Eastern District Of Pennsylvania Dismisses Claims Against Generic Drug Distributor In Multi-District Price-Fixing Suit
On June 26, 2019, Judge Cynthia M. Rufe of the Eastern District of Pennsylvania dismissed claims that McKesson Corporation and McKesson Medical Surgical, Inc. (collectively the “Company”) engaged in a conspiracy to fix prices of generic pharmaceuticals. Marion Diagnostic Center, LLC, et al. v. McKesson Corporation, et al., No. 16-MD-2724 (June 26, 2019). The Court held that the plaintiffs had not plausibly alleged that the Company’s conduct as a generic drug distributor was the result of an agreement with co-defendant generic drug manufacturers.
Plaintiffs Marion Diagnostic Center, LLC, a multidisciplinary healthcare facility, and Marion HealthCare, LLC, a multi-specialty surgery center (collectively “Marion”), brought suit against the Company asserting claims under Section 1 of the Sherman Act and various Illinois laws. Marion contended that defendant generic drug manufacturers had either tacitly or explicitly enlisted the Company in price-fixing and market allocation of generic pharmaceuticals. As a result, Marion claimed to have paid supra-competitive prices by purchasing generic drugs from the Company.
In support of these allegations, Marion made no explicit allegations of parallel conduct but alleged that the Company charged supra-competitive prices that resulted in increased profits. Marion also alleged that Company personnel had notice of the conspiracy based on the drug manufacturers’ “radical” price increases. Marion further alleged that the Company had actual knowledge of the conspiracy because current Company employees had been previously employed by the co-defendant manufacturers and shared their knowledge of the conspiracy with the Company. Finally, Marion alleged that the Company had close relationships with a co-defendant whose senior executives had pled guilty to price-fixing and market allocation.
Judge Rufe held that Marion failed to state a claim under the Sherman Act. The Court reviewed the applicable test for demonstrating concerted action, which requires a unity of purpose, a common design, a meeting of the minds, or a conscious commitment to a common scheme. The Court reasoned that, while circumstantial evidence may support a plausible inference of an antitrust agreement, Marion had not alleged sufficient circumstantial evidence to prove an agreement. For instance, Marion had not made any explicit allegations of parallel conduct. All Marion had alleged is that the Company’s business model, where it purchases from manufacturers and then routinely marks up prices by a few percentage points, resulted in increased profits as a result of the manufacturer’s alleged conspiracy. The Court found that Marion had not cited any authority to support the proposition that these percentage mark ups were sufficient to prove parallel conduct.
While Marion alleged multiple plus factors to support a finding of an unlawful agreement, the court dismissed these as insufficient conclusory allegations. The Court also found that Marion’s allegations were contradictory where Marion alleged that the Company acted against its economic self-interest by accepting significant price increases from generic drug manufacturers but also alleged that the Company profited from the alleged conspiracy.
Finally, the Court held that Marion lacked antitrust standing because it failed to demonstrate that it was a direct purchaser. While Marion described itself as a direct purchaser in its Amended Complaint, the Court determined that it was actually the second purchaser in the chain of distribution, where it purchased “through” distributors like the Company rather than directly from the manufacturers alleged to have instigated the conspiracy. Consequently, Marion was an indirect purchaser barred from seeking damages under the Clayton Act. The Court further held that Marion could not avail itself of Illinois Brick’s co-conspirator exception to the direct purchaser rule because Marion had not alleged that the Company would be barred as a matter of law from bringing its own suit against the generic manufacturers. Accordingly, the Court dismissed Marion’s Amended Complaint for failure to state a claim.