The decision of the First Circuit in In re Nexium Antitrust Litig., Nos. 14-1521, 14-1522, 2015 U.S. App. LEXIS 968 (1st Cir. Jan. 21, 2015), affirming a class certification order from the District of Massachusetts is not too surprising if you just consider the courts involved and the name of a drug in the case caption. If you add that, broadly categorized, this is a third party payor case, then our view that the decision does not make much sense is even less surprising. The allegation in the case, though, is something we find fairly novel and decidedly weird. Plaintiffs are “union health and welfare funds that reimburse plan members for prescription drugs”—that is, a type of third party payor—and they claimed that the defendant branded manufacturer of a particular heartburn drug and three putative manufacturers of a generic form of the drug conspired to overcharge for the branded drug when they entered into settlements over patent infringement suits that paid the putative generic manufacturers to not try to get their ANDA approvals and sell their own versions for about six more years. Are you with us so far? Not being able to sue under federal antitrust laws because the Supreme Court says indirect purchasers are too remote to have a cognizable injury, the plaintiffs sued under state antitrust laws—adopted by half the union specifically to provide a claim not available under federal law—and state consumer protection laws. They sued in one federal court (the E.D. Pa.) and the case was moved to another by the JPML. They sought a class on behalf of everybody in the U.S. or its territories who paid (or will have paid) any money for the drug, including generic versions not yet on the market, for their own use or use by anybody else. With our caveat about the limits of our expertise, this lead in makes us start wondering about subject matter jurisdiction, personal jurisdiction post-Bauman (especially with the foreign defendants), how third party payors could be class reps for patients who bought their own drugs or for people who bought drugs for their relative, how a court-approved consent judgment could be considered anti-competitive behavior without running afoul of Noerr-Pennington doctrine, and how there was not some preemption issue in basing state law liability on an assumption that FDA would have approved one to three ANDAs even if there were no patent issues. Then we took a deep breath and realized that the Nexium decision did not address any of that stuff. It did note, however, that the defendants had already won a jury verdict at trial this past December, but “[t]his, of course, does not moot the case here given the possibility of further proceedings.” Then we went back to bellyaching about what else was wrong with the basic premise of this case. Then we had a drink. And we don’t mean an antacid.
The next day, we tried to understand how the class—which admittedly included members without cognizable antitrust injuries—could have been certified and that certification could have been affirmed. It started with Defendants conceding, perhaps just on appeal, that the familiar requirements of Rule 23(a)—numerosity, commonality, typicality and adequate representation—had been satisfied. Id. at *15. The issue on appeal was whether the predominance requirement of Rule 23(b)(3) was satisfied. To certify a class under this provision, the court must “find that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” The first thing we look for with a provision like this is burden and Rule 23 does not mention “burden.” One might assume that the proponent of class certification should be responsible for convincing the court that each requirement is met—allowing the court to make its finding—unless some provision is framed as an exception or defense, which is not the case here. While the court started by saying the burden was on the plaintiffs—“the party seeking certification must show that ‘the fact of antitrust impact can be established through common proof’ and that ‘any resulting damages would likewise be established by sufficiently common proof’” (2015 U.S. App. LEXIS 968, *15 (citation omitted))—it later shifted things so that the plaintiffs only “bear the burden of an initial showing that a proposed class satisfies the Rule 23 requirements” and then “defendants have the burden of producing sufficient evidence to rebut the plaintiff’s showing.” Id. at *40 (citation omitted). We looked at Rule 23 again and have no idea how it could have burdens allocated like this, but we also saw that the sage dissent nails the majority for this same burden shifting flim-flam. Id. at **65-66. As it often does, the burden shift seems to matter in the result here.Jumping ahead, the presence of an indeterminate number of uninjured class members did not alter the finding that common issues predominated:
In light of these three requirements -- ensuring the class is definite, limiting aggregate recovery to the amount of the injury, and ensuring recovery by only injured parties -- it is difficult to understand why the presence of uninjured class members at the preliminary stage should defeat class certification. Ultimately, the defendants will not pay, and the class members will not recover, amounts attributable to uninjured class members, and judgment will not be entered in favor of such members.Id. at *25. Without touching on every aspect of the analysis, we can say that getting to this conclusion involved a few leaps. For instance, the entire analysis as to ascertainability was that “The class definition here satisfies these standards by being defined in terms of purchasers of Nexium during the class period (with some exceptions that also satisfy objective standards).” Id. at *18. Ironically, one of the cases cited for “these standards” was Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013), which we discussed here and slotted at #4 on our 2013 top ten list. Carrera, however—as the dissent points out, id. at **59-62—did not permit a class membership to be defined by self-serving declarations. Yet, using such declarations to establish injury—which the court said the defendant could try to rebut, even though there would not be discovery on individual class members—is something the court endorsed. Id. at **22-23. That is, unless the court did not just presume that any purchaser was injured, because they would have picked a cheaper generic over a pricier branded drug—again with the non-existent opportunity for rebuttal. Id. at **22-23. (The dissent pegged this as an Erie violation in waiting. Id. at *63 n.31.) But the plaintiffs need not prove that there was some feasible way to ensure recovery only by those who had been injured, because the defendants had not disproved it was possible. Absent such disproof, “we have confidence that a mechanism would exist for establishing injury at the liability stage of this case, compliant with the requirements of the Seventh Amendment and due process.” Id. at *23.
The court also determined that the number of uninjured parties in the class was de minimis—or rather, “it has not been shown that the class here includes more than a de minimis number of uninjured parties.” Id. at **36-37. Again, we might have thought it the job of the plaintiffs to show that their proposed class was actually a proper class of people/entities with a common injury, because the commonality between injured and uninjured people would tend to be nonexistent. To get there, though, the court looked at economic experts on each side, with plaintiffs turning to Dr. Rosenthal, a frequent flyer in third party payor cases. Without getting too deep into the weeds, the defendants identified several situations where a purchaser of the branded drug (with no generics on the market) would not necessarily have paid more than they would have if generics were on the market. In general, the court concluded defendants did not establish lower average payments in these situations when there were no generics on the market. However, even Dr. Rosenthal acknowledged that some purchasers—she estimated 5.8% of all prescriptions over a six year period—would have still opted for the pricier branded drug or cheaper generics. We have to take a second to unpack the court’s conclusion about this group of uninjured class members: “While on this record it is impossible to precisely quantify the uninjured members in [this group], we conclude that plaintiffs have provided more than enough evidence to meet their Rule 23 burdens.” Id. at *51. So, plaintiffs acknowledged uninjured class members related to 5.8% of prescriptions, could not specify that there were only a few such members, and they satisfied their burden (initial burden?) of showing that there were not more than a de minimis number? Perhaps this is because the court defined de minimis as what is left over if “the vast majority of class members were probably injured.” Id. at *52. We do not think there is a definition of “vast majority,” but a legislative “super majority”—which sounds at least as much as a “vast majority”—means two-thirds. A class with up to one-third of its members without a cognizable injury does not sound like much of a class to us.Anyway, this seems to us like another case where procedural mechanisms are being misused to allow a large tax—or at least the threat of a large tax that will itself be expensive to fight off—to be levied against pharmaceutical companies, this time for selling a branded drug developed at great cost for the period of patent protection envisioned in a few federal statutes. We hope, though, that the relaxed class certification standards seen here would not translate to most other third party payor or consumer protection claims with prescription medical products, as the patent extension theory here did lend itself to looser standards without any attention on the prescription itself.