STATE OF CONNECTICUT v. AUROBINDO PHARMA USA, INC.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

IN RE: GENERIC PHARMACEUTICALS MDL 2724

PRICING ANTITRUST LITIGATION 16-MD-2724

HON. CYNTHIA M. RUFE

THIS DOCUMENT RELATES TO:

In re State Attorneys General Litigation Case No. 17-3768

MEMORANDUM OPINION

Rufe, J. June 7, 2022

Plaintiffs, forty-nine polities in the United States,1 allege that Defendants, twenty

pharmaceutical companies, “participated in an overarching conspiracy, the effect of which was to

minimize if not thwart competition across the generic drug industry.”2 This suit is part of a

broader multidistrict antitrust litigation, centered on allegations that Defendants and others

violated antitrust laws by engaging in a “scheme or schemes to fix, maintain, and stabilize prices,

rig bids, and engage in market and customer allocations [of certain] generic pharmaceutical

products.”3 As the parties are well acquainted with the broader multidistrict litigation and the

1 Plaintiffs in this case include the states of Connecticut, Alabama, Alaska, Arizona, Arkansas, California, Colorado,

Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan,

Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New

York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Tennessee, Utah,

Vermont, Washington, West Virginia, Wisconsin and Wyoming, the Commonwealths of Kentucky, Massachusetts,

Pennsylvania, Puerto Rico and Virginia, and the District of Columbia (the "Plaintiff States").

2 CAC [Doc. No. 15] ¶ 2.

3 In re Generic Pharmas. Pricing Antitrust Litig., 394 F. Supp. 3d 509, 513 (E.D. Pa. 2019).

specific facts of the above-captioned case, the Court sets forth only the facts and procedural

history essential to this decision.4

Defendants have moved to dismiss Plaintiff States’ federal claim for disgorgement of

Defendants’ purportedly ill-gotten gains and moved to dismiss all federal law claims in the

Consolidated Amended Complaint (“CAC”) for lack of standing. For the reasons explained

below, the motion will be granted as to the disgorgement issue and denied as to the standing

issue.

I. LEGAL STANDARD

To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a plaintiff’s complaint

must set forth “[f]actual allegations . . . enough to raise a right to relief above the speculative

level.”5 In analyzing whether the complaint sets forth sufficient factual allegations, the court

must “accept all of the complaint’s well-pleaded facts as true, but may disregard any legal

conclusions.”6 The court must also “construe the complaint in the light most favorable to the

plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff

may be entitled to relief.”7

4 For greater detail on the background facts and procedural history, see In re Generic Pharmas. Pricing Antitrust

Litig., 315 F. Supp. 3d 848 (E.D. Pa. 2018).

5 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted).

6 Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 675

(2009)).

7 Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (quoting Pinker v. Roche Holdings Ltd., 292 F.3d

361, 374 n.7 (3d Cir. 2002)) (internal quotation marks omitted).

II. DISCUSSION

Defendants seek dismissal of the States’ claim for disgorgement under federal law8; and

the States’ claim for “damages,” “injunctive,” and “other relief” as parens patriae under federal

law.9 Defendants essentially advance two arguments in favor of dismissal: (1) as to

disgorgement, § 16 of the Clayton Act empowers courts to order “injunctive relief,” but not

disgorgement, and the disgorgement remedy is otherwise at odds with Illinois Brick; and (2) the

States do not have parens patriae standing.10

A. Disgorgement is not authorized under the terms of § 16 of the Clayton Act

1. Monetary disgorgement is not available under § 16

Defendants first urge the Court to dismiss the States’ claims to the extent that the States

seek monetary relief in the form of “disgorgement.”11 They argue that Section 16 of the Clayton

Act, on which “[t]he States’ federal disgorgement claim” is based,12 does not authorize such

monetary disgorgement.13 The Court agrees.

Section 16 of the Clayton Act provides that:

Any person . . . shall be entitled to sue for and have injunctive relief

. . . against threatened loss or damage by a violation of the antitrust

laws, . . . under the same conditions and principles as injunctive

relief against threatened conduct that will cause loss or damage is

granted by courts of equity, under the rules governing such

proceedings, and upon the execution of proper bond against

damages for an injunction improvidently granted and a showing that

8 Defs.’ Mot. to Dismiss [Doc. No. 74] at 2 (citing CAC 190 at ¶ D (Prayer for Relief))

9 Mot. to Dismiss [Doc. No. 74] at 2 (citing CAC ¶¶ 17, 22, 467).

10 See Defs.’ Mem. Supp. Mot. to Dismiss [Doc. No. 74-1] at 2-3, 4; Defs.’ Reply Mem. Supp. Mot. to Dismiss

[Doc. No. 164] at 1.

11 Defs.’ Mem. Supp. Mot. to Dismiss [Doc. No. 74-1] at 5-7.

12 States’ Mem. Opp. Mot. to Dismiss [Doc. No. 121] at 1.

13Defs.’ Mem. Supp. Mot. to Dismiss [Doc. No. 74-1] at 5; Defs.’ Reply Mem. Supp. Mot. to Dismiss [Doc. No.

164] at 1-4.

the danger of irreparable loss or damage is immediate, a preliminary

injunction may issue . . . . 14

To determine whether § 16 permits an award of monetary disgorgement or restitution as a

form of “injunctive relief,” the Court applies the analytical framework established by the Third

Circuit in United States v. Lane Labs-USA, Inc.15 As the Third Circuit explained in FTC v.

AbbVie Inc., the decision in Lane Labs established a “fairly easy to follow” two-part analysis to

determine the limits of a court’s equitable powers under a statute: “(1) a district court sitting in

equity may order restitution unless there is a clear statutory limitation on the district court’s

equitable jurisdiction and powers; and (2) restitution is permitted only where it furthers the

purpose of the statute.”16

In AbbVie, the Third Circuit applied the Lane Labs “analytical course” to determine

whether § 13(b) of the Federal Trade Commission Act (“FTC Act”) authorized courts to order

“disgorgement” as a form of “injunctive relief.”17 The Third Circuit concluded that

disgorgement, a form of restitution, was unavailable under the statute and that“[i]njunctive relief

constitutes a distinct type of equitable relief; it is not an umbrella term that encompasses

restitution or disgorgement.”18

The Supreme Court, in AMG Capital Management, LLC v. FTC, recently reached the

same conclusion regarding § 13(b).19 In holding that section § 13(b) did not provide for

disgorgement, the Court observed that “[t]he language and structure of § 13(b), taken as a whole,

14 15 U.S.C. § 26.

15 427 F.3d 219 (3d Cir. 2005).

16 976 F.3d 327, 378 (3d Cir. 2020) (quoting Lane Labs, 427 F.3d at 225).

17 Id. at 375-76, 379.

18 Id. at 376 (quoting Owner-Operator Indep. Drivers Ass’n v. Landstar Sys., 622 F.3d 1307, 1324 (11th Cir. 2010)).

19 AMG Capital Mgmt., LLC v. FTC, 141 S. Ct. 1341, 1347 (2021).

indicate that the words ‘permanent injunction’ have a limited purpose—a purpose that does not

extend to the grant of monetary relief.”20 The Court contrasted injunctive relief, which typically

offers prospective relief against ongoing or future harm, with restitution, which typically offers

retrospective relief to redress past harm.21

The Supreme Court also considered the purpose of the FTC Act and the enforcement

scheme that it established.22 Given the “elaborate enforcement provisions . . . that explicitly

provide for [monetary] relief” in other parts of the FTC Act, the Supreme Court drew the

intuitive “inference against § 13(b)’s authorization of monetary relief” under the injunctive relief

provisions of § 13(b).23 Thus, the Supreme Court’s analysis in AMG tracks the Third Circuit’s

Lane Labs “analytical course.”

Applying the Lane Labs framework here, the “injunctive relief” provided by § 16 of the

Clayton Act does not authorize disgorgement, just as the term did not authorize disgorgement

under § 13(b) of the FTC Act. First, the text of § 16 does not support the conclusion that

disgorgement is an authorized form of “injunctive relief.” Nowhere in § 16 do the words

“disgorgement,” “restitution,” or “monetary damages” appear.24 Instead, monetary damages are

explicitly provided for under a different section of the statute—§ 4. The term that is used under

§ 16, however, is “injunctive relief.” As the Third Circuit noted in AbbVie, the term “injunctive

relief” is “not an umbrella term that encompasses . . . disgorgement.”25 Thus, both the plain

20 Id. at 1348.

21 Id. (citations and quotations omitted).

22 Id. at 1350 (explaining that courts are to consider “the text and structure of the statutory scheme at issue” when

delineating the bounds of the courts’ equitable powers).

23 Id. at 1350 (quotation and citation omitted).

24 15 U.S.C. § 26.

25 976 F.3d at 376 (citation omitted).

language of the text and the fact that “injunctive relief” appears in the context of forward-looking

harms such as “threatened loss or damage” and “the danger of . . . loss”26 supports the conclusion

that disgorgement, a backward-looking form of relief, does not fall under the term “injunctive

relief” as it is used in § 16 of the Clayton Act.

Second, permitting the States to pursue and obtain disgorgement under § 16’s provision

for “injunctive relief” would undercut, rather than further, the federal antitrust enforcement

scheme. That § 4 and § 4c of the Clayton Act already provide direct purchasers, and the States

representing such direct purchasers as parens patriae, an avenue to pursue monetary damages

militates against recognizing disgorgement as a remedy under § 16’s injunctive relief

provision.27 Thus, applying the analytical course charted in Lane Labs to this case, the Court

concludes that disgorgement is not available as a form of “injunctive relief” under § 16 of the

Clayton Act.

2. Allowing monetary disgorgement under § 16 would be

inconsistent with the policy of Illinois Brick

To permit plaintiffs to obtain monetary relief under § 16 in the form of “monetary

disgorgement or restitution,” and under § 4 or § 4c in the form of monetary damages, would also

undermine the policy against duplicative recoveries set forth by the Supreme Court in Illinois

Brick Co. v. Illinois.28

26 15 U.S.C. § 26.

27 See AMG, 141 S. Ct. at 1350 (reasoning that the availability of monetary relief under other sections of the FTCA

supports an “inference against § 13(b)’s authorization of monetary relief.”); see also FTC v. Mylan Labs., 62 F.

Supp. 2d 25, 41 (D.D.C. 1999) (observing that because state governments already “have a cause of action for treble

damages under § 4c of the Clayton Act as parens patriae on behalf of natural persons,” permitting “disgorgement

under § 16 would provide yet another route to defendants’ allegedly ill-gotten gains, and would therefore heighten

the possibility that defendants in antitrust actions could be exposed to multiple liability.”).

28 431 U.S. 720 (1977).

In Illinois Brick, the State of Illinois and a group of local government agencies sought

damages from several manufacturers of concrete blocks for alleged price fixing.29 The plaintiffs,

however, did not purchase the blocks directly from these manufacturers. 30 Instead, the plaintiffs

alleged that masonry contractors purchased the blocks and used them to build structures that

were incorporated by general contractors into buildings that were sold to the plaintiffs.31

The Supreme Court held that indirect purchasers had no standing to pursue damages

under § 4 of the Clayton Act. To have held otherwise, the Supreme Court reasoned, would have

“open[ed] the door to duplicative recoveries,” against antitrust defendants—once by direct

purchasers, and again by indirect purchasers.32 Thus, just as “residents purchasing at inflated

retail prices from innocent dealers would be denied standing under the Illinois Brick indirect-

purchaser rule to obtain damages from manufacturers, so also is the state denied standing to

obtain damages in a parens patriae suit.”33

In view of the Supreme Court’s admonishment against duplicative recoveries in Illinois

Brick, courts have recognized that permitting private, indirect purchasers to pursue and obtain

disgorgement under § 16 contemporaneously with monetary damages under § 4 would sanction

an “impermissible attempt to circumvent Supreme Court precedent [in Illinois Brick].”34 As

Illinois Brick’s indirect-purchaser rule applies equally to private and public litigants, the

29 Id. at 726.

30 Id.

31 Id.

32 Id. at 731 (quoting Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 264 (1972)).

33 PHILLIP AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW: AN ANALYSIS OF ANTITRUST PRINCIPLES AND THEIR

APPLICATION ¶ 355 (5th ed. 2021).

34 In re Pre-Filled Propane Tank Antitrust Litig., 893 F.3d 1047, 1059 (8th Cir. 2018); see also In re Flonase

Antitrust Litig., 692 F. Supp. 2d 524, 542 (E.D. Pa. 2010) (Brody, J.) (“The policy of Illinois Brick prohibits indirect

purchasers from suing the manufacturer to recover any ill-gotten gains the manufacturer has obtained by violating

antitrust laws.”).

structure of the overall enforcement scheme supports the conclusion that disgorgement should

not be permitted under § 16. Otherwise, § 16 might simply devolve into an end run around the

indirect-purchaser rule. State governments may not obtain disgorgement as an “injunctive”

remedy under § 16, because

[w]hile disgorgement would have the additional benefit of

permitting the States to compensate indirect purchasers who are

excluded from recovery under current law, the Supreme Court

weighed this interest against the threat of duplicative recovery and

determined that only direct purchasers have standing under the

Clayton Act . . . . The States should not be allowed to circumvent

Illinois Brick through a novel interpretation of § 16.35

The case law therefore draws the distinction between forward-looking equitable remedies (such

as divestiture), which are permitted under § 16,36 and backward-looking remedies (such as

restitution or disgorgement), which are not.37 The motion to dismiss will be granted to the extent

that the States claim monetary disgorgement or restitution under § 16 of the Clayton Act.

B. The States have parens patriae standing to pursue injunctive relief other than

backward-looking monetary restitution or disgorgement on behalf of their citizens

Defendants argue that the States’ claims must otherwise be dismissed because the States

have not “alleged sufficient facts to seek relief under federal antitrust law as parens patriae . . .

much less for supposed harms to their ‘general econom[ies].’”38 The States purportedly failed to

allege facts of three kinds: (1) facts to show that the States, as sovereigns, have some “interest

35 FTC v. Mylan, 62 F. Supp. 2d at 41-42 (concluding that to read monetary disgorgement into the term “injunctive

relief” would be a “novel interpretation” of the law and “circumvent Illinois Brick.”).

36 California v. Am. Stores, 495 U.S. 271 (1990).

37 In re Multidistrict Vehicle Air Pollution, 538 F.2d 231, 233-34 (9th Cir. 1976) (holding that “[w]hile restitution is

indeed an equitable remedy, § 16 limits the equitable remedies available under its terms to those against ‘threatened

loss or damage.’ Here, the ‘reimbursement’ would be awarded for the loss which has already occurred . . . it would

not be relief ‘against threatened loss or damage.’ Recovery for past losses is properly covered under § 4; it comes

under the head of ‘damages.’” Id. at 234. In other words, “whether payments which [the states] seek for some of their

citizens is ‘equitable’ . . . is of no consequence because § 16 does not allow the claimed relief for past loss.” Id. at 234.

38 Defs.’ Mem. Supp. Mot. to Dismiss [Doc. No. 74-1] at 3 (brackets in original; citation omitted).

apart from that of particular [citizens] who may be affected”39 by the alleged antitrust

misconduct; (2) facts to show that Defendants affected a sufficiently substantial segment of

States’ residents;40 and (3) facts to show that individual citizens are incapable of obtaining their

own private relief.41 The Court disagrees.

“Parens patriae means literally ‘parent of the country.’”42 To maintain an action as

parens patriae, a state “must express a ‘quasi-sovereign’ interest.”43 Although what constitutes a

quasi-sovereign interest defies generalization, the Supreme Court has explained that states have a

quasi-sovereign “interest in the health and well-being—both physical and economic—of its

residents,” so long as the well-being of a “sufficiently substantial segment of its population” is at

stake.44 Thus, in Georgia v. Pennsylvania Railroad Co., for example, the Supreme Court

acknowledged Georgia’s standing as parens patriae in an alleged price-fixing scheme by twenty

railroad companies.45 Preventing antitrust harms to a state’s citizenry is a recognized quasi-

sovereign interest.46 However, a state may not maintain parens standing under the Clayton Act in

a suit for damages based solely on injury to its general economy.47 A state that is not a direct

39 Defs.’ Mem. Supp. Mot. to Dismiss [Doc. No. 74-1] at 8.

40 Defs.’ Mem. Supp. Mot. to Dismiss [Doc. No. 74-1] at 10.

41 Defs.’ Mem. Supp. Mot. to Dismiss [Doc. No. 74-1] at 9-10.

42 Alfred L. Snapp & Son, Inc. v. Puerto Rico, 458 U.S. 592, 600 (1982) (citation omitted).

43 Id. at 607.

44 Id. (emphasis added); Broselow v. Fisher, 319 F.3d 605, 609 (3d Cir. 2003) (same).

45 324 U.S. 439, 450-51 (1945).

46 See, e.g., In re Insur. Antitrust Litig., 938 F.2d 919, 927 (9th Cir. 1991) (“The state’s interest in preventing harm

to its citizens by antitrust violations is, indeed, a prime instance of the interest that the parens patriae can vindicate

by obtaining damages and/or an injunction.”) (citation omitted), rev’d in part on other grounds sub nom. Hartford

Fire Ins. Co. v. Calif., 509 U.S. 764 (1993).

47 Standard Oil, 405 U.S. at 263.

purchaser may seek only injunctive relief as parens patriae under § 16.48 Accordingly, States

may pursue injunctive relief but not damages as parens patriae for generalized injury to their

economies.49

1. The States have alleged a recognized quasi-sovereign interest apart from

their individual citizens

The States articulate their quasi-sovereign interest as “securing an honest marketplace.”50

This interest fits neatly within the Supreme Court’s articulation of the state’s interest in “securing

observance of the terms under which it participates in the federal system . . . . [and] ensuring that

the State and its residents are not excluded from the benefits that are to flow from [such]

participation.”51 A state has an interest “in the removal of barriers to the participation by its

residents in the free flow of interstate commerce . . . . [and] alleviating hardships” for its

residents.52

Here, the States have a quasi-sovereign interest in ensuring that their citizens are not

denied the benefit of lower-priced drugs that would result from market participants’ adherence to

a fair marketplace regulations and an interest in ensuring that those who sell medication to their

citizens abide by the federal antitrust system.53

48 Id.; cf. 15 U.S.C. § 15c (providing parens patriae standing for states to pursue monetary relief on behalf of

citizens directly injured by any alleged antitrust violation).

49 Compare, e.g., Burch v. Goodyear Tire & Rubber Co., 554 F.2d 633 (4th Cir. 1977) (recognizing parens patriae

standing for state suit to enjoin merger) with Standard Oil, 405 U.S. at 251 (disallowing parens patriae standing for

suit for damages to general economy).

50 States’ Mem. Opp. Mot. to Dismiss [Doc. No. 121] at 9.

51 Alfred L. Snapp & Son, Inc., 458 U.S. at 607-08.

52 Id. at 608.

53 See CAC [Doc. No. 15] ¶¶ 1-17 (outlining the contours of Defendants’ alleged conspiracy and the ways in which

Defendants purportedly manipulated the market).

2. The States have alleged facts to support an inference that a sufficiently

substantial segment of their citizens have been affected

Defendants argue that the States’ complaint fails to allege any facts to support that a

“sufficiently substantial segment” of their citizenry has been affected by the alleged

anticompetitive practices. However, the CAC contains manifold allegations that Defendants’

conspiracy was far-reaching and affected a substantial portion of all persons who consume the

more than a dozen medications at issue. Among other allegations, the States aver:

¶ 1 Defendants . . . [are] unreasonably restraining trade,

artificially inflating and maintaining prices and reducing

competition in the generic pharmaceutical industry . . .

including . . . the markets for [] fifteen (15) generic drugs . .

.

¶ 4 Defendants’ illegal agreements have raised prices . . . [in an

industry that otherwise] can save (and have saved)

consumers and other purchasers of drugs tens of billions of

dollars annually.

¶ 11 Defendant Heritage participated in a wide-ranging series of

restraints with more than a dozen generic drug

manufacturers . . .

¶ 22 To the extent specified in the state claims . . . certain

Attorneys General . . . [seek] relief . . . for governmental

entities and consumers in their states who paid or reimbursed

for the generic pharmaceutical drugs.

¶ 47 Generics constitute “over 80% of prescriptions filled”

nationally.

¶ 64 Defendants’ customers supply generic pharmaceuticals to a

wide swath of consumer populations, including . . . Medicaid

recipients; private and public sector employees . . .

employer-funded, or self-funded health plans; patients in

non-profit, or public hospitals or long-term care facilities;

and prisons.

¶ 66 Taken together, customers purchase a wide range of generic

pharmaceutical products, in enormous volumes, in every

state. Defendants’ business plans and strategies for their

broad portfolios . . . reach consumer populations in every

state.54

These allegations, among others throughout the CAC, are sufficient at the pleading stage to

support a reasonable inference that a substantial segment of the States’ citizenry has been

affected by Defendants’ alleged anticompetitive conduct.

3. The States need not allege that their suit does not overlap with individual

citizen suits

Finally, Defendants contend that the States’ claims impermissibly overlap with or

duplicate claims brought by individual citizens. Defendants boldly state that “parens patriae

standing exists only when ‘individual consumers cannot be expected to litigate’ the claims a state

purports to assert on their behalf.”55 But the States correctly respond that Defendants have

miscited Maryland v. Louisiana for that proposition.56 The decision in Maryland does not create

such a bright line rule. Instead, although a “[s]tate must be more than a nominal party . . . . a

[s]tate does have an interest, independent of the benefits that might accrue to any particular

individual, in assuring that the benefits of the federal system are not denied to its general

population.”57 A state’s parens standing to pursue injunctive relief does not depend on whether

individual citizens might succeed in independent litigation. The States’ quasi-sovereign interest

(ensuring a fair marketplace) diverges from any private litigant’s interest (obtaining treble

damages under federal law).

Finally, Defendants urge that even if there is no explicit rule prohibiting overlap between

state government suits and individual citizen suits, there is a risk of “duplicative recovery” in

54 CAC [Doc. No. 15].

55 Defs.’ Mem. Supp. Mot. to Dismiss [Doc. No. 74-1] at 9 (quoting Maryland v. Louisiana, 451 U.S. 725, 739

(1981)).

56 States’ Mem. Opp. Mot. to Dismiss [Doc. No. 121] at 11.

57 Alfred L. Snapp & Son, Inc., 458 U.S. at 608.

violation of Illinois Brick.58 This final argument carries no weight as the Court has concluded

that the states cannot obtain monetary disgorgement or restitution. As the States can obtain only

injunctive relief, there is little risk of duplicative monetary recovery. Thus, to the extent that the

States are pursuing injunctive relief in their parens capacity, they have standing to proceed.

IV. CONCLUSION

For these reasons, Defendants’ joint motion to dismiss plaintiffs’ federal law claims for

lack of standing will be granted in part and denied in part. An appropriate order will be entered.

58 Defs.’ Mem. Supp. Mot. to Dismiss [Doc. No. 74-1] at 10.