Cash & Henderson Drugs, Inc. v. Johnson & Johnson, Caremark L.L.C.Cash & Henderson Drugs, Inc. v. Johnson & Johnson, Caremark L.L.C.
Plaintiffs-appellants, a group of twenty-eight retail pharmacies, appeal from a judgment of the United States District Court for the Eastern District of New York (Gold, M.J.) dismissing their claims for money damages and injunctive relief under subsections 2(a), 2(d), and 2(f) of the Robinson-Patman Act, 15 U.S.C. § 13(a), 13(d), 13(f), and Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26.
Defendants-appellees are primarily pharmaceutical manufacturers. It is undisputed that, since the early 1990s, the defendants have offered lower prices — typically through rebates or discounts — on brand name prescription drugs to “favored purchasers.” These purchasers include entities such as staff-model health maintenance organizations (HMOs) and pharmacy benefit managers. HMOs provide comprehensive, managed health care by their member physicians with limited referral to outside specialists. As with traditional health insurers, members make regular payments to the organization. Staff-model HMOs offer services provided by the HMO’s own staff, rather than by third-party providers that contract with the HMO. Pharmacy benefit managers manage benefits for insurers and HMOs. The pharmacy benefit managers sometimes engage in retail sales directly or through mail-order pharmacies that they control. The drugs in question include a wide variety of brand name medicines, such as Lipitor, Celebrex, and Zoloft, used to treat high cholesterol, arthritis, and depression, respectively.
Plaintiffs’ main contentions are that the lower prices offered by manufacturers violate the Robinson-Patman Act by harming their ability to compete, and that favored purchasers violated the Act by using their drug formularies to extract the lower prices.
This case has a complicated history. Plaintiffs opted out of a class action filed against drug manufacturers in the early 1990s that was part of a multi-district litigation consolidated in the Northern District of Illinois. The class action alleged Sherman Act violations on the part of the manufacturers due to a two-tier pricing system. These claims ultimately failed. In re Brand Name Prescription Drugs Antitrust Litigation, Nos. 94-CV-897, 94-MDL-997 (CPK),
In those proceedings, certain plaintiffs and certain defendants were designated to move forward with discovery, and the designated defendants sought summary judgment. The district court denied summary judgment on the designated plaintiffs’ Section 2(a) and 2(d) liability claims, of which competitive injury was an element. Drug Mart Pharmacy Corp. v. Am. Home Products Corp.,
In an attempt to cure the fatal defect in the designated plaintiffs’ case, these remaining plaintiffs devised, under court supervision, a matching process under which plaintiffs would attempt to identify customers they had lost to the favored purchasers. Thirty plaintiffs were randomly selected to participate in the matching process. After two additional plaintiffs dismissed their claims, there were twenty-eight remaining plaintiffs — who are the plaintiffs-appellants here. Id. at *4. Plaintiffs believed (and assured the court) that the matching process would yield a “material number” of lost customers. Id. The process went forward between March 2010 and May 2011, during which time plaintiffs obtained extensive discovery from five favored purchasers: Caremark, LLC, Advance PCS, Express Scripts, Medco, and Omnicare. Id. at *4-5. This process was pivotal to the resolution of the litigation because if plaintiffs could not show they lost customers to the favored purchasers during the years the rebates were in place, then they would be hard pressed to show competitive injury or damages.
The process was overseen by Magistrate Judge Gold and carefully designed and supervised to produce reliable matches. The parties focused their efforts on patients purchasing drugs used for chronic conditions, a population likely to continue to need the same or substantially similar drugs. The twenty-eight plaintiffs identified customers they had lost from among this group. They compared their databases of lost customers with the five favored purchasers’ customer lists over a period from 1998 to 2010. Under this system, a “matched customer” was one who filled a prescription for one of the specified drugs, or a common substitute, at one of the five favored purchasers’ pharmacies within six months of the last time they filled that prescription at one of the twenty-eight plaintiff pharmacies. Drug Mart,
Based on the results of the matching process, defendants moved for summary judgment against the twenty-eight matching process plaintiffs, which the district court granted on all claims.
The district court noted plaintiffs’ initial representations that they were “not proposing any kind of extrapolations,” id. at *3, and that the results of the matching process represented the set of lost customers plaintiffs were claiming, id. at *4. After the matching process was complete, and the results were less impressive than plaintiffs had expected, they sought to introduce additional data. Drug Mart Pharmacy Corp.,
Relying on the results of this matching process, the district court concluded that plaintiffs had failed to come forth with evidence of competitive injury. Id. at *13-14. Although plaintiffs complained of a dramatic drop in sales, the district court concluded that their evidence suggested that only a very small percentage of each plaintiff’s customers were lost to pharmacies that were alleged to have benefitted from the defendant manufacturers’ discriminatory pricing. Id. at *8. The district court determined that plaintiffs’ inability to show more than de minimis evidence of customers lost to favored purchasers meant that they failed to adduce sufficient evidence of competitive injury, a showing required for liability and damages for a Robinson-Patman Act claim. As a result,
The district court also granted defendants’ motion for summary judgment on plaintiffs’ claim for injunctive relief. While acknowledging that injunctive relief under the Robinson-Patman Act does not necessarily require proof of past injury, the court concluded that failure to prove past injury over the significant period of time at issue weighed decisively against finding the probability of future injury required for an injunction. Id. at *15-16. Finally, the district court held that plaintiffs’ Section 2(d) and 2(f) claims also failed because liability under these sections requires es-. tablishing antitrust and competitive injury, respectively. Id. at *16. This appeal followed. For the reasons below, we affirm.
DISCUSSION
This Court reviews a district court’s disposition of a motion for summary judgment de novo, treating all facts in the light most favorable to the non-moving party. Johnson v. Killian,
I. Section 2(a) Claims
A. Competitive Injury
Section 2(a) of the Robinson-Pat-man Act makes it unlawful “to discriminate in price between different purchasers of commodities of like grade and quality ... where the effect of such discrimination may be substantially to lessen competition ... or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them[.]” 15 U.S.C. § 13(a). “Price discrimination” in this context means a difference in the price charged for the items of like grade and quality to two different buyers. Best Brands Beverage, Inc. v. Falstaff Brewing Corp.,
The type of competitive injury that appellants assert is “secondary line injury,” which is an injury to competition between different purchasers of the same product. Volvo,
Since defendants freely admit that they sold the same brand name drugs interstate and to different buyers at different prices, the dispositive issue is whether doing so had a prohibited effect on competition. Plaintiffs attempting to establish competitive injury generally have two routes available to them: showing substantial discounts to a competitor over a significant period of time, known as the Morton Salt inference, or proof of sales lost to favored purchasers. Falls City Indus., Inc. v. Vaneo Beverage, Inc.,
The Supreme Court has refined these principles over the course of several decades, including most recently in Volvo Trucks North America v. Reeder-Simco GMC, Inc.,
Our review of the evidence before the district court convinces us that plaintiffs failed to raise a question of material fact as to whether they suffered competitive injury. The results of the matching process make clear that plaintiffs could not generate evidence tending to show that they lost more than a de minimis number of customers to the favored purchasers, indicating that competition was not substantially harmed or threatened by the price difference in question. Id.
Some plaintiffs were able to demonstrate that they occasionally lost customers to some favored purchasers. However, the matching process shows very few customers lost in this way, especially when the number of customers lost by a plaintiff pharmacy is considered as a percentage of
Our conclusion that de minimis evidence of lost sales is insufficient to establish competitive injury is consistent not only with Volvo, but also with the approach of other circuits. See, e.g., Volvo,
Plaintiffs do not seriously dispute that the number of diverted sales and customers was de minimis, but they contend that they are entitled to an inference of competitive injury under the Morton Salt doctrine. In Morton Salt, the defendant manufacturer sold several types of table salt directly to large retailers as well as to wholesalers, who then resold the salt to small retailers. Morton Salt,
Plaintiffs contend that the Morton Salt inference should be regarded as irrebuttable where, as here, the preferred purchasers have received substantial discounts over a considerable period and plaintiffs offer some evidence of diverted sales. In support of this proposition, they rely on a dictum in Falls City that “in the absence of direct evidence of displaced sales, the [.Morton Salt ] inference may be overcome by evidence breaking the causal connection between a price differential and lost sales or profits.”
This assertion rests on a misreading of Falls City. First, the conclusion that de minimis losses are insufficient to establish competitive injury follows from the text of the Robinson-Patman Act itself, not from the case law. As we have seen, Section 2(a) provides that price discrimination is illegal “where the effect of such discrimination may be substantially to lessen competition.” 15 U.S.C. § 13(a). The Act itself thus requires at least the potential for substantial harm to competition. Additionally, the relevant language in Falls City simply does not stand for the proposition that if the Morton Salt inference is accompanied by evidence of displaced sales — regardless of the substantiality of that evidence — the inference becomes irrebuttable, and competitive injury is thus conclusively proven. Under plaintiffs’ theory, even a single lost sale would bolt the inference in place — an outcome that cannot be squared with the Act’s substantiality requirement. Moreover, we do not believe the Morton Salt inference may ever be completely irrebuttable because, after all, the ultimate question is whether there has been an injury to competition. Finally, Falls City does not indicate that in the absence of evidence of substantial diverted sales, defendants may only rebut the Morton Salt inference by breaking the causal connection between a price differential arid lost sales.
When confronted with a similar situation, the D.C. Circuit has held that “if the respondent’s evidence demonstrates that there is no competitive injury (or reasonable possibility of competitive injury) to begin with ... [t]here is, under those circumstances, no causal connection to break.” Boise Cascade,
This is an unusual case. The plaintiffs have undertaken extensive discovery in an attempt to prove that sales were diverted from themselves to favored purchasers, a showing which the Supreme Court has identified as “[a] hallmark” of competitive injury. That discovery has come up well short of its mark. The de minimis results of the matching process show “an absence of competitive injury within the meaning of the Robinson-Patman Act,” id. at 1144, and are sufficient to rebut a contrary inference created by Morton Salt.
Finally, plaintiffs claim that the district court relied entirely on the matching process in reaching its decision, improperly excluding other evidence from consideration. After the results of the matching process showed practically no lost sales to favored purchasers and with summary judgment looming, plaintiffs shifted gears and requested that the district court consider new evidence in addition to that generated by the matching process. Drug Mart,
In addition to declaratory relief, plaintiffs sought damages. To recover damages, plaintiffs must overcome an additional hurdle: they must show injury to competition, which consists of both competitive injury and antitrust injury. J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 562,101 S.Ct. 1923,
As discussed above, plaintiffs failed to raise a genuine issue of material fact as to competitive injury. It follows that they also fail to raise a question of material fact with respect to whether their injuries are the type of injury contemplated by the Robinson-Patman Act, as required to prove antitrust injury. See Texaco, Inc. v. Hasbrouck,
C. Injunctive Relief
Plaintiffs also challenge the district court’s determination that they are not entitled to injunctive relief under Section 16 of the Clayton Act. 15 U.S.C. § 26. Under that provision, injunctive relief is available to plaintiffs who “show a threat of antitrust injury” that, if it occurred, would be an injury under Section 4 of the Clayton Act. Cargill, Inc. v. Monfort of Colorado, Inc.,
Typically, the inability to prove past damages does not compel a finding that the plaintiff faces no threat of antitrust injury in the future. Zenith Radio Corp. v. Hazeltine Research, Inc.,
II. Remaining Claims Under Sections 2(d) and 2(f)
Finally, plaintiffs appeal the grant of summary judgment on their claims under Sections 2(d) and 2(f) of the Robinson-Patman Act. Section 2(d) of the Robinson-Patman Act prohibits offering promotional allowances or services “unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.” 15 U.S.C. § 13(d). Although Section 2(d) does not require plaintiffs to establish competitive injury, it does require them to establish antitrust injury. Blue Tree Hotels,
Although the record contains evidence that the favored purchasers induced other defendants to offer them lower prices, there is insufficient evidence that doing so injured plaintiffs’ ability to compete. Plaintiffs acknowledge that “the analyses for antitrust and competitive injury do not differ [from the Section 2(a) analysis] for these claims,” except that Section 2(d) does not require proof of competitive injury. PI. Br. at 56. Since plaintiffs failed to show competitive or antitrust injury with regard to their Section 2(a) claim, summary judgment is appropriate with respect to their claims under Sections 2(d) and 2(f) as well.
CONCLUSION
For the reasons explained above, we AFFIRM the judgment of the district court.
Notes
. A drug formulary specifies which medications are approved for reimbursement.
. Several of the plaintiff pharmacies had more than one location.
. Plaintiffs note that the stipulation also referred to "any other data Plaintiffs may seek to use” and argue that they remain able to rely on other evidence to prove their case.
. The parties agreed that the motion would be decided by Magistrate Judge Gold.
. Although the judgment below concerns only the twenty-eight plaintiffs who appeal here, the remaining plaintiffs have stipulated that they will be bound by this court's determination. If the district court’s judgment is affirmed and any further appeal fails, they will dismiss their claims with prejudice.
. One of our sister circuits does not agree. See, e.g., Feesers, Inc. v. Michael Foods, Inc.,
. The Robinson-Patman Act contains no damages provision, but plaintiffs have a private right of action under the Robinson-Patman Act through Section 4 of the Clayton Act, which provides for recovery of treble damages. 15 U.S.C. § 15.