Antitrust Law Daily Pediatricians not required to arbitrate vaccine monopoly claims against Merck
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Monday, November 30, 2020

Pediatricians not required to arbitrate vaccine monopoly claims against Merck

By Nicole D. Prysby, J.D.

Pediatricians were not required to arbitrate vaccine-related antitrust claims, because they were not bound to the arbitration clause in Merck’s contracts with Physician Buying Groups.

Pediatric practices were not bound by arbitration clauses between Merck and Physician Buying Groups (PBGs), held the federal district court in Philadelphia. The plaintiffs alleged that Merck illegally used its dominant market power to overcharge purchasers for its rotavirus vaccines, by bundling the rotovirus vaccines with its other pediatric vaccines. Merck sought to compel the plaintiffs to arbitrate the claims based on the arbitration clause in the contracts between Merck and the PBGs. The court held that the plaintiffs were not required to arbitrate the claims under an agency theory nor by equitable estoppel. The PBGs did not have the necessary authority to bind their member practices to the arbitration provision; therefore, the plaintiffs were not liable to arbitrate under an agency theory. And, although the plaintiffs received discounted pricing on their vaccine purchases, they did not "knowingly exploit" the agreements between their respective PBGs and Merck, so Merck’s equitable estoppel theory failed as well (In re Rotavirus Vaccines Antitrust Litigation, November 20, 2020, Joyner, J.).

Monopoly claims against Merck. Sugartown Pediatrics, LLC, and Schwartz Pediatrics S.C., filed a putative class action antitrust suit against Merck, alleging that Merck illegally used its dominant market power to overcharge purchasers for its rotavirus vaccines. At one point, according to the complaint, Merck held 100 percent of the market for its RotaTeq Rotavirus vaccine. When GlaxoSmithKline entered the market with Rotarix, rather than lower its price to compete with Rotarix, Merck imposed "bundled loyalty conditions" in its buying contracts with PBGs to maintain its monopoly position. Merck bundled RotaTeq with its other pediatric vaccines, in effect telling PBGs that, if they wanted the other vaccines, they had to buy RotaTeq. The plaintiffs alleged that Merck’s anticompetitive conduct caused them to pay inflated prices over the years for rotavirus vaccines.

Merck attempted to compel the pediatric practices to arbitration on the theory that the pediatricians were bound by a mandatory arbitration provision contained in the contracts between Merck and the PBGs. The district court held that because the two pediatric practices were not parties to the contracts, they never expressly agreed to arbitration and were not bound by the terms of the contracts between Merck and the PBGs. On appeal, the Third Circuit held that the district court should have allowed the parties to engage in limited discovery on the issue of arbitrability. The parties engaged in limited discovery and Merck again motioned the district court to compel arbitration. The plaintiffs motioned for summary judgment as to arbitrability.

Plaintiffs not required to arbitrate claims. Merck failed to demonstrate that the plaintiffs should be bound by the arbitration agreement. Merck relied on agency and equitable estoppel theories to compel the plaintiffs to arbitrate, and the court rejected both theories. The agency theory failed because Merck failed to prove that the member practices had either control over the PBG’s negotiation and entry into the agreement with Merck or that the PBGs had the authority of their member practices to enter into the arbitration clauses/agreements to arbitrate the dispute.

The member practices were given no notice of the existence of the arbitration provisions in the PBG-Merck contracts. When the member practices executed their membership agreements and enrollment forms with the PBGs, the practices were only authorizing the PBGs to negotiate discounted pricing and other ancillary benefits with Merck and it was their understanding that in exchange for this authorization they would purchase Merck vaccines in the quantities required. In addition, Merck’s agreements with the PBGs specifically required that the PBGs only communicate to the practices the terms and conditions of agreements with Merck that applied to the practices. Neither PBG communicated any information about the arbitration clause to their memberships, focusing their communications on the available discounts, rebates/rewards programs, and purchasing requirements needed to obtain both. Nor did Merck specifically direct the PBGs to communicate that the arbitration clause was one of the terms and conditions to which the practices would be bound.

The equitable estoppel theory failed because although the plaintiffs received discounted pricing on their vaccine purchases, they did not "knowingly exploit" the agreements between their respective PBGs and Merck. They merely entered into symbiotic agreements with their PBGs to participate in the buying programs with Merck, thereby ensuring that the PBGs could meet their sales benchmarks and receive payment of their administrative fees. The buying programs were for Merck’s benefit in that Merck was receiving a guaranteed level of vaccine sales. The plaintiffs only received discounted pricing on their vaccine purchases from Merck if their PBG as a whole met its Merck Market Share sales benchmark for that Merck vaccine. Under this scenario, if anything, it was Merck that exploited the contract which it had with the PBGs, not the plaintiffs.

This case is No. 2:18-cv-01734-JCJ.

Attorneys: Bart D. Cohen (Nussbaum Law Group, PC) for Sugartown Pediatrics, LLC. Daniel H. Silverman (Cohen Milstein Sellers & Toll PLLC) for Schwartz Pediatrics S.C. Joshua H. Grabar (Grabar Law Office) for Margiotti & Kroll Pediatrics, PC. Ashley E. Bass (Covington & Burling LLP) for Merck Sharp & Dohme Corp.

Companies: Schwartz Pediatrics S.C; Margiotti & Kroll Pediatrics, PC; Sugartown Pediatrics, LLC; Merck Sharp & Dohme Corp.

MainStory: TopStory Antitrust GCNNews PennsylvaniaNews

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