Drug Firms' Blocking Imports Does Not Violate Antitrust

Issue of the Case

A group of individuals and organizations filed suit in a US District Court alleging that a collection of brand name pharmaceutical manufacturers violated federal antitrust laws, various state-level statutes related to restraint of trade, and general legal principles related to fair trade derived from the common law. The plaintiffs objected to collective activity by a group of brand name pharmaceutical manufacturers designed to "suppress the importation of prescription drugs purchased from Canadian pharmacies for personal use in the United States."

Facts of the Case

The plaintiffs alleged that the defendants had "engaged in a concerted course of conduct designed to prevent brand name prescription drugs purchased from Canadian pharmacies from entering the United States. According to the complaint, the conduct eliminated a legal source of prescription drugs and caused American consumers to pay higher drug prices. The plaintiffs alleged that the defendant drug companies engaged in anticompetitive conduct, including (1) requiring Canadian pharmacies to certify that they were not selling prescription drugs to persons whom the pharmacies knew or should have known were taking the drugs outside the country; (2) monitoring orders of Canadian pharmacies and limiting their purchases to historical levels; (3) creating 'blacklists' of pharmacies that were suspected of selling drugs to American consumers and directing wholesalers not to sell to the blacklisted pharmacies; and (4) cutting off supplies to wholesalers who did not comply with their policies. The plaintiffs alleged that this conduct violated the Sherman Antitrust Act, and the antitrust and unfair competition statutes of 23 states and the District of Columbia."

The Court's RulingThe Court of Appeals agreed with the US District Court that the case against the pharmaceutical manufacturers should be dismissed, because the action of the manufacturers did not cause the type of damages of which the plaintiffs were complaining.

The Court's Reasoning

The US District Court ruled that prescription drugs purchased in Canada by US patients for personal use at home are misbranded if introduced into US commerce. Specifically, the court emphasized that such drugs are misbranded because their labels do not bear the "Rx only" symbol prior to dispensing. The plaintiffs did not contend that the imported drugs bore the "Rx only" phrase; instead, they conceded that these drugs bore a "Pr" symbol, as required under Canadian law. The US Court of Appeals accepted that view: "The plaintiffs continue to assert that the common assumption that such importation is unlawful is based purely on 'myth' and that no federal statute actually precludes a citizen from carrying prescription drugs purchased in Canada into the United States." The court continued, "We agree with the district court's conclusion that the Canadian prescription drugs at issue are not labeled in conformity with federal law and that importation of the drugs is therefore prohibited. Federal law requires that a drug shall be deemed "misbranded if, at any time prior to dispensing, the label of the drug fails to bear, at a minimum, the symbol 'Rx only,'" and the introduction of misbranded drugs into interstate commerce is prohibited.

The plaintiffs argued that the Canadian symbol is the "functional equivalent" of "Rx only," but federal law does not provide for functional equivalence in labeling. The drugs do not "bear, at a minimum, the symbol 'Rx only,'" and therefore, they are "misbranded."

The plaintiffs argued alternatively that, even if personal importation of prescription drugs from Canada is illegal, their legal action was based on the federal antitrust laws because of the defendants' allegedly anticompetitive behavior. "Unlike a governmental entity, however, a private plaintiff must demonstrate that he has suffered an 'antitrust injury' as a result of the alleged conduct of the defendants and that he has standing to pursue a claim under the federal antitrust laws."

"We agree with the district court that plaintiffs have not established antitrust standing to pursue their federal antitrust claims. Plaintiffs allege that they are injured by increased prices for prescription drugs in the United States, which they say result from their inability to import less expensive drugs distributed by Canadian pharmacies. As we have explained, however, the importation of drugs from Canada is prohibited by federal law. The absence of competition from Canadian sources in the domestic prescription drug market, therefore, is caused by the federal statutory and regulatory scheme adopted by the US government, not by the conduct of the defendants.