Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Exclusive distributor contract for GE’s anesthesia equipment parts allegedly anticompetitive, (Mar 5, 2015)

By Linda O’Brien, J.D., LL.M.

The health care division of a leading manufacturer of medical anesthesia gas equipment has suppressed competition and restrained trade for parts for its equipment by entering into an exclusive distributor arrangement thereby requiring equipment servicing competitors to purchase parts at inflated prices, according to a complaint filed in the federal district court of Marshall, Texas (Red Lion Medical Safety, Inc. v. General Electric Company, Inc., March 3, 2015).

Multinational conglomerate General Electric Company (GE) and Drager Medical Inc. are two of the largest manufacturers of anesthesia gas equipment in the United States. In addition to manufacturing their own anesthesia and diagnostic imaging (DI) machines, each company provides essential maintenance, repairs, servicing, parts, patient monitoring, and refurbishing of its high technology equipment.

Red Lion Medical Safety, Inc., Universal Medical Services, Inc., Metropolitan Medical Services of NC, Inc., Biomedical Concepts, Anesthesia Service, Inc., Diversified Anesthesia, LLC, Paragon Service, Bay State Anesthesia, Inc., Popn, Inc., Gasmedix, LLC, West Coast Anesthesia Specialists, Inc., Palo Verde Biomedical Consultants, LLC, and Heartland Sales & Services, LLC are independent service organizations (ISOs) that service anesthesia equipment.

The complaint alleges that in 2003, GE became dominant in the anesthesia market by acquiring Datex-Ohmeda, the largest manufacturer of anesthesia gas machines in the United States, which controlled approximately 70 percent of the market share. For many years, Ohmeda would sell directly to ISOs parts, tools, test equipment, supplies, service manuals, and specifications for Ohmeda equipment. In 2006, GE implemented a new Independent Service Provider (ISP) program under which ISO service technicians could attend its training schools and, upon passage of a course, could purchase GE parts and manuals. Each technician who applied for training was required to pay an annual $15,000 application fee plus the cost of the course. Those costs were prohibitive for many ISOs and part of GE’s attempt to use its monopoly power over Ohmeda parts to force customers to buy Ohmeda servicing.

In 2011, GE entered into an arrangement under which Alpha Source, Inc. would become its sole distributor of non-imaging service parts. Although Ohmeda had previously sold parts directly to ISOs at wholesale list prices, the arrangement mandated that ISOs could only obtain parts from GE’s exclusive distributor, Alpha Source, at highly inflated prices. This change in GE’s policy is an unreasonable restraint of trade especially since GE controls nearly 100 percent of the parts markets. Moreover, the result of the agreement is the elimination of GE’s anesthesia and DI service rivals, the complaint charges.

According to the complaint, the parts and equipment manufactured by GE are made only for GE machines and the parts made by Drager are entirely controlled by Drager. The parts manufactured by the two companies are not interchangeable, have no substitutes, and cannot be obtained by ISOs from any source not authorized by GE and Drager. Because GE and Drager have a monopoly over their respective parts, the ISOs will be eliminated from the market without the parts being available under competitive conditions.

The plaintiffs assert claims for illegal acquisition, restraint of trade, monopolization, attempted monopolization, and conspiracy to monopolize in violation of Sections 1 and 2 of the Sherman Act, Clayton Act, and Robinson-Patman Act. The action seeks declaratory and injunctive relief, actual and treble damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 2:15-cv-00308.

Attorneys: Paul F. Ferguson, Jr. (Provost & Umphrey Law Firm, LLP) and Paul Bartlett, Jr. for Red Lion Medical Safety, Inc., Universal Medical Services, Inc., Metropolitan Medical Services of NC, Inc., Biomedical Concepts, Anesthesia Service, Inc., Diversified Anesthesia, LLC, Paragon Service, Bay State Anesthesia, Inc., Popn, Inc., Gasmedix, LLC, West Coast Anesthesia Specialists, Inc., Palo Verde Biomedical Consultants, LLC, and Heartland Sales & Services, LLC.

Companies: Red Lion Medical Safety, Inc.; Universal Medical Services, Inc.; Metropolitan Medical Services of NC, Inc.; Biomedical Concepts; Anesthesia Service, Inc.; Diversified Anesthesia, LLC; Paragon Service, Bay State Anesthesia, Inc.; Popn, Inc.; Gasmedix, LLC; West Coast Anesthesia Specialists, Inc.; Palo Verde Biomedical Consultants, LLC; Heartland Sales & Services, LLC; General Electric Company, Inc.; Alpha Source, Inc.

News: Antitrust TexasNews