On Appeal from the United States District Court for New Jersey District Court No. 09-4935 District Judge: The Honorable Stanley R. Chesler
The opinion of the court was delivered by: Fuentes, Circuit Judge.
Before: FUENTES and CHAGARES, Circuit Judges, and POLLAK, Senior District Judge
This appeal raises the question of whether a hospital that purchases certain pharmaceutical products from a wholesaler middleman has standing under Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), to bring an illegal tying claim under federal law against the manufacturer of the pharmaceutical drugs, Amgen. In Illinois Brick, the Supreme Court held that only direct purchasers have standing under Section 4 of the Clayton Act. In this case, plaintiff-appellant Warren General Hospital argues that it falls squarely within the direct purchaser rule, despite the fact that it purchases Amgen‟s products through a middleman, because (1) it has a direct relationship with Amgen and (2) it is the first "overcharged" purchaser in the chain of distribution. The District Court granted the defendant‟s motion to dismiss after finding that the hospital was an indirect purchaser of Amgen‟s products and thus lacked antitrust standing under Illinois Brick. For the reasons that follow, we will affirm.*fn1
The following narrative is adapted from facts set forth in the Complaint. Because the District Court decided this case on a motion to dismiss, we accept as true the factual allegations in the Complaint and draw all reasonable inferences in plaintiff‟s favor.
Plaintiff Warren General Hospital ("Warren General") is a Pennsylvania not-for-profit corporation that seeks to represent members of a proposed class, composed of other hospitals, clinics, and care centers, that purchase drugs manufactured by defendant Amgen. Amgen is a corporation with its principal place of business in California that manufactures and sells pharmaceutical drugs. On September 25, 2009, Warren General filed an antitrust class action in the District of New Jersey alleging that Amgen violated antitrust law by "tying" the purchase of two of its drugs, Neupogen and Neulasta, to the sale of another Amgen drug, Aranesp. (Compl. ¶ 1).
The heart of plaintiff‟s claim is that Amgen used its knowledge of medical insurance reimbursement rates to leverage its market power in one market-the market for White Blood Cell Growth Factor ("WBCGF") drugs-to impair competition in the market for Red Blood Cell Growth Factor ("RBCGF") drugs. Warren General alleges that Amgen violated antitrust law by creating an unlawful scheme that "tied" the purchase of Amgen‟s WBCGF drugs to the purchase of its RBCGF drugs. Because of the low reimbursement rates from medical payors the hospital receives for WBCGF drugs, it is not economically feasible for the hospital to purchase WBCGF drugs at the "market price." Amgen offered Warren General discounts on purchases of its WBCGF drugs that were predicated on the hospital‟s purchase of Amgen‟s more expensive RBCGF drug. Although Amgen did not expressly require the hospital to purchase its drugs, Amgen‟s monopoly of the WBCGF market, combined with its rebate program, implicitly "forc[ed] Plaintiff and class members to make substantial purchases of Amgen‟s more-expensive RBCGF drug, rather than the cheaper competing [drug] . . . in order to avoid losing money on . . . purchases of Amgen‟s . . . WBCGF drugs." (Compl. ¶ 1). Absent this tying scheme, the hospital would have preferred to buy cheaper RBCGF drugs offered by Amgen‟s competitors.
Plaintiff‟s claims were brought under Section 1 of the Sherman Act, 15 U.S.C. § 1 and Sections 3 and 4 of the Clayton Act, 15 U.S.C. §§ 14, 15. "Tying is selling one good (the tying product) on the condition that the buyer also purchase another, separate good (the tied product)." Gordon v. Lewistown Hosp., 423 F.3d 184, 213 (3d Cir. 2005).*fn2
Substantively, plaintiff‟s claims are grounded in Section 1 of the Sherman Act and Section 3 of the Clayton Act, which proscribe tying schemes. See Town Sound and Custom Tops, Inc. v. Chrysler Motors Corp., 959 F.2d 468, 473-74 (3d Cir. 1992) (en banc). Section 1 of the Sherman Act declares "[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 . . . to be illegal." 15 U.S.C. § 1. Section 3 of the Clayton Act makes it "unlawful for any person engaged in commerce . . . to . . . make a sale or contract for sale of goods . . . or fix a price charged therefor, or discount from, or rebate upon, such price, on the condition, agreement, or understanding that the . . . purchaser thereof shall not use or deal in the goods . . . of a competitor or competitors of the lessor or seller, where the effect . . . may be to substantially lessen competition or tend to create a monopoly." 15 U.S.C. § 14. Warren General brings this action pursuant to Section 4 of the Clayton Act, which provides a private right of action for "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws." 15 U.S.C. § 15(a).
Amgen manufactures two WBCGF drugs, known as Neulasta and Neupogen. (Compl. ¶ 3). Neulasta and Neupogen treat neutropenia, "a potentially life-threatening white blood cell deficiency" . . . "which can compromise a patient‟s immune system." (Compl. ¶¶ 21-22). It is often a side effect of chemotherapy, although it also occurs in other contexts. (Compl. ¶ 21). Neulasta is the newer and more powerful drug, and "is roughly equal to 7 injections of Neupogen." (Compl. ¶ 22). Warren General submits that Amgen holds an effective monopoly in the WBCGF market. (Compl. ¶ 24). Sales of Neupogen and Neulasta make up 98 percent of the market for WBCGF drugs; Neulasta alone controls 86 percent of the WBCGF market share. *fn3 (Compl. ¶ 24).
Amgen also manufactures a RBCGF drug called Aranesp. (Compl. ¶ 2). Aranesp is used to treat severe anemia of the type experienced by patients undergoing dialysis or chemotherapy or receiving certain treatment for human immunodeficiency virus (HIV). (Compl. ¶ 15). Unlike the WBCGF market, Amgen faces real competition in the RBCGF market, where Ortho Biotech Labs ("Ortho") sells a drug called Procrit. (Compl. ¶ 2). Procrit controls approximately 70 percent of the RBCGF drug market. (Compl. ¶ 2). Yearly sales of Aranesp, Procrit, Neulasta and Neupogen are estimated to be several billion dollars. (Compl.
Sometime in early 2003, Amgen crafted a rebate program that offered the hospital and other members of the putative class rebates on the price of WBCGF drugs that correlated to purchases of Aranesp. Without the rebates, Warren General "would lose money on every administration of [Neupogen and Neulasta]" because "the cost of buying [those drugs] . . . exceeded the amount of reimbursement such purchasers received from Medicare and other health care payors." (Compl. ¶ 6). Therefore, it became "commercially unreasonable" for plaintiff to purchase Neulasta and Neupogen without the rebates. (Compl. ¶ 6). The terms of the rebate program ensured that the greater the quantity of Aranesp that Warren General Hospital purchased, the greater the value of the rebates it would receive on purchases of Neulasta and Neupogen.
The hospital claimed two types of injuries: First, it was "forced to pay more for Aranesp than they would have paid for Procrit," and second, the hospital "paid more for the bundle of Aranesp and the WBCGF drugs than they would have paid for the bundle of RBCGF and WBCGF drugs." (Compl. ¶ 7). Amgen changed its rebate program over time so that Warren General had "to continue to purchase larger amounts of Aranesp just to receive the same level of rebates they had been receiving." (Compl. ¶ 5). Meanwhile, sales of Aranesp increased significantly: by 2005, sales of Aranesp had increased by 38 percent and were valued at $840 million. (Compl. ¶ 59).
The Complaint did not set forth the mechanics of the hospital‟s WBCGF and RBCGF purchases. However, at the motion to dismiss stage, it became clear that Warren General Hospital in practice purchases Amgen‟s drugs through an independent middleman wholesaler known as AmerisourceBergen.
The totality of the Complaint‟s discussion of the hospital‟s status as a direct purchaser is contained in Paragraph 13:
During the class period, Plaintiff purchased Aranesp, Neulasta and Neupogen directly from Amgen, pursuant to a contract between Amgen and Plaintiff. The contract was negotiated at Warren Hospital between Plaintiff and an Amgen representative, who continued to service the account. The contract also required Amgen to pay the rebated dollars directly to Plaintiff, which it did.
(Compl. ¶ 13). The Complaint identified the relevant contracts and agreements between the two parties: the Amgen Portfolio Contract, the Momentum Rebate, Momentum II, and the Enhanced Momentum II contracts. (Compl. ¶ 27). Otherwise, the Complaint merely repeatedly characterized Warren General Hospital and other members of the putative class as "direct purchasers" of Amgen‟s drugs. See (Compl. ¶ 14) ("Amgen . . . manufactures and sells Aranesp [and] . . . Neupogen and Neulasta . . . to direct purchasers such as hospitals, doctors and oncology clinics."); (Compl. ¶ 24) ("Amgen has a 98% share of the sales to direct purchasers such as hospitals, doctors and oncology clinics . . . ."); (Compl. ¶ 47) ("[T]here were no such caps on Aranesp purchases, which further coerced direct purchasers such as hospitals, doctors and oncology clinics."); (Compl. ¶ 53) ("Amgen economically coerced direct purchasers such as hospitals, doctors and oncology clinics into purchasing their RBCGF product."); (Compl. ¶ 60) ("Amgen‟s efforts to use its monopoly power in the WBCGF drug market to coerce direct purchasers such as hospitals, doctors and oncology clinics into buying substantial amounts of Aranesp caused those purchasers to substantially overpay . . . . "); (Compl. ¶ 70) ("Plaintiff brings this action . . . as [a] representative of a [c]lass of all direct purchasers . . . .").
Amgen filed a motion to dismiss on the ground that Warren General lacked antitrust standing under Illinois Brick, which permits only direct purchasers to advance antitrust claims under Section 4 of the Clayton Act. The District Court granted Amgen‟s motion and dismissed the Complaint in its entirety on the ground that Warren General Hospital was not a "direct purchaser" within the meaning of Illinois Brick.
The District Court noted that the Complaint did not identify the role played by the wholesaler and found that it was appropriate to rely on extrinsic evidence, namely the four contracts and agreements upon which the Complaint relied.*fn4
"[T]he parties agree[d] that, as documents explicitly referred to and relied on by the Complaint, the contracts may be considered by the Court on this motion to dismiss, even though the documents are extraneous to the Complaint." Warren Gen. Hosp. v. Amgen Inc., 2010 WL 2326254, *1 n.2 (D.N.J. June 7, 2010). After examining the contracts identified in the Complaint, the District Court found that Warren General purchased Amgen products through a wholesaler known as AmerisourceBergen. Id. at *1. The court described the relationship between the plaintiff, the defendant, and the wholesaler as follows:
Warren General and other end users of the drugs transacted their purchases from Amgen pursuant to contracts identified in the Complaint as the Amgen Portfolio Contract ("APC"), Momentum Rebate, Momentum II and Enhanced Momentum II. (Compl., ¶ 27.) The contracts are negotiated by a Group Purchasing Organization ("GPO") on behalf of member hospitals. The Enhanced Momentum II contract, pursuant to which Warren General made purchases, structures the transaction so that Amgen sells Aranesp, Neupogen and Neulasta to ...