The Franchise Memorandum

The United States Court of Appeals for the Second Circuit has affirmed summary judgment in a price discrimination case in which the plaintiffs were unable to show a significant loss of customers. Cash Sr Henderson Drugs v. Johnson & Johnson, 2015 U.S. App. LEXIS 15162 (2d Cir. Aug. 27, 2015). The case arose because Johnson & Johnson, a pharmaceutical manufacturer, offered rebates and discounts to certain "favored purchasers," resulting in higher prices for retail pharmacies for the same drugs. Because Johnson & Johnson did not contest that it sold name-brand drugs to different buyers at different prices, the court's analysis came down to whether this activity had a prohibited effect on competition. To overcome previous evidentiary failures, the plaintiff pharmacies conducted a court-supervised study to determine how many customers were actually lost to the "favored purchasers" over a 12-year period. The study showed exceedingly few customers had been lost, so the district court granted summary judgment.

Noting the high cost of antitrust litigation and its potential chilling effect on the market as a whole, the Second Circuit affirmed. As the court observed, substantial harm and the threat of substantial harm were necessary elements of the pharmacies' claims. Because the study clearly demonstrated the number of diverted sales was de minimis, the pharmacies were missing the "hallmark" of competitive injury. Moreover, the Second Circuit concluded that pharmacies could not benefit from any inference of harm arising from the discounts over a long period of time because any such inference was rebutted by the actual evidence in this case.