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From Antitrust Property Law, April 3, 2013

Antitrust Claims Proceed Against Dialysis Service over Alleged Monopolization of Markets in New York and Massachusetts

By Tobias J. Gillett, J.D., LL.M.

A provider of outpatient dialysis services adequately alleged that a competitor engaged in a campaign to monopolize the market for outpatient dialysis services in certain regional markets in New York and Massachusetts, the federal district court in White Plains, New York, has ruled (IHS Dialysis Inc. v. Davita, Inc., March 31, 2013, Ramos, E.).

IHS Dialysis Inc. and Davita, Inc. are competitors in the market for outpatient dialysis services in certain areas of Massachusetts and New York. IHS brought a federal antitrust lawsuit against Davita, alleging that Davita had "engaged in an intentional and persistent campaign to obtain, maintain, and enhance its market and, in some cases, monopoly power through its own anticompetitive conduct and by conspiring with others to engage in anticompetitive conduct."

IHS alleged that Davita had engaged in five kinds of anticompetitive conduct to exclude its competitors from the market, including: (1) entering into agreements with referral sources, managed care companies, and pharmaceutical companies to "lock-up" a significant number of patient referrals and covered lives and to obtain pharmaceutical products at low costs; (2) engaging in "inappropriate business conduct" such as "disparaging IHS, threatening referral sources, patients, and staff members," and requiring current employees to sign non-compete agreements"; (3) "warehousing space and operating licenses"; (4) bringing and threatening to bring baseless lawsuits against former employees, referral sources, managed care companies, pharmaceutical companies, and competitors; and (5) entering into a contract with a third party company that gave it exclusive rights to use that company's home-based dialysis machine in the relevant markets. Davita filed motions to dismiss and to strike.

Monopoly Claims

Relevant market. The court initially took up Davita's argument that IHS had not adequately pled a relevant geographic market for its Sherman Act Section 2 claims. The court explained that a geographic market is generally measured "by determining the area in which the seller operates and where consumers can turn, as a practical matter, for supply of the relevant product."

IHS defined its market by the distance patients suffering from end-stage renal disease would be willing or able to travel for treatment, a distance it claimed was generally limited to "30 miles or 30 minutes." IHS therefore defined three local markets in New York and Massachusetts metropolitan areas, and one in "other areas and markets in which IHS currently is in the process of planning for or opening facilities."

The court found that IHS had adequately defined the first three markets. However, the court concluded that the fourth market was "too vague and too broad to explain what market the plaintiff is alleging to have been monopolized." The court therefore denied Davita's motion to dismiss for failure to adequately plead the relevant market.

Monopoly power. The court also rejected Davita's contention that IHS had not established "the requisite level of monopoly or market power for any of their claims." The court declined to address arguments based on extrinsic materials Davita had submitted, and noted that even the case law Davita cited did not support dismissing IHS's claims on the grounds asserted by Davita.

Willful acquisition and anticompetitive conduct. The court next explained that a plaintiff asserting claims for monopolization or attempted monopolization must allege "the willful acquisition or maintenance of" monopoly power, or "(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize." The court observed that Davita did not directly address those elements in its motion to dismiss, instead challenging "purported deficiencies in particular categories of alleged conduct."

The court concluded that Davita's arguments did not provide a basis for dismissing IHS's claims, because IHS had based them on the aggregate of Davita's conduct rather than individual actions. Allegedly anticompetitive conduct had to be considered "as a whole in the context of the relevant market and in light of the parties' respective roles therein." Davita's failure to address the alleged conduct in the aggregate precluded the court from dismissing IHS's claims.

Conspiracy to monopolize. The court agreed with Davita that IHS had failed to allege that the purported co-conspirators had the specific intent to monopolize the outpatient dialysis market. Although intent could be inferred from alleged anticompetitive conduct, IHS had only alleged Davita's intent to monopolize, not that its co-conspirators shared that intent, and had not alleged any anticompetitive conduct by the co-conspirators from which intent could be inferred. Therefore, the court dismissed IHS's conspiracy to monopolize claim.

Conspiracy Claims

The court then turned to the Sherman Act, Section 1 claim. IHS had alleged that Davita had "entered into agreements with physicians and other referral sources, managed care companies, pharmaceutical manufacturers, landlords, and others, the intent, effect, and purpose of which was to unlawfully and unreasonably restrain trade in the local markets for outpatient dialysis services in which Plaintiffs compete."

The court concluded that these allegations fell "far short of what is required to plead concerted action to support a Section 1 conspiracy claim." The existence of an agreement under antitrust law was "a legal conclusion, not a factual allegation." IHS had not pled any specific facts concerning the alleged agreements, or any facts from which an agreement could be inferred. Therefore, the court dismissed IHS's Section 1 claim of conspiracy to restrain trade. The court noted that IHS's Section 2 conspiracy to monopolize claim was "based on nearly identical allegations," and hence would be "subject to dismissal for the same reasons."

The case is 12 Civ. 2468 (ER).

Attorneys: Kevin Gerard Donoghue (Garfunkel Wild, P.C.) for IHS Dialysis, Inc. Monica Susan Asher (McDermott, Will & Emery, LLP) for Davita, Inc.

Companies: IHS Dialysis Inc.; Davita, Inc.

MainStory: TopStory Antitrust NewYorkNews

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