FTC v. Lundbeck: Is Anything in Antitrust Obvious, Like, Ever?

• Published date: 01 September 2014
• Author: Chris Sagers,Richard M. Brunell
• DOI: 10.1177/0003603X1405900307
• Date: 01 September 2014
• Subject Matter: Lundbeck: A Prescription Drug Merger—Articles & Commets

THE ANTITRUST BULLETIN: Vol. 59, No. 3/Fall 2014 : 557
FTCv.Lundbeck:Is
anything in antitrust
obvious, like, ever?
BY CHRIS SAGERS* AND RICHARD M. BRUNELL**
In FTC v. Lundbeck, the Eighth Circuit affirmed a bench verdict
finding a merger to monopoly, followed by a 1400% price increase,
not only legal, but effectively not even subject to antitrust. The result
followed from the district court’s view that peculiarities in the
market for hospital-administered drugs rendered it essentially
immune from price competition. That being the case, the court found
that even products very plainly substitutable on any traditional
“functional interchangeability” analysis are not in the same “relevant
market” for purposes of rules governing horizontal mergers. We
think the court’s analysis was incorrect for a number of factual
reasons, but stress that, much more importantly, a case like Lundbeck
calls for return to traditionally broad, prophylactic rules.
KEY WORDS: Lundbeck, merger, pharmaceuticals, market definition
* James A. Thomas Distinguished Professor of Law, Cleveland State
University, and Senior Fellow, American Antitrust Institute.
** General Counsel, American Antitrust Institute.
AUTHORS’ NOTE: We submitted a brief amicus curiae in the Eighth Circuit in
Lundbeck on behalf of the American Antitrust Institute, urging reversal in favor of
plaintif Federal Trade Commission. The views expressed here are our own and do not
represent the views of the American Antitrust Institute.
© 2014 by Federal Legal Publications, Inc.

---

558 : THE ANTITRUST BULLETIN: Vol. 59, No. 3/Fall 2014
I.
INTRODUCTION
Entia non sunt multiplicanda praeter necessitatem.
—Commonly attributed to Wil iam of Ockham1
Just how elaborate or counterintuitive must one’s defense of seem-
ingly anticonsumer conduct become before its complexity suggests
that one is on the wrong track?
Many people thought things like that about Federal Trade Commis-
sion v. Lundbeck, Inc.,2 a 2010 consummated merger challenge that the
Federal Trade Commission (the FTC or the Commission) lost on
bench verdict and failed to overturn before the Eighth Circuit. Surely
the Commission asked such questions. The deal—which combined
Indocin IV and NeoProfen, the only two drugs to treat a potentially
life threatening condition in infants—was a merger to monopoly over
a product with a highly inelastic demand, and the merger was fol-
lowed by price increases of nearly 1400%.3 One rather suspects John
Sherman had such cases in mind. And so, among lawyers, journalists,
and other observers, there was some serious head-scratching when
the Commission not only failed to get the unequivocally slam-dunk
win that many thought it had coming, but lost.4
1
See William of Ockham, in STANFORD ENCYCLOPEDIA OF PHILOSOPHY
(“entities must not be multiplied beyond necessity”), available at http://plato
.stanford.edu/entries/ockham/.
2
FTC v. Lundbeck, Inc., No. 08–6379, 2010 WL 3810015 (D. Minn. Aug.
31, 2010), af ’d, 650 F.3d 1236 (8th Cir. 2011).
3
The Chairman made a minor cause célébre of these dramatic facts. See, e.g.,
Concurring Statement of Commissioner Leibowitz, FTC v. Ovation Pharmaceuti-
cals, Inc., No. 081 0156 (Dec. 16, 2008), available at http://www.ftc.gov/sites
/default/files/documents/cases/2008/12/081216ovationleibowitzstmt.pdf.
(“Ovation’s profiteering on the backs of critically ill premature babies is not
only immoral, it is illegal. Ovation’s behavior is a stark reminder of why
America desperately needs health care reform and why vigorous antitrust
enforcement is as relevant today as it was when the agency was created
almost one hundred years ago in 1914.”).
4
See Jenna Greene, FTC Loses an Easy One, NAT’L L.J., Sept. 27, 2010. See also
Herbert Hovenkamp, Mergers With Dominant Firms: The Lundbeck Case, COMPE-
TITION POL’Y INT’L, Dec. 13, 2011; Steven C. Salop, Merger Settlement and Enforce-
ment Policy for Optimal Deterrence and Maximum Welfare, 81 FORDHAM L. REV. 2647,
2664 n.48 (2013) (Lundbeck was an “inexplicable market definition error.”).

---

F T C V. L U N D B E C K : 559
In the end, this case was fairly bizarre all around and not just
because seemingly drastic antisocial conduct went unremedied. How-
ever, while we definitely will spend some time considering the facts
and legal specifics, we want to say up front that to us further bicker-
ing over details is not what really matters. Most important to us,
Lundbeck is the kind of case showing why antitrust sometimes needs
simple rules. It shows why antitrust ordinarily reserves a rule of effec-
tively per se illegality for monopoly-preserving mergers5 and why
such a rule should have been followed.
But, given the symposium topic, we’ll also suggest some more
technical reasons why the approach to market definition in Lundbeck
was so bad. For one thing, to an overwhelming new degree, the court
put the market definition cart before the horse of any actual policy
goal. It had been a consensus in antitrust that market definition is not
an end in itself, but only one means to identify situations of poten-
tially harmful conduct.6
For another thing, in purporting to define this market, the court
appeared to apply rules of law that we thought were radical and dan-
gerous. Clearly implied by the court was the view that if a market seems
like it already lacks price competitiveness, then a plaintiff cannot show
relevant injury. The court believed that because of institutional peculiari-
ties affecting the market for hospital-administered drugs, the degree of
5
See 3 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 701d
(3d ed. 2008) (monopolist’s “acquisition of any firm that has the economic
capabilities for entry and is a more-than-fanciful possible entrant is presump-
tively anticompetitive”); United States v. Grinnell Corp., 384 U.S. 563, 576
(1966) (monopolist’s acquisition was illegal where it “eliminated any possibil-
ity of an outbreak of competition that might have occurred”).
6
See United States v. Cont’l Can Co., 378 U.S. 441, 453 (1964) ( “Inter-
changeability of use and cross-elasticity of demand are not to be used to
obscure competition but to ‘recognize competition where, in fact, competition
exists.’” (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 326 (1962)));
United States v. Archer-Daniels-Midland Co., 866 F.2d 242, 246 (8th Cir. 1988)
(same); U.S. DEP’T OF JUSTICE AND FTC, HORIZONTAL MERGER GUIDELINES § 4
(2010) [hereinafter 2010 HORIZONTAL MERGER GUIDELINES] (market definition
“is not an end in itself, but is useful to the extent it illuminates the merger’s
likely competitive effects”); cf. Louis Kaplow, Why (Ever) Define Markets?, 124
HARV. L. REV. 437, 443 (2010).

---

560 : THE ANTITRUST BULLETIN: Vol. 59, No. 3/Fall 2014
price constraint that even closely substitutable drugs can impose on
each other is muted. Only implicit was its corollary view that if the
acquisition did not alter prices, then it did no harm. Implicitly, then, the
court seemed to hold that if a market seems to be already uncompeti-
tive, then antitrust law does not apply to it. We think that is unprecedented
and contrary to existing policy. The court also seemed to imply, contrary
to black letter law, that quality competition is irrelevant in antitrust. And
final y, the court was just dead wrong that there was no substitutability
based on price. Its own findings elaborately demonstrate it.
Admittedly, Lundbeck is real y just one unpublished trial court deci-
sion, affirmed only on standard of review grounds, and it was widely
thought to be incorrect. But we think it matters. Litigated merger cases
are so rare that they al matter. Moreover, the narrow facts of Lundbeck
wil recur. Lundbeck actual y acquired the drugs through its predeces-
sor, Ovation Pharmaceuticals, a firm that can be likened not unfairly to
a patent trol .7 There just happens to be another such firm trying to pul
off a similar deal at the moment (involving a 56,000% price increase),8
7
Ovation developed no drugs of its own. It was a private equity vehi-
cle designed to acquire underpriced drugs, which it then produced through
agreements with other manufacturers. See GTCR LLC, Ovation Pharmaceuti-
cals: Finding Healthy Profits in Health Care, http://www.gtcr.com/our-
focus/healthcare/leadership-stories/ovation-pharmaceuticals-inc/(last
visited Apr. 28, 2014).
8
A U.S. firm called Questcor exists solely to own one drug, Synacthen,
which it did not develop and which is the only approved drug of its kind in
the United States. Since acquiring it in 2001, Questcor increased its price from
$40 to $28,000. In mid-2013, Questcor acquired a second drug that is not yet
approved in the United States, but is indicated for the same uses overseas. A
separate rival to purchase that drug has sued Questcor, claiming it would
have sold Synacthen in the United States for “a few hundred dollars a vial,”
see Complaint, Retrophin, Inc. v. Questcor Pharms., Inc., No. 8:14-CV-00026-
JLS-JPR (N.D. Cal. Jan. 17, 2014), and market analysts report that the FTC is
investigating as well. See Questcor/Synacthen: Antitrust, Political Analysis
Reveals Significant Risk That FTC Wil Investigate U.S. Patent Rights Acquisition;
Likelihood of Chal enge to Turn on Competitive Landscape of Long Release ACTH
Drugs, CAPITOL FORUM, Aug. 1, 2013. See also Letter from Amy Klobuchar, U.S.
Senate, to Edith Ramirez, Chair, Federal Trade Commission (Aug. 1, 2013),
available at http://www.citronresearch.com/wp-content/uploads/2013/12
...