CVS Pharm. v. Forest Labs. (In re Watson Labs.)

• Docket Number: 23-410 (L),23-418 (CON),23-420 (CON),23-423 (CON)
• Decision Date: 13 May 2024
• Parties: Watson Laboratories, Inc., Debtor. v. Forest Laboratories Inc., Forest Laboratories Ireland, LTD, Forest Laboratories Holdings Ltd., Forest Laboratories, LLC, Allergan Sales LLC, Allergan, Inc., Allergan USA, Inc., Abbvie Inc., Watson Pharma, Inc., Watson Laboratories, Inc. (NY), Watson Laboratories, Inc. (CT), Watson Pharmaceuticals, Inc., Actavis, Inc., Teva Pharmaceuticals USA, Inc., Torrent Pharmaceuticals Ltd., Torrent Pharma Inc., Amerigen Pharmaceuticals Ltd., Amerigen Pharmaceuticals Inc., Glenmark Generics Inc., USA, Glenmark Generics Ltd., Glenmark Pharmaceuticals S.A., Hetero Labs Ltd., Hetero Drugs LTD., Hetero USA Inc., Indchemie Health Specialties Private Ltd., Alkem Laboratories Ltd., Ascend Laboratories, LLC, ANI Pharmaceuticals, Inc., Watson Laboratories, Inc. (NV), Watson Laboratories, Inc. (DE), Teva Pharmaceutical Industries Ltd., Glenmark Pharmaceuticals Ltd., Defendants - Appellees. [*] CVS Pharmacy, Inc., Rite Aid Corporation, Rite Aid Hdqtrs. Corp., J M Smith Corporation, on behalf of itself and all others similarly situated, DBA Smith Drug Company, KPH Healthcare Services, Inc., individually and on behalf of all others similarly situated, also known as Kinney Drugs, Inc., Mayor and City Council of Baltimore, UFCW local 1500 Welfare Fund, Teamsters Western Region & Local 177 Health Care Plan, Fraternal Order Of Police Miami Lodge 20, Insurance Trust Fund, Law Enforcement Health Benefits, Inc., Teamsters Local No. 1150 Prescription Drug Benefit Plan, Teamsters Local 237 Welfare Fund and Teamsters Local 237 Retirees Benefit Fund, Albertsons Companies, Inc., H-E-B L.P., The Kroger Co., Walgreen Co., Plaintiffs - Appellants,
• Court: U.S. Court of Appeals — Second Circuit

1

Watson Laboratories, Inc., Debtor.

CVS Pharmacy, Inc., Rite Aid Corporation, Rite Aid Hdqtrs. Corp., J M Smith Corporation, on behalf of itself and all others similarly situated, DBA Smith Drug Company, KPH Healthcare Services, Inc., individually and on behalf of all others similarly situated, also known as Kinney Drugs, Inc., Mayor and City Council of Baltimore, UFCW local 1500 Welfare Fund, Teamsters Western Region & Local 177 Health Care Plan, Fraternal Order Of Police Miami Lodge 20, Insurance Trust Fund, Law Enforcement Health Benefits, Inc., Teamsters Local No. 1150 Prescription Drug Benefit Plan, Teamsters Local 237 Welfare Fund and Teamsters Local 237 Retirees Benefit Fund, Albertsons Companies, Inc., H-E-B L.P., The Kroger Co., Walgreen Co., Plaintiffs - Appellants, v. Forest Laboratories Inc., Forest Laboratories Ireland, LTD, Forest Laboratories Holdings Ltd., Forest Laboratories, LLC, Allergan Sales LLC, Allergan, Inc., Allergan USA, Inc., Abbvie Inc., Watson Pharma, Inc., Watson Laboratories, Inc. (NY), Watson Laboratories, Inc. (CT), Watson Pharmaceuticals, Inc., Actavis, Inc., Teva Pharmaceuticals USA, Inc., Torrent Pharmaceuticals Ltd., Torrent Pharma Inc., Amerigen Pharmaceuticals Ltd., Amerigen Pharmaceuticals Inc., Glenmark Generics Inc., USA, Glenmark Generics Ltd., Glenmark Pharmaceuticals S.A., Hetero Labs Ltd., Hetero Drugs LTD., Hetero USA Inc., Indchemie Health Specialties Private Ltd., Alkem Laboratories Ltd., Ascend Laboratories, LLC, ANI Pharmaceuticals, Inc., Watson Laboratories, Inc. (NV), Watson Laboratories, Inc. (DE), Teva Pharmaceutical Industries Ltd., Glenmark Pharmaceuticals Ltd., Defendants - Appellees. ^[*]

Nos. 23-410 (L), 23-418 (CON), 23-420 (CON), 23-423 (CON)

United States Court of Appeals, Second Circuit

May 13, 2024

Argued: December 6, 2023

Forest Laboratories, the brand manufacturer of the high-blood-pressure drug Bystolic, settled patent-infringement litigation that it brought against seven manufacturers of generic versions of Bystolic.Contemporaneously with each settlement, pursuant to which the generic manufacturers agreed to forgo the launch of their products for several years, Forest separately entered into business transactions whereby it paid the generic manufacturers for goods and services.Plaintiffs, who are purchasers of Bystolic and its generic equivalents, sued Forest and the generic manufacturers under state and federal antitrust laws, alleging unlawful "reverse" settlement payments to delay the market entry of generic Bystolic.In Federal Trade Commission v. ActavisInc.,the Supreme Court held that reverse payments can "sometimes" violate the antitrust laws if they are large and "unjustified"--but that they do not do so when they represent fair value for goods or services exchanged as part of a bona fide commercial relationship.570 U.S 136, 141, 153-58(2013).This is the first time that this Court has considered an Actavis claim.

The United States District Court for the Southern District of New York(Liman, J.) twice dismissed the case for failure to state a claim.We agree with the district court that Plaintiffs fail to plausibly allege, as Actavis requires, that any of Forest's reverse payments were unjustified or unexplained, instead of constituting fair value for goods and services obtained as a result of arms-length dealings.We further hold that the district court's application of the pleading law set forth in Bell Atlantic Corp. v. Twombly,550 U.S. 544(2007), Ashcroft v. Iqbal,556 U.S. 662(2009), and this Court's progeny was appropriate, notwithstanding isolated phrases from the district court that have given ground for appeal.

The district court's judgment of dismissal with prejudice is therefore AFFIRMED.

BARRY L. REFSIN(Alexander J. Egervary, Caitlin V. McHugh, on the briefs), Hangley Aronchick Segal Pudlin & Schiller, Philadelphia, PA; Eric L. Bloom, Hangley Aronchick Segal Pudlin & Schiller, Harrisburg, PA, for Plaintiffs-AppellantsCVS Pharmacy, Inc., Rite Aid Corporation and Rite Aid Hdqtrs.Corp.

Bruce E. Gerstein, Kimberly M. Hennings, Garwin Gerstein & Fisher LLP, New York, NY, interim co-lead counsel for Plaintiffs-Appellants the Direct Purchaser Class and counsel for Plaintiff-AppellantSmith Drug Company.

David F. Sorensen, Caitlin G. Coslett, Berger Montague PC, Philadelphia PA, interim co-lead counsel for Plaintiffs-Appellants the Direct Purchaser Class and counsel for Plaintiff-AppellantSmith Drug Company.

Sharon K. Robertson, Cohen Milstein Sellers & Toll PLLC, New York, NY; Robin A. van der Meulen, Matthew Perez, Dicello Levitt LLP, New York, NY, interim co-lead counsel for the Proposed End-Payor Class and counsel for Plaintiffs-AppellantsMayor and City Council of Baltimore, UFCW Local 1500 Welfare Fund, Teamsters Western Region & Local 177 Health Care Plan, Fraternal Order of Police, Miami Lodge 20, Insurance Trust Fund, Law Enforcement Health Benefits, Inc., Teamsters LocalNo. 1150 Prescription Drug Benefit Plan, and Teamsters Local 237 Welfare Fund and Teamsters Local 237 Retirees' Benefit Fund.

Scott E. Perwin, Lauren C. Ravkind, Anna T. Neill, Kenny Nachwalter, P.A., Miami, FL, for Plaintiffs-AppellantsWalgreen Co., The Kroger Co., Albertsons Companies, Inc. and H-E-B, L.P.

Michael L. Roberts, Roberts Law Firm US, PC, Little Rock, AR; Dianne M. Nast, NastLaw LLC, Philadelphia, PA, additional counsel for Plaintiffs-Appellants the Direct Purchaser Class and counsel for Plaintiff-AppellantKPH Healthcare Services, Inc. a/k/a Kinney Drugs, Inc.

ERIC GRANNON(J. Mark Gidley, Peter J. Carney, Adam Acosta, Celia A. McLaughlin, on the brief), White & Case LLP, Washington, DC, for Defendants-AppelleesAbbVie Inc., Allergan, Inc., Allergan Sales, LLC, Allergan USA, Inc., Forest Laboratories, Inc., Forest Laboratories Holdings Ltd., Forest Laboratories Ireland, LTD., Forest Laboratories, LLC and Watson Pharmaceuticals Inc.(later known as Actavis, Inc.).

Jonathan D. Janow, Buchanan Ingersoll & Rooney PC, Washington, DC, for Defendants-AppelleesHetero Labs Ltd., Hetero Drugs Ltd. and Hetero USA Inc.

Devora W. Allon, P.C., Jay P. Lefkowitz P.C., Kirkland & Ellis LLP, New York, NY, for Defendant-AppelleeTorrent Pharma, Inc.

Ahmed M.T. Riaz, ArentFox Schiff LLP, New York, NY; Suzanne L. Wahl, ArentFox Schiff LLP, Ann Arbor, MI, for Defendants-AppelleesIndchemie Health Specialties Private Ltd., Alkem Laboratories Ltd. and Ascend Laboratories LLC.

Eileen M. Cole, James Tierney, Orrick, Herrington & Sutcliffe LLP, Washington, DC, for Defendant-AppelleeANI Pharmaceuticals, Inc.

Brian T. Burgess, Goodwin Procter LLP, Washington, DC; Christopher T. Holding, Goodwin Procter LLP, Boston, MA, for Defendants-AppelleesWatson Pharma, Inc.(n/k/a Actavis Pharma, Inc.), Watson Laboratories, Inc.(NV), Watson Laboratories, Inc.(DE)(n/k/a Actavis Laboratories UT, Inc.), Watson Laboratories, Inc.(NY)(later known as Actavis Laboratories NY, Inc.), Watson Laboratories, Inc.(CT), Teva Pharmaceutical Industries Ltd. and Teva Pharmaceuticals USA, Inc.Teresa T. Bonder, Alston & Bird LLP, San Francisco, CA; Matthew D. Kent, Andrew Hatchett, Alston & Bird LLP, Atlanta, GA; Natalie Christine Clayton, Alston & Bird LLP, New York, NY, for Defendants-AppelleesGlenmark Generics, Inc., USA, Glenmark Generics Ltd., Glenmark Pharmaceuticals S.A. and Glenmark Pharmaceuticals Ltd.

Tobias Snyder, Lewis & Llewellyn LLP, San Francisco, CA, for Defendants-AppelleesAmerigen Pharmaceuticals Ltd. and Amerigen Pharmaceuticals Inc.

BRADLEY DAX GROSSMAN, Attorney (Anisha S. Dasgupta, General Counsel, Mariel Goetz, Acting Director of Litigation, Markus H. Meier, Bradley S. Albert, Daniel W. Butrymowicz, Timothy Kamal-Grayson, Joseph P. Mathias, Of Counsel, on the brief), for Amicus Curiae Federal Trade Commission, in support of Plaintiffs-Appellants.

Michael E. Joffre, Kristina Caggiano Kelly, Richard A. Crudo, Sterne Kessler Goldstein & Fox PLLC, Washington, DC, for Amicus Curiae the Association for Accessible Medicines, in support of Defendants-Appellees.

Richard A. Samp, Margaret A. Little, Senior Litigation Counsel, New Civil Liberties Alliance, Washington, DC, for Amici Curiae the New Civil Liberties Alliance and the International Center for Law & Economics, in support of Defendants-Appellees.

John M. Masslon II, Cory L. Andrews, Washington Legal Foundation, Washington, DC, for Amicus CuriaeWashington Legal Foundation, in support of Defendants-Appellees.

Before: JACOBS, SACK and NARDINI, Circuit Judges.

DENNIS JACOBS, CIRCUIT JUDGE

Patents grant innovators of new brand drugs in the pharmaceutical industry a time-limited "right to exclude" competitors, 35 U.S.C. § 154(a)(1), including the manufacturers of cheaper generic versions of those brand drugs--who impatiently wait to market a less expensive clone until the patent expires, or is otherwise dislodged by a successful challenge.At stake in the clash of commercial interests are the financial incentives to develop new drugs and the desire of the public to buy them at a discount as soon as possible.The reciprocal pressures are sharpened by laws of every state that either permit or require pharmacies to substitute generics for their brand analogs (unless the prescribing physician requests otherwise).The ensuing litigations, ordinarily pitting claims of patent infringement against claims of patent invalidity or non-infringement, are often prolonged and expensive--and unless settled impair all the competing interests, including the affordability of the products.

With the Hatch-Waxman Act, seePub. L. No. 98-417,98 Stat. 1585(1984), Congress sought to encourage and streamline the approval process for generics while also protecting brand manufacturers' patents and incentives to...