Seventh Circuit: Key Antitrust Decisions on Everything from Price-Fixing to Healthcare Monopolization

Section 1 liability

Siva v American Board of Radiology

In June 2022, the Seventh Circuit held that a board-certified radiologist had failed to state a claim that the maintenance of certification (MOC) program of the American Board of Radiology (ABR) constituted an illegal tying arrangement.^[2]

Plaintiff Sadhish Siva, a board-certified radiologist, initiated a lawsuit against the ABR in the US District Court for the Northern District of Illinois, Eastern Division, in 2019.^[3] The ABR’s MOC program requires board-certified radiologists to participate in ongoing professional development activities and periodic exams to maintain their certification.^[4] A primary MOC requirement includes obtaining a certain number of continuing medical education (CME) credits each year from third-party CME providers.^[5]

The plaintiff argued that the Board unlawfully tied its initial certification – an economic necessity for radiologists to practice – to its MOC program in violation of Section 1 of the Sherman Act. The plaintiff further alleged that MOC is burdensome, is expensive, and does not contribute significantly to patient care or safety, contending that MOC is merely a cleverly named continuing professional development (CPD) product, just like any other CPD product available in that separate market.^[6]

The court dismissed the plaintiff’s complaint for failure to state a claim, reasoning that he had not plausibly alleged that certification and MOC are two separate products – a threshold requirement for establishing a tying claim.^[7] It reasoned that even if MOC was a CPD product by another name, MOC has been essentially integrated into the certification product and, therefore, is not separate from the ABR’s core certification product.^[8] The plaintiff appealed to the Seventh Circuit.^[9]

The Seventh Circuit affirmed that the plaintiff failed to state a Twombly claim for an illegal tying arrangement, but on different grounds. It first emphasized that the separate-products inquiry must assess market demand at the precontract stage (i.e., before the alleged tying arrangement went into effect);^[10] therefore, the district court had improperly assessed market demand in relying on MOC’s integration into the certification product in the post-contract stage.^[11]

In conducting its own precontract assessment, the Seventh Circuit clarified that the focus is on how consumer demand for the items interact – not on how the products function together. This vantage point considers how market participants have sold and purchased the two items, whether they are separately priced and purchased, and whether they are distinguishable in the eyes of buyers.^[12] The court concluded that CPD products and certifications are separate products, finding that the character of the demand for CPD products is distinguishable from that for certifications, rendering them separate products under Jefferson Parish.^[13]

The court next considered whether the plaintiff had alleged sufficient facts to make it plausible that MOC is a CPD product that competes on the merits in that separate CPD market: It held that he had not.^[14] The court reasoned that the CPD market is a market for educational content and that, crucially, the plaintiff’s complaint indicated that demand for this content is driven largely by state licensing requirements. His complaint noted that the terms CME and CPD are sometimes used interchangeably or in tandem (i.e., CME/CPD).^[15]

The Seventh Circuit rejected the plaintiff’s theory that MOC is like any other CPD product available on the market, as there is no indication that the ABR itself actually produces, offers, or otherwise has a financial interest in any accredited CME products; rather, MOC’s primary feature is its requirement that radiologists purchase CME or CPD products from other providers.^[16] It follows that MOC is an unlikely substitute for CME/CPD offerings, as MOC simply imposes the redundant obligation to purchase those credits elsewhere; therefore, the ABR does not offer any product that could plausibly compete in the continuing-education market.^[17] The court affirmed the dismissal of the plaintiff’s claim.^[18]

Marion HealthCare v Southern Illinois Hospital Services

In July 2022, the Seventh Circuit held that a preferred-provider agreement between a hospital system and a health insurance company did not violate federal and state antitrust laws.^[19] The decision continues a trend of limiting antitrust claims related to preferred-provider agreements and limits when rival companies can sue each other for antitrust violations.

Marion HealthCare (Marion), the plaintiff, is the operator of an outpatient surgery clinic in Southern Illinois. Marion sued Southern Illinois Hospital Services (SIHS), the largest hospital system in the area, and Health Care Service Corporation (HCSC), the largest health insurance company in the area, alleging violations of Sections 1 and 2 of the Sherman Act, the Clayton Act, and Illinois state antitrust laws.^[20]

Marion’s allegations stemmed from a ‘preferred-provider deal’ among the defendants, in which SIHS was designated by HCSC as a preferred provider.^[21] Neither federal nor Illinois state antitrust law forbids preferred-provider deals struck between an insurer and a different medical provider, regardless of the medical provider’s market power.^[22]

Nonetheless, Marion argued that the defendants’ agreement caused injury to other medical providers by leading some patients to choose the SIHS over other providers to fully benefit from lower co-payments, higher fee reimbursements, or both. Moreover, according to Marion, the agreement caused injury to consumers who were forced to go to the SIHS because of their insurance, preventing them from canvassing competitors for lower costs.^[23]

In 2015, the Southern District of Illinois decided in favor of the HCSC but denied the SIHS’s motion to dismiss.^[24] In 2020, a federal magistrate judge granted the SIHS’s motion for summary judgment.^[25] Marion appealed both decisions to the Seventh Circuit.^[26]

The Seventh Circuit affirmed both decisions against Marion, reasoning that Marion made no showing that consumer welfare had been impaired. It credited the lower court’s reasoning that insurance companies are consumers in the healthcare market, rather than sellers, and therefore insurers should be aligned as plaintiffs, if litigants at all.^[27]

The court continued to note other deficiencies in Marion’s theory. First, Marion failed to allege any link between the SIHS’s insurance-contracting practices and either prices or output.^[28] Additionally, Marion’s allegations of ‘exclusive dealing’ were unpersuasive, as the defendants had not promised to deal exclusively with each other; indeed, customers of the HCSC can even use Marion’s clinics.^[29] Finally, it was fatal to Marion’s claim that it could make its own similar preferred-provider deals with other insurers – and had done so at least once.^[30] Essentially, Marion’s claims against both defendants failed for the same reason: There was no showing of harm to any consumer.^[31]

In re Broiler Chicken Antitrust Litigation

In 2023, the Seventh Circuit heard oral argument on whether the plaintiffs in In re Broiler Chicken Antitrust Litigation (Broiler Chicken) can plausibly allege that a third-party agricultural bank was part of an alleged price-fixing conspiracy.^[32] The appeal’s outcome could impact whether third parties can be included in allegations of antitrust violations.

Broiler Chicken involves a consolidated direct action and multiple class actions brought by various consumers and purchasers of broiler chickens against producers who largely control the broiler chicken market. The plaintiffs allege that between 2008 and 2016, the defendants conspired to maintain high prices for broiler chicken by controlling the supply.^[33] A few defendants have settled, but hundreds of plaintiffs and defendants remain engaged in litigation.^[34] Most are participating in pretrial processes; various ongoing appeals relate to specific trial court rulings.^[35]

Rabobank, an agricultural bank, is among the largest lenders to chicken producers.^[36] In 2021, several direct-action plaintiffs sued Rabobank under the Sherman Act.^[37] They alleged that Rabobank participated in the alleged conspiracy to limit the supply of chicken in the marketplace by passing information and communications among the chicken producers engaged in the alleged conspiracy.^[38]

In June 2021, the district court granted Rabobank’s motion to dismiss for failure to state a claim without prejudice, offering the plaintiffs the opportunity to amend their complaint to include new facts gathered in discovery.^[39] It held that emails between Rabobank executives and large chicken sellers could not establish Rabobank’s participation in the alleged conspiracy, reasoning that Rabobank’s significant position in the chicken industry rendered the correspondences reasonable.^[40] Noting that the subject matter of the emails was ambiguous, the court found it implausible that Rabobank participated in an extensive conspiracy and left so little evidence. ^[41] The communications merely established that Rabobank had a significant interest in the industry – not that it helped coordinate production cuts among producers.^[42]

Some plaintiffs chose to amend their complaints.^[43] In February 2022, the district court once again dismissed the claims against Rabobank, this time with prejudice.^[44] It explained that the threshold for plausibility of claims against third parties like Rabobank is higher than for the other producer-defendants because the producers directly control the means of production, and production materially decreased during the relevant period.^[45] The court distinguished Rabobank from other third-party defendants, reasoning that only a few of the defendant-producers did business with Rabobank.^[46]

In April 2022, the district court entered a final judgment of dismissal of the claims against Rabobank.^[47] It emphasized that, given the complexity and longevity of the case, everyone would benefit from certainty regarding whether Rabobank would be a party.^[48] Less than two weeks later, the plaintiffs filed their notice of appeal.^[49] The plaintiffs argued that the district court did not engage enough with the case law on conspiracies between third parties and horizontal competitors.^[50] Rabobank largely echoed the district court’s previous arguments.^[51]

The Seventh Circuit heard oral argument in January 2023.^[52] A ruling outlining whether and when third parties, particularly service providers, can be prosecuted in antitrust conspiracies will have wide-reaching implications.

Deslandes v McDonald’s

In 2023 the Seventh Circuit heard oral argument on a proposed class action involving alleged no-poach agreements among McDonald’s franchisees.^[53] The appeal’s outcome could impact the ongoing antitrust issue of no-hire agreements in the labor and workforce markets.

In Deslandes v McDonald’s,^[54] the District Court for the Northern District of Illinois held that the plaintiffs’ allegations were insufficient to make a plausible claim under a rule of reason analysis. The plaintiffs filed a three-count complaint in 2017, and the case was decided on July 27, 2022. Deslandes addresses the individual claims of two plaintiffs, employees of McDonald’s, who sought relief under the Sherman Act for alleged reduced wages owing to a no-hire restriction in a McDonald’s franchise agreement.^[55] The plaintiffs claimed that they were unable to receive a position at different McDonald’s franchises because of the no-hire restriction.^[56] The no-hire provision prohibited McDonald’s franchisees from employing any person who operated or was employed by McDonald’s or any of its subsidiaries.^[57]

The plaintiffs brought their claim under Section 1 of the Sherman Act and argued that the no-hire provision was a restraint on competition because McDonald’s franchises directly compete with one another, and other restaurants owned by McDonald’s.^[58] In turn, McDonald’s filed a motion to dismiss, arguing that the restraint would most appropriately be reviewed under the rule of reason and that the plaintiffs did not adequately state a plausible claim for a rule of reason review. The defendants argued that to state a plausible claim under the rule of reason, the plaintiffs were required to include allegations of market power.^[59] The court denied the motion to dismiss, finding that the restraint may be unlawful under a quick-look analysis and that the plaintiffs may not have been required to state a plausible claim for a rule of reason review.^[60]

The court determined that the rule of reason was the appropriate review for a no-hire restriction. The rule of reason claims surrounding restraints of trade ‘presumptively’ call for a rule of reason analysis.^[61] The court found that it was not familiar enough with no-hire provisions to determine whether they must always be condemned;^[62] therefore, under Alston, the court applied the rule of reason.^[63]

Subsequently, the defendants filed a motion for a judgment on the pleadings, reiterating that the plaintiffs did not include allegations that plausibly suggest that the restraint would be unlawful under the rule of reason.^[64] The plaintiffs requested leave to amend their complaint to add allegations of market power, which the court denied. The court found that it would be futile for either plaintiff to amend their complaint because it would be difficult to establish that McDonald’s had market power owing to a large number of quick-serve restaurants near their home.^[65] Additionally, it denied the motion because the plaintiffs had the opportunity to amend their complaint before and chose not to do so.^[66]

The rule of reason analysis requires plaintiffs to provide a showing of market power in the relevant market.^[67] The court stated that it can dismiss a claim for failure to include allegations of market power in a relevant market, as those facts are required to make a plausible claim that a restraint is unlawful under the rule of reason.^[68] The court granted the defendants’ motion for a judgment on the pleadings because the plaintiffs had not stated a plausible claim under the rule of reason.^[69]

The Seventh Circuit heard oral argument in March 2023.^[70] The court’s decision whether to reinstate this case will be telling guidance and have wide-reaching implications for this hot topic and theory currently permeating antitrust law.

Carbone v Brown University

In August 2022, the Northern District of Illinois denied the defendants’ motions to dismiss, allowing the suit alleging violations of Section 1 of the Sherman Act to proceed.^[71] In January 2022, current and former university students brought a putative class action suit against private universities, alleging antitrust violations under the Sherman Act.^[72]

This case involves a dispute over the interpretation of Section 568 of the Improving America’s Schools Act of 1994 (the 568 exemption), which provides an antitrust exemption for agreements between ‘2 or more institutions of higher education at which all students are admitted on a need-blind basis.’^[73] The plaintiffs allege that the private university defendants each participated as a member of the 568 Presidents Group (the 568 Group), which is a coalition of colleges and universities that cooperate to form a need-based financial aid system. Moreover, they allege that the defendants intended to reduce or eliminate and succeeded in reducing or eliminating price competition among member schools.^[74] According to the plaintiffs, the defendants’ membership in the 568 Group amounts to ‘participating in a price-fixing cartel designed to reduce or eliminate financial aid as a locus of competition,’ and through this ‘[the defendants have] artificially inflated the net price of attendance for students receiving financial aid.’^[75]

The Northern District of Illinois addressed three motions to dismiss the amended complaint. The non-member defendants’ motion argued that the plaintiffs failed to plausibly allege that they were members of the conspiracy during the relevant period.^[76] The court concluded that the burden to show withdrawal is on the defendant in a civil antitrust case.

The court only ruled on the issue of whether the plaintiffs had sufficiently alleged that the defendants did not admit all their students on a need-blind basis and concluded that the plaintiffs made sufficient allegations on that issue.^[77] The defendants argued that the evidence cited by the plaintiffs was insufficient, but the court dismissed these arguments as related to the weight of the evidence and not the sufficiency of the allegations, as required at the pleadings stage.^[78]

The defendants next argued that the plaintiffs failed to make specific allegations with respect to seven defendants, and that the general allegations are insufficient to meet the plaintiffs’ burden on a motion to dismiss. The court disagreed with this interpretation, noting that the plaintiffs had plausibly alleged that all defendants engaged in non-need-blind admissions decisions, using specific evidence related to certain schools as examples.^[79] Moreover, the 568 exemption only applies when all the schools that are party to an agreement admit all students on a need-blind basis; therefore, by plausibly alleging that at least one of the defendants did not admit students on a need-blind basis, the plaintiffs plausibly alleged that the 568 exemption does not apply.^[80]

Next, the defendants argued that the plaintiffs failed to state a claim for a violation under the Sherman Act. The court concluded that the plaintiffs stated a plausible claim under the defendants’ more demanding view that the rule of reason applied.^[81] Additionally, the parties disputed whether the plaintiffs sufficiently pleaded a plausible relevant market.^[82] The court recognized that the defendants raised fair criticisms of the elite private university market alleged by the plaintiffs; however, at the pleadings stage, a plaintiff must only ‘plead sufficient factual allegations that, when taken as true, make plausible the existence of a relevant market.’^[83] The court concluded that the plaintiffs met their burden.^[84]

The defendants also argued that the plaintiffs do not plausibly allege an antitrust injury because they relied on a series of unsupported and implausible inferences to allege that the net price of attendance would have been lower but for the consensus methodology.^[85] The court disagreed with this argument, pointing to the complaint’s allegation that, absent the alleged conspiracy, the defendants would have competed for students by providing more-competitive aid packages. The court found it notable that the plaintiffs referred to evidence that universities left or decided not to join the 568 Group on these grounds.^[86]

Finally, the defendants argued that the complaint was time-barred under the four-year antitrust statute of limitations.^[87] The court rejected this argument because there is a conceivable set of facts under which the fraudulent-concealment exception, discovery rules, and the continuing-violation doctrine may apply.

As at the time of writing, the Northern District of Illinois is navigating discovery disputes in Carbone v Brown University.

Section 2 liability

Vasquez v Indiana University Health

In July 2022, the Seventh Circuit reversed the Southern District of Indiana’s decision granting the defendants’ motion to dismiss an alleged monopolization case brought against an Indiana healthcare system.^[88]

The plaintiff, Dr Ricardo Vasquez, is a vascular surgeon who owns and operates a stand-alone clinic in Bloomington, Indiana. Vasquez sought and obtained admitting privileges at Bloomington Hospital. He performed over 95 percent of his inpatient procedures at Bloomington Hospital owing to its superior equipment.^[89]

Indiana University Health (IU Health) acquired Bloomington Hospital and Premier Healthcare. According to Vasquez, this resulted in IU Health employing 97 percent of the primary care physicians in Bloomington.^[90] He alleged that around the time of the acquisition, IU Health launched a ‘systematic and targeted scheme’ to ruin his reputation and practice, allegedly motivated by the plaintiff’s commitment to remain an independent practitioner: According to Vasquez, IU Health threatened to revoke his privileges at Bloomington Hospital, and employees began to ‘cast aspersions on his reputation.’^[91] Ultimately, IU Health revoked the plaintiff’s privileges.

The plaintiff filed suit in June 2021, alleging monopolization and attempted monopolization in violation of Section 2 of the Sherman Act, anticompetitive merger in violation of the Clayton Act, and breach of contract and defamation claims under Indiana state law.^[92]

In November 2021, the district court granted the defendants’ motion to dismiss. It found that the plaintiff’s geographic market allegations were contradictory because Bloomington could not be ‘the appropriate geographic market’ if a large number of IU Health’s patients regularly travel large distances to Bloomington. Additionally, the Clayton Act claims were barred by the statute of limitations.^[93] The district court dismissed the Sherman Act and Clayton Act claims. The plaintiff appealed to the Seventh Circuit.^[94]

The Seventh Circuit considered whether the district court erred in dismissing the antitrust claims for failure to allege a proper geographic market, whether the district court erred in dismissing the Clayton Act claims on timeliness grounds, and whether the district court erred in dismissing the federal antitrust claims without giving the plaintiff an opportunity to amend his complaint.^[95]

The Seventh Circuit turned to the hypothetical monopolist test to determine that a rational jury could find that Bloomington was a geographic market.^[96] The plaintiff argued that the vascular surgery market is inherently local because of the need for ongoing care and referrals from primary care providers.^[97] The court emphasized that these arguments were sufficient because a plausible scenario is all that is required to establish a geographic market at the pleadings stage.^[98]

The Seventh Circuit also disagreed with the district court’s determination that the statute of limitations barred the Clayton Act claims.^[99] It relied on the discovery rule that postpones the start of the limitations period to the date when a plaintiff discovers it has been injured.^[100] In the present case, the plaintiff did not clarify when he discovered his injury, and the complaint provides three potential times that could arguably permit the filing of suit in June 2021; therefore, the Seventh Circuit found that the district court erred in dismissing the Clayton Act claims on timeliness grounds.^[101]

The Seventh Circuit did not discuss whether the district court abused its discretion by dismissing the federal antitrust claims because it reversed the district court’s decision to grant the motion to dismiss and remanded for further proceedings.^[102]

Defenses

Noerr–Pennington and reverse payment

Mayor & City Council of Baltimore v AbbVie

In August 2022, the Seventh Circuit held that AbbVie’s 132 patents – establishing a ‘patent thicket’ – did not violate the Sherman Act and that the terms of settlement agreements between AbbVie and competitors did not establish a cartel.^[103]

The litigation arose when a group of indirect purchasers of AbbVie’s drug, Humira, brought suit, claiming that AbbVie filed patents for Humira to prevent challengers from entering the market with cheaper biosimilar alternatives, then used this intellectual property as leverage to force competitors into settlement agreements that operated as unlawful market division and pay-for-delay agreements.^[104] The plaintiffs asserted seven counts against AbbVie, including claims under Sections 1 and 2 of the Sherman Act.^[105]

The district court granted the defendants’ motion to dismiss, holding that the Section 2 claims failed because the plaintiffs did not argue that:

• AbbVie’s conduct in establishing the patent thicket was objectively baseless and, therefore, was protected by the Noerr–Pennington doctrine;
• the Section 1 claims failed because the plaintiffs did not plausibly allege that the settlement agreements restrained competition; and
• the plaintiffs failed to establish a plausible antitrust injury by failing to allege the invalidity of AbbVie’s patents.^[106]

On direct appeal, the plaintiffs argued that AbbVie’s petitioning conduct was not protected under the Noerr–Pennington doctrine and that the district court improperly focused on whether the actions were objectively baseless.^[107] The plaintiffs also argued that the district court applied the wrong standards when dismissing the Section 1 claims by analyzing the EU and US settlements separately and misapplying the holding in FTC v Actavis.^[108] Finally, the plaintiffs argued that the district court incorrectly concluded that the plaintiffs must establish the invalidity of each patent to show a plausible antitrust injury.^[109]

The Seventh Circuit affirmed the district court’s decision. First, it held that AbbVie’s petitioning conduct was protected under the Noerr–Pennington doctrine.^[110] Judge Easterbrook reasoned that AbbVie’s patent thicket of 132 patents in relation to the drug Humira were valid patents, and the court reasoned that if it found that AbbVie violated Section 2 of the Sherman Act by acquiring valid patents, it would amount to ‘penaliz[ing] AbbVie for its successful petitions to the Patent Office,’ which is precluded by the Noerr–Pennington doctrine.^[111]

Second, the court held that the settlement agreements were not anticompetitive reverse-payment agreements.^[112] The US and EU settlement agreements involved AbbVie agreeing to permit entry of would-be competitors before the last patents expired and did not involve AbbVie paying any competitor to delay entry.^[113] Judge Easterbrook noted that ‘[i]f this is a cartel, . . . then all settlements of patent cases violate the Sherman Act.’^[114]

The Seventh Circuit did not address the antitrust-injury issue because it was not necessary to resolve the case.^[115] In affirming the district court, the Seventh Circuit avoided a ruling that would have had far-reaching implications for the intersection of patent and antitrust law. The door remains open for future claims alleging that a patent thicket of invalid or inapplicable patents constitutes a violation of the Sherman Act.

State-action doctrine

Uetricht v Chicago Parking Meters

In September 2022, the Seventh Circuit heard oral argument in the case of Uetricht v Chicago Parking Meters.^[116] The case outlined the contours of the state-action immunity doctrine and the complexities inherent in the application of antitrust regulations to public monopolies, particularly those resulting from unique public–private partnerships.^[117] The dispute centered around the City of Chicago’s 75-year lease of metered street-parking revenue, leased to a privately held entity for over $1 billion.^[118]

Desperate to find funding during the recession of 2008, the City of Chicago faced a $150 million revenue shortfall.^[119] To fund city operations, it decided to put out bid requests and subsequently awarded a 75-year concession over designated parking spaces to the private firm Chicago Parking Meters (CPM) in exchange for an up-front cash payment of $1,156,500,000. The deal conferred on CPM the exclusive right to operate, maintain, and collect revenue from these parking meters.^[120]

After the price of parking in the area covered by the concession more than doubled, two drivers, Micah Uetricht and John Kaderbek, initiated a lawsuit, alleging that CPM’s lease agreement with Chicago constituted an illegal monopoly and violated Section 1 of the Sherman Act. The plaintiffs argued that the agreement unfairly restrained trade by granting exclusive control over the city’s parking meters to CPM, thereby eliminating competition.^[121]

Reinforcing the state-action immunity doctrine, the Seventh Circuit held that Chicago had authority under Illinois law, pursuant to a clearly articulated and affirmatively expressed state policy, to regulate parking on city streets, and was therefore entitled to state-action immunity under the Sherman Act for its decisions with respect to parking spaces and meters.^[122] The court further found that CPM’s lease agreement with the City of Chicago did not constitute an illegal monopoly.^[123] It highlighted that CPM’s lease agreement was entered into after a competitive bidding process and included provisions that allowed the city to retain control over certain aspects of the parking meter system, such as setting meter hours and establishing fees.^[124] The Seventh Circuit also noted that the city was required to compensate CPM for any actions that would reduce the value of its concession, which further reduced the risk of anticompetitive behavior.^[125]

By affirming the district court’s decision, the Seventh Circuit gives a nod to the unique nature of public–private partnerships, acknowledging that ‘[t]he deal itself might have been foolish, short-sighted, or worse, and if one is to believe news reports, it may have saddled Chicago with the most expensive street parking in the country . . . but that is not enough to state a claim for a violation of the antitrust laws.’^[126] While such arrangements can provide public benefits, they may also limit competition and lead to higher prices for consumers if not properly managed and regulated.^[127] This decision affirms that federal antitrust laws do not necessarily prohibit such partnerships when the requirements for sufficient control amounting to state supervision are met.^[128]

Notes