Direct Purchasers of Lidoderm Certified As a Class In Pay-for-Delay Case

On February 21, 2017, Judge William H. Orrick of the United States District Court for the Northern District of California certified a class of direct purchasers of the billion-dollar-a-year pain medication patch Lidoderm, and appointed Faruqi & Faruqi LLP as Co-Lead Counsel for the class, stating that it and its co-counsel have “ably and vigorously” litigated the case.  See Order Granting Motions for Class Certification, In re Lidoderm Antitrust Litigation, 14-md-02521, ECF No. 670.    

In In re Lidoderm, plaintiff wholesalers and retailers have alleged that drug manufacturers Endo and Teikoku made a very large reverse payment to their would-be generic competitor Watson, over $200 million, to compensate Watson for agreeing to delay competing by launching its cheaper generic Lidoderm.  The paid-for delay in competition lasted nearly a year, during which class members were paying high branded prices rather than low generic prices.  Under the Supreme Court case of FTC v. Actavis, these payments violate the antitrust laws if they on balance harm competition.  In its order, the Court certified a class of “[a]ll persons or entities in the United States, including its territories, possessions, and the Commonwealth of Puerto Rico, who purchased brand or generic Lidoderm directly from any of the Defendants at any time during the period August 23, 2012 through May 1, 2014.”  Order at 4.

Class actions are governed by Federal Rule of Civil Procedure 23.  Under Rule 23(a), a class may be certified only if:  (1) the class is so numerous that joinder of all members is impracticable; (2) questions of law or fact exist that are common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.  A plaintiff must also establish that one or more of the grounds under Rule 23(b) are met:  (1) that there is a risk of substantial prejudice from separate actions; (2) that declaratory or injunctive relief benefitting the class as a whole would be appropriate; or (3) that common questions of law or fact predominate and the class action is superior to other available methods of adjudication.  

The defendants contested class certification on three grounds, arguing:  (1) common questions of fact do not predominate; (2) the number of direct purchasers in the class does not meet the numerosity requirement; and (3) class conflicts preclude a finding of representativeness.  Order at 14-15.  The Court rejected all three arguments.

The Court concluded that common questions predominated over individual ones, such as:  “Did defendants engage in anticompetitive conduct?  Did that conduct lead to overcharges for brand and generic lidocaine patches?  What aggregate damages resulted from the overcharges?”  Id. at 2.  The Court rejected the defendants’ attack on plaintiffs’ aggregate damages model, finding that “even though the [direct purchaser plaintiffs] may have incurred significantly different amounts of damages, damages issues will not overwhelm the common liability questions.  As a general matter, differences in damages will rarely suffice to defeat class certification.”  Id. at 17.

Regarding numerosity, the defendants argued that Group Purchasing Organizations (“GPOs”) – membership organizations that negotiate prices for a group of purchasers – should be considered one entity for the purpose of class certification.  Id. at 21.  This would have reduced the number of class members.  The Court was “not persuaded” by this “GPO-members equal one entity argument,” and held “[s]imply because 29 of the Class Members belong to five different GPOs in order to secure better prices from defendants, that does not mean that the individual DPPs were not the ones to suffer the impact and harm of the alleged overcharges.”  Id. at 21-22.  Judicial economy and geographic dispersion of the plaintiffs further supported class certification.

The defendants additionally argued that joinder was practicable because three national wholesalers accounted for a large percentage of Lidoderm purchases.  The Court did not buy this argument, and instead held that this fact “only heightens the conclusion as to impracticality of joinder given the smaller-size of the other [plaintiffs’] claims.”  Id. at 22.  This is because the smaller class members may “have claims worth less than it would realistically cost to litigate” and “may not have the market-power security to challenge defendants when they need to negotiate to purchase drugs from these same entities in the future.”  Id.  

The Court also rejected the defendants’ assertion that class conflicts exist.  The defendants argued that “actual entry of generic Lidoderm caused some [direct purchaser plaintiffs] to lose sales volume as a consequence of ‘generic by-pass,’ where customers shift to purchasing generic product from the generic manufacturer instead of from other wholesalers who formerly supplied them brand drugs.”  Id. at 23.  Thus, according to the defendants, “some of the [direct purchaser plaintiffs] would have lost sales earlier in a but-for world where defendants did not delay competition and, therefore, some of the DPPs benefitted from the generic delay creating intra-class conflicts precluding certification.”  Id. at 24.  The Court disagreed with the defendants’ theory, siding with the majority of courts that do not consider “generic by-pass” to create conflicts that preclude class certification.  Id.

Additionally, the defendants argued that some class members might prefer a lost profit measure of damages as opposed to the overcharge theory that plaintiffs propounded, thereby creating a class conflict.  The Court discarded this argument, finding that “these hypothetical class members could protect any such interest by opting out of the class. That the DPPs are presently relying on the widely-accepted ‘overcharge’ method of damages calculation to prove aggregate damages on behalf of the class does not create an inherent conflict precluding certification.”  Id.

Ultimately, the Lidoderm litigation is “more appropriate for class certification than not.”  Id. at 2.  Indeed, if defendants’ arguments against class certification were meritorious, it “would result in certification of very few antitrust cases as [] class actions.”  Id.