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In re Lipitor Antitrust Litigation

United States Court of Appeals, Third Circuit

April 13, 2017

IN RE: LIPITOR ANTITRUST LITIGATION Rite Aid Corporation; Rite Aid Hdqtrs. Corporation; JC (PJC) USA, LLC; Maxi Drug, Inc. d/b/a Brooks Pharmacy; Eckerd Corporation, Appellants in No. 14-4202 Walgreen Company; The Kroger Co.; Safeway, Inc.; Supervalu, Inc.; HEB Grocery Company L.P., Appellants in No. 14-4203 Giant Eagle, Inc., Appellant in No. 14-4204 Meijer, Inc.; Meijer Distribution, Inc., Appellants in No. 14-4205 Rochester Drug Co-Operative, Inc.; Stephen L. LaFrance Pharmacy, Inc. d/b/a SAJ Distributors; Burlington Drug Company, Inc.; Value Drug Company; Professional Drug Company, Inc.; American Sales Company LLC, Appellants in No. 14-4206 A.F.L.-A.G.C. Building Trades Welfare Plan; Mayor and City Council of Baltimore, Maryland; New Mexico United Food and Commercial Workers Union's and Employers' Health and Welfare Trust Fund; Louisiana Health Service Indemnity Company, d/b/a Blue Cross/Blue Shield of Louisiana; Bakers Local 433 Health Fund; Twin Cities Bakery Workers Health and Welfare Fund; Fraternal Order of Police, Fort Lauderdale Lodge 31, Insurance Trust Fund; International Brotherhood of Electrical Workers Local 98; New York Hotel Trades Counsel & Hotel Association of New York City, Inc., Health Benefits Fund; Edward Czarnecki; Emilie Heinle; Frank Palter; Andrew Livezey; Edward Ellenson; Jean Ellyne Dougan; Nancy Billington, on behalf of themselves and all others similarly situated, Appellants in No. 14-4602 RP Healthcare, Inc.; Chimes Pharmacy, Inc.; James Clayworth, R.Ph., d/b/a Clayworth Pharmacy; Marin Apothecaries, Inc., d/b/a Ross Valley Pharmacy; Golden Gate Pharmacy Services, Inc., d/b/a Golden Gate Pharmacy; Pediatric Care Pharmacy, Inc.; Meyers Pharmacy, Inc.; Tony Mavrantonis R. Ph., d/b/a Jack's Drugs; Tilley Apothecaries Inc., d/b/a Zweber's Apothecary, Appellants in No. 14-4632 IN RE: EFFEXOR XR ANTITRUST LITIGATION Walgreen, Co.; The Kroger, Co.; Safeway, Inc.; Supervalu, Inc.; HEB Grocery Company LP; American Sales Company, Inc., Appellants in No. 15-1184 Rite Aid Corporation; Rite Aid Hdqtrs., Corporation; JCG (PJC) USA, LLC; Maxi Drug, Inc. d/b/a Brooks Pharmacy; Eckerd Corporation; CVS Caremark Corporation, Appellants in No. 15-1185 Giant Eagle, Inc., Appellant in No. 15-1186 Meijer, Inc.; Meijer Distribution, Inc., Appellants in No. 15-1187 Professional Drug Company, Inc.; Rochester Drug Cooperative, Inc.; Stephen L. LaFrance Holdings, Inc.; Stephen L. LaFrance Pharmacy, Inc. d/b/a SAJ Distributors; Uniondale Chemist, Inc., Appellants in No. 15-1274 Painters District Council No. 30 Health & Welfare Fund; Medical Mutual of Ohio, Appellants in No. 15-1323 A.F.L.-A.G.C. Building Trades Welfare Plan; Daryl Deino; IBEW-NECA Local 505 Health & Welfare Plan; Louisiana Health Service Indemnity Company d/b/a Blue Cross/Blue Shield of Louisiana; Man-U Service Contract Trust Fund; MC-UA Local 119 Health & Welfare Plan; New Mexico United Food and Commercial Workers Union's and Employers' Health and Welfare Trust Fund; Plumbers and Pipefitters Local 572 Health and Welfare Fund; Sergeants Benevolent Association Health and Welfare Fund; Patricia Sutter (together "End-Payor Class Plaintiffs") on behalf of themselves and all others similarly situated, Appellants in No. 15-1342

          Argued: September 27, 2016

         On Appeal from the United States District Court for the District of New Jersey (MDL 2332) / (D.N.J. No. 3-12-cv-02389) / (D.N.J. No. 3-12-cv-02478) / (D.N.J. No. 3-12-cv-02519) / (D.N.J. No. 3-12-cv-04115) / (D.N.J. No. 3-12-cv-04537) / (D.N.J. No. 3-12-cv-05129) / (D.N.J. No. 3-12-cv-06774) / (D.N.J. No. 3-12-cv-07561) (D.N.J. No. 3-11-cv-05479) / (D.N.J. No. 3-11-cv-05590) / (D.N.J. No. 3-11-cv-05661) / (D.N.J. No. 3-11-cv-06985) / (D.N.J. No. 3-11-cv-07504) / (D.N.J. No. 3-12-cv-03116) / (D.N.J. No. 3-12-cv-03523) District Judge: Honorable Peter G. Sheridan

          Monica L. Rebuck Hangley Aronchick Segal Pudlin & Schiller, Maureen S. Lawrence Barry L. Refsin [ARGUED] Hangley Aronchick Segal Pudlin & Schiller One Logan Square 18th & Cherry Streets, Counsel for Appellants Rite Aid Corp., Rite Aid Hdqtrs Corp., Maxi Drug Inc., Eckerd Corp. and JCG (PJC) USA LLC

          Anna T. Neill Scott E. Perwin [ARGUED] Lauren C. Ravkind Kenny Nachwalter, P.A. 1441 Brickell Avenue Counsel for Appellants Walgreen Co., Kroger Co., Safeway Inc., Supervalu, Inc., HEB Grocery Co. LP and American Sales Co. LLC

          David P. Germaine Joseph M. Vanek Vanek, Vickers & Masini, P.C., Bradley J. Demuth Linda P. Nussbaum Nussbaum Law Group P.C. Counsel for Appellants Meijer, Inc. and Meijer Distribution

          Moira Cain-Mannix Bernard D. Marcus Marcus & Shapira LLP One Oxford Centre Counsel for Appellant Giant Eagle, Inc.

          Gregory T. Arnold Kristen A. Johnson Kristie A. LaSalle Thomas M. Sobol Hagens Berman Sobol & Shapiro LLP, Caitlin Coslett Eric L. Cramer Jennifer MacNaughton, Esq. Daniel Simons, Esq. David F. Sorensen, Esq. [ARGUED] Berger & Montague, P.C., Elena K. Chan Bruce E. Gerstein Kimberly Hennings Garwin Gerstein & Fisher LLP, Peter Kohn Richard D. Schwartz Faruqi & Faruqi LLP, Miles Greaves Barry S. Taus Taus Cebulash & Landau, LLP, Erin C. Burns Dianne M. Nast NastLaw LLC, Counsel for Appellants Direct-Purchaser Class Plaintiffs Rochester Drug Co-Operative, Inc., et al.

          James E. Cecchi [ARGUED] Lindsey H. Taylor Carella, Byrne, Cecchi, Olstein, Brody, & Agnello, P.C., Peter S. Pearlman Cohn Lifland Pearlman Herrmann & Knopf LLP, Liaison Counsel for Appellants Direct-Purchaser Class Plaintiffs Rochester Drug Co-Operative, Inc., et al.

          Justin N. Boley Bethany R. Turke Kenneth A. Wexler Wexler Wallace LLP, James W. Anderson Vincent J. Esades Renae Steiner David Woodward Heins Mills & Olson, P.L.C., J. Douglas Richards Sharon K. Robertson Cohen Milstein Sellers & Toll, PLLC, Michael M. Buchman Alex Straus, Esq. Motley Rice LLC, Jeffrey L. Kodroff John A. Macoretta Spector Roseman Kodroff & Willis, Counsel for Appellants End-Payor Class Plaintiffs AFL-AGC Building Trades Welfare Plan, et al.

          Lisa J. Rodriguez Schnader Harrison Segal & Lewis LLP, Liaison Counsel for Appellants End-Payor Class Plaintiffs AFL-AGC Building Trades Welfare Plan, et al.

          Joseph M. Alioto [ARGUED] Jamie L. Miller Theresa Driscoll Moore Alioto Law Firm, Timothy A.C. May Gil D. Messina Messina Law Firm, P.C., James M. Dombroski Law Office of James M. Dombroski. Counsel for Appellants RP Healthcare, Inc., et al.

          Lori A. Fanning Marvin A. Miller Matthew E. Van Tine Miller Law LLC, Kevin P. Roddy Wilentz, Goldman & Spitzer, P.A., Mark S. Sandmann Hill Carter Franco Cole & Black, P.C., Counsel for Appellants Painters District Council No. 30 Health & Welfare Fund and Medical Mutual of Ohio

          Steve D. Shadowen Hilliard & Shadowen LLP, Michael A. Carrier Rutgers Law School, Counsel for 48 Law, Economics, and Business Professors and the American Antitrust Institute as Amici Curiae in support of Appellants

          Jonathan E. Nuechterlein, Former General Counsel David C. Shonka, Acting General Counsel Joel Marcus, Director of Litigation

          Michele Arington, Assistant General Counsel Deborah L. Feinstein, Director Markus H. Meier, Acting Deputy Director Bradley S. Albert, Deputy Assistant Director Elizabeth R. Hilder Heather Johnson Jamie R. Towey Federal Trade Commission, Counsel for Federal Trade Commission as Amicus Curiae in support of Appellants

          Dimitrios T. Drivas Raj S. Gandesha Bryan D. Gant Sheryn E. George Robert A. Milne [ARGUED] Brendan G. Woodard Amy E. Boddorff White & Case LLP, Liza M. Walsh Connell Foley LLP, Counsel for Appellees Pfizer, Inc., Pfizer Ireland Pharmaceuticals, Warner-Lambert Company, Warner-Lambert Company LLC, Wyeth, Inc., Wyeth Pharmaceuticals, Inc., Wyeth-Whitehall Pharmaceuticals LLC and Wyeth Pharmaceuticals Company

          Jonathan D. Janow John C. O'Quinn Gregory L. Skidmore Edwin J. U Karen N. Walker Kirkland & Ellis LLP, Jay P. Lefkowitz, [ARGUED] Joseph Serino, Jr. Steven J. Menashi Kirkland & Ellis LLP, Counsel for Appellees Ranbaxy, Inc., Ranbaxy Pharmaceuticals, Inc., Ranbaxy Laboratories Ltd., Teva Pharmaceutical Industries Ltd. and Teva Pharmaceuticals USA, Inc.

          Katherine A. Helm Noah M. Leibowitz [ARGUED] Simpson Thacher & Bartlett LLP, David C. Kistler Blank Rome LLP, Counsel for Appellees Daiichi Sankyo Co. Ltd and Daiichi Sankyo, Inc. Victor E. Schwartz Philip S. Goldberg Cary Silverman Shook, Hardy & Bacon L.L.P., Counsel for American Tort Reform Association and Pharmaceutical Research and Manufacturers of America as Amici Curiae in support of Appellees

          Jonathan D. Hacker Edward Hassi O'Melveny & Myers LLP, Counsel for Antitrust Economists as Amici Curiae in support of Appellees Ashley Bass Stephen Bartenstein Andrew D. Lazerow Covington & Burling LLP, Counsel for Pharmaceutical Research and Manufacturers of America as Amicus Curiae in support of Appellees

          Roy Chamcharas Peter J. Curtin William A. Rakoczy Rakoczy Molino Mazzochi & Siwik LLP, Brian T. Burgess Goodwin Procter LLP, Christopher T. Holding Goodwin Procter LLP, Counsel for Generic Pharmaceutical Association as Amicus Curiae in support of Appellees

          Before: AMBRO, SMITH [*] and FISHER, [**] Circuit Judges.

          OPINION

          FISHER, Circuit Judge.

         A pharmaceutical company holding the patent on a drug sues the manufacturer of a generic version of that drug for patent infringement. The patent-holder and the generic manufacturer later settle, with the former paying the latter not to produce a generic until the patents at issue expire. In FTC v. Actavis, Inc., 133 S.Ct. 2233 (2013), the Supreme Court recognized that such a settlement-commonly known as a "reverse payment"-where large and unjustified, can sometimes unreasonably diminish competition in violation of the antitrust laws. To answer the antitrust question, Actavis explained, "it is not normally necessary to litigate patent validity" because "the size of the unexplained reverse payment can provide a workable surrogate for a patent's weakness." Id. at 2236-37.

         These two sets of consolidated appeals involve allegations that the companies holding the patents for Lipitor and Effexor XR delayed entry into the market of generic versions of those drugs. The companies did so, plaintiffs say, by engaging in an overarching monopolistic scheme that involved fraudulently procuring and enforcing the underlying patents and then entering into a reverse-payment settlement agreement with a generic manufacturer. With a single exception, every complaint asserts one of these monopolization claims against the patent-holders. The cases were assigned to the same district judge, who ultimately dismissed the bulk of plaintiffs' claims.

         In this opinion, we address two questions of federal jurisdiction. First, do plaintiffs' allegations of fraudulent procurement and enforcement of the patents require us to transfer these appeals to the Court of Appeals for the Federal Circuit? That court has exclusive jurisdiction over appeals from civil actions "arising under" patent law. 28 U.S.C. § 1295(a)(1). But not all cases presenting questions of patent law necessarily arise under patent law. See Christianson v. Colt Indus. Operating Corp., 486 U.S. 800 (1986). Where, as here, patent law neither creates plaintiffs' cause of action nor is a necessary element to any of plaintiffs' well-pleaded claims, jurisdiction lies in this Court, not the Federal Circuit.

         The second jurisdictional question we confront is confined to one of the Lipitor appeals, RP Healthcare, Inc. v. Pfizer, Inc., No. 14-4632. That case, brought by a group of California pharmacists, involves claims solely under California law and was filed in California state court. Following removal the District Court declined to remand the case to state court, citing potential patent defenses. That was error, as federal jurisdiction depends on the content of the plaintiff's complaint, not a defendant's possible defenses. Before final judgment, however, the remaining non-diverse defendants were voluntarily dismissed, thus raising the possibility that, notwithstanding the District Court's failure to remand the case, it possessed diversity jurisdiction before the time it entered judgment. See Caterpillar Inc. v. Lewis, 519 U.S. 61 (1996). But because the state of the record before us is unclear with regard to the citizenship of the parties, we cannot reach the merits of this appeal until that question is resolved. We will accordingly remand the RP Healthcare appeal to the District Court so it can conduct jurisdictional discovery and address the matter in the first instance.

         I

         It is necessary to begin by discussing the regulatory framework that forms the foundation for the issues presented by these appeals.

         A

         "Apparently most if not all reverse payment settlement agreements arise in the context of pharmaceutical drug regulation, and specifically in the context of suits brought under statutory provisions allowing a generic drug manufacturer (seeking speedy marketing approval) to challenge the validity of a patent owned by an already-approved brand-name drug owner." Actavis, 133 S.Ct. at 2227. With the Drug Price Competition and Patent Term Restoration Act, 98 Stat. 1585, as amended, known as the Hatch-Waxman Act, Congress "attempted to balance the goal of 'mak[ing] available more low cost generic drugs' with the value of patent monopolies in incentivizing beneficial pharmaceutical advancement." King Drug Co. v. SmithKline Beecham Corp., 791 F.3d 388, 394 (3d Cir. 2015) (alteration in original) (quoting H.R. Rep. No. 98-857, pt. 1, at 14-15 (1984)), cert. denied, 137 S.Ct. 446 (2016). "The Act seeks to accomplish this purpose, in part, by encouraging 'manufacturers of generic drugs . . . to challenge weak or invalid patents on brand name drugs so consumers can enjoy lower drug prices.'" Id. (alteration in original) (quoting S. Rep. No. 107-167, at 4 (2002)). In Actavis, the Supreme Court identified four relevant features of Hatch-Waxman's regulatory framework. 133 S.Ct. at 2227-29; see also King Drug, 791 F.3d at 394-96.

         First, a drug manufacturer seeking to market a new, "pioneer" prescription drug must obtain approval from the Food and Drug Administration (FDA). See 21 U.S.C. § 355(b)(1). This approval process involves testing that is "long, costly, and comprehensive." Actavis, 133 S.Ct. at 2228.

         Second, following FDA approval of a brand-name drug, a generic manufacturer can file an Abbreviated New Drug Application (ANDA) indicating that the generic "has the same active ingredients as, and is biologically equivalent to, the brand-name drug." Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 566 U.S. 399, 405 (2012) (citing 21 U.S.C. § 355(j)(2)(A)(iv)). The ANDA process furthers drug competition "by allowing the generic to piggy-back on the pioneer's approval efforts." Actavis, 133 S.Ct. at 2228.

         Third, the Hatch-Waxman Act "sets forth special procedures for identifying, and resolving, related patent disputes." Id. The new drug applicant is required to list any patents issued relating to the drug's composition or methods of use. See 21 U.S.C. § 355(b)(1). If the FDA approves the new drug, it publishes this patent information, without verification, in its Orange Book (officially known as Approved Drug Products with Therapeutic Equivalence Applications). King Drug, 791 F.3d at 395 & n.5 (citing Caraco, 566 U.S. at 405-06). In its ANDA, the generic manufacturer must "assure the FDA that its proposed generic drug will not infringe the brand's patents." Caraco, 566 U.S. at 406. One method of assurance is known as "paragraph IV certification, " whereby the generic may assert that the relevant listed patents are "invalid or will not be infringed by the manufacture, use, or sale of the [generic] drug." 21 U.S.C. § 355(j)(2)(A)(vii)(IV). The filing of a paragraph IV certification "means provoking litigation, " Caraco, 566 U.S. at 407, as the patent statute treats it as an act of automatic infringement, see 35 U.S.C. § 271(e)(2)(A). If the brand-name patentee brings an infringement suit within 45 days, the FDA is required to withhold approving the generic for a 30-month period. If the courts decide the matter during that period, the FDA will follow that determination; if not, the FDA may move forward on its own. See 21 U.S.C. § 355(j)(5)(B)(iii).

         Fourth, "Hatch-Waxman provides a special incentive for a generic to be the first to file an [ANDA] taking the paragraph IV route." Actavis, 133 S.Ct. at 2228-29. From the time it begins marketing its generic, the first-filer enjoys a 180-day exclusivity period during which no other generic can compete with the brand-name drug. See 21 U.S.C. § 355(j)(5)(B)(iv). This exclusivity period "can prove valuable, possibly 'worth several hundred million dollars.'" Actavis, 133 S.Ct. at 2229 (quoting C. Scott Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, 81 N.Y.U. L. Rev. 1553, 1579 (2006)). The right to exclusivity belongs to the first-filer alone and is nontransferable. See 21 U.S.C. § 355(j)(5)(D). However, Hatch-Waxman does not preclude the underlying patent-holder from marketing a brand-generic version of its drug-known as an "authorized generic"-during the 180-day exclusivity period. See Mylan Pharm., Inc. v. FDA, 454 F.3d 270, 276-77 (4th Cir. 2006); Teva Pharm. Indus. Ltd. v. Crawford, 410 F.3d 51, 55 (D.C. Cir. 2005); see also King Drug, 791 F.3d at 393; Sanofi-Aventis v. Apotex Inc., 659 F.3d 1171, 1174-75 (Fed. Cir. 2011).

         B

         In Actavis, the Supreme Court addressed whether reverse-payment settlements in the Hatch-Waxman context are subject to antitrust scrutiny. The Court concluded that such settlements "can sometimes violate the antitrust laws." 133 S.Ct. at 2227. That is so, the Court held, because "[a]n unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent's survival, " thus "suggest[ing] that the payment's objective is to maintain supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market." Id. at 2237.

         Actavis rejected an approach known as the "scope of the patent" test, a near-categorical rule that "absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent." FTC v. Watson Pharm., Inc., 677 F.3d 1298, 1312 (11th Cir. 2012), rev'd sub nom. Actavis, 133 S.Ct. 2223. The Court concluded that it would be "incongruous to determine antitrust legality by measuring the settlement's anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well." Actavis, 133 S.Ct. at 2231. Instead, the Court's precedents "indicated that patent and antitrust policies are both relevant in determining the 'scope of the patent monopoly'- and consequently antitrust law immunity-that is conferred by a patent." Id. The Court viewed these cases as "seek[ing] to accommodate patent and antitrust policies, finding challenged terms and conditions unlawful unless patent law policy offsets the antitrust law policy strongly favoring competition." Id. at 2233; see id. at 2244 (Roberts, C.J., dissenting) ("The majority seems to think that even if the patent is valid, a patent holder violates the antitrust laws merely because the settlement took away some chance that his patent would be declared invalid by a court."). Finally, the Court observed, among other ...


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