brief survey of state substitution laws
How later courts described this case
- brief survey of state substitution laws
- Chief 8 Magistrate Judge Joseph C. Spero
- Judge 10 Audrey B. Collins
Written by the judges who cited it.
The opinion
1
2
3
4
5 UNITED STATES DISTRICT COURT
6
NORTHERN DISTRICT OF CALIFORNIA
7
8 In re
No. C 19-05822 WHA
9 GLUMETZA ANTITRUST No. C 19-06138 WHA
LITIGATION. No. C 19-06839 WHA
10 No. C 19-07843 WHA
No. C 19-08155 WHA
11 No. C 20-01198 WHA
This Document Relates to: No. C 20-05251 WHA
12
DIRECT PURCHASER ACTIONS. (Consolidated)
13
ORDER CERTIFYING CLASS
14
15 INTRODUCTION
16 In this antitrust action arising from an alleged reverse-payment settlement of a patent
17 infringement suit between brand and generic marketers of the diabetes drug Glumetza, direct
18 purchaser plaintiffs move for class certification. Common issues predominate, the putative
19 class’s market-impact and damages models adequately reflect the theory of liability, and any
20 assumptions underlying the model either go to the heart of the merits or can be modified to
21 account for a range of jury determinations. A class is CERTIFIED.
22 STATEMENT
23 A prior order details this case (Dkt. No. 188 as amended Dkt. No. 204). In re Glumetza
24 Antitrust Litigation, ___ F. Supp. 3d ___, 2020 WL 1066934 (N.D. Cal. Mar. 5, 2020). But the
25 essence bears restating. This case arises from a perversion of the patent and pharmaceutical-
26 regulatory framework. See generally 35 U.S.C. § 156 et seq., 21 U.S.C. § 301 et seq. The
27 Hatch-Waxman Act implements a network of incentives to encourage faster introduction of
1 ease FDA approval, generic manufacturers may file an Abbreviated New Drug Application to
2 piggyback on the approval process for the underlying brand drug. See FTC v. Actavis, 570 U.S.
3 136, 142 (2013); 21 U.S.C. §§ 355(j)(2)(A)(ii), (iv).
4 Patents covering the brand drug can still spoil the fun, though. To gain approval, an
5 ANDA applicant must certify to the FDA that no brand patents block the generic drug’s market
6 entry. If the brand holds live patents, for example, the generic must file a “Paragraph IV
7 certification” of noninfringement or invalidity. Even so, if the brand manufacturer promptly
8 sues for infringement, the FDA can’t approve the generic for 30 months (or until the end of the
9 suit, whichever comes first). Actavis, 570 U.S. at 143; 21 U.S.C. §§ 355(j)(2)(A)(vii)(I)–(IV),
10 (5)(B)(iii); 35 U.S.C. § 271(e)(2)(A).
11 The Hatch-Waxman scheme encourages patent-challenge certifications by granting 180
12 days of generic market exclusivity to the first generic to file such an application. If this “first
13 filer” wins the infringement suit and markets, it gets 180 days to compete alone with the brand
14 drug, meaning the FDA can’t approve any other generics during that time. This can be “worth
15 several hundred million dollars” to the generic manufacturer and outweigh the risk of
16 infringement suit. Actavis, 570 U.S. at 143–44; 21 U.S.C. § 355(j)(5)(B)(iv). But this 180-day
17 exclusivity period doesn’t stop the brand manufacturer from marketing an “authorized generic”
18 to recoup some of those millions. See Teva Pharm. v. Crawford, 410 F.3d 51, 55 (D.C. Cir.
19 2005). Moreover, the first filer can forfeit the 180-day exclusivity if it stalls too long. 21
20 U.S.C. § 355(j)(5)(D)(i)(I)(aa), (iii).
21 This scheme is supposed to get us faster, cheaper generic drugs. But the industry found a
22 way to do the opposite. Sometimes a brand drug manufacturer sues an ANDA filer, and the
23 brand manufacturer pays the generic to settle. In exchange, the first filer generic manufacturer
24 agrees to stay off the market for a few years. Instead of expedited generic entry, the brand
25 maintains its monopoly and cuts the supposed-generic a share of the profits. In 2013, the
26 United States Supreme Court found that these “pay for delay” schemes can violate federal
27 antitrust law. Actavis, 570 U.S. at 158–60.
1 Our putative class alleges such a scheme involving the diabetes medication Glumetza.
2 But instead of a cash payment, our brand manufacturer gave something else of value, a virtual
3 guarantee that our generic manufacturer would face no generic competition (authorized or
4 otherwise) for at least a year after its belated market entry. This allowed the brand
5 manufacturer to then raise the price of pills from $5.72 to over $51 each.
6 Some iteration of defendant brand manufacturer Bausch Health Companies Inc. has
7 marketed Glumetza since 2005. In July 2009, defendant generic manufacturers Lupin
8 Pharmaceuticals, Inc. and Lupin Ltd. filed an ANDA to market generic versions of Glumetza
9 and certified noninfringement or invalidity against the four relevant patents: U.S. Patent Nos.
10 6,340,475; 6,635,280; 6,488,962; and 6,723,340. Assertio Therapeutics, Inc. (then owner of
11 Glumetza marketing) sued Lupin for patent infringement in November 2009, triggering the 30-
12 month stay against FDA approval. When the FDA tentatively approved the ANDA in January
13 2012 (meaning Lupin could market its generic but for the 30-month stay), Assertio and others
14 involved in Glumetza marketing promptly settled with Lupin. See Depomed, Inc. v. Lupin
15 Pharms., Inc., No. C 09-05587 PJH, Dkt. No. 152 (N.D. Cal. Mar. 27, 2012).
16 Under the settlement, Lupin agreed to walk away, leave the patents alone, and not market
17 a generic Glumetza for four years, until February 2016. In return, Assertio and Santarus
18 promised no authorized generic would compete with Lupin for at least a year once its generic
19 entered the market. The settlement also included two clauses to protect Lupin from other
20 generic competition. The “most-favored-entry” clause expressly provided that if any other
21 generic succeeded in marketing a generic Glumetza before February 2016, Lupin could market
22 immediately. Then, the “most-favored-entry-plus” clause stated that Assertio and Santarus
23 would not license any other generic Glumetza manufacturers until at least 180 days (though our
24 facts seem to indicate a full year) following Lupin’s market entry. These provisions undercut
25 the incentive for any other generic manufacturer to enter the market before Lupin.
26 But only the first of these terms, that Lupin would not market until February 2016, made it
27 into the parties’ stipulated dismissal. Curiously, or as the putative class alleges, deliberately,
1 the no-authorized generic, the most-favored-entry, or the most-favored-entry-plus clauses. All
2 of that was in a side agreement. Though defendants contend they put the world on notice of the
3 no-authorized generic provision in July 2015, on these pleadings, defendants did not disclose
4 the provision until February 2016. Glumetza, 2020 WL 1066934 at *7.
5 Apparently the scheme worked. No other generic manufacturers marketed generic
6 Glumetza until well after Lupin. Sun Pharmaceuticals tried, filing its ANDA in May 2011.
7 Asssertio and Santarus promptly sued and a January 2013 settlement allegedly kept Sun’s
8 generic off the market until August 2016. Watson Pharmaceuticals also tried, filing its ANDA
9 in March 2012. Another prompt lawsuit from Assertio and Santarus resulted in a November
10 2013 settlement allegedly keeping Watson’s generic off the market also until August 2016.
11 Ultimately, Sun and Watson (by then Teva Pharmaceutical Industries Ltd.) didn’t market their
12 generic Glumetzas until mid-2017.
13 In the meantime, Assertio and Santarus milked their monopoly for all it was worth. After
14 $150 million in Glumetza sales in 2012, defendant Salix Pharmaceuticals bought Santarus for
15 $2.6 billion in November 2013, and Bausch paid $14.5 billion for Salix in April 2015. Then,
16 Bausch hiked the price of Glumetza tablets by about 800 percent over the first half of 2015. A
17 500mg tablet, $5.72 in February, skyrocketed to $51 in July. A 1000mg tablet jumped from $12
18 to $111. Glumetza produced $145 million in the first half of 2015. Bausch reaped $818 million
19 from its captive prescription base in the second half.
20 It appears prices have never recovered. In February 2016, Lupin joined in the bonanza,
21 charging $44 for each 500 mg tablet of Glumetza. Even after Bausch’s authorized generic
22 entered the market in February 2016 and Teva and Sun’s generics joined in May and July 2017,
23 a 500mg tablet still cost $16.
24 Plaintiffs started suing in August 2019. Ultimately, twelve cases by both direct and
25 indirect purchasers arrived before the undersigned. A March 5 order largely denied defendants’
26 motions to dismiss the direct purchasers but granted the motions in part against the indirect
27 purchasers, who all subsequently dismissed (Dkt. No. 188). The remaining direct purchasers
1 Compl., Dkt. No. 53); and (2) the retailer plaintiffs (Walgreen Compl., Dkt. No. 162; Rite Aid
2 Compl., Dkt. No. 163). Plaintiffs in both groups sue as assignees of other absent direct
3 purchasers.
4 Direct purchaser plaintiffs now seek certification of a Rule 23(b)(3) class:
5 All persons or entities in the United States and its territories who
directly purchased Glumetza or generic Glumetza from a defendant
6 from May 6, 2012, until the effects of the defendants’ conduct
ceased.
7
Defendants oppose. This order follows full briefing and a hearing (held telephonically due to
8
COVID-19).
9
ANALYSIS
10
Numerosity of members, commonality of issues, typicality and adequacy of
11
representatives, and one requirement of Rule 23(b) guard the door to class certification.
12
Abdullah v. U.S. Sec. Assocs., Inc., 731 F.3d 952, 956–57 (9th Cir. 2013). “[Q]uestions of law
13
or fact common to class members [must] predominate over questions affecting only individual
14
members” in direct purchaser plaintiffs’ proposed Rule 23(b)(3) class, which must also be the
15
superior method “for fairly and efficiently adjudicating” this case. Rule 23 doesn’t set forth a
16
mere pleading standard; it demands rigor. A putative class must affirmatively demonstrate that
17
it “in fact” meets these prerequisites. Comcast v. Behrend, 569 U.S. 27, 33 (2013).
18
1. COMMONALITY AND PREDOMINANCE.
19
Commonality requires “questions of law or fact common to the class.” Rule 23(a)(2). “A
20
common contention need not be one that will be answered, on the merits, in favor of the class.
21
It only must be of such nature that it is capable of classwide resolution.” Alcantar v. Hobart
22
Serv., 800 F.3d 1047, 1053 (9th Cir. 2015) (citation and quotation omitted). There need only be
23
“a single significant question of law or fact.” Stockwell v. City & Cty. of San Francisco, 749
24
F.3d 1107, 1111 (9th Cir. 2014).
25
Superseding commonality, predominance under Rule 23(b)(3) asks whether a putative
26
class is “sufficiently cohesive to warrant adjudication by representation.” Predominant
27
questions makeup “a significant aspect of the case” and clearly justify “handling the dispute on
1 a representative rather than on an individual basis.” Predominance isn’t a counting game,
2 though. “Rather, more important questions apt to drive the resolution of the litigation” carry
3 greater weight than less significant individualized questions. So, “even if just one common
4 question predominates, ‘the action may be considered proper under Rule 23(b)(3) even though
5 other important matters will have to be tried separately.’” In re Hyundai & Kia Fuel Econ.
6 Litig., 926 F.3d 539, 557 (9th Cir. 2019) (en banc) (quoting Tyson Foods, Inc. v. Bouaphakeo,
7 577 U.S. ___, 136 S. Ct. 1036, 1045 (2016)).
8 “Merits questions may be considered to the extent — but only to the extent — that they
9 are relevant to determining whether” the putative class has satisfied the requirements for class
10 certification. Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, 568 U.S. 455, 465–
11 66 (2013). That being said, deciding whether common evidence drives class claims necessarily
12 asks what law governs. So our “assessment of predominance begins, of course, with the
13 elements of the underlying cause of action.” Walker v. Life Ins. Co. of the Southwest, 953 F.3d
14 624, 630 (9th Cir. 2020) (quotation omitted). “To establish an antitrust claim, plaintiffs
15 typically must prove (1) a violation of the antitrust laws, (2) an injury they suffered as a result
16 of that violation, and (3) an estimated measure of damages.” In re New Motor Vehicles
17 Canadian Export Antitrust Litig., 522 F.3d 6, 19 n. 18 (1st Cir. 2008)).
18 A. ANTITRUST VIOLATION.
19 Our class invokes both Sections 1 and 2 of the Sherman Act. “Bearing firmly in mind,”
20 however, that Rule 23(b)(3) turns “on the predominance of common questions,” we recall that
21 the question here — one step removed from proof of defendants’ unlawful scheme — remains
22 whether that proof comes common to the class, or whether we will have to search for it class
23 member by class member. See Amgen, 568 U.S. at 466. The Supreme Court has observed that
24 antitrust cases “readily” meet the predominance requirement. See Amchem Prods. v. Windsor,
25 521 U.S. 591, 625 (1997). The underlying purpose of antitrust, to “safeguard general
26 competitive conditions, rather than to protect specific competitors,” illustrates why. The
27 violation turns on defendants’ conduct and intent along with the effect on the market, not on
1 individual class members. See Alaska Airlines v. United Airlines, 948 F.2d 536, 540 (9th Cir.
2 1991).
3 A Section 1 restraint claim requires (1) a contract, combination, or conspiracy that (2)
4 unreasonably restrains (3) interstate commerce. An unreasonable restraint comes either as a per
5 se violation (“when surrounding circumstances make the likelihood of anticompetitive conduct
6 so great as to render unjustified further examination”) or a violation of the rule of reason,
7 meaning the “restraint’s harm to competition outweighs its procompetitive effects.” NCAA v.
8 Bd. of Regents of Univ. Okla., 468 U.S. 85, 103–04 (1984); Tanaka v. Univ. of S. Cal., 252 F.3d
9 1059, 1063 (9th Cir. 2001). In pharmaceutical reverse payment cases, such as this one, the
10 Supreme Court has directed us to apply the rule of reason, explaining that:
11 [T]he likelihood of a reverse payment bringing about
anticompetitive effects depends upon its size, its scale in relation to
12 the payor’s anticipated future litigation costs, its independence
from other services for which it might represent payment, and the
13 lack of any other convincing justification.
14 Actavis, 570 U.S. at 158–59. Notice then that the illegality of defendants’ scheme turns on
15 details of the payment and defendants’ purposes — evidence common to every purchaser.
16 Section 2 monopolization claims readily lend themselves to common evidence. They
17 require “(1) the possession of monopoly power in the relevant market and (2) the willful
18 acquisition or maintenance of that power as distinguished from growth or development as a
19 consequence of a superior product, business acumen, or historic accident.” Alaska Airlines v.
20 United Airlines, 948 F.2d 536, 541 (9th Cir. 1991) (quoting Aspen Skiing Co. v. Aspen
21 Highlands Skiing Co., 472 U.S. 585, 596 n. 19 (1985)). So, the state of the market and
22 defendants’ use and maintenance of monopoly power, as opposed to individual plaintiff’s
23 conduct, drives the claim.
24 The class confirms its intent to prove the antitrust violation by common proof. In the
25 alleged conspiracy, the generic-drug manufacturer joined, maintained, and partook in the spoils
26 of the brand monopoly. After Assertio and Santarus sued Lupin for seeking FDA approval to
27 market a generic form of Glumetza, they all settled in February 2012. Assertio and Santarus
1 and enjoyed free rein to hike the drug price by nearly 800 percent — from $5.72 to $51 for a
2 single 500mg tablet — in the first half of 2015. Lupin had to sit tight at first. But, in February
3 2016 — free of other generic or authorized generic competition for at least one year — it would
4 hop aboard the cash-cow, pricing its generic slightly below the still-wildly-overpriced brand
5 drug. Though prices would drop as more generics entered the market, due to defendants’
6 scheme, even today brand and generic Glumetza prices have not yet dropped to pre-hike levels.
7 That is to say that in the class’s telling, defendants wildly succeeded in their antitrust violation,
8 suppressing competition and inflating prices, before we even mention individual class members
9 or, for that matter, the background — the potentially millions of diabetic Americans, their
10 livelihoods dependent upon the prescription drug, faced with the grim choice to either pony up
11 the cash or else. See Alaska Airlines, 948 F.2d at 540.
12 Defendants wisely do not contest that common issues predominate the underlying antitrust
13 violation. Instead, they save their objections for the class’s showing of injury and the measure
14 of damages.
15 B. ANTITRUST IMPACT.
16 Antitrust impact is “the causal link between the antitrust violation and the damages sought
17 by plaintiffs.” The class must provide “some means of determining that each member of the
18 class was in fact injured.” New Motor Vehicles, 522 F.3d at 19 n. 18, 28. Yet the theory of
19 impact must not only be closely tied to the theory of liability, it must be limited to it. See
20 Comcast, 569 U.S. at 35. This follows from the notion that “the defendants cannot be held
21 liable for damages beyond the injury they caused.” See In re Nexium Antitrust Litigation, 777
22 F.3d 9, 18 (1st Cir. 2015). Put simply, a theory of liability (and, thus, class definition) that
23 either catches too many uninjured putative class members, or ignores too many injured ones,
24 likely misses the actual cause of the harm. In sum, then, the class “must be able to establish,
25 predominantly with generalized evidence, that all (or nearly all) members of the class suffered
26 damage as a result of [defendants’] alleged anti-competitive conduct.” In re Qualcomm
27 Antitrust Litigation, 328 F.R.D. 280, 299 (N.D. Cal. 2018). Faced with an expert in each
1 extent” that they weigh on the requirements for certification. See Ellis v. Costco, 657 F.3d 970,
2 981–84 (9th Cir. 2011); Amgen, 568 U.S. at 465–66.
3 Here, the driving question remains “what did defendants’ scheme do to the market?”
4 Asking “which class members were swept up in scheme” poses a secondary question, which,
5 though it often requires individualized inquiry, may still be answered predominantly by
6 common drug sales data. The class offers the testimony of economist Dr. Jeffrey J. Leitzinger,
7 Ph.D., who concludes, based upon the common evidence of economics literature, defendants’
8 own market forecasts, and both defendants’ and third-party brand and generic Glumetza sales
9 data, that defendants’ anticompetitive conduct inflicted overcharges on each putative class
10 member.
11 Dr. Leitzinger explains that economics literature reliably concludes generic drugs, as
12 essentially-identical commodities, compete with the brand and with each other based on price,
13 lowering prices. Generic drugs crash brand monopolies, entering the market at significant
14 discounts. Studies show this discount increases over time (and as more generics enter the
15 market) and quickly pervades the market as the generics capture the prescription base through
16 permissive or (often, state or locally) mandated generic-substitution at the pharmacy. And, this
17 generic market penetration increases over time. Atop that, some studies also found the brand
18 prices themselves dropped in response to generic competition (Leitzinger Decl., Dkt. No. 246-2,
19 at ¶¶ 19–21, 30–36, 47). See, e.g., New York ex rel. Schneiderman v. Actavis, 787 F.3d 638,
20 644–45 (2d Cir. 2015) (brief survey of state substitution laws).
21 To counter this threat, brands often market an “authorized generic” to recapture some of
22 the market. But, of course, the authorized generic acts like a regular generic, driving greater
23 generic discounts and market capture. So, even though the authorized generic recaptures brand
24 revenue, it still aids competition (id. at ¶¶ 22–24).
25 Our defendants certainly expected as much. Dr. Leitzinger reports, from careful review of
26 their own documents, both Bausch and Lupin expected the coming generics to slash prices and
27 capture nearly the entire Glumetza market after a couple of years. Reality confirmed these
1 at an average discount of 13 percent off the list price. In February 2016, Lupin joined the
2 market at a 47 percent average discount. Bausch’s February 2017 authorized generic then drove
3 the average generic discount to 62 percent and its own brand discount to 18 percent. And, Teva
4 and Sun’s mid-2017 entry drove the generic discount to 93 percent. By 2018, generics had
5 captured 80 percent of the Glumetza prescription base (id. at ¶¶ 37–38, 40).
6 Defendants stalled these discounts by inducing Lupin to delay entry by four years. By
7 February of 2016, the market should have enjoyed years of Lupin’s generic and an authorized
8 generic along with the accompanying (and ever increasing) generic discount and market
9 penetration. Instead, putative class members suffered three and a half years without the
10 discount — and indeed, due to defendants’ further anticompetitive conduct, an 800 percent
11 price hike in 2015. Simply, Dr. Leitzinger concludes, “conduct which delays or limits generic
12 competition . . . inflate[s] prices broadly across the brand prescription base.” More important
13 for the present purposes, however, Dr. Leitzinger also stresses that his model relies only upon
14 the common evidence of, as noted, economic literature, defendants’ own forecasts, and actual
15 sales data (id. at ¶¶ 21, 26–29, 36, 45–51).
16 Dr. Leitzinger finally explains that three forms of overcharge span the class, beginning
17 with lost generic conversion. The more than eighty percent of Glumetza prescriptions that
18 should have been filled with the generic, weren’t. Each of the putative class members served a
19 sufficient population, so each almost certainly lost out on generic substitution of at least one
20 prescription. Every lost generic substitution meant an overcharge. Beneath that, simply due to
21 suppressed competition, each brand and generic purchase also carried an overcharge (id. at ¶¶
22 54–62).
23 Defendants try to undercut the Dr. Leitzinger’s factual assumptions. Actually, they start
24 by attacking Dr. Leitzinger’s reliance on any factual assumptions at all, charging him with
25 “offer[ing] no evidence for any of his assumptions at all.” But of course Dr. Leitzinger assumes
26 the circumstances in which he models the impact of defendants’ behavior. Recall, antitrust
27 impact is “the causal link between the antitrust violation and the damages.” New Motor
1 impact requires us to assume class counsel will otherwise prove (by common evidence) the
2 antitrust violation at trial. So, Dr. Leitzinger assumes (as counsel directed): (i) Lupin would
3 have entered the market (perhaps even “at risk”) in May 2012; (ii) Santarus would have
4 promptly marketed an authorized generic; and (iii) the 2015 price hikes would not have
5 occurred.
6 In response, defendants primarily contend that all these circumstances must be proven by
7 a preponderance, else they undermine class cohesion. These objections test the merits and run
8 headlong into Amgen. There, the United States Supreme Court explained that in securities fraud
9 the materiality of a misrepresentation — an admittedly essential step in the plaintiffs’ ability to
10 prove classwide reliance on a misrepresentation — did not need to be proven at class
11 certification because, first, materiality turned on an objective (and thus, collective) standard
12 and, more importantly, that materiality comprised an essential element of the case. Individual
13 questions would not predominate absent materiality. Rather, that class would lose. 568 U.S. at
14 466–70. The Supreme Court recently reaffirmed this understanding, explaining that where “the
15 concern about the proposed class is not that it exhibits some fatal dissimilarity but, rather, a
16 fatal similarity — [an alleged] failure of proof as to an element of the plaintiffs’ cause of action
17 — courts should engage that question as a matter of summary judgment, not class certification.”
18 Tyson, 136 S. Ct. at 1047.
19 Dr. Leitzinger’s factual assumptions satisfy both prongs here because each comprises a
20 scenario that the class alleges would have occurred but-for distinct portions of defendants’
21 anticompetitive conduct. This conduct will be provable by common evidence at trial, as
22 discussed above. More importantly, though, the class’s failure on any ground does not result in
23 rampant individual questions. Instead, that mode of harm drops out of the case.
24 Defendants argue extensively that Lupin would not have launched around May 2012,
25 much less “at risk,” because it expected to lose, and in fact would have lost, the patent suit.
26 Even if it did launch “at risk,” defendants say, Lupin’s generic would have been pulled off the
27 market promptly. In that scenario, defendants’ expert Dr. Bruce Strombom concludes only a
1 weeds we will need to delve at summary judgment or at trial. Actavis itself indicates that “[i]t is
2 normally not necessary to litigate patent validity” — and presumably also infringement — “to
3 answer the antitrust question,” because the lawfulness of the settlement turns on its purpose,
4 effect, and (if needed) justification. See 570 U.S. 157–59. This follows somewhat from the fact
5 that courts remedy analogous anticompetitive behavior, patent misuse, by holding a patent
6 unenforceable, a remedy unnecessary unless the patent is valid and infringed. See Princo Corp.
7 v. Int’l Trade Comm’n, 616 F.3d 1318, 1328 (Fed. Cir. 2010). Then again, given the present
8 analysis turns so heavily on defendants’ intent, some scrutiny of validity and infringement, or at
9 least the boundaries of the parties’ reasonable beliefs about them, may be required. Cf. Alaska
10 Airlines, 948 F.2d at 540; Aspen, 472 U.S. 602–03. But all that will be decided for the class at
11 summary judgment or trial.
12 The point here is that defendants raise the patent merits to change the but-for scenario and
13 jump ahead to the impact analysis, forgetting to reevaluate the threshold question of the antitrust
14 violation. The class’s allegations of an unlawful reverse settlement depend on Lupin’s February
15 2016 market entry being delayed from around mid-2012. If the jury finds Lupin’s generic
16 Glumetza did infringe valid patents, or perhaps at least that both parties honestly believed it did,
17 then negotiations would have started with a late 2016, or even 2020 (after the last patent
18 expired), market entry. In that case, the settlement ceases to be anticompetitive. The class
19 doesn’t just break down — the entire class loses (Aug. 6 Hrg. Tr., Dkt. No. 346, at 15). See
20 Actavis, 570 U.S. 136; Amgen, 568 U.S. at 466–70. So, the patent merits and the assumption
21 that Lupin would have marketed early and successfully do not require proof at this stage.
22 Assuming, then, that the jury does find the 2012 settlement agreement unlawful, it still
23 need not accept all of the allegations. For example, if it finds that Santarus would not have
24 launched an authorized generic anyway, then that circumstance would have applied across the
25 board, to all class members. Moreover, Dr. Leitzinger discusses an authorized generic’s
26 influence on price discounts and generic market penetration as a discrete factor. That means he
27 can easily remove those effects from the model to suit the finding, just as Comcast requires
1 decision not to market an authorized generic would yield rampant individual questions (Dkt.
2 No. 262-5 at 14).
3 So too for the 2015 price hikes. We have excellent counsel on both sides in this case and
4 it will be most engaging to see how counsel argue that the 800 percent price hike served
5 competition. If the argument works, though, then that conduct would not be an antitrust
6 violation, to all class members. And, again, instead of defendants explaining how this would
7 undermine the model, Dr. Leitzinger explains he could easily remove that assumption from it
8 (Leitzinger Decl. at ¶ 70 at n. 86).
9 So, rather than just assuming the class’s cohesion, Dr. Leitzinger simply assumes (as he
10 must) that the class will prove the first portion of its case at trial. If it doesn’t, the harms don’t
11 become individualized. Instead, the class will either have lost the case, or the harms will simply
12 fall away entirely and Dr. Leitzinger will remove them from his model. Defendants’ merits
13 arguments will have to wait for summary judgment or our jury. Thus, this order does not
14 address the class’s evidence of causation submitted in reply and defendants’ objection to
15 consideration of that evidence is denied as moot.
16 Defendants’ invoke In re Lamictal Direct Purchaser Antitrust Litigation, in which the
17 Court of Appeals for the Third Circuit vacated a class certification order for inadequately
18 addressing “a market characterized by individual negotiations and a discounted-brand
19 competition strategy.” That decision, however, turned on the “nuance in the anti-epilepsy drug
20 market.” GlaxoSmithKline, the brand manufacturer, believed an authorized generic would not
21 compete effectively with Teva’s anticipated generic given doctors’ particular reluctance to
22 switch patients’ anti-epilepsy medications. Glaxo thus planned to compete with Teva’s generic
23 based on price in an aggressive individual discount and rebate campaign with pharmacies. Teva
24 learned of this plan and dropped its generic price even lower before launch. These unique
25 pricing facts do not apply here. See 957 F.3d 184, 189–90, 192 (3d Cir. 2020); see also In re
26 Zetia (Ezetimibe) Antitrust Litigation, No. MD 18-02836 DEM, 2020 WL 3446895, *31 (E.D.
27 Va. June 18, 2020) (Magistrate Judge Douglas E. Miller) (distinguishing Lamictal for same
C. ESTIMATE OF DAMAGES.
1
Having proven a common mode of antitrust impact, we turn to the damages model. A
2
putative class must “establish that damages are susceptible of measurement across the entire
3
class.” Comcast, 569 U.S. at 35. Yet “[a]ntitrust plaintiffs may satisfy the predominance
4
requirement by using a model that estimates the damages attributable to the antitrust injury,
5
even if more individualized determinations are needed later to allocate damages among class
6
members.” In re Suboxone (Buprenorphine Hydrochlorine and Naloxone) Antitrust Lit., ___
7
F.3d ___, 2020 WL 4331523, at *4 (3d Cir. July 28, 2020). Indeed, our court of appeals has
8
“repeatedly confirmed” that “the need for individual damages calculations does not, alone,
9
defeat class certification.” Vaquero v. Ashley Furniture Indus., 824 F.3d 1150, 1155 (9th Cir.
10
2016). And as above, “a plaintiff’s damages case must be consistent with its liability case,
11
particularly with respect to the alleged anticompetitive effect of the violation.” Comcast, 569
12
U.S. at 35.
13
Yet “[c]alculations need not be exact.” Ibid. The Supreme Court has repeatedly
14
explained that courts should afford plaintiffs relatively broad leeway in constructing a damages
15
model — at least within the “just and reasonable inference[s] from the proof of defendants’
16
wrongful acts and their tendency to injure plaintiffs’ business.” Bigelow v. RKO Radio
17
Pictures, 327 U.S. 251, 264 (1946). The Supreme Court has more recently affirmed this
18
understanding, explaining that “[t]he vagaries of the marketplace usually deny us sure
19
knowledge of what plaintiff’s situation would have been in the absence of the defendant’s
20
antitrust violation.” J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 566 (1981).
21
Plainly, we can’t know exactly what would have happened in that but-for world; defendants saw
22
to that.
23
Dr. Leitzinger calculates the aggregate class overcharge, the difference between what
24
class members actually paid and what they should have paid, as a function of the volume of
25
Glumetza (or generic) actually sold, the wholesale acquisition cost, the actual (brand or generic)
26
price, and the brand discount, generic discount, and generic market penetration but for
27
1 defendants’ conduct (Leitzinger Decl. at ¶¶ 63–65). Common evidence drives each of these
2 values.
3 The volume and actual price of Glumetza are easy; Dr. Leitzinger just uses the actual
4 numbers. For the wholesale acquisition cost, Dr. Leitzinger takes the actual value from 2015,
5 just before the exorbitant 800 percent price hikes. And, for generic market penetration, Dr.
6 Leitzinger takes the actual numbers from Lupin’s market capture after it joined in 2016. He just
7 applies that market penetration to 2012, when Lupin was supposed to (allegedly) enter the
8 market. So too with the brand discount. Dr. Leitzinger simply takes the actual observed brand
9 discount after each generic entered the market and, again, backcasts the data to a 2012 Lupin
10 entry (id. at ¶¶ 66–68).
11 Calculating the generic discount takes a little more work, given Lupin joined in the
12 conspiracy, knew it would face no authorized generic (indeed no generic competition at all) for
13 the first year, and almost certainly priced accordingly. Thus, Dr. Leitzinger uses Lupin’s actual
14 discount as evidence, but he also factors in defendants’ forecasts of generic pricing and data
15 from earlier economic studies (id. at ¶ 69).
16 At this stage, Dr. Leitzinger estimates the total class overcharge at approximately $2.3
17 billion (id. at ¶ 73). He also provides some sample calculations, but we need not dig that deep.
18 For now, it suffices that his model employs common data and applies class wide, even if
19 allocation of the damages will require some individualized inquiry down the road. Vaquero,
20 824 F.3d at 1155. Defendants offer three general objections.
21 First, defendants broadly contest various inputs into Dr. Leitzinger’s damages model. To
22 start, we can quibble about the particular inputs for Dr. Leitzinger’s model later. It will be for
23 the jury to determine what exactly happened absent defendants’ conduct. As another judge of
24 this district has observed regarding similar critiques of, coincidentally, Dr. Leitzinger’s earlier
25 work, “[t]h[e]se disputes are not appropriately resolved at this juncture; that the experts dispute
26 what the appropriate inputs should be does not undermine the approach or the reliability of [Dr.]
27 Leitzinger’s model.” See In re Lidoderm Antitrust Litigation, No. MD 14-02521, 2017 WL
1 679367 at *12 (N.D. Cal. Feb. 21, 2017) (Judge William H. Orrick). Yet both of defendants’
2 arguments on this front also contain their own defects.
3 Defendants contend Dr. Leitzinger’s method of backcasting generic penetration and brand
4 discounts “is unreliable because it fails to recognize the significant differences between the
5 actual world and [Dr.] Leitzinger’s assumed but-for world.” Bigelow and Chrysler undercut
6 this argument. It remains difficult, scratch that, impossible to know what would have happened
7 absent defendants’ unlawful conduct because, assuming the class wins, the unlawful scheme
8 itself deprived us of that information. Estimates are, therefore, the only way to replay the film
9 without the violation. Dr. Leitzinger puts forth a sound enough model and our jury will
10 construct the but-for world, not with absolute precision, but with “just and reasonable
11 estimate[s].” See Bigelow, 327 U.S. at 264–66; Chrysler, 451 U.S. at 565–67.
12 Defendants then object that Dr. Leitzinger’s model improperly includes purchases by opt-
13 out plaintiffs, exclusion of which will require individualized inquiries. Removing opt-out
14 plaintiffs from the calculations may well require individualized inquiries, as most damages
15 inquiries do. But that does not undermine class certification, particularly where the core-
16 classwide model holds. Dr. Leitzinger explains that he can easily adapt his model to account
17 for opt-out plaintiffs. More importantly, however, as Dr. Leitzinger notes, unless the opt-out
18 plaintiffs drop their cases we’re going to be calculating their damages anyway. So the
19 modification to the class damages model will most likely involve subtracting whatever damages
20 we calculate due to each opt-out plaintiff (Leitzinger Rebut. at ¶¶ 47–55). See Vaquero, 824
21 F.3d at 1155.
22 Second, defendants protest that Dr. Leitzinger ignores the post-initial-sale complexities of
23 the pharmaceutical drug market. Both forms of this argument mistake the cognizable harm
24 here, the overcharge. For one, defendants argue that Dr. Leitzinger fails to account for generic
25 bypass. In the but-for world, so the argument goes, purchasers often bypass the wholesaler and
26 buy directly from the generic manufacturer, so defendants’ conduct actually benefitted the
27 wholesaler. Before addressing this objection directly, it’s worth noting that the decision cited to
1 been met with almost universal criticism.” In re Glumetza, No. C 19-05822 WHA, Dkt. No.
2 305, 2020 WL 3498067 at *12 (N.D. Cal. June 29, 2020) (Magistrate Judge Robert M. Illman);
3 see also Braintree Labs. v. McKesson Corp., No. 11-80233 MISC JSW, 2011 WL 5025096
4 (N.D. Cal. Oct. 20, 2011) (Magistrate Judge Jacqueline Scott Corley). More importantly,
5 however, defendants’ argument incorrectly focuses on the wholesaler’s later realized profit
6 margin instead of the actual injury here, the overcharge. Hanover Shoe v. United Shoe Mach.
7 Corp., 392 U.S. 481, 489 (1968). Judge Curtis L. Collier of the Eastern District of Tennessee
8 put it well:
9 Defendant[s] ignore[] the fundamental import of Hanover
Shoe and its progeny: a direct purchaser may recover the full
10 amount of the overcharge, even if he is otherwise benefitted,
because the antitrust injury occurs and is complete when the
11 defendant[s] sell[] at the illegally high price. That is, the focus of
the antitrust laws is limited to the anticompetitive sale. When
12 Defendant[s] sold the [drug] to the wholesalers at an allegedly
anticompetitive price, the injury was complete. The jury need not
13 hear any more. True, to calculate damages the jury must consider
what the cost of the drug would have been in the absence of an
14 antitrust violation. But Hanover Shoe and Illinois Brick make
clear that courts and juries will not be forced down the rabbit hole
15 of hypothetical issues antitrust violators may raise to minimize
their liability.
16
In re Skelaxin (Metaxalone) Antitrust Litigation, No. MD 12-02343 CLC, 2014 WL 2002887,
17
*5 (E.D. Tenn. May 15, 2014) (quotations and citations omitted); see also In re Niaspan
18
Antitrust Litigation, No. MD 13-02460 JED, 2015 WL 4197590, *1 (E.D. Pa. July 9, 2015)
19
(Judge Jan E. DuBois) (quoting same).
20
Defendants also forget that the overcharge “arose at the time the extra charge was paid,”
21
regardless of whether the defendant later attempts to mitigate. See Adams v. Mills, 286 U.S.
22
397, 407 (1932). So, their argument that Dr. Leitzinger’s damages model “does not reflect the
23
many discounts and subsequent payments that must be accounted for to calculate the ultimate
24
net price” falls flat. As the Court of Appeals for the First Circuit rejected the same argument in
25
Nexium, “antitrust injury occurs the moment the purchaser incurs an overcharge, whether or not
26
that injury is later offset.” 777 F.3d at 27; see also Hawaii v. Standard Oil of Cal., 405 U.S.
27
251, 262 n. 14 (1972).
1 Third, defendants argue the Dr. Leitzinger cannot adjust his damages model to account for
2 various putative class members what will be barred by the statute of limitations. Assuming they
3 will be barred, Dr. Leitzinger nonetheless explains that those class members’ damages can be
4 easily removed from the calculation of class damages (Leitzinger Rebut. at ¶ 71). Moreover,
5 this objection appears to misunderstand what the limitations period does here. Our court of
6 appeals, when first applying fraudulent concealment to § 15b’s four-year limitations period,
7 rejected the abstract notion that the limitations period was “an inherent element of the right.”
8 The limitations period did not “expunge a cause of action, but rather . . . create[d] a uniform
9 period throughout the entire nation for the commencement of suit.” Simply, a limitations period
10 does not mean that no harm has occurred, it merely marks where claims have grown “stale” and
11 we no longer permit recovery. If defendants’ conduct harmed the market as a whole, and the
12 statute of limitations bars some actors but not others, Dr. Leitzinger’s model should still account
13 for all of the harm to all of the actors. We may, however, simply bar some of those putative
14 class members from recovering if the statute of limitations applies. See Westinghouse Elec.
15 Corp. v. PG&E, 326 F.2d 575, 579–80 (9th Cir. 1964).
16 2. TYPICALITY.
17 Typicality tests “whether other members have the same or similar injury, whether the
18 action is based on conduct which is not unique to the named plaintiffs, and whether other class
19 members have been injured by the same course of conduct.” Wolin v. Jaguar Land Rover N.
20 Am., 617 F.3d 1168, 1175 (9th Cir. 2010).
21 Defendants says the named plaintiffs, assignees of other Glumetza purchasers, are atypical
22 of the class. At the start, though, “an assignee stands in the shoes of his assignor, deriving the
23 same but no greater rights and remedies than the assignor then possessed.” In re Loestrin 24 Fe
24 Antitrust Litigation, No. MD 13-02472 WES, 2019 WL 3214257 at *11 (D.R.I. July 2, 2019)
25 (Judge William E. Smith) (quoting, ultimately, Fox-Greenwald Sheet Metal Co. v. Markowitz
26 Bros., Inc., 452 F.2d 1346, 1358 n. 69 (D.C. Cir. 1971)). For largely the same reasons the Court
27 of Appeals for the Third Circuit has explained, also in the pharmaceutical-antitrust context at
1 right and should be treated as any other class member (absent impropriety in assignment). See
2 In re Modafinil Antitrust Litigation, 837 F.3d 238, 251 (3d Cir. 2016). Assignee status alone
3 here does not weigh against the named plaintiffs.
4 But, defendants contend, the assignments all cover different time periods. Surely putative
5 class members seeking damages from different time periods will have inconsistent goals.
6 Hardly. Regardless of the time period of an assignment or when a putative class member
7 purchased Glumetza, the earlier defendants’ generics entered the market, the earlier generic
8 competition would have lowered prices for all. The earlier the entry, the greater the overcharge,
9 the greater the damages. See Loestrin, 2019 WL 3214257 at *12.
10 Defendants insist, though, that the named plaintiffs didn’t actually buy that much
11 Glumetza compared to, say, the “Big Three wholesalers” who accounted for 82 percent of direct
12 brand purchases and 71 percent of direct generic purchases. “Notably,” defendants say, “none
13 of them has filed suit.” If defendants mean to imply their lawful conduct from this fact, they
14 read too much from the large wholesalers’ absence. Many factors drive a decision not to sue,
15 including, as the Supreme Court has recognized, a wholesaler’s “fear of disrupting relations
16 with their suppliers.” See Illinois Brick, 431 U.S. 720, 746 (1977). More importantly, that the
17 remaining class members possess noticeably smaller recovery interests actually weighs in favor
18 of the economies of class treatment, not against it. See Lidoderm, 2017 WL 679367 at *15.
19 Defendants finish with the argument that the assignments “are complex documents” which
20 assign claims arising from certain portions of sales to different assignees. Tracing the
21 assignments, they say, will be difficult. Maybe so, but no more difficult than we might already
22 expect to calculate to ensure that all damages are no more than “just and reasonable estimate[s]”
23 of the actual harm to each putative class member. See Bigelow, 327 U.S. at 264–66.
24 3. ADEQUACY.
25 Our court of appeals has explained that adequate representatives (1) have no conflicts of
26 interest with other class members, and (2) will prosecute the action vigorously on behalf of the
27 class. Staton v. Boeing Co., 327 F.3d 938, 957 (9th Cir. 2003).
1 Defendants mainly contend that named plaintiffs have not diligently pursued this case and,
2 thus, cannot adequately represent the class. For one example, defendants say that named
3 plaintiffs have not adequately gathered relevant sales information from their wholesaler
4 assignors. They cite one instance in February when wholesaler McKesson ignored a deficient
5 subpoena from named plaintiff KPH, who then never followed up. Vagueness mars defendants’
6 objection. Without detail sufficient to conclude that the class needs this information to
7 diligently pursue its case, the failure to follow up on a discovery request means little.
8 For the other, defendants object to two instances of named plaintiffs’ supplemental
9 document production. Parties must conduct a reasonably comprehensive document search, not
10 an absolutely comprehensive one. See, e.g., SUPPLEMENTAL ORDER TO ORDER SETTING INITIAL
11 CASE MANAGEMENT CONFERENCE ¶ 16. Relevant documents often appear in later, different
12 searches and nonetheless require prompt, supplemental disclosure. Defendants neither contend
13 that the named plaintiffs withheld documents nor that they conducted inadequate initial
14 searches. Nothing here raised undercuts named plaintiffs’ adequacy to represent the putative
15 class.
16 Defendants also argue that named plaintiffs sue over their substantial assigned brand
17 Glumetza purchases, but most of the class purchased only generic Glumetza. So, while named
18 plaintiffs seek damages from actual sale overcharges, absent class members might prefer a
19 damages model based primarily on all the generic purchases and resales they never made due to
20 defendants’ conduct. Maybe so. But our court of appeals is not alone in warning against denial
21 of class certification on the basis of speculative conflicts. See In re Online DVD-Rental
22 Antitrust Litigation, 779 F.3d 934, 942 (9th Cir. 2015); Kohen v. Pacific Inv. Mgmt. Co., 571
23 F.3d 672, 680 (7th Cir. 2009). Should any absent class members prefer a different damages
24 model, they remain free to opt-out of the class. In re Niaspan Antitrust Litigation, 397 F. Supp.
25 3d 668, 681 (E.D. Pa. 2019); Lidoderm, 2017 WL 679367 at *15.
26 4. SUPERIORITY.
27 Even if common questions predominate, a Rule 23(b)(3) class must be the superior
1 (A) the class members’ interests in individually controlling the
prosecution or defense of separate actions;
2
(B) the extent and nature of any litigation concerning the
3 controversy already begun by or against class members;
4 (C) the desirability or undesirability of concentrating the
litigation of the claims in the particular forum; and
5
(D) the likely difficulties in managing a class action.
6
Though complexities will surely arise, including some individualized questions, no
7
inability to manage a class action manifests here. The finality of decision for all involved
8
counsels in favor of concentrating this litigation in a single forum — indeed the class members
9
came to that conclusion themselves by all filing here. No other cases arising from defendants’
10
challenged conduct here remain before any other tribunal. All this, in conjunction with the
11
predominance of common issues, establishes that a class action is the superior method of
12
adjudicating this case.
13
It’s also worth noting the simplicity of the proposed class definition: Glumetza purchasers
14
from defendants since May 2012. If, given defendants’ litany of arguments, more specific
15
requirements become necessary, the class definition will remain manageable. So too, if specific
16
populations appear within the class, subclasses may be certified to proceed.
17
Defendants contend that a class is not superior because the largest purchasers of Glumetza
18
have elected to go it alone. As above, a larger number of smaller claims lend themselves to the
19
economies of the class. Nevertheless, defendants also argue that class members seek, on
20
average, treble damages of $28 million. So, their argument goes, the recovery will cover any
21
legal fees and each putative class member can proceed individually with its own counsel, each,
22
naturally, siphoning the potential recovery as though we’re trying to recreate Dickens’ Bleak
23
House. A class remains superior here.
24
5. NUMEROSITY.
25
A class must be “so numerous that joinder of all members is impracticable.” Rule
26
23(a)(1). “The numerosity requirement requires examination of the specific facts of each case
27
and imposes no absolute limitations.” Gen. Tel. Co. of the Northwest, Inc. v. EEOC, 446 U.S.
1 318, 330 (1980). Defendants do not contest the numerosity of the eighty-one member proposed
2 class.
3 6. ASCERTAINABILITY.
4 Finally, though not an explicit component of Rule 23, and one to which our court of
5 appeals has not yet definitively spoken, many courts in this circuit have long imposed the
6 requirement that “[a] class definition should be precise, objective, and presently ascertainable.”
7 See Senne v. Kansas City Royals Baseball Corp., 315 F.R.D. 523, 542 (N.D. Cal. 2016) (Chief
8 Magistrate Judge Joseph C. Spero); Xavier v. Philip Morris USA, 787 F. Supp. 2d 1075, 1089–
9 90 (N.D. Cal. 2011); O’Connor v. Boeing N.A., 184 F.R.D. 311, 319 (C.D. Cal. 1998) (Judge
10 Audrey B. Collins). Among others, the requirement “allow[s] potential class members to
11 identify themselves for purposes of opting out of a class.” Carrera v. Bayer Corp., 727 F.3d
12 300, 307 (3d Cir. 2013).
13 Though the proposed class definition turns on objective criteria, dates and purchases, it
14 remains an open class. That is, by seeking to include within the class purchasers between May
15 2012 “until the effects of the defendants’ conduct ceased,” the class by definition includes those
16 who have not yet purchased Glumetza from a defendant. Obviously, until such purchase
17 occurs, those purchasers remain unknown. And, until they become known, we cannot notify
18 them of this class and honor their decision to, if they so choose, opt-out. Thus, the class
19 definition must be limited to those to whom we may provide effective notice at this time.
20 CONCLUSION
21 For the foregoing reasons, the following class is CERTIFIED:
22 All persons or entities in the United States and its territories who
directly purchased Glumetza or generic Glumetza from a defendant
23 from May 6, 2012 until the date of this order.
24 Shana Scarlett and Lauren Barnes of Hagens Berman Sobol Shapiro LLP, Steve Shadowen of
25 Hilliard & Shadowen LLC, and Joseph Vanek of Sperling & Slater, P.C. have represented the
26 class effectively since their appointment as interim counsel (Dkt. No. 70) and are CONFIRMED
27 as co-lead counsel for the class. By AUGUST 31, 2020 AT NOON, the parties shall jointly submit
1 mail and internet notice. In crafting their joint proposal, the parties shall please keep in mind
2 the guidelines for notice to class members given in the NOTICE AND ORDER RE PUTATIVE CLASS
3 ACTIONS AND FACTORS TO BE EVALUATED FOR ANY PROPOSED CLASS SETTLEMENT (Dkt. No.
4 39).
5 IT IS SO ORDERED.
6
7 Dated: August 15, 2020.
8
9 Al = ] | . 4
WILLIAM ALSUP
10 UNITED STATES DISTRICT JUDGE
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