Tuesday, August 23, 2011

Product Market Rejected in FTC Merger-to-Monopoly Case

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

The U.S. Court of Appeals in St. Louis has upheld dismissal of an action brought by the FTC and the State of Minnesota against global pharmaceutical company Lundbeck, Inc., challenging a 2006 acquisition. Judgment in favor of the drug company (2010-2 Trade Cases ¶77,160), based on the government’s failure to identify a valid relevant product market, was affirmed.

In December 2008, the FTC and Minnesota filed a complaint against Ovation Pharmaceuticals, Inc., which was later acquired by Lundbeck. The suit challenged the company’s 2006 acquisition of the rights to market NeoProfen (injectable ibuprofen)—a drug used to treat premature infants with a heart condition known as patent ductus arteriosus (PDA)—as a merger to monopoly.

The transaction purportedly resulted in a single firm’s control of the “practicable alternatives” for the treatment of PDA. According to the government, the drug company began charging “dramatically higher prices” for its PDA drugs following the acquisition.

The district court determined that the FTC and state failed to identify a relevant market. It concluded that the government did not meet its burden to prove that NeoProfen was in the same product market with the acquiring company’s drug Indocin IV.

In its fact-findings, the district court concluded that neonatologists “ultimately determine the demand for Indocin IV and Neoprofen,” and that these treatment decisions were made “without regard to price.” Thus, an increase in the price of Indocin IV would not have driven a hospital to purchase NeoProfen, and vice versa.

Considering these facts, as well as testimony by Lundbeck's expert whom the court found “persuasive,” the district court ruled that there was low cross-elasticity of demand between Indocin IV and Neoprofen, and thus the drugs were not in the same product market.

Although the government contended that the district court relied too much on the testimony of the neonatologists and that hospitals—not the neonatologists—were the consumers, it offered no evidence that hospitals would disregard the preferences of the neonatologists and make purchasing decisions based on price, according to the appellate court.

Standard of Review

The appellate court rejected the government’s argument that the district court’s judgment should be reviewed de novo. The government was really challenging the district court’s weighing of the relevant market factors, in the appellate court’s view. Thus, the determination was reviewed for clear error. The district court did not commit clear error in rejecting the proposed relevant market, the appellate court ruled.

The August 19 decision in Federal Trade Commission v. Lundbeck appears at 2011-2 Trade Cases ¶77,570.

A commentary on the decision (“FTC v. Lundbeck: Why, God, Why?” by Christopher Sagers) appears here on AntitrustConnect blog.

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