By Jeffrey May, J.D.
Transitions Optical, Inc. (TOI), a company that applies its "Transitions" photochromic coating to ophthalmic lenses manufactured by lens casters, could have monopolized the photochromic ophthalmic lens market by engaging in exclusive dealing, the federal district court in Wilmington, Delaware, has decided. A triable issue of fact existed precluding summary judgment. However, the court rejected refusal to deal claims raised by Vision-Ease Lens Worldwide (VE)—a complaining lens caster that distributed TOI's finished lenses and launched its own polycarbonate photochromic lens, LifeRx (Insight Equity A.P. X, LP v. Transitions Optical, Inc., July 1, 2016, Andrews, R.).
Exclusive dealing. The court held that there were triable issues with respect to whether the exclusive arrangements were anticompetitive. VE raised questions regarding whether TOI's exclusive and preferred arrangements with lens casters, labs, and retailers foreclosed the photochromic lens market; hindered competition; harmed consumers; and were obtained by coercion, according to the court. VE alleged, among other things, that around 70 percent of photochromic sales by U.S. lens casters between 2004 and 2009 were by lens casters with exclusive contracts with TOI and that TOI enforced exclusivity by cutting off the supply of Transitions lenses—a "must-carry product"—to any lens caster that carried competing products or threatened to enter the photochromic market. Lens casters apparently rejected VE's offers to utilize LifeRx at least in part because of concerns regarding their arrangements with TOI. In addition to entering into "preferred" contracts with labs and retailers that agreed to promote Transitions as their preferred photochromic lens, TOI allegedly expanded its exclusive arrangement programs to block competition from VE's LifeRx.
Price-cost test. The parties disputed whether a specific application of the rule of reason called the "price-cost test" applied to VE's exclusive dealing claims. The court noted that where a plaintiff alleges predatory pricing or where discounted "pricing itself operate[s] as the exclusionary tool" in an exclusive dealing claim, the price-cost test may apply. Pursuant to the price-cost test, the plaintiff had to prove: (1) "that the prices complained of are below an appropriate measure of the defendant's costs; and (2) that the defendant had a dangerous probability of recouping its investment in below-cost prices."
TOI's exclusionary arrangements appeared to lower prices for Transitions lenses for many lens casters, labs, and retailers. However, price was not TOI’s predominant mechanism of exclusion. Thus, the price-cost test did not apply and the appropriate standard was the general rule of reason analysis.
Antitrust injury. For purposes of establishing antitrust injury, a reasonable juror could conclude that TOI's conduct harmed competition in the photochromic lens market at the lens caster, lab, and retailer levels and that TOI caused VE's loss of sales, the court ruled. There was evidence that VE attempted and failed to make licensing and other arrangements with lens casters to monetize its LifeRx technology. With respect to competition lab and retail levels, TOI allegedly retaliated against VE by specifically targeting VE's lab customers and concentrated its efforts on VE's most important retail relationships. The court also rejected TOI's arguments that summary judgment on the antitrust injury issue was proper because VE requested damages not attributed to TOI's anticompetitive conduct and because TOI was not the cause of the injuries VE alleged.
Refusal to deal. Although VE's refusal to deal claim was not barred by the statute of limitations as TOI argued, the plaintiff failed to raise a triable issue of fact regarding whether TOI's termination of the parties' supply agreement in 2005 and subsequent conduct amounted to monopolization. When TOI terminated its agreement with VE, TOI expressed a willingness to deal with VE in the future.
The case is No. 1:10-cv-00635-RGA.
Attorneys: George G. Eck (Dorsey & Whitney LLP) for Insight Equity A.P. X LP d/b/a Vision-Ease Lens Worldwide. Jonathan M. Jacobson (Wilson Sonsini Goodrich & Rosati) and Chad Michael Shandler (Richards, Layton & Finger, PA) for Transitions Optical Inc.
Companies: Insight Equity A.P. X LP; Transitions Optical Inc.
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