Anti-trust Violation

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7^th Circuit Court of Appeals

Case Name: Marion Healthcare, LLC, et al. v. Becton Dickinson & Company, et al.

Case No.: 18-3735

Officials: WOOD, Chief Judge, and KANNE and BARRETT, Circuit Judges.

Focus: Anti-trust Violation

Since the Supreme Court’s decision in Illinois Brick v. Illinois, 431 U.S. 720 (1977), only those buyers who purchased products directly from the antitrust violator have a claim against that party for treble damages. “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. See, e.g., Sharif Pharm., Inc. v. Prime Therapeutics, LLC, Nos. 18-2725 and 18-3003, 2020 WL 881267 at *2 (7th Cir. Feb. 24, 2020). Matters are different, however, when a monopolist enters into a conspiracy with its distributors. In such cases, “the first buyer from a conspirator is the right party to sue.” Paper Sys. Inc. v. Nippon Paper Indus. Co., 281 F.3d 629, 631 (7th Cir. 2002).

The plaintiffs in this case (“the Providers”) are healthcare companies that purchased medical devices manufactured by Becton Dickinson & Company. Healthcare providers often do not purchase medical devices directly from the manufacturer; instead, they join a group purchasing organization, known in the trade as a GPO. The GPO negotiates prices with the manufacturer on behalf of its members. It then presents the terms to the provider, which has the opportunity to accept them or reject them. If the provider agrees to the terms, it chooses a distributor to deliver the product. The distributor then enters into contracts with the healthcare provider and the manufacturer. These contracts obligate the distributor to procure the products from the manufacturer and to sell them to the provider. The distribution contracts with the providers incorporate the price and other terms of the agreements that the GPO negotiated, plus a markup for the chosen distributor.

Our Providers purchased medical devices in the manner just described. A GPO negotiated with Becton on the Providers’ behalf, and a distributor delivered the devices. Had Becton acted alone, selling its products to an independent distributor, which then sold them to a healthcare provider, no one doubts that the Illinois Brick rule would bar the provider from suing Becton for any alleged monopoly overcharges. But these transactions were more complex. The Providers allege that Becton, the GPOs, and the distributors (to whom we refer collectively as Becton unless the context requires otherwise) joined forces in a conspiracy and engaged in a variety of anticompetitive measures, including exclusive-dealing and penalty provisions. Becton moved to dismiss, arguing that the Illinois Brick rule barred the case despite the Providers’ allegations of conspiracy.

The district court agreed with Becton that the Illinois Brick rule applied on these facts and that dismissal was therefore required. It found the conspiracy rule inapplicable not because of any failure to plead conspiracy adequately, but because this case did not involve simple vertical price-fixing. This, we conclude, was in error. At the same time, we conclude that as of now the Providers have failed adequately to allege the necessary conspiracy with the distributors, and perhaps with the GPOs. Because the district court’s ruling depended so heavily on an error of law relating to Illinois Brick, we have decided to vacate the court’s decision and remand for further proceedings.

Vacated and remanded

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.