Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_07-cv-06010/USCOURTS-cand-4_07-cv-06010-3/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 15:15 Antitrust Litigation

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

MEIJER, INC. & MEIJER DISTRIBUTION,

INC.,

Plaintiffs,

 v.

ABBOTT LABORATORIES,

Defendant. 

ROCHESTER DRUG COOPERATIVE, INC.,

Plaintiff,

 v.

ABBOTT LABORATORIES,

Defendant. 

LOUISIANA WHOLESALE DRUG COMPANY,

INC.,

Plaintiff,

 v.

ABBOTT LABORATORIES,

Defendant.

 

No. C 07-5985 CW

ORDER DENYING ABBOTT’S

MOTION TO DISMISS

(DOCKET NO. 19)

No. C 07-6010 CW

ORDER DENYING ABBOTT’S

MOTION TO DISMISS

(DOCKET NO. 23)

No. C 07-6118 CW

ORDER DENYING ABBOTT’S

MOTION TO DISMISS

(DOCKET NO. 38)

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SAFEWAY INC., et al.,

Plaintiffs,

 v.

ABBOTT LABORATORIES,

Defendant.

 

SMITHKLINE BEECHAM CORPORATION d/b/a/

GLAXOSMITHKLINE,

Plaintiff,

 v.

ABBOTT LABORATORIES,

Defendant.

 

RITE AID CORPORATION, et al.,

Plaintiffs,

 v.

ABBOTT LABORATORIES,

Defendant.

 /

No. C 07-5470 CW

ORDER DENYING ABBOTT’S

MOTIONS TO DISMISS

(DOCKET NOS. 24 AND 29)

No. C 07-5702 CW

ORDER DENYING ABBOTT’S

MOTIONS TO DISMISS

(DOCKET NOS. 44 AND 46)

AND DENYING ABBOTT’S

MOTION TO TRANSFER

(DOCKET NO. 19)

No. C 07-6120 CW

ORDER DENYING ABBOTT’S

MOTION TO DISMISS

(DOCKET NO. 18)

Defendant Abbott Labs moves to dismiss the complaint in each

of these related actions, arguing that Plaintiffs’ claims for

monopolization and attempted monopolization of the market for

boosted protease inhibitors are foreclosed by the recent Ninth

Circuit case, Cascade Health Solutions v. Peacehealth, 515 F.3d 883

(9th Cir. 2008). Abbott moves separately to dismiss

GlaxoSmithKline’s (GSK) claims in the SmithKline Beecham case for

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breach of the implied covenant of good faith and fair dealing,

violation of the North Carolina Unfair Trade Practices Act and

violation of the North Carolina Prohibition Against Monopolization. 

Finally, Abbott moves to transfer the SmithKline Beecham case to

Illinois. Plaintiffs oppose each of these motions. The matters

were heard on March 6, 2008. Having considered oral argument and

all of the papers submitted by the parties, the Court denies

Abbott’s motions.

BACKGROUND

Protease inhibitors (PIs) are considered the most potent class

of drugs to combat the HIV virus. In 1996, Abbott introduced

Norvir as a stand-alone PI with a daily recommended dose of 1,200

milligrams (twelve 100-mg capsules a day), priced at approximately

eighteen dollars per day. Norvir is the brand name for a patented

compound called ritonavir. 

After Norvir’s release, it was discovered that, when used in

small quantities with another PI, Norvir would “boost” the antiviral properties of that PI. Not only did a small dose of Norvir

-- about 100 to 400 milligrams per day -- make other PIs more

effective and decrease the side effects associated with high doses,

but it also slowed the rate at which HIV developed resistance to

the effects of those PIs. The use of Norvir as a “booster” has

enabled HIV patients to live longer. But the use of Norvir as a

booster, and not a stand-alone PI, has also meant that the average

daily price of Norvir has plummeted since Norvir was first

introduced, because patients need a much smaller daily dose of

Norvir when it is used as a booster compared to when it is used as

a stand-alone PI. By 2003, the average price for a daily dose of

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Norvir was $1.71.

In 2000, Abbott introduced Kaletra, a single pill containing

the PI lopinavir as well as ritonavir, which is used to boost the

effects of lopinavir. Although effective and widely used, Kaletra

causes some patients to experience significant side effects.

In 2003, two new PIs, Bristol-Myers Squibb’s Reyataz and GSK’s

Lexiva, were about to be introduced to the market. Studies showed

that, when boosted with Norvir, the new PIs were as effective as

Kaletra, and were more convenient. In July, 2003, Reyataz was

successfully introduced to the market. As a result, Kaletra’s

market share fell more than Abbott had anticipated. The average

daily dose of Norvir also fell. Before Reyataz’s release, the most

common boosting dose of Norvir ranged from 200 milligrams to 400

milligrams a day. Clinical trials, however, showed that a Norvir

dose of only 100 milligrams a day effectively boosted Reyataz.

On December 3, 2003, Abbott raised the wholesale price of

Norvir by 400 percent while keeping the price of Kaletra constant. 

Abbott contends that it did this so that the price of Norvir would

be more in line with the drug’s enormous clinical value. 

Plaintiffs contend that the Norvir price increase was an illegal

attempt to achieve an anti-competitive purpose in the “boosted

market,” which Plaintiffs define as the market for those PIs, such

as Reyataz, Lexiva and Kaletra, that are prescribed for use with

Norvir as a booster. Plaintiffs sued for, among other things,

monopolization and attempted monopolization in violation of the

Sherman Act, 15 U.S.C. § 2.

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LEGAL STANDARD

I. Motion to Dismiss

A complaint must contain a “short and plain statement of the

claim showing that the pleader is entitled to relief.” Fed. R.

Civ. P. 8(a). On a motion under Rule 12(b)(6) for failure to state

a claim, dismissal is appropriate only when the complaint does not

give the defendant fair notice of a legally cognizable claim and

the grounds on which it rests. See Bell Atl. Corp. v. Twombly,

__ U.S. __, 127 S. Ct. 1955, 1964 (2007). In considering whether

the complaint is sufficient to state a claim, the court will take

all material allegations as true and construe them in the light

most favorable to the plaintiff. NL Indus., Inc. v. Kaplan, 792

F.2d 896, 898 (9th Cir. 1986).

II. Motion to Transfer

Title 28 U.S.C. § 1404(a) provides, “For the convenience of

parties and witnesses, in the interest of justice, a district court

may transfer any civil action to any other district or division

where it might have been brought.” The statute itself identifies

three factors to consider on a motion to transfer: 1) the

convenience of the parties; 2) the convenience of the witnesses;

and 3) the interests of justice. 28 U.S.C. § 1404(a). The Ninth

Circuit has articulated other considerations that are subsumed in

these basic factors, including: the plaintiff’s choice of forum;

ease of access to the evidence; the familiarity of each forum with

the applicable law; the nexus between the forum and the causes of

action; the feasability of consolidating other claims; any local

interest in the controversy; the relative court congestion and time

to trial in each forum; the location where the relevant agreements

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were negotiated and executed; the parties’ contacts with the

forums; any difference in the costs of litigation between the two

forums; and the availability of compulsory process to compel

attendance of unwilling non-party witnesses. Decker Coal Co. v.

Commonwealth Edison Co., 805 F.2d 834, 843 (9th Cir. 1986); Jones

v. GNC Franchising, Inc., 211 F.3d 495, 498-99 (9th Cir. 2000). No

single factor is dispositive, and a district court has broad

discretion to adjudicate motions for transfer on a case-by-case

basis. Stewart Org. Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988);

Sparling v. Hoffman Constr. Co., Inc., 964 F.2d 635, 639 (9th Cir.

1988).

DISCUSSION

I. Cascade’s Application to These Cases

A monopolization claim under § 2 of the Sherman Act requires a

plaintiff to prove “(1) possession of monopoly power in the

relevant market, (2) willful acquisition or maintenance of that

power, and (3) causal ‘antitrust injury.’” Rutman Wine Co. v. E. &

J. Gallo Winery, 829 F.2d 729, 736 (9th Cir. 1987). To demonstrate

a claim of attempted monopolization under § 2, the plaintiff must

show “(1) that the defendant has engaged in predatory or

anticompetitive conduct with (2) a specific intent to monopolize

and (3) a dangerous probability of achieving monopoly power.” 

Cascade, 515 F.3d at 893. As the Ninth Circuit has noted, the

requirements of both claims are similar, “differing primarily in

the requisite intent and the necessary level of monopoly power.” 

Image Technical Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195,

1202 (9th Cir. 1997).

In the related case, In re Abbott Labs. Norvir Antitrust

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1Abbott argues that Federal Circuit law bars Plaintiffs’

reliance on a monopoly leveraging theory, citing In re Independent

Service Organizations Antitrust Litigation, 203 F.3d 1322 (Fed.

Cir. 2000), in support of its position. According to Abbott, the

scope of its rights depends on the resolution of a substantial

question of federal patent law, and therefore the Federal Circuit

has jurisdiction over any appeal. The Court considered and

rejected this argument in In re Abbott Labs. Norvir Antitrust

Litigation, and it adheres to that decision. Kodak clearly touched

upon the limits of a patentee’s rights, and yet the Ninth Circuit

crafted a rule as a matter of federal antitrust law, based on

Supreme Court precedent. To the extent Federal Circuit law

interprets that same precedent in a way that would warrant

dismissal of Plaintiffs’ claims (and it is not clear that

Independent Service Organizations would in fact require dismissal),

the Court will follow the Ninth Circuit because those claims arise

under the Sherman Act, not federal patent law.

2

 Exclusionary bundled pricing is not necessarily mutually

exclusive with a monopoly leveraging theory; bundled pricing can

serve as the means by which a plaintiff exploits its monopoly in

one market to enhance its monopoly in another market. Thus, both

Kodak and Cascade hypothetically could apply at the same time.

7

Litigation, No. C 04-1511, the Court permitted the plaintiffs to

proceed on a theory of monopoly leveraging, as articulated in

Kodak. Under this theory, “a monopolist who acquires a dominant

position in one market through patents and copyrights may violate §

2 if the monopolist exploits that dominant position to enhance a

monopoly in another market.” Id. at 1216.1

 Here, Plaintiffs

allege that Abbott has exploited its monopoly over the “booster

market,” which is comprised only of Norvir, to seek a monopoly over

the “boosted market,” which is comprised of drugs intended for use

with Norvir as a booster.

As noted above, Abbott has filed an omnibus motion to dismiss

based on the Ninth Circuit’s recent decision in Cascade. Cascade

addresses the issue of when bundled discounts can be considered

anticompetitive conduct in violation of the Sherman Act.2 As the

court explained:

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Bundling is the practice of offering, for a single price,

two or more goods or services that could be sold

separately. A bundled discount occurs when a firm sells

a bundle of goods or services for a lower price than the

seller charges for the goods or services purchased

individually. . . . Bundled discounts are pervasive, and

examples abound. Season tickets, fast food value meals,

all-in-one home theater systems -- all are bundled

discounts. . . . The varied and pervasive nature of

bundled discounts illustrates that such discounts

transcend market boundaries. On the one hand, the

world’s largest corporations offer bundled discounts as

their product lines expand with the convergence of

industries. On the other hand, a street-corner vendor

with a food cart -- a merchant with limited capital --

might offer a discount to a customer who buys a drink and

potato chips to complement a hot dog. The fact that such

diverse sellers offer bundled discounts shows that such

discounts are a fundamental option for both buyers and

sellers.

Cascade, 515 F.3d at 894-95.

“Bundled discounts generally benefit buyers because the

discounts allow the buyer to get more for less.” Id. at 895. 

However, under some circumstances, bundled discounts can be

anticompetitive and run afoul of the antitrust laws. This may

happen where a firm “enjoys a monopoly on one or more of a group of

complementary products, but [] faces competition on others.” Ortho

Diagnostic Sys., Inc. v. Abbott Labs., Inc., 920 F. Supp. 455, 467

(S.D.N.Y. 1996). The competitor who sells only one product in the

bundle, even while producing that product at a lower cost than the

monopolist, still “might not be able to match profitably the price

created by the multi-product bundled discount. This is true even

if the post-discount prices for both the entire bundle and each

product in the bundle are above the seller’s cost.” Cascade, 515

F.3d at 896 (citation omitted).

The Ortho court gave an example, which the Cascade decision

quotes in its entirety, of how this might happen:

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Assume for the sake of simplicity that the case involved

the sale of two hair products, shampoo and conditioner,

the latter made only by A and the former by both A and B. 

Assume as well that both must be used to wash one’s hair. 

Assume further that A’s average variable cost for

conditioner is $2.50, that its average variable cost for

shampoo is $1.50, and that B’s average variable cost for

shampoo is $1.25. B therefore is the more efficient

producer of shampoo. Finally, assume that A prices

conditioner and shampoo at $5 and $3, respectively, if

bought separately but at $3 and $2.25 if bought as part

of a package. Absent the package pricing, A’s price for

both products is $8. B therefore must price its shampoo

at or below $3 in order to compete effectively with A,

given that the customer will be paying A $5 for

conditioner irrespective of which shampoo supplier it

chooses. With the package pricing, the customer can

purchase both products from A for $5.25, a price above

the sum of A’s average variable cost for both products. 

In order for B to compete, however, it must persuade the

customer to buy B’s shampoo while purchasing its

conditioner from A for $5. In order to do that, B cannot

charge more than $0.25 for shampoo, as the customer

otherwise will find A’s package cheaper than buying

conditioner from A and shampoo from B. On these

assumptions, A would force B out of the shampoo market,

notwithstanding that B is the more efficient producer of

shampoo, without pricing either of A’s products below

average variable cost.

Id. at 896-97 (quoting Ortho, 920 F. Supp. at 467).

Thus, “a bundled discounter can exclude rivals who do not sell

as great a number of product lines without pricing its products

below its cost to produce them,” thereby “achiev[ing] exclusion

without sacrificing any short-run profits.” Id. at 897. For this

reason, the test set forth by the Supreme Court to identify illegal

predatory pricing in the sale of a single product is not directly

applicable to bundled discount cases; that test requires the

plaintiff to show that the defendant’s low prices are below its

incremental costs -- in other words, that the defendant is selling

the product at a loss in order to drive out competition. See

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S.

209, 222 (1993).

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Faced with this difficulty, the Cascade court developed a test

to determine when bundled pricing is anticompetitive. After

considering various alternatives, the court settled on a “discount

attribution” standard:

Under this standard, the full amount of the discounts given by

the defendant on the bundle are allocated to the competitive

product or products. If the resulting price of the

competitive product or products is below the defendant’s

incremental cost to produce them, the trier of fact may find

that the bundled discount is exclusionary for the purpose of

§ 2. This standard makes the defendant’s bundled discounts

legal unless the discounts have the potential to exclude a

hypothetical equally efficient producer of the competitive

product.

Cascade, 515 F.3d at 906. The court believed this standard was in

line with the Supreme Court’s direction in Brooke and other cases

that low prices, which generally benefit the consumer, should not

be condemned unless they are below some measure of the defendant’s

cost.

The Cascade court explained how its rule would apply to the

shampoo example: The entire discount on the package of products,

$2.75, is subtracted from the $3 price of the competitive product,

shampoo, when bought separately. The resulting effective price of

the shampoo is thus $0.25, well below A’s incremental cost of

producing it, $1.50. Accordingly, “A’s pricing practices exclude

potential competitors that could produce shampoo more efficiently

than A (i.e., at an incremental cost of less than $1.50)” but who

are unable to produce shampoo at an incremental cost of $0.25. Id.

at 906 n.15. A’s bundled discount therefore could be considered

exclusionary.

After deciding on the discount attribution rule, the court

then turned to the appropriate measure of “incremental costs” in a

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bundled discount case. It noted that there are several possible

methods of measuring costs:

[F]irms face both fixed costs -- costs that a firm must

bear regardless of the amount of output -- and variable

costs -- costs that change with the amount of output. 

The sum of fixed and variable costs is a firm’s total

cost. Marginal cost is the increase to total cost that

occurs as a result of producing one additional unit of

output. Average cost is the sum of fixed costs and total

variable costs, divided by the amount of output.

Id. at 909.

The court expressed its approval of the view of Professors

Areeda and Turner, set out in their classic law review article,

that marginal cost -- defined as “the cost to produce one

additional unit and the price that would obtain in the market under

conditions of perfect competition” -- is the “optimal measure of a

firm’s costs in a predatory pricing case.” Id.; see also Phillip

Areeda & Donald F. Turner, Predatory Pricing and Related Practices

Under Section 2 of the Sherman Act, 88 Harv. L. Rev. 697, 712, 716

(1975). Practically speaking, however, it is often not possible to

determine the marginal cost from a firm’s accounting practices. 

Accordingly, the average variable cost, which is more easily

determined, must serve as a surrogate for the marginal cost. The

Cascade court held, therefore, that average variable cost is the

appropriate measure of incremental costs for the bundled pricing

standard. Id.

The central question raised by Abbott’s omnibus motion is

whether Cascade’s rule applies in the context of these cases, such

that Plaintiffs must show that the imputed price of lopinavir (the

competitive product) in Kaletra is below Abbott’s average variable

cost of producing it.

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3

The Court grants Plaintiffs’ request for judicial notice of

this portion of the expert rebuttal report.

12

As an initial matter, it is far from clear that Abbott’s sale

of Kaletra represents a bundled discount. Consumers do not

purchase Kaletra because it provides them with a way to save on two

products they would otherwise have to purchase separately. In

fact, it is not readily apparent that Kaletra consists of two

products at all -- ritonavir and lopinavir are combined in a single

pill. Abbott does not offer lopinavir for sale independently of

ritonavir; lopinavir is not licensed by the FDA for use except as

part of Kaletra. Thus, it is not possible for Abbott to offer an

actual discount on lopinavir when sold as part of Kaletra.

Abbott’s marketing of Kaletra reveals that Abbott itself does

not treat the drug as a package of multiple products -- it is

offered in an “all or nothing” form. In fact, Abbott’s expert in

In re Abbott Labs. Norvir Antitrust Litigation explicitly argues in

his rebuttal report that a bundled discount theory does not apply

to Abbott’s pricing structure -- the relevant heading is entitled,

“Abbott does not offer bundled discounts, nor is the challenged

pricing structure economically equivalent to bundled discounts.” 

Pls.’ Req. For Judicial Notice Ex. 1 at 18.3 Abbott’s expert

states:

In the case of Abbott, a bundled discount would require

that Abbott provide a significant discount on Norvir

contingent on the patient also purchasing lopinavir. 

However, Abbott does not offer such discounts on Norvir

for patients that purchase lopinavir. Nor does it sell

lopinavir as a stand-alone PI. Rather, Abbott’s pricing

structure, according to Prof. Greer, is a high price of

Norvir and a “too low” price of Kaletra.

Id.

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These figures are found in a Health and Human Services letter

(continued...)

13

Even if Kaletra represents a bundled discount such that these

cases fall within the general purview of Cascade, it does not

follow that the Court must mechanically apply the Cascade rule

regardless of its effect under the circumstances. Cascade itself

implicitly acknowledges that some atypical cases may fall outside

of the situation where only below-cost pricing will have the effect

of inhibiting competition. In discussing the application of Brooke

to bundled pricing cases, the Cascade court noted that the Supreme

Court has never gone “so far as to hold that in every case in which

a plaintiff challenges low prices as exclusionary conduct the

plaintiff must prove that those prices were below cost.” Cascade,

515 F.3d at 901. Instead, the Ninth Circuit viewed the Supreme

Court’s opinions as “strongly suggest[ing] that, in the normal

case, above-cost pricing will not be considered exclusionary

conduct for antitrust purposes.” Id. (emphasis added).

Abbott’s sale of Kaletra -- if it represents a bundled

discount -- is a strong candidate for the exception contemplated by

the Ninth Circuit. This is because the stated goal of the Cascade

rule -- making unlawful only pricing that would exclude equally

efficient competitors from the market -- would not be served by

applying the rule here.

To illustrate why this is the case, it is instructive to apply

the rule to the facts. Abbott charges $17.14 for 200 milligrams of

Norvir, while charging $18.78 for a dose of Kaletra containing the

same amount of ritonavir. Norris Dec. (Docket No. 20, Case No.

07-5985) Ex. A at 8.4

 The imputed price of the lopinavir portion

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(...continued)

referred to in the complaint. The Court uses them for illustrative

purposes, not as evidence in support of its decision.

5

Because Abbott does not sell lopinavir separately, the price

of unbundled lopinavir cannot be used as a starting point for the

calculation, as the Cascade rule contemplates will ordinarily be

done. Nonetheless, only two variables are required in order to

derive the “discounted price” of lopinavir. To demonstrate this,

assume that Abbott sells lopinavir separately for price “x.” The

cumulative discount represented by Kaletra would then be x + $17.14

- $18.78, or x - $1.64, all of which must be allocated to the

lopinavir portion pursuant to the rule. Subtracting the discount

of x - $1.64 from the price of lopinavir, x, results in an imputed

discounted price of $1.64.

6The Meijer Plaintiffs argue that Abbott’s average variable

costs should include more than just the cost of manufacturing; they

argue that marketing and promotion costs should also be included. 

This is a valid argument, and would raise the average variable cost

above the pennies-per-pill cost of manufacturing. However, because

the Court finds that the Cascade rule does not apply, it need not

determine whether marketing and similar costs should be considered

when calculating Abbott’s average variable cost.

14

of Kaletra is the difference between the two amounts, or $1.64.5

Therefore, under a straightforward application of the Cascade rule,

Abbott’s pricing could be found anticompetitive only if its average

variable cost of producing lopinavir is greater than $1.64.

As the parties note, the cost of manufacturing Kaletra pills

is negligible -- most likely only a few cents per pill.6 Assuming

for the sake of argument that Abbott’s average variable cost of

producing lopinavir is $0.05, if the Cascade rule applied, Abbott’s

sale of the drug for $1.64 cannot be an antitrust violation. In

fact, at a hypothetical production cost of $0.05, the Cascade rule

would permit Abbott to sell Norvir at a price of up to $18.73.

But at such a price, competitors would have to sell an equally

effective product for $0.05 or less in order to compete with

Kaletra. Common sense dictates that no newly developed PI could

ever be sold profitably at such a price, because the manufacturer

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7It is notable that Cascade and the law review article on

which it relies are based on the premise that, in a perfectly

competitive market, the market price will equal the marginal cost. 

See Cascade, 515 F.3d at 909; Areeda & Turner, supra, at 702. 

However, in the pharmaceutical industry, even in a crowded field of

competing drugs, market prices will typically be well above

marginal costs. See, e.g., Peter K. Yu, the International

Enclosure Movement, 82 Ind. L.J. 827, 898 n.377 (2007) (“The model

of price-setting in a perfectly competitive market suggests that

prices are based upon marginal costs. But this model obviously

does not apply for pharmaceuticals, for if they were priced

according to their marginal costs, they would be very inexpensive,

but in the long run no expenditures on R&D would be made.”);

Brianna Carignan, Legalizing Importation of Prescription Drugs: The

Economic Implications of the Pharmaceutical Market Access and Drug

Safety Act of 2005, 12 New Eng. J. Int’l & Comp. L. 161, 165 (2005)

(“[T]he developer of a drug could never recover its research and

development costs by charging prices near its marginal cost of

production. The economic purpose of patents is to bar entry of

copy products for the term of the patent, to provide the innovator

firm with an opportunity to price above marginal cost and thereby

recoup R&D expense, in order to preserve incentives for future R&D. 

Without patents, generic pharmaceuticals could enter the market

immediately and price at marginal cost because they would not have

any R&D expenses to recover.”) (citation, internal quotation marks

and alterations omitted).

Abbott notes that Cascade involves bundled discounting in the

provision of healthcare services. Abbott asserts that the

healthcare services industry is one with high fixed costs, and thus

pharmaceutical cases cannot be distinguished from Cascade. However, while the provision of healthcare services may involve

high fixed costs, variable costs -- including the cost of

compensating medical professionals for their time -- are high as

(continued...)

15

would never be able to recoup its huge research and development

costs. If the Cascade rule were applied in this context, it would

stifle competition; even a competitor who could produce an equally

effective drug for only $0.01 per pill would be excluded from the

market. Thus, as applied here, the Cascade rule does not achieve

its stated goal of prohibiting pricing that results in the

exclusion of equally efficient competitors. This failure is

attributable to the unique structural characteristics of the

pharmaceutical industry, where fixed costs in the form of

investment in research and development dwarf variable costs.7

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7

(...continued)

well. As a result, the healthcare services industry does not

exhibit the great disparity between fixed and variable costs found

in the pharmaceutical industry.

8In contrast, manufacturing efficiency is an appropriate focus

when the issue is competition between different manufacturers of a

single drug for which the patent has expired. Accordingly, the

Cascade rule would achieve the desired effect when applied in such

a case.

9It may be possible to adjust the rule to shift the focus away

from the marginal cost of manufacturing pills. For instance, it

may be appropriate to require Plaintiffs to show, not that $1.64 is

less than Abbott’s cost of producing 200 milligrams of lopinavir,

(continued...)

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More fundamentally, using average variable cost as a gauge of

anticompetitive pricing leads to an exclusive concern with

promoting manufacturing efficiency. But such a concern is not

relevant here, where the goal is to prevent pricing that would

exclude new, equally effective PIs from competing with lopinavir,

provided those PIs can be developed and introduced at least as

efficiently as lopinavir. The present cases are not concerned with

the potential exclusion of equally efficient manufacturers of

lopinavir. Yet the Cascade rule is equipped only to address this

latter scenario.8 

An antitrust doctrine that seeks exclusively to promote the

efficient production of pills will not serve to promote the

introduction of new medicines to compete with a patented drug. An

appropriate antitrust rule here should have the effect of

prohibiting Abbott’s pricing practices if a hypothetical equally

efficient developer of an equally effective PI would not be able to

profit if it introduced that PI to the market at a price of $1.64,

the imputed price of lopinavir. As demonstrated, the averagevariable-cost rule does not accomplish that goal.9 Accordingly,

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9(...continued)

but that $1.64 is not a profitable price for the sale of a 200-mg

dose of lopinavir, taking into account the costs Abbott incurred

prior to introducing lopinavir to the market.

Such a “modified” Cascade rule may be difficult to implement

in practice. For instance, if Abbott has already recouped its

investment in lopinavir, $1.64 may be a profitable price for it

today, even if Abbott could not have hoped to recoup its investment

by selling lopinavir for $1.64 when it was first introduced to the

market. At the same time, asking if $1.64 would have been a

profitable price for lopinavir when Abbott first introduced it to

the market would require the development of complex economic models

that depend on variables which may not be readily ascertainable.

10In their briefs on the present motions, these Plaintiffs

articulate two theories of antitrust liability that the plaintiffs

in In re Abbott Labs Norvir Antitrust Litigation have not asserted. 

Because the complaints in the present cases do not assert separate

claims based on these “new” theories, however, the Court need not

rule on their validity. The Court thus addresses only whether

Plaintiffs may proceed on their claims for monopolization and

attempted monopolization under the Sherman Act.

17

the Court concludes that the present cases fall within the

exception contemplated by Cascade, and thus Plaintiffs need not

allege or show that the imputed price of the lopinavir portion of

Kaletra is less than Abbott’s average variable cost of producing

it.

II. Monopolization of the Boosting Market

The Meijer, Rochester and Louisiana Plaintiffs assert a

Sherman Act claim that the other Plaintiffs do not: they allege

that Abbott illegally monopolized the boosting market by keeping

the price of Norvir low, thereby providing little incentive for

competitors to develop products to compete with it or technologies

to reduce the amount of Norvir that must be used as a boosting

agent, then raising prices. The other Plaintiffs assert only that

Abbott monopolized the boosted market.10

Abbott claims that its patents entitle it to a monopoly in the

boosting market. However, the extent of Abbott’s exclusionary

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rights under its patents is not clear from the face of the

complaint. Thus, dismissal of this claim is premature, and

Abbott’s motion is denied.

III. Abbott’s Motion to Dismiss GSK’s Claims

A. Sherman Act Claims

In its order denying Abbott’s motion for summary judgment in

In re Abbott Labs. Norvir Antitrust Litigation, the Court found

that there was a triable issue of fact regarding whether Abbott’s

patent rights extend beyond the booster market to the boosted

market, thereby entitling it to maintain a monopoly over the latter

market. Abbott maintains that, in the SmithKline Beecham

complaint, GSK admits that Abbott’s patents cover the boosted

market, essentially “pleading itself out of court.”

In support of its argument, Abbott cites the following

paragraphs of the complaint:

17. Abbott never sought to use its intellectual property

to prevent others from selling PIs for

administration with Norvir. Instead, it chose to

profit by licensing competitors the right to market

PIs to be co-administered with Norvir.

20. In 2001, Abbott approached GSK to demand that it

secure a license to allow GSK to promote its

existing PIs, as well as PIs it had under

development, with Norvir. GSK acquiesced to this

demand, procuring a license from Abbott in December

2002.

21. Under the agreement, Abbott gave GSK the right to

promote the use and administration of its PIs with

Norvir. Abbott knew that GSK’s plan was to use the

Norvir license in order to promote GSK’s PIs in

boosted form. GSK paid substantial sums of money in

consideration for this license.

22. GSK is informed and believes, and therefore alleges,

that other pharmaceutical companies, including BMS,

took similar licenses allowing the promotion of

their PIs with Norvir during the same timeframe.

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11In addition, Abbott’s argument presupposes that it will raise

its patents as an affirmative defense. Because this defense does

not appear clearly on the face of the pleading, dismissal at this

stage is not appropriate in any event.

19

36. Abbott’s decision to raise the price of Norvir by

400 percent was unprecedented and taken in bad

faith. The 400 percent price hike immediately after

GSK’s release of Lexiva dashed GSK’s reasonable

expectation that, by virtue of the license for which

it had paid, it would be able to promote the

co-prescription and co-administration of its PI

products with Norvir at prices competitive with

those of Kaletra and other PIs. . . . .

Compl., Case No. C 07-5702.

Contrary to Abbott’s characterization of these statements,

they do not admit or necessarily imply that Abbott has a valid

patent covering the entire boosted market.11

Nor is GSK precluded from asserting its claims by virtue of

its license agreement with Abbott, which gives GSK the right to

market its own PIs for use with Norvir as a booster. As this Court

has noted previously, a party may choose to obtain a license, even

under the belief that the licensed patent is invalid or does not

cover the scope claimed by the patentee, in order to avoid the

possibility of litigation. Cf. Medimmune v. Genentech, Inc.,

__ U.S. __, 127 S. Ct. 764 (allowing a current licensee to bring an

action for a declaratory judgment of noninfringement and

invalidity).

Abbott also notes that the license contains a recital stating,

“Abbott owns certain patents related to the use, marketing and

promotion of Ritonavir (as defined below), its protease inhibiting

compound (marketed under the trade name Norvir), in combination

with other products indicated for the treatment of HIV.” Norris

Dec. Ex. A at 1. This recital, however, does not specify that

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Abbott possesses valid patents giving it the rights it now claims

over the boosted market. Even if it did, such a statement would

not constitute a binding admission in this litigation, in that it

is not a promise comprising a part of the bargained-for exchange

that is the subject of the license agreement.

B. State Law Claims

1. Breach of the Implied Covenant of Good Faith and

Fair Dealing

GSK asserts a claim for breach of the implied covenant of good

faith and fair dealing under New York law, which applies pursuant

to the choice-of-law provision in the license agreement. In

connection with this claim, GSK asserts that it was deprived of the

benefit of the license agreement’s bargain when Abbott raised the

price of Norvir. GSK maintains that, when it agreed to pay

substantial royalties for the right to market its PIs for use in

conjunction with Norvir, it had a “reasonable expectation that

Norvir would continue to be commercially available for use as a PI

boosting agent and that future increases in the price of Norvir

would be consistent with past increases.” SmithKline Beecham

Compl. ¶ 64. When Abbott raised the price of Norvir, GSK claims it

acted in bad faith by intentionally “thwart[ing] GSK’s ability to

benefit from [its] contracted rights.” Id.

Under New York law, “[i]mplicit in all contracts is a covenant

of good faith and fair dealing in the course of contract

performance.” Dalton v. Educ. Testing Serv., 663 N.E.2d 289, 291

(N.Y. 1995). Abbott has cited lower court cases from New York

holding that a claim for breach of the implied covenant of good

faith and fair dealing cannot take the place of a substantively

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nonviable breach of contract claim, see e.g., Nikitovich v. O’Neal,

836 N.Y.S.2d 34 (App. Div. 2007), and that a claim for the breach

of the implied covenant of good faith and fair dealing may not be

asserted independently of a breach of contract claim when it is

based on the same facts, see, e.g., Cohen v. Nassau Educators Fed.

Credit Union, 2006 WL 1540324, at *4 (N.Y. Sup. Ct. 2006). Neither

of these is the situation here.

In addition, the New York Court of Appeals has held that a

breach of the implied covenant of good faith and fair dealing can

itself serve as the basis for a breach of contract claim. In 511

West 232nd Owners Corp. v. Jennifer Realty Co., 773 N.E.2d 496

(N.Y. 2002), the court permitted the plaintiffs to proceed on a

breach of contract claim based on their allegation that the

offering plan for the conversion of an apartment building into a

cooperative included an implied promise by the sponsor to sell all

unsold units within a reasonable time. Such a promise was not

explicitly contained in the contract. The court held that,

“[w]hile the duties of good faith and fair dealing do not imply

obligations inconsistent with other terms of the contractual

relationship,” they do require that “neither party shall do

anything which will have the effect of destroying or injuring the

right of the other party to receive the fruits of the contract.” 

Id. at 500 (internal quotation marks omitted). Accordingly, a

party may pursue a breach of contract claim for violation of “any

promises which a reasonable person in the position of the promisee

would be justified in understanding were included.” Id. at 501

(internal quotation marks omitted).

Here, GSK’s second cause of action is entitled, “Breach of

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Covenant of Good Faith and Fair Dealing,” not breach of contract. 

To the extent Abbott argues that this claim should be dismissed

because it must be stated as a breach of contract claim, its

argument fails. “The form of the complaint and the label attached

by the pleader are not controlling, and it is enough that the

pleader state the facts making out a cause of action.” Drezin v.

DeLisser, __ N.Y.S.2d __, 2007 WL 2894083, at *4 (Sup. Ct. 2007)

(citing Van Gaasbeck v. Webatuck Cent. School Dist. No. 1, 234

N.E.2d 243 (N.Y. 1967)). GSK alleges that Abbott undertook an

implied obligation to continue to make Norvir commercially

available and to keep future increases in the price of Norvir in

line with past increases. Whether Abbott in fact undertook such an

obligation is an issue of fact that is not appropriately determined

on a motion to dismiss. Because such an implied obligation would

not necessarily be inconsistent with the express terms of the

license agreement, the Court finds that GSK has sufficiently plead

a claim for breach of an implied term of the license agreement.

2. North Carolina Unfair Trade Practices Act and

Prohibition Against Monopolization

Abbott argues that GSK has failed to state a claim under the

North Carolina Unfair Trade Practices Act, N.C. Gen. Stat.

§ 75-1.1. To state such a claim, a plaintiff must allege: “(1) an

unfair or deceptive act or practice, or unfair method of

competition, (2) in or affecting commerce, and (3) which

proximately caused actual injury to the plaintiff or his business.” 

Miller v. Nationwide Mut. Ins. Co., 435 S.E.2d 537, 542 (N.C. Ct.

App. 1993). The Act is a “comprehensive law designed to include

within its reach the federal antitrust laws.” L.C. Williams Oil

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12The only case Abbott cites is a federal case in which the

court predicted that the Fourth Circuit would not find a violation

of § 2 of the Sherman Act based on a monopoly leveraging theory. 

Bepco, Inc. v. Allied-Signal, Inc., 106 F. Supp. 2d 814, 833

(M.D.N.C. 2000). This sheds no light on the question of whether

the North Carolina Supreme Court would accept such a theory under

the Unfair Trade Practices Act. Moreover, the Bepco court

permitted the plaintiffs to proceed on their claims under the

Unfair Trade Practices Act.

13For the same reason, GSK has also stated a claim under the

North Carolina Prohibition Against Monopolization, N.C. Gen. Stat.

§ 75-2.1.

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Co., Inc. v. Exxon Corp., 625 F. Supp. 477, 481 (M.D.N.C. 1985). 

Accordingly, Sherman Act violations are likely to be actionable

under the Unfair Trade Practices Act. Additionally, the North

Carolina Act “also sanctions, as part of its broad remedial purpose

of promoting ethical business dealings, commercial ‘unfairness’ and

‘deception’ beyond traditional antitrust concepts.” Id. (citing

Marshall v. Miller, 276 S.E.2d 397, 403 (N.C. 1981). 

North Carolina courts apparently have not addressed whether a

cause of action based on a monopoly leveraging theory may lie under

the Unfair Trade Practices Act. Accordingly, the Court must

predict how the North Carolina Supreme Court would resolve this

issue. See Westlands Water Dist. v. Amoco Chem. Co., 953 F.2d

1109, 1111 (9th Cir. 1991).

Abbott argues that the North Carolina Supreme Court would

follow the Seventh Circuit and the Federal Circuit in rejecting

liability under a monopoly leveraging theory. However, Abbott has

cited no North Carolina case or any other evidence in support of

this contention,12 and thus has provided no basis for the Court to

apply a different antitrust standard than that which it has applied

to GSK’s Sherman Act claim.13 In addition, even if the North

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14Abbott argues that, in order for a claim for deceptive

behavior to lie, there must be detrimental reliance upon a

statement or misrepresentation, citing Business Cabling, Inc. v.

Yokeley, 643 S.E.2d 63, 36 (N.C. Ct. App. 2007), in support of its

position. Yokeley, however, was concerned with determining whether

the plaintiff had established causation between the deceptive acts

and a compensable injury. No such issue is present here. In

addition, another North Carolina appeals court has held that actual

reliance on a misrepresentation is not required. See Cullen v.

Valley Forge Life Ins. Co., 589 S.E.2d 423, 431 (N.C. Ct. App.

2003).

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Carolina Supreme Court would not recognize monopoly leveraging as a

form of anticompetitive conduct, GSK has alleged conduct that could

be considered “unfair” or “deceptive” under the Act.14 Accordingly,

GSK may proceed on its claim.

IV. Abbott’s Motion to Transfer the SmithKline Beecham Case

Abbott seeks to transfer the SmithKline Beecham case to

Illinois. It is true that the only apparent connection between the

case and California is that California is home to a large number of

HIV-positive individuals who may be consumers of boosted PIs. 

However, this case has no greater connection to Illinois, except

that Illinois is the site of Abbott’s headquarters. Illinois thus

has no particular interest in this case other than the generalized

interest in ensuring that its citizens receive fair adjudications.

While Abbott claims that transferring the case to Illinois

would be more convenient for it, this claim is undercut by the fact

that Abbott would continue to have to defend itself in the related

cases still before this Court, while defending itself in a new

forum as well. Moreover, GSK apparently finds California to be a

convenient forum, and it would not be appropriate to transfer this

case on convenience grounds when the effect would be simply to make

the litigation more convenient for one party at the expense of the

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other party. See STX, Inc. v. Trik Stik, Inc., 708 F. Supp. 1551,

1556 (N.D. Cal. 1988); Decker Coal, 805 F.2d at 843.

Additionally, it would not be in the interest of justice to

transfer this case because it would needlessly splinter the

litigation. Nor has Abbott shown that the availability of

witnesses or evidence will be an issue if the case continues in

this District, particularly considering that the related cases will

continue before the Court whether SmithKline Beecham is transferred

or not. As for Abbott’s charge that GSK has engaged in forum

shopping, it appears equally likely that Abbott is engaging in

similar conduct; by litigating the case in Illinois, Abbott would

be able to rely on Seventh Circuit precedent, which is more

favorable to Abbott than Ninth Circuit precedent.

Accordingly, the Court declines to exercise its discretion to

transfer this case to Illinois.

CONCLUSION

For the foregoing reasons, Abbott’s motions to dismiss are

DENIED. Abbott’s motion to transfer the SmithKline Beecham case is

also DENIED.

IT IS SO ORDERED.

Dated: 4/11/08 

CLAUDIA WILKEN

United States District Judge

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