Opinion
93-CV-5148 (ILG)
August 21, 2002
MEMORANDUM ORDER
Presently before the Court are three separate motions, each of which overlaps in substantial part with the others. In the first motion, the defendant manufacturers seek partial summary judgment with respect to purchases of brand-name prescription drugs made by the plaintiffs through wholesalers (so-called "indirect purchases"). In the second motion, the plaintiffs seek judgment on the pleadings dismissing the manufacturer defendants' "indirect purchaser" defenses. Finally, in the third motion, the plaintiffs seek an order dismissing the defendants' "indirect purchaser" defenses, based on a 1994 agreement (the "Judgment Sharing Agreement") entered into by the manufacturer defendants.
The third motion also seeks an Order permitting the plaintiffs to use the Judgment Sharing Agreement to prove a conspiracy. This Memorandum Order, however, does not address that aspect of the plaintiffs' motion.
After reviewing the material submitted by the parties, and after careful consideration, it appears that there is merit to the defendants' argument that at least some of the plaintiffs' damage claims are barred under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). Accordingly, the manufacturer defendants' motion for partial summary judgment is granted, the plaintiffs' motion for judgment on the pleadings dismissing the manufacturer defendants' indirect purchaser defenses is denied, and the plaintiffs' motion to dismiss the manufacturer defendants' indirect purchaser defenses based on the Judgment Sharing Agreement also is denied.
BACKGROUND
The factual and procedural background of these cases has been extensively set forth in numerous prior opinions of the MDL Judge, the Honorable Charles P. Kocoras of the United States District Court for the Northern District of Illinois, as well as the Seventh Circuit Court of Appeals, and will only be repeated here to the extent relevant to the present motions and necessary for a complete understanding of them. Familiarity with those prior opinions is assumed.
See, e.g., 288 F.3d 1028 (7th Cir. 2002); 186 F.3d 781 (7th Cir. 1999); 123 F.3d 599 (7th Cir. 1997); 1999 WL 33889 (N.D. Ill. Jan. 19, 1999); 1996 WL 167350 (N.D. Ill. Apr. 4, 1996); 867 F. Supp. 1338 (N.D. Ill. 1994); 1994 WL 240537 (N.D. Ill. May 27, 1994).
The plaintiffs are thousands of retail pharmacies, ranging in size from individual, small pharmacies to large, multi-state chains. The gravamen of the plaintiffs' complaint is that the major manufacturers of brand-name prescription drugs ("BNPDs") conspired to artificially inflate prices for BNPDs, in violation of the Sherman Act, 15 U.S.C. § 1. The plaintiffs complain that they were required to pay inflated prices for BNPDs because the manufacturers collectively refused to offer them certain discounts which were provided to "institutional" or "managed care" buyers, so-called "favored purchasers." See In re Brand Name Prescription Drugs Antitrust Litig., No. 94 C 897, 1996 WL 167350, at *1 (N.D. Ill. Apr. 4, 1996). The plaintiffs further allege that a number of wholesalers of BNPDs participated in the manufacturers' conspiracy to deny discounts to retail pharmacies. According to the plaintiffs, the wholesalers and manufacturers set up an industry-wide system, known as the "chargeback system," in order to facilitate differential pricing between pharmacies and favored purchasers, and in order to prevent "arbitrage."
"Manufacturers of [BNPDs] generally do not sell directly to the retailers of their drugs, that is, to hospitals, HMO's, nursing homes, and pharmacies, but instead sell to wholesalers for resale to the retailers. A wholesaler is compensated for the warehousing and other functions that he performs in the distribution of his drugs through the difference between the price that he pays his supplier and the price at which he resells to retailers." In re Brand Name Prescription Drugs Antitrust Litig., 186 F.3d 781, 783 (7th Cir. 1999).
In a prior decision in these cases, Judge Posner succinctly described the problem of arbitrage, and how the chargeback system was designed to prevent it. As an understanding of the chargeback system is critical to these motions, Judge Posner's explanation is fully set forth below.
The danger to a price-discriminating drug manufacturer is that a wholesaler might buy at the discounted price more than he needed to supply his hospital, HMO, and nursing home customers and sell the surplus to pharmacies at a price below the nondiscounted price that the manufacturer wanted them to pay. The industry calls this "diversion" (economists call it "arbitrage") and of course dislikes it. Suppose the manufacturer's profit-maximizing price to an HMO for some drug were $40, his price to a pharmacy for the same drug $65, and the wholesaler tacked on $10 to compensate him for his services in distribution. Suppose that the HMO wanted 10 units of the drug and the pharmacy 2 units. If the wholesaler sold 10 units to the HMO at $50 and 2 units to the pharmacy at $75, as the manufacturer intended, the latter's total revenue would be $530 and the wholesaler's $120 (12 x $10). If instead the wholesaler told the manufacturer that he needed 12 units for the HMO and none for the pharmacy, and the manufacturer therefore sold him 12 units at $40, two of which the wholesaler resold to the pharmacy at some price between $50 and $75 (say, $60), then although the wholesaler's revenue would increase to $140 ($120 plus the added profit from selling 2 units to the pharmacy for $20 above cost rather than $10) and the pharmacy would save $30, the manufacturer would be worse off; his revenue would decline to $480.
Manufacturers could prevent this evasion of their discriminatory pricing scheme by selling directly to the retailers, thus bypassing the wholesalers. The plaintiffs argue that fear that this would happen led the wholesalers to adopt a chargeback system — the focus of this litigation — under which the manufacturer sets a uniform price to the retailers, contracts directly with the favored retailers for discount prices to them, and reimburses the wholesaler for the difference between that and the full, uniform price. In the previous example, the price to the wholesaler would be a flat $65 regardless of whom he was reselling to. But upon proof by him that he had resold to an HMO at, say, $60 ($50, the price agreed upon between the manufacturer and the HMO, plus the wholesaler's service fees negotiated with the retailer, for performing the wholesale function, and assumed in this example consistent with the previous one to be $10), the manufacturer would reimburse him $15. And so he would net the $10 service fee to compensate him for performing the wholesaling function. The chargeback system eliminates diversion (arbitrage) by requiring the wholesaler, in order to avoid a loss when he resells at a discounted price, to report to the manufacturer his sales to that customer, so that the manufacturer can determine whether the customer is indeed one entitled to a discount. With the chargeback system in place, the manufacturers were content to sell through the wholesalers rather than directly to the retailers. The latter prefer, other things being equal, to deal with a single supplier who stocks the drugs of the different manufacturers (namely a wholesaler) than with each manufacturer separately. And if the manufacturers took over the wholesaling function, they would have to charge a higher price to the retailers to recover the cost of performing that functionIn re Brand Name Prescription Drugs Antitrust Litig., 186 F.3d 781, 783-84 (7th Cir. 1999).
The plaintiffs initiated these lawsuits against both the manufacturers and the wholesalers in courts across the country, as a result of the alleged conspiracy to deny discounts and the chargeback system described above. Those lawsuits were ultimately transferred to and consolidated before Judge Kocoras by the Judicial Panel on Multidistrict Litigation. The plaintiffs then split into two groups. The first group of plaintiffs were part of a class action lawsuit, while the second group of plaintiffs opted out of the class action. Judge Kocoras dealt with the class case first.
The class plaintiffs asserted only Sherman Act claims, while the opt-out plaintiffs asserted both Sherman Act and Robinson-Patman Act claims. See In re Brand Name Prescription Drugs Antitrust Litig., 1996 WL 167350, at *1.
After nearly three years of discovery, both the manufacturer defendants and the wholesaler defendants moved for summary judgment in the class case. For their part, the wholesaler defendants argued that their participation in a price-discrimination conspiracy with the manufacturer defendants was implausible, and that the plaintiffs' allegations to the contrary were unfounded and unsupported. The manufacturer defendants argued, inter alia, that the plaintiffs' claims, to the extent they were based on "indirect purchases," were barred under the Supreme Court case of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).
Pretrial discovery involved an "indigestible mass" of more than one thousand depositions and the production of over fifty million pages of documents. See In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599, 614 (7th Cir. 1997).
An "indirect purchaser" is one who acquires a product not directly from a manufacturer, but rather from someone else in the chain of distribution of the manufacturer's product. See In re Brand Name Prescription Drugs Antitrust Litig., 1996 WL 167350, at *27. As discussed in greater detail below, the Illinois Brick Court held, with limited exceptions, that indirect purchasers cannot sue an antitrust violator; only direct purchasers may sue the antitrust violator for damages.
Judge Kocoras granted the motion as to the wholesaler defendants, but denied it with respect to the manufacturer defendants. Judge Kocoras concluded that "[t]here is no evidence, direct or circumstantial, in the entirety of this massive record that the wholesalers had any involvement in the decision not to afford discounts to the plaintiffs." In re Brand Name Prescription Drugs Antitrust Litig., 1996 WL 167350, at *20. On the other hand, Judge Kocoras found that there was sufficient evidence that the manufacturer defendants conspired to deny discounts to retail pharmacies that summary judgment in their favor was unwarranted. See id. at *15. Finally, Judge Kocoras ruled that Illinois Brick did not bar the plaintiffs' claims based on indirect purchases. Judge Kocoras held that because the manufacturer defendants determined the prices and the terms of sales by the wholesalers to the plaintiffs, the facts of this case fell within an exception to Illinois Brick, viz., where the direct purchaser is "controlled" by the antitrust violator. See id. at *29.
On appeal, the Seventh Circuit reversed both of these determinations. The court first determined that the "control" exception to Illinois Brick did not apply, because the manufacturer defendants did not "control the wholesalers through interlocking directorates, minority stock ownership, loan agreements that subject the wholesalers to the manufacturers' operating control, trust agreements, or other modes of control separate from ownership of a majority of the wholesalers' common stock." In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599, 605-06 (7th Cir. 1997) (citation omitted). Had the court stopped there, summary judgment in favor of the manufacturer defendants based on the plaintiffs' indirect purchases would have been proper. This is because the plaintiffs primarily acquired their BNPDs from the wholesalers, who, in turn, were the direct purchasers of BNPDs from the manufacturers. Thus, with the Seventh Circuit having determined that the wholesalers were not under the control of the manufacturers, and with Judge Kocoras having determined that there was insufficient evidence that the wholesalers participated in the conspiracy, the plaintiffs necessarily acquired the manufacturers' BPNDs from a group of non-conspiring "middlemen": the wholesalers. Therefore, the plaintiffs could only have been indirect purchasers of BNPDs.
Between 80 and 90% of the BNPDs acquired by the plaintiffs were purchased from wholesalers. The remaining 10 to 20% were obtained directly from the manufacturers. (See Def. SJ Mem. at 3.)
However, the Seventh Circuit went on to hold that, examining the evidence in the light most favorable to the plaintiffs, summary judgment should not have been granted to the wholesalers, as there were genuine factual questions concerning the wholesalers' participation in the purported conspiracy. See id. at 614-15. Thus, the Seventh Circuit's ruling, on one hand, resuscitated the manufacturer defendants' Illinois Brick argument. yet at the same time muted the vitality of that argument by reinstating the claims against the wholesalers. In any event, with these issues resolved, the case was remanded back to Judge Kocoras.
Stated differently, if the plaintiffs could prove a conspiracy between the manufacturers and the wholesalers, then the plaintiffs would have been direct purchasers from the conspirators, removing the case from the reach of Illinois Brick. See In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d at 604-05 (citations omitted). Judge Posner recognized, however, that in the event the plaintiffs could not prove the wholesalers' participation in the alleged conspiracy at trial. "the indirect-purchaser issue will be decisive." Id. at 605.
After the case was remanded, Judge Kocoras held a 10-week trial. At the conclusion of the plaintiffs' case. the defendants moved for judgment as a matter of law. Judge Kocoras granted that motion. holding that there was insufficient evidence to prove a conspiracy as to the wholesalers and the manufacturers. See In re Brand Name Prescription Drugs Antitrust Litig., No. 94 C 897, MDL 997, 1999 WL 33889, at *16-17 (N.D. Ill. Jan. 19, 1999). On appeal, the Seventh Circuit affirmed nearly all of Judge Kocoras's ruling. The appellate court held that Judge Kocoras correctly determined that there was insufficient evidence to support the plaintiffs' conspiracy' claim against the wholesalers, and thus affirmed his ruling granting judgment as a matter of law to the wholesalers. See In re Brand Name Prescription Drugs Antitrust Litig., 186 F.3d at 784-88. The Seventh Circuit also affirmed Judge Kocoras's ruling as to the manufacturers, except for one claim: "that in the early 1990s the defendant manufacturers agreed among themselves to peg future price increases to the Consumer Price Index." Id. at 788-89. The court found that, because there was sufficient evidence to support this claim, judgment as a matter of law was improvidently granted. The court then remanded this claim to Judge Kocoras, reminding him that, with the wholesalers out of the case, Illinois Brick likely applied. See id. at 790 ("[I]n our previous opinion we held that the indirect-purchaser doctrine . . . would bar the plaintiffs from recovering damages unless the wholesalers were members of the manufacturers' conspiracy. The plaintiffs point to no evidence that any of the defendant wholesalers were members of CPI conspiracy. so it's difficult to see how the plaintiffs could recover any damages even if they could prove that they paid higher prices as a result of such a conspiracy.").
The Seventh Circuit refused to rule outright that Illinois Brick barred the plaintiffs' Consumer Price Index claim, apparently because the manufacturer defendants had not raised the argument on appeal. See In re Brand Name Prescription Drugs Antitrust Litig., 186 F.3d at 790.
It is unclear what happened to the Consumer Price Index claim after remand; however, it is unnecessary to linger on that uncertainty, as it does not affect the present motions. With most of the class case disposed of, Judge Kocoras appears to have turned his attention to the opt-out cases. There, the wholesaler defendants once again moved for summary judgment, asserting that there was insufficient evidence to support the plaintiffs' conspiracy theory against them. Conforming to his ruling after the class trial, Judge Kocoras granted the wholesalers' motion, finding a lack of evidence to support such a charge. (See November 6, 2000 Memorandum Opinion of Hon. Charles P. Kocoras, a copy of which is annexed as Exhibit 8 to the Exhibits to Memorandum of Law in Support of Manufacturer Defendants' Motion for Partial Summary Judgment With Respect to Claims Based on Purchases Made Through Wholesalers (referred to hereinafter as "Def.'s Exs.").) This ruling was recently affirmed by the Seventh Circuit. See In re Brand Name Prescription Drugs Antitrust Litig., 288 F.3d 1028 (7th Cir. 2002).
Thus, all that remained of the opt-out cases were the plaintiffs' claims against the manufacturer defendants. Those defendants moved for summary judgment before Judge Kocoras, arguing that, with the wholesalers dismissed, Illinois Brick barred the plaintiffs from recovering any damages based on BNPDs purchased through wholesalers. In response, the plaintiffs argued that they were not seeking to recover "overcharges" for BNPDs they purchased, but rather were seeking "lost profits" based on the manufacturers' refusal to offer them discounts, which the plaintiffs labeled as a "boycott." The plaintiffs argued that such damages were not barred by Illinois Brick. The manufacturer defendants countered that the plaintiffs' "lost profits" theory of damages was just as flawed as their "overcharge" theory, because the plaintiffs' "lost profits" calculations required the computation of an "overcharge," bringing such damages within the ambit of Illinois Brick.
Judge Kocoras, who at this point was prepared to remand the cases back to their original courts for the purpose of resolving the Sherman Act claims, elected not to decide this question, but instead left the issue to be resolved by the courts in which the actions were originally filed.See In re Brand Name Prescription Drugs Antitrust Litig., No. 94 C 897, 2001 WL 40901, at *1 (N.D. Ill. Jan. 11, 2001). He noted, however, that "any boycott damages that must be calculated through incidence analysis would, like the plaintiffs' overcharge claims, be barred by Illinois Brick." Id. Furthermore. in a subsequent opinion, Judge Kocoras noted that, based on his "preliminary analysis of the formulas used by [p]laintiffs' experts to calculate their overcharge and lost profits damages," the manufacturer defendants "are probably correct in asserting that the claims for lost profits on actual sales are barred." (May 16, 2001 Memorandum Opinion of Hon. Charles P. Kocoras (Def.'s Ex. 3) at 7.) Judge Kocoras adhered to his earlier opinion, however, in leaving this issue to be decided by the courts in which the actions were originally filed. (See Id. at 7-8.) Judge Kocoras then remanded all of the opt-out cases to their original courts for the purpose of disposing of the plaintiffs' Sherman Act claims.
"Incidence analysis" was defined by the Seventh Circuit as "tracing a price hike through successive resales." In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d at 605; accord In re Brand Name Prescription Drugs Antitrust Litig., 2001 WL 40901, at * 1. At oral argument. the plaintiffs suggested that the definition of the term "incidence analysis" was unclear, and its meaning was a question of fact. (See Transcript of June 21, 2002 Hearing Before Hon. I. Leo Glasser, at 19-29.) Needless to say, the Seventh Circuit's opinion belies that argument. See also In re Beef Indus. Antitrust Litig., 600 F.2d 1148, 1163 n. 19 (5th Cir. 1979) (discussing "incidence analysis" as "tracing the incidence of an overcharge").
Not wanting to litigate the Sherman Act claims repeatedly (and to avoid the possibility of inconsistent judgments), the parties then agreed to consolidate the cases in one court — namely, this Court — after they were remanded by Judge Kocoras. They have now fully briefed the question of whether Illinois Brick applies to the plaintiffs' "lost profits" damages claim.
DISCUSSION
Of paramount importance in analyzing these motions is Judge Kocoras's decision to grant the wholesaler defendants' motion for summary judgment in these opt-out cases. (See Def.'s Ex. 8.) That decision tracked his earlier decision granting judgment as a matter of law to the wholesaler defendants in the class-action case, see In re Brand Name Prescription Drugs Antitrust Litig., 1999 WL 33889, at *15-17, which was affirmed in this regard by the Seventh Circuit, see In re Brand Name Prescription Drugs Antitrust Litig., 186 F.3d at 790. In granting summary judgment in favor of the wholesaler defendants in the opt-out cases, Judge Kocoras ruled that, as in the class-action case, there simply was no evidence that the wholesalers were involved in the alleged conspiracy. (See Def.'s Ex. 8 at 2.) As noted above, Judge Kocoras's decision in the opt-out cases was recently affirmed by the Seventh Circuit. See In re Brand Name Prescription Drugs Antitrust Litig., 288 F.3d 1028 (7th Cir. 2002).
This decision deals a significant blow to the plaintiffs' case. If the wholesaler defendants did not conspire with the manufacturer defendants to deny discounts to the plaintiffs on BNPDs, then the plaintiffs can only be "indirect purchasers" of BNPDs. In other words, had there been evidence of a conspiracy between the manufacturer defendants and the wholesaler defendants, then the plaintiffs would have been "direct" purchasers from the conspirators. However, since Judge Kocoras found (and the Seventh Circuit agreed) that the wholesalers did not conspire with the manufacturers, the wholesalers — as a matter of law — were "middlemen" through whom the plaintiffs purchased BNPDs, and thus the plaintiffs are "indirect purchasers."
Of course, this conclusion does not apply with regard to those BNPDs the plaintiffs bought directly from the manufacturer defendants, which apparently amount to between 10 and 20% of the plaintiffs' total purchases of BNPDs. (See supra n. 7.)
The distinction is critical because, in Illinois Brick, the Supreme Court held that indirect purchasers could not sue the antitrust violator. Rather, only persons or entities that directly purchased from the violator can sue under the antitrust laws. See also California v. ARC Am. Corp., 490 U.S. 93, 100 (1989) ("[u]nder federal law, no indirect purchaser is entitled to sue for damages for a Sherman Act violation"). The Court viewed its holding as a corollary to its earlier decision inHanover Shoe, Inc. v. United States Machinery Corp., 392 U.S. 481 (1968). In that case, the defendant asserted as a defense that the plaintiff, who had purchased machinery directly from the defendant, passed on the defendant's alleged overcharge to its own customers, and thus had not been injured. The Court ruled that "passing-on" was not a valid defense, because "[s]uch a defense would complicate antitrust enforcement by requiring an apportionment of damages between different tiers of purchasers of the defendant's product," an "incidence analysis" which is "famously difficult." In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d at 605 (discussing Illinois Brick and Hanover Shoe). TheIllinois Brick Court held that it must reach the same result with regard to plaintiffs instead of defendants. That is, the Court reasoned that if indirect purchasers (i.e., purchasers who buy a product down the distribution chain from the manufacturer's direct purchaser) were able to assert antitrust claims against the violator, courts would have to determine how much of an overcharge was passed on at each level in the distribution chain in order to determine any one plaintiffs damages. This analysis would raise the same concerns confronting the Court in Hanover Shoe, and thus the Court ruled that only the direct purchaser was entitled to sue.
Because the plaintiffs were indirect purchasers of BNPDs, Illinois Brick commands denial of their claims. However, as noted above, the plaintiffs attempt to circumvent the Illinois Brick bar by arguing that they are not seeking "overcharge" damages, which would implicate Illinois Brick, but rather are seeking "lost profits" as a result of the manufacturer defendants' refusal to sell to them directly. i.e., the manufacturer defendants' "boycott." The plaintiffs argue that the Seventh Circuit has tacitly endorsed the viability of a claim for this type of damages in an earlier opinion in this case. There, the Seventh Circuit stated that
We can imagine the present case reconfigured in a way that might take it out of the orbit of [Illinois Brick]. . . . A number of pharmacies have tried to improve their bargaining position vis-a-vis the drug manufacturers by forming buying groups. . . . The manufacturers have been steadfast in refusing to grant discounts to such groups. If this refusal, taking as it does the form of a refusal to enter into direct contractual relations with certain retailers, such as the manufacturers have with their favored customers, were successfully challenged as a boycott, the Illinois Brick rule, which is a rule concerning overcharges, would fall away. The plaintiffs would be permitted to prove up whatever damages they could show had flowed from the boycott, provided they weren't seeking to recover overcharges, for that would entail the very incidence analysis that Illinois Brick bars.In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d at 606 (internal citations omitted). The plaintiffs thus argue that the Seventh Circuit has acknowledged that their boycott claim for "lost profits" damages is beyond the reach of Illinois Brick. (See Pl. SJ Opp. at 6-8.)
The plaintiffs are correct that, as a general matter, "lost profits" damages based on a boycott theory will not be barred by Illinois Brick. This is because, as the plaintiffs acknowledge, "a boycott claim, unlike an overcharge claim, does not involve a purchase." (Pl. SJ Opp. at 7.) The problem with applying this logic here, however, is that this case does not involve a "boycott" in the true sense of the word, because the plaintiffs actually purchased BNPDs. Therefore, any calculation of "lost profits" the plaintiffs seek to recover based on BNPDs they purchased necessarily entails the calculation of an overcharge — specifically, the overcharge by the manufacturers to the wholesalers, which, in turn, was passed on, in whole or in part, to the plaintiffs. Thus, the plaintiffs are wrong when they assert that their "lost profits" damages theory was stamped with the Seventh Circuit's imprimatur. Instead, the "lost profits" argument runs afoul of Illinois Brick for precisely the reason set forth by Judge Posner: the plaintiffs are, in fact, attempting to recover overcharges. In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d at 606 ("If this refusal . . . to enter into direct contractual relations . . . were successfully challenged as a boycott, the Illinois Brick rule, which is a rule concerning overcharges, would fall away. The plaintiffs would be permitted to prove up whatever damages they could show had flowed from the boycott, provided they weren't seeking to recover overcharges, for that would entail the very incidence analysis that Illinois Brick bars.") (emphasis added);see also In re Microsoft Corp. Antitrust Litig., 127 F. Supp.2d 702, 708-09 (D. Md. 2001) ("Illinois Brick's applicability turns on two questions. First, did plaintiffs purchase a product directly from the defendant? If not, do plaintiffs seek damages for an illegal overcharge?").
The Court is not unmindful of the wisdom of Judge Leamed Hand's observation that "it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary,"Cabell v. Markham, 148 F.2d 737, 739 (2d Cir. 1945), but feels constrained, nevertheless, to resort to the dictionary to confirm that the ordinary meaning of the word "boycott," as used in common parlance, is "to refuse to hold relations of any kind, social or commercial, public or private, with another." Oxford English Dictionary (2d ed. 1989). There was no such refusal to engage in any commercial relationship at all with the plaintiffs. There was rather an unwillingness to engage in such a relationship upon terms the plaintiffs desired.
At oral argument, the plaintiffs argued that the Seventh Circuit's opinion "doesn't say" that "any boycott damages . . . that must be calculated through incidence analysis would, like the plaintiffs' overcharge claim[,] be barred by Illinois Brick." (See Transcript of June 21, 2002 Hearing Before Hon. I. Leo Glasser, at 21.) As the discussion above makes clear, the plaintiffs are in error.
That the plaintiffs' "lost profits" actually entail overcharges is further confirmed by the plaintiffs' own description of their damages. According to the plaintiffs, their "lost profits" fall within three groups, namely, profits lost:
(a) on BNPD sales (which arose because plaintiffs would have purchased their brand name prescription drugs at a significantly lower price and achieved a higher profit margin in the absence of defendants' illegal conduct);
(b) on BNPD sales lost because defendants' illegal conduct limited plaintiffs' ability to compete; and
(c) on sales of non-BNPD ("ancillary") products (which were lost because of the reduction in plaintiffs' BNPD business).
(Pl. Jdgmt. on Pleadings Mem. at 12-13.) Stated differently, the plaintiffs seek to recover for (i)
BNPDs they actually sold, (ii) BNPD sales they lost, and (iii) non-BNPD sales they lost. There can be little doubt, however, that the first group of damages the plaintiffs seek — in which the plaintiffs allege that they paid too much for BNPDs as a result of the manufacturers' conduct, and thus lost profits as a result of this overpayment — isprecisely the type of damages barred by Illinois Brick, notwithstanding the fact that the plaintiffs label these damages as "lost profits." Indeed, it is abundantly clear that these damages are, in fact, "overcharge" damages, and "would entail the very incidence analysis thatIllinois Brick bars." In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d at 606.
The second and third categories of damages, for foregone sales of BNPDs and non-BNPDs, also appear to be barred by Illinois Brick. (See infra at 19-20.)
In addition, as the manufacturer defendants point out, this conclusion is bolstered by the fact that the formula employed by the plaintiffs to calculate their "overcharge" damages on their price-fixing claim is embedded in the formula employed by the plaintiffs to calculate their "lost profits" on actual sales. (See Def.'s Ex. 1 at 1 n. 1.) While plaintiffs seek to belittle the manufacturer defendants' argument by asserting that it is nothing more than a "mechanical construction" of the plaintiffs' formulas, they have done little to rebut it. The plaintiffs argue that the portion of their lost profits formula which overlaps with their overcharge formula is "an interim calculation used to determine the prices that would have been charged and the profits that could have been earned in a `but for' world where plaintiffs and their buying groups could make direct contracts with the manufacturers and obtain the discounts that favored purchasers have enjoyed." (Pl. SJ Opp. at 19.) The plaintiffs further assert that this "interim calculation" does not involve the prohibited "incidence analysis," because the plaintiffs assumed that every wholesaler price increase was a "manufacturer upcharge," and therefore no complicated calculations — indeed. "no calculation[s] at all" — were necessary. (Id. at 20.) Put simply, the plaintiffs are assuming that the entire overcharge by the manufacturers to the wholesalers was passed on to them. (See, e.g., Harrison Dep. (Def.'s Ex. 11) at 217:20-218:3 ("Q: Okay. So we have — in that situation where we're calculating lost profits on actual sales based on indirect purchases, we do it by using — taking one minus PR, multiplying it by the same formula that was used to calculate overcharge damages, and then adding to it two items which we'll get to later which are BRS and AP? A: Yes." (emphasis added); id. at 227:17-22 ("Q: So you're assuming — or based on your understanding of the industry, that any overcharge by the manufacturers to the wholesalers in this case is being passed through a hundred percent to retailers? A: Yes.") (emphasis added).) The plaintiffs cannot employ such an assumption to avoid Illinois Brick. See In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d at 606 ("The only entities permitted to complain about the manufacturers' overcharging the wholesalers are the wholesalers themselves, the direct purchasers, even if every cent of the overcharge was promptly and fully passed on to the pharmacies in the form of a higher wholesale price.") (emphasis added);accord Kansas v. Utilicorp United, Inc., 497 U.S. 199, 208-12 (1990) (rejecting contention that indirect purchasers should be permitted to sue "in cases involving regulated public utilities that pass on 100 percent of their costs to their customers"). Indeed, to hold otherwise would create an exception to Illinois Brick that would swallow the Illinois Brick rule.
In fact, the plaintiffs and their expert appear to concede this overlap. (See Def.'s Ex. 13 at 2 ("Lost profits damages on actual sales and overcharge damages on actual purchases may be regarded as sufficiently overlapping or duplicative so that Plaintiffs may not be entitled to recover for both for the same purchases."); Roger D. Blair Jeffrey L. Harrison, Reexamining the Role of Illinois Brick in Modern Antitrust Standing Analysis, 68 Geo. Wash. L. Rev. 1, 20 (1999) (discussing Judge Posner's decision in In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599 (7th Cir. 1997), and stating that "the first step in determining the [plaintiffs' lost profit] damages . . . requires the plaintiffs to conduct a basic overcharge analysis").) Furthermore, Judge Kocoras reached the same conclusion, albeit preliminarily, in May of 2001, when he stated that, based on "the formulas used by [p]laintiffs' experts to calculate their overcharge and lost profits damages," the plaintiffs' claims for lost profits on actual sales were barred. (See May 16, 2001 Memorandum Opinion of Hon. Charles P. Kocoras (Def.'s Ex. 3) at 7.)
The plaintiffs also argue that, because of the Judgment Sharing Agreement, Illinois Brick is inapplicable to this case. (See Pl. SJ Opp. at 22-28; Pl. Jdgmt. on Pleadings Mem. at 13-18.) 26 manufacturers and seven wholesalers named as defendants in these cases entered into the Judgment Sharing Agreement in October of 1994. As part of that agreement, the wholesalers signed a release in which they agreed to give up any claims they might have against the manufacturers. The plaintiffs seize upon this fact, and argue that it renders Illinois Brick inapplicable here, because none of the concerns addressed in that case are implicated here. Specifically, the plaintiffs argue that (i) duplicative recovery is not possible (since the wholesalers cannot pursue claims against the manufacturers), (ii) there will be no difficulty in apportioning damages (because the wholesalers' "layer" of passing-on is removed from the equation), and (iii) the Judgment Sharing Agreement does not encourage private antitrust enforcement (since the wholesalers have agreed to forego any rights they may have against the manufacturers). (See Pl. SJ Opp. at 26-27; Pl. Jdgmt. on Pleadings Mem. at 17-18.) Thus, the plaintiffs assert that Illinois Brick should not bar their claims. The plaintiffs' argument is without merit, for three reasons.
First, as to the plaintiffs' argument regarding duplicative recovery, the fact that some of the wholesalers may have settled with the manufacturer defendants does not remove this case from the reach ofIllinois Brick. Not all of the wholesalers joined in the Judgment Sharing Agreement, and thus the possibility of duplicative recovery was not rendered moot simply by virtue of that agreement. (See Transcript of June 21, 2002 Hearing Before Hon. I. Leo Glasser, at 12.) Furthermore, in light of the Judgment Sharing Agreement, permitting the plaintiffs to press their claims would open the door to the manufacturer defendants paying twice: first to the wholesalers as part of the consideration paid for the Judgment Sharing Agreement, and once again as part of any possible recovery the plaintiffs may have on their Sherman Act claims.See Illinois Brick, 431 U.S. at 731 n. 11 (noting possibility of double recovery "where the direct purchasers have already recovered by obtaining a judgment or by settling").
Second, as to the plaintiffs' argument about apportionment of damages, the fact that there may not be complicated "passing on" analysis required does not mean Illinois Brick is inapplicable. Indeed, in the Kansas v. Utilicorp United, Inc., case, no difficult apportionment of damages was necessary because the overcharge was being passed on at 100% to the indirect purchaser. 497 U.S. 199, 208-12 (1990). Nevertheless, the Court found that Illinois Brick applied. Id. at 219.
Third, as to the argument that the Judgment Sharing Agreement does not encourage private antitrust enforcement. the Court rejected a similar argument in Illinois Brick. There, the Court noted the possibility that a direct purchaser may not sue the antitrust violator, in light of the fact that such a suit might "disrupt relations" with the violator. 431 U.S. at 746. The Court found this to be an insufficient reason to permit the indirect purchaser to sue, reasoning that
on balance, and until there are clear directions from Congress to the contrary, we conclude that the legislative purpose in creating a group of `private attorneys general' to enforce the antitrust laws under [Section] 4 is better served by holding direct purchasers to be injured to the full extent of the overcharge paid by them than by attempting to apportion the overcharge among all that may have absorbed a part of it.Id. (citation omitted); accord Jersey Dental Labs. v. Dentsply Int'l. Inc., 180 F. Supp.2d 541, 551 (D. Del. 2001) ("the indirect purchaser rule best encourages vigorous private enforcement of the antitrust laws, even if some direct purchasers refrain from bringing treble-damages suits for fear of disrupting relations with their suppliers"); In re Microsoft Corp. Antitrust Litig., 127 F. Supp.2d at 713 n. 7 ("the fact that direct purchasers may choose not to institute antitrust actions of their own does not establish an exception to the Illinois Brick rule").
The Court also notes that at least some wholesalers were, in fact, plaintiffs in this action. See In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d at 606 ("Some wholesalers were plaintiffs in this litigation; they settled.").
Furthermore, the Court must be cognizant of the fact that the Supreme Court intended exceptions to the Illinois Brick rule to be few and far between. See In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d at 605 (noting that the exceptions to Illinois Brick are limited to those stated therein: "ownership or control" exception and "cost-plus contract" exception). In fact, in Utilicorp United, the Court noted that exceptions to Illinois Brick are unwarranted even where "any economic assumptions underlying the Illinois Brick rule might be disproved," as the plaintiffs argue here. 497 U.S. at 217; see also In re Lorazepam Clorazepate Antitrust Litig., 202 F.R.D. 12, 20 (D.D.C. 2001) (Illinois Brick "provid[ed] a definitive construction to section 4 of the Clayton Act that gives direct purchasers standing to sue for treble damages, with very limited exceptions"; therefore, "it is clear that the Supreme Court did not intend for courts to examine on a case-by-case basis whether exclusive standing should be granted to indirect purchasers merely because the policies identified by the Court will better be promoted.").
For all these reasons, the Court will not endorse an Illinois Brick exception in this case simply because some of the concerns raised in that case may not be implicated here.
As the discussion above makes clear, the plaintiffs' first category of "lost profits" damages — i.e., profits lost on actual sales of BNPDs the plaintiffs purchased from wholesalers — is barred byIllinois Brick. It is not clear to the Court, however, that the manufacturer defendants are seeking summary judgment with respect to the plaintiffs' second and third categories of damages, namely, damages for foregone sales of BNPDs and non-BNPDs. The manufacturer defendants make only a fleeting reference to seeking summary judgment with respect to the these types of damages (See Def. SJ Mem. at 16 n. 19, 18-19), and the parties have not otherwise discussed them in their papers. Furthermore, the title of the manufacturer defendants' summary judgment motion indicates that they seek summary judgment only with respect to "claims based on purchases made through wholesalers." (See also Def. Mem. at 1 ("The Manufacturer Defendants . . . seek partial summary judgment dismissing that portion of the Sherman Act damage claims . . . premised on indirect purchases of brand name prescription drugs.") (emphasis added).) "It is not clear, however, if foregone sales of BNPDs and non-BNPDs involve purchases made through wholesalers." Therefore, the Court will not consider the issue at this time. To the extent the manufacturer defendants seek summary judgment with respect to these categories of damages, they can move for that relief at a later date. The Court notes. however, that damages for foregone sales of BNPDs and non-BNPDs appear to be barred by Illinois Brick, because such damages seem incident to, and seem to necessarily flow from, the manufacturer defendants' alleged "overcharge" to the wholesalers.
CONCLUSION
By its very nature, "an antitrust violation may be expected to cause ripples of harm to flow through the Nation's economy." Blue Shield of Va. v. McCready, 457 U.S. 465, 476-77 (1982). This does not mean that every person affected by an antitrust violation is entitled to sue for that violation, however. Here, the plaintiffs' "lost profit" damages — to the extent such damages are based on actual BNPD sales — are barred by Illinois Brick, because the plaintiffs are indirect purchasers on those BNPDs. Accordingly, the manufacturer defendants' motion for partial summary judgment is granted, the plaintiffs' motion for judgment on the pleadings dismissing the indirect purchaser defenses is denied, and the plaintiffs' motion to dismiss the indirect purchaser defenses based on the Judgment Sharing Agreement also is denied.