Source: https://law.justia.com/cases/federal/appellate-courts/F2/575/1056/372246/
Timestamp: 2018-12-12 08:07:49
Document Index: 2550570

Matched Legal Cases: ['§ 2', '§ 2', '§ 2', '§ 16', '§ 26', '§ 2', '§ 2', '§ 2']

Smithkline Corporation v. Eli Lilly and Company, Appellant, 575 F.2d 1056 (3d Cir. 1978) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Third Circuit › 1978 › Smithkline Corporation v. Eli Lilly and Company, Appellant
Smithkline Corporation v. Eli Lilly and Company, Appellant, 575 F.2d 1056 (3d Cir. 1978)
US Court of Appeals for the Third Circuit - 575 F.2d 1056 (3d Cir. 1978)
Argued Feb. 21, 1978. Decided April 3, 1978
The major question for decision is whether the district court in a non-jury trial erred in defining the relevant product market in a proceeding brought by SmithKline Corporation against Eli Lilly and Company under § 2 of the Sherman Act, which proscribes monopolies and attempts to monopolize. The court determined that the relevant product market is the nonprofit hospital market for a class of antibiotic drugs known as cephalosporins and that the relevant geographic market is the United States. Having so defined the relevant market, the court concluded that Lilly had illegally monopolized it. A permanent injunction against Lilly's illegal marketing practices was issued. Lilly has appealed, taking issue with the court on its market formulation; it would expand the relevant product market to include all anti-infective drugs prescribed by physicians. We affirm.1 I.
1970 1971 1972 Volume Share Volume Share Volume Share Total Cephalosporins ** $ 67,325 100.0% $ 81,239 100.0% $ 98,520 100.0% Lilly 67,325 100.0 81,239 100.0 98,520 100.0 Keflin (9/64) 40,693 60.4 51,062 62.9 62,796 63.7 Keflex (2/71) ...... .... 11,239 13.8 20,752 21.1 Kefzol (11/73) ...... .... ...... .... ...... .... Keflin Neutral (5/75) ...... .... ...... .... ...... .... Loridine (3/68) 25,622 38.1 17,916 22.1 14,607 14.8 Kafocin (7/70) 994 1.5 1,016 1.3 356 0.4 Cephaloridine (9/68) 16 .... 6 .... 9 .... Bristol Cefadyl (5/74) ...... .... ...... .... ...... .... SmithKline ...... .... ...... .... ...... .... Ancef (10/73) ...... .... ...... .... ...... .... Anspor (10/74) ...... .... ...... .... ...... .... Squibb Velosef (8/74) ...... .... ...... .... ...... .... 1973 1974 1975 * Volume Share Volume Share Volume Share Total Cephalosporins ** $105,405 100.0% $123,771 100.0% $65,007 100.0% Lilly 103,858 98.5 111,177 89.8 57,611 88.6 Keflin (9/64) 68,233 64.7 67,854 54.8 30,630 47.1 Keflex (2/71) 22,945 21.8 25,346 20.4 13,834 21.3 Kefzol (11/73) 1,149 1.4 13,593 11.0 8,355 12.9 Keflin Neutral (5/75) ...... .... ...... .... 3,340 5.1 Loridine (3/68) 10,996 10.4 4,322 3.5 1,430 2.2 Kafocin (7/70) 191 0.2 61 0.1 21 .... Cephaloridine (9/68) 14 .... 1 .... 1 .... Bristol Cefadyl (5/74) ...... .... 1,865 1.5 1,766 2.7 SmithKline 1,547 1.5 10,425 8.5 5,292 8.1 Ancef (10/73) 1,547 1.5 10,355 8.4 4,988 7.7 Anspor (10/74) ...... .... 70 0.1 304 0.5 Squibb Velosef (8/74) ...... .... 304 0.3 338 0.5 * 6 Months data.1/5 ** Dates in parentheses are dates of introduction.1/5
" The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S. Ct. 1698, 1704, 16 L. Ed. 2d 778 (1966).
To the extent that the court's findings are based on narrative or historical facts, they can only be disturbed on appeal if they are found to be clearly erroneous. Rochez Brothers, Inc. v. Rhoades, 527 F.2d 880, 887 (3d Cir. 1975), citing Krasnov v. Dinan, 465 F.2d 1298, 1302-03 (3d Cir. 1972). Moreover, the Supreme Court teaches that whether a product is "reasonably interchangeable for the same purpose" is reviewed by the clearly erroneous test, International Boxing Club v. United States, 358 U.S. 242, 251, 79 S. Ct. 245, 250, 3 L. Ed. 2d 270 (1959), and that for an appellant to prevail "it must show that erroneous legal tests were applied to essential findings of fact or that the findings themselves were 'clearly erroneous' within our rulings on Rule 52(a) of the Rules of Civil Procedure", United States v. E. I. duPont deNemours & Co., 351 U.S. 377, 381, 76 S. Ct. 994, 999, 100 L. Ed. 1264 (1956) (The Cellophane Case) .
The Supreme Court offers this guidance in defining a relevant market: "The 'market' which one must study to determine when a producer has monopoly power will vary with the part of commerce under consideration. The tests are constant. That market is composed of products that have reasonable interchangeability for the purposes for which they are produced price, use and qualities considered." The Cellophane Case, supra, 351 U.S. at 404, 76 S. Ct. at 1012.
These controlling legal precepts have been succinctly explained by Justice Fortas: "In § 2 cases, the search for 'the relevant market' must be undertaken and pursued with relentless clarity. It is, in essence, an economic task put to the uses of the law. . . . As this court held in Brown Shoe (v. United States, 370 U.S. 294, 82 S. Ct. 1502, 8 L. Ed. 2d 510 (1962)), the 'reasonable interchangeability of use or the cross-elasticity of demand,' determines the boundaries of a product market. 370 U.S. at 325, 82 S. Ct. at 1523. . . . In plain language, this means that the court should (define) the relevant market . . . to include all services which, in light of geographical availability, price and use characteristics, are in realistic rivalry for all or some part of the business (of antibiotics). . . . (I)f defendant has so large a fraction of the market as to constitute a 'predominant' share, a rebuttable presumption of monopolization follows. The fraction depends upon the denominator (the 'market') as well as the numerator (the defendants' volume). Clearly, this 'presumption' is unwarranted unless the 'market' is defined to include all competitors." United States v. Grinnell, supra, 384 U.S. at 587, 592-94, 86 S. Ct. at 1712 (1966) (Fortas, J., dissenting on the application of these standards to the facts).
The Supreme Court has defined monopoly power as "the power to control prices or exclude competition", The Cellophane Case, supra, 351 U.S. at 391, 76 S. Ct. at 1005. Between 1964 and 1974, Lilly controlled from 100% to 89.8% of the cephalosporin market, and notwithstanding that its position in the market was originally the result of its patents, this share is generally considered monopolistic. See, e. g., United States v. Grinnell, supra (87% market share found to constitute monopoly.) The district court's characterization of Lilly as a monopolist is further buttressed by its fair measure of success in insulating Kefzol from true price competition with Ancef by means of its Revised CSP. The evidence demonstrates that Lilly's competitors did not have the actual or potential ability to capture a significant share of Lilly's business. The district court noted that Lilly's entrenched position as a supplier of cephalosporin, as well as the high costs of research and market development, made competition from a new entrant to the market unlikely.
Following a non-jury trial the district court, in a meticulous and comprehensive treatment of the relevant facts and law by Judge Higginbotham, determined that liability exists only on the monopolization claim. 427 F. Supp. 1089 (E.D. Pa. 1976). Pursuant to § 16 of the Clayton Act, 15 U.S.C. § 26, the district court entered a permanent injunction against those marketing practices of Lilly found to violate § 2 of the Sherman Act. A separate trial on the issue of damages has been stayed pending disposition of this appeal.
The district court found, and it is not disputed, that Lilly did not condition the availability of any of its products on the purchase of any other of its products or on the refusal of purchasing hospitals to deal with its competitors. Thus, Lilly did not "tie" purchases of Kefzol to purchases of Keflin or Keflex. We accept the decision of the district court that, in the absence of such a requirement, there is no illegal tie-in. Although sufficient to establish the offense of monopolization under § 2 of the Sherman Act, 15 U.S.C. § 2, Lilly's marketing scheme lacks the element of coercion necessary for liability under the theory of tie-ins. As stated by this court in Ungar v. Dunkin' Donuts of America, Inc., 531 F.2d 1211 (3d Cir. 1976), cert. denied, 429 U.S. 823, 97 S. Ct. 74, 50 L. Ed. 2d 84 (1976):
To prove a per se illegal tie-in, a plaintiff must establish three things. First, he must establish that the conduct in question was a tie-in: "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product." Northern Pacific Ry. v. United States, supra, 356 U.S. 1 at 5, 78 S. Ct. 514 at 518, 2 L. Ed. 2d 545 at 550. Second, he must establish that the seller "has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product." Ibid. at 6, 78 S. Ct. at 518. And third, he must establish that "a 'not insubstantial' amount of interstate commerce is affected." Ibid.