On Jan. 21, 2015, a split 1st U.S. Circuit Court of Appeals panel upheld a district court order certifying a class of payors, union health and welfare funds, and individual consumers, in a reverse payment pharmaceutical class action, even though the class, when certified, contained more than a small number of uninjured class members. AstraZeneca AB v. UFCW (In re Nexium Antitrust Litig.), Nos. 14-1521, 14-1522, 2015 U.S. App. LEXIS 968 (1st Cir. Jan. 21, 2015).
In this Hatch-Waxman case, AstraZeneca—the manufacturer of the gastroesophageal reflux disease drug Nexium—entered into settlement agreements with several generics companies (Ranbaxy, Teva and DRL), after first suing each for patent infringement when the companies sought to market a generic form of Nexium. AstraZeneca agreed to pay each company a significant sum—a combination of cash and debt-forgiveness—in exchange for the company agreeing to 1) not challenge the validity of the Nexium patents, and 2) delay any launch of a competing generic products until the Nexium patents expired in May 2014. Pursuant to the U.S. Supreme Court's 2013 decision in Federal Trade Commission v. Actavis, 133 S. Ct. 2233 (2013), reverse payment arrangements, when challenged, are properly evaluated under the rule of reason.
Plaintiffs sued AstraZeneca and the generics companies alleging an unlawful conspiracy in violation of Section 1 of the Sherman Act. They claimed that, because Nexium was fully anticipated by prior art, a generic version of the drug could have been available to consumers as early as April 2008, and the reverse payments constituted unlawful agreements to foreclose generics competition.
At issue on interlocutory appeal to the 1st Circuit was whether the district court judge abused his discretion by certifying a class that included members not injured by the defendants' conduct. The Court affirmed the class certification order, holding that "class certification is permissible even if the class includes a de minimis number of uninjured parties." The Court, although recognizing that a class certified under Federal Rule of Civil Procedure 23(b)(3) requires that common proof be used to establish antitrust impact and damages, reasoned that the presence of uninjured members at a preliminary stage in the litigation would not prevent the court from later ensuring that only injured class members were compensated. The Court further reasoned that the efficiency gains by using the class action device overrode concerns regarding the presence of uninjured members in the class. However, while the parties awaited the 1st Circuit's ruling, the case continued to advance, eventually proceeding to trial and a verdict favoring the defendants.
Nonetheless, the Court's opinion carries significant implications. Since Actavis, the rules governing proper class composition for reverse payment actions has been uncertain. By certifying a class despite the existence of uninjured class members, the 1st Circuit has made itself more attractive to plaintiffs seeking to bring reverse payment litigations.
The Court's decision is available here.
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