In re Blood Reagents Antitrust Litig.
| Decision Date | 19 July 2017 |
| Docket Number | MDL NO. 2081,MASTER FILE NO. 09–MD–2081 |
| Citation | 266 F.Supp.3d 750 |
| Parties | IN RE: BLOOD REAGENTS ANTITRUST LITIGATION This Document Relates To: All Actions |
| Court | U.S. District Court — Eastern District of Pennsylvania |
TABLE OF CONTENTS
II. BACKGROUND...754
I. INTRODUCTION
In this multidistrict litigation consolidating thirty-three separate civil antitrust actions, plaintiffs, purchasers of traditional blood reagents ("TBRs") allege that defendants, the two leading producers of blood reagents—Ortho–Clinical Diagnostics, Inc. ("Ortho") and Immucor, Inc. ("Immucor")—conspired to unreasonably restrain trade and commerce in violation of § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. In September 2012, plaintiffs and Immucor reached a settlement. Ortho is the sole remaining defendant. Presently before the Court is Ortho's Motion for Summary Judgment. For the reasons that follow, the Court denies in part and grants in part Ortho's Motion.
II. BACKGROUND
Between 2000 and 2009, Ortho and Immucor drastically increased the prices of their blood reagent products—some product prices increased 20 fold. Resp. to Mot. for Summ. J., Ex. 1, Corrected Rep. of John C. Beyer, Ph.D. Regarding Liability and Damages ("Beyer Aug. Rep."), Aug. 14, 2012, ¶ 28. The parties agree that some part of this increase resulted from the elimination of all firms in the blood reagents market except for Ortho and Immucor by 1999, and the resulting market power of those two firms. However, plaintiffs allege that an unlawful horizontal price-fixing agreement between Ortho and Immucor, beginning in November 2000, resulting in more than $650 million in market overcharges to plaintiffs and class members.
Blood reagents are used to identify properties of human blood. Most large purchasers of blood reagents are blood donor centers and hospitals, which use them to test whether the blood of a potential donor is compatible with the blood of a potential recipient. Mot. for Summ. J, Ex. 15, Report of Teresa Harris ("Harris Rep."), ¶¶ 6–8. Under applicable Food and Drug Administration ("FDA") regulations, Blood Bank and Transfusion Standards promulgated by the American Association of Blood Banks ("AABB"), and other rules, blood donor centers must test a donor's ABO group (blood classification based on the inherited properties of red blood cells) and Rh type and perform an antibody screen each time he or she donates. Harris Rep. ¶ 20. Hospitals must conduct similar tests on a recipient before providing a blood transfusion. Id. ¶ 7.
There are two basic categories of blood reagents: traditional and automated. Although Ortho and Immucor sold products in both categories throughout the class period, the class in this case includes only purchasers of TBRs. When using TBRs, laboratory technicians test blood manually in test tubes and interpret the results. Id. ¶ 14. "Automated" or "proprietary" blood reagents ("ABRs"), on the other hand, are often used with specialized equipment. Id. ABRs allow for quicker testing while requiring less skill and decreasing the risk of technician error but tend to be more expensive than TBRs. Resp., Ex. 27, Declaration of Bill Weiss ("Weiss Decl."), ¶ 14.
From 2000 to 2010, Ortho and Immucor each sold more than forty different TBR products. Harris Rep. Ex. C. A list provided by plaintiffs' industry expert, Teresa Harris, shows that most Ortho TBR products had an equivalent Immucor TBR product, and vice versa. Id. Harris opines that, while some are nonidentical pairs, the nonidentical pairs "perform exactly the same function." Resp., Ex. 11, Reply Report of Teresa Harris ("Harris Reply") Ex. B, ¶ 3.
For much of the period between 2000 and 2009, Ortho and Immucor remained the sole producers of TBRs because the market was difficult to enter. New entrants into the TBR market faced a prolonged FDA licensing process. Resp., Ex. 21, Declaration of Mike Poynter ("Poynter Decl."), ¶ 26. Ed Gallup, the Chief Executive of Immucor from 1982 until 2003,1 addressed what he believed to be the significant barriers to entry in a 2002 interview with The Wall Street Transcript. SOF ¶¶ 117–19. In regard to potential competition, Gallup stated that "[i]t took the last company that applied six years to receive a FDA establishment license in this industry" and branded FDA licensing as a "fairly large barrier to entry." SOF ¶ 119. Similarly, John Kingsbury, Director of Sales and Marketing for Ortho from 1996 through 1999, testified that FDA regulations made Ortho's blood bank business, including TBRs, "more complex to operate in, more time consuming, more costly, etc." Pls. SOF ¶ 51. In 2008, two new TBR producers, Alba Bioscience and Biotest, overcame those barriers and joined Ortho and Immucor in the market. SOF ¶¶ 565–70.
In the 1980s and 1990s, the TBR industry was highly competitive. Pls. SOF ¶ 24. In the fifteen to twenty years prior to 2003, there were as many as fourteen competitors in the market. Pls. SOF ¶ 27. As a result, prices steadily decreased and profitability diminished. Pls. SOF ¶ 24. Immucor was near bankruptcy, with shares trading for pennies, while Ortho considered leaving the TBR market entirely. Pls. SOF ¶ 30.
To increase profitability, Immucor embarked on a campaign to eliminate competition in the blood reagents industry during the 1990s. SOF ¶ 113. Between 1997 and 1999, Immucor acquired three TBR suppliers in North America—Gamma Biologicals, Inc., Dominion Biologicals, Ltd., and the BCA blood bank division assets of Biopool International, Inc. SOF ¶ 114. By April 30, 1999, Ortho and Immucor were the sole remaining suppliers of TBRs in the United States. SOF ¶ 115. Immucor publicly acknowledged that the acquisitions were designed to eliminate competition. SOF ¶ 116.
By the close of Immucor's acquisition program, the Herfindahl–Hirschman Index ("HHI"), a measure of the concentration in the TBR market, was approximately 5,000. SOF ¶ 123. HHI is calculated by squaring the market share of each firm competing in a market, and then adding the resulting numbers. HHI can range from close to zero to 10,000. The United States Department of Justice ("DOJ") and Federal Trade Commission ("FTC") consider a market with an HHI higher than 2,500 highly concentrated. SOF ¶ 122–23. According to the DOJ and FTC's Horizontal Merger Guidelines, market concentration can increase prices absent any collusion between competitors. SOF ¶ 124. Ortho and Immucor soon took advantage of this newly concentrated TBR market in 2000, instituting the first price increase on TBRs in the United States since 1982. Pls. SOF ¶ 25.
The first price increase implemented by Ortho was part of its newly developed strategy, named Operation Create Value ("OCV"), designed with the assistance of an outside consulting firm. SOF ¶¶ 127, 129. Ortho began work on OCV at least as early as October 1999. SOF ¶ 127. The OCV development team modeled three different scenarios based on whether Immucor followed an Ortho price increase immediately, followed after a year, or did not follow at all. SOF ¶ 135. After evaluating the potential loss of TBR sales volume under each of these scenarios, the OCV team recommended two annual price increases of 25% each. SOF ¶¶ 137–39, 145. The first 25% price increase was scheduled for 2000, the second 25% price increase was set to take effect in 2001, and additional increases after 2001 were anticipated until "profitability was achieved." SOF ¶ 146. Ortho's first 25% increase was announced to customers in a March 14, 2000, letter and first went into effect for some customers on April 1, 2000. SOF ¶ 147–48.
Following Ortho's price increase, Immucor increased TBR prices by 20% for some customers in June 2000. SOF ¶¶ 151–52. Soon after initiating the June price increase, Immucor issued a press release on July 31, 2000, stating that "regional managers will focus their efforts equally on the placement of instruments and the improvement of margins through price increases for our [TBR] business." SOF ¶ 156; Mot. for Summ. J., Ex. 129, Email from M. Esposito re: Immucor Press Release, 2. Following this initial price increase by both Ortho and Immucor, as of September 5, 2000, less than two percent of Ortho's non-group customers whose contracts had expired between January and August switched to Immucor in response to Ortho's OCV price increase. SOF ¶ 157. Plaintiffs do not allege that the price increase in 2000 was a result of collusion.
In the fall of 2000, Ortho began consideration of a larger single price increase in 2001 in lieu of the planned 25% increase. SOF ¶¶ 158, 162–63. This new strategy, the Blood Bank Leadership Plan ("BBLP"), significantly increased the price of TBRs. SOF ¶ 169. Under the previously planned 25% increase, Ortho determined that its...
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