Antitrust Law Daily Wrap Up, ANTITRUST—EDPa: $46 million settlement approved in indirect purchaser Flonase antitrust litigation, (Jun 20, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Philadelphia has approved a $46 million settlement of indirect purchaser antitrust litigation alleging that SmithKline Beecham Corp., doing business as GlaxoSmithKline PLC (GSK), improperly delayed the entry of generic competition to its Flonase brand-name version of fluticasone propionate, a nasal corticosteroid (In Re Flonase Antitrust Litigation, June 19, 2013, Brody, A.).

The settlement would be divided into an $11 million initial payment to a group of large health insurers, and a $35 million payment for the remainder of the class. The court also approved an attorney fee award of $11,655,000, $1,848,720.15 in costs and expenses, and four $10,000 and one $5,000 incentive awards to the class representatives.

In July 2008, indirect purchasers filed their first complaint against GSK, alleging that GSK had filed sham citizen petitions with the Food and Drug Administration to delay the entry of cheaper, generic versions of its Flonase product, resulting in overcharges paid by the indirect purchasers. The court later certified a class of indirect purchasers, and in November 2012 the parties reached a settlement, which the court subsequently preliminarily approved. In the present decision, the court gave its approval to a final settlement of the claims.

Settlement approval. The factors outlined in Girsh v. Jepson, 521 F.2d 153 (1975) weighed in favor of settlement approval, the court found. The complexity, expense, and likely duration of the litigation weighed in favor of the settlement because the case involved “highly complex antitrust issues, FDA bioequivalence standards for suspension nasal spray products, pharmaceutical manufacturing and supply issues, and pharmaceutical regulatory issues,” which had been investigated and litigated for over four years. “The settlement avoided the need for a difficult and expensive multi-week trial involving complex scientific and regulatory testimony,” as well as the costs of appeal, the court noted.

The reaction of the class to the settlement also favored approval, according to the court. It was estimated that the settlement notice had reached 80 percent of Flonase users, resulting in 8,065 consumer claim forms downloaded, 251 third part payor proofs of claim filed with a value of nearly $750 million, and 1,908 consumer proofs of claim filed with a value of nearly $900,000. Only one consumer requested exclusion, apparently for reasons unrelated to the merits of the settlement. Although two consumers objected to the settlement, neither provided any proof that the objector was actually a member of the class. Even if the objections to the clarity of the notice were considered on their merits, the notice adequately explained the amount class members would receive by stating that class members would receive a pro rata share of the net settlement fund.

The parties had also completed sufficient discovery and litigation that they had “an adequate appreciation of the merits of the case before negotiating,” in the court’s view. “Trial was just two months away when the parties reached their agreement,” the court noted. Therefore, the stage of the litigation and the amount of discovery completed also weighed in favor of approval.

The factors regarding the risks of establishing liability and damages also weighed in favor of settlement, the court observed. The plaintiffs would have had to establish both (1) “that GSK’s petitions to the FDA regarding generic FP were objectively baseless and that GSK could not have reasonably expected success on the merits of any of its requests to the FDA,” and (2) “that GSK’s petitions to the FDA were a substantial cause of any delay in the approval of Roxane’s generic FP, and that, but for GSK’s actions, Roxane would have had the manufacturing capability to get its product to market sooner.” The complexity of these issues meant it was unclear whether a jury would have found GSK liable, or how they would have decided damages.

The risk that the indirect purchasers might not have been able to maintain their class action through trial also supported settlement, in the court’s view. The Supreme Court’s recent decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426, 2013-1 Trade Cases ¶78,316, released after the court certified the class, arguably made class certification in classes such as the one before the court more difficult to prove.

The settlement was also reasonable in light of the best possible recovery and the attendant risks of litigation. The settlement would permit the class members to “benefit from the $150 million fund immediately, and avoid the uncertainties and delay inherent in continuing to litigate this complex class action.”

GSK’s ability to withstand a greater judgment was a “neutral” factor, according to the court. Third Circuit court “regularly find a settlement to be fair even though the defendant has the practical ability to pay greater amounts,” and this case was no exception.

Additional factors added to the analysis by the Third Circuit’s 1998 decision in In re Prudential Ins. Co. of Am. Sales Practice Litig., 148 F.3d 283, also weighed in favor of settlement approval, according to the court. The substantive issues of the case were “well-developed,” supporting approval of the settlement. “[T]he settlement create[d] the only award for class members,” and was therefore “beneficial to all indirect purchasers.” Only one class member had chosen to opt out, and then for reasons unrelated to the merits of the settlement. The attorney fees provisions were reasonable, and the procedure for processing individual claims under the settlement was “fair and reasonable.”

Attorney fees. The court also approved an attorney fees award of $11,655,000 (one-third of the settlement fund); $1,848,720.15 in costs and expenses; $10,000 in incentive awards to class representatives A.F. of L.-A.G.C. Building Trades Welfare Plan, IBEW-NECA Local 505 Health & Welfare Plan, Painters District Council No. 30 Health & Welfare Fund, and Medical Mutual of Ohio; and $5,000 in an incentive award to class representative Andrea Kehoe.

The court first concluded that the fee award survived assessment under the percentage-of-recovery method, applying factors from Prudential and the Third Circuit’s 2000 decision in Gunter v. Ridgewood Energy Corp., 223 F.3d 190. The $35 million settlement, distributed on a pro rata basis, was “sizable,” and “provide[d] immediate and certain payment to the class members.”

Only two objections had been filed to the attorney fees, which the court had already decided to strike when considering their objections to the settlement. Even when considered on their merits, they raised “no substantial objection,” according to the court. The determination of the amount of attorneys’ fees did not have to wait until after the large health insurers had been paid, because, even if their $11 million payment was insufficient to meet their pro rata share, their portion of the $35 million would take into account their share of the fees, and the “remaining members of the class would still be paying only one-third of their allocation of the fund.”

The “counsel for both sides were knowledgeable, tenacious, and highly skillful, and the award “clearly demonstrate[d] the value of class counsel’s efforts.” As with the settlement itself, the complexity and duration of the litigation also “weigh[ed] strongly in favor of the proposed fee.”

Moreover, the risk of nonpayment “support[ed] approval of the requested fee” because the plaintiffs’ counsel took the case on a contingent fee basis, and success in the litigation and a significant recovery of damages were not guaranteed. The amount of time devoted to the case also “weigh[ed] in favor of the requested fee” because the class counsel spent more than 32,700 hours over more than four years litigating the case, and the complexity of the issues and the defendants’ “robust defense” indicated those hours were necessary. The amount of the fee award in the present case was also consistent with that in similar direct purchaser and pharmaceutical industry class actions, and the class counsel did not receive assistance from a government investigation.

The court found two remaining factors to be neutral. The court did not “give great weight to [the] hypothetical exercise” of determining the percentage fee that would have been negotiated had the case been subject to private contingent fee arrangements at the time counsel was retained, and the terms of the settlement were “relatively standard.” The court found the factors overall indicated “overwhelming support for the proposed fee.”

The lodestar crosscheck also supported the award, according to the court. The case involved fifteen law firms with attorneys charging hourly rates ranging from $275 to $750 working more than 37,761.95 hours, although the vast majority of the hours were logged by the two lead counsel firms, Miller Law LLC and Pomerantz Grossman Hufford Dahlstrom & Gross LLP. At an average billing rate of $527 per hour, the lodestar amount was $17,280,746.50. The court determined that the lodestar multiplier was a negative 0.67, “meaning class counsel would receive less under a percentage fee award than their regular billing rates.” The counsels’ request was thus “only a fraction of the work they billed.”

The court also found the award of $1,848,720.15 in costs to be “reasonable and proper” given the expenses incurred in litigating the case. In addition, the court approved incentive awards to the class representatives. However, the court considered the requested awards of $25,000 each to A.F. of L.-A.G.C. Building Trades Welfare Plan, IBEW-NECA Local 505 Health & Welfare Plan, Painters District Council No. 30 Health & Welfare Fund, and Medical Mutual of Ohio, and $10,000 to Andrea Kehoe to be “far too high.” Although the court recognized that the representatives were “actively engaged and willingly available,” the court observed that no evidence had been provided that they “actually played a substantial role in the litigation, aside from sitting for depositions.”

The cases are Nos. 08-3301 and 12-4212.

Attorneys: Michael M. Buchman (Pomerantz Grossman Hufford Dahlstrom & Gross LLP) for (IBEW-NECA Local 505 Health & Welfare Plan. Andrew Szot (Miller Law LLC) for Painters District Council No. 30 Health & Welfare Fund. Edward D. Rogers (Ballard, Spahr, Andrews & Ingersoll) for SmithKline Beecham Corp.

Companies: Medical Mutual of Ohio; A.F. of L.-A.G.C. Building Trades Welfare Plan; IBEW-NECA Local 505 Health & Welfare Plan; Painters District Council No. 30 Health & Welfare Fund; SmithKline Beecham Corp.

Cases: Antitrust PennsylvaniaNews