On January 25, 2007, the district court in Drug Mart Pharmacy Corp. v. American Home Products Corp., 472 F. Supp. 2d 385 (E.D.N.Y. 2007), rejected a motion for summary judgment filed by branded drug manufacturers in a Robinson-Patman Act case brought by independent retail pharmacies. The plaintiffs in Drug Mart Pharmacy challenge the defendants’ alleged practice of providing more favorable drug pricing to HMOs and mail order pharmacies.
The court first rejected the defendants’ assertion that plaintiffs could not bring claims based on purchases made “indirectly” through wholesalers. The defendants had pointed out that the plaintiffs had purchased virtually all of the drugs in question from wholesalers and thus that the alleged unfavorable prices they paid could not be attributable to the manufacturers. The court, however, found that the plaintiffs had provided evidence creating a triable issue of fact as to whether the manufacturers ultimately controlled the prices charged by the wholesalers to the plaintiffs. In particular, the plaintiffs had presented evidence that they contended showed that the manufacturers effectively prevented wholesalers from charging plaintiffs an amount below list prices.
The court then rejected the defendants’ argument that the plaintiffs’ claims based on discriminatory pricing charged to staff-model HMOs had to be dismissed because such entities did not “resell” drugs in “competition” with the plaintiffs, as required for a violation under the Robinson-Patman Act. The defendants argued, among other things, that staff-model HMOs purchase drugs on behalf of their subscribers and then dispense them under a fixed fee service (i.e., for no additional cost) thus making them more like procurement agents or insurers rather than drug “resellers” that might compete with retail pharmacies. The court concluded, however, that adopting this reasoning would be inconsistent with prior case law and improperly exempt staff-model HMOs from the Robinson- Patman Act. The court also rejected the defendants’ argument that staff-model HMOs did not compete with plaintiffs because they sold drugs only as an input as part of a larger overall health care product, finding that the plaintiffs should be permitted to present evidence at trial that the entities effectively competed in the overall market.
The Drug Mart Pharmacy case is notable because it illustrates that, even after the Supreme Court’s defendant-friendly decision in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., manufacturers still have a steep hill to climb in convincing courts to dismiss Robinson-Patman Act claims prior to trial. The Volvo decision reflected an inclination by the Supreme Court to adopt a strict interpretation of the Robinson-Patman Act by requiring a plaintiff to show that it competed with the favored purchaser for the business of the very same customers (see, e.g., Antitrust Update). The Drug Mart Pharmacy decision shows, however, that even where these principles could support a dismissal prior to trial, courts may be reluctant to do so where they perceive that it would excessively undermine the Robinson-Patman Act. Notwithstanding the result in Drug Mart Pharmacy, which did not directly cite to Volvo, we continue to believe that the Volvo decision may result in courts generally applying a stricter interpretation of the Robinson-Patman Act than they have applied in the past.