Abbott’s 2003 price increase for its protease inhibitor (PI) Norvir has spawned a series of antitrust challenges and decisions in the Ninth Circuit and the U.S. District Court for the Northern District of California. In the latest of these decisions, the District Court denied Abbott’s motion to dismiss predatory pricing, refusal to deal, and monopolization claims asserted by various purchasers of Norvir. See Safeway Inc. v. Abbott Laboratories, No. C 07-05470 CW, 2010 WL 147988 (N.D. Cal. 2010).
PIs are used to combat the HIV virus. Abbott had initially introduced Norvir as a PI that may be used on a “stand-alone” basis or in combination with other PIs to “boost” their performance. It later introduced another PI (Kaletra) that combined two PIs (Lopinavir and Ritonavir (Norvir)) as a booster).
Bristol-Myers Squibb (BMS) and GlaxoSmithKline (GSK) later announced their development of competing PIs (Reyataz and Lexiva, respectively) that were reportedly just as effective as Kaletra when used with Norvir as a booster. After GSK successfully introduced Reyataz, the market share of Abbott’s combination PI (Kaletra) and the daily dose of Norvir both fell. Abbott subsequently raised the wholesale price of Norvir by 400 percent, while keeping the price of Kaletra constant. Abbott said it did so to reflect Norvir’s considerable clinical value as a “booster” drug, which increases absorption (and thus performance) when used in conjunction with all other PIs.
A number of retail and wholesale distributors (referred to in the decision as “Direct Purchasers”) filed an antitrust challenge to the price increase, as did GSK. The Direct Purchasers contended in part that Abbott had violated section 2 of the Sherman Act by engaging in predatory pricing of a bundled product (Kaletra), by a refusal to deal as to Norvir, and by monopolizing an alleged “boosting” market in which Norvir competed. GSK also filed an antitrust challenge, contending in part that Abbott had effectively refused to deal with it as to Norvir and had engaged in deceptive conduct, both in violation of section 2 and North Carolina antitrust and deceptive practices law. The latest decision in the litigation rejects Abbott’s motion to dismiss each of these claims.
In declining to dismiss Direct Purchasers’ predatory pricing claims, the Court concluded that Direct Purchasers had no obligation to allege that Abbott could recoup its losses from the alleged predatory pricing. It explained that the requirement to allege a dangerous possibility of recoupment applies only in cases alleging predatory pricing of a single product and not in those involving a bundled price for a combination of products such as a boosted PI. It rejected Abbott’s argument that the Ninth Circuit’s prior decision in John Doe 1 v. Abbott Laboratories, 571 F.3d 930 (9th Cir. 2009) and the U.S. Supreme Court’s prior decision in Pac. Bell Tel. Co. v. Linkline Commun’s, Inc., 129 S. Ct. 1109 (2009) were to the contrary, holding that Doe related solely to a monopoly leveraging theory (not predatory pricing) and that Linkline involved only an alleged price squeeze, not predatory pricing of a bundled product in the context of an alleged refusal to deal. Finally, the Court concluded that Direct Purchasers had adequately alleged that Abbott predatorily priced Kaletra in violation of the standards established in the Ninth Circuit’s earlier decision in Cascade Health Solutions v. Peacehealth, 515 F.3d 883 (9th Cir. 2008).
In declining to dismiss Direct Purchasers’ and GSK’s refusal to deal claims, the Court concluded that the standards set forth in the U.S. Supreme Court’s decision in Aspen Skiing Company v. Aspen Highlands Skiing Corporation, 472 U.S. 585 (1985) continued to be controlling and, again, that the Ninth Circuit’s prior Doe decision was not to the contrary. The Court emphasized that, while Abbott has a general right to select the parties with whom it will deal and to refuse to deal except where its conduct could result in an unlawful monopoly, its decisions to modify its prior voluntary course of dealing with GSK and others in the supply of Norvir and to raise the price of Norvir 400% while keeping the price of Kaletra constant were sufficient to allege an unlawful refusal to deal. In doing so, the Court noted that an unreasonable offer (as opposed to an absolute refusal) can be sufficient evidence of a refusal to deal and that Abbott’s differing approach to pricing of Norvir and Kaletra could be evidence of anti-competitive intent even if Abbott was not alleged to have forsaken short-term profits on Norvir.
Finally, in declining to dismiss Direct Purchasers’ claim that Abbott had monopolized an alleged “boosting” market in which Norvir competes, the Court held that allegations that Abbott had kept the price of Norvir constant for several years to induce its competitors to use Norvir as a booster PI rather than develop their own and then imposed an “unreasonable” price increase were sufficient to state a claim. The Court again distinguished Linkline and Doe, holding that neither of those cases involved an “antitrust theory based on deceptive conduct that induced reliance” of the type at issue in the pending case. It rejected Abbott’s claims that it was necessary for Direct Purchasers to allege unlawful licensing activity or deceptive conduct before a standards-making body, holding that Direct Purchasers’ claim that “Abbott unlawfully deceived its competitors” was sufficient.
Based on this analysis, the Court also held that GSK had adequately alleged a violation of North Carolina state antitrust and unfair and deceptive practices law. This and earlier decisions in the case demonstrate again the uncertainty and complexity in evaluating predatory pricing, refusal to deal, leveraging, or price squeeze allegations against an allegedly dominant firm. Further clarification may be available as the litigation moves forward. In the meantime, careful counseling in this area remains critical.