Seventh Circuit Rejects "Monopoly Leveraging" Claim

Case: Schor v. Abbott Labs., Case No. 05-3344 (7th Cir. 7/26/06)

The One Sentence Summary: Rejects "monopoly leveraging" claim because one who has a monopoly in one component of a product does not increase his profits by obtaining a monopoly in another component of the product.


What They Were Fighting About: Defendant patentholder charges less for a combination of its drugs than the cost of combining one of defendant's drugs (allegedly sold at a high stand-alone price) with a drug from another supplier. Plaintiff alleged that the disparity between the high price of the drug alone and the low price of the drug in combination was designed to give defendant an illegal monopoly.

Federal Circuit Holdings:

• Defendant holds a patent on Norvir, a drug that acts as a protease inhibitor and slows the progress of HIV-AIDS. As a stand-alone, the drug causes serious side effects. However, it works effectively in combination with other protease inhibiting drugs. Defendant offers such a combination under the brand name Kaletra.
• Plaintiff contends that by charging an unduly high price for Norvir and a low price for Kaletra, defendant is trying to use its patent to obtain a monopoly for all protease inhibitors by inducing the purchase of Kaletra, leading competitors who combine Norvir with other protease inhibitors to drop out of the market. Such a monopoly would allow defendant to then jack up the price of Kaletra.
• Affirms the dismissal of the complaint because it does not state a claim on which relief may be granted. A claim of "monopoly leveraging," such as this one, does not violate antitrust laws unless it takes a particular form, such as a tie-in sale or refusal to deal.
• The price of the stand-alone drug cannot violate the Sherman Antitrust Act because a patent holder is entitled to charge what the market will bear.
• Distinguishes the price-squeeze claim in United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945) because that defendant sold processed aluminum for less than raw aluminum while Kaletra sells for more than Norvir alone.
• This is not an instance of predatory pricing because the price of Kaletra is above the average variable cost of its manufacture. Thus, defendant's rivals can continue to profit from their competing products and will not be knocked out of the market.
• The low price of Kaletra is an unalloyed benefit for consumers. It would be inappropriate to use the Sherman Act to oblige defendant to raise its price for Kaletra.
• A "monopoly leveraging" claim requires first that the defendant have a monopoly, which seems unlikely. Defendant's patent did not necessarily create market power and there are many drugs that act as protease inhibitors and are substitutes for defendant's drugs.
• The problem with "monopoly leveraging" as a theory is that the practice cannot increase a monopolist's profits. A defendant that monopolizes one component of a treatment can extract a monopoly profit for that component. However, if the monopolist gets control of another component as well and tries to jack up the price of that item, the effect is the same as setting an excessive price for the monopolized component and does not add to its profits. Rejects the contrary opinion of Image Technical Serv., Inc. v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997).