Louisiana Wholesale Drug Co. v. Shire LLC, No. 13-1232 (2d Cir. 2014)

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Plaintiffs, wholesale dealers in pharmaceutical products, filed a putative class action alleging that defendants violated the anti-monopolization provision of the Sherman Act, 15 U.S.C. 2, by breaching defendants' contracts to supply two of their competitors with an unbranded version of defendants' patented drug for resale under the competitors' own labels. The court rejected plaintiffs' claim that these contracts gave rise to a "duty to deal" enforceable by third-party customers such as themselves under the antitrust laws. The court concluded that plaintiffs failed to allege facts that would place this case within Aspen Skiing Co. v. Aspen Highlands Skiing Corp.'s narrow exception to the long recognized right of a trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal. Plaintiffs' complaint failed to state a claim upon which relief can be granted and it was properly dismissed by the district court under Rule 12(b)(6). Accordingly, the court affirmed the judgment of the district court.

The court issued a subsequent related opinion or order on June 19, 2014.

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13 1232 Louisiana Wholesale Drug Co. v. Shire LLC UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2013 (Argued: March 17, 2014 Decided: June 9, 2014) Docket No. 13 1232 In re ADDERALL XR ANTITRUST LITIGATION LOUISIANA WHOLESALE DRUG COMPANY, INC., on behalf of itself and all others similarly situated, VALUE DRUG COMPANY, on behalf of itself and all others similarly situated, Plaintiffs Appellants, v. SHIRE LLC, SHIRE U.S., INC., Defendants Appellees.* Before: JACOBS, SACK, and LOHIER, Circuit Judges. Appeal from a judgment of the United States District Court for the Southern District of New York (Victor Marrero, Judge), dismissing the plaintiffsÊ¹ complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. The plaintiffs, wholesale dealers in pharmaceutical products, brought this putative class action asserting that the defendant drug manufacturers violated the Sherman Act by breaching their contracts to The Clerk of the Court is respectfully directed to amend the official caption in this case to appear as set forth above. * 1 supply competing manufacturers with an unbranded version of the defendantsÊ¹ widely prescribed patented drug. The plaintiffs argue that these contracts gave rise to a Êºduty to dealÊº enforceable by third party customers such as themselves under the antitrust laws. We disagree. The judgment of the district court is therefore AFFIRMED. JOSEPH OPPER (Bruce E. Gerstein, Elena K. Chan, Kimberly Hennings, on the brief), Garwin Gerstein & Fisher LLP, New York, NY, for Plaintiffs Appellants, MICHAEL F. BROCKMEYER, Frommer Lawrence & Haug LLP, Washington, DC (Edgar H. Haug, John F. Collins, Frommer Lawrence & Haug LLP, New York, NY, on the brief), for Defendants Appellees. 2 SACK, Circuit Judge: The plaintiffs are wholesale dealers in pharmaceutical products including Adderall XR, a widely prescribed drug manufactured by the defendants. They brought this putative class action alleging that the defendants violated the anti monopolization provision of the Sherman Act by breaching defendantsÊ¹ contracts to supply two of their competitors who in turn supply the plaintiffs with an unbranded version of the defendantsÊ¹ patented drug for resale under the competitorsÊ¹ own labels. Although the contracts were executed in connection with settlements of patent litigation, the plaintiffs disclaim any reliance on that fact. They argue instead that the contracts themselves gave rise to a Êºduty to dealÊº under antitrust law. We disagree and therefore affirm the judgment of the United States District Court for the Southern District of New York (Victor Marrero, Judge) dismissing the complaint. BACKGROUND Defendants Shire LLC and Shire U.S., Inc. (together, ÊºShireÊº) hold patents covering Adderall XR (ÊºAXRÊº), a drug approved by the U.S. Food and Drug Administration (ÊºFDAÊº) in 2001 to treat attention deficit/hyperactivity disorder. AXR enjoyed significant commercial success. In 2002, Teva Pharmaceuticals USA, Inc.,1 sought FDA approval to produce a generic equivalent. Compl. ¶¶ 2 3. Impax Laboratories, Inc., followed suit in 2003. Id. ¶ 3. In 2008, Teva acquired Barr Pharmaceuticals, which was the entity actually seeking approval to produce generic AXR in 2002. For the sake of simplicity, both the complaint and this opinion refer to those entities collectively as ÊºTeva.Êº See Compl. ¶ 3 n.1. 1 3 Teva and Impax took advantage of the streamlined drug approval process established by a 1984 amendment to the Federal Food, Drug, and Cosmetic Act generally referred to as the ÊºHatch Waxman Amendments.Êº See 21 U.S.C. § 355(b), (j). The Act allows a generic maker to piggyback on the efforts of an approved drugÊ¹s manufacturer by filing an Abbreviated New Drug Application (ÊºANDAÊº) showing, among other things, that its proposed product is biologically equivalent to the approved drug. Id. § 355(j)(2)(A)(iv). An ANDA must also include a certification that the proposed generic does not infringe the approved drugÊ¹s patents. Id. § 355(j)(2)(A)(vii). If an ANDA contains a certification that an approved drugÊ¹s patents are Êºinvalid or will not be infringed by the manufacture, use, or sale of the new drug for which the application is submitted,Êº the applicant must notify the drugÊ¹s patent holder of the pending application. Id. § 355(j)(2)(A)(vii), (B)(iii). The patent holder then has forty five days to file suit against the applicant for patent infringement. If the patent holder acts within this window, any FDA action on the ANDA is stayed for thirty months. Id. § 355(j)(5)(B)(iii). That is what happened here. In their applications to the FDA, both Teva and Impax certified that ShireÊ¹s patents for AXR were either Êºinvalid or will not be infringed by the manufacture, use, or saleÊº of their proposed generic equivalents. See Compl. ¶ 39; 21 U.S.C. § 355(j)(2)(A)(vii). Shire responded by bringing suit against both companies for patent infringement. In 2006, Shire settled its patent litigation with Teva and Impax. Compl. ¶¶ 5, 41. The agreements memorializing the settlement terms each reflected the 4 same basic bargain: The generic manufacturers would stay out of the market for AXR for three years (even if their applications to produce generic AXR were approved by the FDA before then). Id. ¶¶ 5, 41. In exchange, Shire would grant the generic manufacturers licenses to make and sell generic AXR starting in 2009 (Teva in April; Impax in October). Id. ¶¶ 6, 42. If the FDA had not approved their ANDAs by that time, Shire would supply TevaÊ¹s and ImpaxÊ¹s requirements for unbranded AXR for resale under their own labels. Id. ¶¶ 6, 43. In short, Shire undertook to give its competitors both the rights and the supplies necessary to participate in the market for AXR. Id. ¶¶ 6, 44. Because the FDA had not approved their ANDAs by the close of ShireÊ¹s contractual period of exclusivity, Teva and Impax both began purchasing unbranded AXR from Shire for resale in 2009 pursuant to their settlement agreements with Shire. Compl. ¶¶ 47, 49, 51. Several months after their respective entries into the market, both Teva and Impax complained that Shire was only partially filling their orders.2 Id. ¶¶ 53 60. The effect of this alleged shortfall on the price of AXR paid by wholesalers the members of the plaintiffsÊ¹ proposed class gave rise to the litigation now before us on appeal. In May 2012, Louisiana Wholesale Drug Company, Inc., based in Sunset, Louisiana, filed a putative class action against Shire in the Southern Shire, Teva, and Impax have already settled litigation arising from these contract disputes. See Stipulation of Dismissal, Teva Pharms. USA, Inc. v. Shire LLC, No. 09 Civ. 8860 (MGC) (S.D.N.Y. Nov. 20, 2009), ECF No. 17; Stipulation of Dismissal, Impax Labs., Inc. v. Shire LLC, No. 10 Civ. 8386 (MGC) (S.D.N.Y. Feb. 14, 2013), ECF No. 211. 2 5 District of New York. See Louisiana Wholesale Drug Co. v. Shire LLC, No. 12 Civ. 3711 (VM) (S.D.N.Y.). That case was subsequently consolidated with a nearly identical action brought by Value Drug Company of Altoona, Pennsylvania. Consent Order Consolidating Related Actions, Louisiana Wholesale Drug Co., No. 12 Civ. 3711 (VM) (S.D.N.Y. Oct. 17, 2012), ECF No. 22. We refer to the plaintiffs collectively as ÊºLWD.Êº Neither Teva nor Impax is a party to this litigation. LWD alleged that by supplying Teva and Impax with less than their requirements of unbranded AXR, Shire relegated them to 50 60% of the market, instead of the 90% share they might have been expected to capture had they received the quantity of unbranded pills they had demanded. Compl. ¶¶ 6, 8, 52, 67. This, in turn, allowed Shire to Êºfix[], raise[], maintain[], and/or stabilize[] the price of AXR Product at supra competitive levels,Êº and thereby to Êºovercharge[] Plaintiff and other direct purchasers of AXR Product hundreds of millions of dollarsÊº in violation of section 2 of the Sherman Act. Compl. ¶ 9. Shire moved to dismiss LWDÊ¹s complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. It argued in pertinent part that ShireÊ¹s alleged breaches of its contracts with Teva and Impax were not a valid basis for a monopolization claim because any actions taken within the scope of ShireÊ¹s patent monopoly were immune from antitrust scrutiny.3 See Mem. of Law in Shire also argued that LWD had failed to properly allege a Êºrelevant product market,Êº and that LWD was an Êºindirect purchaserÊº not entitled to damages with respect to any purchases of AXR from Teva or Impax. The district court declined to address these arguments, and neither has been 3 6 Support of Mot. to Dismiss at 2, Louisiana Wholesale Drug Co., No. 12 Civ. 3711 (VM) (S.D.N.Y. June 29, 2012), ECF No. 12. In opposition, LWD asserted that once Shire had agreed to Êºrelinquish its monopoly control over AXR . . . vis Ã vis Teva and ImpaxÊº by entering into the patent litigation settlements, it had a Êºduty to dealÊº with its competitors under the Supreme CourtÊ¹s decision in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). See Mem. of Law in OppÊ¹n at 8, Louisiana Wholesale Drug Co., No. 12 Civ. 3711 (VM) (S.D.N.Y. July 20, 2012), ECF No. 19. That duty, LWD contended, converted ShireÊ¹s ordinary breach of contract into an unlawful act of monopolization. Id. The district court rejected LWDÊ¹s arguments and dismissed the complaint. Louisiana Wholesale Drug Co. v. Shire LLC, 929 F. Supp. 2d 256, 257 (S.D.N.Y. 2013). The court relied principally on our decision in In re Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir. 2006), abrogated by F.T.C. v. Actavis, Inc., 133 S. Ct. 2223 (2013). The plaintiffs in that case challenged the legality of a type of patent litigation settlement known as a Êºreverse paymentÊº settlement not unlike the agreements here. Id. at 193 94. The defendant generic drug manufacturer in Tamoxifen agreed to join the defendant patent holder in obtaining vacatur of a district court judgment invalidating the patents it had challenged, and agreed to refrain from marketing its own product until those patents expired. Id. In exchange, the patent holder provided its erstwhile challenger with a large cash payment the Êºreverse paymentÊº a patent license, and a supply of unbranded drugs for resale. Id. We rejected the plaintiffsÊ¹ Sherman reiterated on appeal. 7 Act claims, holding that Êº[w]hatever damage is done to competition by [such a] settlement is done pursuant to the monopoly extended to the patent holder by patent lawÊº and is therefore not barred by the antitrust statutes, Êºunless the terms of the settlement enlarge the scope of that monopoly.Êº Id. at 212 13. Although LWD does not challenge the legality of the agreements in this case, the district court found its claims analogous to those in Tamoxifen. Louisiana Wholesale Drug Co., 929 F. Supp. 2d at 262. The court concluded that the effect on competition of ShireÊ¹s alleged refusal to supply all of the AXR that Teva and Impax demanded could be no greater than the effect of paying them to stay off the market altogether. Id. And, in light of Tamoxifen, the court was not convinced that . . . a patent holder granting multiple licenses that by their terms do not extend the scope of the patents in question, would nevertheless be subject to antitrust claims based on its conduct under those otherwise unchallenged licenses where that same patent holder would not face such liability if it refused outright to issue a license in the first instance. Id. at 264. Addressing LWDÊ¹s Aspen Skiing argument, the district court stressed the narrowness of the Êºduty to dealÊº doctrine. Id. And it distinguished the two cases LWD cited applying that doctrine in the context of drug patents, stating that they could not Êºalter the [district c]ourtÊ¹s conclusion that, notwithstanding ShireÊ¹s alleged conduct under the agreements, because the terms of those settlement agreements . . . do not exceed the scope of the patents in question, LWDÊ¹s claims fail.Êº Id. at 265. 8 Three months after the district courtÊ¹s ruling, while this appeal was pending but before any briefs had been filed, the Supreme Court issued its decision in Federal Trade Commission v. Actavis, Inc., 133 S. Ct. 2223 (2013), abrogating Tamoxifen. The Actavis Court held that the potentially significant anticompetitive effects of reverse payment settlements are not immune from antitrust scrutiny merely because they may Êºfall within the scope of the exclusionary potential of the patentÊº at issue. Id. at 2230 31 (internal quotation marks omitted). The Court concluded that because such settlements necessarily prevent the adjudication of a patentÊ¹s validity thereby leaving open the question of the patentÊ¹s Êºactual preclusive scopeÊº they should be scrutinized under antitrust lawÊ¹s traditional Êºrule of reason.Êº See id. at 2230 31, 2237. DISCUSSION ÊºWe review de novo a district courtÊ¹s dismissal of a complaint under Rule 12(b)(6).Êº Mayor & City Council of Balt., Md. v. Citigroup, Inc., 709 F.3d 129, 135 (2d Cir. 2013). In doing so, Êºwe accept all factual allegations as true and draw every reasonable inference from those facts in the plaintiffÊ¹s favor.Êº Id. But this indulgence does not relieve the plaintiff from alleging Êºenough facts to state a claim to relief that is plausible on its face.Êº Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). ÊºWhere a complaint pleads facts that are merely consistent with a defendantÊ¹s liability, it stops short of the line between possibility and plausibility of entitlement to relief.Êº Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). Section 2 of the Sherman Act provides that it is unlawful to Êºmonopolize, or attempt to monopolize . . . any part of the trade or commerce 9 among the several States, or with foreign nations.Êº 15 U.S.C. § 2. Êº[T]his offense requires, in addition to the possession of monopoly power in the relevant market, Ê¹the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.Ê¹Êº Verizon CommcÊ¹ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004) (quoting United States v. Grinnell Corp., 384 U.S. 563, 570 71 (1966)). ÊºTo safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct.Êº Id. (emphasis in original). Êº[A]nticompetitive conduct is Ê¹conduct without a legitimate business purpose that makes sense only because it eliminates competition.Ê¹Êº Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507 F.3d 117, 124 (2d Cir. 2007) (quoting Morris CommcÊ¹ns Corp. v. PGA Tour, Inc., 364 F.3d 1288, 1295 (11th Cir. 2004)). As the Actavis decision illustrates, Êº[t]he tension between the objectives of preserving economic incentives to enhance competition while at the same time trying to contain the power a successful competitor acquires is heightened tremendously when the patent laws come into play.Êº SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1205 (2d Cir. 1981); see also Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 816 (1945) (noting that Êºa patent is an exception to the general rule against monopolies and to the right to access to a free and open marketÊº). But any such tension is rendered irrelevant here by the plaintiffÊ¹s theory of the case. LWD expressly disclaims any reliance on the patent settlement context of its allegations, choosing to argue instead that ShireÊ¹s requirements contracts with 10 Teva and Impax gave rise to an antitrust Êºduty to deal.Êº The complaint urges that Êºfrom the moment the [settlement] agreements were signed, the patents were taken out of the picture, and this case must be viewed as one in which the patents did not exist as they relate to Teva and Impax.Êº Compl. ¶ 42 (footnote omitted). Counsel for LWD reiterated this position at oral argument, assuring us that its claims would be no different if Shire had no patents respecting AXR. And while LWD argues that the abrogation of Tamoxifen undermines the district courtÊ¹s reasoning, it does not rely on Actavis or seek leave to re plead in light of that decision. Thus freed from the complexities that attend cases at the intersection of antitrust and patent law, we proceed to explain our reasons for affirming the judgment of the district court.4 * * * ÊºIn the absence of any purpose to create or maintain a monopoly, the [Sherman Act] does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal . . . .Êº United States v. Colgate & Co., 250 U.S. 300, 307 (1919). Today, Êºthe sole exception to the broad right of a firm to refuse to deal with its competitorsÊº comes into play only Êºwhen a monopolist seeks to terminate a prior (voluntary) course of dealing with a competitor.Êº In re Elevator Antitrust Litig., 502 F.3d 47, 52, 53 (2d Cir. 2007) (per We may, of course, affirm on any ground that finds support in the record sufficient to permit a conclusion of law, even one not relied on by the district court. See MLSMK Inv. Co. v. JP Morgan Chase & Co., 651 F.3d 268, 273 (2d Cir. 2011). 4 11 curiam) (citing Trinko, 540 U.S. at 409). The roots of this exception are in the Aspen Skiing decision, which is heavily relied on by LWD. The Supreme Court has described its own decision in Aspen Skiing as follows: The Aspen ski area consisted of four mountain areas. The defendant, who owned three of those areas, and the plaintiff, who owned the fourth, had cooperated for years in the issuance of a joint, multiple day, all area ski ticket. After repeatedly demanding an increased share of the proceeds, the defendant canceled the joint ticket. The plaintiff, concerned that skiers would bypass its mountain without some joint offering, tried a variety of increasingly desperate measures to re create the joint ticket, even to the point of in effect offering to buy the defendantÊ¹s tickets at retail price. The defendant refused even that. We upheld a jury verdict for the plaintiff, reasoning that Êº[t]he jury may well have concluded that [the defendant] elected to forgo these short run benefits because it was more interested in reducing competition . . . over the long run by harming its smaller competitor.Êº Trinko, 540 U.S. at 408 09 (alterations in original) (citations omitted) (citing and quoting Aspen Skiing, 472 U.S. at 593 94, 608). Although Aspen Skiing stands for the proposition that a business with market power may be subject to a duty to deal with a smaller competitor, it is today a common refrain that the case lies Êºat or near 12 the outer boundary of [section] 2 liability.Êº Id. at 409; see also In re Elevator Antitrust Litig., 502 F.3d at 53 (same). But wherever we locate Aspen Skiing with respect to that ÊºboundaryÊº, it does not govern this case. LWD fails to allege that the facts here resemble those of Aspen Skiing in any of the particulars identified as significant by the Trinko Court, including Êº[t]he unilateral termination of a voluntary (and thus presumably profitable) course of dealing suggest[ing] a willingness to forsake short term profits to achieve an anticompetitive endÊº and the refusal Êºto renew the ticket even if compensated at retail price.Êº Trinko, 540 U.S. at 409 (emphases in original). And although Trinko does not purport to set out a Êºtest,Êº it usefully highlights the distinctions that made Aspen Skiing the rare case in which a refusal to deal amounted to a prohibited act of unilateral monopolization. This is not such a case. Shire did not terminate any prior course of dealing let alone a Êºpresumably profitableÊº one that had, as in Aspen Skiing, Êºoriginated in a competitive market and had persisted for several years.Êº Aspen Skiing, 472 U.S. at 603. Indeed, the agreements here were explicitly unprofitable they introduced price competition into a market where would otherwise have existed. Far from undermining existing competition, by entering into the agreements in question, Shire created competition in the market for AXR ex nihilo. And because, as LWD concedes, Shire did not Êºcompletely cut off supply to Teva and Impax,Êº id. ¶ 77, Shire actually lost 50 60% of its market share, id. ¶ 67. The logical inference from these allegations is that, unlike the defendant in Aspen Skiing, Shire accepted a below retail price for its product. Cf. Trinko, 540 U.S. at 409. In short, the plaintiffsÊ¹ allegations 13 amount to the self defeating claim that Shire monopolized the market by ceding its monopoly. ShireÊ¹s breach of its agreements with Teva and Impax if there was one may have prevented the price of AXR from falling further than LWD theorizes it might have in a genuinely competitive market, but that alone does not give rise to a cause of action under Aspen Skiing. This is not a case where the alleged monopolist sought to Êºterminate a prior (voluntary) course of dealing with a competitor,Êº In re Elevator Antitrust Litig., 502 F.3d at 53 (citing Trinko, 540 U.S. at 409), under circumstances that evince an intent willfully to acquire or maintain monopoly power, Trinko, 540 U.S. at 407. The mere existence of a contractual duty to supply goods does not by itself give rise to an antitrust Êºduty to deal.Êº Cf. Pac. Bell Tel. Co. v. Linkline CommcÊ¹ns, Inc., 555 U.S. 438, 450 (2009) (distinguishing defendantÊ¹s regulatory duty to cooperate with competitors from an Êºantitrust duty to dealÊº); Trinko, 540 U.S. at 406 (concluding that statutorily imposed duties to cooperate with competitors did Êºnot automatically lead to the conclusion that [the duties] can be enforced by means of an antitrust claimÊº). Nor do business disputes implicate the antitrust laws simply because they involve competitors. Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 225 (1993) (ÊºEven an act of pure malice by one business competitor against another does not, without more, state a claim under the federal antitrust laws; those laws do not create a federal law of unfair competition or Ê¹purport to afford remedies for all torts committed by or against persons engaged in interstate commerce.Ê¹Êº) (quoting Hunt v. Crumboch, 325 U.S. 821, 826 (1945)). Against this backdrop, we conclude that LWDÊ¹s complaint fails to state a claim upon which relief can be 14 granted, and that it was therefore properly dismissed by the district court under Rule 12(b)(6). Indeed, the complaint does little more than attach antitrust Êºlabels and conclusionsÊº to what is, at most, an ordinary contract dispute to which the plaintiffs are not even parties. See Iqbal, 556 U.S. at 678. In view of the plaintiffsÊ¹ theory of the case and their disclaimer of reliance on the patent litigation that gave rise to ShireÊ¹s agreements with Teva and Impax, we have not considered that litigation and those agreements in our analysis. We have not, therefore, assessed the potentially anticompetitive effects, if any, of these settlements against Êºpatent law policy [and] procompetitive antitrust policies.Êº Actavis, 133 S.Ct. at 2231. And we intimate no view as to the viability of a monopolization claim based on similar factual circumstances in which the plaintiffs did not as LWD unequivocally did here narrow the scope of our inquiry. CONCLUSION LWD has failed to allege facts that would place this case within Aspen SkiingÊ¹s narrow exception to the Êºlong recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.Êº Colgate, 250 U.S. at 307. We therefore AFFIRM the judgment of the district court dismissing the complaint. 15

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