Barr Laboratories, Inc. v. Abbott Laboratories

• Decision Date: 23 October 1992
• Docket Number: No. 92-5014,92-5014
• Citation: 978 F.2d 98
• Parties: , 1992-2 Trade Cases P 70,007, 24 Fed.R.Serv.3d 117 BARR LABORATORIES, INC., Appellant, v. ABBOTT LABORATORIES, Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 98

978 F.2d 98

61 USLW 2281, 1992-2 Trade Cases P 70,007,

24 Fed.R.Serv.3d 117

BARR LABORATORIES, INC., Appellant, v. ABBOTT LABORATORIES, Appellee.

No. 92-5014.

United States Court of Appeals Third Circuit.

Argued Aug. 18, 1992.

Decided Oct. 23, 1992.

Anthony S. Genovese, (Argued) John D. D'Ercole, Robinson, Brog, Leinwand, Reich, Genovese & Gluck, P.C., New York City, for appellant.

Catherine A. Sazdanoff, Abbott Laboratories, Chicago, Ill., and Suzanne M. McSorley, Smith, Stratton, Wise, Heher & Brennan, Princeton, N.J., and Theodore B. Van Itallie, Jr., (Argued) Jeffrey M. Zimmerman, Philip Bein, Patterson, Belknap, Webb & Tyler, New York City, for appellee.

Before HUTCHINSON, COWEN and WEIS, Circuit Judges.

OPINION OF THE COURT

HUTCHINSON, Circuit Judge.

Barr Laboratories, Incorporated (Barr) appeals a judgment of the United States District Court for the District of New Jersey granting summary judgment to appellee Abbott Laboratories (Abbott). The district court exercised subject matter jurisdiction pursuant to 28 U.S.C.A. §§ 1331 ¹ and 1337 ², and 15 U.S.C.A. §§ 15 ³ and 26 ⁴. This Court exercises jurisdiction over the appeal from the district court's final judgment in favor of Abbott pursuant to 28 U.S.C.A. § 1291 (West Supp.1992). Ultimately, the district court granted Abbott summary judgment on all of Barr's claims. We will affirm.

I. Procedural History

Barr commenced this action in December 1987, claiming various violations of the antitrust laws in connection with Abbott's marketing of erythromycin ethylsuccinate. Count I of the complaint alleged that certain contracts which Abbott had made with warehouse chain drugstores were unlawful exclusive dealing contracts in violation of section 3 of the Clayton Act, 15 U.S.C.A. § 14, and section 1 of the Sherman Act, 15 U.S.C.A. § 1 (the "exclusive dealing claim"). Count II alleged that Abbott had sold ethylsuccinate to these warehouse chains at discriminatory prices with predatory intent in violation of section 2(a) of the Clayton Act, as amended by the Robinson-Patman Price Discrimination Act, 15 U.S.C.A. § 13(a) (the "price discrimination claim"). Count III alleged that Abbott had monopolized or attempted to monopolize the erythromycin market in violation of section 2 of the Sherman Act, 15 U.S.C.A. § 2 (the "attempted monopolization claim" ⁵), by (1) entering into exclusive dealing contracts with warehouse chains as set forth in Count I, (2) discriminating in the price of ethylsuccinate 400-milligram tablets as set forth in Count II, and (3) refusing to sell on reasonable terms the raw materials necessary to produce erythromycin (the "essential facilities claim").

Abbott first filed a motion to dismiss or, in the alternative, for summary judgment, on the price discrimination and essential facilities claims. The district court initially denied Abbott's motion on April 29, 1988. On June 27, 1988, however, upon Abbott's timely motion for reconsideration, the district court reversed its earlier decision and granted Abbott summary judgment on both claims.

On the price discrimination claim, the district court found that Abbott had never sold ethylsuccinate 400-milligram tablets at or below the price charged by Barr for its generic equivalent. On this evidence, the district court recognized Abbott's argument that Barr could not "substantiate a claim for unlawful price discrimination where Abbott has not undercut Barr's own prices for the drug" and noted that Barr failed to produce evidence of such conduct. As an alternative ground for granting summary judgment, the court held that Abbott had established "an absolute defense on this claim" under the good faith meeting competition defense of section 2(b) of the Robinson-Patman Act because it was not charging a price below that of Barr. ⁶ On September 16, 1988, the district court denied Barr's motion for reconsideration of the order granting Abbott summary judgment on the price discrimination claim.

In February 1989, Abbott moved for summary judgment on the remaining counts. The district court denied that motion on June 1, 1989, because the parties had not yet completed discovery on the relevant market. When Abbott renewed its motion after completion of discovery, the district court again denied it because there remained disputed issues of fact regarding the definition of the appropriate relevant market. The district court entered a final pretrial order on May 10, 1991 and selected a trial date.

Before the commencement of trial, Abbott moved in limine pursuant to Federal Rule of Civil Procedure 42(b) to bifurcate and try first the issue of definition of the relevant market. The district court granted the motion to bifurcate on July 29, 1991.

On September 16, 1991, trial on the relevant market issue commenced. The parties had stipulated prior to trial that the entire United States constituted the relevant geographic market because both parties market their respective products on a national scale. On October 2, 1991 the jury found that the relevant product market is all adult oral erythromycin products. Abbott renewed its motion for summary judgment with regard to the exclusive dealing and remaining monopolization claims on that same date.

On December 2, 1991, the district court entered an order granting summary judgment on these claims. With regard to the attempted monopolization claim, the district court held, despite Abbott's approximate 50% market share and predatory intent, that Barr had not shown a dangerous probability of successful monopolization in light of the stability of the market structure, the entry of new manufacturers and products, and the stability of prices. The district court further concluded that the absence of evidence of anti-competitive effects on the market, coupled with Abbott's legitimate business reasons for entering the contracts, required dismissal of the exclusive dealing claim. This appeal followed. ⁷

II. Factual History

1. Description of the Relevant Market

Erythromycin is an antibiotic originally developed by Abbott in 1953. There are four major categories of adult oral erythromycin products: stearate, estolate, ethylsuccinate, and base. Abbott markets ethylsuccinate 400 mg. tablets under the brand-name "EES-400." Abbott held patent rights and controlled production of EES-400 until January 3, 1978. In 1981 Barr obtained approval from the United States Food and Drug Administration (FDA) to manufacture and sell a generic ⁸ version of Abbott's EES-400.

During all times relevant to this case, a number of other major companies had FDA approval to manufacture one or more of the various types of adult oral erythromycin products in the relevant market. These companies included both "branded" or "pioneer" companies which manufacture name-brand drugs, ⁹ and generic companies like Barr. ¹⁰ Some branded companies, like Abbott, also manufacture generic drugs that compete with the products of other branded companies. In addition to the branded and generic companies, many pharmaceutical companies purchase erythromycin products from FDA-approved manufacturers and market them under their own name. ¹¹ These companies need not seek independent FDA approval in order to market their products.

Manufacturers distribute their products, including erythromycin, to drugstores through three major channels: (1) sales directly to independent pharmacies; (2) sales to wholesalers who resell to pharmacies; and (3) sales to warehouse chain drugstores which supply their retail pharmacies from their own warehouses. Of these three, the warehouse chains are reputedly the most powerful and most price-sensitive buyers in the market. ¹²

The erythromycin market includes both single-source and multi-source products. Single-source products have no generic competition and are heavily promoted to physicians. During the relevant time period there were only two single-source erythromycin products on the market: Abbott's PCE and Parke Davis's ERYC. Multisource products may or may not be promoted to physicians, but in any event they face fierce generic competition. Three erythromycin multisource products were on the market during the time relevant to this case: Abbott's EES-400, Boots/Upjohn's E-Mycin, and Parke Davis's ERYC.

A generic firm planning to enter the erythromycin market duplicates a branded drug chemically, then establishes the generic's bioequivalence with that drug through studies on healthy volunteers. Barr's Chief Executive Officer, Edwin Cohen, testified that there are no technical barriers to production of an EES generic, and that "literally a dozen" companies have the technical capability to make the drug. None of the major products in the erythromycin market benefitted from patent protection during times relevant to this case.

FDA approval, however, was and remains a necessary prerequisite for market entry. Obtaining such approval generally took from six months to two years. However, Barr was informed in 1989 that the approval process would be lengthened because of criminal investigations concerning other generic firms.

A pharmacist is legally prohibited from dispensing an erythromycin drug without a prescription from a physician. Additionally, a pharmacist also may not substitute one form of erythromycin for another. A prescription that specifies, for example, ethylsuccinate 400-milligram tablets may not be filled with any other form of erythromycin.

Generally, the pharmacist decides whether to dispense the brand-name of the drug or its generic counterpart. There are limits, however, on this discretion. If the physician specifically states on the prescription "do not substitute" or similar language, then the pharmacist must fill the prescription with the brand-name drug specified. The number of times a physician chooses to do this, however, is relatively small. A number of states also have mandatory substitution laws requiring pharmacists to fill prescriptions with generic...