Harrison (Buzz) Frahn, Steven D. McLellan, Justin J. Calderon
Simpson Thacher & Bartlett LLP
On January 25, 2018, Judge Denise J. Casper moved the parties in In re Solodyn (Minocycline Hydrochloride) Antitrust Litigation closer to trial by denying motions for summary judgment from both sides. No. 14-md-02503, 2018 WL 563144, at *1 (D. Mass. Jan. 25, 2018). Defendants Medicis Pharmaceutical Corporation (“Medicis”) and Impax Laboratories, Inc. (“Impax”) (collectively “Defendants”) argued that Plaintiffs could not carry their burden under a Sherman Act Section 1 rule-of-reason analysis or a Section 2 monopolization theory because Defendants lacked market power. They also argued that the reverse payment settlement between Defendants could not have caused antitrust injury because Impax would never have launched a generic product with the risk of infringing Medicis’s patents. Consolidated Plaintiffs (or “Plaintiffs”), consisting of direct purchasers, end-payors, and major retailers, moved for summary judgment, arguing that Medicis had market power.
This case was brought before Judge Casper in 2014 as a multidistrict litigation proceeding, combining twelve antitrust actions in the District of Massachusetts, the District of Arizona, and the Eastern District of Pennsylvania. The complaints alleged violations of the Sherman Act based on Medicis’s reverse payment settlement with Impax in a patent case concerning Medicis’s patents for the drug Solodyn, a minocycline hydrochloride tablet used to treat moderate to severe acne. In 2006, after gaining FDA approval, Medicis launched Solodyn. The following year, Impax submitted an Abbreviated New Drug Application (“ANDA”) and sought a declaratory judgment in the Northern District of California that no valid Solodyn patent was infringed by Impax’s ANDA for its generic Solodyn. Impax then withdrew its suit in 2008 following a licensing and joint development agreement with Medicis. Under the agreement, Impax could sell its generic Solodyn under Medicis’s patents starting in November 26, 2011, and Medicis would pay Impax $40 million upfront, along with other future payments. Meanwhile, Medicis had also sued other generic manufacturers for infringing its Solodyn patents. Some manufacturers settled with Medicis using similar terms as the one with Impax: they could sell their generic Solodyn starting on November 26, 2011 under a license, and would receive payments from Medicis as well.
Plaintiffs in this class action consisted of three groups. The class of Direct Purchaser Plaintiffs (“DPPs”) consisted of persons or entities who purchased Solodyn or a generic version directly from Defendants during the class period, and they argued, under an Actavis rule-of-reason framework, that the reverse payment settlements violate Section 1 of the Sherman Act. The class of end-payors consisted of persons or entities not in the DPP class who paid for all or some of the purchase price for Solodyn or its generic versions, and they asserted state law claims not relevant to these motions for summary judgment. The third group, Retailer Plaintiffs, consisted of major retailers such as Walgreen Co., Safeway, Rite Aid, Albertson’s, HEB Grocery, and The Kroger Company, and they claimed that Defendants’ actions violated Section 2 of the Sherman Act.
On November 1, 2017, Defendants filed motions for summary judgment: one arguing that they did not have market power as required for the Section 1 and Section 2 claims, and another arguing that their actions did not cause the alleged injury. Plaintiffs filed a motion for partial summary judgment on market power and causation.
The district court began its analysis by rejecting Plaintiffs’ argument that a large reverse payment was sufficient to show market power. The Plaintiffs based their argument on the United States Supreme Court’s decision in FTC v. Actavis, Inc., 133 S. Ct. 2223, 2227 (2013), where the Supreme Court had reversed a motion to dismiss because a large reverse payment in a patent case “can sometimes violate the antitrust laws.” The district court distinguished Actavis on the grounds that the Supreme Court ruled on a motion to dismiss rather than a motion for summary judgment. In re Solodyn, 2018 WL 563144, at *5. Indeed, the district court ruled that large reverse payments are “not necessarily sufficient to demonstrate market power” for summary judgment. Id. As such, the district court followed the traditional method of looking at circumstantial and direct evidence of market power. Id.
Circumstantial Evidence of Market Power
To determine market power through circumstantial evidence, the court first needed to evaluate Medicis’s share of the relevant market. To do so, the court needed to define the market, since the parties disputed each other’s market definition. Defendants defined the relevant market as consisting of all oral tetracyclines used for moderate-to-severe acne, arguing that it could not have had meaningful market power given Solodyn’s functional interchangeability with an array of other drugs in the market, and “vigorous” competition for patients between Medicis and other oral tetracycline manufacturers. Defendants also attacked the Plaintiffs’ cross-elasticity price studies, relying on the Third Circuit’s decision in Mylan Pharmaceuticals, Inc. v. Warner Chilcott PLC, 838 F.3d 421 (3d Cir. 2016) (“Doryx”), which affirmed a district court’s summary judgment ruling that the relevant market for Doryx—an anti-acne medication like Solodyn—consisted of all oral tetracyclines prescribed to treat acne, including Solodyn and its generic equivalents.
On the other hand, the Plaintiffs’ much narrower market definition consisted only of Solodyn and its generic equivalents. Plaintiffs offered cross-elasticity studies showing that Solodyn did not exhibit great economic interchangeability—consumers tended to stick with Solodyn despite increases in price. In particular, Plaintiffs pointed to expert analysis showing that when the functionally similar Doryx entered the market, Solodyn sales actually rose, as opposed to other products which suffered significant reductions in prices. They also pointed to other studies comparing Solodyn with functionally interchangeable competitors such as generics and other oral tetracyclines, which concluded that Solodyn’s price increases were not constrained by price elastic substitution. Plaintiffs also differentiated Doryx because the Doryx plaintiffs failed to rebut defendants’ evidence of cross-price elasticity of demand. By contrast, the Plaintiffs argued in their motion that “Plaintiffs [in this case] have evidence of a lack of cross price elasticity between Solodyn and any drug other than generic Solodyn, and Defendants failed to rebut it.”
Judge Casper denied both parties’ motions for summary judgment on market power as to circumstantial evidence, finding genuine issues of fact. Id. at *10. Significantly, the court noted that Defendants did not introduce cross-elasticity models comparing Solodyn and the broad number of other oral tetracycline products that it argued was part of the relevant market. “Even in the pharmaceutical market,” the court ruled, “cross-elasticity must be demonstrated between products to establish a market definition that includes them.” Id. at *8. The court also rejected Defendants’ argument that it had to follow Doryx because in that case, the plaintiffs had failed to show any “quantitative analyses,” whereas the Plaintiffs in this case provided quantitative analyses on Solodyn and its supposed competitors. Id. at *10.
However, Judge Casper also denied Plaintiffs’ summary judgment motion because Defendants’ criticisms of their models “amount[ed] to a disputed issue of fact.” Id. at *9. So even though Defendants needed cross-elasticity evidence to define the market for its summary judgment motion, it did not need such evidence to oppose the Plaintiffs’ summary judgment motion. As such, the court denied summary judgment on market power based on the circumstantial evidence.
Direct Evidence of Market Power
Separately, Plaintiffs argued in their motion for summary judgment that they had direct evidence of Defendants’ market power, thereby eliminating the need to provide a market definition. Defendants argued that Plaintiffs’ evidence was insufficient.
Direct evidence of market power includes the ability to charge supracompetitive prices and restrict output. The Plaintiffs pointed to Medicis’s ability to charge supracompetitive prices, resulting in high margins. As part of that argument, the Plaintiffs said that Solodyn’s Lerner Index number—the ratio of a product’s margin to its price—was over 0.9, much higher than the threshold ratio of .05 that Plaintiffs’ argued was the baseline in determining potentially supracompetitive market power. Id at *10. However, the Plaintiffs did not show any evidence of restricted output. Id. at *12. Additionally, the court was concerned that high margins may be explained by factors that are not inherently anticompetitive, such as high fixed costs, a superior product, or superior marketing. Id. The court also noted the absence of cases holding that direct evidence was “sufficient for a showing of market power beyond the pleading stage.” Id. As such, the court denied Plaintiffs’ summary judgment motion on the basis of direct evidence. Id. at *13.
Defendants also argued that the Medicis-Impax settlement did not injure competition. Plaintiffs countered that the settlement unreasonably restrained competition because (A) Impax would have otherwise launched its generic Solodyn at-risk prior to the November 2011 date agreed to in the settlement, and (B) a no-payment settlement agreement would have allowed Impax to launch its generic Solodyn prior to November 2011.
Impax Would Have Launched At-Risk Prior to November 2011
To show that Impax would have launched its generic Solodyn at-risk prior to November 2011, the Plaintiffs needed to show that Impax could have launched without infringing any valid patent held by Medicis. Otherwise, Medicis’s legal monopoly over its patents, not necessarily anticompetitive conduct, prevented Impax from competing with Medicis. The court noted that because the burden of proving infringement falls on the patentee in patent suits, Plaintiffs in antitrust suits must only produce “some evidence” of invalidity or noninfringement, and are not required to prove that the generic defendant would have won, only that it could have. In other words, in this antitrust suit, the Plaintiffs’ required showing for patent invalidity is lower.
As evidence of patent invalidity, Plaintiffs proffered expert testimony saying that the patent was obvious and anticipated. Defendants attacked Plaintiffs’ proffer by trying to exclude the expert witnesses; however, Judge Casper waived off these objections by directing Defendants to address any such weaknesses in cross-examination. Id. at *15-16. As such, the Plaintiffs’ expert witnesses presented enough evidence to show that Impax was willing to launch at-risk, since its board approved at-risk launch, took orders from customers, and manufactured at least three months of supply. Id. at *19-20.
Impax Would Have Launched With A No-Payment Settlement Agreement Prior to November 2011
To show that Impax would have launched its generic Solodyn prior to November 2011 if there were a no-payment settlement, Plaintiffs proffered estimates of litigation costs as compared to expected profits. Those experts opined that if a no-payment settlement had been reached, then Impax would have entered the market either between February and June 2009 or September 2009 and October 2009. Defendants again objected regarding the reliability and relevance of these studies, but Judge Casper ruled that such objections were best suited for cross examination. Id. at *23.
This case now heads toward a jury trial scheduled for March 12, 2018. In the meantime, the court’s opinion further illuminates the risk that drug patentees face after the Supreme Court’s landmark ruling in Actavis, and the opinion may be relevant to other pay-for-delay cases that are still in discovery, such as In re Loestrin 24 Fe Antitrust Litigation (D.R.I., No. 1:13-md-02472), In re Intuniv Antitrust Litigation (D. Mass., No. 1:16-cv-12653), In re Aggrenox Antitrust Litigation (D. Conn., No. 3:14-md-02516), and In re Opana ER Antitrust Litigation, (N.D. Ill., No. 1:14-cv-10150). It is probably too early to say that Actavis has led to faster entry of generics into the market, but this case does not contradict the claim of Federal Trade Commission Acting Chairman Maureen Ohlhausen that pay-for-delay settlements are declining, and it actually highlights the difficulties that reverse payment settlors face in extricating themselves from similar cases.
For instance, Judge Casper’s decision suggests that functional equivalence does not help defendants prove market definition. Instead, Defendants must bring evidence of cross-elasticity as to the products at issue. Additionally, the court’s decision shows that prior rulings on market definition do not meaningfully constrain another court from making its own determinations; the court’s differentiation of Doryx on burden-of-proof grounds suggests that a party’s own production of econometrics plays a primary role in any market definition. As such, the production of expert testimony is paramount. Similarly, courts will likely remain wary of efforts to exclude such testimony from trial, as shown by Judge Casper’s unsolicitous treatment of Medicis’s attempts to defeat causation before trial by excluding expert witnesses. Merely attacking the analysis of an expert report is generally insufficient to prevent a court from considering the report. And finally, on the causation issue of a pay-for-delay case, plaintiffs’ burden to show patent invalidity is lower than it otherwise would be in a patent case, thereby making it easier for plaintiffs to overcome a motion for summary judgment focused on causation.
Overall, this case highlights the fact that entities contemplating reverse payment settlements must consider the likelihood of litigating antitrust claims up to trial.