Antitrust Law Daily Wrap Up, ANTITRUST—MDFla: Below-Cost Pricing Claim Based on Distribution of Free and Below-Cost Items to Healthcare Professionals Rejected, (Jan 11, 2013)

By Tobias J. Gillett, J.D., LLM.

A drug testing company failed to state a counterclaim that a competitor violated California’s Unfair Practices Act (UPA) by providing free and below-cost items to customers and healthcare professionals, the federal district court in Tampa, Florida has ruled (Ameritox Ltd. v. Millennium Laboratories, Inc., January 10, 2013, Bucklew, S.). The court found that the company did not state a claim under UPA §§17043 and 17044 because it did not adequately allege the costs of the items at issue and, to the extent the claim addressed the distribution of free gifts, because it did not allege a sale at below cost. The company did not state a claim under §17045 because it did not allege that the competitor had secretly provided special privileges to certain customers.

The court did permit the company to proceed with a claim under New York’s Consumer Protection from Deceptive Acts and Practices Law, and a claim for attorneys’ fees in connection with a California Unfair Competition Law (UCL) claim.

The drug testing company, Millennium Laboratories, Inc., screens urine specimens for the presence of drugs. A competitor, Ameritox Ltd., sued Millennium, asserting various federal, state, and common law causes of action. Millennium filed counterclaims, asserting a range of claims including violations of the UCL, the UPA, and the New York statute. The present order addressed Ameritox’s motion to dismiss certain of those counterclaims.

California’s Unfair Practices Act

The court explained that the UPA § 17043 prohibits businesses from selling “any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition.” UPA § 17044 prohibits businesses from selling or using “any article or product as a ‘loss leader.’” Millennium claimed Ameritox violated these provisions by providing physicians with free or below-market-value point-of-care testing (POCT) cups, by arranging for the sale of non-Ameritox products to Ameritox customers at favorable prices, and by offering healthcare professionals free gifts such as meals, gift cards, funding for office parties, and computers.

The court also explained that UPA § 17045 prohibits the “secret payment or allowance of rebates, refunds, commissions, or unearned discounts, whether in the form of money or otherwise, or secretly extending to certain purchasers special services or privileges not extended to all purchasers purchasing upon like terms and conditions, to the injury of a competitor and where such payment or allowance tends to destroy competition. Millennium claimed Ameritox violated this provision by providing free specimen processors to major accountholders, by overcompensating them for the “sham” lease of space used by the processors, and by providing gift cards and meals to healthcare professionals.

Ameritox first argued that Millennium’s UPA counterclaim should be dismissed because it did not relate to the urine testing services on which they competed. The court disagreed, finding that Millennium had “sufficiently allege[d] that [Ameritox’s] provision of POCT cups and specimen processors is sufficiently substantial and related to the urine testing services that both normally provide as competitors.”

Nevertheless, the court the court found that Millennium did not allege facts sufficient to support its claims under §§17043, 17044, or 17045. The court did conclude that Millennium’s allegations that Ameritox provided free or below market items for the purpose of injuring Millennium were sufficient to satisfy the statute’s requirement that a defendant must have acted “with the purpose of injuring competitors or destroying competition.”

However, the court observed that, because §§17043 and 17044 only “impose liability when the product is being sold for less than its cost, the aggrieved party must allege the sales price, the cost of the product, and the cost of doing business.” As Millennium had not adequately alleged these elements, its claim failed. Moreover, the court found that Millennium did not state a claim under § 17043 or § 17044 regarding the provision of free gifts and non-Ameritox products, because § 17043 requires that the product at issue be one “that the accused normally sells,” and because § 17044 requires “that the conduct at issue involve a sale.”

Furthermore, the court determined that Millennium had not stated a claim under § 17045 because, although Millennium did have standing to bring the claim, Millennium had not asserted that Ameritox had provided any “secret” services or privileges. The court cited California state court precedent that had found that competitors did have standing under § 17045, not just purchasers. However, although Millennium may have adequately claimed that Ameritox extended special privileges to certain purchasers that were not available to all purchasers, § 17045 plaintiffs must also allege that the privileges were extended “secretly,” and Millennium had not met that requirement.

New York’s Consumer Protection from Deceptive Acts and Practices Law

The court proceeded to address Millennium’s counterclaim under the New York statute. The court first explained that the law prohibits “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state.” The challenged conduct must be “consumer-oriented” and “misleading in a material way,” and the person or entity must have “suffered damages as a result of the deceptive act.”

Millennium claimed that Ameritox had violated the statute by providing improper financial inducements, such as free specimen processors, to physicians; by providing free or below-market-value POCT cups; by providing free gifts; by arranging for the sale of non-Ameritox products at favorable prices; and by “misleading healthcare providers into ordering tests based on insurance status and not medical necessity.”

Ameritox argued that this conduct, except the alleged improper financial inducements, was merely unfair, not deceptive, and hence not within the scope of the New York statute. The court agreed, except as to the claim that Ameritox misled healthcare providers into ordering unnecessary tests, which the court found “describe[d] deceptive conduct.”

Ameritox also contended that, since the statute only restricted “consumer-oriented” conduct, Millennium’s counterclaim must be dismissed, because it involved a dispute between competitors. The court disagreed, citing Second Circuit precedent as stating that the issue is “whether the matter affects the public interest in New York, not whether the suit is brought by a consumer or a competitor.”

With respect to the two remaining types of conduct, providing improper financial inducements to physicians and misleading healthcare providers into ordering unnecessary tests, the court concluded that the conduct at issue “affects the public interest and should not be dismissed.” Moreover, the court determined that Millennium had adequately alleged causation and injury.

California’s Unfair Competition Law

The court also allowed Millennium to proceed with claims for restitution under the UCL and for attorneys’ fees. Although compensatory damages are not available under that law, restitution is, and the court clarified the relief to be limited to injunctive relief and restitution. The court also recognized that, although attorneys’ fees are also not available under the UCL, courts have found that attorneys’ fees for violations of the UCL can be awarded in some circumstances under California Code of Civil Procedure §1021.5.

The case is No. 8:11-cv-775-T-24-TBM.

Jonathan B. Morton (K & L Gates, LLP) for Ameritox, Ltd. Amanda Arnold Sansone (Carlton Fields, PA) for Millennium Laboratories, Inc.

Cases: Antitrust ConsumerProtection StateUnfairTradePractices FloridaNews