U.S. Seventh Circuit Court of Appeals Chief Judge Diane P. Wood | Youtube screenshot
CHICAGO — A federal appeals panel will allow a group of health care providers another chance to sidestep a longstanding Supreme Court precedent that would otherwise bar their antitrust claims over the prices of medical devices made by Becton Dickinson, even though the providers didn’t buy the equipment directly from BD.
Chief Judge Diane Wood wrote the opinion on the dispute, issued March 5, for a three-judge panel of the U.S. Seventh Circuit Court of Appeals. Judges Michael Kanne and Amy Barrett concurred.
According to the panel, the issue hinges on how to interpret the 1977 U.S. Supreme Court opinion in Illinois Brick v. Illinois.
Steven F. Molo | MoloLamken
Under that decision, typically, “’indirect purchasers’ who paid too much for a product because cartel or monopoly overcharges were passed on to them by middlemen must take their lumps and hope that the market will eventually sort everything out,” Wood wrote.
“Matters are different, however, when a monopolist enters into a conspiracy with its distributors,” the judge said.
The plaintiffs bought syringes and catheters through group purchasing organizations (GPOs) that negotiated prices with BD, according to the panel. While a standard arrangement, the providers allege BD, GPOs and distributors “joined forces in a conspiracy and engaged in a variety of anticompetitive measures, including exclusive-dealing and penalty provisions.”
U.S. District Judge Nancy Rosenstengel, however, had dismissed the complaint, finding no allegation of so-called vertical price fixing, or an alleged scheme in which product makers and others down the supply chain conspire to fix the prices paid at the end of the supply chain. The panel said Rosenstengel’s ruling heavily depended on a legal error and had to be vacated and remanded.
According to Wood, Rosenstengel thought “it would be too difficult to calculate which portion of the overcharge the distributor had absorbed or to ascertain how much of the distributor’s profits came from fair pricing rather than anticompetitive overcharges.”
While Illinois Brick would usually grant just one entity in the supply chain the right to recover damages in an antitrust action, the judges said they found no difficulty in determining the group of provider plaintiffs can be that entity in this instance, because the plaintiffs allege all the entities further up the chain cooperated to establish the terms the providers allege were unfair.
BD argued the allegations of conspiracy were an attempt to sidestep Illinois Brick limitations that would be open to any plaintiff, but the panel said “frivolous accusations of conspiracy” wouldn’t survive motions to dismiss. However, the distinction of the providers as adequate antitrust plaintiffs is distinct from a finding of adequate conspiracy allegations.
“The Providers must allege that the distributors, in addition to coordinating with Becton, would not have attempted to inflate prices without assurance that each distributor was abiding by the agreement and behaving in the same way,” Wood wrote. “The complaint before us does not accomplish this.”
The panel noted the complaint doesn’t have specific allegations about the distributors’ involvement in price inflation or coordination amongst each other or with BD or the GPOs. That distributors buy and sell according to contract terms GPOs negotiated is insufficient to support an allegation the distributors were part of a conspiracy.
Although the distributors argued the complaint should ultimately fail because the providers haven’t yet focused on how Illinois Brick applied to conspiracies, the panel determined the providers couldn’t have expected Rosenstengel’s “categorical rejection of Illinois Brick for the type of anticompetitive activity they were alleging — a rejection that did not depend on any additional detail about the structure of the conspiracy.”
The panel said it is proper to give the providers a chance to amend their complaint and noted a federal amicus brief in support of sending the matter back to Judge Rosenstengel for further proceedings.
“Any such amended complaint should also plausibly indicate (if possible) how, if at all, the GPOs might be liable,” Wood wrote.
Plaintiffs have been represented in the action by attorney Steven F. Molo of the firm of MoloLamken LLP, of Chicago.
Becton Dickinson has been represented by attorneys Richard P. Cassetta and Stefani L. Rothermel, with the firm of Bryan Cave Leighton Paisner LLP, of St. Louis; and Robert A. Atkins, Jacqueline P. Rubin and William Michael, of the firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP, of New York.