13–1232
Louisiana Wholesale Drug Co. v. Shire LLC


          UNITED STATES COURT OF APPEALS
              FOR THE SECOND CIRCUIT

                 August Term, 2013
(Argued: March 17, 2014 Decided: June 9, 2014
              Corrected: June 19, 2014)
                Docket No. 13–1232


     In re ADDERALL XR ANTITRUST LITIGATION


 LOUISIANA WHOLESALE DRUG COMPANY, INC.,
  on behalf of itself and all others similarly situated,
 VALUE DRUG COMPANY, on behalf of itself and all
               others similarly situated,
                        Plaintiffs–Appellants,
                                    v.
                 SHIRE LLC, SHIRE U.S., INC.,
                       Defendants–Appellees.*


Before: JACOBS, SACK, and LOHIER, Circuit Judges.
       Appeal from a judgment of the United States
District Court for the Southern District of New York
(Victor Marrero, Judge), dismissing the plaintiffs'
complaint under Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim upon which relief can
be granted. The plaintiffs, wholesale dealers in
pharmaceutical products, brought this putative class
action asserting that the defendant drug manufacturers

 *
   The Clerk of the Court is respectfully directed to amend
the official caption in this case to appear as set forth above.
                                    1
violated the Sherman Act by breaching their contracts to
supply competing manufacturers with an unbranded
version of the defendants' widely prescribed patented
drug. The plaintiffs argue that these contracts gave rise
to a "duty to deal" enforceable by third-party customers
such as themselves under the antitrust laws. We
disagree. The judgment of the district court is therefore
      AFFIRMED.
                         JOSEPH OPPER (Bruce E.
                         Gerstein, Elena K. Chan,
                         Kimberly Hennings, on the
                         brief), Garwin Gerstein &
                         Fisher LLP, New York, NY, for
                         Plaintiffs–Appellants,


                         MICHAEL F. BROCKMEYER,
                         Frommer Lawrence & Haug
                         LLP, Washington, DC (Edgar
                         H. Haug, John F. Collins,
                         Frommer Lawrence & Haug
                         LLP, New York, NY, on the
                         brief), for Defendants–Appellees.




                           2
SACK, Circuit Judge:
       The plaintiffs are wholesale dealers in
pharmaceutical products including Adderall XR, a
widely prescribed drug manufactured by the
defendants. They brought this putative class action
alleging that the defendants violated the
anti-monopolization provision of the Sherman Act by
breaching defendants' contracts to supply two of their
competitors—who in turn supply the plaintiffs—with
an unbranded version of the defendants' patented drug
for resale under the competitors' own labels. Although
the contracts were executed in connection with
settlements of patent litigation, the plaintiffs disclaim
any reliance on that fact. They argue instead that the
contracts themselves gave rise to a "duty to deal" under
antitrust law. We disagree and therefore affirm the
judgment of the United States District Court for the
Southern District of New York (Victor Marrero, Judge)
dismissing the complaint.

                     BACKGROUND
       Defendants Shire LLC and Shire U.S., Inc.
(together, "Shire") hold patents covering Adderall XR
("AXR"), a drug approved by the U.S. Food and Drug
Administration ("FDA") in 2001 to treat
attention-deficit/hyperactivity disorder. AXR enjoyed
significant commercial success. In 2002, Teva
Pharmaceuticals USA, Inc.,1 sought FDA approval to
produce a generic equivalent. Compl. ¶¶ 2–3. Impax
Laboratories, Inc., followed suit in 2003. Id. ¶ 3.

 1  In 2008, Teva acquired Barr Pharmaceuticals, which was
the entity actually seeking approval to produce generic AXR
in 2002. For the sake of simplicity, both the complaint and
this opinion refer to those entities collectively as "Teva." See
Compl. ¶ 3 n.1.
                               3
       Teva and Impax took advantage of the
streamlined drug approval process established by a
1984 amendment to the Federal Food, Drug, and
Cosmetic Act generally referred to as the "Hatch–
Waxman Amendments." See 21 U.S.C. § 355(b), (j). The
Act allows a generic maker to piggyback on the efforts
of an approved drug's manufacturer by filing an
Abbreviated New Drug Application ("ANDA")
showing, among other things, that its proposed product
is biologically equivalent to the approved drug. Id.
§ 355(j)(2)(A)(iv). An ANDA must also include a
certification that the proposed generic does not infringe
the approved drug's patents. Id. § 355(j)(2)(A)(vii).
       If an ANDA contains a certification that an
approved drug's patents are "invalid or will not be
infringed by the manufacture, use, or sale of the new
drug for which the application is submitted," the
applicant must notify the drug's patent holder of the
pending application. Id. § 355(j)(2)(A)(vii), (B)(iii). The
patent holder then has forty-five days to file suit against
the applicant for patent infringement. If the patent
holder acts within this window, any FDA action on the
ANDA is stayed for thirty months. Id. § 355(j)(5)(B)(iii).
That is what happened here.
       In their applications to the FDA, both Teva and
Impax certified that Shire's patents for AXR were either
"invalid or will not be infringed by the manufacture,
use, or sale" of their proposed generic equivalents. See
Compl. ¶ 39; 21 U.S.C. § 355(j)(2)(A)(vii). Shire
responded by bringing suit against both companies for
patent infringement.
      In 2006, Shire settled its patent litigation with
Teva and Impax. Compl. ¶¶ 5, 41. The agreements
memorializing the settlement terms each reflected the

                             4
same basic bargain: The generic manufacturers would
stay out of the market for AXR for three years (even if
their applications to produce generic AXR were
approved by the FDA before then). Id. ¶¶ 5, 41. In
exchange, Shire would grant the generic manufacturers
licenses to make and sell generic AXR starting in 2009
(Teva in April; Impax in October). Id. ¶¶ 6, 42. If the
FDA had not approved their ANDAs by that time, Shire
would supply Teva's and Impax's requirements for
unbranded AXR for resale under their own labels. Id.
¶¶ 6, 43. In short, Shire undertook to give its
competitors both the rights and the supplies necessary
to participate in the market for AXR. Id. ¶¶ 6, 44.
       Because the FDA had not approved their ANDAs
by the close of Shire's contractual period of exclusivity,
Teva and Impax both began purchasing unbranded
AXR from Shire for resale in 2009 pursuant to their
settlement agreements with Shire. Compl. ¶¶ 47, 49, 51.
Several months after their respective entries into the
market, both Teva and Impax complained that Shire
was only partially filling their orders.2 Id. ¶¶ 53–60.
The effect of this alleged shortfall on the price of AXR
paid by wholesalers—the members of the plaintiffs'
proposed class—gave rise to the litigation now before
us on appeal.
      In May 2012, Louisiana Wholesale Drug
Company, Inc., based in Sunset, Louisiana, filed a
putative class action against Shire in the Southern


 2
   Shire, Teva, and Impax have already settled litigation
arising from these contract disputes. See Stipulation of
Dismissal, Teva Pharms. USA, Inc. v. Shire LLC, No. 09 Civ.
8860 (MGC) (S.D.N.Y. Nov. 20, 2009), ECF No. 17;
Stipulation of Dismissal, Impax Labs., Inc. v. Shire LLC, No. 10
Civ. 8386 (MGC) (S.D.N.Y. Feb. 14, 2013), ECF No. 211.
                               5
District of New York. See Louisiana Wholesale Drug Co. v.
Shire LLC, No. 12 Civ. 3711 (VM) (S.D.N.Y.). That case
was subsequently consolidated with a nearly identical
action brought by Value Drug Company of Altoona,
Pennsylvania. Consent Order Consolidating Related
Actions, Louisiana Wholesale Drug Co., No. 12 Civ. 3711
(VM) (S.D.N.Y. Oct. 17, 2012), ECF No. 22. We refer to
the plaintiffs collectively as "LWD." Neither Teva nor
Impax is a party to this litigation.
       LWD alleged that by supplying Teva and Impax
with less than their requirements of unbranded AXR,
Shire relegated them to 50–60% of the market, instead of
the 90% share they might have been expected to capture
had they received the quantity of unbranded pills they
had demanded. Compl. ¶¶ 6, 8, 52, 67. This, in turn,
allowed Shire to "fix*+, raise*+, maintain*+, and/or
stabilize*+ the price of AXR Product at
supra-competitive levels," and thereby to "overcharge*+
Plaintiff and other direct purchasers of AXR Product
hundreds of millions of dollars" in violation of section 2
of the Sherman Act. Compl. ¶ 9.
       Shire moved to dismiss LWD's complaint under
Federal Rule of Civil Procedure 12(b)(6) for failure to
state a claim upon which relief can be granted. It
argued in pertinent part that Shire's alleged breaches of
its contracts with Teva and Impax were not a valid basis
for a monopolization claim because any actions taken
within the scope of Shire's patent monopoly were
immune from antitrust scrutiny.3 See Mem. of Law in


 3  Shire also argued that LWD had failed to properly allege
a "relevant product market," and that LWD was an "indirect
purchaser" not entitled to damages with respect to any
purchases of AXR from Teva or Impax. The district court
declined to address these arguments, and neither has been
                              6
Support of Mot. to Dismiss at 2, Louisiana Wholesale
Drug Co., No. 12 Civ. 3711 (VM) (S.D.N.Y. June 29,
2012), ECF No. 12. In opposition, LWD asserted that
once Shire had agreed to "relinquish its monopoly
control over AXR . . . vis-à-vis Teva and Impax" by
entering into the patent litigation settlements, it had a
"duty to deal" with its competitors under the Supreme
Court's decision in Aspen Skiing Co. v. Aspen Highlands
Skiing Corp., 472 U.S. 585 (1985). See Mem. of Law in
Opp'n at 8, Louisiana Wholesale Drug Co., No. 12 Civ.
3711 (VM) (S.D.N.Y. July 20, 2012), ECF No. 19. That
duty, LWD contended, converted Shire's ordinary
breach of contract into an unlawful act of
monopolization. Id.
       The district court rejected LWD's arguments and
dismissed the complaint. Louisiana Wholesale Drug Co. v.
Shire LLC, 929 F. Supp. 2d 256, 257 (S.D.N.Y. 2013). The
court relied principally on our decision in In re
Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d
Cir. 2006), abrogated by F.T.C. v. Actavis, Inc., 133 S. Ct.
2223 (2013). The plaintiffs in that case challenged the
legality of a type of patent litigation settlement known
as a "reverse payment" settlement—not unlike the
agreements here. Id. at 193–94. The defendant generic
drug manufacturer in Tamoxifen agreed to join the
defendant patent holder in obtaining vacatur of a district
court judgment invalidating the patents it had
challenged, and agreed to refrain from marketing its
own product until those patents expired. Id. In
exchange, the patent holder provided its erstwhile
challenger with a large cash payment—the "reverse
payment"—a patent license, and a supply of unbranded
drugs for resale. Id. We rejected the plaintiffs' Sherman


reiterated on appeal.
                             7
Act claims, holding that "*w+hatever damage is done to
competition by *such a+ settlement is done pursuant to
the monopoly extended to the patent holder by patent
law" and is therefore not barred by the antitrust
statutes, "unless the terms of the settlement enlarge the
scope of that monopoly." Id. at 212–13.
       Although LWD does not challenge the legality of
the agreements in this case, the district court found its
claims analogous to those in Tamoxifen. Louisiana
Wholesale Drug Co., 929 F. Supp. 2d at 262. The court
concluded that the effect on competition of Shire's
alleged refusal to supply all of the AXR that Teva and
Impax demanded could be no greater than the effect of
paying them to stay off the market altogether. Id. And,
in light of Tamoxifen, the court was
      not convinced that . . . a patent holder
      granting multiple licenses that by their
      terms do not extend the scope of the
      patents in question, would nevertheless be
      subject to antitrust claims based on its
      conduct        under       those      otherwise
      unchallenged licenses where that same
      patent holder would not face such liability
      if it refused outright to issue a license in the
      first instance.

Id. at 264. Addressing LWD's Aspen Skiing argument,
the district court stressed the narrowness of the "duty to
deal" doctrine. Id. And it distinguished the two cases
LWD cited applying that doctrine in the context of drug
patents, stating that they could not "alter the *district
c+ourt's conclusion that, notwithstanding Shire's alleged
conduct under the agreements, because the terms of
those settlement agreements . . . do not exceed the scope
of the patents in question, LWD's claims fail." Id. at 265.
                             8
       Three months after the district court's ruling,
while this appeal was pending but before any briefs had
been filed, the Supreme Court issued its decision in
Federal Trade Commission v. Actavis, Inc., 133 S. Ct. 2223
(2013), abrogating Tamoxifen. The Actavis Court held
that the potentially significant anticompetitive effects of
reverse payment settlements are not immune from
antitrust scrutiny merely because they may "fall within
the scope of the exclusionary potential of the patent" at
issue. Id. at 2230–31 (internal quotation marks omitted).
The Court concluded that because such settlements
necessarily prevent the adjudication of a patent's
validity—thereby leaving open the question of the
patent's "actual preclusive scope"—they should be
scrutinized under antitrust law's traditional "rule of
reason." See id. at 2230–31, 2237.

                     DISCUSSION
       "We review de novo a district court's dismissal of a
complaint under Rule 12(b)(6)." Mayor & City Council of
Balt., Md. v. Citigroup, Inc., 709 F.3d 129, 135 (2d Cir.
2013). In doing so, "we accept all factual allegations as
true and draw every reasonable inference from those
facts in the plaintiff's favor." Id. But this does not
relieve the plaintiff from alleging "enough facts to state
a claim to relief that is plausible on its face." Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007). "Where a
complaint pleads facts that are merely consistent with a
defendant's liability, it stops short of the line between
possibility and plausibility of entitlement to relief."
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal
quotation marks omitted).
     Section 2 of the Sherman Act provides that it is
unlawful to "monopolize, or attempt to
monopolize . . . any part of the trade or commerce

                             9
among the several States, or with foreign nations." 15
U.S.C. § 2. "*T+his offense requires, in addition to the
possession of monopoly power in the relevant market,
'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.'" Verizon Commc'ns Inc. v. Law Offices
of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004) (quoting
United States v. Grinnell Corp., 384 U.S. 563, 570–71
(1966)). "To safeguard the incentive to innovate, the
possession of monopoly power will not be found
unlawful unless it is accompanied by an element of
anticompetitive conduct." Id. (emphasis in original).
"*A+nticompetitive conduct is 'conduct without a
legitimate business purpose that makes sense only
because it eliminates competition.'" Port Dock & Stone
Corp. v. Oldcastle Ne., Inc., 507 F.3d 117, 124 (2d Cir.
2007) (quoting Morris Commc'ns Corp. v. PGA Tour, Inc.,
364 F.3d 1288, 1295 (11th Cir. 2004)).
       As the Actavis decision illustrates, "*t+he tension
between the objectives of preserving economic
incentives to enhance competition while at the same
time trying to contain the power a successful competitor
acquires is heightened tremendously when the patent
laws come into play." SCM Corp. v. Xerox Corp., 645
F.2d 1195, 1205 (2d Cir. 1981); see also Precision
Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S.
806, 816 (1945) (noting that "a patent is an exception to
the general rule against monopolies and to the right to
access to a free and open market"). But any such
tension is rendered irrelevant here by the plaintiff's
theory of the case.
      LWD expressly disclaims any reliance on the
patent settlement context of its allegations, choosing to
argue instead that Shire's requirements contracts with
                            10
Teva and Impax gave rise to an antitrust "duty to deal."
The complaint urges that "from the moment the
*settlement+ agreements were signed, the patents were
taken out of the picture, and this case must be viewed
as one in which the patents did not exist as they relate
to Teva and Impax." Compl. ¶ 42 (footnote omitted).
Counsel for LWD reiterated this position at oral
argument, assuring us that its claims would be no
different if Shire had no patents respecting AXR. And
while LWD argues that the abrogation of Tamoxifen
undermines the district court's reasoning, it does not
rely on Actavis or seek leave to re-plead in light of that
decision. Thus freed from the complexities that attend
cases at the intersection of antitrust and patent law, we
proceed to explain our reasons for affirming the
judgment of the district court.4
                           * * *
       "In the absence of any purpose to create or
maintain a monopoly, the *Sherman Act+ does not
restrict the long recognized right of *a+ trader or
manufacturer engaged in an entirely private business,
freely to exercise his own independent discretion as to
parties with whom he will deal . . . ." United States v.
Colgate & Co., 250 U.S. 300, 307 (1919). Today, "the sole
exception to the broad right of a firm to refuse to deal
with its competitors" comes into play only "when a
monopolist seeks to terminate a prior (voluntary)
course of dealing with a competitor." In re Elevator
Antitrust Litig., 502 F.3d 47, 52, 53 (2d Cir. 2007) (per


 4 We may, of course, affirm on any ground that finds
support in the record sufficient to permit a conclusion of
law, even one not relied on by the district court. See MLSMK
Inv. Co. v. JP Morgan Chase & Co., 651 F.3d 268, 273 (2d Cir.
2011).
                             11
curiam) (citing Trinko, 540 U.S. at 409). The roots of this
exception are in the Aspen Skiing decision, which is
heavily relied on by LWD.
      The Supreme Court has described its own
decision in Aspen Skiing as follows:
      The Aspen ski area consisted of four
      mountain areas.        The defendant, who
      owned three of those areas, and the
      plaintiff, who owned the fourth, had
      cooperated for years in the issuance of a
      joint, multiple-day, all-area ski ticket. After
      repeatedly demanding an increased share
      of the proceeds, the defendant canceled the
      joint ticket. The plaintiff, concerned that
      skiers would bypass its mountain without
      some joint offering, tried a variety of
      increasingly     desperate     measures      to
      re-create the joint ticket, even to the point
      of in effect offering to buy the defendant's
      tickets at retail price.      The defendant
      refused even that. We upheld a jury
      verdict for the plaintiff, reasoning that
      "*t+he jury may well have concluded that
      *the defendant+ elected to forgo these
      short-run benefits because it was more
      interested in reducing competition . . . over
      the long run by harming its smaller
      competitor."

Trinko, 540 U.S. at 408-09 (alterations in original)
(citations omitted) (citing and quoting Aspen Skiing, 472
U.S. at 593-94, 608). Although Aspen Skiing stands for
the proposition that a business with market power may
be subject to a duty to deal with a smaller competitor, it
is today a common refrain that the case lies "at or near
                            12
the outer boundary of *section+ 2 liability." Id. at 409; see
also In re Elevator Antitrust Litig., 502 F.3d at 53 (same).
        But wherever we locate Aspen Skiing with respect
to that "boundary", it does not govern this case. LWD
fails to allege that the facts here resemble those of Aspen
Skiing in any of the particulars identified as significant
by the Trinko Court, including "*t+he unilateral
termination of a voluntary (and thus presumably
profitable) course of dealing suggest*ing+ a willingness to
forsake short-term profits to achieve an anticompetitive
end" and the refusal "to renew the ticket even if
compensated at retail price." Trinko, 540 U.S. at 409
(emphases in original). And although Trinko does not
purport to set out a "test," it usefully highlights the
distinctions that made Aspen Skiing the rare case in
which a refusal to deal amounted to a prohibited act of
unilateral monopolization.
       This is not such a case. Shire did not terminate
any prior course of dealing—let alone a "presumably
profitable" one that had, as in Aspen Skiing, "originated
in a competitive market and had persisted for several
years." Aspen Skiing, 472 U.S. at 603. Indeed, the
agreements here were explicitly unprofitable—they
introduced price competition into a market where none
would otherwise have existed. Far from undermining
existing competition, by entering into the agreements in
question, Shire created competition in the market for
AXR ex nihilo. And because, as LWD concedes, Shire
did not "completely cut off supply to Teva and Impax,"
id. ¶ 77, Shire actually lost 50–60% of its market share,
id. ¶ 67. The logical inference from these allegations is
that, unlike the defendant in Aspen Skiing, Shire
accepted a below-retail price for its product. Cf. Trinko,
540 U.S. at 409. In short, the plaintiffs' allegations


                             13
amount to the self-defeating claim that Shire
monopolized the market by ceding its monopoly.
       Shire's breach of its agreements with Teva and
Impax—if there was one—may have prevented the
price of AXR from falling further than LWD theorizes it
might have in a genuinely competitive market, but that
alone does not give rise to a cause of action under Aspen
Skiing. This is not a case where the alleged monopolist
sought to "terminate a prior (voluntary) course of
dealing with a competitor," In re Elevator Antitrust Litig.,
502 F.3d at 53 (citing Trinko, 540 U.S. at 409), under
circumstances that evince an intent willfully to acquire
or maintain monopoly power, Trinko, 540 U.S. at 407.
The mere existence of a contractual duty to supply
goods does not by itself give rise to an antitrust "duty to
deal." Cf. Pac. Bell Tel. Co. v. Linkline Commc'ns, Inc., 555
U.S. 438, 450 (2009) (distinguishing defendant's
regulatory duty to cooperate with competitors from an
"antitrust duty to deal"); Trinko, 540 U.S. at 406
(concluding that statutorily imposed duties to cooperate
with competitors did "not automatically lead to the
conclusion that *the duties+ can be enforced by means of
an antitrust claim"). Nor do business disputes implicate
the antitrust laws simply because they involve
competitors. Brooke Grp. Ltd. v. Brown & Williamson
Tobacco Corp., 509 U.S. 209, 225 (1993) ("Even an act of
pure malice by one business competitor against another
does not, without more, state a claim under the federal
antitrust laws; those laws do not create a federal law of
unfair competition or 'purport to afford remedies for all
torts committed by or against persons engaged in
interstate commerce.'") (quoting Hunt v. Crumboch, 325
U.S. 821, 826 (1945)).
     Against this backdrop, we conclude that LWD's
complaint fails to state a claim upon which relief can be
                             14
granted, and that it was therefore properly dismissed
by the district court under Rule 12(b)(6). Indeed, the
complaint does little more than attach antitrust "labels
and conclusions" to what is, at most, an ordinary
contract dispute to which the plaintiffs are not even
parties. See Iqbal, 556 U.S. at 678. In view of the
plaintiffs' theory of the case and their disclaimer of
reliance on the patent litigation that gave rise to Shire's
agreements with Teva and Impax, we have not
considered that litigation and those agreements in our
analysis. We have not, therefore, assessed the
potentially anticompetitive effects, if any, of these
settlements against "patent law policy *and+
procompetitive antitrust policies." Actavis, 133 S.Ct. at
2231. And we intimate no view as to the viability of a
monopolization claim based on similar factual
circumstances in which the plaintiffs did not—as LWD
unequivocally did here—narrow the scope of our
inquiry.

                    CONCLUSION
       LWD has failed to allege facts that would place
this case within Aspen Skiing's narrow exception to the
"long recognized right of *a+ trader or manufacturer
engaged in an entirely private business, freely to
exercise his own independent discretion as to parties
with whom he will deal." Colgate, 250 U.S. at 307. We
therefore AFFIRM the judgment of the district court
dismissing the complaint.




                             15
