Antitrust Law Daily Wrap Up, ANTITRUST—N. D. Cal.: Attorney-client privilege, work product defenses overcome in Lidoderm antitrust litigation, (Aug 11, 2016)

By Linda O’Brien, J.D., LL.M.

In a consolidated class action by direct and end purchasers of the brand drug Lidoderm—challenging a settlement between the manufacturer, distributor, and a generic manufacturer to resolve patent infringement litigation—the federal district court in San Francisco has ruled that defendants must either waive attorney-client privilege regarding the subjective beliefs they intend to rely on to defend the settlement or be precluded from raising those beliefs at trial (In re Lidoderm Antitrust Litigation, August 9, 2016, Orrick, W.).

Endo Pharmaceuticals distributes Lidoderm, an adhesive patch used to treat pain. Teikoku Seiyaku manufactures Lidoderm and holds one of the patents identified in the development of the drug. In 2009, generic drug manufacturer Watson Pharmaceuticals sought to market a generic version of Lidoderm. Subsequently, Endo and Teikoku sued Watson for patent infringement. While the litigation was pending, Endo, Teikoku, and Watson settled.

A series of class action suits were filed against Endo and Teikoku by three groups of purchasers of Lidoderm—suppliers to retail purchasers (direct purchasers), employee health and welfare benefit funds (end payors), and the Government Employee Health Association (GEHA)—alleging in part violations of Sections 1 and 2 of the Sherman Act. The plaintiffs asserted that the settlement agreement between Endo, Teikoku, and Watson delayed the introduction of a generic version of Lidoderm, precluding the plaintiffs from purchasing a less expensive version of Lidoderm.

The plaintiffs moved for production or preclusion, contending that the defendants either waive attorney-client privilege regarding the subjective beliefs they intend to rely on to defend the Watson settlement or be precluded from raising those beliefs on summary judgment or trial. The plaintiffs also sought production of attorney notes regarding negotiation of the Watson settlement. Pursuant to an April 2016 order, Endo, Watson, and Teikoku identified several subjective beliefs that they intended to introduce at trial.

Subjective beliefs. The court found that the plaintiffs presented evidence that the defendants actually relied on attorney advice in reaching their subjective beliefs and should be precluded from relying on those beliefs unless they choose to waive the privilege as to communications and information regarding the beliefs.

The plaintiffs demonstrated that many of the subjective statements identified by the defendants rely in significant part on legal advice, according to the court. The defense witness depositions, the assertions of privilege in those depositions, and the privilege logs show that legal advice was provided and considered, and confirm that the defendants’ settlement negotiators were the attorneys. Some of the subjective beliefs plausibly indicated only business decisions and could have been reached without attorney input. All of the terms of the settlement agreement were part of a negotiated package that allowed the parties to resolve the patent litigation in a manner that permitted Watson to enter the market before the expiration of the asserted patents. However, in order to rebut the defendants’ assertions, in fairness, the plaintiffs should be given access to contemporaneous information regarding those topics that necessarily implicated attorney-client advice, in the court’s view.

Attorney notes. The court found that the plaintiffs showed a compelling need for disclosure of portions of the defendants’ counsel’s notes. There was no dispute that the notes in question were classic attorney work product. The central factual question in this was whether Endo, Teikoku, and Watson settled the patent litigation for anticompetitive purposes on anticompetitive terms, or whether the settlement was justified by procompetitive concerns. As such, the facts regarding the negotiation of the Watson settlement went directly to the heart of the plaintiffs’ claims and the defendants’ defenses.

The counsel was the main person at Endo engaged in the settlement negotiations, she responded that she could not recall the specifics regarding the negotiations in her deposition, and there were no other sources of information regarding the settlement negotiations. Since the terms of the Watson settlement were key to the claims and defenses on the merits of the case, there was a compelling need to disclose the notes, the court concluded.

The case is No. 3:14-md-02521-WHO.

Attorneys: Brian O. O'Mara (Robbins Geller Rudman & Dowd LLP) and Christina H. Sharp (Girard Gibbs LLP) for United Food and Commercial Workers Local 1776 & Participating Employers Health and Welfare Fund. Lionel Z. Glancy (Glancy Prongay & Murray LLP) for Plumbers & Pipefitters Local 178 Health & Welfare Trust Fund. Andrew Michael Purdy (Joseph Saveri Law Firm) for Local 17 Hospitality Benefit Fund. David S. Elkins (Squire Patton Boggs LLP) for Teikoku Pharma USA and Teikoku Seiyaku Co. Brigid M. Carpenter (Baker, Donelson, Bearman, Caldwell & Berkowitz, PC) and John A. Tarantino (Adler Pollock & Sheehan PC) for Endo Pharmaceuticals, Inc.

Companies: United Food and Commercial Workers Local 1776 & Participating Employers Health and Welfare Fund; Plumbers & Pipefitters Local 178 Health & Welfare Trust Fund; Local 17 Hospitality Benefit Fund; Teikoku Pharma USA; Teikoku Seiyaku Co.; Endo Pharmaceuticals, Inc.

Cases: Antitrust CaliforniaNews