United States: Third Circuit Order Vacating Class Certification In In Re Lamictal Direct Purchaser Antitrust Litig.

Key Issue

The Supreme Court has held that class certification is only proper if "the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied."⁴⁵ The issue in this case is whether the district court properly conducted the requisite "rigorous analysis" when it determined that direct purchaser plaintiffs' antitrust claim was capable of common proof.

Background

Plaintiffs in this case are companies that directly purchased name-brand anti-epilepsy drug Lamictal from pharmaceutical manufacturer GlaxoSmithKline ("GSK") or the generic form of the drug, lamotrigine, from GSK's competitor Teva Pharmaceuticals ("Teva"). They filed a putative class action against GSK and Teva in the District of New Jersey alleging that Defendants committed antitrust violations arising out of their settlement agreement in a separate patent lawsuit.⁴⁶

The underlying patent lawsuit resulted from Teva's desire to start marketing its generic version of Lamictal, called lamotrigine, before GSK's patent on Lamictal expired in 2009. In 2002, Teva filed an Abbreviated New Drug Application ("ANDA") for lamotrigine. Pursuant to the Hatch Waxman Act of 1984, manufacturers of generic pharmaceuticals who are first to file an ANDA, as Teva was here, can have exclusive marketing rights of the generic

drug for 180 days—and thus only the name brand and the first filer's generic can be marketed during this period. To receive this exclusivity benefit when a name-brand manufacturer's patent term has not yet expired, ANDA filers must certify that placing their generic drug into the market would not violate the patent laws, either because the name-brand manufacturer's patent would not be infringed upon, or because the manufacturer's patent is invalid. Teva made this certification in its ANDA, which "automatically counts as patent infringement," and GSK sued Teva for patent infringement.⁴⁷ GSK's infringement suit triggered the U.S. Food and Drug Administration to withhold approval of Teva's generic drug lamotrigine for the earlier of 30 months or resolution of the litigation.

GSK and Teva subsequently settled the infringement suit. Pursuant to the settlement, Teva agreed to start selling lamotrigine (with exclusivity for 180 days) in July 2008, which was six months before it could have begun doing so if GSK had prevailed in its infringement claim, but later than it could have if Teva had prevailed. GSK in turn agreed not to introduce its own generic version of Lamictal to compete with lamotrigine.

Direct purchaser plaintiffs in the present case alleged that the GSK/Teva patent settlement constitutes an unlawful "reverse payment agreement," i.e., that GSK effectively paid Teva to delay its launch of lamotrigine by agreeing not to launch its own generic drug. Without this agreement, plaintiffs claimed, Teva would have introduced lamotrigine earlier and GSK would have launched its generic at the same time, and the two generics would have competed with each other. Plaintiffs alleged that they would have paid less for the drugs in this but-for world of competition between two generics offered by GSK and Teva.

The district court granted certification of a class of all companies that were direct purchasers of GSK's Lamictal or Teva's lamotrigine.⁴⁸ Defendants appealed with respect to class members that purchased the generic drug lamotrigine directly from Teva.

Decision

The Third Circuit panel granted interlocutory appeal and vacated the district court's class certification order, remanding for the district court to conduct the "rigorous analysis" that Rule 23 requires.⁴⁹ The decision centered around the predominance requirement, which is the only finding from the district court that defendants challenged.

First, the panel rejected plaintiffs' argument that "so long as their evidence of class-wide antitrust injury could sustain a jury finding, they meet the predominance requirement."⁵⁰ Plaintiffs' argument was based on the Supreme Court's decision in Tyson Foods Inc. v. Bouaphakeo, a Fair Labor Standards Act ("FLSA") case, where the Court held that "[t]he District Court could have denied class certification on this ground only if it concluded that no reasonable juror could have believed that the employees spent roughly equal time donning and doffing" their protective equipment.⁵¹ But the Third Circuit held that this "no-reasonable-juror" standard articulated by the Tyson Foods court is limited to FLSA suits, which have unique evidentiary considerations. Relying on longstanding Third Circuit precedent,the panel confirmed that outside the FLSA context, plaintiffs in putative class actions must prove "by a preponderance of the evidence that [their] claims are capable of common proof at trial" to satisfy the predominance requirement.⁵² Accordingly, plaintiffs in this case needed to show by a preponderance of the evidence that their antitrust claim, including plaintiffs' alleged overpayment injury, was susceptible to common proof at trial.

Second, the panel held that the district court failed to properly conduct the requisite "rigorous analysis" of whether common questions predominated.⁵³ Specifically, the district court failed to address the "micro-level analysis" advanced by each party and their competing experts regarding defendants' likely behavior in the but-for world, "even though it touche[d] on the merits."⁵⁴ The district court credited the plaintiffs' expert's use of averages to show what each direct purchaser would have paid in the but-for world. But it did not adequately analyze defendants' expert's testimony that "individualized inquiry" into the circumstances of each class member was necessary to determine injury, and the use of averages was unreliable because it masked that class members paid "dramatically different prices" for the drug, and that a significant portion of the class likely did not overpay at all.⁵⁵ As a result, the district court failed to conduct a "rigorous analysis" to determine whether averages were an acceptable means of proving injury on a class-wide basis in this case. As part of that analysis, the district court needed to resolve key factual disputes underlying the parties' theories and their competing expert reports (e.g., whether the lamotrigine market was characterized by individual negotiations), "which would have required [the court] to weigh the competing evidence and make a prediction as to how they would play out at trial."⁵⁶

Third, the panel explained that the district court confused the parties' dispute about antitrust injury as one about damages. The Third Circuit has held that the amount of damages does not need to be "susceptible of measurement across the entire class" for class certification purposes.⁵⁷ But this more lenient standard does not apply to proof of whether an injury occurred in the first place, as the fact of injury must be demonstrated by classwide proof. While defendants argued that averages were inappropriate to show injury since they masked many uninjured class members, the district court analyzed the problem as if some class members were simply less injured than others, and applied the "more permissive damages standard" in holding that the use of averages was therefore appropriate.58 This conflation of the standards independently warranted remand.

Thoughts & Takeaways

The Supreme Court in Comcast emphasized that Rule 23 "does not set forth a mere pleading standard," but rather district courts must conduct a "rigorous analysis" of the evidence advanced by the parties to determine if the Rule 23 prerequisites for class certification are satisfied.⁵⁹ This analysis, the Court explained, will frequently "overlap with the merits of the plaintiff's underlying claim."⁶⁰

The Third Circuit's opinion in In re Lamictal is consistent with Comcast's mandate, and demonstrates that, when necessary, district courts should conduct a robust inquiry concerning the merits as part of the Rule 23 "rigorous analysis," even when such inquiry involves the resolution of complex factual disputes and weighing of competing expert testimony. Here, the Third Circuit faulted the district court for failing to scrutinize each party's "micro-level analysis," and for not resolving key factual disputes that could be central to ultimate liability, including for example whether Teva preemptively lowered the price of lamotrigine before introducing it into the market upon learning of GSK's competitive strategies (which would indicate the price of the drug was not artificially inflated as plaintiffs claim).

The Third Circuit's opinion also highlights potential hurdles plaintiffs may face when trying to use averages to prove class-wide injury. The Third Circuit explained that "[w]hile averages may be acceptable where they do not mask individualized injury," the rigorous analysis described above is needed to determine whether that is true.⁶¹ And where, as here, the defendants submit evidence tending to show that averages are inappropriate—for instance, because the relevant market is characterized by individual negotiations on price, which could mean many class members suffered no overpayment injury—the district court will need to weigh the competing evidence and resolve relevant factual disputes (e.g., whether the market really is characterized by individual negotiations) to make that determination.

Finally, the decision confirms the Third Circuit's view that possible individualized inquiries regarding the amount of damages class members may be entitled to—as opposed to whether an injury occurred in the first place—should not by itself defeat predominance. This position has been adopted by other circuit courts as well.⁶²

Read the opinion here.

Footnotes

45 See Comcast Corp. v. Behrend, 569 U.S. 27, 33 (2013).

46 See In re Lamictal Direct Purchaser Antitrust Litig., No. 2:12-cv-00995 (D.N.J.).

47 See Fed. Trade Comm'n v. Actavis, Inc., 570 U.S. 136, 143 (2013).

48 In re Lamictal Indirect Purchaser & Antitrust Consumer Litig., No. 12-CV-00995, 2018 WL 6567709 (D.N.J. Dec. 12, 2018).

49 In re: Lamictal Direct Purchaser Antitrust Litig., 957 F.3d 184, 2020 WL 1933260 (3d Cir. Apr. 22, 2020) ("Lamictal").

50 Id. at *4

51 136 S. Ct. 1036, 1049 (2016).

52 Lamictal, 2020 WL 1933260, at *4

53 See, e.g., Comcast Corp., 569 U.S. at 33; Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011).

54 Lamictal, 2020 WL 1933260, at *6.

55 Id.

56 Id

57 Id. at *7

58 Id.

59 See Comcast, 569 U.S. at 33.

60 See id. at 33-34.

61 Id. at *6.

62 See, e.g., Leyva v. Medline Indus. Inc., 716 F.3d 510, 514 (9th Cir. 2013) ("[T]he presence of individualized damages cannot, by itself, defeat class certification under Rule 23(b)(3)").

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Originally published 16 May, 2020

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