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Walgreen Co. v. Astrazeneca Pharmaceuticals L.P.

February 25, 2008

WALGREEN COMPANY ET AL., PLAINTIFFS,
v.
ASTRAZENECA PHARMACEUTICALS L.P. ET AL., DEFENDANTS.
RITE AID CORPORATION ET AL., PLAINTIFFS,
v.
ASTRAZENECA PHARMACEUTICALS L.P. ET AL., DEFENDANTS.
MEIJER, INC. ET AL., PLAINTIFFS, V.
ASTRAZENECA PHARMACEUTICALS L.P. ET AL., DEFENDANTS.
LOUISIANA WHOLESALE DRUG CO., INC. ET AL., PLAINTIFFS,
v.
ASTRAZENECA PHARMACEUTICALS LP ET AL., DEFENDANTS.
BURLINGTON DRUG COMPANY, INC. ET AL., PLAINTIFFS,
v.
ASTRAZENECA PHARMACEUTICALS LP ET AL., DEFENDANTS.



The opinion of the court was delivered by: Richard W. Roberts United States District Judge

MEMORANDUM OPINION

Plaintiffs in the five above-captioned cases filed substantively identical complaints,*fn1 alleging that defendants AstraZeneca Pharmceuticals L.P., AstraZeneca L.P., Zeneca, Inc., and Zeneca Holdings, Inc. (collectively, "AstraZeneca") have violated Section 2 of the Sherman Act, 15 U.S.C. § 2, which prohibits actual or attempted market monopolization. Plaintiffs allege that AstraZeneca deliberately switched the market from its prescription heartburn drug Prilosec, just as Prilosec's patent was about to expire, to both its newly FDA-approved equivalent Nexium, which had a patent that would not expire for several years, and to its newly FDA-approved over-the-counter ("OTC") Prilosec. AztraZeneca, arguing that its conduct was procompetitive rather than anticompetitive, filed motions to dismiss the complaints under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted. Because plaintiffs have not alleged facts sufficient to support a reasonable inference that AstraZeneca's decision to market and aggressively promote Nexium was exclusionary conduct prohibited by Section 2 of the Sherman Act, the motions to dismiss will be granted and the complaints will be dismissed. Because these cases do not survive the motions to dismiss, all other pending motions will be denied as moot.

FACTUAL BACKGROUND

Prilosec is a brand-name prescription drug used to treat heartburn and related conditions.*fn2 (Walgreen Co. et al. v. AstraZeneca Pharms. et al., Civil Action No. 06-2084, First Am. Compl. ("FAC") ¶ 42.) Prilosec contains the drug substance omeprazole, composed of equal parts of two mirror-image molecular structures, (S)-omeprazole and (R)-omeprazole, which are transformed into an active drug in the parietal cells of the stomach of a person who ingests the substance. (Id. ¶¶ 53-54.) AstraZeneca obtained a patent for Prilosec in 1981, and began marketing 20 mg Prilosec capsules in September 1989 after obtaining approval from the Food and Drug Administration ("FDA").*fn3 By 1999, prescription Prilosec was producing $4 billion in revenue to AstraZeneca. The Prilosec patent expired in October 2001, and a company not involved in this case first marketed a generic equivalent of Prilosec in December 2002. AstraZeneca still manufactures and markets its prescription Prilosec capsules. In June 2003, the FDA approved an OTC version of prescription Prilosec, and granted AstraZeneca exclusivity in that market through June 2006 after Astrazeneca conducted and submitted safety studies to the FDA.

AstraZeneca also owns the patent for, manufactures, and markets the brand-name prescription drug Nexium. Nexium contains the drug substance esomeprazole, or (S)-omeprazole. (Id. ¶ 53.) The FDA approved Nexium for sale in February 2001, just eight months before the Prilosec patent expired. The Nexium patent does not expire until 2014, and Nexium is not subject to generic substitutions before that time. Upon the introduction of Nexium, AstraZeneca very aggressively promoted and "detailed"*fn4 Nexium to doctors, and at the same time ceased promoting and detailing Prilosec.

Based on sales data, plaintiffs calculate that in 2002 ---- the year after Nexium hit the market ---- Nexium siphoned off one-third of the prescriptions that would have been written for Prilosec if Nexium had not been an alternative. (See id. ¶¶ 63, 65.) Plaintiffs also project that if Nexium had not gone to market, the manufacturers of generic substitutes to prescription Prilosec would have far more than their current 30% of the market, and consumers would have collectively saved $11.5 billion by the end of the year 2006. (Id. ¶ 68.)

The gravamen of plaintiffs' complaint is that AstraZeneca "switch[ed] the market from Prilosec, which now has generic competition, to a virtually identical drug, Nexium, which does not [have generic competition.]" (Id. ¶ 1.) Asserting that there is almost no difference between Nexium and Prilosec, and that there is no pharmacodynamic reason why a dose of (S)-omeprazole, i.e., Nexium, would interact with the stomach's parietal cells any differently than would an equal dose of omeprazole, i.e., Prilosec (id. ¶ 54), plaintiffs contend that this switching is exclusionary and violates § 2 of the Sherman Act. They also allege that to effectuate this market switch, AstraZeneca used distortion and misdirection in marketing, promoting and detailing Nexium. (See id. ¶¶ 69, 90-95, 116, 122.) In addition, plaintiffs contend that AstraZeneca engaged in prohibited exclusionary conduct when it introduced OTC Prilosec and obtained a grant of exclusivity for three years from the FDA. (See id. ¶¶ 96-103.)

DISCUSSION

Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of a complaint for failure to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). A court considering a Rule 12(b)(6) motion to dismiss assumes all factual allegations to be true, even if they are doubtful. Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007); Kowal v. MCI Communc'ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994) (noting that a court must construe the complaint "liberally in the plaintiffs' favor" and "grant plaintiffs the benefit of all inferences that can be derived from the facts alleged"). A court need not, however, "accept inferences drawn by plaintiffs if such inferences are unsupported by the facts set out in the complaint. Nor must [a] court accept legal conclusions cast in the form of factual allegations." Kowal, 16 F.3d at 1276. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, . . . a plaintiff's obligation to provide the grounds of his entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do . . . ." Twombly, 127 S.Ct. at 1964-65 (internal citations and quotations omitted) (alteration in original).

The antitrust laws were enacted to protect competition, not competitors. Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962). As a threshold matter, then, to obtain antitrust relief an antitrust plaintiff must prove an "antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). Antitrust plaintiffs do not suffer antitrust injury merely because they are in a worse position than they would have been in had the challenged conduct not occurred. Id. at 486-87. "The antitrust injury requirement ensures that a plaintiff can recover only if the loss stems from a competition-reducing aspect or effect of the defendant's behavior." Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 344 (1990) (emphasis in the original). "Thus, antitrust injuries include only those injuries that result from interference with the freedom to compete." Johnson v. Univ. Health Servs., Inc., 161 F.3d 1334, 1338 (11th Cir. 1998).

Section 2 of the Sherman Act makes it a felony to "monopolize or attempt to monopolize . . . any part of the trade or commerce among the several States . . . ." 15 U.S.C. § 2. "The offense of monopolization has two elements: '(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.'" United States v. Microsoft Corp., 253 F.3d 34, 50 (D.C. Cir. 2002) (quoting United States v. Grinell Corp., 384 U.S. 563, 570-71 (1966)). The undesirable "willful acquisition or maintenance" conduct that § 2 prohibits is often referred to as "exclusionary." See Philip R. Areeda & Herbert Hovenkamp, 3 Antitrust Law § 650a(1) at 67 (rev. ed. 1996) ("Areeda & Hovenkamp"). Exclusionary conduct is "that which prevents actual or potential rivals from competing or impairs their opportunities to do so effectively." Id. § 651b at 76. The term encompasses "at most behavior that not only (1) tends to impair the opportunities of rivals, but also (2) either does not further competition on the merits or does so in an unnecessarily restrictive way." Id. § 651b at 77. "Whether any particular act of a monopolist is exclusionary, rather than merely a form of vigorous competition, can be difficult to discern: the means of illicit exclusion, like the means of legitimate competition, are myriad. The challenge for an antitrust court lies in stating a general rule for distinguishing between exclusionary acts, which reduce social welfare, and competitive acts, which increase it." Microsoft, 253 F.3d at 58. Here, then, the issue to be determined is whether plaintiffs' assertions that AstraZeneca engaged in exclusionary conduct are supported by factual allegations ---- which must be taken as true for the purposes of this motion ---- that yield a reasonable inference that AstraZeneca's conduct was of the type that is prohibited by § 2 as exclusionary, or whether plaintiffs' assertions of exclusionary conduct amount to no more than "labels and conclusions, and a formulaic recitation" of this essential element of a Section 2 Sherman Act claim. Twombly, 127 S.Ct. at 1965.

Plaintiffs allege that AstraZeneca engaged in exclusionary conduct "by introducing Nexium, a drug virtually identical to and no more effective than Prilosec" (FAC ¶¶ 116, 122), and "switching the market from Prilosec, which now has generic competition, to a virtually identical drug, Nexium, which does not [have generic competition.]" (Id. ¶ 1.) To make their case, plaintiffs contend that AstraZeneca's conduct is analogous to conduct held unlawful in Microsoft, 253 F.3d 34, and in Abbott Labs. v. Teva Pharms. USA, Inc., 432 F. Supp. 2d 408 (D. Del. 2006). The analogy, however, fails on the facts. In Microsoft, the firm violated antitrust laws when it tied a specific internet browser to a specific operating system on which it had a monopoly, and by so doing effectively eliminated the customers' choice of internet browsers.*fn5 Microsoft, 253 F.3d at 64-65. In Teva, the complaint alleged that Teva was a monopolizer that sought to defeat competition from generic substitutes and deliberately limit rather than expand consumers' choices when it successively introduced new patented drugs by merely changing the formulation of the drug ---- once from capsule form to tablet form and then again to a second tablet form ---- and then stopped manufacturing the prior formulations, and repurchased all existing prior formulations. Teva, 432 F. Supp. 2d at 415, 422.

The elimination of choice was a critical factor in the court's decision to deny Teva's motion to dismiss the complaint. Id. at 422 ("But here . . . consumers were not presented with a choice between . . . formulations. Instead, Defendants allegedly prevented such a choice by removing the old formulations from the market while introducing new formulations."). Thus, in both Microsoft and Teva, the defendants' offending conduct had to do with eliminating choices available to the consumer. Yet, here, there is no allegation that AstraZeneca eliminated any consumer choices. Rather, AstraZeneca added choices. It introduced a new drug to compete with already-established drugs ---- both its own and others' ---- and with the generic substitutes for at least one of the established drugs.

Plaintiffs argue that because Nexium is protected by a patent and not superior to Prilosec, AstraZeneca's conduct is exclusionary. Plaintiffs are not able to show that enjoying the benefits of patent protection is exclusionary conduct under § 2. "[A] patent is presumptively not a monopoly . . . [and] is no different than any other property right . . . [such as] ownership of an airplane or pipeline [that] excludes others from using them. . . . Further, the Patent Act creates a federal right to exclude others from practicing the patent . . . . As a result, antitrust must tread lightly." Areeda & Hovenkamp, § 704a at 151. See also id. § 706d at 164-66 ...


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