Opinion ID: 209020
Heading Depth: 2
Heading Rank: 2

Heading: Antitrust Counterclaims

Text: On cross-appeal, Third Wave argues that the district court erred in granting summary judgment dismissing its antitrust counterclaims. Third Wave argues that Digene uses exclusionary contract penalties to maintain its monopoly power. To demonstrate that the penalties were exclusionary, Third Wave asserts that it raised a genuine issue of material fact requiring a jury to decide whether Digene’s business justifications for its early termination and purchasing commitment penalties were pretextual. Third Wave asserts that its evidence of such pretext included that Digene’s termination penalties exceeded its costs when a customer switched providers, and that there is no evidence suggesting that Digene needed to ensure recovery of up-front costs in the first place. A witness from Digene admitted that Digene did not impose a termination penalty when a customer stopped offering HPV testing, which, Third Wave 2008-1242, -1243 12 argues, shows that the early termination penalties were unjustified and pretextual. Indeed, Third Wave argues, Digene’s contracts sometimes increased termination penalties over time, as the risk of losing up-front costs declined. Thus, according to Third Wave, Digene’s contracts were actually intended to foreclose the market to competition. Third Wave also argues that raising rivals’ costs is a well-recognized anticompetitive action. According to Third Wave, Digene’s penalties substantially increased the cost to customers of switching suppliers, forcing Third Wave to compensate its customers in order to persuade them to make the switch. Thus, according to Third Wave, even customers interested in Third Wave’s technology were unable to purchase it while under contract with Digene. Digene responds that its conduct has not been anticompetitive because, since January 2005, contracts with each large customer have come up for renewal, and Third Wave has had the opportunity to compete for them; it has simply lost the competition. Digene argues that the contracts with its largest customers after 2005, accounting for more than 60% of Digene’s sales, had no termination penalties and could be exited on short notice, showing that its contracts were not exclusionary. Regarding minimum purchase provisions, according to Digene, customers frequently needed more than the minimum amounts and could buy them from Third Wave or any other supplier, also demonstrating a lack of exclusion. Digene argues that there is no evidence that termination fees excluded anyone from the market, and, according to Digene, Third Wave admits that Digene has never enforced a termination clause since Third Wave has been in the market. Digene also argues that we need not reach the question of 2008-1242, -1243 13 pretext, but if we do, its justifications for contract penalties were not pretextual, as Third Wave does not even challenge two of the district court’s reasons for dismissal. Those reasons are that Digene’s penalties both assure a predictable supply of business for Digene and permit customers to amortize equipment costs over time. We review a district court’s grant of a motion for summary judgment de novo. Ethicon Endo-Surgery, Inc. v. U.S. Surgical Corp., 149 F.3d 1309, 1315 (Fed. Cir. 1998). Summary judgment is appropriate if “there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). “The evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). We apply “the law of the regional circuit in which [the] district court sits” to our review of federal antitrust claims that do not involve our exclusive jurisdiction. In re Independent Serv. Orgs. Antitrust Litig., 203 F.3d 1322, 1325 (Fed. Cir. 2000). In this case, we apply the law of the Seventh Circuit. We agree with Digene that there was no genuine issue of material fact in dispute and that the district court correctly granted summary judgment against Third Wave on its antitrust counterclaims. The facts in this case are not in dispute. Third Wave appears to challenge primarily the district court’s holding with respect to Section 2 of the Sherman Act. That provision makes it unlawful to maintain a monopoly through anticompetitive or exclusionary practices. See 15 U.S.C. § 2 (2006). That offense 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 2008-1242, -1243 14 accident.” United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). Such willful conduct must be objectively anticompetitive to violate the Act. See Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004). Digene admits, for the purposes of the antitrust counterclaims in this case, that it possesses monopoly power in the relevant market. But Third Wave argues that Digene’s allegedly exclusionary contracts are anticompetitive. To prevail on such an exclusive dealing claim, Third Wave must show that a substantial share of the relevant market was foreclosed to competitors. See Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961); Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 393 (7th Cir. 1984) (Plaintiff alleging exclusive dealing “must prove that [defendant’s conduct] is likely to keep at least one significant competitor of the defendant from doing business in a relevant market.”). Thus, “to be condemned as exclusionary, a monopolist’s act must have an ‘anticompetitive effect.’” United States v. Microsoft Corp., 253 F.3d 34, 58 (D.C. Cir. 2001). As the district court found, Digene’s contracts were not exclusive; they did not prohibit Digene’s customers from buying tests from Third Wave. Opinion Dismissing Counterclaims, 536 F. Supp. 2d at 1005. The district court also correctly found that the contracts did not have an anticompetitive effect. Id. Instead, as Digene points out and Third Wave does not dispute, the vast majority of Digene’s contracts were entered into after Third Wave was already competing on the market, when Third Wave could have prevented those contracts from existing in the first place. Id. Third Wave’s failure to win at least some of that business was due to the lack of FDA approval for its product, which was not the fault of Digene. Id. The existence of competition for the contract, even though Third 2008-1242, -1243 15 Wave lost that competition, demonstrates a lack of anticompetitive effect. See Menasha Corp. v. News Am. Mktg. In-Store, Inc., 354 F.3d 661, 663 (7th Cir. 2004) (“[C]ompetition for the contract is a vital form of rivalry, and often the most powerful one, which the antitrust laws encourage rather than suppress.”); Paddock Publ’ns, Inc. v. Chicago Tribune Co., 103 F.3d 42, 45 (7th Cir. 1996) (“Competition-for-the-contract is a form of competition that antitrust laws protect rather than proscribe, and it is common. . . . Exclusive contracts make the market hard to enter in mid-year [for a one-year contract term] but cannot stifle competition over the longer run, and competition of this kind drives down the price of [products], to the ultimate benefit of consumers.”). Although Digene’s contracts were longer than the one-year exclusive contracts that the court found to be protected in Paddock, they were not exclusive and provided for termination (some without any fees), and Digene never enforced a termination clause against a customer after Third Wave entered the market. See Opinion Dismissing Counterclaims, 536 F. Supp. 2d at 1000-01. Thus, even if Digene’s contract’s raised Third Wave’s costs, Third Wave had the opportunity to compete for those contracts, and no anticompetitive effect was shown to be caused by them. Third Wave asserts that Digene’s alleged business justifications for its contractual penalties were actually pretexts for its intent to freeze Third Wave out of the market. However, without proof of anticompetitive effect, no anticompetitive practice is shown. See Microsoft, 253 F.3d at 58-59 (holding that a defendant may offer a procompetitive justification for its conduct, which can be rebutted by showing pretext, only if plaintiff has first shown anticompetitive effect). Thus, because Third Wave has 2008-1242, -1243 16 failed to present any evidence of anticompetitive effect, Digene’s intent and whether its justifications were pretextual are irrelevant. We have considered Third Wave’s other arguments on cross-appeal and find them unpersuasive.