Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-md-01761/USCOURTS-cand-3_06-md-01761-20/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 28:1331 Fed. Question: Anti-trust

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United States District Court

For the Northern District of California

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 The Court denies ASC’s administrative motion to lodge a statement of recent

decision because the opinion cited is inapplicable to the issues before the Court on the

pending motion to dismiss.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

IN RE: DITROPAN XL ANTITRUST

LITIGATION 

This Order Relates to:

ALL CASES

 /

CASE NO. M:06-CV-01761-JSW

MDL No. 1761

AMENDED ORDER GRANTING

DEFENDANTS’ MOTION TO

DISMISS DIRECT PURCHASER’S

SECOND AMENDED

COMPLAINT

Now before the Court is the motion to dismiss plaintiff American Sales Company’s

(“ASC”) second amended class action complaint (“SAC”) filed by defendants Alza Corporation

(“Alza”) and Ortho-McNeil Pharmaceutical, Inc. (“Ortho-McNeil”) (collectively,

“Defendants”). Having considered the parties’ arguments, relevant legal authority, and having

had the benefit of oral argument, the Court hereby grants the motion to dismiss the ASC’s

SAC.1

BACKGROUND

This is an antitrust action. ASC alleges that Alza Corporation (“Alza”) filed a baseless

complaint to preclude a competitor from producing a generic version of the drug Ditropan XL,

as well as other anti-competitive conduct. (SAC, ¶¶ 5, 8.) ASC alleges that Ortho-McNeil

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participated in the anti-competitive conduct by filing a citizen’s petition in front of the Food and

Drug Administration. (Id., ¶¶ 8, 58.) Both Alza and Ortho-McNeil are wholly owned

subsidiaries of Johnson & Johnson. (Id., ¶ 6.) According to ASC, through such anticompetitive conduct, Alza and Ortho-McNeil were able to maintain a monopoly and charge

supra-competitive prices for Ditropan XL. Based on such conduct, ASC asserts a claim under

Section 2 of the Sherman Act, 15 U.S.C. § 2.

Although ASC brings this action as a direct purchaser, it is undisputed that ASC did not

purchase Ditropan XL from either Alza or Ortho-McNeil. Rather, ASC’s claim is premised on

Cardinal Health, Incorporated’s (“Cardinal”) purchases of Ditropan XL from Ortho-McNeil. 

ASC contends that it has standing to sue as a direct purchaser based on purported assignments

from Cardinal to sue Ortho-McNeil and Alza. Defendants challenge the validity of any such

assignments. 

The Court will address additional specific facts as required in the analysis.

ANALYSIS

A. Legal Standards Applicable to a Motion to Dismiss.

Standing pertains to a federal court’s subject-matter jurisdiction under Article III, and

thus, is properly raised in a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1)

(“Rule 12(b)(1)”). White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). When a defendant

moves to dismiss a complaint or claim for lack of subject matter jurisdiction, the plaintiff bears

the burden of proving that the court has jurisdiction to decide the claim. Thornhill Publ’n Co. v.

General Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979); see also Wilbur v. Locke, 423

F.3d 1101, 1107 (9th Cir. 2005) (plaintiff bears burden of establishing standing). 

A motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) may be

“facial or factual.” Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004.) 

Where an attack on jurisdiction is a “facial” attack on the allegations of the complaint, the

factual allegations of the complaint are taken as true and the non-moving party is entitled to

have those facts construed in the light most favorable to him or her. Federation of African

Amer. Contractors v. City of Oakland, 96 F.3d 1204, 1207 (9th Cir. 1996). If the jurisdictional

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 The Court disagrees with ASC that the purported assignment’s failure to name

Ortho-McNeil as one of the Manufacturer Defendants who may be sued by ASC is merely a

technical failure. (Opp. at 6.)

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attack is “factual,” a defendant may rely on affidavits or other evidence that would be properly

before the Court, and the non-moving party is not entitled to any presumptions of truthfulness

with respect to the allegations in the complaint. Rather, he or she must come forward with

evidence establishing jurisdiction. Thornhill, 594 F.2d at 733. 

B. ASC Lacks Standing to Sue Ortho-McNeil.

Defendants raise two defects with ASC’s asserted standing based on a purported

assignment from Cardinal. First, Defendants argue that ASC does not have an executed

assignment from Cardinal to sue Ortho-McNeil. Second, Defendants contend that any such

assignment would be barred by the Distribution Performance Agreement between Cardinal and

Ortho-McNeil. 

Whether a plaintiff has standing to sue “is determined as of the date of filing the

complaint.... The party invoking the jurisdiction of the court cannot rely on events that unfolded

after the filing of the complaint to establish its standing.” Wilbur, 423 F.3d at 1107 (citation

omitted). The assignment ASC initially relied on to sue Ortho-McNeil only provides authority

to sue Alza and Johnson & Johnson. (Declaration of Michael A. Sitzman, Ex. 1.) ASC

attempts to cure this defect by submitting another assignment from Cardinal.2

 ASC submitted a

document entitled: “[Proposed] Assignment of Claims from Cardinal ....” (Declaration of

Elaine T. Byszewski, ¶ 4, Ex. A.) This purported assignment, which does name Ortho-McNeil,

is dated July 2, 2007, after ASC filed its SAC, and is not signed by ASC. At the oral argument

on the instant motion to dismiss, ASC represented that it now possesses a fully executed

assignment from Cardinal to sue Ortho-McNeil. Nevertheless, any such assignment post-dates

SAC’s filing of the SAC and is thus insufficient to confer standing. See Wilbur, 423 F.3d at

1107.

Even if SAC had presented a fully executed assignment from Cardinal naming OrthoMcNeil, SAC’s standing suffers from another defect – any such assignment is precluded by the

Distribution Performance Agreement between Cardinal and Ortho-McNeil. (Supplemental

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Declaration of Jill Lavitsky (“Suppl. Lavitsky Decl.”), Ex. 2.) The DPA prohibits either

Cardinal or Ortho-McNeil from assigning rights or obligations arising under the DPA without

the consent of the other party. (Id., Ex. 2.) Ortho-McNeil has not consented to any assignment

by Cardinal. (Id., ¶ 4.) Defendants submit evidence to show that the Distribution Performance

Agreement (“DPA”) governs Cardinal’s purchases of Ditropan XL from Ortho-McNeil. (Suppl.

Lavitsky Decl., ¶ 3 (“Cardinal’s purchases of Ditropan XL from Ortho- McNeil are made

pursuant to the terms of the DPA.”).) Despite having notice of this argument and evidence

since at least November 3, 2006, when Defendants filed a similar declaration in support of their

first motion to dismiss, ASC did not submit any contrary evidence. Instead, ASC relies solely

on the language of the DPA to argue that it does not apply to purchases, but rather is merely an

inventory replenishment agreement. However, the Court notes that the DPA discusses price

control protection. (Id., Ex. 2 at 7-9. ) Therefore, the agreement may not be construed

accurately as merely an inventory replenishment agreement. In light of Defendants’

uncontradicted evidence demonstrating that the DPA governs the relationship between OrthoMcNeil and Cardinal and that Cardinal’s purchases of Ditropan XL from Ortho-McNeil are

made pursuant to the terms of the DPA, the Court finds that ASC’s purported assignment is

barred by Cardinal’s failure to obtain Ortho-McNeil’s consent. Accordingly, the Court grants

Defendants’ motion to dismiss as to Ortho-McNeil.

C. ASC Fails to Allege Facts Supporting It Claim Against Alza.

Without standing to sue Ortho-McNeil, ASC must allege facts demonstrating it can

bring a direct purchaser action against Alza, a company that admittedly did not sell the Ditropan

XL during the purported class period. With limited exceptions, only direct purchasers may

bring an antitrust claim under Section 2 of the Sherman Act. See Illinois Brick Co. v. Illinois,

431 U.S. 720, 730-36 (1977); Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481,

492-94 (1968). In Illinois Brick, the Supreme Court suggested there were two exceptions to this

prohibition against indirect purchaser antitrust suits: (1) if an indirect purchaser received goods

from the direct purchaser according to a preexisting “cost-plus contract;” or (2) if the direct

purchaser is controlled or owned by another party, either by the seller or the indirect purchaser. 

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Illinois Brick, 431 U.S. at 726 n. 2, 736 n. 16; see also Royal Printing Co. v. Kimberly-Clark

Corp., 621 F.2d 323, 326 (9th Cir. 1980) (applying ownership or control exception to allow

indirect purchaser’s suit). The Supreme Court later clarified that these exceptions should be

read narrowly and not expanded. Kansas v. Utilicorp United, Inc., 497 U.S. 199, 216-17

(1990); see also Burkhalter Travel Agency v. MacFarms Internat’l., Inc., 141 F.R.D. 144, 148

(N.D. Cal.1991) (“The Supreme Court has made it clear that these are very limited

exceptions.”). ASC has not alleged any facts, or even argued, that its claim falls within either of

these two exceptions.

Instead, ASC contends that it can maintain its antitrust claim against Alza because it

alleges that Alza and Ortho-McNeil were “business partners” and conspired together to exclude

competitors from the market. However, this argument suffers from several defects. First,

despite the Court’s admonition in the order dismissing the first amended class action complaint

to “be careful to plead facts that demonstrate a basis to maintain a direct purchaser action

against ... Alza based on sales by Ortho-McNeil” (Docket No. 66 at 3 n.2), the SAC does not

actually contain any allegations which, if true, would demonstrate the existence of a conspiracy

between Alza and Ortho-McNeil. The Supreme Court recently clarified that to plead a

conspiracy under Section 1 of the Sherman Act, a plaintiff must allege “enough factual matter

(taken as true) to suggest that an agreement was made. ... [A]n allegation of parallel conduct

and a bare assertion of conspiracy will not suffice.” Bell Atlantic Corp. v. Twombly, 127 S.Ct.

1955, 66, 71 n.10 (2007). While a complaint need not contain detailed factual allegations, a

plaintiff must do more that provide mere “labels and conclusions ... . Factual allegations must

be enough to raise a right to relief above the speculative level.” Id. at 1964-65 (finding

allegations of conspiracy insufficient where “the pleadings mentioned no specific time, place, or

person involved in the alleged conspiracies”). Although ASC’s claim arises under Section 2 of

the Sherman Act, the Court finds no reasoned basis to avoid the application of the standard set

forth in Twombly here, especially in light of the fact that ASC’s sole basis upon which it asserts

its direct purchaser action against Alza is predicated on a purported conspiracy.

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 At the oral argument on the instant motion to dismiss, ASC argued that there was

no Illinois Brick issue present here because there was only one level of selling. However, as

ASC alleges, Alza owns the patent for Ditropan XL. (SAC, ¶¶ 6, 50.) Thus, in order for

Ortho-McNeil to sell Ditropan XL, Alza must have sold a licence or otherwise transacted

with Ortho-McNeil regarding Ditropan XL. Moreover, it is not clear which entity

manufactures Ditropan XL. In paragraph 6 of its SAC, ASC alleges that Alza manufactures

the drug, but in paragraph 51, ASC alleges that Ortho-McNeil is the entity that manufactures

Ditropan XL. To the extent Alza is the entity that manufactures Ditropan XL, Ortho-McNeil

must have purchased Ditropan XL from Alza. Therefore, ASC is an indirect purchaser with

respect to Alza and Illinois Brick’s prohibition against antitrust suits by indirect purchasers is

fully applicable.

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Second, it is not clear that there is a valid co-conspirator exception to the prohibition on

indirect purchaser suits. In UtiliCorp United, the Supreme Court “cautioned lower federal

courts against creating new exceptions to the Illinois Brick rule.” Dickson v. Microsoft Corp.,

309 F.3d 193, 214 (4th Cir. 2002) (quoting UtiliCorp United, 497 U.S. at 216: “The rationales

underlying Hanover Shoe and Illinois Brick will not apply with equal force in all cases. We

nonetheless believe ample justification exists for our stated decision not to carve out exceptions

to the direct purchaser rule.”); see also In re Bank Name Prescription Drugs Antitrust Litig.,

123 F.3d 599, 605 (7th Cir. 1997) (“Utilicorp implies that the only exceptions to the Illinois

Brick doctrine are those stated in Illinois Brick itself.”). The Fourth Circuit noted that despite

the Supreme Court’s admonition, several courts have recognized a “co-conspirator exception”

to the direct purchaser rule. Dickson, 309 F.3d at 215 (reserving on ruling whether the court

would recognize such an exception). The Ninth Circuit has not addressed the purported coconspirator exception to Illinois Brick since the Supreme Court’s admonition in UtiliCorp

United. Thus, it is not clear whether such an exception is valid. However, the Court need not

decide whether such an exception would be valid because ASC is barred from relying on any

such exception based on its inability to sue the direct seller, Ortho-McNeil.

Alleged co-conspirator-intermediaries, whose participation must be demonstrated if a

vertical conspiracy is to be proved and Illinois Brick circumvented, must be named as

defendants.3

 In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litig.,

681 F.2d 1335, 1342 (9th Cir. 1982) (“joinder of [direct sellers] is required to prevent a serious

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 The Court notes that the Ninth Circuit in William Inglis & Sons Baking Co. v. ITT

Continental Baking Co., 668 F.2d 1014 (9th Cir. 1981), stated that a plaintiff was “not

required to sue all of the alleged coconspirators inasmuch as antitrust coconspirators are

jointly and severally liable for all damages caused by the conspiracy.” Id. at 1053. 

However, in William Inglis, the plaintiff did not allege a vertical conspiracy to circumvent

Illinois Brick. See In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust

Litig., 1992-2 Trade Cases P 69,915, 1992 WL 220753, * 5 (C.D. Cal. July 16, 1992)

(distinguishing William Inglis, noting that William Inglis stands for the general proposition

that a plaintiff need not name all members of a conspiracy in order to proceed against any

conspirator, but that a plaintiff must join the direct seller if it alleges a vertical conspiracy to

circumvent Illinois Brick); see also In re Midwest Milk Monopolization Litig., 730 F.2d 528,

531 (8th Cir. 1984) (noting that the court in William Inglis did not discuss the issue of

joining co-conspirators in terms of Illinois Brick”).

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risk of multiple liability”);4 see also Link v. Mercedes-Benz of N. Am., Inc., 788 F.2d 918, 931

(3d Cir. 1986) (“We decline to recognize this exception where, as here, the alleged coconspirators are not also joined as co-defendants.”); In re Midwest Milk Monopolization Litig.,

730 F.2d 528, 532 (8th Cir. 1984) (“[A]ssuming plaintiffs’ argument to be a valid exception to

Illinois Brick, joinder of the ... unnamed coconspirators[ ] is required to prevent a substantial

risk of duplicitous liability.”); In re Beef Indus. Antitrust Litig., 600 F.2d 1148, 1163 (5th Cir.

1979) (“[W]e do not think that the reasoning of Illinois Brick permits recognizing the exception

when, as here, the alleged co-conspirator middlemen are not named as parties defendant.”). 

Here, as discussed above, ASC does not have standing to sue Ortho-McNeil, the alleged coconspirator-intermediary. Thus, ASC cannot rely on any conspiracy exception to bring its suit

against Alza, a non-direct seller. Accordingly, the Court grants Defendants’ motion as to Alza.

CONCLUSION

For the foregoing reasons, the Court GRANTS Defendants’ motion to dismiss. The

Court’s dismissal of Ortho-McNeil is with prejudice. With respect to Alza, the Court will

provide ASC one last opportunity to amend its complaint to plead facts to show ASC may bring

an antitrust claim against this non-direct seller. As noted above, ASC did not plead or argue

that its claim falls within one of the two exceptions stated in Illinois Brick: (1) if Ortho-McNeil

received goods from Alza according to a preexisting “cost-plus contract;” or (2) if OrthoMcNeil is controlled or owned by Alza. If ASC has a good faith belief that one of these two 

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exceptions is applicable, it may file an amended complaint by within twenty-one days. If ASC

does not file an amended complaint within twenty-one days, its action shall be dismissed. 

IT IS SO ORDERED.

Dated: October 11, 2007 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

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