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Nexium Class Certification Upheld

Nexium Class Certification Upheld by First Circuit

In a class certification decision with implications going beyond the Nexium case, for nearly all federal class actions, the First Circuit Court of Appeals held that a class definition encompassing some uninjured parties can be properly certified so long as 1) it is consistent with the Supreme Court’s ruling in Comcast v. Behrend, (in other words, plaintiffs must advance a viable damages theory and damages model for each theory of liability), 2) the members of the class are capable of being ascertained, and 3) it is possible to craft a mechanism to weed out the uninjured class members at some point prior to recovery.. Also promising was the Court’s practical approach, which acknowledged the challenges inherent in crafting a definition that is perfect in scope. In conducting its analysis, the Court relied upon the principle that class members should not face a higher burden of proof than individual litigants in order to establish their injury. Finally, the Court opened the possibility of adapting a Halliburton efficient market presumption to consumer class actions.

The Claims:

Nexium is a so called “pay-for-delay” case where it is alleged that a branded drug manufacturer makes large payments to potential generic competitors under the auspices of patent litigation settlements. In exchange, competitors agree to delay their release of generic versions of the branded drug. Accordingly to a 2010 FTC analysis of 66 “pay-for-delay” agreements, consumers lose $3.5 billion per year on average as a result of this anticompetitive conduct. See

Plaintiffs’ specific claims arose from AstraZeneca’s alleged efforts to foreclose generic competition to its Nexium brand heartburn drug. Nexium is a slightly modified version of AstraZeneca’s Prilosec. AstraZeneca introduced Nexium as the Prilosec patent expired. When several generic competitors sought to introduce their own versions of the drug, arguing patent invalidity pursuant to the Hatch-Waxman Act, AstraZeneca brought patent infringement actions against them, then settled those claims with large reverse, in-kind payments to the generic manufacturers. In return, the generic manufacturers agreed not to launch their generic versions of Nexium until May 27, 2014, the date AstraZeneca’s main Nexium patents were to expire.

Plaintiffs, union health and welfare funds who allegedly paid higher prices because of the absence of generic competition, sued, charging defendants with entering into unlawful agreements not to compete, forcing Plaintiffs to overpay for the drug.

Class Certification:

On November 14, 2013, Judge William G. Young (D. Mass) certified a class of indirect purchaser plaintiffs. On appeal, Defendants argued the Class should not have been certified because, in part, it included parties who were not damaged, even if the conduct alleged was illegal.

Applicable Standard:

Future class plaintiffs now have a clear roadmap for seeking class certification in complex cases. Crafting a perfect class definition that does not include any uninjured parties at the class certification stage is often nearly impossible. In those circumstances, a class can still be properly certified so long as it satisfies the three criteria: (1) The liability theory must be limited to the injury caused by Defendants, meaning “…[D]efendants cannot be held liable for damages beyond the injury they caused;” (2) The class definition must be definite, referring to the “ascertainability” requirement; and (3) The aggregate payout under an individual claims process must be limited to the total amount of damages for which Defendants were held liable and must be limited to injured parties.

Comcast Analysis:

It is evident that class plaintiffs and their counsel must be prepared to offer a separate damages analysis for each theory of liability, as the district court could find one or more of the theories to be invalid. This is also an important consideration at the pleading stage when assessing viable theories and the extent to which data and econometrics enable the separation of the effects of multiple types of misconduct. Defendants relied on the Supreme Court’s 2013 Comcast decision, but the Court distinguished Nexium from Comcast. In Comcast, the plaintiffs had relied on four theories of liability and had calculated aggregate damages based upon all four theories. The district court then certified a class based on just one theory and plaintiffs failed to provide a damages calculation for that one theory alone. In contrast, the First Circuit found the Nexium plaintiffs had offered a theory and damages model that “would only require that the defendants pay aggregate damages equivalent to the injury that they caused.”


The Court also found the second principle had been satisfied, explaining that whether a potential class member purchased Nexium was an objective criterion determining their membership in the Class. All exceptions to class membership are likewise based on objective criteria.

The Ability to Subsequently Exclude Uninjured Parties:

After Nexium, Plaintiffs now have at least two potential methods for excluding uninjured parties subsequent to class certification. Although the Plaintiffs had not offered a mechanism for excluding brand loyalists, the Court conceived of at least two ways Plaintiffs could identify injured class members. Analogizing this dilemma to a plaintiff pursuing the action individually, the Court noted there are no records of generic purchases, as AstraZeneca’s exclusion of generic Nexium was at the core of Plaintiffs’ claims. In such a circumstance, an individual plaintiff could establish antitrust injury by either (1) making an efficient market presumption argument, similar to the presumption of reliance in a securities case (See Halliburton Co. v Erica P. John Fund, Inc.), or (2) by offering testimony stating he or she would have purchased the lower-cost version of an identical drug. Noting that class members should not be subjected to a more stringent burden of proof than they would face had they brought their actions individually, the Court found class members could establish injury by offering an affidavit, the equivalent to offering testimony in an individual case. Thus, even if the presumption argument failed, this approach would be valid.

Notably, either approach shifts the burden to defendant once a plaintiff or class member has offered some evidence of injury. A Halliburton-type presumption is rebuttable, so it would fall upon a defendant to prove consumers would have acted irrationally, paying more for an identical product. A claims process utilizing affidavits would be the equivalent to uncontested testimony; thus, they are sufficient until a defendant offers evidence contradicting the testimony contained therein.

A Practical Approach:

Typically, a class action is the only viable mechanism for large numbers of injured consumers to vindicate their rights, as their individual claims are too small to justify the substantial expenses of litigation. Recognizing the reality, the Court noted the practical challenges inherent in crafting an ideal class definition, “[a]t worst the inclusion of some uninjured class members is inefficient, but this is counterbalanced by the overall efficiency of the class action mechanism.” The Court added that adopting Defendants’ position would place Plaintiffs in an inescapable trap. “…[E]xcluding all uninjured class members at the certification stage is almost impossible in many cases, given the inappropriateness of certifying what is known as a ‘fail-safe class’ – a class defined in terms of the legal injury.”

The Court recognized that “[i]deally, that tension should be resolved by adopting a class definition that includes no uninjured parties and excludes no injured parties…[w]e doubt that this will be feasible in many cases. Without the benefit of further proceedings, it is simply not possible to entirely separate the injured from the uninjured at the class certification stage.” Moreover, the reality is that “‘an erroneous failure to certify a class where individual claims are small may deprive plaintiffs of the only realistic mechanism to vindicate meritorious claims.'” (quoting In re New Motor Vehicles Canadian Export Antitrust Litig., 522 F.3d 6, 8 (1st Cir. 2008)).

Therefore, the First Circuit affirmed class certification, holding:

“In large part, the remaining difference between plaintiffs and defendants is that the defendants would require a determination at the class certification stage as to which parties were injured and which not, whereas the plaintiffs would leave to later stages of litigation such sorting of injured and uninjured parties. We conclude that so long as it is established that such a mechanism can be identified, the presence of a de minimis number of uninjured members at the class certification stage does not defeat a class action. We conclude that such a mechanism can be identified here. The district court did not abuse its discretion in certifying the class.”

Also Noteworthy:

The Court lent support to the “yardstick” method of antitrust damages analysis, noting Plaintiffs’ analysis was corroborated by price estimates in Defendants’ documents and that district court had generally credited Plaintiffs’ calculations. Additionally, the Court rejected the argument that an antitrust injury could later be “offset,” stating “…antitrust injury occurs the moment the purchaser incurs an overcharge whether or not that injury is later offset.” Finally, by opening the possibility of a Halliburton-type rebuttable presumption of consumer rationality, the Court acknowledged accepted economic theory. If other courts credit this presumption, it could be an invaluable tool for consumers going forward.

Goldman Scarlato & Penny, P.C. serves on Plaintiffs’ Executive Committee in this litigation. Contact Brian Penny, Esq. if you have any questions about this matter or other generic drug “pay-for-delay” litigation or the impact of this important class certification ruling. (484) 342-0700 or [email protected].

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