Kamakahi v. American Society for Reproductive Medicine et al

Memorandum in Opposition re Motion to Dismiss

N.D. Cal.August 15, 2011

1 2 3 4 5 6 7 8 9 Rosemary M. Rivas (State Bar No. 209147) rrivas@finkelsteinthompson.com Mark Punzalan (State Bar No. 247599) mpunzalan@finkelsteinthompson.com FINKELSTEIN THOMPSON LLP 100 Bush Street, Suite 1450 San Francisco, Califomia 94104 Telephone: (415) 398-8700 Facsimile: (415) 398-8704 Attomeys for Individual and Representative Plaintiff Lindsay Kamakahi [Additional Counsel Listed on Signature Page] UNITED STATES DISTRICT COURT 10 11 NORTHERN DISTRICT OF CALIFORNIA 12 LINDSAY KAMAKAHI, an individual, on behalf of herself and all others similarly situated, 13 14 15 16 vs. Plaintiff, AMERICAN SOCIETY FOR REPRODUCTIVE 17 MEDICINE; SOCIETY FOR ASSISTED 18 REPRODUCTIVE TECHNOLOGY, 19 20 21 22 23 24 25 26 27 28 Defendants. Case No. 3:11-CV-1781 SBA PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S FIRST AMENDED CLASS ACTION COMPLAINT Date: November 15, 2011 Time: 1:00 p.m. Courtroom: 1, 4th Floor Judge: Hon. Saundra B. Armstrong PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page1 of 32 TABLE OF CONTENTS Pag INTRODUCTION AND SUMMARY OF ARGUMENT .............................................................. 1 FACTS ............................................................................................................................................ 2 STANDARDS OF LAW ................................................................................................................. 4 a. Standards of Law on a Motion to Dismiss ........................................................................... 4 b. Standards of Antitrust Analysis ........................................................................................... 4 DEFENDANTS' MOTION TO DISMISS ...................................................................................... 6 PLAINTIFF ALLEGES A PER SE VIOLATION OF THE ANTITRUST LAWS ...................... 7 a. The Maximum Price Rules Are A Price Fixing Agreement ................................................ 7 b. Courts Consistently Judge Price Fixing Agreements Between Professionals Under the Per Se Standard ........................................................................................................................... 7 c. Defendants' Attempt to Overcome the Per Se Rule Fails .................................................. 11 d. Defendants' Purported Pro competitive Justifications do not Justify Applicability of the Rule of Reason Standard .................................................................................................... 12 DEFENDANTS' MOTION NECESSARILY FAILS UNDER THE QUICK LOOK DOCTRINE ................................................................................................................................. 13 a. The Quick Look Doctrine does not Require Market Analysis ........................................... 13 b. Defendants' Justifications for the Maximum Price Rules are Counter to Law and Economically Flawed ......................................................................................................... 14 IN THE ALTERNATIVE, PLAINTIFF ADEQUATELY ALLEGES A VIOLATION OF THE ANTITRUST LAWS UNDER THE RULE OF REASON ........................................................ 18 a. Plaintiff Properly Alleges Relevant Product and Geographic Markets .............................. 18 1. Plaintiff s Product Market is Adequately Defined .................................................. 18 11. Plaintiffs Geographic Market is Adequately Defined ........................................... 21 TABLE OF CONTENTS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page2 of 32 1 b. Plaintiff Properly Alleges Market Power ........................................................................... 22 2 VIII. CONCLUSION ............................................................................................................................ 23 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 TABLE OF CONTENTS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page3 of 32 1 TABLE OF AUTHORITIES 2 Cases Page(s) 3 4 5 6 Advanced Health-Care Services, Inc. v. Radford Cmty. Hosp., 910 F.2d 139 (4th Cir. 1990) ............................................................................................................. 6, 14 Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988) ............................................................................................................................... 12 Amarel v. Connell, 7 102 F .3d 1494 (9th Cir. 1996) ............................................................................................................... 23 8 Ancar v. Sara Plasma, 9 964 F.2d 465 (5th Cir. 1992) ............................................................................................................... 5, 7 10 Arizona v. Maricopa County Med. Soc'y., 11 457 U.S. 332 (1982) ........................................................................................................................ passim 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ................................................................................................................................. 4 Big Bear Lodging Ass'n v. Snow Summit, Inc., 182 F .3d 1096 (9th Cir. 1999) ............................................................................................................... 21 Brennan v. Concord EFS, Inc., 369 F. Supp. 2d 1127 (N.D. Cal. 2005) ................................................................................. 6, 14, 15, 16 Cal. Dental Ass'n v. F.TC, 526 U.S. 756 (1999) ............................................................................................................................... 12 California ex reI. Harris v. Safeway, Inc., 2011 WL 2684942 (9th Cir. July 12, 2011) ................................................................................... 2,5, 13 Carter v. Variflex, Inc., 101 F. Supp. 2d 1261 (C.D. Cal. 2000) ................................................................................................... 5 Catalano, Inc. v. Target Sales, 446 U.S. 643 (1980) ............................................................................................................................... 11 Craftsmen Limousine, Inc. v. Ford Motor Co., 363 F.3d 761 (8th Cir. 2004) ................................................................................................................. 17 Datel Holdings Ltd. v. Microsoft Corp., 712 F. Supp. 2d 974 (N.D. Cal. 2010) ................................................................................................... 20 TABLE OF AUTHORITIES Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page4 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Deutscher Tennis Bund v. ATP Tour, Inc., 610 F.3d 820 (3d Cir. 2010) .................................................................................................................. 13 Erickson v. Pardus, 551 U.S. 89 (2007) ................................................................................................................................... 4 F.TC v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411 (1990) ........................................................................................................................ passim Freeman v. San Diego Ass'n of Realtors, 322 F.3d 1133 (9th Cir. 2003) ......................................................................................................... 10, 15 FTC v. Ind. Fed'n of Dentists, 476 U.S. 447 (1986) ............................................................................................................. 11, 12, 16,22 General Cinema Corp. v. Buena Vista Distribution Co., Inc., 532 F. Supp. 1244 (C.D. Cal. 1982) ...................................................................................................... 11 Golden Gate Pharm. Svcs., Inc. v. Pfizer, Inc., 2010 WL 1541257 (N.D. Cal. Apr. 16, 2010) ....................................................................................... 21 Goldfarb v. Va. State Bar, 421 U.S. 773 (1975) ................................................................................................................. 1,8, 10, 11 Gompper v. VISX, Inc., 298 F.3d 893 (9th Cir. 2002) ................................................................................................................... 4 Graphics Prods. Distribs v. Itek C01p., 717 F.2d 1560 (11 th Cir. 1983) ............................................................................................................. 22 In re Ebay Seller Antitrust Litig., 2010 WL 760433 (N.D. Cal. Mar. 4, 2010) ........................................................................................... 23 Johnson v. Riverside HeaIthcare System, LP, 534 F.3d 1116 (9th Cir.2008) .................................................................................................................. 4 Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979 (9th Cir. 2000) ......................................................................................................... 5, 7, 23 Kreuzer v. American Academy of Periodontology, 735 F.2d 1479 (D.C. Cir. 1984) ............................................................................................................. 17 Law v. Nat'l Collegiate Athletic Ass'n, 134 F.3d 1010 (lOth Cir. 1998) ............................................................................................................. 18 Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580 (9th Cir.2008) ................................................................................................................ 4, 5 11 TABLE OF AUTHORITIES Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page5 of 32 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 ~Moore v. Boating Industrial Associations, 819 F.2d 693 (7th Cir. 1987) ................................................................................................................. 17 Nat 'I Soc'y of Profl Eng. v. United States, 435 U.S. 679 (1978) ........................................................................................................................ passim NCAA v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85 (1984) ........................................................................................................................... 13, 14 Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038 (9th Cir. 2008) ........................................................................................................... 2, 19 Paladin Associates, Inc. v. Montana Power Co., 328 F.3d 1145 (9th Cir. 2003) ................................................................................................................. 5 Pecover v. Electronics Arts, 633 F. Supp. 2d 976 (N.D. Cal. 2009) ....................................................................................... 2,3,6,18 Reyn's Pasta Bella, LLC v. Visa US.A., 259 F. Supp. 2d 992 (N.D. Cal. 2003) ..................................................................................................... 7 Shred-It Am., Inc. v. MacNaughton, 2011 WL 1842997 (D. Haw. May 13, 2011) ......................................................................................... 21 Sparling v. Daou, 411 F.3d 1006 (9th Cir. 2005) ................................................................................................................. 4 Tanaka v. Univ. ofS. Cal., 252 F.3d 1059 (9th Cir. 2001) ......................................................................................................... 18,20 Todd v. Exxon Corp., 275 F.3d 191 (2d Cir. 2001) .................................................................................................................. 20 TYR Sport Inc. v. Warnaco Swimwear Inc., 679 F. Supp. 2d 1120 (C.D. Cal. 2009) ................................................................................................. 20 United States v. Alston, 974 F.2d 1206 (9th Cir. 1992) ................................................................................................. 7,9, 12, 13 United States v. Brown University, 5 F.3d 658 (3d Cir. 1993) ........................................................................................................................ 9 United States v. Grinnell Corp., 27 384 U.S. 563 (1966) ............................................................................................................................... 22 28 111 TABLE OF AUTHORITIES Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page6 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 United States v. Kahan & Lessin Co., 695 F.2d 1122 (9th CiT. 1982) ............................................................................................................... 13 United States v. McKesson & Robbins, Inc., 351 U.S. 305 (1956) ............................................................................................................................. 8,9 United States v. Socony- Vacuum Oil Co., 310 U.S. 150 (1940) ................................................................................................................................. 8 Wilk v. American Medical Association, 719 F.2d 207 (7th CiT. 1983) ................................................................................................................. 17 IV TABLE OF AUTHORITIES Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page7 of 32 1 Plaintiff hereby responds to the Motion to Dismiss ("MTD") filed by Defendants American 2 Society for Reproductive Medicine ("ASRM") and Society for Assisted Reproductive Technology 3 ("SART") (collectively referred to as the "Defendant Associations"). I 4 I. INTRODUCTION AND SUMMARY OF ARGUMENT 5 Defendants' Motion to Dismiss concedes that Plaintiff has adequately alleged a horizontal 6 agreement among ASRM, SART and the members of the Defendant Class of assisted reproduction 7 clinics to set the maximum price for Donor Services (defined infra). MTD at 6. The sole argument 8 advanced by Defendants in support of dismissal is their claim that Plaintiff has failed to allege that 9 agreement is illegal because the Complaint "contains only conclusory allegations defining the relevant 10 product and geographic markets at issue." MTD at 1. 11 Because a plaintiff alleging a per se violation of the antitrust laws need not plead relevant 12 product or geographic markets, Defendants' argument rests on the false premise that price fixing 13 agreements are not per se illegal when canied out by professional organizations that claim to act for 14 charitable reasons. The opposite is true. It is well-settled that horizontal price fixing agreements are per 15 se illegal, even when conducted through a professional organization. See, e.g., Arizona v. Maricopa 16 County Med. Soc y., 457 U.S. 332, 348 (1982); see also § V(b), infra. This remains true, even when a 17 defendant association offers an ethical justification for the restraint because "[t]he social justifications 18 proffered for [ a] restraint of trade ... do not make it any less unlawful." F. T C. v. Superior Court Trial 19 Lawyers Ass 'n, 493 U.S. 411, 424 (1990). As a result, Defendants do not, and cannot, rely on decisions 20 that involve price-fixing in support of their "professional organizations" argument. See Goldfarb v. Va. 21 State Bar, 421 U.S. 773, 786-87 (1975) (noting "the classic basis traditionally advanced to distinguish 22 professions from trades, businesses and other occupations ... loses some of its force when used to 23 support ... fee control activities."). Indeed, the per se standard forecloses inquiry into the claimed 24 pro competitive justifications Defendants offer for their price fixing agreement. See § V (d), infra. Even 25 if inquiry into those pro competitive justifications were appropriate, their validity cannot be decided on a 26 motion to dismiss where the Court is required to take Plaintiffs allegations of anti competitive effect as 27 28 I References to Plaintiffs First Amended Complaint are in the form "~_." 1 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page8 of 32 1 true. See § III(b). 2 Defendants' argument that the per se standard is inappropriate leads them to the conclusion that 3 the rule of reason governs Plaintiffs claims. This not only ignores the clear application of the per se 4 analysis, but also wholly ignores the alternative "quick look" mode of analysis, which is typically 5 utilized to evaluate horizontal restraints by professional associations when those restraints are not 6 subject to the per se rule. See, e.g., Nat 'I Soc y of Profl Eng. v. United States, 435 U.S. 679, 696 7 (1978). Under that standard - which does not require a "detailed market analysis," but rather involves a 8 quick look at the proffered justifications for a restraint - Plaintiff is not required to plead or prove a 9 relevant geographic or product market. California ex reI. Harris v. Sajeway, Inc., 08-55671, 2011 WL 10 2684942, at *11 (9th Cir. July 12,2011); Carter, 101 F. Supp. 2d at 1266. 11 Finally, Defendants' rule of reason argument seeks to hold Plaintiff to an impermissibly high 12 standard. Even if that analysis applied here, Defendants have not met their burden of showing that 13 Plaintiffs market allegations are "facially unsustainable." NewcaIIndus., Inc. v. Ikon Office Solution, 14 513 F.3d 1038,1045 (9th Cir. 2008). This is particularly true at this early stage, where the Court is 15 required to accept Plaintiffs market definition allegations as true. Pecover v. Electronics Arts, 633 F. 16 Supp. 2d 976,983 (N.D. Cal. 2009). 17 For all of these reasons, this Court should deny the Defendants' Motion to Dismiss. 18 II. FACTS 19 This action challenges, as per se illegal, a horizontal agreement to fix the maximum price paid 20 for Donor Services, defined as the time spent, and the inconvenience, labor, discomfort and risk incurred 21 by women ("AR Egg Providers") providing human eggs (or "oocytes") for use in artificial reproduction 22 ("AR Eggs."). ~ 1; see also ~~ 47-48. 23 Defendants ASRM and SAR T are the two largest professional organizations for reproductive 24 medicine professionals in the United States. ~~ 10, 11. Over 85% of the medical clinics engaged in the 25 practice of reproductive medicine belong to SART. ~ 11. The SART-member clinics compete with one 26 another to procure AR Eggs from AR Egg Providers and to use those eggs to perfonn assisted 27 reproductive procedures sold to clients. Each SART-member clinic is a member of the Defendant Class, 28 as are independent agencies that purchase Donor Services from AR Egg Providers. ~ 12. As a 2 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page9 of 32 1 precondition to membership, SART requires its members to agree to comply with rules promulgated by 2 ASRM's Ethics Committee. ~ 51. Among other things, the ASRM rules govern compensation in the 3 Donor Services market, as neither Congress, nor the vast majority of the states have enacted legislation 4 governing compensation relating to Donor Services. ~ 50. 5 Defendant Class members pay for Donor Services for the express purpose of "increase [ing] the 6 number of oocyte donors" and "advance[ing] the goal of ethical fairness to donors." MTD Ex. 1 at 307. 7 Indeed, Defendants have explicitly noted the paternalistic danger of barring payments to AR Egg 8 Providers and have expressly argued that the risks of egg donation "are not so severe as to justify 9 intervention in the decision-making authority of adult women." Id. 10 Prior to 2000, the free operation of competition set the price paid for Donor Services. ~ 57. In 11 2000, Defendants elected to reverse course and suppress the price paid for those services. ~ 58. To 12 accomplish this result, ASRM's Ethics Committee promulgated a report entitled "Financial Incentives in 13 Recruitment of AR Egg Providers," which it reaffirmed in 2007. ~~ 59,63. This report set forth rules 14 ("Maximum Price Rules") governing compensation paid for Donor Services, and mandated that "at this 15 time sums of $5000 or more require justification and sums above $10,000 go beyond what is 16 appropriate." ~~ 60,63. ASRM purportedly based the Maximum Price Rules on the rates prevailing for 17 sperm donation in the year 2000. ~~ 61, 62. The process of donating AR Eggs, however, is significantly 18 more intrusive, burdensome, painful, and risky than the process of donating sperm. ~ 104. ASRM has 19 never increased the Maximum Price Rules' compensation cap. ~ 64. 20 ASRM has repeatedly issued rules requiring compliance with the Maximum Price Rules, ~~ 66, 21 67, and SAR T requires its member clinics to agree to abide by these rules as a precondition of 22 membership. ~ 69. Those clinics have done so. ~~ 70, 71. Additionally, because some reproductive 23 clinics acquire AR Eggs from independent agencies, SART has required agencies serving SART- 24 member clinics to sign an agreement to adhere to the Maximum Price Rules, ~ 76, and has made clear 25 that it would punish independent agencies that failed to do so. ~ 78. Many independent agencies have 26 signed that agreement. ~~ 78 - 80. Indeed, many affirmatively tout on their websites their agreement to 27 the Maximum Price Rules. ~~ 82 - 96. 28 The Defendants' Maximum Price Rules have successfully suppressed the prices paid for AR 3 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page10 of 32 Eggs. A SART study performed in 2007 demonstrated that the average price paid for Donor Services 2 was $4,217 for SART clinics and $5,200 for independent agencies serving SART clinics. ~ 98. 3 III. STANDARDS OF LAW 4 a. Standards of Law on a Motion to Dismiss 5 In In re Flash Memory Antitrust Litig , this COUli made clear the standards governing a motion 6 to dismiss under Rule 12(b)(6): 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 To survive a motion to dismiss for failure to state a claim, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "Specific facts are not necessary; the statement need only give the defendant [ s] fair notice of what ... the claim is and the grounds upon which it rests." Erickson v. Pal-dus, 551 U.S. 89, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007) (internal quotation marks omitted); Johnson v. Riverside Healthcare System, LP, 534 F.3d 1116, 1122 (9th Cir.2008). "In general, the inquiry is limited to the allegations in the complaint, which are accepted as tme and constmed in the light most favorable to the plaintiff." Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir.2008). 643 F. Supp. 2d 1133, 1141 (N.D. Cal. 2009). "If dismissal is warranted, it is generally without prejudice, unless it is clear the complaint cannot be saved by any amendment." Id. (citing Sparling v. Daou, 411 F.3d 1006, 1013 (9th Cir. 2005); Gompper v. VISX, Inc., 298 F.3d 893,898 (9th Cir. 2002)). h. Standards of Antitrust Analysis The '" Sherman Act, so far as price-fixing agreements are concerned, establishes one uniform mle applicable to all industries alike. '" Maricopa County Med. Soc'y, 457 U.S. at 349 (quoting United States v. Socony- Vacuum Oil Co., 310 U.S. 150, 222 (1940)). That "uniform mle" is that such agreements are per se illegal, and universally condemned under the antitmst laws. Id. Accordingly, a plaintiff alleging a price fixing agreement among competitors is not required to allege the defendants' market power, nor the anticompetitive effects of the agreement. Id. Rather, the "per se mles ... reflect a longstanding judgment that the prohibited practices by their nature have' a substantial potential for impact on competition.'" Superior Court Trial Lawyers Ass'n, 493 U.S. at 433 (price fixing and group boycott agreement by trial lawyers' association per se illegal). "[H]orizontal price fixing is a per se violation regardless of whether the prices set are minimum or maximum." Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979, 982 (9th Cir. 2000) ("Foremost in the category of per se violations is 4 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page11 of 32 1 horizontal price-fixing among competitors."); see also Ancar v. Sara Plasma, 964 F.2d 465,470 (5th 2 Cir. 1992) (horizontal agreement to fix maximum price paid for blood plasma per se illegal). 3 The per se standard applicable to price fixing is one of three modes of analysis used to assess 4 antitrust violations. The second - applicable to actions challenging restraints whose anticompetitive 5 effects are not immediately apparent - is the "rule of reason," where courts "weigh[] legitimate 6 justifications for a restraint against any anti competitive effects," including an analysis of a defendants' 7 market power in a relevant market. Paladin Associates, Inc. v. Montana Power Co., 328 F.3d 1145, 8 1156 (9th Cir. 2003). The third method (known as the "quick look" standard) is applicable where per se 9 treatment is inappropriate, but the challenged restraint is of a type where "the great likelihood of 10 anticompetitive effect can easily be ascertained." Cal. Dental Ass 'n, 526 U.S. at 770. The "quick look" 11 standard recognizes that "[f]ull rule of reason treatment is unnecessary where the anti competitive effects 12 are clear even in the absence of a detailed market analysis." Cal. ex reI. Harris v. Safeway, Inc., 08- 13 55671,2011 WL 2684942, at *11 (9th Cir. July 12,2011). Accordingly, the "quick look" standard does 14 not require a plaintiff to plead a relevant market or defendant's market power. Id.; see also Carter v. 15 Variflex, Inc., 101 F. Supp. 2d 1261,1266 (C.D. Cal. 2000). Rather, the court merely takes a "quick 16 look" at the pro competitive justifications proffered for a restraint. Harris, 2011 WL 2684942, at * 11. 17 Moreover, even if a court preliminarily determines that the "quick look" or "rule of reason" 18 analysis applies, it is still required to construe the factual allegations of the complaint in the light most 19 favorable to the plaintiff. Lazy Y Ranch, 546 F.3d at 588. Accordingly, so long as the plaintiff properly 20 alleges that a p31iicular practice has anti competitive effects, a Rule 12(b)(6) motion must be denied even 21 ifthe defendant offers justification for the restraint. "Whatever the merits of these [justifications], they 22 are intrinsically factual, contrary to plaintiffs' pleading and inappropriate for resolution at the motion to 23 dismiss stage." Brennan v. Concord EFS, Inc., 369 F. Supp. 2d 1127, 1133 (N.D. Cal. 2005). Indeed, 24 the Ninth Circuit has noted that even at the summary judgment stage, "[t]he law clearly envisions that 25 the balancing test is normally reserved for the jury." Am. Ad Mgmt., Inc. v. GTE Corp., 92 F.3d 781, 26 791 (9th Cir. 1996). 27 Accordingly, even under a rule of reason or quick look analysis, the question of whether a 28 p31iicular justification for an anticompetitive restraint is a "valid justification which also outweighs any 5 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page12 of 32 1 restraint on trade is a question of fact that should properly be decided by the jury." Id. At the pleading 2 stage, "the plaintiffs allegations of adverse effects on competition must be accepted as true, and the 3 defendants' pro-competitive justifications considered unproven. Until some discovery is completed, 4 there is no record upon which to assess the reasonableness of the restraints alleged by the plaintiff' and 5 summary dismissal is inappropriate. Advanced Health-Care Services, Inc. v. Radford Only. Hosp., 910 6 F.2d 139, 145 (4th Cir. 1990). This sanle precept holds true for market definition allegations in a full- 7 blown rule of reason case. Pecover, 633 F. Supp. 2d at 983 ("The rule of reason analysis requires a 8 factual analysis of the line of commerce, the market area and the affected share of the relevant market .. 9 . Such a factual inquiry is improper at this stage in the proceedings.") 10 IV. DEFENDANTS' MOTION TO DISMISS 11 Defendants' Motion seeks dismissal on a single, narrow ground - that the Complaint purpOliedly 12 "contains only conclusory allegations defining the relevant product and geographic markets at issue." 13 MTD at 1. To reach this ground, Defendants request this Court make a number of legal determinations 14 in their favor. 15 First, Defendants argue that the per se ban on price fixing applies differently to professional 16 organizations and further argue that this Court should weigh purported justifications for the Maximum 17 Price Rules before deciding if the per se standard applies. MTD at 6. 18 Second, Defendants present a number of justifications for the Maximum Price Rules and ask this 19 Court to detelmine that these justifications outweigh the anti competitive effects of the Maximum Price 20 Rules. MTD at 10- 17. Importantly, Defendants never argue that these purported justifications 21 themselves warrant dismissal of the Complaint. Rather, they only argue that they warrant rejection of 22 the long-standing per se bar against price fixing and thus that Plaintiff must plead and prove relevant 23 product and geographic markets. 24 Third, Defendants request this COUli determine that Plaintiffs product and geographic market 25 definitions are facially unsustainable. This is the only ground upon which Defendants seek dismissal. 26 Accordingly, if this Court determines that Plaintiff need not plead a relevant market, Defendants have 27 failed to present any grounds for dismissing the Complaint. 28 As detailed below, each of Defendants' arguments fails. 6 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page13 of 32 1 V. PLAINTIFF ALLEGES A PER SE VIOLATION OF THE ANTITRUST LAWS 2 a. The Maximum Price Rules Are A Price Fixing Agreement 3 While the product at issue here may be exceptional, the anticompetitive agreement is not. 4 Defendants concede that the Complaint properly alleges that Defendant Class members (who compete 5 with one another) have "agree[ d] to confoml to the ASRM ethical guidelines concerning compensation 6 of egg donors." MTD at 6. This agreement between horizontal competitors to fix or stabilize the price 7 they pay for a particular service is a prototypical horizontal price fixing agreement. Reyn 's Pasta Bella, 8 LLC v. Visa US.A., 259 F. Supp. 2d 992, 998 (N.D. Cal. 2003) (defining price fixing). Indeed, the 5th 9 Circuit has correctly noted a complaint alleging a horizontal agreement to fix the price paid for blood 10 plasma alleged aper se violation of the Shennan Act. Ancar, 964 F.2d at 470. It makes no difference 11 that Defendants characterize the agreement as an ethical guideline: "[n]eedless to say, adoption of 12 suggested or 'maximum' fee schedules will run afoul of Section One's per se rule as thinly-veiled 13 attempts at price fixing." United States v. Alston, 974 F.2d 1206, 1214 (9th Cir. 1992). 14 This, standing alone, renders the Maximum· Price Rules per se illegal, without any inquiry into 15 their anticompetitive effects. Jd.; Ancar, 964 F .2d at 470. Even if this were not so, there is no serious 16 dispute that the Maximum Price Rules inhibit competition. "The aim and result of every price-fixing 17 agreement, if effective, is the elimination of one fonn of competition." Knevelbaard, 232 F.3d at 986. 18 Indeed, the copy of the Maximum Price Rules submitted with the MTD demonstrates that the intended 19 purpose of the Rules is to inhibit price competition by preventing clinics and agencies from offering 20 higher prices for Donor Services. See MTD Ex. 1 at 306 (describing higher prices in Donor Services 21 market). The real theory underlying Defendants' defense is that they disapprove of the effects of 22 competition in the market. But "[t]he elimination of so-called competitive evils [in an industry] is no 23 legal justification" for price-fixing agreements. Maricopa County ]yJed. Soc y, 457 U.S. at 349. 24 Defendants' efforts to cure those perceived evils by price fixing are per se illegal. Jd. at 352. 25 h. Courts Consistently Judge Price Fixing Agreements Between Professionals Under 26 the Per Se Standard 27 Defendants rely on a footnote in Goldfarb to argue that the per se rule does not apply to the price 28 fixing agreement here because the defendants are professional organizations. See MTD at 9 (citing 421 7 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page14 of 32 1 U.S. at 788 n.17. But the United States Supreme Court has consistently and repeatedly affirmed that 2 price fixing conducted by professional organizations is per se illegal, begimling with Goldfarb itself. 3 421 U.S. at 783. In so doing, it has condemned (as per se illegal): A physician groups' agreement to set 4 the maximum fees they could accept for medical services, }.;Jaricopa County Med. Soc'y, 457 U.S. at 5 335; a trial lawyers organizations' agreement to set the hourly rates for indigent representation, Superior 6 Court Trial Lawyers Ass 'n, 493 U.S. at 433; and a county bar associations' minimum fee schedule. 7 Goldfarb, 421 U.S. at 773. It is accordingly well-settled that the "the cautionary footnote in Goldfarb .. 8 . cannot be read as fashioning a broad exemption under the Rule of Reason for leamed professions," and 9 certainly does not permit the price fixing at issue in this case. Nat 'I Soc y of Profl Engineers v. US., 10 435 U.S. 679, 696 (1978). 11 Defendants make their argument against this controlling authority in a footnote. MTD at 10 n.2. 12 They contend that the per se rule against price fixing is limited to cases in which the professional 13 "associations' actions were driven by a desire to restrict output and raise prices for their members," as 14 distinct from efforts "to establish ethical norms and other, non-economic professional standards." Id. 15 This motive-based distinction does not exist: "[P]rice fixing is contrary to the policy of competition 16 underlying the Shennan Act ... It makes no difference whether the motives of the participants are good 17 or evil." United States v. McKesson & Robbins, Inc., 351 U.S. 305, 309-10 (1956).2 Thus, in the 18 professional association context, "[ t]he social justifications proffered for [defendants'] restraint of trade. 19 .. do not make it any less unlawful. The statutory policy underlying the Sherman Act 'precludes inquiry 20 into the question whether competition is good or bad. '" Superior Court Trial Lawyers Ass 'n, 493 U.S. 21 at 424 (citations omitted). Indeed, in Superior Court Trial Lawyers, the Court considered it ilTelevant 22 that the challenged restraint served the salutary purpose of producing "better legal representation for 23 indigent defendants." Id. at 422 ("[I]t is not our task to pass upon the social utility or political wisdom 24 of price-fixing agreements. "). 25 26 27 28 2 See also United States v. Socony-Vacuu711 Oil Co., 310 U.S. 150,222 (1940) (rejecting argument that "good intentions of the members of the combination" justified a price fixing agreement and noting "Congress has not left with us the detennination of whether or not particular price-fixing schemes are wise or unwise, healthy or destructive." 8 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page15 of 32 1 Defendants also rely on the non-binding opinion in United States v. Brown University as further 2 suppOli of their "ethical norms" justification. 5 F.3d 658, 675 (3d Cir. 1993). In Brown University, the 3 Court evaluated under the Rule of Reason an agreement among Ivy League colleges setting the levels of 4 financial aid presented to students, in part because the agreement served the "congressionally- 5 recognized and important social welfare goal[]" of ensuring access to higher education. Id. at 668. In 6 light of Superior Court Trial Lm1yers Ass 'ns ' flat ban on considering social welfare justifications for 7 price fixing, 493 U.S. at 424, Brown University appears to have been wrongly decided. In any event, the 8 governing principles applied in that decision are inconsistent with Ninth Circuit law, which holds that it 9 "does not matter why" a price is fixed, and that "[i]t is not a defense to price fixing that the defendants 10 may have had good motives ... or that the conspiracy may have had some good results." Alston, 974 11 F.2d at 1210 (9th Cir. 1992) (stating jury instructions were "an accurate statement of the law."). 12 Even if Brown University were controlling law, however, it would nevertheless be irrelevant. 13 There, the court stated that the "social welfare" goal at issue was "congressionally-recognized," and this 14 fact would "influence whether this conduct violates the Shennan Act." 5 F.3d at 668; see id. at 675 15 ("Congress has sought to promote the same ideal of equality of educational access and opportunity for 16 more than twenty-five years. "). Here, by contrast, there is no evidence of a "congressionally- 17 recognized" social welfare goal, and there exists no history at all of congressional concern about the 18 effects of competition in the Donor Services market. Tllis militates further against applying Brown 19 University in this case. Cj Maricopa County., 457 U.S. at 355 ("Congress may consider the exception 20 that we are not free to read into the statute."). 21 Defendants also propose a number of other exceptions to the per se rule against price fixing, 22 none of wmch are cognizable. 23 For example, Defendants argue that this Court should not apply per se treatment to "factual 24 settings not previously encountered." MTD at 8. Leaving aside the preceding discussion demonstrating 25 that courts are familiar with price fixing by professional organizations, in Maricopa County, the 26 Supreme Court explicitly rejected the idea that courts should decline to apply the per se rule against 27 price fixing in that case because "the jUdiciary has little antitrust experience in the health care industry." 28 ~Maricopa County, 457 U.S. at 349. Indeed, "the argument that the per se rule must be rejustified for 9 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page16 of 32 1 every industry that has not been subject to significant antitrust litigation ignores the rationale for per se 2 rules, which in part is to avoid 'the necessity for an incredibly complicated and prolonged economic 3 investigation into the entire history of the industry involved, as well as related industries, in an effort to 4 determine at large whether a particular restraint has been umeasonable-an inquiry so often wholly 5 fruitless when undertaken. '" Id. (citations omitted). The Ninth Circuit has echoed this view, noting that 6 questions of "novelty" are irrelevant to the question of whether a particular price was fixed. Freeman v. 7 San Diego Ass 'n of Realtors, 322 F.3d 1133, 1151 (9th Cir. 2003) ("[A]ny elements of novelty and 8 cooperation in the [challenged industry] are irrelevant to whether support fees are fixed or set 9 competitively."). 1 0 Defendants make the argument that "courts have been reluctant to apply the per se rule when the 11 alleged restraint is designed to pursue legitimate objectives of professional associations and other non- 12 profit entities." MTD at 9. Even if this were true of some restraints, it fatally collides with the 13 fundamental precept that price fixing is never a legitimate objective. Maricopa County Med. Soc y, 457 14 U. S. at 351 ("The anti competitive potential inherent in all price-fixing agreements justifies their facial 15 invalidation even if procompetitive justifications are offered for some. "). Even if some iteration of the 16 Maximum Price Rules were appropriate, enacting those price restraints would properly be the job of 17 legislatures, not Defendants and the Defendant Class. Maricopa County Med. Soc, 457 U.S. at 354-55 18 ("The respondents' arguments against application of the per se rule in this case therefore are better 19 directed to the Legislature."); Goldfarb, 421 U.S. at 792 ("In holding that certain anticompetitive 20 conduct by lawyers is within the reach of the Sherman Act we intend no diminution of the authority of 21 the State to regulate its professions.,,).3 22 II 23 24 25 26 27 28 3 In any event, the notion that Defendants and Defendant Class Members are not acting in their own self- interest is false: the Complaint clearly alleges that the Maximum Price Rules are "intended to discourage any possible govermnentallegislation that would encumber the free practice US doctors now enjoy." ~ 51. Even assuming that the Defendant Class' self-interest is a legitimate subj ect of inquiry, their efforts to avoid legislation are not adequate justifications for enacting anticompetitive rules. Superior Court Trial Lawyers Ass'n, 493 U.S. at 424 ("Respondents' agreement is not outside the coverage of the Shennan Act simply because its objective was the enactment of favorable legislation."). 10 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page17 of 32 1 c. Defendants' Attempt to Overcome the Per Se Rule Fails 2 It is undoubtedly true that courts analyze certain actions taken by professional organizations 3 under the Rule of Reason due to the differing "nature of ... competition in [professional] services." 4 Nat 'I SOC)1 of Pro!'l Eng., 435 U.S. at 696. But the Supreme Court has explicitly noted that "the classic 5 basis traditionally advanced to distinguish professions from trades, businesses and other occupations ... 6 loses some of its force when used to support ... fee control activities." Goldfarb, 421 U.S. at 786-87. 7 This is why the Court has consistently applied the per se rule to price fixing rules promulgated by 8 professional organizations, even as it applied different standards of review to other potentially 9 anti competitive restraints. See id.; see also § V(b), infi-a. 10 The cases upon which Defendants rely to argue that courts are "reluctant to apply the per se rule" 11 to professional organizations involve restraints other than price fixing. MTD at 9. See FTC v. Ind. 12 Fed'n of Dentists, 476 U.S. 447, 458 (1986) (agreement by dentists to refuse to submit x-rays to 13 insurers); Nat 'I SOC)1 of Pro!'l Eng'rs, 435 U.S. at 692-97 (agreement baITing competitive bidding);4 14 Cal. Dental Ass'n v. FTC., 526 U.S. 756, 761 (1999) (agreement between dentists regulating 15 advertising); Allied Tube & Conduit COlp. v. Indian Head, Inc., 486 U.S. 492, 497 (1988) (safety 16 standards relating to materials used in electronic wiring systems). Moreover, in those cases, the Court 17 carefully distinguished the challenged restraints from price fixing agreements. For example, in 18 California Dental Association, the Court distinguished the advertising rules at issue from "classic 19 horizontal agreements to limit ... price competition." 526 U.S. at 773. Similarly, the Professional 20 Engineers court explicitly noted that the challenged restraint was "not price fixing as such." Nat 'I Soc y 21 22 23 24 25 26 27 28 4 While the Professional Engineers court discussed a "quick look" analysis, it is well worth noting that there is some dispute over whether it actually applied a per se analysis. General Cinema COlp. v. Buena Vista Distribution Co., Inc., 532 F. Supp. 1244, 1256 n.7 (C.D. Cal. 1982) ("The Supreme Court in [Professional Engineers] did not expressly relate its holding to the per se prohibition of price-fixing, but this court believes that a number of factors compel the conclusion that the per se rule, and not rule of reason analysis, was applied in that case."); see also Catalano, Inc. v. Target Sales, 446 U.S. 643, 647 (1980) (holding "an agreement among competing finns of professional engineers to refuse to discuss prices with potential customers until after negotiations have resulted in the initial selection of an engineer was held unlawful without requiring further inquiry" in Professional Engineers). It is accordingly of limited value to Defendants. 11 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page18 of 32 1 of Prof,! Engineers, 435 U.S. at 692. In Indiana Federation of Dentists, the Court made the same 2 observation about the restraint at issue in that case. See 476 U.S. at 459 (quoting Professional Engineer 3 and noting restraint was "not price fixing,,).5 There is, simply put, no "professional organization" 4 exception to the per se rule against price fixing. 5 Defendants' reliance on NCAA v. Board of Regents and Broadcast Music, Inc. v. Columbia 6 Broadcasting Systems is similarly unavailing. The Ninth Circuit has held that both of these cases fall 7 into a "very narrow class of cases" where '''horizontal restraints on competition are essential if the 8 product is to be available at all.'" United States v. A. Lanoy Alston, 974 F.2d 1206,1209 (9th Cir. 1992) 9 (quoting NCAA, 468 U.S. 85,98-104 (1984) and citing Broadcast Music; 441 U.S. 1, 16-24 (1979)).6 10 Defendants do not and cannot argue the Maximum Price Rules are necessary to make AR Eggs available 11 at all. See Maricopa County Med. Soc y, 457 U.S. at 356 (noting maximum fee schedule between 12 competitors was "fundamentally different" than restraint at issue in Broadcast Music). Indeed, the fact 13 that they were widely available before the enactment of the Maximum Price Rules conclusively 14 demonstrates the contrary. 15 d. Defendants' Purported Pro competitive Justifications do not Justify Applicability of 16 the Rule of Reason Standard 17 Defendants cite a number of purported procompetitive justifications for the Maximum Price 18 Rules. See MTD at 11 - 15. But it is black letter law that "[pJrice fixing is illegal regardless of pro- 19 competitive justifications offered therefor." Alston, 974 F.2d 1206, 1208 (9th Cir. 1992) (citing 20 Superior Court Trial Lawyers, 493 U.S. at 421-22). This is because "[tJhe anticompetitive potential 21 inherent in all price-fixing agreements justifies their facial invalidation even if pro competitive 22 justifications are offered for some." Maricopa County Med, 457 U.S. at 351. Accordingly, the claimed 23 procompetitive justifications Defendants offer are irrelevant to the question of whether this Court should 24 25 26 27 28 5 Allied Tube did not discuss the per se or rule of reason standards. 6 NCAA involved a league of college basketball players; the Court rested its rejection of the per se standard on the fact that the "case involves an industry in which horizontal restraints on competition are essential if the product is to be available at all." NCAA, 468 U.S. at 101. Broadcast Music involved blanket licensing of copyrights to musical competition, which the Court noted was "quite different from anything any individual owner could issue." Broadcast Music, 441 U.S. at 23. 12 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page19 of 32 1 or should not apply the per se standard. United States v. Kahan & Lessin Co., 695 F.2d 1122, 1125 (9th 2 Cir. 1982) ("Appellants argue that the per se rule should not apply if the price fixing can be shown to 3 have pro competitive justifications. The Supreme Court rejected this argument in Maricopa County."). 4 VI. DEFENDANTS' MOTION NECESSARILY FAILS UNDER THE QUICK LOOK 5 DOCTRINE 6 a. The Quick Look Doctrine does not Require Market Analysis 7 Even if this Court were to decline to apply the per se rule to Defendants' price fixing, Plaintiff 8 would still not be required to plead (or prove) a relevant market, nor that Defendants had market power 9 in any market. 10 When the actions of professional organizations do not amount to per se violations of the antitrust 11 laws but pose a significant risk of anti competitive effects, courts analyze those actions under the "quick 12 look" standard. Indeed, the Supreme Court applied just such an analysis to the restraints in Professional 13 Engineers and Indiana Federation of Dentists. See Deutscher Tennis Bund v. ATP Tour, Inc., 610 F.3d 14 820,830-31 (3d Cir. 2010). The Maximum Price Rules here directly concern the price charged for 15 Donor Services, and accordingly pose a significant risk of anticompetitive effects. NCAA v. Bd. of 16 Regents of Univ. of Oklahoma, 468 U.S. 85, 104 (1984) (restraint on price and output "has a significant 17 potential for anti competitive effects"). Indeed, this significant risk is why they are commonly 18 condemned as per se illegal. As such, in the event this Court decides not to apply the per se standard, it 19 should apply the "quick look" doctrine rather than a full-blown rule of reason analysis. 20 Under a "quick look" analysis, courts are not required to perform a "detailed market analysis." 21 Harris, 2011 WL 2684942, at *11. Plaintiff is accordingly not required to plead or prove Defendants or 22 the Defendant Class have market power in any market. Carter, 101 F. Supp. 2d at 1266 ("If the cOUli 23 finds that there is a naked restraint on trade or an actual adverse effect on competition, the court may 24 apply a "quick-look" rule of reason without requiring proof ofthe relevant market or market power."); 25 cf NCAA v. Bd. of Regents ofUniv. of Oklahoma, 468 U.S. 85, 110 (1984) (courts have "never required 26 proof of market power" in cases alleging naked restraints on price). Since Defendants' Motion relies 27 exclusively on market definition arguments, see § IV, supra, it necessarily fails if the COUli applies a 28 "quick look" analysis. 13 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page20 of 32 b. Defendants' Justifications for the Maximum Price Rules are Counter to Law and 2 Economically Flawed 3 Because Defendants do not argue that their claimed justifications for the Maximum Price Rules 4 wan'ant dismissal, see § IV, supra, Plaintiff need not argue against Defendants' justifications. Those 5 justifications, however, are invalid, both as a matter oflaw and economics. This is particularly true at 6 this early stage, where the Court takes Plaintiffs allegations of anti competitive effect as true and rejects 7 Defendants' unproven justifications. See § III(b), supra; see also Brennan, 369 F. Supp. 2d at 1133 8 ("Whatever the merits of these Dustifications], they are intrinsically factual, contrary to plaintiffs' 9 pleading and inappropriate for resolution at the motion to dismiss stage."); see also Am. Ad Mgmt., 92 10 F.3d at 791; Advanced Health-Care Services, Inc., 910 F.2d at 145. Indeed, this is why the various 11 decisions Defendants rely on were issued after discovery. 12 The purpose of the quick look balancing test "is to fOIDl a judgment about the competitive 13 significance of the restraint; it is not to decide whether a policy favoring competition is in the public 14 interest, or in the interest of the members of an industry." Nat 'I Soc 'y of Pro!'l Engineers, 435 U.S. at 15 692. Defendants offer three purported justifications for their restraint. Most have little to do with 16 competition. 17 First, Defendants assert that "the ethical guidelines are intended to protect the health and safety 18 of both egg donors and recipients undergoing assisted reproductive technology procedures." MTD at 19 11. But the Supreme Court has held that an attempt to justify an anti competitive restraint "on the basis 20 of the potential tIn'eat that competition poses to the public safety and the ethics of its profession is 21 nothing less than a frontal assault on the basic policy of the Shennan Act." Nat 'I Soc 'y of Pro!'l 22 Engineers, 435 U.S. at 695. Accordingly, the argument that a "restraint on price competition ultimately 23 inures to the public benefit by ... insuring ethical behavior" necessarily fails, as such a justification has 24 nothing to do with competition. Id. at 695; see also Freeman v. San Diego Ass 'n of Realtors, 322 F.3d 25 1133, 1152 (9th Cir. 2003) (same). Defendants' speculation that some donors may be tempted to 26 misrepresent their health does not change this. The "equation of competition with deception, like the 27 similar equation with safety hazards, is simply too broad." Id. at 696 ("[W]e may assume that 28 competition is not entirely conducive to ethical behavior, but that is not a reason, cognizable lmder the 14 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page21 of 32 1 Sherman Act, for doing away with competition."). 2 This "intrinsically factual" justification fails as a matter oflogic as well. Brennan, 369 F. Supp. 3 2d at 1133. While Defendants claim that the Maximum Price Rules were enacted to eliminate the "risk" 4 that competitive payments would "induce 'prospective donors to conceal medical information relevant 5 to their own health or that of their biologic offspring,'" the Committee Report cites no evidence that the 6 size of payments is in any way related to the risk or frequency of concealment. MTD at 11 (quoting 7 Ethics Committee Report at 306). Defendants also fail to show that the arbitrary price cap bears any 8 necessary relationship to the asserted goal of minimizing concealment or that payments in a competitive 9 environment would be so high as to induce significant fraud. Indeed, this argument reveals why 10 Defendants' justifications are not dispositive at this early stage. Discovery may well reveal facts 11 demonstrating that higher payments would induce better educated, wealthier AR Egg Providers with 12 greater access to routine medical care, who are less likely to have hidden health risks. Discovery may 13 also demonstrate that miificially low payments have induced a greater proportion of donors to whom the 14. smaller payments represent a larger share of their own financial resources, thereby increasing the 15 likelihood of concealment of adverse medical infonnation. In any event, Defendants have not shown 16 that effective regulation of infornlation concealment cannot be accomplished through more direct means 17 than the drastic and illegal method of a price restraint. Indeed, this entire argument is a tacit admission 18 that payments have been set at a price lower than that which would prevail in a competitive market. 19 Second, Defendmlts argue the Maximum Price Rules "have important and legitimate social 20 welfare justifications," purportedly because "compensated egg donation poses significant risks" of 21 exploitation, undue inducement, or selective breeding. MTD at 13-14. This justification again has 22 nothing to do with competition. Indeed, the Supreme Court has flatly rejected the paternalistic m·gument 23 that an anti competitive practice can be justified when competition will purpOliedly "lead [individuals] to 24 make unwise and even dangerous choices." Ind. Fed'n of Dentists, 476 U.S. at 463 (quoting Nat'/ Soc 'y 25 of Prof/ Engineers, 435 U.S. at 695.). Defendants' "social welfare" justifications cannot be reconciled 26 with this principle. Defendants' invocation of "positive eugenetics" and the "devaluation of human 27 life," MTD at 13, have significant rhetorical flourish, but have nothing to do with competition, and are 28 therefore also irrelevant. Defendants' reliance on Brown University for their "social welfare" argument 15 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page22 of 32 fails for the reasons discussed in § V(b), supra. 2 Defendants' argument is also factually flawed. Any compensated AR Egg Provider may have 3 been induced, altered her behavior or been exploited if the payment she received was particularly 4 significant to her. It is the fact of compensation, at any level, that gives rise to the purported risks 5 Defendants identify. Nothing indicates that competitively set levels of compensation would 6 significantly alter these risks, and this Court certainly cannot make a factual detennination to the 7 contrary on a motion to dismiss. Brennan, 369 F. Supp. 2d at 1133. Indeed, lower payments may create 8 a greater risk of exploitation of the financially less fortunate. But this case does not present the question 9 of whether payments to AR Egg Providers are ethically proper. Rather, this case presents the issue of 10 whether the level ofthose payments can lawfully be set pursuant to a horizontal agreement among 11 competitors. Under the law, they cannot. Maricopa County Med. Soc J;, 457 U.S. at 352 ("Even if a fee 12 schedule is therefore desirable, it is not necessary that the doctors do the price fixing"). 13 Third, Defendants assert that the Maximum Price Rules enhance output because ASRM chose to 14 pennit some compensation rather than bar payments entirely. MTD at 15. But Defendants fail to cite a 15 single case supporting the proposition that a maximum price restraint is output-enhancing or 16 procompetitive. Instead, they again cite to cases addressing restraints that do not involve price. 7 It is 17 undoubtedly true that the anticompetitive effect of restraints that do not involve price are more 18 speculative that those directly involving price, but that is irrelevant to the Court's consideration of the 19 price-based restraint presented here. Simply because Defendants agreed to allow some minimal amount 20 of compensation does not mean they are engaging in pro competitive conduct. See Nat 'I Soc 'y of Profl 21 22 23 24 25 26 27 28 7 Allied Tube, Professional Engineers, and California Dental Association are described above, and involve non-price restraints. Craftsmen Limousine, Inc. v. Ford Motor Co., involved enforcement of non-price based safety standards. 363 F.3d 761, 774 (8th Cir. 2004). Moore v. Boating Industrial Associations involved non-price related efforts to encourage compliance with federal safety standards. 819 F.2d 693, 699 (7th Cir. 1987); Kreuzer v. American Academy of Periodontology, involved a dental trade associations' rule requiring its members to "devote themselves exclusively to the practices of periodontics." 735 F.2d 1479, 1494 (D.C. Cir. 1984). And Wilk v. American Medical Association explicitly noted that it was "not a case in which it is alleged or shown that the medical doctors, competitors of one another, have combined, for example, to fix the prices they will receive from consumers, and that they have agreed to ostracize or boycott those an10ng them who fail to go along." 719 F.2d 207, 218 (7th Cir. 1983). 16 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page23 of 32 1 Engineers, 435 U.S. at 695 (condemning efforts to impose "views of the costs and benefits of 2 competition on the entire marketplace."); cjSuperior Court Trial Lawyers Ass 'n, 493 U.S. at 424 ("[I]t 3 was settled shOlily after the Sherman Act was passed that it 'is no excuse that the prices fixed are 4 themselves reasonable. "'). 5 Even if Defendants' output-enhancing justification was logically or legally appropriate, it cannot 6 warrant dismissal at the pleading stage. Defendants' argument leaves open the factual question of 7 whether umestricted pricing for Donor Services would enhance output by leading to a greater supply of 8 AR Eggs. Plaintiff has pled (in an allegation that must be accepted as true) that an outright ban on 9 payment was not a realistic altemative outcome, since it would have dramatically reduced the supply of 10 AR Eggs and therefore ended profitable business for the reproductive clinics. ~ 47. Under basic 11 economic principles, higher payment levels will increase the supply of available donors willing to 12 undergo the arduous, invasive and risky procedure. Defendants must believe that competitive pricing 13 would produce higher donor payments or they would not have needed to adopt the Maximum Price 14 Rules in the first place. 15 Defendants also speculate that "increases in the cost of donations will both increase the cost of 16 assisted reproductive procedures and decrease the demand for (and availability of) donated oocytes for 17 many of those infertile people or couples." MTD at 16. Even if competitive payments would result in 18 higher costs to clinic customers, this cannot serve as a justification for the Maximum Price Rules. 19 "[T]he claim that the price restraint will make it easier for customers to pay does not distinguish the 20 medical profession from any other provider of goods or services." Maricopa County Med. Soc y, 457 21 U.S. at 349; see also Law v. Nat'! Collegiate Athletic Ass 'n, 134 F.3d 1010, 1022 (10th Cir. 1998) 22 ("Lower prices cannot justify a cartel's control of prices charged by suppliers, because the cartel 23 ultimately robs the suppliers of the nonnal fruits of their enterprises."). No method of antitrust analysis 24 "support [ s] a defense based on the assumption that competition itself is umeasonable" and this COUli 25 should decline Defendants' attempts to create one. Nat'! SocyofProf'1 Engineers, 435 U.S. at 695 26 (Shelman Act "precludes inquiry into the question whether competition is good or bad."). Its legal flaw 27 aside, this argument is economically flawed. If prices for Donor Services rise too high and demand for 28 reproductive assistance declines (as Defendants predict) free market forces will quickly make the 17 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page24 of 32 necessary adjustments to bring the competitive price for donor services back down to where the supply 2 of Donor Services is again in balance with the demand. 3 VII. IN THE ALTERNATIVE, PLAINTIFF ADEQUATELY ALLEGES A VIOLATION OF 4 THE ANTITRUST LAWS UNDER THE RULE OF REASON 5 Even assuming Plaintiff has not alleged a per se violation (which she has), and even assuming 6 the "quick look" method of analysis is inapplicable, Defendants' "rule ofreason" challenge must fail at 7 this early stage. That challenge rests on three arguments: (1) that Plaintiff has not properly alleged a 8 product market, (2) that Plaintiff has not properly alleged a geographic market, and (3) that Plaintiff has 9 not properly alleged the Defendant Class has market power within the relevant markets. 10 a. Plaintiff Properly Alleges Relevant Product and Geographic Markets. 11 Under the Rule of Reason, Plaintiff must allege that "the restraint produces significant 12 anticompetitive effects within a relevant market." Tanaka v. Univ. ofS. Cal., 252 F.3d 1059,1063 (9th 13 Cir. 2001). However, the question of whether a plaintiff has alleged a relevant market is typically a 14 question of fact for the jury: "since the validity of the relevant market is typically a factual element 15 rather than a legal element, alleged markets may survive scrutiny under Rule 12(b)(6) subject to factual 16 testing by summary judgment or trial." Id.; see also Pecover, 633 F. Supp. 2d at 983. Accordingly, 17 there is no requirement that the relevant market be pled with specificity to survive a motion to dismiss. 18 Newcallndus., Inc., v. Ikon Office Solution, 513 F.3d 1038, 1045 (9th Cir. 2008). Rather, a complaint 19 can only be dismissed if its relevant market is "facially unsustainable." Id. 20 i. Plaintiff's Product Market is Adequately Defined 21 Defendants' assertion that Plaintiff describes the Donor Services market in "a single, conclusory 22 sentence," MTD at 18-9, is wrong. Plaintiff extensively describes the Donor Services market. See ~~ 1, 23 31,35-49. Donor Services consist of "the time, inconvenience, labor, and discomfOli incurred by 24 women who agree to supply their own human eggs for assisted fertility and reproductive procedures." ~ 25 1. Plaintiff alleges that "AR Eggs are a necessary component of human reproduction" for which "[t]here 26 is no available substitute." ~ 35. Plaintiff describes in detail the many steps that AR Egg Providers mus 27 endure in order to donate their eggs, which includes an extensive screening process and an administered 28 cycle ofhonnones to medically induce ovulation. ~~ 36-45. Finally, Plaintiff describes four means by 18 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page25 of 32 1 which AR Egg Providers (as well as Defendants, the Defendant Class, and others) patiicipate in the 2 actual Donor Services market. See,-r 46(a)-(d). While the first of these methods involves "an individual 3 donating for the benefit of a close friend or fatnily member," the other three involve paid compensation 4 to AR Egg Providers, like Plaintiff. See,-r,-r 9, 46(a)-(d). 5 Defendants argue that Plaintiffs releVatlt mat·ket is deficient because it does not encompass all 6 products that are reasonably interchangeable with Donor Services. See MTD at 18. Defendants first 7 assert that the Donor Services market should include Donor Services purchased by non-SART clinics, 8 individual egg recipients, and others, as well as Donor Services provided "free of charge." See MTD 9 19-20. But the Donor Services market defined in the Complaint includes all such purchases. See,-r 1. 10 Indeed, the Defendant Class itself specifically includes "AR Egg Agencies that agreed to comply with 11 the SART/ASRM rules." See,-r 19. 12 Defendants next argue that the relevant market of Donor Services should include other "income 13 generating opportunities," such as blood, platelet, or plasma donation or paid trials by hospitals, 14 universities, and other institutions. See MTD 19-20. But there will always be income generating 15 alternatives available to sellers: Defendants' argument, if accepted, would eliminate the possibility for a 16 relevant seller's market in every case. Defendants' argument is also inconsistent with the law. "[I]n the 17 context of a buyer-side conspiracy," the "market is not the market of competing sellers, but the market 18 of competing buyers." Toddv. Exxon Corp., 275 F.3d 191,202 (2d Cir. 2001). The focus, therefore, 19 should be whether "the market is comprised of buyers who are seen by sellers as reasonably good 20 substitutes" for one another. 21 In Todd, another buyer-side conspiracy case, the court found plausible a proposed relevant 22 market comprised of the "services of salaried, non-union, managerial, professional and teclmical (MPT) 23 employees in the oil and petrochemical industry ... " Id. The court found that the proposed market was 24 plausible, even though it was limited to a specific industry, because employees with experience in the oil 25 and petrochemical industry may suffer a pay cut if forced to switch industries, and thus may not find job 26 opportunities outside the industry to be reasonable substitutes. Id. at 203. Similarly here, AR Egg 27 Providers receive unique benefits from selling Donor Services, including greater financial benefits thatl 28 those provided by Defendants' proposed "other income generating opportunities." Those other 19 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page26 of 32 1 opportunities are accordingly not reasonable substitutes for the sale of Donor Services, rendering 2 Plaintiffs relevant market plausible. "Viewing the allegations in the light most favorable to Plaintiff, ... 3 Plaintiff has not improperly ignored products that may be reasonably interchangeable ones, but instead 4 has included ... products in the alleged market and alleged differences regarding others that plausibly 5 exclude them from the relevant market." See Datel Holdings Ltd. v. Microsoft Corp., 712 F. Supp. 2d 6 974,997 (N.D. Cal. 2010); see also TYR Sport Inc. v. Warnaco Swimwear Inc., 679 F. Supp. 2d 1120, 7 1129-30 (C.D. Cal. 2009) (relevant market of "high-end competitive swimwear" excludes casual 8 swimsuits). 9 Defendants' cases are inapposite. For example, in Tanaka, a former collegiate soccer player 10 challenged an intercollegiate athletic association rule that prevented student-athletes from transferring 11 schools. See Tanaka, 252 F.3d at 1061. Plaintiff alleged that the relevant market was the "UCLA 12 women's soccer program." Id. at 1063. The court found that plaintiff s statement that the market was 13 "unique" and "not interchangeable with any other program in Los Angeles" was insufficient without 14 supporting facts. Id. Unlike the plaintiff in Tanaka, Plaintiff here has set out a detailed explanation as 15 to why Donor Services is the relevant market. In Shred-It, the court similarly found that the plaintiff 16 devoted only seven words of its thirty-two page complaint to define the relevant market. See Shred-It 17 Am., Inc. v. MacNaughton, No. 10-00547,2011 WL 1842997 at *5 (D. Haw. May 13,2011). Again, 18 Plaintiff here has set out much more detail. In Big Bear Lodging, plaintiffs brought an antitrust suit in 19 connection with a price-fixing conspiracy that only allowed ski resorts that were members of the ResOli 20 Association to offer discounted ski packages. See Big Bear Lodging Ass 'n v. Snow Summit, Inc., 182 21 F .3d 1096, 1100 (9th Cir. 1999). The court determined that plaintiffs did not "allege that Big Bear 22 Valley is the area of effective competition in which buyers of these products can find altemative sources 23 of supply, or that there are no other goods or services that are reasonably interchangeable with lodging 24 accommodations or ski packages within this geographic market." Id. at 1105. In contrast, Plaintiff here 25 has clearly alleged that there is no adequate substitute for Donor Services. Finally, the court in Golden 26 Gate found that Plaintiff s relevant product market was hopelessly broad because it lumped all 27 pharmaceutical products together. See Golden Gate Pharm. Svcs., Inc. v. Pfizer, Inc., No. C-09-3854, 28 2010 WL 1541257, at *3 (N.D. Cal. Apr. 16,2010). 20 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page27 of 32 ii. Plaintiff's Geographic Market is Adequately Defined 2 Plaintiff alleges facts sufficient to make out a facially sustainable claim that the relevant 3 geographic market for Donor Services is national. Most impOliantly, Plaintiff alleges that the ASRM's 4 Ethics Committee set one maximum price for all SART-member Fertility Clinics and associated AR Eg 5 Agencies, nationwide. See ~~ 59-82. Indeed, Plaintiff specifically cites to fifteen AR Egg Agencies 6 interspersed throughout the United States, whose websites state their compliance with the maximum 7 price rule. See ~~ 82-96. That aside, Plaintiff alleges that the ASRM's members are "medical 8 professionals and corporations located throughout the United States." ~ 10. Plaintiff also alleges that 9 SAR T is the "primary organization of professionals dedicated to the practice of assisted reproductive 10 technologies in the United States," and that its members include "over 392 practices, representing over 11 85% of the clinics engaged in the practice of assisted reproductive technologies in the United States." ~ 12 11. 13 In United States v. Grinnell Corp., the Supreme Court rejected an argwnent similar to the one 14 made by Defendants here. The Court evaluated the market for fire- and burglary-protection services and 15 determined that the relevant geographic market for antitrust purposes was national because it 16 "reflect[ed] the reality of the way in which [the defendants] conduct their business." 384 U.S. 563, 576 17 (1966). The Court made this decision despite the fact that the business was comprised of a nationwide 18 network of fire- and burglary-protection affiliates which each had a range of about 25 miles. Id. at 575. 19 As recognized by the Cowi, "[t]he activities of an individual station are in a sense local as it serves, 20 ordinarily, only that area which is within a radius of 25 miles. But the record amply supports the 21 conclusion that the business of providing such a service is operated on a national level. " Id. In reaching 22 this conclusion, the Court cited the facts that: 1) there was national planning; 2) its agreements covered 23 activity in many states; 3) it had a national schedule of prices, rates, and terms (which varied to meet 24 local conditions); 4) it dealt with multi-state businesses through nationwide contracts; and 5) 25 manufacturing was done interstate.ld. at 575-576. See also Graphics Prods. Distribs v. Itek Corp., 717 26 F.2d 1560, 1569 (lIth Cir. 1983) (finding a national geographic market based on the defendant's 27 conduct, including dividing the nation into exclusive territories and implementing nationwide policies to 28 enforce compliance with these restrictions.). 21 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page28 of 32 1 As in Grinnell and Graphics Products, Plaintiff's allegations about Defendants' nationwide 2 business practices - most notably the unifonn, national pricing applied to members geographically 3 disbursed nationwide - sufficiently set forth a facially sustainable relevant geographic market. 4 Defendants' attempt to paint the relevant geographic market as local flies in the face of their own 5 practices, as Defendants' decision to engage in a nationwide price-fixing campaign is probative. See 6 Ind. Fed'n of Dentists, 476 U.S. at 460 ("[T]he purpose of the inquiries into market definition and 7 market power is to determine whether an anangement has the potential for genuine adverse effects on 8 competition."). Accordingly, Plaintiff has set forth a facially sustainable relevant market, and 9 Defendants' motion to dismiss should be denied. lOb. Plaintiff Properly Alleges Market Power 11 Defendants' argument that the Defendant Class lacks adequate market power in the Donor 12 Services market rests on the proposition that it is "facially unsustainable" that a Class consisting of over 13 85% of the reproductive clinics in the United States, as well as the independent agencies serving those 14 clinics, would have market power in the Donor Services market. 8 Merely to state this argument is to 15 refute it. Indeed, given that "almost uniformly, the major, mainstream IVF clinics are SART members 16 and therefore SART compliant," ~ 55, it is a near-certainty that they have the relevant market power. 17 Indeed, this is why they were successfully able to suppress the price of Donor Services. See ~~ 97 - 18 100. 19 In any event, "unlike [monopolization] claims, [ conspiracy] restraint of trade claims need not 20 establish the threshold showing of monopoly control over a relevant market. To show a violation of 21 Section 1, a plaintiff must establish a contract, conspiracy or combination intended to restrain 22 competition and which actually has an anticompetitive effect." Amarel v. Connell, 102 F.3d 1494, 1522 23 (9th Cir. 1996).9 Plaintiff has adequately pled that the price of Donor Services was suppressed by the 24 25 26 27 28 8 While Defendants quibble with this by stating that it includes only clinics, this ignores Plaintiff's allegations about AR Agencies also participating in the conspiracy as well as Plaintiff's allegation that "the majority of AR Eggs are acquired from women who are compensated for their services." ~ 47, 75- 96. 9 Market power and monopoly power are synonymous in the 9th Circuit. See In re Ebay Seller Antitrust Litig., No. 07-01882,2010 WL 760433, at *4 n.4 (N.D. Cal. Mar. 4, 2010). 22 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page29 of 32 Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page30 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CAFFERTY FAUCHER LLP 1717 Arch Street, Suite 3610 Philadelphia, P A 19103 Telephone: 215-864-2800 Facsimile: 215-864-2810 Counsel for Individual and Representative Plaintiff Lindsay Kamakahi 24 PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page31 of 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CERTIFICATE OF SERVICE I, Julia Dito, declare as follows: I am employed by Finkelstein Thompson, 100 Bush Street, Suite 1450, San Francisco, California 94104. I am over the age of eighteen years and am not a party to this action. On August 15,2011, I served the following document(s): PLAINTIFF'S OPPOSITION TO DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S FIRST AMENDED CLASS ACTION COMPLAINT BY CMlECF ELECTRONIC SERVICE: Electronically filing the foregoing with the Clerk of the Court using the CM/ECF system sent notification of such filing to the e-mail addresses of registered participants. I declare under penalty of perjury under the laws of the State of California that the above is true and correct. Executed this 15th day of August, 2011, at San Francisco, California. J i Dito 1 CERTIFICATE OF SERVICE Case4:11-cv-01781-SBA Document45 Filed08/15/11 Page32 of 32