1 

### NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

_____________ No. 11

- 3122

_____________ IN RE: HYPODERMIC PRODUCTS ANTITRUST LITIGATION

AMERICAN SALES COMPANY, INC; SAJ DISTRIBUTORS, INC; LOUISIANA WHOLESALE DR UG CO INC; ROCHESTER DRUG CO

- OP INC; JM SMITH CORPORATION; DIK DRUG; PARK SURGICAL CO., INC., Petitioners

________________ On Appeal from the United Stat es District Court for the District of New Jersey District Court No. 2

- 05

- cv
- 01602 District Judge: The Honorable Jose L. Linares
Argued May 17, 2012
Before: SMITH and FISHER, Circuit Judges and STEARNS, District Judge (Fil ed: June 5, 2012 )

The Ho norable Richard G. Stearns, United States District Judge for the United States District Court of Massachusetts, sitting by designation.2 

### Elena K. Chan, Esq. Bruce E. Gerstein, Esq. (argued) Garwin Gerstein & Fisher 1501 Broadway Suite 1416 New York, NY 10036 Eric L. Cramer, Esq. Daniel Berger, Esq. Berger & Montague 1622 Locu st Street Philadelphia, PA 19103 Peter Kohn, Esq. Richard D. Schwartz, Esq. Faruqi & Faruqi 101 Greenwood Avenue Suite 600 Jenkintown, PA 19046 Peter S. Pearlman, Esq. Cohn, Lifland, Pearlman, Hermann & Knopf Park 80 West

– Plaza One 250 Pehle Avenue, Su ite 401 Saddle Brook, NJ 07663 Thomas M. Sobol, Esq. Hagens Berman Sobol Shapiro One Main Street 4th Floor Cambridge, MA 02142 Howard J. Serdan, Esq. Levin, Fishbein, Sedran & Berman 510 Walnut Street Suite 500 Philadelphia, PA 19106 Counsel for Distribu tor Petitioners

- Appellants3 

### James V. Bashian, Esq. 4th Floor 70 Adams Street Hoboken, NJ 07030 Thomas S. Biemer, Esq. James J. Rodgers, Esq. Holly R. Rogers, Esq. Dilworth Paxson 1500 Ma rket Street Suite 3500E Philadelphia, PA 19102 Karin E. Fisch, Es q. Abbe, Spanier, Rodd & Abrams 212 East 39th Street New York, NY 10016 Torsten M. Kracht, Esq. Todd M. Stenerson, Esq. Richard L. Wyatt, Jr., Esq. (argued) Hunton & Williams 2200 Pennsylvania Avenue, N.W. Washington, D.C. 20006 R. Laurence Macon, Esq. A kin, Gump, Strauss, Hauer & Feld 300 Convent Street Suite 1500 San Antonio, TX 78205 Kenneth A. Wexler, Esq. Wexler Wallace 55 West Monroe Street Chicago, IL 60603 Counsel for Healthcare Provider Appellees4 

### Robert A. Atkins, Esq. Steven C. Herzog, Esq. Jacqueline P. Rubin, Esq. Hannah S. Sholl, Esq. Moses Silverman, Esq. (argued) Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019 R. Dale Grimes, Esq. Bass, Berry & Sims 2700 First American Center 315 Deaderick Street Nashville, TN 37238 Megan E. Hiorth, Esq. Gregory B. Reilly, Esq. Gavin J. Rooney, Esq. Scott L. Walker, Esq. Lowenstein Sandler 65 Livingston Avenue Roseland, NJ 07068 Ellen B. Unger, Esq. Apartment 306 48 South Park Street Montclair, NJ 07042 Counsel for Becton Dickinson Co. Appellee5 

### _____________________ OPINION

_____________________ SMITH, Circuit Judge. This appeal entails a consolidated class action involving two groups of plaintiffs alleging that defendan t

- appellee Becton Dickinson & Co. (“Becton”) , a manufacturer of hypodermic p roducts, 1 violated the Sherman Antitrust Act, 15 U.S.C. § § 1 and 2. The

two plaintiffs’ groups are: (i) d istributors of Becton’s hypodermic products (“Distributors”) ; 2 and (ii) ce rtain hospitals and clinics that purchase Becton’s hypodermic products (“ Healthcare Provider s ”) 3 (collectively, Distributors and Healthcare Providers are the “Plaintiffs”)

. 4

1 The hypodermic products are the following devices and their associated needles : disposable syringes; blood collection devices; winged IV devices; and IV catheter devices. The discre t e issue on appeal is which group of Plaintiffs,
Distributors or Health care Providers, has standing under the direct

- purchaser rule to pursue the federal antitrust claims related to the contract sales of Becton’s hypodermic

2 The Distributors , who are the plaintiff

- appellants, are: American Sales Co. , Inc.; Dik Drug Co.; J M Smith Corp.; Louisiana Wholesale Drug Co., Inc.; Park Surgical Co., Inc.; Rochester Drug Co

- Oper ative, Inc.; and SAJ Distributors, Inc.

3 The Healthcare Providers , who are the plaintiff

- appellees, are: MedStar Health Inc.; MedStar

- Georgetown Medical Center, Inc.; National Rehabilitation Hospital, Inc.; and Washington Hospital Center Corporation. Other plaintiff healthcare providers, such as Hebrew Home for the Aged, chose not to participate as appellees. Nonetheless , this decision applies to all plaintiff healthcare providers in this action, regardless of whether they chose to respond as appellee s in this appeal.

4 The Healthcare Providers claim that there is a third group of plaintiffs, the indirect purchasers (e.g., retail pharmacies), but that group has not asserted any issues on appeal.6 products

. The District Court ruled on summary judgment that Healthcare Providers, not Distributors, we re the direct purchasers and have exclusive standing to pursue these
claims. We will reverse

. I. B ACKGROUND
A. B ECTON ’ S D ISTRIBUTION OF H YPODERMIC P RODUCTS Plaintiffs allege that Becton maintained a dominant share of the markets for the hypodermic produ cts , employed various anticompetitive pra ctices to eliminate competition and achieve monopoly po sitions in the relevant markets, and utilized these advantages to charge purchasers higher prices. Although Becton sells the hypodermic products through two ch annels (i.e., contract sales and non

- contract sal es ) , o nly Becton’s
contract sales are at issue here.
1. C ONTRACT S ALES C ontract sales, which account for approximately 74% of Becton’s sales, invo lve three primary contracts: a N et Dealer Contract (“NDC”) ; a Distribution Agreement; and a Dealer Notification Agreement (“DNA”)

. N

et Dealer Contract NDCs are agreements between a manufacturer of medical products and a group purchasing organization (“GPO”). GPOs are entities that negotiate prices of products and other terms and conditions on behalf of their member healthcare providers . GPOs do not purchase or sell any products themselves . By negotiating on behalf of many healthcare providers, GPOs are generally able to negotiate lower prices than the manufac turers’ list prices.7 Here, Novation, which is a GPO that represented Healthcare Providers, entered
into an NDC with Becton for the sale and purchase of the hypodermic products. Although the NDC provided that Novation’s members would have the opti on of purchasing hypodermic products pursuant to the NDC, the members were not obligated to make any purchases under the NDC. T he NDC required that Becton make the hypodermic produc ts “available for purchase by [ D istributors] at the [a]ward [p]rices for

r esale to [Healthcare Providers]

. ” ( JA3926. ) Under the NDC Distributors, on behalf of Healthcare Providers, were to submit orders for hypodermic products to Becton ; Becton
would then deliver those products to, and invoice, Distributors ; and Distributors w ere responsible for paying Becton pursuant to t he rates set forth in the NDC. Notably, t he
NDC did not specify any particular distributor or means of distribution , nor did it purport

to set the final price at which Distributors would resell the hypodermic products to Healthcare Providers. Distribution Agreement After an NDC is executed, the GPO notifies its members of the agreement’s terms and conditions. Members who wish to participate in the NDC must notify the
manufacturer of their intentions.
The participating members then separately negotiate and execute Distribution Agreements with their respective distributors. The Distribution Agreement governs the
terms and conditions of the distributor’s transaction with the member hospital , and generally in cludes : the price the member will pay to the distributor for the products ; a ny8 service fees the distributor may charge the member ; an d any other terms related to the
transaction

. Here, Novation informed its members of the NDC with Becton. Healthcare
P roviders executed letters of commitment with Becton, notifying Becton that it should charge their distributor the agreed upon NDC price for the hypodermic products

. Healthcare Providers also entered into Distribution Agreements with their respective dist ributors and notified Becton of their distribution relationships

. For example, appellee MedStar Health (“ MedStar ”), a Healthcare Provider and named plaintiff, negotiated and entered into a Distribution A greement with Cardinal Company (“Cardinal”), a distr ibutor, for the sale and delivery of , inter alia , the hypodermic products. MedStar agreed to submit orders directly to Cardinal. Cardinal was responsible for obtaining the requested hypodermic products from Becton, delivering
them to MedStar , and invoici ng Medstar . MedStar agreed to pay Cardinal an amount equal to the price Cardinal paid to purchase the p roducts from Becton plus a mark up , line fee, or an activity fee on a per

- purchase

- order basis

. Dealer Notification Agreement
After the member ident ifies its distributor, the manufacturer generally enters into some type of agreement with the distributor governing the terms and conditions of their relationship.9 Here, Becton entered into Dealer Notification Agreements with Distributors. These agreeme nts referred to D istributors as Becton’s “servicing agent [s] .” ( JA5626. ) 5

The DNA also governs Becton’s payment and rebate system

. Becton’s list prices for the hypodermic products

— i.e., the prices Becton charges distributors i n non
- contract
sales

— is higher than the prices set forth in contract sales under an NDC. Becton is
concerned that distributors will obtain products from Becton at the lower NDC price and resell those products in non

- contract sales . To protect against s uch behavior, Becton invoices Distributors at the higher list price for all shipments it makes to them

. Subsequently, i f a D istr ibutor provide s proof tha t it delivered the products to a customer pursuant to an NDC, then Becton issues a rebate to that Dist ributor for the difference between the higher list price that was invoiced and the lower contract price set forth in
the NDC. Under the DNAs , the member hospital s may submit orders directly to Distri butor s , and
Distributor s are to regard these orders as purchase orders from Becton

. The DNAs require Distr ibutors to ship the products within 3

- 6 days and invoice the member hospitals on behalf of Becton

.

Moreover, t he DNA also governs the products ’ title

. Pursuant to the DNA, title to the products transferred from Becton to Distr ibutors upon their shipment to Distributors

. However, once Distributor s shipped the products to a customer in a contract sale , title

5 Becton asserts that since 2006, its DNA no longer r eferred to distributors as its servicing agents.10 reverted back to Becton and was then transferred to the end customer once the delivery was completed

. 6 Operation of the Hypodermic Products’ Supply Chain for Contract Sales
T he operation of the s upply chain appears straightforward: (1) a Distributor orders a large volume of hypodermic products from Becton . These orders are for anticipated
contract and non

- contract sales (i.e., Distributors do not know at that time which products it orders from Becton will be part of a contract sale )

. Becton ships these products to and
invoices the Distributor at the distributor list price , not the NDC price

. The Distributor
takes title to the products, warehouses them, insures them against loss, and pays Becton ; (2) a Healthcare Provider submit s a request to its Distributor to purchase certain hypodermic products ; ( 3 ) the Distributor ship s the products to

— and invoice s

— the
Healthcare Provider as set forth in their Distribution Agreement ; ( 4 ) t he Healthcare
Provider pay s the Distributor directly for t he products and the markup/line

- fee/activity

fee ; and ( 5 ) the Distributor applies for a rebate from Becton within 45 days of the end of

t he month in which the Distributor’s transaction with the Healthcare Provider occurred , and Becton pays the rebate to the Distributor

. 2. N ON

- C ONTRACT S ALES
Non

- contract sales , which account for the remaining 26% of Becton’s sales for hypodermic products , are those sales of the hypodermic products that were not made pursuant to an NDC

. The District Court ruled that Distribut ors were the direct purchasers

6 Becton asserts that since 2006, the DNAs no longer state that title reverts to Becton upon Distributors’ shipment of the products to customers.11 of Becton’s hypodermic products that they resold pursuant to non

- contract sales

. Healthcare Providers have not appealed that determination, and thus, Distributors’ non
contract sales are not at issue on appeal

. B. P ROCEDURAL B ACKGROUND In 2005, several of the Distributors filed class action complaints alleging that
Becton

— in violation of Sections 1 a nd 2 of the Sherman Antitrust Act (15 U.S.C. §§ 1 and 2) and Section 4 of the Clayton Act (15 U.S.C. § 15)

— illegally acquired and maintained monopoly power over sales of the hypodermic products and charged Distributors unlawfully inflated prices

. The Ju dicial Panel on Multidistrict Litigation (the “MDL Panel”) consolidated these cases in the District of New Jersey. In 2006, MedStar and several of the other Healthcare Providers filed class action complaints against Becton, alleging the same underlying conduct asserted in Distributors’ complaints. The MDL Panel also consolidated t hese cases in the District of New Jersey. On April 27, 2009 , Distributors and Becton agreed upon a conditional settlement.
Under the conditional settlement , Becton wou ld make a $45 million cash payment to a proposed class of entities similarly situated to Distributors in exchange for dismissal of
their complaints with prejudice and certain releases. The settlement was contingent upon the District Court determining that Distributors, not Healthcare Providers, had standing under the Clayton Act to pursue antitrust claims against Becton. In accordance with the conditional settlement agreement, Distributors filed motions seeking : (a) certification of12 the proposed class 7

On September 30, 2010, the District Court , focusing on the “economic substance” of the hypodermic products’ supply chain, granted Healthcare Pro viders’ motion for partial summary judgment on the issue of direct

- purchaser standing (the “Order”) , holding that Healthcare Providers, not Distributors, were the direct purchaser s of Becton’s hypodermic products. an d preliminary approval of the proposed settlement; and (b) partial summary judgment on the issue of direct

- purchaser standing

. Becton also moved for preliminary approval of the proposed settlement. Healthcare Providers opposed the
motions by Distributors and Becton and filed a cross motion for partial summary judgment on the issue of direct

- purchaser standing

.

On November 23, 2010, the District Co urt, pursuant to 28 U.S.C. § 1292, certified
its Order for interlocutory appeal. On July 22, 2011, we granted Distributors’ petition for permission to appeal under § 1292(b).

7 Distributors defined the class as: All persons or entities (and assignees of claims from such persons and entities) who (1) purchased BD Hypodermic Products in the United States from BD at any time during the period of March 23, 2001 through April 27, 2009 (the “Class Period”), and (2) were invoiced by B D for said purchases (the “Direct Purchaser Class”). The Direct Purchaser Class excludes BD, BD’s parents, subsidiaries and affiliates, and United States Government Entities and those persons or entities who are permitted by the Court to opt out of the Direct Purchaser Class.13 II. A NALYSIS 8 Section 4 of the Clayton Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor . . . and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. § 15(a). The Supreme Court has limited the scope of § 4 through the direct

- purchaser rule , which states that only the immediate buyer of a product has standing to maintain a federal antitrust action. See,

e.g. , Kansas v. UtiliC orp United, Inc. , 497 U.S. 199, 206

- 09 (1990) (holding that only the direct purchaser has standing to bring federal antitrust claims even where the direct purchaser may pass the entire unlawful overcharge to downstream purchasers) ; Illinois
Brick Co. v. Illinois , 431 U.S. 720, 728

- 29 (1977) (holding that an indirect purchaser lacked standing to pursue federal antitrust claims); Hanover Sho e, Inc. v. United Shoe
Mach. Corp. , 392 U.S. 481 , 489

- 91 (1968) (rejecting the alleged antitrust violator’s argument that the direct purchasers of its good s lacked standing to pursue federal antitrust claims because those purchasers pass ed on the alleged overcharge s to downstream

8 The District Court had jurisdiction under 28 U.S.C. §§ 1331 and 1337. We have jurisdiction under 28 U.S.C. § 1292(b). We review the District Court’s disposition of a summary judgment motion de novo , applying the same standard as the District Court

. Pichler v. UNITE , 542 F.3d 380, 385 (3d Cir. 2008) (citing Marten v. Godwin , 499 F.3d 290, 295 (3d Cir. 2007)). “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact a nd the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). All inferences must be viewed in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587 (1986). “The is sue of antitrust standing is a legal issue, over which we exercise plenary review.” Warren Gen. Hosp. v. Amgen Inc. , 643 F.3d 77 , 83 (3d Cir. 2011) (citing McCarthy v. Recordex Serv., Inc. , 80 F.3d 842, 847 (3d Cir. 1996)).14 customers); see also McCarthy v. Recordex Serv. , 80 F.3d 842, 848 (3d Cir. 1996) (interpreting UtiliCorp , Illinois Brick , and Hano ver Shoe as “enunciating a bright

- line rule that only a purchaser immediately downstream from the alleged monopolis t may bring an antitrust action”)

. Our recent decision in Warren General Hospital v. Amgen Inc

. , 643 F.3d 77 (3d Cir. 2011) , issued after th e decision we now review, is particularly instructive

. There, a hospital plaintiff sued a pharmaceutical manufacturer, asserting an illegal tying claim
under federal antitrust laws. Id. at 80. The hospital purchased the products at issue through contrac t sales, which involved a GPO

- negotiated contract structuring the supply chain so that the manufacturer would sell the products to wholesalers , who in turn would resell those products to the member hospitals. Id. at 83. The district court ruled that the hospital was an indirect purchaser and dismissed the complaint. Id. at 79. In affirming the district court’s decision, we focused on the “mechanics of the transactions” between the hospital, the wholesaler, and the manufacturer. Id. at 79, 88. In part icular, we noted that: (1) when the hospital wants to purchase the products at issue, it places an order through the wholesaler; (2) the wholesaler negotiates the final sales price of the products separately with the hospital; (3) the hospital physically t akes delivery of the shipment from the wholesaler; and (4) the hospital pays the wholesaler directly and does not transmit funds to the manufacturer. Id. at 88. Thus, we determined that the hospital’s purchases “go through at least one other stage in the chain of distribution” before reaching the hospital, and that the hospital was an indirect purchaser
that lacked standing. Id.15 Here, the mechanics of the distribution chain for Becton’s hypodermic products

are essentially identical to those that were at issue in Warren General

. Most notably : (1) when Healthcare Providers needed hypodermic products, they placed orders through Distributors; (2) Distributors negotiated the final sales price of the hypodermic products separately with the Healthcare Providers ; (3) Distributors physically shipped the products to Healthcare Providers; and (4) Healthcare Providers paid Distributors directly and did

not tr ansmit funds to Becton. Thus, b ecause the hypodermic products pass through at least one other stage in the ch ain of distribution before reaching Healthcare Providers, the Distributors, not Healthcare Providers, are the direct purchasers in contract sales

. 9 See,

e.g. , Warren General , 643 F.3d at 88. 10

9 W e are not persuaded by H ealthcare Providers’ attempt to distinguish Warren General

. Healthcare Providers argue that, unlike the wholesalers in Warren General , Distributors were acting as Becton’s servicing agents for the contract sales, and thus, the hypodermic product supply ch ain had only one transaction between Becton/Distributors on one hand and Healthcare Providers on the other. Even assuming, without deciding, that Healthcare Providers are correct both that Distributors were acting as the servicing agents for Becton in con tract sales and that servicing agents cannot be direct purchasers as a matter of law, the Healthcare Providers are still indirect purchasers because the products had already passed through at least one other stage in the chain of distribution before Distri butors acted as Becton’s servicing agents . As discussed supra , at the time that Distributors receive the hypodermic products from Becton, title to those products and the associated risks of ownership and loss transfer to Distributors, who warehouse these fungible products in their inventory without knowing whether any will be the subject of a contract sale. Becton invoices Distributors for all of these hypodermic products at the higher list price. Thus, the hypodermic products already passed through a st age in the chain of distribution before they could be the subject of any contract sale in which Distributors allegedly act as Becton’s servicing agents.

10 W e recognize that the District Court, which issued its Order prior to our decision in Warren General , did not have the benefit of our position on this issue.16 Accordingly, we will reverse. 11

11 On October 17, 2011, Distributors and Becton filed a joint motion to seal their appellate briefs and Volumes 1 and 3

- 12 of the Joint Appendix (the “First Sealing Motion”). Distributors a nd Becton reasoned that these materials included documents or references to documents that were filed under seal with the District Court pursuant to a protective order. Healthcare Providers opposed the First Sealing Motion to the extent that it sought to seal publicly

- available documents. On October 31, 2011, after consulting with the Clerk’s Office, Distributors and Becton filed another joint motion requesting leave to strike portions of the Joint Appendix and to file a supplemental redacted appendix con taining the unsealed documents (the “Second Sealing Motion”). Healthcare Providers have not opposed the Second Sealing Motion except to the extent that it seals the District Court’s Order and Decision underlying this appeal, which was sealed by the Distri ct Court. On December 5, 2011, Healthcare Providers filed a motion to seal their reply brief for the instant appeal (the “Third Sealing Motion”) because it references matters that were filed under seal before the District Court. We will deny the First Se aling Motion and grant both the Second and Third Sealing Motions. Because these motions did not specify a desired duration for the sealing order, we will direct the Clerk’s Office to seal the materials subject to the aforementioned motions for five years from the conclusion of the case, after which the materials shall be unsealed without notice to the parties. See Local App. R. 106.1(c)(2).