In what has become known as the Hytrin generic drug patent antitrust litigation, the 11th Circuit vacated certification of the class because of the potential for significant conflict among class members. Specifically, the court held that wholesaler purchasers of Hytrin who experienced a net benefit from the allegedly illegal conduct could not be joined in a single class with those who had been harmed.
The Underlying Case: Wholesalers Bring Antitrust Action
Abbott Labs separately settled patent infringement litigation with two generic drug applicants over "terazosin hydrochloride," the chemical name for Hytrin, a hypertension drug. After a Federal Trade Commission investigation terminated the settlements, wholesalers who had purchased Hytrin directly from Abbott Labs during the effective period of the agreements brought an antitrust class action. They alleged that the settlements kept other companies' less expensive generic terazosin hydrochloride products off the market, thereby unlawfully preserving Abbott Labs' monopoly position in the market. They sought damages for higher prices paid during the time the settlements were in effect. The wholesaler plaintiffs were granted class action certification by the District Court for the Southern District of Florida.
Class Advocates' Claims Must Typify Claims of All Class Members
The 11th Circuit, however, recently held that the district court abused its discretion in certifying the class because it failed to examine one of the four prongs of Rule 23 of the Federal Rules of Civil Procedure, which defines when class certification is appropriate. Specifically, Rule 23 requires that the named class representatives adequately and fairly represent the interests of all class members. Class certification is inappropriate when some class members may have benefited from the same conduct that harmed others. In the Hytrin case, the 11th Circuit held that the district court improperly denied Abbott's request to conduct "downstream discovery" (discovery regarding the wholesalers' sales practices) to determine whether some class members actually benefited from the allegedly illegal settlements. The court reasoned that some class members may have benefited when more expensive, branded drugs dominated the market because wholesalers charge the same percentage mark-up from their acquisition costs on both branded and generic drugs. Other wholesalers may have been injured by generic competition if they were to be bypassed in the distribution chain for generic sales.
Hanover Shoe Does Not Trump Rule 23
Seeking to preserve the class status, the named wholesaler plaintiffs relied on the seminal Hanover Shoe case, which allows a wholesaler to collect damages for antitrust injury even if he "passes through" higher costs to his customers. The 11th Circuit determined, however, that Hanover Shoe is not relevant to the preliminary Rule 23 test of whether a fundamental conflict exists among the named and unnamed members of a class. Therefore, the court found class certification inappropriate until the lower court determines whether a conflict among class members actually exists.
Procedurally, the 11th Circuit remanded the case to permit the parties to conduct further discovery on the issue of whether some class members have separate, antagonistic interests from the named representatives. The court specifically stated, however, that plaintiffs are free to use Hanover Shoe to form separate classes to pursue antitrust claims.