On August 27, 2015, the US Court of Appeals for the Second Circuit affirmed the Eastern District of New York’s 2012 grant of summary judgment against plaintiffs asserting claims against pharmaceutical manufacturers under the Robinson-Patman Act and Clayton Act in Cash & Henderson Drugs v. Johnson & Johnson, No. 12-4689-cv, 2015 WL 5047409 (2d Cir. Aug. 27, 2015) (affirming Drug Mart Pharmacy Corp. v. Am. Home Products Corp., No. 93-CV-5148, 2012 WL 3544771 (E.D.N.Y. Aug. 16, 2012)).

Background

This case had its origins in litigation pending since the early 1990s that challenged the pricing system of certain pharmaceutical manufacturers under the Robinson-Patman Act. Plaintiffs, a group of retail pharmacies, opted out of a class action that had been consolidated in multi-district litigation before the Northern District of Illinois. Plaintiffs alleged that the manufacturers had engaged in illegal price discrimination in violation of Section 2(a) of the Robinson-Patman Act by offering rebates and discounts on brand-name prescription drugs to certain “favored purchasers” such as hospitals, HMOs, and mail order pharmacies. Section 2(a) makes it illegal for sellers “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 . . . .”1 Plaintiffs also brought claims under two other provisions of the Robinson-Patman Act—Section 2(d), which makes it illegal to offer promotional allowances or services unless they are “available on proportionally equal terms to all other customers” competing in distribution of the relevant products,2 and Section 2(f), which makes purchasers liable for “knowingly . . . induc[ing] or receiv[ing] a discrimination in price . . . .”3Plaintiffs sought damages and injunctive relief under Sections 4 and 16 of the Clayton Act4 based on their allegations of price discrimination.

After Plaintiffs’ cases were remanded to the Eastern District of New York, certain Plaintiffs and certain Defendants were designated to move forward with discovery. The designated Defendants sought summary judgment. Because the designated Defendants freely admitted that they sold drugs at different prices to different retail pharmacies, the only question was whether there had been competitive injury (i.e., injury to competition between the favored and disfavored buyers) or antitrust injury (i.e., competitive injury to Plaintiffs that resulted in specific losses), both of which are required to grant damages under the Robinson-Patman Act. In 2007, the Eastern District denied the designated Defendants’ motion for summary judgment on the issue of liability, explaining that it was possible that competitive injury had occurred.5 However, the Eastern District granted summary judgment as to claims for damages and injunctive relief because the designated Plaintiffs had failed to show that they had suffered any antitrust injury. Although the Eastern District’s ruling left open the possibility that some Plaintiffs could show antitrust injury, most Plaintiffs filed stipulations of dismissal, concluding that they would be no more successful in identifying antitrust injury than the designated Plaintiffs.

The remaining Plaintiffs devised a “matching” process under which they would try to show antitrust injury by identifying customers that they had lost to the favored purchasers as a result of price discrimination. Thirty Plaintiffs (later reduced to twenty-eight after two more Plaintiffs filed stipulations of dismissal) were randomly selected to participate in this process. Between March 2010 and May 2011, these Plaintiffs sought extensive discovery from five favored purchasers. They focused on identifying customers who had filled a prescription at one of the favored purchasers’ pharmacies within six months of filling that prescription at one of the Plaintiffs’ pharmacies. The matching process revealed that Plaintiffs had lost very few customers to favored purchasers. The data showed an average of eighteen lost customers and fifty-four lost transactions—only one quarter of one percent of the average number of transactions at Plaintiffs’ pharmacies.

In 2012, the Eastern District of New York granted summary judgment in favor of Defendants on the ground that the “matching process” had not shown that Plaintiffs had lost a significant number of customers. The Eastern District also rejected Plaintiffs’ attempt to introduce additional evidence regarding lost sales, observing that Plaintiffs had stipulated that the matching process would identify “the universe of potential lost customers” and had not provided a convincing reason to consider other evidence.6 Thus, the Eastern District held that Plaintiffs had failed to show competitive injury or antitrust injury. Plaintiffs appealed.

Analysis

The Second Circuit agreed with the Eastern District that Plaintiffs had not shown competitive injury as required by Section 2(a) of the Robinson-Patman Act. To establish an injury to competition between different purchasers of the same product, a plaintiff must show: (1) that the seller’s sales were made in interstate commerce, (2) that the seller discriminated in price between the two purchasers, (3) that the product sold was of the same grade and quality, and (4) that the price discrimination have a prohibited effect on competition. The Second Circuit interpreted the Supreme Court’s opinion in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc.7 as holding that a de minimis loss to competition is insufficient to establish competitive injury.8

Plaintiffs did not seriously dispute that the diverted sales were de minimis, but they asserted that they were entitled to an inference of competitive injury under the Morton Salt doctrine. In FTC v. Morton Salt,9 the Supreme Court stated that evidence of individual lost sales was not necessary to show competitive injury. Rather, an inference of competitive injury could arise from evidence that a favored competitor received a significant price reduction over a substantial period of time. The Second Circuit concluded that the Morton Salt inference was rebutted by the evidence that favored purchasers were diverting only a de minimis number of customers. If Morton Salt were interpreted to create an irrebuttable presumption of competitive injury even when diverted sales were de minimis, the Second Circuit explained, this would “introduce[] theoretical rigidity into an area of law that aims to respond to economic reality.”10

The Second Circuit also rejected Plaintiffs’ argument that the Eastern District improperly declined to consider their affidavits purportedly showing lost sales. As the Second Circuit explained, Plaintiffs had stipulated that they would rely on the results of the matching process, and they introduced affidavits only after the matching process did not produce the desired results. Moreover, the Second Circuit stated that the district court had considered some of Plaintiffs’ additional evidence and found nothing that created a genuine factual dispute. Given the results of the matching process and the lack of other convincing evidence, the Second Circuit held that Plaintiffs had not shown the required competitive injury, and therefore could not show antitrust injury either.

The Second Circuit held that the lack of antitrust injury was fatal to Plaintiffs’ other claims. Plaintiffs sought injunctive relief under the Clayton Act, claiming that there was a threat of future antitrust injury, but the Second Circuit held that, given the lack of evidence of significant past antitrust injury, there was no reasonable probability of future antitrust injury. Next, the Second Circuit held that the lack of antitrust injury doomed Plaintiffs’ Section 2(d) claim that Defendants had not offered promotional allowances on equal terms to all customers and their Section 2(f) claim that the favored purchasers had knowingly induced or received price discrimination.

Conclusions

As the Second Circuit acknowledged, this was an “unusual” case. Plaintiffs stipulated in advance that the matching process would identify “the universe of potential lost customers,” not merely a sample. When this process revealed that “exceedingly few” customers had been lost, the court was not willing to allow Plaintiffs to retreat from their stipulation and establish competitive injury through some other means. Because plaintiffs in future cases are unlikely to make such a stipulation, this fact pattern is unlikely to reoccur frequently, and the practical effect of the Second Circuit’s opinion might be limited. Nevertheless, the opinion shows the difficult burdens that Robinson-Patman Act plaintiffs often face in litigating their claims, and it reaffirms that even when price discrimination occurs, a plaintiff must prove that it suffered harm from the discrimination.