Distribution, Competition, and Antitrust / IP Law

Third Circuit Rejects Single-Product Bundling Claim – But Holds Its Fire on What Test to Apply

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In Eisai, Inc. v. Sanofi Aventis U.S., LLC, No. 14-2017 (3d Cir. May 4, 2016), the Third Circuit addressed a mix of allegedly exclusionary conduct, including the defendant’s discounting of its anti-coagulant drug Lovenox, and held that the discounting was not unlawful.

The defendant offered discounts, including up to 30% of a customer’s total Lovenox purchases if the customer bought some 90% of its anti-coagulant drugs from Sanofi.  Eisai argued that Sanofi was effectively foreclosing competition by “bundling” the different types of demand for Lovenox – the “uncontestable” demand for the product (i.e., the inelastic and always-present demand) with the “contestable” portion for which Eisai would like to compete.

The Third Circuit declined to extend its Rule of Reason bundled-product discounting analysis in LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003) (en banc), cert. denied, 542 U.S. 953 (2004), to a single-product market.  And “[e]ven if bundling of different types of demand for the same product could, in the abstract, foreclose competition, nothing in the record indicates that an equally efficient competitor was unable to compete with Sanofi,” the Court held.

While rejecting application of LePage’s, in analyzing the evidence of competitive harm, the Third Circuit nevertheless engaged in an exclusive dealing-type analysis, focusing on the relatively mild consequences of not obtaining the defendant’s discounts.  In the Court’s view, Eisai failed to demonstrate that hospitals were foreclosed from purchasing competing drugs as a result of Sanofi’s discounting.

However, the Court also refused to apply a price-cost screen to Sanofi’s conduct.  When pricing “predominates over other means of exclusivity, the price-cost test applies.  This is usually the case when a firm uses a single-product loyalty discount or rebate to compete with similar products.”  In that situation, “an equally efficient competitor can match the loyalty price and the firms can compete on the merits.  More in-depth factual analysis is unnecessary because we know that ‘the balance always tips in favor of allowing above-cost pricing practices to stand.’”  However, Eisai alleged that Sanofi, having obtained a unique FDA indication, offered a discount that bundled incontestable and contestable demand.  “On Eisai’s telling, the bundling – not the price – served as the primary exclusionary tool.”  The Third Circuit therefore did not apply a price-cost screen, and declined to opine “on when, if ever, the price-cost test applies to this type of claim.”

Whether the distinction between bundling and discounting the Third Circuit sought to draw makes sense is less than clear – the only real effect of the bundling was to enable a discount, and the discount was offered in connection with the bundling.  They are two sides of the same coin.  Eisai continues the tension between the Third Circuit and others on the treatment of bundled discounts.  See, e.g., Cascade Health Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008) (applying price-cost screen to bundled discounts).

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