In re K–Dur Antitrust Litig.

686 F.3d 197

2012-2 Trade Cases P 77,971

103 U.S.P.Q.2d 1497

In re K–DUR ANTITRUST LITIGATION. Louisiana Wholesale Drug Co., Inc., on behalf of itself and all others similarly situated, Appellants. In re K–DUR Antitrust Litigation. CVS Pharmacy, Inc.; Rite Aid Corporation, Appellants. In re K–DUR Antitrust Litigation. Walgreen Co., Eckerd Corporation, The Kroger Co., Safeway Inc., Albertson's Inc., Hy–Vee, Inc., and Maxi Drug, Inc., Appellants. In re K–DUR Antitrust Litigation. Merck & Co., Inc.; Upsher–Smith Laboratories, Inc., Appellants.

Nos. 10–2077, 10–2078, 10–2079, 10–4571.

United States Court of Appeals, Third Circuit.

Argued Dec. 12, 2011.

Filed: July 16, 2012.

Daniel Berger, Daniel C. Simons, David Francis Sorensen (Argued), Berger & Montague, Philadelphia, PA, Bruce E. Gerstein, Kimberly Hennings, Joseph Opper, Barry S. Taus, Garwin Gerstein & Fisher, New York, NY, Peter S. Pearlman, Cohn, Lifland, Pearlman, Herrmann & Knopf, Saddle Brook, NJ, for Appellants, No. 10–2077.

Barry L. Refsin, Hangley, Aronchick, Segal, Pudlin & Schiller, Philadelphia, PA, Steve D. Shadowen (Argued), Hangley, Aronchick, Segal, Pudlin & Schiller, Harrisburg, PA, for Appellants, Nos. 10–2078, 10–4571.

Deborah S. Corbishley, Scott E. Perwin, Lauren C. Ravkind, Kenny Nachwalter, Miami, FL, for Appellants, Nos. 10–4571, 10–2079.

Gage Andretta, William E. Goydan, Robert L. Tchack, Wolff & Samson, West Orange, NJ, Jennifer K. Conrad, Steven W. Copley, A. Gregory Grimsal, Gordon, Arata, McCollam, Duplantis & Eagan, New Orleans, LA, Jaime M. Crowe, Christopher M. Curran, White & Case, Ashley E. Bass, Thomas A. Isaacson, John W. Nields, Jr. (Argued), Alan M. Wiseman, Covington & Burling, Washington, DC, Mark A. Cunningham, David G. Radlauer, Jones Walker, New Orleans, LA, Richard H. Gill, George W. Walker, Copeland Franco Screws & Gills, Montgomery, AL, Richard Hernandez, William J. O'Shaughnessy, McCarter & English, Newark, NJ, Charles A. Loughlin, Baker Botts, Washington, DC, for Appellees, Nos. 10–2077, 10–2078.

Ellen Meriwether, Cafferty Faucher, Philadelphia, PA, for Amicus Appellant, American Antitrust Institute, Proposed Amicus Appellants, Nos. 10–2077, 10–2078.

Adam R. Lawton, Jeffrey I. Weinberger, Munger, Tolles & Olson, Los Angeles, CA, for Amicus Appellee Pharmaceutical Research and Manufacturers of America, No. 10–2077.

Imad D. Abyad, John F. Daly, Federal Trade Commission, Washington, DC, for Amicus Appellant Federal Trade Commission, No. 10–2077.

Richard A. Samp, Washington Legal Foundation, Washington, DC, for Amicus Appellee Washington Legal Foundation, No. 10–2077.

Werner L. Margard, III, Office of Attorney General, Columbus, OH, Attorney for Amicus Appellants, No. 10–2077.

Catherine G. O'Sullivan, United States Department of Justice, Appellate Section, David Seidman, United States Department of Justice, Antitrust Division, Malcolm L. Stewart (Argued), United States Department of Justice, Office of Solicitor General, Washington, DC, for Amicus Appellant United States, No. 10–2077.

Donald L. Bell, II, National Association of Chain Drug Stores, Alexandria, VA, for Amicus Appellant Nat'l Ass'n Chain Drug Stores, Inc., Nos. 10–2077, 10–2078.

Before: SLOVITER, VANASKIE, Circuit Judges and STENGEL ^*, District Judge.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

In this appeal, we consider the antitrust implications of an agreement by a manufacturer of a generic drug that, in return for a payment by the patent holder, agrees to drop its challenge to the patent and refrain from entering the market for a specified period of time.

A secondary issue concerns the certification by the District Court of a class of antitrust plaintiffs. Specifically, we must determine whether the antitrust injury allegedly suffered by class members can be shown through common proof, i.e. proof applicable to all plaintiffs, and whether there are insurmountable conflicts preventing named plaintiffs from adequately representing the members of the class.

These appeals arise out of the settlement of two patent cases involving the drug K–Dur 20 (“K–Dur”), which is manufactured by Schering–Plough Corporation (“Schering”). Plaintiffs are Louisiana Wholesale Drug Company, Inc., on behalf of a class of wholesalers and retailers who purchased K–Dur directly from Schering and nine individual plaintiffs, including CVS Pharmacy, Inc., Rite Aid Corporation, and other pharmacies. Defendants are Schering and Upsher–Smith Laboratories (“Upsher Smith”).¹

I. STATUTORY AND REGULATORY FRAMEWORK

K–Dur is Schering's brand-name sustained-release potassium chloride supplement.² Sustained-release potassium chloride is used to treat potassium deficiencies, including those that arise as a side effect of the use of diuretic products to treat high blood pressure.

Schering did not hold a patent for the potassium chloride salt itself, as that compound is commonly known and not patentable. Instead, Schering held a formulation patent on the controlled release coating it applied to the potassium chloride crystals. Schering identified patent number 4,863,743 (“the '743 patent”) as the patent that would be infringed by the production of a generic version of K–Dur. Schering assigned the '743 patent to its subsidiary Key Pharmaceuticals, Inc. The '743 patent was set to expire on September 5, 2006.

By statute, a pharmaceutical company must obtain from the Food and Drug Administration (“FDA”) approval before it may market a prescription drug. 21 U.S.C. § 355(a). For a new drug, the approval process requires submission of a New Drug Application (“NDA”), which includes exhaustive information about the drug, including safety and efficacy studies, the method of producing the drug, and any patents issued on the drug's composition or methods of use. Id. § 355(b)(1). The FDA publishes the patent information submitted in NDAs in the “Approved Drug Products with Therapeutic Equivalence Evaluations,” otherwise known as the “Orange Book.” See FDA Electronic Orange Book, http:// www. fda. gov/ cder/ ob/.

In 1984, attempting to jumpstart generic competition with name brand pharmaceuticals, Congress passed the Drug Price Competition and Patent Term Restoration Act, commonly known as the Hatch–Waxman Act. Pub.L. No. 98–417, 98 Stat. 1585 (1984). The Hatch–Waxman Act amended the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. §§ 301–399, to permit a potential manufacturer of a generic version of a patented drug to file an abbreviated application for approval with the FDA. See21 U.S.C. § 355(j). This short form application, known as an Abbreviated New Drug Application (“ANDA”), may rely on the FDA's prior determinations of safety and efficacy made in considering the application of the patented drug. Id. § 355(j)(2)(A).

When a generic manufacturer files an ANDA, it is also required to file a certification that, “in the opinion of the applicant and to the best of his knowledge,” the proposed generic drug does not infringe any patent listed with the FDA as covering the patented drug. Id. § 355(j)(2)(A)(vii). The generic manufacturer can satisfy this requirement by certifying one of the following four options with respect to the patent for the listed drug: “(I) that such patent information has not been filed, (II) that such patent has expired, (III) [by certifying] the date on which such patent will expire, or (IV) that such patent is invalid or will not be infringed by the manufacture, use, or sale of the new drug for which the application is submitted.” Id. § 355(j)(2)(A)(vii). The generic manufacturers at issue here, Upsher and ESI, used the fourth of these certification options, the so-called “paragraph IV certification.” Id. § 355(j)(2)(A)(vii)(IV). When a would-be generic manufacturer submits a paragraph IV certification, it must consult the Orange Book and provide written notice to each listed patent owner impacted by the ANDA. Id. § 355(j)(2)(B)(iii)(I). By statute, a paragraph IV certification constitutes a technical act of patent infringement. 35 U.S.C. § 271(e)(2)(A).

Upon receiving notice of a paragraph IV certification with respect to one of its pharmaceutical patents, the patent holder may initiate an infringement suit based on the filing of the paragraph IV certification alone within forty-five days after the generic applicant files its ANDA and paragraph IV certification. 21 U.S.C. § 355(j)(5)(B)(iii). Filing suit by the patent holder within that window effects an automatic stay that prevents the FDA from approving the generic drug until the earlier of (1) thirty months have run or (2) the court hearing the patent challenge finds that the patent is either invalid or not infringed. Id. § 355(j)(5)(B)(iii)(I).

Congress explained that the purpose of the Hatch–Waxman Act is “to make available more low cost generic drugs.” H.R.Rep. No. 98–857(I), at 14–15, reprinted in 1984 U.S.C.C.A.N. 2647, 2647–48. In order to encourage generic entry and challenges to drug patents, the Hatch–Waxman Act rewards the first generic manufacturer who submits an ANDA and a paragraph IV certification by providing it with a 180–day period during which the FDA will not approve subsequent ANDA applications. 21 U.S.C. § 355(j)(5)(B)(iv). The 180–day exclusivity period is triggered on the date on which the first ANDA applicant begins commercial marketing of its drug. Id. Notably, the 180–day exclusivity window is only available to the first filer of an ANDA with a paragraph IV certification, meaning that even if the first filer never becomes eligible to use its 180–day exclusivity period because it settles, loses, or withdraws the litigation, that potential benefit will not pass to subsequent filers. 21 U.S.C. § 355(j)(5)(D)(iii). It has been suggested that the first filer is usually the most motivated challenger to the patent holder's claimed intellectual property. See C. Scott Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, 81 N.Y.U. L.Rev. 1553, 1583 (2006) (noting...