La. Wholesale Drug Co. v. Shire LLC (In re Adderall XR Antitrust Litig.)

• Decision Date: 19 June 2014
• Docket Number: No. 13–1232.,13–1232.
• Citation: 754 F.3d 128
• Parties: In re ADDERALL XR ANTITRUST LITIGATION. Louisiana Wholesale Drug Company, Inc., on behalf of itself and all others similarly situated, Value Drug Company, on behalf of itself and all others similarly situated, Plaintiffs–Appellants, v. Shire LLC, Shire U.S., Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Second Circuit

754 F.3d 128

In re ADDERALL XR ANTITRUST LITIGATION.

Louisiana Wholesale Drug Company, Inc., on behalf of itself and all others similarly situated, Value Drug Company, on behalf of itself and all others similarly situated, Plaintiffs–Appellants,

v.Shire LLC, Shire U.S., Inc., Defendants–Appellees.^*

No. 13–1232.

United States Court of Appeals,Second Circuit.

Argued: March 17, 2014.

Decided: June 9, 2014.

Corrected: June 19, 2014.

Joseph Opper (Bruce E. Gerstein, Elena K. Chan, Kimberly Hennings, on the brief), Garwin Gerstein & Fisher LLP, New York, NY, for Plaintiffs–Appellants.

Michael F. Brockmeyer, Frommer Lawrence & Haug LLP, Washington, DC (Edgar H. Haug, John F. Collins, Frommer

Lawrence & Haug LLP, New York, NY, on the brief), for Defendants–Appellees.

Before: JACOBS, SACK, and LOHIER, Circuit Judges.

SACK, Circuit Judge:

The plaintiffs are wholesale dealers in pharmaceutical products including Adderall XR, a widely prescribed drug manufactured by the defendants. They brought this putative class action alleging that the defendants violated the anti-monopolization provision of the Sherman Act by breaching defendants' contracts to supply two of their competitors—who in turn supply the plaintiffs—with an unbranded version of the defendants' patented drug for resale under the competitors' own labels. Although the contracts were executed in connection with settlements of patent litigation, the plaintiffs disclaim any reliance on that fact. They argue instead that the contracts themselves gave rise to a “duty to deal” under antitrust law. We disagree and therefore affirm the judgment of the United States District Court for the Southern District of New York (Victor Marrero, Judge ) dismissing the complaint.

BACKGROUND

Defendants Shire LLC and Shire U.S., Inc. (together, “Shire”) hold patents covering Adderall XR (“AXR”), a drug approved by the U.S. Food and Drug Administration (“FDA”) in 2001 to treat attention-deficit/hyperactivity disorder. AXR enjoyed significant commercial success. In 2002, Teva Pharmaceuticals USA, Inc.,¹ sought FDA approval to produce a generic equivalent. Compl. ¶¶ 2–3. Impax Laboratories, Inc., followed suit in 2003. Id. ¶ 3.

Teva and Impax took advantage of the streamlined drug approval process established by a 1984 amendment to the Federal Food, Drug, and Cosmetic Act generally referred to as the “Hatch—Waxman Amendments.” See21 U.S.C. § 355(b), (j). The Act allows a generic maker to piggyback on the efforts of an approved drug's manufacturer by filing an Abbreviated New Drug Application (“ANDA”) showing, among other things, that its proposed product is biologically equivalent to the approved drug. Id. § 355(j)(2)(A)(iv). An ANDA must also include a certification that the proposed generic does not infringe the approved drug's patents. Id. § 355(j)(2)(A)(vii).

If an ANDA contains a certification that an approved drug's patents are “invalid or will not be infringed by the manufacture, use, or sale of the new drug for which the application is submitted,” the applicant must notify the drug's patent holder of the pending application. Id. § 355(j)(2)(A)(vii), (B)(iii). The patent holder then has forty-five days to file suit against the applicant for patent infringement. If the patent holder acts within this window, any FDA action on the ANDA is stayed for thirty months. Id. § 355(j)(5)(B)(iii). That is what happened here.

In their applications to the FDA, both Teva and Impax certified that Shire's patents for AXR were either “invalid or will not be infringed by the manufacture, use, or sale” of their proposed generic equivalents. See Compl. ¶ 39; 21 U.S.C. § 355(j)(2)(A)(vii). Shire responded by bringing suit against both companies for patent infringement.

In 2006, Shire settled its patent litigation with Teva and Impax. Compl. ¶¶ 5, 41. The agreements memorializing the settlement terms each reflected the same basic bargain: The generic manufacturers would stay out of the market for AXR for three years (even if their applications to produce generic AXR were approved by the FDA before then). Id. ¶¶ 5, 41. In exchange, Shire would grant the generic manufacturers licenses to make and sell generic AXR starting in 2009 (Teva in April; Impax in October). Id. ¶¶ 6, 42. If the FDA had not approved their ANDAs by that time, Shire would supply Teva's and Impax's requirements for unbranded AXR for resale under their own labels. Id. ¶¶ 6, 43. In short, Shire undertook to give its competitors both the rights and the supplies necessary to participate in the market for AXR. Id. ¶¶ 6, 44.

Because the FDA had not approved their ANDAs by the close of Shire's contractual period of exclusivity, Teva and Impax both began purchasing unbranded AXR from Shire for resale in 2009 pursuant to their settlement agreements with Shire. Compl. ¶¶ 47, 49, 51. Several months after their respective entries into the market, both Teva and Impax complained that Shire was only partially filling their orders.²Id. ¶¶ 53–60. The effect of this alleged shortfall on the price of AXR paid by wholesalers—the members of the plaintiffs' proposed class—gave rise to the litigation now before us on appeal.

In May 2012, Louisiana Wholesale Drug Company, Inc., based in Sunset, Louisiana, filed a putative class action against Shire in the Southern District of New York. See Louisiana Wholesale Drug Co. v. Shire LLC, No. 12 Civ. 3711(VM) (S.D.N.Y.). That case was subsequently consolidated with a nearly identical action brought by Value Drug Company of Altoona, Pennsylvania. Consent Order Consolidating Related Actions, Louisiana Wholesale Drug Co., No. 12 Civ. 3711(VM) (S.D.N.Y. Oct. 17, 2012), ECF No. 22. We refer to the plaintiffs collectively as “LWD.” Neither Teva nor Impax is a party to this litigation.

LWD alleged that by supplying Teva and Impax with less than their requirements of unbranded AXR, Shire relegated them to 50–60% of the market, instead of the 90% share they might have been expected to capture had they received the quantity of unbranded pills they had demanded. Compl. ¶¶ 6, 8, 52, 67. This, in turn, allowed Shire to “fix[ ], raise[ ], maintain[ ], and/or stabilize [ ] the price of AXR Product at supra-competitive levels,” and thereby to “overcharge[ ] Plaintiff and other direct purchasers of AXR Product hundreds of millions of dollars” in violation of section 2 of the Sherman Act. Compl. ¶ 9.

Shire moved to dismiss LWD's complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. It argued in pertinent part that Shire's alleged breaches of its contracts with Teva and Impax were not a valid basis for a monopolization claim because any actions taken within the scope of Shire's patent monopoly were immune from antitrust scrutiny.³See Mem. of Law in Support of Mot. to Dismiss at 2, Louisiana Wholesale Drug Co., No. 12 Civ. 3711(VM) (S.D.N.Y. June 29, 2012), ECF No. 12. In opposition, LWD asserted that once Shire had agreed to “relinquish its monopoly control over AXR ... vis-à-vis Teva and Impax” by entering into the patent litigation settlements, it had a “duty to deal” with its competitors under the Supreme Court's decision in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 105 S.Ct. 2847, 86 L.Ed.2d 467 (1985). See Mem. of Law in Opp'n at 8, Louisiana Wholesale Drug Co., No. 12 Civ. 3711(VM) (S.D.N.Y. July 20, 2012), ECF No. 19. That duty, LWD contended, converted Shire's ordinary breach of contract into an unlawful act of monopolization. Id.

The district court rejected LWD's arguments and dismissed the complaint. Louisiana Wholesale Drug Co. v. Shire LLC, 929 F.Supp.2d 256, 257 (S.D.N.Y.2013). The court relied principally on our decision in In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir.2006), abrogated by F.T.C. v. Actavis, Inc., ––– U.S. ––––, 133 S.Ct. 2223, 186 L.Ed.2d 343 (2013). The plaintiffs in that case challenged the legality of a type of patent litigation settlement known as a “reverse payment” settlement—not unlike the agreements here. Id. at 193–94. The defendant generic drug manufacturer in Tamoxifen agreed to join the defendant patent holder in obtaining vacatur of a district court judgment invalidating the patents it had challenged, and agreed to refrain from marketing its own product until those patents expired. Id. In exchange, the patent holder provided its erstwhile challenger with a large cash payment—the “reverse payment”—a patent license, and a supply of unbranded drugs for resale. Id. We rejected the plaintiffs' Sherman Act claims, holding that “[w]hatever damage is done to competition by [such a] settlement is done pursuant to the monopoly extended to the patent holder by patent law” and is therefore not barred by the antitrust statutes, “unless the terms of the settlement enlarge the scope of that monopoly.” Id. at 212–13.

Although LWD does not challenge the legality of the agreements in this case, the district court found its claims analogous to those in Tamoxifen. Louisiana Wholesale Drug Co., 929 F.Supp.2d at 262. The court concluded that the effect on competition of Shire's alleged refusal to supply all of the AXR that Teva and Impax demanded could be no greater than the effect of paying them to stay off the market altogether. Id. And, in light of Tamoxifen, the court was

not convinced that ... a patent holder granting multiple licenses that by their terms do not extend the scope of the patents in question, would nevertheless be subject to antitrust claims based on its conduct under those otherwise unchallenged licenses where that same patent holder would not face such liability if it refused outright to issue a license in the first instance.

Id. at 264. Addressing LWD's Aspen Skiing argument, the district court stressed the narrowness of the “duty to deal” doctrine. Id. And it distinguished the two cases LWD cited applying that doctrine in the context of drug patents, stating that th...