On April 22, 2020, the Third Circuit in In re Lamictal Direct Purchaser & Antitrust Consumer Litig., reversed class certification, concluding that the evidence did not establish that common proofs could be used to prove class-wide injury. The circuit court faulted the district court’s predominance analysis for failing to resolve factual disputes, weigh competing expert evidence, and make a prediction as to how these issues would play out at trial.
Central to the ruling was the issue of antitrust impact. After brand and generic pharmaceutical manufacturers of the prescription drug Lamictal, or generic lamotrigine, settled a patent litigation, direct purchasers of these drugs sued claiming the settlement violated the antitrust laws as an impermissible “reverse payment agreement.” The brand manufacturer was alleged to have “paid” the generic to stay out of the market by promising not to launch an authorized generic (“AG”). The direct payor plaintiffs argued that they paid more for the drugs than they would have otherwise based on the theory that, on average, the price of a generic is lower when there are two generics rather than just one. The Third Circuit granted the manufacturer-defendants’ petition for leave to appeal under Rule 23(f).
First, the Third Circuit rejected direct purchasers’ argument that certification was controlled by a comment in Tyson Foods v. Bouaphakeo, ––– U.S. –––, 136 S. Ct. 1036, 194 L.Ed.2d 124 (2016), that suggested the predominance requirement is satisfied “so long as their evidence of classwide antitrust injury could sustain a jury finding.” Rejecting this “lower standard,” the Third Circuit held that Tyson Foods did not “overturn our longstanding rule announced in Hydrogen Peroxide, and reiterated in many a case, that a putative class must demonstrate that its claims are capable of common proof at trial by a preponderance of the evidence.”
Second, on the question of injury, the Court explained that direct purchasers were required to prove that (i) the brand manufacturer would have launched an AG but for the reverse-settlement, and (ii) as a result, all class members would have paid less for lamotrigine in this but-for world.” The drug manufacturer-defendants argued that direct purchasers’ proofs impermissibly relied on averages, “which, in a market characterized by individual negotiations and a discounted brand competition strategy,” masked that many would not have paid less, and thus, suffered no injury — raising individualized issues and destroying predominance.
The Third Circuit found that the District Court erred because it “assumed, absent a rigorous analysis, that averages are acceptable,” relying on plaintiffs’ expert’s model of “an average hypothetical price. Despite “dueling expert reports,“ the district court “refused to ‘address the multi-leveled microeconomic analysis of what each Defendant would or would not have possibly done in the but-for world.’” Further, “much of each expert’s analysis turned on his sources of evidence for pricing and discounting data, many of which were in tension. It was up to the District Court to scrutinize the evidence to determine what was credible and could be used in the expert analysis.”
The Third Circuit’s decision is a re-affirmation of the rigorous analysis and conflict resolution first articulated in Hydrogen Peroxide.
Next up for the Third Circuit in the pharmaceutical pricing arena is the appeal in In re Suboxone (Buprenorphine Hydrochloride & Nalaxone) Antitrust Litig., where the defendant argues that the class’s injury theory cannot be supported by common evidence because the only evidence of common impact relates to perfectly lawful conduct, i.e., a unilateral decision to raise the price for one drug and lower the price of another.