Antitrust and Unfair Competition Law

Competition: Winter 2017-18, Vol. 27, No. 1

CAUSATION PRINCIPLES IN PHARMACEUTICAL ANTITRUST LITIGATION

By Steve D. Shadowen1

Antitrust plaintiffs bring private claims in the pharmaceutical arena that arise from two recurring sets of facts in which brand-drug manufacturers allegedly delay or impair competition from generic-drug manufacturers. In "exclusion payment" or "pay-for-delay" antitrust cases, plaintiffs allege that the brand manufacturer, in the context of settling patent litigation, paid the generic manufacturer to withdraw its challenge to the patent and delay entry into the market. In "product-hopping" cases, plaintiffs allege that the brand manufacturer reformulated its product and switched the built-up base of prescriptions from the original to the reformulated product, in order to shield the prescription base from automatic generic substitution.

Courts are well along in establishing the rules for liability in exclusion-payment cases.2 Product-hopping liability rules are currently less well defined, but the broad outlines are coming into view.3 With liability standards established or on the horizon, the locus of contention in private litigation is increasingly shifting to causation: what evidence must plaintiffs adduce in order to permit a jury to conclude that the antitrust violation caused the injury for which plaintiffs seek recovery?

Borrowing from the common law of torts, courts in antitrust cases apply the familiar rule that plaintiffs must prove that the violation was a "material" or "substantial" cause of the injury. This is a different inquiry than determining the quantum of antitrust damage that the plaintiffs sustained. In determining damages, the plaintiffs compare the price that they actually paid to the price that they would have paid absent the violation—a comparison of the "actual world" to the "but-for world." This requires plaintiffs to offer a reconstruction of what likely would have happened absent the violation. This is not the relevant analytical framework for determining whether the violation likely caused an injury to plaintiffs. In determining causation, the jury considers the nature of the violation and the injury that actually occurred, and then makes a common-sense judgment about whether the violation likely caused the injury. For causation, plaintiffs need not offer any reconstructed "but-for world."

In making its judgment about whether the violation likely caused the injury, a jury is aided by a well-settled legal principle, adopted from tort law, that I call the "Causation Inference." Where defendant’s conduct is deemed to be anticompetitive because of its propensity to cause a particular type of injury, and plaintiffs, in fact, suffered that type of injury, the jury is entitled to draw the inference—the Causation Inference—that the violation likely caused the injury. Courts routinely apply the Causation Inference in both tort and antitrust cases, including in pharmaceutical antitrust cases, and hold that it is sufficient to get plaintiffs to a jury on the question of causation.

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Two other important consequences flow from the Causation Inference in antitrust cases. First, once the Causation Inference arises, the burden shifts to the defendant to prove that intervening causes would have resulted in the same injury even absent the antitrust violation. In a pharmaceutical exclusion-payment case, for example, once the Causation Inference arises, the defendant has the burden to prove that the generic manufacturer would not have received timely FDA approval or would have lost the patent litigation, or alternatively that, if the patent litigation had been settled, the agreed generic-entry date would not have been any earlier than in the actual agreement.

Second, many antitrust plaintiffs will produce evidence that both supports their but-for world for purposes of proving damages and also rebuts defendant’s alleged intervening causes (e.g., evidence that the generic manufacturer would have won the patent litigation). When used to support plaintiffs’ damages, this evidence is protected by the lenient evidentiary standard that applies to estimating antitrust damages. That rule does not change because plaintiffs also use the evidence to counter defendants’ evidence of intervening causes—an issue on which defendants have the burden of proof.

I. BASIC LAW OF CAUSATION

Section 4 of the Clayton Act permits an antitrust plaintiff to recover damages for injuries that she sustained to her business or property "by reason of" defendant’s antitrust violation.4 Some courts characterize this causation requirement as an element of plaintiff’s antitrust standing;5 others as a stand-alone element of plaintiff’s claim for damages.6 Regardless of how courts frame the issue, the question boils down to whether the defendant’s anticompetitive conduct likely caused the injury for which plaintiff seeks recovery.

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Causation in antitrust law generally follows the same principles applicable under the common law of torts.7 Tort law applies the familiar "substantial factor" test: plaintiff must prove that defendant’s wrongful conduct "has been a substantial factor in bringing about the harm [plaintiff] has suffered."8 Courts therefore require antitrust plaintiffs to prove that the anticompetitive conduct was a "material" or "substantial" part of the causal chain leading to the injury.9 Causation is a fact-intensive and context-dependent issue usually best left "for the jury to be determined as a fact."10

II. CAUSATION FRAMEWORK DIFFERENT FROM DAMAGES FRAMEWORK

Courts could easily go astray in pharmaceutical antitrust cases by confusing the framework for analyzing causation with the framework for analyzing damages. In order to estimate the amount of damages, plaintiffs construct a "but-for world," i.e., the hypothetical state of competition that likely would have occurred if defendant had not violated the antitrust law. Purchaser plaintiffs compare the amount they paid for the product in the "actual world," i.e., in the state of competition that they actually experienced, with the amount they would have paid in the but-for world. The difference is their damages.

For example, in an exclusion-payment case, plaintiffs’ proffered but-for world might consist of an alternative, hypothetical patent settlement in which the brand manufacturer gave the generic manufacturer a license to enter the market on the expected entry date,11say, Year 5 where the patent had a remaining term of 10 years. In the actual world, however, the patent litigants reached a settlement in which the brand manufacturer granted a license to the generic manufacturer to enter the market in Year 7—two years beyond the expected entry date—and also (unlawfully) paid the generic manufacturer $100 million. The generic manufacturer did, in fact, stay out of the market until Year 7. Plaintiffs’ damages consist of the savings they would have achieved if generic entry had occurred on the expected entry date, two years earlier.

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In short, the analytical framework for damages compares competition in the actual world to competition in the but-for world.

That is not the analytical framework for analyzing causation in antitrust cases generally, or in pharmaceutical antitrust cases in particular. For causation, antitrust law applies two fundamental, interrelated tort-law precepts. The factfinder decides causation by making a common-sense judgment about whether the defendant’s actual-world conduct likely contributed to the plaintiff’s actual-world injury. In this analysis, the factfinder need not compare the actual world to the but-for world.

Further, in making its judgment as to whether defendant’s actual-world conduct likely contributed to plaintiffs’ injury, the factfinder is aided by the Causation Inference: the inference that, if conduct is unlawful because of a tendency to cause a certain type of injury, and such an injury in fact occurred, the conduct likely caused it.12 As articulated in the Restatement of Torts, "[i]f, as a matter of ordinary experience, a particular act or omission might be expected to produce a particular result, and if that result has in fact followed, the conclusion may be justified that the causal relation exists."13

Returning to the exclusion-payment example above, the plaintiffs’ prima facie case on causation is incisively simple. Exclusion payments are unlawful because they tend to result in generic manufacturers’ delaying entry into the market beyond the expected entry date.14 So, plaintiffs’ principal causation evidence will consist in proving that: (a) the settlement agreement contained an unlawful (i.e., large and unjustified) exclusion payment, and (b) the generic manufacturer did, in fact, stay out of the market until the date to which it agreed in exchange for the payment. Plaintiffs’ prima facie evidence of causation is the compelling inference that (a) caused (b). To collect damages, plaintiffs will need to proffer evidence of a but-for world that shows how much later than the expected entry date the payment likely caused generic entry to occur. But that is not necessary for causation.

Consider another example. A brand manufacturer’s product-hopping is unlawful because it tends to substantially reduce the prescription base available for automatic generic substitution.15 A plaintiff’s principal causation evidence will consist in proving that: (a) the brand manufacturer unlawfully product hopped; and (b) when generic entry occurred, a lower percentage of prescriptions was available for automatic substitution than is typical. Plaintiffs’ prima facie evidence of causation is the compelling inference that (a), which is unlawful because it has a tendency to cause (b), in fact did so in this case. To collect damages, plaintiffs will need to proffer evidence of a but-for world that shows how many fewer prescriptions the product hop likely caused to be available. But that is not necessary for causation.

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III. COURTS’ ANALYSIS OF THE CAUSATION INFERENCE

Tort cases routinely announce and apply the Causation Inference—the inference that arises where plaintiff suffered an injury of the type whose tendency to occur rendered defendant’s conduct unlawful. A frequently cited case is BCS Servs., Inc. v. Heartwood 88, LLC,16 which held that "once a plaintiff presents evidence that he suffered the sort of injury that would be the expected consequence of the defendant’s wrongful conduct, he has done enough to withstand summary judgment on the ground of absence of causation."17 In BCS Servs., a RICO case in which the court applied tort-law causation principles,18 the rules of tax-lien auctions permitted only one agent per firm to attend and bid. Defendants secretly sent multiple agents, seeking to obtain the bidding advantage that the rule was designed to prevent. Judge Posner explained that the Causation Inference was sufficient for plaintiffs to overcome summary judgment because "[t]he object of their conspiracies was to obtain liens that would otherwise go to one-armed bidders—there could be no other reason. . .The plaintiffs were major bidders. . .How likely is it that they lost no bids to [the defendants]?"19

Similarly, the plaintiffs in a products liability case established that the defendant’s failure to place a warning label on a meat grinder was negligent because it significantly increased the likelihood that someone might accidentally get his hand caught in the grinder.20 While using the meat grinder, plaintiff, in fact, got his hand caught in it.21 The confluence of those two circumstances—conduct that was unlawful because of its tendency to cause a certain type of injury, and the plaintiff’s having suffered that type of injury—was sufficient to sustain a jury verdict for plaintiff on causation: "When a defendant’s negligent act is deemed wrongful precisely because it has a strong propensity to cause the type of injury that ensued, that very causal tendency is evidence enough to establish a prima facie case of cause-in-fact."22

The same rule applies in antitrust cases. The leading Supreme Court case, Bigelow v. RKO Radio Pictures, Inc.,23 expressly adopted for antitrust law the "well-settled principle" of torts that "the jury [may] conclude as a matter of just and reasonable inference from the proof of defendants’ wrongful acts and their tendency to injure plaintiffs’ business . . . that defendants’ wrongful acts had caused damage to the plaintiffs."24

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The Second Circuit’s price-fixing decision in In re Publication Paper Antitrust Litig.,25 is especially instructive due to the parallels between price fixing and exclusion-payment agreements. Courts condemn price fixing because of the likelihood that, without the unlawfully agreed price, the price would have been lower; courts condemn exclusion-payment agreements because of the likelihood that, without the exclusion payment, the generic entry date would have been earlier.26

Publication Paper reversed a grant of summary judgment to defendants on the issue of causation. The liability evidence was sufficient for a jury to conclude that two competitors in an oligopolistic market agreed to follow a price increase announced by the other. Applying the Causation Inference adopted from tort law, the Court of Appeals held that this evidence also sufficed to get plaintiffs to the jury on whether the unlawful agreement, in fact, caused prices to be higher than they otherwise would have been: "Our analysis is enriched and refined by study of causation principles as developed in the tort law context. . . . [I]f an act is deemed wrongful because it is believed significantly to increase the risk of a particular injury, we are entitled—in the tort context at least—to presume that such an injury, if it occurred, was caused by the act."27 As applied in the antitrust case, price-fixing agreements are unlawful "precisely because" they "are so likely to result in artificially higher prices being charged to consumers. . . . "28 Consequently, evidence of the price-fixing agreement "constitutes strong evidence" that the agreement likely caused plaintiffs to pay higher prices than they would have in its absence.29

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Courts have routinely applied the same principle in pharmaceutical antitrust cases. In In re Neurontin Mktg. & Sales Practices Litig,30 plaintiff Kaiser alleged that Pfizer had fraudulently marketed Neurontin for off-label uses, causing Kaiser to pay more for Neurontin than it otherwise would have.31 The Court of Appeals for the First Circuit held that, regardless of any inadequacies in plaintiff’s regression analyses (which defendant attacked as flawed), the Causation Inference alone supported the jury’s verdict. Pfizer devised the fraudulent scheme, it was alleged, specifically to increase Neurontin prescriptions: thus, Kaiser’s claimed antitrust injury was the scheme’s "foreseeable and natural consequence."32 Plaintiff satisfied its burden of proof on causation by producing "evidence that he suffered the sort of injury that would be the expected consequence of the defendant’s wrongful conduct."33

In another Second Circuit case, In re Actos End-Payor Antitrust Litig.,34 plaintiffs alleged that the brand manufacturer unlawfully raised a barrier to generic entry by falsely telling the FDA that the patents claimed the drug product, rather than merely claiming methods of using it. Plaintiffs asserted that falsely describing patents to the FDA is unlawful because it tends to delay generic entry, and that, in fact, generic entry did not occur until the day the entry barrier expired.35 The Court of Appeals reversed the dismissal of the complaint on causation, ruling that "[a] plaintiff could hardly ask for a clearer causal connection."36 Plaintiffs’ causation allegations were easily sufficient to overcome a motion to dismiss the complaint, and "even at summary judgment, an antitrust plaintiff may be entitled to a presumption of causation where the anticompetitive conduct ‘is deemed wrongful because it is believed significantly to increase the risk of a particular injury’ and that injury occurred."37

The Second Circuit had previously applied the Causation Inference principle in In re DDAVP Direct Purchaser Antitrust Litig.,38 where (a) the brand manufacturer filed a sham Citizen Petition with the FDA—a filing that is unlawful because such petitions tend to delay generic entry—and (b) the FDA, in fact, did not approve any generics for entry until it denied the sham petition. Plaintiffs alleged that (a) caused (b). The court held that the inference that the sham petition "caused a delay in generic competition . . . [is] reinforced by the fact that the FDA approved the generic drug on the same day that it rejected the petition."39

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Other courts in pharmaceutical antitrust cases have applied the same principle, even when not expressly articulating it. For example, in a pair of appellate cases, the brand manufacturer, HMR, made an exclusion payment to the generic manufacturer, Andrx, to refrain from entering the market "at risk," i.e., while the patent litigation was ongoing and the generic manufacturer was potentially liable for infringing sales. Making such a payment is unlawful because it tends to cause generic manufacturers not to enter the market when they likely would otherwise do so, and Andrx, in exchange for the payment, did, in fact, refrain from entering the market at risk.

Both courts held that these facts created an inference that the payment caused Andrx not to enter the market when it otherwise would have done so. The Court of Appeals for the Sixth Circuit held that, where conduct is unlawful because it tends to delay generic entry, it is "presumed to have the effect of reducing competition in the market for [the brand-name drug] and its generic equivalents to the detriment of consumers," and "a trier of fact may well find that the $89 million payment renders incredible the defendants’ claim that Andrx would have refrained from marketing simply because of its fear of infringement damages."40

The Court of Appeals for the D.C. Circuit addressed the same anticompetitive agreement, but with a competing generic manufacturer as the plaintiff.41 Reversing the dismissal of the complaint on causation, the court noted that exclusion payments are anticompetitive because they tend to delay generic entry, and that, as unlawfully agreed, Andrx, in fact, did not enter the market. The causation determination was reduced to a simple calculus: "One can fairly infer from these facts . . . that but for the Agreement, Andrx would have entered the market."42 The natural inference is that the agreement caused the type of injury whose likelihood of occurring rendered the agreement unlawful: to deny an inference of causation would "contradict[] the very premise of the [unlawful exclusion-payment] Agreement," under which the generic is paid "not to enter the market."43

IV. WHY THE CAUSATION INFERENCE MATTERS

As a matter of litigation strategy, antitrust plaintiffs will almost never rely solely on the Causation Inference to satisfy their prima facie burden on causation. In exclusion-payment cases, for example, plaintiffs will also proffer evidence that, absent the unlawful agreement, the generic manufacturer would have entered the market at risk,44 and that both patent litigants would have preferred settling the patent case with earlier generic entry rather than litigating,45 or that, if the parties litigated rather than settled, the generic manufacturer would have won.46

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But proving, specifically, what would have happened but-for defendant’s conduct is difficult. For two interrelated reasons, therefore, it remains vitally important that courts continue to apply the rule that the Causation Inference satisfies plaintiff’s prima facie burden.

First, applying the Causation Inference shifts the burden to defendant to overcome the inference—to prove, in the exclusion-payment example, that the generic manufacturer would not have entered at risk, that the parties would not have settled with an earlier entry date, and that the generic manufacturer would not have won the patent case. Second, while plaintiff retains the burden of proof on damages, on that issue plaintiff benefits from wide latitude and a forgiving standard to reconstruct the but-for world.

A. The Burden Shifts to Defendant to Overcome the Inference

The general rule is that an antitrust plaintiff need only produce a preponderance of evidence that defendant’s unlawful conduct materially contributed to the injury; that this burden does not include disproving alternative, allegedly intervening causes; and that the burden then shifts to defendant to prove alternative causes. Once plaintiff shows that the violation was a material cause of the injury, "the defendant must then offer evidence that other forces caused the plaintiff’s harm."47 This follows from the Supreme Court’s longstanding rule that "a plaintiff need not exhaust all possible alternative sources of injury in fulfilling [its] burden of proving compensable injury."48

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This same rule applies when the plaintiff carries her initial burden by relying on the Causation Inference—by showing that she suffered the type of injury whose propensity to occur rendered the defendant’s conduct unlawful. Once the Causation Inference arises in favor of plaintiff, the burden of proof shifts to defendant to overcome the inference by convincing the jury that some other event or circumstance would have resulted in the same injury to plaintiff.

Courts so hold in tort and antitrust cases. For example, in the meat grinder tort case discussed earlier in this article, the defendant argued that plaintiff failed to prove that he would have used the machine differently if it had a proper warning label. The court sharply rejected that argument, explaining that it

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"rests on a false premise. It assumes that the burden was on [the plaintiff] to introduce additional evidence showing that the failure to warn was a but-for cause of his injury . . . but [the plaintiff] does not bear that burden. When a defendant’s negligent act is deemed wrongful precisely because it has a strong propensity to cause the type of injury that ensued, that very causal tendency is evidence enough to establish a prima facie case of cause-in-fact. The burden then shifts to the defendant to come forward with evidence that its negligence was not such a but-for cause. . . . The law presumes normality and requires the defendant to adduce evidence that the case is an exception."49

Similarly, in the BCS Services bid-rigging case discussed earlier, Judge Posner rejected the district court’s conclusion that conduct other than the defendants’ fraud, such as the auctioneer’s perception of the bids and the plaintiffs’ own lack of speed, may have caused them to lose the bids.50 Plaintiffs were not required to prove the "nonexistence of potential superseding causes"; rather, the court held, once the Causation Inference arises "the burden of proving an ‘intervening cause’ . . . is on the defendant."51 In contending otherwise, Judge Posner declared, "the defendants were throwing sand in the district judge’s eyes."52

Similarly, in the Publication Paper price-fixing case, defendants argued that, even absent the unlawful agreement, one of the conspirators had already independently decided that it would match any price increase that the other initiated. The court concluded that "[a]lthough defendants’ argument has some force, and might well persuade a jury," it could not justify summary judgment.53 Once the plaintiff establishes the Causation Inference, the court concluded, "the burden then shifts to the defendant ‘to bring in evidence tending to rebut the strong inference, arising from the [injury], that the [act] was in fact a but-for cause of the plaintiff’s injury.’"54

In the Actos pharmaceutical antitrust case, the Court of Appeals for the Second Circuit likewise concluded that, after the Causation Inference arises, the burden shifts to the defendant to rebut it. There the district court had dismissed the complaint because plaintiffs had "failed to rule out a litany of alternative possible causes of Teva’s delayed market entry."55 Teva’s timely entry might have been prevented by its losing the patent litigation; by a pending Citizens Petition; or by failure to get FDA approval.56 The Court of Appeals reversed because plaintiffs had alleged that they suffered the type of injury whose likelihood of occurring made defendant’s conduct unlawful. Whether on a motion to dismiss, on summary judgment, or at trial, once plaintiffs make that showing "then it would be Takeda’s [defendant’s] burden to show that some other factors, such as the ones identified above, are the ‘true’ cause of the delay, and, therefore, the ‘true’ cause of the artificially high drug prices plaintiffs paid."57

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The Actos decision echoed that of the First Circuit in Neurontin Mktg. & Sales Practices. In Neurontin, the First Circuit succinctly held that, once the Causation Inference arises, "the burden shifts to the defendant to rebut this causal inference" and plaintiffs "need not prove a series of negatives."58

One recent case, In re Wellbutrin XL Antitrust Litig.,59 considered causation where the brand manufacturer, GSK, made an exclusion payment to Anchen to secure its delayed entry. Atypically for exclusion-payment cases, however, a patent held by a third party, Andrx (whom GSK did not pay), may have prevented Anchen’s entry in any event. In these unique circumstances, the Court of Appeals affirmed summary judgment against plaintiffs, holding that they never adduced prima facie evidence of causation and, therefore, the burden of proof never shifted to GSK as to whether the Andrx patent was an intervening cause.60 The court did not discuss the Causation Inference, or its implications for shifting the burden of proof on intervening causes, because the plaintiffs there never asserted the Causation Inference.61

If the Wellbutrin XL court had considered the Causation Inference, it might well have concluded that such an inference had not arisen, because the court apparently did not believe that the exclusion payment was anticompetitive. The court concluded that, where the potentially blocking patent is held by a third party, courts have little reason to believe that the brand manufacturer’s payment reflects its belief that the patent is weak, i.e., little reason to believe that the payment is anticompetitive.62 And the court accepted an argument from an amicus curiae brief that payments are not anticompetitive because brand manufacturers might be risk averse.63

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Ignoring the unique facts of Wellbutrin XL—that the blocking patent was held by a third party rather than the brand manufacturer that made the exclusion payment—some defense counsel have argued that the case supports the proposition that, in order to prove causation, plaintiffs in exclusion-payment cases must prove that the brand manufacturer’s patent was invalid or not infringed.64 As applied to exclusion payments where the brand manufacturer itself holds the blocking patent, however, Actavis precludes the arguments that Wellbutrin XL accepted. Actavis held that large payments do reflect the brand manufacturer’s view that its patent is weak, and the Supreme Court thus necessarily rejected the "risk aversion" hypothesis.65

More broadly, Actavis held that large and unexplained payments are unlawful because they tend to result in generic entry later than the expected, i.e., probability-adjusted, entry date.66 The Actavis Court’s realistic view of patents is that the rights they grant are probabilistic—a patent’s actual ability to preclude competition depends on all of the evidence in the patent case, all of the relevant patent law, the interaction of that evidence and law with the Hatch-Waxman Act, etc.67 Defense arguments that plaintiffs cannot prove causation without proving invalidity/non-infringement, whether the patent is held by the brand manufacturer or a third party, are founded on a radically different, formalistic view of patents (they’re either valid/infringed or not) that Actavis rejected.68 It is true that Actavis considered only whether exclusion payments are unlawful, and did not consider causation, but courts considering the causation element should not use a formalistic view of patents that the Supreme Court rejected.

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More specifically, to gain entry into the market before patent expiry the generic manufacturer need not prove the patent invalid or not infringed. The generic can instead use the threat of a finding of invalidity or non-infringement to negotiate an early-entry license. Therefore, after-the-fact proof of patent invalidity/non-infringement would not suffice to prove an intervening cause in the antitrust case, because the generic manufacturer need not have proved invalidity/infringement in order to have entered the market earlier.69

Let me end the discussion with what is important here: Wellbutrin XL did not address the Causation Inference. The causation issues it did address arose in the unique circumstance where the potentially-blocking patent was held by a third party, not the brand manufacturer who made the large and unjustified payment.

B. Plaintiffs Benefit From Leniency on Damage Evidence

The Causation Inference satisfies plaintiff’s prima facie case for causation, so plaintiffs will be adducing evidence of the but-for world principally in order to prove damages. In an exclusion-payment case, for example, plaintiffs might offer evidence that the generic manufacturer would have entered the market at risk, that the patent litigants would have negotiated an earlier generic-entry date, or that the generic manufacturer would have won the patent litigation (or some or all of these three possible earlier-entry scenarios). Plaintiffs will offer this evidence in order to prove how much earlier generic entry would have occurred in the but-for world, and, therefore, how large the damages are. This evidence also responds to defendants’ attempts to carry their burden of proof on alternative causes, but plaintiffs use it affirmatively on the issue of damages.

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Plaintiffs’ proffered damage evidence is sheltered by the well-established rule that courts cannot insist on unduly rigorous proof of the quantum of damage. "[T]he wrongdoer may not object to the plaintiff’s reasonable estimate of the cause of injury and its amount, supported by the evidence, because [the estimate] is not based on more accurate data which the wrongdoer’s misconduct has rendered unavailable."70 The "traditional rule excus[es] antitrust plaintiffs from an unduly rigorous standard of proving" damages.71

The Supreme Court has indicated that this protective standard applies to plaintiff’s evidence of both causation and damages.72 Some lower courts have, nevertheless, asserted that the forgiving standard applies only to damages, not causation,73 while others have hedged.74 Until the courts clarify that the lenient standard applies to both causation and damages, it is especially important that courts treat leniently plaintiff’s evidence of the but-for world, to the extent that it relates to damages.

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V. CONCLUSION

Causation issues will play an increasingly important role in private pharmaceutical antitrust cases. Courts should continue to apply the longstanding principle that plaintiffs make a prima facie case on causation by proving that they suffered the type of injury whose likelihood of occurring prompted courts to conclude that defendant’s conduct was anticompetitive. The burden then shifts to defendant to prove that an intervening cause—e.g., that the generic manufacturer would not have obtained timely FDA approval, would have lost the patent litigation, or would not have obtained a license for earlier entry—broke the causation chain. When plaintiffs offer a reconstruction of the but-for world in order to both rebut the defendant’s intervening causes and prove damages, they benefit from a lenient evidentiary burden with respect to the latter, and do not have the burden of proof as to the former.

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Notes:

1. Steve Shadowen, a founder of Hilliard & Shadowen LLP, regularly represents plaintiffs in antitrust litigation in the pharmaceutical and other industries. The views expressed are the author’s alone and not necessarily those of his clients, Hilliard & Shadowen LLP, or the institutions with which he is affiliated. Many thanks to Amy Weintraub for excellent research assistance.

2. See, e.g., FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013); In re Loestrin 24 Fe Antitrust Litig., 814 F.3d 538 (1st Cir. 2016); King Drug Co. of Florence v. Smithkline Beecham Corp., 791 F.3d 388 (3d Cir. 2015); In re Cipro Cases I & II, 348 P.3d 845 (2015).

3. See, e.g., Mylan Pharm. Inc. v. Warner Chilcott Pub. Ltd. Co., 838 F.3d 421 (3d Cir. 2016); New York ex rel Schneiderman v. Actavis PLC, 787 F.3d 638 (2d Cir. 2015). For liability issues that remain to be decided in product-hopping cases, and suggestions for a way forward, see Michael A. Carrier & Steve D. Shadowen, Product Hopping: A New Framework, 92 Notre Dame L. Rev. 167 (2016).

4. 15 U.S.C. § 15(a).

5. See, e.g., Sports Racing Servs. v. Sports Car Club of Am., 131 F.3d 874, 882 (10th Cir. 1997) ("To maintain standing . . . a plaintiff must show . . . a direct causal connection between that injury and a defendant’s violation of the antitrust laws.").

6. See, e.g., Gerlinger v. Amazon.com, 526 F.3d 1253, 1255 (9th Cir. 2008) ("For Article III purposes, an antitrust plaintiff establishes injury-in-fact when he ‘has suffered an injury which bears a causal connection to the alleged antitrust violation.’") (quoting Amarel v. Connell, 102 F.3d 1494, 1507 (9th Cir. 1996)).

7. See Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 548—49 (1983) ("Since antitrust violations are essentially ‘tortious acts,’ Bigelow v. RKO Radio Pictures, 327 U.S. 251, 264, (1946), the most apt analogy is to the common law of torts. Although many legal battles have been fought over the extent of tort liability for remote consequences of negligent conduct, it has always been assumed that the victim of an intentional tort can recover from the tortfeasor if he proves that the tortious conduct was a cause-in-fact of his injuries . . . Indeed, in many situations the common law holds an intentional tortfeasor liable even for the unforeseeable consequences of his conduct. [The court is] not aware of any cases exonerating an intentional tortfeasor from responsibility for the intended consequences of his actions merely because he inflicted harm upon his victim indirectly rather than directly.") (italics in original, internal footnotes omitted)).

8. Restatement (Second) of Torts, § 433b (1979).

9. See Herbert Hovenkamp, Federal Antitrust Policy: The Law Of Competition And Its Practice, ¶16.3c, at 813 (5th ed. 2016).

10. Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 566 (1931); see also Exxon Co., U.S.A. v. Sofec, Inc., 517 U.S. 830, 840-41 (1996); Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123-24 (1969).

11. The "expected" entry date is the date that, on average, entry is likely to occur as a result of litigating the patent issues. See In re Cipro Cases I & II, 348 P.3d at 865, and the legal/economic articles cited therein.

12. These two precepts, in both tort and antitrust law, are discussed further in detail below.

13. Restatement (Second) of Torts, § 433b (1979).

14. See, e.g., FTC v. Actavis, Inc., 133 S. Ct. at 2233; In re Cipro Cases I & II, 348 P.3d at 865.

15. See, e.g., New York ex rel Schneiderman v. Actavis, 787 F.3d at 654; Carrier & Shadowen, Product Hopping: A New Framework, 92 Notre Dame L. Rev. at 171.

16. 637 F.3d 750 (7th Cir. 2011).

17. Id. at 758.

18. Id.

19. Id (italics in original).

20. Liriano v. Hobart Corp., 170 F.3d 264, 271 (2d Cir. 1999).

21. Id.

22. Id. Liriano cited Judge Cardozo’s opinion that, in these circumstances, "[i]f nothing else is shown to break the connection, we have a case, prima facie sufficient, of negligence contributing to the result." Martin v. Herzog, 126 N.E. 814, 816 (N.Y. 1920).

23. 327 U.S. 251 (1946).

24. Id. at 264; see also J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 565 (1981) (quoting Bigelow); Story Parchment Co., 282 U.S. at 566 (jury is entitled to conclude "that the natural and probable effect of the combination and price cutting would be to destroy normal prices"). Especially in antitrust cases, the Causation Inference is supported by policy as well as logic. "The most elementary conceptions of justice and public policy require that the wrongdoer shall bear the risk of the uncertainty which his own wrong has created." Bigelow, 327 U.S. at 265. Indeed, "no government seriously concerned about the evil of monopoly" would permit an antitrust violator to avoid liability merely by arguing that what would have happened absent its violation is too speculative; rather, "doubts should be resolved against the person whose behavior created the problem." III P. Areeda & Herbert Hovenkamp, Antitrust Law ¶651(c) (2d ed. 2005).

25. 690 F.3d 51 (2d Cir. 2012).

26. Plaintiffs in antitrust cases—at least in good antitrust cases—will very often be entitled to the inference of causation that arises when a plaintiff has suffered the type of injury whose tendency to occur makes the defendant’s conduct unlawful. That is the only type of injury for which an antitrust plaintiff may properly sue. The "antitrust injury" requirement, which is distinct from the causation requirement, provides that plaintiff must show that the injury for which it seeks recovery is "the type that the antitrust laws were intended to prevent and that flows from that which makes the defendants’ acts unlawful." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).

27. 690 F.3d at 66.

28. Id. at 67.

29. Id.

30. 712 F.3d 21 (1st Cir. 2013). Although the case involved RICO claims, the court concluded that the RICO proximate cause standard was borrowed directly from the Sherman and Clayton Acts. Id. at 35.

31. Id. at 28.

32. Id. at 37 (quoting Bridge v. Phoenix Bond & Indem. Co., 128 S. Ct. 2131, 2144 (2008)).

33. Id. at 45 (quoting BCS Servs., 637 F.3d at 758).

34. 848 F.3d 89 (2d Cir. 2017).

35. Id. at 100.

36. Id.

37. Id. at 101 (quoting Publ’n Paper, 690 F.3d at 66).

38. 585 F.3d 677 (2d Cir. 2009).

39. Id. at 694.

40. In re Cardizem CD Antitrust Litig., 332 F.3d 896, 911 (6th Cir. 2003).

41. Andrx Pharms., Inc. v. Biovail Corp. Int’l, 256 F.3d 799 (D.C. Cir. 2001). Andrx was the first generic manufacturer to file an ANDA with a Paragraph IV certification, and so was entitled to 180 days of exclusivity. 21 U.S.C. § 355(j)(5)(B)(iv). Its acceptance of an exclusion payment to refrain from entering the market, therefore, prevented other generic manufacturers, including plaintiff in the Biovail case, from entering the market.

42. 256 F.3d at 809.

43. Id. at 806; see also id. at 811 ("Andrx’s argument that any rational actor would wait for resolution of the patent infringement suit [before entering the market] is belied by the quid of HMRI’s quo.").

44. For example: evidence that the generic manufacturer, in anticipation of marketing at risk, had manufactured substantial quantities of the product or solicited orders from customers.

45. For example: economic models showing that both litigants would have been better off settling the patent litigation without an exclusion payment and earlier generic entry, at given probabilities of success in the patent litigation, than litigating the case to conclusion.

46. For example: expert testimony from seasoned patent litigators.

47. P. Areeda, H. Hovenkamp, R. Blair & C. Currance, IIA Antitrust Law, ¶ 338a, at 99 (3d ed. 2007).

48. Zenith Radio Corp., 395 U.S. at 114 n.9; see also Zenith Radio: Callahan v. A.E.V., 182 F.3d 237, 257 (3d Cir. 1999) ("Although we recognized that these [alternative] explanations might ultimately prove to be correct, we found that they were issues of fact best left to the jury, not reasons for concluding that the Rockhill Report was insufficient evidence of causation as a matter of law."); Irvin Indus., Inc. v. Goodyear Aerospace Corp., 974 F.2d 241, 245 (2d Cir. 1992) (defendant’s alternative plausible cause "cannot in and of itself negate causation as a matter of law"); Morgan v. Ponder, 892 F.2d 1355, 1363 (8th Cir. 1989) (although "[o]ther theories might more easily explain what forced plaintiffs out of the newspaper business . . . [w]e need not determine the exact cause. . . Nor must plaintiffs systematically eliminate all possible non-predatory causes."); Dolphin Tours, Inc. v. Pacifico Creative Service, Inc., 773 F.2d 1506, 1509—10 (9th Cir. 1985) (defendant’s arguments about alternative causes concern only damages, not causation); Danny Kresky Enterprises Corp. v. Magid, 716 F.2d 206, 209, 212 (3d Cir. 1983) (where defendant conspired with artists for concert promotion, excluded plaintiff that lost profits was not required to disprove other possible causes of the loss); Litton Systems, Inc. v. American Tel. & Tel. Co., 700 F.2d 785, 823 n.49 (2d Cir. 1983) (rejecting defendant’s argument that plaintiff needed to "prove a negative"—that plaintiff’s injuries were not the result of other companies’ opposition to certification standards that would have allowed plaintiff to compete); Bohack Corp. v. Iowa Beef Processor, 715 F.2d 703, 711 (2d Cir. 1982) (plaintiff must establish by a preponderance of evidence that the antitrust violation was a material cause of its injury, but need not disprove alternative causes); Rea v. Ford Motor Co., 497 F.2d 577, 591—92 (3d Cir. 1974) (where plaintiff provided sufficient proof of injury resulting from Ford’s price-fixing agreement, plaintiff was not required to prove that it would have purchased new cars for a different price absent the agreement); Fontana Aviation, Inc. v. Beech Aircraft Corp., 432 F.2d 1080, 1087 (7th Cir. 1970) (plaintiff need not "exhaust every possible avenue to avoid the effects of defendant’s alleged illegal activity but could maintain an action for an injury which flows naturally and expectedly from such activity"); Hasbrouck v. Texaco, Inc., 842 F.2d 1034, 1042 (9th Cir. 1987) ("While a defendant may introduce evidence of alternative causes of the injury, such evidence constitutes only a part of the information the jury may consider in determining whether price discrimination was or was not a material cause.").

49. Liriano v. Hobart Corp., 170 F.3d at 271.

50. BCS Servs., 637 F.3d at 757-58.

51. Id. at 757.

52. Id. at 758.

53. Publication Paper, 690 F.3d at 67.

54. Id. (quoting Liriano, 170 F.3d at 271); see generally Story Parchment Co., 282 U.S. at 566 (defense contentions regarding intervening or alternate cause should be left "for the jury to be determined as a fact").

55. In re Actos, 848 F.3d at 100.

56. Id. at 100-01.

57. Id. at 101 (emphasis in original).

58. 712 F.3d at 45; see also In re Aggrenox Antitrust Litig., No. 14-md-2516, 2015 WL 4459607, *10 (D. Conn. 2015) ("The defendants can certainly defend themselves in this case by arguing that generic entry for one reason or another would have been impossible at any particular time even in the absence of the agreement."). That defendant has the burden to prove alternative causes has a number of subsidiary procedural consequences. For example, on a motion to dismiss the complaint, an antitrust plaintiff need not plead the absence of alternative possible causes of the delayed generic entry. See, e.g., In re Skelaxin (Metaxalone) Antitrust Litig., No. 12-md- 2343, 2013 WL 2181185, at *16 (E.D. Tenn. May 20, 2013); In re Neurontin Antitrust Litig., MDL No. 1479, 2009 WL 2751029, at *12 (D.N.J. Aug. 28, 2009); In re Wellbutrin SR/Zyban Antitrust Litig., 281 F. Supp. 2d 751, 757 (E.D. Pa. 2003).

59. 868 F.3d 132 (3d Cir. 2017).

60. Id. at 166.

61. Plaintiffs alluded to the Causation Inference on appeal only by way of a notice of supplemental authority (the Second Circuit’s Actos decision) under Fed. R. App. P. 28(j). See In re: Wellbutrin XL Antitrust Litigation: Nos. 15-3559, 15-3591, 15-3681 & 15-3682, Document No. 003112535892 filed February 9, 2017 (3d Cir.).

Plaintiffs argued that, under the usual rules related to "supervening causes," GSK had the burden of proving that the Andrx patent would have blocked Anchen’s entry. But the burden would have shifted to GSK only if plaintiffs had first made a prima facie case on causation. Plaintiffs did not argue the Causation Inference or that it satisfied their initial burden. They adduced much other evidence to meet their initial burden, but the Court of Appeals discounted all of it. 868 F.3d at 166 -68. Whether the court properly discounted that other evidence is not this article’s subject; what matters here is that the plaintiffs did not argue for the Causation Inference and the court did not address it.

62. 868 F.3d at 168.

63. Id. at 168-69.

64. See, e.g., David Kully & Charles Weiss, Recent Cases Provide Hope for Reverse-Payment Defendants, Law 360 Competition (Sept. 21, 2017).

65. Actavis concluded that the existence of an exclusion payment is "a workable surrogate for a patent’s weakness." 133 S. Ct. at 2236. The necessary predicate for that conclusion is that brand manufacturers are not risk averse—if the Court believed that manufacturers, generally, were risk averse it could not have concluded that a payment is a surrogate for patent weakness because the payment might instead result from risk aversion. The Court rejected the risk-aversion premise despite its having been vigorously argued by the defendant (Brief for Respondent Solvay Pharms., Inc., No. 12-416 (S. Ct.), at 33, filed Feb. 21, 2013), and various amici (e.g., Brief of Antitrust Economists as Amici Curiae In Support of Respondents, No. 12-416 (S. Ct.), at 19-21, filed Feb. 28, 2013; Brief for Shire PLC as Amicus Curiae Supporting Respondents, No. 12-416 (S. Ct.), at 11, filed Feb. 28, 2013) and accepted by the dissent (e.g., 133 S. Ct. at 2244 (Roberts, C.J., dissenting)). Even the argument’s proponents admit that the Supreme Court "consider[ed] the possible implications of risk aversion" and "brushed the concern aside." Addanki & H. Butler, Activating Actavis: Economic Issues in Applying the Rule of Reason to Reverse Payment Settlements, 15 Minn. J.L. Sci. & Tech. 77, 83 n.37 (2014). On the merits, the risk-aversion hypothesis, in the context of exclusion payments, makes little theoretical or economic sense. Some individual persons are risk-averse, "preferring a sure thing to uncertain levels of consumption." Paul A. Samuelson & William D. Nordhaus, Economics 193 (16th ed. 1998). But publicly traded corporations avoid risk-aversion because stock ownership is a "form of risk sharing," which allows "the financial ownership of physical capital [to] be spread among many owners." Id. at 194. Nor does standard economics assume that individual managers usurp corporate risk neutrality. "Various forces keep managers from deviating from profit-maximizing behavior." Dennis W. Carlton & Jeffrey M. Perloff, Modern Industrial Organization 13 (4th ed. 2005). These include "[i]ncentives, such as stock ownership and other bonuses," not to mention the threat of being "fired for inefficiency." Id. Accordingly, in standard economics "[c]orporations are generally assumed to be risk neutral since any riskiness involved in the corporation’s business can be eliminated by the shareholders, each of whom can combine his shares in the corporation with other shares . . . to create a portfolio that will be as risky or as risk free as he desires." Richard A. Posner, Antitrust Law 269 n.2 (2d ed. 1976). The standard economic assumption of corporate risk-neutrality applies when evaluating exclusion payments. See, e.g., Einer Elhauge & Alex Krueger, Solving the Patent Settlement Puzzle, 91 Tex. L. Rev. 283, 312 (2012); Jeremy Bulow, The Gaming of Pharmaceutical Patents, in Innovation Policy and the Economy 145, 162 (2004).

66. 133 S. Ct. at 2233.

67. Id. at 2231 ("[t]he patent here may or may not be valid, and may or may not be infringed," and "[t]he paragraph IV litigation in this case put the patent’s validity at issue, as well as its actual preclusive scope").

68. In In re Nexium Antitrust Litig., 842 F.3d 34, 63 (1st Cir. 2016), the defendants produced evidence "that AstraZeneca’s patents, not its reverse payment to Ranbaxy, were the bar to a generic launch." In those circumstances, the court required plaintiffs to produce "some evidence" of the patent’s invalidity in order to reach the jury on whether the generic manufacturer would have marketed the product at risk. Id. Neither the district court nor the Court of Appeals required plaintiffs to produce any such evidence in order to pursue the causation theory that the generic manufacturer would have used the threat of invalidity/noninfringement to get a license for earlier entry. Moreover, the court did not address the Causation Inference, what evidence satisfies plaintiff’s initial burden of proof, whether or when the burden shifts, the quantum of evidence required, or any other details that would illuminate its views, if any, on the Causation Inference.

69. Consider a false-imprisonment tort case where a court found that defendant improperly prevented plaintiff from exiting a room that had two doors—Door A and Door B. We would scratch our heads in wonder at a defendant who insisted that plaintiff could prove causation only by showing that she would have exited through Door A rather than Door B. Defense arguments that proof of validity/infringement breaks the causal chain—where the generic could instead have entered earlier by negotiating an earlier-entry license—are no less head-scratch-inducing.

70. Bigelow, 327 U.S. at 265 (internal citation omitted); see also In re Neurontin Mktg. & Sales Practices Litig., 712 F.3d at 49-50 ("[T]he factfinder is afforded a greater deal of freedom to estimate damages where the defendant, as here, has created the risk of uncertainty.").

71. J. Truett Payne Co., 451 U.S. at 565.

72. Bigelow, 327 U.S. at 265 (protective standard applies to "the cause of injury and its amount"). Several courts follow Bigelow in this regard. See, e.g., DDAVP Direct Purchaser Antitrust Litig., 585 F.3d at 689 (applying Bigelow to the question of "speculativeness," a subtest within the antitrust standing inquiry that considers the quality of evidence linking the defendant’s conduct to the injury); Schwartz v. Sun Co., 276 F.2d 900, 904 (6th Cir. 2002) (quoting Bigelow to show that "[i]t is wellestablished that proving antitrust injury should not be unduly rigorous"); Stelwagon Mfg. Co. v. Tarmac Roofing Sys., 63 F.3d 1267, 1273 (3d Cir. 1995) (quoting Bigelow to show that "a plaintiff must prove a causal connection . . . Traditionally, however, antitrust plaintiffs have not been held to an unduly rigorous standard of proving antitrust injury" (internal citation omitted)); Danny Kresky Enterprises Corp. v. Magid, 716 F.2d 206, 212 (3d Cir. 1983) (rejecting district court’s addition of a causation requirement that the plaintiff be entitled to only damages that were "certain" to be "directly flow[ing]" from defendant’s unlawful conduct and quoting Bigelow to discredit that idea); In re E.J. Delaney Corp. v. Bonne Bell, Inc., 525 F.2d 296, 303—05 (10th Cir. 1975) (Bigelow establishes " liberal rules . . . relating to the evidence requisite to establish a cause for anti-trust damage award"); Haverhill Gazette Co. v. Union Leader Corp., 333 F.2d 798, 806—07 (1st Cir. 1964) (rejecting lower court’s conclusion that the difficulties of proof needed to be the result of the defendant’s unlawful acts in order to lessen plaintiff’s burden on proof of causation); Momand v. Universal Film Exchanges, Inc., 172 F.2d 37, 42 (1st Cir. 1948) (Bigelow determines "the degree of certainty required of a plaintiff in proving causation of damage").

73. See, e.g., MCI Communications Corp. v. American Tel. & Tel. Co., 708 F.2d 1081, 1161 (7th Cir. 1983) (asserting that Bigelow’s holding concerned only "proof of the amount of damages," not "proof of causation of damages"); Moore v. Boating Indus. Assocs., 754 F.2d 698, 718 (7th Cir. 1985) (asserting that Bigelow’s lenient standard applies only after plaintiff establishes causation); National Farmers’ Org., Inc. v. Associated Milk Producers, Inc., 850 F.2d 1286, 1293 (8th Cir. 1988) (asserting that Bigelow lowers the standard for proving only the amount of damage).

74. See, e.g., United States Football League v. National Football League, 842 F.2d 1335, 1378 (2d Cir. 1988) (the "latitude [afforded to antitrust plaintiffs as to proof of damages] is thus circumscribed by the need for proof of causation"); Flintkote Co. v. Lysfjord, 246 F.2d 368, 392 (9th Cir. 1957) (asserting that there is a "distinction between the quantum of proof necessary to show the fact as distinguished from the amount of damage; the burden as to the former is the more stringent one").

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