Antitrust Law Daily Wrap Up, ANTITRUST—DNJ: Immediate Appeal Denied on Antitrust Counterclaim Alleging Physician Buying Groups Depressed Vaccine Prices Through Unlawful Collective Action, (Apr 10, 2013)

By Tobias J. Gillett, J.D., LL.M.

In a putative class action by members of physician buying groups (PBGs) alleging that a vaccine producer and distributor had monopolized the market for meningococcal vaccines and restrained trade through anti-competitive agreements, the vaccine company could not obtain an immediate appeal of the disposition of its counterclaim alleging that the PBG members had unlawfully collaborated through the PBGs to lower prices for vaccines below competitive levels, the federal district court in Newark, New Jersey has ruled (Castro v. Sanofi Pasteur Inc., April 9, 2013, Linares, J.).

Sanofi Pasteur Inc. is a producer of vaccines, and its subsidiary VaxServe supplies vaccines to physicians. Sanofi sells vaccines through contracts with PBGs, which negotiate prices on behalf of thousands of physicians and medical practices. A putative class of PBG members filed suit against Sanofi, alleging that Sanofi had used its market power in relevant markets to impose bundled-pricing contracts on the PBGs that penalized them if they purchased any vaccine that Sanofi offers from one of Sanofi’s competitors. The class alleged that Sanofi had monopolized the meningococcal vaccine market in violation of Section 2 of the Sherman Act, and had restrained trade through anti-competitive agreements in violation of Section 1 of the Sherman Act.

Sanofi asserted a counterclaim in its answer to the complaint, asserting that the PBG members had violated Section 1 of the Sherman Act by "engag[ing] in unlawful collective action through their membership in [PBGs] by demanding discounts that depressed the price of the relevant vaccines, causing prices to fall below competitive levels." The court dismissed the counterclaim with prejudice to the extent it alleged a per se violation, and without prejudice to the event it alleged a restraint of trade under the rule of reason. In the present motion, Sanofi moved for an entry of final judgment on its counterclaim or leave to file an interlocutory appeal.

Final judgment. The court explained that Federal Rule of Civil Procedure 54(b) allows a district court to "direct entry of a final judgment as to one or more, but fewer than all, claims of parties only if the court expressly determines that there is no just reason for delay." Sanofi and the PBG members did not dispute whether the court’s dismissal of Sanofi’s counterclaim amounted to a final disposition of it.

The court initially rejected Sanofi’s argument that, although the PBG members’ claims and its counterclaims shared some facts, the legal issues did not overlap because Sanofi "allege[d] a horizontal buyers’ conspiracy claim" and the PBG members’ claims "involve[d] vertical distribution agreements." The court noted that the claims would raise common issues such as "what constitutes market power within a relevant market, what amounts to anticompetitive practices," and whether the conduct alleged in either claim "caused vaccine prices to depart from competitive levels."

The court also found unavailing Sanofi’s contention that the issues for review could not arise in subsequent appeals because they involved "the pleading requirements necessary to state a buyers’ conspiracy claim." The court concluded that, while the "legal context" within which an appeals court would review an issue might differ based on its procedural posture, "it does not necessarily follow that substantive legal and factual issues necessarily change along with a case’s procedural posture."

Next, the court rejected Sanofi’s argument that immediate appeal would permit the counterclaim to "be litigated on the same track as the plaintiffs’ affirmative claim[s]" if the appeals court reversed the court’s disposition of the counterclaim. Even if the appeals court reversed the court on the grounds it gave for dismissing the counterclaim, the court could still dismiss it on other grounds on which it had reserved judgment, such as whether the counterclaim constituted "impermissible retaliation" or "whether Sanofi adequately alleged a class of counterclaim defendants." Moreover, this result or a stay pending resolution of the appeal would delay disposition of the case

Finally, the court dispensed with Sanofi’s contention that immediate appeal would resolve the issue of the extent to which the PBG members might be liable under the antitrust laws, and that the counterclaim would otherwise have to be disclosed in any class notice. The court concluded that it did not have to rule on the need to disclose the counterclaim in a class notice at that time, finding that "[i]t suffices to say that in the exercise of its discretion, this Court will not grant a final judgment pursuant to Rule 54(b) so that the Third Circuit may consider an interlocutory appeal raising issues that may resurface in a later appeal."

Interlocutory appeal. The court explained that a district court may certify a question to a Court of Appeals if "(1) the certified order involves a controlling question of law; (2) there is substantial ground for difference of opinion with respect to that question; and (3) immediate appeal may materially advance the ultimate termination of the litigation." The court has discretion to deny certification even if all three criteria are met. The court concluded that the same reasons for denying immediate appeal addressed in its discussion of the Rule 54(b) motion also applied to the motion to certify an appeal under 28 U.S.C. § 1292(b).

Moreover, the court disagreed with Sanofi’s characterization of its holding on the counterclaim. The court did not hold that "joint purchasing through a common agent can never be per se illegal," but rather that the counterclaim did not "allege facts to support the plausible inference that the PBGs either fixed prices or restricted purchases." Further, the court held that counterclaim did not adequately allege an anti-competitive effect, not that "it is legally irrelevant that the challenged conduct caused vaccine manufacturers other than Sanofi to exit the market, decline to enter it, or otherwise limit their investment into productive capabilities." Finally, the court did not hold that "below cost pricing was necessary to allege direct proof of market power," but rather that the counterclaim did not allege "facts supporting the plausible inference that PBGs control or depress prices below competitive levels."

The case is Civil Action No. 11-7178 (JLL).

Attorneys: Peter S. Pearlman (Cohn, Lifland, Pearlman, Herrman & Knopf, LLP) for Adriana Castro, M.D., P.A. John P. Barry (Proskauer Rose, LLP) for Sanofi Pasteur Inc.

Companies: Sanofi Pasteur Inc.

Cases: Antitrust NewJerseyNews