Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Ill.: Failure to define relevant market dooms lab equipment seller’s monopoly, predatory pricing claims, (Sep 5, 2013)

By Jody Coultas, J.D.

International Equipment Trading, Ltd. (IET) failed to state attempted monopoly and predatory pricing claims against competitor AB Sciex LLC (International Equipment Trading, Ltd. v. AB Sciex LLC, August 29, 2013, Kendall, V.). However, IET stated Illinois consumer protection law claims against AB Sciex.

IET sources new and pre-owned medical laboratory equipment to independent laboratories, hospitals, research institutions, and universities, including mass spectrometry systems manufactured by AB Sciex. AB Sciex also sells its pre-owned mass spectrometers. To operate an AB Sciex mass spectrometer, a user must obtain a license to the software. AB Sciex informed customers that they would be charged a $40,000 “site licensing fee” for the operating and data collection software if they purchased from a company like IET, although AB Sciex never actually imposed the $40,000 fee. The amount of the fee was generally between $2,500 and $4,000. IET claimed that AB Sciex’s conduct amounted to attempted monopolization of the market for refurbished mass spectrometers manufactured by AB Sciex.

The court held that IET failed to define the relevant market as required to show a dangerous probability of achieving monopoly power. To prove attempted monopolization, a plaintiff must establish that the defendant engaged in predatory or anticompetitive conduct with a specific intent to monopolize, and a dangerous probability of achieving monopoly power. In order to establish the “dangerous probability” prong, IET was required to plead that AB Sciex had sufficient market power to threaten actual monopolization within the relevant market.

A relevant market is a market defined by the reasonable interchangeability of the products and the cross-elasticity of demand for those products, the court noted. IET defined the relevant market as mass spectrometers manufactured by AB Sciex that are sold or leased on the secondary market. In cases where the complaint limits the relevant market to a single brand that competes with potential substitutes, courts generally dismiss the complaint unless the complaint contains sufficient factual allegations that make it plausible there is no substitute. IET failed to plead that AB Sciex’s mass spectrometers were unique and could not be substituted with other manufacturer’s spectrometers. There were also no allegations regarding cross-elasticities of supply or demand.

IET also failed to show that AB Sciex engaged in predatory or anticompetitive acts, according to the court. IET argued that AB Sciex engaged in predatory and anticompetitive conduct by falsely representing that it would require customers to pay a $40,000 site license fee if they purchased a refurbished AB Sciex mass spectrometer from IET. For a misrepresentation to be actionable under the Sherman Act, it must be combined with a coercive enforcement mechanism. IET failed to identify any enforcement mechanism that would make the statements regarding the $40,000 fee actionable under the Sherman Act. There was no evidence that the alleged misrepresentations harmed competition, rather than just IET. IET can compete with AB Sciex by offering mass spectrometers to customers produced by other manufacturers that have no licensing fee attached to them.

There was insufficient evidence to find that AB Sciex attempted to monopolize through predatory pricing, according to the court. To establish a predatory pricing claim, a plaintiff must show that: (1) the prices complained of were below an appropriate measure of the defendant’s costs; and (2) the defendant had a dangerous probability of recouping its investment in below-cost prices. IET could not establish that the license waivers offered by AB Sciex amounted to predatory conduct. The complaint did not allege whether the prices quoted by AB Sciex were below its costs or allegations describing a dangerous probability that AB Sciex would recoup any losses from the alleged predatory pricing. Allegations that AB Sciex willingly sacrificed greater profits in order to reduce competition were insufficient.

State Law Claims. IET stated Illinois Consumer Fraud Act and Uniform Deceptive Trade Practices Act claims against AB Sciex, according to the court. AB Sciex argued that the claims should be dismissed because IET failed to allege the material misrepresentation and failed to establish that the conduct at issue occurred in Illinois. The allegation that AB Sciex threatened potential customers with an illusory fee was sufficient as that fee would be material to whether a customer purchased from IET or AB Sciex. There was also sufficient evidence that the conduct at issue took place in Illinois. IET is an Illinois corporation with its principal place of business in Illinois, it lost at least three customer located in Illinois to AB Sciex, and the damages from those lost sales still flowed to IET in Illinois.

The case is No. 13 C 1129.

Attorneys: Howard L. Teplinsky (Beermann Swerdlove LLP) for International Equipment Trading, Ltd. Frederic R. Klein (Goldberg Kohn Ltd.) for AB Sciex LLC.

Companies: International Equipment Trading, Ltd.; AB Sciex LLC

Cases: Antitrust StateUnfairTradePractices IllinoisNews