Jersey Dental Laboratories v. Dentsply Intern.

• Decision Date: 19 December 2001
• Docket Number: No. CIV.A.01-267-SLR.,CIV.A.01-267-SLR.
• Citation: 180 F.Supp.2d 541
• Parties: JERSEY DENTAL LABORATORIES f/k/a Howard Hess Dental Laboratories Incorporated, and Philip Guttierez d/b/a Dentures Plus, on behalf of themselves and all others similarly situated, Plaintiffs, v. DENTSPLY INTERNATIONAL, INC., and named dental dealers, Defendants.
• Court: U.S. District Court — District of Delaware

180 F.Supp.2d 541

JERSEY DENTAL LABORATORIES f/k/a Howard Hess Dental Laboratories Incorporated, and Philip Guttierez d/b/a Dentures Plus, on behalf of themselves and all others similarly situated, Plaintiffs, v. DENTSPLY INTERNATIONAL, INC., and named dental dealers, Defendants.

No. CIV.A.01-267-SLR.

United States District Court, D. Delaware.

December 19, 2001.

Pamela S. Tikellis, Esquire, Robert J. Kriner, Jr., Esquire, and Beth Deborah Savitz, Esquire of Chimicles & Tikellis LLP, Wilmington, Delaware. Counsel for Plaintiff. Of Counsel: Thomas A. Dubbs, Esquire and Hollis L. Salzman, Esquire of Goodkind Labaton Rudoff & Sucharow LLP, New York, New York.

William D. Johnston, Esquire, John W. Shaw, Esquire, and Christian Douglas Wright, Esquire of Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware. Counsel for Defendant Dentsply International, Inc. Of Counsel: Margaret M. Zwisler, Esquire, Richard A. Ripley, Esquire, Eric J. McCarthy, Esquire, and Courtney O. Taylor, Esquire of Howrey Simon Arnold & White, LLP, Washington, D.C., and Brian M. Addison, Esquire, Dentsply International, Inc., York, PA.

MEMORANDUM OPINION

SUE L. ROBINSON, Chief Judge.

I. INTRODUCTION

Plaintiffs Jersey Dental Laboratories f/k/a Howard Hess Dental Laboratories, Inc. ("Jersey Dental") and Philip Guttierez d/b/a Dentures Plus ("Dental Plus") filed an antitrust class action against defendants¹ on April 24, 2001 in this court. They allege that defendants conspired to restrain trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; conspired to monopolize in the relevant market in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2; and conspired to restrain trade in violation of Section 3 of the Clayton Act, 15 U.S.C. § 14.² Plaintiffs seek damages, equitable relief, and/or a declaratory judgment.

In the motion currently before the court, defendant Dentsply International, Inc. ("Dentsply") seeks to have the damages portion of the antitrust claims against it dismissed, because it alleges plaintiffs are indirect purchasers barred from recovering damages by Illinois Brick v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). Plaintiffs answer that Illinois Brick does not apply to their damage claims because the complaint names both the manufacturer (Dentsply) and the intermediate dealers ("dental dealers") as coconspiring defendants, making plaintiffs ("dental laboratories") direct purchasers from the conspiracy.³

For the reasons that follow, the court shall grant Dentsply's motion to dismiss the damages claims against it.

II. BACKGROUND

A. The Parties

Plaintiffs Jersey Dental and Dentures Plus are dental laboratories that purchased Dentsply products, including Dentsply's "Trubyte" brand of artificial teeth, indirectly through the dental dealers. They bring this action on behalf of themselves and other similarly situated dental laboratories which have purchased and regularly purchase Dentsply's Trubyte brand of artificial teeth. According to the complaint, the class includes thousands of dental laboratories. (D.I. 1 at ¶¶ 2, 3)

Defendant Dentsply is a leading manufacturer and worldwide distributor of products and equipment for the dental market. Through its Trubyte Division, Dentsply manufactures and markets products used by dental laboratories to make dentures and other removable dental prosthetics. (Id. at ¶ 4)

The remaining defendants are dental dealers that distribute Dentsply's products, including Trubyte brand teeth, through direct sales to dental laboratories. (Id. at ¶¶ 5-30) The dental dealers stock a "full array" of products needed to make dentures, including artificial teeth, and generally employ skilled sales and service people to provide services to dental laboratory customers. (Id. at ¶ 54)

B. Related Litigation

This court granted summary judgment for defendant Dentsply on the damages issue in an earlier complaint filed by plaintiffs. In United States v. Dentsply Int'l, Inc., No. 99-005-SLR, 99-255-SLR, 99-854-SLR, 2001 WL 624807 (D.Del. Mar. 30), plaintiffs named only the supplier, Dentsply, as defendant and not the intermediary dental dealers from which plaintiffs actually purchased artificial teeth. The court decided to dismiss plaintiffs' damages claims in part because the dental dealers/alleged co-conspirators were not joined as co-defendants. In response, plaintiffs filed the complaint that is the subject of this motion.

C. Allegations in Current Complaint

The current complaint alleges that Dentsply and the dental dealers conspired to restrain trade and maintain a monopoly in violation of Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act. Specifically, plaintiffs complain that restrictive dealing agreements between Dentsply and the dental dealers prevent competing artificial tooth manufacturers from effectively distributing their products and allow Dentsply to monopolize the relevant market for premium artificial teeth and maintain supracompetitive prices. (D.I. 1 at ¶¶ 69-76)

According to the complaint, Dentsply sells 80% of all artificial teeth used in the United States, with a market share of 89% for "premium" quality artificial teeth. Almost all artificial teeth sold in the United States are used by dental laboratories to make dentures. Dental laboratories distinguish among artificial teeth based on price and quality, and pay significantly higher prices for premium teeth. Dentsply manufactures artificial teeth, including premium quality teeth, and other merchandise used by dental laboratories in the production of dentures. It distributes and sells its products indirectly through the dental dealers named as defendants in this case. (Id. at ¶¶ 45-50) Dentsply's dealer network constitutes approximately 80% of the outlets in the United States distributing artificial teeth and other dental laboratory products. (Id. at ¶ 55)

Several companies compete with Dentsply in the manufacture and supply of artificial teeth. Two foreign manufacturers, Vita Zahnfabrik ("Vita") and Ivoclar AG ("Ivoclar"), successfully compete against Dentsply outside the United States, but account for less than 10% of total sales of artificial teeth in the United States. At least one domestic company, Austenal, Inc. ("Austenal"), manufactures a premium artificial tooth line which has sold well outside the United States, but which has not sold well within the United States, where only a small number of dealers carry the tooth line. Austenal has attempted, unsuccessfully, to get additional dealers in the United States to distribute its teeth. (Id. at ¶¶ 51-53)

In 1993, Dentsply imposed conditions on its dealers for continuing to be or becoming Trubyte distributors. One condition requires that dealers "may not add further tooth lines to their product offering." (Id. at ¶ 62) This condition prevents dealers from adding competitors' tooth lines. Plaintiffs aver that the dental dealers "agreed and complied and continue to agree and comply with Dentsply's conditions" and "Dentsply entered into formal written agreements with certain of the Dealer Defendants to assure their partial or complete compliance with the ... criteria." (Id.) Plaintiffs also claim Dentsply and the dental dealers conspired to restrict which dealers could carry Dentsply teeth. (Id.) Furthermore, Dentsply allegedly recruited new dealers it did not need on the condition that they either drop or not sell Vita and Ivoclar teeth. (Id. at ¶ 68)

As a penalty for "breaking off or withdrawing from this conspiracy," terminated dealers allegedly lose their ability to sell both Trubyte teeth and other Dentsply Trubyte merchandise. (Id. at ¶ 63) This may result in a significant loss of business for the dealers, because many dental laboratories use Dentsply teeth and other Trubyte merchandise and expect their dealers to have the Trubyte product line available. (Id. at ¶¶ 64-65) Plaintiffs claim that no dealer defendant has successfully added a new, competitive tooth line since 1987. (Id. at ¶ 66)

The complaint also describes two specific incidents where Dentsply required exclusive dealing in return for giving dental dealers the right to distribute Dentsply teeth. In one alleged incident, Dentsply terminated its relationship with a dental dealer because it began carrying a competitor's tooth product line in addition to Dentsply's "Trubyte" product line; that dealer eventually agreed to cease distribution of the competitor's teeth in exchange for reinstatement of its relationship with Dentsply. (Id. at ¶ 60) In another alleged incident, Dentsply offered a non-Trubyte dealer the opportunity to become a Trubyte dealer if it agreed not to carry a competitor's product line anymore; the dealer agreed to the terms. Until Dentsply learned the dealer was selling the particular competitor's products, Dentsply had rejected requests from the same dealer to carry Dentsply teeth. (Id. at ¶ 61)

Plaintiffs claim injury "in their business and property as a result of the conduct alleged herein, including having paid artificially high prices for artificial teeth...." (Id. at ¶ 82) On each count of the complaint, plaintiffs aver that as a result of defendants' violation of the antitrust statutes, they are unable to purchase artificial teeth at prices determined by free and open competition and are damaged by their respective purchases of artificial teeth at prices higher than they would have otherwise paid. (Id. at ¶¶ 86, 92, 100, 110, 117, 126)

During oral argument on this motion, plaintiffs also alleged a retail price-fixing conspiracy: "Here, the wholesalers, the dealers, and the manufacturer, Dentsply, have agreed as to what the pricing will be." (D.I. 146 at 34) Plaintiffs cited ¶ 39 of the complaint as support for this argument: "Plaintiffs and all other members of the Class made purchases of Dentsply artificial teeth either directly or indirectly from Dentsply through the Dealer Defendants, at artificially maintained,...