Castro, M.D., P.A. v. Sanofi Pasteur Inc.

BRIEF in Opposition

D.N.J.November 14, 2016

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY ADRIANA M. CASTRO, M.D., P.A.; SUGARTOWN PEDIATRICS, LLC; and MARQUEZ and BENGOCHEA, M.D., P.A., on behalf of themselves and all others similarly situated, Plaintiffs, v. Civil Action No. 2:11-cv-07178-JMV-MAH SANOFI PASTEUR INC., Defendant. PLAINTIFFS’ OPPOSITION TO SANOFI’S MOTION FOR SUMMARY JUDGMENT Dated: November 11, 2016 COHN LIFLAND PEARLMAN HERRMANN & KNOPF LLP PETER S. PEARLMAN Park 80 Plaza West-One 250 Pehle Avenue, Suite 401 Saddle Brook, NJ 07663 Telephone: (201) 845-9600 Facsimile: (201) 845-9423 CARELLA, BYRNE, CECCHI, OLSTEIN, BRODY & AGNELLO, P.C. JAMES E. CECCHI 5 Becker Farm Road Roseland, NJ 07068 Telephone: (973) 994-1700 Facsimile: (973) 994-1744 Co-Liaison Counsel for Plaintiffs and the Class [Additional Counsel on Signature Page] Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 1 of 59 PageID: 34773 i TABLE OF CONTENTS Page I. Introduction ...............................................................................................................1 II. Background Facts.......................................................................................................6 III. The Standard for Summary Judgment .......................................................................9 IV. Plaintiffs Satisfy the Elements of Their Section 1 & 2 Claims ..................................10 A. Sanofi’s Bundling Violated Section 2 of the Sherman Act ...........................10 1. Sanofi Had Monopoly Power in Multiple Vaccine Markets .............10 2. The Bundle Constitutes Willful Maintenance of Monopoly Power ..11 3. Sanofi’s Bundle Substantially Foreclosed Competition from Novartis .....................................................................................14 4. The Bundle Had Significant Anticompetitive Effects .......................17 5. The Bundle Had No Procompetitive Effects .....................................18 B. Sanofi’s Bundling Violated Section 1 of the Sherman Act ...........................19 V. Sanofi’s Argument that Its Conduct Was Not Exclusionary Is Wrong .....................20 A. Conduct Need Not Harm a Rival to Be Exclusionary ...................................20 B. Sanofi’s Argument that Conduct Must Harm a Rival’s Ability to Compete to Be Exclusionary Does Not Support Summary Judgment ..........24 1. The Bundle Impaired Novartis’s Ability to Compete ........................24 2. The Bundle Also Impaired Novartis’s Incentives to Compete, Which Is Sufficient by Itself to Make the Bundle Exclusionary .......25 3. The Bundle Did Not Decrease Prices, So Lower Prices Cannot Render It Non-Exclusionary ..............................................................28 4. Sanofi’s Claim that the Bundle Is Not Exclusionary Because It Simply Facilitated Oligopolistic Behavior Is Wrong as a Matter of Fact and Law ......................................................................29 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 2 of 59 PageID: 34774 ii TABLE OF CONTENTS (contd.) Page 5. Sanofi’s Enforcement of the Bundle Was Exclusionary ....................32 VI. Plaintiffs Have Demonstrated Substantial Foreclosure .............................................35 A. Conduct Need Not Eliminate a Rival or Impair Its Efficiency ......................36 B. The Bundle Foreclosed Novartis’s “Opportunities to Compete” ..................40 C. The Bundle Substantially Foreclosed Competition .......................................41 D. The Price-Cost Test Confirms Substantial Foreclosure .................................44 VII. Sanofi’s Attack on the Purported “Price War Avoidance Theory” Is Misguided .....46 VIII. Conclusion .................................................................................................................48 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 3 of 59 PageID: 34775 iii TABLE OF AUTHORITIES Cases Page(s) A.A. Poultry Farms, 881 F.2d 1396 (7th Cir. 1989) ......................................................................................................... 34 Abbott Labs. v. Teva Pharm. USA, Inc., 432 F. Supp. 2d 408 (D. Del. 2006) ................................................................................................. 38 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) ........................................................................................................................... 9 Applied Med. Res. Corp. v. Ethicon Inc., No. 03-1329, 2006 WL 1381697 (C.D. Cal. Apr. 27, 2006) ..................................................... 38, 41 Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) ......................................................................................................................... 11 Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328 (1990) ......................................................................................................................... 20 Brantley v. NBC Universal, Inc., 675 F.3d 1192 (9th Cir. 2012) ............................................................................................. 29, 30, 38 Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007) ...................................................................................................... 20, 23 Brokerage Concepts v. U.S. Healthcare, 140 F.3d 494 (3d Cir. 1998) ............................................................................................................ 42 Brown Shoe Co. v. United States, 370 U.S. 294 (1962) ..................................................................................................................... 3, 20 Camaj v. Holder, 625 F.3d 988 (6th Cir. 2010) ........................................................................................................... 46 Cascade Health v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008) ........................................................................................................... 44 Castro v. Sanofi Pasteur Inc., 134 F. Supp. 3d 820 (D.N.J. 2015) ........................................................................................... passim Castro v. Sanofi Pasteur Inc., No. 11-7178, 2012 WL 12516572 (D.N.J. Aug. 6, 2012) ........................................................ passim Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 4 of 59 PageID: 34776 iv Castro v. Sanofi Pasteur Inc. No. 11-7178, 2013 WL 1452973 (D.N.J. Apr. 9, 2013) .................................................................... 3 Castro v. Sanofi Pasteur Inc. No. 11-7178, 2016 WL 5923445 (D.N.J. Oct. 11, 2016) .............................................................. 3, 4 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ........................................................................................................................... 9 Christianson v. Colt Indus., 486 U.S. 800 (1988) ......................................................................................................................... 20 Citizen Publ’g Co. v. United States, 394 U.S. 131 (1969) ......................................................................................................................... 25 Coast Cities Truck Sales, Inc. v. Navistar Int’l Transp. Co., 912 F. Supp. 747 (D.N.J. 1995) ....................................................................................................... 20 Collins Inkjet Corp. v. Eastman Kodak Co., 781 F.3d 264 (6th Cir. 2015) ........................................................................................................... 44 Cot’n Wash, Inc. v. Henkel Corp., 56 F. Supp. 3d 626 (D. Del. 2014) ................................................................................................... 46 Deborah Heart & Lung Ctr. v. Penn Presb. Med. Ctr., No. 11-1290, 2011 WL 6935276 (D.N.J. Dec. 30, 2011) ................................................................ 37 E.E.O.C. v. GEO Grp., Inc., 616 F.3d 265 (3d Cir. 2010) .............................................................................................................. 9 E.I. du Pont de Nemours & Co. v. FTC, 729 F.2d 128 (2d Cir. 1984) ............................................................................................................ 31 Eberhart v. LG Elecs., No. 15-1761, 2016 WL 3014400 (D.N.J. May 24, 2015) ................................................................ 20 Echostar Sat., L.L.C. v. Viewtech, Inc., No. 07-1273, 2009 WL 1668712 (S.D. Cal. May 27, 2009) ........................................................... 31 Eisai, Inc. v. Sanofi Aventis U.S., LLC, 821 F.3d 394 (3d Cir. 2016) ..................................................................................................... passim Havoco of Am. v. Shell Oil Co., 626 F.2d 549 (7th Cir. 1980) ........................................................................................................... 36 Jefferson Par. Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984) ................................................................................................................. 37, 38, 42 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 5 of 59 PageID: 34777 v Hugh v. Butler Cty. Family YMCA, 418 F.3d 265 (3d Cir. 2005) .............................................................................................................. 9 Illinois Tool Works, Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006) ........................................................................................................................... 30 In re Hypodermic Prod. Antitrust Litig., No. 05-1602, 2007 WL 1959224 (D.N.J. June 29, 2007) .................................................... 10, 11, 32 In re VHS of Mich., 601 F. App’x 342 (6th Cir. 2015) .................................................................................................... 31 Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409 (7th Cir. 1989) ......................................................................................................... 31 Insight Equity A.P. X, LP v. Transitions Optical, Inc, No. 10-635, 2016 WL 3610155 (D. Del. July 1, 2016) ....................................................... 13, 35, 40 It’s My Party, Inc. v. Live Nation, Inc., 811 F.3d 676 (4th Cir. 2016) ........................................................................................... 5, 28, 43, 48 J.B.D.L. Corp. v. Wyeth-Ayerst Labs., Inc., No. 01-704, 2005 WL 1396940 (S.D. Ohio June 13, 2005) ............................................................ 38 Kauffman v. Johnston, 454 F.2d 264 (3d Cir. 1972) ............................................................................................................ 46 Kolon Indus.v. E.I. Dupont de Nemours, 748 F.3d 160 (4th Cir. 2014) ........................................................................................................... 36 Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) ............................................................................................................. 20, 26, 31 LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003) ..................................................................................................... passim Luria Bros. & Co. v. FTC, 389 F.2d 847 (3d Cir. 1968) ...................................................................................................... 13, 35 Marchbanks Truck Serv., Inc. v. Comdata Network, No. 07-1078, 2012 WL 10218913 (E.D. Pa. Mar. 29, 2012) .......................................................... 27 Masimo Corp. v. Tyco Hlth. Care Grp., 2004 WL 5907538 (C.D. Cal. June 10, 2004) ................................................................................. 41 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 6 of 59 PageID: 34778 vi Matter of Beltone, 100 F.T.C. 68 (1982) ....................................................................................................................... 30 McWane v. FTC, 783 F.3d 814 (11th Cir. 2015) ....................................................................................... 21, 36, 37, 38 Meijer, Inc. v. Abbott Labs., 544 F. Supp. 2d 995 (N.D. Cal. 2008) ............................................................................................. 25 Meijer, Inc. v. Abbott Labs., No. 07-5985, 2008 WL 4065839 (N.D. Cal. Aug. 27, 2008) .......................................................... 38 Meredith Corp. v. SESAC, 1 F. Supp. 3d 180 (S.D.N.Y. 2014) ........................................................................................... 22, 26 Morgan v. Ponder, 892 F.2d 1355 (8th Cir. 1989) ......................................................................................................... 38 Mylan Pharm., Inc. v. Warner Chilcott Public Ltd. Co., No. 15-2236, 2016 WL 5403626 (3d Cir. Sept. 28, 2016) .............................................................. 23 Natchitoches Par. Hosp. Serv. Dist. v. Tyco Int’l, Ltd., 262 F.R.D. 58 (D. Mass. 2008) .................................................................................................. 40, 41 Natchitoches Par. Hosp. Serv. Dist. v. Tyco Int’l, Ltd., No. 05-12024, 2009 WL 4061631 (D. Mass. Nov. 20, 2009) ............................................. 32, 38, 41 NCAA v. Bd. of Regents of the U. of Okla., 468 U.S. 85 (1984) ........................................................................................................................... 46 Petruzzi’s IGA Supermarkets, Inc. v. Darling-Del. Co., 998 F.2d 1224 (3d Cir. 1993) ............................................................................................................ 9 Radio Music License Comm., Inc. v. SESAC, Inc., 29 F. Supp. 3d 487 (E.D. Pa. 2014) ..................................................................................... 21, 22, 26 Ramallo Bros. Printing v. El Dia, Inc., 392 F. Supp. 2d 118 (D.P.R. 2005) .................................................................................................. 39 Rebel Oil Co., Inc. v. Atl. Richfield Co., 51 F. 3d 1441 (9th Cir. 1995) .......................................................................................................... 31 Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380 (7th Cir. 1984) ........................................................................................................... 38 In re RxCare of Tennessee, 121 F.T.C. 762 (1996) ..................................................................................................................... 27 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 7 of 59 PageID: 34779 vii Schor v. Abbott Labs., 457 F.3d 608 (7th Cir. 2006) ..................................................................................................... 38, 48 Schuylkill Health Sys. v. Cardinal Health 200, LLC, No. 12-7065, 2014 WL 3746817 (E.D. Pa. July 30, 2014) ....................................................... 25, 26 SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056 (3d Cir. 1978) ................................................................................................... passim Suture Express, Inc. v. Owens & Minor Distrib., Inc., No. 12-2760, 2016 WL 1377342 (D. Kan. Apr. 7, 2016) ......................................................... passim Todd v. Exxon Corp., 275 F.3d 191 (2d Cir. 2001) ............................................................................................................ 30 Tom G. v. Cumberland Cty. Sch. Dist., 190 F.3d 80 (3d Cir. 1999) ................................................................................................................ 9 Twin City Sportservice, Inc. v. Charles O. Finley, 676 F.2d 1291 (9th Cir. 1982) ................................................................................................... 13, 35 United Shoe Mach. Corp. v. United States, 258 U.S. 451 (1922) ......................................................................................................................... 34 United States v. American Exp. Co., 88 F. Supp. 3d 143 (E.D.N.Y. 2015) ............................................................................................... 27 United States v. Apple, Inc., 791 F.3d 290 (2d Cir. 2015) ........................................................................................................ 4, 30 United States v. Container Corp. of Am., 393 U.S. 333 (1969) ................................................................................................................... 30, 31 United States v. Delta Dental of R.I., 943 F. Supp. 172 (D.R.I. 1996) ................................................................................................. 27, 30 United States v. Dentsply, 399 F.3d 181 (3d Cir. 2005) ..................................................................................................... passim United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) ........................................................................................................... 42 United States v. Verizon Commc’ns, Inc., 959 F. Supp. 2d 55 (D.D.C. 2013) ................................................................................................... 25 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 8 of 59 PageID: 34780 viii West Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85 (3d Cir. 2010) .............................................................................................................. 20 ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254 (3d Cir. 2012) ..................................................................................................... passim Rule Page(s) Federal Rule of Civil Procedure 56........................................................................................................ 9 Other Authorities Page(s) 3M’s Bundled Rebates: An Economic Perspective, 72 U. Chi. L. Rev. 243 (2005) ......................................................................................................... 44 Antitrust and Intellectual Property Law: From Adversaries to Partners, 28 AIPLA Q.J. 1 (2000) ................................................................................................................... 27 Developing an Administrable MFN Enforcement Policy, 27-SPG Antitrust 15 (2013) ............................................................................................................. 27 Exclusion or Efficient Pricing: The ‘Big Deal’ Bundling of Academic Journals, 72 Antitrust L.J. 119 (2004) ............................................................................................................. 21 Moving Beyond Naïve Foreclosure Analysis, 19 Geo. Mason L. Rev. 1163 (2012) ............................................................................................... 41 Exclusive Dealing, "Foreclosure," and Consumer Harm, 70 Antitrust L.J. 311 (2002) ............................................................................................................. 37 Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harv. L. Rev. 397 (2009) .......................................................................................................... 37 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 9 of 59 PageID: 34781 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 10 of 59 PageID: 34782 1 I. Introduction This case is about a bundle Sanofi created (the “Bundle”) to suppress competition in the meningitis vaccines (“MCV4”) market. Sanofi’s product, Menactra, had a 100% monopoly for years. Then Novartis developed its own MCV4 vaccine, Menveo. Sanofi had a choice: compete with Novartis on the merits, as antitrust law requires, or cheat by foreclosing competition. Sanofi cheated. It required MCV4 customers to purchase Menactra or face severe price penalties on Sanofi’s full line of market dominant pediatric vaccines. In other words, it bundled. Worse, it required customers to commit to buying Menactra exclusively or nearly so—effectively exclusive dealing. Novartis did not carry a competing line of pediatric vaccines. So Sanofi was able to leverage its monopoly power in multiple pediatric vaccines markets to foreclose competition in the MCV4 market—a classic illegal bundle. DO, 134 F. Supp. 3d 820, 843 (D.N.J. 2015) (“Bundling is a form of recognized unlawful exclusionary conduct.”); LePage’s Inc. v. 3M, 324 F.3d 141, 155 (3d Cir. 2003) (“[W]hen offered by a monopolist [bundled rebates] may foreclose portions of the market to a potential competitor who does not manufacture an equally diverse group of products.”); SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1065 (3d Cir. 1978) (same). Sanofi discusses the potential benefits of bundling in general. It suggests, for example, that it is standard practice for companies to charge lower prices when customers seek to “buy more stuff.” MSJ 1. Plaintiffs, Sanofi claims, “seek to outlaw that practice.” Id. Nonsense. Plaintiffs do not say that bundles that decrease prices are illegal. The evidence in this case is that the Bundle did not offer lower prices at all, let alone for buying more. To be sure, Sanofi claimed its prices penalties were “discounts.” But Sanofi did not decrease any of its prices when it imposed the Bundle. DO, 134 F. Supp. 3d at 827 (crediting evidence that “the bundle was a Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 11 of 59 PageID: 34783 2 penalty, not a discount”). The Bundle thus stymied competition. One clear sign of that: Sanofi’s prices for Menactra actually increased after Sanofi faced MCV4 competition for the first time. Sanofi says little to contest the above facts. It does not dispute for purposes of its motion that: Sanofi was a monopolist in multiple vaccine markets; it bundled multiple market dominant vaccines, requiring purchasers to commit to Menactra or face severe price penalties;1 between 40-52% of the entire MCV4 market was covered by the Bundle;2 there were no procompetitive benefits;3 and the Bundle caused Sanofi and Novartis to charge substantially inflated MCV4 prices.4 Using a model deemed admissible and reliable by the Court, Plaintiffs’ expert economist, Prof. Einer Elhauge, determined that the Bundle caused physicians and health care providers to overpay by over through 2014, total MCV4 output to drop, and over patients to forego a crucial vaccine.5 Eschewing the evidence, Sanofi’s motion hinges primarily on a single mistaken legal claim: that the Bundle is immune from antitrust law because it did not harm a competitor. Sanofi argues that it is not enough that Plaintiffs have shown that the Bundle blocked competition, inflated prices, and reduced output. Sanofi asserts that to be exclusionary, its conduct had to harm Novartis too. MSJ 25-33. And the Bundle substantially foreclosed competition, Sanofi says, only if it eliminated Novartis from the market or made it less efficient. MSJ 34-41. Sanofi’s argument is exactly backwards. The purpose of federal antitrust law is to protect 1 MSJ 9-10; see also PS ¶¶ 370, 371, 391, 402, 409, 417, 370-449; RSOUF ¶¶ 28, 66-68, 80, 85. 2 PS ¶¶ 498-502; RSOUF ¶¶ 218, 226, 310. 3 MSJ 7 n.2 (“Because plaintiffs dispute these efficiencies . . . Sanofi focuses its motion” elsewhere). 4 MSJ 26 n.20 (“assum[ing] the causal connection” between the Bundle and forestalled price competition); id. at 15 n.12 (same). 5 PS ¶¶ 574-75; RSOUF ¶ 217; E4 ¶¶ 393-95 & Tab. 32-33; DO, 134 F. Supp. 3d at 848 (“The Bundle suppressed competition and inflated prices.”); id. at 841 (total output would increase with lower MCV4 prices). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 12 of 59 PageID: 34784 3 competition, not competitors. Eisai, Inc. v. Sanofi Aventis U.S., LLC, 821 F.3d 394, 398-99 (3d Cir. 2016) (“The antitrust laws are concerned with ‘the protection of competition, not competitors.’”) (quoting Brown Shoe Co. v. U.S., 370 U.S. 294, 320 (1962)). Conduct violates the antitrust laws if it harms competition, even if it does not harm a competitor—such as when exclusionary conduct effectively creates a “price umbrella” causing rivals to charge inflated prices, United States v. Dentsply, 399 F.3d 181, 191 (3d Cir. 2005), much like what happened here. In such cases, competition suffers and the antitrust laws are broken. Indeed, after a three-day evidentiary hearing, this Court found Plaintiffs’ evidence sufficient to demonstrate that the Bundle was exclusionary, foreclosed Novartis, and harmed competition. The Court rejected Sanofi’s efforts to exclude the testimony of Prof. Elhauge, finding: (1) “Plaintiffs have presented classwide evidence showing that the bundle was willfully exclusionary,” DO, 134 F. Supp. 3d at 846, and (2) “Novartis was [f]oreclosed from much of the MCV4 [m]arket.” Id. And it so determined even while recognizing that “the bundle actually increased Novartis’s market share” in part of the market, id. at 834, and caused Novartis to charge more for Menveo. Id. at 849 (36% overcharges on Menveo). Thus it is not only the law generally, but it is law of the case, that Sanofi’s theory about the necessity of harming a rival is wrong. Sanofi has a history of unsuccessful efforts to invent requirements it claims Plaintiffs must satisfy. MTD Op., No. 11-7178, 2012 WL 12516572, at *28 (D.N.J. Aug. 6, 2012) (citing LePage’s, 324 F.3d at 152) (rejecting “Sanofi’s various attempts to craft specific dispositive requirements from various antitrust cases, [whereas] the Third Circuit noted in LePage’s that there is no clear formula for what is unlawful anticompetitive behavior”).6 6 There is an unfortunate pattern of Sanofi engaging in this kind of behavior here. See, e.g., Castro, 2013 WL 1452973, at *5 (D.N.J. Apr. 9, 2013) (Linares, J.) (“[M]any of Sanofi’s arguments suggesting that reasonable minds might disagree with this Court’s conclusions are largely based on inaccurate interpretations and mischaracterizations of what this Court actually held.”); Castro, 2016 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 13 of 59 PageID: 34785 4 Sanofi makes a second mistaken claim, this one factual: that the Bundle did not impose a competitive restraint on Novartis, but rather merely facilitated Sanofi and Novartis taking independent but coordinated action that resulted in inflated prices. MSJ 28-32. But this Court has already found that Plaintiffs’ evidence was capable of showing not only that Sanofi and Novartis did not coordinate their prices, but that they could not have done so. DO, 134 F. Supp. 3d at 836 & 838-40. The Bundle caused higher prices due to a market division that suppressed price competition, PS ¶¶ 518, 540-41, 546, 548-49, 561, 563, 518-73; RSOUF ¶¶ 226, 343-44, not coordination. As this Court also found, record evidence shows Novartis did not unilaterally “choose” not to compete aggressively on price, but rather the Bundle restrained Novartis’s ability and incentive to compete on price for customers who bought Sanofi’s line of pediatric vaccines. DO, 134 F. Supp. 3d at 832, 834-36, 846-47. Finally, antitrust law does prohibit exclusionary actions and agreements that facilitate price coordination.7 Sanofi also makes—or implies—additional claims, contesting issues in its statement of facts that it ignores in its argument. MSJ 7-16. Sanofi has thus waived those points. Nevertheless, Plaintiffs show that law of the case, Sanofi’s concessions, and ample evidence establish all of the elements of Plaintiffs’ claims for (1) monopolization under Section 2 of the Sherman Act, and (2) an agreement in restraint of trade under Section 1. Finally, Sanofi attacks Prof. Elhauge’s credibility, suggesting that he changed his analysis during this litigation and implying that his approach to bundling has been rejected by other courts. None of these assertions is true, new, or relevant. First, the central tenets of Prof. WL 5923445, at *6 (D.N.J. Oct. 11, 2016) (Vazquez, J.) (“Defendant stated as fact that which is actually argument and omitted factual information needed to understand the proper context.”); id. at *5 (Sanofi claimed courts “adopted certain positions,” when they merely recited Sanofi’s positions). 7 See, e.g., United States v. Apple, Inc., 791 F.3d 290, 320 (2d Cir. 2015) (condemning vertical agreements where they “facilitate anticompetitive horizontal coordination by reduc[ing] [a company’s] incentive to deviate from a coordinated horizontal arrangement”) (internal cite omitted). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 14 of 59 PageID: 34786 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 15 of 59 PageID: 34787 6 only Prof. Elhauge’s market definition opinions, not contested here). Finally, Suture Express, Inc. v. Owens & Minor Distrib., Inc., 2016 WL 1377342 (D. Kan. Apr. 7, 2016), did not exclude Prof. Elhauge’s analysis, and ruled that, unlike here, defendants did not have monopoly power and thus could not have harmed competition. In light of the record, the law, and this Court’s prior opinions, this case deserves a trial. II. Background Facts In addition to Menactra, Sanofi sells a portfolio of other vaccines for children and teenagers. E4 ¶¶ 2, 14, 59-61. Sanofi’s pediatric vaccines inoculate against diphtheria, tetanus, and pertussis (“DTaP” and “Tdap”), polio (“IPV”), and haemophilus influenza type B (“Hib”). Most of Sanofi’s customers are members of Physician Buying Groups (“PBGs”) or Group Purchasing Organizations (“GPOs”), or are health systems. PBGs are typically private entities that include as members thousands of family practices, pediatricians, and the like. GPOs are similar to PBGs, but tend to serve hospitals and health clinics. PBGs and GPOs facilitate member purchases of vaccines and other supplies through group purchasing contracts. PS ¶¶ 392, 379, 373, 375; E4 ¶¶ 3, 92, 94, 97. PBGs and GPOs, despite their names, do not buy anything. E4 ¶ 3. PBGs’ and GPOs’ compensation comes largely from rebates and administrative fees paid by manufacturers, based on a percentage of their members’ aggregate expenditures. While they purport to act as buying agents for customers, they are “business partners” with and paid by manufacturers like Sanofi.8 In mid-2009, just months before Menveo’s market entry, Sanofi contractually imposed the Bundle on PBGs, GPOs, and health systems (which contract directly with Sanofi). PS ¶¶ 378-80, 411; E4 ¶¶ 5, 92, 115-16. Under the Bundle, significant penalties on multiple Sanofi 8 P8 (G.M. Tr. at 122); RSOUF ¶ 76; PS ¶¶ 374-75, 372, 398-99, 471, 473; E4 ¶¶ 92, 95; E5 ¶ 105. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 16 of 59 PageID: 34788 7 vaccines would be imposed on medical providers (in the form of higher prices) and on their PBGs or GPOs (in the form of lower or eliminated administrative fees) if PBG or GPO members did not agree to buy substantially all of their MCV4 vaccines from Sanofi.9 Sanofi imposed similar bundled penalties on health systems. RSOUF ¶¶ 101-06; PS ¶¶ 416-18; E4 ¶ 116, 120; E5 ¶ 205. Sanofi imposed the Bundle through three types of standardized contracts: (1) PBG; (2) GPO Performance; and (3) health system. Sanofi offered a virtually identical standardized contract to all PBGs and GPOs with performance contracts. E4 ¶¶ 4, 92; PS ¶¶ 372, 380. The administrative fees Sanofi pays PBGs or GPOs are typically millions of dollars annually per buying group and provide those entities’ principal source of income. E4 ¶¶ 94-95. Sanofi encouraged PBGs to enter into standardized contracts with their physician members: (a) requiring their members to buy Menactra exclusively or nearly so; and (b) reinforcing Sanofi’s threat that failing to commit to Menactra purchasing requirements would increase prices on all Sanofi pediatric vaccines.10 Sanofi also pressured buying groups to enforce the Bundle and enforced the Bundle directly on customers itself.11 Finally, Sanofi created the “4P Contract” for its health system customers, which also required health systems to maintain Menactra loyalty to avoid penalties on Sanofi’s other pediatric vaccines.12 All told, depending on the year, between 40-52% of the MCV4 market was foreclosed by the Bundle.13 9 RSOUF ¶¶ 28, 32, 68, 76, 80, 85; PS ¶¶ 371, 382, 391-92, 397, 400, 402-03; E4 ¶¶ 90, 93, 95, 113 & Tab. 2; E5 ¶¶ 99, 102, 105, 146, 153. 10 See PS ¶¶ 391-93, 400-04; E4 ¶¶ 7, 90, 97, 100, 104-06, 112-14; E5 ¶¶ 10-11, 31, 99-100, 104, 108, 134, 146, 189. 11 PS ¶¶ 453, 454-60, 466-70; E4 ¶¶ 95, 97, 102, 105, 112; E5 ¶¶ 105-06, 108-09, 127-32. 12 PS ¶¶ 411, 415-17, 434, 44; E4 ¶¶ 116, 120; E5 ¶ 205. Because physicians tend to standardize (purchasing the same vaccines for private customers and for public customers), conduct that diminished sales to the private market suppressed sales to the public market as well. E4 ¶¶ 226, 225, 227-31; E5 ¶¶ 661-65; PS ¶ 506; RSOUF ¶ 238. 13 PS ¶¶ 498-502; E4 ¶¶ 232-33 & Tab. 12 & 13 (Corrected). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 17 of 59 PageID: 34789 8 For a typical purchaser, Sanofi’s bundled penalties for non-compliance amounted, per dose of MCV4, to about $90. MCV4 vaccines typically sold per dose for about $100. So Menveo would have had to sell for $10 per dose to compete on price. For customers of Sanofi’s pediatric vaccines—so-called “Sanofi Loyals” (or “Restrained” customers)—that penalty was prohibitive. PS ¶¶ 508-09, 539; E4 ¶¶ 176-81; E5 ¶¶ 610, 623. In many cases, Novartis would have had to charge below its costs to make up for the penalties and gain significant sales. PS ¶¶ 509, 538; E4 ¶¶ 176-79. The Bundle diminished Novartis’s ability to use lower price to gain substantial sales from Restrained customers and thus Sanofi prevented competition from Novartis that would otherwise have forced Sanofi to lower its prices for Menactra.14 The Bundle also caused Sanofi to charge inflated Menactra prices to “Sanofi Disloyals” (“Unrestrained” customers). PS ¶¶ 523, 540; E4 ¶¶ 158, 159, 162-64; E5 ¶¶ 428-38. These customers did not buy pediatric vaccines or bought them from GSK, Sanofi’s competitor outside of the MCV4 market. Sanofi could not, consistent with its Bundle, charge lower prices to Disloyal customers than to Loyal ones. That would discourage loyalty. So the Bundle inflated Sanofi’s prices to Unrestrained customers too. The Bundle caused Novartis to charge more for MCV4 as well. Because the Bundle inflated Sanofi’s prices to Disloyals, Novartis faced limited price competition for them too. So Novartis charged higher prices for Menveo to all due to the Bundle.15 The result was what Prof. Elhauge calls “market division” and what Sanofi’s internal documents label market “bifurcation.” PS ¶¶ 518, 519-39; E4 ¶¶ 18, 20, 155, 152-54, 156-234; E5 ¶¶ 27-28, 403-04, 405-611. Sanofi dominated the market for Restrained customers, while Novartis focused on Unrestrained customers. The effect was much like an agreement to divide 14 PS ¶¶ 524-25, 527, 521-23, 526, 528, 536-38, 540-50; RSOUF ¶¶ 167, 260; E4 ¶¶ 158, 18, 148, 167-71, 189-92, 211; E5 ¶¶ 30, 35, 361, 404, 415, 417, 421, 428, 431, 577-78, 582, 605, 612-71. 15 PS ¶¶ 541, 527. This Court held this description of the Bundle and its market effects to be supported by the evidence. DO, 134 F. Supp. 3d at 827-28; see also id. at 846-49. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 18 of 59 PageID: 34790 9 the market—and split the spoils. E4 ¶¶ 159, 154-58. All MCV4 purchasers paid inflated prices as a result. DO, 134 F. Supp. 3d at 848-49. III. The Standard for Summary Judgment Sanofi cannot meet the test for summary judgment, which shall be granted only if “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A court’s role is not to weigh the evidence; “[a]ny doubt as to the existence of a genuine issue for trial should be resolved against the moving party.” E.E.O.C. v. GEO Grp., Inc., 616 F.3d 265, 278 (3d Cir. 2010). This ordinary standard applies in antitrust cases. Petruzzi’s IGA Supermarkets, Inc. v. Darling-Del. Co., 998 F.2d 1224, 1230 (3d Cir. 1993). The movant “always bears the initial responsibility of informing the district court of the basis for its motion. . . [to] demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R. Civ. P. 56(c)); see also Hugh v. Butler Cty. Family YMCA, 418 F.3d 265, 267 (3d Cir. 2005) (“[T]he initial burden is on the defendant to show that the plaintiff has failed to establish one or more essential elements to her case.”). “An issue is waived unless a party raises it in its opening brief.” Tom G. v. Cumberland Cty. Sch. Dist., 190 F.3d 80, 84 (3d Cir. 1999). IV. Plaintiffs Satisfy the Elements of Their Section 1 & 2 Claims Plaintiffs’ claims for monopolization under Section 2 of the Sherman Act and for an agreement in restraint of trade under Section 1 present triable issues of fact. A. Sanofi’s Bundling Violated Section 2 of the Sherman Act Ample evidence supports Plaintiffs’ Section 2 claim, which requires: (1) monopoly power; and (2) willful acquisition or maintenance of that power. DO, 134 F. Supp. 3d at 843. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 19 of 59 PageID: 34791 10 A monopolist violates section 2 “if it engages in exclusionary or predatory conduct without a valid business justification.” Id. (citing LePage’s, 324 F.3d at 152). This Court stated that “[b]undling is a form of recognized unlawful exclusionary conduct,” and “can constitute willful maintenance . . . , especially where it enables a seller to leverage its monopoly power in one market to impair competition in another market.” Id. at 843, 846 (citing LePage’s, 324 F.3d at 154-55; SmithKline, 575 F.2d at 1061-62; In re Hypodermic Prod. Antitrust Litig., No. 05- 1602, 2007 WL 1959224 (D.N.J. June 29, 2007) (“HP”). The elements of a Section 2 bundling claim are: (1) monopoly power; (2) bundling; and (3) substantial foreclosure; that (4) causes harm to competition, such as increased prices or decreased output. DO, 134 F. Supp. 3d at 845- 49 (setting forth elements of Section 2 bundling claim); MTD Op., 2012 WL 12516572, at *8-10 (same). A court will also consider (5) any offsetting procompetitive justifications. Here, there are genuine issues of material fact on all five issues. 1. Sanofi Had Monopoly Power in Multiple Vaccine Markets Sanofi had monopoly power with respect to Menactra and each vaccine in the Bundle. “Monopoly power is the power to control prices or exclude competition in the relevant market.” DO, 134 F. Supp. 3d at 845-46 (collecting cases). Monopoly power can be proven by defining “a market and establish[ing] dominant market share.” Id. at 845. Here, the Court noted that “Professor Elhauge has presented unrebutted testimony that Sanofi had monopoly power due to its market share of 55%-90% in the relevant markets: MCV4, DTaP, IPV, and HIB.” Id. at 846. Even after Menveo’s entry, Sanofi maintained monopoly power as its MCV4 vaccine market share never fell below 79% and there remain significant barriers to entry. E4 ¶¶ 46-47 & Fig. 2; PS ¶¶ 360-64. Sanofi’s motion does not contest monopoly power. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 20 of 59 PageID: 34792 11 2. The Bundle Constitutes Willful Maintenance of Monopoly Power “A monopolist willfully acquires or maintains monopoly power when it competes on some basis other than the merits.” DO, 134 F. Supp. 3d at 846 (citing LePage’s, 324 F.3d at 147). The relevant test “is whether Sanofi sought to thwart competition by means other than being an efficient competitor.” Id. (citing Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 (1985); LePage’s, 324 F.3d at 147). Courts condemn sellers with monopoly power when they bundle, that is, impose price penalties on some products unless customers meet most or all of their needs for another product from the bundler.16 This Court already concluded, Plaintiffs have presented classwide evidence showing that the bundle was willfully exclusionary. Among these are internal Sanofi documents indicating intent to leverage its broad product line to prevent head-to-head competition and to create a significant barrier to competition by Novartis. Common evidence also shows Sanofi required 100% loyalty to Menactra and enforced this requirement. DO, 134 F. Supp. 3d at 846 (citations omitted). In other words, the Court has credited substantial evidence that Sanofi’s Bundle willfully maintained monopoly power—the very issue upon which Sanofi seeks summary judgment. Sanofi further admits for purposes of its motion that (a) it bundled as to PBGs (and by extension the substantially similar GPO contracts), MSJ 9, and (b) it bundled as to health systems by threatening contract termination (and thus loss of access to non- penalty prices). Id. at 10. Despite these admissions, Sanofi makes claims in its Fact section (but not in its Argument) regarding the Bundle—all of which, at most, raise contested issues of fact: 16 The Third Circuit sitting en banc held it is unlawful for a seller with monopoly power to offer a bundle that forecloses competition by including products a rival does not sell. LePage’s, 324 F.3d at 155. In LePage’s, the Third Circuit condemned 3M’s rebate program which offered discounts “conditioned on purchases spanning six of 3M’s diverse product lines.” Id. at 154. Under that bundle, if the customer failed to meet the target level for any one of the products it lost the discounts on all of the products in the bundle. Id. The Third Circuit held, “The principal anticompetitive effect of bundled rebates as offered by 3M is that when offered by a monopolist they may foreclose portions of the market to a potential competitor who does not manufacture an equally diverse group of products and who therefore cannot make a comparable offer.” Id. at 155. Similarly, the Third Circuit found bundled discounts unlawful in SmithKline, 575 F.2d at 1065; HP, 2007 WL 1959224 at *9-10. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 21 of 59 PageID: 34793 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 22 of 59 PageID: 34794 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 23 of 59 PageID: 34795 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 24 of 59 PageID: 34796 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 25 of 59 PageID: 34797 16 Sanofi nevertheless contends that the threat of bundled penalties was low or ineffectual, and Prof. Elhauge never quantified the effects of the Bundle. MSJ 11-12. Incorrect. Prof. Elhauge found that Sanofi enforcement efforts were usually unnecessary because the Bundle was so effective, E4 ¶¶ 195-96 and Fig. 13 (noting a 99% compliance rate), and, as noted just above and infra. IV.A.4, he did indeed quantify the Bundle’s effects in multiple ways.26 Sanofi also claims that Prof. Elhauge’s standard “would find liability anytime a bundled discount causes a rival to lose a sale, even if the rival could win the sale just by dropping price a penny.” MSJ 44. False. Prof. Elhauge’s analysis shows not that Novartis could have dropped the price by a penny to win a sale; but rather massive bundled penalties meant Novartis could not drop prices enough to compete effectively for Restrained customers. E4 ¶¶ 18, 148, 158, 167-71, 189-92, 211; E5 ¶¶ 30, 35, 361, 404, 415, 417, 421 428, 431; RSOUF ¶¶ 167, 260. In rejecting this same argument, this Court found reliable Prof. Elhauge’s opinion that “overcoming the bundle required massive discounts; minor variability on price would not result in meaningful swings in customer share so long as the bundle was in place.” DO, 134 F. Supp. 3d at 834. 4. The Bundle Had Significant Anticompetitive Effects Sanofi intended that the Bundle would divide the MCV4 market by preventing Novartis from competing for Sanofi Loyal customers.27 A Sanofi document titled urged employees to PS ¶ 580 (P33). Other internal documents also reflect Sanofi’s goal to segment the 26 Sanofi’s own expert conceded the Bundle distorted customer choices. See infra nn.65 & 82. 27 See, e.g., E4 ¶¶ 162-64, 188-92. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 26 of 59 PageID: 34798 17 market between loyal and disloyal Sanofi customers. See PS Part V.28 Novartis likewise recognized that the Bundle effectively divided the market, impairing its ability to compete for customers restrained by the Bundle and thereby incentivizing it to focus its sales efforts on Unrestrained buyers.29 As this Court observed, “The business records frequently identify the bundle as insulating Menactra from competition.” DO, 134 F. Supp. 3d at 847 (citation removed). The Bundle had its intended effect, stifling price competition from Novartis. Sanofi’s head of sales noted: P15 (PS ¶ 546) (emphasis added); P32 In a competitive market environment—without the Bundle—a second entrant, such as Menveo, would cause prices to drop. PS ¶ 545. As an internal Novartis document recognized: P1012 (PS ¶ 547).30 Further, demand for MCV4 vaccines was dropping at the time of Menveo’s entry and the cost of making them was falling—market factors that typically cause prices to decline. Yet, after Menveo’s entry, MCV4 prices went up, not down. E4 ¶¶ 235-37; DO, 134 F. Supp. 3d at 828 (“market prices increased” after Menveo entry). Sanofi’s anticompetitive allowed it to maintain its market share and not only to keep its prices at monopoly levels but even to raise them after Menveo’s entry. P22 28 See also P22 (PS ¶¶ 546, 580); P 1050 (PS ¶¶ 534, 580). 29 P2167 (PS ¶ 581) (P.R. Tr. at 28-30) (Novartis targeted GSK Loyals because it could not compete with the Bundle because physicians could not afford to pay the penalty prices on non-MCV4 vaccines for switching); id. at 34 (Novartis targeted GSK Loyals because it recognized it could not compete for Sanofi-Loyals); PS ¶¶ 521, 524, 526-27, 535, 581. 30 See also E4 ¶¶ 238-49 (a new entrant into a monopolized market should have led to lower prices); DO, 134 F. Supp. 3d at 836 (Prof. Elhauge’s opinion that “prices actually rose” upon Menveo entry when they should have fallen deemed reliable). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 27 of 59 PageID: 34799 18 (“Menactra: Pricing & Contracting Strategy”: Menactra “selling strategy” involves “[u]tiliz[ing] the full portfolio to sell against Menveo,” touting “[t]otal value discounts of SP portfolio”).31 Nonetheless, Sanofi asserts Novartis wanted to avoid price competition and posits that the two would have coordinated on pricing without the Bundle, MSJ 14-16, so the Bundle had no effect on prices. That position conflicts with Sanofi’s concession for its motion that the Bundle caused higher prices. MSJ 26 n. 20. Further, this Court already found reliable Prof. Elhauge’s conclusion that price coordination was not possible in this market, DO, 134 F. Supp. at 836, 839- 40, and that the Bundle artificially inflated MCV4 prices substantially. Id. at 835-38, 848-49.32 5. The Bundle Had No Procompetitive Effects When Sanofi imposed the Bundle it offered customers no offsetting rebates or discounts. E4 ¶¶ 135, 140-42. The Bundle entailed only a set of penalties for switching to a rival. DO, 134 F. Supp. 3d at 827 (credible evidence showed that “the bundle was a penalty, not a discount”). Sanofi increased prices for Menactra and the bundled vaccines for those who refused the Menactra loyalty commitment, but offered no discounts for accepting it. E4 ¶¶ 135-46. Plus, as noted above, soon after Menveo entry, Menactra prices increased, E4 ¶¶ 236-37, with no offsetting procompetitive effects, E4 ¶¶ 131-46; E5 ¶¶ 275-359—a circumstance that Sanofi does not contest for purposes of summary judgment. MSJ 7, n.2. B. Sanofi’s Bundling Violated Section 1 of the Sherman Act The elements of a claim under Section 1 of the Sherman Act are: (1) an agreement; (2) causing anticompetitive effects; (3) that outweigh or are not reasonably necessary to achieve any procompetitive effects. MTD Op., 2012 WL 12516572, at *10. As discussed above, this Court 31 See also E4 ¶¶ 147-49, 235-49; DO, 134 F. Supp. 3d at 828. 32 While Sanofi points to evidence indicating some Novartis employees wanted to coordinate prices, MSJ 15-16, Sanofi recognized they were unable to do so. E4 ¶ 274; E5 ¶ 751; PS ¶ 558. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 28 of 59 PageID: 34800 19 has held, Plaintiffs have shown, and Sanofi has conceded that credible evidence demonstrates that the Bundle caused anticompetitive effects, DO, 134 F. Supp. 3d at 848-49, and that there is a genuine issue of material fact about whether there were any offsetting procompetitive effects. The only issue here, then, is whether Sanofi entered into the requisite agreement. Sanofi’s argument in this regard is short and inadequate. Here it is in its entirety: “Plaintiffs concede that Sanofi has not colluded with Novartis.” MSJ 26. The flaw in this argument is that Sanofi entered into agreements with entities other than Novartis, including PBGs, GPOs, and health systems. E4 ¶¶ 90, 92, 115; see also MSJ 9 (conceding agreements with PBGs implementing the Bundle); id. at 9-10 (conceding agreements with health systems). Sanofi could be implying that an agreement is subject to antitrust scrutiny only if it involves competitors (i.e., horizontal) as opposed to entities along the chain of distribution (i.e., vertical). But Sanofi does not actually argue that vertical agreements are exempt from antitrust scrutiny. Nor could it. A wealth of cases holds that vertical agreements satisfy Section 1; they are subject to the rule of reason analysis set forth above. See infra V.B.2 & B.4. And it is law of the case that the agreements at issue here are legally sufficient. MTD Op., 2012 WL 12516572, at *10. So Sanofi provides no basis for summary judgment on the Section 1 claim. V. Sanofi’s Argument that Its Conduct Was Not Exclusionary Is Wrong This Court found credible Plaintiffs’ evidence that Sanofi’s Bundle was exclusionary because it suppressed competition: “Plaintiffs have presented classwide evidence showing that the bundle was willfully exclusionary. Among these are internal Sanofi documents indicating the intent to leverage its broad product line to prevent head-to-head competition and to create a significant barrier to competition by Novartis.” DO, 134 F. Supp. 3d at 856-57 (emphasis added). This Court also held that no rigid formula dictates whether a monopolist’s conduct is illegal; the Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 29 of 59 PageID: 34801 20 issue is whether it harmed competition. MTD Op., 2012 WL 12516572, at *8. Those points are law of the case.33 Sanofi nevertheless makes five mistaken claims: (1) conduct is exclusionary only if it harms a rival, MSJ 26-28; (2) conduct is exclusionary only if it impairs a rival’s ability to compete, not if it merely impairs the rival’s incentive to compete, MSJ 27-28; (3) its Bundle was not exclusionary because it decreased prices, MSJ 23-25; (4) its Bundle was not exclusionary because it simply facilitated oligopolistic behavior, MSJ 28-32; and (5) the Bundle’s enforcement was not itself exclusionary. MSJ 32-33. A. Conduct Need Not Harm a Rival to Be Exclusionary Sanofi is wrong that this Court should have held the Bundle was exclusionary only if it caused Novartis to lose profits. MSJ 26-28. Sanofi’s argument turns the most fundamental proposition of antitrust law on its head: “The antitrust laws are concerned with ‘the protection of competition, not competitors.’” Eisai, 821 F.3d at 398-99 (quoting Brown Shoe, 370 U.S. at 320). As the Third Circuit explained, “a sine qua non for a § 2 violation” is whether the challenged conduct “harmed competition itself.” LePage’s, 324 F.3d at 162; West Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 108 (3d Cir. 2010) (conduct is exclusionary where it “‘unfairly tends to destroy competition itself’”) (citation omitted).34 Antitrust law is concerned with competition because its focus is on protecting consumers from artificially inflated prices and limited output. See Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 308 (3d Cir. 2007) (“The primary goal of antitrust law is to maximize consumer welfare by promoting 33 Law of the case is binding here. See D. Opp. at Part III.A; Christianson v. Colt Indus., 486 U.S. 800, 803, 816-17 (1988) (“[C]ourts generally [] refuse to reopen what has been decided;” adhere to prior rulings absent “extraordinary circumstances.”); Eberhart v. LG Elecs., 2016 WL 3014400, at *3 n.5 (D.N.J. May 24, 2015) (“The Court is [] bound by Judge Arleo’s prior conclusions”). 34 See also Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 906 (2007) (“The purpose of the antitrust laws . . . is ‘the protection of competition, not competitors.’”) (quoting Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 338 (1990)); Coast Cities Truck Sales, Inc. v. Navistar Int’l Transp. Co., 912 F. Supp. 747, 761 (D.N.J. 1995) (same). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 30 of 59 PageID: 34802 21 competition among firms.”) (citation omitted); Radio Music License Comm., Inc. v. SESAC, Inc., 29 F. Supp. 3d 487, 502 (E.D. Pa. 2014) (“The hallmark of anticompetitive conduct is harm to competition, but the danger of anticompetitive conduct is harm to the consumer.”).35 The key to whether conduct is exclusionary, then, is whether it restrains competition and harms consumers—not whether it harms a rival. This fundamental proposition is law of the case. In denying Sanofi’s motion to dismiss, this Court held that the law requires “reduce[d] competition” or the creation of an unfair competitive environment, not harm to a competitor. See MTD Op., 2012 WL 12516572, at *8 (“[T]he question before the Court. . . is simply whether. . . Sanofi exploited its monopoly power in order to reduce competition from Novartis for pediatric meningococcal vaccines”); see also id. at *9-10 (condemning conduct that “stifled competition”). The Court then reaffirmed that law in its Daubert opinion. DO, 134 F. Supp. 3d at 832. Accordingly, Sanofi’s admission that the Bundle blocked competition that would have lowered prices, MSJ 15 n.12, 26 n.20, means that law of the case is fatal to its motion.36 Sanofi’s position is also inconsistent with bundling doctrine. This Court held that record evidence was capable of showing that the Bundle was exclusionary even though Prof. Elhauge’s analysis, (a) did not “require Novartis to acquire greater market share” absent the Bundle, DO, 134 F. Supp. 3d at 834 (observing that “the bundle actually increased Novartis’s market share in the Sanofi-disloyal segment”), and (b) showed that the Bundle caused Novartis to charge more for Menveo, id. at 849 (36% overcharges on Menveo). In other words, despite observing that the Bundle did not necessarily harm Novartis—and, indeed, might have benefited it through higher 35 See also McWane v. FTC, 783 F.3d 814, 835-36 (11th Cir. 2015) (“To effect anticompetitive harm, a defendant must harm the competitive process, and thereby harm consumers.”) (cite omitted). 36 Sanofi’s own expert, Prof. Rubinfeld, observed where a bundle does not bring prices down it “is a good candidate to be judged exclusionary conduct[.]” See A. Edlin & D. Rubinfeld, Exclusion or Efficient Pricing: The ‘Big Deal’ Bundling of Academic Journals, 72 Antitrust L.J. 119, 151 (2004). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 31 of 59 PageID: 34803 22 prices—the Court credited Prof. Elhauge’s analysis that the Bundle harmed competition and caused consumers to pay more. Id. In rejecting the same argument that Sanofi repeats here,37 this Court specifically found that Prof. Elhauge’s market division approach “fit” the relevant law. Id. at 842 (“Prof. Elhauge’s opinion bears directly upon critical questions for class certification— e.g., price impact, causation, and damages. Plaintiffs have satisfied the third requirement of fit.”). Sanofi’s central contention is contrary to other binding authority too. In Dentsply, the Third Circuit held conduct to be exclusionary in violation of Section 2 without finding that it had necessarily harmed any rivals. There, the defendant entered into a series of contracts providing that if middlemen dealers in dental products carried defendant’s lines, they could not carry rival lines. Dentsply, 399 F.3d at 185. Defendant’s conduct did not apply to all dealers and did not block rivals from selling directly to dental laboratory consumers. Id. at 185-86. Significantly, the court observed that the challenged conduct, like Sanofi’s Bundle, “created a high price umbrella.” Id. at 191. An umbrella that prevents price competition may well benefit rather than harm rivals; the court made no determination that the conduct decreased the rivals’ market shares. Id. Nor did the court find that the challenged conduct caused the rivals to lose profits. The court found the conduct exclusionary nonetheless. Under Dentsply, that the Bundle may have benefited Novartis does not render it immune from liability if it harmed competition. See Radio Music, 29 F. Supp. 3d at 501 (finding conduct exclusionary even though it benefited rivals, stating: “the litmus test for exclusionary conduct is not the financial well-being of competitors. Rather, this element focuses solely on the competitive process, not on competitors”).38 Sanofi cites no authority holding that conduct must cause a rival to lose profits to qualify 37 SD1, at 4-5 (Feb. 13, 2015). 38 Meredith Corp. v. SESAC, 1 F. Supp. 3d 180, 223 (S.D.N.Y. 2014) (“[Defendant] asserts it cannot be liable for precluding its affiliates [potential competitors] from competing when these affiliates are the ‘alleged beneficiaries of the purported scheme to monopolize.’ But that does not follow.”). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 32 of 59 PageID: 34804 23 as exclusionary. Instead, Sanofi cites cases noting exclusionary conduct often impairs a rival or its ability to compete. MSJ 26-28. It is true that the way exclusionary conduct harms competition is often by harming a competitor, but that is hardly universal.39 B. Sanofi’s Argument that Conduct Must Harm a Rival’s Ability to Compete to Be Exclusionary Does Not Support Summary Judgment Sanofi asserts that conduct is exclusionary only if it impairs a rival’s ability to compete. MSJ 27-28. That argument fails here because: (1) the Bundle did impair Novartis’s ability to compete; and (2) the Bundle also impaired Novartis’s incentive to compete and that is sufficient. 1. The Bundle Impaired Novartis’s Ability to Compete It is law of the case that Plaintiffs’ evidence is capable of showing that the Bundle impaired Novartis’s ability to compete. The Court credited Plaintiffs’ evidence showing that the 39 Sanofi’s citations, MSJ 27-28, are not to the contrary. Emblematic of Sanofi’s error is its citation to Broadcom for the proposition that “exclusionary conduct ‘impairs’ rivals,” MSJ 27, when the case actually condemns “[c]onduct that impairs the opportunities of rivals[.]” 501 F.3d at 308 (emphasis added). Sanofi cites LePage’s as saying that a practice is exclusionary only where it makes it “unprofitable for other sellers to compete with it,” MSJ 27, when the case in fact rejected that conclusion. 324 F.3d at 155. Sanofi also cites cases noting that the means by which competition was harmed was through the impairment of the rival’s ability to compete. But those cases do not say either that harm to the ability to compete is required or that harm to a rival’s ability necessarily means that the rival ends up losing profits. It is true that some bundling cases are brought by rivals, instead of purchasers, and those cases require the rivals/plaintiffs to show they were injured to establish standing. MSJ 27-28. That may account for the focus in those cases on harm to the rival, but the cases say nothing about whether rival harm is necessary in cases like this brought by purchasers. Sanofi may cite Mylan Pharm., Inc. v. Warner Chilcott Public Ltd. Co., No. 15-2236, 2016 WL 5403626 (3d Cir. Sept. 28, 2016). There, a generic pharmaceutical drug company sued a brand company, claiming that the brand’s introduction of a new and (what the court held to be) improved version of its brand improperly forced Mylan to undergo a cumbersome regulatory process to introduce its generic. Id. at *1. Unlike here, in Mylan the defendant did not use bundling or exclusionary restraints and lacked monopoly power: it had a scant 18% of the relevant market with no ability to restrict output. Id. at *8-9. Given that monopoly power is “the ability to control prices and exclude competition,” Broadcom, 501 F.3d at 307, the absence of such power meant that the challenged conduct could not have excluded or harmed competition. See, e.g., id. at **11-12 (holding conduct could not have harmed competition because of “plenty of other competitors already in the oral tetracycline market”). Further, and also unlike here, the conduct at issue had clear procompetitive benefits. The challenged conduct was literally the introduction of a new and better product. Id. at *11; see also id. at *12. Mylan is thus inapposite. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 33 of 59 PageID: 34805 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 34 of 59 PageID: 34806 25 incentives to compete on price” and caused each firm “to avoid price competition.” DO, 134 F. Supp. 3d at 848.41 Thus, law of the case holds that impairing a rival’s incentive to compete can be exclusionary, and the Bundle had that effect here. Id. Moreover, Dentsply condemned exclusive dealing contracts in part because they diminished competitive incentives. 399 F.3d at 189-195. Dentsply argued the middlemen dealers that it had supposedly “locked up” were free to contract with its rivals. Id. at 189 (Dentsply’s “rivals could theoretically convince a dealer to buy their products and drop Dentsply’s line”). The district court accepted that argument, finding that the lack of competition from rivals “resulted from their own business decisions to concentrate on other product lines, rather than implement active sales efforts for teeth” to compete directly with defendant. Id. at 189. But the Third Circuit reversed, finding the challenged conduct had impermissibly created “a strong economic incentive” for customers to stick with Dentsply. Id. at 195.42 Similarly, Citizen Publ’g Co. v. United States, 394 U.S. 131 (1969), held conduct that undermines incentives to compete can be exclusionary: “Pooling of profits pursuant to an inflexible ratio at least reduces incentives to compete for circulation and advertising revenues and runs afoul[] of the Sherman Act.” Id. at 135 (emphasis added).43 And Schuylkill Health Sys. v. 41 Id. at 831 (Plaintiffs’ evidence “show[s] that Novartis declined to use a lower pricing strategy on entry in part because of [Sanofi’s] bundle.”). The Court held further that Prof. Elhauge’s market division analyses “are not mere fringe theories. Professors Salinger and Farrell, both former directors of the Federal Trade Commission’s economics department, have cited his theories with approval.” Id. 42 Sanofi says LePage’s stands for the proposition that to be exclusionary, a practice must “‘make[] it unprofitable for other sellers to compete with it.’” MSJ 27 (quoting LePage’s, 324 F.3d at 164). But the Court was simply saying that this was one definition of the term, and not the only definition or even its definition. LePage’s, 324 F.3d at 164. Indeed, elsewhere in the opinion, LePage’s rejected this test, id. at 155, and observed that violating Section 2 requires only “compet[ing] on some basis other than the merits.” Id. at 147. 43 See also, e.g., Meijer, Inc. v. Abbott Labs., 544 F. Supp. 2d 995, 1005 (N.D. Cal. 2008) (allowing claim that pricing deterred entry by “providing little incentive for competitors to develop products to compete with it,” allowing defendant to later “rais[e] prices”); United States v. Verizon Commc’ns, Inc., 959 F. Supp. 2d 55, 57, 59, 61 (D.D.C. 2013) (government intervention proper where corporate Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 35 of 59 PageID: 34807 26 Cardinal Health 200, LLC, No. 12-7065, 2014 WL 3746817, at *4 (E.D. Pa. July 30, 2014), held in a bundling case that “it is plausible that [the rival] is less able to compete because it has been prevented from growing and has less of an incentive to compete because Defendants have blocked a significant portion of the market,” noting that a claim based on a loss of incentive alone would be legally sufficient. Id.; see also D. Opp. at 17-19. In addition, Radio Music held conduct was exclusionary that impaired competition by suppressing potential rivals’ incentives to compete. The defendant, SESAC, offered “one-stop- shop” licenses for the public performance of works. 29 F. Supp. 3d at 490-91. The plaintiff alleged that SESAC engaged in exclusionary conduct by compiling a critical mass of “must- have, copyrighted works,” “bundling [them] together” as a blanket license, and refusing to make them available in any other way. Id. at 492-93. This conduct allowed SESAC to inflate the price for its blanket license and to pay its affiliates—who were also potential rivals—more than they could make by competing with SESAC by selling licenses directly to customers. Id. at 493-94. SESAC argued that the conduct could not be exclusionary because it did not impair rivals’ ability to compete. Id. at 501. The court rejected that claim, holding the conduct was exclusionary because it incentivized affiliates not to compete by making them better off under the bundle. Id. (SESAC “utilizes a carrot rather than a stick approach to retaining affiliates. . . [it] offers its affiliates higher profits, and that retention strategy appears to be highly successful”).44 Examples of decisions condemning vertical agreements that harm incentives to compete include those between: (a) manufacturers and retailers to maintain minimum resale prices;45 (b) agreements would lessen telecom’s “incentive[s] to compete”); Areeda & Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 1821c, at 191 (3d ed. 2011). 44 See also Meredith Corp., 1 F. Supp. 3d at 193, 223 (bundling contracts deemed exclusionary because the effect “[was] to eliminate any imaginable incentive” to compete). 45 See, e.g., Leegin, 551 U.S. at 894 (“A manufacturer with market power, by comparison, might use resale price maintenance to give retailers an incentive not to sell the products of smaller rivals”). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 36 of 59 PageID: 34808 27 firms, like insurance companies, and entities, like hospitals, providing that the firms are guaranteed prices as favorable as their rivals (“most favored nation” or “MFN” agreements);46 and (c) credit card companies and merchants, barring merchants from steering customers to rival cards with lower fees (anti-steering provisions).47 In each setting, agreements excluding competition by undermining competitive incentives were unlawful.48 These cases find support in academic authorities well beyond Prof. Elhauge’s celebrated articles.49 For instance, former FTC Commissioner Sheila F. Anthony wrote, “When a monopolist uses unjustified exclusionary conduct to maintain its dominance, it raises serious competitive concerns by removing incentives to compete.”50 In sum, conduct can be exclusionary if it impairs only incentives to compete. 3. The Bundle Did Not Decrease Prices, So Lower Prices Cannot Render It Non-Exclusionary Sanofi contends the Bundle is not exclusionary because it brought down prices for consumers. MSJ 23-25. That is contradicted by the record. To be sure, some bundling—usually by non-monopolists—can be efficient and decrease prices. But this Court has already found admissible and reliable Prof. Elhauge’s opinion that “the bundle had no procompetitive effects” 46 See U.S. v. Delta Dental of R.I., 943 F. Supp. 172, 179 (D.R.I. 1996) (acknowledging MFNs can create anticompetitive effects by disincentivizing dentists from offering lower prices to other insurers); RxCare of Tennessee, 121 F.T.C. 762, 764 (1996) (consent order finding that MFN clauses have “restrained rivalry in the provision of pharmacy benefit prescription services among Tennessee pharmacies and thereby harmed consumers by limiting price competition”). 47 See e.g., Marchbanks Truck Serv., Inc. v. Comdata Network, No. 07-1078, 2012 WL 10218913, at *7 (E.D. Pa. Mar. 29, 2012) (conduct exclusionary where “restrictive provisions . . . would remove incentives for potential . . . rivals . . . from attempting to challenge” monopolist) (emphasis added); U.S. v. American Exp. Co., 88 F. Supp. 3d 143, 208 (E.D.N.Y. 2015), rev’d on other g., 2016 WL 534974 (2d Cir. 2016) (“[B]y disrupting the price-setting mechanism, . . . [anti-steering provisions] reduce American Express’s incentive . . . to offer merchants lower discount rates”) (emphasis added). 48 Indeed, Sanofi’s dismissed counterclaim alleged that the Sanofi contracts harmed the competitive process by “reducing the incentive and ability” to compete. See ECF 111 ¶ 97. 49 See D. Opp. at 5, and n. 4 (discussing Prof. Elhauge’s academic work). 50 Sheila F. Anthony, Antitrust and Intellectual Property Law, 28 AIPLA Q.J. 1, 28 (2000); see also Steven C. Salop & Fiona Scott Morton, Developing an Administrable MFN Enforcement Policy, 27- SPG Antitrust 15, 15 (2013) (MFNs “create[] a financial incentive for the seller not to offer such low prices, which often results in higher overall prices in the market.”). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 37 of 59 PageID: 34809 28 because “it resulted in identical prices after the discount, simply imposing higher penalty prices (by 37-57% in the relevant vaccines) on disloyal customers” and that “the bundle was a penalty, not a discount.” See DO, 134 F. Supp. 3d at 827; see also PS ¶¶ 445, 478-79, 582-89. In addition, Sanofi has conceded its purported procompetitive justifications are disputed, MSJ at 7 n.2 (“plaintiffs dispute these efficiencies”), and the only effect of the Bundle on prices was to raise them. MSJ 15 n.12 (accepting that the Bundle led to higher prices for purposes of Sanofi’s motion); MSJ 26 n.20 (same). For present purposes, the Bundle only raised prices. Further, Sanofi’s invocation of It’s My Party, 811 F.3d 676, MSJ 24-25, does not justify its conduct here. There, a plaintiff regional concert promoter, IMP, claimed a national concert promoter, Live Nation (LN), had engaged in unlawful tying that purportedly required musicians seeking to use LN’s national promotion services and gain access to multiple other amphitheaters also to use LN’s venue in a single region. 811 F.3d at 680-81.51 Unlike here, the court in It’s My Party found substantial consumer benefits from LN’s “one-stop shop for touring artists” and that national promoters like LN used those synergies to offer artists better deals, including guaranteed payments. Id. at 688. The court in It’s My Party observed that the plaintiff was protesting about “an excess of competition,” that prices were too low, and that there were “too many shows.” Id. at 691. That is a far cry from the facts here. 4. Sanofi’s Claim that the Bundle Is Not Exclusionary Because It Simply Facilitated Oligopolistic Behavior Is Wrong as a Matter of Fact and Law Sanofi claims the Bundle reflected mere unilateral selective discounting to which Novartis strategically responded by choosing to coordinate prices, as can occur in an oligopoly. MSJ 28-33; see also MSJ 23 (the Bundle involves only “offering some customers better deals 51 Unlike here, where Sanofi’s bundling contracts were written down and where Sanofi has conceded the Bundle for purposes of its motion, It’s My Party found that it was “pure speculation” that LN had even engaged in the underlying conduct at all. Id. at 685. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 38 of 59 PageID: 34810 29 than others”). Sanofi is wrong that it engaged merely in unilateral conduct. And it is also wrong that its conduct—even if it merely facilitated oligopolistic price coordination—would be legal. First, as detailed above, the Bundle is not, as Sanofi claims, mere selective unilateral discounting or “price discrimination.” MSJ 23-24. There is no dispute here that the Bundle involved agreements. MSJ 9-10. Moreover, the evidence shows that these agreements impaired Novartis’s ability to compete for Restrained customers; it did not merely encourage Novartis to “choose” not to compete. Supra V.B.1; IV.A.2-3. Evidence also shows the conduct did not raise prices by facilitating oligopolistic price coordination, but rather did so through a market division. DO, 134 F. Supp. 3d at 848; supra IV.A.4; V.B.1. Indeed, in rejecting Sanofi’s past attempt to blame higher prices on oligopolistic pricing, this Court found admissible Prof. Elhauge’s opinion “that [oligopolistic price] coordination was not possible in this market.” Id. at 838; see also id. at 840 (“the disagreement [about the possibility of price coordination] is one of fact”). Sanofi and Novartis could not coordinate prices in part because they were unaware of each other’s net prices. Id. at 839-40. Sanofi’s argument depends on a premise that is, at minimum, disputed. This case is thus unlike Brantley v. NBC Universal, Inc., 675 F.3d 1192 (9th Cir. 2012), the authority on which Sanofi primarily relies. MSJ 28-29. There, plaintiff cable subscribers claimed that television programmers, who own television programs and channels, induced cable companies to sell cable channels only in “prepackaged tiers” instead of allowing subscribers to buy only the channels they wanted a la carte. 675 F. 3d at 1195-96. The plaintiffs claimed this was an illegal tying arrangement. Id. But, unlike here, the conduct in Brantley did not restrain any entity’s ability or incentive to compete. Id. at 1203-04 (no allegation that “sale of cable channels in packages has any effect on other programmers’ efforts to produce competitive programming channels” nor “that any programmer’s decision to offer its channels only in Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 39 of 59 PageID: 34811 30 packages constrained other programmers from offering their channels individually”); see also id. at 1196 (plaintiffs “deleted all allegations that the . . . contractual practices foreclosed independent programmers from” competing); id. at 1201 (no allegation that the practice “raises barriers to entry”). So, unlike here, the Brantley plaintiffs did not allege that the challenged conduct foreclosed competition.52 Thus, Brantley stands for the irrelevant proposition that conduct that does not impair competition cannot be exclusionary.53 Second, even if the Bundle had inflated prices by facilitating oligopolistic price coordination, it would violate antitrust law. Unilateral conduct may not by itself violate Section 1. But the Bundle was not unilateral. It involved agreements. Courts condemn contracts that facilitate oligopolistic price coordination in various analogous contexts, including those containing MFN clauses,54 exclusive dealing provisions,55 and information sharing provisions.56 52 It is true that the package selling in Brantley (tying the desirable channels with undesirable channels) caused purchasers to buy some channels that they did not want and would not otherwise have purchased to obtain those that they did want. But tying law does not consider those effects as flowing from injury to competition. That is because no competition was harmed. Tying jurisprudence views the additional monies paid for the package as “merely enhancing the price of the tying product.” Id. at 1199 (citation omitted). Here, the Bundle used Sanofi’s vaccine portfolio (tying products) to restrain competition for MCV4 vaccines (the tied products) by impairing Novartis’s ability and incentives to compete. 53 Sanofi cites Illinois Tool Works, Inc. v. Indep. Ink, Inc., 547 U.S. 28, 44-45 (2006), MSJ 4, which provides that one cannot infer that a firm has monopoly power merely by observing that it used tying to price discriminate between “large volume and small volume purchasers.” That principle is irrelevant here where (a) Plaintiffs are not asking the Court to infer monopoly power from the fact that Sanofi implemented the Bundle—monopoly power has been admitted, and (b) as just noted, the Bundle is a restraint on competition, not mere price discrimination. 54 See Delta Dental, 943 F. Supp. at 190 (condemning as anticompetitive “MFN clauses [that] ‘discourage discounting, [and] facilitate oligopolistic pricing…’”) (citation omitted); United States v. Apple, Inc., 791 F.3d at 320 (vertical agreements with MFNs “can facilitate anticompetitive horizontal coordination by reduc[ing] [a company’s] incentive to deviate from a coordinated horizontal arrangement”) (citation and quotation marks omitted). 55See Matter of Beltone, 100 F.T.C. 68, 94 (1982) (one antitrust concern with exclusive dealing agreements “shelter or facilitate collusion or coordinated behavior”); Hovenkamp, Federal Antitrust Policy § 10.8b at 384-85 (1994) (“Exclusive dealing may facilitate [oligopolistic] collusion by denying buyers an opportunity to force sellers to bid against each other.”). 56 See Todd v. Exxon Corp., 275 F.3d 191, 214 (2d Cir. 2001) (allegations of sharing information among competitors anticompetitive where facilitates oligopolistic coordination); United States v. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 40 of 59 PageID: 34812 31 Sanofi’s citations, MSJ 29-30, are not to the contrary.57 E.I. du Pont de Nemours & Co. v. FTC, 729 F.2d 128 (2d Cir. 1984) (“Ethyl”), for instance, concerned the FTC’s challenge to independent business practices of four competitors. First, unlike here, none of the practices harmed any rival’s ability to compete for any customers. Id. at 139-140. Second, unlike here, where the Court credited evidence showing that Sanofi implemented the Bundle with “intent to leverage its broad product line . . . to create a significant barrier to competition,” DO, 134 F. Supp. 3d at 846 (emphasis added), in Ethyl there was no evidence that any practice was implemented with anticompetitive intent. 729 F. 2d at 128, 134, 139. Third, the court there concluded that the practices at issue might nonetheless be illegal if “a causal connection could be shown between the practices and the level of prices,” id. at 141, but not when “the challenged practices had little if any effect on competition” or price. Id. at 142. Here, Sanofi has conceded (for its motion) the Bundle substantially raised prices. MSJ 15 n.12, 26 n.20. Finally, refuting Sanofi, MSJ 29, Leegin stated vertical agreements to maintain minimum resale prices can be anticompetitive where they facilitate oligopolistic price coordination. 551 U.S. at 911-12.58 5. Sanofi’s Enforcement of the Bundle Was Exclusionary Sanofi is wrong that its enforcement of the Bundle does not qualify as exclusionary. As Container Corp. of Am., 393 U.S. 333, 337 (1969) (condemning exchange of price information because it could facilitate oligopolistic coordination); In re VHS of Mich., 601 F. App’x 342, 344 (6th Cir. 2015) (plaintiffs’ wages depressed due to information sharing that “softened competition”). 57 Moreover, Sanofi’s analogy to “shared monopoly” claims, MSJ 30-31, fails. The claims in those cases failed because absent collusion, (a) the parties did not have sufficient market power to harm competition, and/or (b) mere oligopolistic pricing is not a violation of the antitrust laws. Here, monopoly power is admitted for the motion, and the conduct restrained and harmed competition. 58 Sanofi’s other cited cases, MSJ 29, stand for the irrelevant proposition that firms without market power cannot unilaterally harm competition. See Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1415-16 (7th Cir. 1989) (predatory pricing claim failed because defendant would never could not obtain market power, thus plaintiff’s theory of “disciplining” competition “speculative”); Rebel Oil Co., Inc. v. Atl. Richfield Co., 51 F. 3d 1441, 1442-43 (9th Cir. 1995) (oligopolist lacks unilateral power to “control market output and exclude competition”); Echostar Sat., L.L.C. v. Viewtech, Inc., No. 07-1273, 2009 WL 1668712, *5 (S.D. Cal. May 27, 2009) (same). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 41 of 59 PageID: 34813 32 this Court observed, record evidence shows that Sanofi aggressively enforced its Bundle. See supra IV.A.2. Sanofi threatened buying groups as follows: ensure that your members purchase MCV4 vaccines almost exclusively from Sanofi or lose millions of dollars of administration fees on Sanofi’s entire portfolio of pediatric vaccines. PS ¶ 399; see also PS ¶¶ 370, 381-82, 390, 397-98.59 And Sanofi enforced its Bundle with healthcare providers—its purchasers—by incentivizing and collaborating with PBGs and GPOs to cause them to enforce the Bundle and by threatening healthcare providers directly. See supra II & IV.A.2. This Court found Sanofi’s enforcement of the Bundle to be effective. See, e.g., DO, 134 F. Supp. 3d at 832 (“Noncompliance was rare; 98.9% of sales made while on the bundle were compliant.”).60 So Sanofi’s argument that its enforcement of the Bundle was not exclusionary boils down to a claim that the Bundle itself was not exclusionary. MSJ 32-33. Given that the Bundle was exclusionary, it follows that its enforcement was too. Sanofi cites Eisai and Suture Express for the proposition that aggressive enforcement of contracts is not exclusionary. But citation to those cases is question begging: they simply say that if a contractual scheme is not anticompetitive, neither is its enforcement. That does not help Sanofi. Further, Sanofi neglects to mention that this Court has already determined that Eisai is “totally different” from this case because the Bundle involves “bundling of different products 59 Sanofi’s contention that it did not bundle “at the purchaser level,” MSJ 33 n.26, is thus without merit. See HP, 2007 WL 1959224, at *11-12 (rejecting similar challenge to an alleged defendant- GPO bundling scheme where the GPOs “adopted a policy whereby all member hospitals were required to sign a letter of intent forcing them to comply with any commitment contracts”). 60 See also Natchitoches Par. Hosp. Serv. Dist. v. Tyco Int’l, Ltd., No. 05-12024, 2009 WL 4061631, at *6 (D. Mass. Nov. 20, 2009) (defendant’s “policing and enforcement process designed to prevent departure” from bundling contracts part of scheme). Sanofi’s assertion that its enforcement documents constitute mere internal use of “hyperbole,” MSJ 32-33, misses the point. Plaintiffs’ concern is not with “colorful language,” but rather that these documents reveal that Sanofi’s Bundle was implemented with the intent of impairing Novartis’s ability and incentives to compete for Restrained customers. At minimum, whether the documents reflect mere “hyperbole” or, instead, reflect recognition of anticompetitive conduct and intent, is a fact dispute for trial. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 42 of 59 PageID: 34814 33 from different markets, not [the] mere volumetric price discounts” that were at issue in Eisai. DO, 134 F. Supp. 3d at 833. In Eisai, a plaintiff pharmaceutical manufacturer alleged that Sanofi offered “market-share and volume discounts” on a single anticoagulant drug product, Lovenox, see Eisai, 821 F.3d at 400, a practice that the Third Circuit said did “not present the same antitrust concerns” as bundling or loyalty commitments. Id. at 405-07, 409.61 Indeed, in Eisai, unlike here, there was no demonstration that “Sanofi’s conduct, as a whole, caused or was likely to cause anticompetitive effects in the relevant market.” Id. at 407. And, in contrast to this case, the record in Eisai contained “no reason to believe that Sanofi’s allegedly anticompetitive conduct was the cause” of Lovenox’s high price. Id. In fact, Eisai affirms Plaintiffs’ key point that antitrust is concerned with practices that “break the competitive mechanism and deprive customers of the ability to make a meaningful choice.” Id. at 404 (quoting ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254, 285 (3d Cir. 2012)). The Third Circuit made clear bundling can and often does harm competition in that way. Id. (“That was the case in LePage’s Inc. v. 3M, where we held that the use of bundled rebates, when offered by a monopolist, foreclosed portions of the market to competitors that did not offer an equally diverse line of products.”) (citing LePage’s, 324 F.3d at 154-58). Nor did Eisai discuss market division at all. Suture Express is also inapposite. There, a plaintiff medical supply distributor sued two other medical supply distributors, claiming that bundling by two wholesalers of distribution services for two kinds of products constituted illegal tying. The court granted summary judgment 61 While the plaintiff in Eisai had analogized Sanofi’s conduct to bundling, it did not claim that Sanofi engaged in bundling. Instead, the plaintiff asserted Sanofi offered increased discounts on Lovenox and only Lovenox when purchasers bought more Lovenox. Id. at 405-06. Bundling, by contrast, “involves discounted rebates or prices for the purchase of multiple products.” Id. at 405. Moreover, unlike here, where Sanofi required customers to enter into loyalty commitments to avoid penalties on multiple vaccines for buying Menveo, in Eisai, customers made no loyalty commitments and received small discounts (not penalties) on a single product. Id. In short, Eisai had no bundling, loyalty commitments, or penalties, whereas this case involves all three exclusionary behaviors. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 43 of 59 PageID: 34815 34 for two reasons: (1) insufficient proof of monopoly power (neither defendant had more than 40% market share; multiple other growing distributors; declining margins), 2016 WL 1377342, at *21-25; and (2) the undisputed existence of procompetitive efficiencies. Id. at *26-32. Moreover, the defendants’ lack of market power in Suture Express meant that their conduct could not and did not raise prices or harm competition.62 Here, Sanofi does not contest that Plaintiffs have presented sufficient evidence of monopoly power, lack of efficiencies, and inflated prices. MSJ 7 n.2, 15 n.12, 26 n.20. In short, unlike here, Suture Express involved efficiencies and no monopoly power, no market division, and no harm to competition.63 Finally, while Sanofi’s aggressive enforcement of the Bundle enhanced its exclusionary power, such active enforcement is not necessary as an economic or legal matter. As Prof. Elhauge found, the loyalty commitments customers had to make to buy Menactra plus the threat of paying bundled penalties for buying Menveo were sufficiently exclusionary, even if Sanofi focused on bringing members into compliance rather than simply terminating them. See E5 ¶¶ 110-32, 175, 187, 196-201; see also, e.g., ZF Meritor, 696 F.3d at 282-83 (loyalty contracts deemed exclusionary “despite the fact that [the defendant] did not actually terminate the agreements on the rare occasion when an OEM failed to meet its target” because “the OEMs believed that [defendant] might”).64 Sanofi’s own expert admitted a bundled penalty can prevent 62 Id. at *26-27 (“The record also lacks admissible evidence of reduced output” or that “market-wide prices were higher” due to the challenged conduct); id. at *30 (“[N]o evidence suggests that prices are higher than they would be but for defendants’ bundling terms”). 63 Sanofi’s citation to A.A. Poultry Farms, 881 F.2d 1396, 1403 (7th Cir. 1989), MSJ 32, does not help it for the same reason: where the underlying conduct is not anticompetitive, neither is its enforcement, no matter how colorful. In Poultry, defendant did not have market power and thus could not have recouped an alleged predatory investment. 881 F.2d at 1403. 64 See also United Shoe Mach. Corp. v. United States, 258 U.S. 451, 458 (1922) (tying arrangements deemed anticompetitive even though “in many instances these provisions were not enforced . . . . The power to enforce [the restrictions] is omnipresent, and their restraining influence constantly operates upon competitors [and purchasers]”). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 44 of 59 PageID: 34816 35 switching, even if no one actually ever pays the (unbundled) penalty price, because the threat can be enough by itself.65 VI. Plaintiffs Have Demonstrated Substantial Foreclosure Prof. Elhauge has shown substantial foreclosure, i.e., the share of the MCV4 vaccines market with customers subject to the Bundle—the foreclosure share—is between . E4 Tab. 12-13 (corrected). Sanofi does not contest that a foreclosure share of 40% or more is substantial.66 Instead, it argues: (1) foreclosure requires elimination of a rival or impairment of its efficiency, MSJ 34-37; (2) the Bundle did not foreclose Novartis’s opportunities to compete, MSJ 38-39, 40-44; (3) Plaintiffs measure foreclosure inappropriately, MSJ 40-41; and (4) Plaintiffs have not satisfied the price-cost test. MSJ 42-44. These arguments all fail. A. Conduct Need Not Eliminate a Rival or Impair Its Efficiency Sanofi argues that Plaintiffs cannot establish foreclosure “because the conduct neither eliminated Novartis from the market nor impaired its efficiency.” MSJ 34; see also MSJ 34-39. That is, at root, just a repeat of Sanofi’s argument on exclusionary conduct: conduct is legal unless it harms a rival. It is wrong for similar reasons. Based on Third Circuit law, this Court has twice rejected Sanofi’s argument that “complete foreclosure must be shown.” DO, 134 F. Supp. 3d at 847; see also id. (quoting MTD Op.) (“The test is not total foreclosure.”); Eisai, 821 F.3d at 65 See P2166 (D.R. Tr. at 372-73) (“Q. [H]ow it is that setting an unbundled price that . . . virtually no one pays . . . affect the customer decision-making such that customers would be induced to buy the bundle? A. … [T]his practice can change the relative price that people face and that will change their behavior.”); see also id. at 362-63, 369-70. 66 See Eisai, 821 F.3d at 404 n.31 (“Traditionally, a foreclosure percentage of at least 40% has been a threshold for liability. . . . However, some courts have found that a lesser degree of foreclosure is required when the defendant is a monopolist.”) (citations omitted); Luria Bros., 389 F.2d at 856 (finding anticompetitive conduct where monopolist foreclosed competitors from 40% of the relevant market); LePage’s, 324 F.3d at 159 (40% foreclosure share in bundling case sufficient); Insight Equity, 2016 WL 3610155, at *6 (same). Courts have also condemned cases with lower foreclosure shares, especially where there are additional indications that the conduct harmed competition. See, e.g., Twin City v. Charles O. Finley, 676 F.2d 1291, 1309 (9th Cir. 1982) (24%). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 45 of 59 PageID: 34817 36 403 (same) (quoting Dentsply, 399 F.3d at 191).67 Further, contra Sanofi, substantial foreclosure does not require harm to rival efficiency. Instead, the law requires only that the challenged conduct “severely restrict the market’s ambit,” DO, 134 F. Supp. 3d at 847, or that a rival is denied or disadvantaged in access to significant sources of input or distribution. Dentsply, 399 F.3d at 189-90; McWane, 783 F.3d at 837-38 (foreclosure established if opportunities for rivals are “significantly limited” or practices “severely restrict the market’s ambit”). This Court has already found the evidence discussed above, see supra IV.A.3, was capable of showing that “Novartis was [f]oreclosed from much of the MCV4 [m]arket,” DO, 134 F. Supp. 3d at 846, even though there was no claim the challenged conduct eliminated Novartis or made it less efficient.68 The Court identified “internal business records from Sanofi and Novartis” showing that the Bundle “insulat[ed] Menactra from competition” and that “Novartis could not compete even if it gave Menveo away for free.” Id. The Court highlighted the testimony of a Novartis executive who stated “that Novartis could not overcome the bundle.” Id. And this Court referenced multiple of Prof. Elhauge’s analyses demonstrating that a hypothetical rival would have been forced to price below cost to compete for Sanofi loyal customers, and the Bundle impaired Novartis from competing for that group. Id. at 846-47. It is thus law of the case that foreclosure can be proven without evidence of rival elimination and without showing that the foreclosure harmed rival efficiency, and that Plaintiffs have offered such evidence. 67 Sanofi appears to challenge this law by arguing that Plaintiffs show foreclosure only from a “segment” of the market. MSJ 38. Neither of Sanofi’s cites supports the contention that complete market exclusion is necessary or that foreclosure from 40%-50% of the market is insufficient. Kolon Indus.v. E.I. Dupont de Nemours, 748 F.3d 160, 175-76 (4th Cir. 2014), holds only that a defendant without monopoly power who foreclosed only 2% of a market has no claim. Havoco of Am. v. Shell Oil Co., 626 F.2d 549, 558 (7th Cir. 1980), holds only that the loss of “a single contract with a single purchaser” without a showing of “a harmful effect on a more generalized market” is not sufficient. 68 See supra at pp. 3, 21, 25 & n.41 (noting that this Court rejected Sanofi’s argument that rival efficiency impairment was necessary). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 46 of 59 PageID: 34818 37 Ultimately, the point of showing foreclosure is to establish that exclusionary conduct harmed competition. McWane, 783 F.3d at 835 (while substantial foreclosure “‘serves a useful screening function’ as a proxy for anticompetitive harm . . . [t]he ultimate question remains whether the defendant’s conduct harmed competition”).69 It is true that foreclosure can harm competition by excluding rivals from the market entirely or making them less efficient. But, as this Court has found and the record reflects, those are not the only ways. As shown above, exclusionary conduct can harm competition by impairing a rival’s ability or incentive to compete for part of the market. See supra V.B.1.70 Indeed, Sanofi admits, and the Court has found, that the Bundle was capable of inflating prices even if it did not impair Novartis’s efficiency. None of Sanofi’s cited authorities, MSJ 34-41, supports its argument that the sole means by which market foreclosure can harm competition is by eliminating rivals or making them less efficient. See, e.g., Jefferson Par. Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 16 (1984), abr’d on other g’ds by Ill. Tool Works, 547 U.S. 28 (because antitrust “focuses on the probability of anticompetitive consequences,” tying is condemned where it affects “a substantial volume of commerce,” but no requirement that it makes a rival less efficient);71 ZF Meritor, 696 F.3d at 69 See also Dentsply, 399 F.3d at 187 (in addition to showing exclusionary practices, “there must be proof that competition . . . has been harmed”); Deborah Heart & Lung Ctr. v. Penn Presb. Med. Ctr., No. 11-1290, 2011 WL 6935276, at *7, n.8 (D.N.J. Dec. 30, 2011) (“[M]arket foreclosure analysis, like market power analysis, is merely a surrogate for a demonstration of actual anticompetitive effect”) (citation omitted); Jonathan M. Jacobson, Exclusive Dealing, “Foreclosure,” and Consumer Harm, 70 Antitrust L.J. 311, 362 (2002) (“The foreclosure concept was developed as a useful proxy for analyzing harm to competition. . . . [T]he relevant question is instead whether there has been an adverse effect on price, output, quality, choice, or innovation in the market as a whole.”). 70 See also E5 ¶ 617 (“Additional ways that foreclosure can anticompetitively inflate prices include: (1) by dividing the market, which happened in this case; (2) inefficient price discrimination; and (3) reducing rival expandability.”) (citing Einer Elhauge, Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harv. L. Rev. 397 (2009)). 71 Id. at 14-15 (tying can impair competition “by facilitating price discrimination”). Sanofi cites dicta in the concurring opinion in Jefferson Parish to support its argument that a rival must be excluded entirely for exclusive dealing to harm competition, MSJ 34, but that decision has never been interpreted to support Sanofi’s position—one contrary to law of the case and a mountain of Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 47 of 59 PageID: 34819 38 289 (mentioning that rivals “exited the market. . . because they could not maintain high enough market shares to remain viable,” but making no broader claim that this is necessary); Dentsply, 399 F.3d at 191 (citing a treatise that gives an example involving a non-dominant rival that was excluded or had its costs raised, but not stating that such circumstances are necessary); LePage’s, 324 F.3d at 159-60 (noting another court found foreclosure when a monopolist’s conduct undermined the survival of the competitor, but not stating that such effect was necessary).72 Sanofi’s citation to prior bundling cases fares no better. MSJ 37. None holds that rival elimination or efficiency impairment is a necessary precondition of competitive harm.73 Sanofi precedent. Jefferson Parish is inapposite given that the exclusive dealing agreement at issue had foreclosed only a single physician’s office, which was “only a very small fraction” of the total number of physicians in the area, and thus was unlikely to harm competition. 466 U.S. at 46. 72 See also Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 394 (7th Cir. 1984) (noting exclusive dealing is “cause for antitrust concern only if it impairs the health of the competitive process itself” and a plaintiff “must prove that the probable . . . effect of the exclusion will be to raise prices above . . . the competitive level, or otherwise injure competition”); McWane, 783 F.3d at 832 (finding an exclusive dealing arrangement can be harmful when it raises its rivals’ costs, but not stating this is the only way); Schor v. Abbott Labs., 457 F.3d 608, 610-11 (7th Cir. 2006) (noting plaintiff does not allege predatory pricing because “[defendant’s] rivals continue to make money,” but finding no antitrust violation because “[plaintiff’s] complaint does not allege any of the normal exclusionary practices—tie-in sales (or another form of bundling), group boycotts, exclusive dealing and selective refusal to deal, or predatory pricing”); Brantley, 675 F.3d at 1201 (finding no foreclosure at all); Morgan v. Ponder, 892 F.2d 1355, 1363 (8th Cir. 1989) (exclusionary conduct must only impact rival’s ability to compete). 73 See SmithKline, 575 F.2d at 1065 (exclusionary conduct made rival’s “prospects . . . poor,” but not stating that rival lost money or that this was necessary); Suture Express, 2016 WL 1377342, at *19 (not purporting to define the exclusive ways that bundling can harm competition); Natchitoches, 2009 WL 4061631, at *7 (finding that “foreclosure from the GPO market raised rivals’ costs” but also that harmed flowed from creation of “barriers to entry,” and not stating that this is necessary); Meijer, Inc. v. Abbott Labs., No. 07-5985, 2008 WL 4065839, at *2 (N.D. Cal. Aug. 27, 2008) (recounting plaintiffs’ allegations that conduct, as here, “neutraliz[ed] its . . . rivals’ ability to compete on price,” but not making any findings as to foreclosure); Abbott Labs. v. Teva Pharm. USA, Inc., 432 F. Supp. 2d 408, 423 (D. Del. 2006) (stating that “[t]he test is not total foreclosure, but whether the challenged practices bar a substantial number of rivals or severely restrict the market’s ambit”); Applied Med. Res. Corp. v. Ethicon Inc., No. 03-1329, 2006 WL 1381697, at *4 (C.D. Cal. Apr. 27, 2006) (holding simply that there was no foreclosure when a carve-out in bundling contracts meant that the bundled penalties did not apply to single product rivals, but that there was foreclosure before that); J.B.D.L. Corp. v. Wyeth-Ayerst Labs., Inc., No. 01-704, 2005 WL 1396940, at *14 (S.D. Ohio June 13, 2005) (merely noting that another court rejected plaintiffs’ arguments that discounts created “an impenetrable barrier to the entry of additional competitors,” but not stating that this is Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 48 of 59 PageID: 34820 39 argues that harm to rivals is especially necessary in bundling cases. MSJ 36. Not true. That claim is premised on Sanofi’s spurious assertion—previously rejected by this Court—that bundling involves “two stages,” one where the rival is excluded and a second where it recoups “the amount forsaken in discounts” once the rival is out of the market. Id. As this Court observed, the conduct here did not occur in “two stages” because Plaintiffs’ claim is that the Bundle “permitted [Sanofi] to block competition even while raising prices.” MTD Op., 2012 WL 12516572, at *8, *29 n.9. The record bears that out. It was not necessary to eliminate Novartis from the market or impair its efficiency for the Bundle to inflate MCV4 prices and restrict total market output. B. The Bundle Foreclosed Novartis’s “Opportunities to Compete” Sanofi argues the Bundle did not restrain Novartis’s “opportunities to compete.” MSJ 38- 39, 40-44. That claim is a rerun of its argument that the Bundle was not exclusionary. It is wrong for the same reasons. As the Court noted, record evidence shows that the Bundle restrained Novartis’s ability and incentives to compete for Restrained customers, and thereby divided the market and harmed competition. See supra V.B.1 & 2. Evidence shows Novartis did not merely “choose” not to compete aggressively for Restrained customers, as Sanofi suggests, but the Bundle blocked its “opportunities” to do so. See supra V.B.1.74 This Court already rejected Sanofi’s claim that the Bundle did not restrain competition. See DO, 134 F. Supp. 3d at 827, 832- 35, 846-47. Moreover, even if Novartis could have competed profitably for Restrained customers, the Bundle caused Novartis not to do so by making price cuts to gain sales a less necessary); Ramallo Bros. Printing v. El Dia, Inc., 392 F. Supp. 2d 118, 138 (D.P.R. 2005) (bundling must have an “exclusionary effect,” but not stating that it must eliminate the competitor). 74 Sanofi argues Prof. Elhauge’s conclusion that the Bundle’s loyalty requirements involve buyers’ committing to deal exclusively with Sanofi is an “artificial construct.” MSJ 20. False. As Prof. Elhauge explained, “It is true that buyers will choose the best of their restrained choices. But I don’t think it’s accurate to say that they simply get to choose the best price, because the pricing itself is restrained” by the Bundle. See P2164 (E.M. Tr. at 161-64). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 49 of 59 PageID: 34821 40 attractive alternative to focusing on Sanofi Disloyals, altering and diminishing Novartis’s incentives to compete on price. See supra V.B.1&2; see also E4 ¶ 211. That suffices to establish that the conduct substantially foreclosed competition. Furthermore, law of the case holds that Novartis’s ability to make limited sales to Restrained customers does not undermine substantial foreclosure. DO, 134 F. Supp. 3d at 832 (“Menveo’s acquisition of 6% of the share of Sanofi-loyal customers does not mean the bundle had no effect, as the bundled system was designed to retain some headroom. . . .That does not contradict Professor Elhauge’s theory that the bundle prevented Novartis from competing for the bulk of Sanofi-loyal customers.”);75 see also Natchitoches Par. Hosp. v. Tyco Int’l., 262 F.R.D. 58, 67-68 (D. Mass. 2008) (crediting Prof. Elhauge’s foreclosure share analysis). C. The Bundle Substantially Foreclosed Competition Sanofi argues that there is no foreclosure if it would have retained certain sales with Restrained customers even absent the Bundle. MSJ 41 n.33. That is wrong. Foreclosure involves assessing what share of sales is subject to a restraint and does not evaluate whether those sales would have gone to the rival absent the restraint. Eisai, 821 F.3d at 403 (“In analyzing the amount of foreclosure, our concern is not about which products a consumer chooses to purchase, but about which products are reasonably available to that customer.”).76 In computing the portion 75 Prof. Elhauge’s updated analysis altered these statistics slightly—9% share of MCV4 sales among Restrained customers and 30% share of Unrestrained. E4 ¶¶ 197-98. 76 See also Insight Equity, 2016 WL 3610155, at *6 (“[F]ailure to assert that [rival] . . . would have won any lens caster business even” without exclusionary agreements not material because foreclosure is evaluated “by reference to whether competition as a whole was restricted”); Areeda & Hovenkamp, Antitrust Law ¶ 1709a, at 89 (3d ed. 2011) (“[T]he foreclosure includes all sales that are, as a practical matter, covered by the defendant’s tie-ins, even if the defendant previously sold the tied product to the same customers without a tie”); id. ¶1709d at 98 (“[A]ll purchases covered by the tie should be counted as foreclosed to rivals even when many of the defendant’s customers had voluntarily purchased the same volume of the second product from it before there was any tie-in. Although the tie has not increased the defendant’s sales of the tied product to those customers or the Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 50 of 59 PageID: 34822 41 of the MCV4 market subject to the Bundle, Prof. Elhauge used the standard measure in bundling cases for foreclosure share. See, e.g., Natchitoches, 2009 WL 4061631, at *6-7 (crediting Prof. Elhauge’s foreclosure share analysis); Natchitoches, 262 F.R.D. at 67-68 (crediting Prof. Elhauge’s foreclosure share analysis, including his finding that the rival sold product to customers covered by challenged contracts, but it sold less to restricted than unrestricted part of the market).77 Sanofi’s own expert cites a scholarly article observing that “describ[ing] the share of distribution covered by the allegedly exclusionary agreements,” as Prof. Elhauge does here, is “the conventional and well-accepted method of measuring foreclosure.”78 This same approach to foreclosure share is used in tying cases: all customers covered by tying contracts are considered foreclosed. Sanofi is wrong that the foreclosure share method used for tying cannot be applied here. MSJ 40 n.30. Prof. Elhauge has shown the Bundle satisfies the relevant tests for tying, E4 ¶¶ 193-96; E5 ¶¶ 439-69, and binding precedent provides that tying market share represented by them, it has suppressed their previous freedom to transfer their business to competing suppliers during the life of the tying agreement.”). 77 See Applied Med. Resrs. Corp. v. J&J, 2004 Dist. LEXIS 29409, at *4-5, 12-13 (C.D. Cal. Feb. 23, 2004) (adopting portion of market covered by bundling contracts with GPOs as measure of foreclosure share in monopoly bundling case, and holding 35% share is sufficient); Ethicon, 2006 WL 1381697, at *3 (denying summary judgment in monopoly bundling case where foreclosure was correctly measured as share of “potential customers who have entered into bundled contracts with” the defendant); Masimo Corp. v. Tyco Hlth. Care Grp., 2004 WL 5907538, at *10 (C.D. Cal. June 10, 2004) (denying summary judgment on bundling claims based on percentage of “sales [in relevant market] subject to programs that bundled…discounts within other products”). 78 See Joshua D. Wright, Moving Beyond Naïve Foreclosure Analysis, 19 Geo. Mason L. Rev. 1163, 1174 (2012) (cited in R1 ¶ 452 n.541). Given this measure of foreclosure, it does not matter if, as Sanofi asserts, the Bundle “only reduced Menveo’s share by about 3 percentage points in the overall market.” MSJ 35 n.27. The Bundle foreclosed Menveo from about 50% of the market, restraining Novartis’s ability to compete for those customers, and thereby allowing Sanofi to charge substantially inflated prices. That the Bundle caused Sanofi not to compete aggressively for Unrestrained customers—allowing Novartis to gain greater sales with them without having to drop price—is not pertinent to the foreclosure share analysis. What share of the overall MCV4 market Novartis would have had absent the Bundle is irrelevant to the effect of the Bundle on competition and price. What matters is Novartis’s substantial foreclosure from Restrained customers, diminished competition, inflated prices and reduced overall MCV4 output. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 51 of 59 PageID: 34823 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 52 of 59 PageID: 34824 43 39-41. Untrue. As noted above, see supra V.B.5, Eisai concluded the conduct at issue there involved no bundling, loyalty commitments, or penalties and thus did not foreclose anyone. Eisai, 821 F.3d at 405-06 (“Such conduct does not present the same antitrust concerns as [bundling]”). Eisai did not, as Sanofi contends, rule that Prof. Elhauge calculated foreclosure share improperly. It held that none of the single-product loyalty discounts there foreclosed any competition. Id. at 406. It did not address foreclosure share in a case involving either bundling or loyalty commitments.83 Neither did Suture Express, which, as discussed above, see supra V.B.5, held the defendants had no market power and could not and did not harm competition.84 D. The Price-Cost Test Confirms Substantial Foreclosure Sanofi argues Plaintiffs have not shown substantial foreclosure because they have not satisfied a discount attribution test, sometimes called the PeaceHealth or price-cost test. It measures whether “a hypothetical MCV4 competitor would have to price below cost in order to compete with Sanofi-loyal customers on the Menactra bundle.” DO, 134 F. Supp. 3d at 846. It asks how low a hypothetical rival’s price would have to be to make up for the bundled penalties. If the rival would have to price below its costs, a competitor with the same costs as the incumbent—i.e., an “equally efficient” competitor—could not compete effectively. Sanofi argues (a) “the discount attribution test is the correct test,” and (b) its application here compels summary judgment. MSJ 42-44. Sanofi is wrong: the Third Circuit has not adopted the price-cost test for bundling cases and Prof. Elhauge nevertheless showed it is satisfied here. 83 Eisai adopted a flexible understanding of foreclosure, stating that a substantial foreclosure share did not necessarily have to be shown where there was other evidence of likely anticompetitive effects, stressing that “there is no set formula for making this determination,” and noting the importance in this context of the “likely or actual anticompetitive effects . . ., including whether there was reduced output, increased price, or reduced quality in goods or services.” Eisai, 821 F.3d at 403. 84 It’s My Party and Suture Express, which Sanofi cites, MSJ 41 n.31, are inapposite, see supra V.B.3, 5. Neither even addresses Prof. Elhauge’s foreclosure share analysis, let alone criticizes it. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 53 of 59 PageID: 34825 44 Sanofi claims that “the Third Circuit has not had the opportunity to determine whether the discount attribution test applies.” MSJ 43. Untrue. This Circuit has repeatedly declined to adopt it. LePage’s rejected its applicability to bundling. 324 F.3d at 155 (rejecting analogy to predatory pricing which requires below cost showing). The LePage’s dissent bemoaned the en banc majority’s rejection of the discount attribution test. 324 F.3d at 177-78. The Third Circuit confirmed this interpretation in ZF Meritor: “In LePage’s, we declined to apply the price-cost test to a challenge to a bundled rebate scheme.” 696 F.3d at 274 n.11.85 Further, while Plaintiffs need not meet the price-cost test to establish substantial foreclosure, satisfying it does “indicate[] an especially strong foreclosing effect.” E4 ¶ 176. The test is satisfied here. Contrary to Sanofi’s “worst-case-scenario” claim, MSJ 44, Prof. Elhauge’s analysis revealed that in 2010, when Menveo entered, a typical Sanofi Loyal physician following the CDC’s vaccination guidelines would face a penalty per dose of MCV4 vaccine of $89.41 by switching to Menveo. E4 ¶ 173. As this Court noted, since Menactra was priced at $98.56 per dose, “The price Novartis would have to use to overcome the bundle was therefore $9.15.” DO, 134 F. Supp. 3d at 832; E4 ¶ 173 (“Menveo would need to be priced at less than $9.15 ($98.56 - $89.41) per dose for a typical restrained customers to make up for the bundled penalties on multiple Pediatric vaccines and save money by switching if it followed the recommended 85 Courts have recognized that the test does not apply in the Third Circuit, including the main case Sanofi cites on the point, Collins Inkjet Corp. v. Eastman Kodak Co., 781 F.3d 264, 273-74 (6th Cir. 2015) (the Third Circuit “declined to apply a cost-based analysis”); Cascade Health v. PeaceHealth, 515 F.3d 883, 899 (9th Cir. 2008) (noting Third Circuit has no price-cost test for bundling claims, but instead holds that “all bundled discounts offered by a monopolist are anticompetitive with respect to its competitors who do not manufacture an equally diverse product line”). Even Sanofi’s own expert contradicts Sanofi’s argument in his published writings. See Rubinfeld, 3M’s Bundled Rebates, 72 U. Chi. L. Rev. 243, 251 (2005) (“[I]n its condemnation of 3M’s bundled rebate programs, the Third Circuit appears to attack price-cutting offers as foreclosing competition under § 2—whether below cost or not”); id. at 262 (“the Third Circuit accepted that LePage’s failed to prove any below-cost pricing by 3M: that includes failure to prove that 3M went below its cost on incremental tape sales (where it displaced LePage’s) even if the bundled rebates were fully attributed to such sales.”). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 54 of 59 PageID: 34826 45 vaccine schedule.”). But $9.15 is below the cost for Menveo, making it impossible for Novartis to compete for the vast bulk of Sanofi Loyal customers. E4 ¶¶ 173, 179-80; DO, 134 F. Supp. 3d at 846 (evidence shows “Novartis could not compete even if it gave away Menveo”). Sanofi claims Prof. Elhauge’s analysis of the typical physician makes unrealistic assumptions. MSJ 44. That claim raises a disputed issue of fact. Prof. Elhauge has responded in detail to each of Sanofi’s objections,86 and his analysis is part of an expert opinion this Court already deemed admissible and reliable. DO, 134 F. Supp. 3d at 832, 846. Finally, Sanofi argues the price-cost test “has not been satisfied for any actual customer.” MSJ 44. False. Prof. Elhauge showed that even after the CDC recommended a booster shot in January 2011, which had the effect of lowering the bundled penalties, the Bundle still flunked the price-cost test for at least 29% of Restrained customers. See E5 ¶¶ 593, 610-11 & Fig. 3. VII. Sanofi’s Attack on the Purported “Price War Avoidance Theory” Is Misguided Sanofi attacks what it calls “Plaintiffs’ Novel Price War Avoidance Theory of Bundling.” MSJ 16-23. It criticizes Prof. Elhauge’s analysis in general and as applied in this case. Its argument suffers from at least four fatal flaws: (1) it violates law of the case; (2) it contests admissible economic evidence with lawyerly opinion; (3) it mischaracterizes Prof. Elhauge’s economic theory; and (4) it misstates the relevant law. First, Sanofi’s argument in effect repeats its failed Daubert motion. True, Sanofi tacks on the naked assertion that Plaintiffs cannot establish two elements of their claims: “anticompetitive conduct” and “foreclosure.” MSJ 23. But Sanofi offers no explanation as to how or why that is so. Regardless, the substance of Sanofi’s position is that Prof. Elhauge’s economic analysis does not work. But Sanofi has already moved to exclude his market division approach—which Sanofi inaptly calls a “Price War” theory—and 86 See, e.g., E5 ¶¶ 590-603 (explaining reasonableness of, e.g., assuming Sanofi would enforce its contracts and lack of availability of other discounts from Sanofi to offset bundled penalties). Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 55 of 59 PageID: 34827 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 56 of 59 PageID: 34828 Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 57 of 59 PageID: 34829 48 price discriminate. MSJ 19. 11. Prof. Elhauge could not decide whether this case involved buyer commitment. MSJ 19-20. False. Prof. Elhauge actually said he did not assume buyer commitment in this case but rather showed it with evidence. Elh. Cl. Tr. at 368; E1 ¶ 7. Requiring customers to commit to a bundle is not exclusionary conduct because customers choose to make that commitment. MSJ 20. False. Courts routinely hold that “voluntary” buyer commitments can be exclusionary, including in bundling, tying, and exclusive dealing cases, as is supported by economic analysis, especially where, as here, the commitments are induced by bundled penalties. E.M. Tr. at 161-64; see supra, V.B.2, V.B.4. Prof. Elhauge said buyer commitments have anticompetitive effects only if they raise rivals’ costs. MSJ 20 n.16. False. Prof. Elhauge said that his model proved that such commitments could artificially inflate prices through a market division. E.M. Tr. at 167. Prof. Elhauge predicts loyalty discounts with buyer commitment will always foreclose 100% of the market. MSJ 20- 21. False. In a differentiated market, like this one, the model predicts far less than 100% foreclosure. See P2185 (Elhauge & Wickelgren) at 115 & n.18. Prof. Elhauge switched his theory from one without buyer commitment to one with buyer commitment, because he noted that Novartis had a “choice” whether to use low prices to compete for Restrained customers. MSJ 21 n.17. False. Prof. Elhauge has consistently said this case involved buyer commitments that, together with the bundled penalties, made lower prices by Novartis an unsuccessful strategy for selling to Restrained customers. Compare E1 ¶¶ 7, 111, 113, 195 with E4 ¶¶ 90, 92, 128, 155, 182. Prof. Elhauge’s theory does not apply when loyalty commitments are procured by bundling. MSJ 2. False. This Court has already rejected this claim. See DO, 134 F. Supp. 3d at 831, 831, 835; see also E5 ¶¶ 365-66 (bundled penalties make it “easier to procure and enforce buyer agreements to loyalty discounts that discourage discounting”). Finally, Sanofi cites four cases and implies they hold that Prof. Elhauge’s market division theory does not support a federal antitrust violation. MSJ 17 (citing Schor, 457 F.3d at 612; It’s My Party, 811 F.3d at 687-88; Suture Express, 2016 WL 1377342, at *31; Eisai, 821 F.3d at 405-06). As discussed above, see supra V.B.3 & 5, none of these cases rejects the theory on which Prof. Elhauge relies in this case or otherwise provides support for summary judgment. VIII. Conclusion For the foregoing reasons, Sanofi’s motion should be denied. Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 58 of 59 PageID: 34830 49 Dated: November 11, 2016 s/ Peter S. Pearlman Peter S. Pearlman COHN LIFLAND PEARLMAN HERRMANN & KNOPF LLP Park 80 West – Plaza One 250 Pehle Avenue, Suite 401 Saddle Brook, NJ 07663 Tel: (201) 845-9600 Fax: (201) 845-9423 psp@njlawfirm.com s/ James E. Cecchi James E. Cecchi CARELLA, BYRNE, CECCHI, OLSTEIN BRODY & AGNELLO, P.C. 5 Becker Farm Road Roseland, NJ 07068 Tel: (973) 994-1700 Fax: (973) 994-1744 jcecchi@carellabyrne.com Liaison Counsel for Plaintiffs and the Class Eric L. Cramer Michael J. Kane Zachary D. Caplan BERGER & MONTAGUE, P.C. 1622 Locust Street Philadelphia, PA 19103 Tel: (215) 875-3000 Fax: (215) 875-4604 ecramer@bm.net mkane@bm.net zcaplan@bm.net Linda P. Nussbaum Bradley J. Demuth Hugh D. Sandler NUSSBAUM LAW GROUP, P.C. 1211 Avenue of the Americas, 40th Floor New York, NY 10036 Tel: (917) 438-9102 lnussbaum@nusspaumpc.com bdemuth@nussbaumpc.com hsandler@nussbaumpc.com Co-Lead Counsel for Plaintiffs and the Class Case 2:11-cv-07178-JMV-MAH Document 492 Filed 11/14/16 Page 59 of 59 PageID: 34831