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In re Namenda Direct Purchaser Antitrust Litigation

United States District Court, S.D. New York

June 21, 2017

IN RE NAMENDA DIRECT PURCHASER ANTITRUST LITIGATION

          Bruce E. Gerstein, Esq. Dan Litvin, Esq. Joseph Opper, Esq. Noah H. Silverman, Esq. Kimberly M. Hennings, Esq. Garwin Gerstein & Fisher, L.L.P.

          Heather McDevitt, Esq. Jack Pace, Esq. Peter J. Carney, Esq. Martin M. Toto, Esq. Kristen O'Shaughnessy, Esq. Ryan P. Johnson, Esq. Michael E. Hamburger, Esq. Charles C. Moore, Esq. White & Case LLP.

          John M. Gidley, Esq. White & Case LLP.

          Kevin C. Adam, Esq. White & Case LLP.

          MEMORANDUM AND ORDER

          JAMES C. FRANCIS, IV UNITED STATES MAGISTRATE JUDGE

         This is a putative class action asserting violations of antitrust law by defendants Actavis plc (now known as Allergan plc) and Forest Laboratories, LLC (together, "Forest") in connection with the patented Alzheimer's drugs Namenda IR and Namenda XR (brand names for memantine hydrochloride). The plaintiffs, JM Smith Corp. and Rochester Drug Co-Operative, Inc. (known in the motion papers as "DPPs, " an abbreviation of "Direct Purchaser Plaintiffs") are entities that purchased the relevant products directly from Forest for resale to pharmacies. Forest has filed a motion to compel the plaintiffs to produce so-called "downstream" discovery, which is a general term for data and other information related to the plaintiffs' own distribution and sales. Specifically, it seeks information regarding analyses of the profitability of the distribution of brand name as opposed to generic medications, as well as sales data. The motion is denied.

         Background

         The motion at issue is connected to allegations that Forest violated Section 2 of the Sherman Act, 15 U.S.C. § 2, when it engineered a scheme by which it would attempt to force patients and physicians to switch from Namenda IR (a medication that is taken twice each day) to Namenda XR (a pharmacologically identical drug that is taken once each day) "by effectively removing Namenda IR from the market before its patent exclusivity period expired and a generic substitute to the Namenda drugs became available."[1]Namenda III, 2016 WL 4992690, at *1. Because, under FDA regulations, generic versions of Namenda IR are not "therapeutically equivalent" to brand name Namenda XR, "pharmacists are prohibited from substituting generic IR for Namenda XR under most, if not all, state drug substitution laws, " which give a preference to generic drugs over brand name ones in order to foster competition. Namenda II, 787 F.3d at 644-47.

         When Forest introduced Namenda XR into the market in July 2013 (approximately two years before Namenda IR's patent exclusivity period ended), it adopted a number of strategies to encourage physicians and patients to switch to Namenda XR, such as promoting Namenda XR at the expense of Namenda IR and making Namenda XR less expensive than Namenda IR. Id. at 647-48. These efforts are known as "soft switch" tactics. Id. at 648; Namenda III, 2016 WL 4992690, at *4. In February 2014, however, Forest began to engineer a "hard switch" by announcing that Namenda IR would no longer be available after August 15, 2014, a date that was later extended to fall 2014. Namenda II, 787 F.3d at 648. This prompted an antitrust action by the State of New York, which resulted in a "standstill" -- beginning in September 2014 -- on the plan to discontinue Namenda IR, and, on December 15, 2014, a preliminary injunction requiring Forest to continue manufacturing Namenda IR. Id. at 648-50, 663. That, in turn, inspired this litigation, which alleges that Forest's anticompetitive conduct damaged the plaintiffs by forcing them to pay for some patients' treatments at brand name, rather than generic, prices because those patients switched to Namenda XR before the preliminary injunction was issued. Namenda III, 2016 WL 4992690, at *12.

         On May 23, 2017, Judge McMahon issued Namenda IV. In that decision, she granted in part the plaintiffs' motion for partial summary judgment, finding that "key facts" as to Forest's violation of Section 2 of the Sherman Act were previously litigated in the antitrust action brought by the State of New York (which resulted in Namenda I and Namenda II) and must be deemed established here. Namenda IV, No. 15 Civ. 7488, slip op. at 18. Specifically,

Forest is precluded from re-litigating the questions of (1) whether it possessed monopoly power over the U.S. memantine market up until the entry of generic competition; (2) whether its February 2014 announcement of the upcoming discontinuation of Namenda IR was coercive and anticompetitive; and (3) whether Forest had any non-pretextual procompetitive justification for its illegal conduct.

Id. at 33. However, Judge McMahon did not grant summary judgment as to liability on the claim because the previous litigation did not address "questions of causation and injury, " that is, whether Forest's illegal scheme was a materially contributing factor to the plaintiffs' injuries. Id. at 33-34.

         In this motion, submitted mere days before the Namenda IV decision was filed, Forest requests documents from the plaintiffs that concern their profits from the distribution of the drugs at issue. Specifically, the six requests in question seek (1) documents "concerning any analysis of the profitability of distributing, and/or servicing the distribution of" brand name pharmaceuticals and generic pharmaceuticals, "including any financial modeling or analyses" that the plaintiffs "conducted or received, " whether or not they could be used for or applied to Alzheimer's treatments (Direct Purchaser Plaintiffs' Objection and Responses to Defendants' First Request for Production of Documents ("Responses to RFPs"), attached as Exh. 1 to Declaration of Michael E. Hamburger dated May 17, 2017, at 29, 93-94 (Request Nos. 38-39, 144-45)); and (2) documents "concerning the profitability of any of the putative class members' distribution and/or servicing of sales of brand name pharmaceuticals relative to their distribution and/or servicing of generic versions of brand name pharmaceuticals, " including documents related to the profitability of the Namenda products relative to their generic versions. (Responses to RFPs at 104 (Request Nos. 168-169).

         The plaintiffs contend that data regarding "downstream" sales are "presumptively irrelevant" pursuant to the Supreme Court's decisions in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968), and Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), but note that, even so, they have agreed to produce certain "downstream" materials in response to Forest's other document requests. (Direct Purchaser Plaintiffs' Memorandum in Opposition to Forest's Motion to Compel the Production of Documents ("Pl. Memo.") at 1, 3-4, 4 n.6; Memorandum of Law in Support of Forest's Motion to Compel the Production of Documents by the Direct Purchaser Plaintiffs ("Def. Memo.") at 4) . Forest disagrees with the plaintiffs' reading of Hanover Shoe and Illinois Brick, and asserts that the requested documents are relevant to the plaintiffs' liability case, to class certification, and to "the so-called cost-plus exception" to establishing damages.[2] (Def. Memo, at 1-2, 11).

         Discussion

         A. Relevance

         Rule 26(b)(1) allows discovery of

any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.

Fed. R. Civ. P. 26(b)(1). This recently-amended rule is intended to "encourage judges to be more aggressive in identifying and discouraging discovery overuse" by emphasizing the need to analyze proportionality before ordering production of relevant information. Fed.R.Civ.P. 26(b)(1) advisory committee's note to 2015 amendment. Relevance is still to be "construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, " any party's claim or defense. Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978). The burden of demonstrating relevance remains on the party seeking discovery, and the party resisting discovery generally has the burden of showing undue burden or expense. Fed.R.Civ.P. 26(b)(1) advisory committee's note to 2015 amendment; see also Fireman's Fund Insurance Co. v. Great American Insurance Co. of New York, 284 F.R.D. 132, 135 (S.D.N.Y. 2012) ("Once relevance has been shown, it is up to the responding ...


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