Sherman’s March Thru The Medical Arts.

For those who care little about preseason NFL, NASCAR or the NL pennant race (STL is already in), our mental musings better are directed to recent antitrust litigation in the medical markets. 

Imagine five roads coming together at an uncontrolled intersection – that’s the mental picture for these litigations.  Competing are exclusivities granted by patents, by FDA approvals, as well as contractual and distribution restraints; but, coming from the other direction are profit-driven sellers of generic and unpatented substitutes, doctors who want a share of the profits, and patients who need a remedy which others will prescribe.  Did I forget to mention the FTC, consumers rights organizations, attorneys general, and congressional subcommittees, and the anti-monopoly “rule of reason”?  Yes, that’s an uncontrolled intersection – but, to act as traffic cop, we can enlist a federal judge with a liberal arts degree, or jurors who view all of the actors with suspicion.

Consider the recent monopolization suit that nine law firms filed as a purchaser class action against the companies that make the most “orthopedic implant devices sold” in the U.S., and have “over 75% of the worldwide market.”  South Central, etc. v. Zimmer, et al, (S.D. Ind.).  The essential allegations are agreements to “fix” prices.  The complaint seems a quick follower to DOJ subpoenas to the defendant manufacturers, buoyed with a hope that DOJ will uncover the real evidence.  That hope is implied from the complaint lacking allegations of specific agreements or meetings to fix prices.  The suit is pleaded as a per se violation, because that can eliminate the more onerous burdens of proving an unreasonable restraint on the market.  “[H]orizontal price-fixing is illegal per se without requiring a showing of actual or likely impact on the market.”  Denny’s Marina, 8 F.3d 1217 (7th Cir.). 

Some of the more intriguing defenses are whether an antitrust injury was pleaded, and defendants’ conscious parallelism since price matching in an oligopolistic market is not per se illegal.  Reserve Supply, 971 F. 3d 37 (7th Cir.).  I’ll have to check back later when the docket sheet is more developed.

On the threshold question of antitrust injury, a recent Sixth Circuit decision NicSand v. 3M (Aug. 8, 2006) helped me to understand it, but with negativing aspects.  I view antitrust injury to arise when a defendant’s actions harm the market, and as a result of the marketplace harm, the plaintiff is injured.  In other words, a direct nexus between defendant’s act and plaintiff’s injury need not be pleaded, but rather, harm to a competitive marketplace.  The caselaw gets muddied by dicta describing what antitrust injury is not.  My current favorite, from the NicSand decision, uses a quinta-negative to assess if the alleged injury has a predicate basis.  “Not only was it not apparent from the complaint that this would have occurred in the absence of the exclusive agreement, but also it would have been unlikely for Kmart to take such a step – to refuse to even to hear a supplier’s offer – in the absence of a commitment that it do so.” Imagine putting that sentence is an opinion letter to a valued client.

Since clarity is not always required in antitrust pleadings, the complaint against the implant makers may get by initial motions.  The larger issues offer an interesting blend of antitrust and patent issues, with unique products competing in a sophisticated market having inelastic demand.  As the populace ages, demand for orthopedic implants is increasing, even though implant prices are increasing, perhaps 8% annually.  A database search shows healthy patent portfolios for each named implant maker.  For that, and other reasons, implants are not all the same, or substitutes.  Surgeons may prefer one brand of implant, due to its functionality, and regardless of price differentials or patents.  Also, the surgeon is paid the same without regard to what implant he prescribes, since most orthopedic implants patients are eligible for Medicare. 

Without direct evidence of an express agreement to fix prices, proving an ability to fix prices in a highly-differentiated marketplace is difficult.  Presumably, plaintiffs’ counsels hope those federal subpoenas will provide direct evidence of price fixing.  Of course, not all investigative work by the government is made available to private-party class action plaintiffs. Dellwood Farms, Inc. v. Cargill, Inc., 128 F.3d 1122, 1126-27 (7th Cir. 1997).  For the present, the implant suit lacks the impressive allegations of fact in, for example, the FTC suits over settlements between big pharma companies to delay introduction of generics.  Who can say, in five years, these cases may have worked there way through the district and appeal courts, and we can go back to watching summer sportscasts.