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Direct Evidence of Patent Holder’s Pricing Power Doesn’t Lead to Summary Judgment on Existence of Monopoly Power

We wrote earlier about the DOJ’s efforts to use direct evidence to show that the rules Amex imposes on merchants harm competition.  The district court’s decision denying summary judgment to the plaintiff in Apotex v. Cephalon presents an apparently novel attempt to use direct evidence of market power to prove an antitrust case at the summary judgment stage and avoid tricky issues of market definition.

In this case, Apotex alleges that Cephalon monopolizes that market for modafinil, an anti-narcolepsy medication.  While antitrust defendants (like Amex) frequently argue that they are entitled to summary judgment despite the existence of direct evidence of market power or harm to competition, here Apotex sought summary judgment arguing that it was entitled to summary judgment based on direct evidence.

Apotex argued “that undisputed evidence of Cephalon’s patent-related activity (which created a barrier to entry into the modafinil market), its history of significant price increases for Provigil without lost sales, its large (95%) gross margins on sales of Provigil, and various statements of senior executives at Cephalon boasting that Provigil faced no competition, constitute direct evidence establishing as a matter of law Cephalon’s monopoly power.”  See  Apotex, Inc., v. Cephalon, Inc.  “Apotex further argue[d] that this direct evidence absolves it of the normal responsibility to define the contours of the market.”

Cephalon rejoined that Apotex had failed to present appropriate evidence that the high prices for modafinil were supracompetitive.  Cephalon also pointed to other statements by its executives noting that modafinil faced competition despite its uniqueness.

The court, Judge Mitchell S. Goldberg of the Eastern District of Pennsylvania, noted that “Apotex has cited no case granting summary judgment to an antitrust plaintiff on the issue of market power based on direct evidence.”  The court concluded that “[t]here is nothing unique about the evidence in this case that would suggest a different result.”

Apotex may have made this unusual push for summary judgment on the basis of direct evidence because of challenges it faces in proving market definition.  The court found that it could not resolve the relevant market definition at the summary judgment stage because there was “evidence that modafinil was only one of several treatment options for many of the uses to which it was put.”

It will be interesting to see if Apotex’s effort to rely on direct evidence to prove market power fares any better at trial.