AAI Provides Winning Arguments in Third Circuit Antitrust Class Action

On July 28, the Third Circuit Court of Appeals delivered a resounding victory to plaintiffs and embraced AAI’s amicus arguments in an important antitrust class action on behalf of victims of the ongoing U.S. opioid epidemic.

In cases first consolidated in a Pennsylvania district court in 2013, a class of direct purchasers of Suboxone, a brand drug used to treat opioid addiction, allege that Reckitt-Benckiser, now known as Indivior Inc., engaged in a product hopping scheme to coerce patients into using a patented film formulation of Suboxone instead of a tablet form, just as the latter was on the brink of becoming open to generic competition.

According to a study by the Federal Trade Commission, generic entry typically reduces the price of prescription drugs by 85%, resulting in enormous savings for patients.  But because most generic drug substitution laws do not permit pharmacists to substitute a different formulation of the same drug, even if the formulation administers the same amount of the active ingredient, brand drug manufacturers have a perverse incentive to attempt “product hops” from one formulation to another, which can effectively extend their exclusive control of a drug market and preserve monopoly prices.

A class of direct purchasers allege that Reckitt violated Section 2 of the Sherman Act by engaging in a six-part scheme to force patients onto film and off of tablets, thereby thwarting generic competition.  Specifically, they allege that Reckitt (1) falsely disparaged Suboxone tablets as dangerous to children, (2) falsely announced the withdrawal of tablets due to fabricated safety concerns (to hasten switching), (3) eliminated tablet rebate contracts in favor of film rebate contracts, (4) significantly raised tablet prices above film prices to manipulate the market, (5) eventually removed tablets from the market altogether, and (6) manipulated the FDA’s Risk Evaluation and Mitigation Strategy process.

The district court denied an early motion to dismiss and eventually certified the class, and Reckitt sought and obtained an interlocutory appeal of the class certification order.  In the Third Circuit, Reckitt argued that the plaintiffs wrongly attributed injury and damages to lawful, pro-competitive pricing practices, namely Reckitt’s decision to price film lower than tablets.  It argued that, under the Supreme Court’s predatory pricing precedent, all pricing practices are per se lawful if they are above cost, and therefore the plaintiffs could not rely on common evidence to prove antitrust injury in satisfaction of Rule 23’s predominance requirement.

Moreover, Reckitt argued that the class could not be certified under the Supreme Court’s holding in Comcast v. Behrend, which requires that a plaintiff’s theory of damages match its theory of liability. Reckitt contended that Comcast prohibits class certification when a plaintiff’s theory of damages does not match a viable theory of liability—that is, when a plaintiff’s theory would base recovery of damages upon lawful conduct.

On March 12, AAI filed an amicus brief urging the court to reject Reckitt’s arguments, and today, the court issued an opinion accepting all of AAI’s arguments.

The AAI brief emphasized that Rule 23’s “common impact” requirement demands a separate showing of “injury-in-fact” and “antitrust injury,” and here, Reckitt had conceded injury-in-fact.  AAI explained that Reckitt’s per se lawfulness argument necessarily was unavailing because the remaining analysis into “antitrust injury” hinges on the plaintiff’s theory of liability, not the defendant’s theory of non-liability.  The court agreed.  It scrupulously analyzed “antitrust injury” as distinct from injury-in-fact, and it evaluated Reckitt’s antitrust-injury argument based on “[t]he Purchasers’ theory of their case” rather than Reckitt’s theory that purchasers had challenged lawful conduct.

The AAI brief also challenged Reckitt’s Comcast argument, and the court again agreed with AAI’s views.  AAI argued that this was not a case where “a general verdict may rest on either of two claims—one supported by the evidence and the other not,” because “Reckitt’s argument and plaintiffs’ argument are mutually exclusive.” AAI explained, because “there is only one claim—the interconnected [six-part] scheme,” this case presents “no risk of a mismatch between the plaintiff’s liability and damages theories, as in Comcast.”  The court agreed again, stating: “This case is unlike Comcast because there is only one theory of antitrust injury, and that theory corresponds to a theory of liability.”

Finally, the AAI brief argued that, although the merits were not properly before the court, Reckitt was wrong to suggest that above-cost pricing is per se lawful.  Not only has the Third Circuit held that above-cost prices can be part of a cognizable anticompetitive scheme, but “Reckitt’s argument is incorrect because this product-hopping case does not bear any resemblance to a predatory pricing case.” Thus, if the court were to reach the merits, AAI argued that the plaintiffs’ claims would be properly reviewed under the rule of reason rather than the price-cost test applicable to predatory pricing claims.

The court agreed with AAI on both counts.  It held unequivocally that, when evaluating an alleged monopolization scheme compromised of multiple intertwined acts, “we look to the monopolist’s conduct taken as a whole rather than considering each aspect in isolation.”  And here, without regard to the ultimate merits of plaintiffs’ claims, it was sufficient that the plaintiffs alleged “a multifaceted yet single scheme to move the market to Suboxone film” and “that the totality of Reckitt’s actions . . . suppressed generic competition and thus violated the antitrust laws.” Accordingly, the court added, “Reckitt’s price-cost argument is inapt.”