Arizona Attorney General Mark Brnovich filed an antitrust and consumer fraud lawsuit against Benco Dental Supply Company on October 12, 2018, in Arizona Superior Court. The action alleges anticompetitive and deceptive acts that stifled competition within the Arizona dental industry and harmed consumers.1,2
Previous Cases
Benco, a private firm and the third largest supplier of dental equipment and dental supplies nationally, is no stranger to antitrust actions. In 2015, Benco settled with the Texas Attorney General’s Office for $300,000 for alleged efforts to stifle competition presented by a buyers’ club within the TDA Perks program (SourceOne), supported by the Texas Dental Association (TDA).3,4
Henry Schein (41%), Patterson Companies (34%), and Benco Dental Supply (10%)—the three largest suppliers of dental equipment and supplies in the United States—hold a combined 85% national market share.5 The “Big 3” allegedly conspired to boycott the TDA annual meeting as retaliation for the TDA’s support of TDA Perks selling discounted dental supplies, equipment, and equipment servicing to member doctors.
“Conspiring with others to prevent the emergence of new distribution channels for goods and services is contrary to the notion of the free market and violates antitrust laws,” said Texas Attorney General Ken Paxton.
“Such interference should not be tolerated in the dental supply industry or any other. The Texas Attorney General’s Office will continue to ensure that companies doing business in Texas have the opportunity to compete in a free market on the merits,” said Paxton.
More recently, Benco and other alleged coconspirators, Henry Schein and Patterson Companies, settled 31 consolidated class action antitrust cases in US District Court in Brooklyn, NY. The alleged price-fixing companies have agreed to pay a total of $80 million with no admission of wrongdoing.5
Benco has set aside $13.2 million for settlement costs. Henry Schein has set aside $38.5 million. Patterson Companies has set aside $28.3 million. The annual market for dental supplies and equipment in the United States is estimated at $ 10 billion.5 Settlement amounts may seem very substantial in total dollars. However, these settlement sums are fractions in the total scope of this industry.
In an earlier ruling in this case, US District Judge Cogan dismissed an initially named defendant, Burkhart Dental Supply.6 The court determined it held no jurisdiction over Burkhart Dental Supply, as its business actions were almost exclusively outside the court’s jurisdiction. However, Judge Cogan’s summary truly highlights many of the matters brought to the court by plaintiffs:
“Margin-Fixing and Price-Fixing.
“Plaintiffs alleged that defendants had an agreement not to compete on prices so as to artificially inflate prices and maintain high margins. As far back as 2005, defendants agreed to charge margins on dental supplies and equipment between 26% and 28%. Defendants have raised these margins every year, and currently the cartelized margins are 35% or higher.
“Anti-Poaching Agreements.
“In an effort to further their agreement not to compete on prices, defendants also agreed not to try and poach each other’s sales employees. For example, in February and March 2012, the President of Henry Schein and a Managing Director of Benco exchanged text messages regarding Benco’s hiring of a former Henry Schein sales representative. Benco’s employee wrote, ‘We agreed that she would sit even though she didn’t have a contract. And she did sit, even longer than the agreement says. We never talked about whether she counts toward the limit.’ A representative of Benco described the agreement as an ongoing ‘gentlemen’s agreement’ not to actively recruit one another’s sales representatives.
“Market Boycotts.
“Plaintiffs also allege that defendants exerted pressure on dental supply manufacturers, as well as other industry players, to prevent their competitors from entering the market and undercutting defendants with lower prices. Plaintiffs allege that ‘Burkhart is plausibly implicated in at least the first and third components,’ that is, the price-fixing and market boycotts. Specifically, as to the price-fixing, plaintiffs point to a 2008 conversation between Jack Powers of Burkhart, Mark Lowery of Henry Schein, and Skip Pettus, then of Archer & White and Dynamic Dental, which depicts a cartel running ‘across the industry’ with the express aim that dental distributors ‘play ball together’ so ‘the doctor gets it for the same price no matter who they buy it from.’ Mr. Powers of Burkhart then replied that they ‘have to be very careful, [because] if a customer doesn’t like us, they could have us all up on price fixing.’ As to the boycott, plaintiffs allege that defendants Henry Schein and Burkhart exerted pressure on manufacturer Pelton & Crane in January 2008 to cut off Archer & White because of Archer & White’s lower 15% margins on dental products.”
This year, Benco Dental Supply, Henry Schein, and Patterson Companies became the target of a Federal Trade Commission (FTC) antitrust action in federal administrative court.7 Hearings are currently ongoing. The government’s pleadings include evidence that Burkhart Dental Supply declined to participate in the alleged conspiracy, despite prompting by representatives of Benco Dental Supply. The formerly redacted public complaint has now been made fully public.8 The FTC presented some interesting evidence into the record:
“31. The Distributors entered into an agreement to refuse to provide discounts to or compete for the business of Buying Groups for their core customer base of independent dentists. Through a series of inter-firm communications, top executives at Benco, Schein, and Patterson entered into, ensured compliance with, and monitored the agreement. They also reaffirmed their conscious commitment to concerted action on various occasions. In addition to the communications set forth below, the Distributors’ executives had ample opportunity to communicate with each other about the agreement.”
“35. In July 2012, Benco suspected that Schein was offering discounts to a Buying Group named Smile Source. On July 25, 2012, Smile Source contacted Benco for a dental supply agreement and informed Benco that it had purchased products from Schein and worked directly with Sullivan (former Schein president). Patrick Ryan, a Benco executive who oversaw its Buying Group policy, forwarded Smile Source’s email inquiry to Chuck Cohen (Benco managing director), stating: ‘Better tell your buddy Tim [Sullivan] to knock this shit off.’ Cohen responded: ‘Please resend this e-mail without your comment on top so that I can print & send to Tim [Sullivan] with a note. The good news is: perhaps they’re looking to us because Schein told them NO. That works for me.’ A few days after this exchange, Ryan rejected Smile Source.”
“51. Throughout 2013, Buying Groups continued to seek supply contracts with Patterson. On August 2, 2013, a new Patterson executive asked Rogan (Patterson Vice President of Marketing) and Misiak (Patterson Vice President of Sales): ‘Is it worth it to explore GPO (group purchasing organizations)??????? . . . I used to get 1 [request] per month . . .’ Rogan responded: ‘We don’t need GPO’s in the dental business. Schein, Benco, and Patterson have always said no. I believe it is our duty to uphold this and protect this great industry.’”
“54. On September 13, 2013, Benco’s Vice President of Sales, Michael McElaney, called Burkhart’s Vice President of Sales, Jeff Reece. During this phone call, McElaney expressed Benco’s concerns about Burkhart’s decision to sell to Buying Groups. McElaney told Reece that Buying Groups were a threat to the dental industry.”
“55. On September 16, 2013, McElaney reported his conversation with Reece to Cohen and Ryan: ‘I spoke with Jeff Reece at length late Friday about buying groups. JEFF DOES NOT GET IT!!!! . . . I will be meeting with Jeff at the ADA meeting to continue the discussion.’”
The Arizona Case
The most recent antitrust dental supply filing was by the Arizona attorney general. Arizona alleges that Benco specifically targeted the Arizona Dental Association (AZDA) members’ buyers’ club, SourceOne (a benefit to member dentists under AZDA Perks program for discounted dental supplies and equipment).9
The Arizona attorney general alleges Benco’s Arizona regional manager contacted manufacturers at least twice to ask for a gray market letter, which is a letter from the manufacturer stating that products from a certain distributor weren’t sold through authorized channels.2 Benco’s sales representatives were going to distribute this letter to dentists, the attorney general alleges.2
Also, the filing stated that dentists told the AZDA 10 to 15 times “that distributor sales representatives, especially representatives from Benco, told them that SourceOne was selling gray market products.”2 Furthermore, the Arizona attorney general contends, “Benco willfully made these misrepresentations to induce dentists to continue to purchase products from Benco,” though “SourceOne did not sell gray market, unauthorized, or expired products through the AZDA Perks program.”2
Arizona’s pleading highlighted the alleged conspiracy by the Big 3 dental suppliers to boycott the AZDA’s 2015 annual meeting. Yet the AZDA wanted to increase its members’ benefits through an enhanced ability to purchase dental equipment and supplies at a greater savings.
The AZDA sought additional competition in the marketplace to reduce overhead supply costs for member dentists. Its efforts were allegedly met with a retaliatory boycott of its annual meeting and with intentional misrepresentations about the quality of dental supplies from its approved vendor, SourceOne, through its membership Perks program.
Benco Dental Supply has not yet issued a statement on the most recent antitrust lawsuit filed by the Arizona attorney general.
Conclusion
Antitrust legal actions against the Big 3 dental suppliers seem complex and voluminous. These legal actions are national in scope, as well as localized to a given state. Much of plaintiffs’ submitted evidence is supportive of a repeated pattern, and cases overlap in focus.
It’s also doubtful we’ve seen the last such lawsuits to be filed. In no case has Benco, Schein, or Patterson admitted to any wrongdoing in any lawsuit or settlement.
References
- Arizona Attorney General Mark Brnovich. AG Brnovich Files Lawsuit against Dental Supply Company Benco (press release). https://www.azag.gov/press-release/ag-brnovich-files-lawsuit-against-dental-supply-company-benco
- State of Arizona vs. Benco Dental Supply Company. AZ Superior Court-Maricopa County. Case No. CV2018-013158; Oct 12, 2018. https://www.azag.gov/sites/default/files/docs/press-releases/2018/complaints/Benco_Complaint_As_Filed.pdf
- Mc Donald JB, et al. Texas Attorney General Settles Alleged Boycott Case. Monday, Apr 27, 2015. http://www.mondaq.com/unitedstates/x/392762/Antitrust+Competition/Texas+Attorney+General+Settles+Alleged+Boycott+Case
- Texas Dental Association. TDA Perks Program. https://tdaperks.com/programs/dental-supplies/
- Carlson J. Patterson Cos. among three dental suppliers to pay into $80M price-fixing settlement. Star Tribune Oct 2, 2018. http://www.startribune.com/patterson-cos-among-dental-suppliers-in-80m-price-fixing-settlement/494837091/
- Judge Brian M Cogan. In re Dental Supplies Antitrust Litigation. US District Court- Eastern District of New York. Decision and Order. Case # 16 Civ. 696-BMC-GRB; Sept 20, 2017. https://www.gpo.gov/fdsys/pkg/USCOURTS-nyed-1_16-cv-00696/pdf/USCOURTS-nyed-1_16-cv-00696-3.pdf
- US Federal Trade Commission. FTC sues dental products distributors for alleged conspiracy not to provide discounts to a customer segment (press release). Feb 12, 2018. https://www.ftc.gov/news-events/press-releases/2018/02/ftc-sues-dental-products-distributors-alleged-conspiracy-not
- Before the Federal Trade Commission in the matter of: Benco Dental Supply Co. Henry Schein Inc. Patterson Companies, Inc. Docket # 9379; ordered unredacted Mar 14, 2018. https://www.ftc.gov/system/files/documents/cases/docket_no_9379_benco_schein_patterson_part_3_complaint_final_public_version_2.pdf
- Arizona Dental Association. AZDA Perks Program. https://azdaperks.org/Login/
Dr. Davis practices general dentistry in Santa Fe, NM. He assists as an expert witness in dental fraud and malpractice legal cases. He currently chairs the Santa Fe District Dental Society Peer-Review Committee and serves as a state dental association member to its house of delegates. He extensively writes and lectures on related matters. He may be reached at mwdavisdds@comcast.net or smilesofsantafe.com.
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