Tuesday, July 22, 2008

Tooth Manufacturer’s Claims Against Monopolistic Rival Can Proceed

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A monopolization claim by a manufacturer of prefabricated artificial teeth against the industry's dominant player, Dentsply International, Inc., was not barred as untimely and did not fail for lack of cognizable antitrust injury, the federal district court in Harrisburg, Pennsylvania, has ruled. Thus, Dentsply’s motion to dismiss was denied.

The antitrust injury asserted by the complaining competitor, Lactona Corporation, was in part predicated upon an event occurring more than a dozen years before Lactona filed suit—Dentsply's 1993 ban on its dealers’ carrying new products of its competitors. However, the suit was not time-barred because the face of the complaint did not clearly demonstrate the applicability of the limitations defense.

The complaint did sufficiently allege that Dentsply possessed market power and engaged in anticompetitive conduct that raised above mere speculation Lactona's right to recovery under Sec. 2 of the Sherman Act.

Related Litigation History

In 1999, the Department of Justice filed suit, challenging Dentsply’s practices under federal antitrust law. In 2005, the U.S. Court of Appeals in Philadelphia ruled that Dentsply's actions had indeed constituted unlawful monopolization (2005-1 Trade Cases ¶74,706). A final judgment prohibiting Dentsply from engaging in exclusionary conduct for seven and one-half years was entered in 2006 (2006-2 Trade Cases ¶75,383).

Private litigation arising out of the same conduct has produced more mixed results. A suit brought against Dentsply and many of its dealer-distributors on behalf of dental laboratories, who use Dentsply's (and its competitors') products to make sets of dentures for dentists, has progressed to trial after denial of the labs' motion for summary judgment (2007-2 Trade Cases ¶75,890).

The same court opinion, however, largely rejected a variety of antitrust charges filed against the manufacturer and many of its dealer-distributors. Earlier this year, a monopolization claim brought against Dentsply by another competing manufacturer survived a motion to dismiss based on statute of limitations and antitrust injury grounds (2008-1 Trade Cases ¶76,103).

Statute of Limitations

In the instant suit, Lactona's monopolization claim could not be dismissed on limitations grounds because the complaint was not predicated solely upon Dentsply's alleged threat in 1994 to sever business ties with a dealer pursuant to its ban on carrying competitive products, which allegedly caused that dealer to terminate its offerings of Lactona's products, the court stated.

The monopolization claim was also based upon two undated incidents in which the Dentsply purchased dealers' stock of Lactona teeth or replaced them with its own products, as well as upon the anticompetitive effects of the particular market-control strategy that Dentsply had implemented. Granting the motion for dismissal would have imposed an obligation on Lactona to allege the precise timing of every instance of anticompetitive conduct. The Federal Rules of Civil Procedure imposed no such burden, and the complaint's failure to recite the dates on which the alleged harm occurred did not warrant dismissal under the statute of limitations, according to the court.

Sufficiency of Allegations

The claim was sufficiently alleged to survive dismissal under the pleading standard articulated by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly (2007-1 Trade Cases ¶75,709), the court added. Lactona's assertion that Dentsply controlled 75 percent of the market, a share approximately 15 times larger than that of the second-largest producer, was adequate, if proven, to demonstrate its monopolistic dominance in the market during the relevant period.

The market was characterized as consisting of relatively few dealers, who acted as distribution conduits between manufacturers and a limited number of dental laboratories. As a result of laboratories' expectation that dealers would stock the competitor's products, owing in part to its market position, Dentsply was alleged to have wielded considerable influence over the terms and conditions on which dealers purchased and sold its products and those of its rivals.

In addition, Lactona sufficiently alleged that Dentsply engaged in anticompetitive conduct, for purposes of a Sherman Act, Sec. 2 claim. At the heart of the complaint were factual assertions that (1) Dentsply threatened dealers with termination if they ordered or continued to sell Lactona's teeth, (2) Dentsply exchanged dealers' inventories of the Lactona's teeth for its own products, (3) Dentsply implemented a dealership agreement provision prohibiting dealers from carrying any other manufacturers' new products, and (4) none of Dentsply's dealers added competing tooth lines to its inventory over a six-year period.

If true, these allegations raised a plausible inference that Dentsply maintained its monopolistic market share through methods other than the competitive merits of its products, the court concluded.

The June 17 decision is Univac Dental Co.v. Dentsply International, Inc., 2008-2 Trade Cases ¶76,224.

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