Antitrust Law Daily Generic drug price fixing class action moves forward
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Tuesday, February 19, 2019

Generic drug price fixing class action moves forward

By Nicole D. Prysby, J.D.

The bulk of the antitrust, consumer protection, and unjust enrichment claims against generic drug manufacturers for their alleged illegal agreement to fix prices for generic drugs go forward, over a number of objections from the defendants that the plaintiffs failed to meet requirements under the state laws at issue.

Most of the antitrust claims against generic drug manufacturers brought by end payor and indirect reseller plaintiffs should go forward, held the federal district court in Philadelphia. The plaintiffs alleged that the manufacturers engaged in illegal agreements to fix prices and allocate customers for a number of generic drugs, and brought state law claims on behalf of themselves and on behalf of a class. The court found that the plaintiffs had Article III standing to bring the claims—any question of whether they may pursue their claims on behalf of the unnamed class members should be considered in the context of the class certification analysis required under Rule 23. The bulk of the state law antitrust, consumer protection, and unjust enrichment claims go forward with a few exceptions for some of the claims brought under Illinois, Rhode Island, South Carolina, Georgia, Montana, and West Virginia law. Some claims under Alabama, New Jersey, Michigan, and Nevada law were voluntarily dismissed by the plaintiffs (In Re: Generic Pharmaceuticals Pricing Antitrust Litigation, February 15, 2019, Rufe, C.).

Background. Several groups of plaintiffs brought antitrust claims against generic drug manufacturers, alleging that the manufacturers engaged in illegal agreements to fix prices and allocate customers for a number of generic drugs. The actions were centralized in multidistrict litigation in the Eastern District of Pennsylvania. The actions had some differences, but significant overlaps existed in factual issues, parties, and claims. The plaintiffs alleged that the average market prices for certain generic drugs were raised significantly after meetings of trade associations, in particular those of the Generic Pharmaceutical Association. The MDL was expanded to include actions in which: (1) the plaintiffs assert claims for price fixing of generic drugs in violation of the Sherman Act and/or state antitrust laws on behalf of direct and indirect purchasers of generic pharmaceuticals; (2) the average market price of the subject generic pharmaceutical allegedly increased after 2012; (3) the defendants allegedly conspired through direct company-to-company contacts and through joint activities undertaken through trade associations, in particular meetings of the Generic Pharmaceutical Association; and (4) the allegations stem from the same government investigation into anticompetitive conduct in the generic pharmaceuticals industry. Plaintiffs include End-Payors (EPPs) and Indirect-Resellers (IRPs). Both brought claims individually and on behalf of a class.

The defendants sought to dismiss the claims from the EPPs and IRPs with respect to the Group 1 drugs (clobetasol, digoxin, divalproex ER, doxycycline, econazole, and pravastatin).

Article III standing. The defendants alleged that the Group 1 EPPs’ and IRPs’ claims under the laws of those states or territories in which they do not reside or allege to have reimbursed purchases for Group 1 drugs should be dismissed for lack of Article III standing. The court noted that the Third Circuit has not definitively answered the question of how to evaluate Article III and class standing at the motion to dismiss stage where putative class representatives assert claims arising under the laws of states where they neither reside nor allege to have suffered injury. But the court determined that the allegations were sufficient to show Article III standing. Because the state law claims of the named Group 1 EPPs and IRPs largely parallel those of the putative class members, the question of whether they may pursue their claims on behalf of the unnamed class members should be considered in the context of the class certification analysis required under Rule 23.

State antitrust claims. Claims under the Illinois Antitrust Act fail, because the Act prohibits indirect purchaser class actions. Antitrust claims under Arizona, Hawaii, Nevada, and Utah law go forward over the defendants’ objections that the plaintiff did not meet pre-suit notice requirements. The EPPs declared that they sent notices and the IRPs asserted that the defendants had notice of the claims. And regardless of whether the relevant notice provisions are substantive or procedural, they do not alter the substantive elements of the claims and are not a pleading requirement. Claims under the antitrust laws of the District of Columbia, Hawaii, Illinois, Kansas, Maine, Minnesota, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Oregon, South Dakota, Tennessee, West Virginia, and Wisconsin go forward. At this stage of litigation, allegations of a broad nationwide-scheme to fix generic drug prices are enough to satisfy the nexus requirement for asserting claims under the relevant state antitrust laws (without a requirement that alleged anticompetitive conduct have occurred within each of those states). Claims under Utah and South Dakota law go forward. Although those state have residency or citizenship requirements for plaintiffs, the named plaintiffs do not need to meet the requirements so long as other members of the putative cases include Utah and South Dakota residents. For Rhode Island claims, divalproex ER and doxycycline EPPs and IRPs may not recover for any alleged overcharges incurred before the Rhode Island Illinois Brick-repealer statutes took effect, but may proceed with their claims for alleged overcharges incurred on or after July 15, 2013.

State consumer protection claims. Group 1 Defendants asserted that because the Group 1 EPPs’ and IRPs’ state consumer protection law claims are just "repackaged federal antitrust claims," they cannot be used to circumvent the Illinois Brick prohibition on indirect purchaser claims in Alaska, Florida, Missouri, Montana, New Jersey, and South Carolina. But the court sided with the EPPs, who argued that Illinois Brick does not address state consumer protection claims. In addition, a number of those states have a consumer protection law that does not have the same indirect purchaser restriction as the state’s antitrust law. Claims under consumer protection laws of Arkansas, the District of Columbia, Florida, Georgia, New Mexico, Rhode Island, and West Virginia go forward, over the defendant’s objection that the laws do not encompass actions based on allegations of an antitrust conspiracy. The defendants argued that the claims under consumer protection laws of Alaska, Georgia, Montana, South Carolina, and Utah should fail, because those state laws do not permit the plaintiffs to proceed with claims as a class action. The court rejected that argument in part, but agreed that claims under Georgia’s Uniform Deceptive Trade Practices Act seeking money damages should be dismissed, as should class claims under Montana and South Carolina law. Claims under Delaware, Florida, Massachusetts, New Hampshire, New York, North Carolina, and Vermont law go forward over defendants’ argument that the claims must arise from purely or primarily intrastate conduct or an in-state injury. Claims under Arkansas, Colorado, Delaware, Florida, Michigan, Minnesota, New Mexico, New York, North Dakota, South Dakota, Utah, Virginia, and Wisconsin law go forward. The plaintiffs sufficiently pleaded deceptive conduct by making detailed allegations regarding Group 1 defendants’ trade association memberships, their representation on trade association boards, and attendance at industry gatherings, and the prices of the Group 1 drugs and the timing and size of alleged price increases. Claims under California, District of Columbia, Hawaii, Massachusetts, Michigan, Missouri, Montana, Nevada, Rhode Island, and Vermont law go forward over the defendant’s argument that the EPPs and IRPs do not meet the statutory definition of a "consumer" under those laws. However, claims under West Virginia’s Consumer Credit and Protection Act fail, because the private right of action under that law is not extended to prescription drug purchases. Claims under Massachusetts’ Consumer Protection Law go forward because the demand letter requirement of the law is procedural, not substantive.

State unjust enrichment claims. Unjust enrichment claims under Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Kentucky, Louisiana, Maryland, Massachusetts, Missouri, Montana, New Jersey, Oklahoma, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Texas, Virginia, Washington, and Wyoming law go forward, over defendants’ argument that EPPs and IRPs cannot assert unjust enrichment claims under the laws of jurisdictions that have not repudiated Illinois Brick’s prohibition against indirect purchaser damages actions. The concerns that motivate Illinois Brick such as the complexity associated with correctly apportioning recovery among direct purchasers, middlemen, and ultimate consumers, are not implicated in the context of unjust enrichment claims because the nature of unjust enrichment claims requires a focus on the gains of the defendants, not the losses of the plaintiffs. Claims under Alabama, Arizona, the District of Columbia, Florida, Georgia, Idaho, Iowa, Kansas, Maine, Maryland, Michigan, Missouri, New Jersey, New York, North Carolina, North Dakota, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, and Utah law go forward despite defendants’ objection that Group 1 EPPs and IRPs did not allege that they conferred a direct benefit on any defendant. It was sufficient that the EPPs and IRPs alleged that they overpaid as a result of defendants’ unlawful actions, the defendants benefitted, and the benefits are traceable to the overpayments. The lack of direct contact between plaintiffs and defendants does not preclude a finding that a defendant received a direct benefit from a plaintiff. Claims under Arizona, Minnesota, Montana, New Hampshire, New York, South Dakota, Tennessee, and Utah law go forward over defendants’ argument that the plaintiffs failed to plead that they lack an adequate legal remedy.

The case is No. 2:16-md-02724-CMR.

Attorneys: Adam J. Zapala (Cotchett, Pitre & McCarthy, LLP) and Bonny Sweeney (Hausfeld LLP) for End-Payer Plaintiffs PSC. Daniel S. Mason (Furth Salem Mason & Li LLP) and Don Barrett (Barrett Law Offices) for Indirect Resellers PSC. Abram J. Ellis (Simpson Thacher & Bartlett LLP) for McKesson Medical-Surgical, Inc.

Companies: Mutual Pharmaceuticals Co., Inc.; McKesson Medical-Surgical, Inc.

MainStory: TopStory Antitrust StateUnfairTradePractices PennsylvaniaNews

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