By Robert B. Barnett Jr., J.D.
Sanofi, the manufacturer of a device that tried to compete with EpiPen, has adequately stated antitrust causes of action alleging that Mylan, Inc., the EpiPen’s manufacturer, used its 94% market share to seek exclusive dealing arrangements with third-party payors, engaged in anticompetitive conduct by making false statements about Sanofi’s product, and engaged in an overall scheme to monopolize the market, all in violation of the Sherman Act, the federal district court in Topek, Kansas has ruled. The court, however, agreed to dismiss Sanofi’s claim that Mylan sought exclusive dealing arrangements with state-based Medicaid agencies because the Noerr-Pennington doctrine immunizes efforts to petition federal or state governments to exclude a competitor, even if that conduct is intended to eliminate competition (In re: EpiPen (Epinephrine Injection, USP) Marketing, Sales Practices and Antitrust Litigation, December 21, 2017, Crabtree, D.).
The EpiPen is a medical device that those with allergies to food, pets, insects, or other allergens carry with them to respond to analphylaxis resulting from allergic reactions. EpiPen has been the number one prescribed auto-injector for more than 25 years. In 2013, Sanofi-Aventis U.S. LLC launched Auvi-Q to compete with EpiPen. Initial responses to Auvi-Q were positive, attributed in part to its smaller size, which was easier to carry, especially for children, and Auvi-Q gained market traction. Mylan’s response to the introduction of Auvi-Q was to: (1) offer 30% rebates to third-party payors conditioned on exclusivity, (2) impose contractual exclusivity in its school programs, (3) offer consumers $0 co-pay coupons for EpiPen, and (4) make false statements about Auvi-Q to third-party payors and to doctors, including funding research with dubious conclusions. The strategy apparently worked, with Sanofi’s market share by 2015 at half of what it had projected.
Sanofi filed suit in New Jersey federal court against Mylan, Inc., and Mylan Speciality, L.P., alleging three claims under Section 2 of the Sherman Act: (1) monopolization through exclusive dealing, (2) deceptive conduct to further monopolization (i.e., the spread of false information), and (3) an overall scheme to monopolize. Mylan filed a motion to dismiss. In August 2017, the various EpiPen lawsuits were consolidated into a single action before the Kansas federal district court. The litigation currently has two tracks. This motion to dismiss affected only one track—the one initiated by Sanofi. In its motion to dismiss, Mylan admitted monopoly power, instead basing its motion on an argument that Sanofi failed to adequately plead Mylan’s willful acquisition or maintenance of its monopoly power.
Exclusive dealing. The complaint alleged that Mylan sought exclusive arrangements with all variety of third-party payors, including private insurers and state-based Medicaid agencies. Mylan argued that the claim for exclusive dealing failed because it never alleged that Mylan’s offer resulted in prices below the cost of production. But this is not, the court noted, a predatory pricing claim; it involves instead an unlawful exclusive dealing arrangement, which does not require a price-cost test. The complaint alleged that Mylan used its market power to offer rebates that were expressly conditioned on excluding Auvi-Q. The only rational business reason for offering the deep discounts, according to the complaint, was to block Auvi-Q from the market. The antitrust vice in this arrangement, the court said, was that it foreclosed "part of the market in which the seller competes by taking away the freedom of the buyer to choose from the products of competing traders in the seller’s market." As a result, the court found that the complaint alleged exclusionary conduct sufficient to state a plausive exclusive dealing claim.
Noerr-Pennington. The exclusive dealing claims as they applied to state-based Medicaid agencies, however, were subject to different rules than the claims involving private third-party payors. In two opinions, the U.S. Supreme Court created the Noerr-Pennington doctrine, which exempts from antitrust liability any legitimate use of the political process by private individuals, even if their intent is to eliminate competition. The doctrine exists to protect citizens’ First Amendment right to petition the government to redress grievances. The allegations against Mylan accused it of using the outcome of the government process to harm a competitor. The result might have been different if Mylan had used the process itself, rather than the outcome, to harm a competitor. Sanofi did allege that Mylan made misrepresentations to the government to cause EpiPen to be misclassified, which required Mylan to pay less in rebates to Medicaid. This allegation, however, was not the basis for the antitrust claim, which was based instead on the rebate-for-exclusivity offer. Because Noerr-Pennington immunizes rebate-for-exclusivity conduct to a government entity, the court granted Mylan’s motion to dismiss the antitrust claims as they applied to the state Medicaid agencies.
Deceptive speech. Anticompetitive conduct can come in many varieties, including deceptive speech. The allegations in Sanofi’s complaint included that (1) Mylan funded and promoted a misleading study comparing Auvi-Q to EpiPen and (2) Mylan made misleading statements to doctors about Auvi-Q and its coverage by drug formularies. The court rejected Mylan’s argument that these statements had a de minimis impact. While Sanofi did not establish every element overcoming a de minimis challenge, it established enough of them to conclude that the statements had more than a de minimis impact on competition. Sanofi should be given the opportunity to further develop proof that Mylan’s statements were clearly false, clearly material, and clearly likely to induce reasonable reliance. At this point in the proceedings, the court said, Sanofi’s pleadings were sufficient to survive a motion to dismiss.
Overall scheme. The Tenth Circuit recognizes a claim alleging that the defendant engaged in an overall scheme to create or maintain a monopoly as a whole, without having to prove that each alleged anticompetitive conduct independently satisfied Section 2 of the Sherman Act. Such conduct in this case included, in addition to the ones previously addressed, that Mylan forced schools to stock EpiPens exclusively in return for discounts and that Mylan raised its price by 500% (without losing market share) to offset the costs of the rebates it was offering. As a result, the court concluded that the complaints sufficiently pleaded an overall scheme to monopolize the market.
Harm to competition. Mylan argued that the complaint failed to satisfy the antitrust pleading requirement that the alleged anticompetitive conduct harmed not just the plaintiff but competition writ large. In rejecting that argument, the court concluded that Sanofi pleaded that Mylan’s conduct (1) increased prices for consumers and (2) harmed innovation and reduced drug quality. These allegations, the court ruled, were sufficient to satisfy the harm-to-competition pleading requirement. The court also rejected Mylan’s argument that no harm resulted to competition because the exclusive dealing arrangements lasted only one or two years. Duration is just one factor, the court noted. Under these facts, the complaint sufficiently pleaded that competition was harmed, even given the contracts’ short duration. As a result, the allegations were sufficient to support a Sherman Act claim.
Causation. Mylan argued that its actions did not cause Sanofi’s losses, for several reasons. Mylan contended that any harm that Sanofi suffered was the result of an independent decision Sanofi made to stop competing with Mylan. The complaint, however, is filled with reasons why Sanofi alleges that it stopped competing with Mylan following Mylan’s allegedly anticompetitive conduct. Mylan also argued that Sanofi’s troubles were the result of poor business decisions it made in competing with Mylan. Little weight, the court said, should be given to a defendant’s list of possible alternative causes. If Mylan is correct, those facts can be developed during discovery. Mylan next contended that any harm that Sanofi suffered was the result of a voluntary product recall of Auvi-Q in October 2015, after reports of manufacturing errors. Recalls in the industry are common. Whether it was common (Mylan argued that it was not) will not be determined at the motion to dismiss stage. Thus, the court rejected Mylan’s causation arguments.
The court, therefore, granted Mylan’s motion to dismiss in part. All exclusive dealing claims involving offers to state agencies were barred by the Noerr-Pennington doctrine and were thus dismissed. The motion was denied as to all other claims.
The case is MDL No. 2785.
Attorneys: Adam Scott Tolin (Weil, Gotshal & Manges LLP) for Sanofi-Aventis U.S. LLC. Adam K. Levin (Hogan Lovells US LLP) for Mylan N.V. and Mylan Specialty, LP.
Companies: Sanofi-Aventis U.S. LLC; Mylan N.V.; Mylan Specialty, LP
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