The case involves so-called “reverse payment” or “pay-for-delay” patent infringement settlements in which a brand-name pharmaceutical manufacturer pays the allegedly infringing generic manufacturer to settle claims that the generic product infringes the brand-name manufacturer’s patent, in exchange for which the generic agrees not to market its product.  Antitrust enforcement officials and consumer groups argue that such settlements cost consumers billions of dollars per year in the form of higher drug prices. 

The plaintiffs sued Bayer and generic manufacturers of the blockbuster antibiotic Cipro, alleging that Bayer’s payment of hundreds of millions of dollars to the generics in settlement of patent infringement litigation violated the antitrust laws.  The trial court granted summary judgment for the defendants, which a three-judge panel upheld on appeal.

The three-judge panel, however, wrote – some might say reluctantly – that its decision was bound by a prior Second Circuit panel’s opinion upholding a similar patent settlement, In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006).  Tamoxifen held that patent settlements are presumptively lawful, unless the patent holder procured the patent by fraud on the Patent and Trademark Office or brought a baseless patent infringement lawsuit (e.g., because the patent holder knew that the patent was invalid or unenforceable). 

The Cipro panel described the anticompetitive effects of reverse payment settlements, and invited the parties to submit briefs to request rehearing of its decision and whether the Second Circuit sitting en banc should overrule Tamoxifen.  Today, the Second Circuit declined to do so, with only Judge Pooler dissenting, in an opinion.  Judge Pooler voted for rehearing because “the ‘enormous importance’ of the issues that this case raises is beyond dispute,” and “[i]t will be up to the Supreme Court or Congress to resolve” them. 

Legislation to ban or strictly limit these kinds of settlements remains pending in Congress in the forms of S. 369 and H.R. 1706.  Supporters of the legislation continue to try to attach it to various legislative vehicles, and it may be considered again before the end of the year. 

An article detailing the history of reverse-payment antitrust litigation is available here.

The Court of Appeals reversed the district court ruling, and held that the State of California was entitled to summary judgment on its claim for a declaratory judgment against the defendants – the three largest supermarket chains in Southern California – for engaging in a violation of the Sherman Act.  The court held that the agreement, which was designed to split profits according to each stores’ historic shares of the market during a labor dispute, was inherently anticompetitive and was not excused by the non-statutory labor exemption.

According to the Court, the supermarkets collectively accounted for 55-64% of the Los Angeles-Long Beach metropolitan market, and 66-75% of the San Diego metropolitan market.  Defendants argued that the profit-sharing agreement was pro-competitive and did not violate the Sherman Act because it was intended to operate for a limited period, it did not include 100% of the market participants, and it allowed the grocery chains to aid competition in the labor market by lowering employee wages and benefits. 

The Court rejected each of these supposedly pro-competitive justifications, stating:

“We find it difficult to believe that any individual with a rudimentary knowledge of antitrust law would seriously contend that if the defendants agreed to share profits for a limited period for their mutual economic benefit, there would not be a violation of § 1 of the Sherman Act—at least in the absence of some extraordinary circumstance.”

The Court also noted that “driving down compensation to workers is not a benefit to consumers cognizable under our laws as a ‘pro-competitive’ benefit” and that the “primary objective of our nation’s laws [is] to protect the rights and interests of working persons.”

After determining that the agreement was “patently anticompetitive,” the Court then addressed defendants’ final claim that the agreement, even if anticompetitive, should be exempt from liability according to labor laws because it concerned the employers’ bargaining position in a labor dispute.

The Court rejected defendants’ final claim, holding that the non-statutory labor exemption did not apply because “profit sharing is not needed to make the collective bargaining process work” and thus “defendants’ profit sharing agreement lies completely outside the matters regulated by labor law.”

In March, Sightline sued its larger competitor, Global Cash Access Holdings, Inc., under Sections 1 and 2 of the Sherman Act, and under Section 7 of the Clayton Act.  Both companies offer services to provide cash access at casinos.  According to Sightline’s complaint, “[i]n 2008 alone [Global Cash] processed over 80 million transactions and put more than $21 billion into the hands of gaming patrons.”  Sightline’s complaint continues that Global Cash violated antitrust laws through a series of actions, including acquisitions, restrictive agreements with casinos in Las Vegas and Atlantic City, patent abuse, and disparagement of Sightline.  It sued for $300 million, plus costs and fees.  Interestingly, the head of Sightline previously served as Global Cash’s chief executive, and also was one of its founders.

In dismissing Sightline’s suit on August 9, Judge Philip Pro held that Sightline did not allege that Global Cash used its market share to engage in monopoly pricing or that Global Cash’s alleged disparagement of Sightline contained any falsehoods.  Regarding Global Cash’s restrictive agreements, Judge Pro wrote that “[a]n agreement between a manufacturer and a distributor to establish an exclusive distributorship does not, standing alone, violate antitrust law unless the agreement is intended to, or actually does harm competition in the relevant market.”   Sightline’s complaint, he continued, did not allege facts to meet that standard.

According to press reports, Sightline plans to roll the dice again by appealing the dismissal.  It looks like the company hopes its lawsuit won’t be leaving Las Vegas’ courts anytime soon.

In Sullivan v. DB Investments Inc., plaintiffs alleged anticompetitive conduct in the diamond industry by the De Beers group of companies, the South African conglomerate synonymous with diamond production and distribution. Settlement discussions led to separate agreements for two plaintiff classes, one class for direct purchasers with federal law claims and one class for indirect purchasers with state law claims, for a total of $295 million.  De Beers agreed not to contest certification of the settlement classes and sought to dispose of claims in all 50 states and the District of Columbia.  The U.S. District Court for the District of New Jersey approved the settlements under Rule 23.

And that’s where things got interesting. 

The settlement process allowed class members to object to the proposed agreement, and 36 members of the indirect purchaser class filed objections.  The objecting indirect purchasers argued that many jurisdictions limit or deny the right of indirect purchasers to antitrust damages. For example, New York State provides a cause of action for indirect purchasers while New Jersey does not.  Nevertheless, the district court overruled the objection because the facts were similar for all indirect purchasers and De Beers itself had requested release from claims in all jurisdictions. 

On appeal, the Third Circuit rejected the lower court’s reasoning and emphasized the diverse landscape of state antitrust law.  The 50 states are split over whether indirect purchasers can pursue antitrust claims for damages.  Roughly half of the states have enacted laws contrary to the spirit of the Supreme Court’s 1977 decision in Illinois Brick v. Illinois, which foreclosed indirect purchasers from suing for damages under federal antitrust law.  According to the Third Circuit, the district court exceeded its discretion “to certify a nationwide class when the legal right shared by class members purportedly arises under the laws of multiple jurisdictions, but only some of those jurisdictions extend standing to class members to enforce that right.” 

The Third Circuit was not persuaded by the plaintiffs’ arguments that differing state laws made trial management difficult or that De Beers had stipulated to a national class.  The court replied that the “lack of substantive rights cannot be wished away by the promise of easier litigation management,” and the parties cannot claim they have “stipulated out of existence defects in the commonality and predominance of the class claims.”  In addition, the court recognized federalism concerns implicit in a federal court creating legal rights under state law where none had previously existed.

So where does this leave other nation-wide class certifications under state antitrust law?  The Third Circuit remanded the case back to the district court to limit the indirect purchaser class to those jurisdictions that provide such a legal right.

What the Third Circuit could not answer, however, is the question of how other circuits will deal with this issue.

Because of significant differences between the assets involved in the American and European aspects of the deal, however, it seems likely that U.S. regulators will continue to scrutinize the venture more rigorously.

Comcast is America’s largest cable company and second largest internet service provider.  NBC owns major stakes in television, film, and cable programming as well as a major share in online streaming television service Hulu.  Under the deal, announced December 3, 2009, Comcast would buy a majority stake in NBC from its parent, General Electric.  As a result, Comcast and NBC would form a joint venture owned 51% by Comcast and 49% by NBC; Comcast would also manage the venture.  The deal is valued at $37 billion.

The European Commission has announced that the deal “would not significantly impede effective competition in the European Economic Area or any substantial part of it.”  But they pointedly noted that in Europe, unlike in the U.S., Comcast owns no cable assets.  Thus in Europe the deal creates no vertical relationship between a Comcast cable distribution platform and NBC’s programming assets.  Such a relationship would, however, result from the U.S. portion of the deal.

This vertical relationship was one of several concerns raised by opponents of the deal in a public comment period offered by the U.S. Federal Communications Commission, which has jurisdiction to review the deal.  The venture’s opponents believe it will lead to higher cable bills, fewer independent programmers and less public-service programming.  Comcast and NBC will formally respond to the public comments later this month.  But they have already argued that the deal would be a boon to consumers by improving broadcast operations, pressuring cable networks to lower prices and improve quality, and speeding the development of “anytime, anywhere” video service.  And they say the post-venture NBC would still only account for 12% of national cable network advertising and affiliate revenues, hardly enough to dominate cable advertising.

The FCC and the U.S. Justice Department, which shares jurisdiction over the deal, are expected to decide by year-end whether to approve or deny the deal or approve it with conditions, such as asset divestitures.

Judge Anita B. Brody of the U.S. District Court for the Eastern District of Pennsylvania ordered the plaintiffs to rebrief their motion by September 30 in light of the U.S. Court of Appeals for the Third Circuit’s ruling a day earlier in a price-fixing class action against diamond company De Beers SA.

A day before Judge Brody’s ruling, the Third Circuit vacated a $295 million settlement in the De Beers case, Sullivan v. DB Investments Inc.  The Third Circuit held that the district court failed to properly ascertain whether class certification was appropriate.  In vacating the De Beers settlement, the appeals court found that the lower court had not addressed differences among the state laws at issue in the case.

The De Beers ruling could have significant implications for the plaintiffs in the Flonase antitrust litigation because they are seeking the certification of multiple classes based on various state and federal laws.  Each of the potential classes seeks to represent individuals and entities that purchased Flonase or its generic equivalent from May 19, 2004, until the full effects of generic competition had been felt.

The court had previously allowed the plaintiffs to proceed with allegations that Glaxo SmithKline (formed by the merger of Glaxo Wellcome and SmithKline Beecham in 2000) caused them to overpay for Flonase by repeatedly filing sham citizen petitions that stalled the entry of generic nasal sprays into the market.  Citizen petitions can be filed with the FDA while approval of a generic drug is pending to express concerns about a product or request that the FDA take administrative action.  Congress passed a law in 2007 permitting the FDA to summarily dismiss citizen petitions to stop drug companies from abusing the process to extend monopolies.

Judge Brody’s ruling temporarily denying class certification may turn out to be only a hiccup in plaintiffs’ quest for class certification.  That said, in seeking class certification, the plaintiffs will need to fully address the differences among the various state and federal laws at issue or risk certification being denied yet again.  Until they achieve the requested class certification, it is the plaintiffs who cannot breath easy.

Filed in 2007, the suit alleges that Apple and AT&T secretly agreed to restrict iPhone service for five years.  Although plaintiffs purchased a two-year service agreement which could be terminated at any time by paying a $175 fee, the suit alleges that Apple and AT&T ensured that iPhone users are still locked in to AT&T, as the iPhone won’t work on any other compatible network – such as T-Mobile.

In 2008, the court held that the plaintiffs adequately alleged the existence of two “iPhone aftermarkets” – one for iPhone voice and data service and one for iPhone applications.  In ruling on class certification, the court rejected the argument that determining market power in the aftermarkets would require “individualized inquiry” into whether each class member “knowingly and voluntarily” gave the defendants this market power because they knew about AT&T exclusivity and Apple’s control over iPhone apps.  The court held that “whether consumers of iPhones ‘knowingly’ entered into de facto commitments to be monopolized can be analyzed on a class-wide basis.” 

Likewise, defendants argued that plaintiffs’ damages expert failed to raise a common question because he analyzed the broader value of a customer’s ability to switch carriers rather than the impact of defendants’ specific challenged practices – the non-disclosure of the five-year exclusivity agreement.  The court concluded that the broader analysis was plausible.

In response to a letter from Senate Judiciary Committee Chairman Patrick Leahy seeking the FTC’s position on such collaboration, FTC Chairman Jon Leibowitz wrote that “[a]lthough we must always be watchful when competitors collaborate, industry efforts to work with Federal officials and provide expertise to combat this ecological disaster are unlikely to raise concerns under the antitrust laws, and we would be unlikely to challenge such an effort.”  Chairman Leibowitz added that the “impact of the oil spill appears likely to be an enormous tragedy for the people and economy of the Gulf and we would like to help any way that we can.”

The issue of collaboration among energy companies was raised because BP officials have acknowledged that they were not technologically prepared to deal with a disaster such as the one now unfolding in the Gulf of Mexico.  A number of BP’s competitors, including ExxonMobile, Royal Dutch Shell and Chevron, have provided support to BP and government officials to help get the oil leak under control.

The B.C. Court of Appeal’s earlier decision certifying a class of direct and indirect purchasers of DRAMs (semiconductor memory chips also known as “dynamic random access memory”) remains therefore the definitive pronouncement on the law on class certifications in competition cases in Canada.  As previously discussed, the B.C. Court of Appeal’s decision lowered somewhat the threshold for class certification –allowing plaintiffs at the certification stage to show a “credible and plausible methodology” for addressing damages on a class-wide basis and finding that the certification judge had erred when he subjected plaintiff’s expert to “rigorous scrutiny.”

The B.C. Court of Appeal had found that it could be possible for plaintiffs to prove that the manufacturers benefitted from their wrongful conduct, and thus prove liability on a class-wide basis as a common issue.  The Court of Appeal had noted that guilty pleas to the conspiracy charges in the United States and manufacturers’ agreements to pay fines calculated as a function of the gross pecuniary gain they derived from the crime amounted to “admissions that they engaged in the wrongful conduct alleged by the appellant and that they obtained an unlawful benefit from that conduct.”

Time will tell whether the decision will result in more competition class action proceedings in Canada – a country where there have been very few contested competition class action certification hearings to date.