UniStrip Techs., LLC v. LifeScan, Inc.

• Decision Date: 28 December 2015
• Docket Number: CIVIL ACTION NO. 14-4518
• Citation: 153 F.Supp.3d 728
• Parties: UniStrip Technologies, LLC, Plaintiff, v. LifeScan, Inc and LifeScan Scotland, Ltd., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

153 F.Supp.3d 728

UniStrip Technologies, LLC, Plaintiff,

v.LifeScan, Inc and LifeScan Scotland, Ltd., Defendants.

CIVIL ACTION NO. 14-4518

United States District Court, E.D. Pennsylvania.

Signed December 28, 2015

Donald R. Pepperman, Jennifer S. Elkayam, Maxwell M. Blecher, Blecher Collins Pepperman & Joye PC, Los Angeles, CA, Neill Wilson Clark, Richard D. Schwartz, Faruqi & Faruqi LLP, Jenkintown, PA, for Plaintiff.

David Kleban, Stephanie Gyetvan, William F. Cavanaugh, Jr., Patterson Belknap Webb & Tyler LLP, New York, NY, Robin P. Sumner, Whitney R. Redding, Pepper Hamilton LLP, Philadelphia, PA, for Defendants.

OPINION

Slomsky, District Judge.

I. INTRODUCTION

Plaintiff UniStrip Technologies, Inc. (“UniStrip”) brings this civil action against Defendants LifeScan, Inc. and LifeScan Scotland, Ltd. (collectively, “LifeScan”) for various antitrust violations in connection with the market for blood glucose test strips that both parties manufacture and distribute. (Doc. No. 47.)

Before the Court is LifeScan's Motion to Dismiss Plaintiff's Second Amended Complaint (“SAC”), which was filed on May 1, 2015. (Doc. No. 54.) For the following reasons, the Court will deny LifeScan's Motion to Dismiss Counts I, II, III, IV, and VI of the Second Amended Complaint, and will grant LifeScan's Motion to Dismiss Count V.

II. BACKGROUND

LifeScan is a wholly owned subsidiary of Johnson & Johnson. It manufactures and sells blood glucose self-monitoring systems that allow individuals with diabetes to maintain healthy blood glucose levels. (Doc. No. 47 at 1, 7.) Blood glucose self-monitoring systems consist of disposable, single-use test strips that are read by an accompanying electrochemical meter. (Doc. No. 56 at 14.) The electronic meter can only read test strips that are designed to be compatible with it. (Id. ) For this reason, the market for blood glucose self-monitoring systems consists of two sub-markets—one for electronic meters and one for accompanying test strips. (Id. at 14-15.)

In 2010, the United States market for blood glucose self-monitoring systems was valued at approximately $3.97 billion, with the test strip sub-market valued at $3.46 billion. (Doc. No. 47 at 1.) Four competitors in the United States market, including LifeScan, share more than 83% of the market. (Id. at 2.) Of these competitors, LifeScan vaunts that it is the leading manufacturer and seller of blood glucose self-monitoring systems with more than 30% of the United States market. (Id. )

Blood glucose monitoring system manufacturers make their products available on the market by selling them to distributors, wholesalers, mass merchandisers, pharmacies, and direct-to-patient managed mail order service providers. (Id. at 4.) LifeScan offers these resellers various rebates and discounts on its blood glucose self-monitoring products in order to lower the high cost of its products. (Id. at 9.) For example, LifeScan offers discounts that significantly depress the cost of its electronic meters, an enticement to many individuals to purchase them. (Id. ) Once the patient acquires a LifeScan meter, that patient is locked into purchasing LifeScan meter-compatible test strips, which are used by many diabetics multiple times per day. (Id. ) Because LifeScan previously was the only manufacturer of LifeScan meter-compatible test strips, LifeScan cornered the market on these test strips. (Id. ) The entry of a competitor, such as UniStrip, into the market for LifeScan-compatible test strips therefore would disrupt LifeScan's market strategy.

LifeScan markets a monitoring system, OneTouch Ultra, which consists of an electronic meter and test strips that, until recently, were the only test strips available that were compatible with this meter. (Doc. No. 56 at 15.) Thus, LifeScan captured 100% of the market for those test strips. (Doc. No. 47 at 3.) In November 2013, however, the United State Food and Drug Administration approved a test strip, UniStrip1, which UniStrip developed to be compatible with—and thus usable in—OneTouch Ultra meters. (Id. ) With this regulatory approval, UniStrip now was permitted to sell its lower-cost UniStrip1 and compete with LifeScan in the market for test strips that were compatible with the OneTouch Ultra meter. (Id. )

Following the entry into the market of UniStrip's generic alternative to LifeScan's test strip, LifeScan began entering into exclusivity contracts and agreements with its resellers. (Id. at 13.) According to Plaintiff, LifeScan would offer rebates and discounts to resellers on the condition that those resellers would not purchase any non-LifeScan products compatible with the OneTouch Ultra meter. (Id. ) Should a reseller purchase a non-LifeScan product, such as the UniStrip1 test strip, LifeScan allegedly would reduce or terminate its offered rebates and discounts. (Id. ) The reseller then would face steep price increases on LifeScan products. (Id. ) UniStrip alleges that there are “exclusionary contracts with resellers [that] include terms or provisions that expressly or impliedly condition the payment of rebates, discounts, allowances and other financial incentives on the agreement and/or understanding that the customer not purchase sell [sic] non-LifeScan products.” (Id. ) UniStrip also asserts that “LifeScan has also made these threats in-person, over the phone, in e-mails and other written correspondences notwithstanding any express penalty term in the agreement with the reseller.” (Id. at 13-14.) The exclusionary conditions, UniStrip asserts, have prevented resellers from purchasing UniStrip products due to the reseller's fear of losing the coveted rebates and discounts LifeScan offers. (Id. )

UniStrip alleges that these exclusivity agreements violate antitrust law because they impede competition by foreclosing the market to LifeScan's competitors. (Id. at 15.) UniStrip also contends that LifeScan's exclusionary strategy amounts to an illegal attempt to maintain its monopoly power over the test strip market. (Id. ) Because LifeScan conditions rebates and discounts on all of its products and not only test strips, UniStrip asserts that this strategy is an illegal bundling scheme that violates antitrust law. (Id. ) UniStrip argues that LifeScan's conditions impermissibly allow it to terminate a discount on any of its products, such as that on the OneTouch Ultra meter, if the reseller purchases a UniStrip1 test strip. (Id. )

As a result of UniStrip's allegations of LifeScan's anticompetitive behavior, UniStrip brought this suit against LifeScan on July 29, 2014. (Doc. No. 1.) In its Complaint, UniStrip claims that LifeScan has violated Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act, and also has violated applicable state law by tortiously interfering with actual and prospective contracts. (Id. ) UniStrip filed a First Amended Complaint on November 19, 2014. (Doc. No. 30.) LifeScan responded by filing a Motion to Dismiss on December 19, 2014. (Doc. No. 37.)

A hearing was held on LifeScan's Motion to Dismiss on February 19, 2015. (Doc. No. 46.) Following the hearing, UniStrip filed a Second Amended Complaint on March 30, 2015.¹ (Doc. No. 47.) LifeScan filed a Motion to Dismiss the Second Amended Complaint on May 1, 2015. (Doc. No. 54.) Plaintiff responded to LifeScan's Motion to Dismiss on June 2, 2015 (Doc. No. 56), and LifeScan replied on June 17, 2015 (Doc. No. 58). For the following reasons, the Court will deny LifeScan's Motion to Dismiss in part and will grant it in part.

III. STANDARDS OF REVIEW

A. Legal Standard for Motion To Dismiss

In deciding a motion to dismiss, the court “accept[s] as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, and views them in the light most favorable to the non-moving party.” DeBenedictis v. Merrill Lynch & Co. , 492 F.3d 209, 215 (3d Cir.2007). The motion to dismiss standard under Federal Rule of Civil Procedure 12(b)(6) establishes that “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements do not suffice” to defeat a Rule 12(b)(6) motion to dismiss.

Ashcroft v. Iqbal , 556 U.S. 662, 663, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; see also Bell Atl. Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ethypharm S.A. France v. Abbott Labs. , 707 F.3d 223, 231 n. 14 (3d Cir.2013) (citing Sheridan v. NGK Metals Corp. , 609 F.3d 239, 262 n. 27 (3d Cir.2010) ). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Where “the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not ‘shown’—‘that the pleader is entitled to relief.’ ” Iqbal , 556 U.S. at 679, 129 S.Ct. 1937. The “plausibility” determination is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id.

B. Legal Standard for Exclusive Dealing

When a party asserts violations of antitrust laws based on allegations that “a business rival has priced its products in an unfair manner with an object to eliminate or retard competition and thereby gain and exercise control over prices in the relevant market,” the court must determine which of two tests applies to that party's claims. Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp. , 509 U.S. 209, 222, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993) ; see also ZF Meritor, LLC v. Eaton Corp. , 696 F.3d 254, 268 (3d Cir.2012). Specifically, if a Plaintiff alleges violations of Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act due to an exclusive dealing arrangement, the court will determine if it should apply the “price-cost...