United Food & Commercial Workers Unions v. Warner Chilcott Ltd. (In re Asacol Antitrust Litig.)

• Decision Date: 15 October 2018
• Docket Number: No. 18-1065,18-1065
• Court: U.S. Court of Appeals — First Circuit
• Parties: IN RE: ASACOL ANTITRUST LITIGATION. United Food & Commercial Workers Unions and Employers Midwest Health Benefits Fund, on behalf of itself and all others similarly situated; Mark Adorney, Plaintiffs, Teamsters Union 25 Health Services & Insurance Plan, on behalf of themselves and all others similarly situated; NECA-IBEW Welfare Trust Fund, on behalf of themselves and all others similarly situated; Wisconsin Masons' Health Care Fund, on behalf of itself and all others similarly situated; Minnesota Laborers Health and Welfare Fund, on behalf of itself and all others similarly situated; AFSCME Health and Welfare Fund; Pennsylvania Employees Benefit Trust Fund; Ahold U.S.A., Inc.; Rochester Drug Co-Operative, Inc. ; Value Drug Company; Meijer, Inc.; Meijer Distribution, Inc., Plaintiffs, Appellees, v. Warner Chilcott Limited; Allergan, Inc., f/k/a Actavis, PLC; Allergan USA, Inc.; Allergan Sales, LLC; Allergan, PLC, Formerly known as Actavis, PLC, Defendants, Appellants, Zydus Pharmaceuticals USA Inc.; Cadila Healthcare Limited; Warner Chilcott (US), LLC ; Warner Chilcott Sales (US), LLC; Warner Chilcott Company, LLC, Defendants.

907 F.3d 42

IN RE: ASACOL ANTITRUST LITIGATION.United Food & Commercial Workers Unions and Employers Midwest Health Benefits Fund, on behalf of itself and all others similarly situated; Mark Adorney, Plaintiffs,Teamsters Union 25 Health Services & Insurance Plan, on behalf of themselves and all others similarly situated; NECA-IBEW Welfare Trust Fund, on behalf of themselves and all others similarly situated; Wisconsin Masons' Health Care Fund, on behalf of itself and all others similarly situated; Minnesota Laborers Health and Welfare Fund, on behalf of itself and all others similarly situated; AFSCME Health and Welfare Fund; Pennsylvania Employees Benefit Trust Fund; Ahold U.S.A., Inc.; Rochester Drug Co-Operative, Inc. ; Value Drug Company; Meijer, Inc.; Meijer Distribution, Inc., Plaintiffs, Appellees,

v. Warner Chilcott Limited; Allergan, Inc., f/k/a Actavis, PLC; Allergan USA, Inc.; Allergan Sales, LLC; Allergan, PLC, Formerly known as Actavis, PLC, Defendants, Appellants,Zydus Pharmaceuticals USA Inc.; Cadila Healthcare Limited; Warner Chilcott (US), LLC ; Warner Chilcott Sales (US), LLC; Warner Chilcott Company, LLC, Defendants.

No. 18-1065

United States Court of Appeals, First Circuit.

October 15, 2018

J. Mark Gidley, with whom Peter J. Carney, Dana Foster, Matthew S. Leddicotte, Jaclyn Phillips, Washington, DC, Maxwell J. Hyman, Robert A. Milne, Jack E. Pace III, Bryan D. Gant, Kelly Newman, and White & Case LLP New York, NY, were on brief, for appellants.

Richard A. Samp and Marc B. Robertson on brief for Washington Legal Foundation, amicus curiae.

Justin N. Boley, with whom Kenneth A. Wexler, Tyler J. Story, Wexler Wallace LLP, Chicago, IL, Tyler W. Hudson, Eric D. Barton, David Barclay, Wagstaff & Cartmell, LLP, Kansas City, MO, Nathaniel L. Orenstein, Boston, MA, Todd A. Seaver, San Francisco, CA, Berman Tabacco, Daniel E. Gustafson, Karla M. Gluek, Michelle J. Looby, Minneapolis, MN, Joshua J. Rissman, Gustafson Gluek PLLC, Jeffrey L. Kodroff, William G. Caldes, John A. Macoretta, Spector Roseman Kodroff & Willis, P.C., Philadelphia, PA, Peter J. Mougey, Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, P.A., Pensacola, FL, Jonathan D. Karmel, and Karmel Law Firm, Chicago, IL, were on brief, for appellees.

Before Lynch, Kayatta, and Barron, Circuit Judges.

KAYATTA, Circuit Judge.

Drug manufacturer Warner Chilcott Limited pulled one of its products—Asacol—from the market just months before the drug's patent protection expired. Warner simultaneously introduced a similar but not exactly identical substitute drug called Delzicol, the patent protection for which ran years longer. This coordinated withdrawal and entry of the two drugs allegedly precluded generic manufacturers from introducing a generic version of Asacol

, which would have provided a lower-cost alternative to Warner's drugs Delzicol and Asacol HD, a version of Asacol that was also still under patent protection. Crying foul, the named plaintiffs in this case filed a class action alleging a violation of the consumer protection and antitrust laws of twenty-five states and the District of Columbia. On plaintiffs' motion, the district court certified a class of all Asacol

purchasers who subsequently purchased Delzicol or Asacol HD in one of those twenty-six jurisdictions. In so doing, the court found that approximately ten percent of the class had not suffered any injury attributable to defendants' allegedly anticompetitive behavior. Nevertheless, the district court determined that those uninjured class members could be removed in a proceeding conducted by a claims administrator. We find this approach to certifying a class at odds with both Supreme Court precedent and the law of our circuit. We therefore reverse.

I.Asacol

is a pharmaceutical drug that treats mild to moderate ulcerative colitis, a chronic inflammatory bowel disorder. Developed and first manufactured by Procter and Gamble Pharmaceuticals, Asacol debuted on the market in 1992 and received the protection of two patents. Those patents expired on July 30, 2013. In 2008, Procter and Gamble brought a new variation of Asacol to market, dubbed Asacol HD, which treated moderate, but not mild, ulcerative colitis. This new drug differed from Asacol in two key ways: it included twice the dosage, and it replaced Asacol's single-layer coating with a dual-layer coating. Asacol HD's patent protection extended years beyond that of Asacol. In 2009, Warner Chilcott purchased Procter and Gamble's pharmaceutical portfolio, which included both Asacol and Asacol HD.

On March 18, 2013, only a few months shy of the end of Asacol's

patent protection, Warner stopped selling and marketing Asacol. On the same day, Warner introduced a new drug: Delzicol. Delzicol, like Asacol, treats ulcerative colitis. The two drugs contain the same active ingredient and dosage, and sold for the same price. Unlike Asacol, Delzicol comes in a capsule that does not contain dibutyl phthalate ("DBP"). DBP is a plasticizer, the safety of which appears to have been the subject of a dialogue between the FDA and Asacol's manufacturers.

On June 22, 2015, several plaintiffs (collectively "plaintiffs," "named plaintiffs," or "class representatives") filed suit on their own behalf and on behalf of a putative class. These plaintiffs are all union-sponsored benefit plans that paid for the purchases of Asacol

HD and Delzicol. In their operative complaint, plaintiffs allege that Warner harbored an anticompetitive motivation for its conduct. According to the complaint, Warner's aim in pulling Asacol from the market and introducing Delzicol was to preclude the possibility of market entry of generic drugs, which would have cut into Warner's profits. State law provides the mechanism for this preclusion. Under most state substitution laws, pharmacists can fill a prescription by substituting a generic drug for the prescribed brand drug, but only if the brand drug is listed as a "reference" drug for the generic. This automatic substitution, plaintiffs say, provides the "only viable cost-efficient means" for new generics to "compet[e] with brand drugs." But even a small alteration to the brand drug, such as substituting a tablet form for a capsule form, can prevent a generic equivalent from using the discontinued form as a reference drug. Thus, by pulling Asacol, Warner effectively prevented generic drugs that would have used Asacol as a reference drug from entering the market after the expiration of Asacol's patents.¹ And the introduction of a similar, but not wholly equivalent, drug—Delzicol—with the potential for longer-lasting patent protection, allowed Warner to substantially retain its market share. Thus, plaintiffs contend, Warner forced consumers into a "hard switch" and maintained its monopoly power unencumbered by competition from generic entry. Plaintiffs' theory of liability rests on a Second Circuit decision that condemns similar such conduct. See New York ex rel. Schneiderman v. Actavis PLC, 787 F.3d 638 (2d Cir. 2015).

The named plaintiffs and the putative class members purchased Warner's products not from Warner directly, but from third party intermediaries. That means that they cannot sue Warner for damages under the federal antitrust law. Illinois Brick Co. v. Illinois, 431 U.S. 720, 736, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). Plaintiffs therefore seek recovery under the laws of twenty-five states and the District of Columbia that allow indirect purchasers to challenge anticompetitive conduct by manufacturers whose products consumers acquire through intermediaries.² All twenty-six jurisdictions, according to plaintiffs, generally interpret state law restraints on anticompetitive activity consistently with federal courts' interpretation of federal antitrust law, but have " Illinois Brick repealer" laws allowing antitrust damage actions by indirect purchasers against manufacturers.

Plaintiffs moved for class certification on behalf of a class of all similarly situated indirect purchasers, including any individual consumers who purchased the relevant Warner products from drug retailers in the twenty-six jurisdictions. Plaintiffs designed the class to include only those persons or entities that both purchased Asacol

prior to July 31, 2013—the approximate date on which Asacol's patent protection expired—and also purchased either Asacol HD or Delzicol after July 31, 2013. Both sides introduced expert evidence regarding the propriety of class certification.

The district court granted plaintiffs' motion for class certification. Rejecting Warner's argument to the contrary, the district court concluded that the named plaintiffs had standing to prosecute claims on behalf of class members under various state laws even if the named plaintiffs themselves had not made purchases in all those states. Any difference between the claims of the named plaintiffs and those of unnamed class members was a matter for consideration under Rule 23, and not a matter of Article III standing, the court ruled.

Moving to the Rule 23 analysis, the district court first found that plaintiffs' proposed class satisfied the four elements of Rule 23(a): numerosity, commonality, typicality, and adequacy. See Fed. R. Civ. P. 23(a). The district court also concluded that the proposed class passed muster under Rule 23(b)(3) because common questions predominated over individual questions and a class action presented a superior method for resolving plaintiffs' claims.

In making those determinations, the district court grappled with a problem that has been the source of much debate among the circuits: the presence of uninjured class members. The district court presumed that approximately ten percent of class members had not been injured by Warner's allegedly anticompetitive conduct because, even had a lower-priced generic alternative been available, these consumers would not have switched to it.³ The court based this conclusion on the reports of both sides' experts. Those experts...