Comments on: Disgorgement and Damages in Ovation

By: Mary Coleman

Mary Coleman — Fri, 16 Jan 2009 22:11:00 +0000

Then I guess this is an issue that won’t come up in this matter. One wonders though if private plaintiffs would have the incentive to tackle this issue – as noted, they usually do not.

By: antitrust guy

antitrust guy — Fri, 16 Jan 2009 17:02:05 +0000

Mary — yours is a problem for private plaintiffs, and an interesting one. Disgorgement is just that–disgorgment of unlawful profits. The remedy relies on equity, not law, for its basis. The fact that Ovation lost sales because of the higher price is irrelevant to them–that’s the deadweight loss, not a shift in surplus from customers to them. Disgorgement seeks *only* to divest them of the profits they made, nothing more.

By: Mary Coleman

Mary Coleman — Fri, 16 Jan 2009 01:44:30 +0000

Just another thought – it is interesting that the cases where the potential for lost sales due to higher prices are likely to be most important and interesting – i.e., when the price increase is large – are also the times when the assumptions one makes about the shape of demand and thus the size of the volume loss matters more. As I noted, in this case, there might be some ability to actual try to estimate what happened to demand and the growth in demand rather than just rely on the shape of demand. Of course, all of this assumes one can show that the price change was due to the challenged conduct which has been noted itself will be a challenge (and of course impacts not only any attempt to estimate damages from lost sales but also damages from actual sales).

By: Mary Coleman

Mary Coleman — Fri, 16 Jan 2009 01:26:15 +0000

No – not at all. First, the demand issue has little impact on seeking disgorgement related to sales that actually occurred. What I was discussing was whether or not one should seek damages for sales that did not occur as a result of the price increase. Clearly this is most attractive when there is a large price increase and thus more likely to be higher lost sales but it also makes estimating demand and thus lost sales more difficult as usually we try to estimate demand within a relative small range of price changes (although clearly one could try a range of alternative formulations for demand to get a range of possible estimates).

By: antitrust entity

antitrust entity — Fri, 16 Jan 2009 00:57:52 +0000

Comment 2 puzzles me. I agree that it may be hard to understand what would happen to demand if price rose so much, in the sense that the magnitude of the change in the quantity sold may be difficult to estimate with precision. But do you truly mean to say that this presents a “problem for even pursuing this”? Are you suggesting that the FTC should be MORE reluctant to pursue disgorgement when the alleged price increase is high then when it is low? Would you apply the same theory to a private damages action, and argue that a court should be particularly cautious in awarding damages when customer injury is likely to be very high?

By: Mary Coleman

Mary Coleman — Thu, 15 Jan 2009 23:04:22 +0000

I agree that demand is likely to be fairly inelastic particularly for a product like this but given the large price increase, even a very low elasticity would lead to a fairly sizeable change in demand. They are claiming a price increase of almost 1000%. Say the elasticity of demand were only -0.1 (very low) – you could still end up with a very high % reduction depending on the shape of the demand curve.

However, this raises another problem for even pursuing this – trying to understand what demand would look like with such a large change is likely to be hard. Of course, one thing they could do is see what happened to sales after the price increased – did they go down or did the growth rate significantly decline?

I also agree that proving the baseline price is likely to be the real challenge here.

By: antitrust guy

antitrust guy — Thu, 15 Jan 2009 22:46:48 +0000

From the halls of rank speculation, wouldn’t we expect these drugs to have fairly inelastic demand? It’s for treating babies with a condition where the alternatives are (a) surgery or (b) death and is in many cases likely paid for by insurance.

What may be more difficult is proving the baseline price but for the second acquisition. Here, Comm’r Rosch’s theory that the first transaction was also a violation of Section 7 (by removing pricing constraints) would have, if used, avoided this proof problem because the price originally charged would then be a very good benchmark.