Excluded Radiologist Lacked Antitrust Standing to Sue Hospital, Physician Groups

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

A radiologist who was excluded from two New Jersey hospitals after the hospitals’ operator selected a new exclusive radiology provider lacked antitrust standing to pursue boycott and monopoly claims, the U.S. Court of Appeals in Philadelphia decided earlier this week.

Nearly a decade ago, the radiologist filed his antitrust claims, alleging the hospital operator, its director of radiology, and two radiology physician groups conspired to boycott him in the local radiology market and used illegal tying arrangements to link radiology services to hospital services. He also alleged that exclusive radiology provider contracts were intended to monopolize the outpatient and hospital radiology markets.

The cardiologist failed to establish a nexus between his purported exclusion from the market for radiology jobs and the anticompetitive effects of the alleged conduct, the court ruled.

Because the complaining radiologist obtained a position with a nearby hospital within two weeks of his termination the original radiology group, he could not show that he was excluded entirely from the market.

The radiologist did not demonstrate that the challenged conduct was anticompetitive. He failed to show that the behavior leading to his exclusion—the change of contractor in a long-standing practice of exclusive contracting for radiology services—was the type that might lessen competition among radiology providers for the right to practice in the market.

Finally, the complaining radiologist failed to establish that his termination stemmed directly from conduct that was illegal because of its anticompetitive effects on the price, output, or quality of radiology services available to consumers. There was no indication that the radiologist’s exclusion allowed the defendants to provide substandard radiology services and reduce consumer choice, it was noted.

The April 17 non-precedential decision in Bocobo v. Radiology Consultants of South Jersey, P.A. will appear in CCH Trade Regulation Reporter.

Sprint, Cellular South Allege Injuries from Proposed AT&T/T-Mobile Combination

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

A private antitrust suit, seeking to enjoin AT&T Inc.’s proposed acquisition of T-Mobile USA, Inc., is still alive after the federal district court on Wednesday refused to dismiss on the ground that complaining competitors lacked “antitrust standing” to challenge the transaction.

The court found that, under many theories, Sprint Nextel Corporation and Cellular South, Inc., failed to allege antitrust injury. However, the complaining competitors adequately alleged antitrust injury with regard to the proposed acquisition’s effects on the market for mobile wireless devices. In addition, the motion to dismiss was denied insofar as it attacked Cellular South’s antitrust injury as a purchaser in the market for Global System for Mobile Communications (GSM) roaming.

The private actions followed the Justice Department’s filing of a complaint on August 31 to challenge the proposed acquisition—valued at approximately $39 billion. Sprint—the third largest national provider of mobile wireless services, with 50 million wireless customers—filed suit on September 6. On September 19, regional carrier Cellular South, Inc., and its wholly owned subsidiary Corr Wireless Communications, L.L.C., filed their complaint. They serve more than 887,000 customers located in Mississippi, Tennessee, Alabama Florida, and other surrounding states.

AT&T is the second largest national carrier, with 95 million customers. T-Mobile is the fourth largest national carrier, with 34 million customers.

In order to assess antitrust injury at the pleadings stage, the court had to make two distinct inquiries: (1) does plaintiff’s complaint allege a threatened injury-in-fact? And (2) does the threatened injury result from an anticompetitive aspect of defendant’s proposed conduct, i.e., that which would make the transaction illegal under the antitrust laws? The complaining competitors sought relief under § 16 of the Clayton Act, 15 U.S.C. § 26. The court explained that the antitrust standing inquiry under § 16 was “less demanding” than the standard under § 4 because § 16 “provides for injunctive relief, not treble damages.”

The court ruled that both Sprint and Cellular South adequately alleged a threatened antitrust injury with regard to the proposed acquisition’s effects on their access to mobile wireless devices. The complaining competitors alleged a merger-to-monopsony in support of this allegation.

The firms competed horizontally as sellers of wireless services and a broad array of wireless devices, including basic mobile phones, smartphones, tablets, and other products that access their voice and data networks, and as purchasers of wireless devices. Sprint and Cellular South alleged that post-merger, increased market concentration would enable the largest carriers (AT&T and Verizon) to coerce exclusionary handset deals. AT&T’s buying power post-merger could enable it to dictate terms to device manufacturers and otherwise impair the complaining competitors’ access to these necessary inputs. The threatened injury-in-fact was substantiated by the fact that AT&T and Verizon wielded their purchasing power in the past, the court noted.

Moreover, Cellular South alleged that the proposed acquisition threatens its access not only to handsets that are particularly desirable, but also, more fundamentally, to whole “ecosystems” of devices and network infrastructure—and customers. Cellular South claimed that AT&T and Verizon had exercised their purchasing power in the markets for devices and network equipment to propagate “their own separate ‘ecosystems’ of compatible infrastructure . . . that cannot be utilized by other competitors,” and that the proposed acquisition would increase the big carriers’ "incentive and power to exclude competitors from those ecosystems."

Cellular South also adequately alleged an antitrust injury in the market for GSM roaming based on the reduction in the number of potential roaming partners and resulting higher roaming prices, the court held. Cellular South alleged a vertical effect from the merger in that it would pay more to procure necessary inputs. Cellular South’s Corr Wireless subsidiary used GSM transmission technology and had been a roaming customer of T-Mobile and currently is a roaming customer of AT&T. Even if Corr Wireless represented only a small part of Cellular South’s business, Cellular South’s allegations suggested that its threatened loss from the merger was plausible, in the court’s view.

The court determined that Sprint and Cellular South lacked standing to challenge the proposed merger on the ground that it would lead to higher retail wireless rates. The possibility that a post-merger AT&T could raise market prices did not, without more, threaten injury-in-fact to Sprint and Cellular South. Raising market price or limiting output, while causing harm to consumers, would actually benefit competitors, the court explained.

Sprint also was found to lack standing to allege injury in the market for wireless spectrum. The court rejected Sprint’s contentions that AT&T’s acquisition of additional spectrum holdings from T-Mobile would “improperly shift the costs of spectrum development to Sprint and other carriers” and “further weaken their ability to compete on the merits by increasing their costs and delaying their access to new equipment.”

The November 2, 2011, decision in Sprint Nextel Corporation v. AT&T Inc., Civil Action No. 11-1600 (ESH), will appear at CCH 2011-2 Trade Cases ¶77,664.

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.

Rejection of Thermostat Buyer’s Antitrust Claims Against Honeywell Upheld

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

A consumer’s putative class action—alleging that Honeywell International, Inc. violated Maine’s antitrust statute by misrepresenting its trademark on circular thermostats and threatening rival manufacturers with litigation—was properly found to have been barred by the statute of limitations and to have failed to state cognizable injury, the Maine Supreme Judicial Court has ruled. Summary judgment in favor of Honeywell was affirmed.

Statute of Limitations

The consumer’s antitrust claims were based on his purchase of three Honeywell thermostats in Maine in approximately 1986 and his purchase of a single thermostat in New Hampshire in 2001. The cause of action based on the purchases in Maine accrued at the time of his injury—in 1986, 18 years before he filed suit. Therefore, the claim fell well outside of Maine’s six-year statute of limitations, the court determined.

Rejected were contentions that the statute of limitations should have been tolled under the continuing violation doctrine and the fraudulent concealment exception.

The consumer’s alleged purchase of a single thermostat in New Hampshire 15 years later did not serve to revive the cause of action, the court held. In addition, the consumer failed to present sufficient facts to prove fraudulent concealment, particularly given that many of the facts relevant to fraudulent concealment had been publicly available in the documents filed by Honeywell with the U.S. Patent and Trademark Office in 1968 and 1986.

Antitrust Standing, Injury

The consumer lacked standing to assert a claim based on the single thermostat purchase in New Hampshire in 2001 because his allegations were insufficient to demonstrate that he suffered injury from the alleged conduct, the court held. The consumer expressed uncertainty about the location of the store at which he bought the thermostat, the price he paid for it, and whether he received any discounts or rebates for the purchase.

He had no sales slip, invoice, or other evidence of what he paid. Without such evidence, the court noted, he could not prove that he had paid an inflated price, as opposed to the possibility that price increases were absorbed at the retail level.

Partial Dissent

An opinion filed by two justices, partially dissenting from the majority holding, contended that the consumer should have been entitled (1) to complete discovery with respect to the antitrust claim based on the 2001 purchase and (2) to have the issue of antitrust injury and damages addressed in a decision on his motion for class certification before the court ruled on Honeywell’s summary judgment motion.

The partially dissenting justices did agree with the majority that any claim based on the 1986 purchases was time-barred. However, they argued, that majority’s characterization of the claim based on the New Hampshire purchase in 2001 as speculative was premature.

If the consumer had been allowed to present his expert’s opinion that much of the injury and damages were common to the class—and if the expert could convince the trial court that common proof was sufficient—then the consumer’s lack of a receipt for the purchase might not have impeded his claim or his status as a class representative, the partial dissent argued.

The decision in McKinnon v. Honeywell International, Inc. appears here. It will be reported at 2009-2 Trade Cases ¶76,704.

Possible Rival Lacked Antitrust Standing to Sue Veterinary Products Maker

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

Antitrust claims against the dominant manufacturer and seller of veterinary diagnostic products in the United States, which were brought by a potential new entrant in the market, were properly dismissed because the complaining company lacked standing to bring the claims, the U.S. Court of Appeals in San Francisco has ruled.

Summary judgment in favor of the defending manufacturer (2008-1 Trade Cases ¶76,078) was affirmed by a not-for-publication decision.

Antitrust Injury

In order to establish antitrust standing, a plaintiff must adequately allege and prove antitrust injury, the court explained. Only an actual competitor or one ready to be a competitor can suffer antitrust injury.

Intent, Preparedness to Enter Market

The complaining company failed to show that it had a genuine intent to enter the market and a preparedness to do so, the court ruled. The company had meager background or experience in the animal testing services industry. Its founder and chief executive officer had no background education or experience in molecular diagnostic testing, or in the relevant science, technology, and business generally.

Moreover, the complaining company operated through a skeleton crew of part-time outside consultants who lacked any background or experience in the prospective business. It had taken only preliminary steps to engage in its proposed business.The company submitted no specific evidence of its ability to finance its nascent enterprise.

Absence of Contracts

There was no evidence of consummated contracts between the company and distributors or end-users and no evidence of other types of contracts that one might expect from a business that was ready to enter the marketplace, in the court’s view.

The not-for-publication decision in Cyntegra, Inc.v. Idexx Laboratories, Inc. appears at 2009-1 Trade Cases ¶76,574.

Alleged Boycott of Racetracks for Bigger Share of Wagers Could Be Illegal

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

Various horsemen’s groups—organizations comprised of horse owners and trainers—could have illegally boycotted Kentucky racetrack operators in an effort to raise the amounts they received from advanced deposit wagering (ADW), the federal district court in Louisville, Kentucky, has ruled.

The complaining racetracks had standing to assert the claims and pled sufficient facts to support a finding of unlawful price fixing. Rejected was a contention by the defending horsemen’s groups that the Interstate Horseracing Act (IHA) created an implied legislative immunity from antitrust liability. The defendants’ motion to dismiss the complaint on all three grounds was denied.

According to the racetracks, the horsemen’s groups controlled the price of the “signal”—the broadcast of off-site races—by refusing to allow its sale unless each ADW operator agreed to pay them a specified percentage of the “takeout” (the profit from race betting shared by tracks, horsemen’s groups, ADW operators, offtrack betting parlors, and various governmental agencies).

The alleged group boycott produced a detrimental effect when the horsemen’s groups prevented signals from being sold, resulting in fewer wagering opportunities for the ultimate individual consumer, it was asserted. The setting of a minimum cost of the signal that was higher than any the ADW operators had been paying amounted to an inflation of prices.

Standing

The racetracks satisfied each requirement for antitrust standing, the court decided. Their allegations sufficiently described harm to competition. They further asserted that the defendants’ alleged antitrust activities were the direct cause of several specific injuries: (1) the inability to sell their signal, (2) the consequential decrease in wagering opportunities, and (3) a higher price to an ADW operator to purchase the signal.

Although each horsemen’s group could individually veto signal sales, thereby causing similar injuries to tracks and ADW operators, that behavior was not independent and separate from the alleged collusion. Since no independent cause of the injuries could be identified, the racetracks met that element of antitrust standing as well.

Implied Immunity

The IHA did not so heavily regulate the horseracing industry that it authorized the defending groups’ individual actions, the court determined. While the IHA’s provisions created the rules under which racetracks could legally market and facilitate interstate horse race wagering, including requiring consents from various parties before any track could sell its signal or before any wagering can occur, it neither created nor envisioned any other supervision or regulatory scheme. It left regulation of the horse wagering industry to the respective state racing commissions. Its limited provisions did not conflict either directly or indirectly with antitrust principles, let alone possess a clear repugnancy to the antitrust laws.

An argument that implied immunity could apply, despite the absence of active supervision, was rejected by the court. The IHA’s purpose—to ensure that horsemen were compensated for their contributions to the successful operation of an offtrack
betting system—was neither at odds with nor inhibited by antitrust laws. The IHA provided no standards or oversights to regulate the horsemen’s power to veto signal sales, the court said.

Extended Immunity

Also rejected was an argument that the IHA’s proper application required immunity from the antitrust laws under a theory of “extended immunity”—that if certain concerted action by individuals affiliated in a group was immune from antitrust laws, so too were acts by a group consisted of those groups of individuals. In essence, the defendants contended that because individual horsemen could not comply with both the IHA and antitrust laws, the IHA created implied antitrust immunity for groups of horsemen, and by extension, groups of those horsemen’s groups.

However, to conclude that individual horsemen must be immune from antitrust liability under the IHA misconstrued the circumstances of the case and the statutory scheme. Individual horsemen did not need immunity because no individual could exercise a horsemen’s veto or take any action under the IHA, the court observed.

Sufficiency of Allegations

Finally, the racetracks’ complaint satisfied the pleading requirements enunciated in Bell Atlantic Corp. v. Twombly (2007-1 Trade Cases ¶75,709), the court held. The alleged presence of a tangible, and agreed upon, licensing agreement dictating minimum prices for ADW operators purchasing signals made the existence of a combination or conspiracy amongst the horsemen plausible.

The description of the relevant market as the “sale and licensing of the right to receive simulcast signals and to accept wagers on horse racing at locations other than the host racetrack” in the United States was a plausible relevant market. The assertion of an agreement that set a floor for the price of a signal was plausibly construed as price fixing, and their factual allegations further illustrated a plausible finding of a group boycott to raise prices.

The March 20 decision is Churchill Downs Inc. v. Thoroughbred Horsemen’s Group, LLC, 2009-1 Trade Cases ¶76,555.