Federal Trade Commission v. Lundbeck, Inc.
650 F.3d 1236 (2011)
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Rule of Law:
For antitrust purposes, two products are not in the same relevant product market, even if they are functionally similar, if consumers do not demonstrate a willingness to substitute one for the other based on changes in relative price (i.e., there is low cross-elasticity of demand).
Facts:
- Patent ductus arteriosus (PDA) is a life-threatening heart condition in premature infants, primarily treated with one of two drugs: Indocin IV or NeoProfen.
- In 2005, Lundbeck, Inc. acquired the rights to Indocin IV, an off-patent drug.
- In 2006, Lundbeck acquired the rights to NeoProfen, a newly patented drug, from Abbott Laboratories before it was marketed.
- After acquiring both drugs, Lundbeck controlled the entire market for FDA-approved pharmacological treatments for PDA until 2010.
- Lundbeck increased the price of an Indocin IV treatment from $77.77 to over $1,600, a thirteen-fold increase, and priced the new NeoProfen at approximately $1,500.
- Neonatologists, the specialist physicians who treat PDA, make prescribing decisions based on their individual assessments of the drugs' clinical advantages and side effects.
- Testimony at trial indicated that these neonatologists do not consider the relative price of the two drugs when deciding which one to prescribe for a patient.
Procedural Posture:
- The Federal Trade Commission (FTC) and the State of Minnesota sued Lundbeck, Inc. in the U.S. District Court for the District of Minnesota.
- The lawsuit alleged violations of the Sherman Act, Clayton Act, and other federal and state laws.
- After a bench trial, the district court ruled in favor of Lundbeck, Inc.
- The district court's ruling was based on its finding that the FTC failed to prove a relevant product market.
- The FTC (appellant) appealed the judgment to the U.S. Court of Appeals for the Eighth Circuit, with Lundbeck, Inc. as the appellee.
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Issue:
Do two functionally similar drugs used for the same medical condition constitute a single relevant product market for an antitrust claim when the prescribing physicians' choice of drug is based on perceived clinical differences rather than on price?
Opinions:
Majority - Benton, Circuit Judge
No. The two drugs do not constitute a single relevant product market because the evidence showed low cross-elasticity of demand between them. To establish an antitrust violation, the plaintiff must first define a relevant market. The key factor in defining a product market is cross-elasticity of demand—whether consumers will switch from one product to another in response to a price change. The district court, as the trier of fact, credited testimony from neonatologists who stated their treatment decisions are based solely on clinical factors, not price. Therefore, a price increase for one drug would not cause physicians to switch to the other. Because this factual finding is supported by substantial evidence and is not clearly erroneous, the appellate court must affirm the district court's conclusion that the FTC failed to prove the existence of a single relevant market encompassing both drugs.
Concurring - Kopf, District Judge
While concurring in the judgment, the reasoning of the district court is perplexing. It is odd to define a product market in an antitrust case based on the testimony of actors (doctors) who are insulated from cost and thus eschew rational economic considerations. This is especially true where both drugs are effective and the defendant's internal documents suggest predatory intent. However, the deferential 'clearly erroneous' standard of review for factual findings is controlling and compels affirmance of the district court's judgment. Therefore, I concur in the outcome.
Analysis:
This decision significantly impacts antitrust litigation in industries like healthcare, where the end-user or prescriber is often insulated from price considerations. It establishes that functional interchangeability is insufficient to define a single product market; the critical factor is the actual price sensitivity of the decision-maker. The case reinforces the high bar of the 'clearly erroneous' standard of review, showing that an appellate court will uphold a trial court's factual findings even if they appear economically counterintuitive. Consequently, this precedent may make it more difficult for plaintiffs to prove market power in situations where consumer choice is driven by non-price factors.
