In re Brand Name Prescription Drugs

Full title: IN RE: BRAND NAME PRESCRIPTION DRUGS ANTITRUST LITIGATION

Court: United States District Court, N.D. Illinois, Eastern Division

Date published: Jan 19, 1999

Case Number: 94 C 897 (N.D. Ill. Jan. 19, 1999)

Opinion

Case Number: 94 C 897

January 19, 1999

This Document Relates To: ALL CASES MDL 997

MEMORANDUM OPINION

CHARLES P. KOCORAS, United States District Judge.

A. Brief Factual Background

On behalf of a nation-wide class¹, the Class Plaintiffs (also "Plaintiffs") alleged a price-fixing conspiracy in which the Defendants agreed to eliminate price competition and to keep prices of brand name prescription drugs artificially high to retail pharmacies, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. The principal allegation in the Class Plaintiffs' complaint was that the Manufacturers and Wholesalers of brand name prescription drugs unlawfully conspired to maintain a structure of differential pricing for brand name prescription drugs that would facilitate the imposition of the highest prices upon retail pharmacies while other "favored" buyers, that is, hospitals, health maintenance organizations ("HMOs"), other managed care facilities, and mail-order pharmacies were given lower, more competitive prices.

1 The plaintiff class is defined as follows:

All persons and entities in the United States who, at any time during the period from October 15, 1989, to the present, purchase or purchased prescription brand name drugs directly from any of the defendants. The class excludes defendants; other manufacturers of prescription brand name drugs; other wholesalers of prescription brand name drugs; co-conspirators of any of the foregoing entities; affiliates, parents and subsidiaries of any of the foregoing entities; governmental entities; mail order pharmacies; health maintenance organizations; hospitals; clinics; and nursing homes.

The Defendants claim they gave discounts to the Plaintiffs in certain instances and that any denial of discounts to the Plaintiffs on brand name prescription drugs was based upon decisions individually made and justified by market considerations. The Defendants also claim they extend discounts to the favored buyers based upon those buyers' ability to "move market share." The ability to move market share is essentially the power to sell more of a particular Manufacturer's drug by excluding from the market a competing drug offered by a different Manufacturer.

According to the Defendants, most managed care organizations and hospitals create "formularies," which are essentially restrictive lists of drugs from which managed care and hospitals limit their physicians' ability to prescribe to patients or plan participants. The Defendants assert that the favored buyers use formularies to control access to patient populations and to negotiate discounts or rebates from the Manufacturers. The Defendants essentially contend that by threatening to exclude individual Manufacturer's products from their respective formularies unless the Manufacturer agrees to discounts or rebates, the favored buyers possess the market power to negotiate discounts on brand name drugs. The Defendants further argue that, unlike the favored buyers, retail pharmacies do not possess the same market power or the same power over the prescribing decision. It is for these reasons Manufacturers claim they deny retail pharmacies discounts equal to those given to the favored buyers.

The Class Plaintiffs, in their answer to the Defendants' motions for judgments as a matter of law, maintain that retail pharmacies are capable of moving market share in the same way and to the same degree as hospitals, HMO's and other managed care entities. The Plaintiffs argue that the evidence established their ability to move market share and that any price differential based on differences in market power is really the product of an unlawful conspiracy. The Defendants contend that the evidence establishes material differences in the abilities of retail pharmacies to move market share when compared to entities receiving discounts not available to retail pharmacies and it is these differences which are the foundation of differential pricing.

The Defendants claim that, in general, retail pharmacies do not have the power to exclude brand name prescription drugs from their respective markets and there is simply no similarity in the market power of retail pharmacy when compared to managed care. Simply put, the Defendants say that when their customers act differently, they will be treated differently.

B. Evidence Presented In Class Plaintiffs' Case In Chief

The following summarizes the evidence presented in the Class Plaintiffs' case in chief on their claims of an industry-wide conspiracy between the Manufacturer and Wholesaler Defendants to deny them the same discounts on brand name prescription drugs as the Defendants offer to hospitals, HMOs, other managed care entities, and mail-order pharmacies, the so-called "favored buyers."

1. Live Fact Witnesses

Although their final pre-trial order listed 30 "will call" witnesses and 22 "may call" witnesses, the Class Plaintiffs presented only four live fact witnesses during their approximately ten week-long case in chief. We summarize the testimony of each live fact witness below.

a. Holly Whitcomb

The first live fact witness the Class Plaintiffs called at trial was Holly Whitcomb, a principal owner of four pharmacies in the Seattle, Washington area. Ms. Whitcomb began working as a retail pharmacist in 1978. In 1980, Ms. Whitcomb went to work as the executive assistant director for the Washington State Pharmacists Association, where she worked until December 31, 1985. Ms. Whitcomb testified she served as a "liaison between the association itself and the members of the association." In her position as a liaison, one of the issues Ms. Whitcomb discussed with association members was what she identified as "discriminatory pricing," which she defined as "the practice of manufacturers and wholesalers charging different prices to different customers, and those customers are differentiated by the class of trade that they're in — retail versus hospital versus HMO versus mail order pharmacy — not by the volume of purchasing that those customers did."

Ms. Whitcomb testified that after discussing "discriminatory pricing" with the Manufacturers, she participated in the formation of the retail pharmacy buying group Northwest Prescription Services (formerly known as Northwest Prescription, Inc.) in the fall of 1985. Ms. Whitcomb testified that the purpose of forming a retail buying group was to pool retailers' purchasing power together in order to get volume discounts on brand name prescription drugs. Ms. Whitcomb was not aware of Northwest Prescription Services ever obtaining discounts on brand name drugs for its members.

After Ms. Whitcomb left her position with the Washington State Pharmacists Association in December 1985, she purchased a retail community pharmacy, View Ridge Pharmacy, with her partner, Donna Doctor. Ms. Whitcomb testified, inter alia, that she routinely calls prescribing physicians to discuss whether or not she may substitute drugs for the physicians' patients. She engages in such behavior when she believes it is in the best interest of her patient.² Finally, Ms. Whitcomb testified she joined an 850-member retail buying group, United Drug, in an attempt to obtain discounts on brand name drugs. These efforts were unsuccessful.

2 Ms. Whitcomb's testimony about pharmacist's drug switching practices was undermined by the testimony of the Class Plaintiffs' own witnesses, including Mr. Berryman, who testified that pharmacists playing an active role in therapeutic switching is not only impractical, but "unethical."

During her cross-examination, Ms. Whitcomb was confronted with a complaint filed on behalf of a class of retail pharmacies in New York alleging improper price discrimination on the part of the Manufacturers and Wholesalers, with View Ridge Pharmacy as a class representative. This complaint contained the following allegations: (1) "[U]nlike most other types of retailers who can choose the lines of products to carry, drugstores must purchase and carry all but the most infrequently prescribed brand name drugs;" (2) [I]t is the prescribing doctor, not the consumer or the drugstore, that, except with generic substitutions, determines the brand of drug to be prescribed;" and (3) "[D]rugstores are particularly vulnerable to anti-competitive restraints in the distribution channels for prescription drugs because drugstores have little influence on the drug prescribed and cannot switch to alternative products as prices increase." The View Ridge Pharmacy complaint also stated: "While the brand name drug manufacturers have maintained and increased the prices of brand name drugs sold to drugstores, they have discounted these same drugs to institutional pharmacies in order to be listed on their formularies. . . . Being listed on the formulary is important for two reasons: (A) If a patient is stabilized on a particular drug in a hospital, the doctor and the patient will usually prefer to continue to use that drug after the patient leaves the hospital; and (B) Doctors on the staff of a hospital, HMO, or clinic will usually prescribe the drugs listed on the institution's formulary for their other patients who are not in the institution."

The Defendants also confronted Ms. Whitcomb with an interview she gave for the MacNeil-Lehrer Report, a television news show. In that interview, Ms. Whitcomb made the following admission: "[The Manufacturers] have been pressured to offer more discounts in the hospital arena and in the HMO arena and also to mail order because those people will offer them market position. They will say `we'll carry your antibiotic and we won't carry your competitor's antibiotic that's similar,' and so they can derive some market share by doing that."

In addition to the above-listed admissions damaging to the Class Plaintiffs' case, Ms. Whitcomb admitted that she engaged in the very same price discrimination among her customers that the Class Plaintiffs claim is illegal. Ms. Whitcomb admitted during her examination that her cash-paying customers pay a higher price for brand name prescription drugs than health or managed care participants, because Ms. Whitcomb's pharmacies entered into discount contracts with several health and managed care plans. Ms. Whitcomb testified she grants discounts to managed care participants out of her fear of being excluded from the market for such customers. In other words, Ms. Whitcomb's customers without market power paid more for their drugs than those with market power, and she believed it to be a perfectly proper and legal business practice to engage in that type of price discrimination.

In sum, Ms. Whitcomb established that retail pharmacies did not receive the same discounts favored buyers received, that favored buyers had powers and influences retail pharmacies did not have and, when the opportunity presented itself, Ms. Whitcomb also discriminated in the prices she charged based on market power.

b. Michael Berryman

The second fact witness called by the Class Plaintiffs was no better in advancing the Plaintiffs' case than the first. At the time of his testimony, Michael Berryman was the interim president and CEO of a 650-employee hospital health center, Community Memorial Health Center in South Hill, Virginia. Mr. Berryman was also a former owner of several retail pharmacies (one of which serviced a hospital pharmacy for approximately twenty-four years) and a former principal of Pharmacists Shared Services, a retail pharmacy buying group. Based upon his experience in the healthcare field, Mr. Berryman was a particularly knowledgeable witness on the matter of retail pharmacies' market power.

Mr. Berryman testified that retail pharmacy buying groups emerged in the 1980s as a result of intense financial pressures faced by independent pharmacies. Mr. Berryman further testified that the purpose of both hospital buying groups and retail buying groups was to pool volume together, the result of which was an increased power to solicit discounts and an increased ability to cut costs. Mr. Berryman also testified that hospital buying groups successfully petitioned the Manufacturers for large discounts on brand name prescription drugs and ultimately obtained discounts substantially lower than the discounts obtained by retail pharmacies.

On cross-examination, Mr. Berryman testified that, beginning as early as 1985, the Manufacturers told Pharmacists Shared Services that it would have to be able to substitute prescriptions for brand name prescription drugs, the way hospitals and HMOs had done, in order to obtain discounts on these drugs. Mr. Berryman also testified that he believed the sole reasons hospitals and HMOs received greater discounts on brand name prescription drugs were (1) their ability to enforce formularies and (2) their ability to freely substitute one brand name drug for another (based upon their control over doctors prescribing drugs to program participants), which, taken together, provided hospitals and HMOs the ability to move market share. Mr. Berryman also admitted that he told Pharmacists Shared Services' members in 1986 that they had to develop these same capabilities if they wanted to obtain discounts comparable to those given to hospitals and HMOs.

Mr. Berryman also testified Pharmacists Shared Services never told any Manufacturer that it would create a formulary to either advantage or disadvantage the Manufacturer's market share for its products. Mr. Berryman stated Pharmacists Shared Services never refused to stock a Manufacturer's product if the Manufacturer refused to offer Pharmacists Shared Services a discount, despite the fact that both hospitals and HMOs engaged in such selective purchasing and distributing.

In the mid-1980s, Mr. Berryman told the Manufacturers that they should view Pharmacists Shared Services as different from HMOs and hospitals because Pharmacists Shared Services was not interested in substitution. He also admitted that the concept underlying moving market share — therapeutic switching was known since at least 1985, and was the basis upon which hospitals received discounts. And who better to know about therapeutic switching than a former pharmacist serving a hospital involved in a hospital buying group.

c. Michael Dammert

Michael Dammert, fact witness number three, was a licensed retail pharmacist. He worked for Cincinnati Economy Drug, a drug wholesaler, from 1979 until 1983. Cincinnati Economy Drug initially employed Mr. Dammert as a pharmacist with the responsibility of implementing a home buying program. Mr. Dammert rose to the position of Vice-President of Marketing and Sales for Cincinnati Economy. During his tenure at Cincinnati Economy, Mr. Dammert worked closely with hospitals and retail pharmacies and instructed both on how to better compete within the prescription drug market. In 1983, Wholesaler FoxMeyer Drug Company purchased Cincinnati Economy, and Mr. Dammert worked for FoxMeyer from 1983 until 1985. In 1985, Mr. Dammert organized a retail buying group named RxCare. Mr. Dammert's employment with RxCare lasted from 1985 until 1990.

Based upon his experience in the prescription drug industry, Mr. Dammert testified that, throughout his employment in the industry, retail pharmacies paid the highest prices for brand name prescription drugs. Mr. Dammert also testified about several meetings the National Wholesaler Druggists' Association ("NWDA") held during the 1980s. Dammert also discussed the NWDA's Pharmaceutical Marketing Committee ("PMC"), the purpose of which was allegedly to examine the rapidly-changing pharmaceutical drug industry. With rare exception, Mr. Dammert was unable to attribute any comments about retail buying groups made at the NWDA meetings to a particular Manufacturer or Wholesaler Defendant. Mr. Dammert also admitted that the attendees of the April 9, 1985 NWDA meeting (discussed more fully below) never discussed whether the advent of retail buying groups threatened the Wholesalers, even though Class Plaintiffs' counsel characterized the April 9, 1985 NWDA meeting as "the key to the puzzle" and "at the heart of this unlawful behavior."

d. Thomas Ireland

Thomas Ireland was the fourth and final live fact witness. At the time of his testimony, Thomas Ireland was the CEO of the New Jersey Pharmacists Association. Like Berryman, Mr. Ireland had prior experience with medical facilities, having previously served for ten years as the director of pharmacy for the 200-bed Hunterdon Medical Center in Flemington, New Jersey. During Mr. Ireland's time at Hunterdon Medical Center, the institution belonged to the New Jersey Hospital Association Group Purchasing Program, a hospital buying group. Mr. Ireland also had ten years prior experience with Advantage Pharmacy, a retail pharmacy buying group based in New Jersey.

Mr. Ireland testified that during his time at Hunterdon, the hospital was able to purchase brand name prescription drugs at prices lower than those offered to retail pharmacies. Mr. Ireland further testified that to qualify for a contract pricing discount on a particular brand name drug, members of the New Jersey Hospital Association Group Purchasing Program were required to provide Manufacturers a committed volume of drugs for the contract period.

Mr. Ireland's employment with Advantage Pharmacy began in January 1986. Mr. Ireland testified that, during the mid-1980s, retail buying groups were "a new phenomenon," and that he discussed retail buying groups with several of the Manufacturers' representatives. Mr. Ireland also testified that, despite seeking such discounts, Advantage Pharmacy never received discounts on brand name prescription drugs. On direct examination, Class Plaintiffs' counsel showed Mr. Ireland several letters purportedly sent by Manufacturers to Advantage Pharmacy in response to Advantage Pharmacy's requests for discounts. Mr. Ireland testified the letters demonstrated the Manufacturers' refusal to offer retail pharmacies discounts on brand name prescription drugs.

Mr. Ireland's testimony differed greatly between his direct examination and his cross-examination. On cross-examination, Mr. Ireland admitted that his direct testimony regarding the Manufacturers' refusal to offer discounts on brand name drugs was false. He admitted that the discounts referenced in the Manufacturers' letters were limited to generic drugs, products not at all relevant to the alleged conspiracy. Mr. Ireland further admitted that Advantage Pharmacy did not even request discounts on brand name prescription drugs for the years 1991 through 1996, the time period corresponding with the letters used during his direct examination.

Mr. Ireland also made several admissions crippling to the Class Plaintiffs' case. He admitted that Advantage Pharmacy never refused to stock a brand name prescription drug when a Manufacturer refused to offer discounts to Advantage. Mr. Ireland also testified that, during his eleven years at Advantage, the buying group never performed therapeutic switching, never established a formulary for sole-source drugs, never employed doctors to prescribe specific brand name drugs, never had contracts with doctors to treat defined sets of patients, never employed a committee to negotiate with the Manufacturers for discounted pricing and had no contracts to manage prescription drug benefits for enrolled patients. Finally, Mr. Ireland admitted that, simply by buying brand name drugs in volume, retail pharmacy buying groups do not increase the number of prescriptions written by physicians for a particular drug.

In arguing the motions for judgments of acquittal at the close of the Class Plaintiffs' case, defense counsel pointed out that the ultimate testimony of these four fact witnesses was not what the Class Plaintiffs had represented it to be, that propositions at the center of the Defendants' case were established through these four witnesses, and the bankruptcy of the Class Plaintiffs' case was correspondingly revealed. This argument was eminently correct, for it was out of the mouths of those live witnesses that the basic independent rationale for why the Defendants priced the way they did was first established in the record. This evidence is incompatible with the antitrust conspiracy set forth in the Class Plaintiffs' complaint.

2. Deposition Testimony

Another significant witness for the Class Plaintiffs was Benji Wyatt, the head of PACE Alliance, Inc., represented to be the largest retail pharmacy buying group in the country. Mr. Wyatt testified by way of deposition and established that several Manufacturers refused to extend discounts to PACE Alliance. Mr. Wyatt admitted, contrary to the Class Plaintiffs' assertions, that PACE Alliance had contracts with several Manufacturers for discounts on brand name prescription drugs, including an ultimately unsuccessful market share deal with the Johnson Johnson Company Ortho Biotech for the drug Procrit.

Other Wyatt admissions damaging to the Class Plaintiffs' case included the following:

a. When PACE ran a market share shifting test with its members, only 257 out of 1,500 to 2,000 pharmacists bothered to participate, even though the program involved products with the identical active ingredients;

b. That in order to earn discounts, proving market share movement was critical;

c. That as late as 1993, PACE did not have the systems to track product purchases by PACE members and that it was reasonable for Manufacturers to require such data;

d. That PACE had a contract with DuPont PhRMA; in yet another instance, it had a contract with Warner Chilkott. In both of these contracts, PACE failed to meet performance targets.

The deposition testimony of Larry Alkire, associated with Pharmaceuticals Care Network, a retail pharmacy buying group, was also unhelpful to the Class Plaintiffs' case. Among other things, Mr. Alkire testified that discounts from the Manufacturers were requested on the basis of volume and not on therapeutic switching. He admitted Pharmaceuticals Care Network did not have or implement a formulary, did not have control over covered lives, and did not have the ability prospectively to influence physician-prescribing habits.

In its essentials, the deposition testimony of Richard Spears, affiliated with the retail pharmacy buying group Pharmacy Buying Association, was similar to the other retail buying group witnesses on the key question of the market power of his buying group members when compared to hospitals and other managed care entities. For the eight-year period from 1986 through 1994, Pharmacy Buying Association did not try to get discounts from Manufacturers on sole-source brand name prescription drugs, and it did not have a formulary for sole-source drugs during that period.

The power of HMOs and other managed care entities is an acknowledged phenomenon in the health care industry. The evidence discloses that not only have drug manufacturers been confronted and affected by it, not only have retail pharmacies been required to yield to it and accommodate it as best they can, but doctors and hospitals have succumbed to its force in the form of discounted prices to its members. The power to exclude is a potent economic weapon, and decision-making inspired by economic might is an age old reality which, during the relevant years of this case, has produced enormous changes in the delivery of health care services in this country. Those who do not have an equivalent power to exclude will suffer at the hands of those who do. That is what the evidence presented shows, clearly, unequivocally and irrefutably.

There was a litany of deposition testimony offered from industry people, employees of the defendant companies, employees of other Manufacturers and Wholesalers and others. Not surprisingly, the witnesses who had any contract or pricing responsibility expressly denied engaging in collaborative conduct with persons other that those in their own companies in setting prices or denying discounts to anyone. The common theme expressed by these witnesses was that when the class of trade known as retail pharmacy was denied discounts, the denials were based on the belief that retail pharmacies lacked the power to exclude the company's products, while others who received discounts were believed to have the power to exclude brand name prescription drugs through formularies and other prescribing-decision influences.

In their opposition to the above-described evidence, noteworthy not only for its substance, but because it was presented during their own case in chief, the Class Plaintiffs rely on some meetings and activities centered on the NWDA and the opinion testimony of Professor Robert E. Lucas.

3. Evidence Regarding NWDA and Other Meetings

During opening statements, Class Plaintiffs' counsel referred to seven meetings, allegedly occurring between 1984 and 1986, which the Class Plaintiffs claimed demonstrated the conspiratorial nature of the relationship among the Manufacturers, among the Wholesalers and between the Manufacturers and Wholesalers. Essentially, the Class Plaintiffs claim these meetings provided the Wholesalers and the Manufacturers an opportunity to gather and discuss, inter alia, the emergence of retail buying groups, a phenomenon the Class Plaintiffs theorize threatened the Wholesalers. Although the specific number of meetings is unclear, the Class Plaintiffs presented evidence of numerous meetings, including several National Wholesaler Druggists' Association ("NWDA") meetings, most attended by Wholesalers, some attended by Manufacturers. We summarize below the evidence presented regarding several of the "key" meetings.

a. March 12-14, 1985 NWDA Marketing Conference

On March 12-14, 1985, the NWDA held a marketing conference in Atlanta, Georgia. The Class Plaintiffs allege several Manufacturers and Wholesalers attended a panel discussion entitled "HMOs, PPOs and Buying Groups." The printed agenda for this panel discussion read "HMOs, PPOs and Buying Groups. What are they? What do they mean to your customers? Why are they a threat to the drug distribution system as we know it?" The panel included a representative of a Florida retail buying group and an executive director of the Michigan Pharmacists' Association. Mr. Dammert, one of the Class Plaintiffs' fact witnesses, attended the panel discussion, but could recall nothing specific about the presentations.

The Class Plaintiffs further assert that the Wholesaler Defendants and several Manufacturer Defendants engaged in various co-conspirator discussions during the three-day NWDA meeting. The focus of the Class Plaintiffs' assertions is the above-mentioned panel discussion. The Class Plaintiffs' evidence, however, fails to establish that any of the Manufacturer Defendants attended the panel discussion. The evidence does confirm that several Manufacturer Defendants, including Ciba-Geigy, G.D. Searle, Johnson Johnson and Sandoz operated booths at the meeting. No evidence exists, however, that any Manufacturer representative participated in, or even attended, the allegedly sinister panel discussion. Furthermore, while the Class Plaintiffs make much of the fact that the agenda for the panel discussion referred to buying groups as a "threat," the presence of retail buying group representatives at this discussion undermines any assertion that the panel participants engaged in criminal conduct or discussion.

b. The April 9, 1985 NWDA Meeting

On April 9, 1985, the NWDA held a meeting of its Pharmaceutical Marketing Committee ("PMC"). At this meeting, Michael Berryman and Bob Young of Pharmacy Shared Services gave a presentation about Pharmacy Shared Services. Through Mr. Dammert, the Class Plaintiffs presented evidence that, before Berryman and Young arrived, an NWDA representative advised PMC members that retail buying groups were not something particularly "pleasant" to Wholesalers. In addition, Mr. Dammert testified that several Wholesaler representatives present at the meeting expressed a refusal to offer discount pricing to retail pharmacies.

On cross-examination, however, Mr. Dammert admitted that he could recall the representative presence of only one Wholesaler Defendant at the April 9, 1985 meeting. Mr. Dammert further admitted that no representative of a Manufacturer Defendant attended the meeting and no evidence existed that any Wholesaler attempted to convince the Manufacturers to refuse to bid discount prices to retail pharmacies. Beyond that, the "discount" referred to appeared to be a Wholesaler's discount and not a Manufacturer's discount.

c. The October 31, 1986 Meeting of the NWDA Board of Directors

The NWDA Board of Directors met on October 31, 1986. At this meeting, the NWDA Directors approved the final version of a study entitled "1000 Days and Counting," authored primarily by Robert McHugh, the NWDA Vice-President for Member Services. According to its preface, the purpose of the study was to offer a projection of how the brand name pharmaceutical industry would operate over the subsequent 1000 days. The Class Plaintiffs claim this study improperly contained highly sensitive communications regarding the Manufacturers' and Wholesalers' treatment of retail pharmacies. This study was communicated to hundreds of companies, many of which had nothing to do with the pharmaceutical drug industry.

The NWDA evidence involves principally a series of meetings more correctly, portions of certain meetings — which it is claimed supports a series of inferences which, taken together, add up to an illegal conspiracy. Many of these selected references involve acknowledgment of the emergence of retail pharmacy buying groups in which the awareness and concern of the Wholesalers is highlighted. Notwithstanding the fact that the topics and discussions do not directly support illegal conduct, notwithstanding the fact that the discussions were just as or more likely to be lawful in nature, the Class Plaintiffs urge that sinister inferences be drawn as to each meeting and then added together to suggest a conspiratorial whole.

The fundamental weakness with the Class Plaintiffs' approach, and fatal to it, is that the Plaintiffs rely on speculation and conjecture rather than fair or reasonable inferences for the conclusions they offer individually and collectively. Layer upon layer of speculation will neither supplant nor neutralize the clear, compelling, and unequivocal evidence to the contrary.

It is also worthy of note that the context in which some of this NWDA evidence is being asked to be considered is inaccurate or misleading. The Class Plaintiffs' current theory of the charged conspiracy places the Wholesalers at the genesis. It is claimed that the Wholesalers provided the impetus for the conspiracy based on their fear of retail buying groups and importuned the Manufacturers to join in their illegal conduct.

Today's theory differs markedly from the theory the Class Plaintiffs presented to the Seventh Circuit Court of Appeals. In that court, the Class Plaintiffs claimed that the major drug manufacturers formed a cartel with the principal purpose of denying discounted prices on brand name prescription drugs to retail pharmacies, including retail buying groups acting on their behalf. The Seventh Circuit was told that this was a unitary conspiracy in which the Manufacturers enlisted the Wholesalers as tools or reluctant accomplices — in effect, cats'-paws — in policing or implementing the cartel's purpose. Somewhere between the 27^th floor of this building and the 25^th floor, the Class Plaintiffs' case changed complexion.

Years before the advent of retail pharmacy buying groups, the Wholesalers confronted the threat of hospital and other managed-care buying groups. The evidentiary history of those years, unchallenged by the Class Plaintiffs, reflects how successful the Wholesalers were in accommodating the joint needs and desires of the Manufacturers and the hospital and managed care entities. The Wholesalers transformed those buying groups into their customers, rather than their competitors, and used the nature and quality of Wholesaler services in doing so.

The Class Plaintiffs now claim, however, that at the first sign of possible competition from retail buying groups, the Wholesalers quickly determined to start an illegal enterprise, enlisted the uniform and complete agreement of all the brand name prescription drug manufacturers which supplied them with their merchandise, and, in this way, warded off any possible competition from these yet to be established groups. That theory, under this evidence, is farfetched, improbable, and unreasonable.

The undisputed evidence shows that when hospital and managed care buying groups were formed, the Wholesalers developed systems and efficiencies in the large-scale distribution of merchandise in addition to their existing warehouse capacity. It was these characteristics which permitted them to not only maintain their role in the industry, but to expand it; and, it was these same characteristics which has permitted them to continue to service the retail pharmacy buying groups.

4. Expert Testimony of Dr. Robert Lucas

We next come to the testimony of Dr. Robert Lucas and the opinions he expressed, particularly as regards the alleged collusion engaged in by all of the Defendants. First, it is proper to recognize Dr. Lucas' eminent and distinguished credentials. He is affiliated with the University of Chicago, indisputably one of the finest educational institutions in the world. He is also a past recipient of the Nobel Prize in Economics, an award without equal in recognition of scholarship and contributions in his chosen discipline. It was with high expectation that the Court anticipated his testimony and denied requests from the Defendants to preclude his testimony or to conduct a separate Daubert hearing out of the presence of the jury.

Sad to say, Dr. Lucas' testimony did not measure up to his unique qualifications. Among other things, his testimony showed the following:

a. he abdicated entirely the concept of the independence of expert witnesses and simply became the sponsor for the Class Plaintiffs' theory of the case;

b. he was ignorant of material testimony and other evidence;

c. his essential opinions were not only not based on the evidence, they were inconsistent with it;

d. his opinions were offered without any scientific basis or having been the subject of economic methodological testing.

Dr. Lucas reached his conclusions within forty hours of his engagement and before he undertook any substantial or detailed study of the prescription drug industry. Most of the facts upon which he based his opinions and conclusions were supplied by Class Plaintiffs' counsel, although he admitted he did not expect Class Plaintiffs' counsel to have made a balanced presentation. His expert's report was redrafted by Class Plaintiffs' counsel in its entirety and included what counsel wanted. In Dr. Lucas' own words: "I don't think there's a single sentence in this affidavit that's intact from the first draft that I proposed. . . ." Tr. 5176.

Among the beliefs he harbored and upon which he based his opinions were the following:

a. Retail pharmacies repeatedly applied to the defendant drug manufacturers for discounted formulary pricing of brand name prescription drugs;

b. Retail pharmacies had the same power to announce and enforce formularies than any hospital, nursing home, or mail-order house had;

c. Retail pharmacies had the same ability as hospitals to refuse to stock brand name prescription drugs;

d. No discounting of generic drugs to retail pharmacies occurred;

e. Manufacturers refused to grant contract prices to retail pharmacies and this refusal was the product of collusion;

f. That formularies maintained by hospitals and HMOs were not the reason Manufacturers gave discounts to those entities.

Each of the above propositions is material to the validity of any opinions or conclusions one may proffer about pricing in the pharmaceutical drug industry, yet Dr. Lucas was wrong in his beliefs about every one of them. Perhaps even more disturbing than the fact that the evidence so overwhelmingly established the opposite of what Dr. Lucas thought was characteristic of the industry was his ignorance of that very evidence.

Significantly, the falsity of Dr. Lucas' beliefs was established by the testimony of witnesses offered during the Class Plaintiffs case in chief — evidence which was supposed to supply the foundation for his opinions. The knowledge, positions, and experiences of the Plaintiffs' witnesses foreclose any probity which could attach to Dr. Lucas' views.

The list of other omissions of Dr. Lucas is longer still. Although he was convinced that collusion among the Defendants to deny retail pharmacies contract prices existed, he made no effort to investigate whether any Manufacturers offered contract pricing to retail pharmacies. He would have discovered thousands. His disdain for reality was exemplified by his lack of interest in how frequently retail pharmacies received discounts from any Manufacturer. He never studied why doctors and hospitals gave discounts to HMO's, notwithstanding the magnitude of those discounts. Nor did he think it important to look at or analyze actual contracts for brand name prescription drugs between Manufacturers and others, or what was required to earn discounts offered.

The last omission to be discussed involved Dr. Lucas' hypothesis that competition in this industry should drive the prices to all classes to the same level. Dr. Lucas acknowledged that lawful differential pricing can exist in different industries and different elasticities of demand can result in different prices charged to different customers for essentially the same goods or services. Yet Dr. Lucas never made any study of demand elasticities of the different types of customers of brand name prescription drug manufacturers, asserting their unimportance while confining his analysis only to the perceived demand elasticities of the ultimate patients.

What makes this ostrich approach to knowledge all the more remarkable and all the more indefensible was the availability of data sponsored by a different Plaintiffs' expert which showed that different types of managed care customers received different levels of discounts. Dr. Lucas was not moved to wonder why the prices paid by independent pharmacies were approximately 10% more than prices paid by chain retail pharmacies, both types being members of the Plaintiffs' class. Dr. Lucas did not know the reason for the price difference.

Dr. Lucas conceded that price competition existed in all of the areas of sales other than retail pharmacy and that the data measured activity for a considerable period of time, eight years. The data he relied on, and conceded to be the result of competitive forces, resulted in many different price levels, not the singular one he opined about. He made no attempt to explain this inconsistency. Even economic opinion requires some level of scientific analysis and testing. Dr. Lucas' eminent credentials cannot serve to lessen or eliminate that settled requirement of admissibility.

Daubert says that courts must ensure that purportedly scientific testimony employs scientific methods to reach reliable conclusions, and by extension Rule 702 requires any other application of specialized knowledge to be professionally sound and reliable. Huey v. United Parcel Service, Inc., No. 98-2453, slip op. at 6 (7^th Cir. 1/8/99). An "opinion has a significance proportioned to the sources that sustain it." Petrogradsky Mejdunarodny Kommerchesky Bank v. National City Bank, 253 N.Y. 23, 34, 170 N.E. 479, 483 (1930) (Cardozo, J.). "An expert who supplies nothing but a bottom line supplies nothing of value to the judicial process." Mid-State Fertilizer Co. v. Exchange National Bank, 877 F.2d 1333, 1339 (7^th Cir. 1989).

The application of economic principles to an industry in which relevant and material evidence is considered and analyzed, as expected of any expert witness, was not characteristic of Dr. Lucas' work or testimony. Just as the expert in Huey, Dr. Lucas gave a conclusion, but no more. Dr. Lucas' opinions about the pharmaceutical drug industry and the claimed collusion among the Defendants failed every test of admissibility. Rather than affording a basis for denial of the Defendants' motions for judgments of acquittal, a review of his testimony shows quite clearly how vacuous the Class Plaintiffs' evidence of conspiracy really is.

It is important to note the nature of the conspiracy charged in order to determine whether there was sufficient evidence to go forward. It is equally important to have a common definition of relevant terms. The Class Plaintiffs do not contend that there was any conspiracy to fix list prices at which brand name prescription drugs were sold to them. There is also no evidence to support any charge that the list prices of brand name prescription drugs sold to all other classes of customers were the product of a conspiracy. Indeed, no such charge has been made. There is also no allegation and no evidence that the variety of discounts to the many classes of trade other than retail pharmacy were the product of anything except competitive market forces, nor is there any claim that the list prices to Wholesalers or to all classes of trade other than retail pharmacy was the result of anything other than competition and the forces of the unfettered marketplace.

Although the definition of "brand name prescription drugs" as used by the Class Plaintiffs has varied from time to time, argument on Defendants' motion has supplied the necessary clarification. The brand name prescription drugs within the scope of the alleged conspiracy are as follows: Sole-source brand name prescription drugs; co-marketed brand name prescription drugs; and brand name prescription drugs which once enjoyed patent protection, but which lost that protection. Generic drugs sold under generic names and drugs sold under a brand name, but which never enjoyed patent protection, are not included within the Class Plaintiffs' definition.

With those definitions in mind, a review of the evidence discloses that discounts on brand name prescription drugs were, indeed, offered by drug manufacturers, including Defendants at trial, to retail pharmacy. In fact, these discounts were offered during the period in which the Class Plaintiffs claim the conspiracy was being hatched, and even later when the conspiracy was supposedly in place. Dr. Lucas and the Class Plaintiffs claim that a feature of the Defendants' collusion was to deny contract prices to the Plaintiffs. The evidence is to the contrary.

C. Santiago Determination

At the beginning of this trial, the Court advised the parties that it would make the definitive Santiago determination after the presentation of evidence. An abundance of evidence of the acts and declarations of entities and parties not on trial was conditionally received. Based on a review of the totality of the evidence presented to date, including that which was specifically commented on, it is the Court's finding that it is less probable than more probable that there was in existence the conspiracy the Class Plaintiffs have alleged in this case. It is also our judgment that it is not probable that any of the Defendants on trial joined or ever became members of any conspiracy charged in the Class Plaintiffs' complaint.

LEGAL STANDARD

Judgment as a matter of law (formerly directed verdict) is appropriate where "a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party." Fed.R.Civ.P. 50(a)(1). The legal standard for deciding a motion for judgment as a matter of law under Rule 50(a) "mirrors" the standard for deciding a motion for summary judgment. Shields Enterprises, Inc. v. First Chicago Corp., 975 F.2d 1290, 1294 (7^th Cir. 1992) (citing Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).

When ruling on a Rule 50(a) motion, we are prohibited from judging the credibility of witnesses. See Kasper v. St. Mary of Nazareth Hospital, 135 F.3d 1170, 1173 (7^th Cir. 1998) ("[W]hen a case turns on credibility, neither side is entitled to judgment as a matter of law unless objective evidence shows that it would be unreasonable to believe a critical witness for one side.") (citations omitted); Payne v. Milwaukee County, 146 F.3d 430, 432 (7^th Cir. 1998) ("Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge, whether he is ruling on a motion for summary judgment or for a directed verdict.") (citations omitted). If we find the evidence, "`taken as a whole, provides a sufficient probative basis upon which a jury could reasonably reach a verdict, without speculation over legally unfounded claims, the [Rule 50(a)] motion should be denied.'" Cygnar v. City of Chicago, 865 F.2d 827, 834 (7^th Cir. 1989) (quoting Anderson v. Gutschenritter, 836 F.2d 346, 348 (7^th Cir. 1988)).

When faced with a motion for judgment as a matter of law, we are required to "view the evidence in the light most favorable to the nonmoving party and ascertain whether there exists `any evidence upon which a jury could reach a verdict for the party producing it, upon whom the onus of proof is imposed.'" Deimer v. Cincinnati Sub-Zero Products, Inc., 58 F.3d 341, 343 (7^th Cir. 1995) (quoting Fulk v. Illinois Cent. R.R., 22 F.3d 120, 124 (7^th Cir. 1994), cert. denied, 513 U.S. 870, 115 S.Ct. 193, 130 L.Ed.2d 125 (1994)).

While judgment as a matter of law in favor of a defendant "is proper only if reasonable people, viewing the facts most favorably to the plaintiff and disregarding conflicting unfavorable testimony, could not conclude that the plaintiff has made out a prima facie case," (Rakovich v. Wade, 850 F.2d 1180, 1188 (7^th Cir. 1988), cert. denied, 488 U.S. 968, 109 S.Ct. 497, 102 L.Ed.2d 534 (1988) (quoting Crowder v. Lash, 687 F.2d 996, 1002 (7^th Cir. 1982)), a defendant is entitled to judgment as a matter of law if a verdict in favor of the plaintiff would be supported only by "`sheer speculation and conjecture.'" Garrett v. Barnes, 961 F.2d 629, 631 (7^th Cir. 1992) (quoting McClure v. Cywinski, 686 F.2d 541, 544 (7^th Cir. 1982)). Furthermore, the existence of "a mere scintilla of evidence will not suffice" to defeat a motion for judgment as a matter of law. Garrett, 961 F.2d at 631 (citing Richardson v. Indianapolis, 658 F.2d 494, 498 (7^th Cir. 1981), cert. denied, 455 U.S. 945, 102 S.Ct. 1442, 71 L.Ed.2d 657 (1982)). With these principles in mind, we turn to the Defendants' motions for judgment as a matter of law.

DISCUSSION

I. The Sherman Antitrust Act, 15 U.S.C. § 1

Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, makes it unlawful to form a conspiracy in restraint of trade. 15 U.S.C. § 1. The purpose of the Sherman Act is to prevent harms to competition, such as higher prices and lower output resulting from collusion among competitors. Blackburn v. Sweeney, 53 F.3d 825, 830 (7^th Cir. 1995) (citing Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., 784 F.2d 1325, 1334 (7^th Cir. 1986); Richard Posner, Antitrust Law). In order to prevail on a Section 1 claim, a plaintiff must prove: (1) a contract, combination or conspiracy; (2) a resulting unreasonable restraint of trade in the relevant market; and (3) an accompanying injury. Denny's Marina, Inc. v. Renfro Productions, Inc., 8 F.3d 1217, 1220 (7^th Cir. 1993) (citing, inter alia, Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)).

The first element of a Sherman Act claim is established by proof that there was an agreement in restraint of trade and that the challenged act was "part of or pursuant to that agreement." Monsanto v. Spray-Rite Service, 465 U.S. 752, 767, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984). In order to prove the existence of a Section 1 conspiracy, a plaintiff must present evidence that tends "to exclude the possibility that the alleged coconspirators acted independently." Matsushita, 475 U.S. at 588; Serfecz v. Jewel Food Stores, 67 F.3d 591, 599 (7^th Cir. 1995), cert. denied, 516 U.S. 1159, 116 S.Ct. 1042, 134 L.Ed.2d 189 (1996) (quoting Matsushita); Reserve Supply v. Owens-Corning Fiberglass, 971 F.2d 37, 49 (7^th Cir. 1992) (quoting same); Illinois Corporate Travel, Inc. v. American Airlines, Inc., 806 F.2d 722, 726 (7^th Cir. 1986) ("[T]he plaintiff must demonstrate that the firm is behaving in a way that is inconsistent with unilateral decision making . . . . This means showing that the defendant acted in a way that, but for a hypothesis of joint action, would not be in its own interest."); Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 660 (7^th Cir. 1987), cert. denied, 484 U.S. 977, 108 S.Ct. 488, 98 L.Ed.2d 486 (1987). A Section 1 plaintiff must present either direct or circumstantial evidence that reasonably tends to prove the alleged co-conspirators "had a conscious commitment to a common scheme designed to achieve an unlawful objective." Monsanto, 465 U.S. at 768; Reserve Supply, 971 F.2d at 49 (quoting Market Force, Inc. v. Wauwatosa Realty Co., 906 F.2d 1167, 1170-71 (7^th Cir. 1990)). "There is no such thing as an `unwitting conspirator.' (citations omitted). [U]nless the individuals involved [in the alleged conspiracy] understood from something that was said or done that they were, in fact, committed to [an illegal agreement], there was no violation of the Sherman Act." United States v. Standard Oil Co., 316 F.2d 884, 890 (7^th Cir. 1963).

When a Section 1 plaintiff relies upon circumstantial evidence to prove the existence of an illegal conspiracy, he "must show that the inference of conspiracy is reasonable in light of the competing inference of independent action." Matsushita, 475 U.S. at 588; Serfecz, 67 F.3d at 599 (quoting Matsushita); see also Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 468, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992). "Antitrust law limits the range of permissible inferences from ambiguous evidence in a § 1 case," (Matsushita, 475 U.S. at 588), therefore, "conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy." Matsushita, 475 U.S. at 588; Serfecz, 67 F.3d at 599 (quoting Matsushita); Reserve Supply, 971 F.2d at 49 (quoting same).

II. Evidence of An Industry-Wide Conspiracy

As noted above, judgment as a matter of law is appropriate where "a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party." Fed.R.Civ.P. 50(a)(1). As set forth above, we find the evidence of an industry-wide conspiracy between the Manufacturers and Wholesalers to deny retail pharmacies discounts on brand name prescription drugs is meager at best and the evidence as to individual Defendants paltry.

Based on the evidence above, we find no reasonable jury could predicate a finding of guilt as to any of the Manufacturer or Wholesaler Defendants on trial. We, therefore, grant the Manufacturer and Wholesaler Defendants' motions for judgment as a matter of law.

The Class Plaintiffs alleged the Manufacturers and Wholesalers of brand name prescription drugs entered into an industry-wide conspiracy to deny retail pharmacies the same discounts on brand name drugs as are offered to hospitals, HMOs and mail order pharmacies. At the outset of this litigation, the Class Plaintiffs theorized that the Manufacturers formed a cartel, agreeing among themselves to refuse to extend appropriate discounts to retail pharmacies, and subsequently recruited the Wholesalers to help police the cartel. At trial, however, the Class Plaintiffs' theory changed markedly, and they argued instead that the Wholesalers spawned the alleged conspiracy, out of a fear of retail pharmacy buying groups' power, and subsequently petitioned the Manufacturers to join in their illegal conduct. At oral argument on the Defendants' motions for judgment as a matter of law, the Class Plaintiffs' counsel acknowledged the revision in their theory.

There is nothing sinister about Wholesalers or Manufacturers attending NWDA or trade show meetings. The NWDA was a national association of brand name drug wholesalers; the Wholesaler Defendants, as well as the Manufacturer Defendants, possessed legitimate, trade-related reasons for attending such meetings. These legitimate reasons included: meeting to establish industry-wide standards to increase Wholesaler efficiency; participating in discussions regarding proposed legislation that would affect the industry; and meeting with suppliers. The Class Plaintiffs' meetings evidence simply fails to preclude the possibility of independent action. For this reason, judgment as a matter of law is proper. Matsushita, 475 U.S. at 597 n. 21 (citing Monsanto, 465 U.S. at 763-764); Eastman Kodak, 504 U.S. at 468-477; Serfecz, 67 F.3d at 602 (where antitrust "plaintiffs' case is built on a metaphysical doubt on a metaphysical doubt," evidence of independent action sufficient to support summary judgment in favor of defendants).

The Class Plaintiffs' meetings evidence also failed to establish that any Defendant possessed a "conscious commitment" to engage in a conspiracy to deny retail pharmacies discounts on brand name drugs comparable to those obtained by the favored buyers. See Monsanto, 465 U.S. at 768; Reserve Supply, 971 F.2d at 49. Instead, the Class Plaintiffs simply succeeded in presenting evidence that the Wholesalers held several meetings throughout the mid to late-1980s, continuing into the 1990s, during which several industry-wide topics were discussed, including the advent of retail buying groups. The Class Plaintiffs failed to present direct evidence that illegal discussions or conspiratorial conduct occurred at these meetings. Simply stated, evidence of the opportunity to conspire, alone, is not sufficient to sustain a Section 1 Sherman Act claim. See Weit v. Continental Ill. Nat'l Bank Trust Co., 641 F.2d 457, 642 (7^th Cir. 1981) ("the mere opportunity to conspire, even in the context of parallel business conduct, is not necessarily probative evidence [of a Sherman Act violation].").

III. The Chargeback System

The evidence shows that the chargeback system was developed in the 1970's, long before any of the Class Plaintiffs' claims of antitrust illegalities. The charge-back system initially enabled the Wholesalers to sell to hospitals and hospital buying groups which were the beneficiaries of contract prices. The system has been refined continually through the years and was the subject of much study with a view toward standardization.

Even Dr. Robert Lucas acknowledged that the use of a chargeback system is not "inherently anticompetitive" and admitted "there's nothing wrong with the chargeback system on its face." Dr. Lucas acknowledged that the Wholesalers utilize the chargeback system for all the products they distribute, including generic and over-the-counter drugs, and for which Class Plaintiffs level no allegations of conspiratorial conduct. Finally, in an admission crippling to the Class Plaintiffs' conspiracy theory, Dr. Lucas testified that it is in the Wholesalers' independent economic self-interest to utilize the chargeback system.

The Class Plaintiffs' reliance upon the existence of the chargeback system as evidence of the alleged industry-wide conspiracy ignores well-established law that holds "conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of an antitrust conspiracy." Matsushita, 475 U.S. at 588; see also Serfecz, 67 F.3d at 599; Reserve Supply, 971 F.2d at 49. The mere existence of the chargeback system does not give rise to any inference of conspiratorial conduct by the Manufacturers and/or the Wholesalers, and we find no reasonable jury could rely upon the chargeback system to support the conclusion that such a conspiracy existed.

SUMMARY

Based on the evidence presented at trial, and viewing the evidence in the light most favorable to the Class Plaintiffs, no reasonable jury could reach a verdict in favor of the Class Plaintiffs. For that reason, judgment shall be entered in favor of all of the Defendants at trial.