Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Sleep apnea products manufacturer allegedly used exclusive contracts to foreclose competition, (Mar 13, 2015)

By Linda O’Brien, J.D., LL.M.

A manufacturer of air flow generators and masks for the treatment of sleep apnea has engaged in anticompetitive conduct by entering into exclusive contracts with distributors and aggressively pursuing patent litigation against competitors, according to a complaint filed in the federal district court in Tampa, Florida (3B Medical, Inc. v. ResMed, Inc., March 11, 2015).

ResMed, Inc. is a manufacturer of products used for the treatment of sleep related breathing disorders, including flow generators that supply air to masks worn by patients suffering from sleep apnea. 3B Medical is an importer and domestic distributor for BMC Medical, a Chinese manufacturer of air flow generators masks.

The complaint states that sleep apnea is a long term condition that requires ongoing treatment using an air flow generator and mask, which require approval from the Food and Drug Administration (FDA). After obtaining a prescription from their physician, patients order sleep apnea masks and air flow generators from durable medical equipment distributors (DMEs) or national respiratory product companies (National Accounts). DMEs and National Accounts purchase the products from suppliers, such as ResMed, ship the products to and collect co-payments from patients, and seek reimbursement of the remaining price from health insurers.

According to the complaint, ResMed has approximately 1,321 U.S. patents and patent applications, many of which involve sleep apnea masks, and ResMed aggressively asserts its patents against new market entrants. After 3B Medical began selling competing sleep apnea masks in November 2012, ResMed filed patent infringement litigation against 3B Medical and BMC in the International Trade Commission (ITC). The ITC found that 3B Medical’s masks infringed a ResMed patent and 3B Medical was barred from importing and selling the masks in the United States. Similarly, ResMed files patent infringement cases against new entrants, Respironics and Fisher Paykel, and subsequently entered into licensing agreement with the two companies, which include royalties that diminish price competition.

ResMed has entered into exclusive contracts in which customers have been threatened with substantial price increases on masks unless they purchased all or virtually all of their masks and air flow generator needs from ResMed. ResMed audits customer compliance with those contracts by visiting customer warehouses to assess whether a customer is purchasing competing products. Additionally, ResMed has interfered with 3B Medical’s actual and potential customers by using its sales force to make false and disparaging statements about 3B Medical, the complaint states.

The complaint also alleges that ResMed has market power, holding at least a 70 percent share of the sleep apnea mask market. As a result, ResMed has been able to profitably price its masks at supra-competitive levels. ResMed’s masks are more than 20 percent more expensive than competing masks and ResMed has imposed price increases of up to 70 percent on masks for customers that refuse to purchase all of their air flow generators from ResMed.

The market for sleep apnea masks has substantial barriers to entry. FDA approval of masks takes 18 to 24 months and requires capital investments. Existing physician practices of prescribing a mask by brand name and state laws that prevent DMEs or National Accounts from fulfilling a prescription with a product other than the one specified in the prescription also serve as barriers to entry. Patients tend not to switch the brand of sleep apnea mask that he or she has been using. Finally, ResMed’s patent portfolio and aggressive patent litigation practice creates a barrier to entry.

The plaintiff assert claims for tortious interference with business relationship, unfair competition, restraint of trade, exclusive dealing, unlawful tying, monopolization, and attempted monopolization in violation of Sections 1 and 2 of the Sherman Act, Clayton Act, Florida Antitrust Act, and Florida Deceptive and Unfair Trade Practices Act. The action seeks declaratory and injunctive relief, disgorgement, treble and punitive damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 8:15-cv-00546-SDM-TBM.

Attorneys: James J. McGuire (Thomas & Locicero PL) and Daniel Kotchen, Daniel Low, and Michael von Klemperer (Kotchen & Low LLP) for 3B Medical, Inc.

Companies: 3B Medical, Inc.; ResMed, Inc.; ResMed Corporation

News: Antitrust FloridaNews