In a recently unsealed opinion, a court in the District of New Jersey has declined to certify a direct-purchaser class in In re Lamictal ("Lamictal")on numerosity grounds.  It joins the growing number of courts in recent years to have held that a putative class included too few members to warrant certification.  (We discussed those prior decisions in an article published in the Global Competition Review’s 2022 Annual Review, available here).

Wholesale purchasers of GlaxoSmithKline’s ("GSK") brand-name anti-epilepsy drug Lamictal and of Teva Pharmaceuticals’ generic version sued the drug manufacturers in 2012 for allegedly entering into a reverse payment settlement agreement that delayed the market entry of GSK’s authorized generic.  This blog has previously discussed “reverse payments” (here, for example).  The Lamictal plaintiffs allege that the authorized generic would have competed with Teva’s first-filed generic lamotrigine tablets, lowering prices for both defendants’ drugs.  According to the plaintiffs, defendants’ agreement caused prices of Teva’s generic to remain at inflated levels, resulting in classwide injury.

Plaintiffs’ Previous Motion for Class Certification

Direct purchasers of both Lamictal and Teva’s generic first sought class certification in 2018.  In support, they relied on an average hypothetical price of lamotrigine if it had faced competition from GSK’s authorized generic.  According to the defendants, however, GSK negotiated rebates and discounts for Lamictal on an individual basis in anticipation of competition from Teva’s first-filed generic, causing Teva to lower the price of its generic in response.  As a result, they argued, up to one-third of the putative class paid the same or even less for lamotrigine than if GSK had launched its authorized generic, and therefore that each class member could not rely on an average hypothetical price increase to show injury.  The defendants also argued that the 32 brand purchasers and 33 generic purchasers should not be certified as one class.

The district court certified the class in its entirety, and the defendants appealed, challenging only the certification of class members who purchased Teva’s generic.  The Third Circuit reversed, finding that the district court failed to resolve factual disputes about whether the plaintiffs could establish classwide injury through common proof at trial.  The Third Circuit instructed the district court on remand to resolve whether Teva in fact lowered its prices before launching its generic, such that the generic-purchaser plaintiffs’ reliance on average price inflation papered over the presence of purchasers who did not in fact suffer an overcharge.  It also held that the district court had conflated the issues of antitrust injury and damages. 

On remand, the district court found in 2021 that the plaintiffs did not account for evidence that GSK offered varying discounts in response to the authorized generic’s anticipated market entry, putting downward pressure on the price of Teva’s generic.  Although the court accepted that, on average, the introduction of an authorized generic tends to decrease the price of a competing generic, it held that the plaintiffs did not show that they can use common evidence to prove antitrust injury—that is, that they would have benefitted from lower-priced lamotrigine if the authorized generic had been launched—on a classwide basis.  The court recognized its holding overlapped with the merits, but it was guided by Third Circuit precedent that it must conduct a “rigorous analysis” of the evidence and arguments presented at the class certification stage.  The court therefore denied the plaintiffs’ motion for class certification.

The Court’s Recent Decision

Because the appeal focused only on class members who purchased Teva’s generic, the trial court’s denial of class certification on remand left open whether the direct brand purchasers could be certified as a class, and it allowed additional briefing as to whether such a class was sufficiently numerous.  According to the defendants, a class of 32 members failed to meet the numerosity requirement.  The plaintiffs proposed including eight generic-only purchasers whose injury the defendants purportedly had not contested. 

The court first found that the defendants had not conceded that certain generic-only purchasers were not injured, and held that, in any event, the plaintiffs should have raised the issue after the Third Circuit’s remand.  The court therefore engaged in a “particularly rigorous” analysis because the class consisted of fewer than 40 members.  Following Third Circuit precedent, it reviewed multiple “non-exhaustive” factors to determine whether the class was so numerous such that joinder was impracticable, as required by Rule 23(a)(1). 

The court placed the most weight on two factors—judicial economy and the plaintiffs’ ability and motivation to litigate as joined plaintiffs—and it found that both weighed against certification.  Noting that five named plaintiffs had already proceeded jointly with discovery, the court held that class certification would not create substantial discovery efficiencies.  And even accepting the plaintiffs’ argument that many putative class members have “negative value” claims (i.e., claims worth less than the costs of litigation), the court held that joinder would lower their collective costs and that their small number and relative sophistication suggested they would be motivated to proceed jointly. 

In denying class certification, the court made clear that the numerosity requirement does not depend on a bright-line threshold.  Nevertheless, its decision illustrates the uphill battle, particularly in recent years, plaintiffs face when their proposed class contains 40 or fewer members.