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Walgreen’s, Kroger’s Drug Pricing Claims Against J&J Revived (2)

Feb. 21, 2020, 1:42 PMUpdated: Feb. 21, 2020, 7:36 PM

Walgreen Co. and Kroger Co. can sue Johnson & Johnson and Janssen Biotech Inc. for allegedly inflating prices for the biologic Remicade, despite an anti-assignment provision in a contract between wholesale drug distributors and the drugmakers, the Third Circuit said Friday.

Antitrust claims “are a product of federal statute and thus are extrinsic to, and not rights ‘under,’ a commercial agreement,” the U.S. Court of Appeals for the Third Circuit said in reversing summary judgment for the drugmakers.

J&J and Janssen thus couldn’t get out of the suit by claiming the right to sue belongs solely to the distributors, who couldn’t assign it to the retailers due to the anti-assignment provision, the court said.

Walgreen and Kroger sell Remicade —used to treat autoimmune diseases— in their in-store pharmacies. They acquire it from two distributors, AmerisourceBergen and Cardinal Health, who buy the drug through a distribution agreement with a Janssen affiliate.

The contracts between the distributors and the drugmakers contain a clause stating that “neither party may assign, directly or indirectly, this agreement or any of its rights or obligations under this agreement… without the prior written consent of the other party.” Any attempted assignment is void, the contract said.

Nevertheless, the distributors assigned all of their rights, title, and interest in their antitrust claims or any claims arising out of their purchase of Remicade to the retailers. Walgreen and Kroger sued, but a federal trial court entered summary judgment for Johnson & Johnson and Janssen, saying they lacked standing because of the anti-assignment provision.

“It’s an important opinion because it shows that the antitrust claim is still viable even if you have of these contracts that prevents the assignment of these rights,” Michael Carrier, an antitrust professor at Rutgers Law School in Camden, N.J., said. “It’s a good thing for the plaintiffs here.”

One area of impact from the decision could be its application to, and use in, similar cases..

Distributorship contracts will often have these anti-assignment phrases in them, “so the decision could open up a lot of claims, too. It might improve the market for these claims,” said Eleanor Tyler, a senior legal analyst at Bloomberg Law. “There’s a lot that could happen from this decision. It could have implications that, on the face of it, aren’t that obvious.”

The court, in its decision, said the antitrust claims against the drugmakers arose under federal statutory law, not under the contract, and thus weren’t affected by the anti-assigment provision.

According to Tyler, merger parties engaged in arbitration will often have similar disputes about what is truly covered by an arbitration agreement, as opposed to an anti-assignment provision. This means the Third Circuit’s decision could potentially be used in such situations to argue that certain antitrust claims don’t arise out of a contract and thus can’t be forced into arbitration.

The court sent the case back to the trial court for further proceedings. Judge Kent A. Jordan wrote the opinion, which Judges Anthony J. Scirica and Marjorie O. Rendell joined.

Kenny Nachwalter PA and Hangley Aronchick Segal & Pudlin represented Walgreen’s and Kroger. Patterson Belknap Webb & Tyler, Covington & Burling LLP, and Ballard Spahr represented Johnson & Johnson and Janssen.

The case is Walgreen Co. v. Johnson & Johnson, 3d Cir., No. 19-1730, 2/21/20.

(updates with comment from analysts )

To contact the reporters on this story: Mary Anne Pazanowski in Washington at mpazanowski@bloomberglaw.com; Jacob Rund in Washington at jrund@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Patrick L. Gregory at pgregory@bloomberglaw.com; Michael Ferullo at mferullo@bloomberglaw.com

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