A Cure For Antitrust Standing?

by Pepper Hamilton LLP
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Recently, the Third Circuit reexamined the test for antitrust standing in Ethypharm S. A. France v. Abbott Laboratories. The importance of the opinion, however, lies not just in the court’s affirmation of the multifactor test typically used to analyze antitrust standing, but also in the court’s analysis of how the regulatory framework of the pharmaceutical industry plays a role in analyzing the antitrust standing of participants in that industry.

Plaintiff (and appellant) Ethypharm is a French corporation that developed and manufactured the drug Antara. Recognizing the significant time and expense associated with marketing and selling a drug in the United States, Ethypharm granted Reliant Pharmaceuticals an exclusive license to develop, market, and sell Antara in the United States. Reliant also was responsible for obtaining U.S. Food and Drug Administration (FDA) approval for Antara. As permitted by the Food, Drug and Cosmetics Act (FDCA), Reliant relied upon the clinical studies and data for TriCor, a similar, already-approved drug, to obtain approval for Antara. Defendant (and appellee) Abbott Laboratories distributed TriCor in the United States.

Following Antara’s FDA approval, Abbott sued Reliant for alleged patent infringement. Reliant and Abbott settled the patent litigation, and Abbott granted Reliant a non-exclusive license for the use of certain patents. The Abbott license, however, limited Reliant’s ability to assign it. Several months after settlement, Reliant assigned the rights granted it by Ethypharm to Oscient, another pharmaceutical company. Abbott did not approve of the assignment, and Oscient’s ability to sell Antara was limited. Despite Oscient’s initial success, Antara’s market share declined and it was unable to compete effectively against Abbott.

Ethypharm blamed Antara’s failure on Abbott, the patent suit, and the restrictions and royalty payments resulting from the settlement. As a result, Ethypharm asserted claims against Abbott for violations of the Sherman Act and various state laws. The district court denied Abbott’s motion to dismiss for lack of antitrust standing, but granted its summary judgment motion determining that Ethypharm did not present sufficient evidence of a causal connection between its alleged antitrust injury and the damage it experienced.

Ethypharm appealed. On appeal the Third Circuit considered the standing arguments first raised in Abbott’s motion to dismiss and determined that Ethypharm lacked antitrust standing. The court organized the antitrust standing factors first announced by the Supreme Court in Associated General Contractors of California v. California State Council of Carpenters, into a multifactor test:

(1) the causal connection between the antitrust violation and the harm to the plaintiff and the intent by the defendant to cause that harm, with neither factor alone conferring standing; (2) whether the plaintiff’s alleged injury is of the type for which the antitrust laws were intended to provide redress; (3) the directness of the injury, which addresses the concerns that liberal application of standing principles might produce speculative claims; (4) the existence of more direct victims of the alleged antitrust violations; and (5) the potential for duplicative recovery or complex apportionment of damages.

As to Ethypharm, the court only evaluated the second factor, antitrust injury. It concluded that Ethypharm did not suffer antitrust injury and, the absence of this factor alone was sufficient to find an absence of antitrust standing.

The court noted that antitrust injury "is limited to consumers and competitors in the restrained market and to those whose injuries are the means by which defendants seek to achieve their anticompetitive ends."1 It was clear that Ethypharm was not a consumer and the question for the court was whether it fit either remaining definition. Relying on two prior precedents, Barton & Pittinos, Inc. v. SmithKline Beecham Corp. and Carpet Group International v. Oriental Rug Importers Association, Inc.,2 the court determined that Ethypharm was neither a competitor nor one whose injury was the means by which Abbott sought to achieve its anticompetitive ends. Like it did in Barton and Carpet Group, the court considered whether there was cross-elasticity of demand between Ethypharm’s and Abbott’s products – whether the price of one influences the demand for the other. Here, there was no cross-elasticity of demand. Abbott sells pharmaceutical drugs to consumers, while Ethypharm did not and could not sell a drug to U.S. consumers. Instead, Ethypharm could only sell bulk drug sales from outside the United States to an FDA-approved U.S. reseller. Only Reliant (or it successor), the licensee approved by the FDA to sell Antara, could lawfully sell the drug to consumers in the United States.

Ethypharm argued that Reliant’s possession of FDA approval to sell Antara made no difference for purposes of antitrust injury. The court strenuously disagreed, saying that the pharmaceutical industry’s stringent requirements create a high legal barrier to entry "that differentiates this case from others in which a manufacturer has a legal right to sell a good in the United States but chooses to utilize an exclusive distributor." Without approval to sell Antara, Ethypharm "is literally not a lawful competitor in the United States ... and cannot be considered a competitor for purposes of antitrust injury." The court also noted that the "inextricably intertwined" exception only has been applied to cases in which the plaintiff and defendant participate in the same relevant market even though they may not be direct competitors. As the court already concluded, Ethypharm and Abbott do not participate in the same relevant market and, therefore, it rejected Ethypharm’s argument that its injury was inextricably intertwined with Abbott’s conduct.

The court’s statement of the multifactor test to evaluate antitrust standing is not new; however, the opinion serves as a reminder that antitrust standing issues must not be overlooked. Plaintiffs and potential plaintiffs cannot ignore antitrust standing. Similarly, potential defendants, when assessing the risk related to their conduct, should assess who the likely complainants might be and whether they would have the requisite antitrust standing. In cases with multiple parties at different levels of the distribution chain or in cases that involve regulated industries such as pharmaceuticals, defendants would be well-served to identify early exactly the role the plaintiff plays in the market.

Endnotes

1 Ethypharm S. A. France v. Abbott Laboratories, No. 11-3602, 2013 U.S. App. Lexis 1567 at *26 (3d Cir. Jan. 23, 2013) (quoting W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 102 (3d Cir. 2010).

2 Carpet Group International v. Oriental Rug Importers Association, Inc., 227 F.3d 62 (3d Cir. 2000); Barton & Pittinos, Inc. v. SmithKline Beecham Corp., 118 F.3d 178 (3d Cir. 1997)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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