Some dispute FTC finding in B2B antitrust report

Executives at industry-backed business-to-business electronic marketplaces say they have little to fear from the U.S. Federal Trade Commission (FTC). But Ravi Kalakota, chairman of Atlanta-based, an independent exchange serving the hospitality industry, wasn’t among them.

“I don’t know what the FTC was smoking, but they’re not looking at the evidence,” Kalakota said of the commission’s Oct. 26 report, which concluded that Internet exchanges pose no new antitrust concerns for the time being.

In the hotel industry, Kalakota said he constantly comes across individual hotel operators who say they are barred from buying on under franchise agreements with big-name companies such as Hyatt Corp. and Marriott International Inc., both partners in a new industry-based electronic marketplace, Avendra.

“So, in my marketplace, there’s a huge antitrust issue because these guys can put me out of business,” Kalakota said. However, rather than take up any action with the FTC, Kalakota said he will let things run their course because he, for one, doesn’t believe all of the consortium efforts will ultimately survive.

As the FTC sees it, there is no hard and fast evidence of anti-competitive behaviour on any industry marketplaces, at least for now. But regulators laid out conditions that would potentially raise red flags and could spur greater antitrust scrutiny of marketplaces.

These have to do with how large a share of the market is held by a marketplace’s partners, any restraints that may be placed on buying or selling outside of the marketplace and the level of interoperability between marketplaces.

“The government is taking a go-slow approach and essentially saying that the devil is in the details,” said Joel Mitnick, a partner at law firm Browne & Wood LLP in New York.

Whether a marketplace ultimately raises antitrust concerns will “depend on the way the exchange really works,” Mitnick said. And because most exchanges are just getting off the ground, “the FTC is correctly reticent to interfere until everyone understands what the economics are.”

Still, many of the big industry-backed marketplaces aren’t taking any chances.

At Envera LLC, a chemical industry marketplace backed by Solutia Inc., Occidental Petroleum Corp. and Lyondell Chemical Co., among others, no partner can have more than 5 per cent of the marketplace’s voting stock, said Mike Geissler, Envera’s chief technology officer. Envera also guarantees a secure transaction database to prevent the sharing of information among rival buyers or sellers – another red flag for antitrust enforcers., a marketplace for electronic components, brought in venture capital backers to keep its combined share of the market to less than 50 per cent, said E2open president and CEO Mark Holman.

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