IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN...

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION IN RE: BLUE CROSS BLUE SHIELD ) Master File No. 2:13-CV-20000-RDP ANTITRUST LITIGATION ) (MDL No. 2406) ) This document relates to all cases.

BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS PLAINTIFFS’ ANTITRUST CONSPIRACY CLAIMS

Dated: September 30, 2013

FILED 2013 Sep-30 PM 05:12U.S. DISTRICT COURT

N.D. OF ALABAMA

Case 2:13-cv-20000-RDP Document 120 Filed 09/30/13 of 81

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TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ...................................................................................................... iii

Introduction ....................................................................................................................................1

Background ....................................................................................................................................5

I. The Parties ..........................................................................................................................5

II. From Their Inception, Blue Plans Developed to Serve Local Communities. ...............5

III. The American Hospital Association and the American Medical Association Confer Approval on Blue Plans. .......................................................................................7

IV. Blue Plans Become a Nationwide Product. ....................................................................11

V. License Agreements Recognize Existing Trademark Rights and Service Areas..................................................................................................................................12

VI. All Three Branches of Government Have Reviewed the Blue System. .......................16

Legal Standard .............................................................................................................................18

Argument ......................................................................................................................................18

I. Plaintiffs Fail to Allege an Agreement to Do an Unlawful Act. ...................................20

A. Blue Plans’ Service Areas Arise from Common-Law Trademark Rights. ...................................................................................................................21

B. The License Agreements Cannot Constitute an Illegal Agreement Because They Merely Confirmed Defendants’ Pre-Existing Trademark Rights. ...............................................................................................22

C. Service Areas Would Continue to Exist Even Without the License Agreements. ..........................................................................................................24

II. Plaintiffs Cannot State a Per Se Claim. .........................................................................24

A. Plaintiffs’ Alleged “Market Allocation Conspiracy” Does Not State a Per Se Claim. ........................................................................................................25

B. The BlueCard Conspiracy Allegations Do Not State a Per Se Claim. ............41


TABLE OF CONTENTS (Con’t.)

Page

ii

III. Subscriber Plaintiffs Fail to State a Rule of Reason Claim. ........................................44

A. Subscriber Plaintiffs Have Not Adequately Alleged an Anticompetitive Effect. ........................................................................................44

B. Subscriber Plaintiffs Do Not Sufficiently Allege Relevant Markets. ..............46

C. Subscriber Plaintiffs Have Not Adequately Alleged Market Power. ..............52

IV. The McCarran-Ferguson Act Bars Plaintiffs’ Claims. ................................................54

A. Blue Plans’ Service Areas Constitute the “Business of Insurance.” ...............55

B. The Blues Are Subject to Extensive State Regulation. .....................................58

V. The Filed Rate Doctrine Bars Certain Subscriber Plaintiffs’ Claims. ........................59

CONCLUSION ............................................................................................................................59


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TABLE OF AUTHORITIES

Page(s)

Cases

49er Chevrolet, Inc. v. Gen. Motors Corp., 803 F.2d 1463 (9th Cir. 1986) ................................................................................................... 22

All Care Nursing Serv., Inc. v. High Tech Staffing Servs., Inc., 135 F.3d 740 (11th Cir. 1998) ................................................................................................... 43

Allard Enters. v. Advanced Programming Res., 249 F.3d 564 (6th Cir. 2001) ..................................................................................................... 21

Am. Key Corp. v. Cole Nat’l Corp., 762 F.2d 1569 (11th Cir. 1985) ................................................................................................. 50

Am. Needle v. Nat’l Football League, 130 S. Ct. 2201 (2010) ....................................................................................................... passim

Am. Tobacco Co. v. United States, 328 U.S. 781 (1946) .................................................................................................................. 20

Apani Sw., Inc. v. Coca-Cola Enters., Inc., 300 F.3d 620 (5th Cir. 2002) ..................................................................................................... 50

Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................................................ 27, 42

Augusta News Co. v. Hudson News Co., 269 F.3d 41 (1st Cir. 2001) ..................................................................................... 29, 31, 37, 40

B.H. Bunn Co. v. AAA Replacement Parts Co., 451 F.2d 1254 (5th Cir. 1971) ................................................................................................... 34

Bailey v. Allgas, Inc., 284 F.3d 1237 (11th Cir. 2002) ................................................................................................. 50

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ............................................................................................... 10, 18, 45, 49

Blue Cross & Blue Shield Ass’n v. Grp. Hosp. & Med. Servs., 744 F. Supp. 700 (E.D. Va. 1990) ................................................................................. 17, 18, 39

Blue Cross & Blue Shield of Wisconsin v. Marshfield Clinic, 65 F.3d 1406 (7th Cir. 1995) ..................................................................................................... 54


TABLE OF AUTHORITIES (Con’t.)

Page(s)

iv

Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979) ............................................................................................................... passim

Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364 (11th Cir. 1997) ................................................................................................. 13

Bus. Elec. Corp. v. Sharp Elec. Corp., 485 U.S. 717 (1988) ............................................................................................................ 27, 38

Cal. Dental Ass’n v. FTC, 526 U.S. 756 (1999) .................................................................................................................. 28

Cent. Benefits Mut. Ins. Co. v. Blue Cross & Blue Shield Ass’n, 711 F. Supp. 1423 (S.D. Ohio 1989) ................................................................................... 18, 39

Cha-Car, Inc. v. Calder Race Course, Inc., 752 F.2d 609 (11th Cir. 1985) ................................................................................................... 28

Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977) .............................................................................................................. 35, 36

Crystal Entm’t & Filmworks, Inc. v. Jurado, 643 F.3d 1313 (11th Cir. 2011) ........................................................................................... 21, 35

DeLong Equip. Co. v. Wash. Mills Abrasive Co., 887 F.2d 1499 (11th Cir. 1989) ................................................................................................. 26

Drew Estate Holding Co. v. Fantasia Distrib., Inc., No. 11-21900, 2012 WL 234105 (S.D. Fla. Jan. 24, 2012) ...................................................... 12

E&L Consulting Ltd. v. Doman Indus. Ltd., 472 F.3d 23 (2d Cir. 2006) ........................................................................................................ 38

Emergency One, Inc. v. Am. Fire Eagle Engine Co., Inc., 332 F.3d 264 (4th Cir. 2003) ..................................................................................................... 22

Feinstein v. Nettleship Co. of Los Angeles, 714 F.2d 928 (9th Cir. 1983) ..................................................................................................... 57

FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013) .................................................................................................. 33, 37, 40

Fuddruckers, Inc. v. Fudpucker’s, Inc., 436 F. Supp. 2d 1260 (N.D. Fla. 2006) ..................................................................................... 23



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v

Funeral Consumers Alliance, Inc. v. Serv. Corp. Int’l, 695 F.3d 330 (5th Cir. 2012) ..................................................................................................... 51

Generac Corp. v. Caterpillar Inc., 172 F.3d 971 (7th Cir. 1999) ............................................................................................... 33, 40

Gilchrist v. State Farm Mut. Auto. Ins. Co., 390 F.3d 1327 (11th Cir. 2004) ..................................................................................... 55, 56, 58

Grp. Hosp. & Med. Servs., Inc. v. Blue Cross & Blue Shield Ass’n, 1 U.S.P.Q.2d 1893 (D.C. Super. Sept. 26, 1986) ...................................................................... 18

Grp. Hosp. & Med. Servs., Inc. v. Blue Cross & Blue Shield of Nat’l Capital Area, Inc., 819 F.2d 1138, 1987 WL 36076 (4th Cir. 1987) ....................................................................... 17

Grp. Hosp. & Med. Servs., Inc. v. Blue Cross & Blue Shield of Va., No. 85-1123-A (E.D. Va. Apr. 8, 1986) .............................................................................. 18, 39

Grp. Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205 (1979) .................................................................................................................. 56

Gulf States Reorganization Grp., Inc. v. Nucor Corp., 822 F. Supp. 2d 1201 (N.D. Ala. 2011) .............................................................................. 20, 22

Hicks v. City of Alabaster, Ala., No. 2:11-cv-4107, 2013 WL 988874 (N.D. Ala. Mar. 12, 2013) ............................................... 6

Home Box Office, Inc. v. FCC, 587 F.2d 1248 (D.C. Cir. 1978) ................................................................................................ 38

Hood v. Tenneco Tex. Life Ins. Co., 739 F.2d 1012 (5th Cir. 1984) ............................................................................................. 53, 54

Hope v. Pelzer, 240 F.3d 975 (11th Cir. 2001) ..................................................................................................... 6

Huber Baking Co. v. Stroehmann Bros. Co., 252 F.2d 945 (2d Cir. 1958) ...................................................................................................... 22

Imaging Ctr., Inc. v. W. Md. Health Sys., Inc., 158 Fed. Appx. 413 (4th Cir. 2005) .......................................................................................... 19

In re Sulfuric Acid Antitrust Litig., 703 F.3d 1004 (7th Cir. 2012) ........................................................................... 25, 27, 28, 29, 40



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vi

Int’l Cosmetics Exch., Inc. v. Gapardis Health & Beauty, Inc., 303 F.3d 1242 (11th Cir. 2002) ................................................................................................. 24

Jacobs v. Tempur-Pedic Int’l, Inc., 626 F.3d 1327 (11th Cir. 2010) .......................................................................................... passim

Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984) ...................................................................................................................... 52

Kartell v. Blue Shield of Mass., 749 F.2d 922 (1st Cir. 1984) ..................................................................................................... 43

Keller v. Greater Augusta Ass’n of Realtors, Inc., 760 F. Supp. 2d 1373 (S.D. Ga. 2011) .......................................................................... 44, 45, 46

L.A. Draper & Son v. Wheelabrator-Frye, Inc., 735 F.2d 414 (11th Cir. 1984) ................................................................................................... 38

Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) ........................................................................................................... passim

Levine v. Cent. Fla. Med. Affiliates, Inc., 72 F.3d 1538 (11th Cir. 1996) ................................................................................. 19, 38, 44, 52

Little Rock Cardiology Clinic, P.A. v. Baptist Health, 573 F. Supp. 2d 1125 (E.D. Ark. 2008) .............................................................................. 50, 51

Lone Star Steakhouse & Saloon, Inc. v. Longhorn Steaks, Inc., 106 F.3d 355 (11th Cir. 1997) ................................................................................................... 23

Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290 (2d Cir. 2008) ...................................................................................................... 34

Maryland v. Blue Cross & Blue Shield Association, 620 F. Supp. 907 (D. Md. 1985) ............................................................................................... 58

Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 (1986) .................................................................................................................. 54

Midwestern Mach. Co., Inc. v. Nw. Airlines, 392 F.3d 265 (8th Cir. 2004) ..................................................................................................... 21

Midwestern Waffles, Inc. v. Waffle House, Inc., 734 F.2d 705 (11th Cir. 1984) ................................................................................................... 35



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vii

Moecker v. Honeywell Int’l Inc., 144 F. Supp. 2d 1291 (M.D. Fla. 2001) .................................................................................... 53

Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752 (1984) .................................................................................................................. 20

Nat’l Bancard Corp. v. VISA U.S.A. Inc., 596 F. Supp. 1231 (S.D. Fla. 1984) ........................................................................................... 53

Nat’l Bancard Corp. v. VISA U.S.A. Inc., 779 F.2d 592 (11th Cir. 1986) ............................................................................................. 31, 40

Nat’l Colleg. Athletic Ass’n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85 (1984) ........................................................................................................ 30, 36, 43

Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038 (9th Cir. 2008) ................................................................................................... 47

Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284 (1985) ................................................................................................ 32, 36, 40, 43

Ocean State Physicians Health Plan v. Blue Cross, 883 F.2d 1101 (1st Cir. 1999) ............................................................................................. 57, 58

Owens v. Aetna Life & Cas. Co., 654 F.2d 218 (3d Cir. 1981) ...................................................................................................... 58

Polk Bros., Inc. v. Forest City Enterprs., Inc., 776 F.2d 185 (7th Cir. 1985) .............................................................................................. passim

Poster Exch., Inc. v. Nat’l Screen Serv. Corp., 517 F.2d 117 (5th Cir. 1975) ..................................................................................................... 21

Powderly v. Blue Cross & Blue Shield of N.C., No. 3:08-cv-109 (W.D.N.C. Aug. 21, 2008) ................................................................. 17, 43, 44

PSKS, Inc. v. Leegin Creative Leather Prods., Inc., 615 F.3d 412 (5th Cir. 2010) ..................................................................................................... 46

Qualitex Co. v. Jacobson Prods. Co., Inc., 514 U.S. 159 (1995) .................................................................................................................. 33

Re/Max Int’l, Inc. v. Realty One, Inc., 173 F.3d 995 (6th Cir. 1999) ..................................................................................................... 51



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Retina Assocs., P.A. v. S. Baptist Hosp., 105 F.3d 1376 (11th Cir. 1997) ..................................................................................... 19, 20, 52

Robertson v. Sea Pines Real Estate Co., 679 F.3d 278 (4th Cir. 2012) ..................................................................................................... 25

Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210 (D.C. Cir. 1986) ...................................................................................... 32, 38, 40

Seacoast Motors of Salisbury, Inc. v. DaimlerChrysler Motors Corp., 271 F.3d 6 (1st Cir. 2001) ......................................................................................................... 38

SEC v. Nat’l Sec., Inc., 393 U.S. 453 (1969) .................................................................................................................. 55

Slagle v. ITT Hartford Ins. Group, 904 F. Supp. 1346 (N.D. Fla. 1995) .............................................................................. 55, 56, 59

Smith v. Jefferson Pilot Life Ins. Co., 14 F.3d 562 (11th Cir. 1994) ..................................................................................................... 56

State Oil Co. v. Khan, 522 U.S. 3 (1997) ................................................................................................................ 25, 36

Tally-Ho, Inc. v. Coast Cmty. Coll. Dist., 889 F.2d 1018 (11th Cir. 1989) ................................................................................................. 22

Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320 (1961) .................................................................................................................. 49

Tana v. Dantanna’s, 611 F.3d 767 (11th Cir. 2010) ................................................................................................... 22

Texaco, Inc. v. Dagher, 547 U.S. 1 (2006) .......................................................................................................... 25, 26, 27

Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430 (6th Cir. 2008) ............................................................................................... 25, 47

U.S. Anchor Mfg., Inc. v. Rule Indus., Inc., 7 F.3d 986 (11th Cir. 1993) ..................................................................................... 46, 47, 48, 49

U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589 (1st Cir. 1993) ..................................................................................................... 52



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ix

Uniforce Temp. Pers., Inc. v. Nat’l Council on Comp. Ins. Inc., 87 F.3d 1296 (11th Cir. 1996) ................................................................................................... 55

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982) .................................................................................................................. 55

United States v. Conn. Nat’l Bank, 418 U.S. 656 (1974) .................................................................................................................. 51

United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (1956) .................................................................................................................. 46

United States v. Grinnell Corp., 384 U.S. 563 (1966) .................................................................................................................. 19

United States v. Sealy, 388 U.S. 350 (1967) ............................................................................................................ 35, 36

United States v. Topco Associates, Inc., 405 U.S. 596 (1972) ............................................................................................................ 35, 36

UNR Indus., Inc. v. Cont’l Ins., Co., 607 F. Supp. 855 (N.D. Ill. 1984) ............................................................................................. 56

VMG Enters., Inc. v. F. Quesada & Franco, Inc., 788 F. Supp. 648 (D.P.R. 1992) ................................................................................................ 23

Washington v. Nat’l Football League, 880 F. Supp. 2d 1004 (D. Minn. 2012) ..................................................................................... 20

White Motor Co. v. United States, 372 U.S. 253 (1963) .................................................................................................................. 38

Williams v. Columbus Bar Ass’n, No. 1:12-cv-04382, 2013 WL 1963822 (N.D. Ga. May 8, 2013) ............................................. 12

Wis. Interscholastic Athletic Ass’n v. Gannett Co., 658 F.3d 614 (7th Cir. 2011) ..................................................................................................... 38

ZF Meritor, LLC v. Eaton Corp., 696 F.3d 254 (3d Cir. 2012) ...................................................................................................... 29

Statutes

15 U.S.C. § 1012(b) .......................................................................................................... 54, 55, 58



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15 U.S.C. § 1013(a)–(b) ................................................................................................................ 54

15 U.S.C. § 1052(d) ...................................................................................................................... 12

15 U.S.C. § 1053 ........................................................................................................................... 12

15 U.S.C. § 1065 ........................................................................................................................... 12

15 U.S.C. § 1127 ........................................................................................................................... 12

15 U.S.C. § 15(b) .......................................................................................................................... 21

42 U.S.C. § 18024(b)(2) ............................................................................................................... 49

5 U.S.C. § 8901 ............................................................................................................................. 30

ALA. CODE § 10A-20-6.10 ............................................................................................................ 59

ALA. CODE § 27-52-21 .................................................................................................................. 49

ALA. CODE §10A-20-6.11 ............................................................................................................. 59

CAL. BUS. & PROF. CODE § 511.3 ................................................................................................. 43

CAL. BUS. & PROF. CODE § 511.4 ................................................................................................. 43

Other Authorities

Benjamin Klein, Single Entity Analysis of Joint Ventures after American Needle: An Economic Perspective, 78 Antitrust L.J. 669 (2013) ................................................................................. 37

H.R. REP. NO. 105-374 (1997) ...................................................................................................... 31

Herbert Hovenkamp & Christopher R. Leslie, The Firm As Cartel Manager, 64 Vand. L. Rev. 813 (2011) ................................................................................................................................. 37

U.S. Dept. of Justice and FTC, Antitrust Guidelines for the Licensing of Intellectual Property (Apr. 6, 1995) ............................................................................................................................ 32

Rules

Fed. R. Civ. P. 8(a)(2) ................................................................................................................... 18

Federal Rule of Evidence 201 ....................................................................................................... 10



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Treatises

58 C.J.S. Monopolies § 70 (2013)................................................................................................. 19


INTRODUCTION

Blue Plan service areas are the bedrock of the Blue System. They have existed for more

than half a century. They create a unique product by allowing Blue Plans to compete like a

nationally integrated health insurer, while still preserving each Plan’s historic focus on meeting

the health financing needs of its local community. They have been scrutinized by Congress, the

courts, the Federal Trade Commission, and the Department of Justice. Despite this lengthy

history, plaintiffs now claim that service areas are not only illegal, but per se unlawful.

Specifically, they claim that the license agreements between BCBSA and each Blue Plan, by

creating service areas, amount to illegal agreements that this Court should summarily

condemn—without any analysis of their storied history, purpose, or competitive effect.

Plaintiffs’ complaints fail at the threshold because the license agreements did not create

service areas. As plaintiffs’ complaints concede, Blue Plans originated with hospitals and

doctors—the very providers now crying foul—when local hospital and medical associations

formed Blue Plans during the Depression to meet the health financing needs of their local

communities. Long before the BCBSA license agreements came into existence, most Blue Plans

had acquired Blue Cross or Blue Shield trademarks that conferred on each Plan the right to local

geographic exclusivity. Later, Blue Plans pooled their resources to compete with nationally

integrated insurers—exactly the kind of procompetitive activity that the antitrust laws promote.

The success of the Blue System today is a testament to the benefits of its community-focused

structure and national network. The 37 Blue Plans collectively provide health insurance coverage

to 100 million (or nearly one in three) Americans in all 50 states, the District of Columbia, and

Puerto Rico.

Plaintiffs’ attempt to turn the antitrust laws on their head fails for multiple reasons. First,

plaintiffs cannot state a claim because the license agreements they challenge cannot constitute an


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unlawful agreement to restrict Blue-on-Blue competition. Put simply, the license agreements do

not restrain trade. Instead, the license agreements adopt Plans’ pre-existing rights to local

geographic exclusivity acquired either independently by operation of trademark law, or vertically

through lawful licenses from the American Hospital Association (AHA) or the American

Medical Association (AMA). Striking down the license agreements would not create any more

Blue-on-Blue competition than exists today.

Second, plaintiffs cannot shoehorn their claims into the ever-narrowing per se rule. That

rule is reserved for a shrinking slice of restraints that (i) result from an agreement among direct

(i.e., “horizontal”) competitors; (ii) have no plausible procompetitive justifications; and (iii) can

be condemned without analysis by virtue of long judicial experience. Plaintiffs’ allegations do

not meet any of these requirements. Their own recital of the Blues’ history confirms that the

license agreements did not arise horizontally. That alone precludes application of the per se rule.

In any event, under modern Supreme Court precedent, even a horizontal agreement with

plausible procompetitive justifications must be evaluated under the rule of reason. The

procompetitive benefits of service areas are evident here. As even plaintiffs concede, service

areas enabled Blue Plans to form a national competitor that could go head-to-head against other

insurers. Service areas also strengthen the Blue brand, prevent free-riding, and avoid consumer

confusion, and any restraint is ancillary to these procompetitive benefits. Finally, judicial

experience has favored, not condemned, the service areas at issue.

The provider plaintiffs’ challenge to the BlueCard program as a per se illegal price-fixing

agreement—which the subscriber plaintiffs do not join—fares no better. BlueCard allows

subscribers of one Plan to receive treatment across the country through other Blue Plans’

provider networks. Plaintiffs’ allegations do not describe price fixing. They merely reflect a


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subscriber of one Blue Plan getting the benefit of rates negotiated by another Blue Plan with

providers in its service area. The most that plaintiffs can allege is that BlueCard is a lawful joint-

purchasing agreement, which benefits consumers. That is lawful, not per se illegal.

Third, the subscriber plaintiffs’ fallback rule of reason claim also fails. In purely

conclusory fashion, they allege that without the license agreements’ territorial restraints, there

would be robust Blue-on-Blue competition, and subscriber premiums would drop. But they

allege no facts to support their vision of this “but for” world, and they ignore facts that directly

undercut it. Most notably, as a matter of well-settled trademark law, each Blue Plan’s individual

trademark rights in its area would continue to prevent Blue-on-Blue competition even without

the licenses. The subscriber plaintiffs also do not allege, as required, why competition from

existing insurers is not sufficient to ensure competitive markets.

The subscriber plaintiffs try to camouflage these inadequacies by invoking antitrust labels

about purported market power in alleged markets. Plaintiffs’ market definitions, however, are

arbitrary and contrary to law. Plaintiffs make a basic legal error by defining their product market

in terms of consumers—“individuals and small groups (up to 199 people)” that purchased full-

service commercial health insurance—rather than in terms of reasonably interchangeable

products. The subscriber plaintiffs’ geographic markets also have no legal basis. Plaintiffs posit a

dizzying menu of more than 900 “possible” geographic markets, including states, service areas,

metropolitan statistical areas, micropolitan statistical areas, and counties. This conflicting array

of political, statutory, and statistical boundaries bears no relationship to health insurance usage—

the relevant legal inquiry in defining a proper market here. And, with respect to market power,

the subscriber plaintiffs do not allege for many areas either any market share or a market share

that meets the legal threshold for inferring market power. In any event, because entry into health


– 4 –

financing is relatively easy, any attempt to charge supra-competitive prices quickly would be

defeated by other competitors, even in areas where plaintiffs allege a high market share.

Finally, plaintiffs’ challenges to the license agreements are barred by the McCarran-

Ferguson Act and the filed rate doctrine. McCarran exempts the “business of insurance” from the

reach of federal antitrust laws. Plaintiffs’ claims challenge the business of insurance and are

subject to state regulation, warranting dismissal under McCarran. And as explained in the

concurrently-filed Supplemental Brief in Support of Defendants’ Motion to Dismiss (the “Plan

Brief”), which addresses other, independent grounds for dismissal of the subscribers’ complaint,

the filed rate doctrine precludes certain subscriber plaintiffs’ claims where they paid only rates

that were filed with state regulators, meaning that they cannot establish any legally cognizable

injury.

For these reasons, plaintiffs’ antitrust conspiracy challenges to the Blue System’s license

agreements and service areas in the subscriber plaintiffs’ complaint (Counts 1 and 2, brought

under the Sherman Act, and other Sherman Act and state-law analog claims1) and both counts of

the provider plaintiffs’ complaint fail to state a claim. Because plaintiffs’ remaining claims fail

as well, including for the reasons set forth in the Plan Brief, the Court should dismiss the

provider and subscriber complaints in their entirety, with prejudice.2

1 Counts 3–8, 10–15, 18–29, 31–36, 38–48, 50–53, 55–60, 62–67, 69, 71–73, 76, 80–87, 89, 91–92,

94–97, and 99–104.

2 The Court also lacks personal jurisdiction over, and venue is improper as to, certain defendants who have not been sued in their home states and who lack sufficient minimum contacts with the jurisdictions where they have been sued. These defendants are simultaneously filing motions to dismiss for lack of personal jurisdiction and improper venue and join this motion without waiving these defenses.


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BACKGROUND3

I. The Parties

BCBSA is a not-for-profit corporation that owns the rights to the familiar Blue Cross and

Blue Shield trademarks (collectively, the “Blue Marks”). (Sub. Compl. ¶¶ 46, 321–24.)4 BCBSA

does not underwrite health insurance itself. Rather, BCBSA licenses the Blue Marks to Blue

Plans, which are individual “health insurance plans that operate under the Blue Cross and Blue

Shield trademarks and trade names.” (Id. ¶ 46.)

Subscriber plaintiffs are 29 individuals and entities from 17 states. They each claim to

have bought insurance from a Blue Plan in their home state. (Id. ¶¶ 16–44.) Provider plaintiffs

are 16 individuals and entities from 10 states that claim to have provided healthcare services,

equipment, supplies, or facilities to patients insured by a Blue Plan. (Prov. Compl. ¶¶ 15–30.)

II. From Their Inception, Blue Plans Developed to Serve Local Communities.

The current Blue Plans and BCBSA (collectively, the “Blue System”) began almost 80

years ago. In the 1930s, hospitals created the Blue Cross Plans, and local medical societies

started the Blue Shield Plans shortly thereafter. (Sub. Compl. ¶¶ 306, 312–13.)

Hospitals developed prepaid health insurance plans because of their financial

predicament during the Depression—decreasing income from paying patients and increasing

demands for free care. (Ex. 1, Louis S. Reed, “Blue Cross and Medical Service Plans,” U.S.

3 Although defendants dispute various allegations in plaintiffs’ complaints and vigorously deny any

legal violations, for purposes of the motion to dismiss, plaintiffs’ well-pled factual allegations are taken as true.

4 References to the Subscriber Complaint reflect the paragraph numbering set forth in the “Errata to Subscriber Track Consolidated Class Action Complaint.” See Sept. 6, 2013 Notice by Plaintiffs’ Counsel. (Dkt. No. 99.)


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Public Health Service 13 (Oct. 1947) (“1947 USPHS Report”).)5 This led hospitals across the

country to look for innovative ways to keep their businesses afloat. (Id.) Baylor Hospital

developed the first program of prepaid hospital care. (Id. 9–10.) Soon other Dallas hospitals

formed their own prepaid plans. The drawbacks of having multiple plans in a single area became

apparent almost immediately. By definition, each plan provided benefits only for services

provided at its own hospital. As the U.S. Surgeon General’s report explained, it was “better for

all the hospitals of a community to get together and jointly offer a plan. In this

way … subscribers would retain freedom of choice as to the hospital they desired.” (Id. 10.)

Emerging plans built upon this experience. Rather than confine services to a single

facility, the hospitals—one set of the provider plaintiffs here—formed plans that sought to

include all hospitals in the area to allow patients and doctors to freely choose the most

appropriate facility. (Id. 10–11.) The net effect was that hospitals in a community joined to offer

a single plan to cover that community. (Id.)

In 1934, the Blue Cross symbol was first developed by a hospital plan in St. Paul,

Minnesota. The symbol proliferated across the country as other Plans began using it. (Sub.

Compl. ¶ 306.)

Often, state enabling acts were required to create a Blue Cross Plan. (Ex. 1, 1947 USPHS

Report 11–12, 72–80.) Most enabling acts required the state’s insurance department to approve

5 In 1943, the Surgeon General sent an investigator to survey the Blue System, resulting in a

government report that “covered all aspects necessary for a proper understanding of the plan and its operation.” (Ex. 1, 1947 USPHS Report 6–8.) Such records and reports are judicially noticeable and are properly considered on a motion to dismiss. See, e.g., Hope v. Pelzer, 240 F.3d 975, 979 n.8 (11th Cir. 2001) (taking judicial notice of Department of Justice report), overruled on other grounds by 536 U.S. 730, 744–45 (2002) (observing with approval that appellate court relied on DOJ report); see also Hicks v. City of Alabaster, Ala., No. 2:11-cv-4107, 2013 WL 988874, at *7 n.5 (N.D. Ala. Mar. 12, 2013) (Proctor, J.) (taking judicial notice “of the contents of relevant public records”). Defendants have attached excerpts of this report as an exhibit, and can provide the Court with a full copy of this exhibit (or any other excerpted exhibit) upon request.


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the plan’s rates. (Id. 77–78.) Some enabling acts restricted a plan’s operations to a local

geography. (See, e.g., Ex. 2, Georgia: Laws 1937, No. 379 at 692.)

The development of the Blue Shield Plans “largely imitated[] the development of the

Blue Cross plans.” (Sub. Compl. ¶ 312.) Doctors—another set of the provider plaintiffs here—

formed medical care plans that became Blue Shield Plans through their medical societies.

(See id. ¶ 313; see also Ex. 3, “Medical Participation in Control of Blue Shield and Certain Other

Open-Panel Medical Prepayment Plans,” Staff Report to the Federal Trade Commission &

Proposed Trade Regulation Rule 55 (Apr. 1979) (“1979 FTC Report”).) Because each area had

only one medical society, there was typically only one medical care plan for that area. (Sub.

Compl. ¶¶ 312–13.) State medical societies also effectively lobbied for enabling acts to establish

medical care plans. These enabling acts formed medical care plans with control vested firmly in

the local medical society and subject to rate approval by the state insurance department. (Ex. 3,

1979 FTC Report 68–72; Ex. 1, 1947 USPHS Report 145–46.) Medical care plans adopted the

Blue Shield symbol. (Sub. Compl. ¶ 313.)

In sum, Blue Plans began “independently” using the Cross and Shield trademarks in the

early 1930s. (Id. ¶¶ 306, 313.) By the early 1950s, Blue Plans had acquired “ownership rights” in

the trademarks. (Id. ¶¶ 321–22; Prov. Compl. ¶ 151.) By operation of trademark law, Blue Plans

acquired the right to exclude others from using their marks in the area they served. (See infra at

21–22.) Thus, through use of Blue Marks in their territory, these early Blue Plans possessed the

exclusive right to use those marks in that territory.

III. The American Hospital Association and the American Medical Association Confer Approval on Blue Plans.

The “Blue Cross plans developed in conjunction with the American Hospital Association

(‘AHA’) and were designed to provide a mechanism for covering the cost of hospital care.”


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(Prov. Compl. ¶ 145.) In 1933—just four years after the Baylor plan was created—the AHA

approved the concept of prepaid hospitalization and adopted seven essential features of a model

prepaid-hospital plan. One essential feature was free choice of physician and hospital in a given

community, which necessarily resulted in only one plan for that area. (Ex. 1, 1947 USPHS

Report 14–15.)

In 1938, the AHA turned these essential features into a formal approval program for

prepaid hospitalization plans. (Id. 123–25.) Its approval standards were developed and

administered by the AHA’s Committee on Hospital Services. (See Sub. Compl. ¶ 307; Ex. 1,

1947 USPHS Report 15.) One AHA approval standard was that “[p]lans should be established

only where needs of a [community] are not adequately served” by existing non-profit hospital

care insurance plans. (Ex. 1, 1947 USPHS Report 125; see also Sub. Compl. ¶ 307.) AHA

approved those hospital plans that met its standards to use the AHA Seal of Approval. (Id.

¶ 308.) The AHA seal consisted of an AHA seal superimposed on the blue cross originally used

by the hospital plan in St. Paul, Minnesota. (Ex. 1, 1947 USPHS Report 15, 123.) The AHA’s

Board of Trustees later assumed direct control of the approval program. (Id. 123.)

The Blue Shield System developed in a similar manner. (Sub. Compl. ¶ 312; Prov.

Compl. ¶ 145.) From the beginning, the AMA required a medical care plan to be sponsored by a

constituent state or county medical society, effectively resulting in a single plan per service area.

(Ex. 1, 1947 USPHS Report 201–02; Ex. 3, 1979 FTC Report 59–60.) In 1946, the AMA

facilitated the establishment of the Association of Medical Care Plans (AMCP). (Sub. Compl.

¶ 314.) The AMA and AMCP decided that the AMA would set standards for plans to receive the

AMA’s Seal of Acceptance and the AMCP would create standards, including approval by the

local medical society, to govern its members. (Ex. 1, 1947 USPHS Report 147; Ex. 3, 1979 FTC


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Report 60.) The AMA’s Seal of Acceptance was a Blue Shield emblazoned with a caduceus and

the letters “A.M.A.” surrounded by a circle. (Ex. 1, 1947 USPHS Report 147.) The AMCP

eventually changed its name to Blue Shield Medical Care Plans (BSMCP), which later became

the Blue Shield Association (BSA). (Ex. 3, 1979 FTC Report 62.)

Given Blue Plans’ inherent local focus, state-law trademark rights, and the AHA’s and

AMCP’s approval standards, Blue-on-Blue competition was rare. The USPHS Report recognized

that “[t]he standards for original approval make it clear that Blue Cross plans are intended to

serve exclusive areas, that no area should be served by more than one plan. Prior to 1946 the

standards which indicated this intent were a requirement for all plans.” (Ex. 1, 1947 USPHS

Report 130.) The study included nationwide maps of service areas. (Id. 17, 151.) As depicted in

these maps, Plans overlapped only in the few areas with cross-hatched shading.


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Selectively quoting two books detailing the history of the Blue System, plaintiffs claim

that historically there was “fierce” competition between Blue Plans. (Sub. Compl. ¶ 316; Prov.

Compl. ¶ 147.) But as plaintiffs concede, having multiple Blue Plans per service area was

contrary to the Blue System—“though ‘Blue Cross Plans were not supposed to overlap service

territories,’ such competition was ‘tolerated by the national Blue Cross agency for lack of power

to insist on change.’” (Sub. Compl. ¶ 310.) And the books on which plaintiffs rely explain that

competition actually was quite limited.6 One summarizes that instances of overlapping service

areas were “exceptions.” (Ex. 4, Odin W. Anderson, Blue Cross Since 1929: Accountability and

the Public Trust 78–79 (1975).) The other explains that the limited competition between Blue

Cross and Blue Shield Plans typically involved controversy over just a subset of medical services

provided in a hospital setting, such as radiology, pathology, or anesthesiology. (Ex. 5, Robert

Cunningham III & Robert M. Cunningham Jr., The Blues: A History of the Blue Cross and Blue

Shield System 21 (1997).) In fact, these books explain that the circumstances of the two instances 6 Where an antitrust plaintiff quotes a portion of a reported account, a district court is entitled, when

considering a motion to dismiss, to take notice of the other portions of that account. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 568 n.13 (2007) (citing Federal Rule of Evidence 201).


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of Blue-on-Blue competition alleged by plaintiffs, in North Carolina and Illinois (Sub. Compl.

¶ 310), were isolated exceptions to the Blue System. (Ex. 4, Anderson 78.)7

IV. Blue Plans Become a Nationwide Product.

In the 1940s and 1950s, Blue Plans faced growing competition “from commercial

insurance companies that had recognized the success of the Blue plans and were now entering

the market.” (Sub. Compl. ¶ 317; Prov. Compl. ¶¶ 148, 150.) During this time, each Blue Plan

held two key assets: a local provider network and trademark rights. (Sub. Compl. ¶¶ 321–22;

Prov. Compl. ¶ 151.) These assets made each Blue Plan a strong competitor in its local area and

permitted each Blue Plan to exclude other insurers—including other Blue Plans—from using the

Blue Marks in its service area. But the nature of the Blue System was a significant disadvantage

vis-à-vis competitors. National employers could sign one contract with a nationally integrated

insurer to provide uniform coverage to their employees. (Ex. 1, 1947 USPHS Report 65.) By

contrast, to contract with the Blue System, multi-state employers had to cobble together many

Blue Plans’ offerings to cover all their employees.

Blue Plans responded to the emerging competition and their structural competitive

disadvantage in several ways. First, they established inter-Plan reciprocity, the precursor to

today’s BlueCard program, allowing one Plan’s subscribers to receive benefits for treatment

received at another Plan’s hospital. (Id. 41–42.) The Plans jointly funded a “bank” to handle

inter-Plan transactions. (Id.) The Plans also jointly funded Health Services Inc. and Medical

7 The USPHS report describes North Carolina as the “primary exception” to the rule that “plans serve

mutually exclusive areas.” (Ex. 1, 1947 USPHS Report 16, 21.) The issue there was that one of the North Carolina plans was struggling and could not garner necessary support from member hospitals. (Ex. 5, Cunningham 24–25.) Illinois involved a border dispute where the boundaries between plans had not been clearly defined; one plan asserted it should be allowed to develop the disputed area because the other plan was “not making strenuous or successful efforts to enroll the population of their areas.” (Ex. 1, 1947 USPHS Report 21, 130.)


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Indemnity of America, which served as a nationwide enrollment agency and also underwrote any

gaps in the various Blue Plans’ offerings. These steps were the beginning of a Blue System that

could offer nationwide products and compete head-to-head with other insurers. (See Ex. 4,

Anderson 60–61; Ex. 5, Cunningham 82–83, 86.) But unlike national insurers, the Blue System

retained each Plan’s local focus and relationships. (See, e.g., Prov. Compl. ¶ 121 (alleging that

Blue Plans work together to create “significant market advantages”); Ex. 4, Anderson 77 (stating

that without “viable local bases joined to a viable national agency, Blue Cross plans would be

unable to play a strong role in the national health economy, and, in fact, the local plans

themselves would be weaker”).)

Second, the Lanham Act, which became effective in 1947, further helped Blue Plans face

national competition. Among other things, it authorized the national registration of trademarks

not attached to a physical product. See 15 U.S.C. §§ 1053, 1127. This registration did not

supersede existing state-law trademark rights; it merely recognized each Plan’s existing area of

use and any additional areas covered by state regulation. See id. §§ 1052(d), 1065.

V. License Agreements Recognize Existing Trademark Rights and Service Areas.

After passage of the Lanham Act, the AHA immediately applied for registration of “Blue

Cross,” “Blue Cross Plan,” the AHA’s Cross/Seal emblem, and the simple Blue Cross. It

received registrations for all four in 1952.8 In 1954, the AHA entered into licensing agreements

with previously approved Plans regarding the use of the Blue Cross mark, and many Plans

8 Registration Nos. 0554818 (Feb. 12, 1952), 0554817 (Feb. 12, 1952), 0554492 (Feb. 5, 1952), and

0554488 (Feb. 5, 1952). Plaintiffs do not challenge the validity of the Blue trademarks, and a court can take notice of trademark applications and the like on a motion to dismiss. See, e.g., Williams v. Columbus Bar Ass’n, No. 1:12-cv-04382, 2013 WL 1963822, at *2 n.2 (N.D. Ga. May 8, 2013); Drew Estate Holding Co. v. Fantasia Distrib., Inc., No. 11-21900, 2012 WL 234105, at *4 (S.D. Fla. Jan. 24, 2012).


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transferred certain rights in their respective trademarks to the AHA.9 (See Ex. 6, 1954 AHA

License Agmt.; see also Sub. Compl. ¶ 321; Prov. Compl. ¶ 151 (“[I]n 1954, the Blue Cross

plans transferred their rights in each of their respective Blue Cross trade names and trademarks

to the AHA.”).)

The 1954 license agreement recognized that local plans had developed territorial rights

with respect to the Blue Cross mark, stating that Blue Plans:

developed certain territorial rights with respect to the words BLUE CROSS and the design of a blue cross in the particular areas served by such PLANS, and in certain cases have registered the words BLUE CROSS and/or the design of a blue cross under the laws of various states.

(Ex. 6, 1954 AHA License Agmt. 1–2; Sub. Compl. ¶ 321; Prov. Compl. ¶ 151.) Accordingly,

each Plan received the right to use the AHA version of the mark within the area served by the

Plan as of the date of the 1954 license agreement. (Ex. 6, 1954 AHA License Agmt. ¶ 1(b).) In

addition, new Plans would be licensed to use the marks only in areas not then served by any

other existing Plan. (Id. ¶ 8.)

The AMCP also applied for registration of the Blue Shield, and after changing its name to

BSMCP, obtained approval for the use of its marks in 1952.10 (Ex. 7, 1952 BSMCP License

Agmt. 1.) That same year, it entered into licensing agreements with previously approved medical

plans regarding the use of the Blue Shield mark. (Sub. Compl. ¶ 322; Prov. Compl. ¶ 156.) Like

the 1954 Blue Cross license agreement, the Blue Shield license agreement recognized Blue

9 The license agreements, which are competitively sensitive, have been filed under seal and should be

treated as subject to the protective order the parties are in the process of negotiating. The court may consider these license agreements, which are referenced in the complaints and central to plaintiffs’ claims, in ruling on a motion to dismiss. See, e.g., Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1369 (11th Cir. 1997).

10 Registration Nos. 0557037 (Apr. 1, 1952), 0557040 (Apr. 1, 1952) see also Registration Nos. 0562430 (July 16, 1951), 0591778 (June 22, 1954), and 0617304 (Dec. 6, 1955).


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Plans’ pre-existing rights conferred by their use of the Blue Shield marks. Thus, the 1952

BSMCP license agreement confirmed that Blue Plans had “adopted and used” the Blue Shield

trademark “[p]rior to the incorporation of the National Organization.” (Ex. 7, 1952 BSMCP

License Agmt. ¶ B; see also Sub. Compl. ¶ 322; Prov. Compl. ¶ 151.) It further stated that

members do not “waive, forfeit, or relinquish any legal right to the use of the words ‘Blue

Shield’ … that may have been heretofore acquired by such member under the laws of the state or

province in which it is incorporated.” (Ex. 7, 1952 BSMCP License Agmt. ¶ 7.)

As the AHA and BSMCP approved new Plans, they directly licensed trademarks to the

Plan in a specified area. (See Ex. 1, 1947 USPHS Report 124–25 (AHA would not license the

seal to a Plan located in an area already served by an existing Plan that had rights to that area);

id. 201 (AMA would grant its seal only to Plans approved by the local medical society).) And as

the Blue System evolved, the license agreements continued to recognize that early Plans had

service areas consistent with their common-law trademark rights and that later plans had their

service areas set by the AHA and AMA. In 1972, the AHA transferred trademark ownership to

the Blue Cross Association (BCA). (Sub. Compl. ¶ 321; Prov. Compl. ¶ 151.) The license

agreement recognized each Blue Plan’s exclusive rights to use the Blue Cross trademarks within

the area served by the Plan on the effective date of the agreement “except to the extent that said

area may overlap the area or areas served by [another Blue Plan] … as to which overlapping

areas the rights hereby granted are non-exclusive as to such other Plan or Plans only.” (Ex. 8,

1972 License Agmt. ¶ 1.)

In 1982, after BCA and BSA merged to form BCBSA, BCBSA and Blue Plans entered

into new license agreements to reflect the change in organization, the current version of which

plaintiffs quote in their complaints. (Sub. Compl. ¶¶ 324, 350–55; Prov. Compl. ¶ 160.) The


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current license agreement reiterates that each Blue Plan previously had “the right to use” the

trademarks “in its service area, which was essentially local in nature.” (Ex. 9, BCBSA–Blue

Cross License Agmt. 1; Ex. 10, BCBSA–Blue Shield License Agmt. 1; see also Sub. Compl.

¶ 351.) The language describing the service areas is almost identical to that in the 1954 and 1972

license agreements:

The rights hereby granted are exclusive to the Plan within the geographical area(s) served by the Plan on June 30, 1972, and/or as to which the Plan has been granted a subsequent license, which is hereby defined as the “Service Area,” … except to the extent that said Service Area may overlap areas served by one or more other licensed Blue [] Plans … as to which overlapping areas the rights hereby granted are nonexclusive as to such other Plan or Plans only.

(Ex. 9, BCBSA–Blue Cross License Agmt. ¶ 5; Ex. 10, BCBSA–Blue Shield License Agmt.

¶ 5.) The license agreements thus acknowledge Blue Plans’ pre-existing trademark rights in the

areas they had always served. And, if the license agreements are “simultaneously terminated by

force of law,” then the trademarks necessarily revert to Blue Plans. (Ex. 9, BCBSA–Blue Cross

License Agmt. ¶ 11; Ex. 10, BCBSA–Blue Shield License Agmt. ¶ 11.)

In the license agreements, BCBSA sets out “the rules and regulations that all members of

BCBSA must obey,” including certain “Membership Standards” and “Guidelines.” (Sub. Compl.

¶¶ 338–55; Prov. Compl. ¶ 129.) These standards build the value of the Blue brand by, among

other things, encouraging Blue Plans to invest in their local areas and maximizing the value of

the national product. (See Prov. Compl. ¶ 174 (discussing BlueCard).) And, this commitment to

protecting the Blue brand is what makes the Blue Marks, in plaintiffs’ words, “the most

recognized in the health care industry.” (Sub. Compl. ¶ 361.)

Plaintiffs acknowledge that the license agreements do not preclude Blue Plans from

offering health insurance products that do not use the Blue Marks outside of their service areas.

(Id. ¶¶ 352–55; Prov. Compl. ¶ 161.) Plaintiffs allege that BCBSA prevents licensees from


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exceeding certain thresholds for non-Blue business, but they do not assert that any licensee has

ever approached those thresholds.

VI. All Three Branches of Government Have Reviewed the Blue System.

The Blue System and its structure are not, and have never been, a secret. Indeed, the Blue

System has been the subject of governmental scrutiny, much of it focusing on Blue Plans’ rights

to use the Blue Marks exclusively in their service areas. As far back as 1947, the U.S. Public

Health Service praised “one plan per area” as preserving patient choice and reducing

administrative costs. (Ex. 1, 1947 USPHS Report 231.) Acknowledging the broad benefits of a

unified Blue System, the study called for the few Blue Plans with overlapping areas to merge and

for a “[c]omplete unification of hospital and medical plans.” (Id. 224, 238.)

Blue representatives have testified before Congress regarding the Blue System. In 1946,

Rufus Rorem, Director of the Blue Cross Commission, appeared before the Senate Committee on

Education and Labor. Rorem explained that “[t]here is co-ordination in service to the enrollment

areas of Blue Cross. As a general principle, only one Blue Cross Plan is established in each

enrollment area.” (Ex. 11, Prepared Stmt. by C. Rufus Rorem, Sen. Hr’g Apr. 22, 1946, 7.) In

1971, Blue Cross’s President testified regarding Blue Plans’ “exclusive territorial arrangements.”

He too explained that service areas did not preclude interbrand competition, because the Blue

System was “in competition with 1,700 companies across the United States.” (Ex. 12, “High

Cost of Hospitalization,” Hearings Before the S. Subcomm. on Antitrust & Monopoly, 91st

Cong. 210–11 (1971) (Stmt. of Walter J. McNerney).) Blue-on-Blue competition, however,

“would be self-defeating because we build and key around a service contract as responsibly

keyed to the total community as possible.” (Id. at 211.) He agreed that “because there is interplan

competition [between Blue and non-Blue insurers], there does not need to be intraplan

competition.” (Id.)


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Moreover, the Federal Trade Commission and Department of Justice have studied the

Blue System’s structure. For instance, in 1979, an FTC report recognized that “Blue Shield plans

generally do not compete with each other.” (Ex. 3, 1979 FTC Report 68.) The FTC further

explained that each Blue Shield Plan “confines its underwriting activities to the population of its

own area, which is usually a state but sometimes includes parts of two or more states, and

sometimes is only a portion of one state.” (Id.) As another example, in 2004, when Anthem and

WellPoint merged, the DOJ noted: “Anthem and WellPoint do not compete against each other

under the Blues trademarks. Blue Cross assigns specific geographic territories to each licensee,

prohibiting a licensee’s use of the Blues Marks outside its territories.” (DOJ Antitrust Div. Issues

Stmt. on the Closing of Its Investigation of Anthem, Inc.’s Acquisition of WellPoint Health

Networks, Inc. (Mar. 9, 2004), http://www.usdoj.gov/atr/public/press_releases/2004/202738.htm

(last visited Sept. 30, 2013).).

Courts also have reviewed the Blue System. At least one court has held that the license

agreements do not violate the antitrust laws. Blue Cross Blue Shield Ass’n v. Grp. Hosp. & Med.

Servs., 744 F. Supp. 700, 719–20, n.7 (E.D. Va. 1990), aff’d, 911 F.2d 720 (4th Cir. 1990). In

addition, the Fourth Circuit noted the “exclusive territorial boundaries of these Plans,” which

“w[ere] assigned, according to their respective license agreements.” Grp. Hosp. & Med. Servs.,

Inc. v. Blue Cross & Blue Shield of Nat’l Capital Area, Inc., 819 F.2d 1138, 1987 WL 36076, at

*1, *3 (4th Cir. 1987) (unpublished table decision). In 2008, the Western District of North

Carolina rejected an antitrust challenge to the BlueCard program, concluding that Blue Plan

programs “undoubtedly promote[] rather than restrain[] trade competition on a market-wide

level.” (Ex. 13, Tr. of Mot. Hr’g 70−71, Powderly v. Blue Cross & Blue Shield of N.C., No. 3:08-

cv-109 (W.D.N.C. Aug. 21, 2008).).


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Courts also have enforced service areas in disputes between Plans over boundaries. See

Grp. Hosp. & Med. Servs., Inc. v. Blue Cross & Blue Shield of Va., No. 85-1123-A (E.D. Va.

Apr. 8, 1986), aff’d, 819 F.2d 1138 (4th Cir. 1987) (enforcing D.C. and Virginia Plans’ service

areas); Cent. Benefits Mut. Ins. Co. v. Blue Cross & Blue Shield Ass’n, 711 F. Supp. 1423, 1425

(S.D. Ohio 1989) (enjoining Blue Plan from operating outside its service area, and stating,

“[t]raditionally each [Blue] plan had its own exclusive service area”). And several cases have

noted that Blue Plans operate in service areas. See Grp. Hospitalization & Med. Servs., Inc., 744

F. Supp. at 704 (BCBSA’s license agreement “granted exclusive rights to each Member Plan to

operate within its own defined geographical area”); Grp. Hosp. & Med. Servs., Inc. v. Blue

Cross & Blue Shield Ass’n, 1 U.S.P.Q.2d 1893, 1895 (D.C. Super. Sept. 26, 1986) (“BCBSA

entered into substantially identical licensing agreements” that “granted both plans the right to use

BCBSA’s service marks in designated geographical areas.”).

LEGAL STANDARD

To survive a motion to dismiss, plaintiffs’ complaints must allege grounds demonstrating

plaintiffs are entitled to relief. Fed. R. Civ. P. 8(a)(2). This requires “more than labels and

conclusions [or] a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S.

at 555. Plaintiffs must set forth “factual allegations” that are “plausible” and “raise a right to

relief above the speculative level.” Id.

ARGUMENT

Plaintiffs ground their Sherman Act conspiracy claims in their assertion that the Blue

license agreements created unlawful territorial restrictions. Other than the provider plaintiffs’

BlueCard-based challenge, plaintiffs allege no other antitrust conspiracy and no other improper

agreement. In other words, this is not the typical antitrust conspiracy case where the question is

whether one can infer some agreement from parallel conduct or attendance at various meetings;


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instead, it is one where the legality of a set of particular written agreements—the license

agreements—is at issue.11

In particular, the question is whether the license agreements violate Section 1 of the

Sherman Act. (Sub. Compl. Count 1; Prov. Compl. Counts I and II.)12 To state a claim under

Section 1, a plaintiff must allege: (1) an agreement between two or more parties (2) that

unreasonably restrains trade. See Levine v. Cent. Fla. Med. Affiliates, Inc., 72 F.3d 1538, 1545

(11th Cir. 1996). Plaintiffs do not allege an unlawful agreement, much less one that is per se

unlawful.

The subscriber plaintiffs—but not the provider plaintiffs—also repackage their

conspiracy claim as a Section 2 violation, namely a conspiracy to monopolize.13 Practically, this

claim is no different than the Section 1 claim: “[c]ourts generally consider conduct not deemed

anticompetitive under § 1 similarly unactionable under § 2.” Imaging Ctr., Inc. v. W. Md. Health

Sys., Inc., 158 Fed. Appx. 413, 421 n.6 (4th Cir. 2005) (citing, among other cases, Retina

11 In the event plaintiffs argue that the conspiracy is different or broader than the license agreements,

defendants reserve the right, either individually or collectively, to address these arguments on reply, including but not limited to their inadequacy under federal pleading standards and plaintiffs’ standing under both constitutional and antitrust standing doctrine.

12 Counts 13, 21, 27, 34, 41, 46, 53, 58, 65, 73, 85, 97, and 102 in the subscriber complaint are brought under various state antitrust laws that are similar to Sherman Act Section 1. Each is interpreted consistently with the Sherman Act and should be dismissed for the same reasons. 58 C.J.S. Monopolies § 70 (2013) (collecting cases and stating that a “state antitrust statute generally should be construed consistently with federal antitrust law and with federal case law interpreting the federal antitrust statutes”).

13 To state a claim for monopolization under Section 2, a plaintiff must allege: “(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.” Levine, 72 F.3d at 1555 (citing United States v. Grinnell Corp., 384 U.S. 563, 570–71 (1966)). Counts 14, 15, 22, 23, 28, 29, 35, 36, 42, 47, 48, 59, 60, 66, 67, 86, 87, 103, and 104 in the subscriber complaint assert state law claims that are similar to Sherman Act Section 2.


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Assocs., P.A. v. S. Baptist Hosp., 105 F.3d 1376 (11th Cir. 1997)). As discussed below,

plaintiffs’ claims do not pass muster under either legal theory.

I. Plaintiffs Fail to Allege an Agreement to Do an Unlawful Act.

The Sherman Act requires plaintiffs to plead more than the existence of an agreement—

they must plead that the agreement seeks to accomplish an unlawful objective. See, e.g., Gulf

States Reorganization Grp., Inc. v. Nucor Corp., 822 F. Supp. 2d 1201, 1224 (N.D. Ala. 2011)

(Proctor, J.) (requiring that plaintiffs allege a “conscious commitment to an unlawful objective”)

(quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984)), aff’d, No. 11-

14983, 2013 WL 3490824 (11th Cir. July 15, 2013); see also Am. Tobacco Co. v. United

States, 328 U.S. 781, 810 (1946) (plaintiffs must show “a unity of purpose or a common design

and understanding, or a meeting of minds in an unlawful arrangement”). Although plaintiffs

plead the existence of Blue Plans’ license agreements, their own allegations demonstrate that

these license agreements did not create the service areas that they claim are unlawful. Because

the license agreements are the basis of plaintiffs’ challenges under both Section 1 and Section 2

of the Sherman Act, plaintiffs’ failure to allege an agreement with an unlawful objective is fatal

to their Sherman Act and state law analog claims.14

14 In addition, entities that act as a “single economic enterprise” with respect to the challenged conduct

are immune from antitrust challenges. See Am. Needle, Inc. v. Nat’l Football League, 130 S. Ct. 2201, 2207 (2010). The NFL teams did not act as a single entity with respect to the function at issue in American Needle—the licensing of individual team intellectual property. Id. at 2212–13 (“Directly relevant to this case, the teams compete in the market for intellectual property. To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks.”). Here, by contrast, Blue Plans have never competed with respect to the function at issue in this case: the nationwide licensing and governance of the Blue Marks. Ultimately, this is another reason that plaintiffs’ challenge to service areas fails. See Washington v. Nat’l Football League, 880 F. Supp. 2d 1004, 1006–07 (D. Minn. 2012) (dismissing antitrust claims after concluding that restrictions placed on intellectual property owned by the National Football League, not the individual teams, were necessary to create the product).


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A. Blue Plans’ Service Areas Arise from Common-Law Trademark Rights.

Plaintiffs allege that Blue Plans “independently” began using the Blue Marks in the early

1930s and acquired separate “ownership rights” in their respective Blue Marks by the early

1950s.15 (Sub. Compl. ¶¶ 306, 313, 321–24; Prov. Compl. ¶¶ 151, 156.) They likewise assert that

although BCBSA ultimately became, through various transfers, the “sole owner of the various

Blue Cross and Blue Shield trademarks and trade names,” (Sub. Compl. ¶¶ 323–24), those rights

“had previously been owned by the local plans.” (Id. ¶ 324; Prov. Compl. ¶ 156.) Plaintiffs’

allegations thus describe a situation in which service areas arose independently from Blue Plans’

historic use of the Blue Marks in their service areas—long before BCBSA or the license

agreements existed.16

Under trademark law, once Blue Plans acquired the Blue Marks, they: (1) held these

rights senior to all others, see Allard Enters. v. Advanced Programming Res., 249 F.3d 564, 572

(6th Cir. 2001) (“The first to use a mark in the sale of goods or services is the ‘senior user’ of the

mark and gains common law rights to the mark in the geographic area in which the mark is

used.”); (2) had the exclusive right to use the Blue Marks, see Crystal Entm’t & Filmworks, Inc.

v. Jurado, 643 F.3d 1313, 1320 (11th Cir. 2011) (recognizing “bedrock principle of trademark

15 To the extent plaintiffs are alleging that any Blue Plans acquired trademark licenses from BCBSA or

any predecessor after the initial creation of the licenses, this would be nothing more than a vertical agreement, which—along with horizontal agreements with procompetitive benefits—are not subject to a per se analysis.

16 Plaintiffs’ claims are also barred because they have waited to file their complaints long after the four-year statute of limitations for a private antitrust action expired. 15 U.S.C. § 15(b). The creation of service areas dates back to as early as 1938, and the Blue System’s operations have been public since the 1940s, as referenced in books and federal reports. Plaintiffs’ claims should have been discovered long before four years ago. See, e.g., Poster Exch., Inc. v. Nat’l Screen Serv. Corp., 517 F.2d 117, 128 (5th Cir. 1975) (requiring that “injurious act actually occur[ ] during the limitations period, not merely the abatable but unabated inertial consequences of some pre-limitations action”); Midwestern Mach. Co., Inc. v. Nw. Airlines, 392 F.3d 265, 271 (8th Cir. 2004) (“Once a merger is completed, there is no continuing violation possible under § 7 that would justify extending the statute of limitations beyond four years.”).


– 22 –

law that a mark can identify and distinguish only a single commercial source”); and (3) could use

the Blue Marks throughout their service areas. See, e.g., Huber Baking Co. v. Stroehmann Bros.

Co., 252 F.2d 945, 955 (2d Cir. 1958) (citation omitted) (“Thus, the rights to a trademark extend

through the entire territory actually served by the owner, or covered by his advertising.”);

see also Tana v. Dantanna’s, 611 F.3d 767, 780 (11th Cir. 2010) (a trademark right is

“coextensive only with the territory throughout which it is known and from which it has drawn

its trade”). Thus, each Blue Plan’s service area was inherently exclusive by operation of law

because it could exclude others from using the Blue Marks in that geographic area. See Tally-Ho,

Inc. v. Coast Cmty. Coll. Dist., 889 F.2d 1018, 1023 (11th Cir. 1989); see also Emergency One,

Inc. v. Am. Fire Eagle Engine Co., Inc., 332 F.3d 264, 267 (4th Cir. 2003) (“The owner of a

mark acquires both the right to use a particular mark and the right to prevent others from using

the same or a confusingly similar mark.”) (citations omitted).

B. The License Agreements Cannot Constitute an Illegal Agreement Because They Merely Confirmed Defendants’ Pre-Existing Trademark Rights.

The license agreements central to plaintiffs’ claims merely recognized the geographic

scope of Blue Plans’ pre-existing trademark rights. (See supra at 12–15.) The defect in plaintiffs’

claims is that the license agreements do not constitute an agreement to do anything unlawful. As

this Court emphasized in Nucor, “the joint meeting of the minds must incorporate the illegal

restraint and, thus, those elements are inextricably intertwined.” 822 F. Supp. 2d at 1224

(emphasis added). Thus, the “assertion that any ‘concerted activity’ can be deemed a Section 1

violation without evidence of a conscious commitment to an unlawful objective is, quite simply,

not just off the mark[, it’s] not the law.” Id.17 Simply put, there can be no liability under the

17 See also 49er Chevrolet, Inc. v. Gen. Motors Corp., 803 F.2d 1463, 1467 (9th Cir. 1986) (“The

antitrust laws are not offended by agreements as such, but only those with anticompetitive conduct.”).


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Sherman Act unless the agreement alleged to violate Section 1 reflects a common purpose to

accomplish an unlawful end.

Here, the license agreements cannot meet that standard because they merely

acknowledged Blue Plans’ pre-existing trademark rights in pre-existing service areas. This case

is therefore like VMG Enters., Inc. v. F. Quesada & Franco, Inc., where the court rejected

antitrust claims challenging the parties’ agreement not to use trademarks outside of agreed-upon

territories. 788 F. Supp. 648 (D.P.R. 1992). The court reasoned that the written agreement was

not actionable under the antitrust laws because it “did not ‘create’ a trademark territorial division

… it merely recognized it.” Id. at 657. The court explained:

By 1986, [the parties] were already engaged in the use of the [] mark in different territories, thereby de facto and by independent (not concerted) action developing the trademark territorial division. … Thus, in essence, the parties’ agreement for a territorial trademark division results not from some illegal, mutually pre-arranged scheme, but from the recognition … that the division was already a reality as a matter of trademark law.

Id. (emphasis added). As in VMG, the license agreements here merely recognize territorial

divisions that arose decades earlier “as a matter of trademark law,” and therefore do not violate

the Sherman Act. Id. VMG is no aberration; courts routinely uphold and enforce agreements that

allow “concurrent use” of the same (or confusingly similar) trademarks in the distinct territories

where the parties had pre-existing trademark rights. See, e.g., Lone Star Steakhouse & Saloon,

Inc. v. Longhorn Steaks, Inc., 106 F.3d 355, 365–66 (11th Cir. 1997) (allowing defendant to use

mark in Georgia, while allowing plaintiff to use mark outside of Georgia); Fuddruckers, Inc. v.

Fudpucker’s, Inc., 436 F. Supp. 2d 1260, 1269 (N.D. Fla. 2006) (allowing defendant to use mark

in one area, and plaintiff to use mark outside of defendant’s area).


– 24 –

C. Service Areas Would Continue to Exist Even Without the License Agreements.

Service areas existed prior to the license agreements and would continue to exist without

them. The complaints effectively concede that Blue Plans had the right to prevent Blue-on-Blue

competition in their service areas long before the license agreements at issue. (Sub. Compl.

¶¶ 306, 313, 321–24; Prov. Compl. ¶¶ 151, 156.) And, the license agreements explicitly retain

any “nonexclusive” service areas where such Blue-on-Blue competition may have previously

existed. (Ex. 9, BCBSA-Blue Cross License Agmt. ¶¶ 1, 5; Ex. 10, BCBSA-Blue Shield License

Agmt. ¶¶ 1, 5.)

Service areas also would continue to exist even if the Court were to grant plaintiffs’

requested relief to enjoin the license agreements. Under the current license agreements, Blue

Plans’ original rights to the Blue Marks revert to Blue Plans if the agreements are

“simultaneously terminated by force of law.” (Ex. 9, BCBSA-Blue Cross License Agmt. ¶ 11;

Ex. 10, BCBSA-Blue Shield License Agmt. ¶ 11.) Defendants could continue to prevent other

insurers—Blue or non-Blue—from using them in their respective service areas. See Int’l

Cosmetics Exch., Inc. v. Gapardis Health & Beauty, Inc., 303 F.3d 1242, 1248 (11th Cir. 2002)

(holding that a manufacturer that assigned its trademark to a distributor still owned that

trademark after the agreement ended). This alone shows that the license agreements do not

constitute an unlawful restraint.

II. Plaintiffs Cannot State a Per Se Claim.

Both sets of plaintiffs allege that the license agreements between Blue Plans and BCBSA

create service areas that are per se illegal under the antitrust laws. Provider plaintiffs also

challenge the BlueCard system as per se illegal, while subscriber plaintiffs do not. None of these

allegations states a claim under established antitrust law.


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As a threshold matter, the per se rule is an increasingly narrow exception to the general

presumption that antitrust claims are judged under the rule of reason. See Texaco, Inc. v. Dagher,

547 U.S. 1, 5–6 (2006). Courts apply it only when faced with a naked restraint, the

anticompetitive effect of which is “immediately obvious.” State Oil Co. v. Khan, 522 U.S. 3, 10

(1997); see also, e.g., Broadcast Music, Inc. v. CBS, 441 U.S. 1, 19–20 (1979) (limiting the per

se rule to a practice that “facially appears to be one that would always or almost always tend to

restrict competition and decrease output”).

Plaintiffs’ allegations are inconsistent with this type of “manifestly anticompetitive”

conduct. See Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007)

(internal quotation marks and citations omitted). To state a per se claim, plaintiffs must allege an

agreement that (1) is purely horizontal, (2) has no possible procompetitive benefit, and (3) has

had its anticompetitive character confirmed by lengthy judicial experience. See, e.g., id. at 881,

885–87; Am. Needle v. Nat’l Football League, 130 S. Ct. at 2216–17; In re Sulfuric Acid

Antitrust Litig., 703 F.3d 1004, 1010–13 (7th Cir. 2012) (Posner, J.). As detailed below,

plaintiffs’ allegations do not satisfy any—much less all—of these factors. Because provider

plaintiffs allege only a per se claim, their entire complaint should be dismissed. The Court also

should dismiss the subscriber plaintiffs’ per se claims. See, e.g., Robertson v. Sea Pines Real

Estate Co., 679 F.3d 278, 288−92 (4th Cir. 2012); Total Benefits Planning Agency, Inc. v.

Anthem Blue Cross & Blue Shield, 552 F.3d 430, 436 (6th Cir. 2008).

A. Plaintiffs’ Alleged “Market Allocation Conspiracy” Does Not State a Per Se Claim.

Plaintiffs claim in conclusory fashion that the license agreements are horizontal

geographic allocation agreements among competitors, and therefore must be evaluated under the

per se rule. But plaintiffs’ attempt to state a per se claim cannot be squared with the Supreme


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Court’s most recent pronouncement on per se versus rule of reason claims involving horizontal

competitors. In American Needle, the Court considered agreements among NFL teams to jointly

license their separate intellectual property. 130 S. Ct. at 2207. It concluded that the teams were

direct competitors “in the market for intellectual property” and, as such, had entered into a

horizontal restraint. Nonetheless, even when faced with a horizontal agreement, the Court

determined that the rule of reason analysis applied because of the agreement’s possible

procompetitive benefits. Id. at 2212–14, 2216–17.

Here there are additional reasons why the per se rule does not apply. Unlike in American

Needle, plaintiffs do not allege facts sufficient to plead a horizontal agreement among

competitors. Instead, their allegations, along with other facts that may properly be considered on

a motion to dismiss, establish that service areas did not arise from agreements among Blue Plans,

but developed long before the license agreements at issue in this case were signed, either

independently through Plans’ sustained use of and investment in their trademark rights or

through vertical agreements with the AHA or AMA. Plaintiffs’ allegations also recognize the

procompetitive benefits of service areas, which the case law confirms. Finally, judicial

experience has not demonstrated that service areas are manifestly anticompetitive. Quite the

opposite. Accordingly, the per se rule cannot apply for these reasons as well.

1. Service Areas Are Not the Result of Any Horizontal Agreement.

A necessary—but not sufficient—element of a per se claim is that the challenged restraint

results from a horizontal agreement. See Leegin, 551 U.S. at 881, 885–87. Horizontal agreements

are “restraints between competitors at the same level of distribution.” DeLong Equip. Co. v.

Wash. Mills Abrasive Co., 887 F.2d 1499, 1505 (11th Cir. 1989); see also Texaco, 547 U.S. at 5–

6 (holding that there was no horizontal agreement because “Texaco and Shell Oil did not


– 27 –

compete with one another in the relevant market”); Bus. Elec. Corp. v. Sharp Elec. Corp., 485

U.S. 717, 730 (1988).

While plaintiffs claim that service areas resulted from a horizontal relationship,

(see, e.g., Sub. Compl. ¶ 349; Prov. Compl. ¶ 5), this conclusory allegation is “not entitled to the

assumption of truth.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Indeed, plaintiffs’ own factual

allegations refute that service areas arose from a horizontal agreement. Their allegations concede

that service areas initially developed as Blue Plans independently acquired trademark rights to

use the Blue Marks in their local areas. (Sub. Compl. ¶¶ 306, 313, 320–24; Prov. Compl. ¶¶ 151,

156.) Plaintiffs’ allegations also recognize that in the 1950s, Blue Plans entered into vertical

licensing arrangements with the AHA and AMA. (Sub. Compl. ¶¶ 307–08, 314, 321–22.)

Plaintiffs do not and cannot allege that these provider organizations are anything other than

independent associations that served as standard-setting and licensing entities to the early Plans.

Nor can plaintiffs allege that either the AHA or AMA provided health insurance or competed

with Blue Plans in any way. Service areas, then, resulted from Blue Plans obtaining rights to the

Blue Marks in their local areas, either independently or through vertical licenses from the AHA

and AMA—not from any horizontal agreement among Blue Plans.

Plaintiffs’ allegations that Blue Plans purportedly control BCBSA today are irrelevant

and immaterial. Whether the per se rule applies depends on the circumstances at the time the

alleged restraint was adopted. As Judge Posner recently explained, “we know from [BMI], that

even price fixing by agreement between competitors—and from Polk Bros., Inc. v. Forest City

Enterprs., Inc., 776 F.2d 185, 189 (7th Cir. 1985), that other agreements that restrict

competition—are governed by the rule of reason, rather than being per se illegal, if the

challenged practice when adopted could reasonably have been believed to promote enterprise


– 28 –

and productivity.” In re Sulfuric Acid, 703 F.3d at 1010–11 (emphasis added and internal

quotation omitted); accord Polk Bros., 776 F.2d at 189. When service areas were established, the

Plans obviously did not control the AHA or the AMA, and plaintiffs have not alleged to the

contrary. Even today, the service areas are not the result of a horizontal agreement among Blue

Plans. They derive from decades-old trademark rights, and neither the license agreements nor

BCBSA have altered them.

2. Service Areas Cannot Be Per Se Unlawful Because They Have Potential Procompetitive Benefits.

Even if, as in American Needle, service areas were the product of a purely horizontal

agreement, they nonetheless would have to be evaluated under the rule of reason because they

admittedly produce potential procompetitive benefits. See Am. Needle, 130 S. Ct. at 2207, 2216–

17 (when horizontal agreement is procompetitive, it should be evaluated under rule of reason);

see also Cha-Car, Inc. v. Calder Race Course, Inc., 752 F.2d 609, 613 (11th Cir. 1985) (“The

per se doctrine should not be extended to restraints of trade that are of ambiguous effect; any

departure from the rule of reason standard must be based upon demonstrable anticompetitive

economic effect, rather than formalistic line drawing.”). At this stage, the Court does not have to

determine that service areas have procompetitive benefits; rather, in order to conclude that

plaintiffs have not stated a per se claim, it need only decide that service areas “might plausibly”

have potential procompetitive benefits. Cal. Dental Ass’n v. FTC, 526 U.S. 756, 771 (1999);

see also In re Sulfuric Acid, 703 F.3d at 1010–11 (holding that if the challenged practice when

adopted “could reasonably have been believed to promote enterprise and productivity,” that

alone takes it out of the per se rule). Given plaintiffs’ own allegations, that conclusion is

inevitable.


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A court must consider whether the agreement has plausible procompetitive benefits even

when plaintiff alleges a division of territories. See Augusta News Co. v. Hudson News Co., 269

F.3d 41, 48 (1st Cir. 2001) (“[I]t is commonly understood today that per se condemnation is

limited to ‘naked’ market division agreements, that is, to those that are not part of a larger

procompetitive venture.”). For example, in Sulfuric Acid, direct competitor Canadian and

American chemical companies agreed that the American companies would stop manufacturing

sulfuric acid, the Canadian companies would enter the American market, and the American

companies would become the Canadian companies’ distributors. 703 F.3d at 1009. The court

refused to apply the per se rule because the territorial division had possible procompetitive

benefits, including facilitating the Canadian companies’ entry into the United States and a

possible increase in competition at the producer level. Id. at 1010–13; see also ZF Meritor, LLC

v. Eaton Corp., 696 F.3d 254, 270–71 (3d Cir. 2012) (refusing to apply per se rule because

“[e]xclusive dealing agreements are often entered into for entirely procompetitive reasons”).

Here, as plaintiffs’ own allegations establish, service areas easily exceed the minimal

plausibility test. First, service areas facilitated the creation of a new product—a Blue System that

competes with nationally integrated insurers. Second, service areas are ancillary to the

procompetitive Blue System as a whole. And third, service areas prevent free-riding, ensure

consistent quality, and minimize consumer confusion. For each of these reasons, the per se rule

cannot apply here.

a. Service areas facilitate the creation of new products.

Plaintiffs agree that service areas facilitated the creation of a new product—a Blue

System offering businesses and consumers a national network of healthcare services. (Sub.

Compl. ¶ 320; Prov. Compl. ¶¶ 174–77; see also Ex. 1, 1947 USPHS Report 41–42, 68.)

Agreements that create new products are procompetitive. In BMI, the Supreme Court considered


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an agreement among authors, composers, and publishing companies—all of which competed

head-to-head in the broadcasting industry—to offer a “blanket license” that enabled a buyer to

perform all of their compositions. 441 U.S. at 4–5. The Court rejected plaintiffs’ per se claim. Id.

at 5–6, 9–10. It concluded that the arrangement, taken as a whole, was “not a naked restraint of

trade with no purpose except stifling of competition,” but rather created “a different product.” Id.

at 20–22. This joint product eliminated the need for a purchaser to negotiate with every

composer and facilitated “the integration of sales, monitoring, and enforcement against

unauthorized copyright use.” Id.; see also Nat’l Colleg. Athletic Ass’n v. Bd. of Regents of Univ.

of Okla. (NCAA), 468 U.S. 85, 102 (1984) (applying the rule of reason because restrictions on

competition were necessary to create the product of college football).

As in BMI, cooperation among Blue Plans has allowed them to create a new product that

otherwise would not exist. Most Blue Plans arose locally and held local trademark rights. (Sub.

Compl. ¶¶ 306–07, 312–13, 321–22; 324; Prov. Compl. ¶¶ 151, 156; Ex. 1, 1947 USPHS Report

9–11.) Other Blue Plans arose from a vertical agreement with the AHA or AMA; those Plans

could not be granted rights to the Blue brand in areas in which other Plans already had exclusive

rights. The only way for Blue Plans to create nationwide coverage for subscribers was to stitch

together these local offerings into a joint product. The BlueCard program allows subscribers of

each local Blue Plan to use sister Plans’ networks and negotiated rates, and provides a single

network for efficient processing of claims. (Prov. Compl. ¶¶ 174–77.) BlueCard also allows

multi-state employers to gain access to multiple Plans’ networks in a single transaction rather

than cobble together the needed coverage. Absent cooperation, Blue Plans could not effectively

service (and thus, would not compete effectively for) national employers or federal employees

under the Federal Employees Health Benefits Act of 1959, 5 U.S.C. § 8901, which requires that


– 31 –

enrollees receive uniform benefits and rates regardless where they live. H.R. REP. NO. 105-374,

at 9 (1997). Nor would subscribers of a single Blue Plan be able to effectively access health care

outside a geographically limited area. With this cooperation, Blue Plans are able to collectively

provide health insurance coverage to 100 million Americans, who have access to more providers

than they would with any other insurer in the country. (Prov. Compl. ¶ 109; Sub. Compl. ¶ 346.)

Because the Blue System, through service areas, creates a new product for its customers that

would otherwise not exist, it is not subject to the per se rule. See Augusta News, 269 F.3d at 48

(“It is not a per se violation for local competitors to join in providing region-wide service that

none alone provided before.”).

b. Service areas are ancillary to appropriate, cooperative activities that increase efficiency and competition.

Under the Blue System, the license agreements contribute to productivity and enhance

efficiency by allowing Blue Plans to remain focused on their local areas, while also affording

subscribers the benefit of a broader network. Any restraints associated with the licensing

agreements are ancillary to these overarching procompetitive benefits. For this reason as well,

the per se rule does not apply. See Nat’l Bancard Corp. v. VISA U.S.A. Inc., 779 F.2d 592 (11th

Cir. 1986) (per se rule does not apply when agreement “potentially could create an efficiency

enhancing integration to which the restraint is ancillary”); Polk Bros., Inc., 776 F.2d at 188

(“When cooperation contributes to productivity through integration of efforts, the Rule of

Reason is the norm.”). Indeed, the DOJ and FTC’s 1995 Antitrust Guidelines for the Licensing

of Intellectual Property explain that the rule of reason applies so long as “the licensing

arrangement could be expected to contribute to an efficiency-enhancing integration of economic

activity.” U.S. Dept. of Justice and FTC, Antitrust Guidelines for the Licensing of Intellectual


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Property 18 (Apr. 6, 1995), http://www.usdoj.gov/atr/public/guidelines/0558.pdf (last visited

Sept. 30, 2013)).

Rothery is instructive.18 Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d

210 (D.C. Cir. 1986). In that case, Atlas, a moving company, contracted with local carriers and

provided them with equipment so they could provide services under the Atlas name. Id. at 212.

Some carriers began using Atlas equipment to conduct non-Atlas business. Id. at 212, 221–23.

Atlas responded by prohibiting the use of its equipment or marks to service non-Atlas accounts.

Id. at 213. The court characterized this arrangement as horizontal, but proceeded to apply the rule

of reason instead of the per se rule. Id. at 214–30. It recognized that without the restrictions in

the Atlas agreements, the carriers could and did free-ride on Atlas’s services and image. Id. at

221–22. Because the restraint “enhance[d] the efficiency of the van line,” the rule of reason

governed. Id. at 224, 228–29; see also Nw. Wholesale Stationers, Inc. v. Pac. Stationery &

Printing Co., 472 U.S. 284, 295 (1985) (applying the rule of reason to an agreement among

competitors because the arrangement “would seem to be designed to increase economic

efficiency and render markets more, rather than less, competitive” by allowing the parties to

achieve economies of scale, reduce prices, and maintain retail stock to compete more effectively

with larger retailers) (internal quotation omitted); Polk Bros., Inc., 776 F.2d at 188–91 (rejecting

application of the per se rule to reciprocal agreements not to compete, which eliminated free-

riding and thus induced rivals to engage in “productive cooperation” in the first place).

Service areas likewise enhance efficiency. Without them, a Blue Plan could enter into

another Plan’s service areas and free-ride on the other Plan’s goodwill, advertising, and services.

This would cause underinvestment in the Blue brand and services (both by the free-riding Plan

18 Judge Bork, whom plaintiffs acknowledge was a leading antitrust scholar, authored Rothery. (Sub.

Compl. ¶ 1.)


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and the free-ridden Plan). Moreover, without service areas, there may not be incentives to

operate a Plan in some areas or to cover certain groups or individuals, resulting in fewer or no

choices for consumers seeking coverage. The current system, in contrast, encourages Blue Plans

to maximize their investments in their local areas and provide coverage for larger groups of

subscribers. Such potential efficiencies also dictate application of the rule of reason here.

c. Service areas, like other intellectual-property rights, have procompetitive benefits.

It is black-letter law that trademarks have procompetitive benefits. They reduce

consumers’ search costs and assure a producer that it (and not a free-riding competitor) will reap

the benefits of building a desirable product. See Qualitex Co. v. Jacobson Prods. Co., Inc., 514

U.S. 159, 162–64 (1995). As a result, the per se rule does not apply to trademark and similar

intellectual-property restraints. See, e.g., Leegin, 551 U.S. at 890–91. In FTC v. Actavis, Inc., 133

S. Ct. 2223 (2013), the Supreme Court this year considered whether a brand-name prescription

drug manufacturer and a competing generic company could enter into a settlement agreement,

under which the brand-name manufacturer allegedly paid the generic company not to challenge

its patent. The Court held that the rule of reason applied; despite the non-compete agreement, it

was not a case where “an observer with even a rudimentary understanding of economics could

conclude that the arrangements in question would have an anticompetitive effect on customers

and markets.” Id. at 2237. The Court reasoned that the complexities of potential anticompetitive

effects required further analysis, and stated that “offsetting or redeeming virtues are sometimes

present” in such agreements. Id; see also Generac Corp. v. Caterpillar Inc., 172 F.3d 971, 977

(7th Cir. 1999) (holding that a licensee’s agreement to restrict its territory in exchange for the

right to use a trademark was governed by the rule of reason).


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The license agreements challenged by plaintiffs here have manifest procompetitive

virtues that likewise remove them from the scope of the per se rule:

First, the Blue Marks associated with the service areas curb free-riding. See B.H. Bunn

Co. v. AAA Replacement Parts Co., 451 F.2d 1254, 1261 (5th Cir. 1971) (“One is not allowed to

take a free ride on another’s registered trademark. The holder of a registered mark is thereby

encouraged … to educate the public that his mark is synonymous with his product’s reputation

and quality.”). Without defined service areas, a Plan could enter another’s service area and use

the Blue Marks to capitalize on the established Plan’s reputation. This would undermine the

established Blue Plan’s incentives to invest in its service area and the brand. The prevention of

free-riding is unquestionably the type of procompetitive justification that precludes application

of the per se rule. See Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 340 (2d

Cir. 2008) (Sotomayor, J., concurring) (concluding that the rule of reason applied to an exclusive

license for intellectual property as the arrangement was “reasonably necessary to achieve

MLBP’s efficiency-enhancing purposes because they eliminate several potential

externalities. … Most notable of these is the so-called free-rider problem.”).

Second, service areas allow the Blue System to assure consistent quality. Consumers

know the services associated with the Blue Marks are of consistent quality due to BCBSA’s

continued efforts to monitor and enforce compliance with its rules and regulations. (Sub. Compl.

¶¶ 340, 353–55 (alleging that BCBSA enforces membership standards and limits investment in

non-Blue insurance, which promotes investment in the Blue brand); Prov. Compl. ¶¶ 129, 161.)

Service areas facilitate this effort by preserving incentives for each Plan to invest locally.

Third, service areas prevent consumer confusion. Competition in service areas using the

Blue Marks could confuse consumers, resulting in dilution of the brand, loss of consumer


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benefits, and extra administrative costs for consumers and providers alike. This is precisely what

trademarks are designed to avoid. See Crystal Entm’t & Filmworks, Inc., 643 F.3d at 1323

(affirming that the public interest is best served by awarding a mark exclusively, because “[t]o do

otherwise would … cause unnecessary consumer confusion” (internal quotation omitted)).

Fourth, service areas promote interbrand competition, a primary objective of the antitrust

laws. Service areas allow Blue Plans to achieve efficiencies. As part of the Blue System, they

create nationwide coverage for subscribers, allowing consumers to access providers outside their

home areas and ensuring Blue Plans can compete effectively against multi-state insurers.

See, e.g., Midwestern Waffles, Inc. v. Waffle House, Inc., 734 F.2d 705, 720 (11th Cir. 1984)

(territorial restrictions can “promote interbrand competition by allowing the franchisor or

manufacturer to achieve certain efficiencies in the distribution of his goods and services”) (citing

Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977)).

d. Neither Topco nor Sealy require application of the per se rule.

Plaintiffs apparently intend to rely on United States v. Topco Associates, Inc., 405 U.S.

596 (1972), and United States v. Sealy, 388 U.S. 350 (1967) for their per se argument. This

reliance is misplaced. Those cases are distinguishable and, in any event, no longer represent the

Supreme Court’s mode of analysis for the per se rule.

First, Topco and Sealy involved exclusive territories created by parties that did not

already possess exclusive trademark rights in their own territories. Sealy, 388 U.S. at 352; Topco,

405 U.S. at 601–02. Here, however, the license agreements reflect long-standing service areas

defined either by trademark law or vertical licenses from the AHA and AMA. See supra at 12–

15. As a result, Topco and Sealy cannot apply to this case.

Second, as discussed, service areas are not naked restraints. Rather, they accomplish

something new and procompetitive: a Blue insurance product offering nationwide service to


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subscribers. That was not the case in Sealy or Topco. In Sealy, a licensor and its manufacturer-

licensees engaged in “flagrant and pervasive price-fixing”; “[t]he territorial restraints were a part

of the unlawful price-fixing and policing.” 388 U.S. at 351, 355–56. The agreement did not

create a new product. Before and after, the defendants sold exactly the same product: mattresses.

Id. at 352. Likewise in Topco, small- to medium-sized supermarket chains created a cooperative

that established exclusive territories for its members for Topco-branded grocery products. Topco,

405 U.S. at 599–602. Before and after, the member-supermarket chains sold the same product

(albeit with a different label): groceries. Id. Here, on the other hand, the cooperative arrangement

among Blue Plans created a new and essential product: nationwide, but locally-focused, Blue

System healthcare financing that would not be available for subscribers absent agreement. See

supra at 30–31; cf. BMI, 441 U.S. at 20–22; NCAA, 468 U.S. at 101.

Finally, these cases no longer represent the Supreme Court’s analytical approach to the

per se rule. Since Topco and Sealy, the Supreme Court has reformed the law on the per se rule,

drastically narrowing the situations where it applies:

• In 1977, the Court overruled precedent that applied the per se rule to non-price vertical restraints. See GTE Sylvania, 433 U.S. at 57–59.

• In 1979, the Court refused to apply the per se rule to conduct that was horizontal price fixing: an agreement among copyright owners to sell compositions for a single price under a blanket license. See BMI, 441 U.S. at 24.

• In 1984, the Court applied the rule of reason to conduct that was a horizontal agreement to limit output: an agreement among NCAA members not to televise more than a set number of football games. See NCAA, 468 U.S. at 101 (per se rule inapplicable when restraints “are essential if the product is to be available at all”).

• In 1985, the Court rejected application of the per se rule to an alleged horizontal boycott: an agreement by cooperative members to expel a competitor for failing to obey the cooperative’s regulations. See Nw. Stationers, 472 U.S. at 295.

• In 1997, the Court overruled precedent that applied the per se rule to maximum-resale-price-maintenance agreements. See State Oil Co., 522 U.S. at 22.


– 37 –

• In 2007, the Court overruled precedent that held that minimum-resale-price-maintenance agreements are per se unlawful. See Leegin, 551 U.S. at 889–90.

• In 2010, the Court held that a horizontal agreement among direct competitors to jointly license intellectual property is judged under the rule of reason.19 See Am. Needle, 130 S. Ct. at 2216–17.

• In 2013, the Court applied the rule of reason to a horizontal agreement not to enter a market where entry allegedly would have infringed an existing competitor’s patent. See Actavis, 133 S. Ct. at 2236–38.

These cases reflect the Supreme Court’s progressive limitation of the circumstances under which

the per se rule applies.

Commentators and appellate courts alike have recognized the Supreme Court’s refined

analysis with respect to the per se rule. Leading commentators have explained:

• “The territorial market allocation between Sealy licensees, which the Supreme Court found was per se unlawful in 1967, certainly would not be considered a per se offense today.” Benjamin Klein, Single Entity Analysis of Joint Ventures after American Needle: An Economic Perspective, 78 Antitrust L.J. 669, 684 (2013).

• “Both the Topco and Sealy decisions have been rightfully criticized for applying an overly aggressive per se rule to restraints that were ancillary to legitimate, efficiency-enhancing joint ventures by firms that lacked significant market power.” Herbert Hovenkamp & Christopher R. Leslie, The Firm As Cartel Manager, 64 Vand. L. Rev. 813, 864–65 (2011).

Similarly, appellate courts have stated:

• “Despite unguardedly broad language in [Topco], it is commonly understood today that per se condemnation is limited to ‘naked’ market division agreements, that is, to those that are not part of a larger pro-competitive venture.” Augusta News Co., 269 F.3d at 48.

19 While the Supreme Court cited Topco in American Needle, it did so only for the proposition that the

defendants were not categorically immune from antitrust scrutiny—NFL teams were not acting as a single economic entity. The Court never suggested that Topco (or Sealy) justified application of the per se rule and, significantly, did not cite those cases in its decision to apply the rule of reason to the horizontal agreement. Instead, it relied on modern cases such as BMI and NCAA to discuss application of the rule of reason. 130 S. Ct. at 2216–17.


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• “[T]o the extent that Topco and Sealy stand for the proposition that all horizontal restraints are illegal per se, they must be regarded as effectively overruled.” Rothery, 792 F.2d at 226.

As these comments and the progression of Supreme Court cases show, the Supreme Court no

longer broadly applies the per se rule and would not apply it here.

3. Judicial Experience Has Not Demonstrated that Service Areas Are Manifestly Anticompetitive.

The per se rule applies only when judicial experience demonstrates that a practice has “no

purpose except stifling of competition.” White Motor Co. v. United States, 372 U.S. 253, 263

(1963); see also Levine, 72 F.3d at 1549 (per se rule applies “only when history and analysis

have shown that in sufficiently similar circumstances the rule of reason unequivocally results in a

finding of liability”) (citation omitted). Plaintiffs have alleged no such experience here. On the

contrary, courts regularly enforce exclusive licenses, including the service areas at issue in this

case, because they have procompetitive benefits. See Bus. Elecs. Corp., 485 U.S. at 723. This

prior scrutiny is “a unique indicator that the challenged practice may have redeeming

competitive virtues.” BMI, 441 U.S. at 13.

For more than 25 years, federal courts have acknowledged that exclusive licenses have

“possible procompetitive influences on a given market.” L.A. Draper & Son v. Wheelabrator-

Frye, Inc., 735 F.2d 414, 420 (11th Cir. 1984); see also E&L Consulting Ltd. v. Doman Indus.

Ltd., 472 F.3d 23, 29–31 (2d Cir. 2006); Seacoast Motors of Salisbury, Inc. v. DaimlerChrysler

Motors Corp., 271 F.3d 6, 9–10 (1st Cir. 2001). Indeed, “it is well known” that the widespread

use of exclusive contracts has procompetitive benefits because they “reasonably serve to

maintain or enhance the value of an artistic or intellectual product.” Wis. Interscholastic Athletic

Ass’n v. Gannett Co., 658 F.3d 614, 627 (7th Cir. 2011) (quoting Home Box Office, Inc. v. FCC,

587 F.2d 1248, 1253 (D.C. Cir. 1978)). Service areas, as discussed above, enhance the value of


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Blue Plans’ product by providing customers with a locally-focused, national system of health

insurance and preventing free-riding.

Courts and regulators have specifically reviewed the Blue System’s service areas. Courts

have done so in the context of border disputes between adjoining service areas, even in the face

of antitrust challenge. Grp. Hosp. & Med. Servs., 744 F. Supp. at 719–20 & n.7; see also Grp.

Hosp. & Med. Servs., Inc., No. 85-1123-A (E.D. Va. Apr. 8, 1986), aff’d, 819 F.2d 1138 (4th

Cir. 1987) (enforcing D.C. and Virginia Plans’ service areas); Cent. Benefits Mut. Ins. Co., 711

F. Supp. at 1435 (enjoining Plan from operating outside its service area). Federal antitrust

agencies, including the DOJ and the FTC, also have reviewed service areas. (See Ex. 3, 1979

FTC Report 68.) And BCBSA officials have addressed service areas in congressional testimony.

(See Ex. 11, 1946 Rorem Stmt. 7; Ex. 12, 1971 McNerney Stmt. 210–11.) Finally, the U.S.

Public Health Service concluded more than sixty years ago that service areas benefit patients and

providers alike:

The basic formula of the hospital plans—non-profit status, one plan per area, free choice of hospital and the right of all qualified hospitals to participate, the provision of benefits on a service basis—is sound and mutually beneficial for patients and hospitals. The prevailing pattern of the medical plans—non-profit status, one plan per area, free choice of physician, and the right of all qualified physicians in the area to participate—is also good.

(Ex. 1, 1947 USPHS Report 231 (emphasis added); see also id. 238 (noting that overlapping

service areas caused high administrative costs and reduced support of patients and providers, and

calling for the few Plans with overlapping areas to merge).)

Plaintiffs also have not alleged that judicial experience unambiguously condemns service

areas as having no purpose except to stifle competition. Nor could plaintiffs do so, given the

history of governmental and judicial review—and enforcement—of exclusive license agreements


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in general and the Blue Plan service areas in particular. This is yet another reason plaintiffs’ per

se claim fails.

4. Plaintiffs Do Not State a Per Se Claim with Respect to Other Restrictions.

Plaintiffs’ challenges to other restrictions on a licensee’s non-Blue business and on the

acquisition of Blue licensees (Sub. Compl. ¶¶ 352–53, 369–70) also do not amount to a per se

claim.

First, none of these restrictions are among the remaining categories of restraints that can

potentially be subject to per se illegality (e.g., naked horizontal price fixing).

Second, the antitrust laws allow BCBSA to preserve the value of the Blue Marks by

placing restrictions on its licensees, such as limiting investment in non-Blue business or

acquisition by non-Blue entities, without violating antitrust laws. See Leegin, 551 U.S. at 890–

91; Generac, 172 F.3d at 977; cf. Actavis, 133 S. Ct. at 2236–37. These restrictions promote

investment in the Blue brand and prevent free-riding. See Rothery, 792 F.2d at 224, 228–

29; see also Nat’l Bancard, 779 F.2d at 599–600; Polk Bros., 776 F.2d at 188–91. As such, they

are ancillary to BCBSA’s legitimate business purposes and are procompetitive. See Am. Needle,

130 S. Ct. at 2216–17; Nw. Wholesale Stationers, 472 U.S. at 295; In re Sulfuric Acid, 703 F.3d

at 1013; Augusta News, 269 F.3d at 48. Whether these restrictions are viewed individually or in

combination with the service areas—plaintiffs’ core allegation in this case—the analysis is the

same, and requires evaluation under the rule of reason.

Third, plaintiffs do not allege any facts demonstrating that these restrictions have harmed

competition. With respect to the alleged acquisition restrictions, for example, plaintiffs allege

only that “acquisition restraints reduce competition ... because they substantially reduce the

ability of non-member insurance companies to expand their business and compete against the


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Individual Blue Plans.” (Sub. Compl. ¶ 371.) But they make no plausible allegations about how

acquiring a Blue Mark would increase competition “against the Individual Blue Plans.” (Id.)

Plaintiffs’ allegations, if anything, demonstrate that competition among Blue Plans would not

change at all if an outside insurance company purchased a Blue Mark. The purchaser of an

existing Blue Mark would be subject to the same license agreement as the seller, including, of

course, the long-established service areas.

Similarly, with respect to the alleged restrictions on non-Blue business, plaintiffs do not

allege that any Blue Plan is approaching the asserted revenue “caps.” Plaintiffs’ allegations only

show the high value subscribers place on the Blue brand relative to defendants’ non-Blue

business. (Id. ¶¶ 361–65.) There are no allegations that defendants would increase their non-Blue

business if the restrictions did not exist.

B. The BlueCard Conspiracy Allegations Do Not State a Per Se Claim.

The Court also should dismiss provider plaintiffs’ BlueCard conspiracy allegations with

prejudice because they do not state a per se claim.20 First, although naked horizontal price-fixing

claims remain subject to the per se rule, plaintiffs do not plausibly allege a price-fixing

agreement. There are no allegations of joint rate setting or of uniform or “fixed” rates under the

BlueCard program. Nor are there any facts suggesting that Blue Plans collectively agreed to any

rates, or that any Blue Plan influenced the rates of any other Blue Plan. Indeed, provider

plaintiffs make only two allegations: (1) “In furtherance of the Price Fixing Conspiracy, each

20 Provider plaintiffs also make spurious allegations against defendants that are entirely unrelated to

their claims. For example, providers allege that defendants have prohibited them from using “price terms” in contracts with other health insurers (Prov. Compl. ¶ 181); have required them to disclose the rates other health insurers pay while preventing providers from disclosing defendants’ rates to other health insurers (id. ¶¶ 182–83); and have threatened to “enter … the market as providers” if providers did not agree to low prices (id. ¶ 184). None of provider plaintiffs’ claims are based on these allegations, nor do such allegations come close to the type of conduct that ever has been considered under the per se rule.


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Defendant has agreed to participate in the Blue Card program” (Prov. Compl. ¶ 7); and

(2) defendants “reached agreement and implemented a Price Fixing Conspiracy through the Blue

Card program in order to leverage the low provider pricing they had achieved in each Service

Area to benefit all Blues” (id. ¶ 173). These bare-bones, conclusory accusations cannot sustain a

price-fixing claim. See Jacobs v. Tempur-Pedic Int’l, Inc., 626 F.3d 1327, 1340 (11th Cir. 2010)

(allegation that price-fixing agreements “have unreasonably restrained, do unreasonably restrain,

and will continue to unreasonably restrain trade and commerce ... by eliminating price

competition” is nothing more than a “bare legal conclusion” insufficient to plausibly allege

illegal conduct); Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements of a cause of action,

supported by mere conclusory statements, do not suffice.”).

And, plaintiffs’ allegations concede that each Blue Plan separately sets its own rates and

establishes its own “medical policies, claims adjudication edits and coverage rules.” (Prov.

Compl. ¶ 178.) This admission recognizes that BlueCard is a tool through which subscribers can

obtain national coverage, and Blue Plans can service national accounts and compete with other

insurers using rates separately negotiated by each Plan.

Second, plaintiffs do not otherwise plead the requirements for a per se claim. The

complaint alleges that BlueCard allows a Blue Plan subscriber to receive insurance coverage

outside of their home Blue Plan’s service area. (Id. ¶¶ 174, 232.) The complaint also alleges that

BlueCard provides a mechanism for a Blue Plan to process claims for services provided to

members across the country. (Id.) These allegations describe a routine situation where one Blue

Plan can buy services for its subscribers from a provider of the host Blue Plan at a rate

independently negotiated by the host Blue Plan. Even if Blue Plans were “jointly” negotiating

with the provider (which they are not), courts routinely uphold such “joint purchasing”


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arrangements against per se attacks because they produce efficiencies for their members.21

See Kartell v. Blue Shield of Mass., 749 F.2d 922, 928 (1st Cir. 1984) (stating that “there is no

law forbidding a legitimate insurance company from itself buying the goods or services needed

to make its customer whole,” and that case law “is unanimous in allowing such arrangements”);

see also Nw. Wholesale Stationers, Inc., 472 U.S. at 295 (“Wholesale purchasing cooperatives …

are not a form of concerted activity characteristically likely to result in predominantly

anticompetitive effects.”); All Care Nursing Serv., Inc. v. High Tech Staffing Servs., Inc., 135

F.3d 740, 746–47 (11th Cir. 1998) (hospitals joint purchase of nursing services not per se

unlawful).

Further, the BlueCard program permits the creation of a new product with procompetitive

benefits—a national provider network for Blue Plan members and efficient claims processing.

As discussed, the per se rule does not apply when an agreement among competitors results in a

new product. See, e.g., BMI, 441 U.S. at 20–22; NCAA, 468 U.S. at 101. As in BMI, the

BlueCard program enables subscribers to gain access to all of the Blue Plans’ networks and

discounts in a single transaction.

Finally, judicial experience has not demonstrated that the BlueCard program is manifestly

anticompetitive. Indeed, one court already has held to the contrary:

[T]he BlueCard program that is explained in the complaint encourages trade and competition in the relevant markets by allowing members of Blue plans across the country to obtain services from preferred providers in any other Blue plans’ network. … [T]here are no allegations that would plausibly show the BlueCard program causes any competitive or antitrust injury in any market. Simply stated, the BlueCard program … cannot be construed as a conspiracy to harm consumers.

21 In fact, providers routinely purchase products through joint-buying groups such as Group Purchasing

Organizations and Pharmacy Benefit Managers. Similarly, state laws explicitly permit “rental” of PPO networks. See, e.g., CAL. BUS. & PROF. CODE §§ 511.3-.4. A state-endorsed practice assuredly does not rise to the level of a per se violation of antitrust laws.


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(Ex. 13, Tr. of Mot. Hr’g at 70, Powderly v. Blue Cross & Blue Shield of N.C., No. 3:08-cv-109

(W.D.N.C. Aug. 21, 2008) (emphasis added).) A program that the courts have protected from

antitrust challenge hardly can be described as per se anticompetitive.

III. Subscriber Plaintiffs Fail to State a Rule of Reason Claim.

Hedging their bets, subscriber plaintiffs allege that BCBSA’s licensing system is illegal

under the rule of reason, the default mode of antitrust analysis that weighs the procompetitive

benefits of conduct against any negative effects in well-defined markets. But plaintiffs do not

adequately allege “actual or potential harm to competition” in a properly defined market.

See Jacobs, 626 F.3d at 1336. They offer only the conclusory assertion, unsupported by any

factual allegations, that service areas have an anticompetitive impact in the hundreds of

geographic markets they posit. Nor do plaintiffs adequately allege legally cognizable product

markets, or that Blue Plans possess sufficient market power. These pleading deficiencies warrant

dismissal of plaintiffs’ rule of reason claim.

A. Subscriber Plaintiffs Have Not Adequately Alleged an Anticompetitive Effect.

Plaintiffs allege that, but for the Blue Plan’s service areas, individual Blue Plans “could

and would use their Blue brands and non-Blue brands to compete with each other throughout

their Service Areas, which would result in greater competition and competitively priced

premiums for subscribers.” (See Sub. Compl. ¶ 7; see also id. ¶¶ 363, 375–83.) These conclusory

assertions of anticompetitive effect fail as a matter of law. See, e.g., Jacobs, 626 F.3d at 1336

(citing Levine, 72 F.3d at 1551 (“Rule of reason analysis requires the plaintiff to prove … an

anticompetitive effect of the defendant’s conduct on the relevant market….”)); Keller v. Greater

Augusta Ass’n of Realtors, Inc., 760 F. Supp. 2d 1373, 1377 (S.D. Ga. 2011) (dismissing Section

1 claim for failure to adequately allege “an anticompetitive effect on the market”).


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First, subscriber plaintiffs do not allege facts establishing that Blue-on-Blue competition

would increase in any specific market absent service areas. For example, plaintiffs do not allege

that any particular Blue Plan wants to compete in, or has taken preparatory steps to enter, another

Blue Plan’s service area, but has refrained from doing so because of service areas. Further,

plaintiffs do not allege that any particular Blue Plan actually would compete outside of its service

area on a Blue-branded basis absent service areas.

As explained above, even without the license agreement’s service areas, a Blue Plan’s

entry into another Blue Plan’s service area would infringe on coexisting trademark rights.

Striking down BCBSA’s license agreement thus would have no effect in geographic areas where

the local Plan would continue to hold exclusive rights to the trademarks. Plaintiffs’ conclusory

statements to the contrary—devoid of any factual support—cannot be credited and are thus

legally insufficient to allege anticompetitive impact. See, e.g., Twombly, 550 U.S. at 568–69

(holding that allegations that telephone companies failed to enter new markets were insufficient

to state rule of reason claim, as “[f]irms do not expand without limit”); Jacobs, 626 F.3d at 1340

(affirming dismissal of complaint that “provide[d] no basis on which a court could determine

how harm to competition results from [defendant’s] agreements with its distributors (if such

harm results at all)”); Keller, 760 F. Supp. 2d at 1377–78 (dismissing claim where allegations

regarding impact were “merely legal conclusions that [did] not factually allege how [the

challenged practice] will affect the relevant market”).

Second, plaintiffs do not allege that allowing Blue Plans to enter other service areas

would create a competitive effect different than that already created by dozens of healthcare

financing options—including provider-sponsored plans (i.e., insurance plans that are owned and

operated by hospitals or physicians)—that exist across the country. For example, plaintiffs do not


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allege why competition from national insurers such as United and Aetna has not produced the

rate-reducing effects that they allege Blue-on-Blue competition would have. Nor do plaintiffs

allege how or why Blue Plans could successfully enter markets in which they claim current

competitors have failed to succeed. This is especially true for the individual and small group

segments of the market, which are highly regulated and subject to tightly controlled rates in most

states.

At bottom, plaintiffs’ failure to allege any facts explaining how and why destruction of

service areas would increase competition in any—much less all—of the myriad markets they

allege, where and to what extent Blue Plans would enter any market, and why that entry would

be any different (or more likely) than non-Blue entry, is fatal to their rule of reason claim.

See, e.g., Jacobs, 626 F.3d at 1340; Keller, 760 F. Supp. 2d at 1377–78.

B. Subscriber Plaintiffs Do Not Sufficiently Allege Relevant Markets.

Plaintiffs also fail to allege legally cognizable product and geographic markets.

See Jacobs, 626 F.3d at 1336–40 (affirming dismissal under Rule 12(b)(6) based on conclusory

and implausible market allegations); PSKS, Inc. v. Leegin Creative Leather Prods., Inc., 615

F.3d 412, 418 (5th Cir. 2010) (same). Plaintiffs’ product and geographic markets employ the

wrong legal analysis, are purely arbitrary, and are not defined in any way that resembles the real-

world operation of healthcare financing.

1. Plaintiffs Fail to Plausibly Define the Product Market.

As a threshold matter, plaintiffs apply the wrong legal standard to define their alleged

product market. Plaintiffs are required to plead—but have not—a product market that includes

all products “reasonably interchangeable by consumers for the same purposes.” United States v.

E.I. du Pont de Nemours & Co., 351 U.S. 377, 395 (1956). As the Eleventh Circuit explained,

defining “a relevant product market is primarily a process of describing those groups of


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producers which, because of the similarity of their products, have the ability—actual or

potential—to take significant amounts of business away from each other.” U.S. Anchor Mfg., Inc.

v. Rule Indus., Inc., 7 F.3d 986, 995 (11th Cir. 1993) (internal quotation marks omitted).

Subscriber plaintiffs ignore the “products” in attempting to define their product markets.

Instead, they define the product market in terms of consumers, namely “the sale of full-service

commercial health insurance products to individuals and small groups (up to 199 people).” (Sub.

Compl. ¶ 404.) Plaintiffs’ focus on the consumers to whom the Blue Plans’ product is sold,

rather the products that Blue Plans sell (health insurance) is legal error, resulting in a flawed

product market definition that does not pass muster under Rule 12(b)(6). See, e.g., Newcal

Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1045 (9th Cir. 2008) (“The consumers do not

define the boundaries of the market; the products or producers do.”). Having looked through the

wrong end of the lens, it is no surprise that the complaint is devoid of any “explanation of other

companies with whom [defendants] compete” or the products those companies offer. Total

Benefits, 552 F.3d at 437. With such deficient allegations, “the court cannot determine the

boundaries of the relevant product market and must dismiss the case for failure to state a claim.”

Id.

The proposed product market is also fatally deficient because it draws meaningless and

inexplicable distinctions. Plaintiffs’ definition excludes numerous interchangeable products, such

as large swaths of competing insurance products offered to the insured population:

First, plaintiffs fail to allege why the product market should exclude large-group

products, a market for which many commercial insurers certainly compete. (Because each

alleged “large group” contains at least 200 employees, even a small number of large-group

products could substantially influence the alleged market.) For example, plaintiffs do not allege


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that the full-service commercial health insurance products sold to large groups differ in any

competitively meaningful way from products sold to small groups and individuals. Instead,

plaintiffs’ only proffered explanation for excluding large groups is that large groups can often

self-insure. (Sub. Compl. ¶¶ 410–11.) But even plaintiffs recognize that approximately 17% of

“large group consumers” in the United States—defined at the firm level, not the individual or

employee level—do not self-insure. (Id. ¶ 411.) And plaintiffs allege that 16% of their alleged

“small group consumers” do self-insure. (Id.) Plaintiffs therefore concede that small-group

customers view self-insured and fully insured products as substitutes. Because the alleged

product market alleges no facts showing why these substitute products should be excluded,

plaintiffs’ proposed product market fails.

Second, plaintiffs do not plausibly assert that the prices of the various products within

and outside of their proposed market do not constrain pricing. Plaintiffs’ only allegation on this

point—that insurers “can set different prices for these different consumers” and “[t]hus, pricing

in the large group market would not impact competition in the small group market, and vice

versa,” (id.)—is entirely conclusory. It is also irrelevant: plaintiffs’ allegations only reference the

products that consumers currently purchase. Thus, plaintiffs say nothing about what products

consumers view as substitutes if the price of their product increases, or whether a significant

number of “small group” consumers would switch to other products if the price of their full-

service insurance increased. Nor do they allege whether a significant number of “large group”

consumers would switch to full-service products in response to a change in the price of either

product. Yet whether and how many consumers would switch—not what consumers currently

buy—is the crux of a proper product-market definition. See U.S. Anchor Mfg., Inc., 7 F.3d at 996


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(considering whether “consumers were willing and able to switch away from [a product] because

of increasing price differences”).

Third, plaintiffs’ proposed nationwide class greatly exceeds the scope of their product

market. Plaintiffs’ class definition includes “all persons or entities in the [United States] who are

currently insured by any health insurance plan that is currently a party to a license agreement

with BCBSA.” (Sub. Compl. ¶ 277.) This definition encompasses both large and small groups

that self-insure. It is not supported by any factual allegations regarding the relevant product

market, and contradicts the only product market that plaintiffs have (albeit improperly) attempted

to define. This fundamental pleading deficiency alone provides a sufficient basis to dismiss their

national class claim. See, e.g., Twombly, 550 U.S. at 555 (“Factual allegations must be enough to

raise a right to relief above the speculative level.”).

Finally, even if consumers were the proper focus of plaintiffs’ market definition,

plaintiffs’ definition of a “small group” as a firm with up to 199 employees (Sub. Compl. ¶ 410)

is purely arbitrary and contradicts numerous state and federal laws. Alabama health-benefits law,

for example, defines a “small employer” as one that employs “no more than 50 eligible

employees.” ALA. CODE § 27-52-21. Federal law defines a “small employer” as one with “at

least 1 but not more than 100 employees.” 42 U.S.C. § 18024(b)(2) (Affordable Care Act).

2. Plaintiffs Have Not Pled Legally Cognizable Geographic Markets.

Subscriber plaintiffs’ geographic-market definition presents a menu of more than 900

potential geographic market options based on arbitrary political, statutory, and statistical

boundaries. (See, e.g., Sub. Compl. ¶¶ 413, 415–16, 423–24.) It is legally deficient. A geographic

market must include the area within which affected customers practicably can turn for alternative

supplies if the defendant were to raise its prices or restrict its output. See Tampa Elec. Co. v.

Nashville Coal Co., 365 U.S. 320, 328 (1961). Simply alleging the boundaries of a geographic


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area is not enough: Antitrust plaintiffs “must present enough information in their complaint to

plausibly suggest the contours of the relevant geographic and product markets.” Jacobs, 626 F.3d

at 1336; see also Apani Sw., Inc. v. Coca-Cola Enters., Inc., 300 F.3d 620, 630–33 (5th Cir.

2002) (affirming dismissal under Rule 12(b)(6) for failure to plead a plausible geographic

market); Little Rock Cardiology Clinic, P.A. v. Baptist Health, 573 F. Supp. 2d 1125, 1148 (E.D.

Ark. 2008), aff’d, 591 F.3d 591, 598–601 (8th Cir. 2009) (same). Plaintiffs have not done this.

Plaintiffs first allege Blue Plans’ service areas (whether an entire state or only portions of

a state) are potential “relevant geographic market[s].” (See, e.g., Sub. Compl. ¶¶ 423, 430, 437.)

These allegations are supported by only the circular conclusion that the state (or portion of the

state) is a Blue Plan’s service area. (Id.) “The law is clear, however, that a geographic market

cannot be drawn simply to coincide with the market area of a specific company.” Bailey v.

Allgas, Inc., 284 F.3d 1237, 1249 (11th Cir. 2002); see also Am. Key Corp. v. Cole Nat’l Corp.,

762 F.2d 1569, 1580–81 (11th Cir. 1985). Plaintiffs do not allege that each Plan’s service area is

the only area within which affected customers can practically turn for alternatives—the

touchstone of a proper geographic market. Nor could they. Affected customers are not limited to

local insurers but can turn to national or regional insurers.

Plaintiffs next propose geographic markets comprised of a hodgepodge of metropolitan

and micropolitan statistical areas within each state, plus whichever counties do not fall into one

of these areas. (See, e.g., Sub. Compl. ¶¶ 416, 424, 452.) Yet “the economic significance of a

geographic area does not depend upon singular elements such as population, income, political

boundaries, or geographic extent, but rather upon the relationship between these elements and

the characteristics of competition in the relevant product market within a particular area.” Apani,

300 F.3d at 626–27 (internal quotation marks omitted). The boundaries of metropolitan and


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micropolitan statistical areas and counties cannot constitute geographic markets because arbitrary

political boundaries rarely suffice for antitrust purposes, as “their [establishment is] usually

based on factors other than competitive relationships [] in the area.” Little Rock Cardiology

Clinic, P.A., 573 F. Supp. 2d at 1148 (citation omitted); see Re/Max Int’l, Inc. v. Realty One,

Inc., 173 F.3d 995, 1016–18 (6th Cir. 1999) (accord). As the Supreme Court explained with

respect to the banking industry:

[T]he Government cannot rely, without more, on Standard Metropolitan Statistical Areas (SMSA’s) as defining the geographic markets of the two banks. SMSA’s are prepared by the Office of Management and Budget to determine areas of economic and social integration, principally on the basis of the commuting patterns of residents. They are not defined in terms of banking criteria, and they were not developed as a tool for analyzing banking markets.

United States v. Conn. Nat’l Bank, 418 U.S. 656, 670 (1974) (internal citations omitted and

emphasis added). The Supreme Court’s analysis applies equally here: metropolitan statistical

areas are not defined in terms of insurance coverage or competitive insurance products.

Plaintiffs’ attempt to define geographic markets based on irrelevant criteria while ignoring the

competitive relationships that define proper markets also warrants dismissal.

Finally, plaintiffs have not even attempted to plead a geographic market that would

support their claim for national injunctive relief. Instead, their proposed geographic markets are

limited to 17 states or portions thereof. (Sub. Compl. ¶¶ 412–542.) Plaintiffs therefore have

failed to state a rule of reason claim on behalf of their national subscriber classes. See Funeral

Consumers Alliance, Inc. v. Serv. Corp. Int’l, 695 F.3d 330, 348 (5th Cir. 2012) (“Because

Appellants brought this case as a nationwide class action, the recovery they seek under § 4 of the

Clayton Act requires that they show the relevant geographic market is national (i.e., that it

corresponds with the geographic scope of the proposed class).”) (citation omitted).


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C. Subscriber Plaintiffs Have Not Adequately Alleged Market Power.

Subscriber plaintiffs’ rule of reason claim also fails because they do not adequately plead

that each defendant possesses market power in a properly defined market. See Jacobs, 626 F.3d

at 1339–40; Levine, 72 F.3d at 1538; see also Cont’l Airlines v. United Airlines, 277 F.3d 499,

509 (4th Cir. 2002) (“[A]bsent this market power, any restraint on trade created by defendant’s

action is unlikely to implicate Section 1.”) (internal quotation marks omitted). Plaintiffs attempt

to meet their burden by alleging market-share statistics for some, but not all, Blue Plans. Their

allegations (or lack thereof) are insufficient as a matter of law, as explained below and in further

detail in the Plan Brief:

• Plaintiffs allege over 900 different geographic markets, but do not allege any market share information for the majority of those markets. For example, while the subscriber plaintiffs allege Blue Plans’ market shares in some of their local markets (such as certain MSAs), they do not allege any market share information for others (including micropolitan statistical areas and counties). (See, e.g., Sub. Compl. ¶¶ 416, 424, 438.)

• Plaintiffs admit that some Plans hold relatively small market positions. (See, e.g., Sub. Compl. ¶ 244 (BCBSUT holds 17% of individual market and 23% of small-group market), ¶ 270 (BCBSWI holds 19% of individual market and 12% of small-group market).) As a matter of law, one cannot infer market power from such low market shares. See, e.g., Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 26–29 (1984) (30 percent market share alone is insufficient to support a finding of market power under Section 1 tying claim), abrogated on other grounds by Ill. Tool Works, Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006); U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 596 (1st Cir. 1993) (25 percent market share insufficient under rule of reason); Retina Assocs., 105 F.3d at 1383–84 (citing Jefferson Parish and U.S. Healthcare and holding that 15 percent market share “is insufficient, as a matter of law, to establish market power” for rule of reason claim).

• Plaintiffs ignore adjacent Blue Plans in the same state. For example, plaintiffs’ allegations regarding Highmark’s market share (Sub. Compl. ¶ 503) do not provide any indication of the market share of Capital BC, which plaintiffs omit from their market-share allegations, even though Capital BC operates in Pennsylvania and its service area is adjacent to Highmark’s. Similarly, plaintiffs impermissibly aggregate market shares of multiple independent companies, artificially inflating their alleged market shares. (See, e.g., id. ¶¶ 431–32, 479–82.)


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• Plaintiffs conflate market-share information for multiple products, rather than limit their allegations to the relevant market that they have alleged. For example, plaintiffs allege that “between 60% and 80% of the Western Pennsylvania residents who subscribe to full-service commercial health insurance (whether through group plans or through individual policies) are subscribers of Highmark.” (Id. ¶ 217.) Yet plaintiffs do not allege how many of those residents subscribe to large-group policies, which they allege constitute a separate product market.

• In two-thirds of the states for which the subscriber plaintiffs allege “supracompetitive” price increases, plaintiffs do not plead any facts to support their allegation that the local Blue Plan raised prices by more than the national average for either a majority or all of its customers. (Compare Sub. Compl. ¶¶ 427, 434, 441 with id. ¶¶ 448, 462.) And plaintiffs’ allegation that “above average” prices are “supracompetitive” is inherently flawed as, by definition, some rates must fall both below and above an average in order for the “average” to exist at all.

Even if plaintiffs could allege a large market share for any one Blue Plan in a properly

defined market, such an allegation standing alone would not suggest market power. Where

barriers to entry are low—that is, where new firms could readily enter or existing firms could

readily expand capacity—a large market share does not indicate market power. See, e.g., Nat’l

Bancard Corp. v. VISA U.S.A. Inc., 596 F. Supp. 1231, 1259 (S.D. Fla. 1984) (defendant would

lack market power, even if it had a large market share, where there were no significant barriers to

entry); Moecker v. Honeywell Int’l Inc., 144 F. Supp. 2d 1291, 1308 (M.D. Fla. 2001) (“[W]here

entry barriers are low, market share does not accurately reflect the party’s market power.”).

In the insurance market, as in financial markets generally, entry barriers are generally

quite low. Thus, in Ball Memorial Hospital, 784 F.2d at 1335, Judge Easterbrook distinguished

the insurance industry, where the “‘productive asset’ of the insurance business is money, which

may be supplied on a moment’s notice, plus the ability to spread risk, which many firms possess

and which has no geographic boundary,” from the “steel industry, in which a firm must take

years to build a costly plant before having anything to sell.” See also Hood v. Tenneco Tex. Life

Ins. Co., 739 F.2d 1012, 1019 (5th Cir. 1984) (observing that the insurance industry is marked by


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ease of entry).22 Based on that reasoning, Judge Easterbrook concluded that the “Blues do not

own any assets that block or delay entry.” Ball Mem’l Hosp., 784 F.2d at 1335. Large market

shares in the insurance industry are not indicative of market power because increasing prices

above competitive levels will induce entry and bring prices back to competitive levels. See

Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 591 n.15 (1986)

(“[W]ithout barriers to entry it would presumably be impossible to maintain supracompetitive

prices for an extended time.”).

Finally, plaintiffs’ allegations regarding Blue Plans’ national presence are both legally

insufficient and irrelevant. Although plaintiffs allege a percentage of Americans insured by Blue

Plans, the number of Blue Plans that are the largest insurer in their respective states, and the

number of providers who contract with Blue Plans (see Sub. Compl. ¶¶ 46, 346), none of these

allegations correspond to plaintiffs’ own flawed market definition or to proper measures of

market power or market share.

IV. The McCarran-Ferguson Act Bars Plaintiffs’ Claims.

As discussed, plaintiffs’ per se and rule of reason claims fail as a matter of law. Apart

from these threshold deficiencies, plaintiffs cannot attack Blue Plans’ use of service areas under

federal antitrust law because the practice is exempt under the McCarran-Ferguson Act as part of

the “business of insurance.” See 15 U.S.C. §§ 1012(b), 1013(a)–(b). The purpose of McCarran is

to promote intra-industry cooperation in rate-setting and to preserve for the states the power to

regulate the insurance industry. Gilchrist v. State Farm Mut. Auto. Ins. Co., 390 F.3d 1327, 1330

22 For example, plaintiffs make no attempt to allege why hospitals could not enter the proposed market

and supply health insurance to individuals and small groups. Perhaps that is because providers—in ever-increasing numbers—are offering health insurance. Indeed, Blue Cross & Blue Shield of Wisconsin v. Marshfield Clinic, 65 F.3d 1406, 1409 (7th Cir. 1995), addressed a situation in which a physician-owned clinic did just that.


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(11th Cir. 2004). McCarran exempts from antitrust challenge conduct that (1) constitutes the

business of insurance and (2) is regulated by state law. See 15 U.S.C. § 1012(b). The Blue Plans’

service areas satisfy both requirements.

A. Blue Plans’ Service Areas Constitute the “Business of Insurance.”

Conduct constitutes the business of insurance when it: (1) is integral to the insurer’s

relationship with the insured; (2) is unique to the insurance industry; and (3) transfers or spreads

the policyholder’s risk. Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982). Each

factor is relevant, but “[n]one of these criteria is necessarily determinative in itself.” Id.

When stripped of antitrust jargon, plaintiffs’ attack here is an attack on premiums.

Plaintiffs’ allegation that Blue Plans conspired to inflate premiums by allocating territories falls

squarely within the business of insurance. Rate-setting satisfies all three Pireno factors and is

“[c]ertainly” the business of insurance. SEC v. Nat’l Sec., Inc., 393 U.S. 453, 460 (1969);

see also Slagle v. ITT Hartford Ins. Grp., 904 F. Supp. 1346, 1349 (N.D. Fla. 1995), aff’d, 102

F.3d 494 (11th Cir. 1996); Uniforce Temp. Pers., Inc. v. Nat’l Council on Comp. Ins. Inc., 87

F.3d 1296, 1300 (11th Cir. 1996). As the Eleventh Circuit explained, alleging that conduct

results in inflated prices necessarily questions rate-setting activity. See Gilchrist, 390 F.3d at

1332. In Gilchrist, the plaintiffs alleged that auto insurers conspired to provide inferior parts to

policyholders and that the effect of the conspiracy was to raise and maintain supracompetitive

premiums. The Eleventh Circuit raised McCarran on its own and explained that the plaintiffs’

claim was “an indirect allegation of price fixing and, therefore, a direct attack on the integrity of

Insurers’ rate-making.” Id. After analyzing Eleventh Circuit precedent, the court concluded that

the conduct was thus exempt from the antitrust laws under McCarran and affirmed the district

court’s dismissal of the claim. Id. at 1332–34. Thus, Eleventh Circuit law is clear: alleging a


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conspiracy to inflate premiums is a camouflaged attack on rates and is barred by McCarran.

See Gilchrist, 390 F.3d at 1333.

Moreover, even if service areas are not viewed as an alleged means to inflate premiums,

they still satisfy all three Pireno factors. First, service areas are integral to the relationship

between the insurer and the insured. Initial prepaid plans were limited to a single hospital. (Ex. 1,

1947 USPHS Report 9–10.) As discussed above, this arrangement frustrated patients, doctors,

and hospitals when the patient’s prepaid plan was not with the hospital best suited to the patient’s

medical needs. (Id.; see supra at 5–6.) To address this mismatch, service areas arose with a

single plan covering all hospitals in the area and guaranteeing patients and doctors the freedom

to choose the hospital most appropriate for the patient’s care. (Ex. 1, 1947 USPHS Report at 11;

see supra at 6.) Courts have repeatedly held that actions that affect the scope of coverage are

integral to the insurer/insured relationship. See, e.g., Slagle, 102 F.3d at 498 (insurers’ alleged

joint refusal to cover windstorm damage was “an essential part of the policy relationship”); Smith

v. Jefferson Pilot Life Ins. Co., 14 F.3d 562, 569 (11th Cir. 1994) (recognizing that in Pireno, the

Supreme Court “explained that the risk-spreading principle concerns the nature of the coverage

of the policy”); UNR Indus., Inc. v. Cont’l Ins., Co., 607 F. Supp. 855, 862 (N.D. Ill. 1984) (“The

type of coverage offered directly affects the spreading of risk, is at the very heart of the policy

relationship, and the agreement is limited to insurance companies.”). Service areas did just that

by creating the broad scope of coverage patients desired.

Second, nothing could be more unique to the insurance industry than matching risk

(i.e., the need for care at a particular hospital) with the resources to adequately cover that risk

(i.e., coverage at all local hospitals). Grp. Life & Health Ins. Co. v. Royal Drug Co., 440 U.S.

205, 221 (1979) (quoting with approval the House Report on the passage of McCarran, which


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recognized that insurance is “the distribution of risk according to hazard, experience, and the

laws of averages”); see also Ocean State Physicians Health Plan v. Blue Cross & Blue Shield of

R.I., 883 F.2d 1101, 1107 (1st Cir. 1999) (practices that directly involve the insurer-insured

relationship are generally unique to the insurance industry).

Third, service areas relate to the transfer and spread of risk. Single-hospital plans placed

the risk of non-coverage on the patient; service areas mitigated that risk through enhanced

coverage. Moreover, early standards for prepaid plans set by the AHA recognized that the size of

the service area was directly related to the plan’s ability to spread risk and required plans to serve

a population of at least 500,000 persons. (See Ex. 1, 1947 USPHS Report 124–25.) In other

words, service areas both affected which risks were transferred from the insured to the insurer

and established an adequate insured pool. See Feinstein v. Nettleship Co. of Los Angeles, 714

F.2d 928, 932 (9th Cir. 1983) (medical association’s designation of a single insurance broker for

all of its members “assure[d] coverage for certain high-risk specialties” by “spread[ing] risk

across a wide area” and thus constituted the business of insurance).

Additionally, service areas prevent cream skimming within the Blue System. Insurance

rates are based on the risks insured. Insurers offering deep, broad coverage can insure high-risk

consumers at a reasonable rate only if they can include low- and medium-risk individuals in the

same pool. Absent service areas, a new plan could “skim the cream” by selling policies only to

low-risk insureds; their correspondingly low rate would undercut the existing plan’s rate, which

must account for medium- and high-risk insureds as well. As low-risk insureds switch to the plan

with the lower rate, the original plan’s pool deteriorates, forcing that plan to either raise rates

(which would cause even more insureds to switch) or abandon the Blue System’s practice of

offering broad, community-wide coverage in favor of skimming the cream itself. As explained


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by the congressional testimony of Blue Cross’s President, the absence of service areas “would be

self defeating” because:

for one plan to compete with another and in the process go for the select risks, and skim the cream, leaving an inordinate residue of bad risks for the other plan, would begin to move Blue Cross away from its original objectives rather than toward them which was to serve the total community.

(Ex. 12, 1971 McNerney Stmt. 211 (emphasis added)); see also Owens v. Aetna Life & Cas. Co.,

654 F.2d 218, 223 (3d Cir. 1981) (“If competition is permitted in risk selection[,] the socially

undesirable consequences may be either that those most at risk cannot obtain insurance at all, or

that the solvency of companies which wind up insuring them will be impaired.”).)23

B. The Blues Are Subject to Extensive State Regulation.

The Blue Plans’ service areas also satisfy McCarran’s second requirement. Where state

insurance regulators have jurisdiction over practices challenged in an antitrust suit, McCarran

allocates decision-making authority to approve or prohibit those practices to the regulators rather

than the courts. See 15 U.S.C. § 1012(b). So long as a body of state law exists that proscribes

unfair insurance practices and provides for administrative supervision and enforcement,

McCarran’s state-regulation requirement is satisfied. See, e.g., Ocean State Physicians Health

Plan, Inc., 883 F.2d at 1109; Gilchrist, 390 F.3d at 1334–35.

This state-regulation requirement is easily met here. As explained in the Plan Brief, Blue

Plans are extensively regulated by state law. As one example, the Alabama Commissioner of the

Department of Insurance administers an expansive regulatory scheme and is responsible for

reviewing and approving insurance rates to ensure that they are not unreasonably high or

23 Plaintiffs may rely on the out-of-circuit district court decision in Maryland v. Blue Cross & Blue

Shield Association, 620 F. Supp. 907 (D. Md. 1985), to argue that Blue Plans’ service areas do not relate to rate setting under McCarran. That case was decided almost twenty years before Gilchrist, and the court did not have before it allegations and judicially noticeable facts explaining how service areas enabled plans to offer the broad coverage desired by subscribers and providers.


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excessive. ALA. CODE §§ 10A-20-6.10, 10A-20-6.11. These state laws relate to the business of

insurance, see, e.g., Slagle, 904 F. Supp. at 1349, and similar laws throughout the country bring

Blue Plans well within McCarran’s second requirement.

In sum, because service areas are integral to the relationship between plans and insureds,

affect risk spreading, and ensure that plans have adequate risk pools, they constitute the business

of insurance. As this conduct is extensively regulated by state officials, McCarran exempts it

from antitrust scrutiny by the federal courts. Accordingly, plaintiffs’ antitrust claims should be

dismissed.

V. The Filed Rate Doctrine Bars Certain Subscriber Plaintiffs’ Claims.

As further discussed in the Plan Brief, a number of subscriber plaintiffs paid rates that

were filed with state regulators. These “filed rates” are the legal rates, and, as a matter of law,

these subscriber plaintiffs cannot state a claim or assert legally cognizable injury based on

payment of these rates.

CONCLUSION

For the foregoing reasons, defendants respectfully request that the Court dismiss the

Subscriber Track Class Action Complaint and the Provider Track Class Action Complaint in

their entirety, with prejudice.

Dated: September 30, 2013 Respectfully submitted,

/s/ David J. Zott, P.C. David J. Zott, P.C. Daniel E. Laytin, P.C. Sarah J. Donnell KIRKLAND & ELLIS LLP 300 North LaSalle Chicago, IL 60654 312-862-2000 (fax) 312-862-2200


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[email protected] [email protected] [email protected] Ian R. Conner KIRKLAND & ELLIS LLP 655 Fifteenth Street, NW Washington, DC 20005 202-879-5000 (fax) 202-879-5200 [email protected] Defendants’ Co-Coordinating Counsel and Counsel for Blue Cross and Blue Shield Association Craig A. Hoover J. Robert Robertson E. Desmond Hogan HOGAN LOVELLS US LLP Columbia Square 555 Thirteenth Street, NW Washington, DC 20004 202-637-5600 (fax) 202-637-5910 [email protected] [email protected] [email protected]

Emily M. Yinger N. Thomas Connally, III HOGAN LOVELLS US LLP Park Place II 7930 Jones Branch Drive, Ninth Floor McLean, VA 22102 703-610-6100 (fax) 703-610-6200 [email protected] [email protected] Cavender C. Kimble BALCH & BINGHAM LLP 1901 6th Avenue N, Suite 1500 Birmingham, AL 35203-4642 205-226-3437 (fax) 205-488-5860 [email protected]


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Defendants’ Co-Coordinating Counsel and Counsel for Anthem, Inc.; Anthem Health Plans, Inc. (Anthem Blue Cross and Blue Shield of Connecticut); Blue Cross and Blue Shield of Georgia, Inc.; Anthem Insurance Companies, Inc.(Anthem Blue Cross and Blue Shield of Indiana); Anthem Health Plans of Maine, Inc.; HMO Missouri, Inc. (Anthem Blue Cross and Blue Shield of Missouri); Anthem Health Plans of New Hampshire, Inc. (Anthem Blue Cross and Blue Shield of New Hampshire); Anthem Health Plans of Virginia, Inc. (Anthem Blue Cross and Blue Shield of Virginia Inc.); Blue Cross and Blue Shield of North Carolina, Inc.; Blue Cross and Blue Shield of Florida, Inc.; Louisiana Health Service & Indemnity Company (Blue Cross and Blue Shield of Louisiana); Blue Cross and Blue Shield of Massachusetts; BCBSM, Inc. (Blue Cross and Blue Shield of Minnesota); Blue Cross and Blue Shield of South Carolina; Blue Cross and Blue Shield of Tennessee, Inc.; Hawaii Medical Service Association (Blue Cross and Blue Shield of Hawaii); Horizon Healthcare Services, Inc. (Horizon Blue Cross and Blue Shield of New Jersey); Wellmark of South Dakota, Inc. (Wellmark Blue Cross and Blue Shield of South Dakota); Wellmark, Inc. (Wellmark Blue Cross and Blue Shield of Iowa); WellPoint, Inc.; Blue Cross & Blue Shield of Rhode Island; Blue Cross and Blue Shield of Vermont; Anthem Holdings Corp. (Anthem Blue Cross and Blue Shield); Anthem Blue Cross Life and Health Insurance Company; Anthem Health Plans of Kentucky, Inc.; Anthem Holdings Corp.; Anthem Life Insurance Company; RightChoice Managed Care, Inc.; Healthy Alliance Life Insurance Company; Blue Cross of California; Blue Cross of California Partnership Plan, Inc.; Blue Cross of Southern California; Blue Cross of Northern California; Rocky Mountain Hospital & Medical Service Inc. d/b/a Anthem Blue Cross Blue Shield of Colorado; Rocky Mountain Hospital & Medical Service Inc. d/b/a Anthem Blue Cross Blue Shield of Nevada; Empire BlueCross BlueShield (Empire HealthChoice Assurance, Inc.); Blue Cross Blue Shield of Wisconsin (Anthem Blue Cross Blue Shield of Wisconsin); Community Insurance Company as Anthem Blue Cross Blue Shield of Ohio; Cambia Health Solutions, Inc.; Regence Blue Shield of Idaho;


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Regence Blue Cross Blue Shield of Utah; Regence Blue Shield (in Washington); Regence Blue Cross Blue Shield of Oregon Kimberly R. West Mark M. Hogewood WALLACE JORDAN RATLIFF & BRANDT, LLC First Commercial Bank Building 800 Shades Creek Parkway, Suite 400 PO Box 530910 Birmingham, AL 35253 205-870-0555 (fax) 205-871-7534 [email protected] [email protected] Defendants’ Liaison Counsel and Counsel for Blue Cross and Blue Shield Association; Health Care Service Corporation, an Illinois Mutual Legal Reserve Company, including its divisions Blue Cross and Blue Shield of Illinois, Blue Cross and Blue Shield of Texas, Blue Cross and Blue Shield of New Mexico and Blue Cross and Blue Shield of Oklahoma; HCSC Insurance Services Company; GHS Health Maintenance Organization (BlueLincs HMO); GHS Property and Casualty Insurance Company; Highmark, Inc., Highmark Blue Cross Blue Shield West Virginia; Highmark Blue Cross and Blue Shield of Delaware; California Physicians’ Service d/b/a Blue Shield of California

Carl S. Burkhalter James L. Priester MAYNARD COOPER & GALE PC 1901 Sixth Avenue North, 2400 Regions Harbert Plaza Birmingham, AL 35203 205-254-1000 (fax) 205-254-1999 [email protected] [email protected]


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Pamela B. Slate HILL HILL CARTER FRANCO COLE & BLACK, P.C 425 S. Perry Street Montgomery, AL 36104 334-834-7600 (fax) 334-386-4381 [email protected] Counsel for Blue Cross Blue Shield of Alabama Gwendolyn C. Payton Erin M. Wilson LANE POWELL PC 1420 Fifth Avenue, Suite 4200 Seattle, WA 98101-2338 206-223-7000 (fax) 206-223-7107 [email protected] [email protected] J. Bentley Owens, III STARNES DAVIS FLORIE LLP 100 Brookwood Place, 7th Floor Birmingham, AL 35209 205-868-6000 (fax) 205-868-6099 [email protected] Counsel for Premera Blue Cross Blue Shield of Alaska and Premera Blue Cross of Washington

Helen E. Witt, P.C. Jeffrey J. Zeiger Erica B. Zolner KIRKLAND & ELLIS LLP 300 North LaSalle Street Chicago, IL 60654 312-862-2000 (fax) 312-862-2200 [email protected] [email protected] [email protected] Counsel for Health Care Service Corporation, including its divisions Blue Cross and Blue Shield of Illinois, Blue Cross and Blue Shield of New Mexico,


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Blue Cross and Blue Shield of Oklahoma and Blue Cross and Blue Shield of Texas; Caring for Montanans, Inc., f/k/a Blue Cross and Blue Shield of Montana, Inc.; Highmark Health Services, d/b/a Highmark Blue Cross Blue Shield and d/b/a Highmark Blue Shield; Highmark BCBSD Inc. d/b/a Highmark Blue Cross Blue Shield Delaware; Highmark West Virginia Inc. d/b/a Highmark Blue Cross Blue Shield West Virginia H. James Koch ARMBRECHT JACKSON LLP 63 South Royal Street, 13th Floor, Riverview Plaza Mobile, AL 36602 251-405-1300 (fax) 251-432-6843 [email protected] Brian K. Norman SHAMOUN & NORMAN LLP 1755 Wittington Place, Suite 200 Dallas, TX 75234 214-987-1745 (fax) 214-521-9033 [email protected] Counsel for CareFirst of Maryland, Inc. and CareFirst BlueCross BlueShield d/b/a/ Group Hospitalization and Medical Services

D. Bruce Hoffman Todd M. Stenerson HUNTON & WILLIAMS LLP 2200 Pennsylvania Ave., NW Washington, DC 20037 202-955-1500 (fax) 202-778-2201 [email protected] [email protected] Counsel for Blue Cross and Blue Shield of Michigan


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Christopher Shapley R. David Kaufman Cheri D. Green M. Patrick McDowell BRUNINI GRANTHAM GROWER & HEWES PLLC The Pinnacle Building, Suite 100 190 East Capitol Street Jackson, MS 39201 601-948-3101 (fax) 601-960-6902 [email protected] [email protected] [email protected] [email protected] Scott F. Singley BRUNINI GRANTHAM GROWER & HEWES PLLC 410 Main Street Columbus, MS 39701 662-240-9744 (fax) 662-240-4127 [email protected] Counsel for Blue Cross Blue Shield of Mississippi, A Mutual Insurance Company John W. Reis COZEN O’CONNOR 301 S. College Street, Suite 2100 Charlotte, NC 28202 704-376-3400 (fax) 704-334-3351 [email protected] Paul K. Leary COZEN O’CONNOR 1900 Market Street Philadelphia, PA 19103 215-665-2000 (fax) 215-665-2013 [email protected] Counsel for Blue Cross of Northeastern Pennsylvania


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John D. Briggs Rachel J. Adcox Kenina J. Lee AXINN VELTROP & HARKRIDER LLP 950 F Street, NW 7th Floor Washington, DC 20004 202-912-4700 (fax) 202-912-4701 [email protected] [email protected] [email protected] Stephen A. Rowe Aaron G. McLeod ADAMS AND REESE LLP 1901 6th Avenue North, Suite 3000 Birmingham, AL 35203 205-250-5000 (fax) 205-250-5034 [email protected] [email protected] Counsel for Independence Blue Cross Pedro Santiago-Rivera Rafael Escalera-Rodriguez REICHARD & ESCALERA 255 Ponce De Leon Ave. MCS Plaza, Tenth Floor San Juan, Puerto Rico 00917-1913 787-777-8888 (fax) 787-765-4225 [email protected] [email protected] Counsel for Triple S - Salud, Inc. Edward S. Bloomberg PHILLIPS LYTLE LLP 3400 HSBC Center Buffalo, NY 14203-2887 716-847-7096 (fax) 716-852-6100 [email protected]


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D. Keith Andress BAKER, DONELSON, BEARMAN, CALDWELL & BERKOWITZ, P.C. 420 North 20th Street 1600 Wells Fargo Tower Birmingham, AL 35203 205-250-8367 (fax) 205-488-3767 [email protected] Counsel for Excellus BlueCross BlueShield of New York

Michael A. Naranjo FOLEY & LARDNER LLP 555 California Street, Suite 1700 San Francisco, CA 94104-1520 415-984-9847 (fax) 415-434-4507 [email protected] Alan D. Rutenberg FOLEY & LARDNER LLP 3000 K Street, N.W., Suite 600 Washington, D.C. 20007-5109 202-672-5491 (fax) 202-672-5399 [email protected] Counsel for USAble Mutual Insurance Company, d/b/a Arkansas Blue Cross and Blue Shield

Kathleen Taylor Sooy Tracy A. Roman Andrew D. Kaplan April N. Ross CROWELL & MORING LLP 1001 Pennsylvania Avenue, NW Washington, DC 20004 202-624-2500 (fax) 202-628-5116 [email protected] [email protected] [email protected] [email protected]


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John M. Johnson Brian P. Kappel LIGHTFOOT FRANKLIN & WHITE LLC 400 20th Street North Birmingham, AL 35203 205-581-0700 (fax) 205-581-0799 [email protected] [email protected] Counsel for Blue Cross Blue Shield of Arizona, Blue Cross and Blue Shield of Kansas City, Blue Cross and Blue Shield of Kansas, Inc.; Blue Cross and Blue Shield of Nebraska, Blue Cross of Idaho Health Services, Inc., Blue Cross Blue Shield of North Dakota, Blue Cross Blue Shield of Wyoming and HealthNow New York Inc.

Mary C. St. John Charles L. Sweeris Law Department BLUE SHIELD OF CALIFORNIA 50 Beale St. San Francisco, CA 94105 415-229-5107 (fax) 415-229-5343 [email protected] [email protected] Counsel for California Physicians’ Service d/b/a Blue Shield of California Robert K. Spotswood Michael T. Sansbury Joshua K. Payne SPOTSWOOD SANSOM & SANSBURY LLC One Federal Place 1819 Fifth Avenue North, Suite 1050 Birmingham, Alabama 35203 205-986-3620 (fax) 205-986-3639 [email protected] [email protected] [email protected] Counsel for Capital Blue Cross


CERTIFICATE OF SERVICE

I hereby certify that on September 30, 2013, the foregoing was electronically filed with

the Clerk of Court using the CM/ECF system which will send notification of such filing to all

counsel of record. Copies of exhibits filed under seal are being sent by Federal Express to

Plaintiffs’ Co-Lead Counsel:

David Boies BOIES, SCHILLER & FLEXNER LLP 333 Main Street Armonk, NY 10504

Edith M. Kallas WHATLEY KALLAS, LLP 380 Madison Ave., 23rd Floor New York, NY 10017

Michael Hausfeld HAUSFELD LLP 1700 K Street NW, Suite 650 Washington, DC 20006

Joe R. Whatley, Jr. W. Tucker Brown WHATLEY KALLAS, LLP 2001 Park Place North 1000 Park Place Tower Birmingham, AL 35203

/s/ David J. Zott, P.C. David J. Zott, P.C.


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN...

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