Watson Labs., Inc. v. Forest Labs. Inc.

• Court: U.S. Court of Appeals — Second Circuit
• Writing for the Court: Dennis Jacobs, Circuit Judge
• Citation: Watson Labs., Inc. v. Forest Labs. Inc., 101 F.4th 223 (2nd Cir. 2024)
• Docket Number: 23-410 (L),23-418 (CON),23-420 (CON),23-423 (CON),August Term, 2023
• Decision Date: 13 May 2024
• Parties: 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.

101 F.4th 223

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.^*

No. 23-410 (L)

No. 23-418 (CON)

No. 23-420 (CON)

No. 23-423 (CON)

August Term, 2023

United States Court of Appeals, Second Circuit

Argued: December 6, 2023

Decided: May 13, 2024

Appeal from the United States District Court for the Southern District of New York (Liman, J.)

Barry L. Refsin (Alexander J. Egerváry, 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-Appellants CVS 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-Appellant Smith 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-Appellant Smith 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-Appellants 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, 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-Appellants Walgreen 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-Appellant KPH 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-Appellees AbbVie 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-Appellees Hetero 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-Appellee Torrent Pharma, Inc.

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

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

Brian T. Burgess, Goodwin Procter LLP, Washington, DC; Christopher T. Holding, Goodwin Procter LLP, Boston, MA, for Defendants-Appellees Watson 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-Appellees Glenmark Generics, Inc., USA, Glenmark Generics Ltd., Glenmark Pharmaceuticals S.A. and Glenmark Pharmaceuticals Ltd.

Tobias Snyder, Lewis & Llewellyn LLP, San Francisco, CA, for Defendants-Appellees Amerigen 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 Curiae Washington 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, see Pub. 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 create new products. Hatch-Waxman disciplines the unruly clash of interests by choreographing it as follows. Through a special certification, a generic manufacturer can challenge a brand drug's patents and, if it is the first to do so, may obtain a lucrative 180-day period of marketing exclusivity among generics from the first commercial marketing of the generic drug. If such a challenge is brought, the brand manufacturer can respond by filing a patent-infringement lawsuit against the generic manufacturer, which automatically defers approval of the generic drug. Rather than engage in costly, distracting, prolonged and uncertain patent-infringement litigation, the brand manufacturer will often choose to settle, and, in consideration for settlement, generic manufacturers may agree to defer launching their products.

Hatch-Waxman litigation between brand and generic manufacturers plays out against the backdrop of two incongruent legal regimes: patent and antitrust. The patent "monopoly" is, of course, legal--so long as it does not extend "beyond its terms." United States v. Aluminum Co. of Am., 148 F.2d 416, 439 (2d Cir. 1945) (L. Hand, J.). But a patent holder's market exclusivity allows for supra-competitive profit, which is at odds with the rule of price competition promoted by the antitrust laws. See United States v. Line Material Co., 333 U.S. 287, 309-10, 68 S.Ct. 550, 92 L.Ed. 701 (1948). Although patents are an exception to this baseline rule, they are not categorically immune from antitrust scrutiny.

This case involves the "tension between restraints on anti-competitive behavior imposed by the Sherman Act and grants of patent monopolies under the patent laws, as complicated by the Hatch-Waxman Act." In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187, 202 (2d Cir. 2006), abrogated on other grounds by Fed. Trade Comm'n v. Actavis, 570 U.S. 136, 133 S.Ct. 2223, 186 L.Ed.2d 343 (2013). Forest Laboratories, the brand manufacturer of the high-blood-pressure drug Bystolic, settled Hatch-Waxman patent-infringement litigation...