VAUGHN MEDICAL EQUIP. REP. SVC. v. JORDAN RESES SUPPLY

titrust laws]"; T.O. Bell v. Dow Chem. Co., 847 F.2d 1179, 1182 (5th Cir. 1988) ("Proving antitrust injury is a necessary requirement for proving standing; the former cannot stand alone from the latter"); City of Pittsburgh v. W. Penn Power Co., 147 F.3d 256, 265 (3d Cir. 1998) ("If antitrust injury is not found, further inquiry is unnecessary."). As a threshold matter, the necessary antitrust injury is an injury attributable to the anticompetitive aspect of the practice under scrutiny. See Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334, 110 S.Ct. 1884 (1990) ("Antitrust injury does not arise for purposes of [ 15 U.S.C. § 15] . . . until a private party is adversely affected by an anticompetitive aspect of the defendant's conduct.").

b. Analysis

Defendants seek dismissal of plaintiff's antitrust claims on the grounds that the only injuries asserted by Plaintiff are those suffered in an individual capacity. (Rec. Doc. 18-1 at 4-5). Specifically, defendants assert that the plaintiff cannot state an antitrust claim because it has not alleged facts to show a market-wide injury to competition. (Rec. Doc. 18-1 at 5). In response, plaintiff contends that it has pleaded an antitrust injury. (Rec. Doc. 27 at 6-8).

The Fifth Circuit has repeatedly distinguished between antitrust injury and injury to competition. See, e.g, Doctors' Hosp., 123 F.3d at 305; Walker v. U-Haul Co., 747 F.2d 1011, 1016 (5th Cir. 1984); Multiflex, Inc. v. Samuel Moore Co., 709 F.2d 980, 986 n. 6 (5th Cir. 1983). Antitrust injury exists when (1) the injury was of the type antitrust laws were intended to prevent, and (2) that the injury "flows" or was caused by that which makes the defendant's conduct unlawful. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488-89 (1977). Injury to competition, on the other hand, while often a necessary component to substantive liability, need not be pleaded for a plaintiff's antitrust claims to survive a motion to dismiss. Doctor's Hosp., 123 F.3d at 305. In this circuit, antitrust injury for standing purposes is viewed from the perspective of the plaintiff's position in the marketplace, not from the merits-related perspective of the impact of a defendant's conduct on overall competition. Id. Thus, to state a claim under the Sherman Act, a plaintiff, in addition to stating an antitrust violation, must allege facts sufficient to show antitrust injury. In re Tamoxifen Antitrust Litigation, 466 F.3d 187, 219 (2d Cir. 2006).

As support for its assertion that it has pleaded antitrust injury, plaintiff cites to the Fifth Circuit decision in Norris v. Hearst Trust. 500 F.3d 454 (5th Cir. 2007). Plaintiff's reading of Norris proposes that the antitrust injury requirement is met when an injury is inflicted on a business consumer or competitor of a defendant. (Rec. Doc. 27 at 7); see Norris, 500 F.3d 454 at 465-66. The plaintiff seeks recognition of its injuries as both a consumer of Respironics' and ResMed's products, and a competitor of Jordan Reses' distribution services. Under the plaintiff's suggested interpretation of Norris, such recognition would establish the requisite antitrust injury.

Such a reading of Norris, however, is inaccurate. It drastically oversimplifies the question of whether the defendants' activities resulted in antitrust injury. In that case, the Fifth Circuit was commenting less on the dynamics of anticompetitive conduct and more on which parties are most likely to bring suit under the federal antitrust laws. Thus, it was focused on the third element of the standing inquiry — the issue of whether the plaintiff is a proper party to an antitrust claim. See Norris, 500 F.3d at 466 (noting that consumers and competitors are the appropriate parties to bring antitrust claims because they are often the only parties injured by the harm to competition caused by antitrust violations). The Fifth Circuit was not stating a bright-line rule for gauging the occurrence of an antitrust injury. While it is typically consumers and competitors who suffer as a result of calculated anticompetitive conduct, this fact alone does not reflexively manifest an antitrust injury.

It is important to note that customers and competitors do not automatically have antitrust standing. The plaintiff's opposition brief focuses mainly on the fact that, as both a consumer and a competitor, it has suffered antitrust injury and should therefore have antitrust standing. Such an assertion oversimplifies the antitrust standing analysis. See Atl. Richfield, 495 U.S. at 338; accord Cargill, 479 U.S. at 122; Brunswick, 429 U.S. at 488; see also Novell, Inc. v. Microsoft Corp., 505 F.3d 302, 310-314 (4th Cir. 2007) (declining to adopt a bright line rule that only consumers and competitors have antitrust standing).

Nevertheless, Vaughn Medical's alleged losses and competitive disadvantage resulting from its exclusion from the VA market fall within the conceptual bounds of antitrust injury. Vaughn Medical is a would-be provider of CPAPs and related products to the VA and a direct competitor of JRS. Plaintiff alleges that JRS conspired with manufacturers Respironics and ResMed to deprive Vaughn Medical and other competitors of the opportunity to actively compete in the VA market. (Rec. Doc. 4-2 at 26). Plaintiff further alleges that the defendant JRS exploited its market power in the VA market to weaken Vaughn Medical as a competitor. (Rec. Doc. 27 at 10). Plaintiff also asserts that Respironics and ResMed sold their products to JRS at a price lower than that charged to its competitors. (Rec. Doc. 4-2 at 28). These are the types of injuries that the antitrust laws were intended to prevent. And since Vaughn Medical has pleaded that its purported injuries flow directly from the defendants' allegedly exclusionary conduct, the second prong of the antitrust injury analysis is also satisfied. See Brunswick Corp., 429 U.S. at 488-89. Thus, Vaughn Medical has adequately alleged antitrust injury.

3. Failure to Plead a Relevant Market

Defendants seek dismissal of plaintiff's section 1 and section 2 claims for failure to plead a relevant market. (Rec. Doc. 18-1 at 6). In response, the plaintiff asserts that the defendants actions were per se unlawful under the Sherman Act and, as a result, it need not plead a relevant market. (Rec. Doc. 27 at 8-9). In the alternative, plaintiff avers that it has adequately alleged a relevant market. (Rec. Doc. 27 at 10-12). To determine if the plaintiff is required to plead a relevant market, the Court must first establish whether the defendants' alleged anticompetitive activities are per se unlawful, or if they should be analyzed under the rule of reason. Apani, 300 F.3d at 627; Blanchard Co. v. Barrick Gold Corp., 2003 WL 22071173 at *7 (E.D. La. 2003).

a. Per se or Rule of Reason?

Section 1 of the Sherman Act states that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states . . . is declared to be illegal." 15 U.S.C. § 1. Though on its face § 1 creates only a criminal penalty, § 4 of the Clayton Act, 15 U.S.C. § 15(a), provides treble damages relief to "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws." While this language is seemingly broad, the Supreme Court has construed this provision to afford a remedy to only those victims of "unreasonable" restraints of trade. See Texaco, Inc. v. Dagher, 547 U.S. 1, 5 (2006); State Oil Co. v. Khan, 522 U.S. 3, 10 (1997); Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988); 15 U.S.C. § 1.

Ordinarily, alleged violations of § 1 of the Sherman Act undergo the rule of reason analysis. See Khan, 522 U.S. at 10; Bus. Elecs., 485 U.S. at 723. In the Fifth Circuit, "[p]roof that the defendant's activities . . . adversely affected competition in the appropriate product and geographic markets is essential to recovery under the rule of reason." Apani, 300 F.3d at 627 (citing Hornsby Oil Co. v. Champion Spark Plug Co., 714 F.2d 1384, 1392 (5th Cir. 1983)).

However, if the restraint alleged is among that small class of actions that courts have deemed to have "such predictable and pernicious anticompetitive effect, and such limited potential for procompetitive benefit," it will be considered per se unreasonable. Khan, 522 U.S. at 10; see also Jayco Sys., Inc. v. Savin Bus. Mach. Corp., 777 F.2d 306, 317 (5th Cir. 1985) (explaining that certain business practices have such an inherently detrimental effect on competition that they are presumed facially unreasonable and therefore illegal). Per se liability is reserved for only those agreements that are "so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality." Dagher, 547 U.S. at 5 (quoting National Soc. of Professional Engineers v. U.S., 435 U.S. 679, 692 (1978)). In other words, if the plaintiff's factual allegations create an inference that the defendants' activities were per se unlawful, the requirement to plead a relevant market is lifted, as the anticompetitive effects of defendants' activities are considered facially apparent. Doctor's Hosp. of Jefferson, Inc. v. Southeast Med. Alliance, Inc., 123 F.3d 301, 307 (5th Cir. 1997).

Plaintiff alleges harm suffered as a result of numerous anticompetitive acts committed by the defendants and asserts a remedy is warranted under § 1. These acts include exclusive dealing arrangements, group boycotts, and price fixing. Per se liability has been applied to certain incarnations of these particular business practices. See Jayco, 777 F.2d at 317; see also U.S. v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940) (price fixing); Klors, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207 (1959) (group boycotts). Importantly, though, none of these practices receives blanket application of per se treatment. Instead, each requires the presence of certain specific characteristics to trigger per se liability under the antitrust laws. Specifically, the Court must ascertain whether the alleged anticompetitive acts were the result of a horizontal agreement, from which flows per se liability, or whether they stem from a vertical agreement, which generally implicates the rule of reason. Jayco, 777 F.2d at 317; see also Red Diamond Supply, Inc. v. Liquid Carbonic Corp., 637 F.2d 1001, 1004 (5th Cir. 1981).

As explained infra, "[r]estraints imposed by agreement between competitors have traditionally been denominated as horizontal restraints, and those imposed by agreement between firms at different levels of distribution as vertical restraints." Bus. Elecs., 485 U.S. at 730.

b. Horizontal or Vertical Agreements?

"Whether or not a combination or conspiracy falls under the per se rule often depends upon whether the restriction is implemented by a vertical or horizontal agreement." Jayco, 777 F.2d at 317; see also Red Diamond, 637 F.2d at 1004. Horizontal combinations are agreements among competitors that restrain competition among enterprises at the same level of distribution. Bus. Elecs., 485 U.S. at 730. These are generally considered facially unreasonable and are therefore illegal per se. See Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 647 (1980); Muenster Butane, Inc. v. Stewart Co., 651 F.2d 292, 295 (5th Cir. 1981).

They affect inter brand competition, which is considered to be the "primary concern of antitrust law." Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 52 n. 19, 97 S.Ct. 2561 (1977) (emphasis added). Interbrand competition is the competition among the manufacturers of the same product.⁹ Ibid.

Vertical restraints are those "imposed by persons or firms further up the distribution chain of a specific product (or in rare cases, further down the chain) than the enterprise restrained." Muenster, 651 F.2d at 295. The courts have concluded that a vertical restraint is unreasonable when its probable anticompetitive effects outweigh any procompetitive benefits. Viazis v. American Ass'n of Orthodontists, 314 F.3d 758, 765 (5th Cir. 2002); see also Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 342 (1990).

They generally affect intra brand competition and are analyzed under the rule of reason. Continental T.V., 433 U.S. at 52 n. 19, 97 S.Ct. at 2558 (emphasis added). Intrabrand competition exists between the distributors of the product of a particular manufacturer. Ibid.

Here, plaintiff alleges that defendants conspired to commit numerous anticompetitive acts, ultimately depriving it of the right to distribute Respironics' CPAPs and ResMed CPAP masks to VA medical centers. Plaintiff's allegations, however, do not embody the requisite characteristics of horizontal restraints to which per se liability would attach. A vast majority of the alleged anticompetitive acts are the result of purported agreements between manufacturers and a distributor. These are vertical in nature, since the parties operate on separate levels of distribution. See Muenster, 651 F.2d at 295. Below, the Court will more fully explain the vertical character of each of the plaintiff's specific antitrust theories.

i). Group Boycott

The Supreme Court has defined group boycotts as "joint efforts by a firm or firms to disadvantage competitors by either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle." N.W. Wholesale Stationers, Inc. v. Pacific Stationary Printing Co., 472 U.S. 284, 294, 105 S.Ct. 2613 (1985). A group boycott, or concerted refusal to deal, can be a violation of section 1 of the Sherman Act. Tunica Web Adv. v. Tunica Casino Operators Ass'n, Inc., 496 F.3d 403, 412 (5th Cir. 2007). Depending on the factual circumstances, group boycotts may be either unlawful per se or subject to the rule of reason. Id.

The Supreme Court has clarified that a necessary predicate for a per se group boycott is that it is horizontal, i.e., it must involve an agreement among enterprises that ordinarily compete with each other at the same level of the market. See NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 135, 119 S.Ct. 493 (1998) ("[P]recedent limits the per se rule in the boycott context to cases involving horizontal agreements among direct competitors"); see also Bus. Elecs., 485 U.S. at 723 ("Restraints imposed by agreement between competitors have traditionally been denominated as horizontal restraints[.]"). Moreover, the per se approach is generally limited to cases in which firms with market power boycott suppliers or customers in order to discourage them from doing business with a competitor." F.T.C. v. Indiana Fed. of Dentists, 476 U.S. 447, 458 (1986).

Therefore, to plead a per se group boycott, the plaintiff must allege facts to demonstrate that the concerted anticompetitive activity involved two or more competitors positioned at the same market level with each other. Plaintiff argues that it need only plead that JRS has conspired with Respironics and ResMed to make it more difficult for Vaughn Medical to obtain the products it needs to conduct business with the VA. (Rec. Doc. 27 at 13). In response, defendants point to plaintiff's failure to present facts alleging that JRS possesses the requisite market power to coerce or influence the VA from conducting business with Vaughn Medical. (Rec. Doc. 18-1 at 10). Defendants also argue that the boycott alleged by plaintiff is a vertical restraint, as plaintiffs have not asserted that the alleged agreement was between at least two competitors at the same market level. (Rec. Doc. 18-1 at 10).

To begin, of the defendants, JRS is the plaintiff's only competitor. Plaintiff has not alleged that JRS conspired horizontally with another competitor in an attempt to discourage the VA from doing business with Vaughn Medical. Based on the allegations in the complaint, the plaintiff is incapable of making such an assertion since there is no CPAP distributor other than JRS who would benefit from the facts underlying the present dispute. Furthermore, while the plaintiff has pleaded that both Respironics and ResMed are privy to the alleged conspiracy, it has not alleged that they have conspired in their capacity as competitors. Both companies manufacture and sell CPAPs, but only Respironics sells their CPAPs to the VA. These firms do not actively compete for the sale of CPAPs to the VA market. Nor has plaintiff alleged that Respironics and ResMed made threats to the VA to withhold their products if the VA continued to conduct business with Vaughn Medical.

The Court reads the complaint to allege two separate vertical agreements; the first between Respironics and JRS for the distribution of CPAPs; and the second between ResMed and JRS for the distribution of CPAP masks. Group boycotts that are vertical in nature must be examined under the rule of reason standard, since, although competition among distributors is reduced, competition of manufacturers may be promoted by allowing them to achieve certain efficiencies in the distribution of their products. Oreck Corp. v. Whirlpool Corp., 579 F.2d, 126, 131 (2d Cir. 1978). Plaintiff's contention that the defendants' alleged group boycott is per se unlawful is therefore incorrect. The rule of reason is the appropriate barometer with which to gauge the defendants' alleged anticompetitive activities.

ii). Price-Fixing

Plaintiff alleges that Respironics and JRS conspired to fix prices at which CPAPs were sold to the VA. (Rec. Doc. 4-2 at 13, 15). Specifically, plaintiff argues that Respironics and JRS conspired to establish a minimum resale price at which distributors could sell Respironics' CPAPs to the VA. (Rec. Doc. 4-2 at 13, 15). The Courts have stated that only horizontal price-fixing agreements are per se unlawful. See, e.g, Dagher, 547 U.S. at 5; North Texas Specialty Physicians v. F.T.C., 528 F.3d 346, 362 (5th Cir. 2008) (noting that only horizontal price fixing agreements are generally deemed per se violations); Elliot Indust. Ltd. Partnership v. BP America Prod. Co., 407 F.3d 1091, 1123 n. 29 (10th Cir. 2005) (claim of horizontal price fixing requires conspiracy "among actual competitors (i.e. at the same level of distribution)"). Horizontal price fixing has been defined as "an arrangement among competitors that interferes with the setting of prices by free market forces." Quest Exploration Dev. Co. v. Transco Energy Co., 1992 WL 682756 at *6 (S.D. Tex. 1992) (citing Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 614 (1953). To plead a claim of horizontal price-fixing, the plaintiff must allege facts to show the existence of an agreement or conspiracy among actual competitors, with the purpose or effect of depressing, fixing, or stabilizing the price of a commodity in interstate commerce. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 216-19 (1940). The complaint, however, does not plead this species of price-fixing.

This type of activity is also referred to as resale price maintenance, which, when conducted in the manner alleged, is a vertical restraint. See Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 890, 127 S.Ct. 2705, 2715 (2007).

Vertical price-fixing occurs when two firms in a distribution chain establish price ranges of goods or services. Socony-Vacuum, 310 U.S. at 222-23. Plaintiff alleges that Respironics and JRS conspired to fix minimum prices at which Respironics' brand CPAPs were sold to the VA. The alleged agreement involves only a manufacturer and a distributor, two parties that undoubtedly operate at different market levels. As a result, this type of alleged price-fixing agreement is vertical in nature. While vertical price-fixing agreements were previously held to be per se unlawful under the antitrust laws, the Supreme Court recently changed its position. See Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 890, 127 S.Ct. 2705, 2715 (2007). Vertical price-fixing is now evaluated under the rule of reason. Id. iii). Exclusive Dealing

Horizontal price-fixing remains unlawful per se under the antitrust laws. See Major League Baseball Properties, Inc. v. Salvino, Inc., 542 F.3d 290, 315 (2d Cir. 2008) (citing Arizona v. Maricopa County Med. Soc., 457 U.S. 332, 102 S.Ct. 2466 (1982)).

Exclusive dealing occurs "when a seller agrees to sell its output of a commodity to a particular buyer." Apani, 300 F.3d at 625 (citing WILLIAM C. HOLMES, ANTIRUST LAW HANDBOOK § 4.02[3] (1999)). Plaintiff argues that both Respironics and ResMed violated section 1 through exclusive agreements with JRS for the distribution of their products to the VA. Defendants point out that "exclusive dealing arrangements are presumptively legal," and the policing of a valid distribution agreement is not an actionable violation of section 1. (Rec. Doc. 18-1 at 8); see E L Consulting, Ltd. v. Doman Indus., Ltd., 472 F.3d 23, 29-30 (2d Cir. 2006) (stating that an exclusive distributorship agreement, standing alone, is not illegal).

Exclusive dealing agreements can be attacked under the rule of reason, but are not per se violations of the antitrust laws. Eastern Food Servs., Inc. v. Pontifical Catholic University, 357 F.3d 1, 4-5 (1st Cir. 2004); see also A.H. Cox Co. v. Star Machinery Co., 653 F.2d 1302, 1306 (9th Cir. 1981) (stating that exclusive manufacturer dealer arrangements are generally viewed as vertical in nature, thus rendering the per se rule of illegality inapplicable). This is because the focus of the analysis remains on market effect. George Haug Co., Inc. v. Rolls Royce Motor Cars, Inc., 148 F.3d 136, 140 n. 1 (2d Cir. 1998). An exclusive dealing arrangement does not violate the antitrust laws "unless the probable effect of the agreement `will foreclose competition in a substantial share of the line of commerce affected.'" Apani, 300 F.3d at 625 (citing Bob Maxfield, Inc. v. Am. Motors Corp., 637 F.2d 1033, 1036 (5th Cir. 1981)).

To properly allege that an exclusive dealing agreement violates the Sherman Act, a plaintiff must first define the relevant market in terms of its product and geography. Apani, 300 F.3d at 625 (citing Tampa Elec., 365 U.S. at 327-28, 81 S.Ct. 623). A plaintiff must then plead facts to demonstrate that the "competition foreclosed by the arrangement constitutes `a substantial share of the relevant market.'" Apani, 300 F.3d at 625-26 (explaining that "in order to determine whether a substantial portion of the competition has been foreclosed, [plaintiff] must first identify the relevant product and geographic markets"). Thus, because exclusive dealing agreements are analyzed under the rule of reason, pleading a relevant market is a necessary predicate to examining the agreement's anticompetitive impact.

iv). An Exception

While vertical restraints typically undergo a rule of reason analysis, there are limited exceptions to the horizontal/vertical dichotomy. The only exception applicable to the facts of this case is when a supplier, "although acting vertically, refuses to deal with . . . a customer at the behest of the customer's competitor." Jayco, 777 F.2d at 317-18. Although the result is, itself, a vertical restraint, "the desired impact is horizontal and on the dealer, not the manufacturer, level." Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164, 168 (3d Cir. 1979).

To qualify for this exception, JRS must be the source of the alleged restraint, because, of the defendants, JRS is plaintiff's only competitor. See Abadir Co. v. First Miss. Corp., 651 F.2d 422, 427 n. 5 (5th Cir. 1981); see also Red Diamond, 637 F.2d at 1004 n. 4 (stating that "conspiracies between a manufacturer and its distributors are only treated as horizontal . . . when the source of the conspiracy is a combination of the distributors."). With regard to Respironics, plaintiff asserts that JRS had "strong influence at Respironics." (Rec. Doc. 4-2 at 14). Taken as true, this statement does not give rise to an inference that JRS was the source of Respironics' decision to limit Vaughn Medical to patient-only distribution rights. If anything, the facts pleaded suggest that the defendant manufacturer Respironics acted independently when it denied Vaughn Medical the right to distribute its products to the VA. (Rec. Doc. 4-2 at 9). As a result, the agreement between Respironics and JRS must be evaluated using the rule of reason. See Red Diamond, 637 F.2d at 1004 ("When the manufacturer is the source, the conspiracy is vertical.") (citing United States v. Arnold Schwinn Co., 388 U.S. 365, 372, 87 S.Ct. 1856 (1967).

ResMed's involvement in the alleged conspiracy, though, warrants closer scrutiny. Plaintiff proposes that JRS may have initiated an arrangement that granted ResMed access to the VA market, provided that JRS was the only firm allowed to distribute its CPAP masks to the VA. (Rec. Doc. 4-2 at 24). Aside from the conclusory nature of this allegation, the plaintiff overlooks one key feature of this exception. The exception is activated only by a concerted refusal to deal. Here, the complaint paints the picture of an exclusive distribution agreement between ResMed and JRS. The complaint suggests only that ResMed will not allow Vaughn Medical to distribute its CPAP masks to the VA. However, ResMed also manufactures CPAPs. The facts alleged do not permit the Court to reasonably infer that ResMed will not allow Vaughn Medical to distribute its products to other clients on the open market. It is difficult to rationalize how any alleged agreement between JRS and ResMed could be per se illegal, as plaintiff suggests, if Vaughn Medical retains the ability to distribute ResMed's products to clients other than VA. The Court finds this exception inapplicable to the facts of this case. Plaintiff has not pleaded facts to demonstrate ResMed's blanket refusal to deal with Vaughn Medical. Consequently, the rule of reason applies to all of plaintiff's section 1 claims.

c. Relevant Market Allegations

Under section 1 of the Sherman Act, a relevant market must be pleaded for the Court to assess any anticompetitive effects in a rule of reason analysis. Muenster, 651 F.2d at 295. The definition of a relevant market is "a function of the relevant product market and the relevant geographic market." Wampler v. S.W. Bell Tel. Co., 597 F.3d 741, 744 (5th Cir. 2010); see also Apani, 300 F.3d at 627 (citing Spectators', 253 F.3d at 220). A relevant product market includes the line of goods or services reasonably interchangeable in use. U.S. v. E.I. duPont de Nemours Co., 351 U.S. 377, 396, 76 S.Ct. 994 (1956). The relevant geographic market is "the area of effective competition . . . in which the seller operates, and to which the purchaser can practicably turn for supplies." Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327, 81 S.Ct. 623 (1961).

The Court recognizes that market definition is a deeply fact-intensive inquiry that generally cannot be resolved at the motion to dismiss stage. See Seidenstein, 769 F.2d at 1106. However, "[w]here the plaintiff fails to define its proposed relevant market with reference to the rule of reasonable interchangeability and cross-elasticity of demand, or alleges a proposed relevant market that clearly does not encompass all interchangeable substitute products even when all factual inferences are granted in plaintiff's favor, the relevant market is legally insufficient and a motion to dismiss may be granted." Apani, 300 F.3d at 628.

i). Product Market

The boundaries of a product market are determined by the reasonable interchangeability of use and "the degree of cross-elasticity of demand between the product and substitutes for it." Apani, 300 F.3d at 626. "Interchangeability implies that one product is roughly equivalent to another for the use to which it is put." Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430, 437 (3d Cir. 1997) (internal quotation and citation omitted). Cross-elasticity of demand measures the substitutability of those products from viewpoint of the buyers. Id. at 438 n. 6.

Cross-elasticity of demand is defined as "[a] relationship between two products, usually substitutes for each other, in which a price change for one product affects the price of the other." BLACK'S LAW DICTONARY 405 (8th ed. 2004).

Defendants read the complaint to imply that the product market is the sale of Respironics' CPAPs to VA medical centers. (Rec. Doc. 18-1 at 6-7). In its opposition brief, the plaintiff disputes such a reading, insisting that the alleged product market includes all CPAPs. (Rec. Doc. 27 at 12). The facts alleged in the complaint, however, wholly contradict such an assertion. Nowhere does plaintiff assert that JRS distributes any CPAPs other than Respironics' CPAPs. (Rec. Doc. 27 at 11). Nor does the plaintiff mention any CPAP manufacturer other than the defendants Respironics and ResMed. In reference to its section 1 claim, all of the plaintiff's allegations of anticompetitive activities are made solely in reference to their ability to resell Respironics brand CPAPs. (Rec. Doc. 4-2 at 26-29). This deficiency is critical because courts have generally held that a single brand, no matter how distinctive or unique, and no matter how intense the brand loyalty, cannot constitute a relevant market. See PSKS, Inc., v. Leegin Creative Leather Prods., 2009 WL 938561 at *2 (E.D. Tex. 2009) (citations omitted); see also Will v. Comprehensive Accounting Corp., 776 F.2d 665, 672-73 (7th Cir. 1985); General Business Sys. v. North American Phillips Corp., 699 F.2d 965, 972-75, 977-78 (9th Cir. 1983); Little Caesar Enters., Inc. v. Smith, 34 F.Supp.2d 459, 477 n. 30 (E.D. Mich. 1998).

While it is true that "antitrust law recognizes . . . economically significant submarkets . . . which themselves constitute relevant product markets," plaintiff has not alleged that the Respironics CPAPs constitute a unique submarket that should be considered separately for antitrust purposes. Leegin, 2009 WL 938561 at *3 (citing Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 480, 487-88 (5th Cir. 1984). "The boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors." Apani, 300 F.3d at 626 (citing Heatransfer Corp. v. Volkswagenwerk, A. G., 553 F.2d 964, 980 (5th Cir. 1977)). Even if this assertion were made, Respironics' CPAPs are not a viable submarket, since "a submarket is still a market" and "a single brand cannot be its own market." Leegin, 2009 WL 938561 at *3.

More importantly, the complaint is entirely devoid of any allegations that CPAPs manufactured and sold to the VA are not reasonably interchangeable with CPAPs sold to individuals, sleep centers, or other government entities, for example. Nothing in the record would suggest that the CPAPs sold to the VA are unique or functionally distinguishable from other CPAPs. Yet plaintiff makes no mention of interchangeable substitute products. Plaintiff asserts only that the VA prefers Respironics' CPAPs to those of other distributors. While this may be the case, a separate product market cannot be established by a single customer's preference for a particular manufacturer of a particular device. See Newcal Indus., Inc. v. Ikon Office Solutions, 513 F.3d 1038, 1045 (9th Cir. 2008) ("The consumers do not define the boundaries of the market, the products or producers do."). Nor may a company that "limits its competitive activities to a single firm's products (and at only one competitive level) . . . control the definition of the relevant market." Spectrofuge Corp., v. Beckman Instruments, Inc., 575 F.2d 256, 282 (5th Cir. 1978) (citing Telex Corp. v. Int'l Bus. Mach. Corp., 510 F.2d 894, 917 (10th Cir. 1975). As the plaintiff has wholly neglected to reference the rule of reasonable interchangeability, its proposed product market of Respironics CPAPs is legally unsustainable. When such a deficiency is present, a motion to dismiss may be granted. See Apani, 300 F.3d at 628; see also Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430, 436 (3d Cir. 1997) (affirming district court's dismissal of claim for failure to plead relevant market; proposed relevant market defined too narrowly); TV Comms. Net., Inc. v. Turner Net. Telev., Inc., 964 F.2d 1022, 1025 (10th Cir. 1992) (affirming district courts dismissal of claim for failure to plead a relevant market; proposed relevant market consisting of only one specific television channel defined too narrowly); Tower Air, Inc. v. Federal Exp. Corp., 956 F.Supp. 270 (E.D.N.Y. 1996) ("Because a relevant market includes all products that are reasonably interchangeable, plaintiff's failure to define its market by reference to the rule of reasonable interchangeability is, standing alone, valid grounds for dismissal."). Furthermore, because the entire foundation of plaintiff's antitrust claims is constructed only of its inability to distribute Respironics' CPAPs to the VA, the Court finds that plaintiff is incapable of successfully asserting the existence of any legally sufficient product market. As a result of this finding, the plaintiff's section 1 claims are irreversibly flawed. Plaintiff's section 1 claims are therefore DISMISSED.

Due to the Court's finding that the plaintiff is wholly incapable of defining a relevant product market in support of its antitrust claims, the Court need not address the sufficiency of plaintiff's proposed geographic market.

d. Section 2 of the Sherman Act

Section 2 provides a cause of action against "single firms that monopolize or attempt to monopolize, as well as conspiracies and combinations to monopolize." Spectrum Sports v. McQuillan, 506 U.S. at 447, 454, 113 S.Ct. 884 (1993). Monopoly power is understood as "the power to control price or exclude competition" from the relevant market. E.I. duPont de Nemours, 351 U.S. at 391. Plaintiff alleges that defendants have monopolized, attempted to monopolize, and conspired to monopolize the sale of CPAPs and CPAP-related products to the VA. Defendants respond that plaintiff's § 2 claims should be dismissed for failure to plead a relevant market. (Rec. Doc. 18-1 at 12-14).

The Fifth Circuit has held that "[b]ecause the relevant market provides the framework against which economic power can be measured, defining the product and geographic markets is a threshold requirement under § 2 [of the Sherman Act]." Seidenstein v. National Med. Enters., Inc., 769 F.2d 1100, 1106 (5th Cir. 1985); see also Doctor's Hosp., 123 F.3d at 311. For the reasons stated in the previous section, plaintiff has failed to plead a relevant product market from which the anticompetitive effects of defendants' conduct can be measured.

e. Anticompetitive Effect

Market considerations provide the objective benchmark for the measurement of competitive impact. Continental T.V., 433 U.S. at 54. Competitive injury cannot be ascertained without first defining the relevant market. Apani, 300 F.3d at 627 (noting that the relevant market must be identified before a court may determine whether an alleged anticompetitive arrangement foreclosed competition). In this case, the absence of a legally cognizable market precludes the Court from assessing the anticompetitive effect of defendant's alleged activities. See Leegin, 2009 WL 938561 at *5 (commenting that when a plaintiff fails to define a relevant market, the court is left without a means to gauge anticompetitive effect.). Plaintiff's section 2 claims are also DISMISSED.

4. Civil Rights Claims

The complaint asserts that the defendants have acted individually and in concert, combination, and conspiracy to impede Vaughn Medical's right to make and enforce contracts and its right to buy, sell, and hold property in violation of 42 U.S.C. §§ 1981, 1982, 1985. (Rec. Doc. 4-2 at 29). To establish a prima facie claim under § 1981, the plaintiff must allege facts to support the following three elements: (1) the plaintiff is a member of a racial minority; (2) an intent to discriminate on the basis of race by defendants; (3) the discrimination concerns one or more of the activities enumerated in the statute. Green v. State Bar of Tex., 27 F.3d 1083, 1086 (5th Cir. 1994). The "enumerated activity" implicated in this case is the right to "make and enforce contracts."

"All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other." 42 U.S.C. § 1981

A § 1982 claim requires the plaintiff to "allege with specificity facts sufficient to show or raise a plausible inference of (1) the defendant's racial animus; (2) intentional discrimination; and (3) that the defendant deprived plaintiff of his rights [to buy, sell, and hold property] because of race." Zuyus v. Hilton Riverside, et al., 439 F.Supp.2d 631, 636 (E.D. La. 2006) (citing Brown v. Philip Morris, Inc., 250 F.3d 787, 797 (3d Cir. 2001).

Section 1982 provides that all U.S. citizens have the same right as white citizens to purchase real or personal property. 42 U.S.C. § 1982.

The conspiracy claim under § 1985(3) requires the plaintiff to plead (1) the existence of a conspiracy; (2) the purpose of the conspiracy was to deprive, either directly or indirectly, any person or class of persons of equal protection of the laws, or of equal privileges and immunities under the laws; (3) an act in furtherance of the conspiracy; and (4) a resulting injury in the plaintiff's person or property or the deprivation of a right or privilege of a citizen. See Mian v. Donaldson, Lufkin, and Jenrette Securities Corp., 7 F.3d 1085, 1087 (2d Cir. 1993); see also United Brotherhood of Carpenters and Joiners of America et al. v. Scott, 463 U.S. 825, 828-29, 103 S.Ct. 3352 (1983). Additionally, a § 1985(3) claim requires a plaintiff to allege "that (1) some racial (or otherwise class-based, invidiously discriminatory) animus" underlie the conspirators' action; and (2) that the conspiracy "aimed at interfering with federal right that are protected against private, as well as official, encroachment." Zuyus, 439 F.Supp.2d at 637 (citing Bray v. Alexandria Women's Health Clinic, 506 U.S. 263, 268, 113 S.Ct. 753 (1993). To guarantee the survival of each of these claims at the motion to dismiss stage, the complaint must plead facts sufficient to support an inference that the defendants intended to discriminate against the plaintiff on the basis of race.

The defendants advance numerous reasons why plaintiff's civil rights claims should be dismissed. It is unnecessary, however, for the Court to expound on the virtues of each argument. Although replete with conclusory allegations of racial animus, the complaint is bereft of any contextualized factual assertions from which to infer the defendants' activities were ultimately driven by discriminatory intent. This deficiency is fatal to plaintiff's civil rights claims.

The plaintiff's civil rights claims rely heavily on Exhibit A, also referred to as the Whistleblower Letter. In that letter, an anonymous source alleged that members of the VA's Product Team Committee made discriminatory remarks about Vaughn Medical and other minority-owned companies. (Rec. Doc. 4-2, Ex. A). Defendants rely on Federal Rule of Civil Procedure 10(a) when arguing that the exhibit is not a proper attachment since it does not give rise to the claims asserted. (Rec. Doc. 18-1 at 17-18).

The plaintiff refers to Exhibit A when asserting that Respironics and JRS referred to Vaughn Medical and two other companies as "ni**er companies." (Rec. Doc. 4-2 at 19). Exhibit A, however, does not lend support to this assertion. As the exhibit shows, the statement was made not by an employee of Respironics or JRS, but by an employee of the VA. Even if the defendants were aware that these statements were made, such racial animus would only be relevant as it pertains to decisions reached by the VA. Here, the Court will not impute the alleged racial animus of one VA employee to the defendant corporations. As the exhibit does not give rise to the legal rights asserted here by plaintiff under 42 U.S.C. §§ 1981, 1982, and 1985, the Court will not consider its content.

See Walker v. S.W.I.F.T. SCRL, 517 F.Supp.2d 801, 806 (E.D. Va. 2007) (noting that, when evaluating a dismissal motion, not every document referenced in the complaint can be considered a part of the complaint; the referenced document must be "central or integral to the claim in the sense that its very existence, and not the mere information it contains, gives rise to the legal rights asserted.").

Turning to the complaint, a brief review of the allegations contained therein clearly illustrates the formulaic character of plaintiff's claims of discrimination. The plaintiff makes the following assertions: that defendants "improperly exerted pressure on the VA to coerce it into its erroneous decision that Vaughn Medical was not authorized to do business with the VA," and that these efforts were partially based "on the fact that Vaughn Medical was a minority-run business" (Rec. Doc. 4-2 at 11-12, 18); that defendants Respironics and JRS were motivated by racial animus when they conspired to prevent Vaughn Medical from competing in the sale of Respironics' brand CPAPs to the VA (Rec. Doc. 4-2 at 13); that defendant Respironics' refusal to warrant Respironics brand CPAPs sold to the VA by Vaughn Medical was motivated by racial animus (Rec. Doc. 4-2 at 15); that JRS was able to exploit its non-minority owned status to the detriment of Vaughn Medical and other so-called "ni**er companies" (Rec. Doc. 4-2 at 19); that the defendants' efforts to undermine the credibility of Vaughn Medical to VA medical centers throughout the country were motivated, at least partially, by racial animus (Rec. Doc. 4-2 at 21); that the defendants' representatives were motivated by racial animus when they created and showed falsified correspondence to individual VA medical centers in an attempt to further diminish Vaughn Medical's reputation (Rec. Doc. 4-2 at 23). But the plaintiff has failed to provide any facts that, when taken in context, would indicate that any of the defendants' activities were in fact driven by racial animosity.

One illustration of the contradictory character of the allegations of racial animus is as follows. Plaintiff pleads that it was a customer to Respironics prior to seeking entry to the VA market. (Rec. Doc. 4-2 at 8). Plaintiff asserts that defendant would still be selling its products to Vaughn Medical today had plaintiff never decided to enter the VA market. (Rec. Doc. 4-2 at 8). Specifically, the complaint alleges that, although the defendant refused to provide the necessary "Letter of Commitment" to conduct business with the VA, Respironics remained willing to sell its products to Vaughn Medical for any purpose other than resale to the VA. (Rec. Doc. 4-2 at 9). Taken as a whole, the allegations are seemingly meant to suggest that Respironics' refusal to grant distribution rights to the plaintiff for its CPAPs is racially motivated only when the buyer is VA medical centers. Notably absent are any facts to explain this distinction. Also missing is any explanation of why plaintiff's efforts to pursue the VA market arbitrarily prompted sentiments of racial animosity among the defendants, or how such sentiments actually drove their policy of exclusion. As a result, the plaintiff's assertions amount to nothing more than mere conclusions. See Twombly, 550 U.S. at 555.

Pursuant to Ashcroft v. Iqbal, each of these conclusory assertions is to be ignored. 129 S.Ct. 1937, 1951 (2009) ("It is the conclusory nature of respondent's allegations, rather than their extravagantly fanciful nature, that disentitles them to the presumption of truth."). The plaintiff has failed to plead any facts that would permit the reasonable inference that the defendants activities were motivated by an intent to discriminate against plaintiff on the basis of race. See Iqbal, 129 S.Ct. 1949. Therefore, it cannot state a claim under §§ 1981, 1982, and 1985, and these claims must be DISMISSED.

5. State Law Claims

In addition to the federal claims, plaintiff asserts numerous claims under state law. However, because the Court has dismissed the plaintiff's federal claims, the Court dismisses the plaintiff's state law claims pursuant to 28 U.S.C. § 1367.

Plaintiff asserts claims under Texas state law for tortuous interference, civil conspiracy, defamation, and unjust enrichment.

Absent an independent basis for federal subject matter jurisdiction, plaintiff's Texas state law claims may remain in federal court only if this Court decides to exercise supplemental jurisdiction over these claims pursuant to 28 U.S.C. § 1367. Under this statute, the court may decline to exercise supplemental jurisdiction over a pendent state law claim if (1) the claim raises a novel or complex issue of state law; (2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction; or (3) the district court has dismissed all claims over which it has original jurisdiction. See 28 U.S.C. § 1367(c)(1)-(3)

The Court notes that all federal claims over which it has jurisdiction have been dismissed. When such is the case, the Court has wide discretion to dismiss pendent state law claims. See Robertson v. Neuromedical Center, 161 F.3d 292, 296 (5th Cir. 1998); Bennett v. City of New Orleans, 2004 WL 60316 at *9 (E.D. La. 2004). However, when the federal claims are dismissed before trial, such as here, the general rule is to dismiss pendent state law claims. See Holland v. GEXA Corp., 161 Fed. Appx. 364, 366 (5th Cir. 2005). As the Supreme Court has stated,

Needless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties. . . . Certainly, if the federal claims are dismissed before trial, even though not insubstantial in a jurisdictional sense, the state claims should be dismissed as well.

United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130 (1966).

Furthermore, all of the plaintiff's state claims arise under Texas law, not Louisiana law. Thus, this Court has no incentive to retain jurisdiction over the plaintiff's pendent state law claims now that the federal claims have been dismissed. Plaintiff's state law claims are therefore DISMISSED without prejudice so that the plaintiff may refile those claims in Texas state court should it so choose.

6. The Noerr-Pennington Doctrine Bars all Claims

As the plaintiff's federal claims have been dismissed on other grounds, the Court need not address the applicability of the Noerr-Pennington doctrine.

7. Conclusion

Accordingly, IT IS ORDERED that that defendants' motion to dismiss for improper venue is DENIED.

IT IS FURTHER ORDERED that plaintiff's federal claims under 15 U.S.C. § 1, 2, 13, 14 and 42 U.S.C. § 1981, 1982, 1985 are DISMISSED.

IT IS FURTHER ORDERED that plaintiff's remaining state law claims for lack of subject matter jurisdiction under 28 U.S.C. § 1367 are DISMISSED without prejudice.

IT IS FURTHER ORDERED that defendants' motion to transfer is MOOT.