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In Re: Blood Reagents Antitrust Litigation

August 22, 2012

IN RE: BLOOD REAGENTS ANTITRUST LITIGATION


The opinion of the court was delivered by: DuBOIS, J.

ALL CASES

MEMORANDUM TABLE OF CONTENTS

I.INTRODUCTION .................................................................................................................. 2

II.BACKGROUND

................................................................................................................. 3

A.Background on Blood Reagents ..................................................................................... 3

B.Creation of Duopoly by Ortho and Immucor ............................................................... 5

C.Post-Duopoly Price Increases ......................................................................................... 5

1.Operation Create Value ............................................................................................... 5

2.Blood Bank Leadership Program ............................................................................... 7

D.The Alleged Price-Fixing Conspiracy ............................................................................ 8

E.2005 Price Increases ........................................................................................................ 9

F.2008 Price Increases ...................................................................................................... 11

G.Procedural History ........................................................................................................ 11

III.LEGAL STANDARD ....................................................................................................... 12

IV.DISCUSSION .................................................................................................................... 14

A.Rule 23(a) Requirements ............................................................................................... 14

1.Numerosity .................................................................................................................. 14

2.Commonality............................................................................................................... 15

3.Typicality..................................................................................................................... 16

4.Adequacy of Representation ..................................................................................... 16

B.Rule 23(b)(3) Requirements .......................................................................................... 17

1.Predominance ............................................................................................................. 17

a.Violation of § 1 of the Sherman Act.......................................................................... 19

b.Antitrust Impact.................................................................................................... 19

1.Bogosian Shortcut ................................................................................................. 20

2.Market Structure Analysis ................................................................................... 22

3.Empirical Pricing Analysis................................................................................... 26

4.Defendants' Documents ........................................................................................ 27

5.Damages Calculation ............................................................................................ 28

c.Damages ...................................................................................................................... 31

1.Legal Standard ...................................................................................................... 31

2.Damages Models Offered by Dr. Beyer .............................................................. 32

3.Ortho's Criticisms of Dr. Beyer's Damages Models .......................................... 35

i.Common Proof Versus Individualized Proof ................................................. 36

ii.General Reliability Arguments ........................................................................ 37

iii.The RhoGAM Yardstick .................................................................................. 40

d.Fraudulent Concealment ...................................................................................... 42

2.Superiority .................................................................................................................. 44

V.CONCLUSION ................................................................................................................. 45

I. INTRODUCTION

In these consolidated antitrust actions, plaintiffs allege that the two leading producers of blood reagents-Immucor, Inc. ("Immucor") and Ortho Clinical Diagnostics, Inc. ("Ortho")- conspired to unreasonably restrain trade and commerce in violation of § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. Presently before the Court is Plaintiffs' Motion for Class Certification. On July 26, 2012, the Court received evidence, including testimony from Ortho's economic expert, and held oral argument on the motion. Plaintiffs' economic expert provided rebuttal testimony on August 6, 2012.*fn1 For the reasons set forth below, Plaintiffs' Motion for Class Certification is granted.

II. BACKGROUND

Between 2000 and 2009, defendants drastically increased the prices of their blood reagent products. Many products' prices rose by more than 2000% during that period. (See Beyer Report, Pls.' Mot. Ex. 1, at 13, 14.) The parties agree that some part of this increase resulted from the creation of a duopoly in the blood reagents industry in 1999 as a result of the acquisition of numerous manufacturers of blood reagents by defendants over a period of several years. However, plaintiffs allege that an unlawful horizontal price-fixing agreement that began in November 2000 accounts for much of the increase. Ortho argues primarily that even if there were such an agreement, the class should not be certified because plaintiffs have failed to offer a reliable methodology to distinguish between lawful and unlawful price increases.

A. Background on Blood Reagents

Blood reagents are used to identify properties of human blood. Most large purchasers of blood reagents are blood donor centers and hospitals, which use them to test whether the blood of a potential donor is compatible with the blood of a potential recipient. (See Report of Teresa Harris ("Harris Report"), Pls.' Mot. Ex. 2, at 3.) Under applicable FDA regulations, Blood Bank and Transfusion Standards promulgated by the American Association of Blood Banks ("AABB"), and other rules, a blood donor center must test a donor's ABO group and Rh type and perform an antibody screen each time he or she donates. (Id. at 9.) A hospital must conduct similar tests on a recipient before providing a blood transfusion. (Id.)

There are two basic categories of blood reagents: traditional and automated. Although both Ortho and Immucor sold products in both categories throughout the class period, the putative class in this case includes only purchasers of traditional blood reagents ("TBR"). When using TBR, laboratory technicians test blood manually in test tubes and interpret the results. (Id. at 6.) "Automated" or "proprietary" blood reagents ("ABR"), on the other hand, are often used with specialized equipment. (Id.) They allow quicker testing while requiring less skill and decreasing the risk of technician error. (See, e.g., Pls.' Mot. Ex. 22, at 13 (citing the benefits of ABR as "[s]ignificant labor reduction," "[i]ncreased productivity/efficiency," and "[i]ncreased patient safety").) ABR tend to be more expensive than TBR. (See, e.g., Weiss Decl., Pls.' Reply Ex. 149, ¶ 14.) The parties dispute the extent to which defendants' customers were able to use TBR and ABR interchangeably.

During the class period, Ortho and Immucor each sold more than forty different TBR products. (See, e.g., Harris Report Ex. C.) A list provided by plaintiffs' industry expert, Teresa Harris, shows that most Ortho TBR products had an equivalent Immucor TBR product, and vice versa. (See id.; see also, e.g., Poynter Decl. ¶ 29.) Ms. Harris testified in her deposition that a few of the products that she paired in the list are not identical. (See Harris Dep., Def.'s Opp. Ex. B, at 64-65, 143-44.) However, she opines that those nonidentical pairs "perform exactly the same function." (Harris Reply Report, Pls.' Reply Ex. B, at ¶ 3.)

The blood-reagents market features significant barriers to entry. Most importantly, a prospective entrant must obtain FDA approval before beginning to market and sell blood reagents. This process takes several years. (See, e.g., Pls.' Mot. Ex. 9, at 4 (2003 interview in which Immucor CEO Edward Gallup stated, "[T]he FDA is very often our friend . . . . [S]ix years is a long time-but, even if it were half that, it's still a huge barrier to entry."); Pls.' Mot. Ex. 62, at 1 (Immucor strategy document stating that "[t]here are high barriers to entry. To enter the market, a company must meet FDA Regulations, which takes approximately five to six years to gain approval.").) Toward the end of the class period, in or around 2008, two new TBR producers entered the market. (See, e.g., Def.'s Opp. 18-19.)

B. Creation of Duopoly by Ortho and Immucor

In the 1980s and 1990s, the TBR market was highly competitive, with more than a dozen competitors. (Pls.' Mot. Ex. 9, at 2.) During that period, there was intense price competition, (see, e.g., id.; Pls.' Mot. Ex. 10, at 1), and TBR prices and profitability were low, (see, e.g., Pls.' Mot. Ex. 5, at 4 (showing Immucor's gross profits declining steadily between 1995 and 2000)). As a result, Immucor approached bankruptcy, (see, e.g., Pls.' Mot. Ex. 7), and Ortho considered exiting the TBR industry, (see, e.g., Pls.' Mot. Ex. 12, at 12), in those years.

In the 1990s, Immucor began to acquire competing TBR producers. (See, e.g., Pls.' Mot. Ex. 9, at 3; Pls.' Mot. Ex. 19, at 1.) After Immucor acquired Gamma Biological in 1998 and the Biological Corporation of America in 1999, Immucor and Ortho had a duopoly in the United States TBR market. (See, e.g., Pls.' Mot. Ex. 10, at 1; Pls.' Mot. Exs. 22-24.) Defendants anticipated that this market consolidation would allow them to raise prices and increase their profitability. (See, e.g., Pls.' Mot. Ex. 19 (statement of Immucor CEO that "by buying up its competition and consolidating the marketplace into two key players, Immucor can raise its prices"); cf. Pls.' Mot. Ex. 21.) Immucor's market share in North America was slightly larger than Ortho's throughout the class period. (See, e.g., Pls.' Mot. Exs. 22-24 (showing Immucor with a market share of approximately 55% and Ortho with a market share of approximately 45% in 1999 and 2007).)

C. Post-Duopoly Price Increases

1. Operation Create Value

Shortly after Ortho and Immucor created their duopoly, Ortho developed a pricing strategy it called "Operation Create Value" ("OCV"). (See, e.g., Pls.' Mot. Ex. 43, at 1.) Ortho began work on OCV at least as early as October 1999. (Id.) With the assistance of a consulting firm, Ortho decided to increase the prices it charged all TBR customers by 25% in 2000 and by an additional 25% in 2001. (Pls.' Mot. Ex. 45, at 1; see also Pls.' Mot. Ex. 47, at 13.) Ortho anticipated that it would impose additional "increases yearly thereafter until profitability achieved." (Pls.' Mot. Ex. 45, at 1; see also Pls.' Mot. Ex. 54, at 10 (describing OCV as consisting of "5 years of annual 25% price increases").) In developing the strategy, Ortho focused heavily on whether Immucor would follow its price increases and, if so, when the Immucor price ...


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