Third Circuit Dismisses Sherman Act And RICO Claims Against Certification Board
On February 25, 2021, the United States Court of Appeals for the Third Circuit affirmed a district court’s ruling that the American Board of Internal Medicine (“defendant”) did not violate Sections 1 and 2 of the Sherman Act or the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Kenney v. Am. Bd. of Internal Med., No. 20-1007, 2021 WL 732715 (3d Cir. Feb. 25, 2021). Among other things, the Third Circuit found that a group of physicians (“plaintiffs”) did not plausibly allege that defendant impermissibly tied together initial physician certifications with the regular renewals of the same certifications. These regular renewals are known as maintenance of certification (“MOC”). The Third Circuit also found that plaintiffs did not plausibly allege that defendant utilized monopoly power to require plaintiffs to purchase MOCs.
Defendant, a non-profit organization led by a board of physicians, offers internists initial certifications and MOC. Defendant initially offered lifetime certifications and then transitioned to offering limited-time certifications that required physicians to take examinations and complete other requirements every ten years to keep their certifications active. Although physicians are not mandated by any state licensing boards to receive initial certification or MOC through defendant, plaintiffs alleged that employers conditioned their ability to secure employment and/or retain jobs on completion of defendant’s initial certification and MOC. Plaintiffs filed suit under Section 1 and Section 2 of the Sherman Act alleging that defendant used its market power to impermissibly tie the purchase of the MOC to the purchase of the initial certification. The complaint also alleged RICO claims and for unjust enrichment. The Third Circuit affirmed the dismissal of all claims.
In dismissing plaintiffs’ Section 1 tying claims under the Sherman Act, the Court only considered the threshold element that “a defendant seller tie two distinct products” together. The Court concluded that plaintiffs did not plausibly allege that the initial certification and MOC were two distinct products. The Court reasoned that plaintiffs failed to plausibly allege the existence of sufficient demand for the purchase of the tied product separate from the tying product, which is required to establish that certification and MOC are two distinct products.
Essentially, the Court’s finding was grounded in its reasoning that a tying analysis must be done from the perspective of whether there is distinct customer demand for a product instead of whether there are differences between two products. And, the Court found that plaintiffs’ allegations focused on the latter.
More specifically, the Court found insufficient plaintiffs’ primary allegations that internists view certification and MOC as separate because (1) other vendors sell products that keep internists current in their field without selling initial certifications, and (2) internists are billed separately for certification and MOC. Regarding the first, the Court found that plaintiffs’ allegations do not provide a sufficient basis for the Court to determine whether demand for non-defendant MOC products means there is also demand for defendant’s MOC products separate and apart from defendant’s initial certification. On plaintiffs’ second point, the Court reasoned that separate billing is not determinative when both the certification and MOC are based on and reflect the internists’ initial training and ability to stay current on the knowledge in their field. Similarly, the Court found that because defendant treats certification and MOC “differently” and that both are purchased years apart does not divorce the interconnectedness of the two products and is not an indication that they are separate, since the decision to purchase the initial certification is essentially a decision to also purchase all of the MOC renewals.
The Court also found that plaintiffs could not plausibly allege their Section 2 monopolization claim. The Court reasoned that because “MOC is not a separate product” there was no separate market. In other words, the Court held that defendant cannot have a monopoly in a non-existent market.
Next, the Court dismissed plaintiffs’ RICO claims on the basis that plaintiffs did not plausibly allege any fraudulent statements because they failed to plead their case with particularity. Plaintiffs contended that defendant made false claims about the reliability of MOC and concerning the MOC constituting “self-regulation.” The Court reasoned that plaintiffs failed to meet Rule 9(b)’s particularity standard because they identified certain statements without providing the precise language used or the dates on which such statements were made. Additionally, plaintiffs did not allege that they specifically heard or read the alleged statements or that their employers or potential employers otherwise read or heard defendant’s statements.
Finally, plaintiffs’ unjust enrichment claim was dismissed because the Court found that plaintiffs were not forced to purchase MOC. As a result, it was not inequitable for defendant to retain the MOC fees it received from plaintiffs.
The Kenney decision reinforces the requirement that to prevail on a Section 1 tying claim a plaintiff must focus on the distinct consumer demand for each allegedly tied product individually, not on the functional relationship between two products.