Court: District Court, S.D. Illinois; August 2, 2018; Federal District Court
Plaintiffs J.M. Smith Corporation, Smith, and Rochester Drug Co-Operative, Inc. (collectively "Direct Purchaser Plaintiffs") filed an antitrust lawsuit against Actavis PLC (now Allergan PLC) and related entities (collectively "Forest"). The suit claims that Forest engaged in anti-competitive practices to delay the market entry of generic versions of Namenda, a drug for Alzheimer’s treatment, violating sections 1 and 2 of the Sherman Act. Plaintiffs allege that Forest conspired with generic manufacturers to abandon legal challenges to the '703 Patent, ensuring the launch of generics would occur three months after the patent's expiration. Additionally, Forest is accused of executing a "hard switch" strategy, where it removed Namenda IR from the market prior to patent expiration, pushing consumers towards the successor product, Namenda XR. This tactic aimed to minimize the likelihood of patients switching back to generics once they transitioned to the branded product.
The Court currently addresses two motions: Defendants' motion for summary judgment on all claims, which is denied, and Plaintiffs' motion for class certification, which is granted. Furthermore, Defendants have filed six motions to exclude expert testimony from Plaintiffs, which will be evaluated to determine the admissibility of evidence for the summary judgment ruling.
In summary judgment motions, district courts may only consider evidence admissible at trial, adhering to the Daubert Standard. Expert evidence admissibility is at the district court's discretion, which must determine if an expert qualifies under Rule 702 of the Federal Rules of Evidence. This rule states an expert can testify if they possess relevant knowledge, and their testimony is based on sufficient facts, reliable methods, and is appropriately applied to the case. The burden of proving admissibility lies with the proponent of the expert testimony, and the court acts as a gatekeeper to ensure testimony is reliable and relevant.
Although Rule 702 endorses a broad admissibility standard, expert opinions based on insufficient data or methodology may be excluded under Daubert. The Supreme Court established that trial courts prevent juries from being misled by unsupported speculation presented as expert opinion. The Second Circuit further emphasized that an expert's analysis must be reliable at every stage. While courts must assess the methods and principles used by experts without judging their conclusions, they cannot admit opinions that lack a sufficient analytical connection to the underlying data.
The standard for evaluating non-scientific expert testimony requires that the expert's opinion be based on professional studies or personal experience, demonstrating the same intellectual rigor expected in their field. In the case at hand, the motion to exclude the testimony of Plaintiffs' expert, Janet K. DeLeon, is granted. Ms. DeLeon, proposed as an expert in developing and launching generic drugs, submitted an initial report from September 15, 2017, and a supplemental report from October 23, 2017. She was tasked with determining whether any supply, equipment, or manufacturing challenges hindered five generic competitors and Forest from launching a generic version of Namenda IR before July 2015. Ms. DeLeon concluded that no such challenges existed, basing her opinion on her extensive educational background, professional experience, FDA regulations, and publicly available materials.
With 30 years in the pharmaceutical industry, including significant roles related to drug launches, Ms. DeLeon's qualifications are strong. Her experience includes participation in numerous launch teams, liaison roles with external manufacturers, and management of FDA applications. Her reports consist of a detailed explanation of the generic drug launch process, an evaluation of the evidence from discovery regarding the competitors' launch preparations, and her assertion that nothing prevented the competitors from launching by 2012. Overall, her credentials and findings present a comprehensive analysis of the generic drug launch landscape.
Ms. DeLeon asserts that there were no supply, equipment, or manufacturing obstacles preventing the generic manufacturers from launching their generic Namenda IR tablets between June 2012 and July 2015. She emphasizes that Namenda IR, being a solid oral dose product, is among the easiest to manufacture, and that the active ingredient, memantine hydrochloride, was consistently available. Following her review of newly available documents and depositions, her conclusions regarding the generics' and Forest's ability to launch in 2012 remained unchanged.
Defendants argue that her findings are highly speculative, a viewpoint the Court supports, noting that her opinion lacks substantial empirical evidence beyond her expert credentials. Ms. DeLeon did not analyze in-house documents or depositions from the generics or Forest that would substantiate her claims regarding their ability to launch in 2012. Instead, her conclusions were based on evidence from the 2015 product launches. She rationalizes the absence of pre-launch evidence by stating that drug companies typically deprioritize tasks for drugs not set for manufacture for several years. To support her conclusions about the supposed lack of entry barriers in 2012, she references that the companies successfully launched in 2015 without issues, their capacity as major manufacturers, and testimonies from representatives of the generics indicating they were capable of launching earlier.
Plaintiffs argue that Ms. DeLeon's conclusions are derived from her extensive pharmaceutical experience but lack a 'scientifically sound analysis.' They cite precedent indicating that mere experience cannot substitute for rigorous data analysis. Ms. DeLeon could have investigated various factors affecting generics' market entry, such as supply chain issues or manufacturing constraints, to substantiate her claims. However, her assertion that generics could have launched in 2012 simply because they did so in 2015 lacks a foundation in market conditions and is deemed speculative. The court emphasizes that expert testimony must be based on 'sufficient facts or data' and 'reliable principles and methods,' as per the amended Rules of Evidence. Ms. DeLeon's testimony primarily serves to validate the 30(b)(6) witnesses' claims rather than provide independent expert insights, which risks misleading the trier of fact. Therefore, her opinions are deemed inadmissible for the summary judgment motion.
Additionally, Defendants seek to exclude Professor Einer Elhauge's opinions, which support the claim that a reverse payment from Forest to Mylan delayed generic entry, asserting that the generics would have entered the market substantially earlier without such payments.
Plaintiffs submitted the Revised Expert Report of Professor Einer Elhauge, dated September 20, 2017, to analyze the economic implications of the settlement between Forest and Mylan regarding the Namenda IR patent litigation. Key issues addressed include whether Forest's alleged reverse payment to Mylan delayed generic market entry, the anticipated settlement date without such a payment, the necessity and restrictiveness of the reverse payment for achieving settlement, and any procompetitive justifications for it. Professor Elhauge, a Harvard Law School professor with extensive expertise in antitrust economics, provides an overview of the settlement agreement and assesses the bargaining strengths of both parties. His analysis incorporates factors like profit projections and litigation expectations to estimate the potential market entry date for generics without the reverse payment, concluding that the payment significantly delayed entry. He also argues that the defendants' risk aversion does not justify the reverse payment.
Defendants seek to exclude Professor Elhauge's testimony on three grounds, asserting that his conclusions conflict with the Supreme Court's ruling in F.T.C. v. Actavis, which does not categorize reverse payment settlements as inherently unlawful but rather requires a 'rule of reason' analysis. This analysis evaluates the size, context, and justification for the payment, indicating that only substantial and unjustified reverse payments violate antitrust laws.
Professor Elhauge's report identifies that a reverse payment can be deemed anticompetitive if it exceeds the litigation costs saved by the patent holder through settlement. He estimates that Forest's payment of $30.9 million to Mylan surpasses its avoided litigation costs of approximately $3.5 million, suggesting potential anti-competitive effects. Following this determination, Elhauge applies economic analysis to evaluate the extent of entry delay caused by the payment, aligning with the precedent established in Actavis.
In response, the Defendants challenge Elhauge’s conclusions as speculative and inconsistent, characterizing their objections as typical of Daubert motions that often lack substantive merit. The court notes that disagreements with expert opinions are suitable for cross-examination rather than exclusion.
Defendants also assert that Elhauge's opinions on the timing of market entry overstep the jury's prerogative. They reference the case United Food and Commercial Workers Local 1776 v. Teikoku Pharma USA, where Elhauge’s similar testimony was partially restricted. The court allowed him to suggest that rational incentives would lead to an earlier settlement but prohibited him from asserting a specific entry date, as that determination rests with the jury. The court concludes that Elhauge must frame his opinions to reflect economic rationality rather than certainties.
The Defendants' motion to exclude Elhauge’s testimony is denied, with the stipulation that he clarifies his statements regarding potential settlement scenarios. Additionally, Defendants seek to exclude Dr. Russell Lamb's testimony regarding class certification and damages related to alleged anticompetitive behavior, referencing his Amended Expert Report and Reply Report aimed at correcting earlier errors.
Dr. Lamb, an expert in antitrust economics, conducted an analysis regarding the impact of delayed generic entry and alleged unlawful practices by Defendants on prices paid by proposed class members for memantine hydrochloride. His analysis included evaluating whether economic evidence could demonstrate class-wide injury from Defendants' anticompetitive actions in two hypothetical scenarios. Dr. Lamb reviewed market data, transaction-level information from Forest and generic manufacturers, and various relevant documents, including prior litigation materials and academic literature.
With over 20 years of experience, Dr. Lamb has testified on antitrust issues in U.S. courts and provided economic consulting services to institutions like the World Bank and the Government of Peru. He leads Monument Economics Group, focusing on economic research and analysis. Additionally, he teaches 'Law and Economics' at The George Washington University.
In his reports, Dr. Lamb outlines the pharmaceutical regulatory framework, competitive effects of generic market entry, and the dynamics of the memantine hydrochloride market. He notes that by September 2015, after generic entry, Forest lost nearly 90% of its sales of Namenda IR to generics, which were offered at a significant discount. He posits that had generic competition commenced in 2012, class members would have benefited from lower prices earlier, as evidenced by a price comparison from July 2015. Dr. Lamb constructs two hypothetical scenarios—one without reverse payments and another without the hard switch—to assess potential damages resulting from the alleged misconduct.
Dr. Lamb analyzes two scenarios to assess damages related to Forest's actions concerning the Namenda products. In the "No Reverse Payment But-For World," he posits that if Forest had not entered into an alleged illegal agreement with Mylan, a settlement would still have occurred without a significant reverse payment, allowing generic competition to start earlier in 2012 instead of 2015. He employs an economic model to compare actual prices and volumes of memantine hydrochloride purchases against what would have occurred absent the defendants' conduct. He concludes that class members paid higher prices for brand-name Namenda products due to delayed generic entry, estimating total damages between $6.09 billion and $6.93 billion.
In the "No Hard Switch But-For World," Dr. Lamb examines the impact of Forest's announcement to discontinue Namenda IR in favor of Namenda XR. Through a structural break test, he determines that the announcement significantly influenced market conversion rates from Namenda IR to Namenda XR. He assesses a scenario where no hard switch occurred, concluding that class members would have paid lower prices for generic alternatives instead of the more expensive Namenda XR, estimating damages between $776 million and $814 million. For class certification, Dr. Lamb asserts that aggregate damages can be demonstrated through classwide economic models, utilizing transaction-level data where available.
The motion to exclude Dr. Lamb's reports focuses on the second element of an antitrust claim, specifically 'antitrust injury,' which requires proof that the plaintiff's injury was directly caused by the defendant's violation of antitrust laws. Defendants argue that Dr. Lamb's structural break test fails to demonstrate antitrust injury because it relies on market-wide data instead of purchaser-specific information, which, they claim, does not accurately isolate patients who switched from Namenda IR to XR due to the February 2014 announcement. They contend that this approach understates the market capture potential of Namenda XR without the hard switch strategy.
However, this argument is deemed unpersuasive. Dr. Lamb's findings, supported by observations consistent with Plaintiffs' allegations, indicate that the hard switch announcement did lead to increased conversion to Namenda XR. Plaintiffs assert that Forest Pharmaceuticals sought to restrict Namenda IR supply before generic competition emerged, facilitating a 'forced switch' for physicians and patients. Dr. Lamb reviewed Forest's internal documents and forecasts that outlined both the 'hard switch' and 'soft switch' scenarios, revealing a significant market share for Namenda XR under the hard switch approach.
Additionally, evidence includes statements from Forest executives emphasizing the urgency of transitioning from Namenda IR to XR to protect revenue from impending generic competition. Dr. Lamb's regression analysis, termed a "structural break test," indicates that the hard switch strategy effectively increased the conversion rate to Namenda XR, using actual sales data to support his conclusions.
Dr. Lamb identified a "structural break" in the conversion rate from Namenda IR to Namenda XR coinciding with the implementation of the Hard Switch strategy in February 2014, suggesting the strategy effectively increased conversions. Defendants criticized Dr. Lamb's structural break test for not isolating the cause of the break, but he clarified that the test was designed to assess the impact of a specific event—namely, the Hard Switch announcement—on the conversion rate. While correlation does not establish causation, the timing of the announcement and the structural break provides some evidence supporting the plaintiffs' theory. Defendants may challenge Dr. Lamb's data by pointing to other market factors during that period, but overall, Dr. Lamb's regression analysis is deemed sufficient under Daubert standards, with any issues regarding assumptions affecting the weight of the testimony rather than its admissibility. The document also emphasizes that plaintiffs need only demonstrate that the defendants' conduct was a material cause of their antitrust injuries without needing to eliminate all alternative sources of injury. Causation can be established by showing that the defendants' actions were a substantial factor in producing the injury, as clarified by relevant Second Circuit precedent. Additionally, defendants contested Dr. Lamb's inclusion of data from before the February 2014 announcement and after the injunction on Namenda XR conversion as improper in expanding the timeframe of alleged injury.
Defendants argue that Dr. Lamb's methodology incorrectly incorporates alleged injuries that occurred before the February 2014 announcement of their intention to withdraw Namenda IR, which contradicts the Court’s prior ruling on the damages period. The Second Circuit indicated that the "hard switch" began on February 14, 2014, and was paused in September 2014 due to litigation. Dr. Lamb's report references documents showing that Forest had discussed its hard switch plan prior to the February announcement. Plaintiffs contend that Dr. Lamb included this pre-announcement conduct to challenge Forest's assertion that increased conversions to Namenda XR after February 2014 were solely due to improved formulary placement. The Court finds Dr. Lamb's opinions admissible, stating that differing opinions provide grounds for cross-examination. Defendants also claim that flaws in Dr. Lamb's "No Hard Switch" methodology undermine his "No Reverse Payment" methodology; however, this argument is rejected, and their motion is denied.
Additionally, Defendants seek to exclude the opinions and testimony of Plaintiffs' experts, Dr. Russell Lamb and Dr. Ernst Berndt, regarding their use of forecast averages. This motion is also denied. Dr. Berndt, a Professor at MIT, submitted an initial report, a reply report, and an amended reply report. In his initial report, he assesses the reasonableness of conducting a damages analysis based on relevant projections and forecasts from Forest, and evaluates the expected market share of Namenda XR had the hard switch not occurred. Dr. Lamb's analysis incorporates Dr. Berndt's findings, asserting that the conversion rate of Namenda XR would have reached 30 percent within 18 months if the hard switch had not taken place. His damages calculation is based on the difference between actual and projected conversion rates, multiplied by total market data.
Calculating the potential overcharges resulting from the Hard Switch involves multiplying the number of therapy days by the generic penetration rate, which provides the volume of branded Namenda XR purchases that would have been generic Namenda IR purchases without the Hard Switch. This volume is then multiplied by the price difference between branded Namenda XR and generic Namenda IR to determine the overcharges.
In the analysis regarding the motion to exclude expert testimony from Dr. Berndt and Dr. Lamb, the defendants contend that the experts uncritically accepted Forest's forecasts. However, significant portions of both experts' reports focus on the reliability of these forecasts. The defendants offer three main objections:
1. Dr. Berndt and Dr. Lamb did not conduct an economic analysis to ascertain the conversion rate in a hypothetical scenario without the Hard Switch.
2. The experts allegedly did not use a proper methodology to average or select forecasts, leading to arbitrary selections.
3. The experts failed to test the forecasts for reliability.
These objections are countered by Dr. Berndt's thorough analysis of Forest's forecasting process, which included examining the evolution of the analysis, conducting surveys among relevant stakeholders, and considering the long-term market dynamics. Dr. Berndt's report indicates that Forest's executives relied on these analyses for strategic decisions, and he utilized his extensive experience in the pharmaceutical industry to validate the forecasts rather than accepting them at face value.
Dr. Berndt evaluated Forest's forecasting methods and their reliance on these forecasts for business decisions and investor communications, concluding that the internal forecasts were reliable, based on Forest's market studies and analogous drug experiences. He emphasized a 'but for' scenario where Forest did not announce or execute a hard switch for Namenda IR. Dr. Lamb also reviewed Forest's internal documents regarding the soft-switch conversion rate and created multiple forecasts, averaging a 30% conversion rate for Namenda IR to XR by November 2014. He confirmed the reasonableness of this figure based on its use in company presentations and executive statements. The methodology of using defendants' forecasts for modeling damages is recognized in legal precedents, and uncertainty in predictions does not absolve defendants of liability for damages caused by their wrongdoing. Any claims by defendants regarding the omission of certain forecasts from the experts' analyses can be addressed during cross-examination. Additionally, Professor John R. Thomas was appointed as the plaintiffs' expert after the prior expert, Deborah Jaskot, was disqualified due to conflicts of interest.
Plaintiffs have submitted an expert report from Professor Thomas, dated November 14, 2017, which addresses several key issues related to the Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act). The report’s main objectives include: (1) analyzing the Hatch-Waxman Act's balance between drug innovation and generic drug competition, (2) assessing potential impediments for generic drug companies to obtain FDA approval to sell generic versions of Namenda from April 17, 2011, to July 11, 2015, and (3) evaluating whether there were obstacles for Forest to market an authorized generic version of Namenda during the same timeframe.
Professor Thomas is highly qualified, having taught the Hatch-Waxman Act at Georgetown Law School since 2002, authored relevant textbooks, and provided expert testimony in previous cases. He has over two decades of experience, including serving as a Special Master in Hatch-Waxman litigation and instructing patent examiners at the U.S. Patent and Trademark Office.
The report is structured into three main sections: (1) an overview of the regulatory framework under the Hatch-Waxman Act, including the FDA approval process and related marketing exclusivities; (2) a background on FDA approvals for branded and generic Namenda, including challenges to Forest's patents; and (3) an analysis concluding that no regulatory barriers existed for the five generics to obtain final approval for their versions of Namenda after April 17, 2011.
In response, defendants are seeking to exclude Professor Thomas's reports and testimony, arguing that certain parts are irrelevant and prejudicial. They contend that his statements imply that all Hatch-Waxman patent settlements are inherently suspect and counterproductive to the Act's goals of ensuring affordable access to generic pharmaceuticals.
Defendants' motion to exclude Professor Thomas's testimony is denied on multiple grounds. First, the court finds no merit in Defendants' claim that Professor Thomas has provided an improper legal opinion; they cannot cite a specific instance of such an opinion. His explanations of the Hatch-Waxman Act and its implications for generics are deemed helpful to understanding complex legal statutes and do not constitute legal conclusions. The court emphasizes that expert testimony is appropriate for assisting the jury in these intricate matters and will allow his testimony unless it becomes irrelevant or inadmissible.
Regarding Defendants' challenge to Professor Thomas’s qualifications to discuss Abbreviated New Drug Applications (ANDAs), the court acknowledges that while he lacks practical experience with ANDAs, his extensive background includes teaching the Hatch-Waxman Act and writing a related textbook. He has previously been accepted as an expert in ANDA matters in court, allowing the jury to weigh his qualifications against his experience.
Additionally, Defendants seek to exclude the testimony of George W. Johnston, Esq., who was retained to analyze the potential legal advice a competent patent attorney would have provided during the Namenda patent litigation settlement. Johnston has over 40 years of experience as a patent attorney, having handled numerous patent applications and possessing expertise in evaluating patentability, claims, validity, and infringement. His qualifications are presented as substantial, supporting the relevance of his testimony.
Mr. Johnston served 17 years as Chief Patent Counsel for Hoffmann-La Roche Inc., where he advised senior management on patent litigation matters, including likelihood of success, associated costs, and litigation timelines. He retired in 2013 as Vice President and Chief Patent Counsel and now practices intellectual property law at Gibbons P.C. His credentials establish him as an expert in patent law, particularly in the pharmaceutical sector.
In his report, Mr. Johnston provides an overview of the patenting process, explaining that a U.S. patent allows the holder to exclude others from making, using, selling, or importing the claimed invention. He discusses the Hatch-Waxman Act, including how it allows generic manufacturers to challenge pharmaceutical patents. The report summarizes factual details about the '703 patent, which pertains to methods for treating cerebral ischemia using adamantine derivatives, specifically memantine and amantadine. Mr. Johnston highlights that the '703 patent claims a "new mode" of action for these derivatives, based on Dr. Bormann's assertion that they can prevent neurodegeneration caused by calcium overload in cells.
Additionally, the report outlines the prosecution history of the '703 patent, including its reexamination by the USPTO in 2004 and the Paragraph IV challenges from 15 generic companies in 2007 and 2008. These challenges included defenses of noninfringement and patent invalidity under various sections of the U.S. Code. In response, Forest and Merz initiated multiple Hatch-Waxman litigations in the District of Delaware, while the generic companies asserted defenses including noninfringement, invalidity, and other legal claims in the Namenda Litigation.
Patent misuse and equitable intervening rights are central to the legal claims under consideration, which include counterclaims for declaratory judgments of noninfringement and invalidity, as well as a request to remove the '703 patent from the Orange Book and challenge its patent term extension. A patent attorney reviewed the litigation history surrounding Forest's '703 patent, noting that Mylan's case progressed the furthest, settling in August 2010. The attorney analyzed the statistical likelihood of success in a Hatch-Waxman lawsuit and assessed the strengths and weaknesses of Mylan's defenses, including anticipation, obviousness, enablement, and the patent term extension.
He evaluated evidence and expert testimonies from both parties and concluded that a competent patent attorney at the time of settlement would likely have determined Mylan had over a 60% chance of prevailing, while Forest had less than a 40% chance. The attorney also estimated the potential duration and costs of the litigation had it proceeded to trial.
Defendants challenge the qualifications of Mr. Johnston, arguing he lacks the technical expertise to opine on patent infringement and validity due to his background as a lawyer rather than a chemist, citing the Federal Circuit’s ruling in Sundance, Inc. v. DeMonte Fabricating Ltd. Plaintiffs counter that Johnston's opinion is based on his legal expertise and does not independently assess the technical validity of the patent claims, but rather evaluates the likelihood of Mylan's success from a legal perspective, relying on the conclusions of technical experts.
The excerpt addresses the qualifications of expert witnesses in patent law, specifically contrasting a past case, Sundance, with the current antitrust case. In Sundance, the Federal Circuit ruled that a patent attorney without technical expertise was not qualified to testify on issues of patent validity or infringement, as these issues require the perspective of someone skilled in the art. This ruling emphasized that expert testimony must align with the expertise relevant to the specific technical issues being considered.
In the current case, Mr. Johnston, while not presenting himself as a technical expert, offers an assessment based on his experience as a Chief Patent Counsel regarding the likelihood of success for Mylan in its patent litigation against Forest. His analysis, although not a definitive statement on patent validity or infringement, indirectly incorporates considerations of these issues. The excerpt notes that his evaluation is based on how he believes Mylan's experts would be perceived compared to Forest's, suggesting that his legal assessment inevitably touches on the patent's validity and Mylan's defenses.
The text asserts that testimony from experienced attorneys regarding the likelihood of success in patent litigation has been accepted in other antitrust cases following the Actavis decision. Thus, Johnston's opinion is positioned within a framework that acknowledges both his legal expertise and the nuanced nature of his insights regarding patent litigation outcomes.
On January 25, 2018, the court addressed issues related to expert testimony in the Wellbutrin XL Antitrust Litigation. It noted that prior opinions did not thoroughly analyze the credentials of lawyers involved, focusing instead on litigation risk assessments typically conducted by attorneys rather than chemists. Mr. Johnson, an expert, possesses the necessary expertise to evaluate technical materials and assess the likelihood of success in patent litigation, having done so extensively for his employer. His opinions can be challenged through cross-examination regarding his understanding of the relevant technical art. The court acknowledged that Forest, the defendant, would present its own expert testimony to counter Johnson's assessments.
Defendants argued that Johnson's opinions were flawed since they addressed issues not intended for trial, referencing a detailed pretrial order that outlined the litigation focus. However, the court found that Johnson's opinions were linked to evidence relevant to Mylan’s defenses, rejecting the defendants' argument that the lack of specificity in the pretrial order limited Johnson’s testimony. The court was unwilling to impose constraints on Johnson's analysis without justifiable grounds. Additionally, while defendants claimed Johnson's opinions ventured into impermissible legal conclusions, the court recognized the complexity of the case, which intertwined antitrust and patent law. Consequently, the court permitted Johnson's analysis, stating it would intervene if his testimony strayed into irrelevant or inadmissible territory.
Defendants assert that Mr. Johnston's opinions threaten the statutory presumption of patent validity, which they claim can only be overturned by clear and convincing evidence. However, after reviewing Mr. Johnston's report, the court finds that his opinions do not undermine this presumption. Defendants retain the option to cross-examine Mr. Johnston and argue that he did not adequately consider the strong presumption of validity. Consequently, the court denies Defendants' motion.
The factual background of the case, previously detailed in Judge Sweet’s opinion and subsequent rulings, will not be reiterated in full. Instead, the court focuses on relevant facts concerning the motions at issue, drawn from earlier decisions in the Namenda litigation and the parties' statements of undisputed material facts. Forest Pharmaceuticals manufactures and sells memantine hydrochloride, marketed as "Namenda IR" and "Namenda XR," a treatment for Alzheimer's disease. The company developed Namenda IR under a licensing agreement with Merz Entities, which holds the relevant patent. Named Plaintiffs, Smith and RDC, both allege they purchased Namenda IR at inflated prices due to Defendants' anticompetitive actions.
The case is governed by the Federal Food, Drug, and Cosmetic Act (FDCA) and the Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act), which require pharmaceutical companies to submit a New Drug Application (NDA) to the FDA before marketing a new drug.
The excerpt outlines the regulatory framework governing the approval and market exclusivity of pharmaceutical drugs in the United States, focusing on the New Drug Application (NDA) and the Hatch-Waxman Act. The NDA process requires extensive scientific data to demonstrate a drug's safety and efficacy, making it time-consuming and expensive. Once a drug is approved, it enjoys market exclusivity until its patent expires, after which generic versions can enter the market, often referred to as going off the "patent cliff."
The Hatch-Waxman Act facilitates competition by allowing generic drug manufacturers to file Abbreviated New Drug Applications (ANDAs), which enable them to use the original NDA's data to prove their drug's safety and effectiveness. To be approved, generics must contain the same active ingredient and be bioequivalent to the brand-name drug, meaning they deliver the same amount of the active ingredient into the bloodstream at the same rate.
Brand-name manufacturers can extend their exclusivity through two mechanisms: seeking a patent extension for the time spent obtaining FDA approval (up to five years) and obtaining a six-month period of pediatric exclusivity, which delays the approval of generics but does not extend the patent itself.
The facts of the case involve Forest Laboratories launching Namenda IR in January 2004 under the '703 Patent, which granted it exclusive marketing rights. Forest received a five-year patent extension and six months of pediatric exclusivity. Despite at least 17 generic manufacturers filing ANDAs for Namenda IR, Forest engaged in patent infringement litigation but ultimately settled various claims.
Each agreement involved allowed competitors to start selling a generic version of Namenda IR three months prior to the later of either the expiration of the '703 Patent or the end of any pediatric exclusivity period linked to it. Due to a six-month exclusivity period, generic competitors could not sell Namenda IR until July 11, 2015. Forest obtained FDA approval for Namenda XR in June 2010 and began marketing it in July 2013. Although both Namenda IR and Namenda XR contain the same active ingredient and have similar therapeutic effects, they differ in formulation and release mechanisms, disqualifying them from being considered bioequivalents. Consequently, generics for Namenda IR cannot be substituted for Namenda XR under FDA drug substitution laws.
Namenda XR's patent exclusivity lasts until 2029, while Namenda IR's expired in 2015. To facilitate a transition from Namenda IR to XR before the latter lost patent protection, Forest employed "soft-switch" tactics, including pricing Namenda XR lower than Namenda IR, halting marketing for Namenda IR, and promoting Namenda XR's benefits like cost-effectiveness and once-daily dosage. Concerns about patient conversion prompted Forest to consider a "hard switch." On February 14, 2014, Forest announced it would withdraw Namenda IR from the market on August 15, 2014, but later extended its availability due to manufacturing issues with Namenda XR.
Additionally, in 2005, Forest entered a distribution agreement with Alphapharm (later acquired by Mylan) for an authorized generic of Lexapro. Under this arrangement, Forest would supply the generic while Alphapharm marketed it, sharing profits at a rate of 40%. The '712 Patent for Lexapro was set to expire on March 12, 2012, allowing Teva, the first-filing ANDA applicant, to launch its generic version on that date with 180 days of exclusivity under the Hatch-Waxman Act.
Alphapharm was permitted to launch its authorized generic two weeks prior to Teva's entry date of February 27, 2012, under the Original Lexapro Agreement, which had a five-year term starting with the patent expiry and a minimum of one year. Mylan acquired Alphapharm in 2007. The Medicaid Drug Rebate Program (MDRP), established in 1990, mandates that brand manufacturers pay rebates to the government for drugs reimbursed by Medicaid. The rebate amount is calculated by the Centers for Medicare and Medicaid Services (CMS) using a per-unit rebate amount that is tied to a drug's "Best Price," defined as the lowest price available from the manufacturer during the rebate period to any relevant purchaser in the U.S. This calculation includes data from the manufacturer's commercial sales and discounts.
The Deficit Reduction Act of 2005, effective January 1, 2007, amended the definition of Best Price to include the lowest price of authorized generic drugs. On January 23, 2008, CMS clarified that primary manufacturers must include the best price of authorized generics when calculating their best price. The transfer price reflects the manufacturing cost of the drug. Under the Original Lexapro Agreement, Forest was the primary manufacturer, and Alphapharm was the secondary manufacturer. A lower best price generally results in higher Medicaid rebate liabilities.
The DRA increased Forest’s Medicaid liability compared to when the agreement was made in 2005, as the new rule required the inclusion of the best price of generic Lexapro in this calculation. The Lexapro Agreement was amended on July 21, 2010, but the validity of Forest's cost-benefit analysis during this negotiation is disputed. Defendants claim Forest conducted three analyses: comparing post-DRA Medicaid liability, forecasting profit share revenue, and projecting cost savings for manufacturing generic Lexapro. Plaintiffs argue that the documents supporting Forest's analysis are unreliable.
Plaintiffs argue that final analyses were conducted only after Forest and Mylan informed the Namenda IR patent court of a settlement in principle, indicating that these analyses could not evaluate the transaction's "potential benefits." Forest settled with about eleven generic companies, each agreement involving cash payments up to $2 million and generic launch dates three months before Forest's statutory exclusivity, barring pediatric exclusivity extensions or accelerated launches from other generics.
In the procedural history, the court denied Defendants' motion to dismiss on September 13, 2016, determining that Plaintiffs adequately claimed product hopping and settlements with generic manufacturers, and that claims were not time-barred. However, the court dismissed Plaintiffs' overarching scheme claim as duplicative. Subsequently, Plaintiffs sought collateral estoppel and partial summary judgment on specific counts, while Defendants cross-moved for summary judgment on one count. On May 23, 2017, the court denied the motions for partial summary judgment on one count but granted Plaintiffs' motion for collateral estoppel, preventing Forest from relitigating issues related to its monopoly power, coercive conduct surrounding the discontinuation of Namenda IR, and lack of legitimate procompetitive justification for its actions. However, the court denied the motion for partial summary judgment on another count due to unresolved questions of material fact regarding antitrust injury.
Currently, Defendants seek summary judgment to dismiss all claims in the First Amended Complaint, while Plaintiffs aim to certify a class of 62 direct purchasers of Namenda. The summary judgment standard requires no genuine issues of material fact and that undisputed facts warrant judgment for the moving party, with the court viewing evidence in favor of the non-moving party. The moving party bears the initial burden of showing the absence of disputed material facts.
The nonmoving party in a legal case must provide specific facts demonstrating a genuine issue for trial, as established in El-Nahal v. Yassky. They cannot rely on vague allegations or unsubstantiated speculation, as noted in Scotto v. Almenas. Disputed facts must be material to the case's outcome under applicable law, with only significant disputes preventing summary judgment, per Anderson. Furthermore, mere doubts about material facts are insufficient; there must be enough evidence for a reasonable jury to rule in favor of the nonmoving party, as outlined in Matsushita Elec. Indus. Co. v. Zenith Radio Corp.
In the current case, defendants seek summary judgment on claims related to violations of the Sherman Antitrust Act. Count I claims unlawful monopoly maintenance by forcing consumers to switch from Namenda IR to Namenda XR. Counts III, IV, and V allege restraint of trade through agreements with generic manufacturers to delay market entry post-patent expiration. Defendants argue that there is no evidence of unlawful reverse payments in settlements with generics, no triable issues regarding a conspiracy claim, insufficient causation evidence, and a lack of established antitrust injury from Forest's February 2014 announcement.
Count II, alleging an overarching conspiracy, has been dismissed, making Forest's motion for summary judgment on this claim moot. Additionally, the plaintiffs have abandoned their inter-generic conspiracy claim (Count IV). However, there remain genuine material fact issues regarding Forest's alleged reverse payments to generic manufacturers. The court denies summary judgment on claims involving these payments, determining that plaintiffs have presented sufficient evidence to suggest these payments may constitute large, unjustified reverse payments violating antitrust laws.
Forest contends that most of the Plaintiffs' reverse payment claims were eliminated through discovery, limiting the focus to the Forest-Mylan Agreement. Plaintiffs originally claimed that Forest entered into anticompetitive reverse payment settlements with approximately eleven generic manufacturers but, according to Forest, they have effectively abandoned challenges to all but the Forest-Mylan Agreement. The anticompetitive nature of the case is based on the barriers established by Forest to inhibit generic competition, with the Forest-Mylan settlement being the last patent settlement entered into by Forest. A presentation from February 11, 2010, illustrated that if Mylan won its patent litigation on Namenda, its profits would be minimal because prior settlements allowed for immediate market entry by other generics.
Forest argues that because Plaintiffs have abandoned claims related to other agreements, it has not provided detailed arguments for summary judgment on those agreements. However, Plaintiffs have not formally acknowledged this abandonment, nor have they provided evidence of the anticompetitive nature of the other agreements. As the responding party, Plaintiffs were not required to address claims not substantively challenged by Forest, but they should have clarified their position on the alleged abandonment. The court will focus on the Forest-Mylan agreement, which presents multiple genuine issues of material fact precluding summary judgment. Plaintiffs must inform the court within ten days whether they intend to pursue claims related to the other reverse payment agreements, which will then proceed to trial if applicable.
Additionally, referencing F.T.C. v. Actavis, Inc., the Supreme Court ruled that reverse payment settlements are not automatically lawful or unlawful but are subject to antitrust scrutiny depending on the circumstances.
Reverse payments raise significant antitrust concerns when they indicate that a patentee is incentivizing an infringer to relinquish its competitive claims by sharing monopoly profits. To breach antitrust law, a reverse payment must be both "large and unjustified," with the payment's size suggesting the patentee's ability to inflict anticompetitive harm and maintain higher prices than in a competitive market. Large payments may also reflect a patent holder's doubts about the validity of its patent. The Supreme Court in Actavis recognized that some reverse payments may have legitimate justifications, such as avoiding litigation costs. Courts are instructed to apply a traditional rule of reason analysis in evaluating these settlements, which involves a three-step process: (1) the plaintiff must show actual adverse effects on competition; (2) if successful, the burden shifts to the defendant to prove pro-competitive effects; (3) if the defendant provides evidence, the burden returns to the plaintiff to demonstrate that less restrictive alternatives could have achieved the same benefits. For plaintiffs to survive summary judgment, they must present genuine disputes of material fact regarding these elements. The court's analysis of the Forest-Mylan agreement revealed multiple factual issues that precluded summary judgment, allowing the plaintiffs to establish a prima facie case for antitrust liability.
Defendants assert that the Lexapro Amendment is justified by procompetitive reasons, claiming it reflects a fair market value deal. However, Plaintiffs argue that the Amendment represents overcompensation for Mylan's agreement to refrain from competition. The burden of proof rests with Plaintiffs to demonstrate that Defendants' actions adversely affected competition. A key point of contention is whether the Lexapro Amendment is part of the Forest-Mylan patent settlement. Forest maintains that distinct teams negotiated the Namenda patent settlement and the Lexapro Amendment, although both were executed on the same day, July 21, 2010. Plaintiffs argue for a connection, citing Mylan Deal Concept documents that propose a structure linking the Lexapro Amendment to the Namenda settlement, which included significant savings for Mylan. They also reference Forest's legal counsel describing the Lexapro Amendment as a "side-deal" related to the Namenda dispute, supported by presentations that treated both agreements as a package.
Plaintiffs have provided sufficient evidence for a jury to reasonably conclude that the Lexapro Amendment was part of the patent settlement and that it had an anticompetitive effect that outweighed any procompetitive benefits. Forest counters that the Amendment was a legitimate business transaction based on fair negotiations and expectations. However, Plaintiffs highlight that the $32.5 million payment to Mylan significantly exceeded Forest's litigation savings of $3.5 million, suggesting it was unjustified. They cite a 2011 Forest presentation indicating that the proposed payments to Mylan were greater than Mylan's projected profits from the generic drug, raising a genuine issue of material fact regarding the potential inducement of Mylan to relinquish its claims.
Forest's $32.5 million reverse payment to Mylan is justified by Forest as compensation for Mylan taking on manufacturing responsibilities for an authorized generic version of Lexapro, which allegedly allowed Forest to avoid $26.5 million in Medicaid rebate liabilities. Plaintiffs contest this claim, arguing that the reduction in rebate liability was exaggerated and disingenuous. They assert that analyses supporting this claim were created only after Forest and Mylan announced their settlement, suggesting manipulation by Forest employees to match the rebate savings to the reverse payment. Evidence presented by the Plaintiffs sufficiently challenges the Defendants' justifications, leading to a denial of the Defendants' motion for summary judgment regarding Forest's settlement agreements with generics.
Furthermore, the Defendants argue they should receive summary judgment due to the Plaintiffs' failure to demonstrate a genuine issue of material fact regarding causation. The Plaintiffs must show that the Defendants' actions were a significant cause of their injury. They propose two theories of causation: 1) that without the reverse payment, an earlier no-payment settlement would have occurred, and 2) that Mylan would have won the patent litigation and entered the market sooner without a settlement. The Defendants dismiss these theories as speculative, but the Court disagrees, allowing the Plaintiffs' first theory, which relies on expert testimony from Professor Einer Elhauge. Elhauge's report suggests that it would have been economically rational for both parties to pursue a no-payment settlement by specific dates, although he cannot definitively state when such an entry would have occurred.
Forest challenges Professor Elhauge's claims as speculative and reiterates arguments from its motion to exclude his testimony, which the Court has already permitted regarding a hypothetical scenario. Forest contends that it would not have consented to a settlement allowing generic Namenda entry in November 2012, citing testimony from its Chief Intellectual Property Counsel, who stated that such a settlement would have been impractical for Forest. The defendants critique the plaintiffs' experts for not sufficiently considering certain factors, but the Court notes that these disagreements are appropriate for cross-examination and ultimately for jury determination.
The second causation theory presented by plaintiffs posits that had Forest and Mylan not settled, Mylan would have likely won the patent litigation and entered the market sooner. Defendants argue that plaintiffs cannot prove causation or antitrust injury through a hypothetical trial, yet the Court has previously held that such evidence is permissible. Defendants reference a favorable Markman ruling and subsequent settlements to argue that Forest's patent was likely valid. In contrast, plaintiffs assert that these settlements do not reflect patent strength but rather the generics' understanding of limited financial benefits from continued litigation. The Court determines that it does not need to resolve this issue at the summary judgment stage and admits the testimony of plaintiffs' expert, which is sufficient to create a genuine dispute of material fact regarding causation. Consequently, the defendants' motion for summary judgment is denied. Additionally, the defendants are not entitled to summary judgment on the plaintiffs' hard switch claims relating to the February 2014 announcement by Forest.
Defendants' motion to exclude Plaintiffs' expert testimony is denied, and Plaintiffs' Motion for Class Certification is granted. Class certification is governed by Rule 23 of the Federal Rules of Civil Procedure, which is interpreted liberally by the Second Circuit, favoring certification. To qualify for certification under Rule 23(a), a class must meet four criteria: numerosity, commonality, typicality, and adequacy of representation. If any of these criteria are unmet, certification must be denied.
1. **Numerosity** (Rule 23(a)(1)): The class must be so large that individual joinder is impractical. A class with 40 or more members typically creates a presumption that joinder is impractical, while classes with fewer than 20 members may be considered practicable. The court assesses numerosity not just mathematically but by evaluating factors such as judicial economy, geographic dispersion, financial resources of members, and the potential for individual suits.
2. **Commonality** (Rule 23(a)(2)): There must be common legal or factual questions that can be resolved collectively for the class.
The Supreme Court mandates that plaintiffs must show that class members have suffered the same injury, as outlined in *Wal-Mart v. Dukes*, with this commonality being subsumed by the predominance requirement when certifying a class under Rule 23(b)(3). The typicality requirement under Rule 23(a)(3) is satisfied when claims arise from the same events and legal arguments are similar among class members. Additionally, adequacy under Rule 23(a)(4) necessitates that representatives fairly protect class interests, with qualified and experienced counsel, and that representatives possess sufficient knowledge of the case to fulfill their obligations. Class representatives can be denied status only if their lack of involvement jeopardizes class interests. Unique defenses against certain class members must be assessed for their potential to dominate the litigation. Moreover, there is an implied ascertainability requirement, meaning class membership must be identifiable and defined by objective criteria to avoid extensive hearings on individual merits. If the prerequisites of Rule 23(a) are met, plaintiffs must also demonstrate compliance with at least one criterion under Rule 23(b), particularly the predominance of common questions over individual ones for class certification under subsection 23(b)(3).
The class action must demonstrate superiority over other methods for fairly and efficiently resolving the controversy, as mandated by Fed. R. Civ. P. 23(b)(3). The predominance requirement assesses whether the proposed class is cohesive enough for representative adjudication, necessitating that common questions significantly outweigh individual ones. While commonality under Rule 23(a) may be satisfied, predominance requires a greater showing. Common questions must allow for generalized proof applicable to all class members, whereas individual questions necessitate unique evidence from each member. Certification does not depend on proving that common questions will be resolved favorably for plaintiffs, nor must individual questions be entirely absent; they simply must not dominate the common questions.
In determining class action superiority, the court evaluates four factors: (A) the class members' interest in controlling separate actions, (B) any existing litigation related to the controversy, (C) the desirability of concentrating litigation in a specific forum, and (D) the difficulties in managing a class action. Manageability is emphasized as the most critical factor. The plaintiffs aim to certify a class comprising all individuals or entities in the U.S. and its territories who purchased branded or generic Namenda IR tablets or Namenda XR capsules between June 2012 and September 30, 2015.
The proposed class for certification includes 62 members, primarily major pharmacy retailers and wholesalers, who purchase Namenda or its generics for resale. The plaintiffs' motion for class certification is supported by evidence that class representatives, RDC and Smith, possess adequate knowledge and interest in the case, countering defendants' claims of inadequacy. The class is divided into five subgroups, with the first subgroup, Forest Direct Customers, comprising 19 entities, including RDC and Smith, which have purchased both branded Namenda and its generics. These entities are asserting "reverse payment" and "hard switch" claims. Defendants argue that Smith and RDC are inadequate representatives due to unique defenses applicable to three members of this subgroup, specifically concerning a "generic bypass" defense related to the Big Three wholesalers: Amerisource Bergen, Cardinal, and McKesson. Despite this, defendants acknowledge that the 19 entities are eligible for class certification but contend that this number is insufficient for certification. The remaining 43 members belong to a Generic Purchaser Group, consisting of 31 entities that exclusively purchased generic memantine.
Defendants, including Masters Pharmaceutical Inc. and others, argue against the inclusion of the Generic Purchaser Group in the class definition proposed in the complaint, asserting that their claims do not align with those of the named Plaintiffs or the Forest Direct Customers. They contend that these claims lack common questions with the hard switch claims and do not meet the predominance standard of Rule 23(b)(3), indicating that the named Plaintiffs lack the incentive to represent this group. Additionally, Defendants claim that thirty members of the Generic Purchaser Group lack antitrust standing under the Illinois Brick precedent, as only Meijer, Inc. purchased generic memantine directly from Forest, while others acquired generics from different entities during the class period.
Defendants also object to including four corporate subsidiaries—Bellco, Burlington Drug, The Harvard Group, and Valley Wholesale—arguing that class membership should be confined to the common parent of corporate families, with evidence showing these entities are owned by larger corporations. Furthermore, Defendants maintain that nine entities, including The Harvard Group, should be excluded for lack of injury, as they either did not purchase Namenda IR or stopped buying Namenda XR before the hard switch announcement. Other entities mentioned, such as Bartell and Kerr Drug, allegedly suffered no injury as they purchased only branded Namenda post-generic entry. Plaintiffs' Exhibit 9 details the corporate status of the contested entities, confirming their subsidiary relationships.
The Harvard Group, a majority-owned subsidiary of Cardinal, was incorporated in Michigan in June 1997, while Valley Wholesale is a wholly-owned subsidiary of H.D. Smith, formed in Delaware in October 2012. Plaintiffs assert that these subsidiaries deserve a presumption of separateness from their parent corporations due to their distinct incorporation, separate listings in manufacturers' transactional data, and independent purchasing of products, which resulted in overcharges. The court agrees, noting that the defendants do not dispute the independent purchases made by these entities, aligning with rulings from other cases that allow subsidiaries to assert individual claims for distinct injuries.
The plaintiffs claim that all class members were overcharged for memantine products due to alleged anticompetitive conduct by Forest. They argue that had generic competition commenced sooner, class members would have purchased generics at lower prices, leading to a reverse payment injury. Specifically, all members who bought Namenda IR, Namenda XR, or generic memantine hydrochloride paid inflated prices due to this conduct. Additionally, under the hard switch claim, the plaintiffs contend that all members who purchased Namenda IR and XR were also overcharged, as they would have opted for cheaper generics instead. The overcharges are categorized into two distinct types related to these claims.
The document addresses two categories of injuries related to the alleged foreclosure of class members’ access to generic memantine due to Forest's actions: "Brand-Generic" and "Generic-Generic." The Brand-Generic injuries stem from the higher prices paid for branded Namenda IR and XR, which class members would have avoided if not for the reverse payment and hard switch strategies that hindered their transition to lower-priced generic options. The Generic-Generic injuries refer to overcharges for the generic memantine purchased, as the reverse payment delayed generic market entry, preventing competitive pricing, and the hard switch redirected prescriptions from Namenda IR to Namenda XR before generics could compete.
The analysis indicates that the substitution rate of generic memantine for branded products was 89.9% within three months post-generic entry, suggesting that generic competition would have significantly impacted Namenda IR prescriptions if the hard switch had not occurred. Plaintiffs assert that purchasers of generic memantine faced inflated prices due to suppressed generic sales.
Defendants argue that entities like Publix, HE Butt, Kerr Drug, and Bartell were not injured because they did not purchase Namenda products or ceased purchases prior to the hard switch announcement. However, the Brand-Generic theory still attributes injury to Publix and HE Butt for their purchases of generic memantine. DMS’s claims of injury are based on its purchases of generic memantine during the class period, countering the Defendants' assertion that it could not have been injured due to a lack of prior purchases of Namenda products.
Defendants further contend that certain entities should be excluded from the class as they did not purchase generic memantine post-generic entry, arguing that there is insufficient evidence to assume they would have switched to generics. However, the document asserts that Defendants cannot claim the benefit of uncertainty regarding these purchases, as the limitations on information stem from their alleged misconduct.
Defendants contend that Discount Drug Mart, Drogueria Central, and The Harvard Group should be excluded from the hard switch claim since they neither purchased nor ceased purchasing Namenda XR prior to the February 2014 announcement. However, the lack of purchases does not negate potential injury, as these entities might still be affected by the hard switch strategy that impacted Namenda IR sales and suppressed generics. For Discount Drug Mart, the determination of whether its purchases were influenced by the hard switch is a factual issue for the jury, considering evidence of pre-announcement communications regarding Namenda XR and IR.
The proposed class totals 31 members, below the typical threshold of 40 needed for certification. The most contentious group is the Generic Purchaser Group, which includes numerous entities that purchased generic memantine hydrochloride. Forest opposes their inclusion, arguing they were not part of the original class definition and that their claims are not typical of Forest Direct Customers, lacking common questions or predominant issues. Additionally, since most members purchased from competitors, Forest claims they lack antitrust standing under Illinois Brick Co. v. Illinois.
While the inclusion of the Generic Purchaser Group expands the original class definition from the Plaintiffs' complaint, the Defendants' argument that the Plaintiffs needed to amend their complaint before the close of fact discovery is incorrect. A certifying court is not bound by the initial class definition proposed in the complaint, as established in Robidoux v. Celani.
The principle allowing courts to narrow proposed classes is well-established, as demonstrated in cases like Lundquist v. Sec. Pac. Auto. Fin. Servs. Corp. and others. In contrast, fewer cases support expanding a class beyond its original definition in the complaint. Plaintiffs cited Menking ex rel. Menking and McCarthy v. Paine Webber Grp. Inc. as precedents where courts approved broader class definitions based on evidence obtained during discovery. In Menking, the court expanded a citywide class to a statewide class, while in McCarthy, the class was broadened from a time-restricted definition to include all limited partnership interest owners. Both courts evaluated if the newly proposed class members met Rule 23(a) requirements.
Defendants argue that under In re Aluminum Warehousing, plaintiffs must show good cause for class expansion since the time to add new members has passed. However, the reliance on this standard is deemed misplaced; the Aluminum Warehousing case involved a motion for leave to amend a complaint, while the current motion pertains to timely class certification. Additionally, the proposed class definition here does not present the same notice and discovery issues as in Aluminum Warehousing, which involved new foreign defendants and significant changes during class certification proceedings. In the present case, plaintiffs are not adding new defendants or altering the class definition amidst ongoing certification discussions.
The initial motion for class certification included an expanded definition, anticipating potential issues the Generic Purchaser Group might raise during discovery. Although the Amended Complaint did not list this group as class members, it claimed that Defendants' anticompetitive actions resulted in higher prices for memantine, asserting that members could have purchased generic Namenda IR at lower prices sooner without such conduct. The complaint noted that as more generic manufacturers entered the market, prices would decrease further due to competition. Defendants' expert, Dr. Cremieux, addressed the Generic Purchaser Group's claims in his report.
The court acknowledged its discretion to reassess class definitions and found no reason to reject the Plaintiffs' proposed definition simply because it expanded on the Amended Complaint. Defendants contested the inclusion of Non-Forest Generic Purchasers in the class, arguing they lacked antitrust standing based on precedents such as Illinois Brick. However, the court clarified that these purchasers are not indirect purchasers as defined by Illinois Brick, as they bought directly from Forest's competitors. Consequently, they possess standing to bring antitrust claims against Forest if they demonstrate suffering an antitrust injury as intended by the laws and meet the criteria of the "efficient enforcer" factors.
In Volvo N. Am. Corp. v. Men's Int'l Prof'l Tennis Council, the Non-Forest Generic Purchasers allege they were overcharged for generic memantine due to Forest's anticompetitive scheme aimed at maintaining a monopoly and controlling the market for both branded and generic versions of memantine hydrochloride. They argue that such monopolistic overcharges constitute a classic antitrust injury, inherently linked to the defendants' unlawful actions. The Non-Forest Generic Purchasers meet the efficient enforcer criteria, demonstrating direct causation of their injuries from the alleged antitrust violations, a vested interest in addressing these issues, and claims of non-speculative damages defined by the price difference between actual payments and hypothetical prices in a competitive market. They assert that while estimating the impact of generic competition may be challenging, expert analyses, such as those by Dr. Lamb, provide sufficient evidence to substantiate their claims. The court finds the plaintiffs' arguments compelling and distinguishes their case from In re Skelaxin, where the connection between fewer generic manufacturers and higher prices was deemed too speculative.
The case does not present the same concerns of duplicative recovery as seen in Illinois Brick and related "direct-purchaser" rule cases. Defendants argue that RDC and Smith, who are Forest Direct Customers, are inadequate representatives for the Generic Purchaser Group due to unique standing issues and a lack of interest in the product-hopping claim. However, the court has previously rejected Defendants' stance on the Non-Forest Generic Purchasers' antitrust standing. The court disagrees with the claim that the Generic Purchaser Group lacks interest in the "hard switch" claim, noting that this group was affected by the strategy, resulting in higher generic prices. Expert Dr. Lamb indicated that without the hard switch, generic entry would have led to increased purchases and savings for the Generic Purchaser Group. The class, including the Generic Purchaser Group, consists of 62 members, satisfying the numerosity requirement, as indicated by case law. The geographical spread of class members poses practical difficulties for joinder, and many potential members are small wholesalers without the resources to pursue individual claims.
Defendants' objections regarding typicality, commonality, and predominance are essentially about whether the class is cohesive enough for representation. They claim that RDC and Smith's situations diverge from those of national wholesalers like AmerisourceBergen, McKesson, and Cardinal Health due to differing bargaining power. Nevertheless, the court finds that the claims of all class members stem from the same conduct—specifically, the reverse payment and hard switch strategies—making their legal arguments fundamentally similar.
Determining the existence of common questions within a class that includes all subgroups is complex, particularly regarding the predominance of these common questions over individual issues. The court must closely analyze whether common questions outweigh individual ones as mandated by Rule 23(b)(3). The plaintiffs need to demonstrate three elements at trial: 1) a violation of antitrust law, 2) injury and causation, and 3) damages. The plaintiffs assert that evidence necessary for establishing the defendants' wrongdoing is uniform across class members, emphasizing that both the reverse payment issue and the product-hop theory mainly involve common questions.
The court agrees that common questions predominately apply to the class, including generic-only purchasers. If pursued individually, each class member would need to show the same conduct using identical evidence. For instance, to support the reverse payment claim, all members would require evidence related to the agreement's terms. Similarly, for the hard switch claim, members will present evidence from pre-announcement communications and related judicial orders.
In terms of injury, the plaintiffs contend that 58 out of 62 proposed class members experienced overcharges related to switching from branded Namenda to its generic version or purchasing the generic outright. Only four members continued to buy the branded version post-generic entry. The plaintiffs argue that those who transitioned suffered from both Brand-Generic and Generic-Generic overcharges. At trial, nearly all class members will need to show they were impacted by the Generic-Generic overcharge, asserting that prices would have been lower absent the defendants' actions. This claim of injury primarily concerns the 58 affected members, indicating that approximately 94% of the class alleges they incurred higher costs for the generic memantine.
The issue at hand can be proven through generalized class-wide evidence. Plaintiffs' demonstration of injury is closely linked to the proof of damages, meaning that establishing injury involves showing the extent of that injury. All 58 members claiming Generic-Generic damages must prove three key points: (1) the earlier entry of less expensive generics into the market, (2) the reduction in generic prices over time due to increased competition, and (3) the actual lower costs incurred for generic purchases. Additionally, they need to demonstrate that the hard switch strategy hindered generic competition by shifting prescriptions from Namenda IR to Namenda XR prior to generic entry.
Dr. Lamb's analysis of antitrust injury and damages, which is common to the entire proposed class, will be central to their case. His findings are based on: (1) economic research indicating that generics typically enter at lower prices and gain substantial market share, (2) Forest's internal forecasts about the effects of generic competition on the memantine market, and (3) sales volume and pricing data for Namenda IR, Namenda XR, and generic memantine, highlighting a significant price discount and high substitution rate for generics.
Furthermore, the analysis will cover the impact of the hard switch on generic competition. Evidence shows that Forest lost 96.5% of Namenda IR sales within six months of generic entry, while retaining substantial Namenda sales due to a higher-than-expected switch to Namenda XR. Internal communications from Forest regarding the Namenda IR to XR conversion and the withdrawal of Namenda IR play a critical role in establishing the success of this strategy.
While the Generic Purchaser Group cannot demonstrate injury from Brand-Generic overcharges, this does not overshadow the common issues relevant to the class. For Brand-Generic damages, Plaintiffs will use similar evidence as with Generic-Generic damages, relying on Dr. Lamb's calculations of price differentials using the NSP database between actual Namenda IR and XR prices and the hypothetical prices for generic memantine.
The document discusses the calculation of damages related to the pricing of Namenda XR and generic memantine hydrochloride in a legal case. Class members must demonstrate the average monthly prices of generic memantine absent the alleged misconduct by the defendants. For Brand-Generic damages, the actual monthly prices of Namenda IR and XR are also considered, which simplifies the analysis and does not overshadow the main issues.
The defendants challenge the adequacy of Dr. Lamb's models for measuring class-wide damages, asserting that mere provision of a methodology is insufficient; it must also be justifiable and not speculative, as established in Comcast Corp. The plaintiffs need to show that Dr. Lamb’s methodology distinguishes damages directly resulting from the defendants' actions from those that do not. In Comcast, the model failed because it did not isolate damages to a specific antitrust impact theory.
In contrast, Dr. Lamb’s methodology is deemed capable of differentiating between overall supra-competitive prices and those attributable to specific alleged misconduct. Unlike the single baseline approach in Comcast, Dr. Lamb offers multiple models reflecting various "but-for" scenarios related to the defendants' actions. These models allow for the isolation of damages from two components of the alleged anticompetitive behavior, specifically in the "No Reverse-Payment But-For World" and "No Hard Switch But-For World."
Defendants criticize Dr. Lamb's models, claiming they assume the very injuries they aim to prove. While some objections have been addressed previously in the context of excluding Dr. Lamb as an expert, they will not be revisited here. To compute hard switch damages, Dr. Lamb utilized the actual sales volume of Namenda XR during the class period.
Dr. Lamb analyzed the sales volume of Namenda XR and estimated the sales that would occur without a hard switch initiated by Forest Pharmaceuticals. He determined that the difference in sales attributed to the hard switch allowed him to calculate what class members would have paid for generic memantine instead of Namenda XR. Defendants argue that Dr. Lamb’s model does not demonstrate causation, claiming it relies on market-wide data rather than individual purchasing behavior and imposes a 30% lawful adoption threshold. However, the court finds that individualized proof regarding patient and physician preferences is not necessary for class certification, as the plaintiffs allege that Forest deliberately limited options to force a switch to Namenda XR. The proposed class members are wholesalers and direct purchasers, not individual patients, which distinguishes this case from previous decisions such as McLaughlin. The court supports the notion that direct purchasers can claim economic injury without showing that individual decisions were influenced by the defendants' actions. Furthermore, the 30% adoption rate used in Dr. Lamb's analysis was based on Forest's own forecasts and is deemed appropriate.
Dr. Lamb's forecasts, used for evaluating Forest's hard switch to Namenda XR, were based on timely data reflecting market experience and predicted generic entry, aligning with Forest's actual conversion rates prior to the switch announcement. Disputes over the appropriateness of these forecasts do not undermine his methodology at the class certification stage; the jury will ultimately assess the persuasiveness of his opinions. Regarding the impact of Judge Sweet's injunction, Dr. Lamb determined it was unlikely to eliminate the anticompetitive effects of Forest's strategy. His conclusion was supported by evidence of Forest's communications about appealing the injunction and ongoing efforts to challenge it through November 2015. Plaintiffs contend that Forest's actions created uncertainty about compliance with the injunction, which led to physicians' reluctance to prescribe Namenda IR. Dr. Lamb also found that transitioning patients back to Namenda IR post-switch was difficult, as evidenced by physician hesitance and lack of coverage for Namenda IR by pharmacies and health plans. Furthermore, in response to Defendants' claims that Dr. Lamb's reverse payment model is flawed due to its assumptions about generic pricing and its allocation of damages, the argument is rejected; Dr. Lamb's methodology is considered consistent with sound economic theory.
Dr. Lamb utilized a benchmark analysis to assess the overcharge linked to the reverse payment, a method established for calculating damages from anticompetitive behavior relevant to the case. His qualifications and the validity of his expert testimony have been evaluated in a motion to exclude that testimony. Any disagreements by Forest regarding the benchmark entry date and the number of generics in Dr. Lamb's calculations can be addressed during cross-examination. Defendants challenge the reverse payment model, citing concerns that Dr. Lamb's damage allocations include entities that did not purchase Namenda XR or generic IR, raising questions about the theory of injury rather than Dr. Lamb's methodology.
Regarding class action superiority under Rule 23(b)(3), the court finds no evidence that direct purchasers wish to pursue separate lawsuits, with many likely to abandon their claims due to resource constraints. The court notes a lack of other ongoing litigation involving the direct purchaser class. The class action is deemed appropriate for "negative value cases," where the costs of individual actions exceed potential recoveries, as supported by case law.
Additionally, significant factors favoring litigation concentration in this forum include the nearly three years of proceedings and prior dispositive rulings that affect all direct purchasers' claims. The court has also stayed indirect purchasers' claims pending the outcome of this case, reinforcing the rationale for centralizing litigation efforts.
The manageability of the proposed class action is determined to be within the discretion of the district court, as established in Adkins v. Morgan Stanley. The class being considered, consisting of direct purchasers, does not present unique manageability issues that would prevent certification. The class is relatively small, and certifying it would promote uniform decision-making for all direct purchasers without compromising procedural fairness. Consequently, the motion for class certification is granted, including 62 members from the revised list, such as major companies like Albertsons LLC, CVS Caremark, and Walmart.
The Court also denies Forest's motion to file a letter of supplemental authority and instructs the Clerk to remove several pending motions from the docket. In assessing damages, Dr. Lamb bases his analysis on Professor Einer Elhauge’s findings, suggesting a potential settlement entry date of November 2, 2012, or alternatively assuming a June 2012 entry date based on an alternative theory related to Mylan's patent litigation outcomes.
Defendants' request to strike Dr. Berndt's Amended Reply Report is denied, as the Court finds no undue prejudice resulting from Dr. Berndt’s response to deposition challenges. Additionally, the Merz Entities were dismissed as defendants in certain counts, with Forest Laboratories, Inc. and Forest Laboratories Holdings Ltd. now named as defendants. The Court notes that there are genuine issues of material fact regarding whether the Lexapro Amendment constituted an unlawful reverse payment, and all claims related to Forest's settlement agreements with Mylan will proceed to trial.
