La. Wholesale Drug Co. v. Shire LLC

• Decision Date: 06 March 2013
• Docket Number: No. 12 Civ. 3711 (VM).,12 Civ. 3711 (VM).
• Parties: LOUISIANA WHOLESALE DRUG COMPANY, INC., on behalf of itself and all others similarly situated, Plaintiff, v. SHIRE LLC and Shire U.S., Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

929 F.Supp.2d 256

LOUISIANA WHOLESALE DRUG COMPANY, INC., on behalf of itself and all others similarly situated, Plaintiff,

v.SHIRE LLC and Shire U.S., Inc., Defendants.

No. 12 Civ. 3711 (VM).

United States District Court,

S.D. New York.

March 6, 2013.

Bruce E. Gerstein, Kimberly Marion Hennings, Garwin Gerstein & Fisher, L.L.P., Brian Dale Brooks, Smith Segura & Raphael, LLP, New York, NY, David C. Raphael, Jr., David P. Smith, Smith Segura & Raphael, LLP, David P. Smith, Percy, Smith & Foote, LLP, Alexandria, LA, John E. Fitzpatrick, III, John Gregory Odom, Stuart Edward Des Roches, Odom & Des Roches, LLP, New Orleans, LA, for Plaintiff.

John F. Collins, Frommer Lawrence & Haug LLP, New York, NY, Michael F. Brockmeyer, Frommer, Lawrence & Haug, L.L.P., Washington, DC, for Defendants.

DECISION AND ORDER

VICTOR MARRERO, District Judge.

Plaintiff Louisiana Wholesale Drug Company, Inc. (“LWD”), on behalf of itself and all others similarly situated, brought this action against Shire LLC and Shire U.S., Inc. (collectively, “Shire” or “Defendants”), asserting a violation of 15 U.S.C. § 2. Shire filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). Upon the Court's consideration of Shire's motion, LWD's opposition, and Shire's reply, for the reasons discussed below, Shire's motion is GRANTED.

I. BACKGROUND¹

Shire holds patents for and manufactures Adderall XR, a popular drug in the treatment of attention-deficit-hyperactivity-disorder since its introduction to the market in 2001. LWD is a drug wholesaler that purchased Adderall XR and its generic equivalents from Shire and other parties. This dispute sits at the intersection of patent law, pharmaceutical regulation,and antitrust law, with principles of contract law thrown in for good measure.

The Federal Food, Drug, and Cosmetics Act (the “FDCA”) regulates the introduction of drugs into the marketplace. See21 U.S.C. §§ 301 et seq. Manufacturers of new drugs must file a New Drug Application (“NDA”), which must be approved by the Food and Drug Administration (“FDA”) in order for the drug to be sold. The FDA approved Shire's NDA for Adderall XR on October 11, 2001, and, over the next decade, Shire enjoyed net sales of more than $6.5 billion.

But Shire's patents and approved NDA covering Adderall XR did not ensure complete exclusivity over that time. Indeed, federal law attempts to strike a balance between rewarding the innovation of drug manufacturers through the patent system and fostering competition in the marketplace through FDA approvals of generic drugs. Specifically, a 1984 amendment to the FDCA called the Drug Price Competition and Patent Term Restoration Act (the “Hatch–Waxman Act”) implemented a streamlined method for generic drug manufacturers to enter the marketplace: the filing of an Amended New Drug Application (“ANDA”). While an NDA requires scientific findings of safety and efficacy, a generic manufacturer of an already-approved drug can rely on those findings in the original NDA, and need only demonstrate that its new drug is “bioequivalent” to the original. At the same time, the Hatch–Waxman Act provided a measure of protection against the introduction of generic drugs by granting original manufacturers a thirty-month stay of FDA approval of the ANDAs of their generic competitors.

Shire's competition wasted little time in attempting to join the marketplace for Adderall. Two competitors are particularly relevant to this case: Teva and Impax. In November 2002, Teva filed an ANDA seeking FDA approval to manufacture and sell generic Adderall XR in the United States. Impax filed a similar ANDA in November 2003. Both manufacturers asserted that Shire's patents covering Adderall XR did not block the introduction of their generic products. Perhaps predictably, these streamlined applications triggered exactly the response envisioned by the Hatch–Waxman Act: Shire sued both Teva and Impax for patent infringement and received the accompanying automatic thirty-month stay of FDA approval for both ANDAs.

Ultimately, Shire settled its patent infringement lawsuits with Teva and Impax in 2006. Each settlement had the same structure: the generic manufacturers agreed not to launch any of their own products into the Adderall XR market for roughly three years,² thereby preserving Shire's market share. In return, Shire agreed to grant Teva and Impax patent licenses to sell generic Adderall XR once the three year no-competition window closed, and further agreed to supply all of Teva and Impax's needs for generic Adderall XR under separate requirements contracts with each. All parties to these settlements hedged their risks and received real benefits. Shire gained three years of guaranteed non-competition from two would-be generic distributors, while Teva and Impax received reduced barriers to market entry (in the form of patent licenses and a guaranteed supply of Adderall XR they could sell as generics) in exchange for their delayed entry.

These settlement agreements—specifically, Shire's alleged performance failures—sow the seeds of LWD's antitrust claim. According to LWD, while Shire continued to enjoy monopoly power through 2009 under the agreements, and it granted patent licenses to both Teva and Impax, it failed to meet the terms of its requirements contracts with the two generic distributors. LWD alleges that Shire, instead of supplying each entity with all the Adderall XR they demanded, intentionally breached the contracts to keep supplies artificially low and prices artificially high.³

In both cases, Shire failed to supply the requested amount of Adderall XR mere months after the requirements contracts kicked in. Although Shire continued to supply some product to both Teva and Impax and never failed to perform completely, LWD alleges that Shire instead kept 40–50% of the Adderall XR product to itself, thereby continuing to dominate sales in the market. ⁴ If it had fully complied with the requirements contracts, LWD contends, Shire's market share would have dropped to approximately 10%, as customers would have opted for the cheaper, generic (but chemically equivalent) products from Teva and Impax. In fact, Shire raised its prices on branded Adderall XR in late 2010, and subsequently increased the percentage of Adderall XR it kept for itself.

LWD alleges that Shire engaged in these actions with the intent to subvert competition in the Adderall XR market by sacrificing bona fide profits under the requirements contracts in favor of charging monopoly prices on its own sales (and even raising those prices as a result of the bottleneck it created). ⁵ Further, LWD alleges that Shire largely achieved its desired result: instead of watching its market share drop to roughly 10% in 2009, Shire's decision to limit supply allowed it to maintain 40–50% of sales in the market and watch as its revenues climbed. As a result of these artificial shortages, Teva and Impax could not compete with each other as generic suppliers in the market, meaning that not only were customers forced to pay monopolistic prices for branded Adderall XR, but they were also forced to pay inflated prices for the generic products sold by Teva and Impax.

II. LEGAL STANDARD

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ( quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). This standard is met “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. ( quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955). A court should not dismiss a complaint for failure to state a claim if the factual allegations sufficiently “raise a right to relief above the speculativelevel.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. The task of a court in ruling on a motion to dismiss is to “assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.” In re Initial Pub. Offering Sec. Litig., 383 F.Supp.2d 566, 574 (S.D.N.Y.2005) (internal quotation marks omitted). A court must accept as true all well-pleaded factual allegations in the complaint, and draw all reasonable inferences in the plaintiff's favor. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir.2002). This standard holds true for antitrust cases such as this one. See George C. Frey Ready–Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 555 (2d Cir.1977) (“It [is] clear in this circuit ... that a short plain statement of a claim for relief which gives notice to the opposing party is all that is necessary in antitrust cases, as in other cases under the Federal Rules.”) ⁶

III. DISCUSSION

LWD alleges a violation of 15 U.S.C. § 2. A claim under § 2 consists of two elements: “(1) the possession of monopoly power in the relevant market; and (2) the willful acquisition or maintenance of that power, as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” Volvo N. Am. Corp. v. Men's Int'l Prof'l Tennis Council, 857 F.2d 55, 73 (2d Cir.1988). Defendants make three arguments in favor of dismissal: (1) LWD's claims cannot support an antitrust violation because Shire was acting within the bounds of its lawfully held patents for Adderall XR; (2) LWD has failed to allege facts supporting a “relevant market”; and (3) some of LWD's damage claims are barred because it is an “indirect purchaser” under Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977).

A. WHETHER LWD'S CLAIMS ARE BARRED BY SHIRE'S LAWFULLY HELD PATENTS

Shire argues that LWD's...