                              UNITED STATES DISTRICT COURT
                              FOR THE DISTRICT OF COLUMBIA



  FEDERAL TRADE COMMISSION,

          Plaintiff,
                    v                                         Civil Action No. 19-1080 (JDB)
  SURESCRIPTS, LLC,

          Defendant.



                                    MEMORANDUM OPINION

       The Federal Trade Commission petitions this Court for equitable reliei 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 anticornpetitive conduct, including an exclusive loyalty-

based pricing    policy. Surescripts moves to dismiss, arguing (1) that the Court lacks subject matter

jurisdiction under Section l3(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.

                                            BlcxcRouNt

       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). Sulescripts is a health information technology company

operating   in two complementary markets: electronic prescription routing ("routing")             and



                                                    1
eligibility, collectively known   as   "e-prescribing." Compl. fol lnjunctive & Other Equitable Relief

("Compl.") [ECF No. 1] 11 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 forrnulary and benefit information fi'om 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. T 49.

        According to the FTC, Surescripts mainlains at least a 95Yo share (by transaction volume)

in each market using various anticompetitive measures. Id. lifl               2-3.       Beginning around 2009,

Surescripts implemented a pricing policy that rewarded "loyal" (i.e., exclusive) customers with

lower prices. Id. T 2. "To be considered exclusive, Surescripts requires that a pharmacy . . . route

100% of its transactions ttn'ough and only through the Surescripts network." Id.                   1l   66 (internal

quotation marks omitted). "The same structure exists for PBMs in                  eligibility." Id. 1167. For

routing, the cost to non-loyal customers varies by volume, but can be as high as I                       more than

for loyal customers; for eligibility, as high as |       *o...   Id.   T1l   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           I   of the fees paid by the customers in that

market; exclusivity in both markets resulted in an incentive payrnent of             !      of the fees from both

markets. Id. n   77   .



       The FTC contends that "[t]hose effectively exclusive contracts foreclosed at least 7}Yo of

each market, eliminating multiple competitive attempts from other companies. . . that offered

lower prices and greater innovation." Id. 113. The FTC notes that these loyalty contracts are

especially effective at excluding competition in the routing and eligibility markets because, given



                                                     2
Surescripts's dominant position, almost all market entrants must compete for customers who

already use Surescripts. Id. 1132. To gain a foothold in either narket, 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 fof

initial customers] a Surescripts cornpetitor 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. fl 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.           ll'1T   I   l0-1 1. Surescripts also entered

into a non-compete agreement with another competitor, RelayHealth, which                                  prevented

RelayHealth from capturing up to 15-20o/o of the routing market. Id. T 5; see also id. TT 88-99.

The FTC alleges that these exclusive arrangements have allowed Superscripts to impose

heightened prices on large portions of the markets, see. e.q., id. llfl 187-95, and have stifled

innovation and reduced quality in the two e-prescribing markets, id.                  lTT   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]          1T'1T   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. T 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



                                                           J
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. flfl 2-3.

                                           Lpcal Sra¡lnano
        'When
                 considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a

couft 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 (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."   Aú*eqqhal,           556 U.S. 662,678 (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 fthe Court] may take

judicial notice." Mpo), v. Rhee, 758 F.3d 285,291              n.l   (D.C. Cir.2014) (internal quotation

omitted).

        Under Rule l2(b)(l), 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.   2d9,13 (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 l, 4 (D.D.C.                  2007).

"[P]laintiff s factual allegations in the complaint. . . will bear closer scrutiny in resolving             a


l2(bxl)     motion than in resolving a l2(bX6) motion for failure to state a claim." Grand Lodge,

185 F. Supp. 2d at 13-14 (internal quotation marks       omitted). And the coufi 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, I 107 (D.C. Cir. 2005).




                                                     4
                                              AN,qlvs¡s

    I.       Subiect Matter Jurisdiction Under Section l3lb)

    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.") IECF No. 32] at

13-29.. Surescripts argues that.section 13(b) of the FTC Act limits the Court's power to issue

permanent injunctions upolt request by the FTC to "proper cases," which Surescripts intetprets as

'oroutine, straightforward" cases. Id. at   l7-18   see   also l5 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"), 138 S. Cf.2274 (2018). Def.'s Mem. at2419.

         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. ("PI.'s Opp'n") [ECF

No. 361 at10-12. 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 (2006)). Second, the FTC contends that this case is "proper" because that term

just means "any case in which a permarlent 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 Arbaush, 546 U.S. at 515. "[W]hen



                                                    5
Congress does not rank a statutory limitation . .   . as   jurisdictional, courts should treat the restriction

as   nonjurisdictional in character." Id. at 516. Here, the relevant provision reads: "in proper cases

the Commission may seek, and after proper proof, the court may issue, a penxanent injunction."

15 U.S.C. $ 53(b). Neither this specific provision nor Section 13(b)'s broader framework for

seeking equitable relief even include the word 'Jurisdiction," let alone a clear statement that any

of the statutory requirenrents are jurisdictional. As the Third Circuit recently concluded when

analyzingthe same provision, "Section 13(b) includes no indicia that Congress intended to rank a

statutory limitation . . . as jurisdictional." FTC v. Shire ViroPharma. Inc. ,917 F.3d 147, 154 (3d

Cir. 2019) (internal quotation marks omitted).

         Surescripts's best textual argument        for reading "proper cases" as a jurisdictional
requirement comes from the label        of Section l3(a)-"Power of Commission; jurisdiction of

courts." Reply Mem. in Supp. of Surescripts, LLC's Mot. to Disrniss Compl. ("Def.'s Reply")

[ECFNo.39] at4. Because Section 13(a) "is identical to Section 13(b) in structure," Surescripts

argues that the latter section too should be read as jurisdictional.        Id. Under Arbaush,      however,

the inquiry is whether Congress "clearly states that a threshold limitation on a statute's scope" is

jurisdictional, and Surescripts's structural argument from Section 13(a)'s label falls short of this

high bar. 546 U.S. at 515 (emphasis added). Indeed, Section 13(b)-the actual section at issue

here-has a separate and distinct label ("Temporary restraining orders; preliminary injunctions")

that does not include any reference to jurisdiction. See 15 U.S.C. $ 53(a)-(b); cf. Reed Elsevier.

Inc. v. Muchnick. 559 U.S. 154, 164 (20i0) (noting that the Copyright Act's registration

requirement for bringing an infringement action "is located in a provision 'separate' from those

granting federal courts subject-matter jurisdiction over those respective claims")

         Surescripts also emphasizes that the FTC has itself cited Section 13(b) as the basis for



                                                    6
personal jurisdiction and as "empower[ing] this Couft to issue a permanent          injunction."   See   Def.'s

Reply at 4 (internal quotation and emphasis omitted); see also Compl. at 54. But the agency's

fi'aming of this language as "empower[ing]" the Court does not thereby transform the language                of

Section l3(b) into a threshold jurisdictional requirement.

        Finally, although not dispositive, it is worth noting that the opposite. conclusion would
 .
create a cumbersome threshold test whenever the FTC seeks a permanent              injunction. Pl.'s Opp'n

at20-21.; see also Tr. of Mot. Hr'g [ECF No.       4l]    at49:3-6 (arguing that the FTC's "interpretation

is the one that relies on the plain language of the statute and doesn't saddle the Court with the

burden of deciding what a routine case is or not"). Under defendant's jurisdictional interpretation,

courls would need to decide whether the claims brought are "straightforward" or "routine" and to

assess the   novelty or complexity of the claims' merits before deciding whether to hear the case in

the first place. Pl.'s   Opp'n at20-21. This requirement       is unwieldly and, given the dearth of textual

support for a jurisdictional reading, suggests that the "proper cases" element is not jurisdictional.

        B. Whether the FTC Pleaded a "Proper Case"

        The FTC also prevails on the substance of this issue, for even                if   "proper cases" is

jurisdictional, the agency has pleaded sufficient facts to clear the mark. Cf. Def.'s Reply at                3


(arguing that the "proper cases" question can be addressed under either Fed. R. Civ. P.            l2(b)(l) or

Fed. R. Civ. P. 12(bX6)).

        Surescripts argues for a narrow interpretation of "proper cases" that limits the FTC's power

to seek permanent injunctions to instances of routine fïaud or other straightforward violations of

the FTC's substantive statutes. Def.'s Mem. at 17-18. Surescripts insists that "proper cases"

cannot consist of   "'all   cases' in which the FTC asserts a violation of the laws    it enforces"   because

that would render the phrase superfluous. Id. at           11.   Surescripts also points to the legislative



                                                      7
history, which suggests that at least one purpose for the permanent injunction provlslon was to

permit the FTC "in the routine fraud case, to merely seek a permanent injunction in those situations

in which it   does not desire   to funher   expand upon the prohibitions         of the Federal    Trade

Commission    Act." Id. at l8 (internal quotation   and emphasis omitted). And Surescripts cites two

cases that rely on a narrow interpretatiou of "proper   cases"-FTc v. Abbott Labs., Civ. A. No. 92-

1364,1992WL335442 (D.D.C. Oct. 13,1992), and FTC v. Vy'orld Travel Vacation Brokers. Inc.,

861 F.2d 1020 (7th Cir. 1988)-as well as public statements by fonner FTC officials framing

"proper cases" as involving straightforward violations. Def.'s Mem. at 18-24.

       There is thus considerable weight to Surescripts's argument that "proper cases" is not

synonymous with "all cases," for such an interpretation would make the phrase superfluous. At

the same time, this Court's task is not to define the tertn "proper cases" for all scenarios, but to

determine whether this case is proper. The FTC grounds its legal argument here                 in Circuit

precedent, United States v. Microsoft Corp. ,253 F.3d 34 (D.C. Cir. 2001) (en banc) (per curiam),

and does not seek to rely on its agency expertise to develop the   law.   See   Pl.'s Opp'n at21; Tr. of

Mot. Hr'g at 6J:12-16 (FTC noting that "Microsoft is the primary authority in this case" and

suggesting that the Court     will not "have to go much         beyond Microsoft"). Under such

circumstances, the Court concludes that the complaint adequately alleges a "proper case."

       In terms of the statutory text, the language of Section 13(b) affords little evidence one way

or the other, but it is at least not necessary to read the phrase "ptoper cases" so narrowly as to mean

"straightforward" or "non-novel" cases, as Surescripts suggests. Def.'s Mem. at22-24. Given

that the phrase "proper cases" is embedded in the second "Provided" portion of Section l3(b), the

phrase might be seen as merely distinguishing between those disputes suited for a temporary

injunction-the subject of most of Section 13(b)-and those         cases better suited   for   a permanent




                                                    8
injunction. See 15 U.S.C.          $       53(b). Or, given the requirement that the FTC must present "proper

proof," "proper cases" might be interpreted as involving disputes that do not require the exercise

of the FTC's scientific expertise. See J. Howard Beales III & Timothy J. Muris, Striking the Proper

Balance: Redress Under Section 13(þ) of the FTC Act,79 Antitrust L.J. 1,31-33 (2013).                          If   a


district couft determined that the targeted entity did not have fair notice or that an administrative

proceeding would be more "proper," then the court might rule against a permanent injunction. See

id. at 3 I ; see also id. at 9-1   3   .   The text alone, then, thus does not dictate either Surescripts's nalrow

reading of "proper cases" or the FTC's broader interpretation.

         Looking beyond the text, all other factors suggest that           a broader   reading is correct. In terms

of case law, a number of other courts have concluded that "propet cases" include more than

"routine" violations. See. e.g., FTC v. Evans Prods. Co. ,77 5 F .2d 1084, 1086-87 (9th Cir. 1985)

(noting that Section 13(b) may authorize a permanent injunction in instances beyond the routine

fraud case); FTC v. AmeriDebt. Inc. ,373 F. Supp. 2d 558, 562-63 (D. Md. 2005) (agreeing with

the FTC's reading of "proper case" as "simply one that involves a violation of any provision of

law enforced by the Commission" (internal quotation marks omitted)); see also Pl.'s Opp'n at 17-

20. Indeed, the FTC        states that         it has often relied on "section l3(b) in a wide variety of non-

'routine"' cases.    See   Pl.'s Opp'n at 18 & n.17 (citing FTC v. Qualcomm Inc., No. 17-CV-00220-

LHK, 2019 WL 2206013 (N.D. Cal. May 21,2019); FTC v. Cepþlqq-lnc., No. 2:08-cv-2141-

MSG,2019 WL 2lll253 (E.D. Pa. Feb. 2l ,2019); FTC v. AbbVie Inc.,329F. Supp. 3d 98 (E.D.

Pa.2018)); see also FTC v. Mylan Labs.. Inc. ,62F. Supp. 2d25,36 (D.D.C. 1999) ("[T]his Court

finds that the permanent injunction proviso may be used to enjoin violations of any provision of

law enforced by the FTC." (internal quotation marks omitted)).

         Surescripts's authorities to the contrary are all wanting. In World Travel, the Seventh



                                                              9
Circuit held that "it is quite clear that Congress at least expected that the FTC could rely on [Section

l3(b)l when it sought to halt a straightforward violation of section 5 [of the FTC Act] that required

no application of the FTC's expertise to a novel regulatory issue through administrative

proceedings." 861 F.2d at 1028 (emphasis added). Abbott Labs., quoting this language from

V/orld Travel. noted that "Federal Courls have shied away from accepting direct court actions by

the Commission. . .    if   the offending conduct interjects the court into areas of Commission

expertise involving the creation and monitoring of new concepts of unfair competitive trade

practice." 1992 WL 335442, at *2. But Abbott Labs. cites no authority other than World Travel

for this gloss on Section 13(b), and World Travel elsewhere acknowledges that "[a] substantial

argument can be made that the statutory language, when read with [the] legislative history, permits

the FTC to proceed under the last proviso of 13(b) for any violation of a statute administered by

the FTC." 861 F.2d at 1028.

       Surescripts's other arguments fare no better. To the extent that the Court considers

legislative history, the Senate report cited by Surescripts does highlight the ability of the FTC to

seek a permanent injunction immediately     "in the routine fraud case." Def.'s Mem. at     18 (quoting

                                                             'Warranty-Federal
Senate Committee      on    Commerce, Magnuson-Moss                               Trade Commission

Improvement Act, S. Rep. No. 93-151, af        3l (1973)).    But the repoft does not say that such

circumstances are the only time that the FTC can seek such an injunction. See id. Likewise, many

ofthe statements and academic articles that Surescripts marshals fi'om former FTC Commissioners

and other agency officials conclude that permanent injunctions are     ill suited for cases requiring the

FTC's expertise and the development of law through the administrative process, but they do not

then go on to preclude a case brought under circuit precedent. See id.     at2l23.
       Surescripts's argument thus largely rests on authorities that acknowledge straightforward



                                                   10
cases as the paradigm applications      of Section l3(b), but do not preclude pursuing other claims.

See Evans Prods. 775 F.2d    at 1086-87. In agreement with the clear weight of relevant cases, the

Court concludes that the FTC's complaint sufficiently pleads a "proper" case for a permanent

injunction under Section 13(b)

    II.      tr'ailure to State a Claim Under Section 2 of the Sherman Act

          Surescripts   next argues that the FTC's claim should be dismissed                  under

Fed. R. Civ. P. 12(bX6) because the FTC's complaint fails to allege a violation of Section 2 of the

Sherman     Act.   See Def.'s Mem.        at 2945. First, Surescripts     suggests that the FTC's

monopolization claim must fail because Surescripts's loyalty program was entirely optional and,

therefore, its low prices could constitute anticompetitive conduct only    if they were "predatory,"

which Surescripts denies. Id. at 30-31. Surescripts emphasizes that the FTC's complaint did not

plead the necessary elements of predatory pricing. Id. at33-34. Second, Surescripts argues that,

even under the framework of exclusive dealing, the FTC's claim would fail under the rule of reason

because the FTC's complaint did not adequately allege that Surescripts's loyalty programs created

any anticompetitive effects. Id.   at3445.    Once again,the FTC has the stronger argument on both

fronts.

                          Contracts v

          The offense of monopolization has two elements: "(1) the possession of monopoly power

in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished

from growth or development as a consequence of a superior product, business acumen, or historic

accident." United States v. Grinnell Corp.,384 U.S. 563,510-71 (1966). Surescripts does not

challenge the allegation that the company maintains a monopoly over the routing and eligibility




                                                   11
markets, see Def.'s Mem. at29-30,and thus the only question is whether "Surescripts has illegally

maintained its monopolies through exclusionary conduct," Pl.'s Opp'n at22.

        For an exclusionary act to be anticompetitive, "it must harm the competitive process and

thereby harm consumers." Microsoft Corp.,253 F.3d at 58 (emphasis omitted). Ilere, the FTC

alleges that Surescripts's loyalty programs-and the implicit threat                to charge non-exclusive

customers higher prices-prevented the entrance            of   competitors into e-prescribing markets.

Compl. tl 58. The absence of competitors, in turn, allegedly led to increased prices for pharmacies

and PBMs and lower incentive payments for EHRs. See id.'1lT 187-93.                At least on the face of its

complaint, then, the FTC appears to allege facts sufficient to state a claim under Section 2 of the

Sherman   Act.   See Iqbal, 556 U.S. at 678.

        Surescripts's argurnents to the contrary are unavailing. First, the company emphasizes that

its loyalty programs are entirely optional and thus do not necessarily constitute exclusive contracts.

See Def.'s Mem. at     31. But a contract      need "not contain specific agreements not to use the

fservices] of a competitor" as long as "the practical effect . . . is to prevent such use." Tampa Elec

Co. v. Nashville Coal Co., 365 U.S. 320,326 (1961) (quoting United Shoe Mach. Corp. v. United

States, 258   U.S. 451,457 (1922)). The FTC alleges that the threat of increased prices had the

"practical effect" of preventing customers from working with other e-prescribing platforms, "since

doing so would trigger the massive penalty provisions in their contracts with Surescripts . . . and

cost routing fand eligibility] customers millions of dollars through increased prices or, for EHRs,

decreased incentive payments." Compl.     \    129; see also id.   I   79 (alleging that EHRs that "violate[]

the exclusivity commitment" must "pay back [to Surescripts] the incentive fees for historical

transaction volume"). Surescripts highlights that some customers, like Kroger, did manage to

"multihome" and have a non-exclusive relationship with Surescripts, Def.'s Mem. af 31, but the



                                                    T2
test of whether a monopolist forecloses competition "is not total foreclosure, but whether the

challenged practices bar a substantial number of rivals or severely restrict the market's alnbit."

United States v. Dentsplv Int'1. Inc.,399 F.3d   l8l,   191 (3d Cir.2005); see also Microsoft,253

F.3d at 70_71 (noting that the use of exclusive contracts can violate $ 2 even       if   the contracts

foreclose less than 40o/o or 50Yo of the market share). Here, the govetnment has pleaded facts

demonstrating such substantial fbreclosure. See. e.s., Cornpl. TT 3, 135.

       Surescripts next suggests that optional low pricing loyalty programs are unlawful only

when they constitute "predatory" pricing, which the FTC has not pled. Def.'s Mem. at          31. But

none of the authorities Surescripts cites stands for the proposition that a plaintiff rnust allege

predatory pricing to succeed on a Section 2 claim. For instance, Pac. Bell Tel. Co. v.       Linkline

Commc'ns. Inc., 555 U.S. 438 (2009), did not concern effectively exclusionary contracts, but

price-squeezing. Id. at 451 In Concord Boat Corn v. Rrrrns\,r¡ick Cnrn 207 F.3d 1039 (8th Cir

2000), the court examined a loyalty discount program that required at most 80% compliance in the

boat market, making the exclusive pressures created by the program materially different than the

dynamics arising from Surescripts's total loyalty scheme. Id. at 1044. And in NicSand - Inc. v

3M Co., 507 F.3d 442 (6fh Cir. 2007) (en banc), the defendant 3M was not a monopolist. Id. at

45t-52.

       Surescripts also mischaracterizes the holdings in   Microsoft. It quotes the court's statement

that "offering a customer an attractive deal is the hallmark of competition" unless that price is

"predatory," but that statement concerned only Microsoft's offering Internet Explorer free of

charge. Microsoft,253F3dat67-68; Def.'s Mem. at 31. The relevant portion of the enbanc

D.C. Circuit's decision for this case is its ruling that Microsoft's exclusive contracts did violate

Section 2 of the Sherman Act; the court noted that Microsoft's exclusive dealing with fourteen       of



                                                 13
the fifteen access providers in North America effectively cut off one of the two major channels by

which competitors could enter the internet browser market. Microsoft, 253 F.3d at 68-71. These

contracts "clearly ha[d] a significant effect in preserving its monopoly; they help[ed] keep usage

of [Microsoft's competitor] below the critical level     necessary   for [it] or any other rival to pose   a


real threat to Microsoft's monopoly." Id. at71.

        Like the behavior at issue in Microsoft, Surescripts's alleged practice of charging loyal

pharmacies and PBMs less, and paying loyal EHRs greater incentives, do not need to constitute

predatory pricing for Surescripts's exclusionary practices to constitute illegal maintenance of a

nronopoly.   See   Grinnell, 384 U.S. at570-71. "'Where, as here, a dominant supplier enters into de

facto exclusive dealing affangements with every customer in the market, other firms may be driven

out not because they cannot compete on a price basis, but because they are never given                 an


opportunity to compete . . .   ."   ZF Meritor. LLC v. Eaton Corp., 696 F.3d 254,28I (3d Cir. 2012).

        Surescripts argues that Third Circuit cases like ZF Meritor have not been adopted in the

D.C. Circuit and that (for this Court) predatory pricing still remains an essential element of proving

that a loyalty program is unlawful. Def.'s Mem. at32-33. However, although the D.C. Circuit

has cast doubt on the Third    Circuit's decision in LePase's Inc. v. 3M ,324 F .3d 141 (3rd Cir. 2003)

(en banc), see FTC v. Church        & Dwight Co., 665 F.3d 1372, 1316 (D.C. Cir.20l l), much of that

criticism was focused on the conclusion that "bundling" rebates (i.e., requiring retailers to camy

multiple ploducts to receive certain rebates) are anticompetitive, rather than on the Third Circuit's

discussion of the exclusionary practices in question here, see id. at 1316-17. And even without

these persuasive precedents, the FTC's allegations       still state a claim of monopolization under the

D.C. Circuit's decision in Microsoft. See 253 F.3d at69-71.




                                                    I4
        B. Rule of Reason

        Surescripts next contends that,   if its loyalty contracts are viewed as exclusive dealing,   the

FTC's claims fail under the rule of reason. Def.'s Mem. at34. Surescripts argues that "the FTC

bears the burden   of demonstrating that Surescripts'[s] alleged contractual provisions have          an


anticompetitive effect   on competition," which in             an. exclusive dealing case means that

Surescripts's conduct "foreclosefd] competition in a substantial share of the line of commerce

affected." Id. at 35 (quoting Microsoft, 253 F.3d at 69). In particular, Surescripts suggests that,

because the FTC concedes that both routing and      eligibility are two-sided markets, "the FTC must

plausibly plead foreclosure of a substantial share of each of those markets as a whole." Id.

Surescripts insists that the FTC's complaint fails           to allege either anticompetitive effects or

foreclosure. Id.

       The Court concludes, to the contrary, that the FTC has met its burdens. Exclusivity

provisions covering about 40-50%          of the   relevant market have been found         to   foreclose

competition illegally, see Microsoft,253 F.3d at70, and Surescripts's loyalty program allegedly

places 70-80% of the routing and eligibility markets into effectively exclusive contracts, Pl.'s

Opp'n at 35; Compl.    nnll2-76.     Surescripts insists that, under the Supreme Couft's recent

decision in Arnex, the FTC must plead facts showing "anticompetitive effects in the market as a

whole and cannot focus only on the effects on one side." Def.'s Mem. at37; see also id. at 35-40.

But the FTC's complaint does just what Surescripts wants, alleging that Surescripts's loyalty

program "foreclosed at least 70o/o of each market," i.e., at least70Yo of both two-sided markets at

issue. Compl. fl3 (emphasis added); see also id.        lT   187 ("But for Surescripts's anticompetitive

course of conduct, the net price (taking into account both sides of the network) of the routing




                                                   15
transaction would be lower. Similarly, without Surescripts's loyalty contracts, the net price (taking

into account both sides of the network) of the eligibility transaction would be lower.").

         Surescripts argues that these statements are conclusory and that the FTC does not plead

sufficient facts to survive the motion to dismiss. Def.'s Mem. at 38; see also Iqbal, 556 U.S. at

6J8   ("A claim has facial plausibility when the plaintiff pleads factual content that allows the court

to draw the reasonable inference that the defendant is liable for the misconduct            alleged.").

Surescripts acknowledges, for instance, that the corlplaint includes an allegation that,       "in   the

routing market, the FTC states that [a cornpetitor] charges [certain] pharmacies lower prices than

does Surescripts," but notes that "the FTC does not make any allegations concerning EHRs'

incentive payments from Surescripts or fthe competitor] for those [same] routing transactions."

Def.'s Mem. at 39. Surescripts similarly concedes that the cornplaint alleges that a competitor

charged one PBM a lower price than Surescripts, but highlights the absence of "facts showing

higher net-transaction prices across that market as a whole." Id.

         This argument is wrong for two reasons. First, Surescripts reads too much into Amex.

That case concerned an alleged restraint of trade in violation of Section I of the Sherman Act, and

the Supreme Court determined that plaintiffs failed to offer evidence that the price of credit-card

transactions was higher than would be expected in a competitive market because the plaintiffs

provided no "reliable measure of Amex's transaction price or profit margins." 138 S. Ct. at2288.

The Court also concluded that "Amex's increased merchant fees reflect[ed] increases in the value

of its services and the cost of its transactions, not an ability to charge above a competitive price."

Id. Amex was not a monopolist. Id. ar 2282 ("Visa        . . . has 45Yo of the market as measured by

transaction volume. Amex and MasterCard trail with26.40/o and23.3o/o, respectively . . . .").




                                                   16
        Here, on the other hand, the FTC brings a claim of monopolization under Section 2 of the

Sherman Act against Surescripts, an undisputed monopolist. Regardless of Surescripts's specific

above-market fees or below-market incentives, the central question is whether the FTC alleged

that Surescripts engaged in exclusionary conduct that "harmed competition, not just a competitor,"

by blocking entrants into the market. Microsoft, 253 F.3d at 59. The FTC has done just that. See.

e.s., Compl.   '1i11   3, 135. 172-81

       But, even assuming that Surescripts is correct in its interpretation of Amex, the FTC still

pleaded sufficient facts addressing the totality of both two-sided markets. In addition to charging

lower fees to pharmacies and PBMs, the FTC alleges that one competitor was also willing to pay

higher incentives to EHRs.        Id.ll 192. Thus, on both   sides of the market, Surescripts stood to gain

above-market returns, charging higher fees and paying out lower incentives than its competitors.

The FTC also alleges that Surescripts engaged in other anticompetitive conduct, like forcing key

customers to terminate association with competitors. Id. T I 11. The FTC alleges that this conduct

hurt innovation, decreased output, and lowered quality. fd. IT 196-215. Surescripts's response is

largely factual, denying the FTC's allegations. Def.'s Mem. at              4142. But such denials are not
adequate grounds for dismissing the FTC's cornplaint; rather, they speak to the merits and the need

for further factual development through discovery.

       Finally, Surescripts argues that the FTC failed to plead sufficient facts showing that

Surescripts's business practices foreclosed market competition to a "substantial" degree. Id. at

4245.     Surescripts observes that exclusive dealing              is illegal only if the anangement
"substantially" weakens competition, see Eisai. Inc. v. Sanofi Aventis U.S.. LLC, 821 F.3d 394,

403-04 (3d Cir. 2016), and insists that its contracts, even            if   facially exclusive, were easily




                                                     t7
terminable, of short duration, and therefore presumptively lawful, see. e.g. Roland Mach. Co. v.

Dresser Indus.. Inc., 749 F.2d380, 395 (7th   Cir. 1984). Def.'s Mem. at 42.

        Once again, however, Surescripts's argument turns on a factual dispute       ill   suited for the

pleadings stage. Compare Pl.'s Opp'n af 30-32; Compl. TT 84-86, withDef.'s Reply at 18-20.

Under Supreme Court precedent, the relevant inquiry is fact intensive:

        To determine substantiality in a given case, it is necessary to weigh the probable
        effect of the contract on the relevant area of effective competition, taking into
        account the relative strength of the parties, the proportionate volume of commerce
        involved in relation to the total volume of commerce in the relevant market area,
        and the probable immediate and future effects which pre-emption of that share of
        the market might have on effective competition therein.

Tampa Elec., 365 U.S. at 329     Even   if the contracts were short term   and easily terminable, the

FTC argues that their exclusive terms, when combined with the nature of the two relevant markets

and Surescripts's dominant monopoly position, had the effect of foreclosing large parts of both

markets and harming competition. Pl.'s Opp'n at 31-32; cf. Microsoft, 253 F.3d at 70-71

(analyzing whether Microsoft's exclusive contracts had "a signihcant effect in preserving its

monopoly"). Further factual development may vindicate Surescripts's position, but the FTC's

cornplaint contains sufficient facts to move beyond the pleadings stage.

                                           Cot'lcl-ustoN

        For all the foregoing reasons, Surescripts's motion to dismiss will be denied. A separate

order will issue on this date.


                                                                                   lsl
                                                                         JOHN D. BATES
                                                                    United States District Judge
Daled: January 17.2020




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