Thursday, June 03, 2010

Dismissal of Antitrust Claims Against Orthopedic Device Makers Upheld

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The U.S. Court of Appeals in Philadelphia has rejected antitrust claims against five of the nation’s largest manufacturers of orthopedic devices. A decision of the federal district court in Pittsburgh (2009-1 Trade Cases ¶76,567), dismissing the action, was affirmed.

The claims were brought by a husband and wife, who sometimes purchased products from competitors of the defending manufacturers for demonstration and resale purposes. The private suit followed a 2007 Department of Justice investigation, which revealed that each defendant had paid kickbacks and bribes to orthopedic surgeons to induce them to use its products.

The companies, which accounted for nearly 95 percent of the market in hip and knee surgical implants, avoided criminal prosecution by agreeing to new corporate compliance procedures and federal monitoring. The government’s investigation did not suggest that the defendants had colluded or otherwise coordinated their illicit conduct.

Antitrust Injury

The antitrust claims could not proceed because the husband and wife suffered no antitrust injury from the challenged conduct, the court held. The plaintiffs argued that they were both competitors and consumers in the relevant market entitled to antitrust standing. However, they were only commission-based sales representatives who did business with competitors and consumers in the market for surgical orthopedic devices, not as competitors or consumers themselves.

As mere intermediaries in the supply chain, they suffered no cognizable antitrust injury as a result of the alleged anticompetitive conduct, the court explained. Because “a cognizable antitrust injury was a necessary precursor to antitrust standing,” the remaining factors for determining antitrust standing were irrelevant.

The appellate court also rejected the plaintiffs’ argument that they had standing because their claims were “inextricably intertwined” with the alleged antitrust violations. The husband and wife cited several cases holding that plaintiffs who were neither competitors nor consumers in the relevant market nonetheless had antitrust standing because their injuries were “inextricably intertwined” with alleged antitrust violations.

The injury suffered by the plaintiffs was not an integral aspect of the alleged scheme by the defending manufacturers to pay kickbacks and bribes, according to the court. Any harm to the couple’s business was a byproduct of the illegal kickbacks and bribes paid by the defending firms to numerous doctors and hospitals.

The June 1, 2010, not-for-publication decision in McCullough v. Zimmer, Inc., No. 09-2105, will appear at 2010-1 CCH Trade Cases ¶77,035.

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