Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Ill.: Pharmaceutical bid rigging suit tossed for lack of injury in relevant market, (May 18, 2015)

By Greg Hammond, J.D.

Radiopharmaceutical companies Triad Isotopes, Inc. and Covidien, Inc. did not engage in a conspiracy to rig bids, the federal district court in Chicago decided. The court partially granted the radiopharmaceutical companies’ motion to dismiss, finding that a competing company and a former employee, who brought antitrust and other claims on behalf of the United States and the State of Illinois, failed to allege a deleterious effect on the relevant market (U.S. v. Triad Isotopes, Inc., May 15, 2015, Dow, R.).

Background. Relator Matthew Blaum filed a qui tam action on behalf of the United States and Illinois, alleging that Triad and Covidien violated federal and state antitrust laws, the False Claims Act, and the Illinois Whistleblower Reward and Protection Act. Specifically, Blaum claimed that the defendants defrauded Cook County, Illinois and the Cook County Health and Hospitals System (CCHHS) by making false statements and false claims concerning the sale of radiopharmaceutical drugs. Covidien employees allegedly used a Minority- or Woman-Owned Business Entity—Sami Distributors, Inc.—to submit bids on its own behalf to CCHHS, when it planned to have Covidien fulfill the terms of the contract, in order to secure 2008 and 2010 contracts. Blaum additionally asserted that in order for the defendants to win the 2011 contract, they altered the bid form by raising the expected usage quantities of infrequently used, but expensive drugs, which dramatically lowered Triad’s bottom line pricing, allowing it to raise its prices on commonly-used drugs.

Blaum argues that, absent the defendants’ fraudulent alteration of the bid form, which was a conspiracy to rig the bidding process, plaintiff Hot Shots NM, LLC would have won the CCHHS radiopharmaceutical contract. The defendants moved to dismiss the claims.

Bid rigging. In support of their motion to dismiss, the defendants argued that: (1) Hot Shots failed to allege harm in a relevant market; (2) Hot Shots failed to plead an antitrust injury to support antitrust standing; (3) vertical bid rigging conspiracies are per se invalid where the plaintiff was not the low bidder; and (4) Hot Shots lacks antitrust standing.

The court first found the relevant market argument convincing, finding that allegations that “Defendants have reduced competition in the Chicago-area market by preventing legitimate low-cost bidders such as Plaintiff from competing equally for the CCHHS radiopharmaceutical contract” failed to allege a deleterious impact on the market. The court noted that while the defendants’ actions clearly had an anticompetitive effect, that effect extended only to a single contract, which is insufficient to demonstrate that the defendants’ conduct impacted the relevant market—the Chicago-area marketplace for radiopharmaceuticals.

The bid rigging activities in this case, however, genuinely decreased competition and increased prices to the consumer, demonstrating that Hot Shots’ injury is related CCHHS’ injury, and those injuries are precisely the sort of injuries that the antitrust laws were meant to prevent. The court therefore noted that had an anticompetitive impact been alleged on a relevant market, the complaint would not have failed due to a lack of antitrust injury.

The defendants additionally alleged that bid rigging conspiracies are not actionable under the Sherman Act where the contract at issue is awarded to the lowest bidder. The court disagreed, noting that placing a categorical ban on defendants’ behavior would be contrary to the core mission of the antitrust laws.

Finally, the court rejected the defendants’ argument that the relators lacked antitrust standing and antitrust injury. Specifically, the court found that Hot Shots’ expressly alleged but-for causation: “If the drug usage amounts in the RFP reflected actual usage instead of the deliberately skewed usage, Hot Shot’s bid * * * which [was] the lowest overall bid among the legitimate bidders * * * would have been approximately $300,000 less than Triad’s Bid,” and thus Defendants’ conspiracy “prevent[ed] Hot Shots * * * from winning the CCHHS contract.” In addition, defendants’ argument that Hot Shots failed to plead that the alleged bid rigging had in fact resulted in increased prices to radiopharmaceutical consumers was a misapplication of the directness inquiry, which is meant to assess the plaintiff’s proximity to the harm in comparison to other plaintiffs, the court determined.

Because the Illinois antitrust statute was found consistent with the court’s interpretation of federal antitrust law, Hot Shots’ state-law antitrust claim failed for the same reasons as the federal antitrust claim.

False claims. The False Claim Act and Illinois Whistleblower Reward and Protection Act claims were sufficiently pleaded, however. The court found that the relator only needed to provide a plausible basis for believing that the defendant entered into the 2008 and 2010 government contracts with the intent not to perform or with the knowledge that it could not perform as promised. Allegations that Sami Distributors, Inc.—the “pass through” entity Covidien used to win the CCHHS contract—falsely represented to CCHHS that it would store and provide radiopharmaceuticals in accordance with the terms of the contract, knowing that Covidien would actually be performing the contractual obligations, and thereby fraudulently inducing CCHHS into contract with Sami, were sufficient to state a False Claims Act claim under the fraudulent-inducement theory.

The motion to dismiss also was denied with regard to the 2011 contract. First, the relator was not required to provide examples of allegedly false claims, as Triad argued. Second, Triad argued that the relator failed to allege an actionable bid rigging scheme that could give rise to liability. However, whether the defendants’ conduct surrounding the 2011 contract was more accurately described as a government agency exercising its discretion or a conspiracy to defraud the government was deemed a fact issue that is off-limits at the current stage of litigation, the court concluded. Further, the relator alleged a plausible bid rigging scheme with particularity, which is all that was required to defeat a motion to dismiss.

The case number is 11-cv-8098.

Attorneys: Daniel Moore Twetten (Loevy & Loevy) for Matthew Blaum and Hot Shots NM, LLC. John Francis Grady (Grady Bell LLP) for Todd Giba. Laura Gaffney Hoey (Ropes & Gray LLP) for Covidien Inc. Keevan David Morgan (Morgan & Bley, Ltd.) for Sami Distributors, Inc. Diane Green-Kelly (Reed Smith LLP) for Triad Isotopes, Inc.

Companies: Hot Shots NM, LLC; Triad Isotopes, Inc.; Covidien, Inc.; Sami Distributors, Inc.

Cases: Antitrust IllinoisNews