Washington County Health Care Authority, Inc. v. Baxter International Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

WASHINGTON COUNTY HEALTH )

CARE AUTHORITY, INC., CESAR )

CASTILLO, INC., WARREN )

GENERAL HOSPITAL, and ERIE )

COUNTY MEDICAL CENTER ) No. 16 CV 10324

CORPORATION, )

Judge John J. Tharp, Jr.

)

Plaintiffs, )

)

v. )

)

BAXTER INTERNATIONAL INC.,

)

BAXTER HEALTHCARE

)

CORPORATION, HOSPIRA, INC., and

)

HOSPIRA WORLDWIDE, INC.,

)

)

Defendants.

)

MEMORANDUM OPINION AND ORDER

Salt water composes almost three-fourths of the planet, so some may be surprised to learn

that the United States has a salt water shortage, of sorts. Specifically, for the last several years,

the US has lacked sufficient quantities of intravenous saline solution, a medical product used to

treat dehydration that consists of sodium chloride (or, as it is commonly known, salt) dissolved

in water. The plaintiffs in this antitrust suit allege that the shortage was no accident; they assert

that it was artificially manufactured by intravenous saline solution suppliers in an effort to

increase prices. The complaint posits that the defendants, the two largest producers of

intravenous saline products, violated Section 1 of the Sherman Act by colluding to increase

prices by initiating a series of bogus voluntary recalls that depleted the saline inventories of

health care facilities throughout the nation, precipitating a health care crisis. Defendants assert

that this theory is implausible and move to dismiss the complaint. This Court agrees and grants

the defendants’ motions without prejudice.

BACKGROUND1

With over one billion units used in the United States each year, intravenous saline

solution (“IV saline”) is among the most ubiquitous and essential products in emergency

medicine. Consolidated Amended Complaint (“CAC”), ECF No. 35 at ¶¶ 4, 106. Consisting of

various concentrations (0.9% being the most prevalent) of sodium chloride dissolved in water,

IV saline is used to prevent and treat dehydration and to dilute other intravenous medications. Id.

¶¶ 39-40. Hospitals, predictably, are the largest purchasers of IV saline. Defendants Baxter and

Hospira are the biggest sellers, each with about 45% market share. Id. ¶ 43. One other seller, B.

Braun Medical Inc., has the remaining 10%. Id. ¶ 96. In part because there are so few sellers, the

Department of Justice and the Federal Trade Commission classify the IV saline market as highly

concentrated. Id. ¶ 98.

The IV saline market also has high barriers to entry, as a new manufacturer would have

to build or develop manufacturing plants that meet strict FDA requirements. Id. ¶ 100. An FDA

economist estimated that it would take three to five years and hundreds of millions of dollars to

open a new IV saline plant. Id. Moreover, because Baxter and Hospira are vertically integrated

with respect to the production of IV saline (i.e., they acquired companies providing goods and

performing services in the IV saline supply chain), it would be onerous for a competitor to gain

the economies of scale necessary to compete. Id. ¶ 101.

In November 2013, Baxter informed customers that there was an IV saline shortage,

purportedly resulting from a harsher than expected flu season. Id. ¶ 44. No previous major flu

outbreak, however, had resulted in an IV saline shortage, including the 2009-2010 swine flu

1 As this is a motion to dismiss, the Court accepts all well-pleaded facts as true and

construes all inferences in favor of the plaintiff. Zemeckis v. Global Credit & Collection Corp.,

679 F.3d 632, 634 (7th Cir. 2012).

outbreak that hospitalized 274,000 people in the United States in addition to those hospitalized

for the common flu. /d. Jj 126-128. Two months after Baxter’s letter, the Food and Drug

Administration publicly acknowledged the shortage and gave new approval for certain foreign

plants—including one owned by Baxter—to ship IV saline to the United States. Id. 4 46. The

new imports, however, were unable to eliminate the shortage. /d. {| 47. Health care facilities,

including those operated by the Veterans Health Administration, subsequently implemented

policies designed to conserve IV saline supplies. Jd. §] 50-51. This included use of oral hydration

whenever possible and flushing central venous access devices less frequently. Id. 4] 50. There is,

however, no true substitute for IV saline, and the FDA has indicated that the IV saline shortage

“poses a serious threat to patients.” Id. J] 49, 107-108.

Concurrent with the shortage, Baxter and Hospira issued a number of voluntary recalls of

IV saline, which are summarized in the following table:*

No. of Bags: No. of Bags:

Recall Date Baxter Hospira Reason for Recall

05/21/13 845,520 Leakage

06/06/13 676,872 Leakage

10/14/14 16,500,000 Punctures

12/08/14 542,080 Particulate Matter

12/22/14 30,840 Leakage

03/18/15 597,498 Missing closures/Leakage

04/07/15 128,050 Leakage

07/02/15 314,600 Leakage

07/17/15 322,720 Particulate Matter

Total

Recalls 2,307,818 17,650,362 19,958,180

Percentage 11.56% 88.44%

* The complaint (4 61) identifies the number of bags recalled for only four of the nine

recalls. Nevertheless, the Court takes judicial notice of the number of units recalled during each

recall, as such information is publicly available on the FDA’s recall database. See FOOD AND

DRUG ADMINISTRATION, FDA RECALL INFORMATION SEARCH, https://www.accessdata.fda.gov/

scripts/ires/index.cfm.

The summary reflects that in May and June 2013, Baxter and Hospira both recalled

hundreds of thousands of IV saline bags, citing a potential for leakage. Id. ¶ 61. Neither

company, however, followed up with any recall of IV saline solution for more than 16 months.

Then, in October 2014, Hospira recalled 16.5 million IV saline bags due to the potential for

punctures; Baxter, however, did not announce another recall until December, when it recalled

half a million bags because particulate matter had been discovered floating inside a sealed bag of

saline solution. Later that month, Hospira issued a small recall of about 31,000 bags due to

leakage. Id. And finally, within three weeks of each other in both the spring and summer of

2015, Baxter and Hospira again issued voluntary recalls, due to leaks and the presence of

particulate matter (specifically, Baxter recalled two lots of saline bags after a customer reported a

free-floating insect in one of the bags).3

The complaint alleges that these recalls substantially reduced the supply of IV saline

solution and resulted in a dramatic increase in IV saline prices. The complaint includes no

allegations about the defendants’ production levels during this time period, but alleges that in the

fourth quarter of 2014 Baxter and Hospira’s collective recalls removed approximately 28.5% of

IV saline bags from the U.S. market. Id. ¶ 62.4 The complaint further alleges that prices rose 36%

3 See FOOD AND DRUG ADMINISTRATION, FDA RECALL INFORMATION SEARCH, Recall

Nos. D-1335-2015 and D-1336-2015, https:// www.accessdata.fda.gov/scripts/ires/index.cfm.

4 The complaint does not identify a source for this statistic, but it can be derived using the

Q4 2014 recall numbers on the summary chart and the estimate of monthly IV saline use in the

United States that the plaintiffs cite in paragraph 62 of the complaint: 20 million bags/month x 3

months = 60 million bags x 28.5% = 17.1 million bags, the amount recalled in Q4 2014.

Elsewhere in the complaint, however, the plaintiffs allege that “[o]ver a billion units of IV Saline

Solution are used in the United States every year.” AC ¶ 4. Using that estimate, the Q4 2014

recalls would amount to only 6.8% of the IV saline solution used in the United States over that

period: 1 billion/year = 250 million/quarter; 17.1 million/250 million = 6.8%). The plaintiffs

offer no explanation for why they use a higher estimate of saline use when describing the IV

saline shortage as a public health crisis and a lower estimate when calculating the impact of the

defendants’ recalls.

for the U.S. government between late 2014 and late 2015, and 200-300% for private customers.

Id. ¶ 64.

During this period, Hospira and Baxter submitted information to the FDA’s publicly

accessible drug shortage database. Id. ¶ 66. The database includes information from

manufacturers on the availability of certain drugs, including the estimated duration of an

expected shortage and the reason for the shortage. Id. ¶ 67. Baxter used the database in

December 2013 to indicate that it was suspending the manufacturing of 150 mL IV saline bags to

meet higher demand for 250 mL IV saline bags. Id. ¶ 69. On the same day, January 17, 2014,

Hospira and Baxter both submitted shortage letters to the FDA indicating that IV saline

customers would be put on allocation. Id. ¶ 70.

Hospira and Baxter used the IV saline shortage to bolster other areas of their businesses.

Hospira and Baxter informed some purchasers that they would not be able to purchase IV saline

at any price unless they also purchased other Baxter or Hospira products, and imposed greater

price increases on other customers who declined to purchase non-saline products. Id. ¶ 77.

Baxter and Hospira also used the IV saline shortage to lock their customers into long term

contracts. Id. Baxter’s CEO, Robert L. Parkinson, Jr., indicated that he thought the IV saline

shortage “sensitized a lot of people to the value of these products.” Id. ¶ 86. Baxter subsequently

saw an 8% increase in its “Fluid Systems” franchise (a business unit which includes IV saline),

driven in part by “pricing for IV solutions.” Id. ¶ 88. Hospira similarly indicated that it saw an

“uptick in IV solutions prices,” which drove a 19% increase in net sales in the division that

included IV saline. Id. ¶ 89. Hospira’s CEO noted that the increase in sales was “primarily driven

by the strong performance from our solutions products, which benefitted from the continued

strong demand from protracted market shortages.” Id. The price of IV saline rose even though

the price of plastic—the primary raw material in IV saline bags—remained stable or fell. Id. ¶¶

122-125.

Plaintiffs, purchasers of IV saline, filed suit against Baxter and Hospira on behalf of

themselves and others similarly situated, alleging that Baxter and Hospira violated the Sherman

Act, 15 U.S.C. § 1, by conspiring to restrict output and thereby increase prices in the IV saline

market. In addition to the allegations detailed above, the complaint alleges that Baxter and

Hospira had the opportunity to manufacture an IV saline shortage by conspiring at trade

conferences, including those put on by the Advanced Medical Technology Association and

Generic Pharmaceutical Association. Id. ¶¶ 113-116. The complaint further alleges that Baxter

and Hospira had unique incentives to spur a shortage and/or keep IV saline prices high: both

companies had expiring long-term contracts that they sought to re-negotiate at higher prices, and

Baxter hoped to use the shortage to get approval to import IV saline from its foreign plants. Id.

¶¶ 118-120.

Baxter and Hospira now move to dismiss the complaint, asserting that it does not

plausibly allege that they colluded to restrict the output and increase the price of IV saline

solution. Because the facts to which the plaintiffs point do not plausibly support the existence of

“a preceding agreement” distinguishable from “mere[] parallel conduct that could just as well be

independent action,” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 557 (2007), the complaint

fails to state a claim for restraint trade in violation of Section 1.

DISCUSSION

I. Existence of an Agreement

Section 1 of the Sherman Act, 15 U.S.C. § 1, prohibits “[e]very contract, combination . . .

or conspiracy, in restraint of trade or commerce.” The Act “is designed to prevent businesses

from entering into collusive agreements,” and “[a]greements to fix prices unambiguously fall

within the ambit of § 1.” Omnicare, Inc. v. UnitedHealth Group, Inc., 629 F.3d 697, 705 (7th

Cir. 2011). To state a claim under § 1, a plaintiff must allege the existence of “(1) a contract

combination, or conspiracy; (2) a resultant unreasonable restraint of trade in a relevant market;

and (3) an accompanying injury.” Agnew v. National Collegiate Athletic Ass’n, 683 F.3d 328,

335 (7th Cir. 2012). There must be “an explicit agreement, not merely a tacit one.” In re High

Fructose Corn Syrup Antitrust Litig., 295 F.3d 651, 661 (7th Cir. 2002). A typical price-fixing

scheme features “sellers who collude to set their prices above or below prevailing market

prices.” Omnicare, 629 F.3d at 705. This case concerns price-fixing’s first cousin, output

restriction, a scheme in which market participants agree to reduce the amount of a product in the

marketplace, thereby “reducing supply below demand” and “rais[ing] prices above a competitive

level.” United States v. Andreas, 216 F.3d 645, 667 (7th Cir. 2000).

The focus in this case is on the first element of a Section 1 claim. Defendants maintain

that that the complaint does not adequately allege the existence of agreement to restrain the

supply and increase the price of IV saline. The Supreme Court set forth the framework for

evaluating the adequacy of a complaint alleging unlawful collusion in Twombly. As the Supreme

Court there explained, a § 1 claim “requires a complaint with enough factual matter (taken as

true) to suggest that an agreement was made.” 550 U.S. at 556. “A statement of parallel conduct,

even conduct consciously undertaken, needs some setting suggesting the agreement necessary to

make out a § 1 claim; without that further circumstance pointing toward a meeting of the minds,

an account of a defendant’s commercial efforts stays in neutral territory.” Id. at 557. “[A]

conclusory allegation of agreement at some unidentified point does not supply facts adequate to

show illegality.” Id. at 556-57. The plaintiffs argue that the amended complaint identifies parallel

behaviors (sending shortages notices to the FDA and initiating voluntary product recalls), as well

as “plus-factors” (industry structure, defendants’ membership in trade organizations, falling raw

material costs, and past misconduct) that, in combination, suffice to push the alleged conspiracy

across the line separating the possible from the plausible. But these factors, standing alone or

considered collectively, are no more probative of an agreement than of independent self-

interested conduct and, as such, Twombly instructs that they are inadequate to state a claim.

To see this, it will be helpful to consider along the way what a complaint that adequately

alleges an agreement would look like. In Twombly, the Supreme Court endorsed the views of

commentators who suggested that agreements to restrain trade can be differentiated from mere

parallel conduct by considering whether the behavior at issue “would probably not result from

chance, coincidence, independent responses to common stimuli, or mere interdependence

unaided by an advance understanding among the parties,” and whether the conduct at issue is

suggestive of “the sort of restricted freedom of action and sense of obligation that one generally

associates with agreement.” 550 U.S. at 556 n. 4 (citations and internal quotation marks omitted).

For example, “complex and historically unprecedented changes in pricing structure made at the

very same time by multiple competitors, and made for no other discernable reason, would

support a plausible inference of conspiracy.” Id. (internal quotation marks omitted). No such

circumstances exist in this case.

A. Parallel Conduct

Plaintiffs’ theory is that Baxter and Hospira used the FDA shortage reporting mechanism

to signal forthcoming output restrictions to each other, and that they subsequently initiated

product recalls under false pretenses, all in an effort to increase the price of IV saline. While the

parties spill much ink debating the finer points of the relevant FDA regulations (which the Court

will address in turn), a sound analysis of the complaint must begin with Twombly—specifically,

Twombly’s admonition that “lawful parallel conduct fails to bespeak unlawful agreement. . . .

[A]n allegation of parallel conduct and a bare assertion of conspiracy will not suffice.” 550 U.S.

at 556. So, even in the best case scenario for plaintiffs—wherein the FDA notifications and

recalls showed the defendants moving in lockstep—the allegations of parallel conduct in the

complaint, standing alone, would be insufficient to overcome a motion to dismiss, even where

collusion is a possible explanation for the parallelism. It bears noting, moreover, that not all

allegations of parallel conduct are created equal; the context in which the alleged parallel

conduct occurs, and the nature of that conduct, can be important to an assessment of the

complaint’s plausibility. Where context suggests that, notwithstanding parallel conduct,

agreement is unlikely, or unnecessary, the probative force of the parallel conduct is less

substantial. See, e.g., In re Text Messaging Antitrust Litigation (“Text Messaging I”), 630 F.3d

622 (7th Cir. 2010) (“An accusation that the thousands of children who set up makeshift

lemonade stands all over the country on hot summer days were fixing prices would be laughed

out of court because the retail sale of lemonade from lemonade stands constitutes so dispersed

and heterogeneous and uncommercial a market as to make a nationwide conspiracy of the sellers

utterly implausible.”).

For several reasons, the probative force of plaintiffs’ allegations of parallel conduct is

particularly weak. Chief among them is that the IV saline market is an oligopoly in which

“conscious parallelism”—“a common reaction of firms in a concentrated market that recognize

their shared economic interests and their interdependence with respect to price and output

decisions”—is to be expected. Twombly, 550 U.S. at 553. In other words, absent additional

factual allegations, the mere fact that Baxter and Hospira restricted their own production of IV

saline solution output after learning of output reductions by the other sheds little light on the

existence vel non of an unlawful agreement. Yes, it is possible that Baxter and Hospira’s

behavior stemmed from a violation of the antitrust laws—i.e., that it was the result of an

agreement. But the nature of an oligopoly makes it such that there is a substantial likelihood

that—even absent an agreement—Baxter and Hospira would have tried to capitalize on output

restrictions signaled by the other, as it was in their independent interests to restrict supply and

drive up prices. In short, parallel conduct in an oligopolistic market is not particularly probative

of collusion.

The complaint also has problems that arise not from market structure, but from its

allegations describing how the purported output restriction conspiracy occurred. These

problems—which affect both the alleged instrument of output restriction (voluntary recalls) and

the alleged signaling mechanism (shortage letters sent to the FDA)—also undermine the

plausibility of the plaintiffs’ theory.

1. Voluntary Recalls

Plaintiffs’ theory that Baxter and Hospira used voluntary recalls to manufacture a

shortage is quite implausible in light of the gaping factual deficiencies in the complaint,

affirmative allegations that undermine the purported scheme, and the regulatory landscape in

which IV saline producers operate. As an initial matter, the complaint contains no allegations

suggesting that the reasons Baxter and Hospira provided for the recalls were false. Further, the

complaint demonstrates that Hospira recalled about eight times as many units as Baxter,

incurring substantially greater costs despite roughly equal market share. And even were it

plausible to believe that one schemer would agree to absorb wildly disproportionate costs for no

additional benefit, the odds that it would agree to this scheme are minute, as voluntary recalls

impose high upfront costs and invite FDA scrutiny of the very instrument of the unlawful

agreement.

a. No Allegations That the Recalls Were Bogus

To begin, it must be recognized that the plaintiffs’ theory about how the defendants

colluded to increase the price of IV saline solution rests on the premise that the product recalls

the defendants made were bogus. Plaintiffs charge the defendants with “creating a public health

crisis that denied medical providers and others the IV Saline Solution necessary to treat . . . the

hospitalized and those needing emergency medical attention.” Resp. at 1, ECF No. 83. The

defendants did this, the plaintiffs allege, “by restraining supply and fixing the price of IV Saline

Solution.” Id. More specifically, the plaintiffs allege that the defendants colluded to cause “the

purported IV Saline shortage” by engaging in parallel recalls of IV Saline Solution and

“signal[ing] their output restrictions and price increases to each other through publicly available

communications with customers and the FDA.” Resp. at 3.

The necessary implication of these allegations is that the product recalls announced by

the defendants were phony—that is, unnecessary because the products were not defective. If the

recalls were legitimate—i.e., if the products were, in fact, defective—then the resulting shortages

they caused could not have been the product of collusion (i.e., agreement). There is certainly no

plausible basis to conclude that the defendants colluded to create actual defects in their products

so that they could then coordinate recalls of those products. The recalls could only have operated

as an unlawful collusive “output restriction” device, then, if the defects were fictitious; recalls

are required when defects may compromise the safety of the product. See 21 U.S.C. § 331(a)

(prohibiting “the introduction or delivery for introduction into interstate commerce of any food,

drug, device, tobacco product, or cosmetic that is adulterated or misbranded”); see also 21 C.F.R.

§ 7.40 (noting that “recall is an alternative to a Food and Drug Administration-initiated court

action for removing or correcting violative, distributed products”).

Yet, as Hospira observes (Mem. at 2, 9, ECF No. 58), the complaint contains not a single

allegation of fact to support an inference that the recalls were shams—no allegations that the

bags were not prone to leakage and puncture, as reported; no assertions that the reports of

missing closures were feigned; no claim that particulates were not found in the bags recalled on

that basis.5 And without any fact allegations to plausibly establish that the recalls were shams,

the plaintiffs’ theory that the defendants raised prices by artificially restricting output by

conducting a series of spurious recalls collapses: no sham recalls means no collusive scheme to

restrict output means no agreement to charge supracompetitive prices.

In attempting to respond to this argument, the plaintiffs try to have it both ways,

contesting the claim that they have not alleged that the recalls were phony while also

acknowledging, both implicitly and expressly, that they were not. As to the former, the plaintiffs

point to no allegations of fact that, if true, would support a plausible inference that the recalls

were shams. Instead, they actually assert, in complete disregard of Twombly’s teaching that

conclusory labels do not fact allegations make, that they have adequately pleaded the false nature

of the recalls because the complaint “uses the words ‘purported’ or ‘purportedly’ in referencing

the alleged reasons for every one of the recalls.” Resp. at 37. There could not be a more textbook

5 To the contrary, to the extent that the complaint alleges facts relevant to the legitimacy

of the recalls, those facts support the validity of the recalls. The complaint acknowledges that

recalls are necessary if sterility is compromised by punctures or the solution contains

particulates, both reasons that the defendants provided for their recalls. CAC ¶ 41. And in

discussing the defendants’ “purported justifications for the IV Saline Solution shortage,” the

complaint omits any reference to the recalls whatsoever; what it describes as the defendants’

pretextual justifications for the saline shortages are the claim that shortfalls today cannot be

explained by a harsh 2013-14 flu season and that saline price increases are anomalous in light of

declining prices for plastic, a principal component of the product. See CAC ¶¶ 18-19.

illustration of the sort of inadequate reliance on “mere conclusory statements” that Twombly

disparaged. The plaintiffs then implicitly concede their failure to plead any facts to support an

inference that the recalls were shams in acknowledging that they are “unable to prove either that

Defendants’ recalls were unnecessary or what they cost Defendants.” Resp. at 38 n.23. The

plaintiffs, of course, point out that they are not required to prove that the recalls were

unwarranted. Id. That is true, but of no help to the plaintiffs, as it simply ignores the requirement

that the complaint plead “factual content that allows the court to draw the reasonable inference

that the defendant is liable for the misconduct alleged.” Twombly, 550 U.S. at 556. “Rule 8(a)(2)

still requires a ‘showing,’ rather than a blanket assertion, of entitlement to relief.” Id. at 555 n.3.6

The plaintiffs also argue, in grudging but inconsistent acknowledgment that the defects

that prompted the recalls were genuine, that the defects were nevertheless “inconsequential” or

“technical” and thus permitted the defendants to engage in the recalls “without significant

business or reputational risks.” Resp. 5, 35-36. But this contention is belied by the FDA’s

findings when it evaluated Baxter and Hospira’s recalls. Each of Baxter and Hospira’s recalls

were classified as either Class I or Class II recalls by the FDA.7 These are the two most serious

recall designations. A Class I recall occurs when “there is a reasonable probability that the use

of, or exposure to, a violative product will cause serious and adverse health consequences or

death.” 21 C.F.R. § 7.3(m)(1). A Class II recall “is a situation in which use of, or exposure to, a

6 Nor is this an impossible requirement; the plaintiffs acknowledge, for instance, that

there is public information that would bear on the question (and which they intend to pursue).

What they don’t explain is why they didn’t do so before alleging that the defendants’

manufactured a public health crisis by means of sham recalls.

7 Baxter’s recalls related to particulate matter in IV saline bags—including one initiated

after a customer reported a free floating insect inside an IV saline bag—were designated as Class

I. Baxter and Hospira’s recalls related to punctures and leakage were designated as Class II. See

FOOD AND DRUG ADMINISTRATION, FDA RECALL INFORMATION SEARCH, https://

www.accessdata.fda.gov/ scripts/ires/index.cfm.

violative product may cause temporary or medically reversible adverse health consequences or

where the probability of serious health consequences is remote.” 21 C.F.R. § 7.3(m)(2).

According to the FDA, then, all of the recalled products posed health risks to the public, and

some of the products posed grave risks. While plaintiffs suggest that the recalls were based on

mere technicalities, the FDA did not assign any of the recalls to Class III, which covers products

that technically violate FDA standards but are “not likely to cause adverse health consequences.”

21 C.F.R. § 7.3(m)(3). And to the extent plaintiffs assert that Baxter and Hospira defrauded the

FDA to obtain Class I and II designations, the complaint contains few if any facts supporting that

conclusion, and certainly fails to comport with the Federal Rule of Civil Procedure 9’s demand

for particularity. See Fed. R. Civ. P. 9(b) (“In alleging fraud or mistake, a party must state with

particularity the circumstances constituting fraud or mistake.”).8

For other reasons, too, the rigorous regulatory framework in which Baxter and Hospira

operate undermines the plausibility of the plaintiffs’ theory. The FDA only considers a removal

of a product from the market to be a voluntary recall if it “regards the product as involving a

violation that is subject to legal action, e.g., seizure.” 21 C.F.R. § 7.46(a). A recall triggers an

“evaluation of the health hazard presented by a product being recalled or considered for recall

. . . conducted by an ad hoc committee of Food and Drug Administration scientists.” 21 C.F.R. §

7.41(a). In so doing, the FDA evaluates “whether any existing conditions could contribute to a

8 It does not matter that the plaintiffs have not asserted a claim of fraud; “the dictates of

Rule 9(b) apply to allegations of fraud, not claims of fraud.” Pirelli Armstrong Tire Corp.

Retiree Medical Benefits Trust v. Walgreen Co., 631 F.3d 436, 446 (7th Cir. 2011). It is also

unclear whether the Court could even entertain such an argument absent a finding by the FDA

itself that it was defrauded by the defendants. See Buckman Co. v. Plaintiffs’ Legal Comm., 531

U.S. 341, 348 (2001) (holding that state law “fraud-on-the-FDA” claims are pre-empted because

“the federal statutory scheme [governing drugs and medical devices] amply empowers the FDA

to punish and deter fraud against the Administration, and [] this authority is used by the

Administration to achieve a somewhat delicate balance of statutory objectives.”).

clinical situation that could expose humans or animals to a health hazard,” and assesses the

likelihood and seriousness of the consequences posed by the hazard. Id. At the end of the

evaluation, the FDA assigns the recall a classification of either Class I, II, or III, “to indicate the

relative degree of health hazard” posed by the product being recalled. 21 C.F.R. § 7.41(b). As the

defendants point out, by initiating a fake recall in furtherance of an illegal agreement to restrict

output would invite—require, actually—the government to scrutinize the artifice through which

the unlawful collusion occurred. This is yet another strike against the plausibility of plaintiffs’

theory.9

A complaint premised on a theory that the defendants intentionally manufactured a public

health crisis by orchestrating bogus product recalls that would, despite the public health crisis

and rigorous regulatory oversight of product recalls, escape the FDA’s attention, lacks facial

plausibility. To survive a motion to dismiss, it requires (among other things) some factual

allegations which, taken as true, suggest that the output restricting recalls were, in fact, a sham.

But the complaint in this case includes no such allegations and, for that reason alone, the

complaint is implausible and must be dismissed.

b. The Recalls Were Not Parallel

In view of the complaint’s implicit concession that the recalls were not bogus, it is not

surprising to see that, in fact, the recalls were not really “parallel,” as the plaintiffs allege. Nor is

9 Plaintiffs cite In re Plasma-Derivative Protein Therapies Antitrust Litigation, 764 F.

Supp. 2d 991, 996 (N.D. Ill. 2011), for the proposition that allegations of efforts to mislead the

FDA add plausibility to a complaint. But in Plasma Therapies, the allegations were that

defendants reported false data to the government in an effort “to avoid another government

investigation.” Id. Here, by contrast, initiating a voluntary recall automatically triggers an FDA

investigation. It is much more likely that a company would provide false data to the FDA to head

off an investigation than it is that a company would mislead the FDA in a way it knows will

trigger scrutiny of the precise artifice of its deceit.

the defendants’ alleged conduct consistent with the plaintiffs’ theory that product recalls were

used to create shortages.

For starters, the initial recalls alleged in the complaint did not create any shortage. There

are no allegations of shortages existing until the 2013-14 flu season, see CAC ¶ 10, and the

defendants in May/June 2013 collectively recalled only about 1.5 million bags. Indeed, plaintiffs

effectively acknowledge that 2013-14 flu season was, in fact, unexpectedly harsh and that

shortages reported in November 2013 could be explained by that fact. Id. at ¶¶ 18, 44-45; 126

(“2013 to 2014 flu season alone cannot justify the extended IV Saline Solution shortages

experienced through today.”). Even assuming none of 1.5 million bags recalled in May/June

2013 were timely replaced, these recalls amounted to less than 4% of even the plaintiffs’ low-end

estimate of 40 million bags of saline solution usage over that two month period (and less than

1% of the bags purchased during that period using plaintiffs’ high-end estimate of 1 billion bags

per year). The plaintiffs allege no facts to suggest that it is plausible that so small a temporary

shortfall would drive prices significantly higher. The omission is particularly problematic

because the data shows that there were no further recalls over the course of the next 16

months. It is hardly plausible to infer that, having supposedly agreed on a scheme to create a

shortfall by means of bogus product recalls, the defendants then sat on their hands for the next 16

months without making any product recalls.10

10 Baxter contends that the IV saline solution shortage was caused not by recalls but by “a

perfect storm” of events that adversely affected production. Baxter Mot. to Dismiss 2-3, 7, ECF

No. 60. Its assertion relies on information outside the limited record the Court may consider,

however—specifically sources on which the plaintiffs rely for some of the allegations in the

complaint. The plaintiffs’ limited citation to news articles addressing the saline shortage,

however, permits the Court to consider other material in the same sources as is necessary to

place the statements cited by the plaintiffs in context; it does not authorize the wholesale

consideration of all information set forth in those sources as established fact. The cause of the IV

saline shortage is, undoubtedly, a fact-intensive question that cannot be appropriately answered

To be sure, one could argue that certain aspects of the defendants’ recalls and shortage

notices were parallel: the notices, and subsequently the recalls, were relatively close in time to

one another, and comparable recalls were unprecedented in the IV saline industry.11 But these

similarities warrant no inference of collusion in light of the disproportionate size of the recalls.

The IV solution recalls by Baxter and Hospira were not remotely parallel in magnitude: in the

recalls identified in the complaint, Baxter recalled approximately 2.3 million IV saline bags. By

contrast, Hospira recalled over 17.5 million bags—about eight times as many bags as did Baxter.

The vast bulk of Hospira’s recalled product, moreover, was the subject of a single recall notice

for 16.5 million bags in October 2014. That single recall was almost 20 times larger than

Baxter’s largest recall, and amounted to more than 82 percent of the total IV saline solution

recalled over the alleged life of the conspiracy.

Nor does the timing of the recalls support a plausible inference of collusion. Although the

first recalls by each defendant occurred within a few weeks of each other, and were of

comparable size, thereafter the recalls do not occur in a predictable pattern or scale, much less

move in lockstep. After the 16-month delay noted previously, Hospira then made its recall of

16.5 million bags, but that recall was not, as one might expect were there a collusive scheme,

followed by a series of Baxter recalls closing the gap; rather, Baxter followed two months later

with a recall that was a third smaller than its first recall and which was necessitated by an

entirely different problem. Oddly—if the recalls were phony—Hospira then followed up its

massive October 2014 recall with a miniscule recall of 30,000 bags that could have contributed

in the context of evaluating a motion to dismiss, but it is not necessary to answer that question in

the context of the defendants’ motions. While they fall short of definitively establishing the

cause of the shortage, the defendants succeed in demonstrating that the plaintiffs have not

plausibly alleged that the shortfall was the product of a collusive output restriction scheme.

11 The complaint acknowledges that Hospira, in particular, conducted voluntary recalls of

IV saline solution between 2010 and 2012, before the alleged conspiracy began. CAC ¶ 60.

nothing to an allegedly collusive scheme. Just as odd is the fact that in April and July of 2015,

Hospira conducted back-to-back recalls, without an intervening recall by Baxter—despite the

fact that those recalls widened the gap between the number of recalls conducted by Hospira and

Baxter by another 400,000 bags. This chronology is difficult to reconcile with the plaintiffs’

collusion theory; if anything, it tends to undermine, rather than support, the notion that the

defendants engaged in parallel conduct.

Even if the disparities in the magnitude and timing of the defendants’ recalls does not, in

and of itself, render plaintiffs’ complaint implausible (see Kleen Prods., LLC v. Packaging Corp.

of Am., 775 F. Supp. 2d 1071, 1077 (N.D. Ill. 2011) (concluding that the complaint stated an

antitrust claim notwithstanding that the defendants’ capacity “reductions were made in varying

amounts and not all at the same time”)), it is yet another strike against the complaint’s

plausibility. See In re Baby Food Antitrust Litig., 166 F.3d 112 (3d Cir. 1999) (affirming grant of

summary judgment in favor of defendants on price fixing claim in part due to substantial

differences in the amount of defendants’ price increases). It makes little sense that Hospira—

which the plaintiffs concede has the same market share as Baxter—would agree to recall eight

times as much product as Baxter (and therefore incur substantially greater costs) given their

equal market shares.12 The plaintiffs offer no explanation, much less a plausible one, for why

12 Both Baxter and Hospira argue at length that they would risk severe business

consequences as a result of recalls, i.e., customers would purchase IV saline elsewhere. The

complaint, however, contains factual allegations suggesting that customers may not necessarily

have other options: Baxter and Hospira account for 90% of the IV saline market, there is only

one other manufacturer, the cost of entry into the IV saline market are astronomically high, and

Baxter and Hospira both lock customers into long term contracts. The problem posed by the

complaint is not that customers would stray from Baxter and Hospira collectively; it’s that

Hospira risks losing customers to Baxter by recalling eight times as much product. It is

implausible that Hospira would agree to suffer substantial reputational harm and allow Baxter to

escape comparatively unscathed.

Hospira would agree to structure a scheme to coordinate voluntary recalls in a manner that gave

such a lop-sided benefit to its competitor.

c. Voluntary Recalls Are an Implausible Means of

Restricting Output

If plaintiffs’ theory is accurate, then Baxter and Hospira took a remarkably circuitous and

pricy route to hiking IV saline prices.13 Product recalls are expensive and draw attention from

regulators, especially in the pharmaceutical industry. Even drawing all inferences in plaintiffs’

favor, as the court must, there is virtually no chance that recalls of millions of IV saline bags (by

Baxter) or tens of millions of bags (by Hospira) imposed no cost on the defendants. While it is

possible that many, or even most, of the recalled IV saline bags had already been used, a recall of

bags already used could not contribute to a shortage and it strains credulity to believe that Baxter

and Hospira collectively recalled millions of IV saline bags and paid no refunds. Indeed,

plaintiffs tacitly concede that the recalls imposed substantial costs on Baxter and Hospira by

noting that the defendants “reduced their customers’ on-hand supply below demand by

repeatedly removing IV Saline from their customers’ inventories.” Resp. to Motions to Dismiss

10-11, ECF No. 83. Moreover, as the defendants point out, voluntary recalls have associated

costs aside from refunds: the recalling company must submit a detailed recall strategy for

evaluation by the FDA, must actually implement recall notifications, and must vigilantly monitor

the recall and provide periodic updates to the FDA (tracking the number of purchasers notified of

the recall and their responses, among other things). 21 C.F.R. § 7.42; 21 C.F.R. § 7.53. This is

13 The defendants point out as well that the complaint’s allegations about price increases

are not robust. The Court does not agree, however, that the absence of specific allegations

regarding the prices the plaintiffs themselves paid for IV saline solution renders the complaint

implausible given the statements by executives of the defendants, quoted in the complaint,

acknowledging that IV saline solution prices did rise during at least some portion of the relevant

period, even if the complaint’s allegations do not allege the magnitude of the increase. See CAC

¶¶ 85-90.

not to say that the high costs of a purported agreement to initiate product recalls necessarily

render the existence of the agreement implausible, per se. It is possible that multiple companies

would collude in such a way because they stood to gain more from the resulting price increases

than they would lose from the costs of product recalls, and the complaint alleges that is precisely

what happened here. But the merely possible does not rise to the level of the plausible. The high

initial expense of the purported agreement weighs against its plausibility. See High Fructose

Corn Syrup, 295 F.3d at 661 (describing an alleged collusive agreement as “implausible” where

“it would mean that losses would be incurred in the near term in exchange for the speculative

possibility of more than making them up in the uncertain and perhaps remote future”). That there

exist simpler and more effective means of achieving the objective further diminishes the

plausibility of the alleged scheme. As discussed above, if Baxter or Hospira wanted to signal

their interest in raising the price of IV saline solution, they didn’t need a complex scheme that

imposed significant upfront costs. All they had to do was raise their price of saline solution and

see if the other followed suit: “it is well-established . . . that the mere existence of an

oligopolistic market structure in which a small group of manufacturers engage in consciously

parallel pricing of an identical product does not violate the antitrust laws.” Reserve Suply Corp.

v. Owens-Corning Feberglas Corp., 971 F.2d 37, 50 (7th Cir. 1992).

Beyond that, the notion that the recalls themselves had a material effect on the price of IV

saline solution over the multi-year life of the alleged conspiracy is fanciful. As noted, Hospira’s

October 2014 was the single largest recall conducted and accounted for 82% of the total product

recalled. The complaint credibly alleges that a recall of that size affected availability during the

fourth quarter of 2014, but that’s as far as it goes. During the rest of the period from May 2013 to

July 2015, only 3.4 million bags were recalled. The complaint affords no basis to support the

inference that a shortage of 3.4 million bags—which, even using plaintiffs’ low-end volume

estimate, consists of only 17% of one month’s supply of IV saline solution—would cause a

significant rise in prices over the course of more than two years. The complaint alleges no facts

concerning the defendants’ total production or capacity; no facts addressing the number of bags

that were ordered from the defendants; and no facts detailing how many bags were ordered that

the defendants were unable to supply. And although the complaint acknowledges that in response

to the saline solution shortage, the FDA permitted saline to be imported from foreign

manufacturers—another fact that illustrates the implausibility of the plaintiffs’ theory that the

defendants colluded in a manner that convinced their regulator to allow imports from foreign

competitors—it provides no allegations about the number of units supplied by such foreign

competitors. Plaintiffs’ theory, then, rests almost entirely on a single act—Hospira’s October

2014 recall—taken by only one member of the alleged conspiracy, and begs the question: if the

defendants adopted a scheme to create shortages by recalls, why was there only one recall,

involving only one party, that was reasonably capable of materially raising IV saline solution

prices? Neither the complaint nor the plaintiffs’ briefs provides a discernable answer.

2. Shortage Notices

The signaling mechanism alleged in the complaint is also suspect. Plaintiffs posit that the

defendants sent letters to the FDA to inform customers of upcoming IV saline shortages. The

complaint suggests that the defendants came to an accord wherein each would further restrict

output—via voluntary recalls—when the other indicated to the FDA that a shortage was

imminent. There are two principal problems with this theory. First, shortage letters are not

necessarily made public and the decision to publish them rests with the FDA, not with the

company submitting them. The regulation addressing publication of shortage notices indicates

that the “FDA may choose not to make information collected [concerning shortages] available on

the drug shortages list . . . if FDA determines that disclosure of such information would

adversely affect the public health (such as by increasing the possibility of hoarding or other

disruption of the availability of the drug to patients.” 21 C.F.R. § 314.81(b)(3)(iii)(d)(2).

Plaintiffs argue that the defendants knew the FDA would publish their shortages letters because

the circumstances under which the FDA could have declined to publish them were narrow. But

the facts alleged in the complaint bely that assertion; the ubiquity and importance of IV saline—

which the complaint alleges has no adequate substitute—suggests that an IV saline shortage may

be precisely the sort of situation in which public notification would lead to hoarding. According

to plaintiffs, then, defendants left the linchpin of their conspiracy to the discretion of FDA

regulators.

In addition, the timing of the shortage notices calls plaintiffs’ signaling theory into doubt.

The complaint notes that Baxter sent the “first relevant” shortage letter to the FDA on December

16, 2013. CAC ¶ 69. But the complaint also alleges that Baxter and Hospira’s conspiratorial

recalls began in May 2013, seven months before the first shortage letter. Id. ¶ 61. The plaintiffs

do not explain how the shortage notices triggered a steady stream of voluntary recalls if some of

the allegedly coordinated recalls occurred before the notices?14 Further, the complaint identifies

a total of only four shortage letters, all of which were sent within the four-month window of

December 2013 to March 2014, and none of which was sent within six months of any subsequent

14 Defendants also argue that because the shortage letters were legally required, they

could not have been used to signal output restrictions. But there is no reason that is the case;

Baxter and Hospira could easily have agreed to pursue output restrictions upon receipt of a

legally required notice. The problem with the complaint is not that legally-required public

notices are inherently implausible signaling mechanisms, it’s that the complaint contains paltry

factual support for—and indeed undermines—the proposition that the shortage letters at issue in

this case actually functioned as a signaling mechanism.

recall by either of the defendants. The complaint alleges that the conspiracy continued unabated

for years after the last shortage-letter-signal was sent, suggesting either that the shortage letters

were not, in fact, a signaling mechanism or that those responsible for implementing the alleged

conspiracy must have been sleeping while on watch. In neither case is the plausibility of the

plaintiffs’ theory enhanced.

In short, the “parallel” conduct alleged by the complaint is not parallel and does not

support an inference of unlawful agreement. The facts affirmatively pled in the complaint

establish that the recalls were overwhelmingly one-sided, subject to federal scrutiny, and timed

in a way that would render agreement unlikely. The complaint’s silence speaks volumes as well.

The failure to plead any facts suggesting that the recalls were bogus, failure to grapple with the

complex regulatory framework in which defendants operate, and failure to allege facts indicating

that all but one of the recalls could have meaningfully affected the marketplace reinforce the

inadequacy of the theory set forth in the complaint. On these pleadings, the inference that the

parties colluded together to raise IV saline solution prices by coordinating product recalls is quite

implausible.15

15 Plaintiffs, in asserting that the defendants unlawfully colluded, also point to the ways in

which Baxter and Hospira used the saline shortage. Specifically, plaintiffs maintain that Baxter

and Hospira both pressured customers to purchase other products in conjunction with their IV

saline purchases in exchange for discounts on saline. Although tying arrangements often run

afoul of the antitrust laws, plaintiffs concede that they are not pursuing standalone tying claims

against either defendant. Resp. at 24. The plaintiffs instead posit that the defendants’ conduct is

merely another factor that points toward coordination. But there is no basis to draw that

inference. At best, plaintiffs’ allegations bespeak efforts by the defendants to use the shortage to

bolster other areas of their business. The complaint contains no facts suggesting that these efforts

were the product of an agreement, and not the result of independent strategies designed to

expand defendants’ business relationships.

B. Plus Factors

Plaintiffs also identify “plus factors” that, they say, push their claim into the realm of

plausibility. Defendants counter that plausible allegations of parallel conduct are required to state

a Section 1 claim in the absence of direct evidence. In defendants’ view, because the complaint

does not plausibly allege parallel conduct, the Court need not even consider the additional factors

the plaintiffs argue render their theory plausible. In that, the defendants are mistaken. The

plaintiffs’ only burden at the pleadings stage is to “allege facts from which the Court can

plausibly infer that the defendants had a conscious commitment to a common scheme designed

to achieve an unlawful objective.” In re Broiler Chicken Antitrust Litig., 290 F. Supp. 3d 772,

789 (N.D. Ill. 2017). “That is, the circumstances of the case must reveal a unity of purpose or a

common design and understanding, or a meeting of the minds in an unlawful arrangement.” Id.

Parallel conduct is but one of many varieties of circumstantial evidence plaintiffs can employ to

state a claim. See, e.g., Hogan v. Cleveland Ave Restaurant Inc., No. 2:15-CV-2883, 2018 WL

1475398, at *4 (S.D. Ohio Mar. 26, 2018) (“Plaintiffs are not required to show parallel conduct;

it is merely a vehicle . . . that can be used to show circumstantial evidence of a conspiracy.”).

Ultimately, however, whether plaintiffs are required to plead plausible parallel conduct

does not matter: Even if the plaintiffs’ allegations sufficed to establish a strong inference of

parallel conduct (and, as discussed above, it does not), the complaint would still fall short

because the “plus factors” the plaintiffs identify do not make the inference of an express

agreement between Baxter and Hospira any more plausible. The “plus factors” the plaintiffs

identify—industry structure, trade association membership, and Baxter’s settlement of an

unrelated price-fixing law suit—are no more probative of an express agreement between the

defendants than are the plaintiffs’ allegations of parallel conduct. While consistent with the

possibility of collusion, they do not provide factual support that makes a finding of collusion

plausible rather than merely possible.

The plaintiffs’ arguments about “plus factors” rely heavily on the Seventh Circuit’s

application of Twombly in Text Messaging I, where the court addressed the adequacy of price-

fixing allegations that included “a mixture of parallel behaviors, details of industry structure, and

industry practices[] that facilitate collusion.” Id. at 627. Like the IV saline industry, the text

messaging industry was highly concentrated, with the four defendants to the suit providing 90%

of all U.S. text messaging services. Id. at 628. The text messaging service providers attended

trade meetings where they directly exchanged price information and participated in an

organization whose “stated mission was to urge its members to substitute ‘co-opetition’ for

competition.” Id. Each of the service providers simultaneously shifted their heterogeneous and

complex price structures to a uniform price structure featuring a one third increase in prices. Id.

The price increases coincided with steadily falling costs. Id. The court concluded that, taken

together, these facts constituted “parallel plus” allegations sufficient to survive a motion to

dismiss. Id.

Although this case bears some resemblance to Text Messaging I (the IV saline industry is

also highly concentrated, the product at issue is homogenous, and demand is inelastic), we know

from Twombly and its progeny that industry structure alone cannot get the complaint across the

finish line. If the complaint’s allegations must render it more than merely possible that the

defendants entered into an illegal agreement, it cannot be the case that allegations that a market

is oligopolistic and a product is homogeneous are sufficient to survive a motion to dismiss. If

that were so, an antitrust complaint targeting any industry with those features would survive a

motion to dismiss regardless of whether there were any additional facts suggesting an agreement.

Hence, while market structure can provide some evidence of an unlawful agreement, it (even

combined with parallel conduct) cannot sustain plaintiffs’ complaint all on its own. See High

Fructose Corn Syrup, 295 F.3d at 661 (“There is evidence both that the HFCS market has a

structure that is auspicious for price fixing and that during the period of the alleged conspiracy

the defendants avoided or at least limited price competition. But . . . all of this evidence is

consistent with the hypothesis that they had a merely tacit agreement.”).

The second purported “plus factor” that plaintiffs identify is Baxter’s alleged history of

anticompetitive conduct. The complaint alleges that Baxter previously settled antitrust claims

against it for price fixing in the blood plasma derivatives market. CAC ¶ 131. The plaintiffs in

the previous case alleged that Baxter signaled output restrictions at meetings called by the FDA.

Id. at ¶ 132. Although this information is of questionable admissibility, see High Fructose Corn

Syrup, 295 F.3d at 664 (corporate defendant’s “previous misconduct cannot be used as evidence

that it participated in a [different] conspiracy” to fix prices), even if considered now, at the

motion to dismiss stage, evidence that Baxter’s settled a prior price-fixing claim adds nothing to

the plausibility of the claim in this case. The plaintiffs allege no admissions by Baxter in the

prior suit, so any inference to be drawn that Baxter had engaged in price-fixing in the prior case

would depend on the evidence about that conduct, not on the parties’ mutual agreement to settle

the dispute about that conduct. The minimal facts alleged in the complaint do little more than

invite speculation that Baxter routinely engages in price-fixing because someone else filed a

price-fixing claim relating to an unrelated product. That sort of speculation lends nothing to the

effort to push plaintiff’s theory into the plausibility zone.16

16 After briefing was completed, the plaintiffs asked the Court to take judicial notice of

public records reporting the issuance of a grand jury subpoena by the Antitrust Division of the

Department of Justice to an unnamed employee of Baxter seeking documents and testimony

Text Messaging and this case also feature another “plus factor,” namely, seemingly

anomalous price increases; in both cases, prices rose amid stagnant or falling costs. This

behavior reasonably arouses suspicions, as “falling costs increase a seller’s profit margin at the

existing price, motivating him, in the absence of agreement, to reduce his price slightly in order

to take business from his competitors, and certainly not to increase his price.” Text Messaging,

630 F.3d at 628. But the allegations in this case are qualitatively different from the Text

Messaging I allegations in a key respect: there, not only did the sellers increase their prices, they

also simultaneously shifted from “heterogeneous and complex” pricing structures, to a single,

uniform pricing structure at a heightened price point. Id. Here, by contrast, the complaint does

not identify a simultaneous structural shift suggesting an agreement.

The absence of a structural shift is significant because anomalous price hikes in highly

concentrated industries are often the result of typical, non-conspiratorial market behavior.

“Oligopolies pose a special problem under § 1 because rational, independent actions taken by

oligopolists can be nearly indistinguishable from horizontal price fixing.” Valspar Corp. v. E.I.

Du Pont De Nemours and Co., 873 F.3d 185, 191 (3d Cir. 2017). This is the case because “any

rational decision in an oligopoly must take into account the anticipated reaction of the other

relating to the manufacture, sale, pricing, and shortages of intravenous solutions and containers,

and to a request for similar information from the New York Attorney General’s office. While the

Court takes judicial notice of this information, it does not—contrary to the plaintiffs’ assertion—

enhance the plausibility of the plaintiffs’ claim. The records in question do nothing more than

report the existence of investigations; they include no information or findings concerning

conduct by the defendants. The mere fact that an investigation is being conducted says nothing

about whether unlawful conduct has occurred. Investigations require no minimum predication or

threshold of evidence to begin; indeed, the purpose of an investigation is to determine whether

there is evidence of unlawful conduct; its existence does not therefore signal that there must be

such conduct. The Court therefore accords no weight to the information that is the subject of the

plaintiffs’ request for judicial notice.

firms.” Id. In Valspar, the Third Circuit concisely explained why price increases may occur

notwithstanding falling costs:

“[O]ligopolistic rationality” can cause supracompetitive prices

because it discourages price reductions while encouraging price

increases. A firm is unlikely to lower its price in an effort to win

market share because its competitors will quickly learn of that

reduction and match it, causing the first mover's profits to decline

and a subsequent decline in the overall profits of the industry.

Similarly, if a firm announces a price increase, other market

participants will know that if they do not increase their prices to

the first-mover’s level, the first-mover may be forced to reduce its

price to their level. Because each of the other firms know this, each

will consider whether it is better off when all are charging the old

price or the new one. They will obviously choose the new price

when they believe that it will maximize industry profits.

Id. (alterations and internal quotation marks and citations omitted). Indeed, when Text Messaging

returned to the Seventh Circuit at the summary judgment phase, the court recognized that

“[c]ompetitors in concentrated markets watch each other like hawks,” and discerned several

rational reasons why oligopolists might uniformly raise prices irrespective of costs and without

an unlawful agreement. In re Text Messaging Antitrust Litig. (“Text Messaging II”), 782 F.3d

867, 874-75 (7th Cir. 2015) (describing several rationales that may lead “firms [in an

oligopoly]—without any communication with the [price] leader—to raise their prices”). So, that

Baxter and Hospira both raised prices in the face of falling costs does little to suggest that they

engaged in actual collusion, which is illegal, as opposed to “tacit collusion,” which is not. Id. at

872, 873-74, 879.17

17 Hospira argues that plastic and resin costs are not the only drivers of the cost of an IV

saline bag; specifically, Hospira asserts that the manufacturing and compliance costs required to

meet strict FDA requirements also drive cost. But Hospira does not suggest that these costs

increased in a way that would offset declines in the price of raw materials or would otherwise

explain increases in the price of IV saline. This argument therefore merits little weight.

Unsurprisingly, then, Text Messaging I’s most compelling allegations supporting the

existence of an agreement had little to do with industry structure, and everything to do with

specific suspicious communications among the defendants: the defendants had attended industry

conferences during which they exchanged price information and sought to substitute “co-

opetition” for competition. 630 F.3d at 628. The plaintiffs’ allegations in this case, however, do

not allege any such express vows of cooperation among competitors, and the complaint stops far

short of alleging that these defendants similarly exploited the opportunities for collusion that

industry associations provided. The plaintiffs assert only that the defendants were members of

two of the same organizations, and that those organizations held meetings attended by

defendants. But this is true in virtually every industry; trade organizations are ubiquitous and

serve numerous legitimate and pro-competitive purposes. See In re Musical Instruments and

Equipment Antitrust Litig., 798 F.3d 1186, 1196 (9th Cir. 2015) (“[T]rade associations often

serve legitimate functions, such as providing information to industry members, conducting

research to further the goals of the industry, and promoting demand for products and services.”);

SD3, LLC v. Black & Decker (U.S.) Inc., 801 F.3d 412, 435 (4th Cir. 2015) (concluding that

standard-setting trade organizations can have “decidedly procompetitive effects by encouraging

greater product interoperability generating network effects, and building incentives to innovate”

(internal quotation marks omitted)). Absent additional facts addressing the content of defendants’

discussions at or the (nefarious) subjects of trade organization meetings, allegations that

defendants were members of the same trade organizations are unspectacular and fail to move the

needle.

The “plus factors” the plaintiffs identify here are, therefore, substantially weaker than

those present in Text Messaging I. And the alleged collusive scheme at issue in Text Messaging I

was garden variety price-fixing; here, by contrast, the complaint alleges an implausibly complex

and outlandish scheme to restrict output. This poses a problem for the plaintiffs, as the more

complex the allegations, the more facts are required under Federal Rule of Civil Procedure 8 to

“show how, in the plaintiff’s mind at least, the dots should be connected.” Swanson v. Citibank,

N.A., 614 F.3d 400, 405 (7th Cir. 2010); see also Iqbal, 556 U.S. at 679 (assessing plausibility is

“a context-specific task”). Taking together each of the identified plus factors—market structure,

Baxter’s history, the price of raw materials, and membership in trade organizations—the Court is

unpersuaded that plaintiff’s allegations of conspiracy rise to the level of plausibility. With the

exception of the allegations concerning Baxter’s prior misconduct (which, again, is of dubious

admissibility and probative value) each of the identified plus factors are either equally consistent

with conscious parallelism, or to be expected regardless of whether the defendants unlawfully

colluded. And one (potential) instance of prior misconduct on the part of one of the defendants

does not convert an otherwise implausible conspiracy into a plausible one. The Court therefore

dismisses plaintiffs’ complaint for failure to state a claim.

II. Noerr-Pennington Doctrine

Although the Court dismisses the plaintiffs’ complaint for failure to state a claim, for the

benefit of the parties, it will address the alternative grounds for dismissal posed by defendants.

Baxter argues that the Noerr-Pennington doctrine alternatively bars plaintiffs’ claim. The Noerr-

Pennington doctrine “extends absolute immunity under the antitrust laws to businesses and other

associations when they join together to petition legislative bodies, administrative agencies, or

courts for action that may have anticompetitive effects.” Mercatus Group, LLC v. Lake Forest

Hosp., 641 F.3d 834, 841 (7th Cir. 2011) (internal quotation marks omitted). Baxter contends

that its voluntary recalls and shortage notices were efforts to petition the government to take

certain courses of action, e.g., to stave off potential FDA enforcement actions against the

company’s defective IV saline bags. Plaintiffs respond that defendants’ actions were purely

ministerial and were not undertaken to affect government policy, and alternatively that the

Noerr-Pennington doctrine does not apply because the shortage notices and recalls were shams.

Id. at 842 (recognizing an exception to the Noerr-Pennington doctrine where the petitioning

activity is either a sham lawsuit or a fraudulent misrepresentation).

The Court finds that this issue is ill-suited for resolution on a motion to dismiss. While

Baxter posits in its briefing that its recalls and shortage notices were undertaken for the purpose

of petitioning the government—and not merely to fulfill a legal responsibility—the complaint,

not surprisingly, contains no facts suggesting that was the case. It is possible that some, or even

most, voluntary recalls and shortage notices are undertaken to petition the FDA to take a certain

course of action. But nothing in the complaint indicates that the specific recalls and shortage

notices at issue in this case were issued with that purpose in mind. Immunity is an affirmative

defense, and at the motion to dismiss stage, “dismissal is appropriate only when the factual

allegations in the complaint unambiguously establish all the elements of the defense.” Hyson

USA, Inc. v. Hyson 2U, Ltd., 821 F.3d 935, 940 (7th Cir. 2016). The complaint does not compel

the conclusion that Baxter’s conduct constituted petitioning activity, and it will therefore not be

dismissed on Noerr-Pennington grounds.

III. Antitrust Injury

Baxter also argue that the complaint should be dismissed because it fails to allege an

antitrust injury. An antitrust plaintiff must allege “that her claimed injuries are of the type the

antitrust laws were intended to prevent and reflect the anticompetitive effect of either the

violation of or anticompetitive acts made possible by the violation.” Kochert v. Greater Lafayette

Health Servs., Inc., 463 F.3d 710, 716 (7th Cir. 2006). Baxter argues that the complaint does not

allege antitrust injury because the alleged price increases could have resulted from a shortage

wholly unrelated to collusion. But that position is inconsistent with the allegations of the

complaint. Assuming, for the moment, that the collusive scheme alleged in the complaint was

plausible (it is not), the complaint alleges that as a result of the scheme, “the prices of IV Saline

Solution have been fixed, raised, maintained, or stabilized at artificially inflated levels.” CAC

¶ 142. Accordingly, the complaint alleges that the plaintiffs “paid higher prices for IV Saline

Solution than they would have paid in the absence of” defendants’ unlawful conduct. Paying

higher prices as a result of coordinated output restrictions is a paradigmatic antitrust injury. See

U.S. Gypsum Co. v. Indiana Gas Co., Inc., 350 F.3d 623, 626-627 (7th Cir. 2003) (“A private

plaintiff must show antitrust injury—which is to say, injury by reason of those things that make

the practice unlawful, such as reduced output and higher prices.”). A shortage without collusion

may result in price increases, but the complaint alleges that the defendants’ scheme resulted in

the plaintiffs paying higher prices than they otherwise would have. Consequently, had plaintiffs’

theory of collusion been plausible, plaintiffs would have successfully pled antitrust injury.

* * *

For the foregoing reasons, the consolidated amended complaint is dismissed without

prejudice. Although there is reason to doubt that plaintiffs will be able to successfully replead in

light of the affirmative allegations made in the CAC, which provide ample basis to infer that the

defendants’ recalls were not the product of an unlawful agreement, the plaintiffs should not be

foreclosed from attempting to address the issues identified in this opinion in a second amended

complaint. Their first amendment was predicated not on remedying issues raised in a motion to

dismiss or by the Court, but on the need to consolidate claims of multiple plaintiffs. If the

plaintiffs wish to stand on the adequacy of the CAC, however, they should so advise the Court

and judgment will be entered in accordance with this ruling, thereby permitting the plaintiffs to

appeal if they wish to do so.

Dated: July 5, 2018 John J. Tharp, Jr.

United States District Judge

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