Second Circuit Tells Pharmacies The Antitrust Claims They Cooked Up Need More Than A Little Morton Salt

Cash & Henderson Drugs, Inc. v. Johnson & Johnson,1 recently decided by the Second Circuit, concerns Robinson-Patman Act2 claims that retail pharmacies brought against pharmaceutical manufacturers. The retail pharmacies alleged that since the early 1990's the manufacturers had charged them higher prices for pharmaceuticals than the prices charged to certain favored purchasers, like HMO's. That conduct, the pharmacies argued, violated § 2(a) of the Act.

Section 2(a) concerns price discrimination. A seller violates § 2(a) when it charges different prices to different purchasers of the same or similar commodities and by doing so "substantially . . . lessen[s] competition . . . ." The manufacturers in Cash freely admitted that they had sold brand name drugs to different purchasers at different prices. The remaining issue for the Second Circuit, then, was whether that "price discrimination had a prohibited effect on competition."

The pharmacies had proposed to the district court a procedure to identify customers lost to the favored purchasers as a result of the price differences. The procedure was a matching process that the magistrate judge approved and supervised. A "match" was a person who had filled a prescription at a favored purchaser within six months of when that person had last filled a prescription at the plaintiff pharmacy. In other words, a match was someone who stopped buying his or her pharmaceuticals from the plaintiff pharmacy and started buying from the favored purchaser.

After extensive discovery, matches were identified, but not many. The number was disappointing to the plaintiffs and unimpressive to the district court. The district court considered the effect of the price discrimination on competition "di minimis." The district court dismissed the § 2(a) claims on summary judgment. On appeal, the Second Circuit disagreed with the pharmacies' interpretation of two key Supreme Court decisions and upheld the district court's decision.

The pharmacies argued that the Supreme Court in the 2006 decision of Volvo Trucks North America v. Reeder-Simco GMC, Inc.3 held proof of competitive injury only required a showing of "substantial[]" differences in prices charged. The Second Circuit disagreed. In its view, the Volvo substantiality requirement focused on the frequency the plaintiff and the favored purchaser competed head-to-head and the frequency in which sales were actually diverted from the plaintiff to the favored purchaser. Based...