Abstract
I. INTRODUCTION
Insulin is a life-saving drug that has existed for almost a century. 1 While the efficacy of insulin products has improved over time, insulin formulations have not changed in the last ten years. 2 Even so, the list price of insulin has nearly tripled in the last decade, 3 and out-of-pocket insulin costs have doubled. 4 These extreme price increases have caused patients to skip doses or ration their insulin, which harms their health and places their lives at risk. 5
In 2017, consumers affected by insulin price inflation brought a class action lawsuit against the three manufacturers of insulin in the United States: Eli Lilly, Novo Nordisk, and Sanofi. 6 The three companies set the list prices for insulin, which ultimately affect the amount consumers pay. 7 In February 2019, the case passed a major hurdle when the court partially denied the insulin companies’ motion to dismiss, allowing the case to move forward on its state fraud and consumer protection claims, but dismissing the federal claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). 8 The court dismissed the RICO claims based on the indirect purchaser rule, a concept borrowed from antitrust law. 9 In essence, the court ruled that patients who need insulin cannot seek damages from the insulin manufacturers for price inflation because patients are not the original purchasers of the drug. 10 This case presents a striking example of how the indirect purchaser rule has systematically insulated antitrust and RICO violators from liability, while leaving injured consumers without a remedy.
The indirect purchaser rule was created in 1977 by the Supreme Court in Illinois Brick v. Illinois due to concerns about complicated damages calculations, imposing multiple liability on defendants for a single offense, and generating overly complex litigation. 11 Since its inception, the rule has been subject to widespread criticism, with calls for Illinois Brick to be overruled. 12 The Supreme Court’s most recent decision on the subject, Apple, Inc. v. Pepper, calls into question the continued viability of the indirect purchaser rule. 13
The District Court’s decision to block the patients’ RICO claims against insulin manufacturers demonstrates that the indirect purchaser rule no longer fulfills its original purpose and disregards current economic realities; it enables companies to escape liability for direct harms to consumers, which in this case are both economic and physical. Four decades of applying the indirect purchaser rule have produced no compelling reason for its continued existence. Instead, antitrust and RICO standing doctrines based on proximate cause sufficiently address the policy concerns underlying the indirect purchaser rule.
Part II of this Note discusses the development of the insulin industry. Part III provides an overview of the insulin pricing structure and the parties involved. Part IV discusses the ongoing insulin pricing litigation and its progress. Part V of this Note analyzes the indirect purchaser rule, and Part VI argues why Illinois Brick should be overturned. Finally, Part VII argues that even if Illinois Brick is not overturned, the indirect purchaser rule should not apply to RICO cases.
II. DEVELOPMENT OF THE INSULIN INDUSTRY
A. History of Insulin
In 1921, Frederick Banting and Charles Best at the University of Toronto discovered a method for isolating insulin. 14 Banting and Best applied for a patent in 1923 to ensure quality control and access to the technology through publication, and sold the patent to the University of Toronto for one dollar. 15 In a writing to the university president, they stated that the purpose of obtaining the patent was so that “anyone would be free to prepare the extract, but no one could secure a profitable monopoly.” 16
The University of Toronto improved the isolation technique, but soon realized it could not produce enough insulin to meet the demand, so in 1923 it partnered with Eli Lilly. 17 The agreement provided the University of Toronto with global patent rights but reserved for Eli Lilly the exclusive right to patent insulin manufacturing processes in the United States. 18 In a separate deal, the university licensed the right to produce insulin to a company in Denmark known today as Novo Nordisk. 19
The original method for producing insulin involved isolating the active enzyme from animal pancreases. 20 While the first insulin products were a vital medical breakthrough, they were sometimes less effective or ineffective in certain patients, had to be injected frequently, and carried risks of allergies and other adverse immune responses. 21 During the 1970s, researchers were able to produce human insulin by genetically modifying bacteria. 22 Eli Lilly was the first to distribute human insulin to the United States in 1982. 23
This technology greatly improved again in the late 1980s, when scientists created analog insulins, or genetically modified versions of human insulin. 24 By altering the genetic structure of human insulin, developers could create safer and more effective versions of the drug. 25 For example, fast-acting analogs allow diabetic patients to absorb insulin faster, in a way that more closely matches insulin absorption for non-diabetics. 26 Another type of analog, called long-acting analogs, allowed patients to reduce their number of injections and better control their blood sugar. 27 Today, the main insulin products include short-acting insulin vials, rapid-acting insulin vials and pens, and long-acting insulin vials and pens. 28
B. LACK OF GENERIC INSULIN
In the century since insulin was first isolated for treatment, generic versions of insulin have never entered the U.S. market. 29 The lack of generics might explain why the market is controlled by only three companies: Eli Lilly, Novo Nordisk, and Sanofi. 30 In general, drug developers obtain a legal monopoly over their product through patent protection, which policymakers justify based on the cost of developing the drug. 31 This claim is questionable in itself, as the federal government widely funds pharmaceutical research. 32 Additionally, pharmaceutical companies’ marketing costs often far exceed their overall spending on research and development. 33
Patent protections are limited, though. After patents expire on a drug, generics usually enter the market, which lowers drug prices through competition. 34 Some companies will prevent their exclusive rights from expiring by “evergreening,” or simply changing their product enough to obtain a new patent, without actually demonstrating that the product was improved. 35
Insulin, however, is technically a series of products, including animal insulin, human insulin, and analog insulins, with the new versions over the years manifesting actual improvements which may justify new patents. 36 While insulin is now almost certainly safer and easier to use, the levels of improvements may not justify the increased costs and unavailability to low-income patients. 37 For instance, other developed countries still use human insulin as a low-cost alternative to analog insulins. 38 In the United States, though, once a new insulin product enters the market, older ones almost immediately become obsolete and unavailable, 39 even where they could offer a viable low-cost alternative. 40 This phenomenon is due to other factors that are specific to the U.S. insulin market.
C. History of Abuse by Insulin Manufacturers
The competitive problems within the insulin industry reach far beyond intellectual property protections. The U.S. insulin market uniquely shields manufacturers from competition. 41 While Eli Lilly, Novo Nordisk, and Sanofi still control a large percentage of the global market, seven other insulin manufacturers compete with them around the world. 42 In the United States, the three companies have historically engaged in anticompetitive conduct to preserve their control over the market.
For example, Eli Lilly’s abuses trace back to as early as 1941. 43 In 1980, the Federal Trade Commission (“FTC”) alleged that from 1952-1980, Eli Lilly had illegally maintained a monopoly over the insulin market. 44 The complaint noted that Eli Lilly had unlawfully controlled the distribution of animal pancreas glands and entered into a license with Novo in 1952 that prevented other insulin manufacturers from joining the market. 45 In resolving this case, Eli Lilly agreed to a consent order requiring it to grant royalty-free licenses for five years. 46
The combined effects of both lawful and unlawful anticompetitive conduct have historically contributed to high insulin prices; however, while they may help to explain why low-cost insulins are unavailable, they do not completely explain the drastic price increases of the last two decades.
III. INSULIN PRICING STRUCTURE AND THE PARTIES INVOLVED
Entities in drug markets are concerned mainly with two prices. The first is list price, also called sticker price, which determines how much consumers pay out-of-pocket. 47 The second is net price, which typically represents the amount actually paid to manufacturers by non-consumer entities such as pharmacies and wholesalers. 48 These entities are able to pay the lower net price instead of the list price because they negotiate discounts and rebates with drug manufacturers. 49 The discount and rebate pricing structure is complex, difficult to describe, and generally not well understood. Experts on this topic sometimes disagree on exactly how the pricing structure works; even the different entities within the pharmaceutical industry do not fully understand the system because contracts are kept confidential. 50 Section C of this Part attempts to describe the pharmaceutical pricing structure as best as possible.
Over the last decade or so, the gap between the list price and the net price of insulin has widened. 51 Between 2002 and 2013, the list price of insulin almost tripled, spurred on by a gradual increase in prices by each manufacturer in lock-step mechanism. 52 From 2012 to 2016, the list price continued to increase by 15% to 17% per year. 53 Meanwhile, the net prices actually paid to manufacturers by other entities have either decreased, stayed the same, or increased at a much slower rate. 54
Overwhelmingly, the list price does not reflect the actual amount paid by various entities for the medication. 55 Intermediate purchasers within the supply chain each pay different prices for the same drugs, which in turn affects what consumers ultimately pay. 56
A. The Special Nature of the Pharmaceutical Market
The U.S. drug pricing system is one of the primary reasons for insulin price inflation because it creates perverse incentives for insulin manufacturers to raise list prices. 57 Before examining the details of the drug pricing structure, the broader aspects that make the pharmaceutical market unique should be considered. In a typical market, sellers generally have an incentive to lower prices to capture market share; however, the pharmaceutical market differs from standard markets in a few key ways. To start, the U.S. pharmaceutical industry is highly regulated, except with regard to drug prices. 58 Consequently, drug prices are left unchecked by regulators, while regulation of virtually every other aspect of the pharmaceutical industry, including safety, efficacy, production, and distribution, generally leads to increased costs for which consumers ultimately pay. 59
Additionally, the pharmaceutical market has more entities involved in its distribution chain than other industries. For example, in a typical market, a product will transfer from manufacturer, to wholesaler, to retailer, to consumer, while payments flow in the opposite direction. 60 In contrast, the pharmaceutical industry has key players that intervene in this distribution chain. First, the health care industry involves insurance companies, which have the power to affect prices, available services, and consumer choices. 61 The pharmaceutical industry also has another intervenor, called a Pharmacy Benefits Manager (“PBM”), which negotiates with drug manufacturers on behalf of insurers to control drug prices. 62 These additional entities play an important role in determining drug prices.
Insurers and PBMs generally do not affect the physical distribution of drugs. 63 The drug flows from manufacturer, to wholesaler, to pharmacy retailer, to consumer, much like a typical market. 64 Additional players, however, impact the flow of payments by creating and changing incentives for each party, making the flow of money difficult to track. 65 The resulting pharmaceutical supply system is complex, and the motivation of each party is generally not well understood. 66 Appreciating the true function of the pricing system therefore requires an examination of the various roles and incentives for each player involved.
B. Pharmacy Benefits Managers
PBMs influence the vast majority of prescription drug sales, processing about two-thirds of total U.S. prescriptions 67 and influencing costs for an estimated 85% of insured patients. 68 In addition, PBM market power is highly concentrated such that the top three PBMs—Express Scripts, CVS Health, and OptumRx—control 80% of the total market share. 69
PBMs are not involved in the physical supply chain, but instead negotiate the price on behalf of third party payers, including private insurers, employers, and public health programs. 70 In general, a PBM will enter into a contract with insurers for particular health plans; these contracts provide that the health plans pay for PBM services, that PBMs assume the risk in providing those services, and that PBMs share in the cost savings by retaining rebates from the manufacturer. 71 PBMs’ main services include negotiating drug prices with manufacturers and creating formularies, which are lists of covered medications, 72 among other roles. 73 When an insurance company can decide to exclude a certain drug from its formulary, it gains significant bargaining power over pharmaceutical manufacturers. 74 Instead of covering all prescriptions, insurance companies will often close their formularies to decrease costs and increase negotiating power, which in theory better serves patients. 75
While the insurers themselves are often large companies, individually they do not control substantial portions of the health care market, which creates a challenge in negotiating with pharmaceutical companies. 76 Even the largest private health insurance company, United HealthCare, covers only 14.1% of the total U.S. population. 77 This same concern holds true for federal insurance programs like Medicare, because the law prohibits the U.S. Department of Health and Human Services (“HHS”) from negotiating drug prices. 78 Lack of market concentration means that insurance companies have weaker bargaining power when it comes to the highly concentrated and often monopolized pharmaceutical industry. 79 Insurers can increase their bargaining power over a large pharmaceutical manufacturer by contracting with a comparably powerful PBM that will negotiate drug placement on formularies. 80 If insurers did not have the power to restrict consumer access to drugs, pharmaceutical companies would not need to negotiate with insurers and could increase prices at will. 81 With these considerations in mind, it may have been reasonable to believe the creation of PBMs would ultimately save patients and insurers money; however, PBMs are not functioning as designed, and this belief is no longer realistic. 82
C. Manufacturers and Rebates
Central flaws in the PBM structure arise from manufacturer rebates and pharmacy reimbursements. 83 Typically, a PBM negotiates with drug manufacturers to get the “best deal” for a drug in exchange for the drug’s inclusion on the formulary. 84 As an incentive to generate the highest cost savings, PBMs receive a rebate from the manufacturer after the sale, or a retroactive payment of a portion of the savings. 85 In theory, the PBM passes part of that amount back to insurers and consumers, but that rarely happens. 86 Instead, patients’ out-of-pocket costs increase, even when the net payments to manufacturers stay the same. 87
In negotiating a deal, two prices are significant. The first price is the Average Wholesale Price (“AWP”), also called the benchmark, list, or sticker price. 88 The list price does not reflect actual market price and can be easily inflated. 89 Unquestionably, manufacturers set the list price. 90 Almost no one in the distribution chain pays based on the list price, save the consumers. 91 The second price is the net price, or the actual price the manufacturer ultimately accepts as payment after rebates and discounts. 92 Each party in the distribution chain might eventually pay more than this price, but net price is typically more reflective of actual price. 93
In theory, manufacturers would offer PBMs the most savings by decreasing net price, and PBMs would pick the drug with the lowest net price. 94 Instead, PBMs are actually motivated to pick the manufacturers that offer the highest rebate, 95 and the rebates are based on the difference between the net price and list price. 96 Manufacturers are therefore incentivized to make that difference greater to create larger rebates, and the easiest way to do that is by inflating the list price. 97 Manufacturers are also increasing the percentage of the list price offered as a rebate. 98 As a result, brand name manufacturers pay out rebates that average 30.4% of gross U.S. sales. 99 Insulin manufacturers in particular state that rebate payments for insulin have increased even more dramatically and sometimes make up more than 40% of gross sales in the United States. 100 In exchange for rebate payments to PBMs, manufacturers get to obtain or keep their “preferred” position on the PBM’s formulary. 101
D. Incentives and Bargaining Power for Other Players
While the manufacturer-PBM relationship is a dominant concern in the pricing structure, additional relationships in the supply chain support its propagation. 102 Other players in the industry are not incentivized to push back against the drug pricing structure because they benefit from it. 103 The series of negotiations and variation in bargaining power make it difficult to ascertain the tradeoffs and incentives for each party involved. 104
1. Wholesalers
Wholesalers are the first step in the distribution chain. The wholesale market is highly concentrated, with the top three distributors making up close to 90% of the market. 105 Wholesalers typically negotiate with manufacturers to purchase drugs at a discounted price, 106 then sell them to pharmacies at a higher but still negotiated price. 107 Even though they are often the original purchasers of a drug, wholesalers are largely unaffected by list price and therefore have no incentive to question the pricing structure.
2. Pharmacies
Pharmacies are the last step in the distribution chain before the product reaches consumers. Pharmacies usually buy the drugs from wholesalers but sometimes purchase directly from the manufacturer. 108 Pharmacies negotiate with wholesalers and manufacturers for lower prices, often based on the volume of the sale. 109 Since pharmacies negotiate any purchases direct from the manufacturers and therefore do not pay based on list price, they are similarly unmotivated to bring suit against the makers of insulin. Pharmacies’ interaction with the pricing system, however, does not end with manufacturers and wholesalers.
Pharmacies often also contract with PBMs to receive a portion of the rebate. 110 Pharmacies are the only step in the drug supply chain that is not necessarily controlled by a few big companies, with chain pharmacies making up just over 50% of the market. 111 More recently, however, pharmacies have been consolidating to increase their bargaining power. 112 In addition, pharmacies are joining PBM Pharmacy Networks, which allow them to contract with certain health plans that provide stable reimbursement and access to consumers. 113 Without joining a Pharmacy Network, smaller pharmacies pay much higher prices, so pharmacies are further incentivized to maintain the current pricing structure. 114
3. Insurers
Unlike other parties, insurers actually pay based on the list prices, and in some cases may be disadvantaged by PBMs that refuse to disclose pricing information. 115 However, insurers obtain a portion of the rebate from PBMs and still benefit from the arrangement—which is why insurers retain PBM services to begin with. 116 To keep insurers happy, PBMs only have to share part of the rebate with them. 117 Additionally, insurers have the ability to pass on extra costs to patients. 118 Because insurers pay a discounted price and can exert some control over costs, they have minimal incentive to question the pricing system compared to the consumers who pay based on list prices.
E. Confidentiality of Negotiated Rates
A fundamental problem with the pharmaceutical pricing structure is that the rebates and discounts for all parties are kept secret. 119 Even when manufacturers, wholesalers, pharmacies, and insurers can disclose what they know, they only have access to part of the information. 120 Additionally, the public does not have access to objective data, only conflicting reports from these different parties within the industry. 121 As a result, the strict confidentiality within the industry generates challenges in developing a clear picture and determining the source of the price increases. 122
F. Harms to Patients
Of all the participants in the insulin distribution chain, patients by far have the weakest bargaining power. Patients often do not have a choice in their insurance plans and coverage, especially if they are insured through their employers or cannot afford insurance. 123 In addition, people with diabetes need insulin to survive and do not have the option of walking away. 124
Of the thirty million Americans with diabetes, 125 about 7.4 million need insulin. 126 One study showed that over a ten-year period, the out-of-pocket costs of insulin for insured patients doubled. 127 When patients cannot afford their insulin, they are forced to choose between putting the funds towards their health needs and other necessities like food and housing. 128 As a result, they may ration or skip doses to save insulin, putting their lives in danger. 129 This practice is quite common—about one in four patients ration their insulin. 130
The groups most affected by list price increases include uninsured patients, patients in high-deductible health plans, patients with coinsurance payments, and patients covered by Medicare Part D. 131 Uninsured patients usually pay the full list price, or an amount very close to it. 132 Patients in high-deductible health plans must pay the full list price until they have spent enough to reach their deductible. 133 Similar to a copay structure, patients with coinsurance coverage pay a percentage of the list price. 134 Patients in Medicare Part D first pay the list price until they meet their deductible, then pay a percentage of the list price as coinsurance. 135 Part D patients are also at risk of hitting the plan’s initial coverage limit of $3,750, after which they pay full list price until the next limit is reached. 136 To be sure, while the increased list prices do not affect every person with diabetes, they do affect patients in particular circumstances who make up a large proportion of insulin consumers.
G. Inadequate Industry Response and Increased Public Awareness
Industry response to this crisis has been a largely underwhelming array of finger-pointing. Manufacturers blame PBMs for not passing savings on to consumers. 137 Manufacturers also claim that they are unable to lower their list prices because they would risk losing their formulary positions, resulting in patients losing access to insulin. 138 PBMs blame manufacturers for raising their prices, and criticize insurers for failing to pass discounts on to patients. 139 PBMs may ultimately have more bargaining power than manufacturers, and their role in the pricing scheme should by no means be discounted. 140 However, manufacturers do not contest that they set the list price. 141 While they may be correct that they are hard-pressed to decrease the list price, the three insulin manufacturers have failed to justify their continued habit of increasing prices, especially to such an extreme degree.
As previously stated, manufacturers have been paying out rebates to PBMs based on the difference between list price and net price. 142 If manufacturers truly wanted to avoid paying out so much in rebates, they might favor plans that place caps on prices. Overwhelmingly, though, insulin manufacturers do not support regulation of prices, and instead ask regulators to let the market work. 143 In essence, manufacturers advocate for a free market by way of the current pricing structure, then in the same breath claim the current structure renders them unable to act freely within the market. The only logical conclusion is that Eli Lilly, Novo Nordisk, and Sanofi want to retain the benefits they are extracting from the current pricing structure without being held responsible for the harms. At the end of the day, these companies set the prices, and the law should provide a remedy to those harmed by their decisions.
The drug pricing crisis has not gone unnoticed by lawmakers and the public. 144 The issue has gained the attention of political commentators and advocacy groups alike. 145 The American Diabetes Association has stated that its advocacy priorities are to provide “[a]ccess to adequate and affordable healthcare, … [m]ake insulin affordable for all who need it and increase transparency throughout the insulin supply chain.” 146 In November 2016, Senator Bernie Sanders and Representative Elijah Cummings called for a federal investigation into potential collusive and anticompetitive behavior by insulin manufacturers. 147 In July 2017, Senator Amy Klobuchar sent letters to Eli Lilly, Sanofi, and Novo Nordisk asking the companies to explain the excessive price increases for insulin. 148
In response to public outcry, the House of Representatives passed a bill in December 2019 entitled the Elijah E. Cummings Lower Drug Costs Now Act. 149 Among other provisions, the bill would allow HHS to negotiate Medicare drug prices with drug manufacturers and impose a penalty on companies that increase their drug prices faster than inflation. 150 The bill is unlikely to pass the Senate, however, and even if it does, President Trump announced he would veto it. 151 While regulating drug prices may be a viable solution to the untenable cost of insulin, such regulation is unlikely to happen anytime soon. 152 As such, many individuals harmed by the insulin manufacturers’ actions have instead turned to the courts for a solution. 153
IV. ONGOING INSULIN PRICING LITIGATION
In January 2017, people impacted by the rising cost of insulin, represented by class-action litigation law firm Hagens Berman, filed a lawsuit in the United States District Court for the District of Massachusetts alleging that “the three makers of analog insulin drug products—Sanofi, Novo Nordisk, and Eli Lilly—violated the Racketeer Influenced and Corrupt Organizations Act [RICO] … and various state consumer protection laws by engaging in a scheme and enterprise whose purpose was unlawfully inflating the benchmark prices of … insulin drugs.” 154 The case was later moved to New Jersey and consolidated with other civil lawsuits. 155 This lawsuit was the first of its kind, describing the extensive harms to patients resulting from the systematic overpricing of insulin. 156 The complaint stated that the price consumers pay for insulin is “based on manipulated numbers, having little or no relationship to the true prices of their analog insulins.” 157 The complaint further alleged that in just five years, the defendants have willfully “raised their benchmark prices by over 150% …. And nothing about the defendants’ analog insulins has changed in that period; the $300 drug is the exact same one the defendants sold for $75 years ago.” 158
The plaintiffs include people who pay for insulin based on list prices, including uninsured patients, patients in high-deductible health plans, certain Medicare Part D patients, and patients with high co-insurance payments. 159 The complaint characterizes harms to patients as “devastating” physically, emotionally, and financially. 160 Due to the cost of insulin, the plaintiffs have resorted to underdosing their insulin, starving themselves, using expired insulin, and reusing needles. 161 As a result of being unable to afford insulin, some plaintiffs lost their eyesight and kidneys or developed diabetic ketoacidosis. 162 The plaintiffs further allege that the extreme cost of insulin caused them financial harm, some estimating that “they spend over 50% of their monthly income on analog insulin medications …. Many diabetics describe rearranging their lives around their analog insulin costs—keeping lights off and the heat low to avoid high electricity bills, moving back in with parents, and leaving school.” 163 The lawsuit has increased awareness of extreme insulin pricing and is particularly significant because it has brought widespread attention to the role of PBMs in drug pricing schemes. 164
In May 2018, defendants Sanofi and Novo Nordisk filed a motion to dismiss the RICO and various state law claims. 165 Eli Lilly later joined the motion in September 2018. 166 In a civil RICO claim, the plaintiffs must demonstrate:
(1) the existence of an enterprise affecting interstate commerce; (2) that the defendant was employed by or associated with the enterprise; (3) that the defendant participated …, either directly or indirectly, in the conduct or the affairs of the enterprise; and (4) that he or she participated through a pattern of racketeering activity. 167
An “enterprise” includes a “partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact.” 168 A “pattern of racketeering activity” includes two or more instances of mail and wire fraud, among multiple other possible crimes, such as bribery, embezzlement, and theft. 169 Additionally, the plaintiffs must show that the defendant’s conduct is both a cause-in-fact and proximate cause of the plaintiffs’ harm. 170
In moving to dismiss the plaintiffs’ RICO claims, the defendants first argued that the plaintiffs did not adequately plead mail and wire fraud, stating that the “mere fact that some consumers pay a relatively higher price for insulin because they are uninsured or have a less favorable insurance policy than other consumers … cannot plausibly support a claim of criminal fraud.” 171 In addition, the defendants contended that the complaint did not adequately plead a valid RICO enterprise or RICO conspiracy. 172 The defendants further argued that the plaintiffs failed to plead proximate cause, noting that “[e]ven if defendants had fully disclosed the ‘net price’ they realized after paying rebates to the PBMs, it would not have changed the amounts that plaintiffs paid for insulin.” 173
Key to the defendants’ motion was their argument that the plaintiffs did not have standing to bring a RICO claim because they are “‘indirect purchasers’ who do not purchase analog insulin directly from any defendant.” 174 Instead, the plaintiffs are “three levels down the distribution chain from defendants.” 175 Though the plaintiffs asserted that they were the only parties injured by the pricing structure, the defendants argued that their claims should be dismissed “even if the majority of the injury is borne by [consumers],” 176 because failure to apply the rule would create a “risk of duplicative recovery and the potential for overly-complex damages and apportionment calculations.” 177
In response, the plaintiffs argued that RICO should be read broadly and contended that they adequately pled mail and wire fraud, a valid RICO enterprise, RICO conspiracy, and proximate cause. 178 In addressing standing under the indirect purchaser rule, the plaintiffs stated that they “do not seek to recover as indirect purchasers for inflated prices that are passed through to them. Instead the defendants set the list prices that directly caused the inflated prices they have paid.” 179 The plaintiffs contended that “[u]nlike antitrust law, RICO has no ‘direct purchaser’ requirement but instead requires the plaintiffs to allege they are direct victims of the defendants’ unlawful conduct …. Here, the consumer plaintiffs are the only direct victims of [defendants’] pricing fraud.” 180
In February 2019, Judge Martinotti issued his opinion regarding the defendants’ motion to dismiss, granting the motion as to the plaintiffs’ RICO claims but allowing the case to proceed on state law claims. 181 In analyzing the plaintiffs’ RICO claims, the court found that the plaintiffs had adequately pled mail and wire fraud, a valid RICO enterprise, 182 RICO conspiracy, 183 and proximate causation. 184 The court found that the indirect purchaser rule applied, stating that even though “Plaintiffs advocated competently against applying the indirect purchaser rule in this case, this Court is bound by the controlling caselaw and thus concludes Plaintiffs’ Complaint has not sufficiently pled allegations to withstand Defendants’ indirect purchaser rule challenge.” 185
Explaining his decision in favor of the defendants with regard to the RICO claims, Judge Martinotti expressed concern that failure to apply the indirect purchaser rule would “‘transform treble-damages actions into massive multiparty litigations involving many levels of distribution and including large classes of ultimate consumers remote from the defendant.’” 186 The court noted that the purpose of the indirect purchaser rule was to “prevent defendants from being exposed to ‘multiple liability’ should both indirect and direct purchasers in a distribution chain be permitted to assert claims arising out of a single overcharge.” 187 Unpersuaded by the plaintiffs’ arguments, the court found that the plaintiffs had “merely alleged a pass-through of the inflated price from one of the various intermediaries to the consumers.” 188 The plaintiffs “are multiple purchasers down the distribution chain from Defendants and are quintessential indirect purchasers for the purposes of the indirect purchaser rule.” 189 The court reasoned that allowing the plaintiffs’ RICO claims to continue would “expose Defendants to liability to Plaintiffs as well as to the various direct purchasers, such as the wholesalers and PBMs, thereby allowing to persist the exact harm that the indirect purchaser rule seeks to prevent.” 190
In response to Judge Martinotti’s decision, both the plaintiffs and the defendants declared victory. 191 Plaintiffs’ attorneys were pleased that the state consumer protection claims would move forward to the discovery stage, opening the door for potential settlements and allowing them to “shine the light on exactly what has driven insulin prices sky high.” 192 In contrast, Novo Nordisk was glad to see the RICO claims and other state law claims dismissed. 193 Representatives for Sanofi and Eli Lilly did not comment, 194 but the dismissal of the plaintiffs’ RICO claims doubtlessly came as good news to the defendants.
V. THE INDIRECT PURCHASER RULE
A. Antitrust Principles Generally Apply to Civil Rico Actions
At first blush, it may seem unclear why the indirect purchaser rule, an antitrust law concept, applies to statutes directed at organized crime. RICO was enacted as part of Title IX of the Organized Crime Control Act of 1970, the goal of which was to facilitate “‘the eradication of organized crime in the United States;’” yet “civil RICO cases rarely have anything to do with these ends.” 195 In fact, the original Senate bill allowed only the United States to bring civil injunctive actions, but the House later included a private treble-damages provision that mirrored section four of the Clayton Act. 196 The “eleventh-hour addition of a civil remedy … may help to explain the volume of issues that Congress never expected or considered.” 197 Nevertheless, because the civil remedies provision is modeled on the Clayton Act, “courts frequently turn to Clayton Act case law for guidance in construing RICO.” 198 That is exactly what the Third Circuit did in McCarthy v. Recordex, the precedent-setting case that Judge Martinotti said he was bound to follow in Insulin Pricing Litigation. 199 McCarthy found that because “antitrust standing principles apply equally to allegations of RICO violations,” the indirect purchaser rule “appl[ies] to RICO claims, thereby denying RICO standing to indirect victims.” 200
B. Illinois Brick and the Origin of the Indirect Purchaser Rule
Before the indirect purchaser rule came about, indirect purchasers were generally allowed to sue antitrust violators on the theory that overcharges had been passed on to them. 201 In 1968, the Supreme Court decided in Hanover Shoe that defendants could not use evidence that direct purchasers had “passed on” the overcharge to consumers as a defense to escape antitrust liability, also called a pass-on theory. 202 In 1977, the State of Illinois brought a civil action under section four of the Clayton Act, claiming that manufacturers had conspired to fix prices of their concrete block. 203 In this case, the blocks were distributed from manufacturers, to contractors, to general contractors, to plaintiff customers, and in light of Hanover Shoe, the manufacturers claimed that “as a matter of law only direct purchasers could sue for the alleged overcharge.” 204 The Court was thus confronted with the question whether to allow the offensive use of a pass-on theory by the plaintiffs in light of its somewhat recent decision to disallow the defensive use of a pass-on theory in Hanover Shoe. 205 The Court found that the offensive use of a pass-on theory would be inconsistent with Hanover Shoe, and therefore denied standing to indirect purchasers who brought suit against antitrust violators. 206 In coming to this conclusion, the Illinois Brick Court’s main concerns included defendant’s risk of multiple liability, difficulty calculating the indirect purchasers’ damages, and the potentially increased complexity of multi-party litigation. 207
In his dissenting opinion, Justice Brennan, joined by two other justices, wrote that the Court’s focus on consistent application of Hanover Shoe was misguided; the interests at stake in Illinois Brick were not the same because there was no risk that the “defendant will escape liability and frustrate the objectives of the treble-damages action.” 208 Justice Blackmun further noted in his dissent that the plaintiffs were “victims of an unhappy chronology,” observing that if Hanover Shoe had not come before this case, the Court would have ruled, “perhaps unanimously,” in favor of the plaintiffs “in the light of the objectives of the Sherman and Clayton Acts.” 209 Scholars have recently suggested that Justice Blackmun may have been right, as six Justices were initially in favor of allowing indirect purchasers to sue. 210
C. Exceptions to the Indirect Purchaser Rule
While Illinois Brick created a significant barrier to indirect purchaser plaintiffs in antitrust cases, the Court noted that the rule is subject to a “narrow scope of exemption.” 211 Explicit exceptions include situations where an indirect purchaser has a cost-plus contract with a direct purchaser or where the direct purchaser is controlled by its customers. 212 The Ninth Circuit has additionally recognized exceptions where the antitrust violator and the direct purchaser are coconspirators, or where there is “no realistic possibility” that direct purchasers will sue. 213
Some academics have argued that expanding judicial exceptions to the rule would better serve the goals of antitrust law than waiting for legislative reform because lawmakers would not be required to reach consensus on whether to keep or overturn the entire rule. 214 As the Court pointed out in Illinois Brick, however, the “process of classifying various market situations … and its susceptibility of proof in a judicial forum would entail the very problems that the Hanover Shoe rule was meant to avoid. The litigation over where the line should be drawn … would inject the same ‘massive evidence and complicated theories’ into treble-damages proceedings.” 215 Later in Kansas v. Utilicorp, the Court reaffirmed that “allowing an exception, even in rather meritorious circumstances, would undermine the rule,” admitting that the “rationales underlying Hanover Shoe and Illinois Brick will not apply with equal force in all cases.” 216 Accounting for every situation in which the indirect purchaser rule should not apply—and arguably there are many—would require complicated analysis, after which the rule itself would become meaningless. Courts strictly limit exceptions to the rule to ensure that it remains workable, but perhaps these severe limitations are necessary only because the rule does not work all that well in the first place.
D. State Responses to Illinois Brick
The rule introduced in Illinois Brick was highly controversial, with immediate calls to overrule the decision. 217 After unsuccessful efforts by members of Congress to pass legislation to that effect, states started taking matters into their own hands by enacting repealer statutes specifically authorizing indirect purchasers to recover under state antitrust laws. 218 To date, thirty-six states and the District of Columbia have passed Illinois Brick repealer statutes. 219 State repealer statutes have been useful for a number of reasons. First, they ensure that indirect purchasers have a way to bring antitrust claims where under federal law they are barred from doing so. 220 Moreover, plaintiffs in states with effective repealer statutes have made “a number of extremely large, successful recoveries” totaling in the billions of dollars. 221 Some scholars argue that refinement of state repealer statutes is a more realistic way to address concerns surrounding the indirect purchaser rule. 222
The state-by-state approach, however, still gives rise to multiple difficulties. Because indirect purchasers cannot bring federal antitrust claims, they resort to state courts, while direct purchasers typically sue in federal court for the same violation. 223 Furthermore, many states have not passed repealer statutes, with almost thirty percent of the nation’s population being without indirect purchaser remedies. 224 Even in states that have passed repealer statutes, standing is not guaranteed because an indirect purchaser still must satisfy the general antitrust standing requirements. 225 While state repealer statutes serve to increase the number of indirect purchasers that can bring valid antitrust claims, they provide “at best inconsistent, incomplete, and inefficient compensation.” 226 Conversely, imposing a nationwide solution would “increase uniformity, predictability, and economy of litigation.” 227
E. Calls to Overrule the Indirect Purchaser Rule
Illinois Brick was immediately an unpopular decision, 228 and criticism of the indirect purchaser rule continued over the next forty years. In 2007, the Antitrust Modernization Commission (“AMC”) published a report and recommendations after undertaking a comprehensive review of antitrust law. 229 The AMC recommended that Illinois Brick be overruled “to allow both direct and indirect purchasers to recover for their injuries.” 230 The Commission noted that because indirect purchasers cannot bring federal antitrust claims, “direct and indirect purchasers have often brought multiple, duplicative lawsuits in federal and state courts.” 231 While direct and indirect purchaser litigation could be simplified if Congress preempted the state repealer statutes, “principles of federalism and practical political concerns counsel in favor of deference to the clear preference expressed by more than thirty-five states that allow indirect purchasers to pursue relief.” 232 Additionally, in California v. ARC America, the Supreme Court explicitly rejected a preemption challenge to state statutes allowing indirect purchasers to sue. 233 The Commission thus concluded that this type of litigation would be “more efficient and more fair if it took place in one federal court for all purposes … and did not result in duplicative recoveries, denial of recoveries to persons who suffered injury, and windfall recoveries to persons who did not suffer injury.” 234
The most recent criticism of the indirect purchaser rule came through the Supreme Court case Apple Inc. v. Pepper, discussed in greater detail in Part V of this Note, which came after Judge Martinotti’s opinion in Insulin Pricing Litigation. 235 In Apple, thirty-one states submitted an amicus brief urging the court to overturn Illinois Brick because it was “grounded in predictions and policy concerns that have been undermined by subsequent experience and events,” 236 an argument which the Court was ultimately unable to consider. 237 Over the past four decades, there has been “a growing consensus” that the Illinois Brick doctrine “has proven to be an inadequate solution to a problem that is growing in severity,” and that some type of reform is needed. 238
VI. ILLINOIS BRICK SHOULD BE OVERTURNED
A. The Indirect Purchaser Rule Does Not Further the Illinois Brick Policy Concerns
As previously mentioned in Part V, the Illinois Brick Court implemented the indirect purchaser rule due to concerns about exposing defendants to multiple liability, difficulties in calculating damages, and increasing the complexity of litigation. 239 The rule applies, however, “even where none of the policies animating Illinois Brick support this result.” 240 In almost all cases, the indirect purchaser rule either fails to further each of these policy concerns or actively works against them. 241
1. Multiple Liability
First, the Court expressed concern that “allowing offensive but not defensive use of pass-on [theory] would create a serious risk of multiple liability for defendants. Even though an indirect purchaser had already recovered for all or part of an overcharge passed on to it, the direct purchaser would still recover automatically the full amount.” 242 If viable, a concern about multiple liability is justified. As Justice Brennan pointed out in his dissent, however, “the hypothetical possibility that a few defendants might be subjected to the danger of multiple liability does not … justify erecting a bar against all recoveries by indirect purchasers.” 243 Justice Brennan also noted that the likelihood of duplicative recovery is remote because significant procedural safeguards exist to prevent it, such as the short four-year statute of limitations, 244 interpleader, case consolidation, and collateral estoppel. 245
Ironically, the decision in Illinois Brick created a greater risk of multiple liability because indirect purchasers must bring their claims in state court, giving rise to duplicative lawsuits. 246 Even so, Justice Brennan appears to have been correct in his assessment of the risk. Because states allow indirect purchasers to bring suit, “the decades since Illinois Brick have been fertile ground for testing the seriousness of the risk” of multiple liability. 247 In forty years, “[n]ot a single instance of multiple liability has been reported in all that time, likely due to various practices, procedural rules, and limitations.” 248 Though antitrust cases are supposed to yield treble damages, the end results are usually single damages at most, even in cases that are not settled for lower amounts. 249 Coupled with the fact that not all antitrust violations are detected, it seems highly unlikely that any given antitrust violator would be subject to more than the statutorily-permitted treble damages, even if both direct and indirect purchasers were somehow allowed to recover for the full overcharge. 250 Therefore, the Court in Illinois Brick grossly overestimated the likelihood that defendants would be subject to duplicative liability, improperly using that risk as a justification to deny relief to actual victims. 251
2. Calculating Damages
The Court in Illinois Brick stated that attempting to trace the flow of money through particular transactions would “greatly complicate and reduce the effectiveness of already protracted treble-damages proceedings” because a showing of “how much of the overcharge was passed on by the first purchaser must be repeated at each point at which the price-fixed goods changed hands before they reached the plaintiff.” 252 The Court rejected the use of economic models to calculate damages, expressing a desire to look at economic realities instead of the hypothetical model’s “drastic simplifications.” 253
However, estimation of damages is necessary in all antitrust cases, 254 and modern antitrust cases frequently rely on complicated economic analysis. 255 Additionally, under the Class Action Fairness Act, federal courts often have jurisdiction over state antitrust claims, where they are “increasingly called upon to do these calculations.” 256 Calculating damages in many cases would certainly be a complex task, 257 but that “hardly justifies assuming as a matter of law that damages are zero.” 258 Harm to indirect purchasers is not, in fact, “‘virtually unascertainable’” because economists have new methods for assessing damages that “look to the prevailing price resulting from market forces unadulterated by cartel activity, or to pre- and post-cartel prices in the same market.” 259 Furthermore, improvements in technology increase the volume and utility of data, reducing the amount of speculation needed to estimate damages. 260 Modern economic tools enable the types of complex calculations “that would have been prohibitively expensive and difficult, if not impossible, in the 1970s.” 261 As such, the calculations required to determine indirect purchaser damages “fall well within the magnitude of complexity regularly tolerated in antitrust law.” 262
3. Complex Litigation
The Illinois Brick Court was concerned that allowing purchasers “remote from the defendant” to sue would “transform treble-damages actions into massive efforts to apportion the recovery among all potential plaintiffs” which would add “whole new dimensions of complexity to treble-damages suits and seriously undermine their effectiveness.” 263
Yet due to Illinois Brick, indirect purchasers have no choice but to bring their cases in state courts, resulting in litigation over the same antitrust violation in multiple courts, where parties are “treated differently depending on where they reside.” 264 While managing consolidated class actions with both indirect and direct purchasers would unquestionably be difficult, it is much better to have “one federal judge oversee and manage the interrelationships among the claims and claimants than to have split proceedings in federal and state courts.” 265 Overall, Illinois Brick has increased the complexity of antitrust litigation “far above whatever might be introduced by pass-on calculations,” with some scholars calling the current situation a “‘logistical nightmare.’” 266
Therefore, Illinois Brick’s misgivings surrounding multiple liability, damages calculations, and complex litigation are unwarranted in light of the events of the last forty years; if anything, the indirect purchaser rule has served to exacerbate, not alleviate, these policy concerns.
B. The Indirect Purchaser Rule Fails to Address the Twin Aims of Antitrust Law
Antitrust laws were enacted to increase consumer welfare and prevent cartel and monopolistic behavior. 267 The indirect purchaser rule was created as a matter of statutory interpretation, which is carried out by examining both the text of the statute and legislative intent. 268 First, the text of section four of the Clayton Act does not limit recovery to direct purchasers, but instead protects “‘any person who shall be injured’ ….. It is hard to think of language broader than ‘any person … injured.’” 269 Second, it is generally accepted that the Clayton Act sought to further two goals: (1) compensating victims of antitrust violations; and (2) deterring future violations. 270 Antitrust law “does not confine its protection to consumers, or to purchasers, or to competitors, or to sellers,” but is “comprehensive in its terms and coverage, protecting all who are made victims of the forbidden practices.” 271 Courts deciding antitrust standing cases are generally concerned less about the twin aims of compensation and deterrence, 272 but these considerations should not be ignored.
1. Deterrence of Antitrust Violations and Effective Private Enforcement
The court in Illinois Brick observed that deterrence would be best served by allowing direct purchasers to collect everything as “preferred” plaintiffs, because if direct and indirect purchasers had to share damages, they would have “such a small stake in the lawsuit” that no one, particularly indirect purchasers, would bother to sue. 273 However, indirect purchasers have incentive to sue, as they have been successful in recovering significant amounts through settlements, 274 and all potential plaintiffs still have the possibility of recovering treble damages. 275 Contrary to Illinois Brick, the last four decades have shown that allowing indirect purchasers to sue increases deterrence, 276 and the indirect purchaser rule has actually contributed to underenforcement of antitrust laws. 277 The rule encourages additional antitrust violations because “illegal cartels … can share rents with direct purchasers without explicitly including them in an illegal conspiracy,” allowing them to “manipulate the incentives of the only parties who have standing.” 278 Even where direct purchasers are not contributing to antitrust violations, they often do not have the incentive to sue, either because they can pass on their overcharges to consumers or because they fear retaliation in their business dealings by the antitrust violator. 279 Finally, even if direct purchaser litigation is still preferable to indirect purchaser litigation from a deterrence perspective, allowing indirect purchasers to bring state actions has not decreased direct purchaser recoveries in federal court; so contrary to the Illinois Brick rationale, direct purchasers are still incentivized to sue, even where indirect purchasers are allowed to recover as well. 280 Thus, the indirect purchaser rule does not align with the goal of deterring antitrust violations and promoting effective private enforcement.
2. Compensation of Antitrust Victims and Consumer Protection
Congress has been clear that consumer protection and compensation of injured parties are central goals of antitrust law. 281 The Illinois Brick Court seemed to ignore these concerns, and when confronted with the “choice of which party to leave worse off, the uncompensated indirect purchaser or the doubly-liable antitrust violator, the Court opted to protect the antitrust violator.” 282 Almost all products go through one or more intermediaries, leaving ultimate consumers of products largely unprotected from antitrust violations. 283 Because direct purchasers often pass on overcharges to consumers, those who are harmed are left with no remedy, while those who are not harmed get windfall recovery. 284 As such, the indirect purchaser rule “guarantees under-compensation for indirect purchasers in all cases,” a result that is inherently unjust. 285
Therefore, in addition to actively working against the policy concerns iterated in Illinois Brick, the indirect purchaser rule also serves to undermine both the deterrence and compensation goals of antitrust law, leading to ineffective private enforcement and lack of consumer protection.
C. Apple , Inc . V. Pepper Casts Doubt on the Continued Viability of the Indirect Purchaser Rule
The Supreme Court recently had an opportunity to clarify its position on the indirect purchaser rule in Apple, Inc. v. Pepper, which came down in May 2019 after the decision in Insulin Pricing Litigation. 286 The Apple case involved an antitrust suit brought by consumers claiming that Apple had inflated the prices of iPhone apps by collecting a 30% commission on every app sale. 287 The plaintiffs argued that Apple was able to charge such a high commission because of its monopoly on allowing iPhone applications, and that consumers would have paid significantly less for their apps in a competitive market. 288 Apple argued that iPhone owners do not have standing to sue because they are not direct purchasers, as app developers set the price consumers pay. 289 The Court rejected Apple’s “who sets the price theory,” noting that there is “no intermediary in the distribution chain,” and that it is “undisputed that the iPhone owners bought the apps directly from Apple. Therefore, under Illinois Brick, the iPhone owners were direct purchasers who may sue Apple for alleged monopolization.” 290
In its analysis, the Court emphasized that the “broad text of §4—‘any person’ who has been ‘injured’ by an antitrust violator may sue—readily covers consumers who purchase goods or services at higher-than-competitive prices.” 291 Second, the Court was wary of a proposed rule that “would draw an arbitrary and unprincipled line among retailers based on retailers’ financial arrangements with their manufacturers or suppliers.” 292 The Court continued, “[i]f a retailer has engaged in unlawful monopolistic conduct … it does not matter how the retailer structured its relationship” with manufacturers and suppliers. 293 The proposed rule
would elevate form (what is the precise arrangement between manufacturers or suppliers and retailers?) over substance (is the consumer paying a higher price because of the monopolistic retailer’s actions?). If the retailer’s unlawful monopolistic conduct caused a consumer to pay the retailer a higher-than competitive price, the consumer is entitled to sue. 294
Third, the Court expressed concern that the proposed rule would “provide a roadmap for monopolistic retailers to structure transactions … so as to evade antitrust claims by consumers and thereby thwart effective antitrust enforcement.” 295 Leaving consumers “at the mercy of monopolistic retailers simply because upstream suppliers could also sue” would “directly contradict the longstanding goal of effective private enforcement and consumer protection in antitrust cases.” 296
In addressing Apple’s argument that damage calculations would be complicated, the Court stated that this is “hardly unusual in antitrust cases. Illinois Brick is not a get-out-of-court free card for monopolistic retailers to play any time that a damages calculation might be complicated.” 297 Additionally, while Apple may be subject to multiple liability, “Illinois Brick did not purport to bar multiple liability …. Basic antitrust law tells us that the ‘mere fact that an antitrust violation produces two different classes of victims hardly entails that their injuries are duplicative.’” 298 The Court concluded that the plaintiffs were simply seeking to hold retailers accountable for their unlawful anticompetitive conduct, saying, “[t]hat is why we have antitrust law.” 299
Because the Supreme Court ruled in favor of the plaintiffs, Apple did not give it an opportunity to consider overruling Illinois Brick. 300 It should be noted that Justice Kavanaugh was careful to limit the language in his majority opinion solely to “retailers,” who by definition would sell directly to consumers. 301 However, the Court’s explanation for rejecting Apple’s proposed rule closely mirrors many of the policy arguments for overturning Illinois Brick, 302 signaling the possibility that it may be reconsidered soon. 303
D. Existing Proximate Cause Standing Principles in Antitrust Law and RICO Eliminate Remaining Policy Concerns
The question remains that if Illinois Brick is overruled and the “line is no longer to be drawn at the first injured party, how far down the causal chain can a plaintiff be and still recoup damages?” 304 Undoubtedly, liability for antitrust violations should have some limit; but courts have already developed antitrust standing tests that resemble tort law’s proximate cause doctrine. 305 State courts hearing indirect purchaser claims establish antitrust liability “follow[ing] the rule for torts generally,” limited by “foreseeability and proximate cause, not contractual privity.” 306 The privity rule was overwhelmingly abandoned about a century ago in products liability cases because “the seller, by marketing his product for use and consumption, has undertaken and assumed a special responsibility toward any member of the consuming public who may be injured by it.” 307 As it stands, the indirect purchaser rule arguably creates an outdated contractual privity requirement for federal antitrust and RICO claims, 308 and this requirement is unnecessary considering existing standing tests. Federal antitrust standing actions use the “remoteness” test, which considers five factors:
(1) the causal connection between the antitrust violation and the plaintiff’s harm; (2) the nature of the injury, including whether the plaintiff is a consumer or competitor in the relevant market; (3) the directness of the injury, and whether the damages are too speculative; (4) the potential for duplicative recovery, and whether the apportionment of damages would be too complex; and (5) the existence of more direct victims with motivation to sue. 309
RICO’s proximate cause inquiry mirrors that of antitrust law, 310 and includes considerations about whether the plaintiff was the victim of the offenses, the defendant specifically intended to harm the plaintiff, and the injury to the plaintiff was a reasonably foreseeable consequence of the RICO violation. 311
These tests include inquiries into Illinois Brick’s central policy concerns, so even without the indirect purchaser rule, courts already analyze the possibility of multiple liability, difficulty calculating damages, and whether allowing remote parties to join would give rise to complex litigation. 312 With these standing tests already in use, the indirect purchaser rule adds an unnecessary requirement that keeps valid cases out of court, even where judges might find that none of Illinois Brick’s policy concerns apply. The current Supreme Court appears to agree that the indirect purchaser rule is easily evaded, 313 and that a poor test is one that elevates form over substance. 314 While the Justices may not easily come to an agreement about much else, antitrust and RICO standing should not be determined based on an “arbitrary legal rule” 315 that cherry-picks who can and cannot sue based on their position in a distribution chain, which antitrust violators are free to change at any time. The principles already in place are well developed and provide a much more precise and comprehensive approach to determining who should have standing.
VII. THE INDIRECT PURCHASER RULE SHOULD NOT APPLY TO CIVIL RICO ACTIONS
Finally, even if Illinois Brick is not overturned, the indirect purchaser rule should not apply to civil RICO actions because the broad purposes of RICO do not align with those of antitrust law in these cases. The purpose of RICO was to address the problem of organized crime by attacking the sources of its economic power and “separating racketeers from their profits.” 316 With the purpose of RICO in mind, “it is in this spirit that all of the Act’s provisions should be read.” 317 In creating a civil remedy, “Congress deliberately chose the very broad language of RICO’s provisions,” and if RICO’s scope should be restricted, “then Congress—not the courts—is the body to do it.” 318 RICO’s terms are so expansive because Congress was more concerned with preventing loopholes for violators rather than avoiding overenforcement. 319 Imposing “special standing and injury requirements …. particularly at the pleadings stage,” is unnecessary because the “stakes do not appear high enough to justify … rejecting Congress’ choice of a statute that sweeps broadly.” 320 RICO is meant to be “liberally construed to effectuate its remedial purposes,” which are “nowhere more evident” than in private civil actions. 321
Courts have generally rejected the “wholesale application of antitrust principles to RICO.” 322 In Sedima v. Imrex, the Supreme Court ruled that to have RICO standing, a plaintiff must be “injured in his business or property by the conduct constituting the violation …. [T]he statute requires no more than this.” 323 In Insulin Pricing Litigation, Judge Martinotti found that Sedima did not apply because it did not mention the indirect purchaser rule and failed to suggest that it should not apply to RICO cases. 324 Indeed, the indirect purchaser rule was not at issue in Sedima because the plaintiff was involved in a joint venture with the defendant. 325 More broadly, however, Sedima presents the Supreme Court’s model for how courts should determine whether an antitrust principle should apply to RICO in specific cases. At issue in Sedima was whether, because antitrust plaintiffs must allege an “antitrust injury,” RICO plaintiffs must similarly allege a “racketeering injury.” 326 In declining to extend this antitrust principle to RICO cases, the Court looked to the statute’s history, language, and policy considerations. 327 The holding in Sedima made it clear that antitrust principles should not apply to RICO cases where doing so would contradict the underlying purposes of the Act.
However, cases that specifically address Illinois Brick’s application to civil RICO actions are more directly on point. The Third Circuit’s decision in McCarthy, mentioned briefly in Part V of this Note, found that the indirect purchaser rule applied to RICO cases because “antitrust standing principles apply equally to allegations of RICO violations.” 328 In making this sweeping declaration, the court cited Holmes v. Securities Investor Protection Corporation as its sole authority; but McCarthy misstates the Supreme Court’s holding in Holmes in a few key ways. 329 First, like Sedima, Holmes makes no mention of the indirect purchaser rule or Illinois Brick. 330 In analyzing issues relating to causation, Holmes does not focus solely on the “directness of relationship” between plaintiffs and defendants, but specifically focuses on the directness of the plaintiffs’ injury. 331 Holmes simply requires “some direct relation between the injury asserted and the injurious conduct alleged.” 332 Second, Holmes does not create a bright-line rule that antitrust standing principles always apply equally to RICO. 333 Instead, Holmes found that “the facts of the instant case show how these reasons,” namely the causation issues relating to the directness of plaintiffs’ injury, “apply with equal force to [civil RICO] suits.” 334 In essence, Holmes found that antitrust principles may apply to RICO, but only where the underlying policy reasons for antitrust law and RICO align. 335 Aside from McCarthy, only a few other circuits have explicitly held that the indirect purchaser rule applies to RICO cases, and for reasons similar to those stated in McCarthy. 336
Only the Second Circuit seems to have considered the possibility that the indirect purchaser rule should not apply to RICO cases. In Schwab v. Philip Morris, plaintiff smokers claimed that defendant tobacco companies caused them to purchase more cigarettes at a higher price by fraudulently representing that smoking light cigarettes was safer for their health. 337 The court strongly opposed strict application of the indirect purchaser rule, stating that “the suggestion that the cause of action belongs to the intermediate chain of purchasers in bulk … rather than to the smoker-purchaser to whom defendants’ advertising is pitched verges on the bizarre.” 338 Interestingly, Schwab did not purport to reject the application of Illinois Brick; on the contrary, the court claimed that it had long followed its precedent “in the context of proximate causation in a RICO case.” 339 Because plaintiffs are both the “direct victims and the intended targets of defendants’ fraud,” barring their claims “would negate the long-standing principle underlying the Illinois Brick doctrine that the victim who is in the best position to uncover violations gets the full recovery.” 340 The court also addressed Illinois Brick’s policy concern about multiple liability, noting that wholesalers would not be incentivized to sue because the defendants targeted only smokers. 341 Additionally, barring the plaintiffs’ claims would decrease deterrence because “the wholesalers stood to gain from defendants’ fraud, since it increased total cigarette sales for both producers and wholesalers.” 342 The court further addressed concerns about damages calculations by stating that the “public interest in deterring RICO violators by granting remedies to those in the best position to uncover violations outweighs the evidentiary problems of apportioning damages among the class members.” 343 Though the decision in Schwab was later reversed on other grounds, the case presents the somewhat creative argument that courts determining RICO cases do not have to follow the bright-line indirect purchaser rule, but can instead purport to follow the spirit of Illinois Brick.
The plaintiffs’ arguments in Insulin Pricing Litigation more closely relied on Sedima and Holmes, stating that RICO is meant to be read broadly and that courts are not required to impose antitrust law’s direct purchaser requirement. 344 The plaintiffs focused on the direct injury requirement, noting that the “consumer plaintiffs and putative class here are the only parties directly harmed by the defendants’ conduct.” 345 Somewhat similar to the plaintiffs in Schwab, the purchasers of insulin were not alleging harm based on the theory that overcharges had been passed-on to them; instead, they alleged direct fraud in that defendants “grossly misrepresented the pricing benchmarks used to directly set consumer prices.” 346 Even though Judge Martinotti did not ultimately find these arguments persuasive, he did find that the plaintiffs met RICO’s proximate cause requirements by alleging a direct relation between the injury and the violative conduct. 347 Though he claimed to be “bound by the controlling caselaw” in McCarthy, 348 Judge Martinotti still acknowledged that courts have discretion in determining whether to apply the indirect purchaser rule to particular RICO cases. 349 When the broad purposes of RICO do not align with those of antitrust law, courts should decline to extend antitrust principles to RICO cases. Civil RICO actions were designed to separate racketeers from their profits and provide a remedy to injured parties. The indirect purchaser rule is not in line with these goals and therefore should not apply to civil RICO actions.
VIII. CONCLUSION
Since 1977, the indirect purchaser rule has categorically prevented consumers from bringing claims against antitrust violators due to the nature of the entities’ relationship with consumers and intermediaries. Consumers with otherwise viable cases are denied standing even where they have sufficiently pled every other element of a cause of action, leading to under-compensation and underenforcement of antitrust laws. The last forty years have shown that the indirect purchaser rule does not advance its policy concerns surrounding the difficulty of calculating damages, exposing defendants to multiple liability, and increasing the complexity of litigation. Instead, the rule exacerbates those concerns by requiring indirect and direct purchasers to seek separate relief in state and federal courts, leading to increasingly complex litigation and a higher possibility of duplicative recovery. Because the court in Insulin Pricing Litigation decided that the indirect purchaser rule extends to civil RICO actions, plaintiffs around the nation in the ongoing insulin pricing litigation are left without a federal remedy against the three insulin manufacturers. Many people who need insulin to survive still have no choice but to keep paying extortionate prices or put their lives at risk. While a great deal of reform is needed to address the slew of problems pervading the insulin and pharmaceutical industries, overruling the indirect purchaser rule would be a considerable step in realigning RICO and antitrust laws with their goals of protecting consumers and thwarting cartels.
Footnotes
1
Jeremy A. Greene & Kevin R. Riggs, Why is There No Generic Insulin? Historical Origins of a Modern Problem, 372 N
2
First Amended Class Action Complaint at 3, In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG (D.N.J. Apr. 6, 2018), ECF No. 141; see William T. Cefalu et. al., Insulin Access and Affordability Working Group: Conclusions and Recommendations, 41 D
3
Cefalu, supra note 2, at 1299.
4
Id. at 1307.
5
Id. at 1306.
6
In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG, 2019 U.S. Dist. LEXIS 25185 (D.N.J. Feb. 15, 2019).
7
Cefalu, supra note 2, at 1304, 1307.
8
In re Insulin Pricing Litig., 2019 U.S. Dist. LEXIS 25185 at *8, 43, 50.
9
Id. at *26-27.
10
Id. at *42-43.
11
Kurtis A. Kemper, Annotation, Right of Retail Buyer of Price-Fixed Product to Sue Manufacturer on State Antitrust Claim, 35 A.L.R. 6th 245, at *2.
12
A
] [hereinafter AMC R
13
See Apple Inc. v. Pepper, 139 S. Ct. 1514, 1520-21 (2019) (holding that consumers who purchase iPhone apps directly from Apple are direct purchasers and not barred by the indirect purchaser rule). In light of its decision in favor of the plaintiffs, the Court had no occasion to reconsider the indirect purchaser rule. Id. at 1521 n.2.
14
Greene, supra note 1, at 1171.
15
Id.
16
Id.
17
Id.
18
Id. at 1171-72.
19
Id. at 1172.
20
Id. at 1171.
21
Id. at 1172.
22
Id.
23
Id.
24
Id.
25
Id.
26
Id.
27
Id.
28
Cefalu, supra note 2, at 1301.
29
Greene, supra note 1, at 1171.
30
Ryan Knox, Insulin Insulated: Barriers to Competition in the United States Insulin Market 4 (Aug. 24, 2019) (unpublished paper) (available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3441664 []).
31
Greene, supra note 1, at 1171.
32
See, e.g., Drug Pricing in America: A Prescription for Change, Part II: Hearing Before the S. Comm. on Fin., 116th Cong. 25 (2019) (statement of Sen. Debbie Stabenow, Member, S. Comm. on Fin.). Addressing top executives for the seven largest pharmaceutical companies: “American families fund the National Institutes of Health …. [which] contributed more than $200 billion in grants … to your companies and others …. American taxpayers, we are happy to help you be able to develop these drugs, but … the bargain ought to be that they ought to be able to afford the medicine after they have helped to develop it.” Id.
33
NAT’L ACADS. OF SCI., ENGINEERING, & MED., MAKING MEDICINES AFFORDABLE: A NATIONAL IMPERATIVE 123 (Sharyl J. Nass et al. eds., 2017).
34
Dan Mendelson, Follow the Pill: Understanding the U.S. Commercial Pharmaceutical Supply Chain, KAISER FAMILY FOUND. 4 (Feb. 28, 2005), https://www.kff.org/other/report/follow-the-pill-understanding-the-u-s/ [].
35
N
36
Greene, supra note 1, at 1173.
37
Id. at 1173-47; see Marcel Canoy & Jan Tichem, Lower Drug Prices Can Improve Innovation, 14 E
38
Cefalu, supra note 2, at 1300.
39
Greene, supra note 1, at 1174.
40
Cefalu, supra note 2, at 1310.
41
See Knox, supra note 30, at 4 (The insulin market has been “insulated from the traditional expectations and trends of pharmaceutical markets, especially concerning price and competition.”).
42
Id. at 7.
43
Insulin Price Fixing Charged to 3 Companies, C
44
Eli Lilly & Co., 95 F.T.C. 538, 540 (1980).
45
Id. at 540-41.
46
Id. at 542, 546.
47
Cefalu, supra note 2, at 1304.
48
Id. at 1301.
49
Id.
50
Id. at 1303-04.
51
Id.
52
Id.at 1299. Lock-step mechanism describes a continued pattern by insulin manufacturers to immediately match the others’ price increases: “when one insulin manufacturer increases the price for a given insulin formulation, the other insulin manufacturers often increase their prices by a similar amount shortly thereafter.” Id. at 1301. See id. at 1305 fig.4 (illustrating how from 2012 to 2016, the three companies almost simultaneously increased prices for rapid-acting insulin products, forming a pricing graph that looks like a staircase). [Note: see R3(c) (pg 74) for citing tables and figures.]
53
Id. at 1300.
54
Id. at 1301; see id. at 1302 (Sticker, or list price for Eli Lilly’s Humalog increased by 138% from 2009 to 2015; net price, or price actually paid to manufacturers, increased by 6%); see id. at 1302 (List price for Novo Nordisk’s NovoLog increased by 353% from 2001 to 2016; net price increased by 3 to 36%); see id. at 1306 (List price for Sanofi’s Lantus increased by 252% from 2007 to 2016; net price increased by 57%, and actually decreased from 2014 to 2016).
55
Id. at 1301.
56
Mendelson, supra note 34, at 24.
57
Kwanghyuk Yoo, Pharmacy Benefit Managers and Generic Pharmaceuticals Pricing Conspiracy: Unveiling Lock-In Mechanisms, Structural Shortcomings and Antitrust Evidence, 64 S.D. L. REV. 43, 77 (2019).
58
N
59
Id. at 31-32.
60
Id. at 41.
61
Id. at 42.
62
Id. at 44.
63
Id. at 44-45.
64
Id.
65
Cefalu, supra note 2, at 1300; see N
66
N
67
Mendelson, supra note 34, at 2.
68
N
69
Yoo, supra note 57, at 55.
70
Mendelson, supra note 34, at 14.
71
Id. at 21.
72
N
73
Yoo, supra note 57, at 55.
74
See N
75
Mendelson, supra note 34, at 22. But see Cefalu, supra note 2, at 1306 (noting that while formularies can be helpful negotiating tools, they are often changed, which can harm patients with increased costs and adverse health effects).
76
See N
77
Id.
78
Id. at 52.
79
Id. at 51.
80
See id. at 51, 58.
81
See id. at 48, 51 (“[F]rom a payer’s perspective, effective bargaining cannot take place without the ability either to exclude drugs from a formulary or place them in unfavorably high tiers.”).
82
See Yoo, supra note 57, at 54.
83
Id. at 51.
84
Id. at 52.
85
Mendelson, supra note 34, at 14.
86
N
87
See N
88
Mendelson, supra note 34, at 18.
89
Id.
90
Cefalu, supra note 2, at 1304.
91
See id. at 1301.
92
Id.
93
Mendelson, supra note 34, at 18.
94
See Yoo, supra note 57, at 76.
95
Cefalu, supra note 2, at 1305.
96
Yoo, supra note 57, at 77.
97
Cefalu, supra note 2, at 1305; Yoo, supra note 57, at 77.
98
See N
99
See Yoo, supra note 57, at 54.
100
Cefalu, supra note 2, at 1302.
101
Yoo, supra note 57, at 59.
102
Id. at 76.
103
See, e.g., Cefalu, supra note 2, at 1309 (“As list prices increase, the profits of the intermediaries in the insulin supply chain (wholesalers, PBMs, pharmacies) increase since each may receive a rebate, discount, or fee calculated as a percentage of the list price.”); Yoo, supra note 57, at 75 (“[R]ebate arrangements between PBMs and manufacturers may not always work against the interests of pharmacies, but rather can serve high reimbursement for them.”); id. at 51 (“[T]he bona fide roles of PBMs have been generally understood as utilizing some of those rebates and discounts to reduce costs to health plan providers (health insurers), retail pharmacies and consumers.”).
104
Cefalu, supra note 2, at 1300.
105
Mendelson, supra note 34, at 9.
106
Yoo, supra note 57, at 70.
107
Mendelson, supra note 34, at 18.
108
Id. at 9.
109
Id. at 2.
110
Yoo, supra note 57, at 75.
111
Mendelson, supra note 34, at 10-11.
112
Id. at 12.
113
Id. at 14, 19.
114
Id. at 19.
115
Yoo, supra note 57, at 79-80.
116
See id. at 51, 75.
117
See Mendelson, supra note 34, at 14.
118
N
119
Cefalu, supra note 2, at 1303.
120
Yoo, supra note 57, at 49.
121
N
122
Id. at 58.
123
Cefalu, supra note 2, at 1306.
124
Id. at 1299.
125
Id.
126
Id. at 1300.
127
Id. at 1307. But see id. (noting that the study does not account for patients who have not met their deductible, patients whose insurance plans do not include insulin, or uninsured patients).
128
Id. at 1299.
129
Id. at 1306.
130
Darby Kerkert et al., Cost-Related Insulin Underuse Among Patients with Diabetes, 179 J
131
Cefalu, supra note 2, at 1308-09.
132
Id. at 1308.
133
Id.
134
Id.
135
Id. at 1309.
136
Id.
137
N
138
Id. at 59.
139
Id.
140
Cefalu, supra note 2, at 1304.
141
See Drug Pricing in America: A Prescription for Change, Part II: Hearing Before the S. Comm. on Fin., 116th Cong. 51 (2019) (statement of Dr. Olivier Brandicourt, Chief Executive Officer, Sanofi) (“Ultimately, we set the listing price.”).
142
Yoo, supra note 57, at 77.
143
See Drug Pricing in America: A Prescription for Change, Part II: Hearing Before the S. Comm. on Fin., 116th Cong. 16 (2019) (statement of Dr. Olivier Brandicourt, Chief Executive Officer, Sanofi) (“[T]o maintain a strong environment for innovation in the United States, the government should not directly control the price of medicines, either through Federal Government price controls, or worse, outsourcing price decisions to other countries.”).
144
Katie Thomas, Drug Makers Accused of Fixing Prices on Insulin, N.Y. T (“The rising costs of drugs has led to several hearings in Congress and has drawn the attention of President Trump, who this month pledged to address the issue and said the industry was ‘getting away with murder.’”).
145
See 2020 State and Federal Legislative & Regulatory Priorities, A] (last visited Nov. 15, 2020); Patriot Act with Hasan Minhaj: Drug Pricing (Netflix, Inc. original series Feb. 17, 2019).
146
A
147
Sarah J. Tribble, Timeline: Insulin Market Under Scrutiny, KAISER HEALTH NEWS (Oct. 30, 2017), https://khn.org/news/timeline-insulin-market-under-scrutiny/ [].
148
Id.
149
Selena Simmons-Duffin, The House Passed Its Prescription Drug Plan—Here’s What’s in It, N].
150
Id.
151
Id.
152
See id.
153
Tribble, supra note 147.
154
Class Action Complaint at 9, Chaires v. Sanofi U.S., No. 1:17-CV-10158 (D. Mass. filed Jan. 30, 2017).
155
Tribble, supra note 147.
156
Hagens Berman: Judge Denies Insulin Makers’ Motion to Dismiss Class-Action Lawsuit Regarding Skyrocketing Insulin Prices, B].
157
First Amended Class Action Complaint at 2, In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG (D.N.J. Apr. 6, 2018), ECF No. 141; see also id. at 3 (“The legitimate use of discounts and rebates that actually reduce the manufacturers’ net selling prices … are not at issue in this case.”).
158
Id. at 3.
159
Id. at 5.
160
Id. at 7.
161
Id.
162
Id. at 7-8.
163
Id. at 8.
164
Examining the Actions of Drug Companies in Raising Prescription Drug Prices: Hearing Before the H.R. Comm. on Oversight & Reform, 116th Cong. 53 (2019) (statement of Rep. Carolyn Maloney, Member, H.R. Comm. on Oversight & Reform) (“[T]hree drug companies are now under a lawsuit because of price fixing, running the prices up, not making affordable drugs available. This is outrageous that this is allowed to happen in this country …. What is going on, it sounds like the wild west …. They can do whatever they want, these drug companies.”); Eric Sagonowsky, Insulin Pricing Lawsuit Against Sanofi, Novo Nordisk and Eli Lilly Moves Forward, F] (“Insulin giants are facing unprecedented scrutiny for their pricing, thanks to a growing gap between their retail stickers and prices after behind-the-scenes discounts and rebates. And now they’ll have to face class-action claims about those very practices.”); Thomas, supra note 144 (“Michael Carrier, an antitrust professor at Rutgers Law School, described the filing of the lawsuit as ‘big news’ and said it was interesting because it turned its attention to the inner workings of the pharmacy benefit managers, which until now ‘have floated under the radar of sustained drug pricing scrutiny.’”).
165
See generally Defendants’ Notice of Motion to Dismiss the First Amended Class Action Complaint, In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG (D.N.J. Apr. 6, 2018), ECF No. 158.
166
Stipulation and Order, In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG (D.N.J. Sept. 6, 2018), ECF No. 201.
167
In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG, 2019 U.S. Dist. LEXIS 25185, at *20 (D.N.J. Feb. 15, 2019).
168
18 U.S.C. § 1961(4) (2018).
169
Id. § 1961(1), (5).
170
Defendants’ Notice of Motion to Dismiss the First Amended Class Action Complaint at 23-24, In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG (D.N.J. Apr. 6, 2018), ECF No. 158.
171
Id. at 24-25.
172
Id. at 25.
173
Id.
174
Id. at 24.
175
Id. at 27.
176
Id. at 28.
177
Id. at 27.
178
Plaintiff’s Brief in Opposition to Defendants’ Motion to Dismiss the First Amended Class Action Complaint at 3, 15, 37, 42, 51, In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG (D.N.J. Feb. 15, 2019), ECF No. 181.
179
Id. at 4.
180
Id. at 30-31.
181
In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG, 2019 U.S. Dist. LEXIS 25185, at *8 (D.N.J. Feb. 15, 2019).
182
Id. at *22.
183
Id. at *25.
184
Id. at *24.
185
Id. at *28.
186
Id. at *27 (quoting Ill. Brick Co. v. Illinois, 431 U.S. 720, 739 (1977)).
187
In re Insulin Pricing Litig., 2019 U.S. Dist. LEXIS 25185 at *27.
188
Id. at *39-40.
189
Id. at *31.
190
Id. at *41-42; but see Mendelson, supra note 34, at 14 (PBMs do not purchase drugs, nor are they “a direct link in the physical supply chain;” instead, “PBMs work with third party payers … to manage consumer drug purchases.” (emphasis added)). As such, insulin manufacturers could not be liable to PBMs as direct purchasers because they are not purchasers at all. See id.
191
B
192
B
193
Sagonowsky, supra note 164.
194
Id.
195
G
196
Id.
197
Id.
198
Id.
199
In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG, 2019 U.S. Dist. LEXIS 25185, at *27-28 (D.N.J. Feb. 15, 2019).
200
McCarthy v. Recordex Serv., 80 F.3d 842, 855 (3d Cir. 1996).
201
Brief for Texas, Iowa, and 29 Other States as Amici Curiae in Support of Respondents at 3, Apple Inc. v. Pepper, 139 S. Ct. 1514 (2019) (No. 17-204) [hereinafter Amicus Brief].
202
Ill. Brick Co. v. Illinois, 431 U.S. 720, 723-25 (1977).
203
Id. at 726-27.
204
Id.
205
Id. at 726.
206
Id. at 728-29.
207
Kemper, supra note 11, at *2.
208
Ill. Brick, 431 U.S. at 753-54 (Brennan, J., dissenting).
209
Id. at 765-66 (Blackmun, J., dissenting).
210
Barak D. Richman & Christopher R. Murray, Rebuilding Illinois Brick: A Functionalist Approach to the Indirect Purchaser Rule, 81 S. C
211
Ill. Brick, 431 U.S. at 745.
212
Matthew M. Duffy, Note, Chipping Away at the Illinois Brick Wall: Expanding Exceptions to the Indirect Purchaser Rule, 87 N
213
Meagan P. VanderWeele, Note, In re ATM Fee Litigation: Ninth Circuit Uses Illinois Brick to Build a High Wall for Indirect Purchaser, 12 D
214
Duffy, supra note 212, at 1711.
215
Ill. Brick, 431 U.S. at 744-45.
216
Kansas v. Utilicorp United, Inc., 497 U.S. 199, 216 (1990).
217
AMC REPORT, supra note 12, at 268.
218
Id.
219
Id. at vi.
220
See, e.g., In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG, 2019 U.S. Dist. LEXIS 25185 (D.N.J. Feb. 15, 2019).
221
Robert H. Lande, New Options for State Indirect Purchaser Legislation: Protecting the Real Victims of Antitrust Violations, 61 A
222
Id. at 450.
223
AMC R
224
Duffy, supra note 212, at 1729.
225
Kemper, supra note 11, at *3.
226
Duffy, supra note 212, at 1728-29.
227
Lande, supra note 221, at 450.
228
See AMC R
229
Id. at i.
230
Id. at vi.
231
Id. at 266.
232
Id. at 273; see also id. at 274 (“The authority of states to establish antitrust standards that differ from federal law is well established.”).
233
Amicus Brief, supra note 201, at 12. The court examined the “long history of state common-law and statutory remedies against monopolies and unfair business practices” finding that “these matters have traditionally been regulated by the states and that the United States Congress intended the federal antitrust laws to supplement, not displace, state antitrust remedies.” Kemper, supra note 11, at *2.
234
AMC R
235
Apple Inc. v. Pepper, 139 S. Ct. 1514 (2019).
236
Amicus Brief, supra note 201, at 2.
237
See Apple, 139 S. Ct. at 1521 n.2 (“In light of our ruling in favor of the plaintiffs in this case, we have no occasion to consider that argument for overruling Illinois Brick.”)
238
Richman & Murray, supra note 210, at 108.
239
Kemper, supra note 11, at *2.
240
Duffy, supra note 212, at 1710.
241
See id.
242
Ill. Brick Co. v. Illinois, 431 U.S. 720, 730 (1977).
243
Id. at 761 (Brennan, J., dissenting).
244
Civil RICO actions are subject to the same four-year statute of limitations. JOSEPH, supra note 195, at 237.
245
Ill. Brick, 431 U.S. at 761-64 (Brennan, J., dissenting). For more information about the procedural safeguards against multiple liability, see Amicus Brief, supra note 201, at 19-21.
246
AMC R
247
Amicus Brief, supra note 201, at 18.
248
Id. at 5.
249
Lande, supra note 221, at 453.
250
See id. at 453-54.
251
Amicus Brief, supra note 201, at 21.
252
Ill. Brick Co. v. Illinois, 431 U.S. 720, 732-33 (1977).
253
Id. at 741-42.
254
Id. at 759 (Brennan, J., dissenting).
255
Duffy, supra note 212, at 1727.
256
Id. at 1725.
257
See, e.g., In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG, 2019 U.S. Dist. LEXIS 25185 (D.N.J. Feb. 15, 2019); Cefalu, supra note 2, at 1303 (noting that the series of transactions is unknown to every party involved because rebates and discounts are kept confidential).
258
Duffy, supra note 212, at 1727.
259
Amicus Brief, supra note 201, at 5, 13-14.
260
Id. at 14.
261
Id.
262
Richman & Murray, supra note 210, at 98; but see JOSEPH, supra note 195, at 189 (“There is not a fully developed, coherent body of law concerning damages under RICO, probably due in part to the very small number of private civil RICO actions that survive to trial.”).
263
Ill. Brick Co. v. Illinois, 431 U.S. 720, 737, 740 (1977).
264
AMC REPORT, supra note 12, at vi.
265
Id. at 277.
266
Richman & Murray, supra note 210, at 99.
267
VanderWeele, supra note 213, at 123.
268
David F. Shores, Antitrust Decisions and Legislative Intent, 66 MO. L. REV. 725, 740 (2001).
269
Amicus Brief, supra note 201, at 29 (emphasis added).
270
Ill. Brick Co. v. Illinois, 431 U.S. 720, 748 (1977) (Brennan, J., dissenting); Richman & Murray, supra note 210, at 89.
271
Mandeville Island Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219, 236 (1948).
272
Shores, supra note 268, at 780.
273
Ill. Brick, 431 U.S. at 746-47.
274
Lande, supra note 221, at 449 n.12 (noting eighty-four significant successful settlements of indirect purchaser cases).
275
Amicus Brief, supra note 201, at 22.
276
Id.
277
Richman & Murray, supra note 210, at 96 (“Empirical evidence suggests that international cartels are underpoliced” and “studies of several long-term cartels indicate that those cartels over time grew more stable, became more sophisticated in … escaping detection, and imposed average overcharges that increased with the life of the cartel …. But this sort of illegal behavior is sensitive to enforcement efforts.”); see also Lande, supra note 221, at 453 (“[A] system designed to give both direct and indirect purchasers a reasonable expectation of receiving at least some compensation would always give lawyers … an incentive to file.”).
278
Richman & Murray, supra note 210, at 94.
279
Amicus Brief, supra note 201, at 6; Lande, supra note 221, at 448, 448 n.6.
280
AMC REPORT, supra note 12, at 273; Richman & Murray, supra note 210, at 90 (“Despite the doctrine’s ossification into an absolute rule that precludes the possibility of either optimizing the compensation-deterrence trade-off or balancing them on a case-by-case basis, compensation remains a desirable objective.”).
281
Richman & Murray, supra note 210, at 90.
282
Duffy, supra note 212, at 1717.
283
Lande, supra note 221, at 447-48.
284
Richman & Murray, supra note 210, at 91; see also AMC R
285
Duffy, supra note 212, at 1728.
286
Apple Inc. v. Pepper, 139 S. Ct. 1514 (2019).
287
Id. at 1519.
288
Id.
289
Id. at 1521-22.
290
Id. at 1520-22.
291
Id. at 1520.
292
Id. at 1517.
293
Id. at 1523.
294
Id.
295
Id.
296
Id. at 1524.
297
Id.
298
Id. at 1525.
299
Id.
300
Id. at 1521 n.2.
301
See, e.g., id. at 1522.
302
See, e.g., Amicus Brief, supra note 201, at 29 (noting the broad language of section 4 of the Clayton Act); Richman & Murray, supra note 210, at 94 (arguing that the indirect purchaser rule enables antitrust violators to evade enforcement in the way they structure their business relationships with direct purchasers); Duffy, supra note 212, at 1727 (noting that damages calculations are always complicated in antitrust cases).
303
See Apple, 139 S. Ct. at 1530 (Gorsuch, J., dissenting) (“Maybe the Court proceeds as it does today because it just disagrees with Illinois Brick.”). In discussing the Amici’s argument to overrule Illinois Brick, “Maybe there is something to these arguments; maybe not.” Id. at 1531.
304
Id. at 1531.
305
See Ill. Brick Co. v. Illinois, 431 U.S. 720, 760 (1977) (Brennan, J., dissenting); Amicus Brief, supra note 201, at 7.
306
Amicus Brief, supra note 201, at 4.
307
See R
308
See Apple, 139 S. Ct. at 1526 (Gorsuch, J., dissenting).
309
Amicus Brief, supra note 201, at 34 (emphasis added).
310
J
311
Id. at 53.
312
Amicus Brief, supra note 201, at 34; JOSEPH, supra note 195, at 51.
313
Compare Apple, 139 S. Ct. at 1530 (Gorsuch, J., dissenting) (“To evade the Court’s test, all Apple must do is amend its contracts.”), with id. at 1523 (majority opinion) (“[I]f accepted, Apple’s theory would provide a roadmap for monopolistic retailers to structure transactions … so as to evade antitrust claims by consumers and thereby thwart effective antitrust enforcement.”).
314
Compare id. at 1529 (Gorsuch, J., dissenting) (“This exalts form over substance …. But we’ve long recognized that antitrust law should look at ‘the economic reality of the relevant transactions’ rather than ‘formal conceptions of contract law.’”), with id. at 1523 (majority opinion) (“Apple’s rule would elevate form (what is the precise arrangement between manufacturers or suppliers and retailers?) over substance (is the consumer paying a higher price because of the monopolistic retailer’s actions?). If the retailer’s unlawful monopolistic conduct caused a consumer to pay the retailer a higher-than-competitive price, the consumer is entitled to sue the retailer under the antitrust laws.”).
315
Id. at 1530 (Gorsuch, J., dissenting).
316
Haroco, Inc. v. Am. Nat’l Bank & Tr. Co., 747 F.2d 384, 392 (7th Cir. 1984), aff’d, 473 U.S. 606 (1985).
317
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 498 (1985).
318
Haroco, 747 F.2d at 390, 392.
319
Id. at 390.
320
Id. at 399.
321
Sedima, 473 U.S. at 497.
322
Robert Taylor Hawkes, Note, The Conflict over RICO’s Private Treble Damages Action, 70 CORNELL L. REV. 902, 924 (1985)’
323
Sedima, 473 U.S. at 496-97.
324
In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG, 2019 U.S. Dist. LEXIS 25185, at *36 n.9 (D.N.J. Feb. 15, 2019).
325
Sedima, 473 U.S. at 483.
326
Id. at 485.
327
Id. at 493-95.
328
McCarthy v. Recordex Serv., 80 F.3d 842, 855 (3d Cir. 1996). The plaintiffs conceded that if they lacked antitrust standing, they lacked RICO standing as well. Id.
329
See Holmes v. Sec. Inv’r Prot. Corp., 503 U.S. 258, 269-70 (1992).
330
See id.
331
Id. at 269.
332
Id. at 268.
333
Id. at 269-70.
334
Id. (emphasis added).
335
Id.
336
See, e.g., County of Oakland v. Detroit, 866 F.2d 839 (6th Cir. 1989); Fiala v. Wasco Sanitary Dist., No. 10 C 2895, 2012 U.S. Dist. Lexis 39534 (N.D. Ill. Mar. 16, 2012).
337
Schwab v. Philip Morris USA, Inc., 449 F. Supp. 2d 992, 1018 (E.D.N.Y. 2006), rev’d on other grounds sub nom. McLaughlin v. Am. Tobacco Co., 522 F.3d 215 (2d Cir. 2008).
338
Id. at 1051.
339
Id. at 1051-52, 1053.
340
Id. at 1051-52.
341
Id. at 1053.
342
Id.
343
Id. at 1055-56.
344
Plaintiff’s Brief in Opposition to Defendants’ Motion to Dismiss the First Amended Class Action Complaint at 30, In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG (D.N.J. Feb. 15, 2019), ECF No. 181.
345
Id. at 4.
346
Id. at 32.
347
In re Insulin Pricing Litig., No. 3:17-CV-0699-BRM-LHG, 2019 U.S. Dist. LEXIS 25185, at *24-25 (D.N.J. Feb. 15, 2019).
348
Id. at *27-28.
349
Id. at *36 (“[C]ourts may apply the indirect purchaser rule to RICO actions with the same force as under antitrust law.” (emphasis added)).