Third Circuit Rules “Rigorous Analysis” of Expert Testimony Required for Class Certification in Antitrust Cases

In April 2020, the U.S. Court of Appeals for the Third Circuit reversed a district court’s decision to certify a class of direct purchaser plaintiffs. The case, In re Lamictal Direct Purchaser Antitrust Litigation, is a stark reminder for litigators that relying on the “common questions of law or fact” for class certification is not always an adequate argument in the eyes of the court. Here, the appellate court found that the district court had not conducted a sufficiently rigorous analysis of the facts, evidence, and expert testimony to determine that common issues predominated, necessitating a class action.

The Underlying Antitrust Case

This ruling concerns the class certification, and not the plaintiff’s antitrust claim related to defendants’ settlement agreement in a patent case. However, it is important to understand the settlement agreement to learn why the appellate court knocked down the district court class certification.

The Lamictal case dealt with an antitrust allegation against two pharmaceutical companies. The plaintiffs, a group of wholesalers, claimed that a patent settlement agreement between GlaxoSmithKline (GSK) and Teva Pharmaceuticals (Teva) to manufacture a generic epilepsy drug had caused the plaintiff class to pay higher prices for the drug. This agreement had allowed Teva to start selling its generic drug six months prior to the expiration of GSK’s patents. In their antitrust class action complaint, the plaintiffs asserted that if Teva had won the patent case and gone to market earlier, prices for its generic version would have been lower. In the agreement, GSK also agreed to not launch its own authorized generic version at all. This, the suit claimed, had effectively eliminated other competition and wrongly raised prices.

Issues During Class Certification

After the district court certified the class of wholesalers, defendants GSK and Teva chose to appeal the classification. This brought the case to the Third Circuit to verify that the requirements of Federal Rule of Civil Procedure 23 had been met. Rule 23 governs class certification, with two subsections relevant to the case at hand. Rule 23(a) dictates that a class must have a sufficient volume of participants, a shared legal complaint, and fair representation. Rule 23(b) requires that common questions of law and fact “predominate over any questions affecting only individual members.” To thoroughly vet the appeal, the Third Circuit decided to review the class certification de novo.

The defendants took particular issue in their appeal with the district court’s predominance decision. The appellate court stated that this aspect of Rule 23(b) deserved a more “rigorous analysis” of key factual disputes, competing evidence, and conflicting expert testimony. The Third Circuit also said the district court confused injury and damages predominance standards. Given these problems, the appellate court ruled it could not determine if common issues predominate.

The Importance of Expert Witness Methodology

The Third Circuit also turned its attention to the role of expert witness testimony during class certification. This included assessing dueling expert reports and modeling used to assert drug pricing had the GSK-Teva agreement not occurred. In its de novo review, the appellate court carefully examined both parties’ expert approaches and how these conclusions impacted merit of the class certification by the district court. An important aspect of the case “redo,” so to speak, will be the proper assessment of dueling expert witness approaches and models at the certification stage.

The plaintiffs’ economics expert witness relied on a model using an average hypothetical price to argue that all or nearly all class members would have paid less for generic epilepsy drugs. The economics expert based the hypothetical data on industry averages for generic drugs and Teva’s own sales records and pricing forecasts. In response, the defendants’ own expert countered that the reliance on an average hypothetical price in the plaintiff expert’s model was a flawed method. Further, the defendants’ expert argued that assuming that an “aggregate actual price” applied to the entire class was incorrect because they failed to consider individual purchase negotiations, the defendants’ own pricing and contracting strategies, and the different prices class members paid—including rebates and discounts.

According to the defense expert, the plaintiff expert’s model and conclusions masked the individual prices members actually paid. Teva and GSK’s expert also provided evidence that up to one-third of the class paid the same or lower prices for generic Teva tablets than they would have paid for any authorized generic GSK might have launched. The defendants’ expert essentially argued that common proof was absent, and that the case required an individualized inquiry. The appellate court cited the defendant expert’s statement that it is, “not possible, absent individualized inquiry, to determine whether any particular member of the proposed [c]lass suffered injury in the form of higher prices as a result of the alleged anti competitive conduct.” With this conclusion, the Third Circuit ruled that the district court abused its discretion in certifying the class without sufficient rigorous analysis of factual disputes, competing evidence, and considering clashing expert witness testimony.

Key Takeaways Regarding Expert Witnesses and Class Certification

This ruling should serve as notice to plaintiff counsel that their experts’ opinions are a large component of successful class certification. This, of course, is especially relevant to the Third Circuit but other courts will likely cite this new precedent as well. Buoyed by this successful challenge to a class certification, more defendants are also likely to invest in top expert witnesses to support their cases.

For both plaintiff and defense class action counsel, this case is a cautionary tale on the importance of hiring excellent expert witnesses during the class certification stage. The credibility of experts and the validity of their models, especially in antitrust class actions, is paramount in getting a class certified. The quality of an expert witness can make or break a case—as seen in the Lamictal case—and lawyers would be wise to invest in finding and consulting the most qualified expert witnesses to give their class actions the best chance of success.

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