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GENETIC SYS. CORP. v. ABBOTT LABS.

July 13, 1988

GENETIC SYSTEMS CORPORATION, Plaintiff,
v.
ABBOTT LABORATORIES, et al., Defendants


Joyce Hens Green, District Judge.


The opinion of the court was delivered by: GREEN

JOYCE HENS GREEN, DISTRICT JUDGE.

 This matter now comes before the Court on the motion of defendant The American National Red Cross ("Red Cross") to dismiss or for summary judgment on all four counts of asserted against it in the amended *fn1" complaint and the motion of defendant Abbott Laboratories ("Abbott") to dismiss or for summary judgment on the fourth, *fn2" fifth, and sixth claims of the amended complaint. For the reasons set forth below, the motions of the Red Cross and Abbott are granted.

 I. Factual Background *fn3"

 The Red Cross, established as a corporation by Congress in 1905, 36 U.S.C. § 1, supplies 55% of the approximately eleven million pints of blood donated annually for transfusions in the United States. *fn4" The Red Cross has established 56 blood service regions ("Red Cross Regions") to assist in the collection of blood for transfusion. *fn5" The regions work with the local Red Cross chapters under the direction and supervision of the Red Cross National Headquarters. *fn6" The chapters and blood service regions are not separate corporations and are not allowed to be constituted as separate legal entities. *fn7" The Red Cross Regions, like the Red Cross chapters, all operate pursuant to the same license granted to the Red Cross by the Food and Drug Administration. *fn8" The Red Cross has the authority to dictate the method of operation of each Red Cross Region and the products it may purchase. *fn9"

 Transfusion blood donated to the Red Cross and independent blood centers is screened for transmissible diseases, including hepatitis *fn10" and the HTLV antibody (AIDS). *fn11" To support its testing program, the Red Cross annually contracts with private suppliers of blood testing equipment. For many years, Abbott has been the exclusive or dominant supplier of equipment used for screening transfusion blood. *fn12" From 1978 to 1984, when the only virus for which transfusion blood was routinely screened was hepatitis, Abbott supplied equipment for virtually all hepatitis tests *fn13" and was the exclusive supplier to the Red Cross. In recent years, however, other competing suppliers, including plaintiff Genetic Systems Corporation ("Genetic Systems") *fn14" and E.I. duPont de Nemours, Inc. ("duPont") have entered the market. *fn15" The circumstances leading up to the contract that prompted this litigation -- an exclusive two-year contract between the Red Cross and Abbott for testing equipment -- involve disputed facts that will be outlined here only for contextual purposes.

 In February 1986, when Abbott was the exclusive supplier to the Red Cross of hepatitis and AIDS test equipment, the Red Cross Task Force To Evaluate Infectious Disease Test Kits compared the AIDS tests of several different suppliers, including those of Genetic Systems *fn16" and Abbott. *fn17" The Task Force called Genetic Systems' AIDS test the "test of choice" and recommended that, upon FDA approval, Genetic Systems "be given the largest market share (not less than 80% of total collections)." *fn18" The Task Force recommended against any exclusive arrangement with Abbott, expressed strongly that the "microplate" technology offered by Genetic Systems was superior to the "bead" technology offered by Abbott, and concluded that the Red Cross should encourage development of the former type of test equipment. *fn19"

 In April 1986, an internal Red Cross survey indicated that twenty-two of the Regions (accounting for more than 2.8 million pints) ranked Genetic Systems as their first choice of suppliers, and twenty-nine (accounting for 2.6 million pints) ranked Abbott as their first choice among suppliers of testing equipment. *fn20"

 By the Summer of 1986, the Red Cross had contracted with Abbott, Genetic Systems, and duPont to supply blood screening test equipment for the period July 1, 1986 through June 30, 1987. After discussions with the Red Cross Regions, the Red Cross determined that six of its fifty-six Regions would be supplied test equipment from Genetic Systems. *fn21" This volume represented 15% of the AIDS tests performed by the Red Cross and was the first major contract for a Genetic Systems product. *fn22" The Red Cross contracted with Abbott to supply the remaining approximately 85% of the 21.6 million tests for hepatitis and AIDS for the same 1986-87 contract period. *fn23"

  In July 1986, studies presented at the National Institutes of Health Conference on AIDS indicated that the Abbott AIDS test then in use by the Red Cross was less sensitive to detecting contaminated blood than the test of Genetic Systems. *fn24" That same month, Victor W. Schmitt, Vice President of Medical Operations of the Red Cross, inquired of Genetic Systems how long it would take for it to supply all Red Cross Regions with their requirements for AIDS tests. *fn25" Genetic Systems advised the Red Cross that it could do so within four weeks. *fn26" In the meantime, the Red Cross continued to use the Abbott test and Abbott sought FDA approval of a new, "improved" AIDS test.

 By November 1986, the Red Cross was aware that the new Abbott test would not be available until December 1986; that availability date was later delayed to January 1987. *fn27" The Red Cross became frustrated at the regulatory delays, however, and developed various strategies in response to the problem. *fn28" Initially, the Red Cross adopted a "contingency plan" under which it would become a "co-investigator" with Abbott to facilitate licensure by the Food and Drug Administration. *fn29" This contingency plan was never put into effect, *fn30" however, and the Red Cross adopted a second contingency plan to purchase blood test equipment from alternative suppliers. *fn31" This second plan was also never implemented because Abbott's new test received FDA approval in January 1987. *fn32"

 One month after Abbott received approval for its new test, the Red Cross received proposals from Genetic Systems, Abbott, and duPont to supply the Red Cross' requirements for AIDS and the two hepatitis tests for a multi-year period commencing July 1, 1987. *fn33"

 The record clearly reflects, and defendants do not deny, that a variety of views, some "strongly held and sharply conflicting," *fn34" emerged within the Red Cross as to the desirability of contracting with the various test equipment suppliers for the next contract period. For example, in March 1987, the Red Cross Task Force found that the test kits of Genetic Systems, DuPont, and Abbott "all appear to perform with comparable sensitivity and specificity at this time" and would be "acceptable" *fn35" but recommended that Genetic Systems continue to have a "significant part" of the Red Cross' AIDS test business in light of the dissatisfaction with the Abbott test in 1986. *fn36" The Task Force concluded that it was important for Genetic Systems to "remain competitive in this field and continue to develop improved microplate reagents and equipment." *fn37" Several Red Cross administrators expressed strong support for extending a contract to Genetic Systems over Abbott. *fn38" After considering the relative benefits and costs of the various bids (facts highly disputed in this litigation), *fn39" the Red Cross determined to award the contract exclusively to Abbott for a two-year period.

 On May 5, 1987, the Red Cross informed Genetic Systems that it had decided to enter into an agreement with Abbott effective July 1, 1987 through June 30, 1989 for the supply of all the Red Cross' requirements for the fifty-six Regions for the three blood tests. *fn40" Under the contract, the Red Cross Regions order directly from Abbott and pay for the tests pursuant to their budgets that have been approved by the Red Cross. *fn41"

 In addition to the test kits, *fn42" Abbott is to supply the Red Cross Regions with a data management system ("DMS"), which analyzes the data from all the Red Cross' routine tests, "at no charge" during the contract period. *fn43" After the contract expires, the regions will be required to pay a separate leasing charge for continued use of the DMS in the event that they switch to a supplier other than Abbott. *fn44" Currently, DMS is not compatible with the test instrumentation of other suppliers, but under the contract, Abbott agrees to make DMS compatible. *fn45"

 In short, Genetic Systems contends that the two-year exclusive contract between Abbott and the Red Cross effectively froze Genetic Systems out of the market for blood test equipment and has jeopardized the company's ability to survive as a competitor. With this sketch of the facts in mind, defendants' arguments that plaintiff has either failed to state or cannot prove the alleged violations of the antitrust laws shall be examined.

 A. Plaintiff's Allegations

 In the amended complaint, plaintiffs allege six counts, two against Abbott alone and four against both defendants:

 
I. Against Abbott for violation of Sherman Act § 2 in that Abbott's conduct constitutes a monopolization and an attempt to monopolize;
 
II. Against Abbott and the Red Cross for violation of Sherman Act § 1 in that the conduct of Abbott and the Red Cross constitutes a "contract, combination . . . or ...

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