Procaps S.A. v. Patheon Inc.
| Decision Date | 30 July 2014 |
| Docket Number | CASE NO. 12-24356-CIV-GOODMAN |
| Parties | PROCAPS S.A., Plaintiff, v. PATHEON INC., Defendant. |
| Court | U.S. District Court — Southern District of Florida |
[CONSENT CASE]1
In his famous "The Times They Are a-Changing" song, Bob Dylan advised listeners to "admit that the waters around you have grown and accept it that soon you'll be drenched to the bone."2 The consequences of major changes, the subject that Mr. Dylan was singing about, are at the heart of this Sherman Act antitrust lawsuit seeking several hundred million dollars in treble damages.
Section 1 of the Sherman Act, 15 U.S.C. § 1, prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." Interpreted literally, this statutory prohibition would encompass every contract, but as the Supreme Court hasexplained, the statutory section does not mean that; it covers only unreasonable contractual restraints. Am. Needle, Inc. v. Nat'l Football League, 560 U.S. 183, 189 (2010).
Competitors plaintiff Procaps S.A. ("Procaps") and defendant Patheon Inc. ("Patheon") entered into a Collaboration Agreement, under which they would allocate customers and territories. They both contend this initial restraint was lawful because it permits the introduction of a new product to the marketplace. Patheon later acquired Procaps' competitor, Banner Pharmcaps Europe B.V. ("Banner"). Patheon continued to try and allocate customers and territories, but Procaps refused to participate in the allocation because it believed the continued allocation created an unlawful horizontal restraint on trade. The primary question here is whether this changed circumstance --Patheon's acquisition of Banner -- transformed the once-lawful contract into an unreasonable horizontal trade restraint, in violation of section 1 of the Sherman Act.
Procaps wants the Court to first use the rule of reason form of analysis to assess the initial contract (and to deem it lawful) but then to switch methodologies and use the per se method to evaluate the very same contract after the Banner acquisition. Patheon says there was no agreement to violate the antitrust laws because Procaps never went along with the allocation.
Both parties have filed lengthy, detailed, and complicated cross motions for summary judgment in this five-count antitrust/unfair competition lawsuit. Procapsseeks only partial summary judgment for certain elements concerning Counts I, III, and IV. Patheon seeks summary judgment on all counts.
The Court has reviewed the motions, memoranda (supporting, opposition, reply and post-hearing), and the evidentiary record. The Court also heard extensive argument on the motions. For the reasons explained below, the Court DENIES (in large part) and GRANTS (in small part) Patheon's motion and DENIES (in large part) and GRANTS (in small part) Procaps' motion.
The small portion of Procaps' motion which is being granted concerns a non-provocative, agreed issue: whether the interstate commerce requirement for a section 1 antitrust claim has been satisfied. The Court denies the remainder of Procaps' summary judgment motion. In doing so, the Court determines that this case warrants a rule of reason analysis, not Procaps' proposed per se assessment (and not another type of truncated mode of analysis, such as the so-called "quick look" doctrine).
The Court denies Patheon's summary judgment motion as to Counts I-III. The Court rejects Patheon's argument that it is entitled to prevail on these counts because there was never an agreement to unlawfully restrain trade. There was (and perhaps still is) an agreement between the parties (i.e., the Collaboration Agreement) and the appropriate finder of fact, using a rule of reason approach, will need to determine whether Patheon's contract-based conduct unlawfully restrained trade.
On Count IV, the statutory Florida Deceptive Unfair Trade Practices Act ("FDUPTA" or "FDUTPA") claim, the Court denies in large part Patheon's summary judgment motion because the section 1 Sherman Act claim effectively incorporated into this count is still viable. The Court grants in small part Patheon's summary judgment motion on Count IV for recovery theories other than the section 1-related unreasonable trade restraint because that is the only theory sufficiently alleged.
The Court grants Patheon summary judgment on Count V, Procaps' claim for common law unfair competition. There is no evidence that Patheon used or disclosed Procaps' confidential information or that there is customer confusion.
By way of a final introductory point, the Court will determine later the precise structure of the rule of reason analysis which ultimately will be used at trial. Because there is, in practical terms, a sliding scale in appraising reasonableness and because the quality of proof varies with the circumstances, the Court will choose the methodology which will be applied under the broad category of the rule of reason after an amended trial scheduling order is entered. The Court expects to enter an amended trial scheduling order after the forensic analysis of Procaps' electronically stored information is complete (and after the non-privileged results of that analysis are produced to Patheon).
Softgels are an oral dosage form for pharmaceutical products consisting of a gelatin-based shell containing active ingredients (e.g., medicine) within the shell. [ECF Nos. 333, ¶ 1; 335, ¶ 1]. Softgels are used for prescription and over the counter ("OTC") drugs, as well as nutritional supplements. [ECF Nos. 1, ¶ 28; 333, ¶ 2].
The softgel business has product and service sectors. [ECF No. 333, ¶ 2]. In the product sector, pharmaceutical companies develop and manufacture their own softgel Value Added Proprietary Products ("VAPPs"), also referred to as "proprietary products" or "internal development products." [Id.]. In the service sector, pharmaceutical companies outsource the softgel development ("PDS") and/or commercial manufacturing ("CMO") to a third party. [Id.]. The third party will run formulation trials and manufacture the softgels using the pharmaceutical company's medicine. [Id.]. Some companies provide both softgel services and products, while others focus on only one or the other.
Procaps is a Colombia-based company that develops and manufactures softgel capsules. [ECF No. 1, ¶¶ 14, 30]. Before signing the Collaboration Agreement with Patheon, Procaps marketed its softgel services to pharmaceutical customers in the United States by calling on customers, attending trade shows, conducting customer sitetours, and attending meetings with pharmaceutical companies. [ECF No. 333, ¶ 3]. These efforts did not result in much success, but Procaps did secure at least one development and manufacturing agreement. [Id.]. It also provided nutritional and OTC softgel products in the United States through its generic softgel division. [Id.].
Patheon provides commercial manufacturing and development services to the pharmaceutical industry. [ECF No. 335, ¶ 2]. In contrast to Procaps, Patheon's strengths are its substantial pharmaceutical development capabilities and relationships with pharmaceutical customers in North America, Europe, and Asia. [ECF No. 333, ¶ 5]. Its weaknesses are its limited intellectual property and manufacturing capability. Indeed, it was only in 2010 that Patheon launched its development and manufacturing softgel services in its Cincinnati facility. [Id. at ¶¶ 4-5]. While Patheon had limited production capability, it nonetheless called on customers, and submitted proposals to potential customers. [Id. at ¶ 4]. Like Procaps' efforts, Patheon's efforts bore little fruit. Patheon won one softgel opportunity. [Id.].
While they were not particularly successful, undoubtedly Patheon and Procaps were competitors. For instance, in December 2011 they both submitted bids to do work for Biocryst -- although Procaps and Patheon ended up working together on the project.
Not finding much success on its own, in early 2011, Patheon began to explore a "strategic relationship" with another softgel company so that it could compete moreeffectively with Catalent, the dominant softgel company in the world. [Id. at ¶ 5]. Patheon looked at several companies. [ECF No. 335, ¶ 9]. Among the finalists for this "relationship" were Banner and Procaps. [Id.]. Patheon believed Banner and Procaps were competitors. [Id. at ¶¶ 11-15]. Eventually, Patheon decided to pursue a relationship with Procaps, not Banner.
In January 2012, the parties entered into the Collaboration Agreement to market PDS and CMO softgel services under the "P-Gels" brand. [ECF Nos. 333, ¶ 6; 335, ¶ 2]. Patheon and Procaps were targeting pharmaceutical companies looking for a third party to develop and manufacture softgel capsules. Patheon would market the P-Gels service to potential customers and offer development services through its Cincinnati facility. [ECF No. 333, ¶6]. Procaps would provide softgel development services and manufacturing services to third parties through its Colombian facility. [Id.]. The key terms of the Collaboration Agreement are as follows:
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