Prologue — Dentsply International, Inc. v. United States

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Supiciire vourt, U.S. a

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05-337 SEP 14 2005

No. OFFICE OF THE CLERK

In the

Supreme Court of the Gnited States

DENTSPLY INTERNATIONAL, INC.,

PETITIONER,

V.

UNITED STATES OF AMERICA,

RESPONDENT.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

MARGARET M. ZWISLER WM. BRADFORD REYNOLDS

ERIC J. MCCARTHY Counsel of Record

CHARLES R. PRICE HOWREY LLP

LATHAM & WATKINSLLP 1299 PENNSYLVANIA AVE.,

555 ELEVENTH ST., N.W. N.W.

WASHINGTON, DC 20004 WASHINGTON, DC 20004

(202) 637-2200 (202) 783-0800

RICHARD A. RIPLEY OF COUNSEL:

BINGHAM MCCUTCHEN

LLP BRIAN M. ADDISON

1120 20™ STREET, N.W. DENTSPLY INT’L, INC.

WASHINGTON, DC 20036 SUSQUEHANNA COMMERCE

(202) 778-6101 CENTER

221 WEST PHILADELPHIA ST.

YORK, PA 17405

(717) 845-7511

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QUESTION PRESENTED

Can a manufacturer’s exclusive dealing arrangement

with some (but not all) distributors of the relevant product

violate Section 2 of the Sherman Act, where the

arrangement neither impedes nor preciudes its rivals from

reaching end-user purchasers, and where it has been found

to have no probable anticompetitive effects under Section 3

of the Clayton Act?

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PARTIES TO THE PROCEEDING

Pursuant to Supreme Court Rule 14.1(b), Petitioner

states that all parties appear in the caption of the case on

the cover page.

iii

RULE 29.6 STATEMENT

Petitioner states that it has no parent companies and no

publicly held company that owns 10% or more of its stock.

iv

TABLE OF CONTENTS

Page

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PETITION FOR WRIT OF CERTIORARL ..........csscssseseeees l

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REASONS FOR GRANTING THE WRIT... cccscssssseees 8

The Third Circuit’s Finding cf a Sherman Act §2

Violation is Erroneous and Conflicts with

Decisions in Six Other Circuits ...... RUPE DASELIIOR Aion ee 8

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TABLE OF AUTHORITIES

Page(s)

CASES

Amplez of Maryland, Inc. v. Outboard Marine

Corp.,

380 F.2d 112 (4th Cir. 1967).........cssersererserenrseverserererenens 18

CDC Technologies, Inc. v. IDEXX Laboratories,

Inc.,

188 FBG 74 Oa. Clr. 19GB) <cccceccececceseccecssecssceeees 9, 11, 12,18

CDX Technologies, Inc. v. IDEXX Laboratories,

Inc.,

7 F. Supp. 2d 119 (D. Conn. 1998)............ccsccecserssereeeerees 12

In re Beltone Electric Corp.,

a kT ee 17

LePage’s v. 3M Co.,

324 F.3d 141 (3d Cir. 2008), cert. denied, 124 S.

Ee ee ee 7

Lorain Journal Co. v. United States,

eS CE eae. ewe eae ows 10

Omega Environmental, Inc. v. Gilbarco, Inc.,

127 F.3d 1157 (9th Cir. 1997).............. 10, 11, 13, 14, 16, 18

Roland Machine Co. v. Diesser Industries, Inc.,

- pe + ly Le he 10, 12, 17

Roy B. Taylor Sales, Inc. v. He!lymatic, Corp.,

ee 15

Ryko Manufacturing Co. v. Eden Services,

823 F.2d 1215 (8th Cir. 1987).........ccccceeseeeeeeee 10, 12, 17, 18

vi

TABLE OF AUTHORITIES—Continued

Page(s)

Seagood Trading Co. v. Jerrico, Inc.,

924 F’.2d 1565 (Lith Cir. 1991)............ccccccccccscceeess 10, 12, 14

Tampa Electric v. Nashvilie Coal Co., ,

ee ee a aitaninicichecieiliaeiacleetianihdeeliciachiadeattadedin 3, 8,9

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

if | 3 ( > ae 10

United States v. Visa U.S.A. Inc.,

BA) gt ee 13

Verizon Communications Inc. v. Law Offices of

Curtis V. Trinko,

jt 0 0 es 15,17

Westman Commission Co. v. Hobart International,

Inc.,

T96 F 2d 1216 (10th Cit. 1966) .....ccccccecccccccccccccccccessocccccese 13

STATUTES

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PETITION FOR WRIT OF CERTIORARI

Petitioner Dentsply International, Inc. respectfully

petitions for a w * of certiorari to review the judgment of

the United State —_ urt of Appeals for the Third Circuit.

OPINIONS BELOW

The Third Circuit’s opinion is reported at 399 F.3d 181.

(Pet. App. la-26a). The district court’s opinion is reported

at 2/7 F. Supp. 2d 387. (Pet. App. 27a-145a).

JURISDICTION

The Third Circuit issued its judgment on February 24,

2005, and denied a timely petition for rehearing and

rehearing en banc on May 17, 2005. (Pet. App. 146a-47a).

On July 28, 2005, Justice Souter granted Petitioner’s

request to extend the time for filing the instant Petition to

and including September 14, 2005. Applic. No. 05A103. This

Court has jurisdiction under 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

The Appendix reproduces 15 U.S.C. §2 and 15 U.S.C.

§ 14. (Pet. App. 148a).

STATEMENT OF THE CASE

Dentsply International, Inc. (“Dentsply”) is the nation’s

largest manufacturer of professional dental products,

including artificial teeth. This case arises out of a United

States Department of Justice challenge to Dentsply’s Dealer

Criterion € policy under the federal antitrust laws. Dealer

Criterion 6 states that authorized Dentsply tooth dealers

may not add competing tooth lines for distribution so long as

they are distributing Dentsply teeth. At the time of trial in

this case, there were hundreds of tooth dealers in the

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United States engaged in and available for the distribution

of tooth products. Dentsply’s authorized tooth dealers

numbered 23.

The government alleged that Dealer Criterion 6

constituted an unlawful exclusive dealing arrangement

under Section 1 of the Sherman Act and Section 3 of the

Clayton Act, and constituted an unlawful use of monopoly

power under Section 2 of the Sherman Act. The trial court

ruled against the government and in favor of Dentsply on all

counts. It found that Dentsply’s rivals can and do sell their

competing tooth products to the end-user dental

laboratories, both directly and through their own dealer

networks, and have at their disposal hundreds of dealers

uninvolved with Dentsply. Dealer Criterion 6, therefore,

did not foreclose competition from any share of the end-user

market for artificial teeth, the trial court determined, nor

pose any probable anticompetitive effects. The trial court

entered judgment for Dentsply on the Sherman §1 and

Clayton § 3 claims. The trial court also determined that the

government had failed to prove that Dealer Criterion 6

produced any actual anticompetitive effects and entered

judgment for Dentsply on the Sherman § 2 monopolization

claim as well.

The government appealed only the Sherman §2

determination, arguing that, despite the trial court’s

unchallenged finding of no probable anticompetitive effects

under Clayton § 3, there was a sufficient evidentiary basis to

conclude that Dealer Criterion 6 had actual anticompetitive

effects violative of Sherman § 2. For Sherman § 2 purposes,

the government maintained, it was enough to show that

Dentsply’s Dealer Criterion 6 removed from its rivals’ use

the 23 authorized Dentsply dealers, notwithstanding that

hundreds of dealers were found to be readily available to

Dentsply’s rivals and that direct sales to laboratories were

also found to be a viable method for those rivals to do

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business. In a decision that cannot be reconciled with this

Court’s seminal decision in Tampa Electric v. Nashville

Coal Co., 365 U.S. 320 (1961), and is in conflict with at least

six other circuit courts of appeals, the Third Circuit agreed

and reversed the trial court’s judgment in favor of Dentsply.

Plenary review by this Court is, therefore, needed.

A. Trial Court Proceedings

On January 5, 1999, the government filed a complaint

against Dentsply challenging Dealer Criterion 6 under the

federal antitrust laws. It was the government’s contention

that Dentsply’s policy that dealers that carry its artificial

tooth line may not add competing tooth lines to their

product offerings prevented rivals from effectively

competing for the tooth business of dental laboratories, the

end users of artificial teeth (prior to fabrication of a

denture), and therefore violated § 1 and § 2 of the Sherman

Act and § 3 of the Clayton Act.

Following a four-week bench trial in 2002, the trial court

rejected all of the government’s claims, holding that

Dentspiy’s Dealer Criterion 6 did not foreclose competition

from any substantial share of the market for artificial teeth,

and had neither actual nor probable anticompetitive effects.

Critical to the trial court’s analysis was its finding that

Dentsply’s rivals do in fact sell directly to dental labs, as

well as through their own dealer networks. There was no

dispute at trial—and the government confirmed on appeal—

that the relevant line of commerce for prefabricated

artificial teeth was properly defined by the end-user sales to

dental labs. This view was shared by the trial experts; the

government’s own economic expert explicitly opined that

the labs are the “immediate customers” in the artificial tooth

market and conceded that Dentsply’s rivals are “not

foreclosed from a substantial share of those labs.” (Pet.

App. 42a (FOF 71)). Similarly, at oral argument in the court

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below, the government acknowledged its continuing

agreement with Dentsply that the relevant market in which

to measure the effect of Dentsply’s policy is the sale of

artificial teeth to dental labs. (Pet. App. 155a-56a).

At the time of trial, five of the eight “relevant” rival

manufacturers were selling teeth directly to dental labs.

(Pet. App. 32a, 34a-36a (FOF 27, 40, 43, 45, 47)). The trial

court found, and the government agreed, that direct sales

are a “viable” method of distribution. (Pet. App. 42a (FOF

71)). One of Dentsply’s rivals also conceded that selling

directly to labs is an “effective method of distribution” that

provides “some advantages” over dealer distribution. (Pet.

App. 49a (FOF 99)). In addition, the trial court found that

direct-selling manufacturers are just as capable of selling

teeth to dental labs as are dealers. (Pet. App. 43a-45a (FOF

75-81)). It further found that manufacturers have replicated

or could replicate the dealer function. (Pet. App. 45a-49a

(FOF 82-98)).

In addition to the option of selling directly to dental labs,

the court found that there are “hundreds” of dental dealers

in the United States available to manufacturers other than

Dentsply’s 23 authorized tooth dealers. (Pet. App. 60a (FOF

140)). In fact, the court noted that all but two of Dentsply’s

rivals use their own dealer networks to reach the market.

(Pet. App. 57a, 59a-60a (FOF 129, 136-39)). Even Dentsply’s

23 dealers are available to its rivals. (Pet. App. 137a, 140a,

142a (Law 15, 29, 35)). The trial court found that Dealer

Criterion 6 was terminable at will and imposed no

continuing obligation on participating dealers to deal only

with Dentsply. (Pet. App. 53a (FOF 110-11)). Notably, half

of the eight rival manufacturers continue to distribute their

teeth through Dentsply’s dealers, in addition to selling

directly and through their own dealers, and have done so

since before Dentsply announced Dealer Criterion 6 in 1993,

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and since then. (Pet. App. 34a-35a, 60a, 70a, 133a-34a (FOF

40, 43, 139, 175, 367)).

In response to the government’s assertion that

Dentsply’s market share was the direct result of Dealer

Criterion 6, the trial court found otherwise, holding that the

evidence showed, instead, that Dentsply’s large persistent

market share is due to its 100-year history of innovation and

its superior promotion and marketing of teeth to labs. In

this connection, the court explicitly found that Dentsply has

been a leader in the United States market for artificial teeth

for nearly a century (Pet. App. 30a, 63a-68a (FOF 15, 148-

68)); that throughout its history Dentsply introduced major

advancements in the artificial tooth market (Pet. App. 63a-

64a (FOF 148-54)); and that Dentsply undertakes enormous

efforts to generate demand and promote its products at all

levels of the market—the dental lab, dentist and patient.

(Pet. App 99a-108a (FOF 269-99)).

By contrast, the small market shares of Dentsply’s rivals

were found to be due to low product appeal and rivals’

failures to market and support their products. Dentsply’s

two leading rivals—Ivoclar Vivadent AG (“Ivoclar”’) and

Vita Zahnfabrik (“Vita”)—were specifically found to have

failed to promote their teeth. (Pet. App. 96a-99a (F ~ 257-

68)). Moreover, throughout most of the relevant period,

Vita and Ivoclar produced teeth that used European

moulds. European moulds produce teeth that are materially

different from teeth created with American moulds, and

their use posed significant obstacles to those rivals’ ability

to increase their U.S. market share. (Pet. App. 93a-95a

(FOF 249-56)).

On this record, the trial court concluded that Denisply’s

policy did not restrain trade in violation of Sherman § 1, and

posed no probable anticompetitive effect under Clayton § 3.

The government did not appeal these rulings.