Seventh Circuit

US Futures Exchange, LLC v Board of Trade of the City of Chicago, Inc

The Seventh Circuit addressed the Noerr-Pennington doctrine in this decision[1] involving the commodities and futures marketplace. Under Noerr-Pennington, with some exceptions, private entities ordinarily enjoy immunity from antitrust liability when they join together to petition legislative, administrative and judicial bodies for actions that may entail anticompetitive effects.[2] The court’s ruling underscores a circuit split concerning ‘pattern’ and non-pattern allegations under Noerr-Pennington’s ‘sham litigation’ exception.

The court reviewed a record developed in protracted litigation in the district court.[3] US Futures Exchange Holdings, Inc, through its subsidiary, plaintiff US Futures Exchange, LLC (USFE), sought to produce an electronics-based futures exchange platform.[4] This digital exchange ‘posed a direct competitive threat’ to entrenched exchanges, including the Chicago Board of Trade (CBOT).[5] To launch its platform, USFE needed approval as a ‘designated contract market’ by the Commodity Futures Trading Commission (CFTC).[6] The CFTC solicited public comment on the application, and CBOT raised 54 objections to USFE’s application.[7] When the CFTC set a date for a public hearing on the application, CBOT moved to postpone the hearing, and the CFTC postponed it.[8] CBOT also proposed and obtained approval of a new exchange rule, Rule 701.01, allegedly to deprive USFE of ‘startup liquidity’ for its exchange.[9] Six months into the process, USFE obtained approval from the CFTC. However, because delays in the approval process detracted potential market participants from trading on USFE’s exchange, the platform failed.[10] USFE sued the defendants, including CBOT, alleging Sherman Act and state law claims based on CBOT’s actions.[11]

The Seventh Circuit reviewed the district court’s order granting summary judgment to CBOT and affirmed, concluding that none of USFE’s theories placed the case within the ambit of Noerr-Pennington’s exceptions and CBOT possessed implied immunity for seeking adoption of Rule 701.01.[12]

First, the court rejected USFE’s argument that CBOT made ‘fraudulent misrepresentations’ in the designated contract market approval proceeding. The court, despite acknowledging that the CFTC’s review process ‘involves a combination of legislative and adjudicative features,’ found that the proceeding was ‘legislative instead of adjudicative.’ [13] Therefore, the ‘fraudulent misrepresentations’ exception was inapplicable to CBOT’s alleged conduct.[14] The court underscored that the CFTC’s exercise of quasi-rule-making authority, encouragement of lobbying and political influence over the process, consideration of information not proffered under oath or affirmation, and informal fact-gathering made the ‘review process a legislative one.’ [15]

Second, the court adopted the First Circuit’s test for evaluating sham lawsuit claims based on an alleged pattern of sham filings.[16] Under Noerr-Pennington, the sham lawsuit exception applies only if a challenged litigation is ‘objectively meritless.’ [17] However, as opposed to a single sham litigation, USFE cited other circuits’ decisions upholding a more generous exception whenever a plaintiff alleges a pattern of sham filings. USFE further argued that even if USFE could not demonstrate that any of CBOT’s individual petitions to the CFTC were objectively meritless, the multiple filings and letters lodged in the CFTC proceeding collectively satisfied the sham exception to Noerr-Pennington immunity.[18]

The Seventh Circuit refused to discard the objectively meritless requirement ‘whenever more than a single petition has been made.’ As articulated by the First Circuit, ‘the sham exception has never hinged on the petitioner’s subjective intent alone,’[19] and there is ‘ “little logic” in concluding that a petitioner loses the right to file an objectively reasonable petition merely because it chooses to exercise that right more than once.’ [20] The district court properly refused to entertain the sham exception where the ‘petitioning [at issue] was colorable.’ [21] In holding that the district court properly required the same standard for non-pattern and pattern sham cases, the Seventh Circuit joined the First Circuit in a clear split from the Ninth, Second, Third and Fourth circuits – all of which construe existing law to apply a lower standard than ‘objective reasonableness’ where a pattern of sham filings is alleged.[22]

Third, the court concluded that the new exchange rule did not implicitly preclude application of the antitrust laws under the implied immunity doctrine.[23] The court underscored that, in approving the rule, the CFTC possessed clear and adequate regulatory authority, exercised that authority actively (by reviewing the proposal and soliciting comment letters) and in an ongoing manner (the same concerns raised by the rule had been studied in preceding years by the CFTC), and the rule was approved ‘in spite of potential anticompetitive effects,’ rendering the rule ‘clearly incompatible’ with antitrust laws.[24] Therefore, the district court properly reasoned that the CFTC’s ‘approval of Rule 701.01 was “clearly incompatible” with the antitrust laws,’ such that the CFTC’s explicit approval of the rule impliedly immunized the defendants for the purposes of USFE’s claims.[25]

In re Humira (Adalimumab) Antitrust Litigation

In February 2021, the Seventh Circuit heard oral argument in a case that may have long-standing implications at the intersection of patent and antitrust law.[26] The petitioners presented the question of whether they may proceed with antitrust claims based on a novel ‘patent thicket’ theory.

The Humira Antitrust Litigation arose when a group of indirect purchasers of AbbVie’s drug Humira brought suit, claiming that AbbVie filed patents for Humira and other biosimilar products to reduce competition. According to the plaintiffs, this practice resulted in inflated prices for consumer drugs.[27] The plaintiffs claimed that AbbVie, after obtaining its original patent for Humira in 2002, proceeded to file a ‘thicket’ of additional patent protections in the years leading up to the expiration of the underlying patent to ‘prevent[] would-be challengers from entering the market’ with cheaper alternatives.[28] The plaintiffs asserted seven counts against AbbVie, including claims under sections 1 and 2 of the Sherman Act. The defendants moved to dismiss the claims, arguing that (1) the section 2 claims were barred by Noerr-Pennington, (2) the section 1 claims failed because AbbVie’s settlements with competitors did not constitute anticompetitive behaviour, and (3) the plaintiffs failed to establish the invalidity of AbbVie’s patents, and therefore failed to establish plausible antitrust injury.[29] In a 73-page opinion, US District Judge Manish S Shah agreed and dismissed the claims without prejudice.[30]

First, the district court concluded that AbbVie’s patent prosecutions and inter partes review proceedings before the US Patent and Trademark Office could not form a basis for indirect purchasers’ section 2 claims, as such petitioning actions did not satisfy the ‘sham’ exception to Noerr-Pennington immunity.[31] The court found AbbVie’s petitioning conduct was not objectively baseless, as required to trigger the ‘sham’ exception, where its patent applications were met with a success rate of 54.3 percent and AbbVie enjoyed an ‘even higher’ success rate in inter partes review.[32] Moreover, AbbVie’s settlement of patent infringement actions provided ‘substantial value’ that precluded a finding of ‘objective baselessness’ with respect to such settlements.[33] The court noted that AbbVie’s attempt to block its competitor, Amgen, from entering the market may have been conducted in a manner that was objectively baseless (where, for example, AbbVie failed to specify throughout ‘the patent dance’ which patents faced infringement and AbbVie largely lost on its infringement theories). Nevertheless, the district court concluded that the ‘vast majority’ of the alleged antitrust scheme was ‘immunized’ under Noerr-Pennington, and the plaintiffs’ section 2 theory depended on ‘all the components of AbbVie’s conduct.’ [34]

Second, the court rejected the plaintiffs’ section 1 theory that AbbVie entered into anticompetitive settlements with nascent competitors. The settlements required the companies to press pause on their efforts to introduce biosimilars in the US, provided AbbVie allowed them to introduce biosimilars in Europe. The court concluded that these agreements did not violate the rule of reason; rather than prevent competition, the agreements facilitated earlier entry into the European market while AbbVie’s patent remained in effect.[35]

Third, the district court concluded that the plaintiffs could not demonstrate antitrust injury without showing that all of AbbVie’s patents were invalid, which the plaintiffs failed to allege.[36] Without specifying that each patent was invalid, let alone which patents would have been invalidated by hypothetical litigation, the plaintiffs could not plausibly assert that AbbVie’s settlement agreements (rather than its patent rights) prevented competition. Thus, the court found lack of antitrust injury fatal to ‘all of the federal antitrust claims in the complaint,’ and granted dismissal without prejudice.[37]

On direct appeal, the plaintiffs argued that Judge Shah misapplied precedent in holding that AbbVie’s settlements with competitors did not constitute unlawful pay-for-delay exchanges.[38] The plaintiffs further argued that AbbVie’s petitioning conduct is not immunized under the Noerr-Pennington doctrine, and that the plaintiffs do not need to establish the invalidity of each of AbbVie’s patents to show plausible antitrust injury.[39] The Seventh Circuit’s decision in this case, which has not been released as at the time of writing, could have a significant impact on antitrust claims arising from enforcement of patent rights.

Viamedia v Comcast

With apologies to Mark Twain, reports of the death of ‘refusal to deal’ as a viable antitrust theory, as had been suggested in the wake of Verizon Communications, Inc v Law Offices of Curtis V Trinko, LLP, have been greatly exaggerated – at least in the Seventh Circuit.[40] Under the court’s ruling, such claims are less amenable to resolution on a motion to dismiss.

A bit of background is necessary. Multi-channel video programming distributors (MVPDs), including AT&T, WOW!, RCN and Comcast, are companies that provide cable TV programming to consumers.[41] MVPDs sell two to three minutes of local advertising time per hour.[42] Because geographic markets are served by multiple MVPDs, advertisers that wish to air an ad in the entire market at a certain time (for instance, during a particular show) faced the prospect of having to negotiate with each MVPD. In response, MVPDs created ‘interconnects,’ a cooperative arrangement that allows an advertiser to buy a time slot and its ad to be shown across every MVPD in that market at a specific time.[43]

In Viamedia v Comcast,[44] the plaintiff is an ‘ad rep’ company. Viamedia works for MVPDs and sells the two to three minutes per hour of advertising time that they own:[45] it is not owned by an MVPD.[46] Comcast has a business unit that provides ad rep services, both for Comcast’s own MVPD operation, and for other MVPDs.[47] Comcast’s ad rep business competes with Viamedia. Comcast also operates the interconnects in the geographic markets at issue in the case.[48]

Viamedia alleged that, in 2012, Comcast refused to renew its contract with Viamedia, causing the MVPDs represented by Viamedia to choose Comcast as their ad rep.[49] The district court dismissed the refusal-to-deal claim, concluding that Comcast had no duty to deal with a competitor.[50] The district court relied on the complaint’s allegation that Comcast had refused to deal with Viamedia to vertically integrate and eliminate a middleman, which are ‘pro-competitive’ purposes.[51] On summary judgment, the district court rejected Viamedia’s claim that Comcast’s conduct constituted ‘tying.’ It found there was no evidence that Comcast ‘conditioned’ access to the interconnects on Comcast serving as an MVPD’s ad rep.[52]

In a 105-page opinion, the Seventh Circuit reversed both rulings. The court held that Viamedia’s refusal-to-deal allegations fitted within the factors the Supreme Court identified in Aspen Skiing Co v Aspen Highlands Skiing Corporation.[53] The Seventh Circuit found Comcast’s asserted ‘pro-competitive’ rationales for its refusal to deal were insufficient to uphold dismissal of the claim. Comcast argued ‘there is no liability under Aspen Skiing where, as here, the defendant’s alleged termination of a pre-existing course of dealing was not “irrational but for its anticompetitive effect.” ’[54] The Seventh Circuit held that refusals to deal were rarely ‘amenable to resolution on the pleadings’ because whether an antitrust defendant was truly acting in a pro-competitive manner was a question of fact.[55] The Seventh Circuit concluded that Comcast’s ‘irrational but for its anticompetitive effect’ test, patterned on a test articulated by the Tenth Circuit, called for balancing the anticompetitive effects versus the pro-competitive effects of a refusal to deal.[56] This balancing is typically not amenable to resolution on the pleadings. For a refusal-to-deal claim to survive dismissal, ‘it is enough to allege plausibly that the [claim] has some of the key anticompetitive characteristics identified in Aspen Skiing.’ [57] Turning to Viamedia’s tying claim, the Seventh Circuit held that Viamedia presented evidence that MVPDs view ‘interconnect services’ (a market in which Comcast is a monopolist) and ‘ad rep services’ as separate products that MVPDs purchase separately.[58]

Addressing issues that may arise on remand, the Seventh Circuit rejected Comcast’s argument that forcing Comcast to sell interconnect services to Viamedia and its MVPD customers would position courts as ‘central planners.’ [59] The court stated that courts regularly ‘undertake complicated, long-term supervision of complex cases and remedies’ and, thus, ‘should not adopt a posture of learned helplessness in the fact of proven antitrust violations.’ [60]

Although he joined the panel’s holding on the refusal-to-deal claim, Judge Brennan dissented on the tying claim. He agreed with Comcast that Viamedia had failed to present proof of any antitrust violation independent of the alleged refusal to deal.

On 4 September 2020, Comcast filed a petition for a writ of certiorari to the Supreme Court.[61] The petition requests the court to weigh in on whether the Seventh Circuit misapplied precedent by holding that a refusal-to-deal claim under section 2 of the Sherman Act may proceed despite the presence of valid business justifications for the refusal, and whether the court erred in allowing Viamedia to avoid the limitations on a refusal-to-deal claim by reframing it as another form of anticompetitive conduct.[62] On 7 December 2020, the Supreme Court called for the United States Solicitor General to file a brief expressing the views of the United States on the petition. At the time of writing, the United States has not filed its brief, nor has the court decided whether to grant petition.

Marion Healthcare, LLC v Becton Dickinson & Co

In Marion Healthcare, LLC v Becton Dickinson & Co,[63] the Seventh Circuit applied the ‘direct purchaser’ requirement of Illinois Brick to an alleged multi-level conspiracy. The court held that the first purchaser outside a conspiracy has standing to sue as a direct purchaser. The court further held that the conspiracy the plaintiffs alleged was insufficient. The court remanded the case to permit the plaintiffs to try to state a claim.

Marion involved a dispute between healthcare providers and the suppliers from which they purchase devices. Providers join group purchasing organizations (GPOs) that negotiate contract terms with manufacturers on behalf of their members.[64] If the provider chooses to purchase on the terms negotiated by a GPO, it may choose a distributor that obtains the product from the manufacturer and resells it to the provider at the terms negotiated by the GPO.[65] The plaintiffs alleged that Becton Dickinson, a manufacturer of medical devices, several GPOs and several distributors were part of a multi-level conspiracy.[66] The district court ruled that the providers were indirect purchasers and dismissed.[67] Any conspiratorial markup was charged on the sale from the manufacturer to the distributor. Because the distributor resold the product to the provider, the provider was an indirect purchaser.

The Seventh Circuit reversed the district court’s Illinois Brick ruling.[68] The court acknowledged the principle underlying Illinois Brick that indirect purchasers harmed by a monopoly overcharge ‘must take their lumps and hope that the market will essentially sort everything out . . . [M]atters are different, however, when a monopolist enters into a conspiracy with its distributors.’ [69] In that case, the first purchaser outside the conspiracy has standing to sue.[70] The district court erred by limiting this rule to vertical price-fixing conspiracies.[71] Under Illinois Brick, the type of conspiracy makes no difference.[72]

The court found that the plaintiffs had not adequately alleged an antitrust conspiracy.[73] The court focused on the role of the distributors. If the distributors were not part of the conspiracy, then the plaintiffs’ case ‘falls apart: no conspiracy, no direct purchaser status, no right to recover.’ [74] To allege an antitrust conspiracy, plaintiffs must show all members of the conspiracy ‘had a conscious commitment to a common scheme designed to achieve an unlawful purpose.’ [75] The plaintiffs asserted a hub-and-spoke conspiracy, which required a coordinating party at the hub (Becton), participants at the rim (distributors) and an allegation that the rim coordinated with the hub and would not have attempted to inflate prices without assurances that members at the rim were abiding by the agreement and behaving in the same way.[76] The complaint failed in this regard. The complaint did not allege that the distributors engaged in parallel conduct or coordinated their actions.[77] The acts the plaintiffs alleged amounted to no more than abiding by the contract the providers’ GPOs had negotiated.[78] The court of Appeals remanded the case for further consideration of the pleadings, including an amended complaint.[79]

The Seventh Circuit’s decision in Marion establishes that the first purchaser of a price-fixed good outside a conspiracy has standing to sue. It also makes clear that an antitrust plaintiff must allege a plausible claim of illegal conduct. For a hub-and-spoke conspiracy, the plaintiff must show an agreement linking the parties at the hub to the rim, and linking the defendants on the rim with each other.

On remand, the plaintiffs alleged separate vertical conspiracies between Becton and two of the original distributor defendants, abandoning their original hub-and-spoke theory.[80] The district court dismissed the second amended complaint with prejudice. The court concluded that the plaintiffs (1) lacked standing to sue Cardinal Health, one of the distributor defendants, because they had not purchased from Cardinal or any member of that alleged, independent conspiracy, and (2) still failed to allege an antitrust conspiracy.[81] The plaintiffs’ allegations fell short of establishing plausible vertical conspiracies between Becton and its distributors. The plaintiffs’ allegations, including that distributors received bonuses and incentives from Becton, regularly communicated with Becton, and ‘enforced’ Becton’s contract terms that excluded rival distributors, fell short of the ‘conscious commitment’ or ‘quid pro quo’ required to establish an anticompetitive conspiracy.[82] The distributors were not parties to the Becton contracts and those contracts were negotiated before the distributors became involved in the transactions. Indeed, the court observed that it was ‘commonplace for a manufacturer to encourage a distributor to enter a longer contract by offering higher fees and guaranteed volume, as both parties benefit from the security that a longer contract provides,’ and ‘hardly remarkable that a manufacturer would create bonus programs to encourage salespeople working for distributors to sell more of their products.’ [83] On 24 March 2021, the plaintiffs appealed the dismissal with prejudice. At the time of writing, this appeal is being briefed.

Mountain Crest SRL, LLC v Anheuser-Busch InBev SA/NV

In Mountain Crest SRL, LLC v Anheuser-Busch InBev SA/NV,[84] the plaintiff is an independent Wisconsin-based brewery.[85] It sued Anheuser Busch, owner of the Canadian brewery Labatt, and Molson Coors, owner of the other major Canadian brewery, Molson, under sections 1 and 2 of the Sherman Act.[86] According to the complaint, there are two places to buy beer in Ontario, Canada: liquor stores run by the Liquor Control Board of Ontario (LCBO), a government agency; and a chain known as The Beer Store, which sells 75 percent of the beer in Ontario and is jointly owned by Labatt and Molson.[87] Historically, LCBO only sold beer in six-packs; to get beer in packs of 12 or 24, consumers had to visit The Beer Store.[88] In the early 1990s, LCBO sought to add larger pack sizes to its stores and entered into negotiations with Labatt and Molson to buy larger pack sizes.[89] Labatt and Molson balked at providing these to LCBO because LCBO was required, by law, to provide the same sales opportunities to all breweries.[90] If LCBO sold 12-packs or 24-packs of Labatt or Molson beer, LCBO could sell those sizes of other beer brands. The plaintiffs alleged that Labatt and Molson were concerned that if LCBO began selling larger sizes of other brands, they would offer discounts that would reduce the market share of The Beer Store.[91]

According to the complaint, Labatt and Molson gained leverage in negotiations with LCBO through a group boycott in which they refused to sell beer to LCBO until LCBO agreed to not sell beer in sizes larger than six-packs or to otherwise sell beer at prices below the six-pack price.[92] According to the complaint, when LCBO acceded to this demand and signed agreements to this effect, this constituted a conspiracy to fix prices and allocate markets in violation of sections 1 and 2 of the Sherman Act.[93]

The district court dismissed the lawsuit under the act of state doctrine, which is a substantive defense that ‘generally forbids an American court to question the act of a foreign sovereign that is lawful under that sovereign’s laws.’ [94] The district court held that ‘the conduct that allegedly violates the Sherman Act involves a public act by the Ontario government’ and that for the plaintiff ‘would require the court to determine that the Ontario government violated the Sherman Act as well.’ [95] The Seventh Circuit agreed, in part. Mountain Crest conceded that the agreements between Molson, Labatt and LCBO were ‘official acts of the Province of Ontario for the purposes of the act of state doctrine.’ [96] From this premise, the Seventh Circuit held the act of state doctrine served as a defense to the claim that the ‘6-pack rule, contained in agreements entered into by the Ontario government and approved of in legislation, violates section 1 of the Sherman Antitrust Act because it constitutes a price-fixing and market allocation arrangement.’ [97] To this extent, it affirmed the district court.

However, the Seventh Circuit held that the complaint ‘also sets out allegations that [Labatt] and [Molson], acting through the officers and employees, violated the . . . Sherman Act by conspiring to bring about the Ontario government’s approval of the six-pack rule. These allegations do not implicate the act of state doctrine’ because Mountain Crest was not seeking to ‘undo or disregard governmental action’ but instead to ‘ “obtain damages from private parties that procured [the government action]” illegally.’ [98] The Seventh Circuit remanded to consider these claims anew. The Seventh Circuit noted that even these surviving claims may be barred by other defenses, most notably the Noerr-Pennington doctrine, though the court noted a division of authority on that doctrine’s applicability to lobbying foreign governments.[99]

This decision suggests the Seventh Circuit will refuse to entertain antitrust claims that directly implicate the legality of an otherwise legal act of a foreign government. This may particularly affect claims that target industries that are highly regulated. Moreover, the Seventh Circuit flagged an issue that will most surely be tackled by the district court on remand: the applicability of the Noerr-Pennington doctrine to lobbying foreign governments. At the time of writing, a motion to dismiss is pending in the district court.

Chicago Studio Rental, Inc v Illinois Department of Commerce

From 1979 to 2010, the plaintiff in Chicago Studio Rental, Inc v Illinois Department of Commerce [100] operated the sole film studio in Chicago.[101] In 2010, rivals opened Cinespace, a larger film studio, in the city.[102] By January 2015, Chicago Studio’s business had declined and Cinespace had expanded its studio, resulting in Chicago Studio failing to turn a profit despite the Illinois film industry experiencing significant growth in gross revenue and new jobs.[103] Facing financial ruin, Chicago Studio filed suit against three state actors charged with promoting the Illinois film industry: the Illinois Department of Commerce and Economic Opportunity (IDCEO), the Illinois Film Office (IFO) and Betsy Steinberg.[104] IDCEO administers grant programs to film studios and tax credits to film producers to promote the profile of Illinois as a leading business destination for filmmakers.[105] IFO composes part of IDCEO. Betsy Steinberg served as IFO’s managing director.[106]

The complaint asserted a section 1 conspiracy in restraint of trade among IDCEO, IFO and Steinberg to boycott Chicago Studio in favor of Cinespace by steering film tax credits to producers who patronized Cinespace’s studio and granting Cinespace state funding.[107] Chicago Studio further claimed that the defendants and Cinespace conspired to monopolize and attempted to monopolize the Chicago film studio market through the same practices.[108] Chicago Studio alleged that conspiring to steer business toward Cinespace rendered IDCEO, IFO and Steinberg active market participants in a ‘Chicago Film Production Market’ composed of ‘entities providing production facilities in Chicago.’ [109] The complaint alleged four specific injuries: (1) a reduction in Chicago Studio’s market share by a factor of 10; (2) Chicago Studio’s inability to compete; (3) reduced market competition; and (4) increased transactional costs associated with delivering film and television to consumers.[110] The district court dismissed the Sherman Act claims with prejudice.[111]

The Seventh Circuit affirmed dismissal for failure to state plausible antitrust injury.[112] The court held that two of Chicago Studio’s alleged injuries – reduced market share and an inability to compete – asserted harms to a competitor, not the requisite anticompetitive injury to competition in the defined market.[113] The remaining injuries – reduced competition and an increase in transactional costs in delivering film and television to Chicago consumers – ‘could be competitive injuries’ but Chicago Studio failed to allege either plausibly.[114] Despite Chicago Studio’s ‘conclusory’ allegation that competition decreased because of the defendants’ acts, the court noted that the number of studios in the market doubled, the film industry grew from $184 million to $350 million in gross revenue from 2012 to 2013 after Cinespace’s entry, and Chicago Studio kept operating and failed to allege exclusion from the market.[115] Similarly, the court found a ‘one-sentence, conclusory statement that transactional costs increased’ implausible to state antitrust injury absent factual allegations regarding ‘who’ experienced increased costs, ‘how much’ costs increased, ‘what’ specific transactional costs increased, or any reduction in output or higher prices in the relevant market.[116]

The court rejected Chicago Studio’s argument that ‘exclusion from the market is a valid antitrust injury,’ given the complaint did not allege anywhere that the studio ‘was entirely excluded from the market’ and Chicago Studio, in fact, was an actual competitor in the relevant market.[117] The monopolization claims failed for an independent reason, because the court found the allegation that the defendants were ‘market participants’ was implausible. Chicago Studio did not and could not allege that the defendants competed in the defined relevant market for film studio space, nor that the defendants possessed or abused market power.[118]

Chicago Studio Rental reaffirms the Seventh Circuit’s ‘antitrust-injury doctrine,’ further delineating between insufficient, conclusory allegations of injury to competition and the factual allegations sufficient to plead antitrust injury-in-fact.[119]

McGarry & McGarry, LLC v Bankruptcy Management Solutions, Inc

In 2011, Bankruptcy Management Solutions, Inc (BMS) contracted to provide software services in a chapter 7 bankruptcy proceeding.[120] McGarry & McGarry, LLC, a Chicago law firm and unsecured creditor, filed a claim in the proceeding.[121] In 2013, the bankruptcy trustee filed a final report granting McGarry a portion of its claim and listing a $514.16 service-fee payment deducted from the estate.[122] After learning that the service fee went to BMS, McGarry sued BMS in Cook County Circuit Court alleging a putative class-action under the Illinois Antitrust Act.[123]

According to the complaint, BMS possessed a 50 percent market share in the national market for bankruptcy software services.[124] McGarry asserted that BMS engaged in a conspiracy to fix the price of bankruptcy software services based on BMS (1) approaching its competitors Epiq Systems and TrueSolutions in 2011, (2) agreeing to implement a new billing model requiring payment of fees for software services based on a percentage of funds in a bankruptcy estate’s account, and (3) requesting the Executive Office of the US Trustee to suspend an earlier rule precluding trustees from paying bank fees with estate funds.[125] McGarry alleged that all three providers agreed to change their billing model, which had the effect of requiring bankruptcy estates to pay supracompetitive prices.[126]

Following removal, the district court dismissed the case for failure to state a claim, finding that McGarry was ‘not a purchaser at all’ in the relevant market.[127] After finding the complaint ‘just barely’ alleged facts to support article III standing, the Seventh Circuit evaluated whether McGarry was ‘a proper plaintiff to bring [a] price-fixing claim’ despite never purchasing bankruptcy software services.[128] McGarry argued that, but for the conspiracy, BMS could not have charged a percentage of the estate funds as a software services fee.[129] The district court concluded that McGarry failed to ‘allege the type of injury the antitrust laws were meant to prevent’ because the firm ‘d[id] not participate in the market . . . in any way that would make it a proper plaintiff to bring an antitrust claim’ against BMS.[130] Its ‘attenuated’ injury as a bankruptcy creditor was ‘too remote’ to sue BMS.[131] Even if the firm could plead antitrust injury, it could not establish antitrust standing because McGarry never participated in the market in ‘any meaningful way,’ was ‘not a participant in the market,’ and sustained merely derivative injuries as a creditor to the bankruptcy estate. McGarry therefore was not ‘an appropriate plaintiff’ and failed to allege antitrust injury.[132]

Sharif Pharmacy, Inc v Prime Therapeutics, LLC

Sharif Pharmacy, J&S Pharmacy and customers of J&S sued Prime Therapeutics, a pharmacy benefits manager, after Prime terminated the pharmacies’ membership of Prime’s ‘network.’ [133] The plaintiffs alleged their customers switched to ‘in-network’ pharmacies as a result and that the refusal to the deal with them was an attempt to benefit a pharmacy chain that was Prime’s joint venture partner. The district court dismissed both complaints on the pleadings.[134]

During the appeal, Prime readmitted J&S to the network; J&S dismissed its appeal.[135] That left only Sharif and J&S customers who alleged they were ‘injured because they could no longer use [J&S] to fill their prescriptions and were “too poor or physically or mentally weak to regularly travel to a distant pharmacy for their medicine,” “particularly during inclement weather.” ’[136] The Seventh Circuit affirmed dismissal of the customers’ claim pursuant to Illinois Brick, holding that because the customers were indirect purchasers, they could not seek damages under the federal antitrust laws. The court also stated that the customers had likely not been injured in their ‘business or property’ as is required to maintain an action under the Sherman Act.[137]

The court decided Sharif’s suit on the merits of its refusal-to-deal claim. The Seventh Circuit affirmed dismissal because Sharif had failed to plead that Prime possessed or was dangerously likely to possess market or monopoly power in a relevant market. Sharif had merely alleged that Prime sought to increase its market share in the nationwide or Chicago prescription drug markets, not that it had the ability to raise prices to supracompetitive levels.[138] An allegation that Prime engaged in legal conduct (seeking to increase market share) without an allegation of market power did not adequately plead unlawful conduct.

Sharif also attempted to frame the relevant geographic market as the ‘five-block area’ around its pharmacy. The Seventh Circuit held that this allegation was not plausible: ‘It defies belief to suggest that a hypothetical monopolist retail pharmacy could raise its drug prices substantially without losing customers to competitors outside that tiny area.’ [139] A complaint that fails, in part, because of an implausibly small geographic market also arises in the Paramount Media Group, Inc v Village of Bellwood case summarized above. The Seventh Circuit also affirmed because Sharif had failed to allege that Prime had market power in a relevant product market.[140] The court, however, disagreed with Prime that Sharif’s proposed product market – a ‘bundle or cluster of prescription drugs that are typically sold in brick-and-mortar retail pharmacies’ – was facially implausible because of the inability to define the cross-elasticity of a number of different drugs. Instead, the court noted that ‘[a] cluster of products can comprise a relevant product market “if the cluster is itself an object of consumer demand.” ’[141] For a ‘future antitrust plaintiff,’ the court contended, such a relevant market definition might be available.

The court nonetheless affirmed the district court’s dismissal with prejudice. Although plaintiffs are often given leave to amend at least once following dismissal, in this case, ‘it is apparent that the federal antitrust claims are based on misunderstandings about foundational principles of antitrust law.’ ‘It is evident from the proceedings in the district courts and the arguments in plaintiffs’ appellate briefs that the defects in these cases cannot be corrected, so that further amendment would be futile.’ [142]


Notes

[1] U.S. Futures Exch., LLC v. Bd. of Trade of the City of Chi., Inc., No. 18-3558, 2020 WL 1426596, at *1 (7th Cir. Mar. 23, 2020).

[2] Id. at *2 (noting the ‘doctrine flows from First Amendment origins: antitrust laws do not supersede the people’s right to petition their government in favor of a desired monopoly’ (citation omitted)).

[3] Id. at *1.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id. at *2.

[12] See id. at *5, *8–10.

[13] Id. at *5.

[14] Id.

[15] Id.

[16] See id. at *6–7 (citing Puerto Rico Tel. Co. v. San Juan Cable LLC, 874 F.3d 767 (1st Cir. 2017)).

[17] Id. at *6 (citation omitted). If a challenged litigation is objectively meritless, the court may proceed to the second prong of the ‘sham’ test, not relevant here, which ‘examine[s] the litigant’s subjective motive.’ Id. (citation omitted).

[18] Id. at *6–7.

[19] Id.

[20] Id. at *7 (citing Puerto Rico Tel., 874 F.3d at 772).

[21] Id. at *8.

[22] See, eg, USS-POSCO Indus. v. Contra Costa Cnty. Bldg. & Constr. Trades Council, AFL-CIO, 31 F.3d 800, 810–11 (9th Cir. 1994).

[23] U.S. Futures Exch., 2020 WL 1426596, at *9–10 (citing Credit Suisse Securities (USA) LLC v. Billing, 551 U.S. 264, 270–71 (2007) (establishing ‘four-part test for implied immunity’)).

[24] Id. at *9.

[25] Id.

[26] The underlying district court opinion is reported at 465 F. Supp. 3d 811, 834 (N.D. Ill. 2020) (granting motion to dismiss without prejudice). Rather than seek leave to mend, the Humira buyers stood on their original complaint and appealed the district court’s decision to the Seventh Circuit. The Seventh Circuit heard oral argument on February 25, 2021 in UFCW Local 1500 Welfare Fund v. AbbVie Inc. (No. 20-2402).

[27] Id. at 820.

[28] Id.

[29] Id. at 825–26.

[30] Id. at 834, 842, 844.

[31] Id. at 828–30.

[32] Id. at 830–31.

[33] See id. at 833.

[34] Id. at 834 (emphasis added).

[35] Id. at 841.

[36] Id. at 844–45.

[37] Id. at 846, 853.

[38] See Br. of Plaintiffs-Appellants, UFCW Local 1500 Welfare Fund v. AbbVie Inc., No. 20-2402, at *4, *16–*21 (7th Cir. Oct. 5, 2020) (citing F.T.C. v. Actavis, Inc., 570 U.S. 136 (2013)).

[39] Id. at *4–*5; see also id. at *29–*53.

[40] 540 U.S. 398 (2004).

[41] Attorneys at Jenner & Block represented the Comcast defendants in this case.

[42] Id. at 437.

[43] Id. at 438.

[44] Id. at 429.

[45] Id. at 442–43.

[46] Id.

[47] Id. at 443.

[48] Id.

[49] Id. at 435, 444–45.

[50] Id. at 449.

[51] Id.

[52] Id. at 450.

[53] 472 U.S. 585 (1985).

[54] 951 F.3d at 460.

[55] Id.

[56] Id. (construing Novell, Inc. v. Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013)).

[57] Id. at 462.

[58] Id. at 469.

[59] Id. at 480.

[60] Id.

[61] Petition for a Writ of Certiorari, Comcast Corp., et al. v. Viamedia, Inc., No. 20-319 (U.S. Sep. 10, 2020).

[62] Id.

[63] 2020 WL 1059951 No. 18-3735 (7th Cir. Mar. 5, 2020). Jenner & Block attorneys represented a defendant in this case.

[64] Id. at *1.

[65] Id.

[66] Id.

[67] Id.

[68] Id. at *5.

[69] Id. at *1.

[70] Id.

[71] Id. at *4.

[72] Id.

[73] Id. at *6–7.

[74] Id. at *5.

[75] Id. at 12 (quoting Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 768 (1984)).

[76] Id. at *6.

[77] Id.

[78] Id.

[79] Id. at *7.

[80] Marion Diagnostic Ctr., LLC v. Becton, Dickinson & Co., No. 3:18-cv-1059-NJR, 2021 WL 961728 (S.D. Ill. Mar. 15, 2021) (dismissing claims with prejudice).

[81] Id. at *2, *5.

[82] Id. at *4–*5.

[83] Id. at *8.

[84] Mountain Crest SRL, LLC v. Anheuser-Busch InBev SA/NV, 937 F.3d 1067 (7th Cir. 2019).

[85] Id. at 1069.

[86] Id. at 1070.

[87] Id. at 1071.

[88] Id.

[89] Id. at 1072.

[90] Id.

[91] Id. at 1072–74.

[92] Id. at 1074.

[93] Id. at 1077.

[94] Id. at 1080 (quoting Nocula v. UGS Corp., 520 F.3d 719, 727 (7th Cir. 2008)).

[95] Id. at 1078 (quoting Mountain Crest SRL, LLC v. Anheuser-Busch InBev SA/NV, 2018 WL 2247224, at *6 (W.D. Wis. May 16, 2018)).

[96] Id. at 1083.

[97] Id. at 1085.

[98] Id. (quoting, in part, W.S. Kirkpatrick & Co., Inc. v. Envtl. Tectonics Corp., 493 U.S. 400, 407 (1990) (brackets omitted)).

[99] Id. at 1086 and n.80.

[100] 940 F.3d 971 (7th Cir. 2019).

[101] Id. at 974–75.

[102] Id.

[103] Id.

[104] Id. at 975–76.

[105] Id. (citing 35 ILCS 16/10; 14 Ill. Admin. Code § 528.70 (2013)).

[106] Id. at 976.

[107] Id. at 977–78.

[108] Id. at 978.

[109] Id. at 976.

[110] Id.

[111] Id. at 977.

[112] Id.

[113] Id. at 978 (citing NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 135, 139 (1998) (concluding that the plaintiff ‘must allege and prove harm, not just to a single competitor, but to the competitive process, i.e., to competition itself’)).

[114] Id.

[115] Id.

[116] Id. at 979.

[117] Id. (‘Transfer of business from one company to another . . . without an accompanying effect on competition, cannot be an antitrust violation’ (quoting Tri-Gen Inc. v. Int’l Union of Operating Eng’rs, Local 150, 433 F.3d 1024, 1031–32 (7th Cir. 2006)).

[118] See id.

[119] See id. at 978 (citing United States Gypsum Co. v. Ind. Gas. Co., Inc., 350 F.3d 623, 627 (7th Cir. 2003)).

[120] 937 F.3d 1056, 1062 (7th Cir. 2019).

[121] Id. at 1062.

[122] Id.

[123] Id.

[124] Id.

[125] Id. at 1061–62.

[126] Id. at 1062.

[127] Id.

[128] Id. at 1064.

[129] Id. at 1065.

[130] Id. at 1061; see also id. at 1065–66.

[131] Id.

[132] Id. at 1066.

[133] 950 F.3d 911 (7th Cir. 2020).

[134] Id. at 914, 916.

[135] Id. at 914.

[136] Id. at 915.

[137] Id.

[138] Id. at 916.

[139] Id.

[140] Id. at 918 (‘Sharif has not pleaded facts sufficient to support an inference that defendants have the requisite market power within a viable product market for retail prescription drugs.’)

[141] Id. (quoting FTC v. Advocate Health Care Network, 841 F.3d 460, 467 (7th Cir. 2016)).

[142] Id.

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