Morton Salt Presumption Of Injury Under Robinson-Patman Act
Plaintiffs and appellants, the disfavored purchasers in a Robinson-Patman Act case, were twenty-eight retail pharmacies who alleged that the pharmaceutical manufacturer defendants had charged them higher prices than those charged since the early 1990s to the favored purchasers, who typically received discounts and rebates. The favored purchasers included HMOs and pharmacy benefit managers, who manage benefits for insurers and HMOs. Plaintiffs claimed that the price differentials harmed their ability to compete, causing them to lose customers to the favored purchasers. After years of discovery, the district court granted summary judgment and dismissed plaintiffs’ Robinson-Patman Act claims (15 U.S.C. sections 13(a), (d), and (f), 15 and 26) for failure to prove competitive or antitrust injury. The court of appeals affirmed. Cash & Henderson Drugs, Inc. v. Johnson & Johnson, 799 F.3d 202 (2d Cir. 2015).
The Second Circuit relied on the language of the Robinson-Patman Act itself as setting forth competitive injury as an essential element of a claim brought under that Act:
the effect of such discrimination [the price differential] may be substantially to lessen competition . . . or to injure, destroy, or prevent competition with any person who . . . knowingly receives the benefit of such discrimination . . . .
Cash & Henderson, 799 F.3d at 209, quoting Section 2(a) [15 U.S.C. Section 13(a)]. The Second Circuit placed great emphasis on the word “substantially.”
The court ruled that the key to showing competition may have been substantially lessened is sales lost by the disfavored purchasers to the favored purchasers. Cash & Henderson, supra, at 210 (“the ‘hallmark of the requisite competitive injury’ is the diversion of sales to a favored purchaser” [quoting Volvo Trucks of North America v. Reeder-Simco GMC, Inc., 546 U.S. 164, 177 (2006)]). This can be shown in either of two alternative ways: “ showing substantial discounts to a competitor over a significant period of time, known as the Morton Salt inference, or  proof of lost sales to favored purchasers.” Cash & Henderson, 799 F.3d at 210, citing Falls City Indus., Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 435 (1983); also citing FTC v. Morton Salt Co., 334 U.S. 37, 50-51 (1948) (violation inferred from lengthy, substantial price discrimination between competitors). The Morton Salt inference may still be alive and well. It continues to be cited by the Supreme Court. Cash & Henderson, 799 F.3d at 212, citing Falls City, 460 U.S. at 437; Volvo, 546 U.S. at 177.
The plaintiffs here first sought to meet the test through direct proof of lost sales to favored purchasers. They devised, under court supervision, a “matching process,” which required extensive and lengthy discovery from, inter alia, favored purchasers, to identify such lost sales through “matched customers:”
[A] “matched customer” was one who filled a prescription for one of the specified drugs, or a common substitute, at one of the favored purchasers’ pharmacies within six months of the last time they filled that prescription at one of the twenty-eight plaintiff pharmacies.
Cash & Henderson, 799 F.3d at 207.
The result of this matching process, in the court’s view, established that plaintiffs had lost a “de minimis” amount of business to the favored purchasers that was too small to amount to a substantial lessening of competition. Id. at 208 (“the plaintiffs had lost a miniscule number of customers to favored purchasers”). For example, the “number of transactions . . . represented only one quarter of one percent of the average number of such transactions of such pharmacies . . .” Id. (“no pharmacy lost more than around one percent of the total brand name prescription drug transactions conducted by the average independent pharmacy”).
Plaintiffs also relied on the Morton Salt inference of injury because the record showed “substantial discounts over a considerable period and . . some evidence of diverted sales.” Cash & Henderson, at 212. The Second Circuit held that the proof adduced through the “matching process” rebutted the Morton Salt inference and resulting presumption of injury. Id. Because the antitrust laws are intended to protect the competitive process, the Court reasoned, the presumption should not operate where the record shows that there is no threat that competition may be substantially lessened. Id. at 212-213.
The court declined plaintiffs’ invitation to read the Morton Salt inference expansively, such as plaintiffs’ assertion that the Morton Salt inference should be not be rebuttable where a plaintiff can show some lost sales, which the court rejected. Id. at 212. The court stated instead that it construed the Robinson-Patman Act “consistently with the broader policies of the antitrust laws.” Cash & Henderson, 799 F.3d at 213 and at 209, quoting Volvo, 546 U.S. at 181, and Automatic Canteen Co. of Am. v. FTC, 346 U.S. 61, 63 (1953) (Frankfurter, J., for the majority: the Robinson-Patman Act is not to be interpreted so that it “give[s] rise to a price uniformity and rigidity in open conflict with the purposes of other antitrust legislation”).
In sum, the Second Circuit held that plaintiffs had not proven any competitive injury (799 F.3d at 209-213) or antitrust injury. Id. at 214. For those same reasons, the district court had properly denied plaintiffs injunctive relief. Id. at 214-15. Dismissal of plaintiffs’ Section 2(d) and 2(f) claims was affirmed due to the court’s holding that plaintiffs had not suffered any antitrust injury. Id. at 215.
 The case has a complex procedural history that this article will touch on only briefly. Initially there had been nearly four thousand plaintiffs, but more than three thousand “concluded that they would not be able to identify lost customers and filed stipulations of dismissal with prejudice.” 799 F.3d at 207. These twenty-eight plaintiffs apparently were bringing a lead case that, by stipulation, would have a binding effect on other plaintiffs not parties to the appeal. Id. at 209 n.6.