United States District Court, E.D. Pennsylvania
March 2, 2004.
BELLEVUE DRUG CO., ROBERT SCHREIBER, INC., d/b/a BURNS PHARMACY, and REHN-HUERBINGER DRUG CO., d/b/a PARKWAY DRUGS #4, on behalf of themselves and all others similarly situated, and the PHARMACY FREEDOM FUND and the NAT'L COMMUNITY PHARMACISTS ASS'N, Plaintiffs,
ADVANCE PCS, Defendant.
The opinion of the court was delivered by: EDUARDO ROBRENO, District Judge
Bellevue Drug Co., Robert Schreiber, Inc., d/b/a Burns
Pharmacy, and Rehn-Huerbinger Drug Co., d/b/a Parkway Drugs #4,
on behalf of themselves and others similarly situated
(collectively "plaintiffs"),*fn1 along with the Pharmacy
Freedom Fund and the National Pharmacists Associations bring this action
against Advance PCS under section 1 of the Sherman Act,
15 U.S.C. § 1, based on allegations of a horizontal agreement among
competitors having the effect of restraining trade in the drug
dispensing industry. Based on the defendant's allegedly illegal
activities, plaintiffs seek treble damages and injunctive relief
under sections 4 and 16 of the Clayton Act, 15 U.S.C. § 15 and
Presently before the Court is defendant's motion to dismiss the
complaint for failure to state a claim upon which relief can be
granted. For the reasons that follow, the motion shall be denied.
As a prescription benefit manager ("PBM"), Advance PCS
contracts individually with various plan sponsors to provide a
variety of services related to the prescription drug industry,
including purchasing brand name and generic prescription drugs
and dispensing services from retail pharmacies; managing networks
of retail pharmacies; and processing and adjudicating claims made
by retail pharmacies for prescriptions they fill for members of prescription plans ("plan members") that Advance PCS
In its role as a plan administrator, Advance PCS is not itself
the real purchaser of dispensing services or prescription drugs
from network retail pharmacies. Instead, it acts as a purchasing
agent on behalf of the plan sponsors that individually contract
with Advance PCS. Specifically, the complaint alleges that "by
jointly conferring their pharmacy purchase decisions upon Advance
PCS" the plan sponsors accomplish a horizontal agreement.
Further, the complaint alleges that the arrangement that the
individual plan sponsors have with Advance PCS eliminates
competition because they no longer actively compete with one
another for the dispensing services and prescription drugs sold
by the retail pharmacies. The arrangement alleged by plaintiffs
to have the effect of a "horizontal price fixing" agreement
enables the participants to agree not to bid up the price or bid
against each other, thereby reducing the apparent demand for
filling prescriptions, and concomitantly reducing the market
price for prescription drugs and dispensing services provided by retail pharmacies.*fn4
As alleged by plaintiffs, the "aggregated economic power" that
Advance PCS yields enables it to set reimbursement rates for
retail pharmacies' brand name and prescription drugs and
dispensing services below that which would prevail in a
competitive marketplace.*fn5 Although plaintiffs do not
allege that the plan sponsors conspire with each other directly
to effect this arrangement, the complaint does allege that each
plan sponsor is aware of and understands the involvement of other
plan sponsors and the role of Advance PCS as a common agent for
these plan sponsors.
Advance PCS, in addition to administering prescription drug benefit plans, operates its own mail-order pharmacy
business. On top of the horizontal price-fixing agreement
discussed above, plaintiffs allege that Advance PCS engages in
anti-competitive conduct by using its aggregated market power
derived from the combination of plan sponsors to create
artificial vertical advantages for its own dispensing activities.
More specifically, plaintiffs allege that Advance PCS
contractually prohibits retail pharmacies from dispensing more
than a 30-day supply of drugs. Meanwhile, mail-order pharmacies
operated by Advance PCS are permitted to dispense a 90-day
supply. Using information provided by the retail pharmacies it
deals with, Advance PCS contacts plan members and advertises that
the plan member can purchase a 90-day supply of a drug from
Advance PCS's mail-order operation for one co-payment. This
co-payment is advertised to be less than the total of three
co-payments which would be paid for three, 30-day supplies of the
same drug from a competing retail pharmacy subject to Advance
PCS's co-payment and drug distribution restrictions. This
activity diverts the refill and follow-on prescription business,
alleged to be the most profitable part of the prescription drug
dispensing business, from the retail pharmacies to Advance PCS's
Finally, plaintiffs allege that Advance PCS uses its aggregated
power to unilaterally impose "onerous" contract terms on retail pharmacies that choose to participate in the Advance
PCS network. These terms include co-payment restrictions and
limitations on the fees plaintiffs are permitted to charge for
the submission of claims, checks on patient eligibility, drug
checks, and plan-member use of a particular pharmacy.
A. Standard for Motion to Dismiss.
A motion to dismiss for failure to state a claim serves to test
the sufficiency of a complaint. See Kost v. Kozakiewicz,
1 F.3d 176, 183 (3d Cir. 1993). A plaintiff's allegations are
considered true and are construed in the light most favorable to
him, see Rocks v. Philadelphia, 868 F.2d 644, 645 (3d Cir.
1989), and his complaint should not be dismissed "unless it
appears beyond doubt that [he] can prove no set of facts in
support of his claim which would entitle him to relief." Conley
v. Gibson, 355 U.S. 41, 45-46 (1957).
Under Fed.R.Civ.P. 8(a)(2), the complaint "shall contain a
short and plain statement of the claim showing that the pleader
is entitled to relief." Fed.R.Civ.P. 8(a)(2). The main purpose
behind Rule 8(a)(2) is to give the defendant adequate notice of
the claim asserted against him in order for him to adequately
respond. Loftus v. SEPTA, 843 F. Supp. 981, 986 (E.D. Pa. 1994)
(citing Conley, 355 U.S. at 47)). A plaintiff need not anticipate probable defenses and respond to them in his
complaint. Campbell v. D'Agostino, No. 03-5328, U.S. Dist.
LEXIS 24520, at *9 (E.D. Pa. Dec. 11, 2003). There is no
heightened pleading standard in antitrust cases, and the general
principles governing Rule 12(b)(6) motions apply. See In re
Mercedes-Benz Antitrust Litig., 157 F. Supp.2d 355, 359 (D.N.J.
2001) (citing MCM Partners, Inc. v. Andrews-Bartlett &
Assocs., Inc., 62 F.3d 967, 976 (7th Cir. 1995)).
It has long been the rule in this Circuit that a complaint
alleging a conspiracy "must contain sufficient information for
the Court to determine whether or not a valid claim for relief
has been stated and to enable the opposing side to prepare an
adequate pleading." Rose v. Bartle, 871 F.2d 331, 366 n. 60 (3d
Cir. 1989). What this means is that
the plaintiffs must plead with particularity the
"circumstances" of the alleged wrongdoing in order to
place the defendants on notice of the precise
misconduct with which they are charged. Only
allegations of conspiracy which are particularized,
such as those addressing the period of the
conspiracy, the object of the conspiracy, and certain
actions of the alleged conspirators taken to achieve
that purpose, will be deemed sufficient. . . . An
inference [of conspiracy] . . . from the Complaint . . .
[is] no substitute for the requirement that the
circumstances of the conspiracy be pleaded with
Rose, 871 F.2d at 366 (quoting Kalmanovitz v. G. Heilman
Brewing CO., 595 F. Supp. 1385, 1401 (D. Del. 1984)).
B. Standing to Sue: "Antitrust Injury". Section 4 of the Clayton Act provides that "any person who
shall be injured in his business or property by reason of
anything forbidden in the antitrust laws" may maintain a private
action for treble damages. 15 U.S.C. § 15(b). "A showing of
antitrust injury is necessary, but not always sufficient, to
establish standing under § 4, because a party may have suffered
antitrust injury but may not be a proper plaintiff under § 4 for
other reasons." Cargill, Inc. v. Monfort of Colorado, Inc.,
479 U.S. 104, 110 (1986); see also Barton & Pittinos v. Smithkline
Beecham Corp., 118 F.3d 178, 181 (3d Cir. 1997). "[I]njury,
although casually related to an antitrust violation, nevertheless
will not qualify as `antitrust injury' unless it is attributable
to an anti-competitive aspect of the practice under scrutiny,
`since it is inimical to [the antitrust] laws to award damages'
for losses stemming from continued competition." Atlantic
Richfield Co., v. USA Petroleum Co., 495 U.S. 328, 334 (1990)
(quoting Cargill, 479 U.S. at 109-110)). If the injury is not
of the recognized type, even though the would-be plaintiff may
have suffered an injury as a result of conduct that violated the
antitrust laws, he or she has no standing to bring a private
action under the antitrust laws to recover for it. Smithkline
Beecham Corp., 118 F.3d at 181.
Advance PCS argues that the complaint should be dismissed
because plaintiffs have not alleged an "antitrust injury . . . that is of the type the antitrust laws were intended
to protect."*fn6 Although defendant argues that this injury
is necessary to state a cause of action under the Sherman Act, as
discussed above, antitrust injury is more accurately analyzed as
an issue of standing for private plaintiffs bringing suit under
the Clayton Act and is separate and distinct from the factual
allegations necessary to state a cause of action under the
In attacking plaintiffs' complaint for failure to plead an
"antitrust injury," Advance PCS argues that price-suppression
generally benefits consumers.*fn7 Advance PCS relies
primarily on the Supreme Court's decision in Atlantic Richfield
Co., v. USA Petroleum Co., 495 U.S. 328 (1990), where the Court
discussed at length what constitutes "antitrust injury" for the
purposes of the Sherman Act. In ARCO, defendant ARCO was an integrated oil company that
sold gasoline to consumers through its own stations and through
independent retailers, such as the plaintiff in that case, USA
Petroleum. 495 U.S. at 331. At some point, ARCO enacted a
marketing strategy enabling its own dealers to lower prices.
Id. at 331-32. USA Petroleum's complaint alleged that the
marketing strategy was a conspiracy to fix prices below market
levels and reduce competition among gas retailers. Id. at 332.
The Supreme Court held that USA Petroleum failed to meet the
antitrust injury requirement because its losses did "not flow
from the aspects of a vertical, maximum price-fixing that render
it illegal." Id. at 337. In dictum, which Advance PCS now
relies on, the Supreme Court stated that "[l]ow prices benefit
consumers regardless of how those prices are set, and as long as
they are above predatory levels, they do not threaten
competition." Id. at 339.
The Court finds ARCO distinguishable from the present case. In
contrast to the vertical price-fixing agreement alleged in ARCO
(where the distributor was charging lower prices to the
consumer), the situation alleged here is horizontal price-fixing
agreement, where distributors are alleged to be colluding with
one another to artificially suppress, not the prices charged to
consumers, but the prices paid to their suppliers. Clearly, the
potential anti-competitive effects of the latter are more pernicious than the former. While the vertical price-fixing
agreement discussed by the Supreme Court may give rise to price
competition between distributors, see ARCO, 495 U.S. at 341,
the same cannot be said with the horizontal agreement alleged
here because the distributors, instead of competitively bidding
with the seller, act in concert with one another. The "low
prices" favorably referred to in ARCO are not the same "low
prices" at issue in the instant case. Indeed, when all reasonable
inferences are drawn in favor of the plaintiffs, competition as
between the distributors, is decreased and not increased in the
case at bar. Thus, an antitrust injury of the type stemming from
the reduction of competition has been alleged. Id. at 334.
Despite defendant's arguments to the contrary, injury to
sellers inflicted through a horizontal price-fixing conspiracy of
buyers constitutes an antitrust injury which is actionable by the
seller. See Mandeville Island Farms, 334 U.S. at 235. As
framed by the Supreme Court in considering a dismissal of a
plaintiff's complaint by the district court, the issue presented
in Mandeville was "whether, in the circumstances pleaded,
California sugar refiners who sell sugar in interstate commerce
[the purchasers] may agree among themselves to pay a uniform
price for sugar beets grown in California without incurring
liability to the local beet growers [the sellers] under the Act."
Id. at 221. The Court concluded that sugar refiners could not escape liability under the Sherman Act and found it "clear that
the agreement is the sort of combination condemned by the Act,
even though the price-fixing was by purchasers, and the persons
specially injured under the treble damage claim are sellers, not
customers or consumers." Id.
In view of the above, the Court finds that plaintiffs have
sufficiently pled a restraint in trade resulting in "antitrust
injury" that is actionable by plaintiff under the antitrust laws.
The "existence of an `antitrust injury' is not typically resolved
through motions to dismiss," Brader v. Allegheny Gen. Hosp.,
64 F.3d 869, 876 (3d Cir. 1995), and defendant has provided an
insufficient basis for the Court to find the instant case to be
Having found that an injury of the type protected by the
antitrust laws has been pled, the Court turns to the elements
necessary to establish a cause of action under the Sherman Act.
C. Section 1 Violations.
Section 1 of Sherman Act states that "[e]very contract,
combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce among the several States, or with
foreign nations is hereby declared illegal." 15 U.S.C. § 1. In
this Circuit, three elements must be alleged to sustain a cause
of action under section 1 of the Sherman Act: a contract,
combination or conspiracy; a restraint of trade; and an effect on interstate commerce. See Fuentes v. South Hills Cardiology,
946 F.2d 196, 199 (3d Cir. 1990) (citing Weiss v. York
Hospital, 745 F.2d 786, 812 (3d Cir. 1984), cert. denied,
470 U.S. 1060 (1985)). Because the effects of defendant's alleged
activities on interstate commerce are not disputed by the
parties, the Court will determine if the first two elements have
been sufficiently pled to state a cause of action.
1. Contract, Combination or Conspiracy.*fn8
Advance PCS argues that the dismissal of the complaint is
warranted because the plaintiffs have failed to plead the
existence of a horizontal conspiracy. In its view, "[a]
horizontal price-fixing agreement is an agreement among
competitors fixing their prices . . . [but] the Complaint does
not allege the existence of any agreement here." The Court
According to the Supreme Court, the "fixing of prices by one
member of a group pursuant to express delegation, acquiescence,
or understanding is just as illegal as the fixing of prices by
direct, joint action." United States v. Masonite Corp.
316 U.S. 265, 276 (1942). Here, plaintiffs' complaint alleges that Advance
PCS markets the number and size of the plan sponsors it represents and that each plan sponsor is fully aware
that Advance PCS negotiates with network retail pharmacies on
behalf of many other plan sponsors. Further, plaintiffs allege in
their complaint that the aggregate market power possessed by
Advance PCS through its representation of numerous plan sponsors
allows it to set prices for prescription drugs and drug
dispensing services below that which would have existed in a
freely competitive market and allows it to unilaterally impose
unreasonable and anti-competitive contract terms on plaintiffs.
These lower prices, of course, provide an economic benefit to the
plan sponsors as do the 30-day drug supply limitation when
coupled with a co-payment limitation. These allegations, if
accepted as true, may give rise to the inference that Advance PCS
acted with the acquiescence and understanding of the plan
sponsors it represented and that each plan sponsor "had an
awareness of the general scope and purpose of the undertaking."
Id. at 275.
"No formal agreement is necessary to constitute an unlawful
conspiracy. . . . The essential combination or conspiracy may be
found in course of dealings or other circumstances as well as in
any exchange of words." American Tobacco Co. v. United States,
328 U.S. 781, 809-810 (1946).*fn9 Based on the allegations made in the complaint, the Court finds
that plaintiff has sets forth facts which establish the existence
of a contract, combination, or conspiracy. Moreover, the Court
finds that the facts pled including, but not limited to, the
object of the alleged agreements between defendant and the PBMs
and actions taken to effect the object of the alleged agreements
are particularized enough to place defendants "on notice of the
precise misconduct with which they are charged." Rose, 871 F.2d
at 366. Thus, the Court will not dismiss the complaint for
failure to sufficiently plead a horizontal agreement.
2. Restraint of Trade.
In view of Mandeville, 334 U.S. at 222, 234-35, discussed
above, the Court finds that a price-suppression scheme effected
by a group of buyers, who would otherwise compete with one
another for goods sold by a seller, constitutes a restraint on
As for the contract provisions relating to fee charges,
co-payment prices, and drug dispensing practices, which the
plaintiffs claim curtail their ability to distribute their
products and limit their ability to set prices, the Court finds that plaintiffs have sufficiently pled a restraint of trade
cognizable under section 1 of the Sherman Act.
In view of the above, defendant's motion to dismiss shall be
An appropriate order follows.
AND NOW, this day of March 2004, for the reasons set forth
in the accompanying memorandum, it is hereby ORDERED that
defendant's motion to dismiss (doc. no. 3) shall be DENIED.
AND IT IS SO ORDERED.