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This article was originally published in The Gray Sheet

Executive Summary

Abbott price bundling arrangements for blood screening assays constitute an "unlawful restraint to trade" and should be prohibited, Ortho Diagnostic Systems argues in an antitrust suit filed against Abbott on April 13 in the U.S. District Court for the Southern District of New York. The Johnson & Johnson subsidiary alleges that Abbott is violating antitrust law by attempting to monopolize the blood center segment of the blood screen test market. Ortho claims Abbott is offering the centers special "bundled" pricing arrangements on the five types of tests used to screen blood in order to encourage blood centers to purchase all their screening assays from Abbott. The arrangements make it "all but impossible for Ortho to compete even in selling those of its tests that customers prefer to Abbott's," the company claims. Blood donor centers screen blood samples with an HIV-1/HIV-2 test, a hepatitis C virus test, two hepatitis B virus tests, and an HTLV-1 test. Blood plasma centers only use the HIV-1/2, HCV, and one of the HBV tests. Although the suit focuses primarily on the blood donor center market, Ortho claims that, because Abbott "monopolizes" two of the three tests used by plasma centers, this market also is affected by Abbott's activities. Abbott is the only diagnostic manufacturer to offer all five assays. Ortho, Abbott's primary competitor in the blood screen market, offers all but the HIV-1/2 assay. Abbott controls 90% of the U.S. HTLV blood donor center market, 87% of the HIV-1/2 market, and roughly 70% of the HBV market, according to Ortho. For HCV tests, Abbott has a 20% market share, Ortho says. Abbott began shipping its second-generation HCV EIA 2.0 immunoassay HCV in May 1992 ("The Gray Sheet" May 11, 1992, p. 8). Ortho launched its second-generation HCV 2.0 in March 1992. The Abbott program provides discounts to blood donor centers for buying a package of all five Abbott tests, Ortho claims. The firm explains that because the five tests are more expensive if purchased individually, Ortho would have to drastically reduce the prices of its tests in order to convince labs to purchase some tests from Abbott and some from Ortho. "Because the vast majority of the market will accept only Abbott's version of" the HIV-1/2 and HTLV tests, "Abbott has bundled these two with its other three tests at a package price," Ortho explains. "By imposing this package price structure, Abbott is using its monopoly power to drive Ortho out of the markets in which it competes with Abbott," the company alleges. In some cases, Ortho would have to give away or "charge less than nothing" for its tests in order to compete with Abbott, the company states. Ortho claims that the "anticompetitive effect" of Abbott's price bundling is "reinforced" by including "bridge clause" provisions in supply contracts. Under the bridge clause, blood centers use superior, innovative tests offered by competitors only until Abbott has developed a comparable product, Ortho explains. As a result, "Ortho and other competitors would be ill-advised to invest in research and to develop new or improved blood screening tests because they are able to obtain customers and profit from their innovations only until Abbott catches up." In early April, Abbott concluded an exclusive blood test supply agreement with the Council of Community Blood Centers that includes the price bundling arrangement and the "bridge clause," Ortho claims. The company says Abbott is negotiating a similar contract with the American Red Cross. Ortho asks the court to declare the CCBC contract "null and void" and to enjoin Abbott from implementing the contract or any other similar contracts. Ortho also is seeking treble damages "in an amount to be determined at trial." The CCBC contract, set to take effect June 1, would likely "foreclose Ortho and Abbott's other competitors from as much as 35-40% of the blood donor center market for three years," Ortho claims, while a deal with the American Red Cross would deny Ortho access to an additional 50% of the market for a similar length of time. "If Abbott succeeds in foreclosing 85-90% of the American blood donor center market for all five blood screening tests for a full three years, the consequences for Ortho -- and for America's blood supply -- may be disastrous," Ortho proclaims. Ortho warns that "competition would be substantially lessened if not destroyed." In addition, the "anticompetitive effects" of the Abbott pricing deals "are likely to be substantially exacerbated because the barriers to entry into each of these markets are very high. The ability of Ortho and Abbott's other two competitors to remain viable as competitors in the U.S. markets" for HTLV, HIV-1/2, the two HBV tests and possibly HCV "would be in serious doubt," Ortho concludes.

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