A judge has ordered prosthetics maker Otto Bock Healthcare North America to sell a competitor it acquired in 2017.
Otto Bock (Austin, Texas) and smaller competitor Freedom Innovations (Irvine, Calif.) are the top U.S. sellers of microprocessor-equipped prosthetic knees, according to the U.S. Federal Trade Commission, which began seeking the divestiture shortly after the merger.
The FTC’s complaint claimed that the merger harmed competition for microprocessor prosthetic knees by eliminating head-to-head competition between the two companies, removing a significant and disruptive competitor, and entrenching Otto Bock’s position as the dominant supplier. Chief administrative law Judge Michael Chappell upheld the complaint in an initial order issued April 29 and publicly announced on Tuesday.
Microprocessor prosthetic knees (MPK) use microprocessors to adjust the stiffness and positioning of the joint in response to variations in walking rhythm and ground conditions, providing a stable platform for amputees. Prosthetists and doctors typically prescribe microprocessor prosthetic knees to patients with above-the-knee amputations who have a relatively high degree of mobility. Compared to other prosthetic products, microprocessor prosthetic knees reduce the risk of falling, cause less pain, and promote the health and function of the sound limb.
Chappell found that the direct competition between Otto Bock and Freedom Innovations in the microprocessor prosthetic knee market has enabled clinic customers to negotiate lower prices and has spurred innovation.
“[T]he evidence in this proceeding proves that the acquisition will significantly increase concentration in the relevant MPK market, which gives rise to a presumption that the acquisition may substantially lessen competition,” Chappell wrote in the decision.
Under a divestiture agreement, Otto Bock must sell the assets of Freedom Innovations within three months of Chappell’s order becoming final, in good faith and at no minimum price, to an FTC-approved buyer. The order compels Otto Bock to allow the buyer to recruit and employ all Freedom Innovation employees and allows the FTC appoint a monitor to oversee Otto Bock’s compliance with the order, and a divestiture trustee to ensure compliance with the divestiture agreement.
Parent company Ottobock said it was disappointed in the initial decision and that Freedom Innovations will continue to operate as an independent business as it considers its next move.
“Ottobock will continue to work in a collaborative manner with the FTC to promptly reach a mutually beneficial resolution,” the company said in a news release. “Ottobock is considering all options to protect our ability to deliver greater consumer choice, improve product quality and fuel innovation.
In a separate statement, Freedom Innovations CEO Dave Reissfelder told customers that the judge’s decision is just a development in the case and is not final.
“We do not know when this case will be settled as a final matter, but this latest interim step has no bearing on and does not impact Freedom’s operations, products, customer relationships or other agreements,” Reissfelder said. “We will continue to compete vigorously and operate as an independent entity. The structure, resources, personnel — and most importantly, the mission — of Freedom remain unchanged.”
Unless one of the parties files a timely appeal or the FTC decides to review or stay the decision, it will become final within 30 days. Ottobock was started in 1919 as a maker of prosthetics for World War I veterans.
