Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Most state law claims challenging Lidoderm patent settlement dismissed, (May 6, 2015)

By Greg Hammond, J.D.

The Government Employee Health Association was unable to support a substantial number of state antitrust and consumer protection claims arising from an alleged anticompetitive patent infringement settlement concerning the prescription drug Lidoderm. The federal district court in San Francisco mostly granted the defendants’ motion to dismiss, finding that many state law claims were unsupported by authority (In re Lidoderm Antitrust Litigation, May 5, 2015, Orrick, W.).

Background. Endo Pharmaceuticals distributes Lidoderm, an adhesive patch used to treat pain. Teikoku Pharma 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 and submitted an abbreviated new drug application to the Food and Drug Administration. Subsequently, Endo and Teikoku sued Watson for patent infringement. While the litigation was pending, Endo, Teikoku, and Watson settled. Under the settlement, (1) Watson agreed to delay launch of its generic Lidoderm until September 2013; (2) Endo and Teikoku would drop their pending lawsuit; (3) Endo and Teikoku would give Watson $96 million in Lidoderm patches to sell with the condition that Watson would honor Endo and Teikoku’s existing price related contracts; and (4) Endo and Teikoku would delay the release of their authorized generic until seven-and-a-half months after Watson began selling its generic version.

A series of class action suits were filed against Endo and Teikoku by three groups of purchasers of Lidoderm—suppliers to retail purchasers (DPPs), employee health and welfare benefit funds (EPPs), and the Government Employee Health Association (GEHA)—alleging violations of Sections 1 and 2 of the Sherman Act, along with state law antitrust and consumer protection claims. The plaintiffs asserted that the settlement agreement between Endo, Teikoku, and Watson delayed the introduction of a generic version of Lidoderm and, as a result, the plaintiffs were unable to purchase less expensive versions of the drug. The defendants have moved, in part, to dismiss specific state law antitrust and consumer protection claims.

End-payor claims. The defendants first moved to dismiss the end-payor plaintiffs’ claims under Massachusetts and Utah law. The end-payor plaintiffs agreed to dismiss the Utah law claims. However, the Massachusetts law claim was dismissed for failure to provide pre-suit notice to defendants prior to bringing claims under the state’s Consumer Protection Act. Because the end payor plaintiff from Massachusetts did not allege that any of the defendants maintain a place or business or have assets in Massachusetts, which would excuse the pre-suit demand requirement, the motion to dismiss the Massachusetts consumer protection claim was granted.

GEHA claims. The Rhode Island, Alaska, and Massachusetts antitrust and consumer protection claims were dismissed. The court found: (1) because the antitrust conduct alleged by GEHA occurred prior to Rhode Island passing the law allowing for indirect purchaser actions, GEHA’s claims under Rhode Island’s antitrust law were barred; (2) GEHA’s claims under the Alaska consumer protection statute were improper in the absence of any persuasive authority from Alaska, and in light of the Alaska antitrust statute’s clear intent to reserve to the Alaska Attorney General the ability to seek damages on behalf of indirect purchasers; and (3) because GEHA did not engage in transactions for its own “purely personal reasons,” but acted in its business interests of providing health care coverage for its members, GEHA’s purchases fell within the “business or trade” exception for indirect purchaser actions.

Relatedly, defendants moved to dismiss District of Columbia and Montana consumer protection claims, arguing that as a health plan GEHA cannot be considered to have purchased Lidoderm patches for “personal, family, or household” purposes as required under the respective laws. The court dismissed both claims with prejudice, finding that GEHA’s transactions with pharmacies was more akin to “wholesale,” rather than a retail transaction, demonstrating GEHA was not a consumer under D.C. law. Further, in the absence of any authority from Montana, the court found that GEHA was not a “consumer” under the state’s statute.

Fraud or deception claims. The court additionally dismissed the state law claims for fraud or deception under the consumer protection statutes of Arkansas, Idaho, Maine, Michigan, Minnesota, Oregon, Pennsylvania, South Dakota, and West Virginia.

Specifically, the court found: (1) there was no cited authority from Arkansas that would extend the reach of the state’s consumer protection statute to allegedly fraudulent conduct that occurred exclusively before the Patent and Trademark Office and was not direct to consumers; (2) none of the allegations concerning Idaho was demonstrably directed to consumers; (3) there was no authority that Maine would recognize the fraud allegedly committed by Teikoku at the Patent and Trademark Office as a ground for “deception” under the state’s consumer protection statute; (4) there was no broad dissemination of false information to support a claim under Michigan law; (5) the alleged fraudulent and deceptive conduct at issue—which occurred in negotiations between the defendants, before the Patent and Trademark Office—was not the type of fraud, misrepresentation, or deceptive practices covered under Minnesota law; (6) Oregon’s unlawful trade practices law could not be extended to cover the allegations that GEHA asserted because there was insufficient authority to demonstrate that the statute of actionable unconscionable acts is applicable under the current factual allegations; (7) there were insufficient facts to demonstrate that defendants’ conduct created a likelihood of confusion or of misunderstanding under Pennsylvania law; (8) the plaintiffs failed to raise sufficient affirmative misrepresentations or concealment of fact that were passed along to or relied upon by GEHA, to support a claim in South Dakota; and (9) there was no authority defining unfair methods of competition and unfair or deceptive acts or practices under West Virginia law that included the types of antitrust allegations and fraud the defendants engaged in before the Patent and Trademark Office.

Intrastate commerce. The court denied the motion to dismiss with regard to New York and North Carolina consumer protection claims. Specifically, the court rejected the defendants’ argument that GEHA failed to allege sufficient intrastate commerce to state actionable consumer protection claims, finding that allegations GEHA paid retail and mail order pharmacies in New York $21,464.46 for Lidoderm was sufficient to state an intrastate nexus under New York’s statute. In addition, because GEHA alleged in-state injury and that the defendants’ products were being sold in North Carolina, there was a sufficient claim under North Carolina’s consumer protection statute.

The case number is 14-md-02521-WHO.

Attorneys: Brian O. O'Mara (Robbins Geller Rudman & Dowd LLP), Christina H. Sharp (Girard Gibbs LLP), and Gregory S. Asciolla (Labaton Sucharow LLP) for 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, Fraternal Order of Police, Fort Lauderdale Lodge 31, Insurance Trust Fund, and NECA-IBEW Welfare Trust Fund. David S. Elkins (Squire Patton Boggs (US) LLP) for Teikoku Pharma USA, Inc. and Teikoku Seiyaku Company, Ltd. Brigid M. Carpenter (Baker, Donelson, Bearman, Caldwell & Berkowitz, PC) and John A. Tarantino (Adler Pollock & Sheehan PC) for Endo Pharmaceuticals, Inc. Steven Sunshine and James Patrick Schaefer (Skadden Arps Slate Meagher & Flom LLP) for Watson Pharmaceuticals, Inc., Watson Laboratories, Inc., and Actavis PLC.

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; Fraternal Order of Police, Fort Lauderdale Lodge 31, Insurance Trust Fund; NECA-IBEW Welfare Trust Fund; Teikoku Pharma USA, Inc.; Teikoku Seiyaku Company, Ltd.; Endo Pharmaceuticals, Inc.; Watson Pharmaceuticals, Inc.; Watson Laboratories, Inc.; Actavis PLC

Cases: Antitrust ConsumerProtection CaliforniaNews