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Lessons for Distributors from Dental Lawsuits

Lessons for Distributors from Dental Lawsuits

February 14, 2019

In a series of legal cases played out over several years, the three largest distributors of dental supplies in the U.S. will be hit collectively with an estimated $100 million or more in settlement and legal fees to resolve alleged antitrust, price-fixing and consumer fraud violations. The connecting threads are a combination of emerging trends – the increasing strength of buying groups, digital disruption and pressures on traditional distribution models.

In October 2018, the “Big 3” dental distributors – Henry Schein, Patterson Companies and Benco Dental – settled a class-action lawsuit for $80 million in New York. It was one of several actions over the past few years, including some by the Federal Trade Commission, that include claims of margin- and price-fixing, anti-poaching agreements, and market boycotts. In all cases, the distributors deny the claims and admit to no wrongdoing. 

The U.S. dental supplies and equipment market is estimated at $10 billion, according to documents filed by plaintiffs in multiple court cases. The three largest distributors hold an 85-percent market share – Henry Schein (41 percent), Patterson Companies (34 percent) and Benco Dental (10 percent). 

Some of the allegations center on the actions of and communications between these three competitors regarding their respective customer relationships, buying groups formed by state dental associations and non-traditional digital competitors entering the market with very different cost structures and value propositions.

MDM Premium covers the details with links to deeper information on each of these cases, including the New York, Texas, Arizona and FTC actions. Subscribers can access that article and my commentary on it, in which I touch on a few key lessons for distributors. 

One is that Amazon has become the embodiment of disruption for distributors, when in fact the company should be viewed as emblematic of a digitally-driven revolution that is only just beginning to transform the industry. In other words: you ain’t seen nothin’ yet.  

The other factor is the need for distributors to tighten up their anti-trust policies, processes and enforcement. According to court-filed documents, on multiple occasions, territory-level employees of the three competitive distributors shared information. Every distributor needs to ensure it defines and communicates clear rules of competitive engagement so that employees don’t create legal exposure. 

Every distribution employee is acting as an agent of the company – many don’t understand the liability they can create for their employers. Do yours? 

In my experience, it’s a common practice across distribution sectors for sales people to share competitive information when they change employers and take their accounts with them. Seasoned sales people know the customer, competitor and market dynamics cold. That’s very valuable information and management must draw clear lines of engagement so employees don’t cross them. 

The key shift in all this? Digital disruption is changing the competitive dynamics in the marketplace and some distributors haven’t responded with tighter management of behaviors that could bring antitrust actions. That’s a gap that can burn through $100 million pretty fast.

MDM Premium subscribers can access our deeper coverage in this article here:

Antitrust Actions Hit Dental Distributors Hard, or my commentary on the key lessons for distributors here.

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© 2019 Gale Media, Inc.

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