U.S. v. Dentsply Intern., Inc.
| Decision Date | 08 August 2003 |
| Docket Number | No. Civ.A. 99-005-SLR.,Civ.A. 99-005-SLR. |
| Citation | 277 F.Supp.2d 387 |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. DENTSPLY INTERNATIONAL, INC., Defendant. |
| Court | U.S. District Court — District of Delaware |
Colm F. Connolly, United States Attorney, Paulette K. Nash, Assistant United States Attorney, Wilmington, DE, for Plaintiff. William E. Berlin, Jon B. Jacobs, Sanford M. Adler, Frederick S. Young, Steven B. Kramer, Christopher Hardee, and Bennett J. Matelson, United States Department of Justice Antitrust Division, Washington, DC, of counsel.
William D. Johnston, and Christian Douglas Wright of Young Conaway Stargatt & Taylor LLP, Wilmington, DE, for Defendant. Margaret M. Zwisler, Richard A. Ripley, Kelly A. Clement, Eric J. McCarthy, and Douglas S. Morrin, of Howrey Simon Arnold & White, LLP, Washington, DC. Brian M. Addison of Dentsply International, Inc., York, PA, of counsel.
On January 5, 1999, plaintiff United States of America through the Department of Justice ("DOJ") filed this action against defendant Dentsply International, Inc. ("Dentsply") alleging violations of the antitrust laws. (D.I.1) Specifically, the DOJ has asserted violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and section 3 of the Clayton Act, 15 U.S.C. § 14. (Id.) At issue are two aspects of Dentsply's business policies: (1) its agreements with dealers that they will lose their Dentsply account if they add a competing brand of teeth; and (2) its agreements with new dealers to drop some, or all, competing tooth brands in order to obtain the Dentsply account in the first place. (D.I. 460 at 17)
The court has jurisdiction over this matter pursuant to 15 U.S.C. §§ 4 and 25, and 28 U.S.C. §§ 1331, 2201 and 2202. The following are the court's findings of fact and conclusions of law pursuant to Fed. R.Civ.P. 52(a).
1. This case concerns the manufacture, distribution and sale of prefabricated artificial teeth in the United States. The relevant product market for purposes of this case is the sale of prefabricated artificial teeth in the United States. (GX 445 at 6-8)
2. Artificial teeth today are manufactured in either porcelain or plastic. In order to match the different characteristics of a person's mouth, they are made in thousands of different shades and moulds ("mould" is the correct spelling within the tooth industry). Teeth are made in different grades of quality, commonly known as "premium," "mid-line," "economy," and "sub-economy." (D.I. 417 at 81-84; D.I. 432 at 2101)
3. The shade of an artificial tooth is the coloring of the tooth. The mould of an artificial tooth is the actual form or shape of the tooth. Choosing the correct tooth mould is critical to ensuring that the denture patient chews correctly and maintains his or her proper bite. (D.I. 432 at 2100-03)
4. The market broadly classifies artificial tooth moulds as either "European" or "American." (Id. at 2125-26)
5. Premium artificial teeth combine superior aesthetics with extreme durability. Economy artificial teeth offer less wear resistance and aesthetics than premium artificial teeth and are priced significantly less. Sub-economy artificial teeth offer even less wear resistance and aesthetics. (Id. at 2105-06, 2115-16, 2250-51)
6. Artificial teeth are manufactured for use in dentures. A denture is a removable prosthetic device comprised of artificial teeth fixed in an acrylic or other base material to replace some or all of a person's natural teeth.
7. "Removable" appliances are ones that patients can remove from their mouth themselves, clean them and place them back in. This can include either full and partial dentures. (D.I. 425 at 1206; D.I. 417 at 85) 8. "Fixed" appliances, by contrast, include crowns, bridges, and implants. A crown is a single, individual tooth restoration. A bridge is a restoration of at least three units bridging a gap of at least one missing tooth. An implant case is where a device is actually screwed into the bone. (D.I. 417 at 85-86)
9. The term "combination case" refers to the use of both fixed and removable appliances. (D.I. 425 at 1208)
10. Dental laboratories purchase almost all of the artificial teeth sold in the United States and use the teeth to make dentures. Labs buy artificial teeth on cards containing six (for anteriors) or eight (for posteriors) teeth. A full denture, i.e., one that replaces all natural teeth, requires 28 teeth from a total of four tooth cards. When fabricating a partial denture, a dental lab may only use a portion of the teeth on a card. The remaining teeth on the tooth cards are known as "broken sets." (D.I. 368, Ex. 1, Stipulation ¶¶ 13-16)
11. Labs fabricate dentures according to the prescription, impression and any other information provided to the lab by the dentist. (D.I. 417 at 81; D.I. 425 at 1211-17) A denture prescription may contain a number of parameters, including a shade designation, a mould designation, a specific brand or a combination of these three items. (D.I. 432 at 2141; D.I. 448 at 2332-33) However, only 10% of dentists specify by name the brand of teeth to be used. (Id.)
12. Participants in the artificial tooth market fall into one of four categories: (1) manufacturers; (2) dealers; (3) dental laboratories; and (4) dentists. (D.I. 417 at 80-81)
13. The manufacturers participating in the United States artificial tooth market historically have distributed their teeth into the market in one of three ways: (1) directly to dental labs; (2) through dental dealers; or (3) through a hybrid system combining manufacturer direct sales and dental dealers.
14. There are currently 12-13 known foreign and domestic manufacturers of artificial teeth that sell their products in the United States. (D.I. 417 at 83; D.I. 432 at 2111-12) The manufacturers sell artificial teeth in some or all of the subeconomy, economy, mid-line and premium segments. (D.I. 417 at 82-84) For purposes of this case, eight manufacturers are particularly relevant.
15. Dentsply International, Inc. ("Dentsply") was founded in 1899 and is headquartered in York, Pennsylvania. (D.I. 368, Ex. 1, Stipulation ¶¶ 1-2) Dentsply manufactures a range of professional dental products that are marketed, distributed and sold throughout the United States. (D.I. 368, Ex. 1, Stipulation ¶ 3) Dentsply's total net sales in 2001 were approximately $1.1 billion. (D.I. 454 at 3447)
16. Dentsply's artificial teeth are developed, designed, sold, and marketed by its Trubyte Division ("Trubyte"), located in York, Pennsylvania. Dentsply manufactures artificial teeth in the premium (under the names "Portrait," "TruBlend," "Bioblend" and "Bioform"), mid-range ("Biotone") and economy ("New Hue" and "Classic") segments. (D.I. 368, Ex. 1, Stipulation ¶¶ 8-9; D.I. 432 at 2108, 2116-17) Dentsply does not compete in the subeconomy tooth segment. (Id. at 2250-51)
17. Dentsply sells 14 different full lines of artificial teeth in the United States. (D.I. 432 at 2100) Dentsply currently offers 16,000 tooth Stock Keeping Units ("SKUs"). (Id. at 2093)
18. Through its Trubyte Division, Dentsply also manufactures and markets professional dental products used by dental labs to make dentures and other removable dental prosthetics. (D.I. 368, Ex. 1, Stipulation ¶ 6) These dental products include acrylics, dental equipment, gypsums and wax. (D.I. 432 at 2080, 2093-94) Dentsply's complete Trubyte product offering currently totals 19,000 total SKUs. (Id. at 2093)
19. Dentsply manufactures 1.1 million individual teeth per week. (Id. at 2096-97) Dentsply manufactures approximately 10,000 shade and mould combinations. (Id. at 2101; D.I. 368, Ex. 1, Stipulation ¶ 10) In total, Dentsply manufacturers 106,000 different types of tooth units. (D.I. 432 at 2101, 2114)
20. Dentsply sells its artificial teeth exclusively to independent dealers. Dentsply does not own the dealers it has authorized to distribute Trubyte teeth. (D.I. 368, Ex. 1, Stipulation ¶¶ 17-18)
21. Dentsply has been the dominant tooth manufacturer in the United States market for a long time. (D.I. 454 at 3447)
22. In 2001, Dentsply's gross tooth sales to dealers were $60.6 million. Net sales, taking into account broken sets and other tooth returns, totaled $40.4 million. (DX 1650; D.I. 432 at 2253-56) Dentsply also sells lab merchandise products through its Trubyte Division. Teeth, however, represent approximately 80% of the division's revenue.1 (Id.)
23. Ivoclar Vivadent AG, headquartered in Liechtenstein, is a manufacturer and marketer of dental restorative materials, including artificial teeth. (D.I. 423 at 982-83)
24. Ivoclar Vivadent's U.S. subsidiary, Ivoclar Vivadent, Inc. ("Ivoclar"), is based in Amherst, New York and is responsible for marketing Ivoclar teeth in the United States market. (Id.) Ivoclar's president is Robert Ganley. He has been involved in the sale of Ivoclar teeth in the United States market since 1986. (Id.)
25. Ivoclar sells a number of different lines of artificial teeth. Among its premium plastic teeth are the Antaris and Postaris teeth, which were introduced by Ivoclar in the 1990s. (Id. at 984, 1013)
26. Ivoclar is one of Dentsply's two primary competitors in the tooth market. (D.I. 450 at 2683-84; D.I. 454 at 3461; D.I. 432 at 2249-50)
27. Ivoclar has sold teeth directly to dental labs since at least 1986. (D.I. 423 at 983, 991, 1006) Indeed, except for two brief periods during the late 1980s and early 1990s in which Ivoclar experimented with two geographically limited wholesale arrangements, Ivoclar has distributed teeth directly to dental labs since 1978. Similarly, Ivoclar sells its crown and bridge products and precious metals directly to dental labs. (Id. at 989)
28. Today, Ivoclar distributes its teeth to labs throughout...
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