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In re Zetia Ezetimibe Antitrust Litigation

United States District Court, E.D. Virginia, Norfolk Division

December 20, 2019




         These matters come before the court on Motions to Dismiss filed by the Merck Defendants[1] and Glenmark Defendants[2] against the Direct Purchaser Plaintiffs'[3] (DPPs) and Retailer Plaintiffs'[4]Amended Complaints.

         I. Claims in Motions to Dismiss

         As an initial matter, a brief accounting of the claims made in the Motions to Dismiss is appropriate. The Merck Defendants' Motion to Dismiss New Claims and Allegations in Direct Purchaser Plaintiffs' Amended Consolidated Class Action Complaint, ECF No. 353, which the Glenmark Defendants joined, ECF No. 355, seeks dismissal of the DPPs' Amended Complaint ''to the extent DPPs seek to recover under federal law for alleged overcharges on purchases made from any entity other than Glenmark or Merck." ECF No. 354 at 4. The Glenmark Defendants' Motion to Dismiss Retailer Plaintiffs' Amended Complaints, ECF No. 498, seeks dismissal of the Retailer Plaintiffs' Amended Complaints "in their entirety because they are founded on the existence of an implausible conspiracy involving Merck, Glenmark, and Par that is not supported by well-pled factual allegations," or, in the alternative, dismissal "for lack of standing insofar as they seek damages flowing from Retailers Plaintiffs' purchases of generic Zetia from Par," as well as dismissal of "Retailer Plaintiffs' per se claim in Count One with prejudice consistent with the Court's August 9, 2019 opinion." ECF No. 499 at 2-3. Finally, the Merck Defendants' Motion to Dismiss New Claims and Allegations in Retailers' Amended Complaints and to Strike Immaterial Reference to Permanent Injunctive Relief, ECF No. 500, seeks dismissal of the Retailers' Amended Complaints "to the extent they allege a three-way conspiracy among Merck, Glenmark, and Par, and to the extent they seek damages under the Sherman Act from Merck and Glenmark for alleged overcharges Retailers paid to Par," ECF No. 501 at 4, and requests the court to strike "the references to 'permanent injunctive relief in the introductory sections of Retailers' Amended Complaints," Id. at 4 n.3.

         In order to overcome a motion to dismiss, a plaintiff alleging an antitrust conspiracy must submit pleadings that "raise a reasonable expectation that discovery will reveal evidence of illegal agreement." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007). ''[A] conclusory allegation of agreement at some unidentified point" does not show an illegal agreement. Id. at 557. While the court must "construe factual allegations in the light most favorable to the plaintiff," Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir. 1999), it does not assume the validity of the plaintiffs' legal conclusions, Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         II. Current Procedural Posture

         On August 29, 2019, these matters were referred to United States Magistrate Judge Douglas E. Miller pursuant to the provisions of 28 U.S.C. § 636(b) and Federal Rule of Civil Procedure 72 (b), to conduct necessary hearings, including the hearing that was held on September 23, 2019, and to submit to the undersigned district judge proposed findings of fact, if applicable, and recommendations for the disposition of the Motions. Referral Order, ECF No. 570.

         By copy of the Magistrate Judge's Report and Recommendation ("R&R"), filed on October 15, 2019, the parties were advised of their right to file written objections to the findings and recommendations made by the Magistrate Judge within fourteen (14) days from the date of service of the R&R on the objecting party. R&R at 34-35, ECF No. 698. Two sets of objections were filed on October 28, 2019: Retailer Plaintiffs' Objections to Report and Recommendation Regarding Motions to Dismiss ("Retailers' Objections"), ECF No. 705; and Objections by Direct Purchaser Class Plaintiffs to the Report and Recommendation Granting Defendants' Motions to Dismiss Direct Purchaser Class Plaintiffs' Amended Consolidated Class Action Complaint (“DPPs' Objections"), ECF No. 706. On November 12, 2019, counsel for the Merck Defendants and the Glenmark Defendants filed Defendants' Response to Plaintiffs' Objections to the Magistrate Judge's Report and Recommendation Granting Defendants' Motions to Dismiss New Claims and Allegations in Plaintiffs' Amended Complaints ("Defendants' Response"). ECF No. 715.

         Pursuant to Rule 72(b) of the Federal Rules of Civil Procedure, the court, having reviewed the record in its entirety, hereby makes a de novo determination of those portions of the R&R to which the Defendants have specifically objected. See Fed.R.Civ.P. 72(b). The court may accept, reject, or modify, in whole or in part, the recommendation of the Magistrate Judge, or recommit the matter to him with instructions. 28 U.S.C. § 636(b) (1) . Because the Retailers' Objections and DPPs' Objections make substantially similar arguments, this Memorandum Opinion and Order will address both sets of objections together.

         III. Defendants' Ability to Form an Antitrust Conspiracy

         The Retailer Plaintiffs and DPPs first object to the R&R's conclusion that Par "lacked the capacity to engage in concerted action with respect to the antitrust harm alleged in the Amended Complaints." Retailers' Objs. at 3; DPPs' Objs. at 8; R&R at 16.[5] In particular, the objections contend that the R&R erred in applying Copperweld Corp. v. Indep. Tube Corp, 467 U.S. 752 (1984), to the facts of this case, and that its conclusion on the conspiracy issue is inconsistent with FTC v. Actavis, 570 U.S. 136 (2013). The court will consider the application of each of these cases to the facts at bar.

         A. Application of the Copperweld Doctrine and Par's Capacity to Participate in the Conspiracy

         The basic premise of Copperweld is the Supreme Court's holding that a parent corporation and its wholly owned subsidiary are unable to enter into an antitrust conspiracy with each other under § 1 of the Sherman Act because they constitute a "single enterprise'' with "complete unity of interest." 467 U.S. at 771. The Retailer Plaintiffs and DPPs focus on the R&R's application of Copperweld in concluding that Par did not participate in the alleged antitrust conspiracy. The DPPs and Retailer Plaintiffs essentially make two claims regarding the R&R's treatment of Copperweld. First, they argue that the R&R erred in applying the Copperweld rule to Par and Glenmark, because Par and Glenmark are two independent entities that do not share a parent-subsidiary relationship. DPPs' Objs. at 8; Retailers' Objs. at 3-4. Second, the DPPs and Retailer Plaintiffs state that the R&R's conclusion that Par lacked the capacity to conspire with Glenmark or Merck is incorrect because it relied on a mistaken Copperweld analysis. Id.

         The DPPs and Retailer Plaintiffs may be correct in their first claim, i.e., that Copperweld does not bar a finding of conspiracy between two legally and financially unrelated companies. Their second claim, however, is based on an incorrect reading of the R&R. Copperweld does not play the dispositive role in the R&R's analysis of the conspiracy issue that the Plaintiffs claim it does. The R&R consistently refers to Copperweld as an illustration of a type of functional approach common in antitrust law, and not as a rule to be mechanically and conclusively applied to Par and Glenmark. See R&R at 13 ("The Supreme Court's decisions in Copperweld and American Needle illustrate this functional approach."[6]). Instead, the R&R's analysis in Part III.A, that the Amended Complaints do not "establish that Par entered into an antitrust conspiracy with Merck and Glenmark," focuses on the fact that Par was not a party to a conspiracy that produced the particular antitrust harm at issue in this case. See R&R at 10, 15. On this point, the R&R is clear: "In this case, the antitrust harm resulted from Glenmark dropping its patent challenge after securing first-filer status and the resulting period of generic exclusivity." Id. at 16. The R&R does borrow Copperweld's “independent center of decisionmaking" language to make the point that, on the facts alleged in the Amended Complaints, Par did not and could not influence the settlement negotiations between Merck and Glenmark. See id. at 17 ("As Glenmark's distributor, Par possessed no independent ability to influence the market for ezetimibe because it had no competing product to withhold from the market. In short, Par was not an ` independent center[] of decisionmaking.'" (quoting Copperweld, 467 U.S. at 769)). The R&R's conclusion that "Par lacked the capacity to engage in concerted action with Merck and Glenmark" thus turned on the factual allegations in the Amended Complaints, not, as the Plaintiffs claim, a mistaken application of the Copperweld doctrine.

         B. Par's Participation in the Antitrust Conspiracy

         On the question of whether, as a factual matter, Par participated in the alleged conspiracy, the R&R did not find any allegation that Par was specifically involved in Glenmark's agreement to drop the patent challenge, which is the source of the alleged antitrust harm. R&R at 17. Instead, the R&R concluded that, to the extent Par was involved in the negotiations that ended up causing the alleged antitrust harm, it did so merely as Glenmark's "agent." Id. at 18.

         In this court's view, the Amended Complaints meet the threshold of establishing "plausible grounds" to infer an agreement. See Twombly, 550 U.S. at 556 ("Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement."). The Amended Complaints contain detailed allegations of Par's role in concluding a settlement with Merck. See Retailers' Amend. Compl. at ¶ 132, ECF Nos. 455, 456, 457; DPPs Amend. Compl. at ¶ 178, ECF No. 315. That is not to say that those allegations are necessarily true, and a few parts of the record can be read to support either interpretation of Par's actual influence over the settlement agreement. For example, Section 9.2.2 of the Distribution Agreement, which the Plaintiffs point to as evidence that Par was an equal partner in the settlement negotiations, also appears to give Glenmark final decision-making power if there is even the slightest disagreement in strategy. But in deciding on a motion to dismiss, the court must accept facts alleged in the Amended Complaints as true and view those facts in the light most favorable to the Plaintiffs. See, e.g., Venkatraman v. REI Sys., Inc., 417 F.3d 418, 420 (4th Cir. 2005) . In ...

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