Opinion ID: 3016862
Heading Depth: 3
Heading Rank: 2

Heading: Power to Exclude

Text: Dentsply’s share of the market is more than adequate to establish a prima facie case of power. In addition, Dentsply has held its dominant share for more than ten years and has fought aggressively to maintain that imbalance. One court has commented that, “[i]n evaluating monopoly power, it is not market share that counts, but the ability to maintain market share.” United States v. Syufy Enters., 903 F.2d 659, 665-66 (9 th Cir. 1990). The District Court found that it could infer monopoly power because of the predominant market share, but despite that factor, concluded that Dentsply’s tactics did not preclude competition from marketing their products directly to the dental laboratories. “Dentsply does not have the power to exclude competitors from the ultimate consumer.” United States v. Dentsply Int’l, Inc., 277 F. Supp. 2d 387, 452 (D. Del. 2003). 14 Moreover, the Court determined that failure of Dentsply’s two main rivals, Vident and Ivoclar, to obtain significant market shares resulted from their own business decisions to concentrate on other product lines, rather than implement active sales efforts for teeth. The District Court’s evaluation of Ivoclar and Vident business practices as a cause of their failure to secure more of the market is not persuasive. The reality is that over a period of years, because of Dentsply’s domination of dealers, direct sales have not been a practical alternative for most manufacturers. It has not been so much the competitors’ less than enthusiastic efforts at competition that produced paltry results, as it is the blocking of access to the key dealers. This is the part of the real market that is denied to the rivals. The apparent lack of aggressiveness by competitors is not a matter of apathy, but a reflection of the effectiveness of Dentsply’s exclusionary policy. Although its rivals could theoretically convince a dealer to buy their products and drop Dentsply’s line, that has not occurred. In United States v. Visa U.S.A., 344 F.3d at 229, 240 (2d Cir. 2003), the Court of Appeals held that similar evidence indicated that defendants had excluded their rivals from the marketplace and thus demonstrated monopoly power. The Supreme Court on more than one occasion has emphasized that economic realities rather than a formalistic approach must govern review of antitrust activity. “Legal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law 15 . . . in determining the existence of market power . . . this Court has examined closely the economic reality of the market at issue.” Eastern Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 457, 466-67 (1992). “If we look at substance rather than form, there is little room for debate.” United States v. Sealy, Inc., 388 U.S. 350, 352 (1967). We echoed that standard in Weiss v. York Hosp., 745 F.2d 786, 815 (3d Cir. 1984). “Antitrust policy requires the courts to seek the economic substance of an arrangement, not merely its form.” Id. The realities of the artificial tooth market were candidly expressed by two former managerial employees of Dentsply when they explained their rules of engagement. One testified that Dealer Criterion 6 was designed to “block competitive distribution points.” He continued, “Do not allow competition to achieve toeholds in dealers; tie up dealers; do not ‘free up’ key players.” Another former manager said: You don’t want your competition with your distributors, you don’t want to give the distributors an opportunity to sell a competitive product. And you don’t want to give your end user, the customer, meaning a laboratory and/or a dentist, a choice. He has to buy Dentsply teeth. That’s the only thing that’s available. The only place you can get it is through the distributor and the only one that the distributor is selling is Dentsply teeth. That’s your objective. 16 These are clear expressions of a plan to maintain monopolistic power. The District Court detailed some ten separate incidents in which Dentsply required agreement by new as well as longstanding dealers not to handle competitors’ teeth. For example, when the DLDS firm considered adding two other tooth lines because of customers’ demand, Dentsply threatened to sever access not only to its teeth, but to other dental products as well. DLDS yielded to that pressure. The termination of Trinity Dental, which had previously sold Dentsply products other than teeth, was a similar instance. When Trinity wanted to add teeth to its line for the first time and chose a competitor, Dentsply refused to supply other dental products. Dentsply also pressured Atlanta Dental, Marcus Dental, Thompson Dental, Patterson Dental and Pearson Dental Supply when they carried or considered adding competitive lines. In another incident, Dentsply recognized DTS as a dealer so as to “fully eliminate the competitive threat that [DTS locations] pose by representing Vita and Ivoclar in three of four regions.” The evidence demonstrated conclusively that Dentsply had supremacy over the dealer network and it was at that crucial point in the distribution chain that monopoly power over the market for artificial teeth was established. The reality in this case is that the firm that ties up the key dealers rules the market. In concluding that Dentsply lacked the power to exclude competitors from the laboratories, “the ultimate consumers,” the District Court overlooked the point that the relevant market was 17 the “sale” of artificial teeth to both dealers and laboratories. Although some sales were made by manufacturers to the laboratories, overwhelming numbers were made to dealers. Thus, the Court’s scrutiny should have been applied not to the “ultimate consumers” who used the teeth, but to the “customers” who purchased the teeth, the relevant category which included dealers as well as laboratories. This mis-focus led the District Court into clear error. The factual pattern here is quite similar to that in LePage’s, Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003). There, a manufacturer of transparent tape locked up high volume distribution channels by means of substantial discounts on a range of its other products. LePage’s, 324 F.3d at 144, 160-62. We concluded that the use of exclusive dealing and bundled rebates to the detriment of the rival manufacturer violated Section 2. See LePage’s, 324 F.3d at 159. Similarly, in Microsoft, the Court of Appeals for the D. C. Circuit concluded that, through the use of exclusive contracts with key dealers, a manufacturer foreclosed competitors from a substantial percentage of the available opportunities for product distribution. See Microsoft, 253 F.3d at 70-71. The evidence in this case demonstrates that for a considerable time, through the use of Dealer Criterion 6 Dentsply has been able to exclude competitors from the dealers’ network, a narrow, but heavily traveled channel to the dental laboratories. 18