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Arizona attorney general files suit against Benco for alleged anticompetitive behavior

November 13, 2018

By David Burger

Arizona Attorney General Mark Brnovich
Attorney General Brnovich

Phoenix — Arizona Attorney General Mark Brnovich filed an antitrust and consumer fraud lawsuit in October against dental supply company Benco for alleged anticompetitive and deceptive acts that the attorney general said stifled competition in the Arizona dental industry and harmed Arizona consumers.

“My office is committed to preventing conspiracies against free competition,” said Attorney General Brnovich in a statement.

The lawsuit alleges that in 2014, Benco engaged in an anticompetitive conspiracy to force a new competitor, SourceOne Dental, out of the Arizona market.

Earlier that year, SourceOne had worked with the Arizona Dental Association to create a new buyer’s club, marketed as a benefit to member dentists under the AzDA Perks name for discounted dental supplies and equipment. The association modeled its program on one created by the Texas Dental Association.

The suit charges that in retaliation, Benco allegedly coordinated a boycott of the Arizona Dental Association’s annual meeting by dental product suppliers, including both Henry Schein and Patterson, to pressure the dental association to drop its support for the buyer’s club.

The complaint also alleges that Benco engaged in a series of deceptive acts and practices directed at SourceOne. According to the complaint, Benco spread word to dentists that SourceOne sold gray market products, implying that SourceOne’s products did not comply with U.S. safety regulations — even though Benco knew this was false.

Attorney General Brnovich is seeking remedies that include restitution for consumers and disgorgement of all profits and gains obtained as a result of Benco's alleged anticompetitive and deceptive acts and practices.

Benco, a private firm and the third largest supplier of dental equipment and dental supplies nationally, declined to comment.

Kevin Earle, executive director of the Arizona Dental Association, said that the association did not contact or petition the attorney general’s office to litigate the matter. “We are watching all of it closely and think our members should watch it closely,” Mr. Earle told ADA News. “We’re highly interested in what the outcome will be. Hopefully, we’re getting to the bottom of what transpired here.”

The Arizona attorney general alleged that Benco, Henry Schein and Patterson boycotted the Arizona Dental Association’s 2015 annual meeting in retaliation for the association’s partnership with SourceOne in the AzDA Perks program.

“They left the show in 2015 and haven’t been back,” said Mr. Earle about actions by what is called the Big Three. The Big Three account for 80 percent of the dental supply and equipment market, according to the suit.

The complaint states, “As a result of the Big Three’s boycott and nonattendance, the [association’s] state show had significantly fewer exhibitors and was significantly less profitable for the [association] than previous shows.”

SourceOne, which initially contacted the Arizona attorney general’s office in April 2014, according to its CEO Ahmed Shams, released a statement in response to actions by the attorney general: “SourceOne Dental is encouraged to see this action brought forth by the Arizona Attorney General's office, following similar actions by the Texas Attorney General's office, the Federal Trade Commission and its own pending litigation relating to these matters. We are eager to see justice done in response to the concerted actions by Henry Schein, Patterson and Benco against SourceOne.”

Henry Schein issued a statement in response to the lawsuit (which does not name the company as a defendant): “As a matter of fact, in one form or another, we have supported the Arizona Dental Association’s Western Regional Dental Experience every year since at least 2000. The extent of our presence at any show, including Western Dental, is a function of our view of the business benefit of attending that exhibit.”

Patterson also released a statement in the wake of the Arizona lawsuit (which also does not name the company as a defendant): “Patterson has and will continue to explore ways to support the Arizona Dental Association. We are not a named defendant in the state of Arizona’s action and unequivocally deny the existence of any purported boycott or any other wrongdoing. Patterson evaluates its participation in dental association meetings and tradeshows based on a case-by-case basis in the best business interests of Patterson.”

To read the Arizona suit, visit https://www.azag.gov/sites/default/files/docs/press-releases/2018/complaints/Benco_Complaint_As_Filed.pdf.

This is not the first time Benco and the other companies have been involved in similar litigation.

In September, Benco, Henry Schein and Patterson reached a tentative agreement to pay $80 million as part of a class action lawsuit alleging they violated federal antitrust laws by fixing prices on dental equipment and supplies. The dental companies are alleged to have conspired to suppress price competition so that "they each could charge artificially inflated prices for dental supplies and equipment," according to the lawsuit, which was filed in 2016 in the Eastern District of New York. The plaintiffs filed on behalf of some 142,000 U.S. dental offices and laboratories.

And back in February, the Federal Trade Commission filed a complaint against the three companies, alleging that they "deprived independent dentists of the benefits of participating in buying groups that purchase dental supplies from national, full-service distributors." The complaint references the Arizona situation, as well as a similar boycott of the Texas Dental Association’s annual meeting by the Big Three after the Texas association entered in an agreement with SourceOne under its TDA Perks Supplies program. The pretrial hearing took place on Oct. 12, and the proceedings began on Oct. 16.

The complaint stated, “The [Big Three’s] interfirm communications and subsequent withdrawal from the TDA and AZDA trade shows are evidence of their conscious commitment to coordinate their response to the threat of buying groups …Their concerted action unreasonably restrained trade and constituted an unfair method of competition in or affecting commerce … This conspiracy sought to prevent price competition for the business of independent dentists purchasing through buying groups, and the erosion of prices charged to such independent dentists if buying groups became more prevalent.”

Patterson responded to the ADA News’ call for a statement. “Patterson maintains the highest levels of integrity and ethical standards and has a 140-year history of partnering with all types of customers to grow their businesses and provide outstanding care to their clients. We compete every day to earn our customers’ trust and business. We work hard to deliver value through outstanding customer service, leading technical expertise, and response.”

Henry Schein has also been targeted individually by the Arizona attorney general in regards to antitrust. According to the attorney general’s 2018 annual report, the state office resolved an “investigation into Henry Schein’s involvement in a conspiracy to boycott a new entrant competitor in the dental supply market with a $150,000 settlement requiring extensive antitrust training” in April.

Henry Schein responded, “The settlement with Arizona does not represent an admission of wrongdoing. In fact, we categorically and emphatically deny any wrongdoing. Instead, we settled to avoid long, distracting litigation and the additional use of resources. We would much prefer to invest our resources in providing solutions that our customers rely on to operate successful practices and provide quality patient care.”

The ADA will provide updates as these stories unfold.