Antitrust Law Daily Wrap Up, ANTITRUST—C.D. Ill.: Claims against vision care provider over ‘mandatory lab policy’ shaved, survival hinges on discovery, (Aug 24, 2016)

By E. Darius Sturmer, J.D.

Vision benefits provider Davis Vision did not engage in a per se unlawful boycott or tying arrangement by maintaining contracts with Illinois optometrists and opticians that require them to exclusively use its ophthalmic lens manufacturing laboratories for all of its members’ prescription eyeglass lens orders, the federal district court in Springfield, Illinois, has decided. Moreover, Davis Vision’s practices did not constitute illegal predatory pricing. However, because issues of material fact may be found upon further development of the record through discovery, Davis Vision was not entitled to summary judgment on claims that it illegally planned to monopolize or engage in an otherwise unlawful conspiracy in violation of federal and Illinois antitrust law (Acuity Optical Laboratories, LLC v. Davis Vision, Inc., August 23, 2016, Myerscough, S.).

Per se illegality. The "mandatory lab policy" (MLP) between Davis Vision and vision care providers was not a per se unlawful horizontal restraint of trade, according to the court. Davis Vision’s relationship with sister company Visionworks, a retail vision care chain which competed with those providers, did not put it into competition with those providers such that any agreement between Visionworks’ competitors and Davis Vision could be analyzed as an agreement among competitors. There was no evidence that the MLP agreement constituted coordinated activity between Vision and Visionworks.

Nor was the MLP a collection of vertical agreements that operated as a per se unlawful forced group boycott of third-party lens manufacturers, in the court’s view. It was not shown to include any agreement to fix prices, ordinarily a prerequisite for finding vertical agreements per se unlawful. It instead amounted a vertical exclusive distributorship that was "presumptively legal." Complaining ophthalmic products maker Acuity offered no evidence that the providers were acting in conspiracy with one another rather than acting independently. Conspiracy could not be directly shown from industry awareness of how the policy functions or inferred from the providers’ agreement to the MLP—allegedly against several of their own interests—for fear they would be excluded from Davis Vision’s network. Their agreement to the MLP to attain in-network status was actually evidence that they acted independently, the court observed.

Rule of reason approach. Though not per se illegal, the MLP could be found otherwise unlawful under Sec. 1 of the Sherman Act and Illinois Antitrust Act under a quick-look or rule of reason approach, the court held. Noting that "lenses manufactured for Davis Vision members" was neither a viable product market under the general rule of reasonable interchangeability nor a viable single-brand derivative market, the court nevertheless stated that Acuity could overcome this fatal error with additional discovery showing it to be a viable submarket. Additional arguments that Acuity lacked both antitrust injury and antitrust standing to assert a Sec. 1 claim were rejected. These same findings precluded summary judgment on Acuity’s federal and state monopoly claims, the court noted.

Antitrust market. While submarkets comprised of a subgroup of buyers of one product generally failed the "practical indicia" test described in Brown Shoe Co. v. U.S., 370 U.S. 294 (1962), an exception could be made when access to a particular submarket of buyers was critical to an industry member’s survivability, the court stated.

Under reasoning in Methodist Health Services Corp. v. OSF Healthcare System, Acuity could survive summary judgment with a showing that access to its alleged market was critical to survival in the lens market. However, Acuity has not yet met this burden, the court clarified. Testimony by a Davis Vision executive that the access to members of managed care vision benefits plans was critical to Visionworks’ survival was not relevant to the issue at hand, and a report on the likely economic impacts of a previously proposed plan by an insurer to institute a MLP in its coverage region was a speculative report proposed under different circumstances. Other testimony was not probative toward Acuity’s assertions, and no additional evidence in the record suggested that access to Davis Vision customers was critical to Acuity’s survival in the lens manufacturing market.

However, evidence that Acuity claimed it could provide in discovery of a new lens manufacturer’s inability to enter the market due to the barrier the MLP presented could be found sufficiently probative of a lens manufacturer’s need to access Davis Vision members.

Antitrust injury, standing. Acuity could establish both antitrust injury and antitrust standing, based on facts that it specifically identified it would uncover in discovery, the court said. Acuity claimed that Davis Vision members were injured because the lack of competition in the market allowed Davis Vision to provide them with low-quality products and poor service at higher prices. These purported injuries flowed directly from the decrease in competition caused by the alleged violation, and concerned the lens market where Acuity competed. Moreover, a genuine issue of material fact existed as to whether Acuity could satisfy standing. Acuity’s claim that with more discovery it could definitely prove lost profits based on its exclusion from the market would eliminate any concern about the speculative nature of its damages, the court noted.

Tying claims. Davis Vision was entitled to summary judgment on Acuity’s tying claim. Acuity alleged that Davis Vision unlawfully tied in-network status to the purchase of lenses from Davis Vision labs. However, in-network status was not a distinct product bought and sold in the marketplace. Furthermore, Acuity could not establish antitrust injury or standing for purposes of the tying claim because it did not allege direct harm to itself based on the tying.

Predatory pricing. Acuity’s predatory pricing claim was inadequate pleaded, in the court’s view, because the lens maker failed to allege that Davis Vision’s competitors in the vision benefits plan market had exited the market or would exit the market as a result of its low premiums. Such an impact on competition was a requisite element of a predatory pricing claim under the Clayton Act, the court concluded.

The case is No. 14-cv-03231.

Attorneys: Nicholas Tyler Williams (HW Holdings, LLC) for Acuity Optical Laboratories, LLC. Daniel I. Booker (Reed Smith LLP) and David A. Herman (Giffin Winning Cohen & Bodewes PC) for Davis Vision Inc.

Companies: Acuity Optical Laboratories, LLC; Davis Vision Inc.

Cases: Antitrust IllinoisNews