Case Briefing

Finding of Per Se Anti-Trust Violation Overturned

If a drug maker might arguably have been entitled to market exclusivity because of the patents it holds, its payment to generic rivals to induce them to stay out of the market is not necessarily a violation of federal anti-trust laws. Valley Drug Co. v. Geneva Pharmaceuticals Inc., No. 02-12091 (11th Cir, 9/15/03).

The patent holder, Abbott Laboratories, contracted with Geneva Pharmaceuticals Inc. and Zenith Goldline Pharmaceuticals – drug manufacturers that filed abbreviated new drug applications to market generic versions of Abbott's drug Hytrin(R) – to keep the generics off the market. Other potential generic makers of Hytrin that were not parties to the contract brought suit claiming anti-trust violations. A Florida trial court found that an agreement such as this was a per se illegal restraint of trade.

The U.S. Court of Appeals for the Eleventh Circuit reversed, however, finding not that the agreement was necessarily legal, but that further investigation by the trial court was required before ruling on the case. The Eleventh Circuit opined that such payments might merely be a vindication of what the patent holder believed in good faith to be its rights under the patent, even if the patent was later found to be invalid.

Punitive Damages in Failure-to-Warn Case Excessive

Punitive damages in favor of a doctor were vacated and remanded with instructions to allow defendant pharmaceutical company's motion for a new trial unless the doctor agreed to remittitur of excessive punitive damages from $22.5 million to $3.5 million. Bocci v. Key Pharmaceuticals Inc., 2003 Ore. App. LEXIS 1223, 9/10/03.

Defendants Key Pharmaceuticals Inc., Schering-Plough Corp., and Schering Corp. (collectively, Key) sought a reversal of a punitive damage award entered in 1994 in favor of cross-claim plaintiff Frederick D. Edwards, MD, who had prescribed medication to plaintiff Paul R. Bocci, III. Bocci was a long-time user of defendant Key's prescription asthma medication Theo-Dur(R), a timed-release theophylline product. In October 1990, Bocci was prescribed the antibiotic ciprofloxacin for a skin rash, but failed to tell the prescribing physician that he was taking Theo-Dur. On Oct. 27, 1990, Bocci went to an urgent care clinic where Dr. Edwards worked, complaining of nausea, vomiting and diarrhea. Edwards diagnosed gastroenteritis and sent Bocci home. Edwards did not diagnose theophylline toxicity, because Theo-Dur had been promoted to him as a safe drug, and he did not believe that a patient on a stable dose of the drug could develop a serious toxicity problem. Shortly after Edwards sent him home, Bocci experienced seizures and was admitted to a hospital emergency room. He was treated for theophylline toxicity. He suffered permanent brain damage from the seizures.

Bocci sued Key and Edwards. Edwards cross-claimed against Key for negligence and fraud on the ground that Key had failed to provide adequate information concerning the potential toxicity of Theo-Dur. The jury returned verdicts in favor of Bocci and Edwards and awarded Edwards $ 500,000 in compensatory damages and $ 22.5 million in punitive damages. Key appealed the punitive damage amount.

During the pendency of the appeal, the U.S. Supreme Court reviewed another state court punitive damages award in State Farm v. Campbell, 538 U.S. ___, 123 S. Ct. 1513, 155 L. Ed. 2d 585 (2003), and found that the damages awarded therein were excessive. In light of the State Farm decision, Key appealed to the Supreme Court, which acted on Key's petition in this case, vacating the decision and remanding for reconsideration in light of State Farm.

On remand, the test used in State Farm was applied, which asks a court to look at: 1) the degree of reprehensibility of the defendant's misconduct; 2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and 3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. The court found that the defendant's misconduct was highly reprehensible but that the ratio of punitive damages to compensatory damages (45 to 1) was excessive in light of the Supreme Court's apparent benchmark upper limit for constitutionality under the Due Process Clause. “The 7-to-1 ratio must be applied to the compensatory damages awarded to Edwards,” the court concluded, so Edwards, who was awarded $500,000, could constitutionally receive only a punitives award of seven times that amount, or $3.5 million.

State Court Cause of Action on FDA-Approved Products Preempted

Because the plaintiff class, in order to prevail at trial, would need to show that drugs approved by the FDA to treat lice infestations were ineffective, their state-law claims were federally preempted and the state court that certified the class was without jurisdiction. Warner-Lambert Co. v. Mills, NO. 09-02-173 CV, 2003 Tex. App. LEXIS 7998 (Ct. of App. of TX, 9th Dist., Beaumont, 9/11/03). Plaintiffs filed a class action suit in Texas state court against drug manufacturers Warner-Lambert Co., Pfizer Inc., Bayer Corp., Del Pharmaceuticals Inc. and Care Technologies Inc., claiming that their FDA-approved products for treating head lice did not work. The Texas court certified the class under Tex. Civ. Prac. & Rem. Code Ann. 51.014(a)(3). The manufacturers brought this interlocutory appeal, arguing that the state court lacked jurisdiction because the suit involved resolution of a federal question.

FDA regulations specify the active ingredients required to be included in nonprescription louse-treating drug products in order for the product to be recognized as effective. See 21 C.F.R. '' 330.10 & 358.601, 358.610 (2003). The appellate court therefore found that the issue in this case was not merely whether defendants' products worked or not, but how the products in question were formulated. “This case does not involve a manufacturing defect, or a claim that some batch of the pediculicides [active ingredients in the products] in question did not conform to the FDA regulations; the crux of the claim is that the FDA-specified active ingredients are ineffective,” the court stated. “In practical effect, the state lawsuit would make unlawful the sale of a product formulated to comply with a federal requirement. This litigation would impose a state requirement that is 'different from or in addition to, or that is otherwise not identical with,' a requirement under the act,” the court found. Thus, the appellate court concluded, the plaintiffs' claims conflicted with the FDA's specific requirements for active ingredients and labeling, and were preempted by federal law.

In addition, plaintiffs' assertion that the “statutory savings clause,” 21 U.S.C.A. ' 379r(e), which explicitly exempts state products liability causes of action from the otherwise preemptive provisions of ' 379r, did not aid their position because in order to show a cause of action for product liability, there must be a claim of injury. Plaintiffs here made no claim of injury, asserting only that the products didn't function as advertised.

Finding of Per Se Anti-Trust Violation Overturned

If a drug maker might arguably have been entitled to market exclusivity because of the patents it holds, its payment to generic rivals to induce them to stay out of the market is not necessarily a violation of federal anti-trust laws. Valley Drug Co. v. Geneva Pharmaceuticals Inc., No. 02-12091 (11th Cir, 9/15/03).

The patent holder, Abbott Laboratories, contracted with Geneva Pharmaceuticals Inc. and Zenith Goldline Pharmaceuticals – drug manufacturers that filed abbreviated new drug applications to market generic versions of Abbott's drug Hytrin(R) – to keep the generics off the market. Other potential generic makers of Hytrin that were not parties to the contract brought suit claiming anti-trust violations. A Florida trial court found that an agreement such as this was a per se illegal restraint of trade.

The U.S. Court of Appeals for the Eleventh Circuit reversed, however, finding not that the agreement was necessarily legal, but that further investigation by the trial court was required before ruling on the case. The Eleventh Circuit opined that such payments might merely be a vindication of what the patent holder believed in good faith to be its rights under the patent, even if the patent was later found to be invalid.

Punitive Damages in Failure-to-Warn Case Excessive

Punitive damages in favor of a doctor were vacated and remanded with instructions to allow defendant pharmaceutical company's motion for a new trial unless the doctor agreed to remittitur of excessive punitive damages from $22.5 million to $3.5 million. Bocci v. Key Pharmaceuticals Inc., 2003 Ore. App. LEXIS 1223, 9/10/03.

Defendants Key Pharmaceuticals Inc., Schering-Plough Corp., and Schering Corp. (collectively, Key) sought a reversal of a punitive damage award entered in 1994 in favor of cross-claim plaintiff Frederick D. Edwards, MD, who had prescribed medication to plaintiff Paul R. Bocci, III. Bocci was a long-time user of defendant Key's prescription asthma medication Theo-Dur(R), a timed-release theophylline product. In October 1990, Bocci was prescribed the antibiotic ciprofloxacin for a skin rash, but failed to tell the prescribing physician that he was taking Theo-Dur. On Oct. 27, 1990, Bocci went to an urgent care clinic where Dr. Edwards worked, complaining of nausea, vomiting and diarrhea. Edwards diagnosed gastroenteritis and sent Bocci home. Edwards did not diagnose theophylline toxicity, because Theo-Dur had been promoted to him as a safe drug, and he did not believe that a patient on a stable dose of the drug could develop a serious toxicity problem. Shortly after Edwards sent him home, Bocci experienced seizures and was admitted to a hospital emergency room. He was treated for theophylline toxicity. He suffered permanent brain damage from the seizures.

Bocci sued Key and Edwards. Edwards cross-claimed against Key for negligence and fraud on the ground that Key had failed to provide adequate information concerning the potential toxicity of Theo-Dur. The jury returned verdicts in favor of Bocci and Edwards and awarded Edwards $ 500,000 in compensatory damages and $ 22.5 million in punitive damages. Key appealed the punitive damage amount.

During the pendency of the appeal, the U.S. Supreme Court reviewed another state court punitive damages award in State Farm v. Campbell , 538 U.S. ___, 123 S. Ct. 1513, 155 L. Ed. 2d 585 (2003), and found that the damages awarded therein were excessive. In light of the State Farm decision, Key appealed to the Supreme Court, which acted on Key's petition in this case, vacating the decision and remanding for reconsideration in light of State Farm.

On remand, the test used in State Farm was applied, which asks a court to look at: 1) the degree of reprehensibility of the defendant's misconduct; 2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and 3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. The court found that the defendant's misconduct was highly reprehensible but that the ratio of punitive damages to compensatory damages (45 to 1) was excessive in light of the Supreme Court's apparent benchmark upper limit for constitutionality under the Due Process Clause. “The 7-to-1 ratio must be applied to the compensatory damages awarded to Edwards,” the court concluded, so Edwards, who was awarded $500,000, could constitutionally receive only a punitives award of seven times that amount, or $3.5 million.

State Court Cause of Action on FDA-Approved Products Preempted

Because the plaintiff class, in order to prevail at trial, would need to show that drugs approved by the FDA to treat lice infestations were ineffective, their state-law claims were federally preempted and the state court that certified the class was without jurisdiction. Warner-Lambert Co. v. Mills, NO. 09-02-173 CV, 2003 Tex. App. LEXIS 7998 (Ct. of App. of TX, 9th Dist., Beaumont, 9/11/03). Plaintiffs filed a class action suit in Texas state court against drug manufacturers Warner-Lambert Co., Pfizer Inc., Bayer Corp., Del Pharmaceuticals Inc. and Care Technologies Inc., claiming that their FDA-approved products for treating head lice did not work. The Texas court certified the class under Tex. Civ. Prac. & Rem. Code Ann. 51.014(a)(3). The manufacturers brought this interlocutory appeal, arguing that the state court lacked jurisdiction because the suit involved resolution of a federal question.

FDA regulations specify the active ingredients required to be included in nonprescription louse-treating drug products in order for the product to be recognized as effective. See 21 C.F.R. '' 330.10 & 358.601, 358.610 (2003). The appellate court therefore found that the issue in this case was not merely whether defendants' products worked or not, but how the products in question were formulated. “This case does not involve a manufacturing defect, or a claim that some batch of the pediculicides [active ingredients in the products] in question did not conform to the FDA regulations; the crux of the claim is that the FDA-specified active ingredients are ineffective,” the court stated. “In practical effect, the state lawsuit would make unlawful the sale of a product formulated to comply with a federal requirement. This litigation would impose a state requirement that is 'different from or in addition to, or that is otherwise not identical with,' a requirement under the act,” the court found. Thus, the appellate court concluded, the plaintiffs' claims conflicted with the FDA's specific requirements for active ingredients and labeling, and were preempted by federal law.

In addition, plaintiffs' assertion that the “statutory savings clause,” 21 U.S.C.A. ' 379r(e), which explicitly exempts state products liability causes of action from the otherwise preemptive provisions of ' 379r, did not aid their position because in order to show a cause of action for product liability, there must be a claim of injury. Plaintiffs here made no claim of injury, asserting only that the products didn't function as advertised.