Causation Principles in Pharmaceutical Antitrust Litigation
| Publication year | 2018 |
| Author | By Steve D. Shadowen |
By Steve D. Shadowen1
Antitrust plaintiffs bring private claims in the pharmaceutical arena that arise from two recurring sets of facts in which brand-drug manufacturers allegedly delay or impair competition from generic-drug manufacturers. In "exclusion payment" or "pay-for-delay" antitrust cases, plaintiffs allege that the brand manufacturer, in the context of settling patent litigation, paid the generic manufacturer to withdraw its challenge to the patent and delay entry into the market. In "product-hopping" cases, plaintiffs allege that the brand manufacturer reformulated its product and switched the built-up base of prescriptions from the original to the reformulated product, in order to shield the prescription base from automatic generic substitution.
Courts are well along in establishing the rules for liability in exclusion-payment cases.2 Product-hopping liability rules are currently less well defined, but the broad outlines are coming into view.3 With liability standards established or on the horizon, the locus of contention in private litigation is increasingly shifting to causation: what evidence must plaintiffs adduce in order to permit a jury to conclude that the antitrust violation caused the injury for which plaintiffs seek recovery?
Borrowing from the common law of torts, courts in antitrust cases apply the familiar rule that plaintiffs must prove that the violation was a "material" or "substantial" cause of the injury. This is a different inquiry than determining the quantum of antitrust damage that the plaintiffs sustained. In determining damages, the plaintiffs compare the price that they actually paid to the price that they would have paid absent the violation—a comparison of the "actual world" to the "but-for world." This requires plaintiffs to offer a reconstruction of what likely would have happened absent the violation. This is not the relevant analytical framework for determining whether the violation likely caused an injury to plaintiffs. In determining causation, the jury considers the nature of the violation and the injury that actually occurred, and then makes a common-sense judgment about whether the violation likely caused the injury. For causation, plaintiffs need not offer any reconstructed "but-for world."
In making its judgment about whether the violation likely caused the injury, a jury is aided by a well-settled legal principle, adopted from tort law, that I call the "Causation Inference." Where defendant's conduct is deemed to be anticompetitive because of its propensity to cause a particular type of injury, and plaintiffs, in fact, suffered that type of injury, the jury is entitled to draw the inference—the Causation Inference—that the violation likely caused the injury. Courts routinely apply the Causation Inference in both tort and antitrust cases, including in pharmaceutical antitrust cases, and hold that it is sufficient to get plaintiffs to a jury on the question of causation.
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Two other important consequences flow from the Causation Inference in antitrust cases. First, once the Causation Inference arises, the burden shifts to the defendant to prove that intervening causes would have resulted in the same injury even absent the antitrust violation. In a pharmaceutical exclusion-payment case, for example, once the Causation Inference arises, the defendant has the burden to prove that the generic manufacturer would not have received timely FDA approval or would have lost the patent litigation, or alternatively that, if the patent litigation had been settled, the agreed generic-entry date would not have been any earlier than in the actual agreement.
Second, many antitrust plaintiffs will produce evidence that both supports their but-for world for purposes of proving damages and also rebuts defendant's alleged intervening causes (e.g., evidence that the generic manufacturer would have won the patent litigation). When used to support plaintiffs' damages, this evidence is protected by the lenient evidentiary standard that applies to estimating antitrust damages. That rule does not change because plaintiffs also use the evidence to counter defendants' evidence of intervening causes—an issue on which defendants have the burden of proof.
Section 4 of the Clayton Act permits an antitrust plaintiff to recover damages for injuries that she sustained to her business or property "by reason of" defendant's antitrust violation.4 Some courts characterize this causation requirement as an element of plaintiff's antitrust standing;5 others as a stand-alone element of plaintiff's claim for damages.6 Regardless of how courts frame the issue, the question boils down to whether the defendant's anticompetitive conduct likely caused the injury for which plaintiff seeks recovery.
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Causation in antitrust law generally follows the same principles applicable under the common law of torts.7 Tort law applies the familiar "substantial factor" test: plaintiff must prove that defendant's wrongful conduct "has been a substantial factor in bringing about the harm [plaintiff] has suffered."8 Courts therefore require antitrust plaintiffs to prove that the anticompetitive conduct was a "material" or "substantial" part of the causal chain leading to the injury.9 Causation is a fact-intensive and context-dependent issue usually best left "for the jury to be determined as a fact."10
Courts could easily go astray in pharmaceutical antitrust cases by confusing the framework for analyzing causation with the framework for analyzing damages. In order to estimate the amount of damages, plaintiffs construct a "but-for world," i.e., the hypothetical state of competition that likely would have occurred if defendant had not violated the antitrust law. Purchaser plaintiffs compare the amount they paid for the product in the "actual world," i.e., in the state of competition that they actually experienced, with the amount they would have paid in the but-for world. The difference is their damages.
For example, in an exclusion-payment case, plaintiffs' proffered but-for world might consist of an alternative, hypothetical patent settlement in which the brand manufacturer gave the generic manufacturer a license to enter the market on the expected entry date,11say, Year 5 where the patent had a remaining term of 10 years. In the actual world, however, the patent litigants reached a settlement in which the brand manufacturer granted a license to the generic manufacturer to enter the market in Year 7—two years beyond the expected entry date—and also (unlawfully) paid the generic manufacturer $100 million. The generic manufacturer did, in fact, stay out of the market until Year 7. Plaintiffs' damages consist of the savings they would have achieved if generic entry had occurred on the expected entry date, two years earlier.
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In short, the analytical framework for damages compares competition in the actual world to competition in the but-for world.
That is not the analytical framework for analyzing causation in antitrust cases generally, or in pharmaceutical antitrust cases in particular. For causation, antitrust law applies two fundamental, interrelated tort-law precepts. The factfinder decides causation by making a common-sense judgment about whether the defendant's actual-world conduct likely contributed to the plaintiff's actual-world injury. In this analysis, the factfinder need not compare the actual world to the but-for world.
Further, in making its judgment as to whether defendant's actual-world conduct likely contributed to plaintiffs' injury, the factfinder is aided by the Causation Inference: the inference that, if conduct is unlawful because of a tendency to cause a certain type of injury, and such an injury in fact occurred, the conduct likely caused it.12 As articulated in the Restatement of Torts, "[i]f, as a matter of ordinary experience, a particular act or omission might be expected to produce a particular result, and if that result has in fact followed, the conclusion may be justified that the causal relation exists."13
Returning to the exclusion-payment example above, the plaintiffs' prima facie case on causation is incisively simple. Exclusion payments are unlawful because they tend to result in generic manufacturers' delaying entry into the market beyond the expected entry date.14 So, plaintiffs' principal causation evidence will consist in proving that: (a) the settlement agreement contained an unlawful (i.e., large and unjustified) exclusion payment, and (b) the generic manufacturer did, in fact, stay out of the market until the date to which it agreed in exchange for the payment. Plaintiffs' prima facie evidence of causation is the compelling inference that (a) caused (b). To collect damages, plaintiffs will need to proffer evidence of a but-for world that shows how much later than the expected entry date the payment likely caused generic entry to occur. But that is not necessary for causation.
Consider another example. A brand manufacturer's product-hopping is unlawful because it tends to substantially reduce the prescription base available for automatic generic substitution.15 A plaintiff's principal causation evidence will consist in proving that: (a) the brand manufacturer unlawfully product hopped; and (b) when generic entry occurred, a lower percentage of prescriptions was available for automatic substitution than is typical. Plaintiffs' prima facie evidence of causation is the compelling inference that (a), which is unlawful because it has a tendency to cause (b), in fact did so in this case. To collect damages, plaintiffs will need to proffer evidence of a but-for world that shows how many fewer prescriptions the product hop likely caused to be available. But that is not necessary for causation.
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