Antitrust Law Daily Wrap Up, ANTITRUST—D. Kan.: Lack of market power, injury dooms medical supplies tying claims, (Apr 8, 2016)

By Greg Hammond, J.D.

A distributor of sutures and endomechanical (endo) products failed to demonstrate that two medical and surgical (med-surg) products distributors engaged in illegal tying and exclusive dealing in violation of the Sherman, Clayton, and Kansas Restraint of Trade Acts. In granting the med-surg products distributors’ motion for summary judgment, the federal district court in Topeka concluded that the plaintiff failed to demonstrate market power or antitrust injury (Suture Express, Inc. v. Owens & Minor Distribution, Inc., April 7, 2016, Crabtree, D.).

Suture Express, Inc. claims that defendants Owens & Minor Distribution, Inc. (O&M) and Cardinal Health 200, LLC have violated the Sherman Act, Clayton Act, and the Kansas Restraint of Trade Act (KRTA) by tying and bundling the sale of sutures and endo distribution to the sale of other “med-surg” distribution. The parties filed cross-motions for summary judgment.

Sherman Act, market power. The court first determined that Suture Express provided no basis for a reasonable jury to find the existence of an illegal tying arrangement because Suture Express failed to demonstrate that O&M and Cardinal have sufficient market power in the tying product to permit them to restrain trade in the tied product market. Suture Express asserted that the defendants comprise the large majority of nationwide broadline distribution of other med-surg products. The court noted that while the defendants’ market share is relevant to determine market power, it “alone is insufficient to establish market power.”

In addition, the court found that: (1) the barriers to entry into the market failed to establish market power; (2) allegations that defendants managed to secure the bundling terms in a large number of defendants’ contracts fails to establish market power; (3) fact issues preclude a finding that the defendants’ bundling terms are predatory because they fail the discount attribution test; (4) the fact that customers make business decisions to enter into contracts and then adhere to their terms does not support a finding of market power; (5) there is no authority for the proposition that Suture Express’ loss of sales to defendants because of the bundling provisions shows market power; and (6) market power cannot be found from defendants’ intent to protect their suture and endo businesses from Suture Express’ rival business. The court consequently denied Suture Express’ motion for summary judgment

In granting summary judgment in favor of the defendants, the court determined that no reasonable jury could conclude that defendants have the power to exclude competition or control price. Rather, the undisputed facts demonstrate a market where O&M and Cardinal compete vigorously against Medline, certain regional distributors, and each other. Further, after three or four years, O&M and Cardinal can retain only about half of their acute care customers, the court determined. These facts consequently precluded any triable dispute about the defendants’ market power.

Antitrust injury. Next, the court found that Suture Express could not establish an antitrust injury because the defendants neither raised prices nor reduced output in this case. In particular, the facts showed declining markups for many competitors in the market—including the defendants, certain regional distributors, and Suture Express. The facts also demonstrated that the defendants experienced declining margins, and that competitive pressures in the marketplace have produced pricing decreases. Rather than demonstrating reduced output, the admissible evidence showed that rival national and regional competitors were growing and expanding their businesses. The summary judgment facts therefore prevents a reasonable jury from inferring harm to competition, even when viewed in the light most favorable to Suture Express, the court concluded.

The defendants were also granted summary judgment with regard to the Section 3 Clayton Act claim, which mirrored Suture Express’ tying claim under Section 1 of the Sherman Act.

Kansas Restraint of Trade Act. Lastly, the court concluded that the summary judgment facts preclude the possibility that Suture Express could satisfy the KRTA’s requirement of antitrust injury/damages causation. Offering discounts to customers does not inflate prices, the court stated. Rather, price discounts give customers who choose to subscribe to them the chance to purchase at deflated prices. This kind of market condition provides no basis for a reasonable jury to find the kind of “economic effect” that the KRTA “aims to prevent,” according to the court. In addition, the court found that the summary judgment facts fail to show that the defendants’ contracts were “made with a view,” “designed to,” or “tend to” prevent full and free competition, which the KRTA requires. The defendants’ motion for summary judgment was therefore granted with regard to the KRTA claim.

The case is No. 12-2760-DDC-KGS.

Attorneys: Charles W. German (German May PC) and Daniel M. Abuhoff (Debevoise & Plimpton LLP) for Suture Express, Inc. James L. Eisenbrandt (Berkowitz Oliver Williams Shaw & Eisenbrandt LLP) for Owens & Minor Distribution, Inc. David M. Eisenberg (Baker, Sterchi, Cowden & Rice, LLC) and Dolores P. Garcia Prignitz (Jones Day) for Cardinal Health 200, LLC.

Companies: Suture Express, Inc.; Owens & Minor Distribution, Inc.; Cardinal Health 200, LLC

Cases: Antitrust KansasNews