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.

Monopoly Leveraging Claims Against Abbott Laboratories Rejected

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

HIV patients and their medical plans purchasing Norvir—a drug made by Abbott Laboratories that “boosts” the effectiveness of protease inhibitors used to fight the disease—failed to sufficiently allege monopoly leveraging claims against the pharmaceutical company, the U.S. Court of Appeals in San Francisco has ruled.

A decision of the federal district court in San Francisco (2008-1 Trade Cases ¶76,164), allowing the antitrust claims to proceed to trial, was reversed.

The patients and medical plans contended that Abbott leveraged its monopoly over Norvir to attempt to monopolize the market for its “boosted” protease inhibitor, Kaletra, which consisted of Abbott’s protease inhibitor compound lopinavir combined in a single pill with a boosting does of ritonavir (the generic name for Norvir).

It was alleged that Abbott dramatically increased the price of Norvir, but not the price of Kaletra, after the Food and Drug Administration approved the marketing of Norvir as a booster to be taken along with protease inhibitor sold by Abbott’s competitors. The purported effect was to raise the total cost to the patient of boosted protease inhibitor therapies provided by the competitors.

Refusal to Deal

The monopoly leveraging claimed failed, however, because the patients and medical plans did not allege a refusal to deal at the booster level (monopoly market) or below cost pricing at the boosted level (second market), as required by the U.S. Supreme Court’s decision in Pacific Bell Telephone Co. v. linkLINE Communications, Inc. (2009-1 Trade Cases ¶76,500). Abbot’s conduct was the functional equivalent of the price squeeze found unobjectionable in linkLINE, in the court’s view.

Settlement

The parties entered into a settlement agreement after the district court denied Abbott’s motion for summary judgment on the antitrust claims. The terms of the settlement depended on the outcome of the appeal.

Under the settlement agreement, Abbott was to take an interlocutory appeal on condition that, if the case ended up being dismissed, Abbott would pay no more than $10 million into a settlement fund. If the plaintiffs had prevailed, Abbott would have been required to pay up to an additional $17.5 million depending on the degree of success.

The July 7 decision is Doe v. Abbott Laboratories, 2009-1 Trade Cases ¶76,671.