In Re Namenda Direct Purchaser Antitrust Litigation
1:15-cv-07488
S.D.N.Y.Jun 21, 2017Background
- Forest Laboratories introduced Namenda XR (once-daily) while Namenda IR (twice-daily) still had patent exclusivity, employing "soft switch" promotion and later announcing discontinuation of Namenda IR (a "hard switch").
- FDA rules made generic Namenda IR non-substitutable for Namenda XR, so switching to XR foreclosed substitution to generic IR and kept patients on brand pricing after generic entry.
- New York obtained a preliminary injunction in Dec. 2014 requiring continued manufacture of Namenda IR; Judge McMahon later precluded Forest from relitigating monopoly power, coerciveness of the discontinuation announcement, and lack of procompetitive justification, leaving causation and injury for this case.
- Forest moved to compel production of plaintiffs’ downstream profitability, pricing, and sales analyses (including cost-plus arrangements and sales volumes) to probe causation, class issues, and potential use of the cost-plus exception to a pass-on defense.
- Plaintiffs argued Hanover Shoe and Illinois Brick limit downstream discovery because direct purchasers’ damages are measured by the full overcharge and pass-on defenses are generally barred; plaintiffs conceded producing some downstream materials but denied relevance of profitability/cost-plus data.
- The court denied Forest’s motion to compel, finding Forest failed to show why the specific profitability and sales data sought were relevant, non-cumulative, or necessary to prove causation, class issues, or an applicable cost-plus exception.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Relevance of downstream profitability/sales data to liability (causation/injury) | Downstream data presumptively irrelevant under Hanover Shoe/Illinois Brick; will produce certain switching and pricing docs but not profitability analyses | Downstream data may show factors affecting patient choices, steering by DPPs, and help ascertain how many patients switched; relevant to causation and class certification | Denied — Forest failed to specify why profitability/sales data are non-cumulative and necessary; plaintiffs already agreed to produce many switching/price documents; sales data from wholesalers/retailers wouldn’t prove consumer switching |
| Relevance of downstream data to class certification (ascertainability, predominance) | Not necessary; existing discovery will address class issues; downstream profitability not probative | Profitability and downstream records go to ascertainability and whether class-wide proof can show cognizable harm | Denied — Forest’s briefing lumped downstream discovery together and did not show how requested profitability analyses were uniquely relevant or non-duplicative |
| Use of lost profits (rather than overcharge) as measure of damages | Plaintiffs do not seek lost-profits measure and say they cannot recover on that theory | Lost profits might be a good-faith alternative theory in these "product hopping"/refusal-to-sell-like circumstances | Denied as relevant — plaintiffs disavowed lost-profits damages; prevailing law treats overcharge as standard measure in price-enhancement cases |
| Applicability of the cost-plus exception to permit pass-on inquiry | Plaintiffs have no pre-existing fixed-quantity cost-plus contracts; thus exception inapplicable | Plaintiffs may price on cost-plus bases (markup) or have economic realities that functionally produce pass-through, warranting discovery | Denied — Supreme Court precedent confines cost-plus exception to pre-existing fixed-quantity contracts insulating buyer from sales declines; functional equivalents or elastic markets do not suffice |
Key Cases Cited
- Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (U.S. 1968) (direct purchaser entitled to full overcharge damages; limited recognition of cost-plus exception)
- Illinois Brick Co. v. Illinois, 431 U.S. 720 (U.S. 1977) (reaffirmed Hanover Shoe rule; barred pass-on defense by indirect purchasers; narrowly construed cost-plus exception)
- Kansas v. UtiliCorp United, Inc., 497 U.S. 199 (U.S. 1990) (cost-plus exception requirements and limits reiterated)
- Howard Hess Dental Labs., Inc. v. Dentsply Int'l, Inc., 424 F.3d 363 (3d Cir. 2005) (recognizes scholarly debate on lost-profits measure but affirms overcharge as standard in price-enhancement cases)
- McCarthy v. Recordex Serv., Inc., 80 F.3d 842 (3d Cir. 1996) (requires proof of pre-existing fixed-quantity purchase agreement to invoke cost-plus exception)