In re Lidoderm Antitrust Litig.

Decision Date21 February 2017
Docket NumberCase No. 14-md-02521-WHO
CourtU.S. District Court — Northern District of California

The Direct Purchaser Plaintiffs ("DPPs") and End Purchaser Plaintiffs ("EPPs") in this multidistrict litigation move for class certification of their antitrust claims challenging defendants' "reverse payment" patent litigation settlement that they contend led to inflated costs for the brand name and generic versions of lidocaine patches. Defendants oppose, arguing that the highly stratified distribution chain for pharmaceutical drugs means that the DPPs and EPPs cannot show injury or damages through classwide proof. Instead, defendants assert that individual questions centered around each DPP's or EPP's place in the purchasing chain create a multitude of individualized issues that swamp any common ones. Defendants also seek to exclude plaintiffs' experts' opinions as based on inherently unreliable assumptions.

Plaintiffs' alleged antitrust injury is, fundamentally, that defendants were allowed to overcharge for their brand and generic lidocaine patches. Under plaintiffs' well-supported theory, with which defendants disagree but cannot effectively undercut at this stage because it depends on disputed facts that will be resolved at the merits stage, the lidocaine patches were sold by defendants at higher prices than would have existed in the but-for world.

Defendants' oppositions to the motions for class certification boil down to the following:

• The distribution chain in the prescription drug market is very stratified and complex.
• The direct purchasers and various types of end purchasers have numerous, different agreements between themselves so that determining whether any particular plaintiff was injured and how to apportion damages between the plaintiffs necessarily involves individualized questions that are undeniably complex.

Both statements are true. But common questions predominate. Did defendants engage in anticompetitive conduct? Did that conduct lead to overcharges for brand and generic lidocaine patches? What aggregate damages resulted from the overcharges? This case is more appropriate for class certification than not.

Defendants' arguments against certification would result in certification of very few antitrust cases as a class actions, despite repeated direction from the Supreme Court that the class device is particularly useful in the antitrust context. Plaintiffs' experts (and indeed, defendants' experts) have presented reliable, statistically-sound methods to determine not only classwide injury but also proof of aggregate damages. The disputes about what the but-for price should have been absent the anticompetitive conduct and when the generic lidocaine patches would have entered the market but-for that conduct will be resolved largely through common proof at summary judgment or trial. Once those issues are resolved, the experts have shown how to determine aggregate damages - carving out purchases made by entities or individuals who are not included within the class definitions - with classwide proof. That there may then be a need to conduct individualized analysis to determine which plaintiffs were injured and how much in damages they should receive does not negate the significant common and predominant legal and factual questions that will have been resolved previously. The motions for class certification are GRANTED.


This case concerns the alleged antitrust and anticompetitive impact of a July 2012 settlement agreement ("Agreement") between defendants Endo Pharmaceuticals Inc. ("Endo"),Teikoku Seiyaku Co., Teikoku Pharma USA (collectively "Teikoku") and Watson Pharmaceuticals, Inc.1 (all collectively, "defendants"). The Agreement terminated ongoing patent litigation alleging invalidity of Teikoku's patents covering Lidoderm patches2 in exchange for giving brand-name Lidoderm patches to Watson, as well as a period of exclusivity to market its generic version of lidocaine patches without competition from Endo's generic patch.3

The primary terms of the Agreement were these. First, Watson agreed to delay launching its generic Lidoderm until September 15, 2013, about a year after the Food and Drug Administration's ("FDA") 30-month stay on Watson's Abbreviated New Drug Application ("ANDA") expired, a year before one of Teikoku's patents covering Lidoderm was to expire and two years before another of Teikoku's patents was due to expire. Second, Endo/Teikoku agreed to drop the pending patent infringement lawsuits and not further amend their Citizen Petition ("CP") pending with the FDA that asked the FDA to not approve ANDAs for Lidoderm unless they met more stringent scientific standards. Third, Endo/Teikoku agreed to give Watson $96 million worth of brand name Lidoderm patches to distribute or sell, on the condition that Watson honor Endo/Teikoku's existing price-related contracts. Fourth, Endo/Teikoku agreed not to release their authorized generic ("AG") lidocaine patch until seven and one half months after Watson began selling its generic version; during this "exclusivity period," Watson agreed to pay Endo/Teikoku a twenty-five percent royalty on the Gross Profit for sales of its generic.4

Plaintiffs filed suit, arguing that defendants' Agreement violated federal antitrust andrelated state laws. They assert that it harmed consumers because, absent the Agreement, Watson would have entered the market substantially before September 2013 with a generic lidocaine patch that was much less expensive than brand Lidoderm, that the Agreement allowed Endo/Teikoku to charge supracompetitive prices for their brand drug for longer and that the period of exclusivity allowed Watson to charger higher prices for its generic.


The DPPs are pharmaceutical wholesalers, pharmacies, hospitals, and retail stores that purchased brand and generic Lidoderm patches directly from defendants and supplied the product to others.5 Expert Report of Gregory K. Leonard, Ph.D. (Dkt. No. 563-2) ¶¶ 8, 25 (characterizing the DPPs as falling into five different classes of trade - national wholesalers, regional wholesalers, mail order wholesalers, hospitals, and retail pharmacies). The DPPs seek to certify the following class:

All persons or entities in the United States, including its territories, possessions, and the Commonwealth of Puerto Rico, who purchased brand or generic Lidoderm directly from any of the Defendants at any time during the period August 23, 2012 through May 1, 2014 (the "Class").

DPP Mot. 2-3. The end date of May 1, 2014, was chosen because that is the day before Endo launched its own authorized generic Lidoderm and it provides a "clear" cut-off date for class membership. Excluded from the class are defendants (and their officers, directors, management, employees, subsidiaries, and affiliates) and all federal government entities. DPP Mot. 3.

Under that definition, there are 55 DPP Class Members who are widely geographically dispersed across the United States. Leitzinger Decl., Exs. 4, 5.6 The DPP entities purchase drugs directly from the brand or generic (when available) manufacturers and provide them to hospitals,pharmacies, and retailers or re-sell the drugs to other wholesalers. Leonard Rep. ¶ 25.

The EPPs are employee health and welfare benefit plans, municipal corporations, employee unions, and individuals who purchased brand or generic Lidoderm from third parties, not from defendants directly.7 They seek to certify the following class:

(a) All persons and entities in the United States and its territories who, in Arizona, California, Florida, Kansas, Maine, Massachusetts, Minnesota, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, South Dakota, Tennessee, West Virginia, or Wisconsin ("Class States") for consumption by themselves or their family member, or by their insureds, plan participants or beneficiaries, paid and/or provided reimbursements for some or all of the purchase price of:
i. Branded Lidoderm for the time period August 23, 2012 through September 14, 2013; and/or
ii. AB-rated generic Lidoderm for the time period September 15, 2013 through August 1, 2014;

- and -

(b) Third-party payors CVS Caremark, Cigna, Envision Pharmaceutical Services, MedImpact Healthcare Systems, Inc., Comprehensive Health Management, Inc. Part D, and Express Scripts Senior Care to the extent they provided, under their Medicare Part D plans, reimbursements for some or all of the price of branded Lidoderm purchased in Class States for the time period September 15, 2013 through August 1, 2014.

Excluded from the Class are:

(a) Defendants and their officers, directors, management, employees, subsidiaries, and affiliates;
(b) Those who, after September 15, 2013, paid and/or provided reimbursements for branded Lidoderm and did not purchase or reimburse for generic Lidoderm, except third-party payors CVS Caremark, Cigna, Envision Pharmaceutical Services, MedImpact Healthcare Systems, Inc., Comprehensive Health Management, Inc. Part D, or Express Scripts Senior Care for their Part D insurance.
(c) Government entities, other than government-funded employee benefit plans;
(d) Fully insured health plans (i.e., plans that purchased insurance that covered 100 percent of the plan's reimbursement obligations to all of its members);(e) "Single flat co-pay" consumers who purchased Lidoderm or generic Lidoderm only via a fixed dollar co-payment that does not vary on the basis of the purchased drug's status as branded or generic (e.g., $20 for both branded and generic drugs);
(f) "Flat generic co-pay" consumers who, after September 15, 2013, purchased generic Lidoderm via a fixed dollar co-payment (e.g. $10 for generic drugs) regardless of the co-payment applicable to branded drugs;

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