Antitrust Law Daily Antitrust standing lacking without ‘intent and preparedness’ to enter market
Monday, December 16, 2019

Antitrust standing lacking without ‘intent and preparedness’ to enter market

By Robert B. Barnett Jr., J.D.

Limited discovery to be conducted to determine jurisdiction over so-called "pharma-bro" Martin Shkreli, who founded Retrophin but who is now serving a prison sentence for fraud.

Antitrust claims by Spring Pharmaceuticals, LLC, which was allegedly formed to sell a generic version of the drug Thiola, against the drug’s marketer Retrophin, Inc., its founder Martin Shkreli, and others, for conspiring to prevent Spring from developing its version of Thiola, were dismissed without prejudice for lack of antitrust standing. The complaint failed to establish Spring’s "intent and preparedness" to enter the drug market, the federal district court in Philadelphia ruled. Spring failed to allege (1) that the Food and Drug Administration (FDA) was likely to approve the product or (2) that Spring had taken sufficient affirmative steps to enter the market, such as by establishing manufacturing and distribution networks. In giving Spring a chance to amend its complaint, the court also concluded that Spring had constitutional standing to bring the claims and that the court had personal jurisdiction over Retrophin and most of the others (Spring Pharmaceuticals, LLC v. Retrophin, Inc., December 11, 2019, Joyner, C.).

Background. Thiola is currently the only FDA-approved tiopronin product for treatment of the rare genetic disease cystinuria, which causes kidney stones. Thiola was originally brought to market by Mission Pharmacal Company in the late 1980s (no patent was ever obtained), and it was sold by Mission’s salesforce subsidiary Alamo Pharma Services, Inc. In 2014, Mission granted an exclusive license to sell Thiola in the U.S. to Retrophin, whose CEO was Shkreli, a former hedge fund manager who is now in prison for fraud. Spring contended that Shkreli intended to move Thiola into a closed distribution system, then significantly raise the price.

Spring was formed to develop a generic version of Thiola through the FDA’s Abbreviated New Drug Application (ANDA) process. As part of that process, Spring was required to demonstrate that its generic version would be the bioequivalent to the brand version. Spring, however, never could undertake the analysis because Retrophin refused to sell Spring any samples of Thiola. Spring then sued Retrophin, Shkreli, Mission, and Alamo in Pennsylvania federal court, alleging various monopolization claims under Sherman Act §2, restraint of trade under Sherman Act §1, antitrust violations under state law, and unjust enrichment. Spring also sought injunctive relief. All four of the defendants filed various motions to dismiss.

Article III standing. One motion sought to dismiss the complaint for lack of Article III standing. In examining the claim, the court found that Spring satisfied all three standing requirements: (1) an injury-in-fact (2) that was traceable to the allegedly unlawful conduct, (3) which could be redressed by the relief sought. Spring’s allegation of financial harm, which included lost sales and profits, satisfied the injury-in-fact requirement. This was true, the court said, even if the financial harm were only minor. The second element, the causal connection, was established by the allegation that Retrophin refused to sell the Thiola samples to Spring, which could be traced to the alleged injury. And, finally, the money damages that Spring sought would redress the relief and satisfy the third and final element. As a result, the court concluded that Spring had Article III standing to pursue its claim.

Mootness. Retrophin and the others also sought dismissal on the ground of mootness, on the theory that the matter was now moot because Retrophin provided a copy of Thiola to Spring after the lawsuit was filed. Defendants, however, cannot make lawsuits go away by simply ceasing their unlawful conduct. The court did, however, grant Retrophin and the others’ motion to dismiss the injunctive relief request on mootness grounds, because the injunctive claim asked the court to order Retrophin to supply the copy.

Personal jurisdiction. All four defendants sought dismissal on the ground that the Pennsylvania federal court had no personal jurisdiction over them. Turning first to Mission, the court concluded that it lacked general jurisdiction over Mission, a Texas company, even though Mission had employees in Pennsylvania, it had obtained a business license from Pennsylvania, and its own website described it as a "pharmaceutical company based in Pennsylvania and Texas." Establishing general jurisdiction in a forum where Mission was neither incorporated nor had its principal place of business, the court said, was an "uphill battle" that Spring could not win.

The court, however reached a different result when looking at whether it had specific jurisdiction over Mission. Mission had obtained the business license and was doing business under that license. That, the court said, was "an explicit availment of the benefits and privileges of doing business in" Pennsylvania. Furthermore, the court noted, the litigation arose from those activities that Mission was conducting in Pennsylvania. And, finally, the court concluded that the Due Process Clause was not violated by subjecting a company with multiple employees in the state to litigation in the state. As a result, the court had personal jurisdiction over Mission.

Turning to the individual Shkreli, the court noted that the specific jurisdiction was more tenuous with him than it was with Mission. He signed the allegedly anticompetitive agreement between Retrophin and Mission, and he was personally involved in the negotiations. But because not enough information existed to reach a conclusion one way or the other, the court gave Spring 90 days to conduct additional discovery to support its claim that the court had personal specific jurisdiction over Shkreli.

As for Alamo, the court concluded that Alamo had consented to jurisdiction because, in the joint motion that Mission and Alamo filed, the motion raised questions about jurisdiction over Mission but not over Alamo. As a result, the court said, Alamo had waived any right to contest personal jurisdiction. As for Retrophin, the court also concluded that Retrophin was subject to personal jurisdiction because it failed to raise the issue in its motion to dismiss.

Antitrust standing. Retrophin and the others sought dismissal of the antitrust claims for lack of antitrust standing. Included among the requirements for antitrust standing, such as a requirement that Spring suffered an antitrust injury, is a requirement that Spring show "intention and preparedness to enter the market," the court noted. Intention and preparedness required that Spring show that it had the background and experience to enter the market, that it had the financial ability to enter the market, and that (most importantly) it had taken affirmative steps to enter the market. Thus, Spring should have alleged (1) how the FDA would categorize its product, (2) how much FDA review was necessary prior to marketing, (3) how much Spring had done to get FDA approval, (4) whether FDA approval was likely, and (5) whether Spring was ready to enter the market upon FDA approval.

Here, simply stating that FDA approval was required was not enough to allege antitrust standing, the court held. Furthermore, simply stating that Spring sought copies of Thiola was insufficient to establish that it was ready to enter the market. The court wanted to see evidence, for example, that Spring had signed a development deal to manufacture the product once a copy was obtained. As a result, the court granted the motions to dismiss the antitrust claims for failure to establish intent and preparedness. The same reasoning was applied to dismiss the state law claims, including unjust enrichment.

The court, therefore, granted the motions in part and denied the motions in part. All of the motions to dismiss for failure to state a claim were granted, but with leave to amend. The motion to dismiss the claim for injunctive relief was also dismissed without prejudice. The motion to dismiss the individual defendant Shkreli was stayed for 90 days. All other motions, including the motions to dismiss for lack of subject matter jurisdiction, were denied.

The case is No. 2:18-cv-04553-JCJ.

Attorneys: Dan K. Webb (Winston & Strawn LLP) and Joseph E. Wolfson (Stevens & Lee) for Spring Pharmaceuticals, LLC. Randall R. Lee (Cooley LLP) and Richard E. Coe (Drinker Biddle & Reath LLP) for Retrophin, Inc. William H. Stassen (Fox Rothschild LLP) for Martin Shkreli. Anne M. Rodgers (Norton Rose Fulbright US LLP) for Mission Pharmacal Co. and Alamo Pharma Services, Inc.

Companies: Spring Pharmaceuticals, LLC; Retrophin, Inc.; Mission Pharmacal Co.; Alamo Pharma Services, Inc.

MainStory: TopStory Antitrust PennsylvaniaNews

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