Fed. Trade Comm'n v. Surescripts, LLC

424 F.Supp.3d 92

FEDERAL TRADE COMMISSION, Plaintiff,

v.SURESCRIPTS, LLC, Defendant.

Civil Action No. 19-1080 (JDB)

United States District Court, District of Columbia.

Signed January 17, 2020

Bradley Albert, Federal Trade Commission, Markus H. Meier, Federal Trade Commission Bureau of Commission, D. Patrick Huyett, David B. Schwartz, Joseph P. Mathias, Tanya T. O'Neil, Federal Trade Commission Bureau of Competition, Washington, DC, for Plaintiff.

Amanda P. Reeves, Allyson M. Maltas, Latham & Watkins LLP, Washington, DC, Alexander E. Reicher, Alfred C. Pfeiffer, Jr., Latham & Watkins LLP, San Francisco, CA, for Defendant.

MEMORANDUM OPINION

JOHN D. BATES, United States District Judge

The Federal Trade Commission petitions this Court for equitable relief, including a permanent injunction and monetary relief, against Surescripts, LLC pursuant to Section 13(b) of the FTC Act. See 15 U.S.C. § 53(b). The FTC alleges that Surescripts has violated Section 2 of the Sherman Act by maintaining a monopoly in two markets—electronic prescription routing and eligibility (explained below)—through anticompetitive conduct, including an exclusive loyalty-based pricing policy. Surescripts moves to dismiss, arguing (1) that the Court lacks subject matter jurisdiction under Section 13(b) of the FTC Act, and (2) that the FTC fails to state a claim under Section 2 of the Sherman Act because it does not allege either that Surescripts employed predatory pricing or that Surescripts's market behavior violated the rule of reason. For the reasons explained below, the Court will deny Surescripts's motion.

BACKGROUND

At the pleadings stage, the Court assumes the facts alleged in the complaint are true and presents them in the light most favorable to the plaintiff—here, the FTC. Felter v. Kempthorne, 473 F.3d 1255, 1257 (D.C. Cir. 2007). Surescripts is a health information technology company operating in two complementary markets: electronic prescription routing ("routing") and eligibility, collectively known as "e-prescribing." Compl. for Injunctive & Other Equitable Relief ("Compl.") [ECF No. 1] ¶ 1. Routing involves the transmission of prescription-related data from a prescriber to a pharmacy via the prescriber's electronic health record ("EHR") system. Id. Eligibility involves the transmission of a patient's formulary and benefit information from a payer (often the patient's pharmacy benefit manager ("PBM")) to a prescriber's EHR. Id. Surescripts charges pharmacies a fee for each routing transaction and charges PBMs a fee for each eligibility transaction. Id. ¶ 49.

According to the FTC, Surescripts maintains at least a 95% share (by transaction volume) in each market using various anticompetitive measures. Id. ¶¶ 2–3. Beginning around 2009, Surescripts implemented a pricing policy that rewarded "loyal" (i.e., exclusive) customers with lower prices. Id. ¶ 2. "To be considered exclusive, Surescripts requires that a pharmacy ... route 100% of its transactions through and only through the Surescripts network." Id. ¶ 66 (internal quotation marks omitted). "The same structure exists for PBMs in eligibility." Id. ¶ 67. For routing, the cost to non-loyal customers varies by volume, but can be as high as [redacted] more than for loyal customers; for eligibility, as high as [redacted] more. Id. ¶¶ 70–71. Surescripts structured its contracts with EHR providers such that loyalty in either the routing or eligibility markets resulted in an incentive payment to the EHR provider of [redacted] of the fees paid by the customers in that market; exclusivity in both markets resulted in an incentive payment of [redacted] of the fees from both markets. Id. ¶ 77.

The FTC contends that "[t]hose effectively exclusive contracts foreclosed at least 70% of each market, eliminating multiple competitive attempts from other companies ... that offered lower prices and greater innovation." Id. ¶ 3. The FTC notes that these loyalty contracts are especially effective at excluding competition in the routing and eligibility markets because, given Surescripts's dominant position, almost all market entrants must compete for customers who already use Surescripts. Id. ¶ 32. To gain a foothold in either market, entrants must convince customers to engage in "multihoming," or the simultaneous use of Surescripts as well as one or more competitors. Id. The FTC alleges that, by raising the cost of multihoming, Surescripts hindered customers' ability to "multihome" and "significantly elevat[ed] the critical mass [of initial customers] a Surescripts competitor would need to become a viable network in either routing or eligibility." Id.

Beyond the loyalty program, Surescripts employed "threats and other non-merits based competition" to keep its customers from working with its competitors. Id. ¶ 4. For instance, when a competitor, Emdeon, attempted to enter the market through contracts with Allscripts, a large EHR, Surescripts relied on its market power to force Allscripts into exclusive contracts that prevented a renewal of Allscripts's contract with Emdeon. Id. ¶¶ 110–11. Surescripts also entered into a non-compete agreement with another competitor, RelayHealth, which prevented RelayHealth from capturing up to 15–20% of the routing market. Id. ¶ 5; see also id. ¶¶ 88–99. The FTC alleges that these exclusive arrangements have allowed Superscripts to impose heightened prices on large portions of the markets, see, e.g., id. ¶¶ 1187–95, and have stifled innovation and reduced quality in the two e-prescribing markets, id. ¶¶ 196–215.

Surescripts moves to dismiss the FTC's complaint, arguing that this case is both procedurally and substantively defective. Surescripts, LLC's Mot. to Dismiss Compl. ("Def.'s Mot.") [ECF No. 32] ¶¶ 1–3. First, Surescripts argues that the Court lacks subject matter jurisdiction over the request for a permanent injunction because the FTC cannot establish that this case is "proper" under Section 13(b) of the FTC Act. Id. ¶ 1; see also 15 U.S.C. § 53(b). Second, Surescripts argues that the FTC's complaint fails to state a claim under Section 2 of the Sherman Act because it does not allege that the prices offered by Surescripts were predatory or that Surescripts's market practices violated the rule of reason. Def.'s Mot. ¶¶ 2–3.

LEGAL STANDARD

When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a court presumes the truth of a complaint's factual allegations, though it is "not bound to accept as true a legal conclusion couched as a factual allegation:" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotation omitted). The court then asks whether the facts alleged suffice "to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation omitted). The court considers "facts alleged in the complaint, any documents either attached to or incorporated in the complaint and matters of which [the Court] may take judicial notice." Mpoy v. Rhee, 758 F.3d 285, 291 n.1 (D.C. Cir. 2014) (internal quotation omitted).

Under Rule 12(b)(1), a court has an affirmative obligation to ensure that it is acting within the scope of its jurisdictional authority. Grand Lodge of the Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001). "[The] court must dismiss a case when it lacks subject matter jurisdiction." Randolph v. ING Life Ins. & Annuity Co., 486 F. Supp. 2d 1, 4 (D.D.C. 2007). "[P]laintiff's factual allegations in the complaint ... will bear closer scrutiny in resolving a 12(b)(1) motion than in resolving a 12(b)(6) motion for failure to state a claim." Grand Lodge, 185 F. Supp. 2d at 13–14 (internal quotation marks omitted). And the court may consider material other than allegations in the complaint in determining whether it has jurisdiction to hear the case. See Settles v. U.S. Parole Comm'n, 429 F.3d 1098, 1107 (D.C. Cir. 2005).

ANALYSIS

I. Subject Matter Jurisdiction Under Section 13(b)

Surescripts first contends that the Court lacks subject matter jurisdiction over this dispute. Mem. in Supp. of Surescripts, LLC's Mot. to Dismiss Compl. ("Def.'s Mem.") [ECF No. 32] at 13–29. Surescripts argues that Section 13(b) of the FTC Act limits the Court's power to issue permanent injunctions upon request by the FTC to "proper cases," which Surescripts interprets as "routine, straightforward" cases. Id. at 17–18; see also 15 U.S.C. § 53(b). This case, Surescripts continues, does not qualify as routine or straightforward because it involves complex and novel issues of antitrust law, such as how to understand the two-sided e-prescription markets of routing and eligibility in light of the Supreme Court's recent decision in Ohio v. American Express Co. ("Amex"), ––– U.S. ––––, 138 S. Ct. 2274, 201 L.Ed.2d 678 (2018). Def.'s Mem. at 24–29.

The FTC responds in two ways. First, the FTC argues that the "proper cases" language in Section 13(b) does not limit courts' jurisdiction to hear cases brought under the Act. Pl. FTC's Mem. of Law in Opp'n to Def. Surescripts, LLC's Mot. to Dismiss Compl. ("Pl.'s Opp'n") [ECF No. 36] at 10–12. The FTC argues that the language of Section 13(b) does not clearly speak to courts' power to adjudicate such claims. Pl.'s Opp'n at 11 (citing Arbaugh v. Y&H Corp., 546 U.S. 500, 515–16, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006) ). Second, the FTC contends that this case is "proper" because that term just means "any case in which a permanent injunction would be ‘appropriate,’ i.e., any case in which a law enforced by the FTC has been violated and equitable remedies are needed to make harmed consumers whole." Id. at 13. The FTC has the stronger argument on both points.

A. Whether "Proper Cases" Is a Jurisdictional Requirement

The Supreme Court has established a clear-statement rule for determining whether statutory elements constitute jurisdictional requirements. See Arbaugh, 546 U.S....