On June 18, United States District Court Judge David Proctor (Northern District of Alabama) issued his highly anticipated ruling in the In re Blue Cross Blue Shield Antitrust Litigation, declining to dismiss the action prior to the commencement of discovery. The multidistrict litigation, in which the plaintiffs contend that the Blue Cross Blue Shield Association and its 38 member Blues have utilized trademark licensing agreements to limit competition between them, was consolidated and transferred to Judge Proctor by the Judicial Panel on Multidistrict Litigation in 2013.

In his first significant ruling in the matter, Judge Proctor considered three overarching arguments that the insurers had advanced in support of dismissal: (1) that the licensing agreements challenged by the plaintiffs have procompetitive benefits, and thus are not “horizontal market allocation agreements” that should be judged under per se (rather than rule of reason) principles; (2) that the Blues’ alleged conduct, regardless of classification, is exempt from the antitrust laws pursuant to the “Filed Rate Doctrine;” and (3) that the defendants’ conduct is also independently exempt from antitrust scrutiny based upon the insurance industry’s McCarran-Ferguson Act exemption.

Judge Proctor began his analysis by focusing on the Blue trademarks and the licensing agreements between the Blue Cross Blue Shield Association and its member Blues. Summarizing the defendants’ contentions, Judge Proctor stated that the Blues “argue that the licensing agreements do not restrain trade, but merely adopt pre-existing rights to local geographic exclusivity acquired either independently by operation of trademark law, or vertically through lawful licenses granted by the American Hospital Association or the American Medical Association.” Judge Proctor also noted that “defendants contend that the service areas have procompetitive benefits,” and that per se condemnation of the agreements is unwarranted on that basis.

Judge Proctor, however, rejected defendants’ argument, at least for now, holding that “at this early stage of the proceedings” the plaintiffs’ allegations, taken as true, are sufficient as a matter of law. Specifically, Judge Proctor held that plaintiffs had plausibly alleged that the Blues’ agreements “do more than merely recognize pre-existing trademarks,” because, among other things, the plaintiffs had alleged that the agreements also restrict competition under non-Blue or non-trademarked brands, and that “plaintiffs have alleged that prior to the alleged agreements, but after the alleged formation of common law trademark rights, defendants actually engaged in competition.”

Significantly, Judge Proctor also deferred his decision on whether plaintiffs’ allegations potentially give rise to per se condemnation, rather than “rule of reason” treatment, a decision that not only impacted his decision on the Blues’ motion to dismiss, but will also have significant repercussions for how the case proceeds.

As Judge Proctor noted, whether the defendants’ alleged agreements should be judged under per se principles turns, in large measure, on whether the United States Supreme Court’s 1972 decision in United States v. Topco Associates remains good law. In Topco, the Supreme Court held that horizontal market allocation agreements are generally subject to per se condemnation, and thus any procompetitive benefits achieved through such agreements are irrelevant in determining whether the conduct violates the antitrust laws. The Blues maintained, however, that since Topco, the Supreme Court has moved away from per se condemnation for such conduct in some circumstances, including where intellectual property rights are involved, and for that reason per se treatment was not appropriate in this case. The plaintiffs, in response, countered by noting that Topco “has never been overruled and, in fact, the Court has never expressly called [it] into question.” Ultimately, Judge Proctor decided that “it is simply too early to assess which standard of review should be applied to plaintiffs’ allegations,” because “while the mode of analysis is certainly a question of law, underpinning that purely legal decision are numerous factual questions” that have not yet been resolved. Judge Proctor will undoubtedly face this issue again after discovery, at the summary judgment phase of the proceeding.

Turning next to the Blues’ Filed Rate Doctrine defense, Judge Proctor first observed that the doctrine “generally operates to bar antitrust suits that are based upon challenges to rates that have been filed with regulatory agencies.” However, because the Filed Rate Doctrine would only bar, at most, some of plaintiffs’ claims for damages, and would not in any circumstance bar plaintiffs’ claims for declaratory and injunctive relief, Judge Proctor held that “a decision about whether to apply the Filed Rate Doctrine at this time, even only to claims against those Blues who filed rates in the jurisdictions in which they were required to file rates, would be premature.” Judge Proctor continued: “Some inquiry is needed into which defendants have filed rates and in which jurisdiction and discovery may also be required concerning the extent of administrative oversight defendants were subjected to in each jurisdiction in which they filed rates.” Accordingly, this issue will also likely be revisited at the summary judgment stage of the proceeding.

Finally, the Court also addressed the Blues’ contention that their alleged conduct was exempt from the federal antitrust laws based upon the McCarran Ferguson Act, which exempts “the business of insurance” from the federal antitrust laws to the extent such conduct is “subject to state regulation” and does not constitute an act of “boycott, coercion or intimidation.”

In analyzing this issue, Judge Proctor focused his attention on whether the alleged conduct constituted “the business of insurance.” As Judge Proctor noted, the Supreme Court has articulated a three part test for determining whether conduct constitutes the business of insurance – (1) does the practice have the effect of transferring or spreading a policyholder’s risk; (2) whether the practice is an integral part of the policy relationship between the insurer and the insured; and (3) whether the practice is limited to entities in the insurance industry. United Labor Life Insurance v. Pireno, 458 U.S. 119, 129 (1982). Here, Judge Proctor held, the alleged conduct did not satisfy these requirements.

Specifically, Judge Proctor concluded that defendants’ contention that “plaintiffs’ market allocation theory is ‘an attack on premiums’,” and thus barred by McCarran, was misplaced. The Court noted that the Supreme Court has observed that “at least in some manner, every business decision by an insurance company has some impact” on its rates, and thus, because the Blues’ alleged conduct did not directly concern the spreading of risk, it was outside the scope of the exemption. In reaching this decision, the Court embraced a decision from the Third Circuit (In re Insurance Brokerage Antitrust Litigation) in which the court had reached a similar conclusion, and distinguished an 11^th Circuit decision (Gilchrist v. State Farm) in which the court had viewed “the business of insurance” test more expansively. Unlike the prior two issues, which Judge Proctor is likely to face again later in the action, it appears that this ruling takes the McCarran Ferguson Act issue out of the case (at least until any possible appeal).

As the foregoing analysis makes clear, Judge Proctor deferred reaching a decision on many of the Blues’ arguments, rather than rejecting them, and denied the Blues’ motion on that basis. However, by doing so, Judge Proctor has authorized a massive case to proceed into discovery. The impact of that decision will likely not be known for many months, as discovery progresses. Stay tuned.