Condom Maker’s Shelf Agreements with Retailers Not a Barrier to Competition

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

The manufacturer of Trojan condoms did not engage in exclusive dealing, monopolization, attempted monopolization, or a conspiracy to monopolize by entering into "planogram" shelf-space agreements with large chain retailers or by allegedly abusing a "category captain" position granted to it by some retailers, the federal district court in San Francisco has decided.

A complaining niche competitor failed to raise a genuine issue of material fact as to whether the agreements substantially foreclosed competition in the relevant market for male condoms sold to retailers. The competitor’s antitrust claims were therefore dismissed.

Under the planogram agreements, the manufacturer offered the retailers a percentage rebate off its wholesale price in exchange for the retailer’s commitment to devote a certain percentage of the condom shelf space to the manufacturer’s products. "Category captain" described a position to which the manufacturer was appointed by some retailers in order to assist with shelf space allocations and to give advice on how best to present the category.

Market Power

The complaining competitor failed to provide direct or circumstantial evidence that the defendant possessed market power over the relevant market, the court held at the outset. The competitor, whose market share never surpassed one-half of one percent throughout the relevant period, offered no evidence of restricted output or supra-competitive prices.

Although the defending manufacturer clearly held a dominant share—over 75 percent—of the relevant market, the complaining competitor could not demonstrate that there were significant barriers to entry into that market or that existing competitors lacked the capacity to increase their output in the short run. The rebate program at issue in the suit did not constitute a substantial barrier to entry. It was undisputed that just three major players had long dominated the condom market, and that while small players like the plaintiff had entered the market, none had seriously challenged the big three recently.

The market structure indicated that a combination of factors might have prevented the market from self-correcting in the face of anticompetitive conduct, the court stated. Even assuming significant barriers to entry, the competitor failed to produce any evidence, or even argument, as to whether existing competitors lacked the capacity to increase their output in the short run.

Market Foreclosure

The planogram program did not force retailers to give any specified amount of shelf space to the defending manufacturer over its rivals, the court observed. In addition, retailers could terminate their already-short contract agreements at any time, for any reason, with minimal enough notice to substantially negate the risk of foreclosure effects. The terminability of the contracts rendered them presumptively lawful, the court noted. Finally, the rebate program left open existing and potential alternative channels of distribution to the manufacturer’s competitors.

The program was not shown to be coercive in practice any more than in theory, the court explained. A significant number of large retailers did not participate. Even those who did were not clustered at the bottom tier of the rebate structure in the manner that the plaintiffs’ theory of coercive effect suggested they would be. The record contained qualitative evidence that retailers could, and did, reduce or eliminate their participation in the planogram program based on market forces.

Further, evidence indicated that the manufacturer’s share of sales at non-participating retailers was roughly on par with its sales at participating retailers, its shelf share system-wide seldom exceeded its market share, and its two primary competitors apparently avoided any purported anticompetitive effect of the planogram program.

The complaining company’s own competitive misfortunes had myriad causes other than the defending manufacturer’s alleged exclusionary conduct, the court explained. Moreover, even if a coercive effect had been demonstrated, there was still no evidence that competition was foreclosed from a substantial portion of the market.

Exclusionary Conduct?

The Trojan maker’s "planogram" agreements and "category captain" conduct did not amount to sufficiently exclusionary conduct to support claims of unlawful monopolization, attempted monopolization, or monopolization conspiracy, the court declared. The complaining competitor provided no evidence as to how often the manufacturer’s recommendations were adopted or whether they had the intent and/or effect of sabotaging the competitor. Undisputed evidence in the record indicated that it was commonplace in the industry for manufacturers to suggest planogram designs or provide retailers with other information to advocate for their brands, and even the complaining competitor had engaged in certain advocacy tactics in an attempt to influence retailer decisions.

The fact that the defending manufacturer was successful in achieving a degree of cooperation with retailers did not, without more, establish anticompetitive conduct. Without a showing of exclusionary conduct, no reasonable inference could be made of either general or specific intent to monopolize to support either a claim of completed or attempted monopolization, the court reasoned.

Antitrust Injury

The defending manufacturer also would not have caused a cognizable antitrust injury through the alleged conduct, the court added. While the complaining competitor sufficiently alleged harm to itself and to other small manufacturers, it failed to show that its losses were the result of the defending manufacturer’s alleged anticompetitive acts as opposed to other market forces, and further failed to demonstrate harm to competition. It offered no explanation for why other larger rivals in the industry managed to compete with the defendant despite the alleged misconduct.

The decision is Church & Dwight Co., Inc v. Mayer Laboratories, Inc., 2012-1 Trade Cases ¶77,863.

KEVLAR Maker’s Supply Agreements Did Not Foreclose Fiber Market

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

The manufacturer of "KEVLAR"-branded aramid fiber, a high-strength fiber used in ballistics applications and protective apparel, did not engage in unlawful monopolization or attempted monopolization of the para-aramid fiber market in the United States by procuring exclusive long-term supply agreements with certain high-volume customers, the federal district court in Richmond, Virginia, has held. Summary judgment against federal antitrust claims asserted by a Korean competitor was therefore granted.

The defending manufacturer, E.I. Du Pont de Nemours & Co. (DuPont), did not possess the requisite monopoly power over the para-aramid fiber market in the United States to have engaged in monopolization, the court held. The highest market share DuPont held during the relevant period was only 59 percent, and that share—which had already been in decline for decades—only further fell over the time span relevant to the suit. Thus, DuPont clearly lacked the power to control prices and exclude competition.

Even if the complaining competitor—Kolon Industries, Inc.—had been able to establish that DuPont had the requisite market power, it still failed to demonstrate illegal maintenance of such power over the relevant market, the court added. The alleged exclusive agreements were not shown to have substantially foreclosed competition in the market.

Kolon did not even attempt to quantify foreclosure of the relevant market or to show how much of the market was closed off by the supply agreements. Its evidence of the degree of foreclosure in three particular segments within the relevant markets was scant at best, but more importantly did nothing to reveal the amount of foreclosure in the market as a whole—which consisted of numerous segments of varying size, and extended well beyond the few segments addressed by the competitor.

In actuality, the degree of foreclosure—if it existed at all—was de minimus, the court determined. The agreements at issue resulted in no more than two percent of the market being foreclosed. Further, examination of the agreements themselves revealed even a two percent estimate to be greatly exaggerated, as many or most of the agreements could not be classified as the sort of exclusive or multi-year pacts at the heart of Kolon’s theory of the suit.

Given DuPont’s moderate market share during the relevant time period, the alleged anticompetitive agreements accounted for an even smaller fraction of the total revenue from para-aramid sales in the United States, the court said.

Kolon put forth no evidence demonstrating that other competitors had been shut out of the market and all the evidence in the record was to the contrary. Customers had no difficulty comparison shopping or switching sellers, and many did business with Kolon during the relevant time period, the court observed.

Attempted Monopolization

Kolon’s failure to show market foreclosure was fatal to its attempted monopolization claim, as well. Kolon failed to establish that the alleged anticompetitive acts, coupled with a presumed alleged intent to monopolize, "presented a reasonable probability that monopolization would sooner or later occur," the court concluded.

The decision is Kolon Industries, Inc. v. E.I. Du Pont de Nemours & Company, 2012-1 Trade Cases ¶77,857.

Software Acquisition Could Have Amounted to Monopolization

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

A computer software company, Adobe Systems Inc., could have unlawfully monopolized the market for professional graphic illustration software by acquiring a popular software program (FreeHand), effectively removing it from the market by refusing to update it, significantly raising the price of a rival program it owned (Illustrator), and withholding FreeHand’s source code from the open source community, the federal district court in San Jose, California, has ruled. The alleged conduct would not have violated the California Cartwright Act, however.

Therefore, the company’s motion to dismiss putative class action claims asserted by a non-profit group of graphic design professionals and one of its members was granted in part and denied in part.

While each of the alleged manners of anticompetitive conduct may have been lawful on its own, taken together and in context they supported a monopolization claim when read in the light most favorable to the complaining group and its members. Adobe undisputedly possessed monopoly power in the relevant market, the court noted. The company’s ability to maintain its high market share—despite raising prices and ceasing development of FreeHand—undermined its claim that its decision to discontinue the product was "rational and normal business conduct" that increased competition, the court reasoned.

Professional designers allegedly had no choice other than Illustrator if they wanted to buy professional vector design software that was interoperable with the latest operating systems. Moreover, it was reasonable to infer that Adobe’s discontinuation of FreeHand and channeling of that program’s users to Illustrator made it more difficult for potential competitors who did not have a full array of graphics software to enter the market.

The plaintiffs’ allegations that the conduct allowed Adobe to charge supracompetitive prices for Illustrator, decreased innovation in the relevant market, and rendered the artwork they created on FreeHand obsolete were sufficient to assert antitrust injury, the court added.

California Cartwright Act Claim

The non-profit group and individual member could not maintain a California Cartwright Act claim based on the alleged conduct, the court also ruled. The plaintiffs alleged no agreement, conspiracy, or combination between two or more entities, and the Cartwright Act did not address unilateral conduct.

The law did not contain a provision parallel to the Sherman Act’s prohibition against monopolization. The plaintiffs’ contention that a valid Cartwright Act claim could exist despite unilateral conduct "if a single trader pressure[d] customers or dealers into pricing arrangements" was immaterial because no such coercion was alleged, the court said.

Statute of Limitations

An argument by Adobe that the plaintiffs’ Sherman and Clayton Act claims were time-barred was rejected by the court. The causes of action were tolled under the continuing violation doctrine and the "new use" exception, respectively. Though the plaintiffs’ Sherman Act monopolization claim initially accrued upon the date of the acquisition, more than four years prior to the filing of the suit, their allegations supported a reasonable inference that Adobe perpetuated its monopoly power and caused them new injury after the merger through new and independent acts inside of the limitations period, including the aforementioned cessation of FreeHand’s development, the channeling of existing FreeHand customers to Illustrator, and the bundling of Illustrator with other programs it offered.

These acts were not "mere reaffirmations of the merger such as holding or using assets in the same manner as at the time of acquisition" or "continuing indefinitely to receive some benefit as a result of an illegal act performed in the distant past," in the court’s view. Rather, they were more like an online auction provider’s changes to its electronic payment policy after acquiring an online payment service provider, which had been found to constitute overt acts inflicting new and accumulating harm.

In addition, the plaintiffs’ allegations that Adobe’s conduct with respect to the acquired FreeHand and its Illustrator amounted to a use of FreeHand in a different manner from the way it was used at the time of the merger, and that this new use injured them, were sufficient to allow them to avail themselves of the "new use" exception to the Clayton Act’s statute of limitations, the court concluded.

The decision is Free FreeHand Corp. v. Adobe Systems, Inc., 2012-1 Trade Cases ¶77,811.

Coffee Retailer’s Antitrust Claims Against Supplier of “K-Cups” Fail

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

An online coffee retailer cannot proceed with federal and state antitrust claims against Green Mountain Coffee Roasters, Inc., the company behind Keurig® Single Cup brewing technology, according to the federal district court in Fort Smith, Arkansas. The retailer contended that Green Mountain violated the antitrust laws when it terminated their business relationship.

Monopolization

Green Mountain would not have engaged in monopolization or attempted monopolization in violation of Sec. 2 of the Sherman Act by terminating the complaining retailer, the court ruled. Green Mountain did not have a monopoly on the single-brew business as a whole. There are other products that delivered single-brew coffee, and consumers have a wide variety of Internet and non-Internet sources for single-brew coffee products and supplies.

Refusal to Deal

Moreover, the refusal to deal was plainly not violative of the antitrust laws. There was no indication that the refusal was for anticompetitive purposes or to secure untold profits. A refusal to deal can be unlawful only if a monopolist sacrifices profits today in the hope of reaping greater returns from eliminating competition in the future, according to the court. Green Mountain, however, decided to discontinue its business relationship with the online retailer because of disagreement over the complaining firm’s marketing strategies.

Green Mountain’s representative testified that the company had no contractual relationship with the complaining firm; that the complaining firm could not be licensed as an authorized distributor by virtue of the fact that it had only an online presence; and that the online retailer misused the defending company’s trademark.

The court also rejected a claim under Sec. 1 of the Sherman Act. An agreement between Green Mountain and a distributor to refuse to deal with the online retailer would not constitute a per se antitrust violation. Reviewing the claim under “rule of reason” analysis, there did not appear to be any anticompetitive market effect resulting from the refusal to deal. Because there were so many alternate suppliers of the K-cup, e-commerce consumers would not be adversely affected if they could not purchase K-cups through the complaining online retailer, in the court’s view. The court rejected a relevant product market limited to Green Mountain’s own patented and trademarked K-cups.

State Law Claims

Green Mountain would not have violated the Arkansas Unfair Practices Act by selling K-cup brewing systems at less than cost in order to increase demand for its K-cups, the court ruled. It was not illegal to sell items below cost as a “loss leader” to entice consumers to purchase products. Further, the alleged injury of a complaining operator of an e-commerce website that sold coffee and coffee-related products would have been negligible at best, if such injury occurred at all. The likelihood of competition being affected, let alone destroyed, by any alleged below-cost sales was similarly negligible. The complaining online coffee seller alleged that it was the defending company’s intent to cause it injury; however, the complaining firm benefitted when additional K-cup brewers appeared on customers’ countertops because its sale of K-cups constituted 84% of its business.

A monopolization claim brought under Arkansas state law also failed. There was no private right of action pursuant to the subchapter of the Arkansas Code relating to unfair monopolies. The monopoly statutes were to be enforced by and through the Arkansas Attorney General, the court explained.

The decision is Coffee.org, Inc. v. Green Mountain Coffee Roasters, Inc., 2012-1 Trade Cases ¶77,790.

Publisher Could Have Monopolized Market for Bank Rate Websites

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

A company in the business of aggregating and publishing bank rate tables listing interest rates from financial institutions could have unlawfully monopolized or attempted to monopolize the market for bank rate websites, but had not engaged in a predatory price fixing conspiracy, the federal district court in Newark, New Jersey, has ruled.

A complaining competitor adequately alleged that the company violated federal and New Jersey antitrust law by entering into exclusive dealing arrangements with online media outlets that allegedly prevented competitors from gaining necessary distribution outlets for their data, the court found.

The competitor, however, failed to offer factual allegations that the defending company acted in concert with any other entity to price below some measure of cost. Therefore, a motion to dismiss was granted as to the price fixing claim, but denied as to the other claims.

Monopoly Power

The complaining competitor sufficiently alleged that the defendant possessed monopoly power by claiming: that the defendant had reached a relevant market share of over 95%, that it had entered into agreements with more than 300 partner sites, that the prices it charged to customers had become inelastic, and that independent competitors had been pushed out or acquired as a result of the defendant's scheme.

Predatory Pricing

The allegations of anticompetitive conduct was bolstered by claims that the defendant purposefully predatorily priced its rate listings below cost, and sometimes for free, in order to acquire customers from its rivals and to drive those rivals out of the market, the court noted.
The court rejected arguments that there was no market foreclosure and that a one-year contract with partner websites was not restrictive to the extent condemned by the antitrust laws.

The complaint alleged conduct—such as an agreement with a financial media website allowing the defendant to set rates in exchange for waiving annual license fees—that would impair the opportunities of rivals for whom waiving license fees was not feasible and who were, as a consequence, excluded from doing business with those website partners, in the court’s view.

The decision is BanxCorp. v. Bankrate Inc., 2011-2 Trade Cases ¶77,750.

Certification of Cable TV Subscriber Class in Antitrust Action Was Proper

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

Certification of a class of approximately two million non-basic cable television programming services customers in the Philadelphia area—alleging that cable provider Comcast engaged in unlawful monopolization, attempted monopolization, and market or customer allocation through a series of acquisitions and cable system swap arrangements—was a proper exercise of discretion, the U.S. Court of Appeals in Philadelphia has ruled.

The trial court satisfied the "rigorous analysis" standard established in In re Hydrogen Peroxide Antitrust Litigation (2008-2 Trade Cases ¶76,453) in determining that questions of fact or law common to class members predominated over individual issues, for purposes of meeting the certification requirements of Federal Rule of Civil Procedure 23(b)(3). Certification (2010-1 Trade Cases ¶76,869) was therefore affirmed.

The trial court’s finding that the plaintiffs established by a preponderance of evidence that they would be able to prove, through common evidence, not only class-wide antitrust impact in the form of higher costs for programming but also a common methodology to quantify damages on a class-wide basis was not clearly erroneous, the appellate court decided.

In granting certification, the lower court had limited the class’s theories of class-wide impact to the theory that Comcast’s clustering conduct through the swaps and acquisitions had deterred competition from overbuilders in the Philadelphia market.

Relevant Geographic Market, Antitrust Impact

Arguments that the trial court had failed to apply the correct legal standard for determining the relevant geographic market and had made clearly erroneous factual findings by relying on the plaintiffs' expert for proof of class-wide antitrust impact were rejected by the appellate court.

Comcast’s contention that the relevant geographic market was each complaining individual’s household would have set a market so small as to be impractical and inefficient, whereas the class’s market definition capturing the whole of the Philadelphia area was based on record evidence showing that customers throughout the aggregated area faced similar competitive choices.

Moreover, the trial court had carefully considered the plaintiffs’ theories of class-wide impact before concluding that the class met its burden of demonstrating that the anticompetitive effect of clustering on overbuilder competition was capable of proof through evidence common to the class.

The econometric analysis of the plaintiffs’ damages expert demonstrating that the alleged antitrust impact was class-wide and utilizing a “but-for” pricing model to reach a final conservative estimated overcharge value was sufficiently sound, the appellate court also concluded. The damages model provided a methodology that could establish damages on a class-wide basis using common proof.

Attacks by the cable provider on the merits of the model were premature and missed the point, the court said. Some variation of damages among class members did not defeat certification, the court noted.

Finally, the trial court did not lack any legal authority to certify a per se claim based on the class’s allegations, the appellate court held. Comcast’s request to have the appellate court declare on the merits that the plaintiffs could not establish a per se antitrust violation was beyond the scope of the certification decision from which it appealed, the court explained.

Partial Dissent

A separate opinion partially dissenting from the majority’s conclusion argued that damages could not be proven using evidence common to the entire class. According to the partial dissent, the damages expert’s testimony was incapable of identifying any damages caused by reduced overbuilding in the Philadelphia area—the plaintiffs’ only viable theory of antitrust impact—and thus did not fit the case. Therefore, it was irrelevant and should be deemed inadmissible at trial, leaving the class with no evidence of class-wide proof of damages.

Because of this, the partial dissent stated, the certification order should have been vacated to the extent that it provided for a single class as to proof of damages and remanded to the lower court to consider whether the class could be divided into subclasses for the purpose of proving damages.

The decision in Behrend v. Comcast Corp. will be reported at 2011-2 Trade Cases ¶77,575.

Texas Hospital Settles U.S., State Monopoly Claims

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

A Texas hospital has agreed to settle allegations brought by the U.S. Department of Justice Antitrust Division and the State of Texas that it unlawfully used contracts with commercial health insurers to maintain its monopoly for hospital services in violation of Section 2 of the Sherman Act.

The action is notable because it is the first unilateral conduct case brought under Sec. 2 of the Sherman Act in over a decade and because it is the first case brought by the Antitrust Division in the health care sector since the October 2010 civil antitrust lawsuit against Blue Cross Blue Shield of Michigan (BCBSM).

In BCBSM case, which is ongoing, the Justice Department and State of Michigan are challenging most favored nation (MFN) clauses in BCBSM’s agreements with hospitals. The government contends that the MFNs raised hospital prices and prevented other insurers from entering the marketplace. The complaint alleges violations of Sec. 1 of the Sherman Act and the state law analogue.

This latest complaint was filed on February 25 in the federal district court in Wichita Falls, Texas, against United Regional Health Care System of Wichita Falls—by far the largest hospital in Wichita Falls.

Relevant Product Markets

The complaint alleges monopoly power in two relevant product markets in Wichita Falls, Texas and the surrounding area:

(1) the sale of general acute-care inpatient hospital services (inpatient hospital services) to commercial health insurers, and

(2) the sale of outpatient surgical services to commercial health insurers.

United Regional has an approximately 90% share of the alleged inpatient hospital services market and a greater than 65% share of the outpatient surgical services market.

According to the complaint, in order to maintain its monopoly in the provision of inpatient hospital and outpatient surgical services, United Regional systematically required most commercial health insurers to enter into contracts that effectively prohibited them from contracting with United Regional’s competitors.

United Regional’s contracts required these insurers to pay significantly higher prices for services—13% to 27% more—if they contracted with a nearby competing facility, according to the Department of Justice.

The government contends that there was no valid procompetitive business justification for United Regional’s exclusionary contracts.

Proposed Consent Decree

Under the terms of a proposed consent decree, United Regional would be prohibited from entering into contracts that improperly inhibit commercial health insurers from contracting with its competitors.

In particular, United Regional is prohibited from conditioning the prices or discounts that it offers to commercial health insurers based on whether those insurers contract with other health-care providers and from inhibiting insurers from entering into agreements with United Regional’s rivals.

United Regional is also prohibited from taking any retaliatory actions against an insurer that enters into an agreement with a rival provider. The term of the consent decree is seven years.

The case is U.S. and State of Texas v. United Regional Health Care System of Wichita Falls. Further information will appear in the CCH Trade Regulation Reporter.

A press release, complaint, and proposed final judgment are available on the Department of Justice Antitrust Division website.

Intel Settlement Is Administration’s Most Important Enforcement Victory: Antitrust Group

This posting was written by John W. Arden.

The Federal Trade Commission’s settlement of administrative charges of monopolization against Intel Corporation is “the most important antitrust enforcement victory achieved so far by the Obama Administration,” according to Bert Foer, president of the American Antitrust Institute (AAI).

A proposed consent order, announced yesterday by the FTC (see blog story below), would resolve the agency’s December 2009 complaint, alleging that Intel (1) unlawfully maintained its monopoly in the markets for x86 Central Processing Units (CPUs) for desktops, notebooks, and servers, as well as smaller relevant markets and (2) sought to acquire a second monopoly in the relevant graphics markets.

The agency alleged that the conduct violated Section 5 of the FTC Act, which prohibits unfair methods of competition and unfair acts or practices.

The settlement will benefit competition and consumers worldwide, Foer said. “In light of the crucial importance of the $30-billion-plus chip market to the United States and the world economy, this action ranks high on the FTC’s all time list of accomplishments.”

The consent order would apply to markets for graphic chips and chipsets, in addition to CPUs, and would prevent Intel from leveraging its CPU monopoly into those other markets.

For the first time, the FTC clearly prohibited “market share discounts” and “first dollar discounts” by a dominant firm because of the anticompetitive effects, the AAI noted. The settlement also would prevent Intel from retaliating against original equipment manufacturers or retailers that use or carry chips made by Intel’s rivals. Furthermore, the settlement would prohibit Intel from selling its products below cost.

For a period of six years, the chipmaker would be required to allow graphic chips made by its rivals to seamlessly interface with their x86 chips. It would also be prohibited from engaging in predatory design-making changes that have the sole effect of harming rivals—with the burden on Intel to show a new design’s consumer benefits.

“The FTC’s settlement carefully preserves Intel’s incentive and ability to innovate, while adopting a burden that is less favorable to the manufacturer than most case law provides,” said Foer.

The American Antitrust Institute is an independent, non-profit education, research, and advocacy organization based in Washington, D.C. Its stated mission is to “increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy.”

Text of AAI’s statement on the settlement appears here on the group’s website.

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.

Cable TV Subscribers May Bring Class Antitrust Action Against Provider

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

A proposed class of approximately two million non-basic cable television programming service customers in the Philadelphia area were entitled to proceed as a class with antitrust claims against their cable provider, Comcast Corporation, because they sufficiently demonstrated that common issues of law and fact predominated over individual matters in the litigation, the federal district court in Philadelphia has ruled. The predominance requirement was the only certification issue remaining in dispute.

Sherman Act Claims

The class representatives alleged a per se Sherman Act, Sec. 1 claim based on market allocation and a rule of reason Sherman Act Sec. 1 claim that certain transactions with other programming providers amounted to contracts and conduct in restraint of trade.

In addition, they alleged a Sherman Act Sec. 2 claim of monopolization and attempted monopolization. The attempted monopolization claim was based on anticompetitive conduct not only in the cable transactions, but also in regard to the provider's:

(1) Refusal to deal with a potential competitor,

(2) Substantial interference with the potential competitor's access to the contractors needed to build competing cable systems, and

(3) Pricing campaigns designed to prevent or destroy competition from the potential competitor.

The subscribers had previously been granted class certification in 2007 (2007-1 Trade Cases ¶75,696). Reconsideration of that decision was granted in light of an appellate holding in a hydrogen peroxide price fixing suit (2008-2 Trade Cases ¶76,453), suggesting that trial courts had been applying too lenient a standard of proof to the issue of whether proposed class plaintiffs would be able to use common evidence to prove antitrust impact.

Antitrust Impact

In the instant suit, the proposed class offered sufficient expert testimony to meet its burden of demonstrating that the element of antitrust impact was capable of proof at trial through evidence that was common to the class rather than individual to its members, the court said.

The common evidence of antitrust impact alleged by the class included swaps and transactions in the relevant geographic market that eliminated competition and resulted in increased prices, as well as the clustering of the Philadelphia market and regional sports programming content that led to decreased competition from direct broadcast satellite (DBS) competitors and, consequently, higher prices for all class members.

Geographic and Product Markets

The expert offered ample basis in support of his relevant geographic market definition and his market structure analysis to show that Comcast possessed market power in the geographic and product markets, the court found.

The court did, however, reject the expert’s theory of market allocation based on an allegation that cable companies acquired by Comcast had previously-competed for the award of original cable franchises, as well as a contention that the non-compete clauses contained in the acquisition agreements made reentry by the acquired firms into the Philadelphia market unlikely.

A market performance analysis, which offered several economic explanations for Comcast's ability to charge higher prices, included at least one theory susceptible to proof at trial through available evidence common to the class.

Anticompetitive Effects

The class failed to demonstrate that three of the expert’s contentions regarding the anticompetitive effects of Comcast’s clustering activity could be proven through common evidence:

(1) That its clustering activity made it economically feasible for the company to withhold regional sports programming from its competitors, resulting in reduced penetration rates by DBS competitors;

(2) That it reduced benchmark competition, on which customers rely to compare the prices charged by competitors in a market; and

(3) That it increased Comcast’s bargaining power in its negotiations with its content providers, such as cable networks, which allowed Comcast to negotiate lower prices for its content.

The class met its burden of demonstrating that Comcast’s clustering activity affected prices by reducing the extent of competition provided by overbuilders. The class successfully showed that the presence of an overbuilder constrained cable prices, the court noted.

Damages

Further, the subscribers made an adequate showing that there was a common methodology available to measure and quantify damages on a class-wide basis. Their damages expert's econometric analysis, which estimated benchmark prices against which to compare actual prices during the relevant period in the Philadelphia market, was appropriate, the court decided. His use of the national average DBS penetration rate for Comcast markets was a valid screen for the model.

The decision is Behrend v. Comcast Corporation, 2010-1 Trade Cases ¶76,869.

Continuity and Change Were FTC Themes for 2009

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

In a speech to attendees of the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C. in March, the newly-appointed FTC Chairman Jon Leibowitz said that he intended to build on the accomplishments of past FTC chairs and that there
would be continuity in enforcement.

The pledge for continuity was reiterated by Leibowitz in September at Fordham University’s annual conference on international antitrust law and policy. At that time, however, Leibowitz said that in addition to continuity, there would be change.

Merger Enforcement

There was continuity in merger enforcement. The agency wrapped up its challenge to specialty grocer Whole Foods Market, Inc.’s acquisition of rival Wild Oats Markets, Inc. in March 2009. The case was originally filed in 2007, when the parties announced their intention to merge.

In addition, the FTC approved two major mergers in the pharmaceutical industry. In October, the FTC conditionally approved Pfizer, Inc.’s proposed $68 billion acquisition of Wyeth, and Schering-Plough Corporation was permitted to proceed with its proposed $41.1 billion acquisition of Merck & Co. Inc. Outside the pharmaceuticals sector, the FTC approved the combination of Japanese consumer electronics makers Panasonic Corporation and Sanyo Electric Co., Ltd.

Administrative challenges also led parties to abandon mergers in 2009. The agency blocked the combination of providers of drycast hardscape sold at home improvement centers.

Two mergers in the health care area were abandoned. CSL Limited’s proposed $3.1 billion acquisition of Talecris Biotherapeutics Holdings Corporation was called off after the agency challenged the deal on the ground that it would substantially reduce competition in the U.S. markets for plasma-derivative protein therapies. And Thoratec Corporation abandoned its proposed $282 million acquisition of rival HeartWare International, Inc., after the FTC charged that the transaction would substantially reduce competition for left ventricular
devices.

Also in the health care area, Southwest Virginia’s dominant hospital system agreed to settle an FTC challenge to its 2008 acquisition of an outpatient imaging center and an outpatient surgical center.

Monopolization, Unfair Methods of Competition

In discussing change at the FTC in his Fordham address, Leibowitz talked about challenging monopolization and expanding the agency’s use of its authority to prohibit unfair methods of competition under the FTC Act.

The agency’s December complaint against computer chip maker Intel Corporation for monopolization can be seen as an example of change at the agency.

The FTC announced on December 16 that it had issued an administrative complaint against Intel for monopolizing the markets for central processing units and creating a monopoly in the markets for graphics processing units. The vote to issue the complaint was 3-0, with Commissioner William E. Kovacic recused.

Commissioner J. Thomas Rosch issued a separate statement, in which he concurred in part and dissented in part. Commissioner Rosch said that he concurred in the issuance of a complaint based on pure FTC Act, Section 5 claims, but dissented on public policy grounds to the extent the complaint contained Sherman Act, Section 2 ‘‘tag-along’’ claims.

FTC Sues Intel for Monopolization

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

The Federal Trade Commission (FTC) announced today that it has issued an administrative complaint against Intel Corporation for engaging in monopolization. An administrative trial could begin next September.

Intel is charged with monopolizing the markets for Central Processing Units (CPUs) and creating a monopoly in the markets for graphics processing units (GPUs).

“Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly,” said FTC Bureau of Competition Director Richard A. Feinstein. “It’s been running roughshod over the principles of fair play and the laws protecting competition on the merits. The Commission’s action today seeks to remedy the damage that Intel has done to competition, innovation, and, ultimately, the American consumer.”

Relevant Markets, Monopoly Power

A CPU is a type of microprocessor used in a computer and is often described as the “brains” of a computer. Intel’s unit share in the CPU markets at issue has exceeded 75 percent in each of the years since 1999, and its share of revenue in these markets has consistently exceeded 80 percent during that time, the FTC alleged.

The FTC identified a second set of relevant product markets for GPUs, in which Intel is likely to obtain monopoly power. GPUs originated as specialized integrated circuits for the processing of computer graphics but have evolved to take on greater functionality, the agency explained.

Unfair Methods of Competition, Unfair Acts and Practices

The agency contended that the computer chip maker maintained its monopoly in the CPU markets and strengthened its monopoly position in the GPU markets through unfair methods of competition and unfair acts or practices that date back to 1999 and continue to today.

According to the FTC, Intel used threats and rewards aimed at the world’s largest computer manufacturers, including Dell, Hewlett-Packard, and IBM, to coerce them not to buy rival computer CPU chips. In addition, allegedly, Intel secretly redesigned key software, known as a compiler, in a way that deliberately stunted the performance of competitors’ CPU chips.

The agency also contends that, once Intel found itself falling behind the competition in the critical market for GPUs, the chip maker embarked on a similar anticompetitive strategy to smother potential competition from GPU chips.

Relief Sought

To remedy the anticompetitive damage alleged in the complaint, the FTC is seeking an order which includes provisions that would prevent Intel from using threats, bundled prices, or other offers to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its CPU or GPU chips. The FTC said that it also might seek an order prohibiting Intel from unreasonably excluding or inhibiting the sale of competitive CPUs or GPUs, and prohibiting Intel from making or distributing products that impair the performance of non-Intel CPUs or GPUs.

Commissioner Rosch’s Partial Dissent

The Commission vote approving the administrative complaint was 3-0, with Commissioner William E. Kovacic recused, and Commissioner J. Thomas Rosch issuing a separate statement in which he concurred in part and dissented in part.

Commissioner Rosch, in his separate statement, said that he concurred in the issuance of a complaint based on pure FTC Act Section 5 claims, but dissented on public policy grounds to the extent the complaint contained Sherman Act, Section 2 “tag-along” claims.

“The collateral consequences of including any Section 2 claims are very unfavorable for both Intel and the Commission,” Rosch said. Because Intel was facing a suit filed by the New York Attorney General under Section 2 in addition to a number of Section 2 treble damage class actions, Rosch argued that perhaps “as a matter of policy the Commission should not spend public resources on a duplicate claim.”

Rosch also pointed to the risk that private plaintiffs might free ride off of the Commission’s work or that the Commission could be placed in a position where an unfavorable outcome in those cases could be cited against it.

FTC Case “Misguided”

Intel posted the following response on its website:

"Intel has competed fairly and lawfully. Its actions have benefitted consumers. The highly competitive microprocessor industry, of which Intel is a key part, has kept innovation robust and prices declining at a faster rate than any other industry. The FTC's case is misguided. It is based largely on claims that the FTC added at the last minute and has not investigated. In addition, it is explicitly not based on existing law but is instead intended to make new rules for regulating business conduct. These new rules would harm consumers by reducing innovation and raising prices."

According to Intel senior vice president and general counsel Doug Melamed, "This case could have, and should have, been settled. Settlement talks had progressed very far but stalled when the FTC insisted on unprecedented remedies—including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint—that would make it impossible for Intel to conduct business."

"The FTC's rush to file this case will cost taxpayers tens of millions of dollars to litigate issues that the FTC has not fully investigated,” said Melamed, who served in the Department of Justice Antitrust Division during the Clinton Administration. “It is the normal practice of antitrust enforcement agencies to investigate the facts before filing suit. The Commission did not do that in this case.”

Other Actions Against Intel

In November, New York State filed an action charging Intel with monopolization in violation of the Donnelly Act and Section 2 of the Sherman Act. (See Trade Regulation Talk, November 4, 2009 posting).

In addition, Intel has agreed to pay $1.25 billion to Advanced Micro Devices (AMD) and to abide by a set of business practice provisions to resolve antitrust litigation and patent cross-license disputes, the companies announced on November 12, 2009. AMD agreed to drop all pending litigation against the computer chip maker, including a case in the federal district court in Delaware and two
cases in Japan.

Earlier this year, Intel was fined €1.06 billion by the European Commission based on similar allegations. (See Trade Regulation Talk, May 15, 2009 posting.)

The administrative complaint is In the Matter of Intel Corporation, FTC Docket No. 9341, December 16, 2009. Text of the complaint, statements by the Commissioners, and a news release appear here on the FTC website. Further details will appear in CCH Trade Regulation Reporter.

New York State Charges Intel with Monopolization

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

Intel Corporation unlawfully maintained its monopoly in the market for x86 central processing unit (CPUs) in violation of New York’s Donnelly Act and Sec. 2 of the Sherman Act, the State of New York alleges in an 83-page complaint filed today in a federal district court in Delaware.

The state is seeking injunctive relief and damages on behalf of its governmental agencies as well as New York consumers who purchased products containing x86 CPUs.

According to the complaint, 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).” Intel allegedly bribed and bullied computer makers in an effort to deprive Advanced Micro Devices, Inc. of distribution channels for its competing microprocessors.

“Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market,” said New York Attorney General Andrew M. Cuomo, in a statement announcing the complaint.

“Intel’s actions not only unfairly restricted potential competitors, but also hurt average consumers who were robbed of better products and lower prices," Cuomo charged."These illegal tactics must stop and competition must be restored to this vital marketplace.”

European Commission Fine

New York’s complaint follows a May 2009 European Commission (EC) decision fining the computer chip maker €1.06 billion (approximately $1.44 billion U.S.) for violating EC antitrust rules prohibiting the abuse of a dominant position. The EC found that Intel engaged in illegal anticompetitive practices to exclude competitors from the market of computer chips called x86 CPUs.

In addition to imposing the fine, the EC ordered Intel to cease the challenged practices. In September, the EC made public a redacted version of its May decision. Intel has announced that it was appealing the EC decision to the Court of First Instance of the European Community.

Federal Trade Commission Investigation

The Federal Trade Commission has also been conducting an investigation of Intel’s allegedly anticompetitive practices. Intel announced in June 2008 that the FTC had issued a subpoena related to its “business practices with respect to competition in the microprocessor market.”

At that time, the company explained that it had been working closely with the FTC since 2006 on an informal inquiry into competition in the microprocessor market and that it had provided the Commission staff with a considerable amount of information and thousands of documents.

Buyers' Monopolization Claims over Patented Drug Resurrected

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

Purchasers of a patented antidiuretic drug could maintain federal antitrust claims against the drug's manufacturer and exclusive licensed marketer for allegedly abusing the patent system to unlawfully maintain a monopoly over the drug, the U.S. Court of Appeals in New York City has decided.

Dismissal of the suit for lack of standing and failure to state a claim (2007-1 Trade Cases ¶75,726) was therefore vacated, and the matter was remanded.

As an initial matter, the appellate court rejected an argument by the defendants that the appeal properly belonged in the Federal Circuit. The Federal Circuit had exclusive jurisdiction over appeals when the district court's jurisdiction was based on patent law, the court noted. However, patent law had not created the cause of action in the case, and the purchasers' right to relief did not necessarily depend on resolution of a substantial question of federal patent law.

While their Walker Process-based legal theories (antitrust claims stemming from fraudulent procurement of a patent) did depend on patent law, an additional theory they maintained—that the marketer violated the antitrust laws when it filed a sham citizen petition asking the Food and Drug Administration (FDA) to require additional testing of a generic equivalent—did not.

Antitrust Standing

The purchasers had standing to recover overcharge damages resulting from the defendants' alleged conduct, the court said. Such an injury plainly was of the type the antitrust laws were intended to prevent.

Although the conduct at issue targeted the manufacturer's and marketer's competitors, the purchasers' claimed injury of higher prices was inextricably intertwined with the conduct's anticompetitive effects and thus flowed from that which made the acts unlawful.

The purchasers were proper plaintiffs, even though their injuries were derivative of the direct harm experienced by the defendants' competitors. While competing drug makers might have been the parties most motivated to enforce the laws, the purchasers too were significantly motivated due to their natural economic interest in paying the lowest price possible.

The overcharge damages they sought differed from the lost profits of which the competitors could complain and would have been left unremedied were they denied standing, the court added. This difference signified a lack of potential for duplicative damages, even assuming some overlap. Moreover, the claims did not rest on tenuous assumptions about the beneficial effects of generic competition.

Walker Process Claims

The appellate court declined to decide whether the purchasers had standing per se to raise their Walker Process claims. As they were challenging an already tarnished patent, the purchasers were entitled to antitrust standing without altering the limits on who can start a challenge to a patent's validity. Therefore, they had standing to raise Walker Process claims for patents that were already unenforceable due to inequitable conduct, and the lower court erred by concluding to the contrary, in the appellate court's view.

The direct purchasers adequately pled an antitrust claim under each of their legal theories, the court held. Given that the alleged fraudulent omissions made to the Patent and Trademark Office occurred over a number of years, the defendants' intent to deceive was sufficient to plausibly support a finding of Walker Process fraud. The fact of non-disclosure sufficed to properly allege materiality, the court added.

The purchasers' allegations also adequately made out a sham litigation claim, a claim based on improper FDA Orange Book listing, and the claim based on a citizen petition theory, the court concluded.

The October 16 decision is In re: DDAVP Direct Purchaser Antitrust Litigation, 2009-2 Trade Cases ¶76,770.

Hospital's Exclusive Pact with Medical Group Not Monopolization

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

A southwest Colorado hospital did not engage in monopolization or attempted monopolization in violation of federal or Colorado antitrust law by entering into an exclusive contract for nephrology physician services with one medical group and terminating the staff privileges of a competing kidney doctor, the U.S. Court of Appeals in Denver has decided.

A federal district court's grant of summary judgment in favor of the hospital (2008-2 Trade Cases ¶76,279) was affirmed.

The appellate court did not address the lower court's grounds for rejecting the terminated doctor's claims—that the hospital lacked monopoly power or the dangerous probability of achieving it.

Addressing that rationale on appeal was unnecessary because the decision could be affirmed "on any basis that [had] adequate support in the record," the court stated. The hospital sufficiently presented two such bases, in the court's view—the doctor's failures to establish anticompetitive conduct and antitrust injury.

Anticompetitive Conduct

The hospital's refusal to deal did not constitute anticompetitive conduct within the meaning of Sec. 2 of the Sherman Act or its state log analog, the appellate court held. A business, even a putative monopolist, had no antitrust duty to deal with its rivals, the court explained.

Forcing the hospital to share the source of its competitive advantage—its facilities—would lessen its incentive to undertake the risky investment in new endeavors or facilities. The hospital was entitled to recoup its investment without sharing with a competitor, in the court's view.

Moreover, the hospital's conduct was actually procompetitive, the court said. The exclusive contract with the medical group ensured consumers greater access to full-time nephrology services in the area and avoided a scenario in which the hospital prematurely exhausted the loss reserves it had set aside for its investment, not only chilling future investment but again leaving the area without any nephrologists.

Denominating the claim as sounding in monopoly leveraging did nothing to save it, the court added.

Antitrust Injury

The complaining physician also failed to show that he could have suffered antitrust injury from either the hospital's termination of his staff privileges or its entry into the exclusive contract with the rival medical group. In seeking reinstatement of active medical staff privileges, the excluded physician sought not the prevention or breaking apart of a monopoly, but the chance to share in that monopoly, according to the court. Thus, whatever the physician's injury, it was not one the antitrust laws were designed to protect consumers from suppliers, rather than suppliers from each other, the court noted.

Requiring the hospital to accommodate the excluded physician's demand would not necessarily benefit consumers, since the hospital could still impose terms and conditions to prevent him from undercutting the hospital's own nephrology practice.

Even if the physician sought an order in which the hospital had to share its facilities with him in a manner that was likely to help consumers, it would have been inappropriate for the judiciary to so dictate the terms of such an arrangement, the appellate court counseled. "The federal judiciary is not a price control agency," the court declared.

The September 29 decision in Four Corners Nephrology Associates, P.C. v. Mercy Medical Center of Durango appears at 2009-2 Trade Cases ¶76,756.

Claims that Company Schemed to Monopolize Market for Drug Proceed

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

Pfizer Inc. and its subsidiary Warner-Lambert Company LLC have failed to convince the federal district court in Newark, New Jersey, to dismiss claims that the drug maker engaged in an "overall scheme" to monopolize the market for gabapentin anhydrous products by forestalling, if not completely preventing, generic competition for Warner-Lambert's anti-epilepsy drug Neurontin.

In two separate decisions, the court denied motions to dismiss claims filed by direct purchasers, including wholesale drug distributor Louisiana Wholesale Drug Company, and antitrust counterclaims filed in a patent infringement action against generic competitor Purepac Pharmaceutical Company.

Overall Scheme

Both sets of plaintiffs sufficiently alleged that Warner-Lambert engaged in monopolization and attempted monopolization in violation of Section 2 of the Sherman Act, according to the court. They alleged an "overall scheme to forestall, preclude, and delay generic competition" for Neurontin.

As part of the scheme, Warner-Lambert allegedly manipulated the prosecution of a patent to delay its issuance, improperly listed patents in the Food and Drug Administration (FDA) Orange Book to obtain additional stays of approval for generic applicants, filed objectively baseless patent infringement actions, and engaged in the fraudulent promotion of the drug for off-label uses.

Antitrust violations were not asserted on the basis of any of those activities independently. Rather, an overall pattern of alleged abuse of the regulatory process was targeted.

Antitrust Injury

Both the direct purchasers and the generic competitor sufficiently alleged antitrust injury, a threshold requirement for antitrust standing, the court held. Moreover, the alleged injuries flowed from the drug company's purported violations of Sec. 2 of the Sherman Act.

Warner-Lambert contended that there was no causal link between some of the challenged conduct—such as the allegedly sham patent litigation and fraudulent promotion of the drug for off-label uses—and the direct purchasers' alleged injury.

It suggested that allegations concerning the patent litigation could not support antitrust claims because generic competition was impossible regardless of the 30-month stay imposed by the patent actions and that the inability of generic manufacturers to obtain even tentative FDA approval until after the stays associated with the patent suits expired was an independent barrier to generic entry.

Further, Warner-Lambert contended that the direct purchasers' alleged injury was not connected to any off-label marketing of Neurontin. However, at the motion to dismiss stage, the direct purchasers sufficiently alleged that they suffered an antitrust injury in the form of overcharges on their purchases of gabapentin anhydrous and that such injuries flowed from the allegedly unlawful conduct, according to the court.

The generic competitor's standing to assert counterclaims could be supported by Warner-Lambert's alleged manipulation of the regulatory advantages afforded by its patents for Neurontin to prevent generic entry into the Neurontin marketplace, the court decided. Moreover, it had already been determined that the generic drug company had sufficiently alleged a causal connection between the challenged conduct and the injury imposed.

Noerr-Pennington Doctrine

In addition, the antitrust claims were not dismissed on the ground that Warner-Lambert's conduct in prosecuting a patent and its efforts to enforce patents against generic manufacturers through infringement actions were immune from antitrust liability under the Noerr-Pennington doctrine, which shields government petitioning activity from antitrust attack.

The generic competitor alleged that the branded drug company manipulated the prosecution of a patent, not to promptly obtain government action in its favor but rather to delay its issuance, forestall generic competition for Neurontin, and improperly preserve its patent monopoly.

The branded drug company allegedly withheld prior art, abandoned a patent application that had already been approved approximately one month before the patent was scheduled to issue, and filed unnecessary continuation applications. Abuse of the Patent Office's administrative and regulatory process itself was not entitled to immunity, the court explained.

The direct purchasers also adequately alleged facts which, if proven, would show that Warner-Lambert engaged in unlawful manipulation of the patent approval process for one of the patents.

Although Warner-Lambert's aggressive practice of filing patent infringement cases against generic drug companies was presumptively immune from antitrust scrutiny under the Noerr-Pennington doctrine, a determination could not be made on a motion to dismiss. Judgment on the issue could be resolved later in the proceedings, the court explained.

The two decisions are In re Neurontin Antitrust Litigation, 2009-2 Trade Cases ¶76,723, and In re Gabapentin Patent Litigation, DC N.J., 2009-2 Trade Cases ¶76,724.

FDA Filing by Drug Company Was Not Sham Petitioning, Monopolization

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

The federal district court in New York City has refused to disturb a jury's verdict that Sanofi-Aventis (Aventis) did not violate Section 2 of the Sherman Act by filing a petition with the Food and Drug Administration (FDA), purportedly in an effort to delay approval of generic competition to its rheumatoid-arthritis drug sold under the name “Aravae.”

Complaining wholesale drug distributors' motions for judgment as a matter of law—or, alternatively, for a new trial—were denied.

Citizen Petition

Shortly after Aventis' period of patent exclusivity for Aravae expired, the drug company filed a "Citizen Petition," asking the FDA to impose certain conditions on the approval of applications for generic versions of Aravae.

The FDA ultimately denied the petition and approved applications for six generic manufacturers to produce and sell generic leflunomide, including one manufacturer who did so pursuant to an agreement with Aventis to sell an "authorized generic" version of the drug.

In denying the petition, the FDA noted that Aventis' request for relief "seem[ed] to be based on a false premise." An action was later filed on behalf of a class of wholesale drug distributors who alleged they were injured by the delayed market entry of generic leflunomide that they claimed was the direct result of Aventis' petition, an alleged act of monopolization in violation of Sec. 2 of the Sherman Antitrust Act.

Noerr-Pennington Doctrine

Although the court had previously denied Aventis' motion for summary judgment based on the Noerr-Pennington doctrine (2008-2 Trade Cases ¶76,339), it upheld the jury's determination that the drug company's conduct was protected by the doctrine, which shields government petitioning activity from antitrust attack.

The first question of the two-pronged test for determining whether government petitioning was protected from antitrust attack by the Noerr-Pennington doctrine—or actionable under the sham exception—was whether the petitioning was objectively baseless. The jury concluded that the petition was not "objectively baseless."

The wholesale drug distributors argued that the petition was objectively baseless because it was not only contrary to FDA statutes, regulations, and practices, but also lacked medical or scientific basis. However, there was ample evidence introduced at trial that tended to show that the issues raised by the Citizen Petition, which concerned dosage strengths and labeling, were sufficiently novel and unsettled to permit an objectively reasonable drug company to perceive some likelihood that the FDA would grant the relief requested, according to the court.

The August 28 decision in Louisiana Wholesale Drug Co., Inc. v. Sanofi-Aventis will appear at 2009-2 Trade Cases ¶76,720.