AAI has filed an amicus brief asking the Ninth Circuit Court of Appeals to overturn an award of summary judgment to a defendant on market-definition grounds despite direct and unambiguous evidence of anticompetitive effects.
In Innovative Health v. Biosense, the defendant, Biosense, manufactured a leading cardiac mapping system used by hospital cardiologists to create a visual map of the human heart. In addition to making and selling the system, called the “CARTO 3,” Biosense also provides clinical support services (including trained technicians) to operate the system, and it sells single-use, sensor-enabled catheters that the system uses to perform the heart-mapping procedure.
The plaintiff, Innovative, is a “reprocessor.” After Biosense’s new, disposable catheters have been used in a procedure, Innovative reprocesses the catheters and offers them for sale to hospitals at a discount, in competition with Biosense. Innovative’s reprocessed catheters are FDA-approved as substantially equivalent to new catheters.
For years, Biosense provided clinical support services to its CARTO 3 customers without regard to where they purchased their CARTO 3 catheters, but in 2014 it initiated a new policy whereby it refused to provide clinical support services to hospitals unless they purchased their catheters from Biosense. Innovative brought an aftermarket tying claim, alleging a violation of Section 2 of the Sherman Act. It presented direct evidence that, before the policy change, competition between Biosense and reprocessors established a benchmark price for CARTO 3 catheters, and after the policy, hospitals ceased purchasing from reprocessors. All reprocessors were eliminated from the market and the price of catheters increased substantially and sustainably above the price that had prevailed under competition. Although alternative cardiac heart-mapping systems are available for sale, Biosense did not lose catheter sales despite the price increase.
Notwithstanding Innovative’s direct evidence, the district court granted summary judgment to Biosense on grounds that Innovative failed to adequately establish a legally cognizable relevant market. It held that Innovative alleged a “single-brand market,” and that such markets are disfavored. While it allowed that single-brand markets are permissible in “rare and unforeseen circumstances,” it would not recognize one here because Innovative did not establish that competition in the foremarket for mapping systems does not discipline competition in the aftermarket for catheters.
The AAI brief argues that direct evidence of anticompetitive effects suffices to create a triable question on the issues of both market power and a relevant market. If a plaintiff can show anticompetitive effects, there is at least a question whether it can show market power, because anticompetitive effects cannot be caused other than by a firm exercising market power. And if a firm has market power, there is necessarily some identifiable relevant market in which the power exists. Summary judgment on market definition grounds is therefore categorically inappropriate in direct-evidence cases, or at least in cases where, as here, the evidence is unambiguous and retrospective in nature.
The brief also argues that the district court erred by (1) giving the burden of proof to the plaintiff to disprove the disciplining effect of foremarket competition, and (2) defining the aftermarket as a “single-brand” market despite the presence of interbrand competition. The Supreme Court’s Kodak decision makes clear that, under Matsushita, direct evidence establishes at least a reasonable inference of market power and therefore shifts the burden of proof to the defendant to show that competition in the foremarket disciplines competition in the aftermarket. Kodak also makes clear that horizontal competition occurring among independent firms selling differentiated products and that generates beneficial consumer welfare effects is interbrand competition, notwithstanding that it is aftermarket competition.
The brief was written by AAI Vice President of Legal Advocacy Randy Stutz, with assistance from AAI Extern Mathew Simkovits, who is a student at Stanford Law School. Several AAI Advisory Board members also provided assistance.