Refusal to Sell Parts to Competitor Could Be Monopolization

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

A company in the business of providing heavy lift helicopter services and supplying replacement parts to other owners of several particular models could have engaged in unlawful monopolization or attempted monopolization by refusing to sell parts to a competing operator of heavy helicopter services, the federal district court in Portland, Oregon, has decided.

The defending parts seller/services competitor was obligated to sell parts to other owners of a particular model of heavy lift helicopter under a 14-year-old contract with the manufacturer. The claims were neither time-barred nor insufficient as a matter of law, the court held. The defending company’s motion for summary judgment on the antitrust claims was therefore denied.

Statute of Limitations

Although the complaining helicopter services operator first suffered injury upon the parts seller’s initial refusal to deal following execution of its contract with the manufacturer well before the four-year limitations period applicable to federal antitrust actions, the Sherman Act claims were not barred under the statute of limitations, the court ruled.

Even if the parts seller’s initial refusal to deal was final, any damages suffered within the four-year limitations period were not time-barred unless all of the damages resulted solely from that initial refusal.

Any overt act inflicting damages generally was its own cause of action with a fresh four-year statute of limitations, and any new injury within the limitations period resulting from a continuing violation was a separate cause of action.

Questions of fact existed as to whether the refusal to deal was final and irrevocable or was instead continuing, given allegations that the company had provided some service manuals and updates in prior years and that it had ultimately reversed course and begun providing parts and service again on the heels of an antitrust settlement with another heavy lift helicopter services competitor sixteen years after that initial refusal, the court observed.

Merits of Claims

Even if federal jurisprudence demanded the termination of a prior course of dealing as a prerequisite to finding a refusal to deal illegal under federal antitrust law, the claims against the defendant did not fail on the merits, the court said.

Given that the manufacturer of the parts had provided overhaul manuals and parts to helicopter operators prior to the entry of a contract between itself and the defending parts supplier/helicopter services provider—and that the defendant had thereafter abruptly ceased to sell parts to those operators—a reasonable juror could conclude that the defendant unilaterally terminated a voluntary course of dealing with the complaining competitor, in the court’s view.

The legitimacy of the defendant’s claim that it had decided not to follow the manufacturer’s course—owing to liability concerns—was a factual issue not suitable for summary judgment, the court concluded.

Other disputed questions of material fact also precluded summary judgment, including whether there was a relevant market for heavy lift helicopters, whether the defendant’s decision to not provide parts or manuals was motivated by good business sense or monopolistic intent, and whether it improperly prohibited third-party manufacturers from dealing with the plaintiff.

The January 26 decision is Evergreen Helicopters, Inc. v. Erickson Air-Crane Inc., 2011-1 Trade Cases ¶77,327.

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.