Glynn-Brunswick Hosp. Auth. v. Becton, Dickinson & Co.
| Decision Date | 29 January 2016 |
| Docket Number | CV 215-091 |
| Citation | 159 F.Supp.3d 1361 |
| Parties | Glynn-Brunswick Hospital Authority and Southeast Georgia Health Systems, Inc., individually and as members of classes, Plaintiffs, v. Becton, Dickinson and Company, Defendant. |
| Court | U.S. District Court — Southern District of Georgia |
R. Stephen Berry, Berry Law, PLLC, Washington, DC, Rebecca D. Gilliland, Archie I. Grubb, II, Roman A. Shaul, Beasley Allen Law Firm, Montgomery, AL, Wallace E. Harrell, Theresa Davis Beaton, Mark David Johnson, Gilbert, Harrell, Sumerford & Martin, PC, Brunswick, GA, for Plaintiffs.
James A. Bishop, Sr., The Bishop Law Firm, Brunswick, GA, Priyanka K. Wityk, Robert A. Atkins, William Michael, Paul, Weiss, Rifkind, Wharton & Garrison, LLP, New York, NY, for Defendant.
LISA GODBEY WOOD
This matter comes before the Court on a Motion to Dismiss filed by Defendant Becton, Dickinson and Company (“Defendant”), which the parties have briefed extensively. See Dkt. Nos. 9, 28, 31, 34, 38, 43-44. The Court held a hearing on this Motion on December 3, 2015. Dkt. No 42.
For the reasons set forth below, Defendant's Motion to Dismiss (dkt. no. 9) is GRANTED.1
Plaintiffs Glynn-Brunswick Hospital Authority, doing business as Southeast Georgia Health System, and Southeast Georgia Health System, Inc. (collectively, “Plaintiffs”) operate two hospitals providing inpatient acute care in Georgia. Dkt. No. 1, ¶ 10. Defendant is a New Jersey corporation, with its principal place of business in New Jersey, that manufactures hypodermic syringes, IV catheters, and other medical supplies. Id. at ¶¶ 11, 68. Plaintiffs purchase Defendant's syringes and IV catheters for use in their healthcare facilities. Id. at ¶ 10.
In recent years, the hypodermic-syringe industry has undertaken an initiative to reduce the risks associated with the use of syringes. Id. at ¶ 4. Among these risks is that nurses experience over 600,000 accidental needle sticks each year and, in some instances, contract diseases or other illnesses as a result. Id. at ¶ 3. Additionally, the practice of reusing syringe bodies threatens the transmission of contaminated blood. Id. at ¶¶ 6, 48. Thus, in 2000, Congress passed the federal Needlestick
Safety and Prevention Act, which “directed acute care providers among others to use safer practices to reduce injury from ‘sharps' such as syringes and IV catheters.” Id. at ¶ 50.
For its part, Defendant has created a manual safety syringe by adding a needle shield and a recapping mechanism to a conventional syringe. Id. at ¶ 4. Despite being Defendant's best-selling syringe, the manual safety syringe neither materially lowers the frequency of needle sticks nor prevents the reuse of contaminated syringes. Id. The manual safety syringe has received the rating of “unacceptable” from the acclaimed testing laboratory, Emergency Care Research Institute. Id. at ¶ 5.
Defendant's competitor, Retractable Technologies, Inc. (“Retractable”), on the other hand, has developed a retractable syringe, in which the needle automatically retracts into the barrel after use, nearly eliminating the risk of needle sticks. Id. at ¶ 6. Further, the plunger seals in the retractable syringe dislodge after injection, such that the syringe cannot be reused on other patients. Id. The retractable syringe boasts the highest safety rating from the Emergency Care Research Institute. Id.
In 2001, Retractable filed suit against Defendant in the Eastern District of Texas, alleging unfair competition and antitrust violations, which the parties later settled. Id. at ¶ 60 (citing Retractable Techs., Inc. v. Becton, Dickinson's Co. , No. 5:01-cv-036 (E.D. Tex. Jan. 29, 2001)). Defendant later introduced its own line of retractable syringes into the marketplace, id. at ¶ 90, which resulted in Retractable filing a second lawsuit against Defendant in the Eastern District of Texas in 2007, id. at SI 61 (citing Retractable Techs., Inc. v. Becton, Dickinson & Co. , No. 2:07-cv-250 (E.D. Tex. June 6, 2007)). In the second action, Retractable claimed patent infringement, antitrust violations, false advertising, and unfair competition. Id. at ¶¶ 61 (citing Retractable Techs., Inc. , No. 2:07-cv-250).
A jury determined that Defendant was liable for infringing Retractable's patented technology for the retractable syringe. Id. (citing Retractable Techs., Inc. , No. 2:07-cv-250). Additionally, Defendant was found liable for attempting to monopolize the safety-syringe market, as well as false advertising in disparaging Retractable's products while making misleading or unsubstantiated statements about its own. Id. at ¶¶ 62, 94-95, 99 (citing Retractable Techs., Inc. v. Becton, Dickinson & Co. , No. (E.D. Tex. Nov. 10, 2014)).2
Notwithstanding these events, Defendant's syringe sales have consistently comprised a dominant share of the syringe market. See id. at ¶¶ 34, 102. After acquiring a significant safety syringe rival, Safety Syringes Inc., in 2012, id. at ¶ 102, Defendant increased its already dominant market presence to an impressive 70% share by revenue, id. at ¶ 34. Meanwhile, Defendant's next largest competitor, Covidien, holds approximately a 17% market share. Id. at ¶ 34. Of its competitors having below 1% in market share prior to 2004, none rose anywhere above a 1.5% share from 2004 to 2010. Id. at ¶ 38. Additionally, Defendant has continued to charge higher prices than its competitors, selling its syringes for 22% to 33% more than the price of Covidien's manual safety syringes, and as much as 36% more than that of Retractable's retractable syringes. Id. at ¶ 30.
With regard to IV catheters, Defendant and its competitors manufacture both conventional IV catheters and IV catheters with additional safety features. Id. at ¶ 27. Defendant recently acquired a primary IV catheter rival, CareFusion Corporation, and now holds over a 65% share of the IV catheter market by revenue. Id. at ¶ 43. Notably, small firms in this industry saw only a 0.5% increase in their market shares from 2004 to 2010. Id. at ¶ 47. Although Defendant charges higher prices for its IV catheters than do its competitors—22% to 33% more than its next largest competitor, Covidien, and up to 37% more than Retractable—this practice has jeopardized Defendant's market share only to the extent of a 1% loss over a five-year period. Id. at ¶ 39.
Plaintiffs and similar acute care providers obtain Defendant's syringes and. IV catheters through a multistep contracting and purchasing process. To begin, a group purchasing organization (“GPO”) acts on behalf of its member providers in negotiating the purchase of Defendant's medical supplies. Id. at ¶ 113. The GPO, however, does not actually purchase or sell Defendant's products on behalf of the providers. Id. Rather, the GPO negotiates a “net dealer contract” with Defendant and notifies it's members of the terms available to them under this contract, including the negotiated prices, rebates, and other discounts for purchasing Defendant's products. Id. at ¶¶ 113-14.
If an acute care provider would like to buy Defendant's medical products under the terms of the net dealer contract, it must notify Defendant directly. Id. at ¶ 114. The provider then negotiates with a distributor, or dealer, that purchases medical supplies from manufacturers for resale to healthcare providers and other customers. See id. at ¶¶ 115-16. The provider and distributor enter into a “cost-plus” contract, pursuant to which the distributor agrees to buy Defendant's products at the GPO-negotiated rates and sell the products to the provider at a price equal to the cost to procure them plus a fixed percentage markup of that cost. Id. at ¶ 115.
The provider then sends a “letter of commitment” informing Defendant that it has contracted with the distributor. Id. at ¶ 116. The letter of commitment further instructs Defendant that it should sell its products to the distributor at the price, and under the terms, provided in the net dealer contract. Id. Defendant, in turn, enters into a “dealer notification agreement” with the distributor that sets forth the terms of their relationship in accordance with the GPO net dealer contract for sales to the provider. Id. at ¶ 117.
Because some of the contracts linking Defendant, the distributor, and the acute care provider are negotiated between Defendant and the GPO, id. at ¶ 66, these contracts often contain three similar features. First, Defendant's net dealer contract with the GPO, and its dealer notification agreement with the distributor, commonly provide for rebate bundling, which means that Defendant agrees to pay substantial rebates on the bundled products purchased by an acute care provider and its distributor in the given year. See id. at ¶¶ 66, 68-70, 104. However, if a provider or its distributor switches any substantial amount (typically 5% to 15%) of its historic purchases of any product, such as syringes or IV catheters, from Defendant to a competitor, Defendant may refuse to pay rebates on all of the products purchased by the provider or its distributor. Id. at ¶¶ 69-70, 104.
Second, the net dealer contract and dealer notification agreement typically require that the acute care provider or its distributor commit to making its historic level of purchases for each product, in order to receive favorable pricing and rebates. Id. at ¶¶ 66, 76-77, 104. That is, the provider or its distributor must agree to buy the same volume of a product, such as syringes or IV catheters, that it purchased in the previous year, or else it receives Defendant's worst pricing—“Tier One” on Defendant's pricing scale. Id. at ¶¶ 76, 104. If the provider or its distributor makes this commitment, it receives pricing at one of the four remaining tiers—Tier Two through Tier Five—with the higher tiers requiring a greater annual volume commitment and offering better pricing. Id. at ¶ 77....
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