FWK Holdings, LLC v. Merck & Co. (In re Zetia (Ezetimibe) Antitrust Litig.)

• Decision Date: 04 August 2021
• Docket Number: No. 20-2184,20-2184
• Citation: 7 F.4th 227
• Parties: IN RE: ZETIA (EZETIMIBE) ANTITRUST LITIGATION. FWK Holdings, LLC; Cesar Castillo, Inc., individually and on behalf of all those similarly situated; Rochester Drug Cooperative, Inc., Plaintiffs - Appellees, v. Merck & Company, Inc.; Merck Sharp & Dohme Corporation; Schering Plough Corporation; Schering Corporation; MSP Singapore Co. LLC ; Glenmark Pharmaceuticals, Ltd.; Glenmark Generics Inc., USA, Defendants - Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

7 F.4th 227

IN RE: ZETIA (EZETIMIBE) ANTITRUST LITIGATION.

FWK Holdings, LLC; Cesar Castillo, Inc., individually and on behalf of all those similarly situated; Rochester Drug Cooperative, Inc., Plaintiffs - Appellees,

v.Merck & Company, Inc.; Merck Sharp & Dohme Corporation; Schering Plough Corporation; Schering Corporation; MSP Singapore Co. LLC ; Glenmark Pharmaceuticals, Ltd.; Glenmark Generics Inc., USA, Defendants - Appellants.

No. 20-2184

United States Court of Appeals, Fourth Circuit.

Argued: May 6, 2021

Decided: August 4, 2021

ARGUED: Theodore J. Boutrous, Jr., GIBSON, DUNN & CRUTCHER LLP, Los Angeles, California, for Appellants. Thomas M. Sobol, HAGENS BERMAN SOBOL SHAPIRO LLP, Cambridge, Massachusetts, for Appellee. ON BRIEF: Eric J. Stock, New York, New York, Veronica S. Lewis, Ashley Johnson, Dallas, Texas, Samuel J. Liversidge, Christopher D. Dusseault, Bradley J. Hamburger, Daniel R. Adler, GIBSON, DUNN & CRUTCHER LLP, Los Angeles, California; Stephen E. Noona, KAUFMAN & CANOLES, P.C., Norfolk, Virginia, for Appellants Merck & Co., Inc.; Merck Sharp & Dohme Corp.; Schering-Plough Corp.; Schering Corp.; and MSP Singapore Co. LLC. Steven A. Reed, R. Brendan Fee, Zachary M. Johns, Jessica J. Taticchi, Philadelphia, Pennsylvania, Stacey Anne Mahoney, MORGAN, LEWIS & BOCKIUS LLP, New York, New York; Richard H. Ottinger, Dustin M. Paul, Jennifer L. Eaton, VANDEVENTER BLACK LLP, Norfolk, Virginia, for Appellants Glenmark Pharmaceuticals Ltd. and Glenmark Pharmaceuticals Inc., USA. Erin C. Burns, Hannah Schwarzchild, Bradley J. Vettraino, HAGENS BERMAN SOBOL SHAPIRO LLP, Cambridge, Massachusetts, for Appellee FWK Holdings, LLC and the Direct Purchaser Class. William H. Monroe, Jr., Marc C. Greco, Kip A. Harbison, Michael A. Glasser, GLASSER & GLASSER, P.L.C., Norfolk, Virginia, for Appellees FWK Holdings, LLC; César Castillo, Inc.; and Rochester Drug Co-Operative, Inc. John D. Radice, RADICE LAW FIRM, P.C., Princeton, New Jersey; Paul E. Slater, Joseph M. Vanek, David P. Germaine, Alberto Rodriguez, SPERLING & SLATER, P.C., Chicago, Illinois; Michael Roberts, Stephanie Smith, Karen Halbert, Will Wilson, ROBERTS LAW FIRM, P.A., Little Rock, Arkansas; Sharon K. Robertson, Donna M. Evans, COHEN MILSTEIN SELLERS & TOLL PLLC, New York, New York; Steve D. Shadowen, Matthew C. Weiner, HILLIARD & SHADOWEN LLP, Austin, Texas; Joseph H. Meltzer, Terence S. Ziegler, KESSLER TOPAZ MELTZER & CHECK LLP, Radnor, Pennsylvania, for Appellee FWK Holdings, LLC and the Direct Purchaser Class. Linda P. Nussbaum, NUSSBAUM LAW GROUP, P.C., New York, New York; Jayne A. Goldstein, SHEPHERD, FINKELMAN, MILLER & SHAH, LLP, Fort Lauderdale, Florida, for Appellee César Castillo and the Direct Purchaser Class. David F. Sorensen, Ellen T. Noteware, Nicholas Urban, BERGER MONTAGUE PC, Philadelphia, Pennsylvania; Barry Taus, Archana Tamoschunas, Kevin Landau, TAUS, CEBULASH & LANDAU, LLC, New York, New York; Peter R. Kohn, Joseph T. Lukens, Philadelphia, Pennsylvania, Bradley J. Demuth, FARUQI & FARUQI, LLP, New York, New York, for Appellee Rochester Drug Co-Coperative, Inc. and the Direct Purchaser Class.

Before NIEMEYER, FLOYD, and RUSHING, Circuit Judges.

Vacated and remanded by published opinion. Judge Floyd wrote the opinion, in which Judge Niemeyer and Judge Rushing joined. Judge Niemeyer wrote a separate concurring opinion.

FLOYD, Circuit Judge:

A group of pharmaceutical buyers brought this class action against two manufacturers who allegedly reached an anticompetitive settlement in a patent dispute. Defendants-Appellants Merck¹ and Glenmark² challenge the district court's class certification order. Plaintiffs-Appellees are a class of direct purchasers of Merck's brand-name drug and Glenmark's generic version of that drug. The district court determined that the putative class of thirty-five purchasers satisfied the class certification requirements set forth in Federal Rule of Civil Procedure 23. We hold that the district court's numerosity analysis fell short in several respects, so we vacate the district court's order and remand for further proceedings.

I.

In the 1980s, Merck began developing a cholesterol-lowering drug. Eventually, Merck invented ezetimibe

, patented and marketed under the name Zetia. Merck's patent was exclusive through April 2017, meaning that Merck had the exclusive right to develop ezetimibe through that date. In 2006, Glenmark sought FDA approval to market a generic version of Zetia, claiming that Merck's Zetia patent was "invalid or w[ould] not be infringed by the manufacture, use, or sale of" Glenmark's generic. See 21 U.S.C. § 355(j)(2)(A)(vii)(IV).³ As required by law, Glenmark notified Merck of its generic drug application. Merck promptly sued Glenmark for patent infringement. Glenmark did not contest that its proposed generic infringed on Merck's patent. Instead, Glenmark argued that Merck's patent was invalid. In 2010, Merck and Glenmark settled the patent dispute. The settlement agreement allowed Glenmark to launch its generic in December 2016—over four months before the expiration of Merck's exclusivity period.

Plaintiffs, on behalf of a small group of drug wholesalers that purchased Zetia directly from Merck, sued Merck and Glenmark under federal antitrust law, alleging that the two companies conspired to inflate the drug's price. Plaintiffs’ case drew parallels to the Supreme Court's decision in FTC v. Actavis, Inc. , 570 U.S. 136, 133 S.Ct. 2223, 186 L.Ed.2d 343 (2013), which concerned the anticompetitive settlement of a patent case. In Actavis , a brand-name manufacturer sued generic manufacturers for patent infringement. Under the parties’ settlement agreement, the brand-name manufacturer agreed to a reverse payment in which it agreed to pay the generic manufacturers between $240 and $342 million to delay the launch of their generic products. Id. at 144–45, 133 S.Ct. 2223. The FTC then sued both parties, alleging that the reverse payment was anticompetitive and therefore in violation of federal antitrust law. Id. at 145, 133 S.Ct. 2223. The Supreme Court agreed, holding that a "large and unjustified" reverse payment made "in return for staying out of the market" may give rise to antitrust liability. Id. at 154, 158, 133 S.Ct. 2223.

In this case, Plaintiffs allege that Merck made a "reverse payment" by giving up its right to sell a generic version of ezetimibe for the six-month period after Glenmark introduced its own generic. Because Glenmark was the first to seek FDA approval for a generic ezetimibe, it had the near-exclusive right to sell a generic for 180 days after launching it. 21 U.S.C. § 355(j)(5)(B)(iv). The right is near-exclusive because the brand-name manufacturer can market a competing generic, called an "authorized generic," by essentially rebranding its brand-name drug and selling it at a lower price point. In re Lamictal Direct Purchaser Antitrust Litig. , 957 F.3d 184, 189 (3d Cir. 2020).

Here, Merck chose to discount its branded drug rather than launch an authorized generic. Based on that decision, Plaintiffs allege that Merck must have agreed not to launch any authorized generic in exchange for ending the patent litigation between Merck and Glenmark. According to Plaintiffs, this agreement constitutes an anticompetitive "reverse payment." Without such an agreement, Merck and Glenmark would have settled the case by allowing Glenmark to launch its generic at least two years earlier than it actually did in December 2016. Had Glenmark's less expensive generic been available for those two years, the class would have spent billions less acquiring the generic ezetimibe instead of Merck's brand-name version.

Three entities sought to represent a class of all direct Zetia purchasers: FWK Holdings, LLC (FWK), Rochester Drug Co-Operative, Inc. (Rochester), and César Castillo, Inc. (Castillo). The thirty-two absent class members are all sophisticated companies with purportedly large claims, including the "Big Three" wholesalers—McKesson, AmerisourceBergen, and Cardinal Health—"who account for 97 percent of all class purchases." J.A. 1088.

Plaintiffs moved for class certification in November 2019. Merck and Glenmark opposed the motion, contending that the proposed class did not satisfy the requirements of Federal Rule of Civil Procedure 23. A magistrate judge issued a report and recommendation to certify the class in June 2020, to which Merck and Glenmark objected. In August 2020, the district court adopted the report, overruled all objections, and certified the class. Merck and Glenmark timely appealed.

II.

"We review a district court's decision to certify a class for abuse of discretion." EQT Prod. Co. v. Adair , 764 F.3d 347, 357 (4th Cir. 2014). But "[a] district court per se abuses its discretion when it makes an error of law." Thorn v. Jefferson-Pilot Life Ins. Co. , 445 F.3d 311, 317 (4th Cir. 2006).

III.

Before any class may be certified, Rule 23(a) requires a district court to make the following determinations:

(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class;

(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

(4) the representative parties will fairly and adequately protect the interests of the class.

Fed. R. Civ. P. 23(a). "A party seeking class certification must affirmatively demonstrate his compliance with the Rule," Wal-Mart Stores, Inc. v. Dukes , 564 U.S. 338, 350, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011), and must do so with "evidentiary proof," Comcast Corp. v. Behrend , 569 U.S. 27, 33, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013). And classes certified under Rule 23(b)(3) —as is the case here—are only appropriate when (1) "all of the prerequisites of Rule 23(a) are satisfied," (2) "common questions of law or fact ... predominate over any questions affecting only individual class members," and (3) "proceeding as a class [is] superior to other...