NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS JAN 5 2024
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
INNOVATIVE HEALTH, LLC, No. 22-55413
Plaintiff-Appellant, D.C. No.
8:19-cv-01984-JVS-KES
v.
BIOSENSE WEBSTER, INC., MEMORANDUM*
Defendant-Appellee,
______________________________
ABBOTT LABORATORIES,
Intervenor.
Appeal from the United States District Court
for the Central District of California
James V. Selna, District Judge, Presiding
Argued and Submitted June 5, 2023
San Francisco, California
Before: MILLER and KOH, Circuit Judges, and MOLLOY,** District Judge.
Dissent by Judge MILLER.
Innovative Health, LLC (“Innovative”) appeals the district court’s grant of
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Donald W. Molloy, United States District Judge for
the District of Montana, sitting by designation.
summary judgment to Biosense Webster, Inc. (“Biosense”) on its suit alleging
violations of federal and state antitrust laws. We have jurisdiction under 28 U.S.C.
§ 1291. Taking a fresh look at the evidence in the light most favorable to the non-
moving party, Wilk v. Neven, 956 F.3d 1143, 1147 (9th Cir. 2020), we reverse and
remand for further proceedings.
Biosense manufactures and sells the CARTO 3, a cardiac mapping system.
It also manufactures and sells three types of specialized catheters that connect to
the CARTO 3 and provides free clinical support for its users. Innovative
reprocesses and sells used catheters, including those produced by Biosense and
compatible with the CARTO 3. Innovative does not offer clinical support services.
Beginning sporadically in 2014 and as an official policy since April 2016,
Biosense has provided clinical support services only to those hospitals that
purchase a catheter sold in the first instance by Biosense. As a result, hospitals that
purchase Innovative’s reprocessed catheters cannot receive free clinical support
services from Biosense and must seek them from third parties. Innovative alleges
that this new policy is an unlawful tie, in violation of sections 1 and 2 of the
Sherman Act, 15 U.S.C. §§ 1–2, and California’s Cartwright Act, Cal. Bus. & Prof.
Code § 16720.1
1
“Because the analysis under the Cartwright Act mirrors the analysis under the
Sherman Act,” and “because the legal tests used for sections 1 and 2 of the
Sherman Act are similar,” we review the claims “simultaneously.” Flaa v.
2
1. The district court erred in concluding that Innovative failed to raise a
genuine dispute of material fact about the existence of a tie. To “defeat a motion
for summary judgment on [a] claim of a tying arrangement, a reasonable trier of
fact must be able to find” (1) that the tied and tying product are “two distinct
products,” and (2) that the defendant “has tied the sale of the two products.”
Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 462 (1992). There
is no dispute that Biosense has tied its clinical support services to its sale of
catheters. The district court, however, concluded that Innovative had failed to
show that clinical support services are a separate product from catheters.
“[T]o be considered two distinct products, there must be sufficient consumer
demand so that it is efficient for a firm to provide” the products separately. Id.
This “consumer-demand test” requires “(1) that it is possible to separate the
products, and (2) that it is efficient to do so, as inferred from circumstantial
evidence.” Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 995 (9th Cir. 2023).
Still, this test “does not require a full-blown economic analysis.” Id. Evidence that
the two products “have been sold separately in the past and still are sold
separately” will satisfy this inquiry. Kodak, 504 U.S. at 462.
Innovative produced sufficient evidence both that clinical support services
Hollywood Foreign Press Ass’n, 55 F.4th 680, 688 (9th Cir. 2022) (citation
omitted).
3
and catheters have been sold separately in the past and that they still are sold
separately. Before Biosense enacted its tying policy, hospitals purchased roughly
one in every four catheters used with the CARTO 3 (sales of which Biosense
bundled with its clinical support services) from a catheter manufacturer other than
Biosense. Biosense’s competitors in the cardiac mapping system market,
meanwhile, continue to provide clinical support services for their own systems
while allowing hospitals to purchase catheters from other manufacturers.
Moreover, roughly five percent of hospitals that use the CARTO 3 provide their
own clinical support services and buy catheters separately, in effect buying the
products separately.
Biosense relatedly contends that, because Biosense bundles its clinical
support services with sales of the CARTO 3 for no additional charge, Innovative
cannot show sufficient demand for the purchase of both products separately. This
argument “flouts the Supreme Court’s instruction that courts should conduct
market-definition inquiries based not on ‘formalistic distinctions’ but on ‘actual
market realities.’” Epic Games, 67 F.4th at 978 (quoting Ohio v. Am. Express Co.,
138 S. Ct. 2274, 2285 (2018)). To the contrary, there is no “categorical rule that an
antitrust market can never relate to a product that is not licensed or sold.” Id.
(emphasis in original). Innovative has produced sufficient evidence for a rational
trier of fact to conclude that clinical support services and catheters are distinct
4
products.
2. The district court also incorrectly concluded that Innovative failed to
demonstrate a genuine dispute of material fact about the existence of a single brand
aftermarket. The existence of a tying arrangement does not alone make it
unlawful: the defendant must also have “appreciable economic power in the tying
market.” Kodak, 504 U.S. at 464. In other words, “the relevant market for
antitrust purposes can be an aftermarket—where demand for a good is entirely
dependent on the prior purchase of a durable good in a foremarket.” Epic Games,
67 F.4th at 976 (emphasis in original). To establish such a single brand
aftermarket, a plaintiff must show that “(1) the challenged aftermarket restrictions
are not generally known when consumers make their foremarket purchase; (2)
significant information costs prevent accurate life-cycle pricing; (3) significant
monetary or non-monetary switching costs exist; and (4) general market-definition
principles regarding cross-elasticity of demand do not undermine the proposed
single-brand market.” Id. at 977 (cleaned up).
The district court correctly concluded that customers who purchased the
CARTO 3 after Biosense’s tying policy formally took effect in April 2016 cannot
serve as evidence of Biosense’s market power. Sophisticated customers like
hospitals assuredly were aware of the policy and yet chose to purchase the CARTO
3 anyway. Market power arising “solely from contractual rights that consumers
5
knowingly and voluntarily gave to the defendant” does not offend the antitrust
laws. Newcal Indus., Inc. v. Ikon Off. Sol., 513 F.3d 1038, 1048 (9th Cir. 2008).
The district court went astray, however, in concluding that because new
customers purchased the CARTO 3 post-tie, customers who purchased the CARTO
3 pre-tie could not serve as proof of a single brand aftermarket. In Kodak, the
Supreme Court explained that customers who had already purchased copiers (the
foremarket) would tolerate some level of supracompetitive service prices (the
aftermarket) because “the switching costs were high relative to the increase in
service prices, and the number of locked-in customers were high relative to the
number of new purchasers.” 504 U.S. at 476.
A rational trier of fact could conclude that hospitals who purchased the
CARTO 3 before the tying policy was adopted nationwide in April 2016 would not
have known, at the time of purchase, about the aftermarket restriction (i.e., that
they would only be able to use Biosense’s more expensive catheters). As a result,
these hospitals, at the time of purchase, would have been unable to accurately
predict the life-cycle costs of cardiac mapping. See Epic Games, 67 F.4th at 979
(“Such life-cycle pricing would be impossible if those consumers were unaware
that they would be restricted to certain vendors in the aftermarket.”). A rational
trier of fact likewise could conclude that these hospitals would face significant
potential switching costs, because cardiac mapping systems are expensive and
6
because physicians develop familiarity with an existing system. Innovative has
therefore produced sufficient evidence of the first three factors to defeat summary
judgment.
The parties primarily dispute Epic Games’s fourth factor, which asks
whether competition in the foremarket is insufficient to discipline anticompetitive
behavior in the aftermarket. See 67 F.4th at 976–77 (explaining analysis in
Kodak). One way for a plaintiff to disprove any disciplining effect is by
demonstrating lock-in: that “the number of locked-in customers [is] high relative to
the number of new purchasers.” Kodak, 504 U.S. at 476.
Innovative has produced evidence that, of 609 CARTO 3 devices sold
between November 2014 and April 2021, 142 were sold before the tying policy
officially went into effect, or roughly twenty three percent. Although the Ninth
Circuit has not adopted a specific metric for what constitutes a “high” number of
locked-in customers, by any metric this number is significant. It is also much
higher than those found insufficient by the out-of-circuit decisions cited by our
dissenting colleague. See, e.g., DSM Desotech Inc. v. 3D Sys. Corp., 749 F.3d
1332, 1347 (Fed. Cir. 2014) (seven out of 268 customers locked in was “not
substantial” enough to defeat summary judgment); SMS Sys. Maint. Servs. v.
Digital Equip. Corp., 188 F.3d 11, 21–22 (1st Cir. 1999) (testimony from two
individuals employed by defendant’s customers, neither of whom provided data,
7
was not “a substantial number” for purposes of summary judgment). A rational
trier of fact could conclude that a sizable portion of Biosense’s customers were
locked in, and thus that there was a viable single brand aftermarket.
To be sure, that Innovative has produced sufficient evidence to defeat
summary judgment does not mean that it will triumph at trial. We are mindful that
proof of lock-in, like other antitrust contentions, must be resolved “on a case-by-
case basis, focusing on the particular facts disclosed by the record.” Epic Games,
67 F.4th at 977 (cleaned up) (quoting Kodak, 504 U.S. at 467). It may be notable,
for example, that Innovative failed to produce any evidence about sales of the
CARTO 3 before 2014. A trier of fact might well conclude that the clinical
support services market “does discipline the aftermarket[]” so that both are “priced
competitively overall . . . . But we cannot reach these conclusions as a matter of
law.” Kodak, 504 U.S. at 486. The district court should not have granted
summary judgment.
3. Biosense’s proffered alternative ground for affirmance fails. A tying
policy may nonetheless be lawful if the defendant can show that its
“procompetitive effects” conclusively “outweigh the anticompetitive effects.”
Kodak, 504 U.S. at 479. Such procompetitive justifications are generally
insufficient to warrant summary judgment, however, unless the policy is one that
“appears always or almost always to enhance competition.” Id. Biosense offers
8
two such justifications, both of which went unaddressed by the district court: (1)
that its tie prevents competitors from free riding, and (2) that its tie is needed to
ensure the quality and safety of the catheters used with the CARTO 3. Neither
justification warrants summary judgment.
A procompetitive justification is one that acknowledges that Biosense is
charging a supracompetitive price but contends that this price allows it to compete
more efficiently. See id. at 472, 478. Biosense therefore must not only point to an
alleged free-rider problem but prove that this problem justifies supracompetitive
pricing. It has failed to do so, and so it cannot prevail on summary judgment.
Biosense is free to press this contention at trial, bearing in mind that Innovative’s
failure to enter the clinical support services market alone cannot justify “the
creation of entry barriers to potential competitors.” Id. at 485.
Finally, although Biosense argues that Innovative’s reprocessed catheters do
not meet Biosense’s safety standards, it fails to offer any data in support of this
contention. Instead, it relies on tests of a different company’s reprocessed
catheters. Moreover, on this record there is no significant difference in the rates of
complaints submitted by hospitals between reprocessed catheters and Biosense’s
catheters. At most, Biosense has simply shown a genuine dispute of material fact
about a procompetitive justification rooted in safety and quality considerations.
4. Because we conclude that Innovative has produced evidence of a
9
single brand aftermarket and so raised a triable issue regarding market definition,
we do not address its argument that it produced sufficient direct evidence of
Biosense’s market power such that it need not define a market.
REVERSED and REMANDED for further proceedings.
10
FILED
Innovative Health, LLC v. Biosense Webster, Inc., No. 22-55413 JAN 5 2024
MOLLY C. DWYER, CLERK
MILLER, Circuit Judge, dissenting: U.S. COURT OF APPEALS
Innovative Health reprocesses and resells catheters that are used with the
CARTO 3, a cardiac-mapping system sold by Biosense Webster. Biosense provides
free clinical support to hospitals that use the CARTO 3, but only if they purchase
catheters from it, not from a reseller like Innovative. According to Innovative, this
policy is an unlawful tying arrangement. I agree with the district court that
Innovative has not presented sufficient evidence to create a genuine issue of
material fact on the lawfulness of the Biosense policy.
A claim of unlawful tying requires a plaintiff to establish “(1) that the
defendant tied together the sale of two distinct products or services; (2) that the
defendant possesses enough economic power in the tying product market to coerce
its customers into purchasing the tied product; and (3) that the tying arrangement
affects a ‘not insubstantial volume of commerce’ in the tied product market.” Rick-
Mik Enters., Inc. v. Equilon Enters. LLC, 532 F.3d 963, 971 (9th Cir. 2008)
(quoting Cascade Health Sols. v. PeaceHealth, 515 F.3d 883, 913 (9th Cir. 2008)).
According to Innovative, the two distinct products and services at issue here are
support services for the CARTO 3 (the tying product) and catheters for the CARTO
3 (the tied product). To establish that Biosense has market power in the tying
market, Innovative must show that “support services for the CARTO 3” constitutes
1
a well-defined market. See Ohio v. American Express Co., 138 S. Ct. 2274, 2285
(2018) (“[C]ourts usually cannot properly apply the rule of reason without an
accurate definition of the relevant market.”); FTC v. Qualcomm Inc., 969 F.3d 974,
992 (9th Cir. 2020) (“A threshold step in any antitrust case is to accurately define
the relevant market.”).
Significantly, the tying market that Innovative has proposed is not the
market for support services for cardiac-mapping systems generally: Biosense
clearly lacks power in that market because it faces competition from many other
providers of cardiac-mapping systems. Rather, Innovative proposes that support
services for the CARTO 3 cardiac-mapping system should be viewed as a distinct
market. This is known as a “single-brand aftermarket”—that is, the market for
services that are ancillary to a product sold by a single manufacturer.
As one court has observed, “[i]t is an understatement to say that single-brand
markets are disfavored. From nearly the inception of modern antitrust law, the
Supreme Court has expressed skepticism of single-brand markets.” In re Am.
Express Anti-Steering Rules Antitrust Litig., 361 F. Supp. 3d 324, 343 (E.D.N.Y.
2019); see Green Country Food Mkt., Inc. v. Bottling Grp., LLC, 371 F.3d 1275,
1283 (10th Cir. 2004) (noting that “products of a single manufacturer may . . .
constitute a relevant product market” only “in rare circumstances”). The Supreme
Court held in Eastman Kodak Co. v. Image Technical Services, Inc., that “one
2
brand of a product can constitute a separate market,” but only if customers are
“locked in” by their purchasing decision in the primary market so that they lack the
ability to switch to a competing brand in response to an allegedly anticompetitive
policy change affecting aftermarket products. 504 U.S. 451, 482, 477 (1992). But
“[c]ourts have been extremely reluctant” to recognize single-brand aftermarkets. In
re ATM Antitrust Litig., 768 F. Supp. 2d 984, 997 (N.D. Cal. 2009) (internal
quotation marks omitted).
We have held that an antitrust plaintiff seeking to establish a single-brand
aftermarket must show that the “(1) the challenged aftermarket restrictions are ‘not
generally known’ when consumers make their foremarket purchase; (2)
‘significant’ information costs prevent accurate life-cycle pricing; (3) ‘significant’
monetary or non-monetary switching costs exist; and (4) general market-definition
principles regarding cross-elasticity of demand do not undermine the proposed
single-brand market.” Epic Games, Inc. v. Apple, Inc., 67 F.4th 946, 977 (9th Cir.
2023). Innovative cannot satisfy that test.
As the court correctly recognizes, the hospitals that purchase cardiac-
mapping systems are sophisticated consumers with purchasing departments that are
capable of evaluating the lifecycle costs of the systems (that is, the cost of the
systems themselves plus the cost of catheters and support services). Hospitals are
therefore unlike the consumers in Eastman Kodak, who struggled to price the
3
lifecycle cost of copiers and replacement parts. 504 U.S. at 473–75. Although
hospitals that buy a CARTO 3 may be “locked in” to dealing with Biosense, that
lock-in arises from the “functional equivalent of a contractual commitment,” and
“the law prohibits antitrust claimants from resting on market power that arises
solely from contractual rights that consumers knowingly and voluntarily gave to
the defendant.” Newcal Indus., Inc. v. Ikon Off. Sol., 513 F.3d 1038, 1048–49 (9th
Cir. 2008).
Instead, as the court explains, “the parties primarily dispute Epic Games’s
fourth factor, which asks whether competition in the foremarket is insufficient to
discipline anticompetitive behavior in the aftermarket.” To have any chance of
success in establishing that factor on a lock-in theory, Innovative must rely on
those hospitals that purchased the CARTO 3 before April 2016, when Biosense
adopted its current policy of providing free support services only to hospitals that
purchase its catheters. Because those hospitals did not know about the policy when
they made their purchases, Innovative says that they are “locked in” and lacked the
ability to assess lifecycle prices.
As an initial matter, it is not clear that Innovative has raised a genuine issue
of fact as to whether even pre-2016 customers are truly locked in. See SMS Sys.
Maint. Servs., Inc. v. Digital Equip. Corp., 188 F.3d 11, 21 (1st Cir. 1999) (“A
lock-in phenomenon must be shown, not assumed.”). If the lock-in effect is real,
4
then presumably at least some customers who purchased a CARTO 3 before the
policy change would have chosen not to purchase the system had they known of
Biosense’s policy. But Innovative presents no evidence of any such customers. On
the other hand, Biosense has shown that its sales were not negatively affected by
the new policy: Its CARTO 3 system sales volume was the same before and after
the policy was announced. Biosense has also presented anecdotal evidence
suggesting that hospitals can and do switch between brands of cardiac-mapping
systems.
Even setting aside that problem, establishing a lock-in based on pre-2016
customers would require Innovative to show that “the number of locked-in
customers [is] high relative to the number of new purchasers,” Eastman Kodak,
504 U.S. at 476, or at least that “a substantial number of customers were locked
in . . . before they learned of [the] restriction on [the] aftermarket.” DSM Desotech
Inc. v. 3D Sys. Corp., 749 F.3d 1332, 1346 (Fed. Cir. 2014) (emphasis added). Only
then would competition in the primary market for cardiac-mapping systems be
insufficient to discipline potential anticompetitive behavior in the aftermarket for
support services.
Innovative has not shown that the number of locked-in customers is
substantial, let alone that it is “high relative to the number of new purchasers.”
Eastman Kodak, 504 U.S. at 476. In fact, Innovative has not said anything about
5
the percentage of Biosense’s customers that it believes to be locked in. See Keenan
v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996) (“[I]t is not our task, or that of the
district court, to scour the record in search of a genuine issue of triable fact.”
(quoting Richards v. Combined Ins. Co., 55 F.3d 247, 251 (7th Cir. 1995)).
Nevertheless, because the court relies on its own calculations of the relevant
percentages, I address them here.
Innovative alleges that 609 CARTO 3s were sold between 2014 and 2021,
with 142 sales coming before April 2016. It has not provided data on sales before
2014, but even if we confine our focus to the 2014–21 period, Innovative has not
met its burden. The 142 CARTO 3 sales occurring before April 2016 represent
only 23 percent of actual Biosense sales during the period. Even drawing all
inferences in Innovative’s favor, the locked-in fraction of the market is therefore
too small to permit Biosense to “exploit the aftermarket.” DSM Desotech Inc., 749
F.3d at 1345 (citation omitted). If Biosense were to raise catheter prices to
supracompetitive levels, “defections from the manufacturer’s installed base,
coupled with losses in the foremarket, in all probability [would] sabotage any
effort to exploit the aftermarket.” SMS Sys. Maint. Servs., 188 F.3d at 21. In other
words, Innovative would risk losing a large share of its non-locked-in customers—
as well as forgoing the opportunity to sell to new customers—in return for gains
among a much smaller set of allegedly locked-in customers. Because, as a matter
6
of law, Innovative has not established that a substantial number of its customers
were locked in, the district court correctly concluded that Innovative had not
created a genuine issue of material fact with respect to the existence of a single-
brand aftermarket.
Perhaps recognizing the weakness of its evidence of market definition,
Innovative emphasizes a different theory on appeal, arguing that it does not need to
establish a well-defined market because it has presented direct evidence of market
power. The court today does not rely on that theory, and with good reason. The
Supreme Court has cautioned that valid inferences about market power can be
challenging in the absence of proper market definition. American Express, 138 S.
Ct. at 2285. That is especially true when the challenged conduct may “pose no risk
to competition.” Id. at 2285 n.7. And “[l]ike other vertical restraints, tying
arrangements may promote rather than injure competition.” Brantley v. NBC
Universal, Inc., 675 F.3d 1192, 1200 (9th Cir. 2012). So even if it is possible to
establish market power without satisfying the test for single-brand markets,
Innovative would have to put forward a particularly strong showing of market
power and anticompetitive effects in order to do so. It has not done so here.
Innovative mainly points to the coincidence of rising prices of catheters and
increasing demand for catheters. But “[w]here . . . output is expanding at the same
time prices are increasing, rising prices are equally consistent with growing
7
product demand.” American Express, 138 S. Ct. at 2288–89 (quoting Brooke
Group Ltd. v. Brown & Williamson Tobacco Corp. 509 U.S. 209, 237 (1993)).
The district court correctly granted summary judgment to Biosense, and I
would affirm its well-reasoned decision.
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Innovative Health, LLC v. Biosense Webster, Inc.
Combined Opinion