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From Antitrust Law Daily, July 21, 2015

Walgreens stores lack standing as indirect purchasers in Lidoderm antitrust litigation

By Greg Hammond, J.D.

A group of Walgreens retail establishments could not bring monopolization claims on their own behalf, but were properly assigned antitrust claims from direct purchaser wholesalers, in a suit alleging that various pharmaceutical companies delayed entry of generic Lidoderm by entering into an unlawful settlement agreement. The federal district court in San Francisco therefore struck Walgreens stores’ claims brought on their own behalf, but otherwise denied the pharmaceutical defendants’ motion to dismiss (United Food and Commercial Workers Local 1776 & Participating Employers Health and Welfare Fund v. Teikoku Pharma USA, Inc., July 17, 2015, Orrick, W.).

A group of Walgreens retail establishments filed suit against various pharmaceutical companies—including Endo Pharmaceuticals Inc., Teikoku Pharma USA, Teikoku Seiyaku Co., Watson Pharmaceuticals, Inc., Actavis, plc, and Watson Laboratories, Inc.—alleging that (1) the settlement the pharmaceutical companies reached to delay entry of generic Lidoderm was an unreasonable restraint on trade that violated Section 1of the Sherman Act; (2) by entering into the unlawful settlement, the pharmaceutical companies conspired to expand monopoly power by intentionally forestalling the introduction of generic Lidoderm in violation of Section 2 of the Sherman Act; (3) Endo exercised monopoly power over the relevant market by intentionally excluding competitors and charging artificially high prices; and (4) Endo attempted to monopolize the relevant market by entering into the settlement agreement.

The defendants moved to dismiss the Walgreens stores’ complaint, arguing: (1) the stores lacked statutory standing as indirect purchasers; (2) the assignments of claims from Lidoderm wholesalers were invalid and failed for lack of Article III standing; and (3) any valid assignments of claims should be joined with direct purchaser plaintiffs’ claims.

Standing. The court first determined that the Walgreens stores, as indirect purchasers of Lidoderm, lacked standing to bring claims on their own behalf, noting that section 4 of the Clayton Act provides that direct purchasers, not indirect purchasers, may bring claims. The stores also lacked standing under section 16 of the Clayton Act because they failed to state with sufficient particularity any ongoing or future harm caused by the alleged Sherman Act violations. The pharmaceutical companies’ allegedly anticompetitive conduct ended in 2013, when generic drug competitors were able to enter the market.

Assignment of claims. Next, the court found that antitrust claims from direct purchaser wholesalers that entered into distribution service agreements with Endo were validly assigned to the Walgreens stores. Specifically, the court concluded that the non-assignment clauses contained in the distribution service agreements were limited to those agreements and did not cover unrelated claims arising from antitrust law. The existence of a boilerplate duty to abide by “applicable law” did not manifest the requisite intent to expand the scope of the non-assignment clauses beyond their ordinary language, the court reasoned.

Stay improper. Finally, the court rejected the pharmaceutical companies’ contention that any valid assignments of claims should be joined with the direct purchaser plaintiffs’ claims and that the stores’ claims should be stayed in anticipation of the direct purchaser plaintiffs’ motion for class certification. Specifically, the court found that a decision to stay or dismiss Walgreens’ claims was premature; the direct purchaser plaintiffs had not yet moved for class certification; and none of the wholesalers that assigned their claims to Walgreens had been named in the direct purchaser plaintiff complaint. It was therefore unclear whether the wholesalers that assigned their claims to Walgreens reserved for themselves any portion of their right to sue the pharmaceutical companies.

The case number is 14-md-02521-WHO.

Attorneys: Brian O. O'Mara (Robbins Geller Rudman & Dowd LLP), Christina H. Sharp (Girard Gibbs LLP), and Gregory S. Asciolla (Labaton Sucharow LLP) for United Food and Commercial Workers Local 1776 & Participating Employers Health and Welfare Fund. Anna Theresa Neill (Kenny Nachwalter, PA) for Walgreen Co. Brigid M. Carpenter (Baker, Donelson, Bearman, Caldwell & Berkowitz, PC), Daniel B. Asimow (Arnold & Porter LLP), and John A. Tarantino (Adler Pollock & Sheehan PC) for Endo Pharmaceuticals, Inc. Steven Sunshine, Karen Hoffman Lent, and James Patrick Schaefer (Skadden Arps Slate Meagher & Flom LLP) for Watson Pharmaceuticals, Inc. and Actavis, plc. David S. Elkins (Squire Patton Boggs LLP) for Teikoku Pharma USA, Inc.

Companies: United Food and Commercial Workers Local 1776 & Participating Employers Health and Welfare Fund; Walgreen Co.; Endo Pharmaceuticals Inc.; Teikoku Pharma USA; Teikoku Seiyaku Co.; Watson Pharmaceuticals, Inc.; Actavis, plc; Watson Laboratories, Inc.

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