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From Antitrust Law Daily, September 7, 2016

Pharmacy chain’s generic Zymar, Zymaxid monopolization claims revived

By Greg Hammond, J.D.

A retail pharmacy chain’s antitrust claims against three pharmaceutical companies for allegedly engaging in anticompetitive practices to delay generic competition for brand drugs Zymar and Zymaxid were wrongfully dismissed by the federal district court in Wilmington, Delaware. The U.S. Court of Appeals in Philadelphia vacated the order and remanded the case for further proceedings, concluding that the district court erred in treating antitrust standing as an issue of subject-matter jurisdiction (Hartig Drug Company Inc. v. Senju Pharmaceutical Co. Ltd., September 7, 2016, Jordan, K.).

Kyorin Pharmaceutical Co. developed Zymar and Zymaxid—gatifloxacin ophthalmic formulations used to treat bacterial infections. In June 2014, retail pharmacy chain Hartig Drug Co. filed a putative class action suit on behalf of all direct purchasers of Zymar and Zymaxid against Kyorin and its licensees, Senju Pharmaceutical Co. and Allergan Inc. Hartig claimed that the drug companies engaged in anticompetitive practices in violation of Sections 1and 2 of the Sherman Act by (1) filing sham patent litigation against competitors; (2) engaging in "product hopping;" and (3) making misrepresentations to the U.S. Patent and Trademark Office to delay generic competition for Zymar and Zymaxid. The federal district court in Wilmington dismissed the complaint for lack of subject matter jurisdiction. In particular, the lower court relied on the anti-assignment clause in a distribution services agreement (DSA) between AmerisourceBergen Drug Corp. and Hartig to conclude that Hartig lacked standing, reasoning that the clause’s prohibition applied to antitrust claims and therefore barred the assignment of the very claims on which Hartig’s standing relied.

Standing. The defendant pharmaceutical companies argued that Hartig’s assertion of antitrust standing via assignment was actually a fatal misstep, somehow undermining its ability to establish constitutional standing. Allergan’s motion to dismiss, however, was always premised upon Hartig’s lack of antirust standing as an indirect purchaser, which was an Illinois Brick argument and not a constitutional challenge to standing, according to the court. Nevertheless, even ignoring that none of the defendants previously made the argument that the assignment from Amerisource to Hartig created a problem of constitutional magnitude, the new argument was unpersuasive.

Specifically, the court found that Hartig plainly and repeatedly emphasized in its complaint that, as a result of the defendants’ anticompetitive behavior in suppressing generic equivalents of Zymar and Zymaxid, Hartig paid inflated prices for those products. Those allegations, combined with the complaint’s specific descriptions of anticompetitive behavior indulged in by the defendants, were sufficient to establish a judicially redressable injury-in-fact that was fairly traceable to the defendants. Hartig consequently had Article III standing sufficient to give the district court subject matter jurisdiction, and thus a dismissal under Federal Rule of Civil Procedure 12(b)(1) was not legitimately in play, the appellate court concluded.

Consideration of DSA. Next, the court noted that because the DSA was extrinsic to the complaint, the district court could not have properly considered it for purposes of a Rule 12(b)(6) motion to dismiss, and, without the DSA, Allergan’s entire challenge to the validity of Amerisource’s assignment lacked a foundation. For the district court to have considered the DSA, it would have had to convert the 12(b)(6) motion into a summary judgment proceeding. However, because the court considered the DSA under Rule 12(b)(1), the motion was not converted. Based on the record, Allergan did not proffer its anti-assignment argument in the alternative as grounds for dismissal under Rule 12(b)(6); the district court did not consider the DSA under that framework; and Hartig thus had no occasion to formally waive any of its 12(b)(6) protections or to respond, after proper notice, to a converted motion for summary judgment, the appellate court concluded. The case was therefore remanded so that the parties could have the opportunity to make their arguments under the proper procedural framework.

The case is No. 15-3289.

Attorneys: J. Clayton Athey (Prickett Jones & Elliott) and Brent W. Landau (Hausfeld) for Hartig Drug Company Inc. Stephen B. Brauerman (The Bayard Firm) and William F. Sondericker (Carter Ledyard & Milburn) for Senju Pharmaceutical Co. Ltd. Sara Kusiak, Rosanna McCalips (Jones Day), and David E. Ross (Ross Aronstam & Moritz) for Kyorin Pharmaceutical Co. Ltd. Ashely E. Johnson and Mark A. Perry (Gibson Dunn & Crutcher) for Allergan Inc.

Companies: Hartig Drug Company Inc.; Senju Pharmaceutical Co. Ltd.; Kyorin Pharmaceutical Co. Ltd.; Allergan Inc.

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