Antitrust was our favorite course in law school. That law school was located in the south side of Chicago, city of big shoulders and bigger minds (Posner, Easterbrook, et al.) who weren’t shy about subjecting antitrust law to flinty-eyed analysis. It was exciting. It was logical. It focused on real world results. Earlier Chicago School antitrust pioneers included Aaron Director, Ronald Coase, and Robert Bork. You have probably heard of that last fellow. His nomination to SCOTUS descended into a partisan circus resulting in his rejection, which was due as much to his beard and his lip-smacking over the SCOTUS case inventory “intellectual feast” as to his actual qualifications for the office. His nomination also resulted in a new verb used for clobbering SCOTUS nominees: to “Bork” someone, especially someone who has a substantial written record.
We would hate to be Borked.
Applied correctly (i.e., Chicago-ly), antitrust law looks at how things really work and what really makes sense. It is, in short, quite different from drug and device product liability law, where the realities of science, medical practice, and warnings are submerged in fanciful morality tales. So it is with some exhilaration that we take this brief summer vacation away from Fosamax, Bausch, and the latest insane talc verdict to consider an antitrust case, Washington County Heath Care Auth., Inc. v. Baxter Int’l Inc., 2018 U.S. Dist. LEXIS 112064 (N.D. Ill. July 5, 2018). That case is of interest to us because it turns on the real world realities of regulation and recalls. Spoiler alert: FDA regulation is extensive and voluntary recalls are not easy. (Nobody on the blog had anything to do with the case. The opinions herein are wholly/only ours, not the parties’ or their lawyers’.)
In Washington County Health Care Authority, the plaintiffs claimed that the two largest producers of intravenous saline products violated the Sherman Antitrust Act by colluding to increase prices by initiating a series of bogus voluntary recalls that depleted the saline inventories of health care facilities throughout the nation. The defendants filed a motion to dismiss, arguing that this theory is implausible. They cited Twombly. We on this blog often cite Twombly, but now we are reminded that Twombly was an antitrust case. The defendants won their motion to dismiss, because the plaintiff’s theory that the defendants maneuvered their way into voluntary recalls was implausible. Substitute the word “nutty” for “implausible” and you’d be a little closer to the truth.
Why was the plaintiffs’ theory nutty? At different times, the two defendants issued voluntary recalls of IV saline due to leaks and the presence of particulate matter. So, as an initial matter, you’ve got to believe that manufacturers would intentionally make up a story that their products were defective. Who does that? (As a DDL defense hack, we feel the Washington County Health Care Authority case pulling us through the looking-glass. We’re used to hearing plaintiffs gripe that our clients should have recalled their products. Can you spell damned-if-you-do-damned-if-you-don’t?) Further, to make out an antitrust case, there must be evidence that the two manufacturers agreed on this plan. Was there any actual evidence of this agreement? There was not. The plaintiffs identified “parallel behaviors,” but those behaviors “are no more probative of an agreement than of independent self interested conduct.” Moreover, the behaviors weren’t all that parallel. First, the timing was not quite consistent. Second, one manufacturer recalled eight times as much product as the other. Why would one conspirator confer such a benefit on its rival?
There is another problem with the antitrust complaint. Agreement or no agreement, the complaint contained no allegations suggesting that the reasons the manufacturers provided for the recalls were false. The complaint did not say there weren’t leaks or there weren’t particulates. Rather, the complaint characterized the defects as “inconsequential” or “technical,” thus permitting the defendants to engage in the recalls “without significant business or reputational risks.” That contention is facially implausible, but it is also undercut by the FDA’s classification of the recalls as Class I or II, which are the two most serious recall designations. A Class I recall occurs when “there is a reasonable probability that the use of, or exposure to, a volatile product will cause serious and adverse health consequences or death.” 21 C.F.R. § 7.3(m)(1). A Class II recall “is a situation in which use of or exposure to, a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious health consequences is remote.” No rational manufacturer would willingly walk into those categories.
Even more basically, and no matter what category is implicated, voluntary recalls “impose high upfront costs and invite FDA scrutiny of the very instrument of the unlawful agreement.” FDA considers a removal of a product from the market to be a voluntary recall if it “regards the product as involving a violation that is subject to legal action e.g., seizure.” 21 C.F.R. § 7.46(a). Thus, the court concluded that a complaint “premised on a theory that the defendants intentionally manufactured a public health crisis by orchestrating bogus product recalls that would, despite the public health crisis and rigorous regulatory oversight of product recalls, escape the FDA’s attention, lacks facial plausibility.” And then there is a consideration of the practicalities of recalls. “Product recalls are expensive and draw attention from regulators, especially in the pharmaceutical industry.” The recalling company must submit a detailed recall strategy for evaluation by the FDA, must actually implement recall notifications, and must vigilantly monitor the recall and provide periodic updates to the FDA (tracking the number of purchasers notified of the recall and their responses, among other things). 21 C.F.R. § 7.42; 21 C.F.R. § 7.53. None of that is cheap or easy.
Finally, it is hard to say that the non-agreement to cook up an expensive, self-inflicted reputational wound succeeded in raising prices. The complaint acknowledged that in response to the saline solution shortage, the FDA permitted saline to be imported from foreign manufacturers – “another fact that illustrates the implausibility of the plaintiffs’ theory that the defendants colluded in a manner that convinced their regulator to allow imports from foreign competitors.”
Hurray for the Windy City, where smart professors and smart judges are happy to blow away frail antitrust fables. Now if only those winds could also clear the terrain of silly drug and device cases.