In re Surescripts Antitrust Litig.
| Decision Date | 21 June 2022 |
| Docket Number | 19-cv-06627 |
| Parties | IN RE SURESCRIPTS ANTITRUST LITIGATION This Document Relates to: All Class Actions |
| Court | U.S. District Court — Northern District of Illinois |
Plaintiffs, nine community pharmacies seeking to represent a putative class, assert that the defendants have conspired to monopolize and restrain trade in the market for e-prescribing services. The defendants are Surescripts, LLC and Allscripts Healthcare Solutions, Inc., two health information technology companies. Both have moved to dismiss the Second Amended Consolidated Class Action Complaint, ECF No. 147 ("SAC"), for failure to state a claim upon which relief may be granted.
The defendants first argue the plaintiffs’ claims under the Sherman Act are barred by the direct purchaser rule set forth in Illinois Brick Co. v. Illinois , 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). In the present posture of this case, however, that argument is premature. Even if Illinois Brick does bar the plaintiffs’ claims under federal law, the plaintiffs also assert various state law theories to which Illinois Brick is not an impediment. Because relief may be granted as to the claims alleged in the SAC regardless of Illinois Brick , there is no basis to dismiss the claims under Rule 12(b)(6). Rule 12(b)(6) authorizes the dismissal of claims, not legal theories.
As for the merit of the plaintiffs’ claims, which center on the defendants’ use of loyalty pricing agreements, the defendants argue such agreements are legal in accordance with the price-cost test. That test is inapposite. The apt test is the rule of reason, and under it, the complaint plausibly paints the agreements as illegal, de facto exclusive deals. The complaint also plausibly suggests the defendants entered into conspiracies to monopolize and restrain trade based on the alleged contracts between them. Accordingly, the defendants’ motions to dismiss are denied.
This antitrust action concerns the market for e-prescribing services. E-prescribing refers to the computer-based electronic transmission of prescription information from a doctor to a pharmacy.1 It became legal nationwide in 2007 and has since expanded dramatically. Between 2008 and 2017, the per annum e-prescribing transaction rate increased from 70 million to over 1.7 billion. SAC ¶ 3. By 2017, 77% of all prescriptions were being delivered electronically. Id. ¶ 41.
Defendant Surescripts, LLC is the nation's largest provider of e-prescribing services. The plaintiffs are nine pharmacies (the "Pharmacies") that pay fees to receive prescriptions via Surescripts’ e-prescribing network. They allege Surescripts has maintained a "95% share, by transaction volume," of the e-prescribing industry, leaving them "no commercially reasonable [e-prescribing] alternative." Id. ¶ 3. "[A]s as a result, Surescripts has been able to charge pharmacies supracompetitive prices for almost ten years." Id. Specifically, the Pharmacies say they have paid roughly seventeen cents per e-prescribing transaction, yet prices in a competitive market should be no more than three cents. Id. ¶ 10. Given the annual volume of e-prescribing transactions, this overcharge totals in the millions for the Pharmacies and the class they seek to represent. Id. ¶ 12.
The Pharmacies contend that Surescripts has been able to exclude e-prescribing competitors and sustain supracompetitive prices through illegal monopolization. They primarily point to three features of Surescripts’ business to explain how Surescripts has illegally obtained and maintained a monopoly.
The first is the two-sided nature of the e-prescribing market itself. Broadly speaking, a two-sided market is one in which two sets of agents interact through an intermediary and the decisions of one affect the other. Here, an e-prescribing network serves as the intermediary between doctors and pharmacies, and each side's decision to use a particular network is affected in part by how many on the other side have chosen to do the same. It creates an issue of multi-party coordination—or what is referred to as "the chicken and the egg" problem—for any e-prescribing firm looking to enter the market. Id. ¶ 44. An e-prescribing firm cannot attract doctors to its network unless it first attracts pharmacies, but it cannot attract pharmacies unless is first attracts doctors. This creates a natural barrier to entry for nascent competitors because the value of a network to each side of the market is dependent on the number of connections the network can facilitate. For the same reason, this market dynamic also naturally advantages any established firm.
Second, the Pharmacies allege that Surescripts was able to partially solve this "chicken and egg" problem using illegal non-compete and exclusive dealing agreements. In the early years of the e-prescribing boom, they allege Surescripts formed contractual relationships with two fellow health information technology companies: RelayHealth and Defendant Allscripts.2 These companies were operating in adjacent markets involving the electronic transmission of patient health insurance information and thus had already established multi-party connections among a significant volume of doctors and pharmacies. Surescripts’ contracts with RelayHealth and Allscripts (discussed further in parts III and V) ensured each would not compete with Surescripts in the e-prescribing market in exchange for a share of the incentives earned from and fees paid to Surescripts by RelayHealth's and Allscripts’ respective customer bases. Additionally, the contracts compelled RelayHealth and Allscripts (either through express requirements or additional monetary incentives) to sign their customer bases onto Surescripts’ loyalty pricing agreement—an agreement the Pharmacies paint as an illegal exclusive deal. In the case of Allscripts, the contract also expressly forbade Allscripts’ doctor clientele from dealing with one of Surescripts’ emergent market threats, Emdeon. In sum, the agreements with RelayHealth and Allscripts helped Surescripts mollify potential competitors and secure a dominant number of multi-party connections within the e-prescribing market; connections Surescripts then made exclusive through its loyalty pricing scheme.
The alleged loyalty pricing scheme is the third central feature on which the Pharmacies’ anticompetitive allegations are based. As pled, that scheme (discussed further in part II) uses long-term exclusivity commitments to bifurcate both sides of the e-prescribing market into loyal and non-loyal Surescripts customers. Any doctor who opts into the loyalty program is given a bonus incentive payment for every e-prescribing transaction on the condition they limit themselves to only using Surescripts’ e-prescribing network; likewise, on the same condition, pharmacies who opt-in pay a discounted price. Importantly, however, all bonuses and discounts a doctor or pharmacy receives throughout the term of their exclusivity commitment must be returned as soon as they begin using a competitor's network.3 The Pharmacies say this "clawback" provision operates like a penalty on disloyal customers. Id. ¶ 128. Those customers also must forgo bonuses or discounts on future transactions. The rub, however, is that given Surescripts’ dominant market share, few customers are able to satisfy their e-prescribing needs without using Surescripts to some extent. Thus, the differential between Surescripts’ loyalty rate and its non-loyalty rate, which a disloyal customer would incur on every Surescripts transaction it might still need, acts as a second penalty for using a competitor's network. The Pharmacies claim it is simply impossible for a would-be Surescripts competitor to offer low enough prices to offset both penalties—i.e. , the retroactive clawback and the prospective rate differential—even though Surescripts’ loyalty rate (inclusive of the bonuses and discounts) is worse than what a competitor may offer. The ultimate result, the Pharmacies say, is that alternative e-prescribing networks are not viable because no competitor can convince enough customers on both sides of the market to break from Surescripts. This, they assert, leaves Surescripts free to charge supracompetitive prices.
Following a similar complaint filed in 2019 by the Federal Trade Commission in the United States District for the District of Columbia, the Pharmacies brought suit here seeking damages and injunctive relief pursuant to sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15(a), 26. They assert claims of monopolization and conspiracy to monopolize under section 2 of the Sherman Act, id. § 2, and two claims under section 1, id. § 1, for conspiracies in restraint of trade. They also reassert these claims under thirty different state antitrust statutes.4 Both defendants have moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). They argue the Pharmacies’ complaint is barred by the direct purchaser rule set forth in Illinois Brick Co. v. Illinois , 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), and also attack the sufficiency of the complaint on its merits. This Court holds the Illinois Brick argument to be premature and the complaint to be sufficient.
A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint. Hallinan v. Fraternal Ord. of Police of Chi. Lodge No. 7 , 570 F.3d 811, 820 (7th Cir. 2009). To survive such a motion, "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim "has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference...
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