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The Franchise Memorandum

Third Circuit Upholds Manufacturer's Motion to Compel Arbitration
Posted in Arbitration

In the appeal of a case that appeared in Issue 236 of The GPMemorandum, the Third Circuit reversed a lower court and enforced an arbitration clause between a manufacturer and one of its distributors. In re Remicade (Direct Purchaser) Antitrust Litigation, 938 F.3d 515 (3d Cir. 2019). The distributor, Rochester Drug Cooperative (“RDC”), was a direct purchaser and wholesaler of a drug produced by manufacturer Johnson and Johnson (“J&J”) under a distributor agreement. For years, that drug was the only one of its type on the market, but that position was threatened when the FDA began approving “biosimilars” — that is, drugs produced by other companies that the FDA deemed clinically equivalent to the drug J&J manufactured. In response, J&J allegedly sought to maintain its monopoly by engaging in an anticompetitive scheme. RDC brought claims under the Sherman Act and J&J moved to compel arbitration on the basis that those claims fell within the arbitration provision in the distributor agreement, which required arbitration of all claims “arising out of or relating to” the agreement. The district court denied J&J’s motion on the ground that RDC’s antitrust claims were not arbitrable because they were separate from, and could not be resolved based on, the agreement.

RDC alleged that J&J’s conduct caused RDC to pay artificially inflated prices for products purchased under their agreement and therefore did “arise out of or relate to” the distribution agreement. The appellate court agreed, reasoning that the gravamen of RDC’s complaint was that J&J’s anticompetitive scheme enabled J&J to sell its drug to RDC at artificially inflated prices, and that the only “inflated price” that could have caused RDC’s injury was list price provided in the distribution agreement containing the arbitration provision. Therefore, RDC’s antitrust claims were undeniably intertwined with the distributor agreement because it was the agreement containing the allegedly inflated price that gave rise to the claimed injury. Accordingly, the appellate court reversed and remanded, directing the district court to refer the matter to arbitration.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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