Court: District Court, S.D. Florida; October 29, 2015; Federal District Court
The litigation involves a Collaboration Agreement between Plaintiff Procaps S.A. and Defendant Patheon Inc., centered on the production and marketing of softgel capsules. Procaps alleges that Patheon undermined the agreement by acquiring its main competitor, Banner Pharmacaps, which it claims rendered the agreement illegal under antitrust laws. Although the Collaboration Agreement includes a dispute resolution clause mandating arbitration for breach of contract claims, Procaps filed an antitrust lawsuit, arguing that Patheon’s acquisition transformed their agreement into an unlawful restraint.
The case has been contentious, with the court previously denying Patheon’s motion to dismiss, acknowledging Procaps’ valid antitrust claims. However, after further developments and discovery, the court shifted to a "rule of reason" analysis for evaluating the agreement's legality. In its summary judgment motion, Patheon argues it is entitled to a ruling in its favor based on four points: 1) the acquisition did not significantly harm competition; 2) Procaps has failed to demonstrate substantial market-wide harm; 3) Procaps did not prove the absence of pro-competitive benefits; and 4) Procaps lacks antitrust standing as it has not been entirely excluded from the markets.
The court has reviewed the submissions and conducted an extensive hearing. Ultimately, it grants Patheon’s summary judgment motion, indicating the parties have substantial disagreements on the legal principles that govern the case.
Patheon’s summary judgment motion is granted on the first two grounds but denied on the third and fourth. The case background references a previous summary judgment order and further developments after initial briefings. Key facts include the January 2012 Collaboration Agreement between Patheon, a major commercial manufacturer, and Procaps, the largest South American softgel manufacturer, to provide product development services and commercial manufacturing outsourcing for softgels under the “P-Gels” brand. The agreement focuses on prescription pharmaceuticals, explicitly excluding nutritional and over-the-counter softgels, with Procaps holding sole rights for commercial manufacturing activities. Although the collaboration is intended to be worldwide, it excludes certain regions where Procaps operates independently. Both parties committed to exclusively develop and market softgel services within the agreed territory, refraining from independent exploitation of softgel capsules for prescription drugs. Patheon is restricted from expanding softgel manufacturing capacity at its Cincinnati facility without Procaps' approval. The agreement specifies that it pertains to manufacturing drugs owned by third-party customers, not internally developed products. Both parties can independently pursue softgel products outside the defined Field and Territory. The agreement includes provisions for potential acquisitions of overlapping businesses, allowing a six-month grace period for compliance with exclusivity and capacity limitations, requiring notification and either divestment or integration into the Collaboration.
The Collaboration Agreement outlines dispute resolution procedures between Procaps and Patheon, emphasizing mutual cooperation to resolve disputes without litigation. If unresolved within 30 days after written notification of a dispute, it escalates to negotiation between the Chief Executive Officers (CEOs) for an additional 30 days. If still unresolved, arbitration is mandated for most claims, excluding antitrust disputes which may proceed to litigation.
The agreement allocated manufacturing opportunities, primarily to Procaps, and was amended to include nonprescription softgels for ten customers. However, it excluded drugs for several customers, yet both parties bid on certain drugs. The court noted that the agreement included market allocation provisions, with all CMO opportunities assigned to Procaps and PDS opportunities allocated by mutual agreement, preventing either party from individually developing or manufacturing softgels within the collaboration's scope.
Despite being a market allocation agreement among horizontal competitors, the parties deemed it pro-competitive and lawful initially, as it combined their complementary assets to introduce a new competitor and product, P-Gels, into the market. From December 2011 to December 2012, their collaboration led to only two project wins, generating $123,003 in revenue, which Procaps’ economist deemed largely unsuccessful.
By August 2012, Patheon began reconsidering its partnership with Procaps and explored a strategic relationship with Banner, a competitor in the softgel market. In October 2012, Patheon informed Procaps of its intention to acquire Banner and suggested integrating Banner’s assets into their collaboration. Although Procaps analyzed potential benefits from this integration, it never approved the move. On October 29, 2012, Patheon proceeded with the acquisition of Banner without Procaps’ consent. By early November 2012, Procaps deemed the collaboration an illegal horizontal restraint on trade, while some Patheon executives recognized conflicts of interest arising from the acquisition. Attempts to resolve the situation in November 2012 effectively marked the end of their strategic relationship.
Patheon proposed collaborative solutions to resolve issues with Procaps, but Procaps rejected all suggestions and instead sought compensation to exit the Collaboration Agreement or to have Patheon divest Banner. Following a failed discussion in November 2012, Procaps executives speculated that a lawsuit against Patheon regarding the Banner acquisition might prompt a settlement. On December 10, 2012, Procaps filed a lawsuit challenging the acquisition, not on antitrust grounds, but arguing that it would transform the parties into competitors, making the Collaboration Agreement an unlawful horizontal restraint on trade. Procaps aimed to terminate the Collaboration and enjoin the acquisition under Section 1 of the Sherman Act, asserting that the acquisition altered the nature of their agreement.
Procaps ceased participation in the Collaboration and, after an initial dismissal motion was denied, Patheon sought summary judgment. Patheon contended that Procaps did not establish an agreement necessary for a Section 1 violation since Procaps did not consent to the activities it claimed created the restraint, specifically the Banner acquisition. Patheon maintained that the Collaboration Agreement alone was insufficient to demonstrate unlawful restraint without Procaps's agreement to participate in the activities post-acquisition. Conversely, Procaps argued that the Collaboration Agreement itself constituted the requisite agreement under Section 1, asserting that Patheon’s control over their participation became unlawful after the acquisition.
The Undersigned initially rejected Patheon’s summary judgment motion, finding Procaps had met the agreement requirement under Section 1. Patheon, however, preserved its argument that any alleged restraint stemmed from unilateral action rather than a concerted agreement. Procaps asserted that the contractual obligations under the Collaboration Agreement effectively removed the Banner assets from relevant markets during the Collaboration's term.
Allegations regarding competitive harm focus on the removal of Banner assets from relevant markets and the cessation of competition between Patheon and Procaps due to the Patheon/Procaps Collaboration. Procaps asserts that the issue stems from a market division agreement that removes a source of supply rather than eliminating a competitor. Procaps accepted Patheon’s uncontested market definition to avoid discovery complications, defining relevant product markets as development and manufacturing services for certain products excluded from the Collaboration, with a geographic market limited to the U.S. Proprietary products, which are drugs with exclusive formulations, are excluded from the relevant markets.
Post-acquisition, Patheon offered manufacturing opportunities to Procaps, which were declined. Patheon appointed David Hamby as the "Gatekeeper" to implement market allocation requirements, determining whether opportunities were directed to the Collaboration or to Patheon/Banner. Procaps argued that the acquisition placed it in a difficult position, leading it to refuse participation in the allocation process due to concerns about antitrust violations. Procaps maintained that it was not terminating the Agreement but demanded resolution of issues stemming from the Banner acquisition.
Patheon had six months to either divest Banner or legally integrate its assets into the Collaboration but failed to do so, ultimately terminating the Agreement in July 2013 and ending the Collaboration. Procaps claimed that Patheon’s acquisition and the Agreement’s exclusive manufacturing provision deprived customers of access to Patheon/Banner and P-Gels, as it would not accept business opportunities it believed were allocated in violation of antitrust laws. Procaps identified the relevant geographic market as the U.S. and product markets as (1) contract development and manufacturing of prescription softgels and (2) non-prescription softgels for sale in the U.S. Procaps argued that it was effectively foreclosed from competition in these markets following the acquisition, asserting that complete exclusion was not necessary for claiming competitive harm. In its opposition to Patheon’s second summary judgment motion, Procaps challenged the existence of relevant factual disputes that could preclude summary judgment.
Patheon and Procaps are in dispute regarding the effectiveness of their collaboration, with Patheon asserting it was unsuccessful, while Procaps contests this despite its expert acknowledging limited success. The Court emphasizes that the precise terminology used by witnesses is less important than the actual outcomes. Both parties acknowledge they secured only two contracts worth approximately $123,000. Patheon notes Procaps initially saw potential benefits from the Banner acquisition, though Procaps's memorandum claims disputes over certain characterizations. While Procaps does not contest that Banner held a 6% market share, it argues this is irrelevant, despite Patheon claiming it expected Banner to achieve a 20-25% share in the softgel prescription market by 2015.
Procaps disputes Patheon’s assertion that its competitive efforts post-acquisition involved six projects projected to generate $2 million, admitting involvement but claiming they fall outside relevant markets. Procaps concedes it has earned or will earn $306,000 from relevant market opportunities since the termination of their agreement in 2013, which Patheon argues undermines Procaps's claim of total market foreclosure. The legal theory of 'complete foreclosure' will be further examined later.
Patheon contends it did not remove Banner assets from relevant markets and initially offered opportunities to Procaps. However, it later evaluated opportunities individually based on business judgment. Procaps challenges the credibility of supporting declarations from Gatekeeper Hamby, claiming they are conclusory and inconsistent with his prior testimony, failing to specify which opportunities were pursued. The Court cannot definitively resolve the factual dispute concerning the removal of Banner assets and will proceed under the assumption that Procaps's account—that the assets were removed for seven months—is accurate, thereby rejecting Procaps's objections to the existence of a factual dispute.
Procaps challenges Patheon’s assertion that there are no actual anticompetitive effects from the removal of the Banner assets for seven months. This disagreement focuses not on factual disputes but on the significance of undisputed facts and the applicable legal standard for evaluating those facts. Procaps plans to demonstrate anticompetitive effects by showing that Patheon’s actions have negatively impacted competition in relevant markets, as defined by Patheon’s expert economist. However, Procaps acknowledges it will not provide an individualized accounting of competitive harm on a customer-by-customer basis due to the inability to quantify such impacts. Instead, Procaps relies on established economic principles to argue that the removal of a competitor leads to detrimental market effects, including higher prices and reduced quality, despite lacking empirical evidence of specific price increases or reduced output. Procaps contends that its expert’s predictions, based on general economic principles, are adequate to establish anticompetitive effects, framing the issue as a legal dispute over the type of evidence required in antitrust cases. Additionally, Procaps disputes Patheon’s claim that the Banner acquisition resulted in efficiencies that would benefit competition, asserting that these efficiencies do not stem from the restraint itself. Patheon, however, argues that procompetitive effects need not originate from the restraint but can be assessed based on benefits realized afterward.
Procaps' assertion of a factual dispute is characterized as a legal dispute regarding the admissibility of certain efficiencies related to the challenged restraint. Specifically, Procaps argues that the efficiencies cited by Patheon do not arise from the restraint itself, which raises a legal question about which justifications can be considered. Once the appropriate legal standard is established—requiring efficiencies to connect to the restraint—there may be factual disputes regarding acceptable justifications for that restraint.
Regarding summary judgment, the court will grant it if the movant demonstrates that no genuine dispute exists over any material fact, thus entitling them to judgment as a matter of law under Fed. R. Civ. P. 56(a). The existence of some factual dispute does not preclude summary judgment unless it is a genuine issue that could lead a reasonable jury to favor the non-moving party. The non-moving party, Procaps, must provide substantial evidence to support its antitrust claim; merely alleging disputes or offering minimal evidence is insufficient. Courts have consistently granted summary judgment in antitrust cases where the non-moving party failed to demonstrate actual antitrust injury or provide adequate proof, as illustrated by several case precedents.
Summary judgment was granted in the case No. 1:13-cv-01486, concluding that the plaintiff chiropractor failed to demonstrate any alteration in market pricing or evidence that other chiropractors exited the market due to the Virginia Board of Medicine's actions, which purportedly favored medical doctors over chiropractors. In antitrust analysis under the Rule of Reason, the plaintiff must establish an agreement that unreasonably restrains trade and demonstrate an antitrust injury, as articulated in relevant case law. The analysis requires showing: 1) an anticompetitive effect on the relevant market, and 2) the absence of procompetitive benefits. The court emphasized that the Rule of Reason analysis must consider the specific business context, including the conditions before and after the restraint, and the nature and probable effects of the restraint. The Supreme Court's evolving interpretation suggests a movement away from rigid applications of the Rule of Reason, favoring a more flexible approach tailored to the case's specifics. The court rejected the assertion that a sliding scale does not apply, affirming that the quality of proof required varies with the circumstances and that the details and logic of the restraint will guide the analysis.
Under the rule of reason, a court assesses whether a restrictive practice constitutes an unreasonable restraint on competition by evaluating all relevant circumstances. Although Procaps argues that horizontal market division agreements typically suppress competition, suggesting a per se violation, the Court maintains that the rule of reason applies. This approach is reinforced by Supreme Court precedent, which supports a flexible, case-specific analysis for market allocation and joint ventures.
To establish an anticompetitive effect, there are two prongs: (1) actual detrimental effects and (2) the potential for genuine adverse effects, with proof of market power required for the second prong. Patheon contends that Procaps cannot demonstrate market power, citing a maximum 6% market share as insufficient. Regardless, Procaps has opted to pursue its case solely under the first prong, focusing on actual detrimental effects without needing to prove market power.
The parties dispute the type of evidence Procaps must present to prove its claims under the first prong. Procaps asserts that established economic principles are sufficient, while Patheon argues that empirical data is necessary. The Court previously indicated that Procaps' reliance on theoretical assumptions may jeopardize its case, concluding that it may struggle to meet its burden of proof regarding anticompetitive effects.
Procaps must demonstrate actual detrimental effects on competition, specifically through empirical data showing harm to consumers, such as reduced output, increased prices, or lowered quality, rather than relying on theoretical assumptions or general economic theories. Patheon argues that evidence must reflect real occurrences of adverse effects, citing cases where courts dismissed claims due to lack of proof of actual harm or reliance on academic theories. For instance, in Jacobs, the court ruled against a plaintiff who failed to show that a restraint led to higher prices, and in Levine, the court granted summary judgment because the plaintiff did not provide evidence of actual adverse effects. Predictions based on theory alone, without empirical studies or concrete evidence, are insufficient to substantiate claims of competitive harm. Patheon emphasizes that courts often grant summary judgment for defendants when plaintiffs fail to empirically demonstrate claims of decreased output, increased prices, or diminished quality, reinforcing the necessity for concrete data in antitrust claims.
Patheon argues that the plaintiff failed to demonstrate actual adverse effects due to a lack of necessary data, which prevents the calculation of actual fees. Citing Levine, Patheon contends that the plaintiff did not prove that provider fees have increased, thereby lacking legal grounds for an adverse effects claim. Additionally, Patheon references Jacobs, where the court dismissed a claim because the plaintiff did not establish a competitive baseline above which alleged anticompetitive conduct had artificially raised prices. The remand decision in California Dental is also highlighted, wherein the Ninth Circuit ruled that the plaintiff's failure to present relevant market data meant no anticompetitive effect could be shown. In support, Viazis v. Am. Ass’n of Orthodontists is mentioned, emphasizing that the FTC failed to prove actual harm without relevant data on the specific market. Conversely, Procaps cites FTC v. Indiana Federation of Dentists, asserting that to prove adverse effects, it is sufficient to show that a restraint is likely to disrupt market price-setting mechanisms without needing measurable evidence of price increases. Nonetheless, courts over the past 30 years have not consistently accepted predictive evidence as sufficient and usually require an examination of actual facts. Patheon distinguishes its case from IFD, arguing against the interpretation that empirical evidence is unnecessary, while outlining the context of IFD, where a dental federation's rules significantly reduced x-ray output, leading to a ruling against the federation for unreasonable restraint. The Supreme Court’s analysis in IFD established the foundation for the abbreviated or "quick-look" analysis under the rule of reason.
The FTC reasonably relied on common sense and economic theory to establish that a restraint was likely to disrupt the market's price-setting mechanism under a quick look analysis, as evidenced by the Indiana Federation case (IFD). Procaps referenced IFD in its motion for partial summary judgment, indicating the applicability of quick look analysis. Even if the restraint was not considered "naked," IFD suggested that the plaintiff could still prevail under a non-truncated rule of reason approach by demonstrating actual detrimental effects, such as a significant reduction in x-ray output. The IFD case showed that dentists, forming a majority in certain areas, collectively hindered insurers' ability to obtain x-rays necessary for reimbursement transactions. This reduction in x-ray output was deemed an actual detrimental effect. Patheon argued that the court's references to common sense and economic theory were limited to quick look analysis, which was supported by other cases indicating that mere likelihood of disruption is insufficient to prove actual detrimental effects in non-truncated cases. The current lawsuit is non-truncated and follows a rule of reason approach, where market power, as demonstrated in IFD, is crucial. The court highlighted that, given the dominance of the dentists in the market, their actions directly impacted output and pricing, evidencing the relationship between market power and actual effects.
The IFD Court applies a "quick look" analysis for antitrust cases involving defendants with substantial market power, where it may be deemed obvious that any market restraint leads to anticompetitive effects. However, in this instance, Procaps has not shown sufficient market power to warrant such an analysis. Legal precedent emphasizes that actual detrimental effects on competition must be demonstrated through concrete evidence rather than speculative theories. For instance, in Coca-Cola Co. v. Omni Pac. Co., the court granted summary judgment because the plaintiff failed to provide adequate proof of substantial market impact despite expert testimony. Similarly, in Mil. Servs. Realty, Inc., the court ruled against a plaintiff whose expert relied solely on general economic theory without empirical analysis. The Fifth Circuit in Roy B. Taylor. Sales, Inc. noted that speculation about anticompetitive effects is insufficient; concrete evidence of how a tie-in operates in the market is necessary. Moreover, KMB reiterated that to establish actual detrimental effects, there must be empirical evidence demonstrating adverse impacts on price or quality. The Eighth Circuit in Flegel v. Christian Hosp. also ruled against a plaintiff whose expert testimony merely suggested a lack of competition without demonstrating actual detrimental effects. Additional cases underscore that predictions and speculation do not satisfy the requirement for showing actual harm to competition, as illustrated in McLaughlin Equip. Co. v. Servaas, where expert testimony about potential price increases was deemed inadequate without proof of actual increases.
Expert testimony based on hypothetical assumptions cannot replace actual market data, as established in Virgin Atlantic Airways Ltd. v. British Airways PLC. Evidence suggesting "potentially higher prices" without proof of actual price increases is inadequate to demonstrate actual harm, as reiterated in Tops Mkts. Inc. The case emphasizes that general theories or speculation cannot establish detrimental effects; instead, specific factual evidence is necessary. Procaps failed to meet its burden of proof regarding anticompetitive conduct under Prong 1, as it did not provide empirical evidence of actual anticompetitive effects, such as price increases, output reductions, or quality deterioration.
Procaps' expert, Blair, did not conduct an empirical study or present measurable evidence of harm. The opposition memorandum acknowledged a lack of specific transaction data to support claims of consumer harm, and Procaps conceded that quantifying competitive harm on a customer-by-customer basis was impossible. Blair's report was based on predictions rather than concrete evidence, asserting that the removal of a major supplier diminished competitive pressure and could lead to higher prices and reduced output. His opinions were grounded in standard economic principles rather than actual market data, reinforcing that Procaps did not satisfy the evidentiary requirements necessary to claim anticompetitive effects.
Blair lacks empirical evidence to substantiate his claim that asset removal led to more favorable terms for the winning bidder, relying instead on theoretical economic principles. Procaps supports its case with predictions from economic theory rather than actual market outcomes, asserting that the exclusion of a competitor would likely cause price increases and reduced output. Its expert contends that the absence of a competitor would shift power from purchasers to sellers, affecting pricing and marketing strategies. Procaps argues that it can demonstrate impacts on competition through non-price contract terms. However, its reliance on predictions and potential market influence does not fulfill the requirements for establishing actual effects under the legal framework of antitrust law. Procaps has explicitly stated that it is not pursuing a market power theory, thus avoiding discovery related to market power. It claims that expert evidence can satisfy its burden, but only if based on actual evidence rather than speculation, as required for a Prong 1 actual effects approach.
Expert testimony's sufficiency in legal cases is evaluated against precedents where courts accepted robust empirical evidence. In *Realcomp*, the plaintiff's expert provided comprehensive quantitative analyses, including a time-series analysis revealing a 50% decline in listings, which the court recognized as substantial evidence of anticompetitive effects. In *American Needle, Inc. v. New Orleans La. Saints*, evidence showed a significant price increase and output decrease for licensed hats following a market restraint, persisting for years. Conversely, courts often grant summary judgment to defendants when faced with speculative expert testimony lacking empirical support. For instance, in *Flegel*, the Eighth Circuit dismissed claims of detrimental effects from hospital exclusion due to insufficient evidence linking expert testimony to actual competitive harm. Similarly, in *Coca-Cola*, the court ruled against a counterclaim defendant despite expert claims of adverse impact because the testimony was not quantifiable. The *McLaughlin* case also illustrated that mere speculation without empirical backing fails to substantiate claims of adverse competition effects. The Fourth Circuit in *Realty* affirmed summary judgment when an expert relied solely on general economic theory without specific market analysis. This underscores that expert testimony cannot substitute for concrete evidence of actual adverse effects, a principle applicable beyond antitrust claims, as seen in *Alphamed Pharmaceuticals Corp. v. Arriva Pharmaceuticals, Inc.*.
The court granted the defendant’s post-trial motion for judgment as a matter of law, which nullified a $78 million jury award to the plaintiff. The court rejected the plaintiff’s expert testimony, stating that opinions must be substantiated by adequate sources, and the plaintiff failed to provide sufficient evidence for the expert’s foundational assumptions. In response to Patheon’s summary judgment motion, Procaps contended that quantifying specific competitive harm on a customer-by-customer basis was impossible, supported by its experts Baker and Heyens. However, this argument was deemed unpersuasive as it overlooked instances where plaintiffs successfully provide evidence of actual detrimental effects to overcome summary judgment, as highlighted in Laumann v. National Hockey League. Additionally, Procaps's reliance on a Prong 1 approach was noted, emphasizing that proof of market power can suffice in antitrust cases when direct proof of anticompetitive effects is unattainable, as stated in U.S. Horticultural Supply v. Scotts Co. The court pointed out that if plaintiffs could easily prove detrimental effects, few would pursue Prong 2 cases. Procaps also did not pursue arbitration for breach of contract claims, choosing instead to focus on the federal antitrust claim, which is not guaranteed to yield treble damages for every business restraint. Lastly, Procaps introduced a “market presence” theory, suggesting it could demonstrate competitive constraints from market power without meeting the market share requirements typically necessary for a Prong 2 analysis.
Procaps limited its discovery regarding market power by asserting that it would only pursue a case based on actual detrimental effects under Prong 1. It fails to clearly define "market presence" and does not differentiate it sufficiently from "market power." Its opposition frequently references evidence indicative of market power, such as asserting that Banner served as a significant constraint on Catalent and that other competitors were merely fringe players. Procaps conflates relevant markets by including proprietary products in its definition of softgels but does not establish a distinct legal basis for a "market presence" case nor provide authority that distinguishes it from a market power case. The potential effects evidence it seeks to use is typically reserved for market power analyses, as highlighted in case law. The court emphasizes that evidence of market structure and participant strength is utilized as a proxy for market power. Additionally, Procaps' assertion that the removal of Banner constitutes an actual anticompetitive effect is insufficient, as harm to a single competitor does not equate to injury to competition under the Sherman Act. The court notes that evidence of a single competitor's removal cannot alone establish a rule of reason violation, reaffirming that damage to one firm does not automatically indicate broader competitive harm.
Antitrust violations are assessed based on their impact on the market rather than on competitors. Simply removing a competitor does not equate to reduced market output or competitive harm unless there is proof of an adverse effect on the market itself. Courts have established that the exclusion of a supplier does not inherently demonstrate an actual detrimental effect; plaintiffs must provide evidence showing increased prices or decreased quality to substantiate claims of competitive harm.
Arguments that equate harm to a competitor with harm to competition undermine established legal distinctions and could render horizontal mergers unlawful, which contradicts antitrust principles that allow for lawful mergers under certain circumstances.
Procaps' claim of reduced supply due to its exit from a collaboration is unsupported by cited authority, and the court will evaluate whether capacity was genuinely eliminated. Despite stopping participation in the collaboration, Procaps continued to compete with others in the market, suggesting that its capacity was not lost. The notion that the collaboration could have been a more significant competitor does not negate the fact that all entities making competitive efforts are considered competitors.
Unsuccessful bidders are considered competitors alongside successful ones, as established in United States v. El Paso Nat. Gas Co. The case of Polypore Int'l, Inc. v. FTC identified a firm as an "actual competitor" based on its engagement with other companies. Patheon contends that loss of consumer choice can only be deemed an anticompetitive effect in the context of a complete monopoly or market power, a stance that lacks universal legal support. Citing Levine, Patheon argues that the mere absence of choice does not equate to an actual detrimental effect on competition. However, the Levine court's decision did not definitively conclude a loss of choice occurred, as alternatives were available for the patient in question. Patheon fails to provide authoritative support that completely negates the consideration of consumer choice loss as an anticompetitive effect in situations lacking market power. While Patheon references Spanish Broadcasting to argue against consumer choice loss, the cited case dealt with a specific plaintiff's claim that was rejected and does not imply a blanket dismissal of consumer choice impacts. Furthermore, Patheon’s reliance on Jefferson Parish to dismiss loss of consumer choice is unconvincing; the Supreme Court acknowledged the potential adverse effects of reduced consumer choice but ultimately found insufficient evidence to substantiate actual effects in that case. This indicates that loss of consumer choice, if demonstrated, should be analyzed based on the case's specifics rather than being outright dismissed.
The Court determined that there was insufficient evidence to demonstrate how a particular arrangement impacted consumer demand for services from specific anesthesiologists, concluding that without proof of actual adverse effects on competition, the respondent could not establish a case under antitrust laws. The Court did not categorically dismiss the argument regarding loss of choice, but rather indicated that a plaintiff must provide substantial empirical evidence of detrimental effects on consumers and the market to prevail. In the case of KMB, the Second Circuit also did not outright reject the loss of consumer choice argument but highlighted the inadequacy of isolated customer affidavits as proof of competitive harm. The court noted that while loss of choice can potentially indicate anticompetitive effects, it must be tied to demonstrable impacts on the market. Proeaps' assertions about the innovative nature of its P-Gels product were undermined by the Court's refusal to accept late supplementary evidence that lacked the credibility of independent verification. Consequently, Proeaps failed to provide sufficient proof of how the loss of choice affected market dynamics, limiting the viability of their antitrust claims.
Proeaps has failed to provide sufficient empirical evidence to support its claims of anti-competitive effects related to the removal of the Collaboration’s P-Gels technology, despite asserting that this loss constitutes a detrimental impact. Proeaps, having originally introduced this technology to the Collaboration, retained its rights after Patheon terminated the collaboration and continues to utilize it, thereby maintaining market access and exploring business opportunities. Expert testimony indicated that Proeaps did not lose any innovative technology, nor did it experience lower quality or quantity of output. Furthermore, Proeaps did not demonstrate how any alleged deprivation of choice impacted the market or establish substantial market harm, which is necessary for claims under federal antitrust laws. The legal standard requires proof of significant adverse effects on competition within the relevant market, emphasizing that harm must be measured on a marketwide basis, not just on individual competitors. Thus, Patheon is entitled to summary judgment on this basis.
Procaps argues that it only needs to demonstrate more than a de minimis effect on the market to establish harm, leaving the jury to determine the extent of injury. However, this position is contested, citing legal precedents that require an antitrust plaintiff to prove a well-defined relevant market significantly impacted by the alleged anticompetitive conduct. Cases such as Levine and Graphic Prods. Dist. Inc. v. Itek Corp. emphasize that substantial proof of market impact is necessary. Procaps' reliance on the "more than de minimis" threshold is deemed unconvincing, as previous rulings indicated a stricter standard for demonstrating anticompetitive effects. The court notes that prior decisions where courts dismissed cases for lack of proof of effect do not support Procaps' argument, and the cited cases actually suggest a more rigorous burden. Additionally, a non-binding district court case, Rio Grande, is scrutinized for inconsistencies in its interpretation of the burden of proof, and the court remains unconvinced that it should influence the current case. Lastly, Procaps' use of case law regarding the Sherman Act to argue that substantial means "not insubstantial" is considered irrelevant.
McLain and similar cases referenced by Procaps focus on federal jurisdiction under the Sherman Act, distinct from the rule of reason analysis relevant to this case. For establishing federal jurisdiction, it is sufficient to demonstrate that the respondents' activities, allegedly influenced by a price-fixing conspiracy, have a substantial effect on interstate commerce. Procaps’ argument regarding the jury's role is problematic, as it conflicts with the summary judgment standard, which allows courts to resolve issues if no reasonable jury could find for the plaintiff based on the evidence presented. The Graphic Products case does not support the notion that substantiality must always be determined by a jury; instead, courts can make determinations on summary judgment when warranted. Regarding the need for proof of substantial market harm, Procaps’ expert, Blair, failed to adequately measure or demonstrate the existence of anticompetitive effects, admitting uncertainty about the impact on prices, quality, quantities, innovation, and capacity reservations.
Courts grant summary judgment when there is no genuine dispute regarding material facts, particularly when a plaintiff fails to demonstrate significant anticompetitive effects. In several cited cases, summary judgment was granted because plaintiffs did not adequately show substantial harm or competitive effects. In this instance, Procaps did not measure the magnitude of the alleged anticompetitive effects and admitted it lacked quantitative evidence of specific competitive harm on a customer basis. It failed to demonstrate that any customer experienced measurable harm, such as paying higher prices due to market allocation. Although Procaps claimed that 17 customers were affected, the supporting documents only indicated interest in bids or collaboration opportunities, not actual harm. The court found that Procaps did not present substantive evidence to support its claims, and any hypothetical harm to a small number of customers could not constitute marketwide anticompetitive effects as a matter of law. Previous rulings emphasized that the Sherman Act requires evidence of significant restraints of trade, and impacts on a limited subset of customers do not suffice. Furthermore, the short duration of the alleged restraint (seven months) was deemed insufficient to establish substantial marketwide harm, as the Sherman Act addresses long-term anticompetitive effects. Thus, the court affirmed that summary judgment was appropriate due to the lack of evidence demonstrating significant anticompetitive effects.
Procaps has not demonstrated a long-term adverse effect from a restraint that lasted only seven months, instead relying on a brief and unquantified impact on a limited group of customers. Despite acknowledging the short duration of the restraint, Procaps argues that the entire seven-year term of the collaboration should be considered, although it provides no legal support for this position. The court maintains that the evaluation of the restraint should focus on the actual duration of seven months, dismissing Procaps' claim as a legal argument without factual backing.
Procaps' expert, Blair, suggested that the removal of certain assets for seven months constituted a significant anticompetitive effect, yet failed to define or measure the extent of this effect, leading to the conclusion that Procaps did not legally establish the requisite substantiality of harm. Consequently, Patheon is entitled to summary judgment based on this lack of evidence.
Additionally, there is a legal dispute regarding which party bears the burden of proving procompetitive benefits under Eleventh Circuit law. Patheon asserts that Procaps must show the restraint lacks procompetitive justification, a position supported by the Eleventh Circuit's Levine decision and subsequent cases. Procaps contends the opposite, arguing that the defendant must prove the existence of such benefits. The court will analyze the relevant Eleventh Circuit cases to clarify this burden of proof dispute.
The burden of proving an "unjustified anti-competitive effect" lies with the plaintiffs, as established in Seagood Trading Corp. v. Jerrico, Inc. Although the 2013 Eleventh Circuit Pattern Jury Instructions do not include specific antitrust jury instructions, the earlier 2005 version required plaintiffs to prove that the defendant's conduct lacked justification or competitive benefit. This change is not due to a shift in legal standards but rather the complete rescission of antitrust instructions. Procaps argues that the Eleventh Circuit's Levine rule, which imposes this burden on antitrust plaintiffs, diverges from other circuits and Supreme Court decisions. Procaps contends that Patheon's reliance on Levine is misplaced, asserting that Levine’s language is merely dictum and not binding. Furthermore, Procaps points out that subsequent cases citing Levine also involved dictum since they affirmed district court conclusions without necessitating a burden determination. It argues that Levine's interpretation contradicts prior Eleventh Circuit precedent, specifically Graphic Products v. I.C.C., which rejected the notion that plaintiffs must prove every pro-competitive rationale and employed a burden-shifting approach. Since Graphic Products predates Levine and is not an en banc decision, Procaps maintains that it should govern the burden of proof regarding procompetitive effects, emphasizing that Levine did not reference Graphic Products. Lastly, Procaps notes that recent post-Levine rulings correctly indicate that the burden of demonstrating procompetitive benefits shifts to the defendant.
Procaps argues that the Levine rule, despite being cited in dictum by other Eleventh Circuit panels, contradicts the logic of the rule of reason, as it requires plaintiffs to demonstrate the absence of all procompetitive benefits, thus eliminating the necessary balancing of procompetitive and anticompetitive effects. Procaps advocates for a burden-shifting approach, suggesting that defendants should identify justifications for their conduct. Furthermore, Procaps claims that the language in Levine was careless and did not intend to modify the burden of proving procompetitive effects. In contrast, Patheon asserts that the Levine rule is established law in the Eleventh Circuit and argues that the Graphic Products case requires plaintiffs to demonstrate the defendants' market power in rule of reason cases, which could undermine Procaps' position. The Undersigned refrains from declaring the Levine rule as dicta or dismissing it, citing several reasons: Procaps had previously relied on Levine in its arguments without questioning its validity; the cases cited by Procaps do not explicitly overrule or modify the Levine rule; and the cases referenced by Procaps were from different legal contexts. The Undersigned notes that the Levine rule has consistently been cited with approval in the Eleventh Circuit.
The appellate court evaluated whether the FTC's factual and economic conclusions were supported by substantial evidence and aligned with the law. The Eleventh Circuit upheld the FTC's conclusions but did not reference the Levine rule, which requires plaintiffs to demonstrate the absence of all procompetitive benefits. In the Schering-Plough case, the Eleventh Circuit vacated the FTC’s cease and desist order due to a focus on efficiency-enhancing objectives without applying the Levine standard. The McWane case also did not balance anticompetitive effects against efficiencies, as it deemed procompetitive justifications to be pretextual. Procaps argued for a balancing approach once it demonstrated anticompetitive effects, but the court found it unnecessary in McWane. Additionally, Procaps suggested disregarding Eleventh Circuit cases citing Levine as mere dicta, which the court was hesitant to accept without conclusive evidence. Procaps also sought to minimize the significance of the Eleventh Circuit's pattern jury instructions that historically followed the Levine rule, though these instructions are not binding law. The court noted that the absence of current pattern jury instructions on antitrust cases diminishes the significance of the Levine rule's previous status. The court highlighted that Procaps has not identified any Eleventh Circuit decision explicitly stating that Levine is no longer applicable, suggesting that, despite being out of step with other circuits, it remains law in the Eleventh Circuit. For any changes to the rule or burden-shifting protocols, Procaps would need to seek resolution from the Eleventh Circuit or the U.S. Supreme Court, as district courts are bound by existing Eleventh Circuit precedent.
The Undersigned declines to adopt Pro-caps’ antitrust rule, which would complicate legal analysis and contradict established Eleventh Circuit law. The Court will maintain the Levine rule, which requires the plaintiff in an antitrust case to prove that the restraint has no procompetitive benefits. Pro-caps acknowledges that the restraint was initially procompetitive despite being a horizontal market allocation. Procompetitive benefits include increased output, reduced costs, and overall market efficiency. The parties dispute the applicable law, specifically whether Pro-caps must show that no procompetitive effects exist or if the effects must stem directly from the restraint. According to Levine, the plaintiff must demonstrate that the defendant’s actions lack pro-competitive justification. The inquiry must focus on the restraint’s impact on competitive conditions, and simply providing a rationale for a vertical restraint is insufficient; there must be evidence that it genuinely enhances competition. The Court emphasizes that any procompetitive benefits must be directly linked to the restraint in question, contrary to Patheon's interpretation that allows for a broader comparison of market conditions.
The Court is tasked with assessing whether the alleged restraint has pro-competitive effects in the marketplace. Patheon argues that the case United States v. Am. Exp. Co. supports its view that efficiencies should be evaluated by comparing the actual market situation with a hypothetical scenario absent the restraint. However, the relevant section of that opinion discusses anti-competitive effects rather than pro-competitive benefits. It emphasizes that the rule of reason does not permit any argument in favor of a restraint but must instead focus on its impact on competition. Similarly, in In re Online DVD Rental Antitrust Litig., the “but-for” analysis pertains to proving antitrust injury rather than establishing pro-competitive effects. This analysis requires plaintiffs to demonstrate that harm was caused by the defendant's actions, positing that absent the restraint, competition and pricing would have been different. The Court clarifies that the proffered efficiencies must be directly linked to the restraint itself and cannot be independent. Citing NCAA and U.S. v. Apple, the document states that alleged pro-competitive effects must flow from the agreements in question, as indicated in the FTC/DOJ Competitor Collaboration Guidelines. The assessment of whether Procaps has met its burden of proof regarding pro-competitive justifications is also highlighted as a key consideration.
The Court must evaluate whether Procaps has effectively disproven the procompetitive justifications presented by Patheon for a restraint. Patheon claims three justifications, none of which the Court finds convincing for summary judgment.
First, Patheon argues that after acquiring Banner, it used its assets to enhance competition in relevant markets, claiming this increased benefits for customers. Procaps counters that such benefits arose from the end of the restraint rather than from it, suggesting that the initial exclusion of Banner's assets had an anticompetitive effect. The Court agrees that Patheon’s benefits stem from acquisition rather than the restraint itself.
Second, Patheon contends the Banner acquisition led to reduced manufacturing costs for softgels, increasing its earnings. However, it fails to demonstrate that these cost savings were passed on to customers or connected to the restraint in the Collaboration Agreement. Expert testimony indicates that any efficiencies gained were unrelated to the market division provisions of the Collaboration Agreement and do not constitute benefits from the alleged anticompetitive conduct.
Third, Patheon posits that the Collaboration could have succeeded with Banner’s assets, which Procaps allegedly blocked by refusing participation. Procaps highlights that Patheon never made specific proposals to incorporate Banner’s assets into the Collaboration Agreement, deeming Patheon’s claims as hypothetical and unsupported by evidence of concrete actions taken.
Overall, the Court finds that Patheon has not sufficiently justified the restraint based on the arguments presented.
At the end of the six-month dispute resolution period outlined in the Collaboration Agreement, Patheon terminated the Agreement instead of divesting Banner or incorporating its assets. Under the Levine standard, Patheon has not adequately shown that Procaps failed to establish a lack of procompetitive justifications for the restraint, meaning Patheon is not entitled to summary judgment on this basis.
Regarding antitrust injury, Patheon contends that Procaps must prove it was "completely foreclosed from the market" to demonstrate the necessary antitrust injury for standing. Patheon argues that Procaps is currently competing in relevant markets, claiming Procaps has generated over $123,000 in business within a year, and is on track to earn millions. However, the evidence of Procaps’ competitive status is unclear, making it difficult to assess whether its post-Banner participation of approximately $300,000 affects its standing under Patheon’s argument.
Procaps acknowledges it competes on a modest scale but asserts that this should not warrant summary judgment in Patheon’s favor. The court is not convinced by Patheon’s claim that a lack of complete foreclosure from the market negates Procaps’ antitrust claim, as existing case law does not establish a strict requirement for complete exclusion for antitrust standing. The precedent suggests that antitrust standing should be evaluated based on the specific circumstances of each case, analyzing the plaintiff's harm, the alleged defendant wrongdoing, and their connection. In instances of near-monopoly, such as in Gulf States Reorganization Group Inc. v. Nucor Corp., the Eleventh Circuit found that the injury to the plaintiff was closely tied to the alleged competitive harm.
The plaintiff has met the requirement for demonstrating antitrust injury, which is defined as injury that the antitrust laws aim to prevent and that arises from the unlawful acts of the defendants. The case distinguishes itself from Gulf States, as Procaps does not claim that the removal of Banner assets led to a near-monopoly. In Pierson v. Orlando Reg’l Healthcare Sys. Inc., the court ruled that the plaintiff's harm did not correspond to the alleged restraint, emphasizing that antitrust injury must reflect the anticompetitive impact of the defendants’ actions. The Pierson court determined that the plaintiff was not excluded from the market (the relevant hospitals) but rather faced a reduction in referrals, allowing him to continue treating patients and compete in the Orlando area. The court reinforced that mere attempts to increase profits do not confer antitrust standing, as antitrust laws protect competition, not individual competitors. The Feldman case further noted that an antitrust plaintiff must demonstrate that their injury aligns with public detriment due to the alleged violation. The emphasis is on the individual nature of the harm, and while partial market exclusion does not automatically negate standing, the plaintiff must show that their injury affects competition in the marketplace. Hypothetically, had the plaintiff in Feldman demonstrated a broader competitive harm, the ruling might have differed.
In **Bocobo v. Radiology Consultants of S. Jersey, P.A.**, the Third Circuit determined that a physician failed to demonstrate antitrust injury due to insufficient evidence of total exclusion from the radiology job market. The court highlighted the necessity of establishing a connection between the alleged injury and the purported anticompetitive effects, concluding that the plaintiff did not show a significant link between his exclusion and the antitrust violations claimed against the defendants. The court referenced prior rulings, noting that losses attributed to lawful competitive practices, such as maximum price-fixing, do not constitute antitrust injury. The decision clarified that while a plaintiff does not need to show complete market exclusion to prove antitrust injury, there must be a clear relationship between the injury and the alleged restraint on trade. The court rejected the idea that antitrust injury requires total exclusion, emphasizing that the injury should reflect the nature of the restraint alleged. The ruling also noted that a plaintiff claiming an unreasonable restraint based on a substantial market share does not need to demonstrate 100% exclusion, but rather a relevant connection between the alleged injury and the restraint. The court dismissed Patheon’s argument regarding "complete exclusion," affirming that even partial market presence does not negate standing for antitrust claims.
Patheon contends that Procaps lacks antitrust standing due to its failure to pursue various market opportunities, citing multiple legal cases to support its argument. However, Patheon did not sufficiently present this argument in its initial summary judgment motion, only mentioning a single fact in a footnote about Procaps allegedly rejecting a significant opportunity to establish a soft-gel manufacturing facility in the U.S. Procaps disputes this fact. Established legal precedent prohibits introducing new factual arguments for the first time in a reply memorandum. Consequently, the court will not consider Patheon's new arguments related to the soft-gel facility or any other business opportunities introduced in its reply or proposed order, as they were not raised in the original motion. The only business opportunity mentioned in the motion pertains to the soft-gel facility, which was included in a section unrelated to the "not-pursuing-opportunities" argument. Even if Patheon had properly contextualized this fact within its summary judgment motion, it would not have been sufficient to warrant summary judgment against Procaps on the basis of allegedly foregone opportunities in the relevant market.
Patheon’s argument regarding self-inflicted injury due to Procaps' failure to pursue a new softgel manufacturing plant is deemed insufficient. The argument is based on a speculative email from Procaps employee Ted Green, which references a “potentially” game-changing partnership and mentions a new plant as an example, indicating uncertainty. Furthermore, Procaps executive Alvaro Franco quickly dismissed the idea, stating that the company was not actively seeking a strategic partner. The court distinguishes Procaps' decision against pursuing a new plant from other cases, such as those involving refusal to negotiate for shelf space or work in a hospital, emphasizing that the significant financial and logistical barriers make the decision not to invest in a new factory a reasonable choice. Therefore, the court rejects Patheon’s argument for self-inflicted injury and denies its motion for summary judgment on this point while granting it for all other counts in the complaint. The court will issue a separate final judgment and maintain jurisdiction for costs and possible attorney fees, while canceling all trials and pending motions as moot. The court also clarifies that it is not ruling on the initial lawfulness of the Collaboration Agreement but notes that both parties believe it was lawful at inception. Additionally, previous orders highlight Procaps' analysis of the integration of Banner assets without granting approval to Patheon for such actions.
In the Metro case, the court determined that the alleged horizontal market division warranted a rule of reason analysis instead of a per se approach. A significant legal dispute arose regarding the identification of the relevant market for Procaps, which is necessary for a Prong 1 actual harm claim. The parties agreed on the relevant geographic and product markets. Patheon referenced the Minn. Ass’n of Nurse Anesthetists case, where the plaintiff failed to provide concrete evidence of price increases or declines in service quality or availability. Similar failures to demonstrate actual adverse impacts were noted in Coca-Cola and Viazis cases, where plaintiffs did not present data substantiating their claims of anticompetitive effects.
The IFD case highlighted that individual dentists would face competitive market forces absent concerted behavior, a conclusion supported by economic theory and record documents. In National Society and Cal. Dental, the courts noted that if theoretical effects were proven actual, there would be no need to analyze actual effects separately. The Realcomp case also required the court to consider both likely and actual adverse effects of the restraints.
During depositions, Blair indicated a lack of knowledge about any negotiated deals in the relevant market during a seven-month period and stated that no contracts signed did not necessarily imply adverse effects. The court required the parties to propose methodologies for the rule of reason analysis, leading to submissions from both parties that presented theoretical effects without concrete data. The Eleventh Circuit's Spanish Broadcasting case clarified that evidence of likely harm to competition is relevant in a Prong 2 potential effects case, but the current case does not fall under Prong 2.
Procaps remains a competitor, acknowledging its competitive efforts and success, including a reported revenue of $306,000. Patheon asserts that Procaps is involved in additional contracts worth millions, a claim Procaps disputes without denying the existence of the contracts. The excerpt references Craftsmen Limousine, Inc. v. Ford Motor Co., where summary judgment was granted due to a lack of evidence showing actual adverse effects on competition, underscoring the necessity of demonstrating unreasonable restraints under the Sherman Act. Procaps argues that horizontal mergers differ from market allocations because they don’t always eliminate capacity, but fails to cite authority supporting that all mergers are unlawful if they reduce capacity.
The analysis refers to a market power/potential effects framework, suggesting that the standard for assessing substantial potential effects should be consistent with that used for detrimental effects analysis. The Court aims to determine if the alleged restraint is unreasonable under the Sherman Act. It challenges Procaps' interpretation of Adaptive Power, which assumed a temporary decline in competitors, noting that a temporary reduction is not sufficient to constitute an injury to competition.
Additionally, Procaps had agreed to a six-month period for Patheon to integrate newly acquired assets, recognizing the collaboration as procompetitive. Patheon argues that its provision of new opportunities to Procaps during this period is also procompetitive. It distinguishes McWane, an FTC case, as inapplicable, and notes that the Eleventh Circuit's review process differs from that of Sherman Act cases. Finally, a Westlaw search of Levine indicates it has been cited 744 times, with only two instances of negative treatment.
Two non-binding district court opinions, *Alabama Ambulance Service, Inc. v. City of Phenix City* and *Corey Airport Services, Inc. v. City of Atlanta*, do not critique the Levine rule relevant to the case at hand. The *Corey Airport* case was partially reversed on other grounds. The excerpt references Bob Dylan’s song “Gotta Serve Somebody” to illustrate the obligation of judges to adhere to binding appellate court language, even if they face requests to disregard it. The restraint in the case is vertical, analyzed under the rule of reason, although the case does not focus on market power. Specific financial metrics are discussed to clarify antitrust injury, despite the absence of clear mathematical evidence in this case, highlighting the need for individualized assessments based on unique circumstances. Relevant case law is referenced, including *Untracht v. Fikri* and *McDonald v. Johnson*, which establish that voluntary withdrawal from market opportunities does not constitute antitrust injury. Patheon’s proposed order cites *NicSand, Inc. v. 3M Co.* and *El Aguila Food Products Inc. v. Gruma Corp.*, both illustrating that plaintiffs could not prove antitrust injury due to self-inflicted limitations. Pro-caps challenges Patheon’s claim of undisputed facts regarding its business intentions, suggesting that if the case proceeded to trial, it might struggle to demonstrate antitrust injury due to its competitive actions and decisions not to pursue certain opportunities. However, this potential difficulty does not warrant summary judgment denial based solely on the argument of failure to establish antitrust injury.
