Intel Agrees to Settle New York Attorney General’s Antitrust Action

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

Intel Corporation announced yesterday that it had reached an agreement with the New York State Attorney General to terminate an antitrust lawsuit filed by the state in November 2009. Intel has agreed to pay $6.5 million to cover some of the costs incurred by the New York Attorney General in the litigation. The computer chip maker did not admit to any wrongdoing.

Recent Decisions

The agreement to end the litigation comes after three recent decisions of the federal district court in Wilmington, Delaware, scaling back the suit. In December 2011, the court dismissed the state’s Donnelly Act treble damages claims on behalf of New York consumers and non-state public entities; dismissed its Donnelly Act claims on behalf of non-state public entities, such as political subdivisions, local entities, and public authorities; and granted Intel’s motion for partial summary judgment on statute of limitations grounds (2011-2 Trade Cases ¶77,711, 2011-2 Trade Cases ¶77,712, 2011-2 Trade Cases ¶77,713).

The settlement agreement states that the decisions in favor of Intel “effectively eviscerated the State’s damages claims.” The settlement “releases Intel from all claims, known or unknown, including claims assigned to the State, up through the date of execution of the Settlement Agreement, that were or could have been asserted in the Action . . . .” Pursuant to the settlement, the New York Attorney General will terminate its investigation into Intel.

Exclusionary Conduct

The state filed the action in November 2009, alleging that Intel engaged in a systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power and prices in the market for x86 microprocessors, the “brains” of personal computers (PCs).

The state alleged violations of the Sherman Act and New York’s Donnelly Act and Executive Law. It sought monetary relief on behalf of the state as a purchaser of computers containing x86 microprocessors, as well as New York consumers and non-state public entities who purchased such computers. In addition, the state sought injunctive and other equitable relief.

“Following recent court rulings in Intel’s favor that significantly and appropriately narrowed the scope of this case, we were able to reach an agreement with New York to bring to an end what remained of the case,” said Doug Melamed, senior vice president and general counsel at Intel, in a February 9 news release.

“We have always said that Intel’s business practices are lawful, pro-competitive and beneficial to consumers, and we are pleased this matter has been resolved,” Melamed stated.

The case is State of New York v. Intel Corp., U.S. District Court, D. Delaware. No. 09-827-LPS. A copy of the settlement agreement appears here.

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.