SUPREME COURT OF THE UNITED STATES

NO. ALB-13-01

____________________________________________________________________________________________________________________________________

GNB PHARMACEUTICALS, INC., Aldrin Generic Drug Co.

PETITIONERS

v.

ARCADIAN WHOLESALE CORP., Neighborhood Supermarket Co., et al.

RESPONDENTS

____________________________________________________________________________________________________________________________________

On Writ of Certiorari to the

United States Court of Appeals for the Fourteenth Circuit

__________________________________________________________________

BRIEF FOR PETITIONERS

__________________________________________________________________

ALB-13-01-P8

32


QUESTIONS PRESENTED

I. Whether the Court of Appeals erred in affirming the District Court’s class certification order, where the District Court failed to apply Daubert v. Merrell Dow Pharmaceuticals, Inc. and conduct a full inquiry into the relevance and reliability of expert testimony introduced to certify the class.

II. Whether the Court of Appeals erred by declining to impose scope of the patent review to Petitioners’ patent infringement settlement agreement, where the agreement reasonably implemented GNB’s rights under its presumptively valid patent, and where any residual anticompetitive effects of the agreement are ancillary to the settlement’s pro-competitive justifications.


TABLE OF CONTENTS

Questions Presented............................................i

Table of Contents.............................................ii

Table of Authorities...........................................v

Proceedings Below..............................................1

Statement of the Facts.........................................3

Summary of the Argument........................................5

Argument.......................................................7

I. THE COURT OF APPEALS ERRED WHEN IT AFFIRMED RESPONDENTS’ CLASS CERTIFICATION, BECAUSE THE DISTRICT COURT FAILED TO APPLY DAUBERT V. MERRELL DOW PHARMACEUTICALS, INC. AND CONDUCT A FULL INQUIRY INTO THE RELEVANCE AND RELIABILITY OF EXPERT TESTIMONY INTRODUCED TO CERTIFY THE CLASS.......7

A. Courts must apply Daubert to expert testimony introduced at the class certification stage...........8

1. Daubert applies to class certifications, because Rule 702 applies broadly and nothing in the Federal Rules of Evidence limits Rule 702’s scope............................................8

2. District courts must conduct a rigorous Rule 23 analysis, and Daubert is necessary for such rigorous analysis................................9

3. Wal-Mart Stores, Inc. v. Dukes suggests that Daubert applies to class certifications.........11

4. Refusal to apply Daubert to class certification proceedings increases the prospect of “blackmail settlements,” undermining fairness in civil proceedings.....................................13

B. Where a court must conduct a Daubert inquiry, the analysis must be full rather than limited............14

1. Rule 23 requires conclusive rulings on class certifications, and only full Daubert inquiries meet this requirement...........................15

2. Full Daubert inquiries preserve judicial efficiency by ensuring that cases do not needlessly proceed to trial.....................16

3. Full Daubert inquiries are consistent with the Seventh Amendment...............................17

II. THE COURT OF APPEALS ERRED BY DECLINING TO IMPOSE SCOPE OF THE PATENT REVIEW TO AN AGREEMENT WHICH REASONABLY IMPLEMENTS GNB’S RIGHTS UNDER THE ‘022 PATENT AND BY DECLINING, IN THE ALTERNATIVE, TO IMPOSE RULE OF REASON REVIEW....................................................18

A. Scope of the patent review sufficiently balances GNB’s rights under the ‘022 Patent against the policies of antitrust law and the pharmaceutical industry’s regulatory backdrop.................................19

1. Scope of the patent review is sufficient since the Agreement stays within the ‘022 Patent’s boundaries and does not implicate antitrust scrutiny.......................................19

a. GNB may exclude competitors under the ‘022 patent without incurring antitrust liability.................................19
b. The Agreement stayed within the ‘022 Patent’s exclusionary scope........................20

2. Scope of the patent review’s presumption that the ‘022 Patent is valid protects GNB’s intellectual property rights while representing the best balance of antitrust law, patent law, and the Hatch-Waxman Act...............................22

a. A presumption of the ‘022 Patent’s validity is necessary to protect GNB’s intellectual property rights...........................22

b. The presumption of patent validity creates an administrable standard for judicial review, which preserves bona fide settlements like the Agreement............23

c. Petitioners’ reliance on reverse payments to affect their settlement agreement is consistent with a presumption that the ‘022 Patent is valid...........................25

d. The goals of the Hatch-Waxman Act are consistent with a presumption that the ‘022 Patent is valid...........................27

B. To the extent that the Agreement and other reverse payment settlements implicate antitrust law, they impose ancillary restraints and therefore warrant full rule of reason review...............................28

1. The Agreement’s covenants restraining Aldrin’s ability to market MacLarian are ancillary restraints because they were reasonably necessary to conclude litigation.........................29

2. Per se and quick look review are inappropriate in light of the Agreement’s pro-competitive effects and the regulatory uncertainty imposed by the recent Hatch-Waxman Amendments.................30

Conclusion....................................................32

Appendix A...................................................A-1

Appendix B...................................................B-1

Appendix C...................................................C-1


TABLE OF AUTHORITIES

United States Supreme Court Cases

Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997)............7

AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011)........8

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)...............12

Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985)...........10

Cal. Dental Ass'n v. F.T.C., 526 U.S. 756 (1999)..........18, 31

Carlsbad Tech., Inc. v. HIF Bio, Inc., 556 U.S. 635 (2009)....10

Collegiate Athletic Ass'n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85 (1984)............................................19

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984)........................................................30

Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993)....................................................passim

Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326 (1980)........13

Eisen v. Charlisle & Jacquelin, 417 U.S. 156 (1974)...........10

Gen. Tel. Co. v. Falcon, 457 U.S. 147 (1982)...................9

Koon v. United States, 518 U.S. 81 (1996)......................7

Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007)........................................................30

Microsoft Corp. v. i4i Ltd. P'ship, 131 S. Ct. 2238 (2011)....23

Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 130 S. Ct. 1431 (2010)............................................12

Simpson v. Union Oil Co. of Cal., 377 U.S. 13 (1964)..........20

Texaco Inc. v. Dagher, 547 U.S. 1 (2006)......................30

United States v. Line Material Co., 333 U.S. 287 (1948).......21

Univ. of Tex. v. Camenisch, 451 U.S. 390 (1981)...............17

Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011)....passim

Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965)...............................................24

Other Federal Cases

Advanced Cardiovascular Sys., Inc. v. Scimed Life Sys., Inc., 261 F.3d 1329 (Fed. Cir. 2001)................................23

Am. Honda Motor Co. v. Allen, 600 F.3d 813 (7th Cir. 2010) (per curiam).......................................................14

Asahi Glass Co. v. Pentech Pharm., Inc., 289 F. Supp. 2d 986 (N.D. Ill. 2003)..............................................25

Bitler v. A.O. Smith Corp., 391 F.3d 1114 (3d Cir. 2004)......17

Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010), vacated, 131 S. Ct. 2541 (2011)...............................11

F.T.C. v. Watson Pharm., Inc., 677 F.3d 1298 (11th Cir. 2012), cert. granted, 133 S. Ct. 787 (2012)......................24, 25

In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323 (Fed. Cir. 2008).............................21, 25, 26, 29

In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008)..........................................................7

In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006).........................................................25

In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293 (7th Cir. 1995).........................................................13

In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604 (8th Cir. 2011)....................................................16

Messner v. Northshore Univ. Healthsystem, 669 F.3d 802 (7th Cir. 2012).........................................................15

Schering-Plough Corp. v. F.T.C., 402 F.3d 1056 (11th Cir. 2005).................................................21, 27, 29

Teva Pharm. Indus. Ltd. v. Crawford, 410 F.3d 51 (D.C. Cir. 2005).....................................................27, 30

Unger v. Amedisys Inc., 401 F.3d 316 (5th Cir. 2005)..........11

Valley Drug Co. v. Geneva Pharm., Inc., 344 F.3d 1294 (11th Cir. 2003).............................................19, 20, 21, 24

West v. Prudential Sec., Inc., 282 F.3d 935 (7th Cir. 2002).........................................................14

Federal Statutory Provisions

21 U.S.C. § 355(j)(5)(B) (2006)...............................30

21 U.S.C. § 355(j)(5)(D) (2006)...............................31

35 U.S.C. § 282 (2006)........................................22

Federal Rules

Fed. R. Civ. P. 23(a)(2)......................................12

Fed. R. Civ. P. 23(b)(3)......................................12

Fed. R. Evid. 102.............................................13

Fed. R. Evid. 702(a)...........................................9

Fed. R. Evid. 1101(b)..........................................9

Fed. R. Evid. 1101(d)..........................................9

Other Authorities

Henry N. Butler & Jeffrey Paul Jarosch, Policy Reversal on Reverse Payments: Why Courts Should Not Follow the New DOJ Position on Reverse-Payment Settlements of Pharmaceutical Patent Litigation, 96 Iowa L. Rev. 57 (2010).........................27

Fed. R. Civ. P. 23 advisory committee’s note..............passim

Manual for Complex Litigation (4th ed. 2004)..................17

Richard Marcus, Reviving Judicial Gatekeeping of Aggregation: Scrutinizing the Merits on Class Certification, 79 Geo. Wash. L. Rev. 324 (2011)...........................................17, 18

Barbara J. Rothstein & Thomas E. Willging, Managing Class Action Litigation: A Pocket Guide for Judges (2005)..................13

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PROCEEDINGS BELOW

Respondents, a class of retailers and wholesalers, filed a lawsuit against Petitioners GNB Pharmaceuticals (“GNB”) and Aldrin Generic Drug Company (“Aldrin”) in the United States District Court for the District of Albers. [R. at 1, 6] Respondents alleged that Petitioners’ reverse payment settlement agreement illegally restrained trade in violation of § 1 of the Sherman Antitrust Act (the “Sherman Act”). Id. at 6-7.

Respondents moved to certify as a class pursuant to Rule 23 of the Federal Rules of Civil Procedure. Id. at 7. To satisfy Rule 23’s predominance requirement, Respondents presented an expert who testified that Respondents could prove antitrust impact at trial. Id. In response, Petitioners motioned to exclude Respondents’ expert testimony under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), but the District Court denied the motion. Id. at 1. The District Court instead found that Respondents’ expert testimony was sufficiently reliable for the purposes of class certification, rather than sufficiently relevant and reliable to be admissible at trial. Id. at 8. The District Court relied on the expert testimony to certify Respondents as a class. Id. at 8-9.

In addition, the parties filed cross-motions in the District Court for summary judgment on the merits. Id. The District Court analyzed Petitioners’ settlement agreement under a per se rule of illegality and granted summary judgment in favor of Respondents. Id. at 9-10.

Petitioners filed an interlocutory appeal of the class certification order to the United States Court of Appeals for the Fourteenth Circuit, which accepted the petition. Id. at 10. Petitioners also timely appealed the District Court’s ruling on summary judgment. Id. Because of the importance of the expert testimony to the class certification, Petitioners argued that the District Court should have conducted a conclusive Daubert analysis. Id. at 16-17. The Court of Appeals rejected that argument, however, and affirmed the District Court’s class certification order. Id. at 16-18, 28. In addition, Petitioners argued that because their settlement agreement did not implicate antitrust concerns, the scope of the patent test applied, and even if the agreement did implicate antitrust concerns, the District Court should have evaluated the agreement under the full rule of reason. Id. at 25-26. The Court of Appeals reversed the District Court’s grant of summary judgment but remanded the case to the District Court for evaluation under quick look review. Id. at 27-28.

Petitioners appealed to this Court. Id. at 29. On January 22, 2013, this Court granted Petitioners’ writ of certiorari to review all issues raised in the Court of Appeals. Id.


STATEMENT OF THE FACTS

On August 1, 1995, the United States Patent and Trademark Office awarded U.S. Patent No. 37,033,022 (the “‘022 patent”) to Petitioner GNB. [R. 2] The ‘022 patent, which represented a substantial investment of GNB’s resources, covered the design of a time-release mechanism eventually used in capsules for GNB’s brand-name drug Mosbium. Id. The ‘022 Patent expired on July 15, 2008. Id.

On July 3, 2002, Petitioner Aldrin filed an abbreviated new drug application (“ANDA”) seeking approval from the US Food and Drug Administration (“the FDA”) to market a generic version of Mosbium called MacLarian. Id. at 3. The MacLarian ANDA contained a paragraph IV certification, which specified that either MacLarian would not infringe the ‘022 patent or the ‘022 patent was invalid. Id. at 3-4.

On June 17, 2002, Aldrin notified GNB of the paragraph IV certification. Id. at 4. GNB responded by filing a patent infringement suit against Aldrin. Id. GNB’s patent infringement suit automatically stayed FDA approval of the MacLarian ANDA for thirty months while the parties resolved their litigation. Id.

GNB and Aldrin reached a settlement on March 1, 2004 (the “Agreement”). Id. The Agreement specified that Aldrin would recognize the ‘022 Patent’s validity; refrain from marketing MacLarian or any other generic version of Mosbium until March 31, 2008; abstain from selling the rights of the MacLarian ANDA to any other generic competitor; and refrain from assisting other generic competitors in filing ANDAs targeting Mosbium or challenging the ‘022 Patent. Id. In return, GNB agreed to pay Aldrin $80 million when Aldrin received FDA approval for the MacLarian ANDA, and pay $20 million per quarter from the time Aldrin received FDA approval for the MacLarian ANDA until March 31, 2008. Id. at 4-5.

On August 15, 2005, the FDA approved the MacLarian ANDA, and GNB began making its payments. Id. at 5. When the Agreement terminated on March 31, 2008, these payments totaled $210 million and represented merely a quarter of GNB’s peak yearly profits from Mosbium. Id. At this point, Aldrin began marketing MacLarian. Id. Mosbium and MacLarian shared the market for only six months before additional generic manufacturers entered the market. Id. at 5-6. During this time, prices for Mosbium, MacLarian, and other generic equivalents fell. Id. at 5-6. On March 15, 2007, Respondents filed suit against Petitioners, alleging that the Agreement illegally restrained trade in violation of § 1 of the Sherman Act. Id. at 7.


SUMMARY OF ARGUMENT

This Court should reverse the Court of Appeals’ decision, as that court improperly affirmed the District Court’s class certification order and adopted the incorrect legal standard for assessing the antitrust implications of Petitioners’ Agreement.

First, the District Court erroneously certified Respondents as a class, because the court failed to conduct a full Daubert analysis when relying on Respondents’ expert testimony to certify the class. Daubert applied to the class certification order, because Daubert extends to pre-trial proceedings and is a prerequisite for rigorous Rule 23 analysis. This Court expressed the need for Daubert in class certification proceedings; specifically, Daubert promotes judicial fairness by reducing the likelihood of “blackmail settlements.” The District Court failed to apply Daubert, however, because it only assessed whether the testimony was reliable, rather than both relevant and reliable.

Even assuming that the District Court applied Daubert, the court erroneously held that it need only conduct a limited, rather than a full, Daubert analysis. Courts must conduct a full Daubert inquiry, because Rule 23 requires conclusive decisions on class certifications. In addition, full Daubert analyses promote judicial efficiency and safeguarded Seventh Amendment rights. The District Court failed to conduct a full Daubert analysis, however, because the court only assessed whether the testimony was admissible for the purposes of class certification, rather than trial. By applying the wrong legal standard, the District Court abused its discretion.

This Court should also reverse the Court of Appeals’ application of quick look review and instruct the District Court to evaluate the Agreement under the scope of the patent test because the Agreement does not implicate antitrust scrutiny. The ‘022 patent granted GNB limited rights to exclude competitors, and the scope of the patent test is sufficient to evaluate whether GNB reasonably implemented those rights. Furthermore, the test’s presumption that the ‘022 patent is valid represents the best means of balancing interests at the intersection of patent law, antitrust law, and the Hatch-Waxman Act.