefense created by the Supreme Court inInternational Shoe v. F.T.C., 280 U.S. 291(1930), expanded to include a “failing division”defense as well. A merger is not likely to causeanticompetitive harm if imminent failure of oneof the merging firms would cause the assets ofthat firm to exit the relevant market.21

The four criteria under the Merger Guidelinesare i) the inability of the merging firm to meet itsfinancial obligations in the near future, ii) thefirm’s inability to take advantage of thereorganization provisions of the bankruptcy

17Merger Guidelines, §2.1.

18Id.


20Merger Guidelines, §4.



laws, iii) the firm has made a good-faith effort toelicit alternative offers that pose less of acompetitive threat than the proposed merger, andiv) the assets of the failing firm would exit therelevant market absent the proposedacquisition.22

VIII.B. Monopolization and attemptedmonopolization, Sherman Act§2.

Acquisition of all or substantially all of theoperational assets for the removal and/ortreatment of medical waste in a well-definedgeographical market may not only violate §7 ofthe Clayton Act but may also constitutemonopolization or an attempt to monopolize, inviolation of §2 of the Sherman Act.

A §2 claim has two primary elements: i) thedefendant possesses monopoly power in therelevant market, and ii) the defendants haswillfully acquired or maintained that power asdistinguished from growth or development as aconsequence of a superior product, businessacumen, or historic accident.23

The “willful acquisition” element isestablished by showing that the defendant

engaged in anticompetitive conduct.24

Anticompetitive acts are

acts, other than competition on the merits,that have the effect of preventing orexcluding competition or frustrating theefforts of other companies to compete forcustomers within the relevant market.25

From an economic perspective, unilateralanticompetitive conduct is either exclusionary(non-price) or predatory (price) conduct.

VIII.B.1. Denial of access to “essential”treatment facilities.

Being denied access to treatment facilities bya defendant with market power may, underappropriate circumstances, support amonopolization claim. Usually, the defendantwill be a vertically integrated firm withwholesale treatment facilities and a retailremoval business.

Monopolization based on an alleged “refusal

to deal” has received a great deal of recentattention. In particular, the Supreme Court’sdecision in Verizon Comm. Inc. v. Trinko26

wields a certain influence over what amonopolization claim of this nature now entails.


23United States v. Grinnell Corp., 384 U.S. 563, 571(1966). An attempt monopolize claim requires proof of adangerous probability of the defendant achievingmonopoly power in the relevant market instead of thedefendant’s possession of monopoly power. SpectrumSports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). Seethe discussion of market power in Section VII.D., supra.

24See ABA Section of Antitrust Law, Model JuryInstructions in Civil Antitrust Cases, 2005 Edition (2005),Monopolization–General–Instruction 1–Elements.

25ABA Section of Antitrust Law, Model Jury Instructionsin Civil Antitrust Cases (2005), Monopolization–General,Instruction 10, Willful Acquisition of maintenance ofMonopoly Power.

26540 U.S. 398 (2004).


The “essential facilities” doctrine wasmentioned by the Trinko Court, but the Courtneither adopted nor repudiated it. Theoretically,then, the essential facilities doctrine remainsintact as a viable approach to a §2 claim.

Nonetheless, the ABA Model JuryInstructions and the most strident supporters ofthe Trinko decision both recognize that someform of “forced sharing” claim under §2survives Trinko. But while a narrow set of factswill justify an essential facilities claim, mostcases can be prosecuted as more generalmonopolization claims based on exclusionaryanticompetitive conduct.

One statement of the rule that places thesecases in a more sympathetic context is that a“non-marginal case that involves a clearlydominant firm, clear foreclosure, and no obviousbusiness justification should be well within thejudicial capacity.”27

Nonetheless, any enforcement case alleging adenial of access to treatment facilities is likely tobe faced with one or more of a series of Trinko-inspired defenses.

VIII.B.1.a. First Trinko defense: Refusalsto deal in intermediategoods—or without a priorcourse of dealing—are notactionable.

VIII.B.1.b. Second Trinko defense:

Refusal-to-deal requires thedefendant to sacrifice short-term profits.

VIII.B.1.c. Third Trinko defense: Forcedsharing does not requireinvestment in additionalcapacity or non-administrableremedies.

VIII.B.2. Evergreen provisions.

VIII.B.3. Exclusivity conditions andrequirements contracts.

VIII.C. A g r e e me n t t o a l l o c a t ecustomers or territories, per seviolation of Sherman Act §1.

A third type of claim is exemplified by theBFI-Stericycle agreements, about which Utahfiled suit, in which an “asset swap” transactionwas in functional terms a proscribed marketallocation agreement, and a per se violation of§1 of the Sherman Act.

In this section we discuss the considerationsrelevant to the determination of whether an assetswap transaction is really a disguised per se §1market allocation agreement. A per se violationcreates the potential for criminal liability inthose jurisdictions which have criminal antitrustauthority.

VIII.C.1. Per se or rule of reasonanalysis?

If the principal purpose of a transactionbetween competitors is to “share or dividemarkets by allocating customers, suppliers,

27Herbert Hovenkamp, “Post-Chicago antitrust: A reviewand critique,” 2001 Colum. Bus. L. Rev 257 (2001), at322.


territories, or lines of commerce,” courts haveconclusively presumed, through the applicationof the per se rule, that the agreement is illegalunder §1 of the Sherman Act (or thecorresponding state statute).28 Indeed, “[o]ne ofthe classic examples of a per se violation of §1is an agreement between competitors at the samelevel of the market structure to allocateterritories in order to minimize competition.”29

In such cases, the court will not inquire into thereasonableness of the arrangement, the factspeculiar to the business or industry involved, thenature of the restraint, its effect on competition,the history of the agreement, or the reasons forits adoption.

On the other hand, if the central purpose ofthe transaction is to promote competitionthrough efficiency-generating integration, theagreement may be lawful under the §1 rule ofreason standards and/or the standards relevant to§7 of the Clayton Act. A rule of reason analysis

focuses on the state of competition with, ratherthan without, the relevant agreement. A detailedmarket analysis may not be necessary dependingon the nature of the agreement.

A per se case often depends on a factualpredicate being established before the per seanalysis is appropriate. Thus, an inquiry into thefactual circumstances underlying the agreementusually will be required. First, the enforcementofficial must make an initial determination as towhether the parties are predominantlyhorizontally-related competitors. If, for example,the restraint is a vertically-imposed territorialallocation designed to mitigate intrabrandcompetition and strengthen interbrandcompetition, per se condemnation in alllikelihood will not be accepted by the courts. Ifit is determined that the parties are horizontal,interbrand competitors, however, the inquirymust then turn to the issue of whether theagreement in question lessens competitionthrough the allocation of resources or promotescompetition through efficiency-generatingintegration, an inquiry that requires examinationof several, interrelated factual issues.

VIII.C.2. Are the parties horizontalcompetitors?

It is not necessary that the parties to theproposed transaction actually compete in theaffected market(s) to run afoul of the per seprohibition against market allocation. It isenough that the parties are potential competitorswho agree to allocate territories, routes, or

28Antitrust Guidelines for Collaborations AmongCompetitors, Issued by the Federal Trade Commissionand the U.S. Department of Justice, April, 2000, §3.2(“FTC-DOJ Collaboration Guidelines”), available at:http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf,citing, Palmer v. BRG of Georgia, Inc., 498 U.S. 46(1990). This memorandum assumes that the applicablestate statutes mirror the federal antitrust laws, and thatfederal precedent is persuasive.

29U.S. v. Topco Associates, Inc., 405 U.S. 596, 608(1972). The per se treatment of horizontal territorialallocations under §1 may have had its genesis in U.S. v.Addyston Pipe & Steel Co., 85 F. 271 (6th Cir.1898),aff'd, 175 U.S. 211 (1899), although Judge (later ChiefJustice) William Howard Taft left the door open toefficiency-enhancing justifications. The modernproposition that the horizontal division of markets isunlawful per se can be credited to Timken Roller BearingCo. v. U.S., 341 U.S. 593 (1951). See also, U.S. v. Sealy,Inc., 388 U.S. 350 (1967).


customers.30 Thus, an agreement not to competebetween medical waste disposal firms operatingin non-overlapping territories may still constitutea per se unlawful horizontal restraint.

VIII.C.3. What is the central purpose ofthe agreement?

Provided that the restraint is not verticallyimposed, and thus not subject to the rule ofreason on those grounds, application of the perse rule will still depend on whether the centralpurpose of the agreement is to lessencompetition through the allocation of resourcesor to promote competition through efficiency-generating integration. Five factors that shouldbe considered when making any suchdetermination are:31 a) The proffered businessjustification; b) The nature and disposition of theswapped assets; c) The structure of thetransaction; d) The market impact; and e) Thenature of the express non-compete agreement orbarriers to entry (or re-entry).

VIII.C.3.a. The proffered businessjustification.

A procompetitive or efficiency-enhancingjustification will not insulate a transaction fromcondemnation as a per se violation of §1.However, the absence of a feasible justificationshould weigh heavily against the legality of thetransaction. A proffered justification should betested against the factual circumstances. Some ofthe factual issues bearing on the legitimacy of aproffered business justification include:

i. Was the transaction independentlyinitiated? Evidence produced by one orboth parties that the decision to initiatethe transaction was independentlyarrived at rather than through mutual orconcerted decision-making supports theconclusion that the transaction has alegitimate business justification. Suchevidence might consist of internalmemoranda or minutes from boardmeetings.

ii. If a party is withdrawing from servicinga claimed “non-core” market, what wasthe reason for entering the market in thefirst instance? What independentanalysis was undertaken, if any,concerning the efficiencies or cost-savings of withdrawing from thatmarket? What circumstances havechanged, if any, which support reversingthe decision to enter the non-coremarket?

iii. Is there just one or more than one swaptransaction? Multiple swap transactionsresemble a coordinated effort to allocatethe market, and therefore are less likelyto be supported by a legitimate efficiency

30See Palmer v. BRG of Georgia, 498 U.S. 46, 49-50(1990) (“...[I]t is equally clear that the District Court andthe Court of Appeals erred when they assumed that anallocation of markets or submarkets by competitors is notunlawful unless the market in which the two previouslycompeted is divided between them. . . . [In U.S. v. TopcoAssociates, Inc., 405 U.S. 596 (1972) the members] eachagreed not to compete in the other’s territories. Suchagreements are anticompetitive regardless of whether theparties split a market within which both do business orwhether they merely reserve one market for one andanother for the other.”)

31These factors were identified in Maurice E. Stucke,“Evaluating the Risks of Market Swaps,” Antitrust, 18:1,Fall, 2003, pp. 67–71.


justification.

iv. What discussion or plans does the partyhave for pricing in the post-swapprotected market? Evidence that one orboth parties has considered post-transaction price increases militateagainst the proffered efficiency defense,the essence of which is to enhanceprofitability through lower costs ratherthan higher prices.

This list is not intended to be exhaustive, butrather indicative of the type of factual issues thatbear on the legitimacy of a proffered businessjustification. Naked averments that such ajustification exists should not be persuasive.

VIII.C.3.b. The nature and disposition ofthe swapped assets.

VIII.C.3.c. The structure of thetransaction.

VIII.C.3.d. The market impact.

VIII.C.3.e. The nature of the express non-competition agreement.

VIII.C.4. Agreements of limited scope.

It is not necessary that the restriction involvedcover all modes of competition to rise to thelevel of a per se violation of §1. Restrictionsrelating solely to advertising in certainterritories, or only to certain product lines, maynonetheless constitute a per se unlawfulterritorial market allocation.

-35-

IX. Remedial measures

IX.A. Divestiture and other structuralremedies.

Irrespective of the theory of the case, theremedy should have the ultimate effect ofrestoring competition. Accordingly, remediesshould be sought based on a factually intensive,case-by-case analysis. For example, a mergerthat substantially lessens competition in thetreatment market may be remedied by a “full-stop” injunction against the entire transaction.But, a divestiture condition that leads to anadditional viable competitor may be effective atrestoring competition. Such alternatives shouldbe considered, particularly where credible claimsof efficiencies are brought forward to justify amerger transaction,.

Where a monopolist has achieved itsmonopoly at least in part through acquisitions,structural reform (i.e., a divestiture) has been acommon and generally accepted remedy forSection 2 violations. This is because, in general,once-and-for-all remedies are preferable tocontinuing supervision by an antitrust court.

The Policy Guide points out that divestituremust include all assets necessary for thepurchaser to be an effective, long-termcompetitor. It is not sufficient to attenuatemarket power through divestiture; the divestitureshould also lead to increased competition.

Accordingly, the divestiture of an existingbusiness entity is preferred to the divestiture ofa group of related assets. A divestiture remedymust include rights to critical inputs orintellectual property necessary to be a viablecompetitor.

However, the Policy Guide should beconsulted for those cases in which divestiture ofan existing business is not possible, althoughdivestiture of certain assets that are less than anexisting business will still be appropriate.

IX.B. Compulsory access to treatmentfacilities, establishment of newtreatment capacity, and otherremedies.

IX.C. Disgorgement

Disgorgement involves paying over to thegovernment or a private party ill-gotten gainsattributable to the violation, i.e., the “fruits” ofthe violation. In a monopolization case, thesegains might be represented by the monopolyrents earned by the firm, or the proceeds of itsanticompetitive conduct. The states are generallypermitted to seek disgorgement under their“little FTC acts,” see FTC v. Mylan Labs., Inc.,99 F.Supp.2d 1 (D.D.C., 1999).

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