Antitrust Law Daily Wrap Up, ANTITRUST—C.D. Cal.: Concierge medicine company adequately alleges monopolization, agreements to restrain trade, (Apr 22, 2015)

By Greg Hammond, J.D.

MDVIP, Inc., the largest concierge medicine membership program in the United States, was unable to evade claims that the company’s post-contract non-compete clauses violated the Sherman Act, the California Cartwright Act, the California Unfair Competition Law (UCL), and the California covenants not to compete law. The federal district court in Los Angeles denied MDVIP’s motion to dismiss, finding that the plaintiff adequately alleged its claims (Signature MD, Inc. v. MDVIP, Inc., April 21, 2015, Gee, D.).

Background. Signature MD, Inc., a competing concierge medicine company, filed suit against MDVIP, alleging, in part, that the post-contract non-compete clauses in MDVIP’s agreements were anticompetitive. The clauses prohibit physician groups from competing with MDVIP for a period of two years after the expiration of the contract, which includes practicing concierge medicine within 10 miles of a previous office, or within 10 miles of the office of another physician affiliated with MDVIP. In affluent areas, Signature alleges that MDVIP requires a large liquidated damages provision in the non-compete clause of its contracts, requiring physicians to pay $1 million if he or she leaves the program to join a competitor. MDVIP moved to dismiss the claims.

Market definition. Signature alleged two relevant markets, including (1) the concierge medicine membership program market throughout the United States, which pertained to MDVIP’s alleged monopoly on physician choice of concierge health providers; and (2) concierge medicine membership programs within a 25-mile radius of a number of large cities in the United States, which pertains to MDVIP’s alleged monopoly on patient choice of health providers.

MDVIP argued that Signature’s market definition was unreasonable because Signature provided no explanation concerning why physician-established concierge programs should not be included in the concierge market definition. Signature alleged, however, that independent physician established concierge programs are distinct from its product-market definition because of the differences in fee structures, the high initial capital investment as a barrier to entry, and the differences in marketing and branding. The court found Signature’s allegations to be sufficient, because it demonstrated no “reasonable interchangeability of use” or “cross-elasticity of demand” concerning physician-established concierge programs. The definition of the relevant market therefore survived the motion to dismiss.

Trade restraint. In support of its claim that the MDVIP’s agreements restrained trade, Signature alleged that MDVIP’s liquidated damages provision was unreasonably large, MDVIP forced physicians to sign non-disclosure agreements relevant to contracting with other concierge groups even where the information could not reasonably be considered confidential, and MDVIP hired patient advocates on a very short-term basis and then required them to sign two-year non-compete restrictions to refrain from employment with competitors. These allegations were sufficient to demonstrate the existence of agreements intended to harm or restrain competition, which were unreasonable in scope and duration to serve a legitimate business purpose.

Attempted monopolization. Signature also sufficiently alleged a claim for attempted monopolization under Section 2 of the Sherman Act, the court concluded. Specifically, allegations that the MDVIP’s unenforceable non-compete clauses, sham litigation, and threats of legal action against doctors, even after the expiration of their contracts, demonstrated that the clauses had no objective merit, and the enforcement of these non-compete clauses appeared to be objectively baseless, demonstrating anticompetitive conduct.

Second, it was uncontested that MDVIP owns roughly 71 percent of the concierge market with exclusive physician contracts and 86 percent of the market for overall patients enrolled in concierge medicine. This, along with allegations that, due to the non-compete clauses, many physicians interested in concierge programs are ineligible to participate in competitors’ programs, was sufficient to demonstrate MDVIP’s monopoly power in the concierge market.

Lastly, Signature adequately established standing to bring Sherman Act claims, because Signature sufficiently alleged: (1) MDVIP’s intentional anticompetitive actions increased patient prices and reduced the availability of alternative providers, and interfered with the patient-physician relationship; and (2) as a result of the non-compete clauses, Signature has not been able to enter large, affluent, urban areas, such as Atlanta, Birmingham, Houston, and Las Vegas.

State law claims. Because Signature successfully alleged its Sherman Act claims, the motion to dismiss the Cartwright Act and UCL claims was denied. In addition, claims that MDVIP entered into, implemented, and enforced express non-compete agreements that were unlawful and void under the covenants not to compete law, specifically in the Thousand Oaks, California, market, were adequate to allege a violation of law.

The case number is CV 14-5453 DMG (SSx).

Attorneys: Maxwell M. Blecher (Blecher Collins Pepperman and Joye PC) for Signature MD, Inc. Janet Chung (Holland and Knight LLP) for MDVIP, Inc.

Companies: Signature MD, Inc.; MDVIP, Inc.

Cases: Antitrust CaliforniaNews