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In re Blood Reagents Antitrust Litigation

United States District Court, E.D. Pennsylvania

July 19, 2017

IN RE BLOOD REAGENTS ANTITRUST LITIGATION THIS DOCUMENT RELATES TO ALL ACTIONS No. 09-MD-2081

          MEMORANDUM

          DuBois, J.

         TABLE OF CONTENTS

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

         II. BACKGROUND ..................................................................................................................... 2

         A. Factual Background ............................................................................................................ 3

         B. Creation of a Duopoly ......................................................................................................... 4

         C. 2001 Price Increase ............................................................................................................. 5

         1. Shift to Blood Bank Leadership Program ........................................................................ 6

         2. Alleged Price-Fixing Conspiracy ..................................................................................... 7

         D. 2005 Price Increases ......................................................................................................... 11

         1. Price Increases ............................................................................................................... 12

         2. 2004 GPO Contract Cancellations ................................................................................. 15

         E. 2008 Price Increase ........................................................................................................... 17

         F. Evidentiary Issues ............................................................................................................. 19

         1. Parties' Statements ......................................................................................................... 20

         2. Co-Conspirator Statements ............................................................................................ 20

         III. Procedural History ................................................................................................................. 20

         IV. Applicable Law ..................................................................................................................... 22

         A. The Matsushita Standard ................................................................................................... 24

         B. Analyzing Evidence at the Summary Judgment Stage ..................................................... 26

         V. Discussion ............................................................................................................................. 28

         A. Per Se Standard - Rule of Reason Standard ..................................................................... 28

         B. Parallel Conduct - 2005 and 2008 Price Increases ........................................................... 29

         C. Motive to Enter into Conspiracy ....................................................................................... 34

         D. Actions Contrary to Interest .............................................................................................. 35

         E. Pretextual Explanations .................................................................................................... 38

         F. Evidence Implying a Traditional Conspiracy ................................................................... 39

         1. 2001 Price Increase ........................................................................................................ 40

         2. 2005 Price Increase ........................................................................................................ 46

         3. 2008 Price Increase ........................................................................................................ 52

         G. “Plus Factors”- Conclusion ............................................................................................... 55

         H. Fraudulent Concealment ................................................................................................... 56

         1. Applicable Law .............................................................................................................. 56

         2. Discussion ...................................................................................................................... 57

         a. Awareness of Facts Supporting Claim .................................................................... 57

         b. Reasonable Diligence .............................................................................................. 60

         VI. Conclusion ............................................................................................................................. 61

         I. INTRODUCTION

         In this multidistrict litigation consolidating thirty-three separate civil antitrust actions, plaintiffs, purchasers of traditional blood reagents (“TBRs”) allege that defendants, the two leading producers of blood reagents-Ortho-Clinical Diagnostics, Inc. (“Ortho”) and Immucor, Inc. (“Immucor”)-conspired to unreasonably restrain trade and commerce in violation of § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. In September 2012, plaintiffs and Immucor reached a settlement. Ortho is the sole remaining defendant. Presently before the Court is Ortho's Motion for Summary Judgment. For the reasons that follow, the Court denies in part and grants in part Ortho's Motion.

         II. BACKGROUND

         Between 2000 and 2009, Ortho and Immucor drastically increased the prices of their blood reagent products-some product prices increased 20 fold. Resp. to Mot. for Summ. J., Ex. 1, Corrected Rep. of John C. Beyer, Ph.D. Regarding Liability and Damages (“Beyer Aug. Rep.”), Aug. 14, 2012, ¶ 28. The parties agree that some part of this increase resulted from the elimination of all firms in the blood reagents market except for Ortho and Immucor by 1999, and the resulting market power of those two firms. However, plaintiffs allege that an unlawful horizontal price-fixing agreement between Ortho and Immucor, beginning in November 2000, resulting in more than $650 million in market overcharges to plaintiffs and class members.

         A. Factual Background

         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. Mot. for Summ. J, Ex. 15, Report of Teresa Harris (“Harris Rep.”), ¶¶ 6-8. Under applicable Food and Drug Administration (“FDA”) regulations, Blood Bank and Transfusion Standards promulgated by the American Association of Blood Banks (“AABB”), and other rules, blood donor centers must test a donor's ABO group (blood classification based on the inherited properties of red blood cells) and Rh type and perform an antibody screen each time he or she donates. Harris Rep. ¶ 20. Hospitals must conduct similar tests on a recipient before providing a blood transfusion. Id. ¶ 7.

         There are two basic categories of blood reagents: traditional and automated. Although Ortho and Immucor sold products in both categories throughout the class period, the class in this case includes only purchasers of TBRs. When using TBRs, laboratory technicians test blood manually in test tubes and interpret the results. Id. ¶ 14. “Automated” or “proprietary” blood reagents (“ABRs”), on the other hand, are often used with specialized equipment. Id. ABRs allow for quicker testing while requiring less skill and decreasing the risk of technician error but tend to be more expensive than TBRs. Resp., Ex. 27, Declaration of Bill Weiss (“Weiss Decl.”), ¶ 14.

         From 2000 to 2010, Ortho and Immucor each sold more than forty different TBR products. Harris Rep. 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. Id. Harris opines that, while some are nonidentical pairs, the nonidentical pairs “perform exactly the same function.” Resp., Ex. 11, Reply Report of Teresa Harris (“Harris Reply”) Ex. B, ¶ 3.

         For much of the period between 2000 and 2009, Ortho and Immucor remained the sole producers of TBRs because the market was difficult to enter. New entrants into the TBR market faced a prolonged FDA licensing process. Resp., Ex. 21, Declaration of Mike Poynter (“Poynter Decl.”), ¶ 26. Ed Gallup, the Chief Executive of Immucor from 1982 until 2003, [1] addressed what he believed to be the significant barriers to entry in a 2002 interview with The Wall Street Transcript. SOF ¶¶ 117-19. In regard to potential competition, Gallup stated that “[i]t took the last company that applied six years to receive a FDA establishment license in this industry” and branded FDA licensing as a “fairly large barrier to entry.” SOF ¶ 119. Similarly, John Kingsbury, Director of Sales and Marketing for Ortho from 1996 through 1999, testified that FDA regulations made Ortho's blood bank business, including TBRs, “more complex to operate in, more time consuming, more costly, etc.” Pls. SOF ¶ 51. In 2008, two new TBR producers, Alba Bioscience and Biotest, overcame those barriers and joined Ortho and Immucor in the market. SOF ¶¶ 565-70.

         B. Creation of a Duopoly

         In the 1980s and 1990s, the TBR industry was highly competitive. Pls. SOF ¶ 24. In the fifteen to twenty years prior to 2003, there were as many as fourteen competitors in the market. Pls. SOF ¶ 27. As a result, prices steadily decreased and profitability diminished. Pls. SOF ¶ 24. Immucor was near bankruptcy, with shares trading for pennies, while Ortho considered leaving the TBR market entirely. Pls. SOF ¶ 30.

         To increase profitability, Immucor embarked on a campaign to eliminate competition in the blood reagents industry during the 1990s. SOF ¶ 113. Between 1997 and 1999, Immucor acquired three TBR suppliers in North America-Gamma Biologicals, Inc., Dominion Biologicals, Ltd., and the BCA blood bank division assets of Biopool International, Inc. SOF ¶ 114. By April 30, 1999, Ortho and Immucor were the sole remaining suppliers of TBRs in the United States. SOF ¶ 115. Immucor publicly acknowledged that the acquisitions were designed to eliminate competition. SOF ¶ 116.

         By the close of Immucor's acquisition program, the Herfindahl-Hirschman Index (“HHI”), a measure of the concentration in the TBR market, was approximately 5, 000. SOF ¶ 123. HHI is calculated by squaring the market share of each firm competing in a market, and then adding the resulting numbers. HHI can range from close to zero to 10, 000. The United States Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) consider a market with an HHI higher than 2, 500 highly concentrated. SOF ¶ 122-23. According to the DOJ and FTC's Horizontal Merger Guidelines, market concentration can increase prices absent any collusion between competitors. SOF ¶ 124. Ortho and Immucor soon took advantage of this newly concentrated TBR market in 2000, instituting the first price increase on TBRs in the United States since 1982. Pls. SOF ¶ 25.

         C. 2001 Price Increase

         The first price increase implemented by Ortho was part of its newly developed strategy, named Operation Create Value (“OCV”), designed with the assistance of an outside consulting firm. SOF ¶¶ 127, 129. Ortho began work on OCV at least as early as October 1999. SOF ¶ 127. The OCV development team modeled three different scenarios based on whether Immucor followed an Ortho price increase immediately, followed after a year, or did not follow at all. SOF ¶ 135. After evaluating the potential loss of TBR sales volume under each of these scenarios, the OCV team recommended two annual price increases of 25% each. SOF ¶¶ 137-39, 145. The first 25% price increase was scheduled for 2000, the second 25% price increase was set to take effect in 2001, and additional increases after 2001 were anticipated until “profitability was achieved.” SOF ¶ 146. Ortho's first 25% increase was announced to customers in a March 14, 2000, letter and first went into effect for some customers on April 1, 2000. SOF ¶ 147-48.

         Following Ortho's price increase, Immucor increased TBR prices by 20% for some customers in June 2000. SOF ¶¶ 151-52. Soon after initiating the June price increase, Immucor issued a press release on July 31, 2000, stating that “regional managers will focus their efforts equally on the placement of instruments and the improvement of margins through price increases for our [TBR] business.” SOF ¶ 156; Mot. for Summ. J., Ex. 129, Email from M. Esposito re: Immucor Press Release, 2. Following this initial price increase by both Ortho and Immucor, as of September 5, 2000, less than two percent of Ortho's non-group customers whose contracts had expired between January and August switched to Immucor in response to Ortho's OCV price increase. SOF ¶ 157. Plaintiffs do not allege that the price increase in 2000 was a result of collusion.

         1. Shift to Blood Bank Leadership Program

         In the fall of 2000, Ortho began consideration of a larger single price increase in 2001 in lieu of the planned 25% increase. SOF ¶¶ 158, 162-63. This new strategy, the Blood Bank Leadership Plan (“BBLP”), significantly increased the price of TBRs. SOF ¶ 169. Under the previously planned 25% increase, Ortho determined that its standard gross profit margin would be negative fifteen percent. SOF ¶ 162. However, under the BBLP with its larger proposed increase, Ortho's standard gross profit margin was projected to improve to negative four percent. SOF ¶ 163.

         By at least October 30, 2000, Ortho developed a new price list for 2001. SOF ¶ 173. Although the price increase per account varied, the accounts identified by Ortho that only used TBRs experienced increases of 135% to 202% under the new plan. SOF ¶ 169; see also Mot. for Summ. J, Ex. 6, OCD Blood Bank Leadership Program Traditional Blood Bank Market Correction Plan (“BBLP Corr. Plan”), November 15, 2000, 10. Ortho product prices increased by anywhere from $7.07 ($10.97 to $18.04) to $195.98 ($251.74 to $447.72). Id. at 11. On November 21, 2000, Ortho mailed a letter to 138 of its distributors, 180 of its federal government accounts, and nine of its “pilot” customers announcing the 2001 price increase and attached its 2001 TBR price list. SOF ¶¶ 185-86.

         2.Alleged Price-Fixing Conspiracy

         Plaintiffs allege that Ortho and Immucor began to engage in unlawful pricing-related communications in November 2000, prior to Ortho's mailing of its 2001 price list. The first major event occurred at an annual American Association of Blood Banks (“AABB”) trade meeting. The AABB is an accreditation entity for blood banks. SOF ¶ 95. It holds annual meetings, attended by customers including healthcare professionals. SOF ¶ 96-97. In 2000, AABB held its annual meeting in Washington, D.C. from November 4 through November 8. SOF ¶ 190. Ortho personnel, including then-acting Ortho president Catherine Burzik, and Immucor employees attended the 2000 meeting. SOF ¶¶ 191-93. As was customary, both Ortho and Immucor sponsored booths at the meeting. SOF ¶ 198-99.

         At the 2000 meeting, Immucor's President, Ed Gallup, viewed a presentation at Ortho's booth, during which Ortho announced it was going to leave the TBR business or “dramatically” increase prices. SOF ¶ 204; Pls. SOF ¶ 92. Gallup stated that he watched Ortho's presentation twice to “make sure [he] didn't miss anything.” Pls. SOF ¶ 92. Judy Thorne, Immucor Director of Marketing, also left with the impression that Ortho was going to institute a significant price increase. Pls. SOF ¶ 88; SOF ¶ 205. Thorne later testified that “Ortho made a public announcement they would be raising prices significantly. This industry had never seen a price increase in probably ten years. I kept telling Ed [Gallup] and Mike [Poynter] we need to raise prices . . . . And Ortho made an announcement that they were going to raise prices and so Gallup asked me if I could meet with a friend of mine to find out a range of where Ortho may be considering putting the pricing.” Pls. SOF ¶ 94. Several other Immucor employees likewise understood that Ortho's pricing would increase based on Ortho's presentation. Mot. for Summ. J., Ex. 94, Deposition of Irene DeMezzo (“DeMezzo Dep.), 87:9-89:3. However, no Immucor employees heard Ortho announce a price increase in specific dollar or percentage terms at that presentation. SOF ¶ 206.

         According to Mike Poynter, Immucor Vice President of Sales, Burzik, Ortho's President, allegedly approached him during the AABB meeting, asked if he had viewed Ortho's presentation, and invited him to Ortho's booth. Pls. SOF ¶ 95. According to Poynter, Burzik told him that “she had recently joined Ortho, that Ortho's margins on [TBR] were terrible, and that she wanted to understand the margin situation regarding [TBR].” Pls. SOF ¶ 96. She left her business card with Poynter and requested that he give it to Gallup “because she wanted to speak to him.” Pls. SOF ¶ 97. Poynter subsequently delivered the business card to Gallup and “conveyed [Burzik's] request to speak with him.” Pls. SOF ¶ 98. Poynter was “uncomfortable” with the Burzik exchange and believed it “was not proper protocol between competitors.” Poynter Decl., ¶ 8. Burzik disputes this account and claims she never met Poynter. Mot. for Summ. J., Ex. 8, Deposition of Catherine Burzik (“Burzik Dep.”), Feb. 7, 2012, 168:6-10.

         At the same 2000 AABB meeting, David Gendusa, an Ortho Regional Vice President and part of the OCV implementation team, was asked to introduce a high-ranking Ortho executive to Gallup at the Immucor booth. Pls. SOF ¶¶ 103, 100. Gendusa did so but left the booth as the two individuals were speaking and does not remember the identity of the Ortho executive. Pls. SOF ¶ 100. Although Gendusa cannot recall who he introduced to Gallup, he characterized the meeting as follows: “[y]ou are in a very public appearance, and for the two presidents of a company to get together just to say hello, it's kind of a civilized thing to do.” Resp., Ex. 83, Deposition of David Gendusa (“Gendusa Dep.”), May 30, 2012, 152:16-22.

         Shortly after the 2000 AABB meeting ended, Gallup asked Thorne to meet with Gendusa, a friend of hers, to “find out a range where Ortho may be considering putting the price.” Resp., Ex. 93, Dep. of Judy Thorne in Employment Case (“Thorne Empl. Dep.”), July 1, 2004, 206:8-12. Thorne stated that it “was a tough one for [her] . . . from an ethical standpoint.” Id. at 206:15-16. She thought that “legally it was probably on the edge and [ ] was a little concerned about it.” Id. at 206:16-18. Nonetheless, she contacted Gendusa by telephone on or before November 15, 2000. Pls. SOF ¶ 105. During the call, Thorne asked Gendusa to meet for lunch to “discuss pricing strategy for Ortho” and how high the Ortho prices might be. Resp., Ex. 91, Dep. of Judy Cangiamilla (“Thorne Dep.”), February 9, 2012, 41:14-25. Thorne also conveyed Gallup's concern that Ortho might be trying to trick Immucor into raising its prices. Gendusa Dep. 171:5-16. In response, Gendusa expressed disbelief that Gallup would think the price increase announcement was a fraud. Id. at 171:17-22.

         Following the telephone conversation, Thorne sent Gallup an email on November 15, 2000, with the subject line “Spoke to my friend.” Resp., Ex. 94, Email from Thorne to Gallup (“Thorne-Gallup Email”). In the email, she wrote, “My friend called me back . . . let me know when you are done.” Id. On November 15, the same day as Thorne's telephone call, an Ortho presentation listed the first risk of the BBLP price increase as “Immucor does not follow aggressively.” Pls. SOF ¶ 168. Two days after the telephone call, a revised Ortho presentation concerning the BBLP price increase omitted Immucor not following the increase as a risk. Pls. SOF ¶ 170. The same day as the revised presentation was given, Poynter sent an email to an individual not employed by Immucor or Ortho, writing, “[w]e are going to increase prices around the first of the year so look out. We are going to piss off a lot of people, but Ortho is going to do the same!!!” Resp., Ex. 95, Email from Poynter to Marty Getz (“Poynter-Getz Email”).

         On November 21, 2000, Thorne and Gendusa met for lunch at a restaurant. Pls. SOF ¶ 111. Gendusa brought Ortho's TBR price list to the lunch meeting. Pls. SOF ¶ 113. Thorne asked Gendusa “if he could share the Ortho pricing with [her] because [she] really wanted to understand . . . how high the prices would be with Ortho.” Thorne Dep. 42:20-24. Gendusa appeared reluctant, and Thorne discussed the importance of Immucor gaining Ortho's price information. Id. at 42:24-43:7. Gendusa testified that he “reached into [his] briefcase, [he] took the price[] [list] out and [he] shook them in front of her.” Pls. SOF ¶ 115. Thorne states that Gendusa showed her the price list in his briefcase. Pls. SOF ¶ 115. Thorne wrote down prices for the top five to seven “buckets” of TBRs once she returned to her vehicle. Pls. SOF ¶ 116; Thorne Dep. 82:4-83:17.

         Following the lunch, Thorne returned to the Immucor office and gave Gallup the copied price information. Pls. SOF ¶ 117. When Thorne asked Gallup how to expense her lunch, Gallup told her to expense the meal as if she had eaten with him instead of Gendusa. Pls. SOF ¶ 118; Thorne Dep. 46:4-10. As for Ortho, Gendusa stated that he cannot recall informing anyone at Ortho about the meeting but if he told anyone, he would have told John Kingsbury, an Ortho executive. Gendusa Dep. 213:24-214:8. The same day as the lunch, Ortho sent its price increase letter and finalized price list to distributors, 180 of its federal government accounts, and nine of its “pilot” customers. SOF ¶ 186. A day later, on November 22, 2000, Ortho emailed the documents to other customers. Pls. SOF ¶ 122.

         Immucor's pricing shifted course following the 2000 AABB meeting. Prior to the meeting, Immucor considered a 20% price increase for its TBRs. Pls. SOF ¶ 147. After the meeting, Immucor changed its plans to call for a “significant” price increase of “much higher” than the previously targeted 20%. Poynter Decl. ¶ 13. On December 1, 2000, an Immucor salesperson obtained a copy of Ortho's 2001 TBR price list from a customer. SOF ¶ 247. Poynter, Weiss, and Gallup met at Immucor's headquarters on December 2 to review the price list. SOF ¶ 249. On December 5, 2000, Immucor announced its 2001 TBR price increases to customers. SOF ¶ 256. Immucor's prices were roughly 5-10% below Ortho's prices. SOF ¶ 260. By the end of May 2001, Gallup wrote to the future Immucor President Nino De Chirico that Immucor's “biggest wild card is Ortho must continue to hang tough on pricing. [Immucor has] no indication [Ortho is] caving in.” Pls. SOF ¶ 186.

         D. 2005 Price Increases

         Plaintiffs allege that the November 2000 communications initiated a lengthy conspiracy to impose substantial price increases on TBRs during the class period. While prices rose somewhat between 2002 and 2004, Beyer Aug. Report, figs. 1-4, the next major price-increase initiative was implemented in 2005, Id. ¶ 28. At that time, both firms increased the prices of their TBR products significantly. Ortho and Immucor also cancelled contracts in 2004 with important group purchasing organizations (“GPOs”) in order to implement the new price increases.

         1. Price Increases

         On October 27, 2003, Nino De Chirico, who succeeded Gallup as Immucor President in 2003, emailed Roy Davis-Company Group Chairman of Johnson & Johnson, Ortho's parent company-to congratulate him on “his new position as Group President.” Pls. SOF ¶ 194; SOF ¶ 373. De Chirico also wrote, “I am coming back to USA as President of Immucor, Inc. . . . I am pleased to hear about your promotion that, I'm sure, will give us opportunities to see each other. May be we will have this opportunity at AABB in San Diego.” Pls. SOF ¶ 195.

         At the beginning of 2004, Clifford Holland, Burzik's replacement as Ortho's Worldwide President, convened a “Summit” meeting with other executives to discuss ways of improving Ortho's businesses. SOF ¶¶ 306, 293. In the wake of the Summit, Ortho considered another sizeable price increase on TBRs. SOF ¶ 307. Ortho hired Trinity, an outside consulting firm, in 2004 to develop pricing models, ranging from a 100% to 500% increase, and to assess the strategic risks and rewards of a TBR price increase. SOF ¶ 310, 316. In completing the analysis, Ortho and Trinity modeled a variety of Immucor reactions to an increase. SOF ¶ 312. Ortho ultimately settled on an average 125% price increase on its TBRs, effective January 1, ...


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