Back in late January, U.S. District Court Judge Xavier Rodriguez in the Western District of Texas granted summary judgment to Loredo Medical Center (LMC) and a locally-based interventional cardiology group (LMC Cardiology Group) (collectively “Defendants”) in a Sherman Act case brought by Doctors Hospital of Loredo (DHL) and its affiliated physician group (DHL Physicians Group) (collectively “Plaintiffs”) alleging an unlawful “refusal to deal.” Drs. Hosp. of Laredo v. Cigarroa, No. SA-21-CV-01068-XR (W.D. Tex. Jan. 28, 2025)
As more fully explained below, the court granted summary judgment in favor of the Defendants notwithstanding that the evidence showed that they sought to increase their market share at the expense of DHL — “indeed run them out of business” — because mere competitive intent does not turn a refusal to deal into an anticompetitive act. What matters is the “effect of that conduct, not the intent behind it.”
The Facts
LMC, LMC Cardiology Group, DHL and DHL Physicians Group principally operate in Laredo, TX, and are the sole providers of interventional cardiology services in the market.
The Plaintiffs sued the Defendants alleging that the Defendants had violated both Section 1 (contract, combination or conspiracy in restraint of trade) and Section 2 (monopolization or attempt to monopolize) of the Sherman Act when:
- LMC Cardiology Group, which had practiced at both DHL and LMC, established an exclusive services relationship with LMC effectively moving its practice to LMC
- DHL lost its only other interventional cardiologists and their related employees when they were recruited by LMC
- The Defendants prevented the Plaintiffs from recruiting new interventional cardiologists and refused to deal with the Plaintiffs[1]
The Court’s Analysis
In considering the Plaintiffs’ claims in the context of Defendants’ request for summary judgment, the court began by explaining that Section 1 and Section 2 claims have a common requirement, i.e., the conduct must be anticompetitive and have anticompetitive effects. If a plaintiff cannot show anticompetitive conduct under Section 1, there are no Section 2 claims available. In this case, the Plaintiffs had marshaled insufficient evidence to support their claim that there was antitrust injury.
In reaching this result, the court first undertook the normal process of market review: (1) identifying the relevant product and geographic markets, and then (2) examining the evidence that had been presented as it pertained to the alleged Sherman Act violations.
The Markets
With respect to the product market, the court found that interventional cardiology services in Laredo was the relevant market in which to evaluate the effects of the Defendants’ conduct as there are no reasonably interchangeable substitutes for interventional cardiology services, and providers outside of Laredo are too distant for patients to practicably go to receive those services.
As for the geographic market, the court concluded that Laredo was the relevant geographic market because:
- DHL and LMC are the only two hospitals physically located in the area and, alongside the LMC Cardiology Group, are the only providers of interventional cardiology services in the area
- Insurance plans are required by regulation to include in-network interventional cardiology services in Laredo
- Laredo residents strongly prefer local Laredo interventional cardiology services
- Patients and their insurers do not view interventional cardiology services provided outside of Laredo as substitutable with local Laredo providers
- Using a two-stage bargaining approach to market definition (provider competition for insurer inclusion as well as competition to attract patients), and applying the “hypothetical monopolist test,” a hypothetical monopolist of interventional cardiology services could profitably impose a small but significant and non-transitory increase in price on insurers in that market.
Examining the Evidence
Sherman Act Section 1
As explained by the court, to establish a violation of Section 1 (conspiracy in restraint of trade), a plaintiff must demonstrate that: (1) the defendant engaged in a conspiracy on account of there having been concerted action; (2) the conspiracy had the effect of restraining trade; and (3) trade was restrained in the relevant market.
Examining the evidence adduced at trial, the court concluded that there was sufficient evidence to establish the possibility of there having been concerted action on the part of the Defendants and therefore a conspiracy.
As for the question whether the conspiracy had the effect of restraining trade, the court first addressed the question whether the Defendants’ concerted action constituted a per se violation of Section 1 or was instead to be judged under the “rule of reason.”
The court concluded that the “rule of reason” applied because the concerted action here principally involved a vertical as opposed to a horizontal conspiracy to exclude the Plaintiffs as a market participant, and because as a matter of law, “[t]he only restraints that the Supreme Court has held to be per se unreasonable are purely horizontal, or, in other words, are agreements between entities who are only related as competitors.” Citing NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 133 (1998).
While there were horizontal elements in that DHL and the LMC Cardiology Group do compete directly with respect to outpatient services, the relationship, according to the court, is principally vertical (seller-buyer) with LMC Cardiology Group as the seller and DHL as buyer.[2]
Where the rule of reason applies, the inquiry uses a burden shifting framework. Plaintiffs have the initial burden to show anticompetitive effects, after which the burden shifts to defendants to demonstrate that the restraint produced procompetitive benefits. If defendants do so, either plaintiffs can demonstrate that any procompetitive effects could be achieved through less anticompetitive means or the court must balance the anticompetitive and procompetitive effects of the restraint.
Here, the court concluded that the Plaintiffs had failed to create a factual dispute over whether the Defendants’ conduct, taken individually or together, had anticompetitive effects in the market for interventional cardiology services in Laredo. According to the court, the evidence showed that:
- Notwithstanding the Defendants’ conduct, the Plaintiffs were able to hire additional cardiologists and locum tenens
- DHL’s services to patients were unaffected, even after the Defendants’ conduct
- There was no evidence that (a) absent the Defendants’ conduct, there would have been any price decreases for interventional cardiology procedures in Laredo; or (b) the Defendants caused patients harm
Sherman Act Section 2
Section 2 makes it unlawful for any person to (1) monopolize, (2) attempt to monopolize, or (3) combine or conspire with any other person or persons to monopolize any part of the trade or commerce among the several states, or with foreign nations.
In concluding that the Defendants had not monopolized, attempted to monopolize, or conspired to monopolize, the court reasoned that:
- To state a claim for unlawful monopolization, a plaintiff must show that a defendant (a) possesses monopoly power in the relevant market, and (b) achieved or maintained its monopoly power through exclusionary, anticompetitive conduct Because the Plaintiffs could not show anticompetitive conduct for purposes of Section 1, their monopolization claim failed.
To state a claim for attempted monopolization, a plaintiff must show that the defendant (1) has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) there is a dangerous probability of achieving monopoly power. Again, because the Plaintiffs could not show anticompetitive conduct for purposes of Section 1, their monopolization claim failed.
As for a claim of conspiracy to monopolize, agreements that do not harm the competitive process do not amount to a conspiracy to monopolize (citing Nynex at 139). The Plaintiffs’ claims did not harm the competitive process and their claims accordingly failed.
Note: The case is of significance for various reasons.
First and foremost, it sets forth and applies the principle that mere competitive intent does not turn a refusal to deal into an illegal anticompetitive act. What matters is the effect of that conduct, not the intent behind it. In fact, even as in this case where the evidence established that the Defendants sought to increase their market share by seeking to “run [the Plaintiffs] out of business,” there must be a showing of anticompetitive harm. Per the D.C. Circuit in United States v. Microsoft Corp., 253 F.3d 34, 59 (D.C. Cir. 2001), “Were intent to harm a competitor alone the marker of antitrust liability, the law would risk retarding consumer welfare.”
The case is also significant in that it addresses the important question whether, once it is established that a conspiracy occurred, does the per se rule or the “rule of reason” apply for purposes of determining whether the conspiracy violates Section 1, as well as how the result may differ depending on whether the conspiracy is a horizontal agreement among direct competitors or whether it instead involves vertical restraints, i.e., agreements among firms at different levels of distribution, such as between sellers and buyers of goods.
[1] The Plaintiffs also brought state law claims.
[2] Unlike horizontal restraints, vertical restraints are agreements among firms at different levels of distribution — e.g., between sellers and buyers of goods or services — about matters on which they do not compete.
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