Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Dental supply distributors allegedly conspired to boycott competing online marketer, (Sep 22, 2015)

By Linda O’Brien, J.D., LL.M.

Three leading distributors of dental supplies and equipment engaged in a conspiracy to boycott an online marketer of dental supplies and equipment in order to eliminate the threat of disruptive new entry and competition in the marketing, distribution, and sale of dental supplies and equipment, according to a complaint filed in the federal district court in Central Islip, New York (SourceDental, Inc. v. Patterson Companies, Inc., September 21, 2015).

Patterson Companies, Henry Schein, Inc., and Benco Dental Supply Company are the three largest distributors of dental supplies and equipment in the United States. SourceOne Dental, Inc. markets and sells dental supplies and equipment to dentists through its website.

According to the complaint, there are over 120,000 private dental practices in the U.S., each purchasing supplies and equipment on average more than $80,000 annually. Of the 300 dental supplies and equipment manufacturers, none offers the full range of supplies and equipment necessary to run a dental practice. Manufacturers sell their products either directly to dental professionals or to wholesale distributors, which carry broad lines of supplies and equipment and employ sales representatives to service their customers.

Dental supplies and distribution is a highly concentrated market. Patterson Companies, Henry Schein, and Benco Dental Supply together account for 90 percent of the all sales in the market. The substantial market power of the three companies has allowed them to delay the advent of group purchasing organizations (GPOs) for dental supplies and equipment, according to the complaint. A GOP is an entity that helps health care providers realize savings and efficiencies by aggregating purchase volume and negotiating lower purchase prices. Dentists have historically lacked the option to participate in a GPO for dental supplies and equipment. Despite the state dental associations’ active interest in sponsoring the formation of GPOs and formal requests to the defendants to participate in such organizations, the defendants have refused to participate in any GPO for dental supplies or equipment, the complaint states.

The plaintiff alleges that in October 2013, SourceOne launched an online sales platform and GPO for members of the Texas Dental Association (TDA). The adoption of the GPO model allowed SourceOne to leverage buying power to offer lower prices to dentists. The platform was an immediate success, with rapidly increasing membership and sales. Many state dental associations around the country observed the success of the platform and planned to partner with SourceOne to offer GPOs to their members.

The defendants allegedly understood that SourceOne’s disruptive business model directly competed with them and threatened to induce dentists to switch their purchases from the defendants to SourceOne’s GPO platform. First, the defendants agreed to pressure manufacturers and other distributors to discontinue supplying SourceOne. Second, the defendants agreed to boycott the trade shows and annual meetings of the TDA and other state dental associations that were doing business or considered doing business with SourceOne. Third, the defendants agreed to boycott dentists who dealt with SourceOne by withholding necessary service to those dentists’ equipment, the complaint alleges.

The complaint further charges that the defendants’ conspiracy was successful in (1) forcing manufacturers and distributors to discontinue sales to SourceOne, (2) deterring state dental associations from proceeding with planned partnerships with SourceOne, and (3) pressuring dentists from purchasing dental supplies and equipment from SourceOne. The defendants’ conduct was intended to eliminate SourceOne was a viable GPO competitor and simultaneously harmed consumers by artificially maintaining prices paid by dentists for supplies and equipment.

The plaintiff asserts claims for tortious interference with prospective business relations, civil conspiracy, aiding and abetting, and restraint of trade in violation of Section 1 of the Sherman Act, Arizona Uniform Antitrust Act, and New York Donnelly Act. The action seeks declaratory and injunctive relief, treble and compensatory damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 2:15-cv-05440-JMA-GRB.

Attorneys: Jack G. Stern, William A. Isaacson, James P. Denvir, and Christopher G. Renner (Boies, Schiller & Flexner LLP) for SourceOne Dental, Inc.

Companies: SourceOne Dental, Inc.; Patterson Companies, Inc.; Henry Schein, Inc.; Benco Dental Supply Company

News: Antitrust NewYorkNews