Opposition Brief — Capital Imaging Associates, P. C. v. Mohawk Valley Medical Associates, Inc.

Mevioinic LOT Us

at. Ep

q le OCT -8 1993

No. 93-391 ig

| GFFCE OF THE CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

CAPITAL IMAGING ASSOCIATES, P.C..,

Petitioner,

¥;

MOHAWK VALLEY MEDICAL ASSOCIATES, INC., AND

MOHAWK VALLEY PHYSICIANS’ HEALTH PLAN, INC.,

Respondents.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

RESPONDENTS’ BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

Of Counsel: WILLIAM G. KOPIT

CLIFFORD E. BARNES Counsel of Record

J. EDWARD NEUGEBAUER EPSTEIN BECKER & GREEN, P.C.

ALEXANDER B. BOUTON 1227 25th Street, N.W.

(202) 861-0900

Washington, D.C. 20037

Attorneys for Respondents

WILSON - EPES PRINTING Co.. INC. - 789-0096 - WASHINGTON. D.C. 20001

QUESTION PRESENTED

WHETHER, for purposes of summary judgment, the

Rule of Reason relieves a plaintiff from the requirement

of showing a genuine issue of material fact regarding

actual anticompetitive effects or market power?

TABLE OF CONTENTS

Page

GRIESTION. PIERRE BMD evssiccsiccscteconaee i

TABLE OF AUTHORITIES ........... REET A Oe Vv

~~” STATEMENT OF THE CABS ....0:.2.....0s eee 1

k. Statement of the FEO .......445..4404.2 ee 1

i. Probeedings Belew .........:ncao eee 3

A. Opinion of the District Court ......................... 3

B. Opinion of the Court of Appeals ........0............ 4

SUMMARY OF THE ARGUMENT ......... scialatle teeeiaae 7

ARGUMENT—REASONS FOR DENYING CER-

5 |. aati a es negate sates ecient 9

I. COURTS HAVE CONSISTENTLY APPLIED

THE RULE OF REASON ANALYSIS THAT

PLACES THE INITIAL BURDEN ON THE

PLAINTIFF TO SHOW THAT THE CHAL-

LENGED CONDUCT PRODUCES ADVERSE

EFFECTS ON THE MARKET .......................... 9

A. The Challenged Conduct Has Not Caused

Any Restraints on Output 2... 11

B. The Challenged Conduct Has Not Caused a

SORGTREE GR PP PWOUN a hiiciciccnccecececarere ia 15

C. The Challenged Conduct Has Not Caused a

Restraint on Quanity .........262..2 16

D. Capital Has Failed To Show That the Health

Pian Has Marhet Feeer .....5.. een 17

E. The Burden of Proof Shifts to the Health

Plan Only After Capital Has Shown Anti-

competitive Tr OOe q..o oc cciciecccccncsasscseesene 21

(iii)

ee

iv

TABLE OF CONTENTS—Continued

Page

Il. THE RULE OF REASON IS APPLICABLE

TO BOTH HORIZONTAL AND VERTICAL

fle EVA 5 SR EE ao Since EC 22

Ill. THE CONDUCT CHALLENGED BY CAPI-

TAL IS NOT A NAKED RESTRAINT ............. 24

I mavsnecetisadusbevenwensabsasase 26

— Vv

TABLE OF AUTHORITIES

CASES Page

A-Abart Electric Supply, Inc. v. Emerson Electric

Co., 956 F.2d 1399 (7th Cir.), cert. denied, 113

a iy i RR eee ee 10

Alberta Gas Chemicals, Ltd. v. EI. du Pont de

Nemours & Co., 826 F.2d 1235 (3d Cir. 1987),

cert. denied, 486 U.S. 1059 (1988)... 00000... 13

Arizona v. Maricopa County Medical Society, 457

Tic SD CIE wets crncncasesmsasceomencabenneeada na ema 8, 25

Associated General Contractors v. California State

Council of Carpenters, 459 U.S. 519 (1983) __..... 25

Austin v. McNamara, 979 F.2d 728 (9th Cir.

RONG orissccxctsethasdansekigsncseodeatsamdaceaa eee 22

Ball Memorial Hospital, Inc. v. Mutual Hospital

Insurance, Inc., 784 F.2d 1325 (7th Cir. 1986)... 18

Bhan v. NME Hospitals, Inc., 929 F.2d 1404 (9th

Cir.), cert. denied, 112 S. Ct. 617 (1991) ...........8, 22, 26

Broadcast Music, Inc. v. Columbia Broadcasting

Baatent, Fe. GER Ub. UC TOP cvirccccevvesscccsorececvs 25

pusiness Electronics Corp. v. Sharp Electronics

Cores Ge Sia Fee CRU wicciecndecice oe 7

Capital Imaging Associates, P.C. v. Mohawk Val-

ley Medical Associates, Inc. (“Capital I’), 725

F. Supp. 669 (N.D.N.Y. 1989) ....... we Pal 2,3, 4, 14

Capital Imaging Associates, P.C. v. Mohawk Val-

ley Medical Associates, Inc. (“Capital IT’), 791 -

FP. Gem, SEG CN INT. TOD aecsecetecerencenencs 4, 6, 8,19

Capital Imaging Associates, P.C. v. Mohawk Val-

ley Medical Associates, Inc., 996 F.2d 537 (2d

| Cee: “ntfs Oe ee eee ee passim

Cayman Exploration Corp. v. United Gas Pipe

Line Co., 873 F.2d 1357 (10th Cir. 1989) _......... 11

City of Chanute v. Williams Natural Gas Co., 955

F.2d 641 (10th Cir.), cert. denied, 113 S. Ct. 96

SE hick coo tiadecacuauiedseaslaaiemainca< ioe Oona 13

Coffey v. Healthtrust, Inc., 955 F.2d 1388 (10th

Sa ee eect cee aes ee ee 12, 13, 16

Collins v. Associated Pathologists, Ltd., 844 F.2d

473 (7th Cir.), cert. denied, 488 U.S. 852

(1988) .

vi

TABLE OF AUTHORITIES—Continued

Copy-Data System, Inc. v. Toshiba America, Inc.,

ee en MO UIE ED, UPURE D vcscssccs conccccusicacssteaeceesanciens

Crane & Shovel Sales Corp. v. Bucyrus-Erie Co.,

854 F.2d 802 (6th Cir. 1988) ......000000...... he tes

DeLong Equipment Co. v. Washington Mills Abra-

sive Co., 887 F.2d 1499 (11th Cir. 1989), cert.

Gemind, 494 UB. TOR) CLBBO) occccciceccccsenessccosvecssss0c.

In re Detroit Automobile Dealers Ass’n, 955 F.2d

457 (6th Cir.), cert. denied, 113 S. Ct. 461

| ES TEE Le ea R EE AAC ND i Ee TEE

Eastman Kodak Co. v. Image Technical Services,

SL Ge EE | ne ae 8,

FTC v. Indiana Federation of Dentists, 476 U.S.

RP UID os succinic pcdedndaacaseanes nsession Nndeoen cqeecaeas eis

FTC v. Superior Court Trial Lawyers Association,

ny, WE 0 IE op fies scscavnninmncaseeeaivensaseebiewehs

Ferguson v. Greater Pocatello Chamber of Com-

merce, Inc., 848 F.2d 976 (9th Cir. 1988)

Fishman v. Estate of Wirtz, 807 F.2d 520 (7th

EL? MIND 25 sas cade aatshisenshabeoneeue eacecasethnisinis eae

Flegel v. Christian Hospital Northeast-Northwest,

1993-2 Trade Cas. (CCH) © 70,3855 (8th Cir.

A a SN a oe ;

Futurevision Cable System v. Multivision Cable

TV, 789 F. Supp. 760 (S.D. Miss. 1992), aff'd,

SOS: FBG TALS CBG Civ. DOB) cnecicvocnscceccendsncsn:

Hahn v. Oregon Physrerans’ Services, 868 F.2d

1022 (9th Cir. 1988), cert. denied, 498 U.S. 846

(1989) Peete meee

Harron v. United Hospital Center, Inc., 522 F.2d

1133 (4th Cir. 1975), cert. denied, 424 U.S. 916

(1976) FRAP BR ney PE Ws Pao

Hassan v. Independent Practice Associates, 698 F.

Supp. 679 (E.D. Mich. 1988) ieee

Indiana Grocery, Inc. v. Super Valu Stores, Inc.,

864 F.2d 1409 (7th Cir. 1989) ......0000000

Interface Group, Inc. v. Massachusetts Port Au-

thority, 816 F.2d 9 (ist Cir. 1987) .....................

24

13,17

20

. 12,16

18

10, 22

23

8, 26

11

18, 22

_ 11, 13

11

vii

TABLE OF AUTHORITIES—Continued

Page

International Logistics Group, Ltd. v. Chrysler

Corp., 884 F.2d 904 (6th Cir. 1989), cert. denied,

re Re ee I oot eh 11

Jefferson Parish Hospital District No. 2 v. Hyde,

ee Ses ae CE ete ee passim

L.A. Draper & Son v. Wheelabrator-Frye, Inc., 735

Me GER CERG CG, TOG vocecccecsoeveeccenccsc..-.. 11

Lie v. St. Joseph Hospital, 964 F.2d 567 (6th Cir.

| Se Ie Ren al A ie iS en EM e ey MSA 22

Miller v. Indiana Hospital, 814 F. Supp. 1254 (W.D

Pa.), aff'd, 975 F.2d 1550 (8d Cir. 1992), cert.

dented, 118 8. Ct. 1866 (1998) ............................. 24

NCAA v. Board of Regents of the University, 468

ef Se Be |; Recent Sea ee passim

National Bancard Corp. v. VISA, U.S.A., Inc., 779

F.2d 592 (11th Cir.), cert. denied, 479 U.S. 923

4 RR ee re MD die at RNY wed CE 24

National Society of Professional Engineers v.

United States, 485 U.S. 679 (1978) 7

Northwest Medical Laboratories, Inc. v. Blue Cross

& Blue Shield, Inc., 794 P.2d 428 (Or. 1990) 8, 14, 25

Northwest Wholesale Stationers, Inc. ». Pacific

Stationery & Printing Co., 472 U.S. 284 (1985)... 8, 28

Oksanen v. Page Memorial Hospital, 945 F.2d 696

(4th Cir. 1991), cert. denied, 112 S. Ct. 973

(1992) ARDEA AT MORAL sb SOL Bll 2 ee MIE .10, 21, 22

Oltz v. St. Peter’s Community Hospital, 861 F. 2d

1440 (9th Cir. 1988) . ;

Palmer v. BRG, Inc., 498 US. 46 (1990) RIEL LE IN 7

Reazin v. Blue Crone & Blue Shield, Inc., 899 F.2d

951 (10th Cir.), cert. denied, 497 U.S. 1005

RUA ae a DRAB A On AIRSET 10

Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d

TA IE TI ITED isseescesissdcecceactancanceeccvccdaactanseessscs 12, 16

Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d

BAO Se RU OE ova sense csececscc cdo cecesecvencack ace, 11, 12, 16

Sewell Plastics, Inc. v. Coca-Cola Co., 720 F. Supp.

ED eietatsinceniicrescvieenn WEDS Oars 11

viii

TABLE OF AUTHORITIES—Continued

Page

Smith Machinery Co. v. Hesston Corp., 878 F.2d

1290 (10th Cir. 1989), cert. denied, 493 U.S.

10738 (1990) 0000000000... . 11]

Spectrum Sports, Inc. v. McQuillan, 1138 . Ct. 884

i | Lcaboneetdeiisiessteatenabehiaee a Oiaandtis aissacaaenieed 12

Stamatakis Industries v. King, 965 F.2d 469 (7th

I MMR a sles aacialc tos catianacsecadmucae ase deeuacaioahihes 13

Tampa Electric Co. v. Nashv ille Coal Co., 365 U.S.

| 5 pene COL COR Seen, eae” re 18

United States v. Brown University, 1993-2 Trade

Cas. (CCH) % 70,358 (3d Cir. 1993) _.........8, 9, 10, 22

United States v. Socony-Vacuum Oil Co., 310 U.S.

ee __s Rp aA aT SASS Poe's SOPs ae Neer ARMM Oe 17

United States v. Topco Associates, 405 U.S. 596

(4) 4 [eel Aes dead pevaneaacnesecentonat eesoinamamcasiate 25

U.S. Healthcare, Inc. v. Healthsource, Inc., 986

F.2d 589 (1st Cir. 1993) eepeeats ee

Westman Commission Co. v. Hobart International,

Inc., 796 F.2d 1216 (10th Cir. 1986), cert. denied,

486 U.S. 1005 (1988) ..... KSEE RTI LEA ry EAE RE Se 11

STATUTES

Sherman Act

15 U.S.C. § 1 3

LS 8 whl) Sek tamdaameees Rey ee: 2 See tee 3

MISCEJ UANEOUS

7 Phillip FE. Areeda, Antitrust Law © 1503 (1986) 9

Phillip E. Areeda, The Rule of Reason—A Cate-

chism on Competition, 55 Antitrust L.J. 571

(1986) _.. 10

Frank H. Easterbrook, The Limite of Antitrust,

& Bp Me i: | GR eeerroren 13

Thomas M. Jorde & David J. Teece, Programs from

the 1992 Annual Meeting: The Boundaries of

Horizontal Restraints: Communication and Co-

operation Among Competitors: Rule of Reason

Analysis of Horizontal Arrangements: Agree-

ments Designed to Advance Innovation and Com-

mercialize Technology, 61 Antitrust L.J. 579

ESTEE Nate STIS ARE ec RN RCL SEN I ae OED 21

ee

ix

TABLE OF AUTHORITIES—Continued

Thomas E. Kauper, The Role of Quality of Health

Care Considerations in Antitrust Analysis, 51

L. & Contemp. Probs. 273 (1988) ....................

2 i. Kintner, Federal Antitrust Law § 9.2 (1980)..

William H. Page, The Scope of Liability for Anti-

trust Violations, 37 Stan. L. Rev. 1445 (1985)....

Edward A. Snyder & Thomas E. Kauper, Misuse

of the Antitrust Laws: The Competitor Plain-

tiff, 90 Mich. L. Rev. 551 (1991) _......... Adds

FTC Staff Advisory Opinion (Mar. 26, 1984) ......

Letter from Jeffrey Zuckerman, Director of the

Bureau of Competition, FTC, to David Gates

Dea i) cal ir

46 Fed. Reg. 48,982 (1981) (FTC Policy State-

ment on Physician Agreements to Control Medi-

om rrepereent Pisee) ....................... so...

S. 724-C, 216th Leg. (approved July 28, 1993)

(McKinney’s Session Laws of New York 1993)

Page

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

No. 93-391

CAPITAL IMAGING ASSOCIATES, P.C.,

. Petitioner,

MOHAWK ‘ALLEY MEDICAL ASSOCIATES, INC., AND

MOHAWK VALLEY PHYSICIANS’ HEALTH PLAN, INC.,

Respondents.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

RESPONDENTS’ BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

STATEMENT OF THE CASE

I. Statement of the Facts

Respondent, Mohawk Valley Medical Associates, Inc.

(“MVMA”), is an independent practice association

(“IPA”) of member physicians organized to provide

medical care to enrollees of Mohawk Valley Physicians’

Health Plan, Inc. (“MVP” or the “Plan”). Joint Ap-

pendix (“J.A.”) at A-253. MVMA and MVP together

constitute a joint venture’ operating as an IPA-model

‘It is an uncontroverted fact that MVMA and MVP together

constitute a joint venture. Petition at 2.

2

health maintenance organization (“HMO”).° /d. MVP

is licensed as an HMO in the State of New York. J.A.

at A-37.

Petitioner, Capital Imaging Associates, P.C. (“Capi-

tal”), is a private practice radiology group located in

Albany County, New York. Capital offers a full range

of diagnostic imaging services (including magnetic reso-

nance imaging (“MRI”) services) in an extensive region.

J.A. at A-253.

In order for an entity to operate as an HMO in New

York, it must apply to the New York State Department

of Health for a Certificate of Authority. As part of its

regulatory authority, the Department approves the service

area within which an HMO can provide services. J.A. at

A-258. MYVMA and MVP (together referred to as the

“Health Plan”) have never been certified to provide serv-

ices in Albany County. J.A. at A-258-59.

MVMA’s membership procedures require that in order

to be a member of MVMA. a physician must provide

medical services in an office within the IPA’s service area,

and have staff privileges in hospitals participating with

—=——~_ MVP. J.A. at A-71.* Capital sought membership in the

IPA although its offices were located outside the Health

Plan’s service area. J.A. at A-89. Capital’s request was

denied by the MVMA, and Capital was informed at that

time that the denial of membership was due to not having

an office in the service area. J.A. at A-359.

2“One of the essential features of an HMO is that it selects

preferred physicians and excludes others thereby creating com-

petition among the providers of health care services.” Capital

Imaging Assocs., P.C. v. Mohawk Valley Medical Assocs., (“Capital

I”), 725 F. Supp. 669, 673 (N.D.N.Y. 1989).

3 Physicians who have an office within the service area but who

do not have admitting privileges at participating hospitals may,

nevertheless, obtain membership if they submit additional informa-

tion concerning hospital coverage. J.A. at A-71.

ee Y

3

MVMA has made exceptions to the requirement that

a physician participating in MVMA have an office in

the service area when there is a need jor the type of

additional physicians requesting membership. J.A. at

A-27. However, at the time Capital sought membership,

there was no need for additional radiologists. J.A. at

A-89.

II. Proceedings Below

A. Opinion of the District Court

Capital initiated this antitrust action in December of

1988, alleging violations of Section 1 and Section 2 of

the Sherman Act, 15 U.S.C. §$ 1, 2. Capital’s Section 2

claim was that MVMA and MVP had attempted to mo-

nopolize “the sale and use of diagnostic imaging equip-

ment in the United States.” J.A. at A-11 (emphasis

added). The district court dismissed this claim pursuant

to Rule 12(b)(6) of the Federal Rules of Civil Proce-

dure, and held that

[njot only is there no dangerous probability that de-

fendants will succeed in monopolizing the markets

identified by plaintiff [i.c., the United States and the

market for referrals to private diagnostic radiology

centers in the Albany area], there is no present possi-

bility defendants will do so.

Capital I, 725 F. Supp. at 678 (emphasis in original).

Capital did not press this claim on appeal.

Capital’s alternate theory, under Section 1 of the Sher-

man Act. was that MVMA and MVP, along with Two

Rivers Radiology, P.C. (“Two Rivers”), a group of radi-

ologists in competition with Capital, conspired to exclude

Capital from providing services to MVMA and MVP.

Although the district court found that Capital had failed

to establish any tmpact on “competitive conditions [re-

sulting from the Health Plan’s conduct] sufficient to de-

feat a motion for summary judgment,” the court granted

4

Capital discovery under Rule 56(f) of the Federal Rules

of Civil Procedure. /d. at 679.

After over two years of discovery, Capital remained

unable to show that the Health Plan’s actions constituted

an unreasonable restraint of trade. Specifically, the court

held that there was no agreement between MVMA and

Two Rivers. The court also heid that Capital failed to

show either actual injury to competition or that the Health

Plan had market power sufficient to create an inference

of injury to competition. In granting the Health Plan’s

motion for summary judgment, the district court held that

Capital has come forward with no proof that defend-

ants have the ability to increase prices or decrease

output in the market—either of which would consti-

tute actual detrimental effects sufficient to demon-

strate that the defendants possess market power. Ac-

cordingly, the court concludes that Capital has failed

to meet its burden with respect to this essential ele-

ment of its claim that defendants’ actions constitute

an unreasonable restraint of trade.

Capital Imaging Assocs., P.C. v. Mohawk Valley Medical

Assocs., Inc., (“Capital IT’), 791 F. Supp. 956, 967

(N.D.N.Y. 1992).

B. Opinion of the Court of Appeals

Capital appealed the summary judgment of its Section

1 claim, arguing, for the first time, that MVMA, an

organization of physicians, was a walking conspiracy.

Although the court of appeals determined that Capital

had presented sufficient evidence with respect to its new

argument that the conduct of the physicians who con-

trolled MVMA constituted a conspiracy, the court never-

theless affirmed the district court’s grant of summary judg-

ment.* Specifically, the court of appeals held that Capital

4 Capital introduced this new conspiracy claim on appeal. Initially,

Capita: claimed a conspiracy between MVMA and MVP. For the

=

had failed to show that the Health Plan’s conduct consti-

tuted an unreasonable restraint of trade.’ In so holding,

the court of appeals stated that

Capital’s position is simply that it has been harmed

as an individual competitor. It has not shown that

defendants’ activities have had any adverse impact

on price, quality, or output of medical services of-

fered to consumers in the relevant market.

Capital Imaging Assocs., P.C. v. Mohawk Valley Medical

Assocs., Inc., 996 F.2d 537, 547 (2d Cir. 1993). The

Court elaborated on Capital’s failure to meet its burden

of showing any adverse impact on competition stating that

Capital concedes in its brief that whether or not it

is admitted into the physicians’ association, the fee

for radiological services would remain the same. In

addition, Capital failed to adduce significant evidence

that its exclusion has, in fact, resulted in any de-

crease in the quality of radiology services to the

HMO’s patients. Therefore. Capital has not made

an adequate shawing of detrimental effects to obviate

the need to show that appellees possess market power

sufficient to stifle competition.

Id. at 546.

Because the court of appeals went on to endorse the

district court’s conclusion that neither MVMA nor MVP

first time on appeal, Capital claimed that “the actions of one of

the defendants constituted a conspiracy in and of itself. The ac-

tions of the [MVMA] Board in excluding Capital from member-

ship satisfies the requirement of concerted action.” Brief of Plain-

tiff-Appellant at 43. See Brief of Defendant-Appellees at 20-22.

5 Capital continuously cites to the text of the Second Circuit’s

opinion regarding the evidence of the conspiracy. However, the

court of appeals’ affirmance of the district court assumed, argu-

endo, that sufficient evidence of an agreeemnt did exist. Thus, the

conspiracy discussion should not be confused with the lack of

proof of market power or anticompetitive effects.

6

possessed market power, it affirmed the district court’s

judgment. Indeed, the court of appeals correctly deter-

mined that MVMA and MVP had a “de minimis market

share” based upon Capital’s own definition of the relevant

geographic market—-the area lying within 100 miles of

Albany. New York——and its definition of the relevant

product market—radiological services. 996 F.2d at 547

(emphasis in original).

The court of appeals’ conclusion that MVA and MVMA

lacked the power to injure competition or force consum-

ers to accept higher premiums or lower quality medical

care was based upon uncontroverted evidence. /d. That

evidence reveals that within the geographic market de-

fined by Capital, the Health Plan’s enrollees represent

2.3% of HMO enrollees and 1.15% of the total patient

population.” and that the Health Plan contracted with

only 6.75% of the physicians.‘

Just as it attempts to redefine the geographic market

in its current Petition, Capital attempted, on appeal, to

avoid the consequences of a devagaatingly small market

share by arguing (for the first time on appeal) that the

relevant geographic market was a new, undefined smaller

geographic market within the 100-mile radius of Albany—

what Capital now refers to as the 14 counties in which

® Within the geographic market defined by Capital, there are 54

HMOs with 4,196,806 enrollees. The Health Plan’s total enroll-

ment is 100,500.

7 Capital refers to a percentage of physicians in a limited geo-

graphic area which have contracted with MVMA. Capital sub-

mitted similar figures to the district court which concluded that

“on closer examination it becomes evident that these figures account

for only a very smal! percentage of the consumers and the services

at issue in the relevant antitrust market.” Capital JI, 791 F. Supp.

at 966. The court concluded that the Health Plan’s market data,

which was not disputed by Capital, more accurately reflected the

relevant market.

BEST AVAILABLE COPY

7

MVP operates.” However, the court of appeals correctly

determined that-“|[t]his new market definition was not

presented to the trial court and comes too late for our

consideration.” Capital Imaging, 996 F.2d at 547.

SUMMARY OF THE ARGUMENT

This Court and the lower federal courts have routinely

held that a plaintiff in a “rule of reason” case under Sec-

tion | of the Sherman Act must present proof that the

defendant possesses market power or has caused anticom-

petitive effects in the relevant market in order to avoid

Summary Judgment. In this case, Capital now asks the

Court to grant certiorari in order to change that standard.

Capital’s request should be denied.

The Circuits agree that the rule of reason analysis is

applicable to all conduct except for a limited category

of “naked restraints” which are considered per se illegal.

Per se rules are invoked when surrounding circum-

stances make the likelihood of anticompetitive con-

duct so great as to render unjustified further exami-

nation of the challenged conduct.”

*It should be noted that, throughout this case, Capital has re-

peatedly attempted to redefine the relevant geographic market

which, at the outset, it defined to be the “United States.” J.A. at

A-11. In the district court, Capital realized its blunder and re-

defined the relevant geographic market as the area lying within a

100-mile radius of Albany, New York. Capital Imaging, 996 F.2d

at 547. Then, on appeal, Capital once again attempted to further

redefine the relevant geographic market as a smaller area lying

somewhere within a 100-mile radius of Albany. /d.

® See National Soc’y of Prof. Eng’rs v. United States, 435 U.S.

679, 692 (1978) (agreements are per se illegal only if their “nature

and necessary effect are so plainly anticompetitive that no elab-

orate study of the industry is needed to establish their illegality’).

See also Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717,

723-24 (1988). Such practices include: agreements among competi-

tors to allocate territories to minimize competition, Palmer v. BRG,

Inc., 498 U.S. 46, 48 (1990); price-fixing among competitors,

FTC v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411, 423

ESSE

8

NCAA v. Board of Regents of the Univ., 468 U.S. 85,

103-104 (1984).

Courts have uniformly held that HMO activities are

governed by the rule of reason rather than the per se rule

because HMOs plainly increase competition in health care

markets. See, e.g., Arizona v. Maricopa County Medical

Soc’y, 457 U.S. 332, 339 n.7 (1982); Northwest Medical

Labs., Inc. v. Blue Cross & Blue Shield, Inc., 794 P.2d

429 (Or. 1990); Hahn v. Oregon Physicians’ Servs., 868

F.2d 1022, 1029 n.5 (9th Cir. 1988), cert. denied, 493

U.S. 846 (1989); Hassan v. Independent Practice

Assocs., 698 F. Supp. 679, 688-90 (E.D. Mich. 1988).

As the district court correctly observed, HMOs need to

exclude physicians in order to achieve their procompeti-

tive goals. Capital II, 791 F. Supp. at 963. Indeed, if

HMOs were required to accept all physicians, they would

not be able to obtain lower physician prices in return for

providing the participating physicians increased patient

volume.’ The Second Circuit correctly applied that

analysis to the facts of this case.

Under the rule of reason, the initial burden is on the

plaintiff to introduce evidence that the challenged conduct

causes anticompetitive effects in the marketplace. Then

and only then does the burden shift to the defendant to es-

tablish a procompetitive justification for the conduct. See,

e.g., United States v. Brown University, 1993-2 Trade

Cas. (CCH) € 70,358 (3d Cir. 1993); Bhan, 929 F.2d

(1990); a tying arrangement by a seller with appreciable eco-

nomic power, Eastman Kodak Co. v. Image Technical Servs., Inc.,

112 S. Ct. 2072, 2079 (1992); and group boycotts by market par-

ticipants that possess market power or unique access to a business

element necessary for effective competition, Northwest Wholesale

Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284,

298 (1985).

10 The logical result of Capital’s argument that Capital’s exclu-

sion from the Health Plan causes anticompetitive effects in the

marketplace, is to require an HMO to accept any physician who

applies, wherever located.

———aEEoEoEeEeEeEeEeEeEeEeEeEeE————

9

at 1413; 7 Phillip E. Areeda, Antitrust Law © 1502, at

371 (1986).

Capital wants this Court to fashion a new analysis that

would turn the rule of reason on its head, by placing the

burden on MVMA and MVP to justify their conduct

before Capital has introduced any evidence that such

conduct could create harm to competition. This new

analysis, designed to protect Capital’s profits, would not

require evidence that competition and consumer welfarc

be adversely affected. Certiorari should be denied be-

cause Capital’s injury is not one the antitrust laws were

designed to protect.

ARGUMENT—REASONS FOR DENYING CERTIORARI

I. COURTS HAVE CONSISTENTLY APPLIED THE

RULE OF REASON ANALYSIS THAT PLACES

THE INITIAL BURDEN ON THE PLAINTIFF TO

SHOW THAT THE CHALLENGED CONDUCT PRO-

DUCES ADVERSE EFFECTS ON THE MARKET

The Third Circuit recently articulated the analysis con-

sistently used by courts in determining whether a restraint

is unreasonable under the rule of reason."

The plaintiff bears an initial burden under the rule

of reason of showing that the alleged combination or

agreement produced adverse, anticompetitive effects

within the relevant product and geographic markets.

Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715,

722 (3d Cir. 1991), cert. denied, 112 S. Ct. 3034

(1992); Cernuto, Inc. v. United Cabinet Corp., 595

F.2d 164, 166 (3d Cir. 1979). The plaintiff may

satisfy this burden by proving the existence of actual

anticompetitive effects, such as reduction of output,

see FTC v. Indiana Federation of Dentists, 476 U.S.

11 The facts of the Brown University case, 1993-2 Trade Cas.

(CCH) 70,358, involve a horizontal conspiracy challenged under

Section 1 of the Sherman Act. The Third Circuit concluded that

the district court should have applied the rule of reason analysis to

the case.

10

447, 460-61, 106 S. Ct. 2009, 2019 (1986), in-

crease in price, or deterioration in quality of goods

or services, see Tunis Bros., 952 F.2d at 728. Such

proof is often impossible to make, however, due to

the difliculty of isolating the market effects of chal-

lenged conduct. 7 P. Areeda, Antitrust Law © 1503,

at 376 (1986). Accordingly, courts typically allow

proof of the defendant’s “market power” instead.

Tunis Bros., 952 F.2d at 727; see NCAA v. Board

of Regents of the Univ. of Oklahoma, 468 U.S. 85,

110, 104 S. Ct. 2948, 2965 (1984). Market power,

the ability to raise prices above those that would

prevail in a competitive market, Jefferson Parish

Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 27 n.46, 104

S. Ct. 1551, 1556 n.46 (1984), is essentially a “sur-

rogate for detrimental effects.” /ndiana Dentists, 476

U.S. at 460-61, 106 S. Ct. at 2019 (quoting 7 P.

Areeda, supra © 1511, at 429).

Brown University, © 70,358, at 70,889.’* This analysis

is widely accepted by the other circuits,’’ including the

Second Circuit which adopted the same standard in this

case. See Capital Imaging, 996 F.2d at 543.

12 See also Phillip E. Areeda, The Rule of Reason—A Catechism

on Competition, 55 Antitrust L.J. 571, 581-582 (1986).

[Tlhe plaintiff must show that the defendant has engaged

in a type of activity that can restrain trade significantly.

That is, he must show that the challenged restraint is of 4

kind that can impair consumer welfare, and that the impair-

ment is likely to be significant, by demonstrating either the

effects of the restraint or the defendant’s market power.

13 Flegel v. Christian Hosp. Northeast-Northwest, 1993-2 Trade

Cas. (CCH) 70,355, at 70,867-68 (8th Cir. 1993); U.S. Health-

care, Inc. v. Healthsource, Inc., 986 F.2d 589, 595-96 (1st Cir.

1993); A-Abart Elec. Supply, Inc. v. Emerson Elec. Co., 956 F.2d

1399 (7th Cir.), cert. denied, 113 S. Ct. 194 (1992); Oksanen v.

Page Memorial Hosp., 945 F.2d 696, 709 (4th Cir. 1991), cert.

denied, 112 S. Ct. 973 (1992); Reazin v. Blue Cross & Blue Shield,

Inc., 899 F.2d 951 (10th Cir.), cert. denied, 497 U.S. 1005 (1990);

Oltz v. St. Peter’s Community Hosp., 861 F.2d 1440, 1445 (9th Cir.

1988).

1]

A valid Section | claim is limited to activities having

an adverse impact on the output, quality, or price of

goods and services offered to consumers; those activities

which have no such effects do not violate Section 1, and

should not be restricted. NCAA, 468 U.S. at 106-108;

Jefferson Parish, 466 U.S. at 31 n.52;** Cayman Explora-

tion Corp. v. United Gas Pipe Line Co., 873 F.2d 1357,

1360 (10th Cir. 1989); Smith Mach. Co. v. Hesston

Corp., 878 F.2d 1290, 1295-96 (10th Cir. 1989), cert.

denied, 493 U.S. 1073 (1990); Interface Group, Inc. v.

Massachusetts Port Auth., 816 F.2d 9, 10 (Ist Cir.

1987); Westman Comm'n Co. v. Hobart Int'l, Inc., 796

F.2d 1216, 1220 (10th Cir. 1986), cert. denied, 486 U.S.

1005 (1988): Sewell Plastics, Inc. v. Coca-Cola Co., 720

F. Supp. 1186, 1218 (1988).’° Capital’s unsupported

assertions and ever-changing arguments about the way in

which the Health Plan’s conduct has had a negative im-

pact on competition must be rejected.

A. The Challenged Conduct Has Not Caused Any

Restraints on Output

Capital has failed to demonstrate that the Health Plan’s

conduct has had an effect on output in the health care

4 Capital takes exception to the court of appeals’ citation of

Jefferson Parish. However, in this instance, it is not relevant

that Jefferson Parish involves a vertical restraint because the

proposition in Jefferson Parish that “|wlithout a showing of

actual adverse effect on competition, [a plaintiff] cannot make out

a case under the antitrust laws... .” 466 U.S. at 31 (quoted

by the court of appeals, 996 F.2d at 547), is equally applicable to

horizontal restraints, such as that alleged in the present case.

15 Mere competitive advantage or unfair conduct by itself is

insufficient to show anticompetitive effect. Seagood Trading Corp.

v. Jerrico, Inc., 924 F.2d 1555, 1573 (11th Cir. 1991); International

Logistics Group, Ltd. v. Chrysler Corp., 884 F.2d 904, 909 (6th

Cir. 1989), cert. denied, 494 U.S. 1066 (1990); Indiana Grocery,

Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1413 (7th Cir. 1989) ;

L.A. Draper & Son v. Wheelabrator-Frye, Inc., 735 F.2d 414, 421

(11th Cir. 1984); Harron v. United Hosp. Ctr., Inc., 522 F.2d 1133

(4th Cir. 1975), cert. denied, 424 U.S. 916 (1976).

12

financing, radiology services, or referral markets. The

mere exclusion of Capital is not, in any way, a reduction

in output in the noted markets. Indeed, consumers neces-

sarily limit their “choice” of health service providers by

electing to participate in a managed care plan. Con-

sumers unhappy with the provider choices available in

one plan may switch to other managed care plans or

other types of health care financing. It is the availability

of that choice—selecting from among competing health

plans—which the antitrust laws are designed to protect.

Both the lower federal courts and this Court have unani-

mously agreed that conduct which affects only the party

challenging the conduct is not “unreasonable” under Sec-

tion | of the Sherman Act.” As this Court has recently

Stated

[t]he purpose of the [Sherman] Act is not to protect

businesses from the working of the market: it is to

protect the public from the failure of the market.

Spectrum Sports, Inc. v. McQuillan, 113 S. Ct. 884, 891-

92 (1993).

Capital has established only that it has been precluded

from participating in MVMA. While this may adversely

16“'T|]njury to the antitrust plaintiff alone is not sufficient

to prove injury to compétition.” Ferguson v. Greater Pocatello

Chamber of Commerce, Inc., 848 F.2d 976, 982 (9th Cir. 1988);

A simple reshuffling of competitors has no effect on competition.

Coffey v. Healthtrust, Inc., 955 F.2d 1388, 1393 (10th Cir. 1992);

A mere competitive advantage, by itself, is insufficient to demon-

strate anticompetitive effects. Seagood, 924 F.2d at 1573; The

antitrust laws are not designed to guarantee every competitor

tenure ii. the marketplace. Rutman Wine Co. v. E. & J. Galio

Winery, 829 F.2d 729, 735 (9th Cir. 1987); Exclusion of a single

supplier is not enough to establish harm to competition. Crane &

Shovel Sales Corp. v. Bucyrus-Erie Co., 854 F.2d 802, 810 (6th

Cir. 1988); The antitrust laws were enacted for the protection

of competition, not competitors. Copy-Data Sys., Inc. v. Toshiba

Am., Inc., 663 F.2d 405, 410 (2d Cir. 1981); Without a showing

of actual adverse effect on competition a plaintiff cannot make out

a case under the antitrust laws. Jefferson Parish, 466 U.S. at 31.

13

affect Capital, it hardly amounts to a reduction in output.

See City of Chanute v. Williams Natural Gas Co., 955

F.2d 641, 652 (10th Cir.), cert. denied, 113 S. Ct. 96

(1992). From the perspective of consumers, the only

effect is that one radiolegy supplier has been substituted

for another. Yet, the mere reshuffling of suppliers does

not violate the antitrust laws.'7 Coffey v. Healthtrust,

Inc., 955 F.2d 1388, 1393 (10th Cir. 1992),

Significantly, consumers have numerous choices of

health plans. Indeed, approximately 53 HMOs, and nu-

merous other indemnity insurers compete with MVP. If

consumers are dissatisfied with a plan, they may simply

select another. Unlike purchasers of Kodak copiers who

were “locked in” to Kodak parts and services because

of heavy capital investment, members of various health

plans make no capital investment in those health plans.

Eastman Kodak Co. v. Image Technical Servs. Inc., 112

'7 Antitrust actions brought by competitors deserve close scru-

tiny by the courts. Indiana Grocery, 864 F.2d at 1419; Alberta

Gas Chems., Ltd. v. E.1. du Pont de Nemours & Co., 826 F.2d 1235,

1239 (3d Cir. 1987), cert. denied, 486 U.S. 1059 (1988). As one

commentator has stated “{w]hen a business rival] brings suit,

it is often safe to infer that the [challenged] arrangement is bene-

ficial to consumers.” Frank H. Easterbrook, The Limits of Anti-

trust, 63 Texas L. Rev. 11 (1984). See also Edward A. Snyder

& Thomas E. Kauper, Misuse of the Antitrust Laws: The Com-

petitor Plaintiff, 90 Mich. L. Rev. 551 (1991) (Concluding that

antitrust suits by competitor plaintiffs are not successful and for

good reason); William H. Page, The Scope of Liability for Anti-

trust Violations, 37 Stan. L. Rev. 1445. 1479-1480 (1985) (In

most cases, the exclusion of a supplier merely substitutes the in-

jured firm’s output for that of another or prevents such a sub-

stitution with no effect on total output in the market). Thus,

Capital’s assertion that it has lost business as a result of the

challenged conduct “is no concern of the antitrust laws, which

protect consumers from suppliers rather than suppliers from each

other ... . ‘Competition is ruthless, unprincipled, uncharitable,

unforgiving—and a boon to society, Adam Smith reminds us, pre-

cisely because of these qualities that make it a bane to other pro-

ducers.’”’ Stamatakis Indus. v. King, 965 F.2d 469, 471 (7th Cir.

1992) (citation omitted).

14

S. Ct. 2072, 2086 (1992). When consumers are dis-

satisfied for whatever reason—including price or quality—

they can, and do, switch to other health plans during

every Open season.””

Limiting the size of provider panels is an important

aspect of managed care plans like MVP.”” Indeed, “[o]ne

of the essential features of an HMO [or other managed

care plan] is that it selects preferred physicians [suppliers]

and excludes others thereby creating competition among

the providers of health care services.” Capital I, 725 F.

Supp. at 673. See Northwest Medical, 794 P.2d 428 (dis-

cussing the role of the HMO concept in fostering com-

petition in health care financing markets). By contract-

ing with only a limited number of physicians and _hos-

pitals, HMOs and other managed care plans actually en-

courage competition in the physician services market.”

Antitrust enforcement agencies also consider the ex-

clusion of providers (i.e., suppliers) from HMOs and

other managed care delivery systems to be procompcti-

1’ Referral patterns by physicians not attributable to the con-

tractual arrangements or market power of the Health Plan are

market imperfections which do not give rise to antitrust liability.

See Jefferson Parish, 466 U.S. at 26-27. The Court stated that

“lwlhile these factors may generate ‘market power’ in some ab-

stract sense, they do not generate the kind of market power that

justifies condemnation of [the conduct alleged to have violated the

antitrust law].” Jd. at 27.

'Y In fact, until recently, New York HMO Law required HMOs to

arrange for “out-of-plan” services through a separate insurance

company. See §. 724-C, 216th Leg. (approved July 28, 1993)

(McKinney’s Session Laws of New York 1993). Therefore, the

“restraint” on consumers alleged by Capital due to the fact that

MVP subscribers cannot seek radiology services from non-

participating physicians is unrelated to the joint venture entered

into by MVP or MVMA.

20TIn contrast to IPA-HMOs that contract with physician or-

ganizations (called IPAs), staff model HMOs employ physicians

who deliver services in the central facility. Group model HMOs

contract with clinics or medical groups. J.A. at A-24.

15

tive. For example, the Federal Trade Commission

(“FTC”) has determined that “exclusive arrangements

between HMOs and their participating (providers)

are likely to benefit consumers by stimulating competition

among medical prepayment plans and_ physicians.” *!

Notwithstanding these procompetitive benefits, Capital

seeks to challenge an HMO’s ability to freely select, or

refuse to deal with, physicians, or groups of physicians.

B. The Challenged Conduct Has Not Caused a Re-

straint on Prices

Capital’s exclusion from the IPA has not had and will

not have any adverse effect on price. As indicated by the

Second Circuit, Capital has admitted that its inclusion in

the IPA would not affect the price of radiology services.

Capital Imaging, 996 F.2d at 546. Indeed, Capital does

not claim that its exclusion from the Health Plan in any

way impacted price. “Capital has never offered any evi-

dence of increased prices.” Petition at 7 n.6.”

*1 Letter from Jeffrey Zuckerman, Director of the Bureau of

Competition, FTC, to David Gates (Nov. 5, 1986). Of course, ex-

clusive contracts may have anticompetitive effects where a large

percentage of suppliers are prevented from doing business with

competing plans. Where competitors are deprived of an essential

source of supply, antitrust violations may be present. However,

no such problem exists in this case. As the FTC has stated in its

policy statement “fa]ntitrust concern would ... also arise if a

partially integrated plan required its participating [providers]

to sign contracts that effectively barred them from participating

in any other prepayment plan, and so many [providers] were

signed up that it was difficult for other plans to recruit a sufficient

. panel.” FTC Policy Statement on Physician Agreements to

Control Medical Prepayment Plans, 46 Fed. Reg. 48,982, 48,991

(1981). Here, Capital makes no such allegation or claim.

2° Indeed, at one time, the Health Plan needed radiologists to

provide MRI services to Health Plan subscribers and, therefore,

accepted bids to provide such services. J.A. at A-249. Capital sub-

mitted a bid to provide MRI services at $550 per procedure. How-

ever, the Health Plan entered into a contract with Two Rivers to

provide MRI services at $510 per procedure. /d.

16

C. The Challenged Conduct Has Not Caused a Re-

straint on Quality

Capital also has failed to demonstrate any adverse ef-

fect on quality of services provided to consumers due to

Capital’s exclusion from the Health Plan.’ Indeed, Cap-

ital asserts in its Petition “that effects on quality of pro-

fessional services are [not] capable of precise measure-

ment.” Petition at 7 n.6. Thus, as the court of appeals

correctly stated, “Capital failed to adduce significant evi-

dence that its exclusion has, in fact, resulted in any de-

crease in the quality of radiology services to the HMO’s

patients.” Capital Imaging, 996 F.2d at 546.** J.A. at

A-448-49, A-459-60.

*3 Capital’s unsupported assertions that its services are of “high

quality” are self-serving. In an attempt to support its assertions

of quality differentials between itself and other radiology prac-

tices, Capital misquotes Dr. Meiselman who, in fact, says that no

quality differences existed. J.A. A-578. Capital then seeks to ex-

cuse its failure to support its assertions by quoting a law review

article. Petition at 25 (quoting Thomas E. Kauper, The Role

of Quality of Health Care Considerations in Antitrust Analysis,

51 L. & Contemp. Probs. 273, 276, 294 (1988)). The quote from

Kauper, taken in context, says that agreements that result in the

lowering of quality are output restrictions only when there is

no accompanying decrease in prices, and that this proposition has

been recognized in those cases where defendants have sought to

avoid liability by claiming their conduct did not lower quality.

In our case, the Health Plan has made no such claim. Indeed,

it is Capital, not the Health Plan which introduced the issue of

quality. Moreover, the quote from Kauper implies that issues of

quality are illusory since those who raise them are most often

unable to substantiate them.

*4 Indeed, even if Capital’s exclusion had, in fact, reduced the

quality of radiology services available through MVMA, this re-

duction of quality is of no consequence in the market as long

as consumers have other health plans available. The mere fact

that consumers electing MVMA cannot utilize Capital does not

establish a reduction of quality in the market. Jefferson Parish,

466 U.S. at 31; Coffey, 955 F.2d at 1393; Seagood, 924 F.2d at

1573; Crane & Shovel, 854 F.2d at 810; Ferguson, 848 F.2d at

982; Rutman Wine, 829 F.2d at 735; Copy-Data, 663 F.2d at 410.

17

D. Capital Has Failed To Show That the Health Plan

Has Market Power -

Because Capital has not demonstrated any actual ad-

verse effect on competition, the rule of reason requires

a demonstration of market power.’ Consistent with the

rule of reason, the Second Circuit Supported the district

court in concluding that Capital simply failed to establish

the existence of market power in the geographic market

which Capital, itself, defined.

Thus, turning-to the question of market power, we

agree with the district court that Capital has failed

to demonstrate that a genuine issue of material fact

exists with respect to appellees’ strength in the mar-

ketplace.

Capital Imaging, 996 F.2d at 547.”°

The first step in assessing market power is defining the

relevant market. DeLong Equip. Co. v. Washington Mills

Abrasive Co., 887 F.2d 1499, 1507 (11th Cir. 1989),

cert. denied, 494 U.S. 1081 (1990). A party’s share of

the relevant market is indicative of the existence or non-

existence of market power. Eastman Kodak, 112 S. Ct.

at 2081. The reievant product and geographic market

must be defined from the standpoint of consumers. See

NCAA, 468 U.S. at 112-13: Jefferson Parish, 466 U.S.

*5 Capital has never challenged the assessment made by the dis-

trict court that the Health Plan lacked market power in the geo-

graphic and product markets defined by Capital.

“6 Failing to establish market power, Capital seeks to minimize

the need to do so by, for example, incorrectly quoting an antitrust

law treatise. Petition at 21 (quoting 2 E. Kintner, Federal Anti-

trust Law §9.2 (1980)). While it is true that a §1 “violation

may be established irrespective of whether the participants have

power... .,” this proposition is true, however, only if the case

is per se. The case cited by Kintner for this proposition is United

States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940), which

was a per se price-fixing case, and in which the Court explicitly

stated that “fa] conspiracy to fix prices violates ae |

at 224 n.59.

18

at 26-29. “[Y]ou can’t pick a market without knowing

the purpose of the choice.” Fishman v. Estate of Wirtz,

807 F.2d 520, 568 (7th Cir. 1986) (Easterbrook, J.,

dissenting). See also U.S. Healthcare, Inc. v. Health-

source, Inc., 986 F.2d 589 (1st Cir. 1993). The product

or service market is composed of products or services that

consumers view as reasonably interchangeable. Tampa

Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327

(1961). The geographic market includes the entire area

in which consumers could turn if the price of the product

or service increased. Jd. Before the district court, Capi-

tal asserted that the relevant geographic market was the

area within a 100-mile radius from Albany, New York.

Capital now seeks to avoid the consequences of its own

market definition.

In this case, the relevant product market involves health

care financing products offered by HMOs such as the

Health Plan. It is only in such markets that consumers

can be harmed by higher premiums (prices), or lower

quality.“‘ Capital admits to the appropriateness of the

health care financing market in this case. “Patients con-

sider the prices offered by MVP and its competitors in

the health insurance market, not prices in the market for

medical services.” Petition at 5 (citation omitted). Thus,

unless the Health Plan possesses market power in the

health care financing market, consumers will simply

switch if the Health Plan offers a product with higher

prices or lower quality. Ball Memorial Hosp., Inc. vy.

Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1332-33 (7th

Cir. 1986); Hassan, 698 F. Supp. at 694-95.

The Health Plan provided the district court with un-

controverted evidence that it did not possess market

“7 The Health Plan purchases health services from physicians

who are free to contract with other plans or private parties. Par-

ticipating physicians in MVP are required to refer only MVP

subscribers to other specialists participating in the Health Plan.

Therefore, MVP and MVMA cannot affect the radiology referral

market.

19

——

power in the market defined by Capital. Indeed, Capital

has attempted to redefine the relevant market several

times, but has never been able to establish the existence

of market power.** Within the market defined by Capital

before the district court, the Health Plan’s market share

is undeniably “de minimis.” Capital Imaging, 996 F.2d

at 547.

Capital now refers to the percentage of physicians in

cach of the five counties in which the IPA services the

Health Plan, but this area was never alleged as a geo-

graphic market or addressed by the district court. Moreover,

the physicians from the five counties who participate in

the IPA do not have exclusive contracts with MVMA and

are free to service other health plans and private patients.”

The participation of these physicians in MVMA does not

Say anything about MVP’s market power, or lack of

power, in either the health care financing, or HMO market.

Thus, Capital’s market statistics are not credible evidence

*8 Perhaps because of the hopelessness of its cause, Capital’s

definition of the relevant market has been a continuous moving

target. Initially, in the complaint, Capital alleged the relevant

market to be “the sale and use of diagnostic imaging equipment

in the United States.” J.A. at A-11. Subsequenlty, in its statement

pursuant to Rule 10(J) of the Local Rules of the Northern Dis-

trict of New York, Capital described the relevant market as the

market for referrals to private diagnostic radiology centers offer-

ing a complete range of diagnostic imaging technology in an area

within a radius of at least 100 miles from Albany, New York. J.A.

at A-537. Still later, in opposing Defendants’ Motion for Sum-

mary Judgment, Capital requested leave of the court to amend

its complaint further to define “(t]he relevant market for pur-

poses of this action [as] the market for radiology referrals within a

radius of 100 miles from Albany, New York.” Capital IT, 791 F.

Supp. at 965; J.A. at A-819 (citing Plaintiff’s Memorandum of

Law in Opposition to Defendants’ Motion for Summary Judgment,

Supplemental Appendix (“S.A.”) at 94).

“* The Health Plan cannot be held responsible for the alleged

fact that contracting physicians do not use Capital for radiology

services for non-Health Plan patients. Jefferson Parish, 406 U.S.

at 26-27.

20

of market power, and, in any case, are offered far too

late.*

Capital’s reliance upon the analysis in NCAA and FTC

v. Indiana Federation of Dentists, 476 U.S. 447 (1986),

to assert that evidence of market power is unnecessary, is

at best misguided and at worst misleading as applied to

this case. In those cases, it was plausible to infer that

the anticompetitive effects of the concerted conduct were

the proximate result of market power. By contrast, in this

case, Capital is not able to offer any plausible theory ex-

plaining how the Health Plan possibly could have the

market power to maintain prices above competitive levels

of profitability, or to reduce quality or output below com-

petitive levels in any relevant market.

[T]he Court has only condoned dispensing with

proof of market power for naked price and output

restraints, and thus appears to have been addressing

only restraints so pernicious and without redeeming

virtues that per se analysis is almost warranted. Sec-

ond, in each case in which it has declined to require

proof of market power, the Court has found specific

evidence of anticompetitive effects, NCAA, 468 US.

at 106-108; /ndiana Fed’n of Dentists, 476 U.S. at

460-61, and held that in such instances, “ ‘proof of

30 The Second Circuit summarized the market power data sup-

plied by the Health Plan to the district court:

Capital defined the relevant geographic market as that area

lying within a 100-mile radius of Albany, New York... .

See Capital II, 791 F. Supp. at 965. Appellees have accepted

these market boundaries and have presented proof that within

ihis 100-mile radius, the Health Plan’s 100,500 enrollees rep-

resent only 2.3 percent of the region’s HMO subscribers and

Mohawk Valley’s membership includes only 6.75 percent of

the region’s physicians. Once competition from non-HMO

sources within the 100 mile radius is included, the appellees’

market share drops even further to merely 1.15 percent of the

total insured [sic] patient population. Capital has not con-

travened the accuracy of these figures.

Capital Imaging, 996 F.2d at 547 ‘emphasis in original).

21

actual detrimental effects, such as reduction in out-

put,’ can obviate the need for an inquiry into market

power, which is but a ‘surrogate for detrimental ef-

fects.”” 476 U.S. at 460-61 (quoting 7 Phillip

Areeda, Antitrust Law 1511 (1986)). Third, in

each case the Court has found that the defendants

possessed market power anyway. /d. at 460.

Thomas M. Jorde & David J. Teece. Programs from the

1992 Annual Meeting: The Boundaries of Horizontal

Restraints: Communication and Cooperation Among

Competitors: Rule of Reason Analysis of Horizontal Ar-

rangements: Agreements Designed to Advance Innova-

tion and Commercialize Technology, 61 Antitrust L.J.

579, 603-604 n.69 (1993).

E. The Burden of Proof Shifts to the Health Plan Only

After Capital Has Shown Anticompetitive Effects

Capital attempts to encourage this Court to accept the

theory that the Health Plan’s alleged failure to offer pro-

competitive justifications for its conduct defeats summary

judgment without regard to Capital’s failure to demon-

strate anticompetitive effects or market power.*' That

theory and Capital’s claims must fail. Oksanen vy. Page

Memorial Hosp., 945 F.2d 696, 699 (4th Cir. 1991),

31 For instance, Capital states that “(market power comes to

the fore only when a procompetitive justification exists.” Petition

at 19 (citing FTC Staff Advisory Opinion (Mar. 26, 1984)). Not

only is this assertion a misstatement of the applicable law, but it

is squarely and unequivocally contradicted by the very FTC Opinion-

cited by Capital. The FTC clearly states that its opinion applied

the “rule of reason” analysis, and looked to the degree of KPS’

market power (25% of the area’s population, and 33% (approx.) of

area residents with private health insurance). Only after it had

found KPS to possess market power did the FTC go on to analyze

procompetitive justifications. The FTC stated that

[b]ecause the proposed restraint may be substantially anti-

competitive in some respects [due to KPS’ market power],

we have attempted under the rule of reason to assess its

countervailing justifications.

FTC Staff Advisory Opinion (Mar. 26, 1984), at 4.

a

22

cert. denied, 112 S. Ct. 973 (1992). The Health Plan

is not required to demonstrate that the challenged conduct

promotes a procompetitive purpose, unless the plaintiff

meets its initial burden of establishing adequate evidence

of market power or actual anticompetitive effects. Brown

University, 1993-2 Trade Cas. (CCH) € 70,358, at

70,889.

[U]nder the rule of reason, [plaintiff] bears the bur-

den of proving the actions of the defendants have

unreasonably restrained trade. [Jefferson Parish],

466 U.S. at 29. To meet this burden, [plaintiff] must

prove what market he contends was restrained and

that the defendants played a significant role in the

relevant market. Absent this market power, any re-

straint on trade created by the defendants’ actions is

unlikely to implicate section 1.

Oksanen, 945 F.2d at 709.

II. THE RULE OF REASON IS APPLICABLE TO

BOTH HORIZONTAL AND VERTICAL RE-

STRAINTS

Courts have been consistent in their application of the

rule of reason to both horizontal and vertical restraints.*

As the First Circuit has stated

We doubt that the modern Supreme Court would use

the boycott label to describe, or the rubric to con-

demn, a joint venture among competitors in which

participation was allowed to some but not all, com-

pare Northwest Wholesale Stationers, Inc. v. Pacific

32 See Hassan, 698 F. Supp. 679 (The court analyzed the joint

venture aspects of an IPA arrangement and concluded that the rule

of reason was applicable although there were horizontal aspects to

the IPA). See also Flegel, 1993-2 Trade Cas. (CCH) { 70,355

(8th Cir. 1993); Austin v. McNamara, 979 F.2d 728 (9th Cir.

1992); Lie v. St. Joseph Hosp., 964 F.2d 567 (6th Cir. 1992);

Bhan, 929 F.2d 1404; Oksanen, 945 F.2d 696; Collins v. Associated

Pathologists, Ltd., 844 F.2d 473 (7th Cir.), cert. denied, 488 U.S.

852 (1988).

a

Stationery & Printing Co., 472 U.S. 284, 105 S. Ct.

2613, 86 L.Ed.2d 202 (1985), with Associated

Press v. United States, 326 U.S. 1, 65 S. Ct. 1416,

89 L.Ed. 2013 (1945), although such a restriction

might well fall after a more complete analysis under

the rule of reason.

U.S. Healthcare, 986 F.2d at 594.*% See Futurevision

Cable Sys. v. Multivision Cable TV, 789 F. Supp. 760,

774-75 (S.D. Miss. 1992), aff'd, 986 F.2d 1418 (Sth

Cir. 1993).

Indeed, this Court has made it abundantly clear that

“horizontal” boycotts or refusals to deal must be treated

under the rule of reason, unless the participants in the

alleged conspiracy have a dominant market position and

are able to cut off access to a supply, facility, or market

necessary to enable the boycotted party to compete.

Northwest Wholesale Stationers, Inc. v. Pacific Stationery

& Printing Co., 472 U.S. 284, 294 (1985).*

In a desperate attempt to rewrite the antitrust history

of horizontal agreements, Capital either mistakenly or

intentionally misrepresents that six circuit courts of ap-

peals “have resisted attempts by antitrust defendants to

assert purported lack of market power as an excuse for

horizontal restraints of trade.” Petition at 17. In fact,

none of the cases cited by Capital support this proposition

23 There can be no doubt that MVMA’s relationship with MVP is

a legitimate joint venture. MVP pays MVMA on the basis of a

negotiated, fixed-amount per enrollee per month (capitation pay-

ment). Brief of Plaintiff-Appellant at 5. Thus, although individual

MVMA physicians are paid on the basis of fee-for-service, those

fee-for-service payments, in the aggregate, are limited by the capi-

tation amount paid by MVP to MVMA. Moreover, twenty percent

of each physician’s compensation is withheld in order to assure that

the capitation amount is sufficient. J.A. at A-63.

34 The Northwest Wholesale case involved a horizontal agreement

among competitors to exclude another competitor from a group

purchasing cooperative. In that case, the Supreme Court reversed

the court of appeals in finding that per se analysis was not ap-

plicable.

a

24

and, moreover, several of the cases clearly reach the

opposite conclusion.”

Ill. THE CONDUCT CHALLENGED BY CAPITAL IS

NOT A NAKED RESTRAINT

There can be no doubt that HMOs are procompetitive

precisely because of the exclusion of some providers.

45 Capital cites Oltz for the proposition that market effects are

not necessary in horizontal cases. Nevertheless, the next sentence

of text following Capital’s quotation from Oltz, 861 F.2d at 1448,

reads: “[bjecause market definition and market power are merely

tools designed to uncover competitive harm, proof of ‘actual detri-

mental effects, such as a reduction of output, can obviate the need

... [for] elaborate market analysis.” Jd. (citations omitted). The

court in Oltz concluded that the plaintiff demonstrated actual anti-

competitive effects. Although the Sixth Circuit criticized the find-

ings of anticompetitive effects by the FTC, it gave deference to

those findings in In re Detroit Auto Dealers Ass'n, 955 F.2d 457

(6th Cir.), cert. denied, 113 S. Ct. 461 (1992). However, the court

clearly understood it must ‘‘examine the evidence of the power

of petitioners in the relevant market.” 955 F.2d at 470 (citations

omitted). The 1988 Third Circuit opinion in Miller v. Indiana

Hospital, 814 F. Supp. 1254 (W.D. Pa.), aff'd, 975 F.2d 1550

(3d Cir. 1992), cert. denied, 113 S.Ct. 1866 (1993), cited by Capital

is a prior opinion which does not address the substance of Cap-

ital’s antitrust claims. However, on remand, the district court

clearly did not support Capital's proposition. 814 F. Supp. at 1260.

In order for plaintiff to meet his burden, he must prove what

market he contends was restrained and that the defendants

played enough of a significant role in the relevant market to

impair competition significantly. . . . ‘Market power means

the ability to injure consumers by curtailing output and rais-

ing price.’ . .. Without such market power, any restraint on

trade created by the defendants’ actions is unlikely to impli-

cate Section 1.

Id. In the text of the Eleventh Circuit’s opinion in National

Bancard Corp. v. VISA, U.S.A., Inc., 779 F.2d 592 (11th Cir.),

cert. denied, 479 U.S. 923 (1986), following the quote by Capital,

the court concludes, “[t]his case does not fall in a sufficiently

similar fact pattern to warrant strict application of the NCAA

language. Therefore, in analyzing the competitive advantages and

disadvantages of the [challenged restraint], market power was a

| proper and useful tool for the district court.” 779 F.2d at 604.

i

y An

Northwest Medical, 794 P.2d 428. Indeed, Capital con-

cedes as much. Moreover, Capital also concedes that the

Health Plan constitutes a “joint venture.” Petition at 2.

Given these concessions, Capital cannot plausibly argue

that the Health Plan’s conduct amounts to a “naked

restraint.”

Even though the rule of reason clearly applies to this

case, Capital would have this Court categorize the alleged

anticompetitive conduct as a “naked restraint,” and an-

alyze it under Capital’s version of the per se rule.*

Courts have been consistent in categorizing the type of

conduct that is, and that is not, a “naked restraint.” More-

over, this Court has been consistent that the analysis for

“naked restraints” does not apply to joint ventures be-

cause of their procompetitive effects. NCAA, 468 USS. at

112; Maricopa County, 457 U.S. at 365 (Powell, J., dis-

senting); Broadcast Music, Inc. v. Columbia Broadcasting

36 Capital also attempts to present as authority, cases which are

entirely inapplicable to this case. Capital cites United States v.

Topco Associates, 405 U.S. 596 (1972), for the general proposition

that this Court “emphasized that horizontal restraints are inher-

entiy anticompetitive.” Petition at 12. Capital, however, neglects

to indicate that the Court in Topco referred specifically to horizontal

territorial market allocation agreements which have always been

deemed per se antitrust violations. Jd. at 608-10. This is not a

per se case.

Further, Capital cites Associated General Contractors v. Cali-

fornia State Council of Carpenters, 459 U.S. 519 (1983), for the

general proposition that “[c]oercive activity . .. may be condemned

without proof of its actual market effects.” Petition at 15-16. How-

ever, the Court further stated that “[wle do not know what kind

of coercion defendants allegedly employed, we assume for purposes

of decision that it had a predatory ‘nature and character’,” 459

U.S. at 528 n.18, and that had the plaintiff been required “to de-

scribe the nature of the alleged coercion . .. it might weli have

been evident that no violation of the law had been alleged,” /d.

at 528 n.17. The conduct in this case is not predatory coercion,

and, thus, the case is not a precedent for the analysis of the Health

Plan’s conduct,

26

System, Inc., 441 U.S. 1, 22-23 (1979). A “naked re-

Straint” exists only where there is a non-ancillary and

explicit arrangement to restrict price or output. /d. It

is abundantly clear that the present case involves neither

type of restriction. There is no “naked restraint” involved

here.

Capital’s feeble attempt to bootstrap the application of

the per se presumptions of anticompetitive effects by using

words like “horizontal” and “naked restraint” are unavail-

ing. Such incantations cannot change the undisputed

facts in this case and the long-standing framework of

analysis under Section | of the Sherman Act.*’

CONCLUSION

Capital fails to assert any valid reasons for this Court

to grant a Writ of Certiorari. Indeed, Capital’s entire

argument is constructed around a disingenuous effort to

mischaracterize the Health Pian’s conduct as a “naked

restraint,” and to fashion a new antitrust analysis not

dependent on the existence of market power or actual

anticompetitive effects.

37 Capital attempts to disingenuously blurr the clear difference

between a “naked restraint” and the conduct at issue in this case.

For example, Capital asserts that the court of appeals’ citation

of Bhan, 929 F.2d 1404, is inapposite and reveals a “misunder-

standing” on the part of that court “of the role of empirical evi-

dence in rule of reason analysis” because Bhan did not involve a

“naked restraint.” Petition at 25. However, as in Bhan, no “naked

restraint” is involved in the current case either. Hence, reliance

on Bhan is perfectly reasonable in the context of the present case.

Similarly, Capital relies upon Hahn which concludes that defendant

had the “burden ... of putting forward a plausible, justifiable

explanation for its conduct,” Hahn, 868 F.2d at 1031. Hahn involved

a “naked restraint.’ Jd. at 1026. Indeed, the court clearly stated

that “[o]rdinarily, |market power] is an essential ingredient in a

rule-of-reason case’ except “where the conduct should be viewed

as a per se violation [i.e., as a “naked” restraint on price or

output.|” Jd. (citing NCAA, 468 U.S. at 109).

27

This Court and lower federal courts agree that an

exclusion from a joint venture, by physicians participating

in such joint venture, is analyzed in accordance with the

rule of reason. Under the rule of reason, Capital is

required initially to demonstrate that the Health Plan’s

conduct adversely affects competition or that it possesses

market power. Capital has failed to meet its initial

burden.

Capital, thus, attempts to manufacture a conflict among

the Circuits and this Court as to its burden under the

rule of reason. No such conflict exists. Indeed, the courts

are in harmony with regard to the treatment of restraints

like the one which is the subject of Capital’s claim. This

Case poses no issues which require Supreme Court review.

For the foregoing reasons, Respondents respectfully re-

quest that this Petition for a Writ of Certiorari be denied.

Respectfully submitted,

Of Counsel: WILLIAM G. KopIit

CLIFFORD E. BARNES Counsel of Record

J. EDWARD NEUGEBAUER EPSTEIN BECKER & GREEN, P.C.

ALEXANDER B. BOUTON 1227 25th Street, N.W.

Washington, D.C. 20037

(202) 861-0900

Attorneys for Respondents