United States: No Bones About It: Tenth Circuit Permits Narrowest Market Definition And Raises The Bar For An Entry Defense When Reinstating Monopolization Suit

Last Updated: August 12 2014
Article by Bruce D. Sokler, Dionne Lomax, Robert G. Kidwell and Farrah Short

On August 5, 2014, the Tenth Circuit Court of Appeals reinstated claims of monopolization and attempted monopolization under Section 2 of the Sherman Act brought by a manufacturer of surgical bone mills against a competitor. In reversing the district court's grant of summary judgment for the defendant, the Tenth Circuit allowed a market definition which the district court had viewed as artificially narrow. The Court of Appeals also discounted the successful entry story of another competitor relied on by the lower court because "a single competitor's breakthrough does not preclude a finding of significant barriers to entry." The Court of Appeals then found that the plaintiff had created a triable issue of fact on each of the other elements of the monopolization and attempted monopolization claims. Lenox MacLaren Surgical Corp. v. Medtronic, Inc., Case No. 11-1251 (10th Cir., Aug. 5, 2014).

This decision creates substantial challenges for antitrust defendants. First, it suggests that plaintiffs be given latitude to narrowly construct a relevant product market to demonstrate a defendant's market power. Furthermore, by suggesting that courts should only give credence to entry by industry outsiders, this decision raises the bar for defendants seeking to rely on an entry defense.

Background

In 2000, Lenox MacLaren Surgical Corporation entered into a five-year exclusive licensing and distribution agreement with Medtronic Sofamor Danek USA (MSD USA) for the sale of Lenox's bone mill. Bone mills are medical devices used in spinal fusion surgery. In 2006, after the agreement's expiration, MSD USA issued a recall of the Lenox bone mills based on complaints received from some physicians. The FDA, after its own testing of the product, determined that Lenox need not recall the bone mills. After the recall, one of MSD USA's affiliates, Medtronic PS Medical, began selling a competing bone mill.

In 2010, Lenox filed this antitrust suit against the parent Medtronic entity, Medtronic, Inc., and several affiliates. In 2013, the district court ordered summary judgment for Medtronic which Lenox appealed.

Monopolization Claim

The district court held that Lenox failed to create a triable issue of fact on (1) the relevant product market; (2) monopoly power; (3) willful acquisition of monopoly power through exclusionary conduct; and (4) harm to competition. The Tenth Circuit disagreed on all points.

Product Market

Lenox defined the relevant product market as the surgical bone mill market, excluding other tools used to mill bones, such as hand tools (e.g., scalpels and surgical scissors). Medtronic argued that the definition was too narrow, and that hand tools should be included. The Tenth Circuit disagreed with the district court's conclusion that "[t]he evidence in the developed record shows that the plaintiff's definition of the relevant product market is an artifice constructed to support its scenario." Instead, the Court of Appeals held that the differing definitions created a fact question that should have precluded summary judgment, finding that a fact-finder could reasonably conclude that bone mills and hand tools are not substitutes for each other.

Monopoly Power

The Tenth Circuit also determined that a fact-finder could reasonably conclude that Medtronic had monopoly power in the bone mill market based on high market shares and the existence of barriers to entry. Lenox produced evidence that in 2007 Medtronic's market share was 97-98%, and still as high as 62% in 2010. Medtronic argued that the market shares were overstated by Lenox, and that its alleged market dominance was not durable. The Court of Appeals held that the question of durability involved a fact question for the jury.

On the issue of barriers to entry, the Tenth Circuit also found a genuine issue of fact despite the existence of Stryker — a competitor with a successful entry story that the district court had viewed as "indisputable proof that barriers to entry were insignificant." (It was largely due to the entry of Stryker that Medtronic's market share dropped from 98% to 62%.) The Tenth Circuit gave credence to Lenox's argument that Stryker's entry was atypical because it had three attributes that provided it a competitive edge: (1) an existing distribution network; (2) credibility among institutional buyers; and (3) a vast supply of capital to invest in a market generating limited revenues. At the time of its entry into the bone mill market, Stryker was already a major manufacturer of other medical devices.

Exclusionary Conduct

To prevail on its claims, Lenox also needed to show anticompetitive conduct by Medtronic. The district court held that Lenox had only demonstrated injury to itself, not to competition. Lenox alleged that Medtronic engaged in anticompetitive conduct through trade disparagement tied to the product recall of Lenox's bone mills initiated by Medtronic. This trade disparagement, Lenox argued, was part of a comprehensive scheme of anticompetitive exclusionary conduct. The Court of Appeals again found a triable issue of fact, holding that a fact-finder could reasonably infer that Lenox successfully rebutted a presumption that the trade disparagement only had a de minimis impact on competition.

Harm to Competition

The Tenth Circuit also held that a fact-finder could reasonably infer harm to competition based on evidence presented by Lenox that from 2007-2010 Medtronic was able to charge supracompetitive prices as a result of eliminating Lenox from the market. The Court of Appeals further reasoned that despite Stryker's emergence as a significant competitor, there could still be harm to competition from the concentration of the market in Medtronic and Stryker.

This decision raises the bar for defendants in antitrust suits, particularly on the issues of market definition and entry defenses. In the Tenth Circuit's march through the monopolization elements, repeatedly finding triable issues of fact, it determined that a fact-finder could reasonably conclude that "cross-elasticity of demand of bone mills and hand tools is low or zero," thus allowing the plaintiff's narrow product market definition. The district court, in concluding that excluding hand tools made the market artificially narrow, focused on the purpose of the tools (which was the same for the hand tools and the bone mills — "grinding of bone to a size and consistency enabling the implant to fuse with vertebral bone"), and the data in the record showing that during the relevant time period most of the spinal fusion surgeries performed in the United States did not use powered bone mills. Despite that evidence, the Tenth Circuit determined that the narrow definition was reasonable because (1) Lenox presented testimony from a single physician that a substantial price change would not lead surgeons to switch from bone mills to hand tools; (2) a substantial price difference existed between hand tools and bone mills; and (3) Medtronic's marketing materials identified only other bone mills as its competition.

Additionally, the Tenth Circuit's conclusion that the lower court erred in relying on Stryker's entry story as evidence of low barriers to entry creates a new hurdle for defendants. An entry defense to a monopolization claim typically requires that entry would be timely, likely, and sufficient to deter or counteract any anticompetitive effects of the alleged monopoly. It is quite common for such entry arguments to rely on the presence of other industry participants who could quickly and easily add to an existing product line of related products a new competing product in the relevant product market at issue — just as Stryker did. Stryker was already a major player in the medical devices industry, which was why it was able to successfully enter the bone mill market (using its existing distribution network, established reputation, and financial resources). But this is precisely why the Tenth Circuit viewed it as an "atypical" entrant, and thus not a valid basis for a low barriers to entry defense. This suggests that courts should only give credit to entry stories by industry outsiders, which may be few and far between in many industries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Bruce D. Sokler
Dionne Lomax
Robert G. Kidwell
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions