The US District Court for the Northern District of California certified classes of direct purchasers and end-payers in a pay-for-delay multidistrict litigation involving Lidoderm. In re Lidoderm Antitrust Litigation, Case No. 14-md-02521 (N.D. Cal. Feb. 21, 2017) (Orrick, J.).
Plaintiffs brought antitrust claims alleging that they paid inflated costs for brand name and generic versions of lidocaine patches due to a reverse payment patent litigation settlement between defendants Endo Pharmaceuticals, Teikoku Seiyaku Co., Teikoku Pharma USA and Watson Pharmaceuticals, Inc. The court certified a class of direct purchasers (wholesalers, hospitals, pharmacies and retailers) and a class of end-payers (employee health and welfare benefit plans, municipal corporations, employee unions and individuals who purchased from other third parties). Defendants argued that class certification was inappropriate because individualized issues predominated questions of injury and damages. Defendants pointed to the highly stratified nature of the pharmaceutical distribution chain, as well as the various purchasing agreements among the direct purchaser and end-payer plaintiffs and the role of pharmacy benefit managers, group purchasing organizations and third-party payers (e.g., health plans).
Despite the complexities surrounding prices, rebates, discounts, insurance benefits, market position, purchasing power and actual purchasing history, the court found that plaintiffs' experts presented reliable, statistically-sound methods to determine class-wide injury and proof of aggregate damages. Once the issues common to the class are resolved and experts have demonstrated aggregate damages with class-wide proof, the court can then conduct an individualized analysis of injury and damages. The court reasoned that the plaintiffs' expert had proposed a reliable method for addressing several factors of the complex prescription drug market. Defendants' disputes regarding how to account for copayments, rebates, uninjured plaintiffs, brand loyalists and aggregate data in the statistical model did not undermine the fact that plaintiffs were injured or the reliability of their damages model. Even though plaintiffs "may have incurred significantly different amounts of damages," the court reasoned that damages issues would not "overwhelm the common liability questions" such as whether a reverse payment settlement or other anticompetitive conduct occurred, whether that conduct resulted in overcharges for brand and generic Lidoderm patches, and the total amount of damages that resulted from that conduct.
Regarding the direct purchasers, the court rejected an argument that the direct purchasers were not so numerous as to make joinder impracticable because three direct purchasers controlled 86 percent of the market. The court found that the number of direct purchasers (53) was sufficiently numerous. It reasoned judicial economy supported a class action where the direct purchasers were geographically dispersed and a substantial number were so small that they had claims worth less than it would cost to litigate just a portion of the case.
Practice Note:
Pharmaceutical manufacturers involved in reverse payment settlement litigation should be mindful that the complex and highly stratified nature of the pharmaceutical distribution chain may be insufficient to overcome the vast issues common to plaintiffs at the class certification stage.
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