Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Tex.: Antitrust and unfair competition claims proceed against medical device company over contracts with hospitals and group purchasing organizations, (Aug 21, 2013)

By Tobias J. Gillett, J.D., LL.M.

A medical device company may proceed with antitrust and unfair competition claims against a rival company over its competitor’s contracts with group purchasing organizations (GPOs) and incentive agreements with hospitals, the federal district court in Marshall, Texas has ruled (Retractable Technologies, Inc. v. Becton Dickinson and Co., August 19, 2013, Davis, L.). The court adopted a magistrate’s report and recommendation concluding that genuine issues of material fact remained regarding whether the competitor’s contracts constituted unreasonable restraints on trade.

The court denied the motion by the competitor, Becton Dickinson and Co. (BD), for partial summary judgment on the antitrust and unfair competition claims filed by Retractable Technologies, Inc. (RTI) for the reasons set forth in the magistrate’s report. In that report, the magistrate noted that RTI had not alleged that BD’s agreements were per se unreasonable, and therefore the rule of reason applied.

BD contended that its contracts with GPOs did not unreasonably restrain trade because (1) “there are no contractual obligations to buy from BD”; (2) “the only ‘theoretical’ consequence for not buying enough BD product is that a customer may lose a negotiated discount”; (3) “the contracts are multi-source agreements and not single-source agreements”; and (4) “there are no bundled discounts, commitment requirements or clawback provisions.” In addition, BD argued that its incentive agreements did not restrain trade because (1) “the agreements are in place in too small of a segment to foreclose competition”; (2) “less than 5% of sales of safety needles and syringes are made under the agreements”; and (3) “there is no evidence that RTI would have to price below its costs in order to compete.”

In response, RTI contended that the GPO contracts “impose[d] loyalty conditions separate from volume-based discounts,” and that “the loyalty conditions [were] used to punish buyers that [were] not compliant.” RTI alleged that “from 2004 to 2010, BD’s non-penalty prices remained stagnant, while its penalty prices significantly increased.” Moreover, RTI alleged “that BD was able to maintain higher pricing premiums, foreclose sales by RTI, and increase switching costs for consumers,” and that the contracts had no competitive benefits.

The court concluded that, despite BD’s arguments concerning the legal requirements of the contracts, RTI had produced sufficient evidence of the practical anticompetitive effects of the contracts. Moreover, the fact that BD’s market share had declined while RTI’s had increased did not mean that the contracts did not unreasonably restrain trade, because BD’s share could have declined faster, and RTI’s share could have increased faster, in the absence of the contracts.

Since BD contended that RTI’s Sherman Act Section 2 and Clayton Act Section 3 claims failed because they were based on the same theories as RTI’s Section 1 claim, and because the magistrate had found that claim to be viable, the magistrate found BD was not entitled to summary judgment on those claims as well. As the Texas Antitrust Act was “interpreted in harmony with federal law,” summary judgment was also denied as to RTI’s Texas Antitrust Act claim. Finally, because RTI’s antitrust claims could serve as the basis for a Texas common law unfair competition claim, summary judgment was denied as to that claim.

The case is No. 2:08-CV-16-MHS-RSP.

Attorneys: Bradley Carroll Weber (Locke Lord LLP) for Retractable Technologies, Inc. Robert A. Atkins (Paul Weiss Rifkind Wharton & Garrison) for Becton Dickinson and Co.

Companies: Retractable Technologies, Inc.; Becton Dickinson and Co.

Cases: Antitrust TexasNews