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From Antitrust Law Daily, November 5, 2015

Costco’s anticompetitive pricing claims against Johnson & Johnson may proceed

By Greg Hammond, J.D.

Costco Wholesale Corp. can move forward with claims that Johnson & Johnson Vision Care, Inc. (J&J) violated the Sherman Act and state antitrust laws by engaging in concerted action with eye care professionals and distributors to set minimum retail prices on the sale of contact lenses to consumers. The federal district court in Jacksonville, Florida, denied J&J’s motion to dismiss, finding that Costco adequately alleged Article III standing, antitrust injury, and conspiracy (Costco Wholesale Corp. v. Johnson & Johnson Vision Care, Inc., November 4, 2015, Schlesinger, H.).

Costco claims that it purchases a large volume of contact lenses from J&J and seeks to attract members away from those who sell J&J lenses at higher prices. Prior to 2014, J&J did not dictate the prices at which Costco and other retailers sold J&J contacts and supported efficient retailers by lowering prices to consumers through coupons and rebates, Costco asserts. However, in 2014, J&J purportedly responded to requests by eye care professionals to limit competition by “discounters” and agreed to impose minimum retail price policies. This has allegedly resulted in substantially higher prices on the J&J lenses that Costco sells.

Costco claims that J&J engaged in concerted action to restrain trade and competition in the contact lens market, in violation of Section 1 of the Sherman Act. The complaint also sets forth claims for declaratory judgment as to the parties’ contract, as well as violations of California’s Cartwright Act and Unfair Competition Law (UCL), New York General Business Law § 369(A), and the Maryland Antitrust Act. J&J moved to dismiss.

Vertical resale pricing agreements. The court first determined that Costco had standing to bring its conspiracy in restraint of trade claim under the Sherman Act. In particular, Costco’s general factual allegations of direct injury—that the pricing policy caused harm to Costco’s business model and goodwill with its customers, and that higher contact lens profits interferes with Costco’s ability to attract new members—were sufficient to establish Article III standing.

Costco’s allegations concerning higher prices for J&J contact lenses, the resultant motivations for prescribing a certain product, and the effect on both the interbrand and intrabrand market and competition were also sufficient to allege a plausible claim of actual and potential harm to competition and to consumers and in the market, of the type the antitrust laws were designed to prevent, the court found. Costco claimed that the minimum retail prices set by J&J’s price policy are unreasonably anticompetitive for various reasons, including: increased prices to consumers; prescription decisions by eye care professionals being influenced by profit considerations; facilitation of collusion to increase prices; increased market power of a less efficient group of retailers; restraint on intrabrand competition by retailers; absence of interbrand competition; control over consumer choice and demand by eye care professionals through the prescription process; and anticompetitive motivations concerning prices by retailers.

The court also found that, given the market power of J&J’s product and the unique position of the product’s availability to consumers via prescriptions written by eye care professionals, Costco adequately alleged a relevant product market consisting of the entire contact lens market, and a sub-market consisting of contact lenses manufactured by J&J.

Finally, the court determined that Costco alleged sufficient facts to state a plausible claim that J&J entered into an unlawful agreement with eye care professionals and distributors in restraint of trade. The motion to dismiss the Sherman Act claim was therefore denied. Further, because the California Cartwright Act and Maryland Antitrust Act are subject to the same standards as the Sherman Act claim, the motion to dismiss the two state antitrust law claims was denied.

UCL. The motion to dismiss the UCL claim was also denied. The court determined that Costco’s alleged California connections are sufficient at the current stage of litigation to state a claim by a non-California plaintiff for alleged conduct and injury that took place in California. In particular, Costco had alleged that J&J’s actions have affected and continue to affect the sale of contact lenses occurring in San Francisco, California, and that these actions have harmed and continue to harm Costco, competition, and consumers, including Costco’s members in San Francisco. Costco additionally claimed that the largest number of its members and locations in any state are in California. Lastly, because the UCL claim is derivative of Costco’s Section 1 Sherman Act and Cartwright Act claims, Costco alleged a plausible claim of violation of the California UCL.

NY General Business Law. The court, however, granted J&J’s motion to dismiss the New York General Business Law § 369(A) claim. Although Section 369(A) prohibits the enforcement of agreements to fix minimum resale prices, the statute does not provide a private right of action, which Costco conceded.

The case number is 3:15-cv-00734-HES-JRK.

Attorneys: David J. Burman (Perkins Coie, LLP) and George R. Coe (Boies, Schiller & Flexner, LLP-Orlando) for Costco Wholesale Corp. Robert Troy Smith (GrayRobinson PA) and William Francis Cavanaugh (Patterson Belknap Webb and Tyler LLP) for Johnson & Johnson Vision Care Inc.

Companies: Costco Wholesale Corp.; Johnson & Johnson Vision Care Inc.

MainStory: TopStory Antitrust FloridaNews

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