Bnlfood Inv. Sarl v. Martek Biosciences Corp.
| Decision Date | 28 March 2013 |
| Docket Number | CIVIL NO.: WDQ-11-0446 |
| Parties | BNLFOOD INVESTMENT SARL, Plaintiff, v. MARTEK BIOSCIENCES CORP., Defendant. |
| Court | U.S. District Court — District of Maryland |
BNLfood Investments Limited SARL1 ("BNLfood") sued Martek Biosciences Corporation ("Martek") for violations of Section 2 of the Sherman Act,2 Section 3 of the Clayton Act,3 and the Maryland Antitrust Act.4 Pending is Martek's motion for summary judgment. For the following reasons, the motion will be granted.
Martek is a biotechnology company whose products include fatty acids from microorganisms.6 Def. Ex. 9 at 2. Martek sells docosahexaenoic acid ("DHA") derived from algae and arachidonic acid ("ARA") from fungus for use in infant formula.7 Id. Martek's DHA and ARA are separate products. See Def. Ex. 9 at 2-3; Def. Ex. 10 at 91:19-25. DHA and ARA assist in infant brain and eye development. Def. Ex. 9 at 3. The two compounds appear to work together for this development, although the proper ratio and exact mechanism are currently unknown. See, e.g., Pl. Ex. 166; Def. Ex. 4.
BNLfood is a holding company for a family of companies 'that produce food, chemicals, pharmaceuticals, and other products.8See Def. Ex. 25 at 207:1-16; Def. Ex. 26 at 79:15-21. The Lipid Company is the BNLfood subsidiary responsible for phospholipid products, including DHA and ARA from eggs. See Def. Ex. 26 at 169:16-24. DHA and ARA cannot be separated in BNLfood's products. Def. Ex. 3 at 59:21-22.
Since 2005 Martek has maintained a nearly 100% market share of the DHA and ARA used in infant formula in the United States by supplying four infant formula manufacturers: Mead Johnson & Company ("Mead"), Abbott Laboratories ("Abbot"), Nestle, Ltd. ("Nestle"), and PBM Products, LLC ("PBM"). See, e.g., Pl. Ex. 1 at 88:7-21; Pl. Ex. 5-7 (agreements). In 2011, Mead had approximately 45% of the U.S. market for infant formula, Abbott 24%, Nestle 21%, and PBM most of the rest; Martek supplied all of their DHA and ARA. See Def. Ex. 5; Def. Ex. 10 at 86:15-87:1.
In 2002, Mead was the first manufacturer to offer infant formula with DHA and ARA in the United States, using Martek's products. Pl. Ex. at 50:24-51:10. Although the other manufacturers' make products under their own names, PBM makes generic store brand products for various retailers. See Def. Ex. 10 at 86:21-23.
At some point,9 Martek notified Mead of a price increase to occur during the fall of 2005. Pl. Ex. 14 at MTK-E-0051186. Effective January 1, 2006, Martek and Mead executed a sole source agreement ("SSA"), where Mead agreed to purchase all of its required DHA and ARA for. use in infant formula from Martek. Pl. Ex. 13. According to Martek documents, "Mead signed its supply agreement with the expectation that Martek was increasing price." Pl. Ex. 14 at MTK-E-0051186. Martek's focus then shifted to "locking-up Martek's other major customers." Pl. Ex. 10 at MTK0006160.
In April and May 2007, Martek notified its other customers that it was going to increase it prices for DHA and ARA effective July 1, 2007.10 Pl. Ex. 17. In October 2007-, Abbott signed an SSA with Martek, retroactive to January 1, 2007. Pl. Ex. 18. Nestle and PBM did not agree to SSAs, and Martek increased their prices. See Pl. Ex. 21 at MTK-E-0096778; Pl. Ex. 24; Pl. Ex. 138. To avoid another price increase, PBM signed a new license and supply agreement in September 2009. See Pl. Exs. 27-29. This agreement, although not an SSA, gave PBM pricing options with (A) Martek as the sole source of both DHA and ARA or (B) Martek as the sole source of either DHA or ARA. Pl. Ex. 142 at MTK0004238.
Under Martek's original SSAs, Mead and Abbott could terminate the sole-source provisions effective December 31, 2011, which coincided with the expiration of some of Martek's patents. See Pl. Ex. 30 at MTK-E-0080062. In 2009, Cargill, a producer of ARA but not DHA, was looking to begin selling ARA to the infant formula manufacturers. See, e.g., Def, Ex. 8 at 75:14-76:12. Facing the possibility of other suppliers entering the market, Martek devised pricing projections showing that it would be able to keep prices higher by arranging for SSAs with infant formula manufacturers. See Pl. Ex. 58 at MTK0020719. Although Cargill made overtures to Mead about the sale of ARA, Mead was worried about the price and availability of DHA from Martek, the only supplier. See Pl. Ex. 34; Pl. Ex. 35 at 84:3-8. By June 2010, Mead amended its SSA with Martek, effective through the end of 2015. Pl. Ex. 36. Although the price declined each year, the 2015 ARA price was still higher than that offered by Cargill in 2009. Pl. Ex. 4 at 71:9-14. Martek believed that the Mead extension would "establish[] a template and pricing model for negotiations with our other customers." Pl. Ex. 31 at MTK0020789. Ethan Leonard, a Martek employee, testified that Mead effectively got a discount through-the stable price of the SSA because of inflation. Def. Ex. 10 at 57:22-58:1. However, Martek documents indicated that Mead could have saved $9 million "on a net present value basis" byswitching to competitors after the expiration of the original SSA. Pl. Ex. 31 at MTK0020789.
On December 16, 2010, Abbott also extended its SSA with Martek through 2016. Def. Ex. 23. Martek then looked to execute an SSA with PBM, believing if PBM "were to move to an alternative DHA/ARA supplier in the U.S., then it would improve the likelihood that Mead, Abbott or Nestle would do the same when contractually permitted." Pl. Ex. 43 at MTK-E-0070466. After being pressured about the need to maintain the same formulations as the' market leaders, PBM agreed to an SSA - effective December 1, 2011. See Pl. Ex. 15; Pl. Ex. 48.
Currently, Nestle is the only one of the four U.S. infant formula manufacturers without an SSA with Martek, although there have been some negotiations about such an agreement. See, e.g., Pl. Ex. 56. Nestle's current agreement with Martek contains several pricing options, with considerably higher prices if Nestle does not purchase all of its DHA and ARA from Martek. See Pl. Ex.. 6 at 34.
Martek attributes the SSAs with permitting it to develop a new strain of DHA. Def. Ex. 10 at 262:7-9. Mark Dunaway, a Martek employee, testified that the SSAs allowed Martek to have assumptions about the quantity of DHA and ARA that it would sell. Def. Ex. 11 at 138:19-23. Another, Peter Nitze, testified that the SSAs did not make the supply more.predictable, and Martek did not expect it to. Pl. Ex. 9 at 88:2-12. Additionally, Martek's 2010 Form 10-K stated, "We have limited visibility into our customers' future actual level of demand." Def. Ex. 9 at 23.
BNLfood first tried to market its DHA and ARA products in the United States around 2000, with greater effort from 2004 to 2009. Def. Ex. 29 ¶ 4. To assist its efforts, BNLfood retained Michael Hawes as its agent in the United States. See Def. Ex. 26 at 55:14-24.
In 2007, BNLfood decided to build a new facility for the production of DHA and ARA for big markets, such as the United States. Def. Ex. 3 at 127:8-15. By March 2010 the plant was in operation for testing, although orders for customers were not delivered until July 2011. See Def. Ex. 26 at 71:19-22; Def. Ex. 33 at 84:13-16
In anticipation of its new production capacity, BNLfood began discussions with the four U.S. infant formula manufacturers for sale of its DHA and ARA products. On November 9, 2009, BNLfood representatives met with Mead personnel; however, the Mead employees present "were in general agreement that the DHA and ARA products marketed by [BNLfood] did not merit further evaluation or consideration by [Mead] at the time." Def. Ex. 6 ¶ 6. Mead was concerned because BNLfood'sproducts were derived from eggs, an allergen, and additional clinical testing would be required. Id. On March 9, 2010, a Mead employee who was not at the meeting emailed BNLfood that its products "might have our interest and should be evaluated against our business strategy." Pl. Ex. 69. On May 28, 2010, Hawes reported that Mead was "currently reviewing their policy" on DHA and ARA products "as the rules from end 2011 (sic) will differ with expiration of patent Martek (sic)." Pl. Ex. 65. Mead apparently had no further contact with BNLfood. Pl. Ex. 70 at 31:16-311:15.
BNLfood's negotiations with Abbott in 2009 and 2010, were similarly unproductive. In August 2009, Hawes reported that an Abbott employee disclosed the SSA with Martek. Def. Ex., 42. Although negotiations appear to have continued, on December 9, 2009, an Abbott representative stated Pl. Ex. 110. BNLfood and Abbott last met in January 2010, apparently without success. See Def. Ex. 7. There were no further negotiations between BNLfood and Abbott.
BNLfood also had no success with PBM. Although BNLfood and PBM were engaged in active discussions, at a October 14, 2010 conference call, PBM stated that BNLfood's price "was a deal breaker as it was 3 to 5 times more expensive" than Martek's. Def. Ex. 57. PBM was also concerned about the progress of BNLfood's GRAS submission. See Def. Ex. 49. Nevertheless, PBM requested samples from BNLfood, which were provided in November 2010. See Pl. Ex. 79; Pl. Ex. 80. On June 13, 2011, PBM requested additional samples for evaluations and trials. Pl. Ex. 82. It appears that BNLfood had no further contact with PBM.
Nestle has long been a customer of BNLfood in Europe, and BNLfood sought to expand their relationship to the United States. See Pl. Ex. 83 at 43:16-44:6. In early June 2009, Hawes spoke to a new Nestle representative who stated that it would be...
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