Egg Donor

Case4:11-cv-01781-SBA Document33
Filed07/15/11 Page1 of 30
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Megan Dixon (Cal. Bar No. 162895) HOGAN LOVELLS US LLP 4 Embarcadero Center 22nd Floor San Francisco, California 94111 Telephone: (415) 374-2300 Facsimile: (415) 374-2499 E-Mail: megan.dixon@hoganlovells.com Attorneys for Defendants American Society for Reproductive Medicine and Society for Assisted Reproductive Technology
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA LINDSAY KAMAKAHI, an individual, on behalf of herself and all others similarly situated, Plaintiff, v. AMERICAN SOCIETY FOR REPRODUCTIVE MEDICINE and SOCIETY FOR ASSISTED REPRODUCTIVE TECHNOLOGY, Defendants. Date: Time: Courtroom: Judge: October 18, 2011 1:00 p.m. 1, 4th Floor Hon. Saundra B. Armstrong Case No. 4:11-CV-01781 SBA DEFENDANTS MOTION TO DISMISS PLAINTIFFS FIRST AMENDED CLASS ACTION COMPLAINT
DEFENDANTS MOTION TO DISMISS FIRST AMENDED CLASS ACTION COMPLAINT
CASE NO. 4:11-CV-01781 SBA
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NOTICE OF MOTION AND MOTION TO DISMSS TO PLAINTIFF LINDSAY KAMAKAHI AND HER COUNSEL OF RECORD: PLEASE TAKE NOTICE THAT on October 18, 2011 at 1:00 p.m. or as soon thereafter as the matter may be heard by the Court, in the Courtroom of the Honorable Saundra B. Armstrong, Defendants American Society for Reproductive Medicine and Society for Assisted Reproductive Technology (collectively the Defendants) will and hereby do move, pursuant to Rules 8(a) and 12(b)(6) of the Federal Rules of Civil Procedure, for an order dismissing Plaintiff Lindsay Kamakahis (Plaintiffs) First Amended Class Action Complaint (Complaint). Defendants motion seeks dismissal with prejudice of Plaintiffs Complaint for failure to state a claim upon which relief can be granted. Plaintiffs claim that ethical guidelines
promulgated by two professional medical associations concerning compensation of egg donors for assisted reproductive procedures violate section 1 of the Sherman Act, 15 U.S.C. 1, fails for two reasons. First, the challenged ethical guidelines are not subject to per se analysis. Second, Plaintiff has not alleged an antitrust claim under the rule of reason because she has failed to plead facts supporting her assertions that the relevant product market is egg Donor Services and the relevant geographic market is the United States. Defendants motion is based on this Notice of Motion and Motion, the attached Memorandum of Points and Authorities, all orders, pleadings and papers filed in this action, any oral argument of counsel that the Court may hear, and any other matters that may come before the Court. CERTIFICATE OF CONFERENCE OF COUNSEL As required by the Courts Standing Orders effective November 8, 2010, counsel for Defendants conferred by telephone with counsel for Plaintiff regarding this motion on July 1, 2011. Plaintiffs counsel did not consent to the motion.
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STATEMENT OF ISSUES TO BE DECIDED Whether an antitrust plaintiffs challenge to ethical guidelines promulgated by two
professional medical associations concerning compensation of egg donors for assisted reproductive procedures is subject to per se analysis under section 1 of the Sherman Act, 15 U.S.C. 1. 2. Whether Plaintiff has sufficiently alleged an antitrust claim under the rule of
reason when she has failed to plead facts to support her assertions that the relevant product market is egg Donor Services and the relevant geographic market is the United States.
ii
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TABLE OF CONTENTS Page TABLE OF AUTHORITIES ......................................................................................................... iv I. II. III. IV. INTRODUCTION ...............................................................................................................1 FACTUAL ALLEGATIONS OF THE COMPLAINT .......................................................3 LEGAL STANDARD..........................................................................................................5 ARGUMENT .......................................................................................................................6 A. Defendants Ethical Guidelines Are Not Per Se Illegal .......................................... 6 1. Defendants Ethical Guidelines Should be Analyzed Under the Rule of Reason..................................................................................................... 6 Defendants Ethical Guidelines Protect the Health and Safety of Both Egg Donors and Recipients and Facially Enhance Output and Therefore Cannot be Per Se Illegal ........................................................... 10
Plaintiffs Complaint Fails to Plead a Rule of Reason Claim............................... 17
CONCLUSION ..................................................................................................................22
iii
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TABLE OF AUTHORITIES Page
Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988)............................................................................................................... 12 Am. Ad Mgmt. v. GTE Corp., 92 F.3d 781 (9th Cir. 1996) ..................................................................................................... 8 Arizona v. Maricopa Cnty. Med. Socy, 457 U.S. 332 (1982)........................................................................................................... 7, 10 Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009)....................................................................................................... 6, 19 Balistreri v. Pacifica Police Dept, 901 F.2d 696 (9th Cir. 1990) ............................................................................................. 5, 17 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)............................................................................................................. 5, 6 Big Bear Lodging Assn v. Snow Summit, Inc., 182 F.3d 1096 (9th Cir. 1999) ................................................................................... 17, 18, 21 Broad. Music, Inc. v. Columbia Broad. Sys., 441 U.S. 1 (1979)............................................................................................................. 7, 8, 9 Brown Shoe Co. v. United States, 370 U.S. 294 (1962)............................................................................................................... 17 Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717 (1988)................................................................................................................. 7 Cal. Dental Assn v. FTC, 526 U.S. 756 (1999)............................................................................................................... 12 Cal. ex rel. Harris v. Safeway, Inc., 2011 WL 2684942 (9th Cir. July 12, 2011)......................................................................... 6, 7 Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980)............................................................................................................... 14 Chicago Bd. of Trade v. United States, 246 U.S. 231 (1918)................................................................................................................. 7 Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36 (1977)............................................................................................................... 7, 8
DEFENDANTS MOTION TO DISMISS FIRST AMENDED CLASS ACTION COMPLAINT CASE NO. 4:11-CV-01781 SBA
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Craftsmen Limousine, Inc. v. Ford Motor Co., 363 F.3d 761 (8th Cir. 2004) ................................................................................................. 12 Elecs. for Imaging, Inc., v. Coyle, 2005 WL 1661958 (N.D. Cal. July 14, 2005)........................................................................ 18 FTC v. Ind. Fedn of Dentists, 476 U.S. 447 (1986)......................................................................................................... 7, 8, 9 FTC v. Superior Court Trial Lawyers Assn, 493 U.S. 411 (1990)............................................................................................................... 10 Golden Gate Pharmacy Servs., Inc. v. Pfizer, Inc., 2010 WL 1541257 (N.D. Cal. April 16, 2010).................................................... 17, 18, 19, 20 Goldfarb v. Va. State Bar, 421 U.S. 773 (1975)........................................................................................................... 9, 10 Heerwagen v. Clear Channel Commcns, 435 F.3d 219 (2d Cir. 2006)................................................................................................... 18 Intl Healthcare Mgmt. v. Hawaii Coal. For Health, 332 F.3d 600 (9th Cir. 2003) ................................................................................................... 8 Kendall v. Visa U.S.A., Inc., 518 F.3d 1042 (9th Cir. 2008) ................................................................................................. 5 Kreuzer v. Am. Acad. of Periodontology, 735 F.2d 1479 (D.C. Cir. 1984) ............................................................................................. 13 Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007)............................................................................................................. 6, 7 Marder v. Lopez, 450 F.3d 445 (9th Cir. 2006) ................................................................................................... 1 Moore v. Boating Indus. Assns, 819 F.2d 693 (7th Cir. 1987) ................................................................................................. 13 N. Pac. Ry. Co. v. United States, 356 U.S. 1 (1958)..................................................................................................................... 7 Natl Socy of Profl Engrs v. United States, 435 U.S. 679 (1978)....................................................................................................... 8, 9, 12 NCAA v. Board of Regents, 468 U.S. 85 (1984)............................................................................................................... 8, 9 Newcal Indus., Inc. v. Ikon Office Solutions, 513 F.3d 1038 (9th Cir. 2008) ............................................................................. 17, 18, 19, 20
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Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284 (1985)............................................................................................................. 7, 9 Queen City Pizza, Inc. v. Dominos Pizza, Inc., 124 F.3d 430 (3d Cir. 1997)............................................................................................. 18, 20 Republic Tobacco Co. v. N. Atl. Trading Co., 381 F.3d 717 (7th Cir. 2004) ................................................................................................. 18 Shred-It Am., Inc. v. MacNaughton, 2011 WL 1842997 (D. Hawaii May 13, 2011).......................................................... 17, 19, 20 Standard Oil Co. v. United States, 221 U.S. 1 (1911)..................................................................................................................... 6 State Oil Co. v. Khan, 522 U.S. 3 (1997)........................................................................................................... 6, 8, 16 Tanaka v. Univ. of S. Cal., 252 F.3d 1059 (9th Cir. 2001) ............................................................................................... 17 Texaco, Inc. v. Dagher, 547 U.S. 1 (2006)................................................................................................................. 6, 8 Ticketmaster L.L.C. v. RMG Techs., Inc., 536 F. Supp. 2d 1191 (C.D. Cal. 2008) ..................................................................... 17, 19, 20 United States v. Brown Univ., 5 F.3d 658 (3d Cir. 1993) ................................................................................................ 10, 14 United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (1956)............................................................................................................... 17 United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) ................................................................................................... 8 United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940)................................................................................................................. 8 Wilk v. Am. Med. Assn, 719 F.2d 207 (7th Cir. 1983) ................................................................................................. 13 William O. Gilley Enters., Inc. v. Atl. Richfield Co., 588 F.3d 659 (9th Cir. 2009) ............................................................................................... 5, 6 STATUTES AND COURT RULES
27 15 U.S.C. 1 ............................................................................................................................... 1, 6 28
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42 U.S.C. 274e ........................................................................................................................... 16 Fed. R. Civ. P. 12(b)(6)................................................................................................................... 5 Ind. Code Ann. 35-46-5-3(b) ................................................................................................. 4, 15 La. Rev. Stat. Ann. 9:122....................................................................................................... 4, 15
OTHER AUTHORITIES Assisted Human Reproduction Act, S.C. 2004, c. 2 7 ............................................................... 15 Bundesgesetz uber die medizinisch unterstutzte Fortpflanzung [Federal Act on Medically Assisted Reproduction], Dec. 18, 1998, SR 810.11, art. 4 .......................................... 16 Embryowet [Embryos Act] Stb. 2002, p. 338 5......................................................................... 16 Gesetz zum Schutz von Embryonen [The Embryo Protection Act], Dec. 13, 1990 BGBl. 1 at 2746, 1 ..................................................................................................................... 16 Human Fertilisation and Embryology Act, 1990, c. 37, 12(1)(e) .............................................. 16 Human Fertilisation and Embryology Authority Code of Practice 13....................................... 16 Law on the Donation and Use of Elements and Products of the Human Body, Medically Assisted Procreation, and Prenatal Diagnosis, CODE PENAL [C. PEN.] art. 511-9 ............................................................................................................................................. 16 Loi relative la procration mdicalement assiste et la destination des embryons surnumraires et des gamtes [Law on Medically Assisted Reproduction and the Disposition of Supernumerary Embryos and Gametes] July 6, 2007, art. 51 2......................... 16 Norme in materia di procreazione medicalmente assistita [Rules on Medically Assisted Procreation], Legge 19 febbraio 2004, n. 40, in Gazz. Uff. n.45 del 24-2-2004, ch. 4 6 .......... 16 Prohibition of Human Cloning Act 2002 (Cth) pt 2 s 23.............................................................. 16 The Genetic Integrity Act, [SFS] 2006:351, ch. 8 6 .................................................................. 16
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MEMORANDUM OF POINTS AND AUTHORITIES Defendants American Society for Reproductive Medicine (ASRM) and Society for Assisted Reproductive Technology (SART) (ASRM and SART collectively the Defendants) submit this memorandum in support of their motion to dismiss Plaintiff Lindsay Kamakahis (Plaintiffs) First Amended Class Action Complaint (Complaint) pursuant to Rule 12(b)(6). I. INTRODUCTION Plaintiffs Complaint alleges that ethical guidelines promulgated by two medical associations concerning payments to women who donate eggs (known as oocytes) for assisted reproductive medical procedures violate section 1 of the Sherman Act, 15 U.S.C. 1. Plaintiffs allegations concede that the challenged guidelines are issued by the ASRM Ethics Committee. Furthermore, the Complaint contains no factual averments contesting the basic rationale for those guidelines, which is to protect women who donate eggs from undue inducement and exploitation, while ensuring that they are, in fact, compensated for the time and inconvenience associated with egg donations. See ASRM Ethics Committee Report, Financial Compensation of Oocyte Donors, reprinted in 88 Fertility & Sterility 305, 306 (Aug. 2007) (Ethics Committee Report) (copy attached as Exhibit A).1 The Ethics Committee Report notes several ethical issues raised by the payment of oocyte donors, including, among others: (1) the concern that high payments may lead donors to withhold medical information relevant to their own health or that of their biological offspring, id.; (2) the concern that women and couples who could not afford in vitro fertilization might, because of the intensity of their desire to have children, consent to share oocytes without careful consideration of the risks and burdens, id.; (3) the concern that women would discount the physical and emotional risks of oocyte donation out of eagerness to address their financial situations or their infertility problems, id.; (4) the concern that [h]igh payments, particularly for women with specific characteristics, . . . convey the idea that oocytes are Paragraph 63 of Plaintiffs Complaint specifically cites the Ethics Committee Report. This Court may consider documents referred to in a pleading on a motion to dismiss. Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (A court may consider evidence on which the complaint necessarily relies if: (1) the complaint refers to the document; (2) the document is central to the plaintiffs claim; and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion.).
1
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commercial property, id.; and (5) the concern that high payments . . . could be used to promote the birth of persons with traits deemed socially desirable, which is a form of positive eugenics. Id. No allegation in Plaintiffs Complaint suggests that any of these ethical considerations are illfounded. Moreover, nothing in Plaintiffs Complaint suggests that the ethical guidelines fail to address these issues. Rather, Plaintiff seeks to turn egg donation into a pure commercial transaction without any consideration that the services that would be bought and sold are designed to lead to the creation of embryos and, if the process is ultimately successful, the birth of a child. Yet even the most cursory examination of the Complaint reveals that the factual allegations are far removed from the ordinary stuff of antitrust cases. Plaintiffs Complaint is nothing more than an attempt to shoehorn legitimate ethical rules promulgated by medical associations into Sherman Act concepts far removed from the professional judgments embodied in the challenged ethical guidelines. Plaintiffs failure to recognize the context in which the ethical guidelines arise makes her Complaint defective in two respects. First, Plaintiff asserts that the ethical guidelines addressing compensation of egg donors are per se illegal. The Supreme Court, however, has repeatedly cautioned against categorically condemning professional decisions and practices because (1) the competitive effects of such practices are not obvious and (2) antitrust rules developed for ordinary commercial settings may be wholly inappropriate when applied to the professions. principles apply here. Second, Plaintiff asserts that the ethical guidelines, even if not per se illegal, nonetheless run afoul of section 1 of the Sherman Act under the rule of reason. That contention fails because the Complaint does not plead the elements of a rule of reason claim. It contains only conclusory allegations defining the relevant product and geographic markets at issue and makes no attempt to plead facts that, if proved, would be sufficient to conclude that those putative product and geographic markets actually exist. Accordingly, Plaintiffs Complaint fails to state a claim for relief under any viable antitrust theory and should be dismissed. Both
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II.
FACTUAL ALLEGATIONS OF THE COMPLAINT Defendants ASRM and SART are non-profit organizations dedicated to the advancement,
promotion, and ethical practice of reproductive medicine. See Complaint (Comp.) 10-11. ASRMs membership is multi-disciplinary and consists of medical professionals and corporations located throughout the United States. Id. 10. SART is affiliated with ASRM and is the primary organization of professionals dedicated to the practice of assisted reproductive technologies in the United States. Id. 11. According to the Complaint, SART members include 392 medical practices representing over 85% of the clinics engaged in the practice of assisted reproductive technologies in the United States. Id. Both associations educate
practitioners and the public about the responsible use of reproductive services and available technology. Plaintiff also alleges that to be recognized as an ASRM or SART member, a clinic or egg donor agency (AR egg agency) must abide by all of the organizations ethical standards and guidelines. Id. 51-52. As a matter of distinction, many members note their compliance with ASRM or SARTs high standards on their websites. Id. 74, 82-96. Assisted reproduction is a relatively new field of medicine. Women who have difficulty conceiving children may turn to fertility specialists for assistance. In some cases, the eggs provided to women who become pregnant through assisted reproductive procedures come from third-party donors. See id. 36-37. Egg donations take many forms. Id. 46. Some women who provide Donor Services defined in the Complaint as the donation of eggs for assisted fertility and reproductive procedures do so without compensation to help a relative or close friend incapable of conceiving on her own. Id. 46. Others, however, donate their eggs to fertility clinics or AR egg agencies without any connection to any future recipient. Id. 46-47. These women usually receive compensation for the time, effort, discomfort, and health risks resulting from the medical procedures involved. Id. 48. Among other things, egg donation typically includes a screening process, a physical examination, testing for diseases, a course of hormones to stimulate egg production, and egg retrieval. Id. 38-45. Like many professional associations, ASRM has an Ethics Committee to provide guidance on the numerous ethical issues raised by the advancement of reproductive medicine. One of the
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many difficult and complex issues the ASRM Ethics Committee has tackled is the compensation of oocyte donors. According to the Complaint, ASRM first promulgated ethical guidelines concerning such compensation in 1994. Id. 56. The ASRM Ethics Committees most recent guidance on the subject, entitled Financial Compensation of Oocyte Donors 2007, states that [t]otal payments of donors in excess of $5000 require justification and sums above $10,000 are not appropriate. See Exhibit A; Comp. 60, 63. This guideline was first adopted in 2000, id. 57-60, and remains in place today. Id. 63-64. Some states, however, have enacted even more rigorous guidelines limiting fertility clinics and AR egg agencies to $3,000 or less per donation cycle. Id. 50; see Ind. Code Ann. 35-46-5-3(b)(1). According to Plaintiff, one state has banned compensation. Comp. 50; see La. Rev. Stat. Ann. 9:122 (The sale of a human ovum, fertilized human ovum, or human embryo is expressly prohibited.). By agreeing to follow the ASRM guidelines, Plaintiff claims that fertility clinics that are members of SART and AR egg agencies that serve them have entered into an agreement on the maximum compensation to be paid to oocyte donors for Donor Services. Comp. 69-80. At some point in the past four years, Plaintiff alleges that she provided Donor Services at a SART-member clinic in the Northern District of California. Id. 9. She asserts that the Ethics Committees guidelines suppressed the amount that the clinic was willing to pay her for Donor Services, though she does not disclose the amount of compensation she actually received. Id. 14, 97, 103. The Complaint concedes that egg donors typically receive
compensation at levels about the same as hourly sperm donor rates. Id. 61-62. It also alleges that, according to a 2007 survey, that amount was $4,217 per donation cycle at fertility clinics and $5,200 per donation cycle at egg agencies. Id. 98. Plaintiff makes no averment about compensation paid to egg donors by fertility clinics or egg donor agencies that are not members of ASRM or SART. While the Complaint does allege that 85% of the fertility clinics in the United States are members of SART, id. 11, 55, it contains no averment about the percentage of egg donor cycles performed by these clinics. Plaintiff purports to bring her claims individually and on behalf of all women who have provided Donor Services at any SART- or ASRM-member clinic across the United States
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within the past four years. Id. 4-5, 12. She claims that the ethical guidelines concerning compensation of egg donors violate section 1 of the Sherman Act, 15 U.S.C. 1, under both the per se rule and the rule of reason. On the rule of reason claim, for all members of the putative plaintiff class, Plaintiffs alleged market is Donor Services provided throughout the United States, including services provided both to fertility clinics and AR egg agencies. Id. 31-32. The Complaint, however, lacks any factual averments explaining how Plaintiff concludes that this relevant market exists. In addition to seeking certification of a plaintiff class, Plaintiff alleges a defendant class consisting of all SART-member Fertility Clinics and all AR egg agencies that agreed to comply with SART/ASRM rules on donor egg compensation and who paid for Donor Services at any time during the time period from April 12, 2007 to the present. Id. 19. Clinics and AR egg agencies in Indiana are excluded from the putative defendant class because Indiana law prohibits compensation to egg donors in any amount greater than $3,000. See Ind. Code Ann. 35-46-53(b)(1). Plaintiff asserts that the Defendant Class controls over 85% of the market for Donor Services, but, again, the Complaint lacks any allegations explaining the basis for this conclusion. Plaintiff seeks both damages for members of the putative plaintiff class and an injunction against the challenged ethical guidelines. III. LEGAL STANDARD Complaints are subject to dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure when there is a lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dept, 901 F.2d 696, 699 (9th Cir. 1990). Although the well-pleaded factual allegations of a complaint must be taken as true, more than labels and conclusions, and a formulaic recitation of the elements of a cause of action are necessary to survive a motion to dismiss. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Instead, a complaint must contain enough factual matter plausibly to suggest that a valid claim exists, and to raise a right to relief above the speculative level. Id. at 555-56; see also William O. Gilley Enters., Inc. v. Atl. Richfield Co., 588 F.3d 659, 669 (9th Cir. 2009) (antitrust plaintiff must plead not just ultimate facts (such as a conspiracy) but evidentiary
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facts); Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047-48 (9th Cir. 2008) (same). Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009). Moreover, a court is not bound to accept as true a legal conclusion couched as a factual allegation. Twombly, 550 U.S. at 555. To satisfy these requirements, an antitrust claim must be plausible in light of basic economic principles. William O. Gilley Enters., 588 F.3d at 662 (quoting Twombly, 550 U.S. at 556). As the Supreme Court explained in Iqbal, 129 S. Ct. 1937 (2009), a plaintiff must allege factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged and that plaintiff has a plausible claim for relief under the legal theory pleaded. Id. at 1949-50. Plaintiffs Complaint here fails to meet these standards. IV. ARGUMENT A. Defendants Ethical Guidelines Are Not Per Se Illegal 1. Defendants Ethical Guidelines Should be Analyzed Under the Rule of Reason
Plaintiffs principal legal theory may be stated succinctly: SART-member clinics and AR egg agencies have formed a per se illegal agreement to suppress the prices for Donor Services by agreeing to conform to the ASRM ethical guidelines concerning compensation of egg donors. Although section 1 of the Sherman Act prohibits [e]very contract, combination . . . or conspiracy[ ] in restraint of trade, 15 U.S.C. 1, it has long been settled that the statute bars only agreements between independent economic entities that unreasonably restrain competition. State Oil Co. v. Khan, 522 U.S. 3, 10 (1997); Standard Oil Co. v. United States, 221 U.S. 1 (1911). Antitrust law analyzes the reasonableness of agreements under one of two approaches: (1) the rule of reason or (2) the per se rule. The analytical mode applicable in any case is a question of law for the court to decide. Cal. ex rel. Harris v. Safeway, Inc., No. 08-55671, 2011 WL 2684942, at *2 (9th Cir. July 12, 2011) (attached as Exhibit B). The rule of reason is the accepted standard for testing whether a practice restrains trade in violation of 1, Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885 (2007), and is the default method of antitrust analysis. Texaco, Inc. v. Dagher, 547 U.S. 1, 5 (2006) (this
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Court presumptively applies rule of reason analysis to challenged conduct); see also Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49 (1977) (describing the rule of reason as the prevailing standard of analysis); Safeway, 2011 WL 2684942, at *11 (The rule of reason is the presumptive or default standard). Under the rule of reason, a court must assess all of the facts and circumstances surrounding a particular agreement and determine whether its anticompetitive effects, if any, outweigh its procompetitive benefits. See Chicago Bd. of Trade v. United States, 246 U.S. 231, 238 (1918); Safeway, 2011 WL 2684942, at *11 & n.10. By contrast, the per se rule is a conclusive presumption that a practice is unreasonable and therefore illegal without elaborate inquiry as to the precise harm [it] ha[s] caused or the business excuse for [its] use. N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958). Because the per se rule requires courts to make broad generalizations about the social utility of particular commercial practices, Sylvania, 433 U.S. at 50 n.16 [r]esort to per se rules is confined to restraints . . . that would always or almost always tend to restrict competition and decrease output. Leegin, 551 U.S. at 886 (quoting Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988)). Per se analysis is justified only for agreements that are manifestly anticompetitive, Sylvania, 433 U.S. at 49-50, and lack . . . any redeeming virtue. Nw.
Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 289 (1985); Safeway, 2011 WL 2684942, at *11. Accordingly, the per se rule has been reserved only for those practices with which the courts have had considerable experience, Broad. Music, Inc. v. Columbia Broad. Sys., 441 U.S. 1, 9 (1979) (BMI), and whose inherent economic character allows judges to predict with confidence that the rule of reason will condemn them in essentially all of their manifestations. Arizona v. Maricopa Cnty. Med. Socy, 457 U.S. 332, 344 (1982); see also Safeway, 2011 WL 2684942, at *14 (declining to apply per se rule because revenue-sharing agreement among grocers was not a type of restraint that had undergone careful judicial scrutiny and did not facially appear[ ] to be one that would always or almost always tend to restrict competition or decrease output.) (citation omitted). The Supreme Court has cautioned that the categories of agreements subject to per se condemnation are not to be expanded indiscriminately. FTC v. Ind. Fedn of Dentists, 476 U.S.
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447, 458 (1986). Instead, departure from the rule-of-reason standard must be based upon demonstrable economic effect rather than . . . upon formalistic line drawing. Sylvania, 433 U.S. at 58-59. Thus, courts have not extended the per se rule to factual settings where the economic impact of certain practices is not immediately obvious, State Oil, 522 U.S. at 10 (quoting Ind. Fedn of Dentists, 476 U.S. at 458-59), or to new factual situations not previously encountered. See, e.g., Intl Healthcare Mgmt. v. Hawaii Coal. For Health, 332 F.3d 600, 605 (9th Cir. 2003) (Per se categories are not to be expanded indiscriminately to new factual situations.); Am. Ad Mgmt. v. GTE Corp., 92 F.3d 781, 787 (9th Cir. 1996) (declining to apply per se rule and noting the Supreme Courts repeated statements that the per se approach is not to be extended to new factual situations); see also United States v. Microsoft Corp., 253 F.3d 34, 84 (D.C. Cir. 2001) (declining to apply per se rule to tying agreement because of lack of judicial experience with software market). Plaintiff alleges that because the challenged ethical guidelines establish certain parameters for the payment of egg donors, they constitute a form of price fixing and are thus per se illegal. There is no doubt that naked agreements among competitors to set prices have been held per se illegal. See, e.g., United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940). But in antitrust, context matters. Merely because an antitrust complainant labels a particular practice as price fixing does not determine the appropriate mode of analysis. As the Supreme Court has
consistently noted, easy labels do not always supply ready answers. BMI, 441 U.S. at 8 (applying rule of reason to a horizontal price-fixing claim). Even when a challenged business practice may literally be price fixing, per se condemnation does not inevitably follow. Id. at 9 (When two partners set the price of their goods or services they are literally price fixing, but they are not per se in violation of the Sherman Act.); see Dagher, 547 U.S. 1 (applying rule of reason to horizontal price-fixing allegation); NCAA v. Board of Regents, 468 U.S. 85 (1984) (applying rule of reason to challenged agreement even though the trial court found that competing entities had literally fixed prices); Natl Socy of Profl Engrs v. United States, 435 U.S. 679, 692-97 (1978) (applying rule of reason to professional societys ethical rule prohibiting competitive bidding); see also Ind. Fedn of Dentists, 476 U.S. at 458-59 (applying rule of reason
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to agreement among dentists to withhold x-rays from patients); Nw. Wholesale Stationers, 472 U.S. at 295-97 (applying rule of reason to alleged horizontal group boycott). Rather it is
necessary to characterize the challenged agreement as falling within or without the per se rule. BMI, 441 U.S. at 9. In this case, Plaintiff affirmatively alleges that the ethical standards were promulgated by medical associations to govern one aspect of assisted reproductive procedures namely, compensation to donors of oocytes that might be used in in vitro fertilization. Comp. 48, 5873. In other words, the relevant context in which the alleged agreement arises is professional medical associations promulgating ethical standards for the practice of certain assisted reproductive procedures. The Supreme Court has repeatedly cautioned against applying the per se rule in such a context without due regard for the professional setting in which the putative agreement arises: The fact that a restraint operates upon a profession as distinguished from a business is, of course, relevant in determining whether that particular restraint violates the Sherman Act. It would be unrealistic to view the practice of professions as interchangeable with other business activities, and automatically to apply to the professions antitrust concepts which originated in other areas. The public service aspect, and other features of the professions, may require that a particular practice, which could properly be viewed as a violation of the Sherman Act in another context, be treated differently. Goldfarb v. Va. State Bar, 421 U.S. 773, 788 n.17 (1975). Following Goldfarb, courts have been reluctant to apply the per se rule when the alleged restraint is designed to pursue legitimate objectives of professional associations and other nonprofit entities. See, e.g., Ind. Fedn of Dentists, 476 U.S. at 458 (applying rule of reason to a dental association rule prohibiting dentists from providing x-rays to patients and expressing reluctance to condemn rules adopted by professional associations as unreasonable per se); Natl Socy of Profl Engrs, 435 U.S. at 692-97 (rule of reason applicable to rule banning competitive bidding by professional engineers); see also NCAA, 468 U.S. at 100-03 (rule of reason applicable to agreement among non-profit universities to restrict output of televised college football). As the Third Circuit has noted, the test for determining what constitutes per se unlawful price-fixing is one of substance, not semantics, and [t]he economic models of behavior that spawn . . .
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predictions [of anticompetitive effects] are not equally applicable in all situations. United States v. Brown Univ., 5 F.3d 658, 670 (3d Cir. 1993). In the professional association context, the rationale for applying a rule of reason analysis is that the professionals they represent may have greater incentives to pursue ethical, charitable, or other non-economic objectives that conflict with the goal of pure profit maximization. Id. at 672. When professional associations adopt an alleged restraint motivated by these alternative goals, economic harm to consumers may be viewed as less predictable and certain and it is proper to entertain and weigh procompetitive justifications pursuant to the rule of reason. Id.2 2. Defendants Ethical Guidelines Protect the Health and Safety of Both Egg Donors and Recipients and Facially Enhance Output and Therefore Cannot be Per Se Illegal
A review of the ethical guidelines that Plaintiff is challenging demonstrates how far removed this case is from the typical per se claim. In those professional association cases in which the courts have applied the per se rule, the purpose of the agreement has been to increase the remuneration of the parties to the agreement. By contrast, the ethical guidelines at issue here contain no suggestion that either ASRM or SART seeks to enrich its membership by suppressing compensation paid to egg donors. Indeed, the Complaint contains no factual allegations
suggesting that the challenged ethical guidelines were promulgated with the aim to increase the
Defendants do not contend that the per se rule is never applicable in the professional context. The Supreme Court has occasionally found that the per se rule governs certain agreements entered into by professionals acting through their associations. In those cases, however, the Court has been careful to note that the associations actions were driven by a desire to restrict output and raise prices for their members rather than to establish ethical norms and other, non-economic professional standards. In Goldfarb, for example, the Supreme Court treated a minimum fee schedule promulgated by a county bar association and enforced through the disciplinary procedures of the state bar as per se illegal because the rationale for the schedule was not altruistic. Goldfarb, 421 U.S. at 786 n.16. Similarly, in Maricopa County, the Court held a maximum fee schedule adopted by competing doctors in Arizona per se illegal, noting that the challenged agreement was purely economic and not premised on public service or ethical norms. Maricopa Cnty., 457 U.S. at 349; see also FTC v. Superior Court Trial Lawyers Assn, 493 U.S. 411, 427 (1990) (declaring group boycott organized by lawyers association per se illegal because the immediate objective was to increase the price that [the lawyers] would be paid for their services).
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revenues or profits of clinics and egg donor agencies.3
Instead, the guidelines are firmly
grounded in concerns related to protecting the health and safety of both egg donors and recipients, guarding against the devaluation of human life that might result were oocytes treated as commodities, and expanding the availability of assisted reproductive technologies to infertile persons or couples. At the outset, the Ethics Committee Report accompanying the guidelines notes that the compensation of egg donors raises two ethical questions: [1] do recruitment practices incorporating remuneration sufficiently protect the interests of oocyte donors, and [2] does financial compensation devalue human life by treating oocytes as property or commodities. Ethics Committee Report (Exhibit A) at 305. The guidelines resolve these ethical questions by striking a delicate balance that compensates donors for their time and inconvenience but not for the oocytes themselves. This balance protects the health and safety of egg donors while
simultaneously ensuring the continued availability of donated eggs to infertile couples and preserving the value of human life. First, the ethical guidelines are intended to protect the health and safety of both egg donors and recipients undergoing assisted reproductive technology procedures. The Complaint concedes that egg donors are screened for a number of infectious diseases. Comp. 40. Even if a potential donor does not have any such diseases, some of those diseases may be associated with certain high risk behaviors. Persons who have engaged in such conduct may not be suitable as potential donors. Yet the only way clinics and donor agencies may reasonably screen out such potential donors is if the donors themselves answer questions about their activities honestly. Similarly, even otherwise healthy persons may have a family history of certain physical, genetic, or psychological problems that either make donation inadvisable for the potential donor or that suggest eggs from such potential donor would pose substantial health risks to any children conceived as a result of the donation. Again, the only way that clinics and donor agencies can
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The absence of allegations on this point is understandable because the cost of egg donation is not ultimately paid by clinics and agencies but is an expense paid by the recipient of the donation. Thus, allegedly suppressing the level of payments to egg donors does not increase the profits of clinics or donor agencies. 11
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conceivably obtain such information is through forthright disclosure by the potential donor herself. Given these inherent medical risks and the need for complete and honest revelation of pertinent information by potential donors, the ASRM Ethics Committee promulgated the challenged guidelines to minimize, if not completely eliminate, the risk that particularly high payments would induce prospective donors to conceal medical information relevant to their own health or that of their biologic offspring. Ethics Committee Report at 306. Such concerns are both legitimate and procompetitive because they enhance the safety of donation for egg donors and recipients of donated oocytes who undergo assisted reproductive procedures. Enhancing the safety of the donation process has the potential for increasing output by encouraging women to donate eggs and by encouraging those affected by infertility to view assisted reproductive technologies using donated oocytes as a reasonable alternative. As the Supreme Court has noted, when private associations promulgate safety standards based on the merits of objective expert judgments . . . those private standards can have significant procompetitive advantages. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 500 (1988); see also Profl Engrs, 435 U.S. at 696 (noting that [e]thical norms promulgated by professional associations may serve to regulate and promote competition among professionals and thus fall within the rule of reason). This is particularly true in the medical profession, in which there are striking disparities between the information available to the professional and the patient and monitoring by individual patients or clients may be inadequate given the specialized knowledge required to evaluate the services. Cal. Dental Assn v. FTC, 526 U.S. 756, 771-72 (1999) (holding that competitive effects of a professional dental associations ethical rules banning advertising of certain price discounts must be evaluated under the full rule of reason despite a finding that the rule had increased prices for dental services). Accordingly, a number of courts have expressly recognized that professional standards adopted to promote health and safety should not be subjected to per se condemnation. See, e.g., Craftsmen Limousine, Inc. v. Ford Motor Co., 363 F.3d 761, 776 (8th Cir. 2004) (Because the alleged restraints were arguably based, at least in part, on safety concerns, they may have had some procompetitive effects. It
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follows that an abbreviated per se analysis was inappropriate.); Moore v. Boating Indus. Assns, 819 F.2d 693, 710-11 (7th Cir. 1987) (To promote compliance with the [National Traffic and Motor Vehicle Safety Act] and the standards under it, admittedly the purpose of defendants in their compliance program, is not an activity which is characteristically likely to result in predominantly anticompetitive effects. There is no justification, therefore, for applying a per se analysis to such activity.) (internal citation and quotation omitted). That same principle applies in this case. Here, the challenged ethical guidelines address significant medical concerns that may pose health risks for both egg donors and recipients. The ethical guidelines are designed to minimize those risks and therefore cannot be said to have predominantly anticompetitive effects. See Kreuzer v. Am. Acad. of Periodontology, 735 F.2d 1479, 1492 (D.C. Cir. 1984) (When a conspiracy of this sort is alleged in the context of one of the learned professions, the nature and extent of its anticompetitive effect are often too uncertain to be amenable to per se treatment.). As such, they are not subject to categorical condemnation under the Sherman Act. Wilk v. Am. Med. Assn, 719 F.2d 207 (7th Cir. 1983) (a canon of medical ethics purporting, surely not frivolously, to address the importance of scientific method gives rise to questions of sufficient delicacy and novelty at least to escape per se treatment). Second, the ethical guidelines have important and legitimate social welfare justifications. As the Ethics Committee Report notes, compensated egg donation poses significant risks that donors may be exploited or subjected to undue inducement that alters their conduct. See Ethics Committee Report at 306 (Both monetary compensation and oocyte sharing create the possibility of undue inducement and exploitation in the oocyte donation process.); id. at 308 (Payments to women providing oocytes should be fair and not so substantial that they become undue inducements that will lead donors to discount risks.). Furthermore, unfettered payment of oocyte donors implies that [oocytes] are property or commodities, and thus devalues human life. Id. at 306. Such payments also could be used to promote the birth of persons with traits deemed socially desirable, which is a form of positive eugenics. Id. The challenged ethical guidelines are intended to allay these potential concerns that egg donation exploits egg donors or is a form of selective breeding by striking a balance that
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compensates egg donors for their time and inconvenience instead of compensating them for either the oocytes themselves or any supposedly desirable traits of the donor of particular oocytes. The guidelines resolution of this delicate ethical issue is also output-enhancing in that, without such guidelines, any negative public perception of assisted reproductive technologies may discourage egg donation and thus reduce the medical options available to those affected by infertility. When justifications rooted in social welfare concerns potentially enhance the choices available to consumers, then those justifications trigger full rule of reason analysis under the Sherman Act. Brown University illustrates the point. In that case, the Third Circuit considered an agreement among certain universities that restricted financial aid to students who had demonstrated financial need and set the levels of such aid offered to students admitted to more than one of the agreeing universities. See Brown Univ., 5 F.3d at 666 (treating the challenged agreement as part of the commercial process of setting tuition levels). While the Supreme Court had previously held that agreements among competitors limiting discounts are subject to per se condemnation, see Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980), the Third Circuit refused to apply the per se rule to the financial aid agreement in part because of the social welfare justifications supporting the arrangement. The defendant in Brown noted that the
agreement served the undisputed public interest in equality of educational access and opportunity. Brown Univ., 5 F.3d at 672. That rationale for the alleged restraint, coupled with the absence of any profit-maximizing motivation for the agreement, the court held, required application of the rule of reason. Id.; see also id. at 677 (requiring full rule of reason analysis because the challenged agreement not only serves a social benefit, but actually enhances consumer choice). The reasoning in Brown University is fully applicable to the ethical guidelines at issue in this case. One of the overarching purposes of the guidelines is to address significant social welfare concerns such as the potential exploitation and undue inducement of egg donors, the potential for selective breeding, and the devaluation of human life. Left unaddressed, these concerns would otherwise make assisted reproductive technologies a less viable alternative to persons and couples affected by infertility. Nothing in Plaintiffs Complaint even addresses this
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possibility. Third, the ethical guidelines enhance output by expanding the availability of assisted reproductive technologies for infertile persons or couples. The guidelines confront the question of whether egg donors should be compensated at all and squarely resolve that issue in favor of payment in order to increase[ ] the number of oocyte donors, which, in turn, allows more infertile persons to have children. Ethics Committee Report at 307.4 The fact that the guidelines are based in part on this output-enhancing rationale makes application of the per se rule inappropriate and necessitates analysis of Plaintiffs claim under the rule of reason. Nothing in the Ethics Committee Report or in the factual allegations of the Complaint suggests that the aims or effect of the ethical standards is to restrict output or advance the economic interests of ASRM and SART members. Moreover, that the Ethics Committee would conclude that compensation is, in fact, ethical was hardly inevitable. Plaintiffs Complaint asserts that one state has banned compensation of oocyte donors, Comp. 50; La. Rev. Stat. Ann. 9:122, while another has capped it. Comp 50; Ind. Code Ann. 35-46-5-3(b)(1). Further, numerous countries around the world have carefully considered the propriety of compensating egg donors5 and have banned such compensation,
The report gives at least three other justifications for compensation, noting that provision of financial or in-kind benefits to egg donors does not necessarily discourage altruistic motivations, Ethics Committee Report at 307, advances the ethical goal of fairness to donors, id., and need not subject donors to pressures that are any greater than those experienced by women asked to make altruistic donations to relatives and friends. Id. 5 For example, the Canadian law banning compensation for egg donors states: (b) the benefits of assisted human reproductive technologies . . . can be most effectively secured by taking appropriate measures for the protection and promotion of human health, safety, dignity and rights in the use of these technologies and in related research. . . (f) trade in the reproductive capabilities of women and men and the exploitation of children, women and men for commercial ends raise health and ethical concerns that justify their prohibition. Assisted Human Reproduction Act, S.C. 2004, c. 2 art. 2 (Canada) available at http://laws.justice.gc.ca/eng/acts/A-13.4/index.html.
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despite the potential for reduced output and availability of donated eggs to infertile couples.6 The ethical guidelines also enhance output by ensuring the continued availability of oocytes to infertile persons or couples of varying economic means. Persons or couples
experiencing fertility problems directly bear the expense of compensating egg donors for their time. Therefore, increases in the cost of donations will both increase the cost of assisted
reproductive procedures and decrease the demand for (and availability of) donated oocytes for many of those infertile persons or couples. Any analysis of the competitive effects of the guidelines must account for this economic reality, which further establishes that the economic impact of [the challenged] practice[ ] is not immediately obvious. State Oil, 522 U.S. at 10. In sum, Defendants ethical guidelines protect critical health and safety interests of egg donors and recipients, resolve substantial social welfare concerns regarding the exploitation of egg donors and the devaluation of human life, and expand the output and availability of donated oocytes to infertile persons and couples. Given these procompetitive interests advanced by the guidelines, and the fact that the guidelines do not serve to increase the profits of Defendants, the See, e.g., Law on the Donation and Use of Elements and Products of the Human Body, Medically Assisted Procreation, and Prenatal Diagnosis, CODE PENAL [C. PEN.] art. 511-9 (France) available at http://195.83.177.9/code/liste.phtml?lang=uk&c=33&r=3854 (banning compensation); Prohibition of Human Cloning Act 2002 (Cth) pt. 2 s 23 (Australia) available at http://www.comlaw.gov.au/Details/C2004A01081 (banning compensation); The Genetic Integrity Act, [SFS] 2006:351, ch. 8 6 (Sweden) available at http://www.smer.se/bazment/266.aspx (banning compensation); Embryowet [Embryos Act] Stb. 2002, p. 338 5 (Netherlands) available at http://www.ccmo-online.nl/hipe/uploads/downloads/Embryos-Act.pdf (banning compensation); Norme in materia di procreazione medicalmente assistita [Rules on Medically Assisted Procreation], Legge 19 febbraio 2004, n. 40, in Gazz. Uff. n.45 del 24-2-2004, ch. 4 6 (Italy) available at http://www.ieb-eib.org/en/pdf/loi-pma-italie-english.pdf (banning compensation); Loi relative la procration mdicalement assiste et la destination des embryons surnumraires et des gamtes [Law on Medically Assisted Reproduction and the Disposition of Supernumerary Embryos and Gametes] July 6, 2007, art. 51 2 (Belgium) available at http://staatsbladclip.zita.be/moniteur/lois/2007/07/17/loi-2007023090.html (banning compensation); see also Human Fertilisation and Embryology Act, 1990, c. 37, 12(1)(e) available at http://www.legislation.gov.uk/ukpga/1990/37 and Human Fertilisation and Embryology Authority Code of Practice 13 available at http://www.hfea.gov.uk/docs/8th_Code_of_Practice.pdf (United Kingdom) (capping compensation at 250); Gesetz zum Schutz von Embryonen [The Embryo Protection Act], Dec. 13, 1990 BGBl. 1 at 2746, 1 (Germany) available at http://www.auswaertigesamt.de/cae/servlet/contentblob/480804/publicationFile/5162/EmbryoProtectionAct.pdf (banning donation); Bundesgesetz uber die medizinisch unterstutzte Fortpflanzung [Federal Act on Medically Assisted Reproduction], Dec. 18, 1998, SR 810.11, art. 4 (Switzerland) available at http://www.admin.ch/ch/e/rs/810_11/index.html#id-ni4 (banning donation); cf. National Organ Transplant Act of 1984 301, 42 U.S.C. 274e (banning compensation for human organs).
6
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ethical guidelines cannot be held per se illegal. Thus, to the extent that the Complaint relies on the per se rule, it lack[s] . . . a cognizable legal theory, Balistreri, 901 F.2d at 699, and therefore does not state a claim for relief. B. Plaintiffs Complaint Fails to Plead a Rule of Reason Claim
Because Plaintiffs claim is not subject to per se analysis, her Complaint survives only if she has alleged sufficient facts to state a claim under the rule of reason. In order to state a valid claim under the Sherman Act, a plaintiff must allege that the defendant has market power within a relevant market. Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1044 (9th Cir. 2008). That, in turn, requires an allegation of both a product market and a geographic market, id. at 1045 n.4, and factual averments plausibly suggesting that defendants have market power in that market. Tanaka v. Univ. of S. Cal., 252 F.3d 1059, 1063 (9th Cir. 2001) (plaintiff must plead and prove that the alleged agreement produces significant anticompetitive effects within a relevant market) (emphasis added) (internal citation and quotation marks omitted). Indeed, it is the impact upon competitive conditions in a definable market which distinguishes the antitrust violation from the ordinary business tort. Id. at 1064 (internal citation and quotation marks omitted). A rule of reason claim that includes a facially unsustainable relevant market
definition must be dismissed. Golden Gate Pharmacy Servs., Inc. v. Pfizer, Inc., No. C-09-3854, 2010 WL 1541257, at *2 (N.D. Cal. Apr. 16, 2010) (attached as Exhibit C) (citing Newcal Indus., 513 F.3d at 1045); see also Tanaka, 252 F.3d at 1063 (affirming dismissal when neither product nor geographic market was appropriately defined for antitrust purposes); Big Bear Lodging Assn v. Snow Summit, Inc., 182 F.3d 1096, 1105 (9th Cir. 1999) (affirming dismissal when plaintiffs failed to allege that there were other products reasonably interchangeable with lodging accommodations or ski packages); Shred-It Am., Inc. v. MacNaughton, No. 10-00547, 2011 WL 1842997 at *6 (D. Haw. May 13, 2011) (attached as Exhibit D); Ticketmaster L.L.C. v. RMG Techs., Inc., 536 F. Supp. 2d 1191, 1195 (C.D. Cal. 2008). The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962); see also United
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States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395 (1956) (finding that a product market must consist of commodities reasonably interchangeable by consumers for the same purposes). Interchangeability implies that one product is roughly equivalent to another for the use to which it is put, while [c]ross-elasticity of demand is a measure of the substitutability of products from the point of view of buyers. Queen City Pizza, Inc. v. Dominos Pizza, Inc., 124 F.3d 430, 437, 438 n.6 (3d Cir. 1997) (internal citation omitted). Plaintiffs must plead the proposed relevant market with reference to the rule of reasonable interchangeability and cross-elasticity of demand. Id. at 436. In other words, the plaintiff must allege that the relevant market
encompass[es] the product at issue as well as all economic substitutes for the product. Newcal Indus., 513 F.3d at 1045. If plaintiffs allege[ ] a proposed relevant market that clearly does not encompass all interchangeable substitute products . . . , the relevant market is legally insufficient and a motion to dismiss may be granted. Queen City Pizza, 124 F.3d at 436; see also Newcal Indus., 513 F.3d at 1045; Golden Gate Pharmacy Servs., 2010 WL 1541257, at *2. The same rule applies to an alleged relevant geographic market. Plaintiff must identify the relevant geographic market and provide sufficient factual allegations that the alleged geographic market is the area of effective competition in which buyers of [the relevant] products can find alternative sources of supply. Big Bear Lodging, 182 F.3d at 1105. The relevant geographic market must be defined as the areas in which the seller operates and where consumers can turn, as a practical matter, for supply of the relevant product. Heerwagen v. Clear Channel Commcns, 435 F.3d 219, 227 (2d Cir. 2006) (evaluating cross-elasticity of demand for live rock concert tickets between geographic areas); see also Republic Tobacco Co. v. N. Atl. Trading Co., 381 F.3d 717, 738 (7th Cir. 2004). Inadequate definition of the relevant geographic market is grounds for dismissal. Big Bear Lodging, 182 F.3d at 1105; see also Elecs. for Imaging, Inc., v. Coyle, No. C 01-4853, 2005 WL 1661958, at *3 (N.D. Cal. July 14, 2005) (attached as Exhibit E) (dismissing complaint that failed to allege a relevant geographic market adequately). In this case, Plaintiffs allegations regarding both the relevant product market and relevant geographic market are insufficient on their face. With respect to the product market, Plaintiff
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avers only that the market is Donor Services in a single, conclusory sentence. Comp. 31. The mere assertion of a product market is a legal conclusion, see Golden Gate Pharmacy Servs., 2010 WL 1541257 at *4-5 (assertion of relevant market without factual allegations is legally insufficient), and thus not entitled to a presumption of truth. Iqbal, 129 S. Ct. at 1949-50 (courts not bound to accept as true a legal conclusion couched as a factual allegation). Plaintiff fails to plead any facts showing why this is the proper market, why the boundaries of the market are defined as they are, or whether the market encompasses all reasonably interchangeable substitutes. This deficiency alone is sufficient basis to dismiss the rule of reason claim. See, e.g., Shred-It Am., Inc., 2011 WL 1842997, at *6; Ticketmaster, 536 F. Supp. 2d at 1195. Moreover, the Complaint alleges facially contradictory facts regarding what Donor Services means and what is included in this alleged market. For example, at one point the Complaint defines Donor Services to include purchasers of human egg donor services. Comp. 1. Yet at another it alleges that the Defendant Class controls over 85% of the relevant product market, id. 31, purportedly because Defendants allegedly represent[ ] over 85% of the clinics engaged in the practice of assisted reproductive technologies in the United States. Id. 11 (emphasis added). These statements suggest that the alleged relevant product market is limited to Donor Services purchased by clinics.7 The Complaint, however, admits that there are numerous purchasers of Donor Services other than clinics, including entirely unregulated and unlicensed AR egg donor agencies and the individual recipients of the eggs themselves, acting either independently or through a broker,
To the extent Plaintiffs intended to allege a product market consisting of Donor Services purchased by any entity or person, the Complaint contains no allegation of Defendants market share in that market, much less that Defendants have market power in that putative market. The Complaint only asserts that Defendants represent[ ] over 85% of the clinics engaged in the practice of assisted reproductive technologies in the United States. Comp. 11, 31 (emphasis added). Even assuming market share in the alleged market should be determined by the number of purchasers (and not, for example, by the number of transactions or the dollar value of such transactions), the Complaint contains no allegation whatsoever regarding the percentage of purchasers represent[ed] by Defendants when one includes the independent egg donor agencies and individual recipients who purchase Donor Services in the United States. The failure to allege market power in the relevant market is also grounds for dismissal of Plaintiffs rule of reason claim. Newcal Indus., 513 F.3d at 1044 ([P]laintiff must allege both that a relevant market exists and that the defendant has power within that market.).
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agent, or other intermediary. Id. 46. These admissions contradict Plaintiffs alleged relevant product market, which appears to exclude both agencies and individual recipients who purchase Donor Services. A rapidly-expanding number of agencies routinely purchase Donor
Services, as do individual egg recipients and researchers, and Donor Services sold to agencies and recipients are reasonably interchangeable substitutes for those sold to clinics. See Newcal Indus., 513 F.3d at 1045. In addition, oocytes are often donated to recipients free of charge based on the altruistic motive of assisting persons or couples with fertility problems. Plaintiffs failure to allege the factual basis for excluding these interchangeable substitutes is fatal to the rule of reason claim in the Complaint. Golden Gate Pharmacy Servs., 2010 WL 1541257, at *4 (citing Queen City Pizza, 124 F.3d at 436). There are also numerous other substitutes available to prospective egg donors, none of which are addressed by the Complaint. Individuals considering selling egg Donor Services to clinics, agencies, individuals, researchers, or other entities also may instead take advantage of numerous alternative income-generating opportunities. Some such opportunities may be
particularly close substitutes for egg donation, such as blood, platelet, or plasma donation or paid clinical trials by hospitals, universities, companies, or research institutions. Although not without medical risk, these substitute opportunities provide substantial compensation for a donors or volunteers time and inconvenience, as well as the personal satisfaction (as with egg donation) of contributing to the health and well-being of others. The Complaint makes no attempt to explain why these, and numerous other, opportunities are not reasonably interchangeable substitutes from the perspective of potential donors. Accordingly, the rule of reason claim should be dismissed. See, e.g., Shred-It Am., Inc., 2011 WL 1842997, at *6; Ticketmaster, 536 F. Supp. 2d at 1195. Plaintiffs geographic market allegations fare no better. She devotes a mere eight words to the relevant geographic market in the Complaint, baldly asserting that the market is coextensive with the geographic boundaries of the United States, again without any factual support. In order to plead a geographic market consisting of the entire United States, Plaintiff must allege sufficient facts to show that individual sellers of Donor Services sell those services nationwide and that individual consumers of Donor Services also turn to donors located
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nationwide. Plaintiff has not alleged how far donors might be willing to travel to provide Donor Services or how far recipients might be willing to go to find a potential donor or to undergo an assisted reproductive technology procedure. As alleged in the Complaint, egg donation requires frequent visits to a clinic for physical and psychological screening, blood and ultrasound tests, and ultimate retrieval. Compl. 38-45. Plaintiff has alleged no facts to support the proposition that donors would make frequent trips of potentially thousands of miles across the United States to donate eggs. Further, Plaintiff does not allege that any member of the Defendant class solicits or receives donors from outside its local area or markets to or provides oocytes to recipients residing outside its local area. The failure to allege sufficient facts to support the proposed geographic market also warrants dismissal of Plaintiffs rule of reason claim. Big Bear Lodging, 182 F.3d at 1105.
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V.
CONCLUSION For the foregoing reasons, Defendants ASRM and SART respectfully request that
Plaintiffs First Amended Class Action Complaint be dismissed with prejudice. Respectfully submitted, Date: July 15, 2011 HOGAN LOVELLS US LLP
By: /s/ Megan Dixon Megan Dixon (Cal. Bar No. 162895) HOGAN LOVELLS US LLP 4 Embarcadero Center 22nd Floor San Francisco, California 94111 Telephone: (415) 374-2300 Facsimile: (415) 374-2499 E-Mail: megan.dixon@hoganlovells.com Attorney for Defendants American Society for Reproductive Medicine and Society for Assisted Reproductive Technology
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Case4:11-cv-01781-SBA Document33

DEFENDANTS MOTION TO DISMISS FIRST AMENDED CLASS ACTION COMPLAINT

CASE NO. 4:11-CV-01781 SBA

DEFENDANTS MOTION TO DISMISS FIRST AMENDED CLASS ACTION COMPLAINT

CASE NO. 4:11-CV-01781 SBA

DEFENDANTS MOTION TO DISMISS FIRST AMENDED CLASS ACTION COMPLAINT

CASE NO. 4:11-CV-01781 SBA

Plaintiffs Complaint Fails to Plead a Rule of Reason Claim............................... 17

DEFENDANTS MOTION TO DISMISS FIRST AMENDED CLASS ACTION COMPLAINT

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TABLE OF AUTHORITIES Page

DEFENDANTS MOTION TO DISMISS FIRST AMENDED CLASS ACTION COMPLAINT

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DEFENDANTS MOTION TO DISMISS FIRST AMENDED CLASS ACTION COMPLAINT

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revenues or profits of clinics and egg donor agencies.3

Instead, the guidelines are firmly

DEFENDANTS MOTION TO DISMISS FIRST AMENDED CLASS ACTION COMPLAINT

CASE NO. 4:11-CV-01781 SBA

CASE NO. 4:11-CV-01781 SBA

CASE NO. 4:11-CV-01781 SBA

CASE NO. 4:11-CV-01781 SBA

CASE NO. 4:11-CV-01781 SBA

CASE NO. 4:11-CV-01781 SBA

CASE NO. 4:11-CV-01781 SBA

CASE NO. 4:11-CV-01781 SBA

CASE NO. 4:11-CV-01781 SBA

DEFENDANTS MOTION TO DISMISS FIRST AMENDED CLASS ACTION COMPLAINT

CASE NO. 4:11-CV-01781 SBA

DEFENDANTS MOTION TO DISMISS FIRST AMENDED CLASS ACTION COMPLAINT

CASE NO. 4:11-CV-01781 SBA

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