Procaps S.A. v. Patheon Inc.

Decision Date29 October 2015
Docket NumberCASE NO. 12-24356-CIV-GOODMAN
Citation141 F.Supp.3d 1246
Parties Procaps S.A., Plaintiff, v. Patheon Inc., Defendant.
CourtU.S. District Court — Southern District of Florida

Chris S. Coutroulis, Donald R. Schmidt, Carlton Fields Jorden Burt, P.A., Tampa, FL, Gary Michael Pappas, Natalie Jessica Carlos, Avi Robert Kaufman, Charles Woodward Throckmorton, V, David Lanier Luck, Alan Rosenthal, Carlton Fields Jorden Burt, P.A., Miami, FL, Karen L. Hagberg, Michael B. Miller, Morrison & Foerster, New York, NY, Mac Richard Mccoy, D. Matthew Allen, Carlton Fields Jorden Burt, P.A., Tampa, FL, Robert Wayne Pass, Carlton Fields Jorden Burt, P.A., Tallahassee, FL, for Plaintiff.

David A. Vogel, Douglas P. Lobel, Robert T. Cahill, Cooley, LLP, Reston, VA, Dee Bansal, Joshua M. Siegel, M. Howard Morse, Marc Schildkraut, Michael J. Klisch, Meredith M. Snyder, Cooley, LLP, Washington, DC, Mary Kathryn Kelley, Mazda K. Antia, Cooley, LLP, San Diego, CA, Robert Mark Brochin, Morgan, Lewis & Bockius LLP, Miami, FL, for Defendant.

ORDER ON DEFENDANT PATHEON'S SUMMARY JUDGMENT MOTION

Jonathan Goodman, UNITED STATES MAGISTRATE JUDGE

This litigation arose out of a Collaboration Agreement between two companies involved in the pharmaceutical business, Plaintiff Procaps S.A. ("Procaps") and Defendant Patheon Inc. ("Patheon"). Procaps and Patheon have spent much of the past three years involved in an expensive, bitter, time-consuming, and hard-fought legal battle in federal court. Procaps contends that Patheon, in effect, turned on it relatively soon after their Collaboration Agreement was formed by acquiring Procaps' principal competitor, Banner Pharmacaps ("Banner").

The Collaboration Agreement, however, contains a dispute resolution clause which requires breach of contract claims, fraud in the inducement claims and disputes other than a limited list of excluded claims to be resolved through arbitration. An antitrust claim is one of the few types specifically excluded from the mandatory arbitration provision. Procaps decided to file an antitrust lawsuit.

Although Procaps agreed (and still agrees) that the Collaboration Agreement was lawful when initially enacted even though it contained horizontal market allocation provisions, it later alleged that Patheon transformed the Collaboration Agreement into an illegal restraint when it acquired Banner.

Over the past three years, Procaps has developed evidence which, if accepted by a fact-finder in a breach of contract claim, could support a compelling narrative about a company wronged by a business partner who should have been working with it under the comprehensive written Agreement. But, as noted, the Collaboration Agreement bans a traditional breach of contract lawsuit (i.e., it must be arbitrated), so the issue now is whether Patheon is entitled to a ruling in its favor on its summary judgment motion [ECF No. 889] targeting Procaps' remaining federal antitrust claim.

The Court has reviewed the motion, briefs, proposed orders, and evidentiary record, and heard oral argument at a hearing lasting almost eight hours on September 24, 2015. For the reasons set forth below, the Court grants Patheon's motion.

I. Introduction

Procaps and Patheon entered into a Collaboration Agreement (the "Agreement") to work together to produce and market a new brand of softgel capsules called P- Gels. Several months later, Patheon acquired Procaps' main competitor, Banner. Procaps then filed this lawsuit, alleging that the acquisition made the Agreement illegal under federal and state antitrust laws. The case has been vigorously litigated.

Among other salient rulings, on February 25, 2013, the District Court denied Patheon's motion to dismiss, holding that Procaps stated a per se claim for violation of the Sherman Act. [ECF No. 50]. After a more fully-developed record, however, and after discovery had closed, the Undersigned ruled on the parties' cross-motions for summary judgment and determined that the restraint embodied in the Agreement should be analyzed under a rule of reason "meet" for this case, the precise structure of which the Court would later determine. [ECF No. 565]. The Court subsequently ruled that Patheon could take additional rule of reason discovery and file a second summary judgment motion.

Patheon later filed a second summary judgment motion. It now contends that it is entitled to summary judgment for four reasons, any one of which is sufficient to sustain a defense summary judgment: (1) There were no substantial actual detrimental effects on competition as a result of the removal of the Banner assets from the relevant markets; (2) Procaps did not, and cannot, prove substantial marketwide harm; (3) Procaps has the burden of proving the absence of all pro-competitive benefits or justifications, which it failed to satisfy; and (4) Procaps lacks antitrust standing because it has not been excluded entirely from the relevant markets.

As discussed in greater detail later, the Court notes that the parties strongly disagree about the applicable legal principles which control the resolution of many issues underlying the summary judgment motion. In some instances, the parties take diametrically opposed positions, with one party representing that the law is one way and the other party stridently proclaiming that the law is exactly the opposite. Given the procedural history here, these basic legal disconnects are hardly surprising, though the degree of wrangling over the applicable law is atypical. In any event, the Undersigned grants Patheon's summary judgment motion on the first two grounds (but not on the third and fourth grounds).

II. The Facts

A significant part of the background of this case is set forth in the Court's previous summary judgment order. [ECF No. 565]. Other portions were developed after the initial round of summary judgment briefing and the order on those motions. Viewing the evidence and inferences in the light most favorable to Procaps, as the Court must do, the salient facts are these:

In January 2012, Patheon (the number two provider of commercial manufacturing operations worldwide in most delivery formats, except softgels) and Procaps (the largest manufacturer of softgels in South America) entered into the Collaboration Agreement to market product development services ("PDS") and commercial manufacturing outsourcing ("CMO") of softgels to third parties under the "P-Gels" brand (the "Collaboration"). Patheon would market P-Gels to potential customers and Procaps would provide development and manufacturing services through its Colombian facility. The parties' own products were excluded.

Field Limited to Prescription Drugs. In the Collaboration Agreement, Patheon and Procaps defined the collaboration's "Field" as "prescription pharmaceutical" products for the treatment of human diseases and maintenance of human health. [ECF No. 333-1, §§ 1.10, 2.1]. With minor exceptions, nutritional and over-the-counter softgels are excluded from the Collaboration.

Manufacturing. Under the agreement, Procaps has "the sole right and responsibility to perform or have performed all Commercial Manufacturing Activities." [ECF No. 333-1, § 3.2].

Territory Limited. The Collaboration's "Territory" is nominally worldwide but excludes large geographies, including countries where Procaps has an independent presence. [ECF No. 333-1, §§ 1.9, 1.22].

Exclusivity. In the Collaboration Agreement, each party agreed to "exclusively develop, market and provide the Soft Gel Branded Services in the Territory through [the] collaboration" with the other party, and agreed neither would "develop, Manufacture, promote, or otherwise commercially exploit ... Soft Gel Capsules in the Field for use or sale in the Territory" (i.e., for prescription drug manufacturing services in the Territory). [ECF No. 333-1, § 10.2].

Expansion by Patheon. Patheon also agreed not to expand its current manufacturing capacity for softgel capsules for prescription drugs at its facility in Cincinnati, Ohio for use or sale in the Territory, except with Procaps' approval. [ECF No. 333-1, § 10.3].

Limitations on Collaboration. The Collaboration contains certain limits. For example, the Collaboration Agreement concerns the manufacturing of drugs owned by third-party customers, and not Patheon's or Procaps' own prescription drugs. [ECF No. 333-1, §§ 1.6, 1.7, 1.8, 1.11, 3.5, 10.5]. Thus it excludes, "Internal Development Products," defined to include prescription drugs for which Patheon or Procaps is the owner—as opposed to third-party customers' prescription drugs. Id. The Collaboration Agreement is also clear that either party can independently "develop, manufacture, sell and otherwise exploit" softgels outside the Field (i.e., softgels other than for prescription drugs) and outside the Territory. [ECF No. 333-1, § 10.5].

Six Month Grace Period After Acquisitions. The parties expressly contemplated that either Patheon or Procaps might acquire, during the term of the Collaboration Agreement, a third party that also provides softgel services to third party customers for prescription drugs. Section 10.4(b) provides that if either party acquires a company that bears on the exclusivity or capacity restrictions in sections 10.2 or 10.3, it would have a six-month grace period after the acquisition to address the issue, by either divesting the overlapping business or by bringing it into the Collaboration. The Agreement provides:

If during the Term a Party or any of its Affiliates acquires an entity by a Change of Control of a Third Party that would cause such Party or its Affiliates to be in breach of Sections 10.2 or 10.3 at the closing of such acquisition, then the acquiring party shall give advance notice to the other Party or make a public announcement of such acquisition, and the acquiring party must within six (6) months of such acquisition either (i) divest such portion of the acquired business that would be restricted by Sections 10.2 or 10.3 to a Third Party,
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