The U.S. Federal Trade Commission wants to have a say in Applied Medical Resources’ antitrust lawsuit against Medtronic.
Rancho Santa Margarita, California–based Applied Medical filed the lawsuit in February in U.S. District Court in Central California.
The lawsuit accuses the medtech giant of using its size to shut down competition in the U.S. market for advanced bipolar devices used to cut tissue and seal blood vessels. Medtronic responded with a motion to dismiss.
This week, the FTC sought permission from the court to file an amicus brief that would “correct some of Medtronic’s erroneous assertions and mistaken legal points” made in its argument for dismissal.
Medtronic’s legal arguments run against U.S. Supreme Court precedent that anticompetitiveness should not be judged according to a business arrangement’s formal terms but on its its “practical effects,” the FTC said in the brief it wants to submit.
What Applied Medical Resources is accusing Medtronic of doing
In its lawsuit, Applied Medical said Medtronic has a dominant share (78%) of the advanced bipolar device market with its Ligasure device — and it has dominance when it comes to a host of other surgical devices.
The privately-held company accused the publicly traded medtech giant — the world’s largest medical device company — of shutting out competition by uusing its dominance to promote bundling agreements with individual hospital systems and healthcare group purchasing organizations such as Premier.
Applied Medical said the bundling agreements have cost it millions of dollars in potential sales as well as brand goodwill because it is unable to compete.
Applied Medical said its Voyant intelligent energy system has advantages over competing advanced bipolar devices and costs 15–20% less. But hospitals opt not to purchase Voyant because they want the potential overall savings in the bundling agreements, the lawsuit said.
Why Medtronic says the court should dismiss the lawsuit
In the arguments behind its motion to dismiss, Medtronic said Applied Medical failed to allege what share of the market is supposedly foreclosed by unlawful conduct, instead only pointing to individual cases where it lost potential business. Therefore, Medtronic said Applied Medical’s lawsuit fails to properly make the case that an antitrust injury took place.
In addition, Medtronic claimed Applied failed to make the argument for exclusionary conduct with the bundling agreements.
“Applied tries to allege two types of exclusionary conduct — exclusive contracts and unlawful discounts,” Medtronic said in court filings. “As to the first, however, Applied does not actually allege the existence of any exclusive contracts. That is, Applied does not allege contracts that require any customer to purchase exclusively from Medtronic, or even purchase from Medtronic at all. As to the second type of conduct, Applied tries to attack purported ‘bundled discounts,’ under which Medtronic allegedly offers lower prices to some hospitals that use more than one of its products. But it is settled law that bundled discounts are generally procompetitive, with only a narrow exception to this rule.”
Looking at the practical effects of bundling
“The court should reject the formalistic distinctions that Medtronic offers here,” the FTC said in the amicus brief that it seeks to submit.
The FTC offered the example of a plaintiff alleging unlawful exclusive dealing, which need not plead a numerical percentage of sales foreclosed.
“The question for the court is whether Applied’s allegations plausibly suggest ‘substantial foreclosure,’” the FTC said. “If they do, then whether Applied has also alleged a precise number is irrelevant.”
As for the nature of the contracts in question, the FTC said: “A contract can constitute exclusive dealing even if it is not formally binding. What matters, under Supreme Court precedent, is the contract’s ‘practical effect.’”
The FTC also raised questions about Medtronic’s argument that a group purchasing organization is but one channel of distribution and that there are other avenues for a company to sell a medical device. “Exclusive dealing can harm competition by foreclosing effective channels.”
As for questions about pricing, the FTC said: “When an antitrust plaintiff challenges a defendant’s bundled ‘discounts,’ it is not complaining that the defendant’s prices are too low. A defendant’s ‘discount’ may be a self-serving label for a pricing structure under which no consumer actually receives a lower price.”