Geneva Pharmaceuticals v. Barr Labs. Inc.

386 F.3d 485

GENEVA PHARMACEUTICALS TECHNOLOGY CORP., as successor in interest to Invamed, Inc., Plaintiff-Appellant Apothecon, Inc., Consolidated-Plaintiff-Appellant, v. BARR LABORATORIES INC., Brantford Chemicals Inc., Bernard C. Sherman, Apotex Holdings, Inc., Apotex, Inc., Sherman Delaware, Inc., Defendants-Appellees.

Docket No. 02-9222.

Docket No. 02-9346.

United States Court of Appeals, Second Circuit.

Argued December 4, 2003.

Decided October 18, 2004.

Appeal from the United States District Court for the Southern District of New York, Robert W. Sweet, J.

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Wayne A. Cross, White & Case, New York, New York (Michael J. Gallagher, Brendan G. Woodard, White & Case LLP, New York, New York; Frederick R. Dettmer, Law Office of Frederick R. Dettmer, New York, New York; David S. Preminger, Rosen, Preminger & Bloom, New York, New York, of counsel), for Plaintiff-Appellant Geneva Pharmaceuticals Technology Corp.

Louis M. Solomon, New York, New York (Harry Frischer, Colin A. Underwood, Jennifer R. Scullion, Daniel J. Rothstein, Proskauer Rose LLP, New York, New York, of counsel), for Plaintiff-Appellant Apothecon, Inc. Michael J. Gaertner, Chicago, Illinois (David G. Greene, Lord, Bissell & Brook, Chicago, Illinois, of counsel), for Defendants-Appellees Brantford Chemicals Inc., Bernard C. Sherman, Apotex Holdings Inc., Apotex Inc., Sherman Delaware, Inc.

Kurt L. Schultz, New York, New York (Alan B. Howard, Winston & Strawn, New York, New York, of counsel), for Defendant-Appellee Barr Laboratories, Inc.

Before: CARDAMONE, SACK, and JOHN R. GIBSON^*, Circuit Judges.

CARDAMONE, Circuit Judge:

This civil antitrust action was instituted by plaintiffs-appellants Apothecon, Inc. and Geneva Pharmaceuticals Technology Corp., which manufacture and distribute a generic form of warfarin sodium, an anti-coagulant medication (a blood thinner). The suit was brought under §§ 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. § 1 and § 2 (2000). Those sections make it unlawful to enter into a contract, combination, or conspiracy in restraint of trade (§ 1), and/or to engage in a conspiracy to monopolize (§ 2). Plaintiffs' antitrust claims are based on the alleged anti-competitive conduct of defendants-appellees Barr Laboratories, Inc., a competing manufacturer of generic warfarin sodium, and Brantford Chemicals, Inc., a supplier of clathrate, which is the primary chemical ingredient used to make warfarin sodium.

This litigation is about protecting the operation of our competitive markets. Competition, which fosters innovation and tends to lower prices for consumers, directly pits one producer against another. When individual firms go head-to-head, one might wish that the rules of the Marquis of Queensberry, which ensure fair play,¹ would be uppermost in the competitors' minds. The antitrust laws, however, safeguard consumers by protecting the competitive process. Those laws, unlike the Marquis of Queensberry rules, are not designed to protect competitors from one another's conduct.

Plaintiffs appeal from an order of the United States District Court for the Southern District of New York (Sweet, J.), entered October 7, 2002, which granted partial summary judgment to defendants dismissing plaintiffs' antitrust causes of action and dismissing Apothecon's state law claims for lack of standing. See Geneva Pharms. Tech. Corp. v. Barr Labs., Inc., 201 F.Supp.2d 236 (S.D.N.Y.2002).

BACKGROUND

A. The Parties

Plaintiff Apothecon, Inc. (Apothecon) is a wholly-owned subsidiary of pharmaceutical giant Bristol-Myers Squibb, and plaintiff Geneva Pharmaceuticals Technology Corp. (Geneva), the successor-in-interest to Invamed, Inc., is a wholly-owned subsidiary of Novartis. In June 1996 Apothecon and Geneva entered into a five-year Development and Supply Agreement to develop, manufacture, and market generic pharmaceutical drugs, including generic warfarin sodium. The parties dispute the precise nature of the relationship between Apothecon and Geneva, which as we explain later affects whether Apothecon has standing to sue.

Defendant Barr Laboratories, Inc. (Barr) is a competing manufacturer of generic warfarin sodium. Defendant Brantford Chemicals, Inc. is a Canadian corporation that, prior to July 1996, was known as ACIC (Canada) Inc. (hereafter ACIC/Brantford). ACIC/Brantford is a supplier of various chemicals used in manufacturing pharmaceutical drugs, including clathrate. An exclusive dealing contract between Barr and ACIC/Brantford is a key issue in this litigation.

The other defendants are Dr. Bernard C. Sherman, a Canadian citizen who is the beneficial owner of all the stock of defendant Apotex, Inc., a Canadian company with its principal place of business in Weston, Ontario. Dr. Sherman is also a substantial shareholder of Barr and was a member of its board of directors. In addition, Dr. Sherman, through Apotex, now controls 100 percent of the shares of ACIC/Brantford, so he is clearly an important figure in the events we discuss.

B. Drug Industry

1. Generic Pharmaceutical Drugs

We believe it helpful to describe at the outset the place of generics in the drug industry. Generic drugs are chemically identical versions of branded drugs and cannot be put on the market until the patent on the branded drug has expired. Generic drugs are typically sold at a substantial discount from the name brand drug. To market and distribute such a drug in the United States, manufacturers must receive approval from the United States Food and Drug Administration (FDA). A generic manufacturer files an Abbreviated New Drug Application with the FDA to establish that its drug is therapeutically equivalent to the innovator drug.

As part of the approval process, pharmaceutical companies must identify the supplier of the active pharmaceutical ingredient they intend to use in manufacturing the product. Ingredient suppliers, such as ACIC/Brantford, submit a Drug Master File (Master File) to the FDA which summarizes the equipment, manufacturing process, and control measures used to prepare the particular ingredient. The supplier submits a reference letter to the FDA on behalf of a particular manufacturer, stating that it will follow the methods in its Master File for that manufacturer.

The parties dispute the effect of a Master File reference letter. Plaintiffs maintain it is industry practice for such a reference letter effectively to bind a supplier actually to provide the chemical to the manufacturer. They also state that manufacturers and suppliers generally do business in reliance on oral agreements. Defendants respond that the filing of a reference letter is nothing more than a preliminary action that creates no obligation on the part of the supplier.

The FDA rates a generic product as AB equivalent if it is a bioequivalent to the branded product. The generic warfarin sodium products currently on the market all have been rated as AB equivalent to the branded drug Coumadin. Despite this rating, generic drugs may have some minor differences from the branded drug, such as the water content, crystalline structure, and particle size of the active ingredient.

2. Warfarin Sodium

Warfarin sodium, the drug at the root of this litigation, is an oral anti-coagulant medication prescribed by a physician and taken in tablet form. This drug thins the blood and helps prevent blood clots that can cause strokes and heart attacks. Warfarin sodium is viewed as a narrow therapeutic index drug because the dosage has a narrow range of therapeutic value: the range between too low a dose, which is ineffective, and too high a dose, which may cause harmful side effects, is narrow. Its active ingredient is known as "bulk" warfarin sodium or warfarin sodium clathrate. The parties dispute whether the process to make clathrate is simple or complex; plaintiffs assert it can take years to develop a process to produce clathrate.

For nearly 50 years warfarin sodium has been manufactured by DuPont under the well-known brand name Coumadin. Although DuPont's patent for Coumadin expired in 1962, it remained the only manufacturer of warfarin sodium for the next 35 years. Its annual sales eventually exceeded $500 million. Several companies received FDA approval to market warfarin-related products in the 1980's, but these products were unsuccessful.

In 1990 the New England Journal of Medicine published the results of two studies that created renewed interest in the efficacy of warfarin sodium. A few companies thereafter began the process of gaining approval to enter the warfarin sodium market. Currently, four companies sell warfarin sodium in the United States: DuPont, with Coumadin since 1956; Barr, with generic warfarin sodium since July 1997; Geneva, with generic warfarin sodium since October 1998; and Taro Pharmaceutical Industries Ltd. (Taro), which has marketed generic warfarin sodium since September 1999. Key for a manufacturer to the production of warfarin sodium is obtaining a source of clathrate.

C. Obtaining a Source of Clathrate

1. Defendant Barr's Relationship with Defendant ACIC/Brantford

In the early 1990's Barr identified warfarin sodium as a product with high barriers to entry because of the difficulty in procuring commercial quantities of clathrate. Barr began to research potential suppliers, and in 1991 it discussed purchasing clathrate from ACIC/Brantford. ACIC/Brantford confirmed that it would be able to produce commercial quantities of clathrate. In February 1991 Barr placed a small order for it. On March 15, 1995 ACIC/Brantford filed a Master File for clathrate, and on April 3, 1995, it provided a reference letter to the FDA in support of Barr's warfarin sodium Abbreviated New Drug Application. On May 10, 1995 Barr filed its application, listing ACIC/Brantford as its supplier of clathrate.

(a) Exclusive Arrangement Between Barr and ACIC/Brantford

In September 1995 the defendants entered into an exclusive...