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Cascade Health Sols. v. PeaceHealth - 502 F.3d 895 (9th Cir. 2007)

Rule:

Bundled discounts may not be considered exclusionary conduct within the meaning of § 2 of the Sherman Act unless the discounts resemble the behavior that the U.S. Supreme Court in Brooke Group identified as predatory. Accordingly, the exclusionary conduct element of a claim arising under § 2 of the Sherman Act cannot be satisfied by reference to bundled discounts unless the discounts result in prices that are below an appropriate measure of the defendant's costs.

Facts:

Plaintiff Cascade Health Solutions f/k/a McKenzie-Willamette Hospital (McKenzie) filed a complaint in the district court against Defendant PeaceHealth (PeaceHealth) asserting seven claims for relief. Five of the claims arose under the federal antitrust laws: monopolization, attempted monopolization, conspiracy to monopolize, tying, and exclusive dealing. The other two claims arose under Oregon state law: price discrimination and intentional interference with prospective economic advantage.

Before trial, the district court granted summary judgment in favor of PeaceHealth on McKenzie's tying claim. After a two-and-a-half-week trial, the jury rendered a verdict in favor of PeaceHealth on McKenzie's claims of monopolization, conspiracy to monopolize, and exclusive dealing. However, the jury found in favor of McKenzie on McKenzie's claims of attempted monopolization, price discrimination, and tortious interference. The jury found PeaceHealth liable for monopolizing the market for primary and secondary acute care hospital services in a particular county by offering intervenor insurers bundled discounts if the insurers made PeaceHealth their exclusive preferred provider for primary, secondary, and tertiary care, greatly reducing McKenzie’s share of the primary and secondary care market because McKenzie did not offer tertiary care. The jury awarded McKenzie $5.4 million in damages, which the district court trebled for a final award of $16.2 million. The district court also awarded McKenzie $1,583,185.57 in attorneys' fees, costs, and expenses. PeaceHealth sought appellate review.

Issue:

Did the district court err in instructing the jury as to when bundled discounting could amount to anticompetitive conduct?

Answer:

Yes

Conclusion:

The Court of Appeals for the Ninth Circuit formulated a rule for proving when a bundled discount was predatory and held that the district court incorrectly instructed the jury as to when bundled discounting could amount to anticompetitive conduct. The jury instruction on primary-line price discrimination under Oregon law was also error. The court speculated that, if presented with the question, the Oregon Supreme Court would require a plaintiff alleging bundled primary-line price discrimination to prove that its rival priced below cost. Because McKenzie’s antitrust claims failed, its tortious interference claim failed. As to the merits of McKenzie’s tying claim, fact issues remained as to whether PeaceHealth, through its bundled discounting, forced insurers to buy unwanted tertiary services.

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