FEDERAL TRADE COMMISSION, STATE OF NEW YORK, STATE OF CALIFORNIA, STATE OF OHIO, COMMONWEALTH OF PENNSYLVANIA, STATE OF ILLINOIS, STATE OF NORTH CAROLINA, and COMMONWEALTH OF VIRGINIA, Plaintiffs, -v- VYERA PHARMACEUTICALS, LLC, AND PHOENIXUS AG, MARTIN SHKRELI, individually, as an owner and former director of Phoenixus AG and a former executive of Vyera Pharmaceuticals, LLC, and KEVIN MULLEADY, individually, as an owner and former director of Phoenixus AG and a former executive of Vyera Pharmaceuticals, LLC, Defendants.
20cv706 (DLC)
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
August 18, 2020
OPINION AND ORDER
APPEARANCES
Markus H. Meier
Bradley S. Albert
Armine Black Daniel W. Butrymowicz
D. Patrick Huyett
Neal J. Perlman
J. Maren Schmidt
James H. Weingarten
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
(202) 326-3748
For plaintiff State of New York:
Letitia James
Christopher D‘Angelo
Elinor R. Hoffman
Saami Zain
Amy McFarlane
Jeremy Kasha
Bryan Bloom
Office of the New York Attorney General
Antitrust Bureau
28 Liberty Street, 20th Floor
New York, NY 10005
(212) 416-
For plaintiff State of California:
Michael D. Battaglia
Office of the Attorney General of California
455 Golden Gate Avenue, Suite 11000
San Francisco, CA 94102
(415) 510-3769
For plaintiff State of Ohio:
David Yost
Beth Finnerty
Elizebeth M. Maag
Office of the Ohio Attorney General
150 E. Gay Street, 22nd Floor
Columbus, OH 43215
(614) 466-4328
For plaintiff Commonwealth of Pennsylvania:
Josh Shapiro
Tracy W. Wertz
Joseph Betsko
Stephen Scannell
Pennsylvania Office of Attorney General
Strawberry Square, 14th Floor
Harrisburg, PA 17120
For plaintiff State of Illinois:
Richard S. Schultz
Office of the Attorney General of Illinois
100 W. Randolph Street, 11th Floor
Chicago, IL 60601
(312) 814-3000
For plaintiff State of North Carolina:
Joshua H. Stein
K.D. Sturgis
Jessica V. Sutton
North Carolina Dept. of Justice
Consumer Protection Division
114 West Edenton Street
Raleigh, NC 27603
(919) 716-6000
For plaintiff Commonwealth of Virginia:
Mark R. Herring
Sarah Oxenham Allen
Tyler T. Henry
Office of the Attorney General of Virginia
202 North Ninth Street
Richmond, VA 23219
For defendants Vyera Pharmaceuticals, LLC and Phoenixus AG:
Stacey Anne Mahoney
Sarah E. Hsu Wilbur
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
(212) 309-6000
Scott A. Stempel
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, D.C. 20004
Steven A. Reed
Francis A. DeSimone
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
(215) 963-5000
Noah J. Kaufman
Morgan, Lewis & Bockius LLP
One Federal Street
Boston, MA 02210
(617) 341-7700
For defendant Martin Shkreli:
Christopher H. Casey, Esq.
A.J. Rudowitz, Esq.
Duane Morris LLP
30 South 17th Street
Philadelphia, PA 19103-4196
(215) 979-1155
Edward T. Kang
Kandis L. Kovalsky
Kang, Haggerty & Fetbroyt LLC
123 S. Broad St. #1670
Philadelphia, PA 19109
(215) 525-5852
For defendant Kevin Mulleady:
Kevin J. Arquit
Albert Shemmy Mishaan
Kenneth R. David
Kasowitz Benson Torres LLP
1633 Broadway
New York, NY 10023
(212) 506-1700
DENISE COTE, District Judge:
The Federal Trade Commission (“FTC“) and seven states bring claims for violations of §§ 1 and 2 of the Sherman Act,
On May 22, 2020, the defendants moved to dismiss all of the claims against them pursuant to
The following facts are taken from the Amended Complaint. They are assumed to be true for the purpose of deciding these motions.
I. Generic Pharmaceutical Drugs
Generic drugs are chemically identical versions of branded drugs. After the patent on a branded drug has expired, a generic drug may compete with its branded counterpart. Generic versions of branded drugs are usually sold at lower prices and that price competition is critical to lowering the price of prescription drugs in the United States.
To promote competition, governments have enacted drug substitution laws that encourage and facilitate the substitution of generic drugs for their branded equivalents.1 While a company
seeking to market a branded drug must first file a New Drug Apрlication (“NDA“) with the Food and Drug Administration (“FDA“) demonstrating the safety and efficacy of the pharmaceutical product, a company seeking to market a generic version of the branded drug may file an Abbreviated New Drug Application (“ANDA“) with the FDA that affords an expedited process for gaining FDA approval.
An ANDA applicant must demonstrate bioequivalence between the generic drug and its branded counterpart, i.e. that there is no significant difference in the rate and extent to which the drug‘s active ingredient becomes available to the body.
An ANDA applicant also must secure a supply of the branded drug‘s active pharmaсeutical ingredient (“API“), which is the ingredient that provides the drug‘s pharmacological activity. The applicant must identify its API supplier to the FDA. The API supplier‘s product, manufacturing process, facility, and quality controls must receive FDA approval for an ANDA
application to move forward. If an ANDA applicant purchases API from a supplier whose manufacturing of that API has already been approved by the FDA, the FDA‘s approval process of the ANDA application may be expedited by a period of months or years.
II. Vyera
A. The Founding of Vyera and Acquisition of Daraprim Rights
Martin Shkreli made his debut in the pharmaceutical industry in 2011 when he founded Retrophin, Inc. Retrophin acquired a drug named Thiola, raised its price by 2,000%, and restricted its distribution to prevent competition from generic drugs. In 2014, Shkreli was removed from Retrophin by the company‘s board of directors for misconduct.
In 2014, Shkreli launched Vyera with the help of Kevin Mulleady. Vyera is a wholly-owned subsidiary of Phoenixus. This Opinion refers to Vyera and Phoenixus
In April 2015, Vyera made an unsoliсited bid to Impax Laboratories, Inc. (“Impax“) for the U.S. rights to the branded drug Daraprim. Daraprim is used to treat toxoplasmosis, an infection that can be fatal for immunocompromised individuals, particularly those with cancer or HIV/AIDS. Daraprim was approved by the FDA in 1953. In 2010, Daraprim was sold for $1 per tablet. Between 2010 and 2015, its price increased to $13.50 per tablet. Daraprim‘s API is pyrimethamine.
Impax had acquired the rights to Daraprim in March 2015, only one month before Impax received Vyera‘s bid. Impax assessed Daraprim, then priced at $13.50 per tablet, as an asset with declining annual revenues of $5 million or less. In June 2015, Impax developed a restricted distribution system for Daraprim and raised its price from $13.50 to $17.50.
On August 7, 2015, Vyera acquired the U.S. rights to Daraprim for $55 million. This price was triple Impax‘s net-present-value assessment of Daraprim and more than 11 times Daraprim‘s annual net revenues.
The day after finalizing the deal, Vyera raised the price of Daraprim from $17.50 to $750 per tablet -- an inсrease of more than 4,000%. At the time of Vyera‘s acquisition of Daraprim, Mulleady informed Vyera‘s employees that it was Vyera‘s “#1 priority” to establish a restricted distribution system similar to that employed for Thiola at Retrophin.
Daraprim‘s price increase quickly gained public attention. In November 2015, the Senate Special Committee on Aging (the “Committee“) launched a bipartisan investigation into dramatic price increases of several off-patent drugs, including Daraprim. The Committee heard testimony from Vyera executives confirming that Vyera built a restricted distribution system for Daraprim to block generic drug competitors from gaining access to Daraprim and conducting bioequivalence testing. The Committee
found that Vyera‘s restricted distribution of Daraprim was part of Vyera‘s plan to “defend its shocking price increase and subsequent increased revenue against potential competition.”
B. Anti-Competitive Conduct
The Amended Complaint describes a sophisticated schemе to depress competition by generic drug manufacturers with the branded drug Daraprim. To effect this scheme, Vyera entered into three categories of contractual agreements: the restricted distribution agreements, exclusive supply contracts, and data-blocking agreements.
i. Restricted Distribution System
Through a restricted distribution system, the defendants sought to impede access to Daraprim and thereby prevent generic drug manufacturers from obtaining sufficient quantities of Daraprim to conduct bioequivalence testing. Vyera uses ICS, a third-party logistics provider, to receive Daraprim from Vyera‘s manufacturer and ship it to one of Vyera‘s four approved distributors, one of which is Optime Care Inc. (“Optime“). ICS is not permitted to sell Daraprim to any other purchaser without Vyera‘s approval.
In turn, Vyera‘s contracts with its four distributors permit them to sell Daraprim only to specific types of purchasers, namely specific hospitals, government purchasers, specialty pharmacies, and state AIDS Drug Assistance programs.
None of the contracts between Vyera and its distributors permit sales to generic pharmaceutical
Vyera also imposes resale restrictions on the downstream purchasers to whom its distributors sell, i.e. hospitals and pharmacies. For instance, in May 2018, Vyera entered a contract with its distributor Optime that requires hospitals purchasing Daraprim to guarantee that Daraprim would not be resold “for any reason unless approved in writing by Vyera or its designee.” Vyera also has direct agreements with hospitals and pharmacies that require them to use Daraprim only to treat hospital patients or patients with a prescription.
In addition to these resale restrictions, Vyera has limited the quantity of Daraprim that approved purchasers may acquire from distributors. A generic competitоr needs between 5 to 10 bottles of Daraprim to conduct bioequivalence testing. Vyera limits distributors from selling more than 5 bottles of Daraprim
to a single customer absent Vyera‘s approval. As recently as August 2019, Shkreli and Mulleady discussed further restricting the sales of Daraprim to one bottle at a time.
ii. Exclusive Supply Contracts
Vyera has entered into exclusive supply contracts with manufacturers of pyrimethamine to preclude others from obtaining access to an FDA-approved pyrimethamine manufacturer. After negotiations lasting over a year, in January 2017, Fukuzyu Pharmaceutical Co., Ltd. (“Fukuzyu“) agreed to a contract -- still in force today -- that gives Vyera the exclusive U.S. rights to Fukuzyu‘s supply of pyrimethamine for human use. Vyera informed Fukuzyu that the exclusivity provision was intended to prevent generic pharmaceutical competitors from purchasing pyrimethamine.
After learning that another company, RL Fine Chem (“RL Fine“), was preparing to seek FDA approval for the manufacture of pyrimethaminе, Vyera entered an exclusive supply agreement with RL Fine in November 2017. Pursuant to that agreement, Vyera was obligated to pay RL Fine a percentage of its Daraprim net revenues whether or not it received API from RL Fine and whether or not RL Fine ever received FDA approval for the production of the API. Over the course of just a few years, Vyera paid FL Fine millions of dollars but never received any pyrimethamine from it or sought approval by the FDA for use of
RL Fine-manufactured pyrimethamine in Daraprim. Invoking their contract, Vyera directed RL Fine to cease supplying pyrimethamine to two manufacturers of generic drugs.4
Vyera also contacted another company that has sought FDA approval for the manufacture of pyrimethamine, Ipca Laboratories Ltd. (“Ipca“). When Ipca informed Vyera that the FDA had banned imports of Ipca‘s pyrimethamine due to manufacturing deficiencies, Vyera informed investors that this ban would cause “significаnt disruption” and delay to generic competitors planning or hoping to use Ipca as a pyrimethamine supplier.
Vyera has entered into data-blocking agreements with two of its distributors. Pursuant to these agreements, Vyera pays these distributors a fee in exchange for their agreement not to sell their sales data to aggregators of market data. One distributor receives a fixed monthly fee, while the other receives a percentage of Daraprim‘s WAC per unit sold. The Amended Complaint alleges that these data-blocking agreements prevent competitors from assessing the market size and opportunity for competing with Vyera in its distribution of Daraprim.
C. Generic Drug Competitors
The Amended Complaint alleges that the restrictive distribution system, together with the exclusive supply contracts and data-blocking agreements, have impeded the entry of generic drug competitors into the Daraprim market. Of four potential competitors, one has abandoned its efforts, two have bеen so delayed they are still awaiting approval, and one only recently succeeded in obtaining FDA approval.
The one company that has succeeded in bringing a generic product to market began developing its generic product in 2013, several years prior to Vyera‘s acquisition of Daraprim. It was therefore able to secure at least a limited supply of Daraprim. After Vyera acquired Daraprim, Vyera‘s restrictions on the resale of Daraprim and its control of RL Fine and Fukuzyu as suppliers of the API, however, substantially delayed and interfered with the company‘s application for FDA approval. It was not until February 28, 2020, which is after the filing of this action, that the FDA granted approval for the generic drug.
Two other companies have filed ANDA applications and are still awaiting approval. The Amended Complaint describes in detail how Vyera‘s web of contracts has delayed their applications and FDA approval. Sincе that web remains largely undisturbed, the Amended Complaint also explains the challenges that currently exist for any manufacturer of generic drugs that
needs to conduct bioequivalence testing or needs access to an approved supplier of Daraprim‘s API.
III. The Individual Defendants
The Amended Complaint alleges that Vyera‘s restricted distribution system, exclusive supply contracts, and data-blocking agreements were designed and implemented by the Individual Defendants Martin Shkreli and Kevin Mulleady. Both men continue to hold influence over Vyera.
A. Shkreli
Shkreli is the founder of Vyera and the founder, former chairman, and largest shareholder of Phoenixus, Vyera‘s parent company.5 Shkreli currently controls a substantial minority share position in Phoenixus. Shkreli was the CEO of Vyera until December 2015, when he was arrested for securities fraud. Shkreli has been incarcerated since September 2017 and is currently serving a seven-year sentence.
In addition to conceiving of the generic-blocking strategy, the Amended Complaint alleges that Shkreli has been and continues to be personally involved in Vyera‘s operations. For instance, in August 2017, just one month prior to his incarceration, Shkreli drafted written communications to RL Fine to request an exclusive supply contract for pyrimethamine.
Since his incarceration, Shkreli has remained in regular
B. Mulleady
Mulleady began working with Shkreli in 2011 at one of Shkreli‘s now defunct hedge funds. Mulleady assisted Shkreli in founding both Retrophin and Vyera. At Vyera, Mulleady initially was employed as managing director and chief of staff to Shkreli. Although Mulleady‘s employment at Vyera was terminated in 2016 shortly after Shkreli‘s arrest, Mulleady returned to Vyera in the summer of 2017 as Vyerа‘s CEO and a Phoenixus board member.
As CEO of Vyera, a position Mulleady held until March 2019, Mulleady managed the network of agreements that allowed Vyera to block generic competition to Daraprim. In 2017, for example, Mulleady initiated an audit of all Daraprim purchasers. Upon learning that one first-time purchaser of Daraprim had acquired five bottles of the drug, which approached the amount of Daraprim necessary for bioequivalence testing, Mulleady
repurchased all five bottles at a price significantly above-market. In 2019, it was Mulleady who was responsible for negotiating Vyera‘s exclusivity contract with RL Fine. Mulleady remains the chairman of the Phoenixus board of directors and a Phoenixus shareholder.
IV. Procedural History
The FTC and New York state filed this action on January 27, 2020. On April 14, the Amended Complaint was filed, which added California, Illinois, North Carolina, Ohio, Pennsylvania and Virginia as plaintiffs. The Amended Complaint alleges violations of
The plaintiffs seek declaratory and injunctive relief, as well as equitable monetary relief.
On May 22, the defendants moved to dismiss the Amended Complaint in its entirety. The same day, the defendants filed a joint motion to stay discovery. The motion to stay discovery was denied on June 15. The defendants’ motions to dismiss became fully submitted on July 27. The period for document discovery is scheduled to conclude on August 28, 2020. The remainder of the schedule for this litigation will be set at a September 11 conference.
Discussion
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
from conceivable to plausible.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
When a party moves to dismiss for failure to state a claim upon which relief can be granted under
I. Section 13(b) of the FTC Act
The defendants argue that, because the alleged violation of law is not ongoing, the FTC lacks authority to bring this lawsuit in federal district court. Pursuant to
The FTC Act declares “[u]nfair methods of competition” to be unlawful,
The FTC may combat unfair methods of competition by initiating administrative proceedings or, in some cases, by bringing lawsuits in federal court. See
In relevant part,
Whenever the [FTC] has reason to believe --
(1) that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the [FTC], and
(2) that the enjoining thereof pending the issuance of a complaint by the [FTC) and until such complaint is dismissed by the [FTC] or set aside by the court on review, or until the order of the [FTC] made thereon has become final, would be in the interest of the public --
the [FTC] . . . may bring suit in a district court of the United States to enjoin any such act or practice.
The Amended Complaint adequately alleges that, as of the time it filed this lawsuit, the FTC had reason to believe thаt the defendants were at that very moment actively engaged in the violations of the provisions of the Sherman Act on which the FTC is relying to bring this action. It describes an unlawful scheme
to execute and which continued to have an anticompetitive impact on generic competition with Daraprim through the date of filing.
Relying on FTC v. Shire ViroPharma, Inc., 917 F.3d 147 (3d Cir. 2019), the defendants argue that the FTC lacks authority under
In concluding that
years until agency action is completed.‘‘” Id. (quoting
The defendants contend that the allegations in the Amended Complaint address past conduct to forestall generic competition to Daraprim, and, as such, cannot support a finding that any defendant “is violating, or is about to violate” the antitrust laws.
In Shire, the misconduct had ended, and the FTC did not assert that the defendant was “currently” violating the law. 917 F.3d at 160. Here, the FTC does contend that the defendants are currently engaged in violations of federal antitrust laws, or, at the very least, that it has sufficient “reason to believe” that the defendants are engaging in violations of federal antitrust laws.
The defendants emphasize thаt the negotiation and execution of the contracts occurred prior to the filing of this action. This argument is meritless. The FTC is not required to bring suit at the exact moment contractual negotiations ripen into executed contracts. It is the extant scheme that provides the basis for the lawsuit.
The defendants also note that one generic competitor has -- after seven years of trying -- won FDA approval to produce and sell a generic competitor to Daraprim. This hard-won approval does not immunize the defendants from antitrust liability. As already explained, the alleged scheme continues. Moreover, a restraint of trade need not “completely block[]” competition to be unlawful. United States v. Microsoft Corp., 253 F.3d 34, 64 (D.C. Cir. 2001); see also New York ex rel. Schneiderman v. Actavis PLC, 787 F.3d 638, 656 (2d Cir. 2015) (“Namenda II“) (“The test is not total foreclosure, but whether the challenged practices bar a substantial number of rivals or severely restrict the market‘s ambit.” (citation omitted)). In any event, the
For thе same reasons, the Individual Defendants’ argument that the Amended Complaint lacks allegations that either Shkreli or Mulleady are violating or are about to violate the law also fails. The Amended Complaint alleges that the Individual Defendants designed and implemented Vyera‘s competition-blocking system and that that system remains in place. The Amended Complaint also alleges that Shkreli and Mulleady still hold leadership positions and decision-making power at Vyera. In sum, the FTC has alleged that the Individual Defendants, as well as Vyera, were still engaged in the alleged violations of the antitrust laws as of the date that the FTC filed this lawsuit.
II. Section 63(12) of New York Executive Law
The defendants seek dismissal of the claims brought pursuant to
Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in thе carrying on, conducting or transaction of business, the attorney general may apply . . . for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, [and] directing restitution and damages . . . . The term “persistent fraud” or “illegality” as used herein shall include continuance or carrying on of any fraudulent or illegal act or conduct. The term “repeated” as used herein shall include repetition of any separate and distinct fraudulent or illegal act, or conduct which affects more than one person.
III. Federal Antitrust Claims
The defendants argue that the Amended Complaint fails to adequately allege violations of
A. Section 1 of the Sherman Act
At the pleading stage, a plaintiff must allege enough facts to support the inference that a conspiracy existed. Mayor and City Council of Baltimore, Md. v. Citigroup, Inc., 709 F.3d 129, 136 (2d Cir. 2013). “While for purposes of a summary judgment motion, a
To prove the existence of a conspiracy, parallel action is not, by itself, sufficient. Apple, 791 F.3d at 315. But, “the existence of additional circumstances, often referred to as ‘plus’ factors . . . when viewed in conjunction with the parallel acts, can serve to allow a fact-finder to infer a conspiracy.” Id. (citation omitted). These additional circumstances can consist of “direct evidence that the defendants entered into an agreement,” or “circumstantial facts supporting the inference that a conspiracy existed.” Id. (citation omitted). “Circumstances that may raise an inference of conspiracy include a common motive to conspire, evidence that shows that the parallel aсts were against the apparent individual economic self-interest of the alleged conspirators, and evidence of a high level of interfirm communications.” Id. (citation omitted).
Once a plaintiff has adequately alleged concerted action, the plaintiff must allege that the concerted action “constituted an unreasonable restraint of trade.” Anderson News, L.L.C. v. Am. Media, Inc., 899 F.3d 87, 97 (2d Cir. 2018) (Anderson II) (citation omitted). A restraint of trade may be per se unreasonable or unreasonable under the rule of reason. Id. The plaintiffs assert a violation that is assessed under the rule of reason.
The rule of reason analysis requires a court to weigh “the relevant circumstances of a case to decide whether a restrictive practice constitutes an unreasonable restraint on competition.” Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d 162, 192 (2d Cir. 2012) (Anderson I) (citation omitted). Such factors may include “specific information about the relevant business, its condition before and after the restraint was imрosed, and the restraint‘s history, nature, and effect.” State Oil Co. v. Khan, 522 U.S. 3, 10 (1997). At the pleading stage, a plaintiff must allege a “relevant market,” as well as an “adverse effect on competition.” Elecs. Commc‘ns v. Toshiba Am. Consumer Prods., Inc., 129 F.3d 240, 244 (2d Cir. 1997). “The true test of legality under
The Amended Complaint identifies the relevant market as the market for pyrimethamine products that have received FDA approval for sale in the United States. It plausibly alleges that Vyera orchestrated a conspiracy with its suppliers and distributors with the purpose of blocking competitors from entering the relevant market, thereby maintaining the inflated price of
The Amended Complaint also adequately alleges that the restrictive distribution system, the exclusive supply contracts, and the datа-blocking agreements are unreasonable restraints of trade that adversely affect competition in the relevant market. This alleged conspiracy struck at the heart of the American pharmaceutical market for pyrimethamine and more generally the regulatory framework established to promote the supply and affordability of pharmaceuticals. The regulatory framework is designed to encourage substitution of generic equivalents for branded drugs and assumes access to branded drugs for bioequivalence testing and to approved API manufacturers. As alleged, Vyera‘s agreements impeded competitors from obtaining expedited ANDA approval. They blocked competitors from obtaining access to approved API manufacturers and sufficient supplies of Daraprim. The data-blocking agreements made it difficult for competitors to assess the market size of Daraprim and determine whether to invest in the development of a generic substitute for Daraprim.
Not only is it alleged that the purpose of these agreements was to block competition, it is also alleged that the conspirators succeeded in accomplishing that purpose. The Amended Complaint explains how multiple manufacturers of generic pharmaceuticals that wish to compete with Vyera have been delayed for years in obtaining FDA approval because of their inability to obtain Daraprim for bioequivalence testing and API from an FDA-approved manufacturer. And of course, Vyera continues to sell Daraprim at the inflated price of $750 per tablet.8
In arguing for dismissal of the
With respect to concerted action, the defendants argue that the
Next, the defendants contend that the
Similarly, the defendants contend that the plaintiffs have failed to adequately allege that Vyera‘s exclusive supply agreements harm competition. While it is true that exclusive dealing arrangements may have “pro-competitive purposes and effects, such as assuring steady supply, affording protection against price fluctuations, reducing selling expenses, and promoting stable, long-term business relationships,” Geneva Pharms. Tech. Corp. v. Barr Labs. Inc., 386 F.3d 485, 508 (2d Cir. 2004), the Amended Complaint alleges that Vyera‘s exclusive supply contracts had anti-competitive purposes. For instance, the Amended Complaint alleges that Vyera contracted with RL Fine for an exclusive supply of its pyrimethamine even though Fukuzyu reliably produces more pyrimethamine than Vyera orders or can use. The Amended Complaint also alleges that Vyera invoked its contracts with its suppliers to prevent them from supplying pyrimethamine to competitors. Because access to FDA-approved manufacturers of pyrimethamine was blocked by Vyera, potential competitors were delayed as they sought FDA approval for a generic competitor to Daraprim. See id. at 508-09 (exclusive supply agreement between a drug-maker and API supplier allowed the supplier to control the “entire supply” of the API and “freeze competitors out” of the generic drug market); see also Namenda II, 787 F.3d at 656 (“The test is not total foreclosure, but whether the challenged practices bar a substantial number of rivals or severely restrict the market‘s ambit.” (citation omitted)).9
B. Section 2 of the Sherman Act
In arguing to the contrary, the defendants argue that they have no duty to transact business with a competitor. “The absence of a duty to transact business with another firm is, in some respects, merely the counterpart of the independent businessman‘s cherished right to select his customers and associates,” as recognized under
The Amended Complaint alleges that Vyera, while holding a monopoly, prohibited any sales of Daraprim, directly or indirectly, to generic pharmaceutical competitors and even re-purchased Daraprim at above-retail prices to stymie competitors’ access to Daraprim. The Amended Complaint further alleges that Vyera did so because access to Daraprim was, by regulation, necessary for potential competitors
The other arguments the defendants make to challenge the plaintiffs’
C. Sherman Act Claims Against the Individual Defendants
Shkreli and Mulleady argue that even if the Amended Complaint plausibly alleges that Vyera violated the Sherman Act, the Sherman Act claims against them should be dismissed. An individual may be held liable under the Sherman Act to the extent that individual has “participated in violations of” the antitrust laws, such as by “negotiating, voting for[,] or executing agreements which constituted steps in the progress of the conspiracy.” Hartford-Empire Co. v. United States, 323 U.S. 386, 407 (1945); see also Lorain Journal Co. v. United States, 342 U.S. 143, 145 n.2 (1951) (officers and directors “participated in the conduct alleged to constitute the attempt to monopolize“).
According to the Amended Complaint, Shkreli is Phoenixus‘s largest shareholder and the founder and former CEO of Vyera, and Mulleady is Phoenixus‘s chairman of the board and the former CEO of Vyera. The Amended Complaint alleges that they not only participated in the anticompetitive conduct at issue, but also designed, implemented, and negotiated the netwоrk of contracts that block generic competition to Daraprim.
The Individual Defendants argue that the Amended Complaint must allege that they, as individuals, conspired with Vyera‘s distributors or suppliers for purposes of the plaintiffs’
IV. Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL“)
The defendants seek dismissal of the Pennsylvania UTPCPL claim. The Pennsylvania UTPCPL,
The Commonwealth Court of Pennsylvania recently considered whether the UTPCPL should be interpreted “to render all antitrust violations actionable.” Anadarko Petroleum Corp. v. Commonwealth, 206 A.3d 51, 60 (Pa. Commw. Ct. 2019).11 It determined that “the scope of actionable antitrust behavior under the UTPCPL is narrower than under federal antitrust law” because the Pennsylvania General Assembly has declined to use its “powers to expressly define monopolistic behavior,” among other conduct deemed anticompetitive under the federal antitrust laws, as an “unfair method[] of competition” or an “unfair or deceptive act[] or practiсe[]” for purposes of the UTPCPL.12 Id. The court in Anadarko determined that the “only manner in which [such] activities can give rise to viable UTPCPL actions is if they fit within one of the categories of behavior” that the UTPCPL expressly deems an “unfair method[] of competition” or an “unfair or deceptive act[] or practice[].” Id.
The Amended Complaint does not adequately allege that the anticompetitive conduct it describes is “fraudulent,” “deceptive,” or likely to create “confusion” or “misunderstanding.”
In opposing dismissal of the UTPCPL claim, the plaintiffs do not address the holding of Anadarko and repeatedly warn against defining the term “fraud” as contained in the residual clause of
V. Damages
Next, the Individual Defendants argue that certain state law claims -- those brought under the
These arguments fail for the simple reason that the plaintiffs in this action do not seek damages; they seek equitable monetary relief. This they are allowed to do. See
VI. Equitable Monetary Relief
The Individual Defendants also take issue with the demand for equitable monetary relief. They argue that the Amended Complaint fails to allege that they have unjustly gained as a result of the alleged misconduct, and that, in any event, the plaintiffs have not given them “fair notice” of the type of equitable monetary relief they seek -- “whether restitution, disgorgement, or some form of damages.”
These arguments also fail. First, the Amended Complaint alleges that both Shkreli and Mulleady have directly benefitted from Vyera‘s ill-gotten gains, including as shareholders. Second, “courts have routinely deprived wrongdoers of their net profits from unlawful activity, even though that remedy may have gone by different names.” Liu v. Securities and Exchange Commission, 140 S. Ct. 1936, 1942-43 (2020) (noting that “restitution” is frequently called “disgorgement“). At this stage, the Amended Complaint provides sufficient notice to the Individual Defendants of the plaintiffs’ claims against them, as well as the plaintiffs’ requested relief.
VII. Statute of Limitations
Finаlly, Shkreli argues that the four-year statutes of limitations that apply to laws underlying certain claims in the Amended Complaint bar those claims when brought against him. These include the Sherman Act claims as well as the state law claims of New York, California, Illinois, North Carolina, Ohio, and Virginia. This argument is rejected.
The Amended Complaint alleges that Shkreli has participated in conduct that is illegal under each of the laws within the four-year period that preceded the filing of this action. For instance, it asserts that he worked as recently as August 2017 to cause Vyera to enter an exclusive supply contract with RL Fine, and in August 2019 he strategized with Mulleady about restricting Daraprim sales to one bottle at a time to impede competitors in their efforts to conduct bioequivalence testing. And, of course, it alleges that Shkreli played a critical role in the design and execution of contracts at the heart of this scheme that remained in effect as of the date this action was filed. Whilе Shkreli may have lost his official title as an officer or director of Vyera upon his arrest in 2015, his liability hinges not on his title, but on his involvement and participation in Vyera‘s unlawful scheme.
Moreover, there is no statute of limitations for a
Conclusion
The defendants’ May 22, 2020 motions to dismiss are granted as to the Pennsylvania UTPCPL claim. As to all of the other claims in the Amended Complaint, the May 22 motions to dismiss are denied.
Dated: New York, New York
August 18, 2020
DENISE COTE
United States District Judge