                                                          NOT PRECEDENTIAL



                    UNITED STATES COURT OF APPEALS
                         FOR THE THIRD CIRCUIT

                                  _____________

                                   No. 11-3122
                                  _____________

         IN RE: HYPODERMIC PRODUCTS ANTITRUST LITIGATION


         AMERICAN SALES COMPANY, INC; SAJ DISTRIBUTORS, INC;
      LOUISIANA WHOLESALE DRUG CO INC; ROCHESTER DRUG CO-OP
    INC; JM SMITH CORPORATION; DIK DRUG; PARK SURGICAL CO., INC.,
                                                Petitioners
                          ________________

                 On Appeal from the United States District Court
                           for the District of New Jersey
                         District Court No. 2-05-cv-01602
                  District Judge: The Honorable Jose L. Linares


                               Argued May 17, 2012

                   Before: SMITH and FISHER, Circuit Judges
                         and STEARNS, District Judge*

                                (Filed:June 5, 2012)




*
 The Honorable Richard G. Stearns, United States District Judge for the United States
District Court of Massachusetts, sitting by designation.

                                         1
Elena K. Chan, Esq.
Bruce E. Gerstein, Esq. (argued)
Garwin Gerstein & Fisher
1501 Broadway
Suite 1416
New York, NY 10036

Eric L. Cramer, Esq.
Daniel Berger, Esq.
Berger & Montague
1622 Locust Street
Philadelphia, PA 19103

Peter Kohn, Esq.
Richard D. Schwartz, Esq.
Faruqi & Faruqi
101 Greenwood Avenue
Suite 600
Jenkintown, PA 19046

Peter S. Pearlman, Esq.
Cohn, Lifland, Pearlman, Hermann & Knopf
Park 80 West – Plaza One
250 Pehle Avenue, Suite 401
Saddle Brook, NJ 07663

Thomas M. Sobol, Esq.
Hagens Berman Sobol Shapiro
One Main Street
4th Floor
Cambridge, MA 02142

Howard J. Serdan, Esq.
Levin, Fishbein, Sedran & Berman
510 Walnut Street
Suite 500
Philadelphia, PA 19106
       Counsel for Distributor Petitioners-Appellants


                                         2
James V. Bashian, Esq.
4th Floor
70 Adams Street
Hoboken, NJ 07030

Thomas S. Biemer, Esq.
James J. Rodgers, Esq.
Holly R. Rogers, Esq.
Dilworth Paxson
1500 Market Street
Suite 3500E
Philadelphia, PA 19102

Karin E. Fisch, Esq.
Abbe, Spanier, Rodd & Abrams
212 East 39th Street
New York, NY 10016

Torsten M. Kracht, Esq.
Todd M. Stenerson, Esq.
Richard L. Wyatt, Jr., Esq. (argued)
Hunton & Williams
2200 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

R. Laurence Macon, Esq.
Akin, Gump, Strauss, Hauer & Feld
300 Convent Street
Suite 1500
San Antonio, TX 78205

Kenneth A. Wexler, Esq.
Wexler Wallace
55 West Monroe Street
Chicago, IL 60603
     Counsel for Healthcare Provider Appellees




                                       3
Robert A. Atkins, Esq.
Steven C. Herzog, Esq.
Jacqueline P. Rubin, Esq.
Hannah S. Sholl, Esq.
Moses Silverman, Esq. (argued)
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019

R. Dale Grimes, Esq.
Bass, Berry & Sims
2700 First American Center
315 Deaderick Street
Nashville, TN 37238

Megan E. Hiorth, Esq.
Gregory B. Reilly, Esq.
Gavin J. Rooney, Esq.
Scott L. Walker, Esq.
Lowenstein Sandler
65 Livingston Avenue
Roseland, NJ 07068

Ellen B. Unger, Esq.
Apartment 306
48 South Park Street
Montclair, NJ 07042
      Counsel for Becton Dickinson Co. Appellee




                                      4
                               _____________________

                                      OPINION
                               _____________________

SMITH, Circuit Judge.

       This appeal entails a consolidated class action involving two groups of plaintiffs

alleging that defendant-appellee Becton Dickinson & Co. (“Becton”), a manufacturer of

hypodermic products, 1 violated the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2. The

two plaintiffs’ groups are: (i) distributors of Becton’s hypodermic products

(“Distributors”); 2 and (ii) certain hospitals and clinics that purchase Becton’s hypodermic

products (“Healthcare Providers”) 3 (collectively, Distributors and Healthcare Providers

are the “Plaintiffs”). 4   The discrete issue on appeal is which group of Plaintiffs,

Distributors or Healthcare Providers, has standing under the direct-purchaser rule to

pursue the federal antitrust claims related to the contract sales of Becton’s hypodermic
1
  The hypodermic products are the following devices and their associated needles:
disposable syringes; blood collection devices; winged IV devices; and IV catheter
devices.
2
 The Distributors, who are the plaintiff-appellants, are: American Sales Co., Inc.; Dik
Drug Co.; J M Smith Corp.; Louisiana Wholesale Drug Co., Inc.; Park Surgical Co., Inc.;
Rochester Drug Co-Operative, Inc.; and SAJ Distributors, Inc.
3
  The Healthcare Providers, who are the plaintiff-appellees, are: MedStar Health Inc.;
MedStar-Georgetown Medical Center, Inc.; National Rehabilitation Hospital, Inc.; and
Washington Hospital Center Corporation.
       Other plaintiff healthcare providers, such as Hebrew Home for the Aged, chose
not to participate as appellees. Nonetheless, this decision applies to all plaintiff
healthcare providers in this action, regardless of whether they chose to respond as
appellees in this appeal.
4
  The Healthcare Providers claim that there is a third group of plaintiffs, the indirect
purchasers (e.g., retail pharmacies), but that group has not asserted any issues on appeal.

                                             5
products. The District Court ruled on summary judgment that Healthcare Providers, not

Distributors, were the direct purchasers and have exclusive standing to pursue these

claims. We will reverse.

                                    I.    BACKGROUND

A.        BECTON’S DISTRIBUTION OF HYPODERMIC PRODUCTS

          Plaintiffs allege that Becton maintained a dominant share of the markets for the

hypodermic products, employed various anticompetitive practices to eliminate

competition and achieve monopoly positions in the relevant markets, and utilized these

advantages to charge purchasers higher prices. Although Becton sells the hypodermic

products through two channels (i.e., contract sales and non-contract sales), only Becton’s

contract sales are at issue here.

          1.    CONTRACT SALES

          Contract sales, which account for approximately 74% of Becton’s sales, involve

three primary contracts: a Net Dealer Contract (“NDC”); a Distribution Agreement; and a

Dealer Notification Agreement (“DNA”).

          Net Dealer Contract

          NDCs are agreements between a manufacturer of medical products and a group

purchasing organization (“GPO”). GPOs are entities that negotiate prices of products and

other terms and conditions on behalf of their member healthcare providers. GPOs do not

purchase or sell any products themselves. By negotiating on behalf of many healthcare

providers, GPOs are generally able to negotiate lower prices than the manufacturers’ list

prices.

                                              6
       Here, Novation, which is a GPO that represented Healthcare Providers, entered

into an NDC with Becton for the sale and purchase of the hypodermic products.

Although the NDC provided that Novation’s members would have the option of

purchasing hypodermic products pursuant to the NDC, the members were not obligated

to make any purchases under the NDC.            The NDC required that Becton make the

hypodermic products “available for purchase by [Distributors] at the [a]ward [p]rices for

resale to [Healthcare Providers].” (JA3926.) Under the NDC Distributors, on behalf of

Healthcare Providers, were to submit orders for hypodermic products to Becton; Becton

would then deliver those products to, and invoice, Distributors; and Distributors were

responsible for paying Becton pursuant to the rates set forth in the NDC. Notably, the

NDC did not specify any particular distributor or means of distribution, nor did it purport

to set the final price at which Distributors would resell the hypodermic products to

Healthcare Providers.

       Distribution Agreement

       After an NDC is executed, the GPO notifies its members of the agreement’s terms

and conditions.    Members who wish to participate in the NDC must notify the

manufacturer of their intentions.

       The participating members then separately negotiate and execute Distribution

Agreements with their respective distributors. The Distribution Agreement governs the

terms and conditions of the distributor’s transaction with the member hospital, and

generally includes: the price the member will pay to the distributor for the products; any




                                            7
service fees the distributor may charge the member; and any other terms related to the

transaction.

       Here, Novation informed its members of the NDC with Becton.             Healthcare

Providers executed letters of commitment with Becton, notifying Becton that it should

charge their distributor the agreed upon NDC price for the hypodermic products.

       Healthcare Providers also entered into Distribution Agreements with their

respective distributors and notified Becton of their distribution relationships.      For

example, appellee MedStar Health (“MedStar”), a Healthcare Provider and named

plaintiff, negotiated and entered into a Distribution Agreement with Cardinal Company

(“Cardinal”), a distributor, for the sale and delivery of, inter alia, the hypodermic

products.      MedStar agreed to submit orders directly to Cardinal.       Cardinal was

responsible for obtaining the requested hypodermic products from Becton, delivering

them to MedStar, and invoicing Medstar. MedStar agreed to pay Cardinal an amount

equal to the price Cardinal paid to purchase the products from Becton plus a markup, line

fee, or an activity fee on a per-purchase-order basis.

       Dealer Notification Agreement

       After the member identifies its distributor, the manufacturer generally enters into

some type of agreement with the distributor governing the terms and conditions of their

relationship.




                                              8
       Here, Becton entered into Dealer Notification Agreements with Distributors.

These agreements referred to Distributors as Becton’s “servicing agent[s].” (JA5626.) 5

Under the DNAs, the member hospitals may submit orders directly to Distributors, and

Distributors are to regard these orders as purchase orders from Becton. The DNAs

require Distributors to ship the products within 3-6 days and invoice the member

hospitals on behalf of Becton.

       The DNA also governs Becton’s payment and rebate system. Becton’s list prices

for the hypodermic products — i.e., the prices Becton charges distributors in non-contract

sales — is higher than the prices set forth in contract sales under an NDC. Becton is

concerned that distributors will obtain products from Becton at the lower NDC price and

resell those products in non-contract sales. To protect against such behavior, Becton

invoices Distributors at the higher list price for all shipments it makes to them.

Subsequently, if a Distributor provides proof that it delivered the products to a customer

pursuant to an NDC, then Becton issues a rebate to that Distributor for the difference

between the higher list price that was invoiced and the lower contract price set forth in

the NDC.

       Moreover, the DNA also governs the products’ title. Pursuant to the DNA, title to

the products transferred from Becton to Distributors upon their shipment to Distributors.

However, once Distributors shipped the products to a customer in a contract sale, title



5
 Becton asserts that since 2006, its DNA no longer referred to distributors as its servicing
agents.


                                             9
reverted back to Becton and was then transferred to the end customer once the delivery

was completed. 6

       Operation of the Hypodermic Products’ Supply Chain for Contract Sales

       The operation of the supply chain appears straightforward: (1) a Distributor orders

a large volume of hypodermic products from Becton. These orders are for anticipated

contract and non-contract sales (i.e., Distributors do not know at that time which products

it orders from Becton will be part of a contract sale). Becton ships these products to and

invoices the Distributor at the distributor list price, not the NDC price. The Distributor

takes title to the products, warehouses them, insures them against loss, and pays Becton;

(2) a Healthcare Provider submits a request to its Distributor to purchase certain

hypodermic products; (3) the Distributor ships the products to — and invoices — the

Healthcare Provider as set forth in their Distribution Agreement; (4) the Healthcare

Provider pays the Distributor directly for the products and the markup/line-fee/activity-

fee; and (5) the Distributor applies for a rebate from Becton within 45 days of the end of

the month in which the Distributor’s transaction with the Healthcare Provider occurred,

and Becton pays the rebate to the Distributor.

       2.     NON-CONTRACT SALES

       Non-contract sales, which account for the remaining 26% of Becton’s sales for

hypodermic products, are those sales of the hypodermic products that were not made

pursuant to an NDC. The District Court ruled that Distributors were the direct purchasers


6
 Becton asserts that since 2006, the DNAs no longer state that title reverts to Becton
upon Distributors’ shipment of the products to customers.

                                            10
of Becton’s hypodermic products that they resold pursuant to non-contract sales.

Healthcare Providers have not appealed that determination, and thus, Distributors’ non-

contract sales are not at issue on appeal.

       B.     PROCEDURAL BACKGROUND

       In 2005, several of the Distributors filed class action complaints alleging that

Becton — in violation of Sections 1 and 2 of the Sherman Antitrust Act (15 U.S.C. §§ 1

and 2) and Section 4 of the Clayton Act (15 U.S.C. § 15) — illegally acquired and

maintained monopoly power over sales of the hypodermic products and charged

Distributors unlawfully inflated prices. The Judicial Panel on Multidistrict Litigation (the

“MDL Panel”) consolidated these cases in the District of New Jersey.

       In 2006, MedStar and several of the other Healthcare Providers filed class action

complaints against Becton, alleging the same underlying conduct asserted in Distributors’

complaints. The MDL Panel also consolidated these cases in the District of New Jersey.

       On April 27, 2009, Distributors and Becton agreed upon a conditional settlement.

Under the conditional settlement, Becton would make a $45 million cash payment to a

proposed class of entities similarly situated to Distributors in exchange for dismissal of

their complaints with prejudice and certain releases. The settlement was contingent upon

the District Court determining that Distributors, not Healthcare Providers, had standing

under the Clayton Act to pursue antitrust claims against Becton. In accordance with the

conditional settlement agreement, Distributors filed motions seeking: (a) certification of




                                             11
the proposed class 7 and preliminary approval of the proposed settlement; and (b) partial

summary judgment on the issue of direct-purchaser standing. Becton also moved for

preliminary approval of the proposed settlement.       Healthcare Providers opposed the

motions by Distributors and Becton and filed a cross motion for partial summary

judgment on the issue of direct-purchaser standing.

         On September 30, 2010, the District Court, focusing on the “economic substance”

of the hypodermic products’ supply chain, granted Healthcare Providers’ motion for

partial summary judgment on the issue of direct-purchaser standing (the “Order”),

holding that Healthcare Providers, not Distributors, were the direct purchasers of

Becton’s hypodermic products.

         On November 23, 2010, the District Court, pursuant to 28 U.S.C. § 1292, certified

its Order for interlocutory appeal. On July 22, 2011, we granted Distributors’ petition for

permission to appeal under § 1292(b).




7
    Distributors defined the class as:

         All persons or entities (and assignees of claims from such persons and
         entities) who (1) purchased BD Hypodermic Products in the United States
         from BD at any time during the period of March 23, 2001 through April 27,
         2009 (the “Class Period”), and (2) were invoiced by BD for said purchases
         (the “Direct Purchaser Class”).

         The Direct Purchaser Class excludes BD, BD’s parents, subsidiaries and
         affiliates, and United States Government Entities and those persons or
         entities who are permitted by the Court to opt out of the Direct Purchaser
         Class.


                                             12
                                    II.    ANALYSIS 8

       Section 4 of the Clayton Act provides that “any person who shall be injured in his

business or property by reason of anything forbidden in the antitrust laws may sue

therefor . . . and shall recover threefold the damages by him sustained, and the cost of

suit, including a reasonable attorney’s fee.” 15 U.S.C. § 15(a). The Supreme Court has

limited the scope of § 4 through the direct-purchaser rule, which states that only the

immediate buyer of a product has standing to maintain a federal antitrust action. See,

e.g., Kansas v. UtiliCorp United, Inc., 497 U.S. 199, 206-09 (1990) (holding that only the

direct purchaser has standing to bring federal antitrust claims even where the direct

purchaser may pass the entire unlawful overcharge to downstream purchasers); Illinois

Brick Co. v. Illinois, 431 U.S. 720, 728-29 (1977) (holding that an indirect purchaser

lacked standing to pursue federal antitrust claims); Hanover Shoe, Inc. v. United Shoe

Mach. Corp., 392 U.S. 481, 489-91 (1968) (rejecting the alleged antitrust violator’s

argument that the direct purchasers of its goods lacked standing to pursue federal antitrust

claims because those purchasers passed on the alleged overcharges to downstream

8
  The District Court had jurisdiction under 28 U.S.C. §§ 1331 and 1337. We have
jurisdiction under 28 U.S.C. § 1292(b).
        We review the District Court’s disposition of a summary judgment motion de
novo, applying the same standard as the District Court. Pichler v. UNITE, 542 F.3d 380,
385 (3d Cir. 2008) (citing Marten v. Godwin, 499 F.3d 290, 295 (3d Cir. 2007)). “The
court shall grant summary judgment if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). All inferences must be viewed in the light most favorable to the
nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
587 (1986). “The issue of antitrust standing is a legal issue, over which we exercise
plenary review.” Warren Gen. Hosp. v. Amgen Inc., 643 F.3d 77, 83 (3d Cir. 2011)
(citing McCarthy v. Recordex Serv., Inc., 80 F.3d 842, 847 (3d Cir. 1996)).


                                            13
customers); see also McCarthy v. Recordex Serv., 80 F.3d 842, 848 (3d Cir. 1996)

(interpreting UtiliCorp, Illinois Brick, and Hanover Shoe as “enunciating a bright-line

rule that only a purchaser immediately downstream from the alleged monopolist may

bring an antitrust action”).

       Our recent decision in Warren General Hospital v. Amgen Inc., 643 F.3d 77 (3d

Cir. 2011), issued after the decision we now review, is particularly instructive. There, a

hospital plaintiff sued a pharmaceutical manufacturer, asserting an illegal tying claim

under federal antitrust laws. Id. at 80. The hospital purchased the products at issue

through contract sales, which involved a GPO-negotiated contract structuring the supply

chain so that the manufacturer would sell the products to wholesalers, who in turn would

resell those products to the member hospitals. Id. at 83. The district court ruled that the

hospital was an indirect purchaser and dismissed the complaint. Id. at 79.

       In affirming the district court’s decision, we focused on the “mechanics of the

transactions” between the hospital, the wholesaler, and the manufacturer. Id. at 79, 88.

In particular, we noted that: (1) when the hospital wants to purchase the products at issue,

it places an order through the wholesaler; (2) the wholesaler negotiates the final sales

price of the products separately with the hospital; (3) the hospital physically takes

delivery of the shipment from the wholesaler; and (4) the hospital pays the wholesaler

directly and does not transmit funds to the manufacturer. Id. at 88. Thus, we determined

that the hospital’s purchases “go through at least one other stage in the chain of

distribution” before reaching the hospital, and that the hospital was an indirect purchaser

that lacked standing. Id.

                                            14
       Here, the mechanics of the distribution chain for Becton’s hypodermic products

are essentially identical to those that were at issue in Warren General. Most notably: (1)

when Healthcare Providers needed hypodermic products, they placed orders through

Distributors; (2) Distributors negotiated the final sales price of the hypodermic products

separately with the Healthcare Providers; (3) Distributors physically shipped the products

to Healthcare Providers; and (4) Healthcare Providers paid Distributors directly and did

not transmit funds to Becton. Thus, because the hypodermic products pass through at

least one other stage in the chain of distribution before reaching Healthcare Providers, the

Distributors, not Healthcare Providers, are the direct purchasers in contract sales. 9 See,

e.g., Warren General, 643 F.3d at 88. 10



9
  We are not persuaded by Healthcare Providers’ attempt to distinguish Warren General.
Healthcare Providers argue that, unlike the wholesalers in Warren General, Distributors
were acting as Becton’s servicing agents for the contract sales, and thus, the hypodermic
product supply chain had only one transaction between Becton/Distributors on one hand
and Healthcare Providers on the other. Even assuming, without deciding, that Healthcare
Providers are correct both that Distributors were acting as the servicing agents for Becton
in contract sales and that servicing agents cannot be direct purchasers as a matter of law,
the Healthcare Providers are still indirect purchasers because the products had already
passed through at least one other stage in the chain of distribution before Distributors
acted as Becton’s servicing agents. As discussed supra, at the time that Distributors
receive the hypodermic products from Becton, title to those products and the associated
risks of ownership and loss transfer to Distributors, who warehouse these fungible
products in their inventory without knowing whether any will be the subject of a contract
sale. Becton invoices Distributors for all of these hypodermic products at the higher list
price. Thus, the hypodermic products already passed through a stage in the chain of
distribution before they could be the subject of any contract sale in which Distributors
allegedly act as Becton’s servicing agents.
10
 We recognize that the District Court, which issued its Order prior to our decision in
Warren General, did not have the benefit of our position on this issue.


                                            15
      Accordingly, we will reverse. 11




11
   On October 17, 2011, Distributors and Becton filed a joint motion to seal their
appellate briefs and Volumes 1 and 3-12 of the Joint Appendix (the “First Sealing
Motion”). Distributors and Becton reasoned that these materials included documents or
references to documents that were filed under seal with the District Court pursuant to a
protective order. Healthcare Providers opposed the First Sealing Motion to the extent
that it sought to seal publicly-available documents. On October 31, 2011, after
consulting with the Clerk’s Office, Distributors and Becton filed another joint motion
requesting leave to strike portions of the Joint Appendix and to file a supplemental
redacted appendix containing the unsealed documents (the “Second Sealing Motion”).
Healthcare Providers have not opposed the Second Sealing Motion except to the extent
that it seals the District Court’s Order and Decision underlying this appeal, which was
sealed by the District Court. On December 5, 2011, Healthcare Providers filed a motion
to seal their reply brief for the instant appeal (the “Third Sealing Motion”) because it
references matters that were filed under seal before the District Court. We will deny the
First Sealing Motion and grant both the Second and Third Sealing Motions. Because
these motions did not specify a desired duration for the sealing order, we will direct the
Clerk’s Office to seal the materials subject to the aforementioned motions for five years
from the conclusion of the case, after which the materials shall be unsealed without
notice to the parties. See Local App. R. 106.1(c)(2).


                                           16
