The legal battle over access to the fat substitute EPG intensified this week as David Protein urged a court in New York to toss a third amended complaint from a trio of food companies accusing it of anticompetitive behavior.
The dispute highlights how access to specialized ingredients can make or break startups and could test how far companies can go in locking up critical ingredients to shape emerging product categories.
As security of supply for EPG became mission critical given David’s explosive growth (EPG is a core ingredient in its protein bars), David acquired EPG maker Epogee last May. As supplies were limited, it cut off access to other customers, three of which filed a lawsuit* accusing David of excluding competitors and creating an artificial monopoly.
Several other former Epogee customers also gave sworn statements outlining the harm they suffered after losing access to EPG.
Is there a separate market for high calories from protein (CFP) bars?
Thus far, US district judge Victor Marrero has repeatedly sided with David, but recently gave plaintiffs leave to file a third amended complaint to correct what he claimed were deficiencies in their case, particularly around how they defined the relevant market in which David competes.
According to the latest complaint, the relevant product market for antitrust purposes is high-calories from protein (CFP) protein bars, where roughly 50-75% of calories are from protein. Given EPG has just 0.7 calories per gram vs the standard 9 calories per gram for regular fat, formulators without access to EPG will struggle to achieve a CFP higher than 47% without encountering major problems, say plaintiffs.
“No protein bar using a quality protein source can enter this range without EPG. Defendants hold 100% of sales in this market.”
‘An exercise in semantic gamesmanship’
In a May 1 filing, attorneys for David argue that this is “an exercise in semantic gamesmanship.”
Consumers “shop for protein bars, not EPG-based or high-CFP protein bars,” claims David. “There is no supermarket aisle for ‘high-CFP’ protein bars—defendants’ protein bars are shelved together with all the other protein bars that do not contain EPG.”
Moreover, the plaintiffs do not currently compete in the high-CFP bar space and therefore lack standing to bring an antitrust case alleging a monopoly in this market, even if it exists, claims David: “None of the plaintiffs sold high-CFP protein bars or was anywhere near prepared to sell them.”
Moreover, the plaintiffs have not proved David’s actions have had an adverse effect on competition, they add, noting that David has “maintained its $3.25 per-bar price since commercial launch.”
Finally, adds David, which recently unveiled plans to start selling EPG to large CPG companies, EPG is a patented ingredient and “patent holders are not obligated to sell their product to third parties or to license third parties to practice the patent.”
Plaintiffs “have now tried four times to plead a viable complaint,” it adds. “The third amended complaint should be dismissed, this time with prejudice.”
The plaintiffs (OWN Your Hunger, Lighten Up Foods, and Defiant Foods), however, allege that David “acquired control to eliminate every emerging competitor in the high-CFP protein bar market.
“Defendants’ monopoly power in the downstream market is not the product of a superior product, business acumen, or historic accident; it is the direct result of acquiring the sole supplier of EPG and refusing to sell the monopolized input to any downstream competitor.”
Further reading:
Peter Rahal, David Protein, sued over ‘bait & switch’ scheme to monopolize Epogee’s fat replacer
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