On October 30, 2018, Judge Madeline C. Arleo of the United States District Court for the District of New Jersey declined to certify a proposed consumer class in litigation accusing a pharmaceutical manufacturer (the “Company”) of maintaining a monopoly for two of its drugs. Judge Arleo held that, under Federal Rule of Civil Procedure 23, a class cannot be certified when a non-trivial portion of class members were not injured, absent some “reasonable and workable plan” to segregate those members from the rest of the class. In re Thalomid and Revlimid Antitrust Litig.
, No. 2:14-cv-06997, at *26, *29 (D.N.J. Oct. 30, 2018) (“Opinion”). In so holding, Judge Arleo relied heavily on the First Circuit’s recent decision in In re Asacol Antitrust Litig.
, which reversed a district court’s approval of a class on similar grounds. No. 18-1065, 2018 WL 4958856, at *11 (1st Cir. Oct. 15, 2018); https://www.lit-antitrust.shearman.com/first-circuit-reverses-class-certification-based
The Company makes and sells Thalomid and Revlimid. Both have significant therapeutic uses, but have also been discovered to cause birth defects. Accordingly, the Food and Drug Administration (“FDA”) has required restricted distribution programs as a condition of approval for the drugs. Plaintiffs claimed the Company has amassed a significant portfolio of unexpired patents which cover both the formulations and the delivery systems that minimize the risk of fetal exposure for both drugs. Plaintiffs alleged that the Company delayed the entry of generic versions and monopolized the market for the two drugs by listing and suing to enforce invalid patents, refusing to sell samples necessary to develop generics, and encouraging the FDA to reject generic applications based on sham safety concerns.
On class certification, the Court focused on the question of whether the predominance requirements of Rule 23(b) had been met, and in particular, on the argument that Plaintiffs cannot prove injury on a class-wide basis because the class includes large numbers of uninjured person and entities. Although defendants argued there were several categories of uninjured class members, the Court focused on “brand loyalists,” consumers who would purchase a brand name product even if a generic alternative was available. Defendants’ expert asserted that up to ten percent of consumer class members were such loyalists and therefore would not have suffered any injury. Plaintiffs argued that “identification of individual brand loyalists is a question of damages allocation that is inappropriate for class certification.” Opinion at *24. Judge Arleo rejected this argument, noting that courts in the Third Circuit have explicitly imposed a greater standard of proof at class certification than in other circuits.
Judge Arleo also noted that the First Circuit recently imposed a similar standard. As discussed in last week’s entry of this newsletter
, In re Asacol Antitrust Litigation
similarly involved allegations that a pharmaceutical company delayed entry of a generic drug, resulting in higher prices paid by some members of the putative class. There, the district court found that at least ten percent of putative class members were uninjured “brand loyalists,” but nonetheless certified the class, finding that the ten percent was a de minimis
number. The district court further found sufficient a proposal by plaintiffs that class members be allowed to submit a claims form, along with data and documentation, to substantiate their membership in the class, which a claims administrator would review to determine class membership. The First Circuit reversed, finding that the proposal failed to be “‘protective of defendants’ Seventh Amendment and due process rights.’” Id.
at 24-25 (quoting Nexium
, 777 F.3d at 19). Because plaintiffs had not provided an appropriate common method for proving injury-in-fact, the First Circuit concluded that certification was inappropriate, as individual inquiries regarding this issue would overwhelm common issues at trial.
Based on this analysis, Judge Arleo found that Plaintiffs’ inability to identify a non-individualized means of identifying brand loyalists weighs against certification and held that any renewed class certification motion by Plaintiffs must enable the Court to offer a “reasonable and workable plan for how [the opportunity to press at trial genuine challenges to allegations of injury-in-fact] will be provided in a manner that is protective of the defendant’s constitutional rights and does not cause individual inquiries to overwhelm common issues.” Opinion at *26.
As discussed last week, the role of uninjured class members in class certification decisions is paramount—its resolution can lead to vast swings in a defendant’s potential exposure. Judge Arleo’s opinion here relying on the recent Asacol
decision from the First Circuit signifies a potential trend in antitrust class certification jurisprudence. Nonetheless, courts across the country will likely continue to take divergent approaches on these issues.