Illinois District Court Dismisses Complaint Alleging Conspiracy To Restrict Supply And Increase The Price Of Intravenous Saline Solution
On July 5, 2018, Judge John J. Tharp, Jr. of the United States District Court for the Northern District of Illinois granted defendant intravenous saline (“IV saline”) bag manufacturers’ motion to dismiss a complaint filed by a purported class of IV saline purchasers alleging that defendants conspired to restrict the output and raise the price of IV saline solution in violation of Section 1 of the Sherman Act. Washington County Health Care Auth., Inc., et al. v. Baxter Int’l Inc., et al., No. 16 CV 10324 (N.D. Ill. July 5, 2018). Plaintiffs alleged that defendants conspired to create an artificial shortage of IV saline solution by initiating a series of bogus voluntary recalls to deplete inventories of health care facilities in an effort to increase prices. Defendants moved to dismiss the claims, arguing the complaint did not adequately allege the existence of an agreement to restrain the supply and increase the price of IV saline.
Plaintiffs had no direct evidence of a conspiracy, so they relied on circumstantial evidence—parallel conduct and “plus factors”—to support the inference of an agreement. In particular, the complaint relied heavily on allegations of parallel conduct, such as defendants’ alleged use of the FDA shortage reporting mechanism to signal forthcoming output restrictions to each other. Further, the complaint alleged that defendants initiated unnecessary product recalls to restrict output and increase the price of IV saline. As for “plus factors,” plaintiffs primarily relied on the existence of a grand jury subpoena issued to one of the defendants by the Department of Justice’s Antitrust Division related to potential price fixing and shortages of IV saline. Plaintiffs also argued that defendants had an opportunity to collude at trade conferences held by medical technology and pharmaceutical associations, and that the structure of the industry, falling raw material costs in relation to increasing prices, and one defendant’s history of antitrust problems supported the inference of conspiracy.
Judge Tharp found that plaintiffs’ allegations of parallel conduct were “particularly weak.” He found that the IV saline market “is an oligopoly in which ‘conscious parallelism’”—a common reaction of firms in a concentrated market that recognize their shared economic interests and their interdependence with respect to price and output decisions—“is to be expected,” and that “parallel conduct in an oligopolistic market is not particularly probative of collusion.” Judge Tharp found that the complaint lacked meaningful allegations of parallelism because it made no factual allegations explaining why the stated reasons for the recalls were a sham, one defendant’s recalls were substantially greater than the alleged co-conspirator despite roughly equal market shares, and there were no allegations that recalls followed a predictable pattern consistent with a scheme to drive prices higher. Judge Tharp further held that voluntary recalls are an “implausible means of restricting output,” given that product recalls are expensive and draw attention from regulators, especially in the pharmaceutical industry.
Judge Tharp was also unpersuaded by plaintiffs’ alleged “plus factors,” which he found were “equally consistent with conscious parallelism, or to be expected regardless of whether the defendants unlawfully colluded.” In particular, Judge Tharp noted that the ongoing DOJ investigation into IV saline price fixing did not enhance the plausibility of plaintiffs’ claim because it did “nothing more than report the existence of investigations.” The mere existence of an investigation “says nothing about whether unlawful conduct has occurred” because “the purpose of an investigation is to determine whether there is evidence of unlawful conduct.”