PHILADELPHIA – A federal judge in Philadelphia recently denied a motion from dozens of drug manufacturers to dismiss claims that they participated in an “overarching conspiracy” to fix prices, rig bids, and engage in market and customer allocations of certain generic pharmaceutical products, in violation of the Sherman Antitrust Act.
On Aug. 15, U.S. District Court for the Eastern District of Pennsylvania Judge Cynthia M. Rufe made the ruling in a multi-district litigation which spawned from an investigation by the U.S. Department of Justice – and within a few years, has grown to include involvement from the attorneys general of more than 40 states, consumer rights organizations, retail pharmacies, insurers and plaintiff classes who claim they were forced to pay inflated prices for generic-brand medications, as a result of the alleged conspiracy.
The conspiracy charges extend to numerous pharmaceutical drugs, taken to treat a wide range of conditions, including ADHD, asthma, depression, diabetes, heart failure, high cholesterol, cancer and HIV.
Rufe
Per the complaint, the majority of the alleged conspiratorial activity took place from July 2013 to January 2015, when Pennsylvania-based Teva Pharmaceuticals inflated prices on almost 400 variations of more than 100 generic drugs.
Besides raising prices on so many medications, what made the conspiracy possible, plaintiffs claim, was an agreement among the various drug companies to collaborate on price fixing, so that each company would receive a “fair share” of the generic drug market.
According to the massive litigation, the result is that taxpayers and patients have been fleeced of billions of dollars.
In connection with the case, the generic drug market has been labeled by Connecticut Attorney General William Tong as “the largest private sector corporate cartel in history.”
Rufe began her analysis by examining the factors the plaintiffs needed to prove the conspiracy they alleged to have taken place.
“To state a claim for a Sherman Act conspiracy, plaintiffs must allege ‘enough factual matter (taken as true) to suggest that an agreement was made.’ In the absence of allegations of direct evidence of such an agreement, plaintiffs may allege parallel conduct plus ‘a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action,” Rufe stated.
Rufe added three such ‘plus factors’ support a finding that there is a suggestion of a preceding agreement are: “(1) Evidence that the defendant had a motive to enter into a price fixing conspiracy; (2) Evidence that the defendant acted contrary to its interests; and (3) Evidence implying a traditional conspiracy.”
“For purposes of alleging an overarching conspiracy, plaintiffs have alleged parallel conduct in the form of price increases across the market for generic drugs that are “reasonably proximate in time and value.” Also, plaintiffs have alleged that the structure of the market for generic drugs motivated defendants to enter into an antitrust conspiracy and undertake actions against self interest in the form of pricing and bidding decisions that would be irrational in a competitive market for generic drugs,” Rufe said.
“Plaintiffs’ overarching complaints also allege facts implying the existence of a traditional conspiracy: Inter-defendant communications, trade association leadership, membership, and meeting attendance, and ongoing state and federal investigations into generic drug pricing.”
Rufe said the allegations in plaintiffs’ overarching complaints “plausibly allege that defendants engaged in a conspiracy regarding the broader market for generic drugs, and not just the market for any individual drug.”
Further, Rufe rejected the defendants’ assertions that United States v. Kelly should govern the criteria by which the defendants are to prove an overarching conspiracy, rather than Bell Atl. Corp. v. Twombly.
“Defendants do not cite any binding precedent that would require the Court to apply the Kelly factors at the pleading stage in the context of an alleged civil conspiracy. Twombly sets the bar for plaintiffs’ overarching conspiracy allegations, not Kelly,” Rufe commented.
In the end, Rufe threw out the defendants’ motion to dismiss the conspiracy claims, allowing discovery in the sprawling multi-district litigation to proceed.
“Plaintiffs have sufficiently alleged the existence of an overarching conspiracy and the Court will permit the claims based on an overarching conspiracy theory to proceed,” Rufe said.
“Defendants’ joint motion to dismiss plaintiffs’ overarching conspiracy claims will be denied. Whether any individual defendant has a specific defense to the claims raised against it in the overarching complaints is a separate question not here resolved.”
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com