1998 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-2-1998

Brokerage Concepts v. US Healthcare Inc (Part I)

Precedential or Non-Precedential:

Docket 96-1891,96-1922,96-1923,96-1892,97-1013,97-1014

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Recommended Citation

"Brokerage Concepts v. US Healthcare Inc (Part I)" (1998). 1998 Decisions. Paper 65.

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Volume 1 of 2 

Filed April 2, 1998 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

NOS. 96-1891, 96-1892, 96-1922, 96-1923 

97-1013, and 97-1014 

BROKERAGE CONCEPTS, INC. 

v. 

U.S. HEALTHCARE, INC.; CORPORATE HEALTH 

ADMINISTRATORS, INC.; UNITED STATES HEALTH CARE 

SYSTEMS OF PENNSYLVANIA, INC., d/b/a THE HEALTH 

MAINTENANCE ORGANIZATION OF PENNSYLVANIA; 

RICHARD WOLFSON; SCOTT MURPHY; 

WILLIAM BROWNSTEIN 

Richard Wolfson, Scott Murphy and William Brownstein, 

Appellants in No. 96-1891 

U.S. Healthcare, Inc.; United States Health Care Systems 

of Pennsylvania, Inc., d/b/a The Health Maintenance

Organization of Pennsylvania and Corporate Health 

Administrators, Inc. 

Appellants in No. 96-1892 

U.S. Healthcare, Inc.; Corporate Health Administrators, Inc.; 

United States Health Care Systems of Pennsylvania, Inc., 

d/b/a The Health Maintenance Organization of 

Pennsylvania; Richard Wolfson; Scott Murphy; William 

Brownstein, 

Appellants in No. 96-1922 

Brokerage Concepts, Inc., 

Appellant in No. 96-1923 
U.S. Healthcare, Inc.; United States Health Care Systems of 

Pennsylvania, Inc., d/b/a The Health Maintenance 

Organization of Pennsylvania and Corporate Health 

Administrators, Inc., 

Appellants in No. 97-1013 

Richard Wolfson; Scott Murphy; and William Brownstein, 

Appellants in No. 97-1014 

On Appeal From the United States District Court 

For the Eastern District of Pennsylvania 

(D.C. Civ. No. 95-cv-01698) 

Argued: July 22, 1997 

Before: BECKER, MANSMANN, and ROSENN, 

Circuit Judges. 

(Filed April 2, 1998) 

 DAVID H. MARION, ESQUIRE 

 FRANCIS P. NEWELL, ESQUIRE 

 HOWARD J. BASHMAN, ESQUIRE 

 PATRICK T. RYAN, III, ESQUIRE 

 Montgomery, McCracken, Walker & 

 Rhoads, LLP 

 123 So. Broad Street 

 Philadelphia, PA 19106 

 Counsel for Richard Wolfson, Scott 

 Murphy and William Brownstein 

 PATRICK W. KITTREDGE, ESQUIRE 

 LISA G. MILLER, ESQUIRE 

 Kittredge, Donley, Elson, 

 Fullem & Embick, LLP 

 421 Chestnut Street, 5th Floor 

 Philadelphia, PA 19109 

 2 
 

ROBERT E. BLOCH, ESQUIRE 

 ROY T. ENGLERT, JR., ESQUIRE 

 (ARGUED) 

 DONALD M. FALK, ESQUIRE 

 ROBERT L. BRONSTON, ESQUIRE 

 Mayer, Brown & Platt 

 2000 Pennsylvania Avenue, 

 NW 

 Washington, DC 20006-1882 

 Counsel for U.S. Healthcare, Inc., 

 Corporate Health Administrators, 

 United States Health Care Systems 

 of Pennsylvania, Inc. d/b/a The 

 Health Maintenance Organization of 

 Pennsylvania 

 RICHARD L. BAZELON, ESQUIRE 

 (ARGUED) 

 A. RICHARD FELDMAN, ESQUIRE 

 Bazelon & Lees 

 1515 Market Street, 7th Floor 

 Philadelphia, PA 19102 

 Counsel for Brokerage Concepts, Inc. 

OPINION OF THE COURT 

BECKER,* Chief Circuit Judge. 

_________________________________________________________________ 

* Honorable Edward R. Becker, United States Circuit Judge for the 

Third Circuit, assumed Chief Judge status on February 1, 1998. 

 3 
TABLE OF CONTENTS 

I. INTRODUCTION 5 

II. FACTS & PROCEDURAL HISTORY 11 

 A. The Parties 11 

 B. Gary's Decision to Self-insure 12 

 C. Gary's Switch to CHA/U.S. Healthcare 16 

 D. Economic Evidence 19 

 1. Impact on Gary's 19 

 2. Knowlton's Survey 20 

 3. Interaction Between U.S. Healthcare and 

 Other Pharmacy Operations 20 

 4. The Setting of Reimbursement Prices 21 

 E. The Jury Verdict 22 

III. THE ANTITRUST ISSUES 23 

 A. Introduction -- Characterization of BCI's Claim 23 

 B. Per se Liability 27 

 1. Defining the Relevant Market 28 

 a. The Product Market 29 

 b. The Geographic Market 32 

 2. U.S. Healthcare's Power in the Tying Market 33 

 a. Evidence of Market Share 34 

 b. Other Factors Bearing on Market Power 37 

 C. The Rule of Reason Claim 40 

 D. Conclusion 42 

IV. CIVIL RICO 42 

 A. Introduction 42 

 B. RICO Standing 43 

 C. Predicate Acts of BCI's RICO Claim 45 

 1. Extortion under the Hobbs Act 45 

 a. The Definition of "wrongful". 48 

 b. Lawful Versus Unlawful Claims to Property 51 

 c. Evidence of Other Unlawful Objectives 56 

 2. Commercial Bribery 58 

 3. Mail and Wire Fraud 60 

 4. The Travel Act 61 

 D. Conclusion 61 

 4 
V. TORTIOUS INTERFERENCE 62 

VI. CONCLUSION 73 

I. INTRODUCTION: 

The revolutionary changes in the health care field over 

the past decade have spawned many novel market 

arrangements. Perhaps the most significant development is 

the ascendency of managed-care driven health maintenance 

organizations ("HMOs"), whose hold over a large number of 

subscribers has permitted them to wield considerable 

economic power over health care providers. This antitrust, 

civil RICO, and state law tortious interference case against 

defendant U.S. Healthcare, one of the nation's largest 

HMO's, two of its wholly-owned subsidiaries, and three of 

its top officers, is an exemplar of the legal fallout from this 

development. 

This appeal presents several quite difficult and important 

first impression questions for us, including: (1) whether the 

defendants' use of economic fear in the context of hard 

business bargaining constitutes wrongful conduct 

amounting to extortion for civil RICO purposes; (2) whether 

the inability of the plaintiff to prevail on antitrust and 

extortion-based civil RICO claims forecloses a successful 

state law tortious interference claim based on the same 

facts; and (3) whether the defendants' hard bargai ning 

constituted "wrongful means" so as to forfeit the defense of 

privileged business competition to a tortious interference 

claim. 

The lawsuit emanates from U.S. Healthcare's refusal to 

approve the application of a new Abington, Pennsylvania 

store of "I Got It at Gary's" ("Gary's"), a small southeastern 

Pennsylvania pharmacy, health and beauty aid chain, for 

membership in U.S. Healthcare's network of medical 

prescription providers. U.S. Healthcare conditioned

membership in its provider network on Gary's agreement to 

discontinue its contractual relationship with plaintiff 

Brokerage Concepts, Inc. ("BCI"), a health care consulting 

firm whose specialty is serving as a Third Party 

Administrator ("TPA") for health benefit self-insurers (such 

 5 
as Gary's), and to give its TPA business to a U.S. Healthcare 

subsidiary, Corporate Health Administrators ("CHA"). 

U.S. Healthcare also applied pressure on Gary's in other 

ways -- through "hard-ball" negotiation tactics, which 

deliberately left Gary's "hanging" as to whether its new 

application would be approved, and a seemingly vindictive 

audit of Gary's generic prescription drug dispensing policy 

at one of its stores that was already part of the 

U.S. Healthcare network. Since U.S. Healthcare subscribers 

constituted a significant portion of its customer base, 

Gary's understandably yielded to the pressure and gave its 

TPA business to CHA. BCI thereupon sued in federal 

district court asserting Sherman Act and civil RICO claims, 

as well as a claim of tortious interference with contractual 

relations under Pennsylvania law. BCI sought 

compensatory and treble damages, injunctive relief, and 

counsel fees on its antitrust and civil RICO claims, and 

compensatory and punitive damages on its state law 

tortious interference claim. Gary's is not a party to the 

lawsuit. 

The case proceeded to trial before a jury, which rendered 

a verdict finding U.S. Healthcare and its officers liable to 

BCI on all of BCI's claims, and awarding compensatory and 

punitive damages. On post-trial motions, the district court 

upheld the verdict but ruled that: (1) BCI must elect 

between the punitive damages awarded on its state law 

claim and the treble damages awarded on its federal claims 

(i.e., that it cannot recover both); and (2) if it elects the 

state law remedies, BCI cannot also collect the attorney's 

fees that are available under its RICO and antitrust claims. 

The defendants' appeal of the district court's denial of its 

post-verdict motion for judgment as a matter of law or, in 

the alternative, for a new trial, attacks the jury verdict on 

all fronts, asserting that the verdict is tainted by erroneous 

evidentiary rulings and jury instructions, and also that 

there is insufficient evidence to sustain any of the claims 

under proper instructions. BCI cross-appeals, contending 

that, under Fineman v. Armstrong World Indus., Inc., 980 

F.2d 171, 218-19 (3d Cir. 1992), the district court erred in 

requiring BCI to elect which remedies it will recover, and 

also in refusing to award injunctive relief to BCI under 

either RICO or the antitrust laws. 

 6 
Because all three of BCI's claims are grounded upon

U.S. Healthcare's leveraging of its economic power, and 

because, under the jury instructions given by the district 

court, the RICO and state law claims may depend on the 

existence of a viable antitrust claim, the threshold doctrinal 

battleground has been over antitrust law. This aspect of the 

case is quite complex, not because of the need for 

sophisticated economic analysis or the resolution of any 

close or cutting-edge trade regulation issue, but rather 

because of the difficulty of attempting to shoehorn into the 

traditional antitrust model a claim that resists such 

characterization. 

The matter was presented to the district court primarily 

as a tying case, under which a plaintiff can assert both a 

per se and a "rule of reason" claim. In a typical tying case, 

a seller leverages its market power in the market for the 

tying product to require the buyer of the product to 

purchase an unwanted product in the tied market, thereby 

(unlawfully) foreclosing competition in that market. But 

Gary's, the party who has been "put upon," is a seller, not 

a buyer, in the tying product market: when U.S. Healthcare 

accepts Gary's into its network of providers, what Gary's 

gains is the opportunity to sell drugs to U.S. Healthcare 

subscribers. The defendants, in contrast, contend that the 

case is better viewed as one of reciprocal dealing which, 

they submit, carries with it less stringent antitrust 

standards. 

As will appear, our disposition of BCI's antitrust claim 

will take us through a number of layers of analysis, dealing 

with both its per se and rule of reason claims, and in the 

course thereof treating such matters as product market 

definition (and the applicability vel non of the decision in 

Eastman Kodak Co. v. Images Technical Servs., 504 U.S. 

451 (1992)); geographic market definition (and the lack of 

utility of a flawed market survey in identifying the market); 

and above all, with the sufficiency of the record evidence 

(including the inferences which can be drawn therefrom) to 

support a legally viable antitrust claim. In the end, we 

conclude that, since the record before us does not support 

a finding that U.S. Healthcare exercised appreciable market 

power in a properly defined tying market, or that the 

 7 
arrangement at issue harmed competition in the tied

market, the antitrust jury verdicts on both the per se and 

the rule of reason claims must be set aside. 

In support of its civil RICO claim, BCI alleges a variety of 

predicate acts, as a civil RICO claim requires. Although we 

deal with all of the predicate acts invoked, rejecting 

defendants' contention that BCI lacks RICO standing, the 

only acts that arguably could come within RICO's ambit are 

alleged extortionate acts by the defendants. Under the 

Hobbs Act, 18 U.S.C. S 1951, "[e]xtortion" is defined as "the 

obtaining of property from another, with his consent, 

induced by wrongful use of actual or threatened force, 

violence, or fear." 18 U.S.C. S 1951(b)(2). The "fear" may be 

of economic loss as well as of physical harm. See United 

States v. Addonizio, 451 F.2d 49, 72 (3d Cir. 1972). In this 

case, the evidence is clear that U.S. Healthcare employed 

economic leverage in an effort to force Gary's to chose CHA 

as its TPA. However, while BCI contends that this conduct 

amounts to extortion through the wrongful use of the fear 

of economic loss, defendants assert that the conduct is 

merely hard business bargaining that cannot be made to fit 

within the statutory framework of Hobbs Act extortion. 

As will be shown, resolution of BCI's extortion claim 

turns on whether the defendants' use of economic fear in 

the context of hard business bargaining was legally

wrongful, an issue with which we have not previously had 

occasion to deal. We conclude that the "claim of right" 

defense to extortion (i.e., a defense based on a lawful claim 

to the property obtained by the allegedly extortionate acts) 

formulated by the Supreme Court in United States v.

Enmons, 410 U.S. 396 (1973), is applicable in cases, such 

as this one, which involve solely the allegation of the use of 

economic fear in a transaction between two private parties. 

In so concluding, we are mindful of, and address, those 

cases that reject the broad application of Enmons outside of 

the labor context in which it arose for fear that it would 

"effectively repeal the Hobbs Act." See United States v. 

Agnes, 753 F.2d 293 (3d Cir. 1985). 

Having determined that the claim of right defense is 

available to the defendants in this case, we address the 

difficult problem of separating out lawful from unlawful 

 8 
claims to property. We make no effort to announce any 

broad principles in this difficult area. Drawing instruction 

from Enmons and Viacom Int'l v. Icahn, 747 F. Supp. 205 

(S.D.N.Y. 1990), we make a rule only for a very narrow 

subset of the potential universe of extortion cases: one 

involving the accusation of the wrongful use of economic 

fear where two private parties have engaged in a mutually 

beneficial exchange of property. We conclude that BCI's 

extortion claim can only survive if Gary's had a right to 

pursue its business interests free of the fear that it would 

be excluded from U.S. Healthcare's provider network. Albeit 

with misgivings, we find that since Pennsylvania, unlike 

other states, has no "Any Willing Provider" law that compels 

HMOs to allow all interested and minimally qualified 

providers into their network, BCI had no such right. If such 

a law was in force, Gary's would have had a legal 

entitlement to be a member of the provider network and 

thus to be free of the fear that it would be excluded from 

that network if it did not switch TPA providers. Having 

determined that BCI did not present a sustainable case of 

extortion, or establish any of the other predicate acts 

alleged, we set aside the jury verdict as to the civil RICO 

count. 

That BCI's federal claims have fallen is not, however, the 

end of its case. BCI also alleges the defendants unlawfully 

and improperly interfered with its existing and prospective 

contractual relations with Gary's in violation of 

Pennsylvania tort law. While BCI must prove a number of 

things to prevail on a tortious interference claim under 

Pennsylvania law, only one is in serious dispute here. The 

battleground is over Restatement (Second) of Torts S 768 

which sets forth a competitors privilege, and in fact over 

only one facet of that section, S 768(1)(d), which withdraws 

immunity from liability if the competitor employs "wrongful 

means." The Pennsylvania Supreme Court has yet to define 

that term and hence we must predict how it would do so to 

resolve this case. 

The parties' debate in this area was focused primarily on 

whether Pennsylvania would limit wrongful means to 

conduct that is independently actionable. While the parties 

have ably briefed that point, the disposition of BCI's claim 

 9 
does not require us to resolve it. Rather, we conclude, 

based upon a passage from S 768 comment (e), that even if 

the Pennsylvania Supreme Court were to require 

independently actionable means, it would not apply that 

requirement in cases, such as this one, where the 

defendant exerted "economic pressure" or "a superior 

power" in a market unrelated to the competitive market. 

Here, BCI proffered ample evidence from which a jury could 

conclude that U.S. Healthcare attempted to acquire Gary's 

TPA business by threatening Gary's with withdrawal of 

membership in the U.S. Healthcare provider network, an 

unrelated market. BCI also adduced evidence of heavyhanded tactics by U.S. Healthcare in that market for 

pharmacy customers. 

In addition to our analysis of the substance of 

Pennsylvania tort law, we address defendants' more 

fundamental argument that tort liability is not appropriate 

here. The crux of that argument is that BCI's tort claims 

are predicated on the same conduct that underlie its federal 

claims, and that the law should therefore not permit BCI to 

repackage these failed claims as tortious interference. As 

will be shown, in our view, BCI has attempted just the 

opposite. That is, it has taken conduct that constitutes 

tortious interference with contractual relations and has 

attempted to turn it into a violation of both federal antitrust 

and racketeering laws. While these attempts have been 

frustrated on this appeal, that result does not foreclose 

BCI's state law claim. BCI's tortious interference claim does 

not require proof of criminal conduct as does its extortion 

claim, nor is it anchored in the same kind of market based 

considerations as is its antitrust claim. We see no need for 

congruence between federal antitrust law, which is 

designed to protect competition and free access to markets, 

and state business tort law, which is designed to protect 

competitors. 

Notwithstanding this conclusion, the tortious interference 

verdict cannot stand, and a new trial on the tort claims is 

necessary, because the jury instructions permitted the jury 

to find tortious interference based on antitrust and/or civil 

RICO violations which, we have concluded, did not exist. 

Hence, while we reverse outright on the antitrust and civil 

 10 
RICO claims, we will remand the tortious interference 

claims for a new trial. We intimate no view on the question 

whether defendants' behavior was outrageous enough to 

justify an award of punitive damages under Pennsylvania 

law; that will be for determination on remand. Since the 

antitrust and RICO claims are out of the case, we also need 

not address the question of the propriety of injunctive relief 

for either RICO or antitrust claims, or the interesting issues 

posed by the cross-appeal. 

II. FACTS & PROCEDURAL HISTORY 

A. The Parties 

BCI serves as a TPA for employers who wish to selfinsure for their health benefits and other insurance needs. 

In this capacity, BCI designs the employer's self-insured 

benefit plan and usually recommends a health services 

provider network. The providers in the network then supply 

the health care, and BCI reviews and processes the 

resulting claims for the employer. In addition, BCI typically 

helps the employer purchase "stop-loss" insurance policies 

that cap the employers' exposure for large individual and 

aggregate claims. BCI also serves as an insurance broker 

for employees who choose to purchase fully-insured 

policies. 

U.S. Healthcare develops, owns, operates, and markets 

HMOs in many states in the eastern United States, 

including Pennsylvania and New Jersey. These HMOs are 

operated by wholly owned subsidiaries, including defendant 

United States Healthcare Systems of Pennsylvania, Inc., 

d/b/a The Health Maintenance Organization of 

Pennsylvania ("HMO PA"), which operates as 

U.S. Healthcare's HMO for Pennsylvania. As of December 

31, 1994, U.S. Healthcare and its subsidiaries had 

approximately 1,695,000 subscribers enrolled in its insured 

plans. 

CHA is also a wholly owned subsidiary of 

U.S. Healthcare. It is a TPA, and provides the same type of 

services for self-insured employers as does BCI. In the 

geographic areas in which U.S. Healthcare operates an 

 11 
HMO, CHA utilizes only the U.S. Healthcare network of 

doctors and hospitals. Similarly, U.S. Healthcare bars all 

TPAs other than CHA access to its network. At all times 

relevant to the present dispute, defendant Richard Wolfson 

was the Director of Pharmacy Programs and the Chairman 

of the Board of U.S. Healthcare, defendant William 

Brownstein served as the Regional Pharmacy Director for 

Pennsylvania, and defendant Scott Murphy was the Senior 

Vice President of U.S. Healthcare, and the senior marketing 

executive for CHA. We will at times refer to U.S. Healthcare, 

CHA, and HMO PA collectively as the "corporate 

defendants," and Wolfson, Brownstein and Murphy 

collectively as the "individual defendants." 

B. Gary's Decision to Self-insure 

U.S. Healthcare has established a network of health care 

providers which includes doctors, hospitals, and 

pharmacies in various geographic regions. Under the

U.S. Healthcare prescription purchase program, individuals 

who enroll as subscribers in U.S. Healthcare's HMOs select 

one pharmacy from the network of providers at which they 

will purchase prescription drugs. Subscribers can change 

their pharmacy designation by filling out a form. Under this 

program, subscribers can purchase their prescription drugs 

for a small co-payment (such as $5.00), with the rest of the 

cost of the prescription reimbursed to the pharmacy by 

U.S. Healthcare. In addition, U.S. Healthcare pays the 

pharmacies that serve the prescription purchase plan a set 

monthly amount based on the number of U.S. Healthcare 

subscribers designating that pharmacy, without regard to 

the actual purchases of drugs from that pharmacy. 

Because subscribers seldom purchase prescription drugs 

from pharmacies other than those within the network, 

membership in the U.S. Healthcare network is highly

coveted. 

In 1991, Eagleville Pharmacy, Incorporated, d/b/a/ I Got 

It At Gary's ("Gary's") was a pharmacy chain of four stores 

in suburban Philadelphia. All four stores served as

approved providers in the U.S. Healthcare pharmacy 

network. At this time, Gary's offered its full-time employees 

two options for their health insurance coverage: a Blue 

 12 
Cross/Blue Shield plan and a U.S. Healthcare HMO. 

Approximately 35 Gary's employees enrolled as 

U.S. Healthcare members. In 1991, to save costs, Gary's 

decided to terminate its relationship with Blue Cross/Blue 

Shield and U.S. Healthcare, and to self-insure. 

In need of a TPA to process its claims, Gary's evaluated 

several contenders, and then entered a written contract 

with BCI, terminable upon 30 days prior written notice. 

Sandra Chen, the benefits manager at Gary's, sent 

termination letters to Blue Cross/Blue Shield and 

U.S. Healthcare.1 In response to the letter, Chen testified 

that she received an angry and verbally abusive phone call 

from an unidentified U.S. Healthcare marketing executive.2 

So began the wrath of U.S. Healthcare. Upon receipt of 

Gary's letter terminating its insurance contract, David 

Rocchino, one of U.S. Healthcare's sales vice-presidents, 

telephoned Wolfson to inform him of the new development 

and expressed his displeasure. Wolfson became "upset" 

that Gary's had decided to self-insure, and knowing that 

Gary's was approved to serve as a pharmacy for 

U.S. Healthcare subscribers, promptly ordered an internal 

"quality assurance" review of the generic utilization rates of 

Gary's stores. Wolfson admitted at trial that his only reason 

for ordering such a review was that Gary's had terminated 

U.S. Healthcare coverage for its employees, but he testified 

that ordering a retaliatory review was not inappropriate.3 

_________________________________________________________________ 

1. The letter to U.S. Healthcare read: 

 Dear Sirs: 

 This letter is to advise U.S. Healthcare that effective June 

30th, 

 1991, . . . Gary's will discontinue its medical insurance 

coverage 

 with your organization. Please adjust your records to reflect 

this 

 upcoming change and advise me of any information you may need 

 to finalize our relationship. 

2. In contrast, Chen testified to the receipt of a polite and professional 

phone call from a Blue Cross/Blue Shield representative, inquiring if 

they could accommodate Gary's needs in anyway and as to the reason 

behind Gary's decision to cancel their health care contract. 

3. When asked by BCI's counsel whether he ordered the review of Gary's 

in response to Gary's decision to terminate with U.S. Healthcare, Wolfson 

responded: 

 13 
In August 1993, Gary's opened its fifth store, in 

Abington, Pennsylvania. Gary's applied for admission of the 

new store to U.S. Healthcare's pharmacy network. Wolfson, 

acting as director of U.S. Healthcare's pharmacy program, 

advised Brownstein not to process the application. 

U.S. Healthcare's executives acknowledged in their 

testimony that their motivation in refusing to process 

Gary's application was retaliatory, based on a belief that 

Gary's did not deserve U.S. Healthcare's business once 

Gary's had terminated U.S. Healthcare's contract in a 

manner that Wolfson and Brownstein found to be offensive. 

In compliance with Wolfson's instructions, Brownstein did 

not process the application. However, at this time, no one 

at U.S. Healthcare told Gary's of the decision to refuse to 

process the application. Instead, Gary's was informed that 

the application would be processed in due course. As 

Wolfson conceded at trial, the plan was to "let [Gary's] hang 

. . . until they did something." 

At the same time that Gary's Abington store applied for 

membership in the pharmacy network, U.S. Healthcare, at 

the instruction of Brownstein, performed a two-day, on-site 

audit of the utilization of generic drugs at Gary's store in 

Eagleville, Pennsylvania. The audit measured the 

pharmacy's compliance with the requirement of 

U.S. Healthcare's provider agreement that generic drugs be 

used whenever possible to contain costs. The audit results 

suggested that Gary's dispensed brand-name drugs instead 

of generic drugs at a rate higher than the median of the 

U.S. Healthcare provider, and lacked complete 

documentation of prescription requests. Brownstein's audit 

also demonstrated that the average cost-per-prescription to 

U.S. Healthcare at the Eagleville pharmacy was in line with 

the network median, so that the store's prescriptions were 

not costing U.S. Healthcare more on average than other 

_________________________________________________________________ 

 Well, I didn't think it was appropriate with an account that we 

had 

 a relationship with just to send a "dear sir" letter [of 

termination] to 

 a post office box . . . . I didn't feel that they were giving us 

due 

 consideration and if they were operating in that fashion, I 

wanted to 

 look to see if in fact there were any other issues related to the 

I Got 

 It At Gary's Pharmacies. 

 14 
pharmacies. Brownstein forwarded the audit results to the 

Quality Assurance Committee, which referred the matter to 

the Peer Review Committee. The Peer Review Committee, 

consisting of three outside pharmacists, had the power to 

recommend sanctions to Wolfson, who would then decide 

whether or not to impose them. 

On November 16, 1993, the Peer Review Committee 

recommended that Gary's Eagleville store be put on"freeze" 

for three-months. The freeze was implemented and, as a 

result, U.S. Healthcare removed the Eagleville store from 

the list of approved pharmacies, and new U.S. Healthcare 

subscribers could not designate that store as their location 

for purchasing prescription drugs. In contrast to the 

treatment of Gary's, other pharmacies with generic drug 

utilization rates lower than the Eagleville pharmacy and 

less complete documentation of prescription requests, had 

not been "frozen," and instead had received lesser or no 

sanctions. In fact, the parties stipulated that out of the 

approximately 1300 pharmacies in the U.S. Healthcare 

network for southeastern Pennsylvania and southern New 

Jersey, the freeze sanction had been imposed for generic 

utilization reasons only four times (including its use against 

Gary's) in all of 1993 and 1994. 

Although the extent to which Wolfson and Brownstein

were involved in the implementation of the freeze sanction 

is unclear, both had participated regularly in Quality 

Assurance and Peer Review Committee meetings. 

Brownstein later cited the results of the audit on the 

Eagleville store as the reason for the delay in processing the 

Abington store's application for membership in the 

pharmacy network, stating that U.S. Healthcare had 

concerns about Gary's dispensing too many brand-name 

drugs at its stores. 

Faced with a freeze on its Eagleville store and no 

movement on the Abington store's application for 

membership in the pharmacy network, Gary's President, 

Gary Wolf, set up a meeting with U.S. Healthcare officials, 

including Wolfson and marketing executive Scott Murphy, 

for December 1, 1993. Among the issues discussed were 

Gary's generic drug use and the admission of the Abington 

store to the U.S. Healthcare provider network. 

 15 
U.S. Healthcare expressed its displeasure with Gary's 

termination of U.S. Healthcare coverage in 1991, and 

Wolfson commented that "we like to do business with

people who do business with us." At the same meeting, 

U.S. Healthcare requested and received permission to bid 

on Gary's TPA business for the next annual contract period. 

C. Gary's Switch to CHA/U.S. Healthcare 

Following the meeting with U.S. Healthcare, Wolf 

instructed his sister, Robin Risler, the Director of Human 

Resources at Gary's, to "take a look at" switching to the 

TPA services offered by CHA at the anniversary date of 

Gary's contract with BCI (at which time the contract could 

be terminated with 30 days advance notice.) Concurrently, 

Wolf sent a letter to Wolfson (dated December 6, 1993) 

expressing, among other things, his "commitment that we 

will do everything possible to afford [U.S. Healthcare/CHA] 

the opportunity to service our company's needs as long as 

the programs are mutually beneficial", and requesting that 

U.S. Healthcare consider acting on the pending application 

for Gary's Abington store. 

When the December 6 letter failed to produce any 

movement on the Abington store, Wolf explained to Chen 

that, in order to get the Abington store approved, Gary's 

needed to "appease" U.S. Healthcare, and instructed her to 

write a further letter to U.S. Healthcare assuring them that 

Gary's would consider CHA's bid for its TPA services. This 

letter, dated January 3, 1994, and addressed to Murphy, 

was more explicit then the December 6 letter. It stated: 

 As you requested, I am writing you to acknowledge the 

 agreement made between I got it at Gary's and 

 U.S. Healthcare. We agree that as long as there are no 

 additional cost[s] to the plan or reduction in service, 

 US Healthcare will assume the role of TPA for our self 

 insured medical plan on July 1, 1994. 

* * * 

 We also understand that in anticipation of our 

 strengthening relationship, US Healthcare will release 

 the provider number for our pharmacy in Abington, PA. 

 16 
Chen testified that once this letter was written, it was a 

"foregone conclusion" that, as long as CHA's bid was 

comparable and for the same services, Gary's would switch 

to CHA. As of this time, CHA had not yet submitted a 

formal proposal to Gary's. 

In January 1994, within weeks of Chen's letter, 

U.S. Healthcare had inspected the Abington pharmacy, and, 

without further ado, approved its participation in the 

provider network. Brownstein testified that he was informed 

that Gary's had agreed to switch TPAs to CHA, and "on the 

basis of that," was instructed to enroll Gary's Abington 

store in the provider network. U.S. Healthcare acted with 

such speed in approving the Abington store's application for 

membership in the provider network that it failed to follow 

its own standard approval procedures, and did not present 

the store's application to the Membership Application 

Credentials Committee until after the pharmacy was 

already participating as a provider. 

In February 1994, U.S. Healthcare lifted the freeze on the 

Eagleville store. Similarly, Gary's sixth pharmacy in Aston, 

Pennsylvania, was accepted into the provider network 

without delay. At approximately this same time, Robin 

Risler, who testified that, ultimately, the selection of a TPA 

was her responsibility, hired an insurance broker to assist 

her in evaluating the competing TPAs. In early June 1994, 

both BCI and CHA submitted bids for Gary's TPA business, 

but CHA was given the opportunity to review BCI's bid 

before submitting its final proposal. In May 1994, even 

before Gary's had received a proposal from U.S. Healthcare, 

Risler told Lori Manley, the BCI customer service 

representative, that Gary's would be switching to 

CHA/U.S. Healthcare. Manley testified that Risler confided 

that she felt she was being "strongarmed" by 

U.S. Healthcare, that "she herself did not want to leave BCI" 

and that the decision "was out of her control." Two other 

BCI employees similarly testified that in the spring of 1994, 

Risler denied having any real choice in the decision to give 

Gary's TPA business to CHA in light of the loss of 

U.S. Healthcare's business that Gary's would suffer if it 

failed to switch TPAs. The testimony with respect to Risler 

of Manley and the two additional BCI employees was 

 17 
admitted over U.S. Healthcare's objection as state of mind 

evidence. See infra note 31. 

As the time for Gary's formal switch to CHA drew near, 

U.S. Healthcare scheduled another on-site "quality 

assurance" audit, this time of Gary's Lansdale store for 

June 16, 1994. In the second week of June, Risler officially 

informed BCI of Gary's decision to give its TPA business to 

CHA. After Gary's decision was officially announced, the 

audit of the Lansdale store uncovered no problems. 

Moreover, there were no further audits of Gary's 

pharmacies. 

The reasons behind Risler's decision to switch to CHA are 

in dispute. BCI's TPA expert, Carlton Harker, testified that 

for the one year period of 1994-95, the BCI proposal would 

have saved Gary's approximately $64,000, or 14%, 

compared to the proposal submitted by CHA. Harker 

further testified that he did not perceive any significant 

differences in the services provided under the respective 

plans that would explain the cost differential. Risler 

testified that, in making the decision to give Gary's TPA 

business to CHA, she was motivated by non-price, quality 

of service reasons. She also acknowledged, however, that 

she had been satisfied with BCI's services. At all events, the 

results of the decision are clear -- BCI lost its contract with 

Gary's. 

In March 1995, BCI filed the present suit challenging the 

defendants' actions that preceded Gary's decision to 

terminate its TPA contract with BCI. BCI proceeded at trial 

against defendants on four counts. Count I alleged that 

U.S. Healthcare, HMO PA, and CHA violated Section 1 of 

the Sherman Act, 15 U.S.C. S 1, by tying the participation 

by Gary's in the U.S. Healthcare pharmacy network to the 

purchase of CHA's TPA services for Gary's employees. In 

Count II, BCI alleged that all defendants violated the 

Racketeer-Influenced and Corrupt Organizations Act 

("RICO"), 18 U.S.C. S 1961 et seq., by engaging in or 

conspiring to commit at least two acts of racketeering 

activities, among them extortion, bribery, mail and wire 

fraud, and violations of the Travel Act. 

In a Count III, BCI also contended that, to the extent that 

defendants Wolfson, Murphy, and Brownstein were not

 18 
principal wrongdoers, they are liable for aiding and abetting 

under RICO. Finally, in Count IV, BCI alleged that all 

defendants tortiously interfered with its existing or 

prospective contractual relationship with Gary's in violation 

of state law. BCI sought treble damages and attorneys fees 

under its federal law claims. It also sought punitive 

damages from each defendant in connection with its state 

law claim. 

D. Economic Evidence 

1. Impact on Gary's 

BCI argued at trial that Gary's ability to operate 

profitably depended on the business of U.S. Healthcare 

subscribers. As evidence, BCI pointed to the parties' 

stipulation that, as of December 1993, when Wolfson told 

Gary Wolf that U.S. Healthcare likes to do business with 

people "who do business with us," 9,178 U.S. Healthcare 

subscribers had designated Gary's as their provider

pharmacy, and that in 1993, Gary's subscribers purchased 

$1.66 million of prescription drugs. BCI's expert Dr. Calvin 

Knowlton, who is an associate professor and Chair of the 

Department of Pharmacy Practice and Pharmacy 

Administration at the Philadelphia College of Pharmacy and 

Science, and the President of the American Pharmaceutical 

Association, testified that, based on the stipulated 

information and Gary's Sales Reports, in 1993, 

U.S. Healthcare members accounted for between 3-15% of 

Gary's prescription drug sales, and, by 1995, for 20% of 

prescription drug sales in Gary's Montgomery County

stores. 

If Gary's operated as an unapproved pharmacy, any 

U.S. Healthcare subscriber who wanted to fill his or her 

prescription at Gary's would have to pay full price, instead 

of a small co-payment. Additionally, Gary's head 

pharmacist testified that prescription drug purchasers are 

valuable consumers because they typically purchase other 

items in addition to their prescription drugs. BCI also 

presented evidence that the prescription drug business of 

pharmacies is a low-margin business that depends on high 

volume in order to operate profitably. In order to maximize 

 19 
their sales, pharmacies typically become members of as 

many prescription drug plans as possible. Out of 

approximately 1300 participating pharmacies in 

southeastern Pennsylvania and southern New Jersey, only 

four pharmacies left the U.S. Healthcare pharmacy network 

in the period from January 1, 1993 to October 1, 1995 for 

reasons other than going out of business. 

2. Knowlton's Survey 

At trial, BCI presented a telephone survey of the market 

areas surrounding several of Gary's pharmacies, performed 

by Dr. Knowlton, which was admitted over objection. In this 

survey, pharmacy students telephoned six to eight 

pharmacies in the vicinity of three arbitrarily selected 

Gary's store locations and asked them a series of questions. 

Knowlton drew conclusions regarding U.S. Healthcare's 

market power based only on the responses of those stores 

that listed U.S. Healthcare as their primary HMO customer. 

He testified that based on this survey U.S. Healthcare's 

market share of prescription drug sales for the market 

areas served by the two largest Gary's pharmacies and the 

new Abington pharmacy was approximately 25%. Knowlton 

further testified that other sources of information indicated 

that his survey conclusions as to market share would apply 

generally in Montgomery County. 

3. Interaction Between U.S. Healthcare and Other 

 Pharmacy Operations 

The jury also heard evidence of the interaction between 

U.S. Healthcare and Rite-Aid, Shop-Rite, Food Circus, 

Walmart, Phar-mor and Weis Markets. With respect to the 

pharmacy operation in each of these chains, 

U.S. Healthcare conditioned participation in the provider 

network upon their making U.S. Healthcare insurance

available to their employees. Despite initial resistance, RiteAid, Phar-Mor and Weis Markets ultimately agreed to offer 

their employees U.S. Healthcare insurance products. There 

was, however, an absence of supporting evidence on the 

point, and it is not clear that these large companies made 

U.S. Healthcare a part of their benefits package in response 

to economic pressure rather than for legitimate business 

reasons. 

 20 
Shop-Rite and Food Circus responded by filing 

complaints with the New Jersey Department of Insurance.4 

After the Department of Insurance took action, 

U.S. Healthcare agreed to accept the stores into its provider 

network notwithstanding their refusal to offer 

U.S. Healthcare coverage. The Walmart stores also resisted 

U.S. Healthcare's policy, choosing instead to forgo

membership in the provider network. U.S. Healthcare did 

approve the Walmart stores in Massachusetts, where an 

Any Willing Provider statute was in force. Defendants' 

experts testified that linkage of network membership and 

purchase of TPA services was normal business behavior 

and was not anti-competitive. 

4. The Setting of Reimbursement Prices 

BCI also presented evidence of how U.S. Healthcare 

exercised its market power to set reimbursement prices. In 

January 1996, it effected a drastic reduction in the 

reimbursements it paid to participating pharmacies for 

prescription drugs dispensed to U.S. Healthcare 

subscribers. Dr. Knowlton testified that this reduction, 

when considered with the fact that U.S. Healthcare does not 

pay pharmacies a dispensing fee, made U.S. Healthcare's 

overall compensation to pharmacies the lowest of any thirdparty payor in the southeastern Pennsylvania region. Yet, 

notwithstanding the major reimbursement price reduction, 

only two pharmacies out of approximately 8000 in 12 or 13 

states discontinued their participation in the 

U.S. Healthcare provider network. 

Dr. Knowlton testified that, based on this evidence, and 

the evidence of U.S. Healthcare's successful dominance of 

other pharmacies, exclusion from the U.S. Healthcare 

provider network could threaten Gary's survival. As a 

result, he testified that Gary's had no choice but to accept 

U.S. Healthcare's arrangement. 

_________________________________________________________________ 

4. The record does not develop the extent to which these complaints may 

have been facilitated by New Jersey's enactment, in July 1994, of an Any 

Willing Provider statute which provides that a pharmacy cannot be 

excluded from an HMO if it "accepts the terms" of the HMO. N.J. Stat. 

Ann. S 26:2J-4.7(a)(2) (West 1996). 

 21 
E. The Jury Verdict 

After 17 days of trial, the case was submitted to the jury 

on special interrogatories. The jury returned a verdict for 

BCI on all counts and awarded BCI $200,000 in 

compensatory damages.5 The jury also awarded BCI 

$1,000,000 in punitive damages in connection with its 

tortious interference claim. That award was apportioned as 

follows: $400,000 against U.S. Healthcare, $200,000

against CHA, $100,000 against HMO PA, $200,000 against 

Wolfson, $75,000 against Murphy, and $25,000 against 

Brownstein. 

At the close of BCI's case, and again at the close of all 

evidence, the defendants moved, pursuant to Fed. R. Civ. P. 

50(a), for judgment as a matter of law. These motions were 

denied. Following the verdict, defendants renewed their 

motion for judgment as a matter of law pursuant to Fed. R. 

Civ. P. 50(b). Concurrently, defendants filed an alternative 

motion for a new trial pursuant to Fed. R. Civ. P. 59. The 

district court denied these motions in all respects. On 

appeal, defendants challenge the denial of these motions. 

The majority of the issues before us arise from the district 

court's denial of defendants' renewed motion for judgment 

as a matter of law, and, as to these issues, our review is 

plenary. See Stelwagon Mfg. Co. v. Tarmac Roofing, 63 F.3d 

1267, 1270-71 (3d Cir. 1995) ("The legal foundation for the 

jury's verdict is reviewed de novo while the factual findings 

are reviewed to determine whether the evidence and 

justifiable inferences most favorable to the prevailing party 

afford any rational basis for the verdict."). Where a different 

standard of review is implicated, it will be noted in the text. 

_________________________________________________________________ 

5. The district court's initial order of judgment made it unclear whether 

BCI was to receive $200,000 in total compensatory damages, or to 

recover that amount separately on each of its three legal theories (thus 

allowing a total recovery of $600,000 in compensatory damages). In 

response to defendants' motion, pursuant to Fed. R. Civ. P. Rule 59(e), 

to alter or amend the order of judgment, the district court subsequently 

amended its order to make clear that BCI may recover only once the 

$200,000 in compensatory damages that it was awarded. BCI does not 

dispute this point on appeal. 

 22 
III. THE ANTITRUST ISSUES 

A. Introduction -- Characterization of BCI's Claim 

BCI's antitrust claim arises from U.S. Healthcare's

decision to use the leverage acquired by virtue of its ability 

to provide Gary's access to thousands of potential 

pharmacy customers to pressure Gary's into selection of its 

subsidiary, CHA, as its TPA. BCI claims that this 

arrangement was an illegal tie in violation S 1 of the 

Sherman Act, 15 U.S.C. S 1, which generally outlaws

"[e]very contract . . . in restraint of [interstate or 

international] trade or commerce." Defendants submit that 

their conduct was simply hard bargaining that is well 

within the mainstream of business conduct and does not 

form the basis of a cognizable antitrust claim. 

At trial, BCI's theory of the case prevailed. The jury found 

that U.S. Healthcare's practices were illegal under both per 

se and rule of reason theories of antitrust liability. On 

appeal, defendants challenge the characterization of the 

arrangement at issue as a tying arrangement. They contend 

that the arrangement was one of reciprocal dealing and not 

tying, and that as a result the per se test for antitrust 

liability is inapplicable. Before turning to a review of the 

jury verdict, which the defendants challenge, we will 

consider the characterization question. 

Tying exists where a seller conditions the sale of one good 

(the tying product) on the buyer also purchasing another, 

separate good (the tied product). See Town Sound & Custom 

Tops, Inc. v. Chrysler Motors Corp., 959 F.2d 468, 475 (3d 

Cir. 1992) (in banc). The antitrust concern over tying 

arrangements arises when the seller can exploit its market 

power in the tying market to force buyers to purchase the 

tied product which they otherwise would not, thereby 

restraining competition in the tied product market.6 See 

_________________________________________________________________ 

6. Of course, not all tying arrangements have anti-competitive effects in 

violation of the Sherman Act. The Supreme Court has twice made use of 

the following as an example of a tie that is not a concern of the 

antitrust 

laws: "[I]f one of a dozen food stores in a community were to refuse to 

sell flour unless the buyer also took sugar it would hardly tend to 

 23 
Allen-Myland, Inc. v. International Bus. Mach. Corp., 33 F.3d 

194, 200 (3d Cir. 1994); Jefferson Parish Hosp. Dist. No. 2 

v. Hyde, 466 U.S. 2, 12 (1984). 

Unlike tying -- where one party is only a seller and the 

other only a buyer -- reciprocal dealing exists where "two 

parties face each other as both buyer and seller. One party 

offers to buy the other party's goods, but only if the second 

party buys other goods from the first party." Spartan Grain 

& Mill Co. v. Ayers, 581 F.2d 419, 424 (5th Cir. 1978). More 

colloquially, reciprocal dealing exists when one party tells 

the other: "I'll buy from you, if you buy from me." Again, 

like tying, not all reciprocal dealing arrangements are anticompetitive. The Sherman Act is concerned with what has 

been termed "coercive" reciprocal dealing, where a party 

uses its economic power as a purchaser in one market in 

order to restrict competition in another market where it is 

a seller. See Betaseed, Inc. v. U & I, Inc., 681 F.2d 1203, 

1216 (9th Cir. 1982).7 

BCI argued, and the jury found, that U.S. Healthcare and 

CHA tied the purchase of CHA's TPA services to the right to 

continued participation in the U.S. Healthcare pharmacy 

network. In order to characterize this arrangement as a tie, 

U.S. Healthcare must be deemed to have "sold" Gary's the 

ability to participate in its pharmacy network, but only if 

Gary's also purchased CHA's TPA services. Defendants 

contend that BCI's characterization is not correct since 

U.S. Healthcare did not "sell" Gary's the ability to 

participate in the pharmacy network as participation in 

that network is free. In fact, the ultimate result of the 

_________________________________________________________________ 

restrain competition if its competitors were ready and able to sell flour 

by itself." Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12 

(1984) (quoting Northern Pac. R. Co. v. United States, 356 U.S. 1 (1958)). 

Indeed package sales such as those noted in the foregoing example may 

be used by a seller as a means of competing, and may be desired by 

buyers. The Sherman Act is not designed to preclude such 

arrangements. See id. 

7. This is distinguished from "mutual" reciprocal dealing which occurs 

"when both parties stand on equal footing with respect to purchasing 

power, yet they agree to purchase from one another." Betaseed, 681 F.2d 

at 1216. 

 24 
contract was that money flowed in the opposite direction -- 

from U.S. Healthcare to Gary's in exchange for prescription 

drugs purchased by U.S. Healthcare members that 

designated one of Gary's stores as their network pharmacy. 

Thus, defendants argue, the arrangement is more 

accurately labeled as reciprocal dealing where 

U.S. Healthcare conditioned its agreement to purchase 

prescription drugs from Gary's on Gary's agreement to 

purchase TPA services from CHA. 

We agree that the arrangement is not tying. While there 

is force to defendants' broader argument, we do not believe 

that the relationship between Gary's and U.S. Healthcare 

can be neatly squeezed into the purchase/sale paradigm. 

As a result, we are hesitant to conclude that the 

arrangement was reciprocal dealing, but instead believe 

that the true character of the arrangement lies somewhere 

between the two practices. Fortunately, resolution of the 

antitrust issue presented in this appeal does not require us 

to wedge the facts into either doctrinal box, for we conclude 

that there was insufficient evidence to support liability 

under the Sherman Act regardless of the label placed on 

the challenged arrangement. 

The law is well developed as to when tying arrangements 

should give rise to liability under the Sherman Act. Such 

arrangements can be deemed illegal per se or be found to 

violate the rule of reason. Per se liability exists where the 

defendant is found to have appreciable market power in the 

tying market. In such cases, the ability to leverage this 

power to restrain trade in the tied market is presumed and 

no inquiry need be made into the actual prevailing market 

conditions in that market. See Jefferson Parish, 466 U.S. at 

15-18 & n. 25; Town Sound, 959 F.2d at 477. Where 

appreciable tying market power cannot be shown, inquiry 

into the tied product market cannot be avoided, and the 

plaintiff therefore has the more difficult burden of showing 

that the arrangement violated the rule of reason because it 

unreasonably restrained competition in the tied product 

market. See Jefferson Parish, 466 U.S. at 29. 

In contrast to tying arrangements, reciprocal dealing has 

not been the subject of extensive case law development. 

Indeed, this Court has yet to set forth a test for determining 

 25 
when a reciprocal dealing arrangement runs afoul of the 

Sherman Act.8 Defendants seek to persuade us to fill this 

vacuum by holding that reciprocal dealing arrangements 

cannot be found illegal per se, but instead should be judged 

only under the less rigorous rule of reason test.9 This 

position has not been adopted by any of our sister circuits. 

All those that have examined the relationship between tying 

and reciprocal dealing have determined that each practice 

_________________________________________________________________ 

8. Defendants suggest that we set forth a rule for judging reciprocal 

dealing arrangements in W.L. Gore & Assocs., Inc. v. Carlisle Corp., 529 

F.2d 614, 624 (3d Cir. 1976) where we stated that: 

 [T]he use of substantial purchasing power in one product market 

to 

 coerce a supplier into a reciprocating purchase in another market 

 may be an illegal restraint of trade if the user's purchasing 

power is 

 sufficiently substantial and its use results in substantial 

foreclosure 

 of competition in the other weaker product market. 

In Gore, the owner of two patents brought an action for infringement. 

The defendant's answer denied the validity of the patents, asserted that 

one of the patents was unenforceable because of fraud in its 

procurement, and counterclaimed for damages alleging a violation of the 

Sherman Act. After trial, the district court entered a judgment holding 

one of the patents valid and infringed and the other patent invalid, 

granting the plaintiff an injunction restraining the defendant from 

infringing the valid patent, and determining that plaintiff had violated 

the Sherman Act. Both parties appealed from the judgment. In 

determining that we had jurisdiction to review the injunction, we 

expressly stated that we had no jurisdiction in an interlocutory appeal 

over the antitrust counterclaim of the defendant. See id. at 618. Thus, 

the statement in Gore regarding reciprocal dealing was dicta, and does 

not establish a rule. 

9. In support of this view, defendants primarily rely on Phillip E. Areeda 

et al., Antitrust Law, a leading treatise. Areeda argues that "forced 

reciprocal exchanges are . . . legally distinct from ties and need not 

receive the same antitrust treatment." X Areeda, Antitrust Law P 1750c, 

at 268 (1996). He believes that reciprocal trading should not be illegal 

per se, and that such a claim should instead be judged solely under the 

rule of reason test. See Id. P 1778, at 460-61. Professor Areeda's view 

may be colored by his belief that tying arrangements also should not be 

illegal per se, a view that is contrary to current law. See IX Areeda, 

Antitrust Law P 1730, at 406 14 (1991). 

 26 
should be evaluated under both the per se and rule of 

reason tests.10 

This position is logical since both practices implicate the 

same antitrust concern -- the unlawful extension of

economic power in one market to another market. However, 

we decline to resolve this conflict here since the amorphous 

and idiosyncratic nature of this case does not provide an 

appropriate framework in which to fully flesh out the need 

for a separate test for reciprocal dealing arrangements. 

Further, we need not reach this issue in order to resolve 

the present appeal since we find that BCI failed to set forth 

either a valid per se or rule of reason antitrust claim -- a 

finding fatal to both a tying claim and a reciprocal dealing 

claim under any test we might devise. 

B. Per se Liability 

Since our jurisprudence regarding both per se and rule of 

reason liability has developed in the context of tying cases, 

we will use the terms "tying" product market and "tied" 

product market to describe the two markets at issue

despite our belief that the arrangement in this case lies 

somewhere between tying and reciprocal dealing. The per se 

test is used in cases where exploitation of leverage in the 

market for the tying product is "probable". See Jefferson 

Parish, 466 U.S. at 15; Town Sound, 959 F.2d. at 476-77. 

The elements of a per se claim are (1) the defendant seller 

_________________________________________________________________ 

10. See, e.g., Betaseed, Inc. v. U&I, Inc., 681 F.2d 1203, 1221 (9th Cir. 

1982) ("The similarity between coercive reciprocity and tying 

arrangements, both in form and in anti-competitive consequences, leads 

to the conclusion that the two practices should be judged by similar 

standards."); Spartan Grain & Mill Co. v. Ayers, 581 F.2d 419, 425 (5th 

Cir. 1978) (holding that label of tying and reciprocal dealing was 

immaterial, and that the per se standard should be applied in both); E.T. 

Barwick Indus. v. Walter E. Heller & Co., 692 F. Supp. 1331 (N.D. Ga. 

1987) (same legal standards apply to reciprocal dealing as tying), aff'd 

891 F.2d 906 (11th Cir. 1989). See also II Earl W. Kintner, Federal 

Antitrust Law S 10.67, at 264-65 (1980) ("[T]he very presence of the 

element of coercion indicates that such reciprocal dealings are only anticompetitive in effect. It is widely agreed that coercive reciprocality, 

like 

tying arrangements, should be considered a per se violation of Section 1 

of the Sherman Act."). 

 27 
must sell two distinct products; (2) the seller mu st possess 

market power in the tying product market; and (3) a 

substantial amount of interstate commerce must be 

affected. See id. at 477. Where such elements are shown, 

the defendant's tying practices are condemned without 

further proof of anti-competitive effect. See id. Principally at 

issue in this appeal is whether BCI met its burden of 

proving the second element of this test: that 

U.S. Healthcare exercised market power in the tying market.11 

The jury determined that U.S. Healthcare exercised 

sufficient market power in the tying market to constitute a 

per se violation of the Sherman Act. The viability of that 

finding, however, depends on the correctness of the market 

definition sent to the jury. Defendants maintain that the 

definition was incorrect as a matter of law, and that 

U.S. Healthcare could not exercise sufficient power in a 

properly defined tying market to sustain a per se claim. 

1. Defining the Relevant Market 

Before we can evaluate the extent to which 

U.S. Healthcare exercises power in the tying market, that 

market must be properly defined. A market has two 

components, product and geographic. See Brown Shoe Co. 

v. United States, 370 U.S. 294, 325-28 (1962). The burden 

is on the plaintiff to define both components of the relevant 

market. See Queen City Pizza, Inc. v. Domino's Pizza, Inc., 

124 F.3d 430, 436 (3d Cir. 1997); Pastore v. Bell Telephone 

Co., 24 F.3d 508, 512 (3d Cir. 1994); Tunis Bros Co., Inc. v. 

Ford Motor Co., 952 F.2d 715, 726 (3d Cir. 1991). The tying 

market definition asserted by BCI and adopted by the jury 

was: "U.S. Healthcare members with prescription drug 

benefits in the areas surrounding . . . Gary's pharmacies in 

suburban Philadelphia." Defendants contend that this 

definition contains both a flawed product market --

U.S. Healthcare members with prescription drug benefits-- 

and a flawed geographic market -- the areas surrounding 

Gary's pharmacies in suburban Philadelphia. They submit 

_________________________________________________________________ 

11. The other issues have not been briefed by the parties. The third 

element is plainly not disputed. While arguably there is an implicit 

challenge to the first element, it would involve the characterization 

question, and we need not reach it. 

 28 
instead that the relevant tying market consists of "all 

purchasers of prescription drugs in the greater Philadelphia 

area." 

We agree that BCI failed to meet its burden of presenting 

sufficient evidence to support the product and geographic 

markets adopted by the jury. However, while the evidence 

enables us to determine that the proper product market 

consists of all purchasers of prescription drugs, it is more 

difficult to determine the relevant geographic market on the 

basis of the record. Fortunately, as will be shown,

delineation of the exact contours of the geographic market 

is not necessary to an evaluation of the merit of plaintiff's 

per se claim. We turn first to the product market issue. 

 a. The Product Market 

BCI has posited a single brand market consisting solely 

of U.S. Healthcare members with prescription drug benefits. 

Should we accept this market definition our inquiry would 

be at an end, for U.S. Healthcare must, by definition, 

control 100% of this product market regardless of the 

geographic market. BCI seeks to support this product 

market by arguing that no products are "reasonably 

interchangeable" with U.S. Healthcare members, and that it 

is compelled by the Supreme Court's decision in Eastman 

Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451 

(1992). Examining each of these contentions in turn, we 

conclude that this narrow market definition cannot stand 

as a matter of law. 

The outer boundaries of a product market are determined 

by evaluating which products would be reasonably 

interchangeable by consumers for the same purpose. See 

Allen-Myland, 33 F.3d at 201 n.8; Town Sound, 959 F.2d at 

480. "Interchangeability implies that one product is roughly 

equivalent to another for the use to which it is put; while 

there might be some degree of preference for the one over 

the other, either would work effectively." Allen Myland, 33 

F.3d at 206. One measure of interchangeability is "cross 

elasticity of demand between the product itself and

substitutes for it." Queen City Pizza, 124 F.3d at 437 

(quoting Brown Shoe Co. v. U.S., 370 U.S. 294, 325 (1962)). 

 29 
When there is cross-elasticity of demand between products 

in a market, "the rise in the price of a good within [the] 

relevant market would tend to create a greater demand for 

other like goods in that market." Tunis Brothers, 952 F.2d 

at 722. 

Thus the issue is which products, if any, Gary's, the 

consumer, would find to be reasonably interchangeable 

with, or substitutable for, U.S. Healthcare members who 

purchase prescription drugs. Defendants argue that no 

evidence in the record contradicts the logical assumption 

that Gary's considers members of other prescription plans, 

or uninsured persons, completely interchangeable with 

U.S. Healthcare members. We agree. 

The only evidence to which BCI directs us to support its 

argument that there are no products reasonably 

interchangeable with U.S. Healthcare customers is that 

when U.S. Healthcare lowered the prices it would pay to 

pharmacies for the purchase of prescription drugs by 

U.S. Healthcare members, none of the pharmacies dropped 

out of the U.S. Healthcare network. BCI asserts that this 

shows that there is no cross-elasticity of demand between 

U.S. Healthcare members and other purchasers of 

prescription drugs since, if there were, then the lowering of 

prices would have caused pharmacies to stop doing 

business with U.S. Healthcare customers in favor of other 

customers who paid more. 

This evidence does not support BCI's market definition. 

The fact that participating pharmacies do not drop out of 

the U.S. Healthcare network when it lowers its payment 

schedule does not prove that U.S. Healthcare's action failed 

to increase the pharmacies demand for customers who are 

not members of U.S. Healthcare. Even though pharmacies 

undoubtedly desire higher profit customers, it would not be 

necessary for them to drop out of the U.S. Healthcare 

network in order to pursue, or acquire, these customers. 

Nor would it be economically rational to do so since 

pharmacies, like most businesses, seek as many customers 

as they can find.12 

_________________________________________________________________ 

12. We assume that membership in the U.S. Healthcare network 

remained profitable after U.S. Healthcare lowered its payment schedule. 

 30 
Moreover, to the extent that BCI is arguing that 

U.S. Healthcare customers are not interchangeable with 

other customers because the market for prescription

customers is so competitive that U.S. Healthcare members 

are difficult to replace, this argument also does not support 

its product market definition. Product market definition 

turns on the existence of close substitutes for a particular 

product, not on the ability of any particular consumer to 

switch effortlessly to such substitutes. It is true that when 

Gary's loses a supply of customers it must compete for 

other customers to make up lost sales; however, this does 

not mean that those new customers, when found, would 

not be interchangeable with U.S. Healthcare members from 

Gary's standpoint. 

BCI also seeks to support its single brand market by 

reference to the Supreme Court's opinion in Kodak. That 

case, however, is inapposite. In Kodak, independent service 

organizations brought suit alleging that Kodak had tied 

replacement parts for its copiers to Kodak repair service. 

See 504 U.S. at 459. Although Kodak exercised complete 

control over the market for the tying product -- 

replacement parts for its copiers -- since they were unique, 

see id. at 456-57, it argued that it could not, as a matter 

of law, have sufficient market power in that derivative 

aftermarket to restrain trade because the primary market 

for new copiers was competitive. According to Kodak, any 

attempt to exercise market power in the derivative market 

for copier parts would raise the "life cycle" cost of owning a 

Kodak copier, and customers would buy fewer Kodak 

copiers, making the attempt unprofitable. See id. at 470. 

The Supreme Court declined to let Kodak's economic 

theory prevail on summary judgment, holding that, under 

certain circumstances, the buyer of a Kodak copier could 

be "locked in" to the Kodak parts market by virtue of the 

_________________________________________________________________ 

To the extent that BCI is arguing that pharmacies stayed in the 

U.S. Healthcare network despite the fact that it became unprofitable to 

do so, this argument renders their overall claim a non sequitur. 

U.S. Healthcare cannot exercise control over pharmacies via access to its 

network where membership in that network causes pharmacies to lose 

money. 

 31 
high "switching costs" of purchasing a new copier from 

another manufacturer. See id. at 476. In such a situation, 

Kodak copier owners would be forced to purchase copier 

parts from Kodak since there were no reasonable 

substitutes for such parts. Thus, Kodak establishes that a 

single brand market may be considered the relevant market 

where a legitimate class of consumers is locked in to 

purchasing a non-interchangeable tying product in a

derivative market due to high switching costs in the 

primary market. See Queen City Pizza, 124 F.3d at 439-40. 

BCI directs us to no evidence introduced at trial to 

support a conclusion that Kodak is applicable to this case. 

On appeal, they argue that U.S. Healthcare members are 

"locked in" to U.S. Healthcare and, by extension, to the 

pharmacies in its provider network. We doubt that this 

argument is factually correct, for we find no evidence 

suggesting that U.S. Healthcare members who wish to

switch HMOs face switching costs significant enough to 

constitute a lock in. But even if it is, the argument is 

misplaced since Kodak is concerned with the situation 

where the victims of the alleged tie -- in that case, the 

purchasers of Kodak copiers -- are faced with high 

switching costs and thus are "locked in" to the market for 

the tying product. Under BCI's theory of the case, Gary's is 

the purchaser of the tying product which is U.S. Healthcare 

members who purchase prescription drugs. Thus in order 

to fall within Kodak's concept of lock in, BCI needed to, at 

a minimum, provide evidence that Gary's -- not 

U.S. Healthcare members -- was locked into the 

U.S. Healthcare network. That it did not do. 

 b. The Geographic Market 

BCI proposed a non-contiguous, gerrymandered 

geographic market consisting solely of the areas 

surrounding Gary's pharmacies in suburban Philadelphia. 

To meet its burden of proving the relevant geographic 

market, see Tunis Brothers Co., 952 F.2d at 726, BCI was 

required to show that the geographic market it proposed 

was "the area in which a potential buyer may rationally 

look for the goods or services he or she seeks." See id. 

 32 
(quoting Pennsylvania Dental Ass'n v. Medical Serv. Ass'n of 

Pa., 745 F.2d 248, 260 (3d Cir. 1984)). 

The only evidence that BCI offered to support its 

geographic market was testimony from Dr. Knowlton that 

the area from which Gary's stores, or any pharmacies, draw 

their customers is made up of primary and secondary

trading areas surroundings its stores. Knowlton defines a 

primary trading area is the geographic area surrounding a 

pharmacy from which it draws 50% of its clientele, and a 

secondary trading area as the geographic area from which 

it draws 90% of its clientele. 

We believe that Knowlton is undoubtedly correct to the 

extent that the jury could reasonably find that pharmacy 

customers generally use pharmacies near their home. Thus 

we reject defendants' argument that the relevant geographic 

market should be the greater Philadelphia area.13 However, 

mere invocation of the common-sense precept that 

customers use pharmacies near their homes does not 

satisfy BCI's burden of showing that the particular

geographic market chosen fairly represents "the area in 

which a potential buyer may rationally look for the goods or 

services he or she seeks." In this case, where BCI 

introduced no evidence to support such a conclusion, an 

amorphous and gerrymandered geographic market cannot 

stand as a matter of law. See id. at 727 ("The mere

delineation of a geographical area, without reference to a 

market as perceived by consumers and suppliers, fails to 

meet the legal standard necessary for the relevant 

geographic market."). 

2. U.S. Healthcare's Power in the Tying Market 

Having determined that the market definition adopted by 

the jury was erroneous as a matter of law, we are now 

faced with the task of assessing U.S. Healthcare's market 

_________________________________________________________________ 

13. Defendants rely primarily on evidence that Gary's advertised in the 

greater Philadelphia area to support their expansive conception of the 

geographic market. This reliance is misplaced since "the geographic 

market is not comprised of the region in which the seller attempts to sell 

its product, but rather is comprised of the area where his customers 

would look to buy such a product." Tunis Bros., 952 F.2d at 726. 

 33 
power in a properly defined market on the basis of the trial 

record. Our task is made more difficult by the fact that the 

record does not contain sufficient evidence to enable us to 

clearly define the relevant geographic market. In most 

instances, the proper course in the face of such 

circumstances would be to remand the case for a new trial; 

however, our review of the record indicates that it is simply 

not possible for U.S. Healthcare to have exercised sufficient 

market power in the properly defined product market to 

constitute a per se violation in any plausible geographic 

market. 

In order to impose per se antitrust liability, it must be 

shown that the defendant had "appreciable economic power 

in the tying market." Kodak, 504 U.S. at 464 (emphasis 

added). "Market power is defined as the ability`to raise 

prices or to require purchasers to accept burdensome terms 

that could not be exacted in a completely competitive 

market.' " Allen-Myland, 33 F.3d at 200 (quoting United 

States Steel Corp. v. Fortner Enters., Inc. (Fortner II), 429 

U.S. 610, 620 (1977)). Since "[t]he existence of such power 

ordinarily is inferred from the seller's possession of a 

predominant share of the market," Kodak, 504 U.S. at 464 

(citations omitted), we turn first to an inquiry into 

U.S. Healthcare's share of the market for drug prescription 

customers. In so doing, we are mindful of the fact that 

"[m]arket share, of course, is only one type of evidence that 

may prove the defendant has sufficient market power to 

impose per se antitrust liability." Allen-Myland, 33 F.3d at 

209. 

 a. Evidence of Market Share 

At trial, BCI's sole evidence of market share derived from 

a survey conducted by Dr. Knowlton. His survey concluded 

that U.S. Healthcare members purchased twenty to twentyfive percent of the prescriptions at the surveyed 

pharmacies. Defendants argue that this market share is 

insufficient as a matter of law to serve as the basis for a 

finding of a per se violation. We agree.14 The highest 

(Text continued on page 36) 

_________________________________________________________________ 

14. Defendants also argue that the district court abused its discretion in 

admitting the survey. We also agree with this contention; however, since 

 34 
we conclude that even if the survey were admitted, it would not help 

BCI, we address the methodological errors that should have barred its 

admission only briefly. 

Survey results offered as proof of the matter asserted are hearsay, and 

thus the results of a survey, and any testimony based on those results, 

cannot be admitted into evidence unless the survey falls into a 

recognized class exception to the hearsay rule or into the residual 

exception contained in Fed. R. Evid. 803(24). See Pittsburgh Press Club 

v. United States, 579 F.2d 751, 755-58 (3d Cir. 1978). In this case none 

of the class exceptions are present, so we examine whether the survey 

contains the "circumstantial guarantees of trustworthiness" required for 

admissibility under Rule 803(24). 

In Pittsburgh Press, we stated that "the circumstantial guarantees of 

trustworthiness are for the most part satisfied if the poll is conducted 

in 

accordance with generally accepted survey principles." Id. at 758. We 

then discussed several factors which must be examined in determining 

whether a poll meets generally accepted survey principles 

 A proper universe must be examined and a representative sample 

 must be chosen; the persons conducting the survey must be 

 experts; the data must be properly gathered and accurately 

 reported. It is essential that the sample design, the 

questionnaires 

 and the manner of interviewing meet the standards of objective 

 surveying and statistical techniques. 

Id. 

The proponent of the evidence has the burden of establishing these 

elements of admissibility. See id. In this case, we find that this burden 

was not met and that the methodology of the survey was so flawed that 

the district court's decision to admit it was not consistent with the 

exercise of sound discretion. 

Knowlton's survey was designed to determine U.S. Healthcare's market 

share in the region close to three of Gary's six pharmacy locations. To 

determine market share, he had pharmacy students call six to eight to 

pharmacies within varying distances of each of the three pharmacies 

(resulting in a total universe of twenty pharmacies). The pharmacists at 

these pharmacies were then asked to name the HMO with which they 

did the majority of their business, and to report the percentage of their 

prescription business for which that HMO was responsible. 

This methodology is flawed in several respects. We identify two 

particularly significant errors. First, the survey questions used were not 

objective. For example, pharmacists were asked: 

 35 
estimate of U.S. Healthcare's market share resulting from 

Knowlton's survey -- which, in addition to the 

methodological errors set out in note 14, used the improper 

geographic market discussed at pp. 32-33, supra -- was 

twenty five percent. Even were we to accept this percentage 

as accurate, it is insufficient in itself to impose per se 

antitrust liability. See Jefferson Parish, 466 U.S. at 27 

(defendant hospital's 30 percent share of market showed 

that it lacked the "kind of dominant market position that 

obviates the need for further inquiry into competitive 

conditions."); see also Times-Picayune Pub. Co. v. United 

States, 345 U.S. 594, 612-13 (1953) (defendants share of 

33-40 percent of advertising market insufficient to invoke 

per se rule). In fact, since Jefferson Parish no court has 

inferred substantial market power from a market share 

_________________________________________________________________ 

 You provide services for people with prescription cards, like PCS 

and 

 Paid, et cetera. You also provide services for people on specific 

HMO 

 plans like Keystone, U.S. Healthcare, et cetera. What's the name 

of 

 the HMO with which you did the most prescription business . . .? 

This question improperly slants the response by highlighting respondent 

to U.S. Healthcare's market presence. People responding to a survey tend 

to react to the framing of a question. See, e.g. J.R. Eiser, Social 

Psychology 219-20 (1986). In addition, this question specifically excluded 

large institutional, non-HMO purchasers of prescription drugs such as 

PCS and PAID. As a result, it narrowed the product market from 

"purchasers of prescription drugs" to "HMO purchasers of prescription 

drugs". 

Second, while Knowlton surveyed 20 pharmacies, he only used the 

data obtained from 14 of those pharmacies in tabulating his results. 

This decision resulted from the fact that only fourteen of the twenty 

pharmacies surveyed named U.S. Healthcare as their largest HMO 

customer. Knowlton simply ignored the other six pharmacies whose data 

presumably stated a lower estimate of U.S. Healthcare's market share. 

This type of selective analysis violates the requirement that, in order 

for 

survey results to be admissible, the "data must be properly gathered and 

accurately reported". 

We conclude that the cumulative effect of these, and other, 

methodological errors render it impossible to say that this survey was 

"conducted in accordance with generally accepted survey principles," and 

thus it should not have been admitted. 

 36 
below 30 percent. See, e.g. Town Sound, 959 F.2d at 481 

(affirming summary judgment for defendant with control of 

10-12% of tying product market); Marts v. Xerox, 77 F.3d 

1109, 1113 n.6 (8th Cir. 1996) (18% share of one portion 

of photocopier market too small for unlawful tying); 

Continental Trend Resources, Inc. v. OXY USA, Inc., 44 F.3d 

1465, 1482 (10th Cir. 1995) (affirming grant of summary 

judgment for defendants where defendants controlled less 

than 10% of relevant market, since "plaintiffs failed to 

establish defendants had sufficient strength in the relevant 

market."), vacated on other grounds and remanded, 116 

S. Ct. 1843 (1996); Breaux Bros. Farms, Inc. v. Teche Sugar 

Co., Inc, 21 F.3d 83, 87-88 (5th Cir. 1994) (17.5 percent 

share of relevant market for tying product "is not normally 

sufficient to satisfy the requirements of the per se rule."). 

Because U.S. Healthcare's true market share in a 

properly defined geographic area could be no higher than 

25 percent, plaintiff's cannot rely solely on market share to 

establish a per se antitrust violation.15 

 b. Other Factors Bearing on Market Power 

Factors other than market share can establish that 

U.S. Healthcare exercised appreciable power in the market 

for pharmaceutical customers. See Allen-Myland, 33 F.3d at 

209. BCI contends that in this case market power can be 

inferred from the numerosity of the ties imposed by the 

defendants, and by "market realities" which indicate that 

the figures for prescription drug sales understate the 

importance of U.S. Healthcare members to a pharmacy's 

bottom line. 

In order to demonstrate tying market power through 

evidence of the widespread acceptance of a tie, the plaintiff 

must show that the tie was accepted by an appreciable 

number of buyers within that market, and that there is an 

_________________________________________________________________ 

15. We note that evidence produced at trial showed that 16% of the 

residents of the greater Philadelphia area belong to a U.S. Healthcare 

plan. We assume, therefore, that U.S. Healthcare's market share in the 

relevant geographic market lies somewhere between 16%, its share in an 

impermissibly broad geographic market, and 25%, its share in an 

impermissibly narrow one. 

 37 
"absence of other explanations for the[ir] willingness . . . to 

purchase the package." See Fortner II, 429 U.S. 610, 618 

n.10 (1977); see also Grappone, Inc v. Subaru of New 

England, Inc., 858 F.2d 792, 797-98 (1st Cir. 1988)

(widespread acceptance of tie not evidence of market power 

where there are plausible business reasons for accepting 

tie). In this case, BCI has failed to meet its burden. 

At trial, the only evidence offered by BCI concerning other 

ties by defendants was that, with respect to six large chains 

-- Rite-Aid, Shop-Rite, Food Circus, Walmart, Phar-mor 

and Weis Markets -- defendants attempted to tie approval 

of additional pharmacies for participation in the 

U.S. Healthcare network to each chain agreeing to offer 

CHA and/or U.S. Healthcare to its employees. Of these 

purported tying attempts, only three -- those involving RiteAid, Phar-Mor and Weis Markets -- were deemed 

"successful" by the plaintiff. However, as we have already 

observed, BCI failed to demonstrate that these large 

companies did not base their decision to make 

U.S. Healthcare a part of their benefits package on

plausible business reasons, see supra pp. 20-21. Without 

some such showing, the evidence of other tie-ins is

insufficient to constitute proof of appreciable market power.16 

BCI also argues that market power can be inferred from 

the fact that exclusion from the U.S. Healthcare pharmacy 

network would have a major adverse impact on a 

pharmacy, to the point of threatening that pharmacy's 

survival. BCI submits that since the prescription drug 

business is a low-margin business that depends on high 

volume, large purchasers such as U.S. Healthcare exert 

considerable market power. As an example of this market 

power, BCI again directs us to the evidence that 

U.S. Healthcare was able to lower its payment schedule to 

_________________________________________________________________ 

16. We further note that while it is apparent that Rite-Aid, Phar-Mor and 

Weis Markets are large chains, pharmacies are only a part of their 

business and BCI has offered no specific evidence that the number of 

pharmacies affected by the alleged tie-ins constituted "an appreciable 

number of buyers within the market." 

 38 
pharmacies without loss of pharmacy participation in its 

network.17 

This argument has two flaws. In the first instance, it 

proves too much. The evidence at trial showed that Gary's 

was a member of forty or more networks that provided 

access to pharmaceutical customers. There is no evidence, 

and no reason to believe, that the customers that 

U.S. Healthcare delivers are any more desirable than those 

delivered by other networks. Thus, if we accept the logic of 

BCI's argument, each of these networks exercises sufficient 

market power to violate the per se rule of antitrust liability. 

Yet, it would pervert the antitrust notion of market power 

to find that each of over forty organizations, delivering the 

same product, has sufficient market power over a 

pharmacy such as Gary's to generate a per se violation of 

the antitrust laws. 

BCI's argument also runs counter to the purpose of the 

antitrust laws. "The purpose of the Sherman Act `is not to 

protect businesses from the working of the market; it is to 

protect the public from the failure of the market.' " Queen 

City Pizza, 124 F.3d at 441 (quoting Spectrum Sports, Inc. 

v. McQuillan, 506 U.S. 447, 458 (1993)); see also Town 

Sound, 959 F.2d at 494 (it is "no concern of the antitrust 

laws" that a practice may consign even an entire "class of 

competitors . . . to competitive oblivion," unless "consumers 

[a]re also hurt because of diminished competition."); United 

States v. Syufy Enterprises, 903 F.2d 659, 668 (9th Cir. 

1990) ("[i]t can't be said often enough that the antitrust 

laws protect competition, not competitors."). If we were to 

accept BCI's argument that a showing of appreciable

market power can be based solely on a pharmacy's "need" 

for customers, we would in effect outlaw the agglomeration 

of pharmacy customers -- a result that provides benefits to 

individual consumers -- in order to protect pharmacies. 

This result would stand antitrust jurisprudence on its 

head, and establish a precedent whereby the antitrust laws 

would protect competitors rather than competition and 

consumers. 

_________________________________________________________________ 

17. See supra p. 21. 

 39 
C. The Rule of Reason Claim 

The jury also found that defendants were liable under the 

rule of reason standard for antitrust violations. Unlike a per 

se case where a showing that the defendant had market 

power in the tying market leads to a presumption that it is 

using that power to expand into the tied market, to succeed 

on a rule of reason claim the plaintiff must prove that the 

alleged tie "unreasonably restrained competition." Jefferson 

Parish, 466 U.S. at 29; see also Town Sound, 959 F.2d at 

495 (in order to support a rule of reason claim, plaintiff 

must prove that the tie in question caused an "injury to 

competition"). This burden "necessarily involves an inquiry 

into the actual effect of the [challenged conduct] on 

competition [in the tied market]." 466 U.S. at 29.18 

_________________________________________________________________ 

18. BCI contends that by failing to specifically challenge the sufficiency 

of the evidence of anti-competitive effects in the tied market in their 

preverdict motions for judgment as a matter of law made pursuant to Fed. 

R. Civ. P. 50(a), defendants waived their right to raise that specific 

argument in their post-trial Rule 50 motions, or thereafter. In their pretrial motions, made both at the conclusion of plaintiff's case and at the 

conclusion of all evidence, the defendants' challenge to the sufficiency 

of 

the evidence on the rule of reason claim read: 

 The evidence is insufficient to support a finding or sustain a 

verdict 

 that U.S. Healthcare's practices constituted an unreasonable 

 restraint of trade in light of all the circumstances of the case. 

 Plaintiff has offered no such evidence. 

Under Rule 50(a), a pre-verdict motion for judgment as a matter of law 

"shall specify the judgment sought and the law and the facts on which 

the moving party is entitled to the judgment." Further, a post-trial 

motion for judgment as a matter of law made pursuant to Rule 50(b) 

"must be preceded by a Rule 50(a) motion sufficiently specific to afford 

the party against whom the motion is directed with an opportunity to 

cure possible defects in proof which otherwise might make its case 

legally insufficient." Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 

1173 (3d Cir. 1993) (quoting Acosta v. Honda Motor Co., 717 F.2d 828, 

831-32 (3d Cir. 1983)); see also Fineman v. Armstrong World Indus., Inc., 

980 F.2d 171, 183-84 (3d Cir. 1992) (compliance with Rule 50(a) 

"ensures that the party bearing the burden of proof will have an 

opportunity to buttress its case before it goes to the jury and the moving 

party will not gain unfair advantage through surprise."). 

While the text of the Rule 50(a) motion quoted above is far from a 

model of completeness or clarity, we do not measure its sufficiency by 
 40 
Before we can determine whether there was harm to 

competition in the tied market, that market must be

defined. BCI had the burden of defining the tied market, 

but made no attempt to do so at trial. On appeal, BCI 

contends that the tied market consists of the market for the 

provision of health insurance and benefits -- a market that 

includes HMOs and personal choice plans in addition to 

TPAs. We find no support for this broad market definition. 

Instead, we believe, on the basis of the record, that the 

proper tied market consists solely of the market for TPA 

services. BCI is a TPA provider and the harm alleged to 

have occurred as result of the tying arrangement took place 

in the market for TPA services. 

In that market, the only evidence of harm to competition 

was that BCI failed to renew one contract, its contract with 

Gary's. That showing is insufficient as a matter of law since 

it fails to show competitive harm to the tied market as a 

whole. See Town Sound, 959 F.2d at 493 (requiring 

foreclosure of a "substantial portion" of the tied market to 

hurt competition.); see also Virtual Maintenance, Inc. v. 

Prime Computer, Inc., 957 F.2d 1318, 1330 (6th Cir.) ("[t]he 

foreclosure of 400 computer systems out of the thousands 

of systems [in the tied market] is insignificant as a matter 

of law"), vacated, 506 U.S. 910 (1992), reinstated in 

pertinent part, 11 F.3d 660, 663-64 (6th Cir. 1993). 

Moreover, even if we accepted the broad market which 

BCI proposed, it still failed to provide sufficient evidence of 

competitive harm. The only evidence offered to show that 

competition was adversely affected in this broad market 

_________________________________________________________________ 

the text alone, but against the background, as reflected in the record, of 

what the party now claiming waiver understood as to the tenor of the 

Rule 50 movant's position and theory. See Acosta, 717 F.2d at 832 

("[T]he communicative content, `specificity' and notice giving function of 

an assertion [in a rule 50(a) motion] should be judged in context.") In 

Fineman, for example, we held that a general motion for a directed 

verdict contesting the sufficiency of the evidence with respect to 

"coercion" preserved defendant's challenge to the sufficiency of the 

evidence with respect to the tortious interference claim, because 

"plaintiffs' counsel was clearly on notice of the legal rubric under which 

[defendants] planned to proceed." 980 F.2d at 184. We think that is the 

case here, and hence find no waiver. 

 41 
consisted of the previously mentioned studies of several 

large pharmacy chains which faced pressure to offer their 

employees membership in the U.S. Healthcare HMO. These 

studies do not provide any evidence of market foreclosure 

or harm to competition since those pharmacies that were 

"forced" to offer their employees U.S. Healthcare coverage 

did so in addition to, rather than instead of, other health 

insurance plans. Further, even if this evidence did show 

harm to competition, BCI has introduced no evidence in 

which to evaluate the extent to which such foreclosure 

harmed competition in the broad market for health 

insurance services generally. 

D. Conclusion 

Since the record before us does not support a finding 

that U.S. Healthcare exercised appreciable market power in 

a properly defined tying market or that the arrangement at 

issue harmed competition in the tied market, the antitrust 

jury verdicts on both the per se and the rule of reason 

claims must be set aside.19 

IV. CIVIL RICO 

A. Introduction 

The jury found that U.S. Healthcare's business practices 

constituted a pattern of racketeering activity in violation of 

18 U.S.C. SS 1962(c) and (d). Section 1962(c) prohibits any 

person employed by or associated with an enterprise from 

conducting or participating in the conduct of that 

enterprise's affairs through a pattern of racketeering 

activity. A pattern of racketeering activity "requires at least 

two acts of racketeering activity", 18 U.S.C.S 1961(5). 

Racketeering activity is defined as an act or threat 

chargeable as one of a variety of state felonies or any act 

which is "indictable" under specifically listed federal 

criminal statutes, see 18 U.S.C. S 1961(A)-(B). Section 

1962(d) outlaws any conspiracy to violate the other

_________________________________________________________________ 

19. Since we find that the jury verdict must be set aside, we need not 

address defendants challenge to the rule of reason jury instructions. 

 42 
subsections of S 1962, including, as is relevant to this case, 

S 1962(c). 

U.S. Healthcare challenges the jury verdict on two 

primary grounds, asserting that (1) BCI failed to establish 

its standing to recover for any offenses allegedly committed 

against Gary's; and (2) BCI failed to present a su stainable 

case that the defendants committed any of the alleged 

predicate acts. We address each argument in turn. 

B. RICO Standing 

The section of RICO allowing private parties such as BCI 

to pursue a civil action provides that: 

 [a]ny person injured in his business by reason of a 

 violation of section 1962 of this chapter may sue 

 therefor in any appropriate United States district court 

 and shall recover threefold the damages he sustains 

 and the cost of the suit, including a reasonable 

 attorney's fee. 

18 U.S.C. S 1964(c) 

The Supreme Court examined the standing requirement

of this statutory provision in Holmes v. Securities Investor 

Protection Corp., 503 U.S. 258 (1992). The Court noted that 

Congress modeled S 1964(c) on the Clayton Act, and found 

that a plaintiff's right to sue under RICO, as under the 

federal antitrust laws, requires a showing that the alleged 

violation was the proximate cause of the plaintiff's injury. 

See id. at 267-68. The Court looked to the common law for 

guidance in defining the proximate cause requirement. In 

so doing, it focused primarily on one element of proximate 

cause: the directness of the relationship "between the 

injury asserted and the injurious conduct alleged." Id. at 

268. This requirement of a direct relation was held to 

generally preclude recovery by "a plaintiff who complained 

of harm flowing merely from the misfortunes visited upon a 

third person by the defendant's acts." Id. at 268-69. 

On the facts presented in Holmes, the Court held that the 

plaintiff, Securities and Investor Protection Corporation 

("SIPC"), had not met the proximate cause requirement and 

thus had no standing to bring suit under RICO . SIPC is a 

 43 
private nonprofit corporation, created pursuant to the 

Securities Investors Act, which most broker-dealers are 

required by law to join and which has a statutory duty to 

advance funds to reimburse the customers of member 

broker-dealers that are unable to meet their obligations. 

See id. at 261. SIPC brought a civil RICO action alleging 

that Holmes, and other former members of a brokerage 

firm, conspired in a stock manipulation scheme that

prevented two broker-dealers from meeting their 

obligations, thereby requiring SIPC to advance nearly $13 

million to cover claims by the customers of the affected 

broker-dealers. SIPC sought standing under S 1964(c) by 

arguing, inter alia, that it was subrogated to the rights of 

those customers of the broker-dealers who did not 

purchase the manipulated securities but incurred loses 

when the broker-dealers failed and could no longer meet 

their obligations. See id. at 270. 

The Court assumed, for the sake of argument, that SIPC 

was entitled to stand in the shoes of the non-purchasing 

customers, but held that the defendants' conduct was not 

the proximate cause of those customers' injuries. The Court 

held that "the link is too remote between the stock

manipulation alleged and the customers' harm, being

purely contingent on the harm suffered by the broker 

dealers . . . [t]he broker-dealers simply cannot pay their 

bills, and only that intervening insolvency connects the 

conspirators' acts to the losses suffered by the nonpurchasing customers and general creditors." Id. at 271. 

Defendants' argue that, under Holmes, BCI lacks 

standing in this case. They assert that since BCI is alleging 

that Gary's has been a victim of the RICO predicate acts, 

BCI exemplifies the "plaintiff who complain[s] of harm 

flowing merely from the misfortunes visited upon a third 

person." Id. at 268. We disagree. The injury proved by BCI, 

the loss of its TPA contract with Gary's, is not derivative of 

any losses suffered by Gary's. Unlike the injuries suffered 

by the non-purchasing customers in Holmes, BCI's injury 

was not contingent upon any injury to Gary's, nor is it 

more appropriately attributable to an intervening cause 

that was not a predicate act under RICO. Here, BCI's TPA 

relationship with Gary's was a direct target of the alleged 

 44 
scheme -- indeed, interference with that relationship may 

well be deemed the linchpin of the scheme's success. 

Accordingly, we conclude that BCI had standing to pursue 

its civil RICO claim.20 

C. Predicate Acts of BCI's RICO Claim 

In its special verdict form, the jury found that each 

defendant had committed one or more types of the 

predicate acts of: (1) extortion under the Hobbs Act, 18 

U.S.C. S 1951; (2) violation of Pennsylvania's commercial 

bribery statute, 18 Pa. Cons. Stat. S 4108(b); (3) mail fraud, 

18 U.S.C. S 1341; (4) wire fraud, 18 U.S.C. S 1343; and 

(5) violation of the Travel Act, 18 U.S.C. S 1952. Defendants 

challenge the verdict on the ground that BCI has failed to 

prove that defendants' conduct violated any of these laws. 

Defendants contend that this failure to prove any predicate 

acts, and a fortiori to show a pattern of racketeering 

activity, entitles them to judgment as a matter of law on the 

RICO claims. In their submission, the conduct underlying 

each of the alleged predicate acts was at its bottom no more 

than aggressive business bargaining and, just as BCI 

cannot convert aggressive business tactics into antitrust 

violations, it cannot shoehorn such tactics into the 

definitions of the predicate acts at issue here. We shall 

devote the bulk of our time to the important and difficult 

issue of whether the defendants' conduct amounted to 

Hobbs Act extortion. The others alleged predicate acts are 

disposed of easily . 

1. Extortion under the Hobbs Act 

The Hobbs Act imposes criminal penalties on "[w]hoever 

in any way or degree obstructs, delays, or affects commerce 

or the movement of any article or commodity in commerce, 

by robbery or extortion or attempts or conspires to do so." 

_________________________________________________________________ 

20. We note, however, that BCI's RICO standing is limited to injuries 

arising from its competition with U.S. Healthcare for Gary's TPA 

business. BCI does not have RICO standing to recover for any injuries 

suffered by other pharmacies as a result of their relations with 

U.S. Healthcare since there is no evidence that these relations directly 

injured BCI. 

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18 U.S.C. S 1951. "Extortion" is defined in the Act as "the 

obtaining of property from another, with his consent, 

induced by wrongful use of actual or threatened force, 

violence, or fear, or under color of official right." 18 U.S.C. 

S 1951(b)(2). The term "fear" includes the fear of economic 

loss. See United States v. Addonizio, 451 F.2d 49, 72 (3d 

Cir. 1972); United States v. Capo, 817 F.2d 947, 951 (2d 

Cir. 1987) (in banc). 

BCI alleges that the defendants extorted Gary's health 

benefits business by conditioning access to the 

U.S. Healthcare provider network on Gary's agreement to 

switch to CHA as its TPA. According to BCI, this conduct 

amounts to extortion through the wrongful use of the fear 

of economic loss. Defendants respond that the use of 

economic leverage in this manner cannot be made tofit 

within the statutory framework of Hobbs Act extortion. 

They reason that any fear of economic loss felt by Gary's 

was the result of the give and take of bargaining between 

U.S. Healthcare and Gary's in a business setting in which 

both parties offered and received something of value. They 

contend that the use of this economic fear to extract 

concessions from Gary's was not wrongful, as required by 

the Hobbs Act, but is instead part and parcel of normal 

business negotiations. 

As will appear, we conclude that plaintiff's theory, which 

is quite ingenious, does not state a viable claim of extortion 

because the defendants' use of the fear of economic loss in 

the context of hard business bargaining was not (legally) 

wrongful. While this decision may seem compelled by

common sense, it is not easily derived from our precedent. 

This Court has not had prior occasion to address the line 

separating the legitimate use of economic fear to acquire 

property in a business setting (i.e., hard bargaining) from 

the wrongful use of such fear (i.e., extortion). Accordingly, 

we turn for guidance to the decisions of those few courts 

that have previously faced the issue. Because it looms so 

large on the Hobbs Act landscape, we must first, however, 

consider the Supreme Court's decision in United States v. 

Enmons, 410 U.S. 396 (1973), which construes the 

meaning of the term "wrongful" under the Act. 

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