Antitrust Law Daily Anti-assignment provision in drug distribution agreements did not preclude pharmacy operators’ claims over Remicade
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Monday, February 24, 2020

Anti-assignment provision in drug distribution agreements did not preclude pharmacy operators’ claims over Remicade

By Nicole D. Prysby, J.D.

Drug wholesalers assigned to pharmacy operators Walgreens and Kroger antitrust claims, which relied on statutory rights, not rights under the agreements.

A drug wholesaler’s assignment of federal antitrust claims was not barred by a contract provision proscribing the assignment of any "rights or obligations under" that contract with a drug manufacturer because the antitrust claims were a product of federal statute and thus were extrinsic to, and not rights "under," a commercial agreement. A distribution agreement between drug wholesalers and manufacturers/marketers of Remicade, a biologic drug used to treat various autoimmune diseases, contained a provision prohibiting assignment of any rights under the agreement. However, the wholesalers assigned their claims against Janssen arising out of the wholesalers’ purchase of Remicade to pharmacy operators that dispensed Remicade but did not purchase it directly from the manufacturer. The pharmacy operators filed suit, alleging that Janssen suppressed generic competition to Remicade, which allowed Janssen to sell Remicade at supracompetitive prices. Because the federal antitrust claims asserted in the pharmacy operators’ complaints were not "rights under," the distribution agreement and did not implicate any substantive right under the distribution agreement, the anti-assignment provision did not present a bar to the pharmacy operators’ standing to assert those antitrust claims against Janssen (Walgreen Co. v. Johnson & Johnson, February 21, 2020, Jordan, K.).

Remicade is marketed and manufactured by Janssen. Janssen does not sell Remicade directly to pharmacy operator Walgreen. Instead, Walgreen procures Remicade from AmerisourceBergen—a wholesaler. The distribution agreement between Janssen and AmerisourceBergen contained a provision prohibiting assignment of any rights under the agreement. In 2018, AmerisourceBergen assigned to Walgreen its claims against Janssen arising out of the wholesaler’s purchase of Remicade.

Walgreen filed suit against Janssen, asserting various federal antitrust claims relating to Remicade. Walgreen alleged that Janssen used its size and bargaining power in the broader pharmaceutical market to enter into exclusive contracts and anticompetitive bundling agreements with health insurers that suppressed generic competition to Remicade, which in turn allowed Janssen to sell Remicade at supracompetitive prices. The federal district court concluded the wholesaler’s assignment to Walgreen of its antitrust claims against Janssen was barred by the anti-assignment provision, thus depriving Walgreen of antitrust standing. Walgreen appealed.

The U.S. Court of Appeals in Philadelphia reversed the district court, on the basis that the the statutory federal antitrust claims asserted in Walgreen’s complaint are extrinsic to, and not "rights under," the distribution agreement. The wholesaler’s antitrust claims rely only on statutory rights and do not implicate any substantive right under the distribution agreement. Accordingly, the anti-assignment provision does not invalidate the wholesaler’s assignment of antitrust claims to Walgreen or otherwise present a bar to Walgreen’s standing to assert those antitrust claims against Janssen.

The appellate court rejected several arguments from Janssen. New Jersey law, which governs the distribution agreement, recognizes statutory causes of action as "rights under" an agreement. But Janssen cites no case in which any court has found that federal antitrust claims fall within the scope of an anti-assignment clause prohibiting the assignment of "rights under" an agreement. The New Jersey cases cited by Janssen all relate to statutory claims that were precluded by an anti-assignment provision because they flowed from an underlying breach of one or more provisions of the contract containing the anti-assignment provision. Janssen also argued that the term "rights under" an agreement "encompasses any rights engendered by virtue of the relationship the agreement established" and thus includes Walgreen’s antitrust claims, which ultimately flow from the distribution agreement. This argument also fails, because it is based on arbitration cases that address the question of when claims "arise out of" or "arise under" an agreement. The terms "arise out of" and "arise under" are facially broader, more encompassing, and ultimately distinct from, the concept of "rights under" an agreement. Also, through its antitrust claims, Walgreen is not attempting to invoke any substantive right specified in the distribution agreement. For example, the fact that the distribution agreement set the price that the wholesaler paid for Remicade does not bring Walgreen’s antitrust claims within the anti-assignment provision’s scope. Finally, the court rejected Janssen’s argument that recent Third Circuit precedent holds that statutory antitrust claims are rights under a contract. Cases cited by Janssen either do not involve a contractual anti-assignment provision or relate only to validity of such a provision, not scope.

The case is No. 19-1730.

Attorneys: Anna T. Neill, Scott E. Perwin, Michael A. Ponzoli, Lauren C. Ravkind and Kenny Nachwalter (Kenny Nachwalter, PA) for Walgreen Co. and Kroger Co. William F. Cavanaugh, George A. LoBiondo and Adeel A. Mangi (Patterson Belknap Webb & Tyler LLP), Thomas O. Barnett and Ashley E. Bass (Covington & Burling LLP) and Leslie E. John and Burt M. Rublin (Ballard Spahr LLP) for Johnson & Johnson and Janssen Biotech Inc.

Companies: Walgreen Co.; Kroger Co.; Johnson & Johnson; Janssen Biotech Inc.; AmerisourceBergen Corp.

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