On April 30, 2008, the Ninth Circuit Court of Appeals ruled in Delaware Valley Surgical Supply, Inc. v. Johnson & Johnson, that Bamberg County Memorial Hospital & Nursing Center (Bamberg) lacked standing as a “direct purchaser” to pursue its antitrust claims against Johnson & Johnson (J&J). Although Bamberg had an independent contractual relationship with J&J that set pricing options, it purchased J&J’s products through a distributor.

The appeal arose out of individual antitrust actions brought by Bamberg and two other plaintiffs, Delaware Valley Surgical Supply (DVSS) and Niagara Falls Memorial Center, both of which purchased supplies directly from J&J. All three plaintiffs filed challenges to J&J’s alleged market share purchase requirements and bundled discounts. The district court consolidated the cases, and DVSS moved for partial summary judgment, arguing that Bamberg did not have standing to seek damages because it was not a direct purchaser, as required by the Court’s decision in Illinois Brick Co. The district court agreed with DVSS, and Bamberg and J&J appealed. The Ninth Circuit upheld the district court’s opinion.

Bamberg was a member of a group purchasing organization (GPO) that negotiated agreements with J&J. These agreements set pricing options for the products at issue in the case. Bamberg entered separate contracts with J&J consistent with the terms of the GPO agreements. The contracts provided that Bamberg would either purchase products directly from J&J or from an authorized distributor, and Bamberg chose the latter option, purchasing through Owens & Minor (O&M), an independently owned and managed distribution company. The price that Bamberg paid to O&M was comprised of the list price negotiated by the GPO, provided for in the Bamberg-J&J contract, plus O&M’s markup fee.

The Supreme Court has interpreted the statutory antitrust standing requirements narrowly, establishing a rule that prohibits indirect purchasers from seeking damages for antitrust violations. In this case, the Ninth Circuit reasoned that even if there were situations in which an exception to this bright-line rule was merited, Court precedent dictates that it follow the Illinois Brick rule. The district court noted that “[t]he [Supreme] Court has explicitly rejected attempts to create exceptions to that rule, even when the considerations in a particular market may undermine some of the reasoning used by the Illinois Brick case.” The court further concluded that the presence of a contractual relationship between J&J and Bamberg was not enough to make Bamberg a direct purchaser.

Bamberg argued that because it had a direct relationship with J&J and it, not the distributor, was the direct victim of J&J’s conduct, it should be deemed a direct purchaser. The Ninth Circuit was not persuaded, and reasoned that the Court’s statutory construction did not provide “it with the leeway to make a policy determination on a case-by-case basis as to whether standing should be recognized when there are special business arrangements.”

The rule articulated in Illinois Brick is intended to eliminate the risk that a defendant will be subject to multiple suits and duplicative liability, and helps avoid the difficulties regarding apportionment of damages. While indirect purchasers are largely precluded from recovering damages under the federal antitrust laws, a number of states have statutes that explicitly permit such lawsuits, as well as consumer protection laws that have enabled indirect purchaser suits.