The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge
Currently before the Court are three antitrust cases filed by the direct purchasers (and certain assignees of direct purchasers) of Ovcon 35 ("Ovcon"), a brand-name oral contraceptive marketed by Warner Chilcott.*fn1 Plaintiffs allege that Defendant Barr Pharmaceuticals, Inc. ("Barr"), a manufacturer of Ovcon, entered into an illegal agreement with Warner Chilcott to delay the market entry of Barr's generic version of Ovcon in exchange for $20 million.*fn2
According to Plaintiffs, this agreement violated Section 1 of the Sherman Act, 15 U.S.C. § 1, by denying direct purchasers of Ovcon the benefits of generic competition and causing them to pay higher prices for Ovcon. Plaintiffs have moved for partial summary judgment on the issue of whether Barr's agreement with Warner Chilcott constituted a per se unreasonable restraint of trade. Barr has filed a cross-motion for summary judgment, arguing (among other things) that its agreement with Warner Chilcott should be examined under a rule of reason analysis, and that the procompetitive benefits of the agreement outweighed any of its alleged anticompetitive effects.
After a searching review of the parties' motions, including the mountainous attachments thereto, applicable statutory authority and case law, and the entire record herein, the Court holds that the agreement between Barr and Warner Chilcott must be evaluated under the rule of reason and cannot be condemned as a per se unlawful restraint of trade. The Court further holds that genuine issues of material fact exist with respect to the proper definition of the relevant product market in this case, and that these factual issues preclude entry of summary judgment. Accordingly, the Court shall DENY Plaintiffs' Motion for Partial Summary Judgment, and shall GRANT-IN-PART and DENY-IN-PART Defendant's Motion for Summary Judgment, for the reasons that follow.
This case arises in the context of the manufacturing and sale of brand-name ("branded") and generic drugs.*fn3 Warner Chilcott and Barr are pharmaceutical companies that develop, manufacture, market, and distribute drugs of varying application. Pls.' Stmt. ¶¶ 1, 2. In January 2000, Warner Chilcott purchased Ovcon, a branded oral contraceptive, from Bristol Myers Squibb ("BMS"). Def.'s Stmt. ¶ 6; Pls.' Stmt ¶¶ 38. Because Warner Chilcott did not have the ability to manufacture Ovcon itself, it also entered into a supply agreement obligating BMS to supply Warner Chilcott with all of its requirements for Ovcon, as well as any line extensions (i.e., additional Ovcon-related products).*fn4 Def.'s Stmt. ¶ 7. Ovcon became one of Warner Chilcott's highest revenue-producing products while under agreement with BMS. Pls.' Stmt. ¶ 40. Nevertheless, Ovcon was not subject to patent protection, and in September 2001, Barr filed an application with the United States Food and Drug Administration ("FDA") seeking approval to market a generic version of Ovcon.*fn5 Id. ¶ 2.
The parties offer conflicting descriptions of the Warner Chilcott - BMS supply relationship. Barr maintains that Warner Chilcott was frustrated with BMS because its shipments of Ovcon were consistently delayed and inadequate, causing Warner Chilcott to "often [run] out of supply." Def.'s Stmt. ¶¶ 8-10. See also Def.'s Mot., Ex. 44 at 1 (2/6/01 Email from C. Yodice to T. Beer) ("the Ovcon schedules are at least 4 to 5 months overdue"); id., Ex. 45 at 1 (8/21/01 Email from J. Nicol to I. Flores and R. Velez) ("We're looking for updates on the following issues so we can provide Warner Chilcott with the most recent information. They continue to be concerned about significant delays and frequent changes in availability dates."); id., Ex. 73 at 29:17 - 29:21 (Depo. Tr. of Leland Cross) ("Q: What is Warner Chilcott's judgment as to whether [BMS] was an adequate supplier of Ovcon? A: I could tell you my assessment, and they were the worst supplier that I have come across in 25 years in the industry"). Barr argues that these supply problems caused Warner Chilcott to seek out Barr as an alternative supplier of Ovcon. See Def.'s Opp'n at 6.
Plaintiffs advance a very different view concerning BMS's performance under its contract with Warner Chilcott, which Plaintiffs characterize as "adequate." Pls.' Resp. Stmt. ¶ 8. Plaintiffs argue that, "[o]n average, BMS provided Warner Chilcott with more than three months of Ovcon inventory." Id. Plaintiffs also argue that Warner Chilcott's supply problems were self-induced because Warner Chilcott purposefully "bled down" its Ovcon inventory when it incorrectly anticipated FDA-approval (and a corresponding product launch) of a chewable version of Ovcon. Id. ¶ 10. Plaintiffs conclude that, based on evidence in the record, Warner Chilcott sought to enter into an agreement with Barr because it knew that the market entry of a generic version of Ovcon would substantially diminish its sales and profits. See, e.g., Pls.' Mot., Ex. 9 at 2 (5/13/03 Board Minutes) ("[t]he biggest risk to the Company is the introduction of a generic version of Ovcon"); Def.'s Resp. Stmt., Ex. C at 4, 201:23-25 (Depo. Tr. of Roger Boissonneault) (discussing the market entry of Barr's generic Ovcon and indicating that Warner Chilcott "would lose 50 percent of [its] business in the first year. That's the general metric for a generic coming into the marketplace for an oral contraceptive"); Pls.' Mot., Ex. 10 at 1 (1/20/03 Email from W. Poll to J. Smith) (estimating that Ovcon sales would increase from $61 million in 2003 to $78 million in 2005 if no generic were introduced, and would decrease to $18 million if a generic were launched in 2003).*fn6
The parties' conflicting views are also reflected in their divergent characterizations of Warner Chilcott's plans to develop a chewable version of Ovcon. According to Plaintiffs, Warner Chilcott planned to convert Ovcon patients to a chewable version of Ovcon that would not have a generic equivalent as a way of protecting its Ovcon share. Pls.' Stmt. ¶ 63; Pls.' Opp'n, Ex. 12 at 2 (3/15/02 Report) (describing a strategy to "delay generic entry," "protect Ovcon," and indicating that "[p]hysicians will NOT be asked to write 'Ovcon Chewable' initially," but "[i]f generic becomes available, new strategy will ask physicians to write 'Chewable'"). See also Pls.' Opp'n, Ex. 27 at 3 (8/25/03 Brand Plan) ("The major threat this year to Ovcon is the inevitable launch of a generic by Barr Labs. The strategy is to launch Ovcon 35 chewable as soon as possible, keep regular Ovcon 35 on the market, and switch as much of the existing business to chewable as quick as possible . . ."). FDA approval of chewable Ovcon was delayed beyond what Warner Chilcott had projected, however, and Plaintiffs argue that Warner Chilcott viewed the combined unavailability of chewable Ovcon with Barr's generic entry as a "Total Disaster." Pls.' Mot., Ex. 19 at 3 (1/22/03 Ovcon Scenarios Spreadsheet). In response, Barr characterizes Plaintiffs' arguments as "untenable" because Warner Chilcott recognized that, even if chewable Ovcon were introduced, a "prescription [could] still be substituted if Ovcon generic [became] available," Def.'s Resp. Stmt. ¶ 61 (quoting Pls.' Opp'n, Ex. 12 at 2 (3/15/02 Report)), and that Warner Chilcott planned "to launch [its] line extension whether there [was] a generic or [not]," Def.'s Resp. Stmt. ¶ 63 (quoting Pls.' Opp'n, Ex. 61 at 3 (8/6/2003 Earnings Conference Call)).
Whether motivated by supply concerns (as Barr suggests) or generic entry concerns (as Plaintiffs suggest), on September 10, 2003, Warner Chilcott and Barr signed a Letter of Intent. Def.'s Stmt. ¶ 13. The Letter of Intent contemplated an agreement that would grant Warner Chilcott an option to acquire a five-year exclusive license to Barr's rights under its Abbreviated New Drug Application ("ANDA") for a generic version of Ovcon pending before the FDA, and obligate Barr to exclusively supply Warner Chilcott's requirements of Ovcon. Id. Barr subsequently submitted the Letter of Intent to the Federal Trade Commission ("FTC") for review. Def.'s Opp'n, Ex. 80 at 1 (4/30/03 Letter from M. Kovner to Pre-merger Notification Office and the Director of Operations and Civil Enforcement). Although Barr claims that the "letter of intent met with no objection from the FTC's Merger Division," Def.'s Opp'n at 8, the FTC Bureau of Competition sent a letter to Barr stating that we [the FTC] are concerned that this transaction, if consummated, has the potential to significantly reduce competition by eliminating the only generic alternative to Ovcon. Accordingly, we intend to seek information relating to the Ovcon transaction.
Def.'s Opp'n, Ex. 84 at 1 (2/17/04 Letter from B. Albert to M. Kovner).*fn7
Notwithstanding the FTC's concerns, on March 24, 2004, Warner Chilicott and Barr executed the contemplated agreement, and according to its terms, Warner Chilcott made an initial $1 million payment to Barr.*fn8 Pls.' Stmt. ¶ 3. Barr announced the Agreement in a press release dated March 25, 2004, Def.'s Stmt. ¶ 17; Pls.' Resp. Stmt. ¶ 17; Def.'s Mot., Ex. 87 at 1 (3/25/04 Press Release). On April 22, 2004, the FDA granted final approval of Barr's application for generic Ovcon, and the next day, Barr announced that it would begin marketing generic Ovcon under the name "Balziva" if Warner Chilcott chose not to exercise its option under the Agreement. Pls.' Stmt. ¶ 4. On May 6, 2004, Warner Chilcott exercised its option under the licensing agreement and paid Barr an additional $19 million for its rights to its ANDA. Id. Accordingly, Balziva was not introduced into the market, and Barr became obligated to supply its generic Ovcon tablets exclusively to Warner Chilcott in the United States for five years.*fn9 Id. ¶ 5.
In November 2005, various plaintiffs, including the FTC, a number of states, and the Plaintiffs in the above-captioned actions, filed Complaints against Warner Chilcott and Barr alleging that their Agreement violated the antitrust laws. Id. ¶ 7. On September 25, 2006, Warner Chilcott signed a waiver that terminated the exclusivity provisions of the Agreement. Id.
As a result, Barr was able to market a generic version of Ovcon in the United States, and did so in October 2006 with the launch of Balziva, a lower-priced generic equivalent of Ovcon. Id. ¶ 8; Def.'s Resp. Stmt. ¶ 8.
Within months of Balziva's introduction, sales of Ovcon declined substantially, and Warner Chilcott reported that "OVCON net sales during the quarter declined $19.4 million, or 80.7%, compared with the prior year quarter. The decline in OVCON revenue was due to the introduction of a generic version of OVCON 35 in late October 2006, which led to an 80.4% decline in filled prescriptions for OVCON 35 compared to the same quarter last year." Pls.' Stmt., Ex. 14 at 1 (5/11/07 News Release). Barr does not deny the accuracy or existence of Warner Chilcott's report, but argues that the report fails to describe other factors exacerbating the decline in Ovcon sales. Def.'s Resp. Stmt. ¶ 9. For example, Barr explains that Warner Chilcott terminated the widespread practice of "sampling" (the promotional practice of providing free samples of brand-name products to attract new patients) once Balziva was introduced into the market.*fn10 Def.'s Resp. Stmt. ¶ 9; Def.'s Stmt. ¶¶ 25-27. In any event, Barr currently supplies Warner Chilcott (non-exclusively) with tablets that Warner Chilcott sells as Ovcon, and with tablets that Warner Chilcott sells to Watson Pharmaceuticals, Inc. that are marketed as "Zenchent," another generic form of Ovcon.*fn11 Pls.' Stmt. ¶ 100.
The above-captioned cases originally began with the filing of eight separate actions brought by direct purchasers of Ovcon (and assignees of direct purchasers). On April 14, 2006, six of those cases were consolidated into Meijer, Inc. v. Warner Chilcott Holdings Co. III, Ltd., Civ. A. No. 05-2195. On October 22, 2007, the Court certified a plaintiffs' class in the consolidated action consisting of "[a]ll persons and entities in the United States who purchased Ovcon 35 directly from Defendants at any time during the period April 22, 2004 through December 31, 2006," with the exception of "Defendants and their officers, directors, subsidiaries or affiliates, and all governmental entities," as well as "hospitals, universities and clinics." Meijer, Inc.,  Order at 2 (Oct. 22, 2007). The other two above-captioned cases were not consolidated into the Meijer action, but are nevertheless also brought by assignees of direct purchasers.
Plaintiffs reached a settlement agreement with Warner Chilcott that was approved by the Court on July 10, 2008, which dismissed Warner Chilcott as a Defendant in these cases. See Meijer, Inc. v. Warner Chilcott Holdings Co. III, Ltd., No. 05-2195,  Order and  Mem. Op. (July 10, 2008). After an extensive mediation period, Plaintiffs and Barr failed to reach a settlement agreement, and the parties proceeded to file and brief the instant Motions for Summary Judgment.
Plaintiffs filed a Motion for Partial Summary Judgment ("Pls.' Mot.") on November 14, 2007. See Meijer, Inc. v. Barr Pharmaceuticals, No. 05-2195, Docket No. ; Walgreen Co. v. Barr Pharmaceuticals,No. 06-494, Docket No. ; CVS Pharmacy, Inc. v. Barr Pharmaceuticals,No. 06-795, Docket No. . Barr filed a Motion for Summary Judgment ("Def.'s Mot") on November 28, 2007. See Meijer, Inc., No. 05-2195, Docket No. ; Walgreen Co., No. 06-494, Docket No. ; and CVS Pharmacy, Inc., No. 06-795, Docket No. . Plaintiffs filed their Opposition to Barr's Motion for Summary Judgment ("Pls.' Opp'n") on December 21, 2007, and Barr filed its Opposition to Plaintiffs' Motion for Partial Summary Judgment ("Def.'s Opp'n") on January 2, 2008. Plaintiffs replied to Barr's Opposition ("Pls.' Reply") on January 18, 2008, and Barr replied to Plaintiffs' Opposition ("Def.'s Reply") on February 1, 2008.*fn12 Accordingly, the parties' motions are fully briefed and ripe for resolution.*fn13
A party is entitled to summary judgment if the pleadings, depositions, and affidavits demonstrate that there is no genuine issue of material fact in dispute and that the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Tao v. Freeh, 27 F.3d 635, 638 (D.C. Cir. 1994). Under the summary judgment standard, the moving party bears the "initial responsibility of informing the district court of the basis for [its] motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits which [it] believe[s] demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The non-moving party, in response to the motion, must "go beyond the pleadings and by [his] own affidavits, or depositions, answers to interrogatories, and admissions on file, 'designate' specific facts showing that there is a genuine issue for trial." Id. at 324 (internal citations omitted).
Although a court should draw all inferences from the supporting records submitted by the nonmoving party, the mere existence of a factual dispute, by itself, is not sufficient to bar summary judgment. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). To be material, the factual assertion must be capable of affecting the substantive outcome of the litigation; to be genuine, the issue must be supported by sufficient admissible evidence that a reasonable trier-of-fact could find for the nonmoving party. Laningham v. U.S. Navy, 813 F.2d 1236, 1242-43 (D.C. Cir. 1987); Liberty Lobby, 477 U.S. at 251 (the court must determine "whether the evidence presents a sufficient disagreement to require submission to a [fact-finder] or whether it is so one-sided that one party must prevail as a matter of law"). "If the evidence is merely colorable, or is not sufficiently probative, summary judgment may be granted." Liberty Lobby, 477 U.S. at 249-50 (internal citations omitted). "Mere allegations or denials in the adverse party's pleadings are insufficient to defeat an otherwise proper motion for summary judgment." Williams v. Callaghan, 938 F. Supp. 46, 49 (D.D.C. 1996). The adverse party must do more than simply "show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Instead, while the movant bears the initial responsibility of identifying those portions of the record that demonstrate the absence of a genuine issue of material fact, the burden shifts to the non-movant to "come forward with 'specific facts showing that there is a genuine issue for trial.'" Id. at 587 (citing Fed. R. Civ. P. 56(e)) (emphasis in original).
The parties' motions require the Court to address three primary issues. First, the Court must determine whether Barr's agreement with Warner Chilcott is a per se unreasonable restraint of trade or whether the agreement should be reviewed under a rule of reason analysis. Second, assuming the rule of reason applies, the Court must determine whether Barr is entitled to prevail under that analysis as a matter of law. Third, the Court must consider Barr's three perfunctory arguments included at the end of its Motion that Plaintiffs lack standing to assert their claims. The Court shall address each of these issues in turn.
A. Per Se or Rule of Reason Standard
Plaintiffs allege that Barr's conduct violated Section 1 of the Sherman Act which prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States . . . ." 15 U.S.C. § 1. Although this language appears to prohibit every agreement "in restraint of trade," the Supreme Court has interpreted this Section to prohibit only "unreasonable restraints." State Oil Co. v. Kahn, 522 U.S. 3, 10 (1997). Courts have historically determined the reasonableness of a given restraint by performing a rule of reason analysis, pursuant to which "the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition." Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977). See also Arizona v. Maricopa County Medical Society, 457 U.S. 332, 343 (1982) ("since Standard Oil Co. of New Jersey v. United States . . . we have analyzed most restraints under the so-called 'rule of reason'"). The reasonableness of a particular restraint depends on a broad range of considerations, including specific information about the relevant product market, the history, nature, and effect of the particular restraint, and whether the companies involved have market or monopoly power. See Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S.Ct. 2705, 2712-13 (2007).
Even though the rule of reason "is the accepted standard for testing whether a practice restrains trade in violation of § 1 [of the Sherman Act]," Leegin, 127 S.Ct. at 2712, some restraints are so pernicious in all or almost all cases that courts forego a rule of reason inquiry and condemn the restraints as per se illegal. See Maricopa County, 457 U.S. at 344. This per se rule is "reserved for only those agreements that are 'so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality,'" Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (quoting Nat'l Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 692 (1978)), and there is thus no need "to study the reasonableness of an individual restraint in light of the real market forces at work." Leegin, 127 S.Ct. at 2713 (citing Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988)). The application of the per se rule is only appropriate where a court first determines that "the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output . . . ." Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1, 19-20 (1979).
In the present case, the parties dispute whether the rule of reason or the per se rule applies to the Agreement between Barr and Warner Chilcott. Under the terms of the Agreement, Warner Chilcott exercised an option that prevented Barr from selling generic Ovcon products (itself or through a third-party) in the United States for five years, and obligated Barr to supply Warner Chilcott with Ovcon during the same period:
Exclusivity. During the First License Term, except as provided in the Supply Agreement, neither Barr nor its Affiliates shall, either itself or with or through a Third Party, (a) market, commercialize, distribute or sell a Licensed Product [defined to include the contemplated generic version of Ovcon] in the Territory [defined to include the United States] or (b) import or export a Licensed Product for the purposes of clause (a).
Def.'s Mot., Ex. 86 § 3.3 (3/24/04 Option and Option and License Agreement).
Commitment to Supply. During the term of this Agreement . . . Barr shall use Commercially Reasonable Efforts to supply [Warner Chilcott], and [Warner Chilcott] shall purchase from Barr, all of [Warner Chilcott's] requirements for Finished Product [defined to include the contemplated generic version of Ovcon] pursuant to purchase orders delivered from time to time . . . neither Barr nor any of its ...