Schor v. Abbott Laboratories

• Decision Date: 26 July 2006
• Docket Number: No. 05-3344.,05-3344.
• Citation: 457 F.3d 608
• Parties: Gary SCHOR, Plaintiff-Appellant, v. ABBOTT LABORATORIES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

457 F.3d 608

Gary SCHOR, Plaintiff-Appellant, v. ABBOTT LABORATORIES, Defendant-Appellee.

No. 05-3344.

United States Court of Appeals, Seventh Circuit.

Argued May 1, 2006.

Decided July 26, 2006^*.

Ben Barnow, Barnow & Associates, Chicago, IL, David J. Maher (argued), Harke & Clasby, Miami, FL, for Plaintiff-Appellant.

James F. Hurst (argued), Winston & Strawn, Chicago, IL, for Defendant-Appellee.

Before EASTERBROOK, MANION, and SYKES, Circuit Judges.

EASTERBROOK, Circuit Judge.

People infected by the human immunodeficiency virus (HIV), a retrovirus that causes the acquired immune deficiency syndrome (AIDS), can slow the progress of the disease by taking protease inhibitors, which hamper HIV's ability to copy itself into additional cells. Abbott Laboratories holds a patent on Norvir® (ritonavir), one such drug. When used in doses high enough to work as a stand-alone protease inhibitor, however, Norvir causes serious side effects. It serves better as a booster for other protease inhibitors, causing them to last longer in the bloodstream. Norvir has this effect because it inhibits Cytochrome P450-3A4, an enzyme in the liver that normally metabolizes away protease inhibitors. For example, a standard dose of Fortovase® (saquinavir) is 1,200 mg three times a day; when combined with Norvir, however, Fortovase is effective in doses of 800 mg twice a day. Abbott offers its own combination under the brand name Kaletra®, which includes ritonavir plus the protease inhibitor lopinavir. Abbott's patents (Nos. 5,886,036 and 6,037,157) cover ritonavir taken alone and in combination with any other protease inhibitor.

Gary Schor, who proposes to represent a class of everyone who uses protease inhibitors, contends that Abbott charges too much for Norvir alone and too little for the Norvir component of Kaletra. (Stated otherwise, Schor's contention is that Kaletra sells for less than a cocktail made by combining Abbott's Norvir with a protease inhibitor from some other supplier.) According to Schor's complaint, the disparity between the unduly high price of Norvir and the unduly low price of Kaletra is designed to monopolize the market in protease inhibitors, in violation of § 2 of the Sherman Act, 15 U.S.C. § 2. Schor calls the strategy "monopoly leveraging": Abbott is trying to use its patent to obtain a monopoly of all protease inhibitors by inducing HIV patients to buy Kaletra, which will lead other vendors to drop out of the market. Once rivals' products have been vanquished, Abbott will be able to jack up the price of Kaletra as well as Norvir. The district court dismissed the complaint under Fed.R.Civ.P. 12(b)(6), however, after concluding that it does not state a claim on which relief may be granted. 378 F.Supp.2d 850 (N.D.Ill.2005). The court concluded that "monopoly leveraging" does not violate the antitrust laws unless it takes a particular form, such as a tie-in sale or refusal to deal.

Schor's complaint does not allege any of the normal exclusionary practices—tie-in sales (or another form of bundling), group boycotts, exclusive dealing and selective refusal to deal, or predatory pricing. Abbott sells ritonavir as part of Kaletra, but this is not a tie-in because ritonavir is available separately as Norvir. Abbott will sell to anyone willing to pay its price: there is no refusal to deal. The price of Norvir cannot violate the Sherman Act: a patent holder is entitled to charge whatever the traffic will bear. This is true of both Norvir's price, see Brunswick Corp. v. Riegel Textile Corp., 752 F.2d 261, 265 (7th Cir.1984), and of a claim that the patent holder has engaged in price discrimination by cutting ritonavir's price to people who buy it (through Kaletra) in combination with lopinavir. See In re Brand Name Prescription Drugs Antitrust Litigation, 186 F.3d 781 (7th Cir.1999); Zenith Laboratories, Inc. v. Carter-Wallace, Inc., 530 F.2d 508, 513 n. 9 (3d Cir.1976). And antitrust law does not require monopolists to cooperate with rivals by selling them products that would help the rivals to compete. See Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 124 S.Ct. 872, 157 L.Ed.2d 823 (2004). Cooperation is a problem in antitrust, not one of its obligations.

The (relatively) lower price of ritonavir in Kaletra summons up thoughts of the price-squeeze claim in United States v. Aluminum Co. of America, 148 F.2d 416, 436-38 (2d Cir.1945) (L.Hand, J.), which held that Alcoa violated the Sherman Act by selling processed aluminum sheets for less than the price it charged for the raw aluminum required to make them. That necessarily excluded all rivalry in the sheet-metal market. Schor's claim is no more than a faint echo of Alcoa, however, because Kaletra sells for more than its ritonavir component purchased as Norvir and Kaletra therefore does not meet the legal standard articulated by Judge Hand. See also Mishawaka v. American Electric Power Co., 616 F.2d 976 (7th Cir.1980); Concord v. Boston Edison Co., 915 F.2d 17 (1st Cir.1990) (Breyer, J.) (describing the very limited scope of a price-squeeze doctrine). We therefore need not decide whether Alcoa's holding about price squeezes is sound.

Schor does not contend that Kaletra is an instance of predatory pricing. Even if the ritonavir component of Kaletra were deemed to cost the same (per milligram) as ritonavir sold as Norvir, the imputed price of Kaletra's lopinavir component would be above the average variable cost of its manufacture. None of Abbott's rivals contends that, at Kaletra's going price, it is unable to sell its own protease inhibitor profitably. If Abbott's rivals continue to make money from their protease inhibitors, they cannot be knocked out of the market and Abbott will be unable to raise the price of Kaletra. And without any prospect of rivals' exit, there is also no prospect of higher prices later ("recoupment," in antitrust argot) and no antitrust worry. See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A (relatively) low price for ritonavir in Kaletra then is an unalloyed benefit for consumers. The antitrust laws condemn high prices, not low ones, and it would be wholly inappropriate to use the Sherman Act to oblige Abbott to raise its price for Kaletra. And if, as Schor seems to contend, Kaletra is not as beneficial for consumers as the combination of Norvir and a protease inhibitor other than lopinavir, then it is easy to understand why Kaletra is sold at a discount: there's no antitrust rule against reducing the price of products that consumers desire less than competitive goods.

That leaves the question whether there is a free-standing theory of "monopoly leveraging." The first subject would have to be whether Abbott enjoys a monopoly, which seems unlikely. A patent does not (necessarily) create market power. See Illinois Tool Works, Inc. v. Independent Ink, Inc., ___ U.S. ___, 126 S.Ct. 1281, 164 L.Ed.2d 26 (2006). Although the complaint alleges (and we therefore must assume) that ritonavir is unique in its ability to inhibit Cytochrome P450-3A4, the only benefit of that effect is to reduce the quantity of protease inhibitor required for treatment. Many drugs act as protease inhibitors and are substitutes for Abbott's products. In addition to lopinavir and saquinavir, which we have already mentioned, amprenavir (Agenerase ®), atazanavir (Reyataz ®), fosamprenavir (Lexiva ®), indinavir (Crixivan ®), and nelfinavir (Viracept ®) are widely used. See http://www.aidsmeds.com/PIs.htm. Nonetheless, because the complaint was dismissed under Rule 12(b)(6), we must assume that Abbott has market power. Likewise we must assume that some clever combination of prices for Norvir and Kaletra could induce one or more of Abbott's rivals to withdraw their protease inhibitors from the market, or reduce the rate of new entry. Still, there is no antitrust concern unless Abbott could make a monopoly profit for itself by keeping other drugs off the market—and there is no good economic reason to think that it could do so.

The problem with "monopoly leveraging" as an antitrust theory is that the practice cannot increase a monopolist's profits. Abbott has (we must assume) a monopoly, but a monopolist can take its monopoly profit just once. It can collect a monopoly profit for ritonavir and allow a competitive market to continue in other products. Or, by reducing the price of ritonavir, it can induce customers to buy more from it. But it can't do both. Suppose the competitive price of ritonavir would be $2 per 100 mg, and that the monopoly price is $7; suppose further that the competitive price of some other protease inhibitor such as saquinavir is $3 per 400 mg. Without ritonavir, the patient must take 3,600 mg of saquinavir daily, at a price of $27; take 100 mg of ritonavir with each 800 mg of saquinavir, however, and the cost falls to $26 (1,600 mg of saquinavir plus 200 mg of ritonavir) even with ritonavir at the monopoly price. If Abbott offered Kaletra at $24 for a daily dose, that would knock saquinavir out of the market—but Abbott would make less money than if it had charged the monopoly price for ritonavir alone. If it then raised the price of Kaletra to $28 (say), the producer of saquinavir would bring that drug back to market—and Abbott would lose money from reduced sales even if it did not, for it would now be charging an (implicit) price of $8 per dose of ritonavir, or more than the profit-maximizing, monopoly price.

The basic point is that a firm that monopolizes some essential component of a treatment (or product or service) can extract the whole monopoly profit by charging a suitable price for the component alone. If the monopolist gets control of another component as well and tries to jack up the price of that item, the effect is the...