Opinion ID: 3015187
Heading Depth: 2
Heading Rank: 3

Heading: Post-trial Judgment Regarding Count I

Text: Judgment was entered in favor of the Hospital following a non-jury trial as to Count I (Conditions as restraint of trade) in which Gordon alleged that the Hospital and the Chairman of the Hospital Board, Postal, imposed the Conditions to prevent Gordon from competing to retain or obtain business by communicating truthful non-deceptive information to patients relevant to their surgical decisions. He asserts that the Conditions constituted an unreasonable restraint of trade in that they foreclosed him from competing in the physician services market for outpatient cataract surgery, inpatient eye surgery and emergency eye surgery. It also is asserted that the Hospital sought to prevent MCCSC from competing with it in the facility services market for outpatient cataract surgery. Gordon specifically contends that the District Court erred in concluding that he failed to sustain his burden of proving a prima 37 facie case under the traditional rule of reason test. First, Gordon challenges the District Court’s application of the traditional rule of reason rather than the “quick look” rule of reason analysis. The latter applies in cases where per se condemnation is inappropriate but where no elaborate industry analysis is required to demonstrate the anticompetitive character of an inherently suspect restraint. United States v. Brown Univ., 5 F.3d 658, 669 (3d Cir. 1993). Rather, the competitive harm is presumed and the defendant must set forth some competitive justification for the restraints. Id. Gordon contends that the information restraints were manifestly anticompetitive and not supported by any pro-competitive justification. Despite Gordon’s protestations, the quick look approach may be applied only when an observer with even a rudimentary understanding of economics could conclude that the arrangement in question would have an anticompetitive effect on customers and markets. California Dental Ass’n v. FTC, 526 U.S. 756, 770 (1999). Such is not the case here, where even if the Conditions were a restraint, they represent a nonprice vertical restraint between one hospital and one physician, which we have held is reviewed under the traditional rule of reason. See Orson Inc. v. Miramax Film Corp., 79 F.3d 1358, 1368 (3d Cir. 1996) (“[v]ertical restraints of trade, which do not present an express and implied agreement to set resale prices, are evaluated under the rule of reason.”). This is especially true given the District Court’s determination, with which we agree, that Gordon and the Hospital were not competitors in the relevant market in November 1995 when he agreed to the Conditions. His competition in the facility services market did not commence until MCCSC opened more than one year later. Application of the traditional “rule of reason” requires that a factfinder look at the totality of the circumstances in order to determine whether a business combination constitutes an unreasonable restraint of trade. Brown Univ., 5 F.3d at 668. Under this test, Gordon bears the initial burden of showing that the alleged contract produced an adverse, anticompetitive effect within the relevant geographic market. Id. This can be achieved by demonstrating that the restraint is facially anticompetitive or that its enforcement reduced output, raised prices or reduced quality. Id. 38 Alternatively, because proof that the concerted action actually caused anticompetitive effects is often impossible to sustain, proof of the defendant’s market power will suffice. Id.; F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447, 460-61 (1986). Market power, the ability to raise prices above those that would otherwise prevail in a competitive market, is essentially a surrogate for detrimental effects. Brown Univ., 5 F.3d at 668. We must be mindful that the legality of an agreement or regulation cannot be determined by so simple a test . . . as whether it restrains competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question, the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be obtained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences. Board of Trade of the City of Chicago v. United States, 246 U.S 231, 238-39 (1918). See also Eichorn v. AT & T Corp., 248 F.3d 131, 144-45 (3d Cir.), cert. denied, 534 U.S 1014 (2001) (indicating totality of circumstances considered under rule of reason includes facts peculiar to particular business to determine the nature and purpose of the allegedly illegal restraint). Although the District Court determined that Gordon met the concerted action requirement for purposes of this Sherman § 1 claim 39 through the existence of the Conditions of his reappointment, the District Court also determined that he failed to meet his burden of proving that enforcement of the Conditions by excluding him from the Medical-Dental Staff had anticompetitive effects. In applying the traditional rule of reason, we first must determine whether the Conditions had substantial anticompetitive effects. Gordon argues that the Conditions reduced output given that the output of a surgeon is not only the surgery itself but necessarily includes advice, scheduling, and hand-holding. See National Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 99 (1984) (restrictions on output are unreasonable restraints of trade). Gordon claims that the Conditions impaired historically effective competition between surgeons competing to provide surgery services by prohibiting him from conveying comparative information regarding procedures that were essential for patients to make informed decisions. In advancing his argument, Gordon asserts that Condition 3 prevents him from communicating with Nancollas’s patients or any other physician’s patients for the purpose of conveying comparative information and that it prevents him from making “any comment” at any time about “any other ophthalmologist” with any person in the Hospital’s service area. But Condition 3 only serves to chill Gordon’s comments regarding other ophthalmologists as part of his discharge instructions or at any other time when dealing with patients who have been or will be treated by the Hospital, excepting comments made “in response to a specific question or for the purpose of a referral.” In light of Gordon’s history, precluding him from making gratuitous statements at any time and in whatever fashion he deemed appropriate regardless of its impact or potential impact on patient health or welfare does not, standing alone, elevate Condition 3 to having anticompetitive effects. Likewise, as the District Court determined, Condition 2 only prohibited Gordon from commenting upon a particular surgical method as it relates to a particular physician, and not, as Gordon contends, from differentiating himself and his methods in surgical meetings. Next, we must determine whether the Hospital possessed market power in the relevant markets in order to determine if we may presume anticompetitive effects from the Conditions under the rule 40 of reason test. Determination of market power is a determination of fact; therefore we review the District Court’s conclusions to determine if they are clearly erroneous. Igbonwa, 120 F.3d at 440. Gordon bore the burden of proving the relevant product and geographic markets affected by the Hospital’s imposition of the Conditions. Eichorn v. At & T Corp., 248 F.3d 131, 147 n.4 (3d Cir. 2001). Once the markets are defined, we must determine whether the Hospital’s market share is sufficient to infer the existence of market power. Fineman v. Armstrong World Industries, Inc., 980 F.2d 171, 201-02 (3d Cir. 1992). The relevant product markets (each containing a facility and physician services component) are: (1) general outpatient cataract surgery, (2) general inpatient cataract surgery; and (3) general emergency eye surgery. Gordon disputes the District Court’s findings regarding the geographic market definition and determination of market power. The relevant geographic market, from which the court calculates the market share in the relevant product markets, is that area in which a potential buyer may rationally look for the goods or services he seeks. Pennsylvania Dental Ass’n v. Medical Service Ass’n of Pa., 745 F.2d 248 (3d Cir. 1984). The geographic scope of a relevant product market is a question of fact to be determined in the context of each case in acknowledgment of the commercial realities of the industry being considered. Borough of Lansdale v. Philadelphia Elec. Co., 692 F.2d 307, 311 (3d Cir. 1982). Gordon ascribes error to the District Court’s determination that the relevant geographic market for general outpatient cataract surgery consisted of all hospitals and surgical centers performing outpatient cataract surgery within a 30 mile radius of Lewistown, rather than only Mifflin and Juniata counties as he had proposed.18 He argues that defining a geographic market demands a review from the consumer’s perspective and that the District Court’s thirty mile 18 The geographic market as defined by the District Court included Mifflin and Juniata Counties in addition to portions of Snyder, Union, Clinton, Centre, Huntington, Franklin, Cumberland and Perry Counties. 41 radius of Lewistown ignores the geography of the region – that Mifflin and Juniata Counties sit within a valley that was isolated by mountain ranges making the actual distances that patients must travel much greater than that perceived when relying on an “as the crow flies” radius. Gordon essentially seeks to substitute the Hospital’s primary service area for the relevant geographic market. Absent more, however, a primary service area does not equate to the relevant geographic market for outpatient cataract surgery services. See Miller v. Indiana Hosp., 814 F. Supp. 1254, 1263 (W.D. Pa. 1992), aff’d, 975 F.2d 1550 (3d Cir. 1992), cert. denied, 507 U.S. 952 (1993). The District Court’s findings regarding the scope of the geographic market were not clearly erroneous. The District Court determined from its review of Gordon’s expert’s report and testimony that the greater the importance of the medical procedure to patients, the greater the willingness of the patients to travel to receive that service. Further, the evidence revealed that two-thirds of the patients that live within eight miles of the Hospital received cataract surgery elsewhere. Conversely, approximately 21% of the Hospital’s patients for outpatient cataract surgery live closer to other facilities yet chose Lewistown Hospital. Gordon’s proposed two-county market excluded competitors for cataract surgery facilities services located in other counties to whom Lewistown area optometrists referred patients, including, among others, the J.D. Blair Hospital in Huntington, Centre Community Hospital in State College, Pinnacle Health System and Pennsylvania Eye Surgery Center in Harrisburg. Accordingly, the record supports the District Court’s rejection of a two-county geographic market. Gordon further challenges the District Court’s determination that the Hospital lacked market power in the outpatient cataract surgery market even when using the District Court’s thirty mile radius geographic market. He asserts that the District Court erroneously calculated percentages of market power based on two demonstrative exhibits prepared by the Hospital. The first chart (“Gordon/Nancollas Procedures Chart”) reflected all patients in the twenty-eight zip codes that were within the thirty mile radius of Lewistown from which the Hospital drew patients. It summarized the number of procedures 42 performed by Gordon and Nancollas in 1996. Although the chart included some non-cataract procedures performed by those physicians, cataract procedures accounted for 95% of the total and reflected a Hospital market share of 46%. The second chart (“Ophthalmic Surgery Cases Chart”) contained numbers for all ophthalmic surgeries performed on patients in the same twenty-eight zip codes but without identifying what percentage of those were cataract procedures. Using this chart, the District Court determined that the Hospital’s market share was only 39%. Gordon contests this finding because the Ophthalmic Surgery Cases Chart reflects hundreds of specialized procedures that are not performed at the Hospital and necessarily are performed outside of the Hospital’s service area. Instead, he advocates use of the Gordon/Nancollas Procedures Chart, which he claims more accurately described the cataract market. In either case, however, the market share is insufficient to prove market power. Fineman, 980 F.2d at 201 (50% share is insufficient as a matter of law to establish market power). In addition, the District Court analyzed a number of other scenarios, all falling well-below the legal threshold for market power. Perhaps most telling of the Hospital’s lack of market power is the evidence that outpatient surgical volume at the Hospital declined significantly after Gordon left and that MCCSC became the dominant provider of outpatient cataract surgery within less than 2 years of the Hospital’s decision to revoke Gordon’s Medical-Dental Staff privileges. See Assam Drug Co. v. Miller Brewing Co., 798 F.2d 311, 318 (8th Cir. 1986) (no market power because market share was declining). Despite Gordon’s challenges, the District Court’s finding that the Hospital lacked market power in the outpatient cataract surgery market was well supported by the evidence and therefore was not clearly erroneous.19 19 Although Gordon also challenges the District Court’s finding that the Hospital lacked market power in the inpatient eye surgery market, he failed to meet his burden of proof that the Hospital possessed market power in that market, particularly since Gordon’s expert testified that the market for inpatient eye surgery services is de minimis. We affirm the District Court’s finding in this regard. Gordon also argued that he met the prima facie requirements even 43 Based on the foregoing, we will affirm the judgment of the District Court regarding Count I (Conditions as restraint of trade).