Legal Backgrounder


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Vol. 26 No. 4

February 11, 2011

by George S. Cary and Steven J. Kaiser
In Sheet Metal Workers Local 441 Health & Welfare Plan v. GlaxoSmithKline, PLC, No 04-5898, 2010 U.S. Dist. LEXIS 105646 (E.D. Pa. Sept. 30, 2010), Judge Lawrence F. Stengel denied the plaintiffs’ motion to certify an antitrust class of indirect purchasers of the antidepressant Wellbutrin SR against its manufacturer GlaxoSmithKline (“GSK”). Judge Stengel concluded that the class could not be certified because a significant number of class members did not have claims. The reasoning of Judge Stengel’s decision demonstrates how careful and considered analysis can avoid the mistake of allowing dubious or non-existent claims to be swept into a class action to the detriment of defendants and, often, to other class members. The opinion highlights that a court must undertake a vigorous analysis, including engaging in fact finding where there are disputes between the parties and their experts. The case makes clear that, unlike in the summary judgment context where the plaintiff is given the benefit of competing evidence and expert opinion, a motion for class certification requires the court to affirmatively resolve such disputes, including among experts. Background. Plaintiffs – indirect purchasers of GSK’s antidepressant Wellbutrin SR – alleged that GSK violated state antitrust and consumer protection laws by pursuing sham patent litigation to prevent the launching of generic versions of Wellbutrin SR. Plaintiffs asserted that but for the sham litigation, generic versions of Wellbutrin SR would have been available more than two years before they were. Plaintiffs contended that the absence of generic competition enabled GSK to maintain higher prices for branded Wellbutrin SR and to prevent consumers from using less expensive generic versions of Wellbutrin SR. Plaintiffs asked the court to certify a class consisting of indirect purchasers of Wellbutrin SR (i.e., non-governmental entities that purchased Wellbutrin SR from someone other than GSK). Such purchasers were defined to include any person who paid “all or some” of the purchase price. Sheet Metal, at *6. According to the court, “[t]his class could include potentially hundreds of thousands of individual consumers and more than twenty thousand third party payors – health benefit plans, health maintenance organizations, and health insurers, among them – who purchased Wellbutrin SR.” Id. The contest over class certification is often a critical part of antitrust litigation because the alleged overcharges suffered by any individual purchaser are often not significant enough to justify the expense of litigation. When such claims are aggregated in a class, however, they often prompt settlements of tens and hundreds of millions of dollars and sometimes even more. The size of the class can therefore dramatically George S. Cary is a partner and Steven J. Kaiser is counsel in the Washington, D.C. office of the law firm Cleary Gottlieb Steen & Hamilton LLP.

affect how much each class member receives and can also affect the total amount for which the defendant is at risk. The standard for class certification is set forth in Rule 23 of the Federal Rules of Civil Procedure. Where, as in Sheet Metal, money damages are sought, the court must find that, in addition to satisfying certain conditions that were readily met in Sheet Metal relating to the size of the putative class and the adequacy of the plaintiffs as class representatives, “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.” See FED R. CIV. PRO. 23(b)(3). Judge Stengal’s Decision. Judge Stengal began by highlighting the Supreme Court’s admonition in General Telephone Co. v. Falcon, 457 U.S. 147, 161 (1982), that, in ensuring that the elements for class certification have been established, the court must undertake a “vigorous analysis.” He noted that certification in antitrust cases “should not be presumed,” but rather must be subjected to the same sort of vigorous analysis as in other cases. Sheet Metal, at *19. The court focused on whether plaintiffs had established that injury to each class member – a prerequisite for the claims that the putative class sought to assert – could be shown by common proof or, in the alternative, that a class member by class member analysis was required. Were such an individualized exercise required among the projected hundreds of thousands of class members, common questions of law or fact would not predominate, and class certification would be inappropriate. See Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294, 302 (5th Cir. 2003). The court observed that whether there was such common impact depended on whether the plaintiffs had shown “that prices for [both generic and branded Wellbutrin SR] were affected during the class period” and that “all purported class members actually suffered damages as a result of GSK’s allegedly anticompetitive activity.” Sheet Metal, *19. In considering this issue, the court focused on the Third Circuit’s recent decision in In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305, 311 (3d Cir. 2008), in which the Third Circuit held that “the task for plaintiffs at class certification is to demonstrate that the element of antitrust impact is capable of proof at trial through evidence that is common to the class rather than the individual to its members.” The court noted that, among other things, Hydrogen Peroxide requires courts to be critical of expert testimony and not accept it as dispositive to the class certification question simply because it is admissible. Sheet Metal, at *20. Rather, a court must make factual findings as between competing expert testimony. The court was presented with such competing expert testimony. The plaintiffs’ expert, Dr. Meredith Rosenthal, opined based largely on economic literature that each and every class member was, one way or the other, harmed by delayed generic entry because even those who would have used branded Wellbutrin SR would have enjoyed lower prices had there been generic entry. Sheet Metal, at *30-36. GSK’s expert, Dr. John Bigelow, pointed out that the class, as the plaintiffs defined it, included many uninjured parties. As an initial matter, Dr. Bigelow observed that, had GSK faced generic entry, it would not have promoted Wellbutrin SR as much as it did, particularly directly to consumers. As a result, GSK argued, some patients would never have been prescribed Wellbutrin SR in the first place, “in light of the fierce competition in the antidepressant market.” Sheet Metal, at *44. GSK argued that patients who chose Wellbutrin SR as a result of the advertising should not be members of the class because the advertising that caused them to choose Wellbutrin SR would not have occurred in the absence of GSK believing it would have ongoing exclusivity. Dr. Bigelow also disputed the plaintiffs’ assertion that, with the launch of generic versions of Wellbutrin SR, prices for branded Wellbutrin SR would have changed in a way that would have benefited all class members. Rather, according to Dr. Bigelow, prices actually increased post entry. As such, any
Copyright 82011 Washington Legal Foundation


ISBN 1056 3059

member of the class that would not have chosen generic Wellbutrin SR (or have it chosen for them) actually benefited from the absence of generic entry and should not be members of the class. Sheet Metal, at *47-50. Dr. Bigelow also testified that certain putative class members had forms of insurance under which they could not have been harmed by the absence of generic Wellbutrin SR. Such insurance includes insurance that does not require a co-pay for prescription drugs and insurance where the co-pay would have been the same whether generic or branded Wellbutrin SR were prescribed (or dispensed). Because such insurance would, in effect, hold patients harmless regardless of which type of Wellbutrin SR they “purchased,” they could not have been harmed and therefore should not be members of the class. Sheet Metal, at *53-57. The court found that there was another – and in some senses even more fundamental – flaw in the plaintiffs’ argument that each class member was adversely impacted. In particular, the court observed that, even assuming GSK’s conduct led to unlawfully high prices being charged to GSK’s customers, it did not necessarily follow that each of those customers (numbered in the hundreds) themselves passed on such overcharges to their own customers or that, even if they did, that the overcharges ultimately reached the members of the proposed class. Sheet Metal, at *64-65. The court rejected plaintiffs’ contention that the court’s earlier decision to certify a direct purchaser class necessarily established such “pass through” for purpose of the motion to certify an indirect purchaser class. In essence, the court held that an indirect purchaser plaintiff itself must make a showing of overcharge to the direct purchasers and that the direct purchaser passed those overcharges on (at least in part): “The end-payor plaintiffs cannot avoid this burden by relying in the work of the direct purchaser plaintiffs.” Sheet Metal, at *67. The court noted that the problem it identified – that the proposed class definition tended to include uninjured parties – was not relevant to the direct purchaser class certification decision. Considering all of the evidence before it, including most prominently the disputed expert testimony, the court concluded that the plaintiffs had failed “to show on a class-wide basis, (1) that GSK's anticompetitive conduct caused supra-competitive prices for [Wellbutrin] SR and (2) that every end-payor bought [Wellbutrin] SR at a supra-competitive price.” Id. at *76. The court found that, for those purchasers of Wellbutrin SR that would have purchased the branded version regardless of a generic alternative, there was no evidence that the entry of such a generic alternative would have reduced the price of the branded version (or caused it to rise more slowly than it otherwise would have). The court further concluded that, because not all direct purchasers necessarily passed through overcharges and because of the variability in insurance plans, “there are presumably significant numbers of third party payors and consumer plaintiffs, who, as a result of their applicable co-payment and co-insurance structures, did not suffer any out-of-pocket losses.” Sheet Metal, at *87. Because of these issues, the court was “satisfied the defendant has shown there are a great number of uninjured class members, that it would therefore take many mini-trials to determine which of the class members are uninjured. Plaintiffs have failed to show they can exclude these uninjured consumers.” Sheet Metal, at *95. The court also rejected the plaintiffs’ proposed method for calculating damages, which would have used the “real world” experience that occurred when generic Wellbutrin SR entered the market in 2004. Although the court held that it did not need to resolve the issue, it indicated that it was skeptical of the plaintiffs’ methodology: The evidence presented shows there are substantial variations in the prices paid by individual class members. Different class members purchased different forms of the drug, either branded or generic. End-payors bought the [Wellbutrin] SR at different times. Insurance plans vary across the class. Certain class members are less price sensitive than others. The plaintiffs’ use of average prices masks these individual variations. Just because an average price was increased or decreased by the alleged foreclosure does not mean that
Copyright 82011 Washington Legal Foundation


ISBN 1056 3059

all members of the proposed class paid supra-competitive prices or that any damage for an individual end-payor could be calculated in a formulaic way by common proof. Sheet Metal, at *102. Analysis. Judge Stengel recognized what is in most instances the single most important issue in class certification – whether the class as defined is limited to parties who actually have a viable claim. If parties who have not been injured are allowed to be class members, the efficiency-enhancing potential of class litigation – the aggregation of similar viable claims – would be perverted into a means for pursuing claims that have no basis in law or fact. Judge Stengel identified numerous reasons why the class as defined would sweep in a large number of parties with no claim. Under the plaintiffs’ methodology, these parties’ purchases would be included in the ultimate damages assessment, which of course would have directly prejudiced GSK by forcing it to face damage claims from uninjured class members. The difficulties that Judge Stengel identified are, of course, present in most indirect purchaser antitrust cases. In particular, the fact that not all direct purchasers are in a position to “pass on” overcharges is often seen. The issue is particularly acute in “ingredient” and “component” cases, where the overcharged product is incorporated into a final product by a direct purchaser. Under the court’s holding, an indirect purchaser plaintiff will need to demonstrate that each direct purchaser passed on at least a portion of the ingredient or component overcharge in the finished product. This will often be a difficult if not insurmountable burden, particularly in cases where the ingredient or component represents a relatively small portion of the value of the finished product or where the downstream market is itself competitive. Judge Stengel was also careful not to make the all-too-common mistake of accepting a “but-for” world that only accounts for certain, pro-certification, factors. In particular, presented with evidence that GSK would not have marketed Wellbutrin SR to consumers had it expected generic entry and that such marketing increased the sales of Wellbutrin SR at the expense of other antidepressants, Judge Stengel properly concluded that parties who purchased Wellbutrin SR as a result of the marketing would not have claims and should not be in the class. (To be sure, Judge Stengel did not rest his denial of class certification on this conclusion.) Among the lessons that a party wishing to challenge class certification (whether in the antitrust context or otherwise) should draw from the decision are that it should: (1) examine the class definition to see if it includes parties with no claim, including, for example, parties that were not injured-in-fact; (2) challenge unfounded or poorly reasoned expert testimony on the merits; and (3) not accept the plaintiffs’ “but for” world in assessing suitability for class treatment; but instead (4) present an alternative but-for world that demonstrates why the class definition is overbroad and, indeed, that there is no way to determine who should be in a class without resorting to mini-trials. As Judge Stengel held, in class certification disputes, parties are entitled to “vigorous analysis” and factual findings, not the mere rubber stamping of the plaintiffs’ class certification motion.

Copyright 82011 Washington Legal Foundation


ISBN 1056 3059

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