Second Circuit Revives Direct Injury Claims In Group Boycott Lawsuit
On May 10, 2019, the Second Circuit Court of Appeals, in a panel consisting of Judges John M. Walker, Jr., Dennis Jacobs, and Rosemary S. Pooler, affirmed in part and vacated in part a decision by Judge Brian M. Cogan of the United States District Court for the Eastern District of New York on antitrust standing. IQ Dental Supply, Inc. v. Henry Schein, Inc., 18-175-cv (2d Cir. May 10, 2019). The court agreed with Judge Cogan that plaintiff, IQ Dental Supply, Inc. (“IQ”), had failed to establish antitrust standing to challenge the alleged boycott of an online distribution portal, SourceOne, Inc. (“SourceOne”), which it used to distribute dental supplies to dental practices nationwide. However, the court found that IQ had pled sufficient facts to establish antitrust standing regarding a boycott of its own business and vacated the district court’s judgment.
IQ alleged that defendants, three large dental‐supply distributors, conspired to violate the antitrust laws by engineering the boycott of SourceOne and of dental manufacturers and suppliers associated with SourceOne. Dental-supply distributors serve as a one-stop-shop by purchasing dental supplies and equipment from various manufacturers and reselling them to dental practices. SourceOne served as an online portal where dental practices could purchase their supplies. SourceOne also collaborated with state dental associations (“SDAs”) to create SDA‐specific websites that allowed each partner SDA to earn a percentage of the sales made through its website.
SourceOne initially worked with two other distributors, DDS Dental Supply and Arnold Dental Supply. Both companies withdrew from the arrangement because defendants pressured dental‐supply manufacturers to stop supplying them due to their arrangement with SourceOne. In 2014, IQ stepped in to fill this void. However, defendants, who controlled approximately 80 percent of the market, put pressure on dental‐supply manufacturers to boycott IQ. IQ alleged that defendants had engaged in an unlawful campaign to boycott SourceOne, the SDAs, and IQ itself and brought claims under federal and state antitrust laws.
The court noted that, in order to establish antitrust standing, plaintiff must plausibly allege both antitrust injury and its status as an “efficient enforcer.” Applying the three-part test for antitrust standing, the court inquired into 1) the nature of the alleged anticompetitive conduct, 2) the actual injury suffered by plaintiff, and 3) whether the alleged anticompetitive conduct caused the injury. The court found that IQ sufficiently alleged unlawful anticompetitive conduct, injury from defendants’ scheme, and causation.
However, in applying the test for whether an antitrust plaintiff is an efficient enforcer, the court determined that IQ was an efficient enforcer only for the harms it directly suffered and not the harms it incurred from defendants’ boycott of SourceOne and the SDAs. Specifically, the court determined that these indirect allegations were derivative, that another party would better vindicate the laws, and that IQ’s damages through this alleged conduct would be highly speculative and difficult to apportion.
Conversely, the court found that IQ had standing to pursue its claims that defendants pressured manufacturers to stop supplying it and disparaged IQ’s business. The court determined that, unlike the indirect claims, IQ was the target of defendants’ conduct, could determine damages through historical sales data, and that there would be no other plaintiff better positioned to enforce IQ’s claims. Accordingly, the court affirmed the dismissal of IQ’s claims as to the indirect injuries, but vacated the judgment as to IQ’s direct boycott allegations.