First Circuit

First Circuit decisions

Breiding v Eversource Energy

In Breiding v Eversource Energy, ¹ the First Circuit held that both Sherman Act claims and state antitrust and consumer-protection claims against two energy companies were barred by the filed-rate doctrine. The filed-rate doctrine generally bars actions that function as effective collateral attacks on a rate that has been filed with an agency that has regulatory authority over the relevant transaction. The complaint in this case was filed by a putative class of retail electricity customers in New England. They alleged that the two energy company defendants had unlawfully manipulated the market for wholesale natural gas sales, which in turn resulted in higher retail electricity rates paid by consumers. The First Circuit held that the actions impermissibly asked the court to second-guess regulatory judgments made by the Federal Energy Regulatory Commission (FERC).

Understanding the plaintiffs’ allegations and the First Circuit’s reason for dismissing their claims requires a brief overview of the markets for natural gas and electricity. As explained by the First Circuit, the first step in the chain of transactions that brings extracted natural gas to the market is ‘wellhead’ sales, in which natural gas producers sell gas to direct purchasers. Direct purchasers pay for the cost of transmitting natural gas from the wellhead, and they must reserve pipeline capacity for those transmissions. Under FERC regulations, interstate pipeline operators must allow direct purchasers to use ‘no-notice’ contracts, which allow purchasers to adjust capacity upward or downward without incurring penalties. ² The regulations also allow – but, critically, do not require – purchasers to resell their unneeded transportation capacity to other natural gas purchasers when making downward adjustments. ³ Under the Federal Power Act, FERC regulates wholesale sales of electricity, ⁴ though it has delegated authority to regional markets that oversee auction systems, allowing for a form of market pricing. ⁵ FERC does not regulate retail sales of electricity or the initial wellhead sales.

In this case, the plaintiffs alleged that the defendants artificially restricted the supply of natural gas by consistently reserving more pipeline capacity than they required and then declining to resell their excess capacity. By acting this way, the complaint alleged, the defendants caused natural gas prices to go up in the secondary spot market, in which power generators typically purchase natural gas from direct purchasers. That, in turn, raised prices in the market for wholesale electricity (in which utilities purchase electricity from power generators) and ultimately raised the retail prices paid by consumers. The district court dismissed the plaintiffs’ federal and state claims as barred by the filed-rate doctrine, reasoning that the relief requested by the plaintiffs would require the court to determine the reasonableness of wholesale electricity prices that are subject to FERC’s exclusive regulatory authority. ⁶ The First Circuit affirmed, but did so based on a different rationale.

To begin with, the First Circuit stated that the district court’s reasoning was ‘in some tension’ with the Court’s earlier opinion in Town of Norwood v FERC, ⁷ and with out-of-circuit decisions that have ‘generally deem[ed] the filed-rate doctrine inapplicable to challenges to upstream, non-jurisdictional activity that indirectly affects downstream FERC-approved tariffs.’ ⁸ In other words, the First Circuit questioned whether the filed-rate doctrine would apply merely because the alleged manipulation of pipeline capacity could have a downstream impact on wholesale prices, which are regulated by FERC. But the First Circuit declined to resolve this question because it concluded that the claims directly implicated a different FERC-approved tariff: the tariff filed by the pipeline itself. That tariff not only includes a rate schedule, but it also sets the terms for no-notice contracts that allow direct purchasers to cancel capacity reservations without imposing penalties or a resale requirement.

As the First Circuit recounted, the plaintiffs’ suit did not allege that the defendants engaged in any conduct other than that allowed by the pipeline’s ‘detailed and reasonably comprehensive FERC-approved tariff.’ ⁹ The Court accordingly reasoned that the filed-rate doctrine prohibited the Court from second-guessing FERC’s judgment to provide for no-notice contracts without requiring direct purchasers to release excess capacity. The Court concluded that the doctrine barred all of the plaintiffs’ claims, and it rejected the plaintiffs’ attempt to carve-out their claims for injunctive relief from the doctrine’s reach. As the First Circuit explained, an injunction prohibiting the defendants from holding onto excess pipeline capacity would interfere with FERC’s exclusive regulatory authority.

Notably, a similar action against the same defendants is still pending. That action, which was brought by a putative class of wholesale energy purchasers, was also dismissed by the same district court judge as in Breiding. ¹⁰ The plaintiffs have appealed to the First Circuit. ¹¹

District court decisions

Relevant market

In re Loestrin 24 Fe Antitrust Litigation

The Loestrin antitrust litigation ¹² involved claims by two classes of drug purchasers challenging the prosecution and settlement of patent litigation related to the brand and generic versions of Loestrin 24 Fe, an oral contraceptive. The plaintiffs alleged that the brand manufacturer of Loestrin (1) committed fraud on the US Patent and Trademark Office to secure its patent and then filed sham patent litigation against potential generic competitors, (2) entered into ‘reverse payment’ settlements with potential generic competitors to delay generic competition, and (3) engaged in a ‘product hop’ to harm generic competition by introducing a new chewable version of Loestrin right before generic entry.

In 2019, the parties cross-moved for summary judgment on the issue of market power. The plaintiffs argued for a single-product market limited to Loestrin 24 Fe and its generic equivalents, in which the defendants allegedly had market power. The defendants argued that the oral contraceptive market ‘is an unusually crowded one with over one hundred available hormonal contraceptives’ and that the resulting competition ‘could not possibly allow a single brand to gain monopoly power of any concern.’ ¹³ The court denied both motions, holding that the issue of market power presented disputed issues of fact that only a jury could resolve.

The court started its analysis by observing: ‘To be frank, the law and economics of market power is a confusing mess. And when applied in the pharmaceutical context, it really shows its warts.’ ¹⁴ The court likewise noted the ‘practical reality’ that ‘the pharmaceutical industry is rife with idiosyncrasies.’ ¹⁵ Against that background, the court recognized that market definition is a question of fact and that ‘market definition looks different from one case to the next.’ ¹⁶ The court noted that although the Supreme Court stated in FTC v Actavis that the presence of a large and unexplained reverse payment may be ‘a strong indicator of market power,’ ¹⁷ and some courts in similar cases have indicated that a single-product market may be appropriate, others have held that the relevant market includes all pharmaceuticals used for particular purposes. Turning to the fact and expert evidence in this case, the court stated that it faced ‘wildly variant estimates of price cost margins,’ ‘differing descriptions of the relevant market’ and ‘the highly disputed nature and value of the claimed reverse payments.’ ¹⁸ On that record, the court held, ‘granting summary judgment for either party would encroach on the function of the jury.’ ¹⁹

The court’s decision is broadly consistent with other cases, both within the First Circuit and elsewhere, denying summary judgment on market power in pharmaceutical antitrust cases. ²⁰ In at least one respect, however, the Loestrin court departed from prevailing views. It is well established that the pharmaceuticals industry is characterized by high fixed costs, including the sunk costs invested in research and development. ²¹ Most pharmaceutical antitrust cases therefore have held that evidence of price-cost margins that fails to address sunk costs is unreliable and insufficient to prove market power. ²² The Loestrin court, by contrast, stated that reliance on sunk costs to rebut an inference of market power from a high profit margin ‘is a red herring’ and held that ‘Defendants may not introduce evidence of sunk costs to disprove market power at trial.’ ²³

Alternative dispute resolution clauses

RGOI ASC, Ltd v General Electric Company et al

In recent years, several decisions have addressed (with varying results) the enforceability and applicability to antitrust claims of provisions in commercial contracts that require alternative dispute resolution. ²⁴ In RGOI ASC, Ltd v General Electric, ²⁵ the court faced a similar issue. General Electric (GE) sells gas anesthesia machines to hospitals, physician groups, clinics and other customers. Independent service organizations also service GE’s machines in competition with GE. GE’s service agreements with its customers contain a clause providing that, if good faith attempts to resolve any disputes related to the agreement fail, ‘unresolved disputes will be submitted to mediation prior to initiation of other means of dispute resolution.’ ²⁶ Notwithstanding that provision, certain GE customers filed a lawsuit against GE alleging that it had monopolized the sale of parts and training required to service its machines, causing the price for those services to increase, in violation of section 2 of the Sherman Act. GE moved to compel mediation under the terms of the service agreements, and the court granted GE’s motion.

First, the court rejected the plaintiffs’ argument that their claims fell outside the scope of the mediation agreement. The provision at issue states that it applies to all disputes ‘related to’ the services agreement, and the court held that the ‘alleged increased cost [from GE’s alleged conduct] clearly relates to the service agreements, which govern the contractual price.’ ²⁷ Second, the court construed the mediation agreement as a condition precedent to the filing of any lawsuit by providing that ‘mediation must “first” be undertaken “prior to” initiating any other form of dispute resolution,’ including litigation. ²⁸ Third, the court refused to treat the provision as unenforceable despite the plaintiffs’ assertion that mediation would be futile in light of the positions GE had already taken. On those grounds, the court held that the dispute resolution provision in the services agreement is valid and ‘makes mediation the ticket of admission to litigation, if such is to ensue.’ ²⁹ Rather than dismissing the antitrust action as GE had requested, however, the court stayed the case pending mediation.

Unfair method of competition liability

Malden I and Malden II

In the Malden I ³⁰ and Malden II ³¹ pair of rulings, a federal court in Massachusetts addressed allegations that Uber Tech (Uber) had engaged in unfair methods of competition by violating Boston’s law governing the provision of hackney services.

The Boston Police Commissioner has exclusive authority under municipal rules to regulate the licensing and issuance of medallions, stands and fare rates for taxis. The governing rules prohibit the operation of taxis or other vehicles for hire ‘unless said person is licensed as a hackney driver and said vehicle is licensed as a hackney carriage by the Police Commissioner.’ ³² In 2013, after conversations with the hackney department and the mayor’s office, Uber started offering services in Boston without having obtained hackney licenses for its vehicles and drivers. Uber management allegedly believed that the hackney rules did not apply to it, though Uber’s drivers subsequently received hundreds of police citations for which Uber reimbursed its drivers. During this time, the mayor’s office also made somewhat contradictory statements about whether the hackney rules applied only to taxis or also extended to transportation network companies such as Uber. In 2016, a state law was passed that preempted municipalities from regulating transportation network companies.

Various taxi medallion holders sued Uber for its activities in Boston prior to the change in law, asserting that Uber’s conduct violated the Massachusetts Consumer Protection Act, which forbids (among other things) unfair methods of competition. ³³ At summary judgment, the court ruled that Uber had violated the city’s hackney rules and had acted with reckless disregard for those rules. The court also held, however, that violating those rules alone did not suffice to prove unfair competition, because a violation of the Consumer Protection Act also requires proof that the conduct would ‘raise an eyebrow of someone inured to the rough and tumble of the world of commerce,’ an issue about which there were fact disputes. ³⁴

The district court then conducted a bench trial, after which it concluded on the totality of the evidence that Uber had not engaged in the ‘extreme or egregious conduct’ required to support a violation and instead had ‘acted in accordance with the standard of the commercial marketplace.’ ³⁵ The court focused on the ambiguity in the messages Uber had received from, and the interactions it had with, city officials, as well as the fact that Uber had started offering services only after competitors such as Sidecar and Lyft were already operating in Boston. The court concluded that Uber’s ‘strategy, while aggressive and disruptive to the for-hire transportation market, is competition consistent with the “rough and tumble of the world of commerce.”’ ³⁶

Exemptions and immunities

In re Ranbaxy Generic Drug Application Antitrust Litigation

In Ranbaxy, ³⁷ the district court addressed claims that a generic drug manufacturer had defrauded the US Food and Drug Administration (FDA) to obtain certain regulatory exclusivities that allegedly gave the manufacturer market power and excluded other generic competitors. Two putative classes of plaintiffs sued Ranbaxy Inc, a generic drug manufacturer, alleging that Ranbaxy had submitted drug applications to FDA with missing or fraudulent information to (1) beat its competitors in the race to be the ‘first filer,’ (2) obtain certain regulatory exclusivities associated with first-filer status that allegedly gave it market power, and (3) prevent other generic competitors from coming to market until after Ranbaxy had launched its products. The poor quality of Ranbaxy’s applications, the plaintiffs further alleged, then prevented or delayed FDA approval, creating a bottleneck that kept all generics for those products off the market until several years later than they otherwise would have entered. The plaintiffs’ suits allege violations of antitrust, the Racketeer Influenced and Corrupt Organizations Act and various state laws. Ranbaxy moved to dismiss, but the court largely denied the motions.

With respect to the direct purchasers’ claims under the federal antitrust laws, Ranbaxy argued that the claims are premised on violations of the Food, Drugs, and Cosmetics Act (FDCA), that the FDA has sole authority to enforce claims predicated on violations of the FDCA, and that plaintiffs’ antitrust claims therefore are precluded by the FDCA. In an earlier ruling in the litigation, the district court had rejected that argument on several grounds, including its view that: (1) nothing in the language of the FDCA expressly precludes antitrust enforcement based on conduct before the FDA; (2) the FDA’s enforcement authority does not extend to antitrust law or anticompetitive conduct; (3) the Federal Trade Commission regularly enforces the antitrust laws against the pharmaceuticals industry, and the private right of action under federal antitrust law suggests that private parties may do the same; and (4) the FDA’s prior finding that the defendant had defrauded the FDA supports allowing the antitrust case to proceed. ³⁸ In its 2019 opinion, the court concluded that Ranbaxy had raised no new arguments that warranted a different conclusion. ³⁹

With respect to the indirect purchasers’ claims under state antitrust law, Ranbaxy raised similar arguments, asserting that state law claims are preempted by the FDCA for largely the same reasons it had argued the FDCA precluded alternative federal enforcement. Ranbaxy relied on Buchman Co v Plaintiffs’ Legal Committee, in which the Supreme Court held that state-law claims alleging a fraud on the FDA were preempted. ⁴⁰ The court disagreed that Buchman required dismissal, emphasizing that while the conduct at issue involved alleged manipulation of the FDA regulatory process, plaintiffs could rely on that evidence to prove that the conduct violated state law, and that doing so would not create preemption problems.

The court also addressed Ranbaxy’s argument that its conduct was immune from liability under the Noerr-Pennington doctrine, which generally bars the imposition of antitrust liability for conduct that involves petitioning the government. ⁴² In this decision, the court addressed a different argument. For the sham exception to apply, a plaintiff must show that it has been harmed by a defendant’s use of the government petitioning process itself, not by the result of that process. ⁴³ Relying on that principle, Ranbaxy argued that any alleged harm to plaintiffs resulted from FDA’s granting of tentative approval to Ranbaxy’s abbreviated new drug applications (ANDAs); it was the receipt of those approvals and the associated first-filer exclusivities, rather than the act of requesting them, that allegedly delayed the entry of other generic products. On that basis, Ranbaxy argued that any alleged harm resulted from the government action Ranbaxy’s lobbying had procured, not the lobbying process itself, so the sham exception did not apply, and its conduct is immune. The court rejected that argument, holding that ‘plaintiffs adequately allege that Ranbaxy used a stage of the ANDA approval process to secure exclusivity while awaiting final approval to bar competition.’ ⁴⁴

Class certification

In re Intuniv Antitrust Litigation (direct purchasers)

The Intuniv antitrust litigation ⁴⁵ involves an antitrust challenge to a patent-settlement agreement entered between the brand and generic manufacturers of the drug Intuniv, which is a treatment for attention deficit hyperactivity disorder. The district court certified a class of direct purchasers who had purchased brand or generic Intuniv from the defendants. In doing so, however, the court also issued an important decision on the ‘adequacy’ of a class representative under Federal Rule of Civil Procedure 23(a)(4) by rejecting one of the two proposed class representatives based on the entity’s financial entanglement with class counsel.

The district court held that a class consisting of 48 entities that had purchased Intuniv directly from one of the defendants satisfied the requirements for class certification under Rule 23(a) and (b)(3). In reaching that conclusion, the court rejected the defendants’ argument that the proposed class of 48 members did not satisfy Rule 23(a)(1)’s ‘numerosity’ requirement. The court reasoned that, although joinder of all class members was not ‘completely inconceivable,’ joinder would face ‘significant logistical hurdles and impose high transaction costs’ because the class members were geographically dispersed and varied significantly in size, with several class members having small enough damages claims that litigation would be prohibitively expensive for them. ⁴⁶ The court distinguished the Third Circuit’s decision that denied class certification to a direct-purchaser class based on lack of numerosity, In re Modafinil Antitrust Litig, ⁴⁷ on the ground that the class proposed there (with only 22 direct purchasers) was considerably smaller.

As noted, the district court did reject one of the two proposed class representatives (FWK Holdings LLC) as inadequate under Rule 23(a)(4). As described by the district court, FWK is a litigation-only entity that was formed to purchase antitrust claims from a bankruptcy estate. FWK was created as an investment vehicle by one of the class counsel, who recruited a friend and former business partner to form the entity and then helped to finance its purchase of antitrust claims. The court concluded that the ‘personal, financial, and business relationship between FWK, FWK-associated individuals, and class counsel’ was ‘simply too entangled’ to provide assurance that FWK could faithfully represent the interests of the class members rather than defer to the potentially conflicting interests of class counsel. ⁴⁸ The court certified the class, however, because it concluded that the other proposed representative (Rochester Drug Co-Operative, Inc) was adequate. In so holding, the court rejected the defendants’ argument that regulatory violations and alleged criminal actions undertaken by Rochester Drug and its former executives regarding the failure to report suspicious opioid purchases compromised the company’s credibility and thus its adequacy. Deeming the case a ‘close call,’ the court concluded that because the company was under new management, and its litigation conduct had been conscientious, it could adequately represent the class. ⁴⁹

In re Intuniv Antitrust Litigation (indirect purchasers)

In contrast to the direct purchaser class in the parallel litigation involving the drug Intuniv discussed above, the same district court judge rejected a proposal to certify an indirect purchaser class consisting of consumers who purchased brand or generic Intuniv for personal or household use in the Intuniv antitrust litigation. ⁵⁰ The court’s analysis turned entirely on Rule 23(b)(3)’s predominance requirement and relied heavily on the First Circuit’s path-marking 2018 decision, In re Asacol Antitrust Litigation, ⁵¹ which the district court recognized creates a significant impediment to pharmaceutical, antitrust class actions brought by indirect purchasers.

The district court explained that, under Asacol, if the defendants reasonably contend that there are a significant number of uninjured plaintiffs in the proposed class, then the plaintiffs must put forward a manageable, individualized process to identify the uninjured plaintiffs before trial in a manner that gives the defendants a meaningful opportunity to contest individual claims of injury. If the plaintiffs are unable to do so, then the class may not be certified. The district court concluded that Asacol was controlling here, because the court found that ‘at least 8%’ of the proposed class ‘and perhaps considerably more’ were uninjured for various reasons (eg, (1) they were ‘brand loyalists’ who suffered no injury from allegedly delayed generic competition because they would not have purchased generic Intuniv even if it had been available and the co-payments they paid for brand Intuniv did not change, (2) they took advantage of the brand manufacturer’s coupon program and would not have saved money by purchasing generic Intuniv instead, or (3) they reached out-of-pocket maximums on their health insurance, so they were not affected by any pricing differentials between brand and generic Intuniv). ⁵² The court further concluded that the plaintiffs had failed to present a reasonable and workable plan to weed out the more than 10,000 uninjured members in the putative class, which precluded certification under Rule 23(b)(3).

Of note, the district court distinguished In re Nexium Antitrust Litigation, ⁵³ a pre-Asacol decision on which the plaintiffs had relied. The plaintiffs argued that Nexium, rather than Asacol, should control in the context of antitrust claims challenging reverse payment settlements in pharmaceutical patent litigation. But the district court declined to adopt a different rule for class certification that would apply only in reverse payment cases. Instead, the court held that Nexium was distinguishable because, there, the defendants had not clearly asserted an intention to challenge individual class members’ injury claims.

In re Loestrin 24 Fe Antitrust Litigation (direct purchasers)

As discussed above, the Loestrin antitrust litigation ⁵⁴ involved antitrust challenges to various actions allegedly undertaken to block competition from generic drugs to the brand drug Loestrin 24 Fe, an oral contraceptive. The district court certified a class of 47 direct purchasers who had purchased either brand or generic Loestrin 24 during the class period.

In certifying the direct purchaser class, the district court considered and rejected several arguments put forward by the defendants, only some of which are discussed here. First, the court rejected the defendants’ argument that the class of 47 did not satisfy Rule 23(a)(4)’s ‘numerosity’ requirement – an argument premised on defendants’ contention that the plaintiffs had inflated the number of class members in various ways, such as by including plaintiffs who had only purchased generic Loestrin from a manufacturer that was not a party to the litigation. The district court reasoned that these plaintiffs could show injury from the defendants’ conduct based on an ‘umbrella’ pricing theory: to the extent that the defendants had limited generic competition, the market prices charged by the non-party generic manufacturer were higher, which injured the plaintiffs. Second, the district court rejected a challenge to the adequacy and typicality of a class representative that was not itself a direct purchaser, but had acquired direct purchaser claims through a partial assignment. Third, the district court concluded that the plaintiffs had established predominance under Rule 23(b)(3) based on an expert model showing that the vast majority of purchasers had incurred an overcharge. Distinguishing the First Circuit’s decision in In re Asacol Antitrust Litigation, ⁵⁵ the district court reasoned that there were at most ‘a very small absolute number of class members’ who might have been uninjured, and they could be ‘picked off in a manageable, individualized process at or before trial.’ ⁵⁶

In re Loestrin 24 Fe Antitrust Litigation (end-payor class)

In the same litigation discussed above involving the alleged suppression of generic drug competition to Loestrin 24, the district court rejected the plaintiffs’ attempt to certify a class of consumers of Loestrin 24. ⁵⁷ But in the same decision, the court certified a class consisting of ‘third-party payors’ (ie, health care plans that purchased, or provided reimbursement for, Loestrin 24 on behalf of plan beneficiaries). The court’s reasoning relied heavily on the First Circuit’s decision in In re Asacol Antitrust Litigation. ⁵⁸

Beginning with the proposed consumer class, the district court concluded that the plaintiffs could not establish predominance under Asacol. As in Asacol, the proposed consumer class included consumers who were uninjured because they were ‘brand loyalists,’ meaning that they would have continued to purchase brand Loestrin 24 even if generic alternatives had been available earlier. The district court recognized that this presented a problem because even though economic modeling may allow the plaintiffs to approximate the percentage of uninjured brand loyalists in the class, there is no efficient, classwide method for identifying which specific individuals in the class are brand loyalists. Under Asacol, the district court reasoned, the absence of an administratively feasible method for identifying the uninjured class members precluded certification because the defendants had made clear that they would challenge affidavits by consumers that simply attested to their injuries. The district court also rejected the plaintiffs’ attempt to satisfy predominance by invoking a presumption of injury and causation, as the court concluded that Asacol ‘plainly does not contemplate such a presumption.’ ⁵⁹ Ultimately, the court suggested that in any pharmaceutical antitrust case with uninjured brand loyalists, certifying a class ‘containing individual consumers’ is effectively ‘impossible’ under Asacol. ⁶⁰

The district court reached a different conclusion, however, as to the proposed third-party payor class. The court held that this class satisfied all applicable Rule 23 requirements, including predominance under Rule 23(b)(3). In reaching this conclusion, the district court credited the report from the plaintiffs’ expert that each third-party payor in the class suffered some injury, including because each plan almost certainly would have reimbursed at least a single purchase of generic Loestrin 24 during the class period.

Notes