Court Opinion

ID: 3064881
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:27:29.441448+00
Date Added: 2024-06-11T11:49:42.249231
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

JOHN DOE 1 and JOHN DOE 2, on           
behalf of themselves and all other
persons similarly situated,
                Plaintiffs-Appellees,
                 v.
ABBOTT LABORATORIES,                           No. 08-17699
              Defendant-Appellant.               D.C. Nos.
                                        
                                            4:04-cv-01511-CW;
                                             4:04-cv-4203-CW
SERVICE EMPLOYEES INTERNATIONAL                (consolidated)
UNION HEALTH AND WELFARE FUND,
on behalf of themselves and all                  OPINION
other persons similarly situated,
                Plaintiffs-Appellees,
                 v.
ABBOTT LABORATORIES,
              Defendant-Appellant.
                                        
        Appeal from the United States District Court
          for the Northern District of California
         Claudia Wilken, District Judge, Presiding

                 Argued and Submitted
         May 13, 2009—San Francisco, California

                      Filed July 7, 2009

     Before: Mary M. Schroeder, Stephen Reinhardt and
             Pamela Ann Rymer, Circuit Judges.

                  Opinion by Judge Rymer

                             8347
                DOE 1 v. ABBOTT LABORATORIES            8349

                        COUNSEL

James F. Hurst, Winston & Strawn LLP, Chicago, Illinois,
(argued); Jeffrey I. Weinberger, Munger, Tolles & Olson
LLP, Los Angeles, California, for the defendant-appellant.

Richard R. Wiebe, Law Office of Richard R. Wiebe, San
Francisco, California, (argued); Christopher T. Heffelfinger,
Bermand DeValerio, San Francisco, California, for plaintiffs-
appellees John Doe 1, John Doe 2, and Individual Class Mem-
bers.

Michael W. Stocker, Labaton Sucharow LLP, New York,
New York, for plaintiffs-appellees Service Employees Inter-
8350                DOE 1 v. ABBOTT LABORATORIES
national Union Health and Welfare Fund and for the Certified
Class.

                               OPINION

RYMER, Circuit Judge:

  Do allegations of monopoly leveraging through pricing
conduct in two markets state a claim under § 2 of the Sherman
Act, 15 U.S.C. § 2, absent an antitrust refusal to deal (or some
other exclusionary practice) in the monopoly market or
below-cost pricing in the second market? Following Pacific
Bell Telephone Co. v. linkLine Communications, Inc., 129 S.
Ct. 1109 (2009), we hold that no such claim may be brought.
As the district court held to the contrary, we reverse.1

                                      I

   John Does 1 and 2 and the Service Employees International
Union Health and Welfare Fund (collectively, “Does”) repre-
sent certified classes of HIV patients and their medical plans
who purchase Norvir, a drug made by Abbott Laboratories
that “boosts” the effectiveness of protease inhibitors used to
fight the disease. According to Does, Norvir gives Abbott a
monopoly in the booster market. Norvir was originally sold as
a standalone protease inhibitor, but it turned out to be more
useful as a booster taken in low dosages along with other
inhibitors. Abbott also sells a “boosted” protease inhibitor,
Kaletra, which consists of Abbott’s protease inhibitor com-
pound lopinavir combined in a single pill with a boosting dose
of ritonavir (the generic name for Norvir).

  Meanwhile, Abbott competitors such as Bristol Meyers-
Squibb (whose protease inhibitor is marketed as Reyataz) and
  1
   It is understandable that the district court did not follow linkLine as at
the time it ruled linkLine had not yet been decided.
                 DOE 1 v. ABBOTT LABORATORIES              8351
GlaxoSmithKline (whose inhibitor is marketed as Lexiva),
were given permission by the FDA to promote Norvir as a
booster to be taken along with their own inhibitors. Once this
happened, Abbott increased the price of Norvir from $1.71 to
$8.57 per 100 mg, but did not increase the price of Kaletra.
The effect, Does say, was to raise the total cost to the patient
of boosted protease inhibitor therapies provided by Abbott’s
competitors (that is, when a patient uses Norvir along with a
competitor’s inhibitor such as Reyataz or Lexiva). In this
way, Abbott allegedly leveraged its Norvir monopoly to
attempt to monopolize the boosted market for Kaletra.

   Abbott moved for dismissal and for summary judgment on
the grounds that no § 2 claim was stated, that Does failed to
show antitrust injury, and that Abbott lacked monopoly power
in the boosted protease inhibitor market. The district court
disagreed in a series of rulings. See In re Abbott Labs. Norvir
Antitrust Litig., 562 F. Supp. 2d. 1080 (N.D. Cal. 2008); 442
F. Supp. 2d 800 (N.D. Cal. 2006); Serv. Employees Int’l
Union Health & Welfare Fund v. Abbott Labs., No. 04-4203-
CW (N.D. Cal. Mar. 2, 2005) (order denying Abbott’s motion
to dismiss); Doe v. Abbott Labs., No. 04-1511-CW (N.D. Cal.
Oct. 21, 2004) (same).

   The parties then entered into a settlement agreement.
Assuming approval by the district court, the agreement pro-
vides that Abbott will pay $10 million into a settlement fund
and take an interlocutory appeal on condition that, if the case
ends up being dismissed, Abbott will pay no more but if Does
prevail, it will pay up to an additional $17.5 million depend-
ing on the degree of success. The district court approved both
the settlement and interlocutory appeal, certifying three
issues: (1) whether antitrust injury has been shown; (2)
whether Abbott has monopoly power in the boosted protease
inhibitor market; and (3) whether the below-cost pricing test
for bundled discounts that we adopted in Cascade Health
Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008),
applies to this monopoly leveraging case.
8352                DOE 1 v. ABBOTT LABORATORIES
   Abbott timely appealed.2

                                    II

   The settlement arrangement in this case implicates
Gator.com Corp. v. L.L. Bean, Inc., 398 F.3d 1125, 1128-32
(9th Cir. 2005) (en banc), thus our jurisdiction, so we address
this issue first. In Gator, the parties to an action for declara-
tory judgment reached a settlement that ended the controversy
on the merits and left open only a side issue of personal juris-
diction. In those circumstances we believed the appeal was
moot. Unlike Gator, however, we are persuaded that the mer-
its are still at issue here. Accordingly, we have jurisdiction to
proceed. See Nixon v. Fitzgerald, 457 U.S. 731, 743-44
(1982); Havens Realty Corp. v. Coleman, 455 U.S. 363, 371
(1982).

   As the district court’s rulings were on a motion to dismiss
and for summary judgment, our review is de novo. E. & J.
Gallo Winery v. EnCana Corp., 503 F.3d 1027, 1033 (9th Cir.
2007); Camacho v. Bridgeport Fin. Inc., 430 F.3d 1078, 1079
(9th Cir. 2005).

                                    III

   Time, and the United States Supreme Court, have over-
taken this case. The district court concluded that Does’ claims
for monopolization and attempted monopolization3 of the
   2
     Does’ position on appeal is supported by amicus briefs by GlaxoSmith-
Kline and a group of direct purchaser pharmacies: Meijer, Inc.; Meijer
Distribution, Inc.; Louisiana Drug Wholesale Co.; Rochester Drug Coop-
erative, Inc.; Rite Aid Corporation; Rite Aid HDQTRS, Corp.; JCG (PJC)
USA, LLC; Maxi Drug, Inc.; Eckerd Corporation; CVS Pharmacy, Inc.;
Caremark, LLC; Safeway, Inc.; Walgreen Co.; The Kroger Co.; New
Albertson’s, Inc.; American Sales Company, Inc.; and HEB Grocery Com-
pany LP. These amici are parties to related cases against Abbott in the dis-
trict court. See Meijer, Inc. v. Abbott Labs., 544 F. Supp. 2d 995 (N.D.
Cal. 2008).
   3
     Section 2 of the Sherman Act makes it unlawful to “monopolize, or
attempt to monopolize, or combine or conspire with any other person or
                   DOE 1 v. ABBOTT LABORATORIES                     8353
market for boosted protease inhibitors could go forward on a
theory of monopoly leveraging as articulated in Image Tech-
nical Services, Inc. v. Eastman Kodak Co., 125 F.3d 1195,
1202 (9th Cir. 1997), and were not foreclosed by Cascade. In
Image Technical, the defendant refused to sell aftermarket
parts over which it had monopoly power to independent ser-
vice organizations with whom it competed in the market for
aftermarket services. We described the plaintiff ’s theory as
“monopoly leveraging” and upheld a verdict in its favor. In
Cascade, the defendant sold a bundle or package of goods for
a lower price than it charged for the goods purchased individ-
ually. We held that the exclusionary element of § 2 cannot be
satisfied by reference to bundled discounts unless the dis-
counts result in prices below an appropriate measure of the
seller’s costs. Cascade, 515 F.3d at 900-03 (citing
Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co.,
Inc., 549 U.S. 312, 319-20, 325-26 (2007); Brooke Group Ltd.
v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222-24
(1993)). However, since then, the Supreme Court rendered a
decision in linkLine, a price-squeezing case, that controls the
outcome here.

  [1] In linkLine, independent internet service providers that
competed with AT&T in the retail DSL market, and also

persons, to monopolize any part of the trade or commerce among the sev-
eral States, or with foreign nations.” 15 U.S.C. § 2.
   To establish monopolization a plaintiff must show “(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 develop-
ment as a consequence of a superior product, business acquisition, or his-
toric accident.” Eastman Kodak Co. v. Image Technical Servs., Inc., 504
U.S. 451, 480 (1992).
   To demonstrate attempted monopolization a plaintiff must prove “(1)
that the defendant has engaged in predatory or anticompetitive conduct
with (2) a specific intent to monopolize and (3) a dangerous probability
of achieving monopoly power.” Cascade, 515 F.3d at 893 (citing Spec-
trum Sports, Inc. v. McQuillam, 506 U.S. 447, 456 (1993)) (internal quota-
tions omitted).
8354             DOE 1 v. ABBOTT LABORATORIES
leased DSL transport service from AT&T at the wholesale
level, argued that AT&T subjected them to a price squeeze in
violation of § 2. 129 S. Ct. at 1114-15. AT&T was a vertically
integrated firm that sold inputs at wholesale and finished
goods or services at retail. Id. at 1115. As such, it was a
player in the DSL market at both the wholesale and retail
levels, providing plaintiffs with transport service and selling
DSL service to consumers at retail. Id. The plaintiffs con-
tended that their profit margins were unfairly squeezed by
AT&T’s practice of setting high prices in the wholesale trans-
port market while keeping retail prices for its own DSL ser-
vice low. Id. at 1118-19. The Court held that plaintiffs could
not state a claim under § 2 when the defendant was under no
antitrust duty to sell the inputs to its rivals.

   [2] In doing so, the Court reiterated the basic rule that mere
possession of monopoly power and the practice of charging
monopoly prices does not run afoul of § 2. Id. at 1118; see
Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko,
LLP, 540 U.S. 398, 407 (2004) (Trinko). “Simply possessing
monopoly power and charging monopoly prices does not vio-
late § 2; rather, the statute targets ‘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.’ ” linkLine, 129 S. Ct. at 1118
(quoting United States v. Grinnell Corp., 384 U.S. 563, 570-
71 (1966)). And when predatory pricing is at issue, a plaintiff
must demonstrate that “(1) ‘the prices complained of are
below an appropriate measure of its rival’s costs’; and (2)
there is a ‘dangerous probability’ that the defendant will be
able to recoup its ‘investment’ in below-cost prices.” Id. at
1120 (quoting Brooke Group, 509 U.S. at 222-24).

  [3] The Court analyzed each market separately. At the input
or wholesale level, it found Trinko controlling even though
Trinko involved the provision of “insufficient assistance”
whereas linkLine involved a price-squeeze. Id. at 1119. In
Trinko, a customer of one of Verizon’s competitors claimed
                   DOE 1 v. ABBOTT LABORATORIES                    8355
that Verizon had denied competitors access to interconnection
support services which impaired their ability to deliver, hence
the customer’s ability to obtain, local telephone service in the
downstream market. Trinko, 540 U.S. at 407. This presented
no § 2 problem for, as explained in linkLine, “if a firm has no
antitrust duty to deal with its competitors at wholesale, it cer-
tainly has no duty to deal under terms and conditions that the
rivals find commercially advantageous.” 129 S. Ct. at 1119.
Put differently, AT&T could have stopped providing DSL
transport service without violating § 2, so it “was not required
to offer this service at the wholesale prices the plaintiffs
would have preferred.” Id. At the other end of the price
squeeze — the “too low” prices being charged at the retail
level — the Court drew from Brooke Group to conclude that
a price-squeeze claim should not be recognized where the
defendant’s price remains above cost, otherwise firms might
be encouraged to raise retail prices to avoid potential antitrust
liability. Id. at 1120. Holding that no claim was stated at the
retail level as no predatory pricing was alleged, and that no
claim was stated at the transport level as no antitrust duty to
deal was averred, the Court concluded that “[t]wo wrong
claims do not make one that is right.” Id. at 1123. In short,
there is no independently cognizable harm to competition
when the wholesale price and the retail price are indepen-
dently lawful.

   [4] Applying linkLine leads us to conclude that Does’ claim
falls short as well. They allege no refusal to deal at the
booster level, and no below cost pricing at the boosted level.4
Does try to distance themselves from linkLine on the footing
that their claim is for monopoly leveraging, not price squeez-
ing, and that Abbott provides products to consumers in both
the booster and boosted markets whereas AT&T provided
products in retail and wholesale markets. We understand the
difference, but it is insubstantial. However labeled, Abbott’s
conduct is the functional equivalent of the price squeeze the
  4
   Leave to amend is not an issue because of the parties’ settlement.
8356               DOE 1 v. ABBOTT LABORATORIES
Court found unobjectionable in linkLine. Abbott sells Norvir
as a standalone inhibitor and as part of a boosted inhibitor
instead of selling Norvir to its competitors at a high price for
use with their own protease inhibitors while attributing a
lower price to the product when used as part of its own
boosted inhibitor. Either way, the alleged vice is that Abbott
is using its monopoly position in the booster market to raise
the price of Norvir while selling its own boosted inhibitor at
too low a price. And either way, this puts the squeeze on com-
peting producers of protease inhibitors that depend on Norvir
for their boosted effectiveness and consumer acceptance.5

   Does nevertheless submit that they should be allowed to
proceed because we previously embraced the principle of a
free-standing monopoly leveraging claim in Image Technical
Services, Inc. v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir.
1997). However, Image Technical involved a refusal to deal.
Read in that context and in light of linkLine, Image Technical
does not save Does’ claim.

   [5] Because we believe the outcome here follows from link-
Line, we need not discuss Cascade’s impact on this case or
others pending in the district court. By the same token, given
Does’ failure to allege the first prong of the test for a § 2
price-based claim (below-cost pricing), we have no need to
reach the second (dangerous probability) prong, or to address
whether Does have also failed to show antitrust injury or
monopoly power. We simply hold that, in light of linkLine,
Does have not stated a § 2 claim.

  REVERSED.

  5
   Does also attempt to distinguish linkLine based on footnote 2 of that
opinion, 129 S. Ct. at 1118 n.2. However, the footnote addresses whether
AT&T had an antitrust duty to deal. Does have not alleged a refusal to
deal in this case.