Post-Acquisition Conduct Fails Concerted Action Requirement Under Sherman Act

The Eleventh Circuit found two grounds independently sufficient to affirm summary judgment in an antitrust case, Procaps S.A. v. Patheon, Inc., 2016 WL 7487726 (11th Cir. Dec. 30, 2016). The court ruled that summary judgment was proper both because the plaintiff could not establish the concerted action requirement based on post-acquisition conduct by one party to a joint venture agreement and because it had not established actual anticompetitive effects where it merely presented expert testimony of expected effects.

Procaps and Patheon entered into a collaboration agreement in 2012 for the purpose of establishing themselves in the market for softgel services in the United States. Procaps would contribute intellectual property and manufacturing capacity, and Patheon would contribute marketing and its relationships with U.S. pharmaceutical companies. Under the agreement, Procaps and Patheon would promote a common brand. Procaps and Patheon were prohibited from competing in the market covered by the agreement. Later in 2012, Patheon began negotiations to acquire Banner Pharmacaps, a manufacturing competitor of Procaps. Patheon informed Procaps of the planned acquisition and proposed incorporating Banner into the parties’ collaboration agreement. Procaps, instead, immediately halted all participation in the collaboration based on its determination that after Patheon’s acquisition of Banner the collaboration agreement violated U.S. antitrust law. Procaps filed suit against Patheon under Section 1 of the Sherman Act.

The parties consented to jurisdiction before a magistrate judge. The magistrate initially denied Patheon’s summary judgment motion, finding that the collaboration agreement standing alone was sufficient to meet the concerted action requirement of Section 1. However, after additional discovery, the magistrate granted summary judgment on the ground that Procaps had failed to establish any actual effects on competition.

The Eleventh Circuit affirmed the award of summary judgment to Patheon, first, on its original theory that Procaps could not establish concerted action because Procaps had never made any agreement to restrain trade. Any putative restraints were the result of post-acquisition conduct by Patheon, where it chose unilaterally to withdraw Banner assets from certain markets in order to maintain compliance with the collaboration agreement. The court held that such subsequent unilateral conduct was insufficient as a matter of law to establish the concerted action necessary for an illegal agreement or conspiracy in restraint of trade.  (The court did not explore any possible inconsistency of this holding with the policy of the antitrust agencies that the lawfulness of joint venture agreements should be determined as of the time of the harm to competition, taking into account, for example, subsequent changes in circumstances or market conditions.) See Fed. Trade Comm’n & U.S. Dep’t of Justice, Antitrust Guidelines for Collaborations Among Competitors § 2.4 (2000). The court also held that because Banner had become a wholly owned subsidiary of Patheon, there could be no conspiracy between these two actors under the intra-enterprise conspiracy doctrine of Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752 (1984).

The Eleventh Circuit also affirmed the summary judgment award on the alternative ground that Procaps had failed to establish any actual anticompetitive effects under the rule of reason. Procaps offered expert testimony, e-mails indicating the removal of Banner assets precluded potential customers from receiving bids, and Patheon documents stating that Banner assets were removed. The court held that Procaps’ expert testimony merely offering opinions on the hypothetical effect of removing Banner assets from the market did not satisfy the requirement to point to specific or concrete facts showing harm to competition, such as changes in output, price, or quality. Likewise, the other evidence Procaps offered only showed that Banner assets were in fact removed from the market and did not establish any anticompetitive effects resulting from the removal.

Posted by Jim McGibbon & Danny Wells.

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