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The third rail of the antitrust world is the criminal price-fixing investigation, as many generic drug companies are now discovering. What started as a small, nonpublic Department of Justice investigation into prices of a couple of generic drugs has morphed into a massive criminal investigation targeting scores of drug companies and triggering the start of plea deals, the inevitable follow-on civil cases, including cases brought by state attorneys general, and a multidistrict litigation (MDL), plus all the ensuing bad publicity, pressure, and even political scrutiny.

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Given the size of the health care industry, its importance to the health and well-being of consumers, and our aging population, it is perhaps no surprise that drug prices, especially for common “maintenance” drugs, draw the focus of regulators and civil plaintiffs. What is surprising is the scope and reach of the allegations so far made public. One state AG lawyer has claimed the alleged price-fixing conspiracy is the largest in U.S. history. This client alert focuses on the basic publicly available facts about these cases and how the ongoing cases and investigation are likely to affect not only drug manufacturers and their executives now at risk, but also health care distributors, pharmacies, insurance companies, and employers.

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Sometime around late 2014, a federal grand jury was empaneled to investigate price fixing in certain generic drugs. This action may have been triggered by an amnesty application by one of the allegedly conspiring companies. Likely the result of parallel investigations, in late 2016, 20 state attorneys general filed a price-fixing lawsuit in Connecticut federal court against six generic drug companies alleging that they conspired to fix prices in the two generic drug markets (antibiotics and diabetes medications) through coordination engineered at trade shows, conferences, and other events. Since then, the lawsuit has transformed into a large MDL involving class-action plaintiffs in addition to the state attorneys general. In January 2019, United HealthCare filed its own price-fixing lawsuit, by way of a sprawling 350-page complaint against 24 defendants, alleging that “collusion in the generic pharmaceutical industry is well established at this point.”

The criminal investigation has grown immensely. Recently, one state assistant attorney general called the allegedly expansive conspiracy “most likely the largest cartel in the history of the United States.” According to comments that official made to The Washington Post, it now includes at least 16 companies and 300 drugs, plus almost every state attorney general and federal law enforcement. In early 2017, two executives of Heritage Pharmaceuticals, the company that was the focus of the original state AG lawsuit, pleaded guilty to fixing prices for two generic drugs, doxycycline and glyburide, and agreed to cooperate.

Much remains unknown about the scope of the investigations and activities. DOJ sought a stay of all discovery in the MDL, but the court denied that motion and has allowed limited discovery, including some third-party subpoenas. More charges are expected.

Price-fixing cases, by definition, involve an illegal agreement or conspiracy among competitors. The conspiracy focuses on certain products that are effectively interchangeable and that the competitors sell against each other in the marketplace. While these cases can be sprawling and may even extend worldwide, they typically involve a limited set of “relevant” antitrust markets.

This investigation appears to be different. Different generic drugs are not substitutes for each other. A patient cannot swap out a medicine to control cholesterol with one that treats diabetes. The investigation involves dozens of companies that are not direct competitors and multiple generic drugs that are not substitutes for each other. As a result, the cases, as alleged, appear more like a set of adjacent conspiracies that are not directly related.

The last sprawling federal antitrust criminal matter had a similar makeup. In the auto parts cases, DOJ prosecuted both companies and individual executives involved in selling at least 50 different types of car parts. The products ranged from wire harnesses and fuel senders to heating control panels and bearings. The conspiracy was engineered by a handful of large players that entered into agreements for a small set of discrete parts sold by a few players. The players then learned to copy these activities in unrelated products, in part by recruiting new co-conspirators. The problem became viral. DOJ prosecuted 65 executives and nearly 50 companies for antitrust crimes, and all but two companies pleaded guilty, racking up a combined total of almost $3 billion in criminal fines.

This should be a lesson for companies whose more distant competitors get caught up in antitrust investigations. Both the problems and the investigations may travel into adjacent products. Indeed, DOJ is well aware of this dynamic and offers “amnesty plus” to companies that are not able to receive amnesty in the original investigation (as only the first company qualifies) but are able to cooperate on a different set of products. Company counsel who become aware of investigations into “other products” involving their competitors would be wise to make sure their own companies have achieved the proper level of antitrust compliance.

If You Do Not Change Direction, You May End Up Where You Are Going

It is clear that the massive investigation and litigation will continue in tandem, potentially with more companies – and likely individual executives – swept up in it. More criminal charges are expected and could be announced any day. Two executives have already pleaded guilty and agreed to cooperate with the investigation. Companies should redouble their efforts to ensure their pricing policies and practices comply with the antitrust laws. They should seek competent antitrust counsel to help craft their compliance procedures, limit their potential exposure, and plan for how to respond to DOJ inquiries.

Daniel Ferrel McInnis 202.263.4110 <a href="mailto:Dan.McInnis@ThompsonHine.com" target="_self" rel="noopener">Dan.McInnis@ThompsonHine.com</a>

Mark R. Butscha, Jr. 216.566.5897 <a href="mailto:Mark.Butscha@ThompsonHine.com" target="_self" rel="noopener">Mark.Butscha@ThompsonHine.com</a>

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel. This document may be considered attorney advertising in some jurisdictions.

Generic Drugs: Biggest Price-Fixing Case Ever?

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