Antitrust Law Daily Wrap Up, ANTITRUST—EDLa: Below-Cost Sales Claim Under Louisiana Law Proceeds Against Pharmaceutical Wholesaler, (Oct 30, 2012)

By Jeffrey May, J.D.

In an action brought by a pharmaceutical wholesaler against a distributor to recover unpaid balances owed on an open account, the wholesaler was not entitled to partial summary judgment on the distributor's Louisiana Unfair Sales Act (LUSA) counterclaim based on alleged below-cost sales, the federal district court in New Orleans has ruled (J. M. Smith Corp. v. Ciolino Pharmacy Wholesale Distributors, LLC, October 29, 2012, Zainey, J.).

The wholesaler, J. M. Smith Corporation, failed to meet its burden of demonstrating that there was no genuine issue as to any material fact with regard to whether it sold below cost in violation of the LUSA. A jury trial is set for February 2013.

The LUSA prohibits the sale of merchandise, either by retailers or wholesalers, at less than cost with the intent or effect of inducing the purchase of other merchandise or of unfairly diverting trade from a competitor or impairing fair competition. La.R.S. §51.422(A). The statute defines “[c]ost to the wholesaler” as “the invoice cost or the replacement cost, of the merchandise, whichever is lower; (1) [l]ess all trade discounts except customary discounts for cash and discounts from the state or any governmental agency allowed for the payment of collection of any taxes. ...” La. R.S. §51:421(G).

According to the distributor, Smith violated the LUSA by selling pharmaceuticals at prices below the wholesaler acquisition cost. The distributor pointed to deposition testimony of Smith employees to raise fact issues. Smith unsuccessfully argued that there was no evidence that wholesale acquisition cost was what it actually paid for the pharmaceutical products less trade discounts.

The court also rejected Smith's contention that, even if it did sell below cost, its sales were not predatory in violation of the LUSA because it did not have a reasonable chance of recoupment. Smith contended that the LUSA was an antitrust law designed to protect competition and, accordingly, that the distributor “‘must demonstrate that the scheme could actually drive the competitor out of the market’ and ‘there must be evidence that the surviving monopolist [Smith,] could then raise prices to consumers long enough to recoup his costs without drawing new entrants to the market’ ....”

Assuming that proof of a reasonable chance of recoupment was an essential element of a below-cost sales claim under the LUSA, there were still disputed issues of fact that precluded the granting of Smith's motion for partial summary judgment, the court decided. The court also noted that other issues remained in dispute, such as whether market power and damages were essential elements of the claim.

The case is No. 10-1483.

James K. Irvin (Milling Benson Woodward, LLP) for J.M. Smith Corp. Isaac Harris Soileau, Jr. (Couture & Soileau, LLC) for Ciolino Pharmacy Wholesale Distributors, LLC.

Cases: Antitrust FranchisingDistribution LouisianaNews