Eastern District Of Pennsylvania Holds That Monopoly Power And Anti-Competitive Conduct By One Subsidiary Cannot Be Imputed To Another Subsidiary Of The Same Parent
10/24/2017On October 17, 2017, Judge Mitchell S. Goldberg of the United States District Court for the Eastern District of Pennsylvania dismissed monopolization claims brought by the Attorneys General of several states against Reckitt Benckiser Healthcare (UK) Ltd. (“RBH”) premised on an alleged “product hopping” scheme designed to prevent or delay less expensive generic versions of the drug Suboxone from entering the market. In re Suboxone (Buphrenorphine and Naloxone) Antitrust Litigation, No. 13-MD-2445, 2017 WL 4642285 (E.D. Pa. Oct. 17, 2017). In so doing, the Court held that the mere fact that two subsidiaries are owned by a common parent is not sufficient either to consolidate the alleged market power of the two firms for the purpose of assessing monopoly power or to attribute the actions of one subsidiary to the other in evaluating allegations of exclusionary conduct.
RBH and co-defendant Indivior Inc. (“Indivior”) were each subsidiaries of the same non-party parent corporation. Plaintiffs alleged that the two companies—faced with the impending loss of an exclusive right to sell Suboxone tablets, a treatment for opioid addiction—jointly developed a “film” version of Suboxone that would not be considered pharmaceutically equivalent to generic Suboxone tablets, encouraged patients taking Suboxone tablets to switch to Suboxone film, and took steps to delay the entry of generic Suboxone tablets into the market. Plaintiffs argued that, because RBH and Indivior were each subsidiaries of the same parent, the two companies were a “single economic entity” for purposes of antitrust analysis, and that monopoly power and anti-competitive conduct on the part of Indivior should be imputed to RBH for purposes of plaintiffs’ claims against RBH.
The Court rejected plaintiffs’ “single economic entity” theory and held instead that—in light of plaintiffs’ failure to allege that RBH exercised effective control or “pervasive domination” of Indivior—plaintiffs must make sufficient allegations supporting a plausible inference that RBH, considered individually, violated Section 2 of the Sherman Act. The Court found that plaintiffs had failed adequately to allege monopoly power as to RBH individually, noting that “[p]laintiffs do not allege that RBH held the primary patents over the tablets and the film or controlled production of the film” and that “the Amended Complaint is devoid of any allegations that RBH sold Suboxone in any form in the United States or participated in the United States market in any respect such that it could maintain monopoly power.”
Similarly, the Court found that plaintiffs had failed adequately to allege that RBH individually had committed anti-competitive conduct because the only specific factual allegations against RBH were limited to the development and introduction of a new product—conduct that is not by itself exclusionary. The allegations of the complaint that met the standard for exclusionary conduct (for example, alleged coercion), the Court found, were limited to RBH’s sister company Indivior, not RBH, and could not be attributed to RBH in the absence of allegations showing pervasive domination.
In refusing to consider allegations against two subsidiary companies collectively for purposes of Section 2, the Court distinguished Copperweld v. Independence Tube Corp., 467 U.S. 752 (1984), which held that “the coordinated activity of a parent and its wholly owned subsidiary must be viewed as a single enterprise” for purposes of a Section 1 claim, because Copperweld addressed whether a parent was legally capable of conspiring with its subsidiary under Section 1, but “did not address the issue of a parent company’s liability under Section 2.” In sum, parental and affiliate liability for Section 2 monopolization claims should continue to be addressed under traditional principles governing affiliate liability and monopoly power and anti-competitive conduct of affiliated firms will not be assessed collectively absent allegations that the firms are effectively alter egos of one another or that one is subject to the “pervasive domination” and control of the other.