Citations
- 296 F. Supp. 3d 1142
Full opinion text
Unenforceability
Plaintiffs also argue, again relying heavily on Adelman, that Watson was likely to prevail at trial and on appeal because the '529 patent was unenforceable as a result of Teikoku's inequitable conduct. Adelman Report ¶¶ 82-92. The inequitable conduct at issue is whether Teikoku and the '529 inventor (Ono) affirmatively misled the PTO by failing to disclose specific "Teikoku Hydrogel" prior art references. Adelman Report ¶¶ 83-88.
Defendants assert that this defense rises and falls to the same extent as the obviousness defense above, as both rely on the Teikoku Hydrogel prior art. As to intent to deceive, defendants point to Judge Sleet's questions and comments in closing, attempting to distinguish where intent lies when an inventor simply signs whatever disclosures are given to him without review (as Ono testified), and Judge Sleet's comments that he found Ono credible and believed him. Closing Argument Tr. at 45, 108-09. Plaintiffs respond that Judge Sleet's inclinations cannot be deciphered solely from the comments identified by defendants and point out that Judge Sleet also referred to the importance of full disclosure to the PTO from a factual and policy perspective and noted he was free to draw reasonable inferences based on Watson's attempt to show specific intent to deceive. Closing Argument Tr. at 23 105-107.
Plaintiffs also argue that there was sufficient evidence and supporting argument in the record so show that Teikoku engaged in an inequitable "failure to disclose" because the declarations submitted to the PTO asserted only "fictional distinctions" over prior art and its experts (and Watson's at the '529 trial) asserted that the non-disclosure was material and Ono's failure to disclose the prior art was egregious. Defendants respond that because Watson did not assert affirmative misrepresentations (based on omissions) in the '529 trial itself, plaintiffs cannot rely on that theory to show Watson could have won on that ground in this case. However, the evidence underlying this theory is in the '529 record and even if not expressly argued at closing, could have formed a basis of either the trial court or Federal Circuit's decisions.
Plaintiffs have presented strong evidence that Watson could have succeeded on unenforceability.
Other Grounds
Defendants argue that in light of an erroneous claim construction by Judge Sleet (as subsequently confirmed by the Federal Circuit in Multilayer Stretch Cling Film Holdings, Inc. v. Berry Plastics Corp. , 831 F.3d 1350 (Fed. Cir. 2016) ), Watson would have lost its appeal on infringement. Plaintiffs do not really dispute this position, although they rely on an expert for the essentially-agreed-to position that Watson would have won on non-infringement at the trial court level. Instead, plaintiffs argue in passing that Endo bears the burden to show infringement on summary judgment here -because they bore that burden in the '529 litigation-and they failed to do so. Pls. Oppo. to Defs. MSJ at 22. Defendants dispute this, contending that because it is plaintiffs' burden here to show antitrust injury premised on non-infringement or invalidity, they bear the burden to show non-infringement by Watson. Plaintiffs have not introduced "some evidence" that a reasonable juror could rely on to find that Watson would have ultimately won on non-infringement.
Similarly, defendants also move for "summary judgment" on the "derivation defense," arguing plaintiffs cannot establish a genuine issue of material fact that Watson could have proven in the '529 litigation that a third-party conceived of the '529 invention. Defs. MSJ at 12. Plaintiffs do not address this defense in their Opposition.
Accordingly, under Rule 56(g), the material facts that Watson could not have won on non-infringement and derivation are established for trial.
iii. '529 Litigation Record
Plaintiffs also rely on three categories of evidence introduced by Watson in the '529 litigation that a reasonable juror could rely on to determine that Watson would have won at trial and on appeal without regard to plaintiffs' experts' analyses. That evidence concerns: (i) anticipation by Takeda; (ii) obviousness in light of the Teikoku Hydrogel prior art and teachings to use lidocaine in those patches; and (iii) inequitable conduct before the PTO. Pls. Oppo. to Defs. MSJ at 16-18. This evidence is the same as that relied upon by its experts above and, as noted, helps plaintiffs meet the "some evidence" mark.
Defendants' motion for summary judgment on the ground that the '529 patent broke the chain of antitrust causation is DENIED.
2. Plaintiffs' Alternative Theory of Causation
Plaintiffs have a second theory of causation; that absent the reverse-payment Settlement, the parties still would have agreed to an anticompetitive settlement, but one where no payment was made and only early generic entry was allowed. Defendants argue that this theory is not legally viable (and move to exclude the expert testimony submitted in support of it). Even if legally viable, defendants argue that it is purely speculative as there is no evidence in the record to support it.
a. Whether the Theory is Cognizable
Defendants argue this alternate theory is not cognizable as a matter of law and (at least with respect to the Cartwright Claims) is barred by the California Supreme Court's decision in In re Cipro Cases I & II, 61 Cal.4th at 153, 187 Cal.Rptr.3d 632, 348 P.3d 845. There, in determining the elements of a prima facie case under the Cartwright Act and who bears the burdens, the court noted that: "Unless a challenged settlement agreement includes both a restraint on generic competition and a reverse payment to the generic in excess of both brand litigation costs and generic collateral products and services, there is no reason to assume the settlement includes any element of purchased freedom from competition, as opposed to a limit on competition flowing naturally, and lawfully, from the perceived strength of the brand's patent." Id. at 153, 187 Cal.Rptr.3d 632, 348 P.3d 845 (emphasis added). The court explained that the relevant "baseline" is the "average period of competition that would have obtained in the absence of settlement." Id. at 158, 187 Cal.Rptr.3d 632, 348 P.3d 845.
As plaintiffs point out, however, the Cipro court was not analyzing causation-the critical issue here-but whether a Cartwright antitrust claim could be asserted in face of a patent defense, essentially considering the same issue that was before the Supreme Court in Actavis . Moreover, the Cipro court's comments do not foreclose an argument that antitrust injury could have been nonetheless caused in absence of a reverse-payment if there is evidence in the but-for world that the parties would have reached an agreement to drop the patent litigation in exchange for early generic entry into the market.
The district court in Wellbutrin recognized the viability of the "alternate settlement" method of proving causation, In re Wellbutrin XL Antitrust Litig. , 133 F.Supp.3d 734, 757 & n.2 (E.D. Pa. 2015), but rejected the theory on the facts of that case where there were "no facts in the summary judgment record" to support it. Id. at 757. The evidence there was expressly to the contrary; the record was replete with evidence that the generic manufacturer would not settle absent a no authorized generic (AG) agreement. Id. On appeal, the Third Circuit agreed that alternate settlement scenarios can support causation, but that evidence was required to support such a theory and it could not rest on "pure speculation." Wellbutrin , 868 F.3d at 167 & n.57.
Relatedly, defendants argue that plaintiffs' alternate theory-that some other settlement would have been reached-is an impermissible attempt to show cognizable harm by arguing "that the parties might have elected a different settlement agreement more favorable to competition and consumers." In re Cipro Cases I & II , 61 Cal. 4th at 150 n.10, 187 Cal.Rptr.3d 632, 348 P.3d 845. But plaintiffs are not attempting to require (or show) that defendants should have settled on terms that are the most favorable to consumers. Instead, they are positing an alternative settlement scenario that shows but-for the reverse-payment agreement, the parties would have reached a settlement that was still anti-competitive and caused unjustified harm to consumers.
In addition to Cipro , defendants rely on other cases (arising primarily in the legal malpractice context, not in reverse-payment cases) to argue that "alternative settlement" scenarios are generally not cognizable. See Defs. MSJ at 26-27. Those cases are inapposite. In the antitrust context, where but-for worlds are considered and profit-maximizing goals assumed, there is by necessity second-guessing involved, although that second-guessing has to be supported by evidence as discussed below. A similar concept has been adopted in patent litigation, where reasonable royalties have to be constructed based on hypothetical negotiations. See, e.g. , Fujifilm Corp. v. Motorola Mobility LLC , No. 12-CV-03587-WHO, 2015 WL 1737951, at *2 (N.D. Cal. Apr. 8, 2015) ("The hypothetical negotiation is a legal construct that 'attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began.' " (quoting Lucent Technologies, Inc. v. Gateway, Inc. , 580 F.3d 1301, 1324 (Fed.Cir. 2009) ).
b. Whether There is Sufficient Evidence to Survive Summary Judgment
Plaintiffs' experts identify various "no payment" settlements providing Watson with early access at different dates that would still have been in defendants' favor and still have caused plaintiffs injury (i.e. , could not be justified by procompetitive reasons); the Retailer Plaintiffs rely on the economic analysis of Dr. Keith B.
Leffler and the remaining plaintiffs rely on Professor Einer Elhauge. Elhauge concludes that the hypothetical licensed entry date would have been October 26, 2012. Elhauge Report [Dkt. No. 783-2] ¶ 139. Leffler concludes that January 3, 2013 is the hypothetical early-entry date to which defendants would have agreed. Leffler Report [Dkt. No. 278-2] ¶ 37.
Defendants argue that Elhauge's opinions-based on estimated bargaining strength (tied to the actual Settlement terms) that is then applied to the hypothetical negotiation-are based on unreasonable assumptions about finances and risk. In particular, defendants challenge Elhauge's use of the actual Settlement to estimate bargaining power in a "very different" hypothetical settlement.
Defendants challenge Leffler's different approach-calculating entry dates by valuing the parties' expectation of profits from an early-entry only settlement as opposed to continued litigation-as based only on an inference that otherwise unjustified delay exists from the existence of the unjustified large reverse payment. Such an inference was found to be insufficient in Wellbutrin , 133 F.Supp.3d at 757-58.
Finally, defendants challenge both Elhauge's and Leffler's lack of experience with real world negotiations in general and HWA settlement negotiations in particular as grounds to find their testimony speculative and insufficient to support summary judgment.
Plaintiffs respond that Elhauge's analyses are based on the accepted-in-antitrust law proposition that parties are profit-maximizing, meaning that no party would agree to a settlement unless the settlement payoff exceeded its litigation payoff. Starting from this proposition, and using the terms of the Settlement agreed to and the companies' own profit projections, Elhauge calculated that if Endo thought it had more than a 15.1% chance of winning, it would not have rationally agreed to the actual Settlement. Elhauge Report ¶¶ 6, 147. Then he considered the various possible strengths each party could have rationally had with respect to the litigation, to produce a range of feasible no-reverse-payment-settlement early entry dates that still would have provided each party with a payoff exceeding its litigation payoff. Plaintiffs explain that Leffler's analyses, while different, are also firmly rooted in economic theory and tied to the facts in this case. Leffler used economic literature analyzing settlements, but then also calculated Endo's profits from winning versus losing the patent litigation and weighted those expectations based on the objective expectations provided by Adelman.
Both of these case-based analyses-applying accepted principles in antitrust law and settlement analysis to evidence in this case-are different than what happened in Wellbutrin . There, the expert provided no testimony that an alternate settlement would have been reached nor described what that settlement would have looked like. 133 F.Supp.3d at 757-58. Here, as noted above, both experts' approaches are fully consistent with the principles applied in but-for damage calculations. See, e.g., Dolphin Tours, Inc. v. Pacifico Creative Serv., Inc. , 773 F.2d 1506, 1511 (9th Cir. 1985) (plaintiffs "must presume the existence of rational economic behavior in the hypothetical free market."); see also Murphy Tugboat Co. v. Crowley , 658 F.2d 1256, 1262 (9th Cir. 1981) ("economic rationality must be assumed for all competitors, absent the strongest evidence of chronic irrationality").
Defendants do not point to any specific evidence considered or assumptions made by the experts that are contrary to evidence in the record. See, e.g., In re Online DVD-Rental Antitrust Litig. , 779 F.3d 914, 924 (9th Cir. 2015) ("Subscribers' experts' testimony is contrary to the undisputed market facts."); Pennsylvania Dental Ass'n v. Med. Serv. Ass'n of Pennsylvania , 745 F.2d 248, 261 (3d Cir. 1984) (expert affidavit that expressed opinion based on specific factual assertions for which no support was provided, could not defeat summary judgment). At most defendants criticize plaintiffs' experts for failing to consider or adequately consider certain points they believe are significant (e.g., risk adversity); those sorts of disagreements are the subject for cross-examination.
Plaintiffs, through their experts, have applied evidence from the record in this case to posit alternative early entry settlement dates in support of their second causation theory. While defendants challenge their methodologies, defendants have not shown that their conclusions are contradicted by undisputed evidence in the record. Defendants' motion for summary judgment on the second causation theory is DENIED.
II. DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT RE CAUSATION/MANUFACTURING
In the alternative, defendants move for partial summary judgment arguing that undisputed evidence demonstrates that Watson could not have launched its generic earlier than December 17, 2012, and defendants' conduct (if anticompetitive) could not have caused plaintiffs any alleged injury before that date. Defs. Mot. for PSJ [Dkt. No. 794].
Plaintiffs do not oppose and do not intend to argue or show that they suffered any injury prior to December 17, 2012. Pls. Oppo. to Mot. for PSJ at 1 [Dkt. No. 814]. Accordingly, I GRANT defendants' partial motion under Rule 56(g) finding that: (i) Watson could not have launched generic Lidoderm any earlier than December 17, 2012, and (ii) defendants' alleged conduct could not have caused plaintiffs injury prior to that date. Dkt. No. 794-21.
Plaintiffs ask me to go further to find that there is no genuine dispute under Rule 56(a) or (g) that: (i) Watson had 23 million patches manufactured by March 26, 2013 in the actual world (i.e. , the world with the reverse payments), and thus it would have had at least that many patches by that date in the but-for world (i.e., the hypothetical world absent the delay caused by the reverse payments), and (ii) 23 million patches is what Watson contemporaneously considered to be the number with which it would launch its generic Lidoderm patches. Id.
Defendants oppose plaintiffs' request as procedurally improper and also argue that disputes of material fact preclude the findings plaintiffs seek. Defs. Reply ISO MPSJ at 2 [Dkt. No. 850].
First, defendants argue that there are disputes of fact whether Watson would have manufactured generic Lidoderm in the but-for world at the same rate as it did in the actual world. According to defendants, Watson's manufacturing difficulties required Watson to pause its production of generic Lidoderm in June 2012; after technical and operational fixes, it resumed production in September 2012. Plaintiffs' position is that absent the Settlement, Watson would not have paused to make those fixes and continued production. Defendants respond that even if that is correct, the level of production would have continued to be slow (much slower than it was in the actual world after the fix) and Watson would not have had 23 million patches until July 21, 2013. Amended Expert Report of Benoit Cossart [Dkt. No.794-10] ¶¶ 95-97; see also Depo. Tr. of John Spigiel [Dkt. No. 850-4] at 242-243 (production of 23 million patches by March 2013 was due in part to the ability to fix technical issues). The Cossart and Spigiel testimony raise a dispute of material fact precluding a finding under Rule 56(g).
As to the amount of patches Watson wanted to have at launch, 23 million patches (launch quantities plus 4 weeks of inventory) or 35 million patches (launch quantities plus 12 weeks inventory), plaintiffs rely on testimony from Watson's plant General Manager Spigiel that "sufficient quantities" for launch, 23 million patches, were not achieved until March 2013 and that Watson documents show that 23 million patches was the forecasted launch quantity. Pls. Oppo. to Defs. MSJ re Causation at 4-6. Defendants respond that a "typical" launch would have required 12 weeks of supply, relying on the testimony of then-Assistant Director of Materials Lee Lamborn, who also testified that he could not recall a launch where Watson had less product on hand. The documents plaintiffs rely on, according to defendants, address a reduced launch supply and show that the launch target for Lidoderm was a moving target. Again, the differing interpretations of the documents at issue and related testimony raise a material dispute of fact for the jury precluding a finding under Rule 56(g).
Defendants' motion for partial summary judgment on this limited issue is GRANTED and plaintiffs' attempted-cross motion is DENIED.
III. PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT
Plaintiffs move for partial summary judgment seeking to establish: (i) the "contract, combination, or conspiracy" elements of their Section 1, Section 2, and state law conspiracy to monopolize claims is satisfied by the Agreement; and (ii) the composition of the relevant antitrust product and geographic markets is lidocaine 5% patches (both in branded and generic forms) sold in the United States. In the alternative, plaintiffs move under Rule 56(g) to establish the same facts for trial.
A. Agreement, Conspiracy, or Combination Element
Plaintiffs argue that the Settlement Agreement, signed by all three defendants, satisfies the "contract, combination, or conspiracy" elements of their Section 1, Section 2, and state law conspiracy to monopolize claims. Defendants do not dispute this, although they do dispute the significance, lawfulness, and effect of the various provisions in that Agreement. Def. Oppo. to MSJ [Dkt. No. 812] at 25. Plaintiffs' motion is GRANTED on this issue.
B. Antitrust Product Market
Plaintiffs seek summary judgment defining the relevant antitrust product market as limited to lidocaine 5% patches; in other words, Lidoderm and its generics. Defendants oppose and contend that the market should include a host of other pain medications that come in various forms including nonsteroidal anti-inflammatory drugs (NSAIDs) like ibuprofen and Celebrex, anticonvulsants like Lyrica, antidepressants like Cymbalta, muscle relaxers like Flexeril, opiods like tramadol, and topical anesthetic creams and gels like Qutenza.
Plaintiffs argue that there is no cross-elasticity of demand between Lidoderm and any other product (other than generic Lidoderm ), and that therefore as a matter of law the relevant market is limited to Lidoderm and its generics. They contend that defendants' experts did not consider the key and necessary legal issue of cross-elasticity of demand at all. Defendants counter that cross-elasticity of demand is relevant but not required to determine the relevant product market, and that other considerations-including evidence that other products are therapeutically similar and evidence about non-price competition in the pharmaceutical industry-are relevant to the determination of the product market to be decided by the jury. Even if cross-elasticity is a required element, defendants argue their expert made evidence-based inferences about cross-elasticity that likewise raise material issues of fact precluding summary judgment on the product market definition.
1. In General
"The elements of a cause of action for an unreasonable restraint of trade under the rule of reason analysis" are: "(1) An agreement among two or more persons or distinct business entities; (2) Which is intended to harm or unreasonably restrain competition; (3) And which actually causes injury to competition." Kaplan v. Burroughs Corp. , 611 F.2d 286, 290-91 (9th Cir. 1979) (citing Times-Picayune Publishing Co. v. United States , 345 U.S. 594, 615, 73 S.Ct. 872, 97 L.Ed. 1277 (1953) ). "Proof that the defendant's activities had an impact upon competition in a relevant market is an absolutely essential element of the rule of reason case." Id. at 291. Defining the appropriate market is key because "[i]t is the impact upon competitive conditions in a definable product market which distinguishes the antitrust violation from the ordinary business tort." Id.
Determination of the relevant market is typically a fact-intensive inquiry, involving "identification of the field of competition: the group or groups of sellers or producers who have actual or potential ability to deprive each other of significant levels of business....This definitional process is a factual inquiry for the jury; the court may not weigh evidence or judge witness credibility." Thurman Indus., Inc. v. Pay 'N Pak Stores, Inc. , 875 F.2d 1369, 1374 (9th Cir. 1989). Here, however, plaintiffs contend summary judgment is warranted because defendants cannot show that a material dispute of fact exists on a necessary element; cross-elasticity of demand between 5% lidocaine patches and the products defendants contend should be included in the relevant market.
2. Cross-Elasticity of Demand
Plaintiffs' motion hinges on the position that cross-elasticity of demand must be present between a defendant's product and other products for those other products to be "reasonably interchangeable" and included in the antitrust product market. Cross-elasticity of demand occurs where "an increase in the price of one product leads to an increase in demand for another, both products should be included in the relevant product market." Olin Corp. v. F.T.C. , 986 F.2d 1295, 1298 (9th Cir. 1993). "The determination of what constitutes the relevant product market hinges, therefore, on a determination of those products to which consumers will turn, given reasonable variations in price." Lucas Automotive Engineering, Inc. v. Bridgestone/Firestone, Inc. , 275 F.3d 762, 767 (9th Cir. 1997) ; see also Forsyth v. Humana, Inc. , 114 F.3d 1467, 1483 (9th Cir. 1997), aff'd , 525 U.S. 299, 119 S.Ct. 710, 142 L.Ed.2d 753 (1999), overruled on other grounds by Lacey v. Maricopa Cty. , 693 F.3d 896 (9th Cir. 2012) ("A high cross elasticity of demand indicates that products are close substitutes, and should probably be treated as part of the same market. A low or zero cross elasticity of demand is evidence that products do not compete in the same relevant market.").
Numerous cases have recognized the importance of cross-elasticity to determining what products should be included in or excluded from the relevant antitrust market. See, e.g., Gorlick Distribution Centers, LLC v. Car Sound Exhaust Sys., Inc. , 723 F.3d 1019, 1025 (9th Cir. 2013) ("Instead, products must be reasonably interchangeable, such that there is cross-elasticity of demand." (citing Brown Shoe Co. v. United States , 370 U.S. 294, 325, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962) ) ; Spindler v. Johnson & Johnson Corp. , No. C 10-01414 JSW, 2011 WL 12557884, at *2 (N.D. Cal. Aug. 1, 2011) ("Using these factors, products may be considered 'reasonably interchangeable,' where there is cross-elasticity of demand, i.e. if customers would switch to alternatives in response to a price increase in the alleged monopolist's product." (citing Rebel Oil, Co. v. Atlantic Richfield Co. , 51 F.3d 1421, 1436 (9th Cir. 1995) ); Pinnacle Sys., Inc. v. XOS Techs., Inc. , No. C-02-03804-RMW, 2003 WL 21397845, at *7 (N.D. Cal. May 19, 2003) (" 'alleged product market must (1) include all products reasonably interchangeable, determination of which requires consideration of cross-elasticity of demand' ") (quoting Intellective, Inc. v. Massachusetts Mut. Life Ins. Co. , 190 F.Supp.2d 600, 609 (S.D.N.Y. 2002) ); see also Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc. , 375 F.3d 1341, 1364 (Fed. Cir. 2004), rev'd on other grounds by 546 U.S. 394, 126 S.Ct. 980, 163 L.Ed.2d 974 (2006) ("Nothing in the record addresses whether potential customers of the patented process faced with a price increase would shift to other processes offering different combinations of benefits. [ ] This determination, however, lies at the heart of market definition in antitrust analysis."); Telecor Commc'ns, Inc. v. Sw. Bell Tel. Co. , 305 F.3d 1124, 1131 (10th Cir. 2002) ("The basic relevant product market test is 'reasonable interchangeability.'....Interchangeability may be measured by, and is substantially synonymous with, cross-elasticity."); United States v. Microsoft Corp. , 253 F.3d 34, 53-54 (D.C. Cir. 2001) ("The test of reasonable interchangeability, however, required the District Court to consider only substitutes that constrain pricing in the reasonably foreseeable future, and only products that can enter the market in a relatively short time can perform this function."); Brookins v. Int'l Motor Contest Ass'n , 219 F.3d 849, 854 (8th Cir. 2000) ("But that assertion requires proof there is no cross-elasticity of demand between this game and other games that modified car racers might choose to play."); Thurman Indus. , 875 F.2d at 1374 ("a product market is typically defined to include the pool of goods or services that qualify as economic substitutes because they enjoy reasonable interchangeability of use and cross-elasticity of demand."); Oltz v. St. Peter's Cmty. Hosp. , 861 F.2d 1440, 1446 (9th Cir. 1988) ("The product market includes the pool of goods or services that enjoy reasonable interchangeability of use and cross-elasticity of demand."); Hayden Pub. Co. v. Cox Broad. Corp. , 730 F.2d 64, 70-71 (2d Cir. 1984) ("There is persuasive authority for interpreting [United States v. E.I. ] du Pont [de Nemours & Co. , 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264 (1956) ] as requiring consideration of cross-elasticity of demand in determining an appropriate market definition....We are persuaded that, as a general rule, the process of defining the relevant product market requires consideration of cross-elasticity of demand.").
The Ninth Circuit has specifically acknowledged that "[t]he principle most fundamental to product market definition is 'cross-elasticity of demand' for certain products or services. Commodities which are 'reasonably interchangeable' for the same or similar uses normally should be included in the same product market for antitrust purposes." Kaplan, 611 F.2d at 291. The ABA's Model Jury Instruction in Civil Antitrust Cases (2016) uses the same concept:
To determine whether products are reasonable substitutes for each other, you must consider whether a small but significant and non-transitory increase in the price of one product would result in enough customers switching from that product to another product such that the price increase would not be profitable. In other words, will customers accept the price increase or will so many switch to alternative products that the price increase will be withdrawn? Generally speaking, a small but significant and non-transitory increase in price is approximately a 5 percent increase in price not due to cost factors [but you may conclude in this case that some other percentage is more applicable to the product at issue]. If you find that customers would switch and that the price increase would not be profitable, then you must conclude that the products are in the product market. If, on the other hand, you find that customers would not switch, then you must conclude that the products are not in the product market.
Instruction 4: Relevant Product Market, Model Jury Instructions in Civil Antitrust Cases ABA (2016) at 108.
Defendants respond that given the unique characteristics of the pharmaceutical market-primarily the prevalence of non-price methods of competition as well as that prescribing physicians do not typically consider price when prescribing drugs-cross-elasticity of demand is not required. Instead, they argue that evidence of reasonable interchangeability (therapeutic equivalency) with other pharmaceutical products used to treat the conditions Lidoderm was prescribed to treat is the more relevant factor that should determine the antitrust product market here.
In support, defendants rely on two experts: Dr. Gregory K. Bell and Dr. Christopher J. Gilligan. Gilligan, a pain medicine specialist, provided a report identifying the clinical uses of Lidoderm and products that could be substituted for those clinical uses in place of Lidoderm. Gilligan Report [Dkt. No. 776-32]. Gilligan admits that Lidoderm was approved by the FDA to treat postherpetic neuralgia (PHN), but contends it is also "frequently prescribed" to treat other neuropathic, musculoskeletal and myofascial pain conditions, as well as pain associated with arthritis and other miscellaneous pain conditions. Id. ¶ 18. When using Lidoderm to treat musculoskeletal/myofascial pain, Gilligan opines that "physicians will often consider Lidoderm to be interchangeable with the following prescription and over-the-counter ('OTC') medications: lidocaine gel/ointment/cream, topical and systemic non-steroidal anti-inflammatory drugs ('NSAIDs'), acetaminophen, certain opioids and muscle relaxants. Id. ¶ 20. When treating pain associated with "arthritis, especially osteoarthritis, physicians consider Lidoderm to be interchangeable with lidocaine gel/ointment/cream, topical NSAIDs, such as Voltaren Gel or Flector Patch, and systemic NSAIDs such as Aleve, Advil or Motrin, Celebrex, and Tylenol." Id. ¶ 21. When treating "PHN and other neuropathic pain conditions, physicians may consider Lidoderm to be interchangeable with topical lidocaine gel/ointment/cream, capsaicin creams and patches, systemic nerve pain medications including anticonvulsants (such as Neurontin and Lyrica), antidepressants (such as Nortriptyline, Amitriptyline, and Cymbalta ), acetaminophen, and as well as opioids (particularly tramadol )." Id. ¶ 22.
Using the information from Gilligan, actual prescription data, and additional other sources showing Lidoderm could be interchanged with other treatments-including clinical guidelines and formulary placements-Bell agreed that Lidoderm was not only used to treat PHN but also used "extensively" to treat other forms of neuropathic pain, pain from arthritis, and musculoskeletal pain. Bell Report [Dkt. No. 776-8] ¶ 6. As a result, according to Bell and defendants, the relevant antitrust product market includes "the primary competitors from each of these four categories of significant Lidoderm use." Id. Those "primary competitors" include, "at least the following: the opioid Ultram (tramadol ); the anticonvulsants Neurontin (gabapentin ) and Lyrica (pregabalin); the antidepressant Cymbalta (duloxetine ); the muscle relaxant Flexeril (cyclobenzaprine ); the nonsteroidal anti-inflammatory drugs ("NSAIDs") Celebrex (celecoxib ), diclofenac (including Voltaren Gel), ibuprofen, Mobic (meloxicam ), and naproxen ; and the topical anesthetics capsaicin (Qutenza and Zostrix ) and lidocaine (including cream, gel, and ointment formulations)." Id. Based on his review of evidence, Bell concluded that "Lidoderm's share of prescriptions among these products from 2011 through 2014 is 13 percent for PHN and no more than two percent otherwise." Id. ¶ 83.
In support of this broad market definition, defendants also rely on Endo documents showing how Lidoderm was marketed and promoted with managed care organizations (MCOs) and healthcare organizations as well as doctors. Those documents show that Endo made efforts to convince physicians to prescribe Lidoderm over other the other drugs, including Neurontin, Lyrica, capsaicin, topical aspirin formulations, lidocaine gel, and Qutenza. Asimow Decl. [Dkt. No. 812-1] Ex. 6, at ENDO-LID-AT-000967095 (identifying the competitive marketplace for PHN treatments). Finally, defendants also note that Endo monitored Lidoderm prescriptions and market share compared to Lyrica, branded and generic Neurontin, and Qutenza Asimow Decl. Ex. 3, at slides 9-14.
Defendants' analysis-essentially ignoring cross-elasticity-creates a vastly overbroad market that includes a host of different classes and types of drugs that are different from the "unique" 5% lidocaine patches. As the Supreme Court has cautioned: "For every product, substitutes exist. But a relevant market cannot meaningfully encompass that infinite range. The circle must be drawn narrowly to exclude any other product to which, within reasonable variations in price, only a limited number of buyers will turn; in technical terms, products whose 'cross-elasticities of demand' are small."
Times-Picayune Pub. Co. v. United States , 345 U.S. 594, 612, 73 S.Ct. 872, 97 L.Ed. 1277 (1953).
Indeed, even where products are essentially identical, that alone is insufficient to require their inclusion in the relevant market. See, e.g. , U.S. Anchor Mfg., Inc. v. Rule Indus., Inc. , 7 F.3d 986, 996 (11th Cir. 1993) (excluding from the market functionally similar products where the "record provides no support for finding significant cross-elasticity of demand or supply between Danforths and generic anchors"); United States v. Archer-Daniels-Midland Co. , 866 F.2d 242, 248 (8th Cir.1988) (functionally interchangeable sweeteners were separate product markets because "a small change in the price of [one] would have little or no effect on the demand for [the other]"); cf. In re Loestrin 24 Fe Antitrust Litig. , No. 1:13-MD-2472-S-PAS, --- F.Supp.3d ----, ----, 2017 WL 3600938, at *12 (D.R.I. Aug. 8, 2017) ("Products are not reasonably interchangeable merely because they share similar forms or functions, but rather '[s]uch limits are drawn according to the cross-elasticity of demand for the product in question-the extent to which purchasers will accept substitute products in instances of price fluctuation and other changes.' " (quoting In re Nexium (Esomeprazole) Antitrust Litig. , 968 F.Supp.2d 367, 387-88 (D. Mass. 2013) ); F.T.C. v. Swedish Match , 131 F.Supp.2d 151, 158 (D.D.C. 2000) ("while loose leaf and moist snuff tobacco are not identical, in light of substantial similarities between them and in light of the rising trend in dual usage by consumers, the Court ultimately finds the products to be functionally interchangeable for the purpose of outlining the relevant product market. Finding two products to be functionally interchangeable, however, does not end the analysis" and rejecting inclusion in same market where no evidence of cross-elasticity of demand).
Defendants point to no cases arising in the pharmaceutical context where courts (or juries) have defined the relevant product market as broadly as they seek here. Indeed, in the pharmaceutical context courts have limited the market to similar classes of drugs or even more narrowly, down to the brand product itself in absence of cross-elasticity evidence. See, e.g. , SmithKline Corp. v. Eli Lilly & Co. , 575 F.2d 1056, 1064 (3d Cir. 1978) (despite a certain degree of functional interchangeability among antibiotics, specific class of antibiotics was separate product market based on court's finding that there was a lack of price sensitivity and cross-elasticity of demand); see also F.T.C. v. Lundbeck, Inc. , 650 F.3d 1236, 1240 (8th Cir. 2011) (affirming decision to exclude from relevant market two functionally similar drugs because of lack of cross-elasticity of demand; "When the case was tried, Indocin IV and NeoProfen were the two drug treatments available for PDA. Aware of the drug options-the 'practicable alternatives'-the neonatologists preferred one treatment or the other (without regard for cost), which the court credited as persuasive evidence of low cross-elasticity."); Geneva Pharm. Tech. Corp. v. Barr Labs. Inc. , 386 F.3d 485, 496 (2d Cir. 2004) (bioequivalent, functionally-interchangeable branded and generic drugs were in separate product markets); see also In re Lorazepam & Clorazepate Antitrust Litig. , 467 F.Supp.2d 74, 82 (D.D.C. 2006) (reasonable jury could conclude that the relevant antitrust market was comprised of only generic manufacturers where trial testimony was that generic manufacturers did not consider brand price in setting their own prices, both sides' experts testified that generics competed in a different market than the branded manufacturers, and where evidence was that brand and generic drugs had different consumer bases and were promoted and marketed differently).
Defendants' heavy reliance on Mylan Pharm. Inc. v. Warner Chilcott Pub. Ltd. Co. , 838 F.3d 421, 436 (3d Cir. 2016) is misplaced. There, the Third Circuit approved the district court's extensive focus on product interchangeability and refusal to limit the at issue market to just one oral tetracycline and its generic and instead approved a much broader market consisting of "all oral tetracyclines prescribed to treat acne." Id. at 436. But the court's analysis did not end there. It noted that "[i]nterchangeability is only one aspect of establishing a relevant antitrust market through indirect evidence," and that the evidence of cross-elasticity of demand between Doryx and other tetracyclines supported the broader adopted market definition. Id. at 437.
Consistent with the bulk of the case law, something more than mere therapeutic equivalency is required to define the relevant antitrust product market. There must be some showing of cross-elasticity. This conclusion is supported by the undisputed facts in this case: Endo and Teikoku have repeatedly characterized Lidoderm as a unique product with unique advantages. See, e.g., Asimow Decl., Ex. 6, at ENDO-LID-AT-000967095 ("LIDODERM is the first and only lidocaine-based topical medication with FDA approved indication for the treatment of PHN pain. Furthermore by minimizing systemic exposure topical lidocaine reduces the risk of systemic side effects."). In the underlying '529 Patent litigation Edgar Ross, M.D. opined on behalf of Endo and Teikoku that Lidoderm was unique: "[Lidoderm ] was a unique drug and delivery system combination...." Kohn Decl. [Dkt. No. 776], Ex. DD at ¶¶ 2-4; see also id. at ¶ 9 ("there are no satisfactory substitutes for Lidoderm as a highly safe, effective, and convenient topical treatment for neuropathic pain....[T]he unique benefits of LIDODERM's patch formulation have made it highly successful in the treatment of PHN and other types of pain."). Brian Lortie, Endo's President of Branded Pharmaceuticals Business, testified to the FTC that "Lidoderm was unique in the attributes that it presents to a physician and to a patient as they're seeking a therapy for which they are considering products. It's the only topical patch, for example. ...So there really is not another product that is exactly like Lidoderm....Lidoderm is really a unique product." Kohn Decl., Ex. EE at ENDO-LID-AT-000005144-46; see also id. at ENDO-LID-AT-000005148 ("Lidoderm really had a distinct positioning in [physicians'] minds.").
The market for determining monopoly power cannot be stretched as far as defendants seek. This is why numerous courts have required some showing of cross-elasticity of demand between products before including them in the same market. Defendants' argument loses focus on the question at hand, which is defining the appropriate market to determine defendants' power to engage in monopolistic behavior.
Defendants argue that instead of cross-elasticity (following a showing of therapeutic equivalency), the jury is entitled to rely on the practical indicia the Supreme Court identified in Brown Shoe for identifying submarkets. Def. Oppo. to Pls. MPSJ at 7. Putting aside the fact that defendants have not identified a submarket, but instead argue for a broad initial market, these practical indicia do not support defendants. The "fact-intensive" practical indicia recognized by Brown Shoe (and subsequent Ninth Circuit cases)-the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors-support limiting the relevant antitrust market here to Lidoderm and its generics. Brown Shoe Co. , 370 U.S. at 325, 82 S.Ct. 1502. There is no dispute that during the relevant time, Lidoderm was the only hydrogel 5% lidocaine patch on the market, and the evidence readily shows (without dispute) that Lidoderm required distinct production facilities and capabilities, had distinct prices that were not set with respect to any other drug, and employed specialized sales channels.
The only "practical indicia" relied on by defendants is the evidence that generally in the pharmaceutical market, competition occurs on non-price fronts in order to get physicians to prescribe and MCOs and pharmacy benefit managers (PBMs) to cover and include specific drugs in their formularies. As a result, Endo heavily marketed its products to physicians (including extensive use of free samples) and used rebates and other price concessions with MCOs and PBMs to encourage adoption and inclusion of Lidoderm. Defendants cite evidence that Endo consistently tracked its sales/prescriptions of Lidoderm in comparison with therapeutically similar products, primarily anticonvulsants (like Lyrica) and the Qutenza (capsaicin ) patch. But defendants do not show that the availability of those other products forced Endo to limit its Lidoderm price or otherwise constrained Endo's pricing. That Endo has evidence that physicians and MCOs were concerned about the "high" price of Lidoderm and prescribed more or made more available where prices were lower or significant rebates were provided does not mean that the other products on the market for treatment of PHN and other pain conditions constrained the price of Lidoderm. It simply shows that, in order to grow the market for what defendants repeatedly characterize as a unique product, price concessions and rebates for Lidoderm were necessary.
3. Evidence of Lack of Cross-Elasticity
Plaintiffs rely on their experts' analyses that conclude that there is no evidence of any significant cross-elasticity of demand between Lidoderm and other pharmaceuticals. For example, Dr. Jeffrey J. Leitzinger opines, based on Endo and Teikoku's own documents and testimony, that there is little cross-elasticity between Lidoderm and other pain treatments, with the exception of generic Lidoderm. Kohn Decl., Ex. C, Leitzinger Report [Dkt. No. 776-3] at ¶¶ 44-51. He also relies on an analysis of the price differential between brand Lidoderm (when no generic was on the market) and brand Lidoderm (when generics entered). Id. ¶¶ 57-67 (no product other than generic Lidoderm exhibited substantial cross-elasticity of demand with Lidoderm ). Dr. Hal J. Singer reviewed price data of Lidoderm, as compared to that of seven PHN treatment drugs that Endo identified as "competitors," and concluded that sales of the competitor drugs were unfazed by changes in the relative price of Lidoderm. Kohn Decl., Ex. D, Singer Report [Dkt. No. 776-4] at ¶¶ 47-51.
Dr. Keith Leffler opines, based again on Endo's own internal documents and projections as well as on his review of sales and price data, that other products used to treat PHN do not have high cross elasticities of demand with Lidoderm. Kohn Decl., Ex. E, Leffler Report [Dkt. No. 776-5] at ¶¶ 27-46. Dr. Glenn Melnick opines that the unique method of administration (transdermal patch) distinguishes Lidoderm from other PHN treatments and that Endo's ability to maintain "inflated" prices demonstrates that there are no constraints on the price of Lidoderm from other products. Kohn Decl., Ex. F, Melnick Report [Dkt. No. 776-6] at ¶¶ 88-91. Finally, plaintiffs also rely on Endo's own evidence and testimony that Endo did not forecast or expect that wholesale acquisition cost (WAC) price increases would result in Endo losing sales to other drugs. See, e.g. , Kohn Decl., Ex. I, Depo. Tr. Brian Lortie [Dkt. No. 776-9] at 254; Kohn Decl., Ex. N, Depo. Tr. Andrew Gesek [Dkt. No. 776-14] at 194.
If evidence on price competition is required, defendants argue that they have it. Bell analyzed Lidoderm's"own price elasticities" to show that when rebates to MCOs/PBMs decreased, utilization decreased and vice-versa. Bell Report ¶¶ 71-74. Plaintiffs respond that evidence of one's "own price elasticities" is not sufficient to allow inclusion of other , uncompared-on-price products in the relevant antitrust product market. For example, that Endo increased its price concessions to MCO's from 2008 through 2013 (before generic entry) does not necessarily show that Endo was in price competition with other drugs. It could equally reflect that Endo decided to provide rebates in order to encourage MCOs to continue to provide access (or preferred access) to Lidoderm in their formularies and to increase profits by taking measures to increase the ultimate number of prescriptions by providing larger rebates to MCOs.
Defendants then challenge plaintiffs' experts' evidence on lack of cross-elasticity as deficient and argue that it cannot support summary judgment. The primary deficiency identified by defendants is that plaintiffs' experts-particularly Singer-relied on wholesale acquisition cost (WAC or list price) as opposed to net price (after rebates or other incentives). Defs. Oppo. to Pls. MPSJ at 21-24. Defendants contend that net prices are what matters, given the significant level of rebates and other incentives provided to MCOs. Bell Report ¶¶ 88, 98. Plaintiffs respond that Singer testified that at least for Lidoderm, increases in the WAC closely correlated with changes in net price. As a result, his use of WAC does not undermine his analysis. Asimow Decl., Ex. 8 (Singer Depo. Tr.) at 675:20-676:10. In contrast, defendants' expert Bell asserted only "that growth in gross sales of Lidoderm outpaced the growth in net sales, indicating that gross prices grew faster than net price." Bell Report ¶ 88. While Bell criticized Singer's (and plaintiffs' other experts') reliance on WAC, Bell did not indicate or offer an analysis on how large the purported gap between those two was or address in substance Singer's analysis that changes in the gross and net prices were largely correlated. Bell Report ¶ 88.
In sum, plaintiffs present evidence that price data and sales data show that during the relevant time there was no significant cross-elasticity of demand between Lidoderm and any product other than generic Lidoderm. Those analyses are generally supported by defendants own documents and analyses. Defendants show, at most, an issue regarding Lidoderm'smarket share for PHN and pain treatment with respect to only a few of the drugs defendants believe should be included in the relevant antitrust market (and at most a limited concern over the price of Lidoderm with respect to the 2010 entry of one drug, Qutenza), but those discrete references are insufficient to raise a material question of fact on whether the availability of those drugs constrained the price charged for Lidoderm.
4. The Relevant Market
For the foregoing reasons, based on undisputed facts and total lack of evidence to show that Lidoderm's prices were constrained by therapeutically equivalent products, I conclude as a matter of law that the market is limited to 5% lidocaine patches, Lidoderm and its generic equivalents. Plaintiffs' motion for partial summary judgment in this issue is GRANTED.
IV. MOTIONS IN LIMINE
A. Legal Standard
Federal Rule of Evidence 702 allows a qualified expert to testify "in the form of an opinion or otherwise" where:
(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.
Fed. R. Evid. 702.
Expert testimony is admissible under Rule 702 if it is both relevant and reliable. See Daubert v. Merrell Dow Pharm., Inc. , 509 U.S. 579, 589, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). "[R]elevance means that the evidence will assist the trier of fact to understand or determine a fact in issue." Cooper v. Brown, 510 F.3d 870, 942 (9th Cir. 2007) ; see also Primiano v. Cook , 598 F.3d 558, 564 (9th Cir. 2010) ("The requirement that the opinion testimony assist the trier of fact goes primarily to relevance.") (internal quotation marks omitted).
Under the reliability requirement, the expert testimony must "ha[ve] a reliable basis in the knowledge and experience of the relevant discipline." Primiano , 598 F.3d at 565. To ensure reliability, the court must "assess the [expert's] reasoning or methodology, using as appropriate such criteria as testability, publication in peer reviewed literature, and general acceptance." Id. at 564. These factors are "helpful, not definitive," and a court has discretion to decide how to test reliability "based on the particular circumstances of the particular case." Id. (internal quotation marks and footnotes omitted). "When evaluating specialized or technical expert opinion testimony, the relevant reliability concerns may focus upon personal knowledge or experience." United States v. Sandoval-Mendoza , 472 F.3d 645, 655 (9th Cir. 2006).
The inquiry into the admissibility of expert testimony is "a flexible one" where "[s]haky but admissible evidence is to be attacked by cross examination, contrary evidence, and attention to the burden of proof, not exclusion." Primiano , 598 F.3d at 564. "When the methodology is sound, and the evidence relied upon sufficiently related to the case at hand, disputes about the degree of relevance or accuracy (above this minimum threshold) may go to the testimony's weight, but not its admissibility." i4i Ltd. P'ship v. Microsoft Corp. , 598 F.3d 831, 852 (Fed. Cir. 2010). The burden is on the proponent of the expert testimony to show, by a preponderance of the evidence, that the admissibility requirements are satisfied. Lust By & Through Lust v. Merrell Dow Pharm., Inc. , 89 F.3d 594, 598 (9th Cir. 1996) ; see also Fed. R. Evid. 702 Advisory Cttee. Notes.
B. Plaintiffs' Motions
1. Motion to Exclude in Part Bell
If plaintiffs' motion for partial summary judgment as to the definition of the relevant antitrust product market is denied, plaintiffs move to exclude the testimony regarding that market by defendants' expert Dr. Gregory K. Bell. Dkt. No. 778. However, as noted above, plaintiffs' motion is granted, thereby making moot Bell's testimony regarding the market definition and his criticisms of plaintiffs' experts' testimony relevant to price-elasticity and market definition. Other portions of Bell's testimony may still be relevant to issues to be decided at trial. What, if any, remaining issues Bell may address at trial can be determined on a motion in limine prior to trial.
2. Motion to Exclude in Part Carlton
Plaintiffs move to exclude in the testimony of Dr. Dennis Carlton, to the extent of his testimony regarding: (a) the possibility that after losing the patent trial against Watson, Endo might be able to obtain an injunction against Watson before any appellate ruling; and (b) whether and/or how F.T.C. v. Actavis, Inc. , 570 U.S. 136, 133 S.Ct. 2223, 186 L.Ed.2d 343 (2013) should be applied to the facts of this case. As to the first issue, plaintiffs argue that Carlton, as an economist, is not qualified to opine on whether had Watson won at trial (which both sides agree was the likely outcome), Endo/Teikoku could nevertheless have secured an injunction preventing Watson from entering the market. As to the second issue, plaintiffs argue that Carlton's opinion-that the inferences and burdens created by the Supreme Court in F.T.C. v. Actavis, Inc. , 570 U.S. 136, 133 S.Ct. 2223, 186 L.Ed.2d 343 (2013) should not apply in this case because in his view a cash payment (like the one in Actavis ) is competitively different than the $96 million worth of free branded Lidoderm that Endo gave to Watson-should be excluded because that is an impermissible legal conclusion and outside the realm of his expertise in economics.
Defendants respond that the "testimony" plaintiffs seek to exclude are not Carlton's central opinions. Carlton's central opinions are that: (i) accounting for the projected royalties associated with the no-AG clause, the clause is more rationally viewed as a payment from Watson, rather than a payment to Watson; (2) the settlement inventory had procompetitive features ignored by plaintiffs' experts because it "allowed Watson to compete in those situations where it would not have been able to otherwise" due to lack of FDA approval; and, in any event, (3) the settlement did not delay generic entry or otherwise harm competition relative to expected outcomes from continued patent litigation. Carlton Report, Asimow Decl., Ex. 4 [Dkt. No. 807-4] ¶¶ 46, 77, 94. As to the first issue identified by plaintiffs, defendants argue that the testimony plaintiffs are concerned with arose in Carlton's deposition where he described his opinions as "conserva tive" because they did not rely on Endo seeking and securing an injunction and because Carlton did nothing more than identify an injunction pending appeal as one possible factor but one he did not rely on in reaching his "conservative" opinion. As to the second issue, defendants characterize plaintiffs' concern as being one over deposition testimony they elicited but not part of Carlton's opinions. That said, defendants argue that because plaintiffs' experts testify that it is of no consequence as an economic matter that the free products and no-AG-competition provisions provided were "not payments," Carlton should be able to dispute that by arguing that the non-cash "payments" here were "competitively different" from an exchange of cash. Carlton Oppo. at 6.
The issue of an injunction is not central to Carlton's opinions and so plaintiffs' motion is DENIED, subject to renewal at trial if Carlton's testimony ventures into whether an injunction was possible or expected. On the purported significance between cash payments and other types of payments, the motion is GRANTED in part. No expert may opine that there is a legal significance to cash versus non-cash payments in reverse payment settlements. However, the expert economists can discuss any differences that various types of payments had or have on competition.
3. EPPs' Motion to Exclude Fritz
The EPPs renew their motion from class certification to exclude the opinion of John Fritz that health insurer members of the EPP class have not suffered any economic harm due to delayed-entry of a generic alternative for brand Lidoderm because any overcharges were passed on. Dkt. No. 769. The EPPs argue, again, that Fritz is not qualified to offer that opinion based on his general actuarial experience (a) because he lacks knowledge of how insurers set premiums or actual practices with respect to Lidoderm and (b) his opinion is based on the experience of one opt-out plaintiff (GEHA) and were not validated to any of the actual class members. The EPPs point out that I denied premium-related pass on discovery in April 2016, because there was, at that juncture, no evidence that any plaintiff insurer had been able to "recoup" amounts spent in the past on prescription drugs when setting employer contribution rates for the future. April 5, 2016 Minutes.
However, in ruling on the motions for class certification, I denied the motion to exclude Fritz, concluding:
The weight to be given Fritz's opinion (based on his experience, or lack thereof, and based on the information he did or did not review) is more appropriately challenged at summary judgment or trial. Moreover, while the relevance of Fritz's opinion has not been fully briefed or finally determined (although I have expressed skepticism that the "pass-on" defense will be allowed in this case at least with respect to the federal claims), as explained above the opinion is not persuasive in my determination of the EPPs' certification motion.
February 2017 Class Certification Order at 51-52.
Defendants rely on the fact that I did not exclude Fritz at the class certification stage and contend no new challenges to his testimony have been adduced by plaintiffs. Defendants also argue, again, that pass-on is a defense to many of the EPPs' state law claims. Fritz Oppo. [Dkt. No. 804].
I DENY the motion to exclude. Fritz has actuarial experience and understanding of how, at least in some instances, insurers negotiate and set premiums. Any deficiencies or weaknesses in his testimony based on a lack of facts or experience pertaining to how the EPPs in this case actually set premiums can be fully explored at trial. I will, however, accept a jury instruction to expressly limit any pass-on defense to the applicable state law claims. Plaintiffs are correct that defendants have not, at this juncture, shown that any type of pass-on defense is applicable to the direct purchaser federal claims.
4. Motion to Exclude in Part Moffitt
Plaintiffs move to exclude the testimony of Professor Michael Moffitt to the extent Moffitt proffers testimony to the effect that in the "but-for world," defendants might behave economically irrationally in negotiating a patent settlement without a large reverse payment. Moffitt Mot. [Dkt. No. 771]. Plaintiffs contend that Moffitt's testimony about negotiator irrationality (e.g. , that sometimes negotiators act irrationally and against their economic interests) creates a danger of unfair prejudice and is contrary to antitrust law's presumption that firms act rationally. Plaintiffs point to Moffitt's opinion that economically rational settlements might not be reached where:
parties might hold unrealistic views of the strengths of their case (Moffitt Report [Dkt. 771-8] at ¶¶ 66(a), (b)); "might fear to signal agreement" out of reputational concerns (id. ¶ 66(c)); might adopt a stubborn, "take-it-or-leave-it" approach (id. ¶ 66(d)); or might reject reasonable offers for a variety of other "psychological reasons." Id. ¶ 10. Plaintiffs assert that testimony about these "human factors" are improper in a trial where participants must be assumed to be rational profit-maximizers.
Defendants counter that since plaintiffs are contending (under their disputed second causation theory) that defendants would have negotiated a hypothetical settlement that bears