In re Zetia (Ezetimibe) Antitrust Litig., MDL NO. 2:18md2836

• Decision Date: 09 August 2019
• Docket Number: MDL NO. 2:18md2836
• Citation: 400 F.Supp.3d 418
• Parties: IN RE: ZETIA (EZETIMIBE) ANTITRUST LITIGATION This Document Relates to: All Cases
• Court: U.S. District Court — Eastern District of Virginia

400 F.Supp.3d 418

IN RE: ZETIA (EZETIMIBE) ANTITRUST LITIGATION This Document Relates to: All Cases

MDL NO. 2:18md2836

United States District Court, E.D. Virginia, Norfolk Division.

Signed August 9, 2019

OPINION

Rebecca Beach Smith, United States District Judge

These matters come before the court on the Glenmark Defendants'¹ Motion to Dismiss Direct Purchaser Plaintiffs' Consolidated Class Action Complaint, ECF No. 157;² the Defendants' Joint Motion to Dismiss the Retailer Plaintiffs' Complaints, ECF No. 160; and the Defendants' Joint Motion to Dismiss All Claims Asserted by End Payer Plaintiffs, ECF No. 162.

On November 27, 2018, these matters were referred to United States Magistrate Judge Douglas E. Miller pursuant to the provisions of 28 U.S.C. § 636(b) (1) (B) and Federal Rule of Civil Procedure 72 (b), to conduct necessary hearings, including the hearing that was held on January 14, 2019, and to submit to the undersigned district judge proposed findings of fact, if applicable, and recommendations for the disposition of the Motions. Referral Order, ECF No. 208.

By copy of the Magistrate Judge's Report and Recommendation ("R&R"), filed on February 6, 2019, the parties were advised of their right to file written objections to the findings and recommendations made by the Magistrate Judge within fourteen (14) days from the date of service of the R&R on the objecting party. R&R at 105, ECF No. 234. Three sets of objections were filed on February 20, 2019: Retailer Plaintiffs' Objections to Report and Recommendation Regarding Motions to Dismiss ("Retailer Plaintiffs' Objections"), ECF No. 235; Glenmark Defendants' Objections to the February 6, 2019 Report and Recommendation Denying Motions to Dismiss Claims by Direct Purchaser Plaintiffs, End-Payor Plaintiffs, and Retailer Plaintiffs ("Glenmark Defendants' Objections"), ECF No. 236; and Merck Defendants' Written Objections to the Magistrate Judge's Report and Recommendation Dated February 6, 2019 ("Merck Defendants' Objections"), ECF No. 237.³ Responses to each set of objections were filed on March 6, 2019: Defendants' Joint Response to Retailer Plaintiffs' Objections ("Defendants' Response"), ECF No. 240; Plaintiffs' Response to Glenmark Defendants' Objections ("Plaintiffs' Response"), ECF No. 239; and End-Payor Plaintiffs' Opposition to the Merck Defendants' Objections ("EPPs' Opposition"), ECF No. 238. On March 6, 2019, the Glenmark Defendants filed a request for hearing on their Objections. ECF No. 241. The court finds a hearing unnecessary to resolve the Glenmark Defendants' Objections.

Pursuant to Rule 72(b) of the Federal Rules of Civil Procedure, the court, having reviewed the record in its entirety, hereby makes a de novo determination of those portions of the R&R to which the Defendants have specifically objected. See Fed. R. Civ. P. 72(b). The court may accept, reject, or modify, in whole or in part, the recommendation of the Magistrate Judge, or recommit the matter to him with instructions. 28 U.S.C. § 636(b) (1).

I. Retailer Plaintiffs' Objections

The Retailer Plaintiffs object to the portion of the R&R "that recommends dismissal of Retailer Plaintiffs' per se claim under section 1 of the Sherman Act, 15 U.S.C. § 1." Retailer Pls.' Objs. at 1. Specifically, the Retailer Plaintiffs assert that this "recommendation rests on two legally untenable propositions." Id. The first proposition is that Merck's existing patent rights preclude application of the per se rule. Id. (citing R&R at 51). The second proposition is that applying a per se rule would preclude the court from examining the Defendants' proffered justifications for settlement. Id. As explained below, the court finds that both propositions are legally tenable and consistent with controlling Supreme Court precedent.

The Retailer Plaintiffs' objections assume that the form of the alleged reverse payment settlement in this case, an agreement by Merck not to compete with Glenmark by launching an authorized generic (a "no-AG agreement"), requires this court to depart from FTC v. Actavis, Inc., 570 U.S. 136, 133 S.Ct. 2223, 186 L.Ed.2d 343 (2013), and apply a per se rule. Retailer Pls.' Objs. at 15 ("Retailer Plaintiffs do not contend that all reverse-payment settlement[s] should be subject to per se condemnation, but rather that no-AG agreements should be subject to such condemnation."). However, the Retailer Plaintiffs have not put forth any meritorious argument why the form of a reverse payment settlement, such as a no-AG agreement, warrants a departure from Actavis. The Retailer Plaintiffs also have not identified any case in which a court applied a per se rule to a reverse payment settlement or a no-AG agreement, and courts have universally applied the rule of reason to reverse payment settlements, including those involving a no-AG agreement. See, e.g., United Food & Commercial Workers Local 1776 & Participating Emps. Health & Welfare Fund v. Teikoku Pharma USA, Inc., 74 F. Supp. 3d 1052, 1075 & n.30 (N.D. Cal. 2014) (citing cases in which "district courts have considered no-authorized generic agreements under the rule of reason approach as set forth by the Court in Actavis"); see also Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007) ("[T]he per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue." (citing Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 9, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979) )).

Instead, the Retailer Plaintiffs have analogized the alleged no-AG agreement to three instances in which per se rules apply: a horizontal market-allegation agreement, a horizontal output restriction, and a price-fixing agreement. See Retailer Pls.' Objs. at 18-23. In the R&R, the Magistrate Judge aptly concluded that these analogies to various per se violations all share "the same fatal defect. Each relies solely on a characterization of the [no-AG] Agreement's effects while ignoring entirely the admittedly lawful basis Defendants assert for those same effects." R&R at 54. The Retailer Plaintiffs do not challenge this conclusion by adjusting their analogies or making any new arguments for applying a per se rule. See Retailer Pls.' Objs. In fact, the Retailer Plaintiffs' objections appear to repeat verbatim their entire argument for applying a per se rule, including the analogies, from their Memorandum in Opposition to Defendants' Motion to Dismiss. Compare id. at 15-23, with ECF No. 186 at 7-16.⁴

To undermine the Magistrate Judge's conclusion, the Retailer Plaintiffs attack his consideration of "the admittedly lawful basis Defendants assert for [the] effects [of the no-AG agreement]" in determining that a per se rule would be inappropriate. R&R at 54. The Retailer Plaintiffs do so by objecting to the Magistrate Judge's recognition of Merck's patent rights and the Magistrate Judge's proper application of Actavis, which permits courts to consider the proffered justifications for an alleged reverse payment settlement. Retailer Pls.' Objs. at 1. The Retailer Plaintiffs' objections overlook the very nature of the per se rules and disregard the clear and binding precedent of Actavis that directs courts to analyze reverse payment settlements under the rule of reason.

The per se rules treat certain business practices as "necessarily illegal." Leegin Creative Leather Prods., Inc., 551 U.S. at 886, 127 S.Ct. 2705 ("The per se rule, treating categories of restraints as necessarily illegal, eliminates the need to study the reasonableness of an individual restraint in light of the real market forces at work ...." (emphasis added) (citing Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723, 108 S.Ct. 1515, 99 L.Ed.2d 808 (1988) )). Thus, if the court applied a per se rule to an alleged reverse payment settlement because it took the form of a no-AG agreement, the court must treat that settlement as "necessarily illegal." See id. By treating a particular business practice as "necessarily illegal," the per se rules, by their very nature, preclude a court from considering the surrounding circumstances of that practice before deeming it illegal. See id.

Thus, applying a per se rule to the alleged no-AG agreement and finding it to be necessarily illegal would preclude the court from balancing the competing patent and antitrust polices that arise in the context of a reverse payment settlement. See Actavis, 570 U.S. at 148, 133 S.Ct. 2223 ("[P]atent 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."). The line of reasoning in the R&R related to Merck's patent rights does nothing more than recognize that applying a per se rule would be inappropriate in this case because of the balance that must be struck between competing patent and antitrust policies. See R&R at 51-53. This line of reasoning in the R&R further recognizes that patent polices do not become any less relevant in determining the antitrust immunity conferred by a patent when the reverse payment settlement takes the form of a no-AG agreement. See id.

Similarly, applying a per se rule to the alleged no-AG agreement and finding it to be necessarily illegal would preclude the court from considering the reasonableness of and the procompetitive justifications for the alleged reverse payment settlement, as required by Actavis. See Actavis, 570 U.S. at 148, 133 S.Ct. 2223 ("[I]t 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."); id. at 154, 133 S.Ct. 2223 ("We concede that settlement on terms permitting the patent challenger to enter the market before the patent expires would also bring about competition, again to the consumer's benefit.").

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