7th Circuit Rules in Antitrust and Patent Case

July 26, 2006. The U.S. Court of Appeals (7thCir) issued its opinion [12 pages in PDF] in Schor v. Abbott Laboratories, an antitrust case involving a drug patent in which the Court of Appeals affirmed the judgment of the District Court, dismissing the complaint for failure to state a claim.

The Court of Appeals rejected a "monopoly leveraging" claim where the defendant held a patent monopoly on a drug. However, in reaching this conclusion, the Court of Appeals provided not only economic analysis and judicial precedent, but also an analogy to the computer and software industries.

This case involves Abbott Laboratories' sale of protease inhibitors, which are drugs that inhibit the progress of the human immunodeficiency virus (HIV) which causes the acquired immune deficiency syndrome (AIDS).

Abbott holds U.S. Patent No. 5,886,036 for the drug ritonavir, which it sells under the brand name Norvir. It also holds U.S. Patent No. 6,037,157 for ritonavir taken in combination with any protease inhibitor. Abbott also sells a drug under the brand name Kaletra that includes ritonavir plus the protease inhibitor lopinavir.

That is, Abbott sells ritonavir both as part of Kaletra, and alone as Norvir.

Gary Schor is a class action plaintiff who seeks to represent a class of everyone who uses protease inhibitors.

Schor filed a complaint in U.S. District Court (NDIll) against Abbott alleging violation of Section 2 of the Sherman Act, which is codified at 15 U.S.C. § 2.

Section 2 provides, in full, that "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court."

The Court of Appeals offered this summary of Schor's complaint. "He argues that Abbott charges too much for Norvir alone and too little for the Norvir component of Kaletra. ... the disparity between the unduly high price of Norvir and the unduly low price of Kaletra is designed to monopolize the market in protease inhibitors, in violation of §2 of the Sherman Act, 15 U.S.C. §2. Schor calls the strategy “monopoly leveraging”: Abbott is trying to use its patent to obtain a monopoly of all protease inhibitors by inducing HIV patients to buy Kaletra, which will lead other vendors to drop out of the market. Once rivals’ products have been vanquished, Abbott will be able to jack up the price of Kaletra as well as Norvir."

The District Court dismissed the complaint for failure to state a claim.

The Court of Appeals affirmed. Judge Frank Easterbrook wrote the opinion for the unanimous three judge panel.

The Court of Appeals wrote that "Schor's complaint does not allege any of the normal exclusionary practices --tie-in sales (or another form of bundling), group boycotts, exclusive dealing and selective refusal to deal, or predatory pricing. Abbott sells ritonavir as part of Kaletra, but this is not a tie-in because ritonavir is available separately as Norvir. Abbott will sell to anyone willing to pay its price: there is no refusal to deal." (Parentheses in original.)

It continued that "The price of Norvir cannot violate the Sherman Act: a patent holder is entitled to charge whatever the traffic will bear. This is true of both Norvir's price ... and of a claim that the patent holder has engaged in price discrimination by cutting ritonavir’s price to people who buy it (through Kaletra) in combination with lopinavir." (Parentheses in original.)

The Court of Appeals, citing the Supreme Court's 2004 opinion [22 pages in PDF] in Verizon v. Trinko, added that "antitrust law does not require monopolists to cooperate with rivals by selling them products that would help the rivals to compete. ... Cooperation is a problem in antitrust, not one of its obligations."

This opinion is also published at 540 U.S. 398. See also, story titled "Supreme Court Holds That There is No Sherman Act Claim in Verizon v. Trinko" in TLJ Daily E-Mail Alert No. 815, January 14, 2004.

The Court wrote in the present case "The basic point is that a firm that monopolizes some essential component of a treatment (or product or service) can extract the whole monopoly profit by charging a suitable price for the component alone. If the monopolist gets control of another component as well and tries to jack up the price of that item, the effect is the same as setting an excessive price for the monopolized component. The monopolist can take its profit just once; an effort to do more makes it worse off and is self-deterring." (Parentheses in original.)

"The monopolist's profit-maximizing strategy is not to take over the market in related products (ritonavir and other protease inhibitors are complements, not substitutes, given the bad side effects when ritonavir is used alone) but to promote competition among the other producers. The less the complements cost, the more the monopolist can charge for its own product." (Parentheses in original.)

It then compared the facts of this case to computers and software. "Thus Microsoft does not make computers but encourages vigorous competition among Dell, Hewlett-Packard, Sony, Lenovo, and other participants in that market; the less it costs to buy the hardware, the more sales of operating system software there will be and the more Microsoft can charge. Similarly Abbott hopes that competition among other drug manufacturers will drive down the price of protease inhibitors; the less they cost, the more Abbott can charge for Norvir (or the ritonavir component in Kaletra). There's no reason to think that Abbott would be better off if it took over the market in protease inhibitors and tried to charge a monopoly price for substances that complement ritonavir." (Parentheses in original.)

The Court of Appeals also wrote the the 9th Circuit, which recognized a monopoly leveraging claim in Image Technical Services, Inc. v. Eastman Kodak Co., 125 F.3d 1195 (1997), "just got it wrong". The Supreme Court denied certiorari in that case, at 523 U.S. 1094 (1998).

This case is Gary Schor v. Abbott Laboratories, U.S. Court of Appeals for the 7th Circuit, App. Ct. No. 05-3344, an appeal from the U.S. District Court for the Northern District of Illinois, Eastern Division, D.C. No. 05 C 1592, Judge Robert Gettleman presiding. Judge Frank Easterbrook wrote the opinion of the Court of Appeals, in which Judges Manion and Sykes joined.