HIV Drug Maker Could Have Violated Federal Antitrust Law Through Price Hike

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

HIV patients and their medical plans directly purchasing protease inhibitor (PI) drugs to fight the disease sufficiently alleged that the manufacturer of a PI drug marketed under the name “Norvir,” which had been found to boost the effectiveness of other PI drugs, could have violated federal antitrust law in several ways by raising the price of stand-alone Norvir over 400 percent, the federal district court in Oakland, California, has ruled. An omnibus motion to dismiss the claims was therefore denied.

Predatory Pricing

The drug maker, Abbott Laboratories, could have engaged in predatory pricing with regard to its own combined PI product (a drug named “Kaletra” that utilized Norvir with lopinavir) and the broader “boosted” market by raising the price of stand-alone Norvir so dramatically, in the court's view.

In maintaining its price for Kaletra, the manufacturer essentially offered a substantial discount on Norvir as a result of its bundling with lopinavir. The purchasers alleged that when the full amount of this discount was attributed to lopinavir—a competitive product in the “boosted” market—the resulting price was below the manufacturer's average variable cost to produce lopinavir.

This allegation supported their claim that the manufacturer engaged in unlawful predatory pricing through bundled discounting, the court found.

Exclusionary Conduct

Further, Abbott could have engaged in exclusionary conduct in violation of Sec. 2 of the Sherman Act by raising the price of stand-alone Norvir over 400 percent because the change disrupted a longstanding course of dealing. Liability under Sec. 2 could arise when a defendant voluntarily altered a course of dealing and anticompetitive malice motivated that conduct, the court explained.

The purchasers adequately alleged that Abbott had a duty to deal, according to the court. They claimed that the manufacturer had voluntarily engaged in licensing agreements with its competitors that allowed the competitors to market their PIs along with Norvir, and these agreements induced the competitors to rely on Norvir's availability on the market subject to normal, inflation-level price increases.

Given that the manufacturer's massive price hike on Norvir came about following the company's recognition that Kaletra would face new competition in the “boosted” PI market, and was not accompanied by a commensurate rise in its price for Kaletra, the increase could have been motivated by anticompetitive malice, the court determined.

Constructive Refusal to Deal

An argument that the allegations could not amount to an actionable refusal to deal because the manufacturer never refused outright to sell Norvir was rejected. Case law did not require outright refusal, the court noted. The price increase on Norvir placed other drug competitors in the untenable position of selling their boosted PIs at a price that could not compete with Kaletra; thus, the price increase signified a constructive refusal to deal.

Monopolization

The direct purchasers also adequately stated a claim that Abbott engaged in unlawful monopolization of the “boosting market” based on its reasonable pricing of Norvir for several years, thereby inducing its competitors to rely on the availability of the drug on these terms and to forgo development of their own PI boosters, the court added.

The conduct could have enabled the manufacturer to suppress competition in the boosting market. The court rejected arguments that the claims were not plausible and that the manufacturer's patent rights enabled it to license its product as it pleased. The complaining purchasers did not allege unlawful conduct arising from the manufacturer's licensing activity, but from its deception of its competitors, the court reasoned.

The decision is Safeway, Inc v. Abbott Laboratories, 2010-1 Trade Cases ¶76,896.