Opinion ID: 782340
Heading Depth: 4
Heading Rank: 4

Heading: Necessary Predicate Test

Text: 47 We turn now to the defendants' contention, and the reason for this certified appeal, that the Sixth Circuit's necessary predicate test requires more than Brunswick and leads to a different conclusion. 17 The defendants' argument arises out of a statement made in this Court's decision in Hodges. In that case, after having decided to affirm the district court's dismissal for failure to allege antitrust injury, the Court stated: [b]ecause plaintiffs did not allege, nor could they, that the illegal antitrust conduct was a necessary predicate to their injury or that defendants could exclude plaintiffs only by engaging in the antitrust violation, it was appropriate to dismiss the case pursuant to Federal Rule of Civil Procedure 12(b)(6). Hodges, 26 F.3d at 39 (emphasis added). 48 The defendants contend that this statement means that in order to allege antitrust injury adequately, a plaintiff must allege that the only way the defendant could have caused the plaintiff's injury was by engaging in the antitrust violation. Defs. Br. at 32-33. In other words, if the defendant could have in theory caused the same injury without engaging in an antitrust violation, the plaintiff has not suffered an antitrust injury, even if in fact it was the antitrust violation that caused the actual injury in a particular case. Applied to the present case, the defendants contend that the plaintiffs cannot allege an antitrust injury because Andrx could have unilaterally (and legally) decided not to market its generic version of Cardizem CD; they contend it is immaterial whether, in fact, it was the Agreement and the payment of $40 million per year that caused them to do so. Id. 49 We disagree. 50 First, simply looking at the actual language of the statement suggests that the defendants have conflated two ideas. What the court in Hodges said was that in order to survive a motion to dismiss for failure to allege antitrust injury, a plaintiff must allege either: (1) that the antitrust violation was a necessary predicate to their injury; or (2) that the defendants could injure plaintiffs only by engaging in the antitrust violation. 26 F.3d at 39. The defendants' interpretation conflates these options, effectively requiring plaintiffs to satisfy the second one even if they have already satisfied the first. 51 Second, nothing in the facts or holding of Axis, Hodges, or Valley Products, the cases relied upon by the defendants, supports their interpretation. Although it does not use the necessary predicate language, we consider first the Sixth Circuit's decision in Axis, the starting point for this line of antitrust injury cases. 52 In Axis, 870 F.2d 1105, the plaintiff was a foreign manufacturer of armature winding machines which sought to enter the United States market. After another foreign manufacturer purchased two American manufacturers, the plaintiff filed an antitrust suit against the purchaser claiming that the purchase was illegal because it reduced competition in the armature winding machine market. The plaintiff's alleged injury was its exclusion from the United States market. However, the plaintiff also alleged that it could not enter the market because it lacked access to indisputably valid and essential patents controlled by the defendant; the plaintiff did not challenge the legal right of the patent-holder to refuse to grant it a license. Nor did it or anyone else challenge the validity of the patents. We affirmed dismissal of the complaint because it failed to allege antitrust injury, noting that the the anticompetitive act of purchasing [the American manufacturer] did not cause the plaintiff's alleged injury. The patents were an impenetrable barrier to the plaintiff's entry before [the defendant] purchased [the American manufacturer], and they remained as great a barrier afterwards. 870 F.2d at 1107 (emphasis added). 53 In Hodges, 26 F.3d 39, the plaintiff was an airport shuttle and tour bus operator who wanted to participate in the market for shuttle services from the Nashville airport to Opryland, an amusement park, hotel and convention center. It filed an antitrust suit against the companies that owned the Opryland site and operated the Grand Old Opry music radio program, as well as a sightseeing and tour company known as Grand Old Opry tours. The complaint alleged that those defendants had reached an illegal market division agreement with other shuttle and tour bus operators that the competitors would refrain from transporting passengers from the airport to the Opryland complex, leaving the airport shuttle market to the defendants themselves. In exchange, the defendants would hire vans and buses from their former competitors for Opryland's sightseeing tour business. The plaintiff's alleged injury was its exclusion from the airport to Opryland shuttle market. The plaintiff further alleged that the defendants policed their illegal agreement by refusing the plaintiff, and any other non-conspiring shuttle service companies, access to the Opryland property; the plaintiff did not challenge the defendants' lawful right to exclude it from their private property. The case was dismissed for failure to allege antitrust injury. 54 In Valley Products, 128 F.3d 398, the plaintiff was a manufacturer of logo-bearing hotel soaps and other hotel amenities which wanted to supply its products to franchisees of a certain hotel franchisor. The hotel franchisor authorized certain vendors to use its trademark on products, which the franchisees would then purchase. After the plaintiff's vendor agreement was terminated, it filed an antitrust suit against the hotel franchisor and its two remaining authorized vendors, the plaintiff's competitors, alleging that their arrangement was an attempt to impose an illegal tying arrangement on franchisees (by conditioning the franchise agreement on the purchase of logoed amenities from the two preferred vendors). There was no allegation that the vendors and the franchisor had agreed to exclude the plaintiff. The plaintiff's alleged injury was its exclusion from the logoed amenity market for the defendant franchisor's franchisees. The case was dismissed for failure to allege antitrust injury. On appeal, we observed that the Sixth Circuit has been reasonably aggressive in using the antitrust injury doctrine to bar recovery where the asserted injury, although linked to an alleged violation of the antitrust laws, flows directly from conduct that is not itself an antitrust violation. Valley Products, 128 F.3d at 403. 55 As the above discussion of Axis, Hodges and Valley Products demonstrates, the facts and holdings of those cases provide no support for the defendants' proposed interpretation of the necessary predicate language in Hodges. In none of these cases was a complaint dismissed for failure to allege antitrust injury based on a defendant's claim that it could have caused the same injury without committing the alleged violation. Rather, the complaints were dismissed for failure to allege antitrust injury because each of the defendants had taken an action that it was lawfully entitled to take, independent of the alleged antitrust violation, which was the actual, indisputable, and sole cause of the plaintiff's injury. In Axis, the antitrust violation was not the necessary predicate because the plaintiff's alleged injury — its exclusion from competing in the armature winding machine market — admittedly flowed not from the anticompetitive effects of the allegedly illegal purchase, but from its lack of access to impenetrable patents. 870 F.2d at 1107. In Hodges, the antitrust violation was not the necessary predicate because the plaintiff's alleged injury — its exclusion from competing in the shuttle services from the airport to the Opryland site owned by defendants — actually flowed not from the anticompetitive effects of an allegedly unlawful market division agreement, but from the defendants' lawful refusal to grant plaintiffs access to their private property. 26 F.3d at 39. In Valley Products, the antitrust violation was not the necessary predicate because the plaintiff's alleged injury — its exclusion from competing in the franchisor's logoed amenity market — actually flowed, not from the anticompetitive effects of an allegedly unlawful tying arrangement, but from the defendant's lawful termination of a vendor agreement. 18 Thus, in reality, we have only dismissed a case for failure to allege that an antitrust violation is the necessary predicate for the plaintiff's injury where it has been apparent from the face of the complaint that actual and unequivocally legal action by the defendant would have caused plaintiff's injury, even if there had been no antitrust violation. 56 Application to this case of the necessary predicate test, as we have applied it in the cases which are the subject of the certified question, demonstrates that the district court correctly refused to dismiss these complaints for failure to allege antitrust injury. In essence, as exposed by the per se analysis above, see supra Part II.A., the complaints allege a plain vanilla horizontal agreement to restrain trade in the form of a multi-million dollar cash payment in consideration for forbearance by Andrx from selling on the market a product that it was ready and able to sell at a price lower than that charged by HMR for the patented product. There is nothing on the face of the complaint that suggests, much less establishes as a matter of law, that there was any physical or impenetrable legal impediment to Andrx's production and sale of its FDA-approved generic product. Indeed, some plaintiffs allege that HMR's patent infringement suit against Andrx was a sham. JA 948, ¶ 101; JA 949, ¶¶ 103-04; JA 154, ¶ 53. Nor can the defendants identify a lawful right that they had and exercised and that indisputably caused plaintiffs' injury. Thus, the complaint may be fairly construed as alleging that the per se illegal Agreement with its $89 million payment, not HMR's disputed 45%-18 patent, constituted the necessary predicate for Andrx's decision to keep its FDA-approved 55%-18 generic product off the market and HMR free from any generic product competition. The fact that Andrx could have unilaterally, and legally, decided not to bring its generic product to a manifestly profitable market has no relevance in assessing whether the plaintiffs adequately alleged that the antitrust violation was the necessary predicate for their injury. 19 57 What remains is the defendants' contention that Andrx would have stayed out of the market even absent the Agreement and the payment of $40 million per year because Andrx feared incurring damages in the patent infringement litigation. Proof of allegations on the face of this complaint and reasonable inferences therefrom, however, could persuade a trier of fact that had HMR been confident of the independent durability of its patent and the validity of its infringement claim, it would not have paid $89 million to effect what the patent and infringement suit had already accomplished. Under the aegis of the complaint and inferences, a fact trier could also find that even if it is a prudent industry practice for a generic manufacturer to stay out of the market until the resolution of patent infringement litigation, Defs. Br. at 33, in this case, the patent infringement suit was a paper tiger incapable of deterring the generic producer from entering the market as soon as the FDA approved its product — as it had formally advised the patent court. If proved to be true, it would almost necessarily follow that the plaintiffs' injury flowed from the Agreement and payment of $40 million per year. At this stage of the litigation, we must leave this dispute for the trier of fact to evaluate.