Antitrust Law Daily Wrap Up, TOP STORY—E.D. Pa.: Marketer of generic blood glucose test strips plausibly alleged exclusive dealing, monopoly claims, (Dec 29, 2015)

By Linda O’Brien, J.D., LL.M.

A marketer of low cost generic blood glucose test strips plausibly alleged that the leading provider of blood glucose self-monitoring systems engaged in anticompetitive conduct by entering into exclusive dealing arrangements with its resellers in order to monopolize the market for blood glucose test strips, the federal district court in Philadelphia has decided (UniStrip Technologies, LLC v. LifeScan, Inc., December 28, 2015, Slomsky, J.).

LifeScan, Inc., a subsidiary of Johnson & Johnson, is a leading manufacturer of blood glucose self-monitoring systems, which include blood glucose test strips and blood glucose meters.

In 2014, UniStrip Technologies began marketing and selling low cost generic blood glucose test strips for use in brand name meters, such as certain models of meters sold by LifeScan. Subsequently, LifeScan entered into exclusive contracts with its resellers in which LifeScan would offer rebates and discounts on the condition that those resellers would not purchase any non –LifeScan products compatible with LifeScan meters. In July 2014, UniStrip filed suit against LifeScan, alleging that LifeScan organized a group boycott of UniStrip’s competing generic blood glucose test strips in violation of Sections 1 and 2 of the Sherman Act. LifeScan moved to dismiss the complaint for failure to state a claim.

Exclusive dealing. The court determined that UniStrip adequately pleaded a claim that LifeScan engaged in unlawful exclusionary arrangements. UniStrip alleged that LifeScan required purchasers of its products to commit to agreements under which they were influenced not to buy a competitor’s products, according to the court. UniStrip identified the specific product and geographic markets that it was allegedly excluded from as well as several distributors that were foreclosed from conducting business with UniStrip. The purpose of the scheme was to chill competition and maintain the defendant’s monopoly. In the court’s view, these allegations fell within the prohibitions set forth in Section 3 of the Clayton Act.

Sherman Act. UniStrip also plausibly alleged that LifeScan engaged in agreements that restrain competition and attempted to monopolize the test strip market. UniStrip alleged that LifeScan’s agreements offered discounts on the condition that UniStrip products were not purchased, consumers were disadvantaged by LifeScan’s scheme to eliminate competition from the market, and UniStrip offered a potentially lower priced product. UniStrip further claimed that LifeScan’s anticompetitive and exclusionary practices were undertaken with the specific intent to monopolize the market for test strips and its glucose meters. LifeScan possessed monopoly power in the relevant market and UniStrip’s allegations were sufficient to withstand a motion to dismiss, the court found.

Bundling. Finally, UniStrip adequately alleged that LifeScan engaged in an illegal bundling scheme. According to the court, UniStrip claimed that LifeScan offered discount and rebate programs on the purchase of its blood glucose meters and then locked those customers into purchasing its accompanying test strips. The bundling scheme had the effect of barring competition from entering or expanding into the market. Since UniStrip’s allegations were made with specificity, UniStrip demonstrated that LifeScan had economic power in the market for the bundled product and controlled the entire market for test strips compatible with its blood glucose meters, the court concluded.

The case is No. 14-cv-4518.

Attorneys: Donald R. Pepperman (Blecher Collins Pepperman & Joye PC) for UniStrip Technologies, LLC. David Kleban (Patterson Belknap Webb & Tyler LLP) for LifeScan, Inc. and LifeScan Scotland, Ltd.

Companies: UniStrip Technologies, LLC; LifeScan, Inc.; LifeScan Scotland, Ltd.

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