By Gregory Kane, J.D., M.B.A.
Two distributors of medical-and-surgical or "med-surg" products, which include a range of health care products from custom surgical kits to bedpans, were properly granted summary judgment in a competitor's action alleging unlawful tying arrangements. The U.S. Court of Appeals in Denver affirmed a decision of the federal district court in Topeka, Kansas, holding that the plaintiff failed to demonstrate market power or antitrust injury (Suture Express, Inc. v. Owens & Minor Distribution, Inc., March 14, 2017, Kelly, P.).
Suture Express, Inc. is a distributor of suture and endomechanical (endo) products. It competes with defendants Cardinal Health 200, LLC and Owens & Minor Distribution Inc. (O&M), among others, in the med-surg distribution market. By offering only suture-endo products, Suture Express was able to realize significant savings and offer significantly lower prices than distributors of a broad line of med-surg products. Cardinal and O&M responded to Suture Express’s growth in the market by instituting a bundling package that required a customer to pay one percent more for its med-surg products if it did not also buy its endo products through the same distributor. Suture Express filed suit, alleging that the bundling caused customers to pay more overall if they ordered suture and endo products through Suture Express and other-med-surg products through Cardinal and O&M than if they just ordered everything through their broadline distributor—even though Suture Express charged less for its suture and endo products. Both parties filed motions for summary judgment, with the district court ruling for defendants.
Market power. The district court found that neither Cardinal nor O&M individually possessed sufficient market power in the med-surg market that would allow it to restrain trade in the endo market. The appellate court refused to rely solely on direct evidence of tied market effects. It noted that the med-surg market featured growing competition among regional and national distributors with lower profit margins for Cardinal and O&M. In addition, similar bundles were offered by other med-surg competitors. In all, the appellate court agreed that there was a lack of evidence of market power such that a reasonable jury could have concluded that Cardinal or O&M had sufficient power to force the tying of products.
Antitrust injury. The district court also found that Suture Express could not establish antitrust injury because it could not show competition itself had been harmed rather than harm to a single competitor. The court found the evidence showed a med-surge market that was becoming more competitive over time, notably a decrease in markups charged, consolidation of buyer power, growth of regional competitors and the success of a large national competitor.
The case is No. 16-3065.
Attorneys: Daniel M. Abuhoff, Michael Schaper, Sean Delphey, and Erica S. Weisgerber (Debevoise & Plimpton LLP), Sanford I. Weisburst, Stephen R. Neuwirth, David M. Cooper, and Yelena Konanova (Quinn Emanuel Urquhart & Sullivan, LLP) and Charles W. German (German May PC) for Suture Express, Inc. Clifton S. Elgarten and Luke van Houwelingen (Crowell & Moring LLP) for Owens & Minor Distribution, Inc. Paula W. Render, Shari Ross Lahlou, Michael Sennett, Eric P. Berlin, and Michelle K. Fischer (Jones Day) for Cardinal Health 200, LLC.
Companies: Suture Express, Inc.; Owens & Minor Distribution, Inc.; Cardinal Health 200, LLC
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