Distributor Not Barred from Assigning Antitrust Claims under No-Assignment Provision
In Walgreen Co v. Johnson & Johnson, No. 19-1730, 2020 U.S. App. LEXIS 5336 (3d Cir. Feb. 21, 2020), the United States District Court for the Third Circuit reversed a federal trial court’s decision in favor of the alleged prescription drug manufacturer price-fixer, ruling that an assignment of federal antitrust claims is not barred by a distribution contract provision proscribing the assignment of any “rights or obligations under” that distribution contract; as the Third Circuit determined the antitrust claims are a product of federal statute and thus are extrinsic to, and not rights “under,” a commercial distribution agreement.
Excerpts from Opinion
OPINION OF THE COURT
JORDAN, Circuit Judge.
Appellants Walgreen Co. and the Kroger Co. (which, for convenience, we refer to collectively and in the singular as “Walgreen”) operate retail pharmacies throughout the United States. One of the many pharmaceuticals that Walgreen dispenses to the public is Remicade, a biologic drug used to treat various autoimmune diseases. Remicade is marketed and manufactured by Appellees Johnson & Johnson and Janssen Biotech, Inc. (which, again, for convenience we refer to collectively and in the singular as “Janssen”). Janssen does not sell Remicade directly to Walgreen. Instead, Walgreen procures Remicade from two wholesale distributors: AmerisourceBergen and Cardinal Health (once more, [*3] collectively and in the singular “Wholesaler”). Wholesaler acquires Remicade pursuant to a Distribution Agreement with JOM Pharmaceutical Services, Inc. (“JOM”), a Janssen affiliate.1 Only Wholesaler and JOM are identified as parties to the Distribution Agreement. It is undisputed that New Jersey law governs the Distribution Agreement.
This appeal pertains to the scope of the anti-assignment language in Section 4.4 (the “Anti-Assignment Provision”) of the Distribution Agreement. In relevant part, the Anti-Assignment Provision states that “neither party may assign, directly or indirectly, this agreement or any of its rights or obligations under this agreement … without the prior written consent of the other party…. Any purported assignment in violation of this section will be void.” (JA at 102 (emphasis added).)
In January 2018, Wholesaler assigned to Walgreen “all of its rights, title and interest in and to” its claims against Janssen “under the antitrust laws of the United States or of any State arising out of or relating to [Wholesaler]’s purchase of Remicade[.]”2 (JA at 217.) Less than six months later, Walgreen exercised the rights Wholesaler had assigned to it and filed suit against Janssen, asserting various [*4] federal antitrust claims relating to Remicade. At bottom, Walgreen alleges that Janssen used its size and bargaining power in the broader pharmaceutical market to enter into exclusive contracts and anticompetitive bundling agreements with health insurers that suppressed generic competition to Remicade, which in turn allowed Janssen to sell Remicade at supracompetitive prices.
Janssen moved to dismiss Walgreen’s complaint on the ground that the Anti-Assignment Provision invalidated Wholesaler’s purported assignment of its antitrust claims to Walgreen. It is undisputed that, if the Anti-Assignment Provision prevents the assignment, then, under the Supreme Court’s seminal decision in Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S. Ct. 2061, 52 L. Ed. 2d 707 (1977), Walgreen, an “indirect” Remicade purchaser, would lack antitrust standing to assert claims against Janssen relating to Remicade.3 To take account of the potentially dispositive Distribution Agreement, the District Court converted Janssen’s motion to dismiss into a motion for summary judgment.
Walgreen presses a number of arguments in opposition to the District Court’s dismissal of its claims, but we need only address one: whether Wholesaler’s assignment to Walgreen of its antitrust claims against Janssen was barred by the Anti-Assignment Provision.5 Because the answer to that question is no, we will reverse and remand for further proceedings.
The facts of this case are in all material respects the same as those of Hartig Drug Company Inc. v. Senju Pharmaceutical Company Ltd., 836 F.3d 261 (3d Cir. 2016). In Hartig, an indirect purchaser of medicated eyedrops asserted antitrust claims against the eyedrops’ manufacturer pursuant to an assignment of antitrust claims from a “direct purchaser” distributor. Id. at 264. The district court granted the defendant manufacturer’s motion to dismiss the indirect-purchaser plaintiff’s claims on the ground that “an anti-assignment clause in a distribution agreement between [*6] [the manufacturer] and [the distributor] barred any assignment of antitrust claims from [the distributor] to [the indirect purchaser], leaving [the indirect purchaser] without standing to sue and divesting the Court of subject matter jurisdiction.” Id. We vacated and remanded, holding that the district court erred both in concluding that the anti-assignment clause implicated that court’s subject matter jurisdiction and in considering the terms of the distribution agreement, which was neither integral to nor attached to the indirect-purchaser plaintiff’s complaint. Id. at 269, 273-74.
Given that the district court might have occasion to again interpret the distribution agreement on remand, considerations of judicial economy prompted us to note our “doubt about the Court’s interpretation of the [distribution agreement] as barring the assignment of antitrust causes of action[.]” Id. at 274. In that regard, we observed, albeit in dictum, that “[b]ecause [the wholesaler]’s antitrust causes of action arise by statute, there is a serious argument that they do not fall within the [distribution agreement]’s plain language limiting assignment of ‘rights and obligations hereunder’—that is, they arise by operation of an extrinsic [*7] legal regime rather than by contract.” Id. at 275 n.17.
That observation in Hartig provides the appropriate rule of decision here: the statutory federal antitrust claims asserted in Walgreen’s complaint are extrinsic to, and not “rights under,” the Distribution Agreement. Applied to the Anti-Assignment Provision, the scope of which is limited to Wholesaler’s “rights under” the Distribution Agreement, it becomes evident that the provision has no bearing on Wholesaler’s antitrust claims, which rely only on statutory rights and do not implicate any substantive right under the Distribution Agreement. Accordingly, the Anti-Assignment Provision does not invalidate Wholesaler’s assignment of antitrust claims to Walgreen or otherwise present a bar to Walgreen’s standing to assert those antitrust claims against Janssen. Our holding here is consistent with the substantial weight of decisions on this issue, which do not bind us but nevertheless are persuasive.6
1 Although JOM entered into a separate Distribution Agreement with each of AmerisourceBergen and Cardinal Health, those agreements are identical in all material respects. Consequently, and for the sake of simplicity, we refer only to a single Distribution Agreement.
2 Specifically, AmerisourceBergen assigned its rights to Walgreen Co. and Cardinal Health assigned its rights to Kroger Co. Because the assignments are worded slightly differently but are identical in all material respects, for the sake of simplicity, we refer only to a single assignment.
The parties dedicated a significant portion of their briefing to disputing the question of whether federal common law or New Jersey law governs the “validity” of Wholesaler’s assignment to Walgreen. (See, e.g., Opening Br. at 13-26; Answering Br. at 9-14, 17-22). However, that dispute is contingent on the assignment at issue falling within the scope of the Anti-Assignment Provision. As discussed infra, we hold that the assignment does not convey “rights under” the Distribution Agreement, and, thus, is not subject to the Anti-Assignment Provision. Accordingly, we do not reach the parties’ subsidiary choice-of-law arguments pertaining to the assignment’s “validity.”
3 In Illinois Brick, the Supreme Court created a “direct purchaser” rule for antitrust claims, “providing that only entities that purchase goods directly from alleged antitrust violators have statutory standing to bring a lawsuit for damages[.]” Wallach v. Eaton Corp., 837 F.3d 356, 365 (3d Cir. 2016). “The rule of Illinois Brick was founded on the difficulty of analyzing pricing decisions, the risk of multiple liability for defendants, and the weakening of private antitrust enforcement that might result from splitting damages for overcharges among direct and indirect purchasers.” Gulfstream III Assocs., Inc. v. Gulfstream Aerospace Corp., 995 F.2d 425, 439 (3d Cir. 1993). Because only Wholesaler, and not Walgreen, purchased Remicade directly from Janssen, the alleged antitrust violator, Walgreen is an “indirect purchaser” under Illinois Brick.
4 The District Court had jurisdiction under 28 U.S.C. §§ 1331 and 1337. We have appellate jurisdiction pursuant to 28 U.S.C. § 1291. “It is well established that we employ a plenary standard in reviewing orders entered on motions for summary judgment, applying the same standard as the district court.” Blunt v. Lower Merion Sch. Dist., 767 F.3d 247, 265 (3d Cir. 2014).
5 Walgreen disputes whether Janssen, as a matter of law, actually is a party to the Distribution Agreement with concomitant rights to enforce the Anti-Assignment Provision. Because we conclude that the Anti-Assignment Provision does not reach Wholesaler’s assignment of its antitrust claims to Walgreen, we need not, and do not resolve Janssen’s disputed party status.
6 See, e.g., In re Opana ER Antritrust Litig., No. 14-C-10150, 2016 U.S. Dist. LEXIS 23319, 2016 WL 738596, at *5 (N.D. Ill. Feb. 25, 2016) (“Even under a broad reading of the non-assignment provisions, the prohibition on assigning ‘this Agreement’ or ‘delegat[ing]’ any ‘duties or responsibilities’ would only serve to limit the parties’ ability to assign their rights and obligations under the [agreement]. The Court does not read this language to include statutorily-based antitrust claims, because such claims are not based on any substantive right or duty found in the [agreement]s themselves.”) (alteration in original); United Food & Commercial Workers Local 1776 & Participating Employers Health & Welfare Fund v. Teikoku Pharma USA, Inc., No. 14-MD-02521-WHO, 2015 U.S. Dist. LEXIS 94220, 2015 WL 4397396, at *6 (N.D. Cal. July 17, 2015) (“The [distribution agreements]’ non-assignment clauses are limited to the assignment of duties and obligations under the [distribution agreements] themselves and do not include causes of action sounding in antitrust arising from those agreements.”); In re TFT-LCD (Flat Panel) Antitrust Litig., No. C 11-00711 SI, 2011 U.S. Dist. LEXIS 88723, 2011 WL 3475408, at *4 (N.D. Cal. Aug. 9, 2011), reconsidered in-part on other grounds, No. C 11-00711 SI, 2011 U.S. Dist. LEXIS 88723, 2011 WL 5573930 (N.D. Cal. Nov. 16, 2011) (“Here, the anti-assignment clauses are limited to each party’s rights and obligations under the contracts…. [L]itigation over antitrust claims cannot be seen as a ‘right or duty’ contemplated by the contract. The State has not brought the assigned claims based on any substantive right or duty found in the contract itself.”).