Antitrust Law Daily Wrap Up, TOP STORY—SDNY: Prescription Drug Purchasers Denied Injunction, Allowed to Pursue State Antitrust Law Claims Against Pharmaceutical Manufacturers , (Oct 19, 2012)

By Jody Coultas, J.D.

The federal district court in White Plains, New York has dismissed a request by a putative class of indirect drug purchasers for an injunction under the Clayton Act against Ferring B.V.. Ferring Pharmaceuticals, Inc., and Aventis Pharmaceuticals, Inc., stemming from alleged antitrust violations (In re DDAVP Indirect Purchasers Antitrust Litigation, October 16, 2012, Seibel, C.). The court denied dismissal of a number of state antitrust and consumer protection law claims against the companies based on misconduct before the Food and Drug Administration and the U.S. Patent and Trademark Office.

Ferring held U.S. Patent No. 5,407,398 (the ‘398 patent) on a gastrointestinally-absorbable tablet form of DDAVP, an antidiuretic, and licensed Aventis to market and sell the drug. Ferring’s application for the ‘398 patent was denied twice due to obviousness in light of patents held by Ferring on previous DDAVP drugs that had expired, but was finally approved after it submitted declarations from people unaffiliated with Ferring, so called non-inventors, stating that the prior DDAVP patents did not make the ‘398 patent obvious. However, the declarations were submitted by paid consultants of Ferring.

Two generic drug manufacturers sought to obtain approval from the FDA to sell generic versions of the tablet form DDAVP and claimed that the ‘398 patent was invalid due to Ferring’s inequitable conduct before the PTO. Ferring filed patent infirngement suits against the companies. A district court found that the patent was invalid and an appellate court affirmed.

While the patent case was pending, Ferring filed a citizen petition with the FDA seeking a mandate that all generic drug manufacturers seeking approval of a generic version of DDAVP include more stringent evidentiary proofs of bioequivalence. The FDA denied the petition on the grounds that Ferring failed to provide evidence as to why the FDA should depart from its methodologies and Ferring failed to cite a study that was inconsistent with its position on the matter. The generic versions were approved by the FDA.

Two classes of plaintiffs asserting antitrust and patent claims, a direct purchaser plaintiff class and the indirect purchaser plaintiffs, were consolidated against Ferring. The district court initially found that the parties lacked standing to bring antitrust claims against Ferring, Ferring’s citizen petition to the FDA was protected by the First Amendment, and the parties’ fraud claims lacked evidence that Aventis knew of Ferring’s inequitable conduct. However, the Second Circuit subsequently determined that the direct purchaser class had standing, plausibly alleged antitrust claims, and pled the circumstances of Aventis’s alleged fraud with particularity. Following the ruling, the direct purchaser class settled its claims.

On remand, the court vacated the indirect purchaser class claims in light of the Second Circuit’s holding. The indirect purchasers sought injunctive relief under the Clayton Act for Ferring’s alleged violations of the Sherman Act, damages under the antitrust and consumer protection statutes of the indirect purchasers’ states, and restitution, disgorgement, and constructive trust for unjust enrichment under the laws of all fifty states and the District of Columbia.

Clayton Act Injunction

The indirect purchasers were not entitled to an injunction under the Clayton Act, according to the court. The Clayton Act provides that parties are entitled to sue for and have injunctive relief against threatened loss or damage by a violation of the antitrust laws. Both parties agreed that there was no future threat of injury because the ‘398 patent had been held unenforceable. The indirect purchasers argued that the injunction was to ensure that similar anticompetitive conduct would not occur in relation to DDAVP or other drugs, causing purchasers to pay supra-competitive prices in the future. However, the putative class did not show any significant threat of future harm from an impending ‘398 violation or supra-competitive prices of DDAVP or other drugs.

The court also denied the indirect purchasers’ request for judicial notice of five other lawsuits involving Ferring and Aventis and denied leave to add allegations concerning Ferring and Aventis’ conduct in those five cases. These cases did not cure the deficiencies in the claim for injunctive relief under the Clayton Act.

State Law Antitrust and Consumer Protection Statutes

Ferring and Aventis were denied dismissal based on lack of standing of the indirect purchasers’ state law antitrust and consumer protection claims. Ferring argued that the named plaintiffs lacked standing to assert claims under the laws of states in which they didn not reside or suffer injury. The indirect purchasers resided in three states and had standing to bring claims under the statutes of those states. The court found that class certification was antecedent to the issue of standing, and whether the named parties’ injuries were sufficiently similar to the class was an issue to be decided during class certificaiton proceedings.

The court held that the indirect purchasers pleaded misrepresentations that, although not directly made to consumers, had the effect on end payors that the state antitrust statutes were intended to remedy. Ferring argued that because the consumer protection laws of a number of states did not apply to antitrust violations or similar anticompetitive conduct, but only to conduct that constitutes fraud upon consumers, the claims should be dismissed because the indirect purchasers failed to allege any communications between themeselves and Ferring.

The purchasers’ allegations—that Ferring’s fraudulent conduct before the PTO and baseless citizen petition caused a delay in the introduction of cheaper, generic versions of the DDAVP tablets and, therefore, an injury stemming from paying supra-competitive prices for DDAVP—were sufficient to state viable claims. In paying the high prices, the indirect purchasers arguably relied of Ferring’s false representations to the PTO and FDA regarding the patentability and safety of their product and the generic equivalents even though they never directly communicated with Ferring. The purchasers also alleged sufficient evidence concerning intrastate activities to state claims under the antitrust statutes that required such a showing.

Ferring was granted dismissal of the Tennessee Consumer Protection Act claims because only individual consumers may raise such claims, according to the court.

Federal Preemption

The court held that the indirect purchasers’ state antitrust and consumer protection law claims were not preempted by federal and, if proven, would strip Ferring of its immunity as a patentee from antitrust claims. Ferring argued that the claims were preempted because they were based on misconduct before the PTO, which was governed by patent law, and the citizen petition, which was preempted by federal FDA law.

In the direct purchaser plaintiff appeal, the Second Circuit had held that the class sufficiently alleged federal antitrust claims of the kind articulated in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the court noted. Walker Process held that as long as a plaintiff could plead the intent and conduct elements of a Sherman Act violation, as well as that the defendant’s conduct had the ability to reduce or destroy competition, the plaintiff could pursue a federal antitrust claim predicated on a defendant’s maintenance and enforcement of a patent procured by knowing and willful fraud before the PTO.

Neither the Supreme Court nor any appellate court has ruled on whether a plaintiff may bring state-law Walker Process antitrust claims predicated on fraudulent conduct before the PTO. Ferring failed to cite any case law to support its argument, the court observed. Federal Circuit precedent holds that either fraud on the PTO or bad faith conduct in the marketplace is sufficient to strip a patent holder of its antitrust immunity and render an antitrust claim not preempted by patent law. Allowing state-law Walker Process type antitrust claims would not impair the purposes and objectives of federal patent law, according to the court.

The state law antitrust and/or consumer proection claims based on Ferring’s baseless citizen petition were not preempted either, the court added. The Supreme Court has held that the FDA is empowered to investigate fraud on the administration and state-law fraud-on-the-FDA claims were impliedly preempted. This ruling has been reportedly refined based on the set of facts at issue, the court explained. The claims made freestanding allegations of wrongdoing apart from the failure to comply with FDA disclosure requirements and were not suing on claims were proof of fraud against the FDA was alone sufficient to impose liability. The claims would allow the indirect purchasers to recover under traditional state law principles.

Unjust Enrichment

The court dismissed the unjust enrichment claims filed under the Idaho and North Dakota laws, as well as the state laws that follow Illinois Brick.

The case is No. 05-CV-2237 (CS).

Kevin B. Love (Criden & Love P.A.) for Indirect Purchaser Plaintiffs. Douglas L. Wald (Arnold & Porter LLP) for Ferring B.V. and Ferring Pharmaceuticals, Inc.

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