A recent Sixth Circuit decision by Judge Murphy highlighted that sometimes the decisive antitrust issue is identifying who was harmed and where they sit in the distribution chain.  In Academy of Allergy & Asthma et al. v. Amerigroup Tennessee, Inc, the court affirmed that a provider’s federal antitrust claims were too indirect to recover under the Sherman Act.

The plaintiff, United Allergy, was a service provider to primary-care physicians.  Physicians contracted with United Allergy and paid a flat rate for allergy-testing services provided to the physicians’ patients, and then the physicians would submit reimbursement requests to insurers.  United Allergy alleged that, facing a deluge of allergy testing and treatment reimbursement claims, Tennessee-based insurers initiated a boycott of United Allergy through coordinated audits, denied claims, restrictive reimbursement policies, and pressure on physicians to abandon United Allergy altogether.  As a result, United Allergy claimed it lost profits and many patients lost access to allergy treatments.

United Allergy sued the insurers alleging that their coordinated expulsion violated the Sherman Act and various state laws.  The district court dismissed United Allergy’s federal antitrust claims for lack of “antitrust standing” because it “alleged only indirect injuries that flow out of the harms the defendants inflicted on physicians.”  The Sherman Act provides a private right of action to any person injured “by reason of anything prohibited in the antitrust laws.”  The Supreme Court and Sixth Circuit have placed limits on this open-ended language.  For a plaintiff to have standing in an antitrust case the plaintiff must allege an antitrust injury and proximate causation.  The Sixth Circuit discerned this test from its holding in Southaven Land Co. v. Malone & Hyde and the Supreme Court’s decision in Lexmark International v. Static Control Components.

Applying that test, the Sixth Circuit affirmed, holding that United Allergy’s alleged indirect harms precluded recovery under the federal antitrust laws.  Unlike the district court, the Sixth Circuit focused on the issue of proximate causation and almost completely avoided the antitrust injury issue, stating “[e]ven if United Allergy suffered [an adequate antitrust] injury, its suit still fails on proximate-causation grounds.”  Proximate causation, the court explained, limits a defendant’s liability in certain circumstances.  The Supreme Court seminal antitrust precedents of Hanover Shoe v. United Shoe Machinery Corp. and Illinois Brick Co. v. Illinois informed the Sixth Circuit’s reasoning.  

Hanover Shoe established that direct purchasers may recover the full amount of an overcharge from an antitrust violator, even if the direct purchaser shifted some of the increased costs from the overcharge downstream to its own customers.  In Illinois Brick, or the “mirror image” of Hanover Shoe, the plaintiffs were “indirect purchasers” who did not buy directly from the alleged antitrust violator but had experienced higher prices that had been passed down to them.  Illinois Brick establishes the hardline rule that only “direct purchasers” and not “indirect purchasers” can sue for damages under federal antitrust law.

In this case, the Sixth Circuit noted that Illinois Brick applies to indirect buyers and sellers as the “rule applies no matter which way the harm flows along a vertical chain of distribution.”  While United Allergy is not a purchaser but a seller, its relationship to the insurers is one step removed.  United Allergy sold its services to physician groups, who then sought reimbursement from insurers.  As a result of this indirect relationship, the Sixth Circuit held that United Allergy could not establish proximate causation for the antitrust injuries it asserted against the insurers.  The physicians, not United Allergy, were the directly harmed party.

United Allergy had sought damages for lost sales and profits as a result of the boycott, but the court rejected these claims.  First, Illinois Brick requires contractual privity between the antitrust violator and the plaintiff, meaning only direct purchasers or sellers can recover from lost sales flowing from an anticompetitive action’s reduction in output. Here, there was no contractual privity between United Allergy and defendants.  Second, regardless of Illinois Brick, lost profit damages for sales it might have made to prospective physicians are far too speculative.  United Allergy would need to show that “the physicians refused to enter the market as ‘the result of the alleged’ anticompetitive conduct,” which they could not do in this case.  The court rejected United Allergy’s other efforts to distinguish Illinois Brick. 

Judge Kethledge joined the majority opinion and concurred separately.  While Judge Kethledge agreed with the court’s handling of Supreme Court caselaw and the ultimate outcome, he sympathized with the real-world impact of the insurer’s boycott on consumers.  He pointed out that the market for allergy services in Tennessee was “woefully undersupplied” until United Allergy entered the market, providing more services and reduced rates for allergy patients.  Following United Allergy’s departure the market will “return to the former, undesirable status quo.” “The goal of antitrust law is to advance consumer welfare,” Judge Kethledge explained, and the insurers’ boycott frustrates that goal. Overall, this case demonstrates that proximate causation serves a critical gatekeeping role in antitrust lawsuits.  Even where a plaintiff alleges anticompetitive conduct, the causal chain must be sufficiently direct to be actionable.  What’s more, United Allergy’s case reminds us that the indirect-purchaser rationale of Illinois Brick applies in reverse to sellers, too.  And while proving an antitrust injury remains necessary, it may not always be determinative if proximate causation fails.

Mary Walser and Katherine von Schaumburg contributed to this article