Patterson Cos. strikes agreement with FTC to settle price-fixing allegations

Patterson Cos., one of the three largest players in the $10 billion market for selling dental supplies to dentists, has agreed to settle federal charges that accused the company of illegally colluding with a competitor in a price-fixing arrangement.

As part of the settlement with the Federal Trade Commission, Mendota Heights-based Patterson agreed to train employees to follow federal law, file five annual compliance reports, and name an internal compliance officer to handle antitrust issues. The settlement does not call for Patterson to pay a fine, hire an "outside monitor," or admit wrongdoing, Patterson said.

"We continue to categorically deny any wrongdoing and believe that the facts and mainstream legal precedent demonstrate the company's independent and lawful decisionmaking in a competitive industry," Patterson said in a statement.

The FTC on Friday announced that Patterson would not appeal an administrative law judge's decision from October that said Patterson and a top competitor, Pennsylvania's Benco Dental, had illegally conspired to avoid providing group-purchasing discounts to small bands of independent dental offices known as "buying group."

Chief Administrative Law Judge D. Michael Chappell, whose 251-page decision was published Oct. 15, ruled that the FTC met its burden of proving that Patterson and Benco had "conspired to refuse to discount or otherwise compete for the business of buying groups" — an agreement was intrinsically illegal, he said. That decision was based on evidence presented in an "evidentiary hearing" that included testimony from 65 witnesses and more than 5,000 exhibits earlier this year.

New York-based Henry Schein Inc., the nation's largest distributor of dental supplies and equipment, was found not liable and its case was dismissed after all the evidence was heard.

Patterson and Benco, the No. 2 and No. 3 dental suppliers respectively, were found liable. Together, the three companies control 85% of the $10 billion business of selling gloves, cements, consumable supplies and equipment such as dental chairs to U.S. dentists, the FTC said.

During the evidentiary hearing, the FTC highlighted specific situations and used e-mails and other documents to show evidence of an illegal agreement to avoid competing for business that could erode prices, even though firms in a competitive field should have a strong economic incentive to compete on prices.

For example, the FTC noted that in 2013, the families of Benco co-Chief Executive Chuck Cohen and Patterson Dental President Paul Guggenheim had known each other for decades, and had "[grown] up in the dental industry together."

Evidence showed that Cohen and Guggenheim communicated with each other by phone calls, texts, e-mails and in-person meetings, and the men's positions gave them the power to help decide whether to do business with "buying groups" that sought discounts for group purchases.

On Feb. 8, 2013, Cohen sent Guggenheim an e-mail that said in part, "Just wanted to let you know about some noise I've picked up from New Mexico. FYI: Our policy at Benco is that we do not recognize, work with, or offer discounts to buying groups."

Hours later, Guggenheim responded to Cohen in writing: "Thanks for the heads up. I'll investigate the situation. We feel the same way about these."

Before that exchange of e-mails, employees of Patterson had led the founder of the New Mexico Dental Cooperative to believe there was a deal in principle for the new buying group's members' to purchase dental supplies from Patterson, testimony showed.

But in a Feb. 11 dinner meeting, Patterson officials told the buying group's founder that Patterson would in fact not work with the group after all.

"Guggenheim could not identify any business rationale for his February 8, 2013, communication to Cohen," Chappell wrote.

"Sharing Patterson's position with respect to buying groups, which conveys its future bidding strategy, supports a finding that this communication was an exchange of assurances. ... Courts have held that evidence of competitors communicating about strategic, nonpublic information that could be used to compete against each other supports finding an agreement."

Both sides strongly contested that assertion at trial. But Chappell ruled, "Witness denials of an agreement are properly given little weight when other evidence shows an agreement."

Patterson disagreed with the judge's finding, but ultimately decided not to appeal the case to a federal district court for more litigation.

"Following the ALJ's [administrative law judge's] initial recommendation, the FTC approached Patterson with an offer to settle this matter," the statement said.

"After an evaluation of all options ... Patterson determined that a settlement is in the company's best interest, and allows us to avoid the costs, distraction and uncertainty related to this matter."

In a statement to Reuters, Benco said it was "pleased that, contrary to the FTC's original claim, it was concluded that there was no industrywide conspiracy regarding dental buying groups."

Joe Carlson • 612-673-4779