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From Antitrust Law Daily, June 25, 2013

Bone mill antitrust claims fail against Medtronic

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

A producer of a medical bone mill failed to state antitrust claims against medical devices company Medtronic over its alleged attempts to monopolize the market for mechanical bone mills used in spinal fusion surgery, the federal district court in Denver has ruled (Lenox MacLaren Surgical Corp. v. Medtronic, Inc., June 21, 2013, Matsch, R.).

The president of Lenox MacLaren Surgical Corporation developed a hand-cranked mill to morselize bone for use in spinal fusion surgery. In 2000, she entered a five-year exclusive supply and license agreement with Medtronic SofamorDanek USA, Inc. under which Medtronic had exclusive rights to market the mill for one year. Medtronic met its purchase obligations during that first year, but made no further purchases during the remainder of the agreement. In addition, once the exclusivity provision expired another Medtronic subsidiary began selling a pneumatic bone mill attachment in competition with the Lenox bone mills. In 2007, Medtronic began selling an electric bone mill.

Moreover, after the license agreement expired, Medtronic initiated a voluntary recall of the Lenox mills. An arbitration panel found in Lenox’s favor on an intentional interference with prospective business relations claim brought against Medtronic over the recall.

Lenox then filed suit against Medtronic, alleging antitrust violations. In its present decision, the court addressed Medtronic’s motion for summary judgment.

Relevant market. In its complaint, Lenox defined the relevant product market as “the surgical mill market,” and noted that the market included “bone mills that function to mill bone for use during spinal fusion surgeries.” At oral argument, Lenox identified the market as “mechanical bone mills for spinal fusion surgery.” Medtronic provided statistical evidence that most spinal fusion surgeries do not use powered bone mills. However, an expert for Lenox claimed that bone mills had made the use of hand tools obsolete, and only the time required for the new technology to disseminate had kept bone mills from replacing hand tools completely. There were also substantial differences between Lenox’s mill and mills produced by Medtronic and its competitor Stryker.

The court concluded that the evidence showed that the plaintiff’s definition of the product market was an artifice constructed to support its scenario. “The relevant product market is defined by reasonable interchangeability,” the court observed, and the expert’s statements did not “contradict Medtronic’s evidence about the number of spinal fusion surgeries performed without bone mills.” An economist “who opine[d] that the option of hand morselizing is not a competitive constraint of bone mills” was based on the expert’s statement that hand tools were obsolete, and the economist provided no economic analysis to support his conclusion. Therefore, Lenox provided insufficient evidence to support a finding that it has properly defined the relevant product market.

Monopoly power. Lenox claimed that between the recall in late 2006 and Stryker’s entry in May 2008, Medtronic had a 100% share of the bone mill market. The court noted that that claim was “defeated by the facts that Lenox itself sold some of its mills in 2007 and there were other hand cranked mills and a pneumatic mill by DePuy also available.” Although Lenox argued that some of those mills were not used for spinal fusion surgeries and sales of the others were not significant enough to be meaningful, the court noted that this contention “ignore[d] undisputed evidence showing that several bone mills, including Stryker’s manually-operated TOM mill, the Biomet mill, and the Tracer mill, were being sold for spinal surgery.” Lenox was not Medtronic’s only competitor prior to Stryker’s entry, and hand tools were still in extensive use.

The court also rejected Lenox’s contentions regarding the barriers to entry to the market. Two experts presented by Lenox opined that the barriers presented by “(1) design and development; (2) manufacturing; (3) development of name recognition; (4) distribution; and (5) pricing” were “sufficiently large in the market for mechanical bone mills that entry would not be timely or sufficient to prevent an exercise of market power.” However, the court noted that “the argument that Medtronic could exclude competitors is defeated by the fact that Stryker entered the market in 2008 and captured a larger share than Medtronic, based on revenues, as early as 2011.”

Finally, the court observed that “[m]onopoly power must be sufficiently durable to enable the monopolist to maintain a supracompetitive price for such a significant period as to injure consumers,” and that “Medtronic did not have the ability to maintain its pricing and did lower its prices when Stryker’s electric bone mills were sold.” Although Medtronic obtained a significant profit margin on disposable bowls sold for use with its mill, that fact did not “support an inference that such pricing results from illegal monopoly power” because “[t]he disposable bowel is a feature of powered mills that differentiates them from other methods.”

Exclusionary conduct. The court also concluded that Lenox had not shown that Medtronic had engaged in exclusionary conduct for purposes of a Sherman Act Section 2 claim. An opinion by an expert presented by Lenox, declaring that Medtronic’s recall had harmed competition by depriving hospitals of a lower-cost alternative to Medtronic’s product, was “premised on the faulty assumption that consumers had only two choices before the recall.”

Moreover, even if frequent users of Medtronic’s bone mill paid more than those who performed fewer procedures due to the need to purchase disposable bowls, that fact did not establish a claim for “price discrimination” because Lenox did not “claim to have been victimized by Medtronic’s pricing scheme or by an illegal tying arrangement.”

Finally, Lenox did not state a claim for an antitrust violation based on trade disparagement, according to the court. A plaintiff making such a claim would have to show the allegedly disparaging statements were “(1) clearly false; (2) clearly material; (3) clearly likely to induce reasonable reliance; (4) made to buyers without knowledge of the subject matter; (5) continued for prolonged periods; and (6) not readily susceptible of neutralization or other offset by rivals.”

Here, even if a product recall in the medical devices industry was “viewed as an extremely significant even that can obliterate a device’s commercial prospects,” “that general observation [was] not sufficient to establish that the effects of this recall continued for a prolonged period or that Lenox could not have offset them.” The FDA cleared the Lenox bone mill by late 2006, and hospitals and hospital purchasing groups were “sophisticated consumers.” “Reasonable jurors could not conclude that the effects of this recall were not susceptible to neutralization,” the court found.

The case is Civil Action No. 10-cv-02139-RPM-BNB.

Attorneys: George Stephen Long (Long & Page, LLP) for Lenox MacLaren Surgical Corp. Allison Walsh Sheedy (Akin, Gump, Strauss, Hauer & Feld, LLP) for Medtronic, Inc.

Companies: Lenox MacLaren Surgical Corp.; Medtronic, Inc.

MainStory: TopStory Antitrust ColoradoNews

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