Federal Trade Commission v. Vyera Pharmaceuticals, LLC

Background

The Federal Trade Commission and seven states alleged that Vyera Pharmaceuticals, LLC, its parent company Phoenixus AG, Martin Shkreli, and Kevin Mulleady created and maintained a scheme to prevent generic competition with Daraprim, a drug used to treat toxoplasmosis. According to the amended complaint, the defendants raised Daraprim’s price from $17.50 to $750 per tablet after acquiring its U.S. rights.

The alleged scheme involved three types of agreements and practices: a restricted distribution system that limited generic manufacturers’ access to Daraprim for bioequivalence testing; exclusive supply contracts that restricted access to FDA-approved manufacturers of pyrimethamine, Daraprim’s active ingredient; and data-blocking agreements that prevented distributors from selling market data to aggregators. The plaintiffs alleged that these practices delayed or prevented generic competitors from entering the market.

Motions and legal standard

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal for failure to state a legally sufficient claim. At this stage, the court treated well-pleaded factual allegations as true, drew reasonable inferences for the plaintiffs, and asked whether the allegations made liability plausible—not whether the plaintiffs had already proved their case.

FTC authority and New York claim

The defendants argued that the FTC could not sue under Section 13(b) of the FTC Act because the alleged misconduct involved contracts negotiated and executed before the lawsuit. The court rejected that argument, concluding that the amended complaint adequately alleged that the defendants’ anticompetitive scheme was still operating and affecting generic competition when the lawsuit was filed. The court also rejected the challenge to the New York Executive Law Section 63(12) claim, reasoning that the complaint adequately alleged repeated or continuing illegal conduct.

Federal antitrust claims

The court held that the amended complaint plausibly alleged a violation of Section 1 of the Sherman Act, which prohibits unreasonable restraints of trade created by an agreement or coordinated action. The complaint identified a relevant market—FDA-approved pyrimethamine products for sale in the United States—and alleged coordinated conduct by Vyera, its distributors, and its suppliers. The court found that the contract terms, payments tied to Daraprim’s price or revenue, communications about blocking generic competition, and alleged delays to generic manufacturers were enough at the pleading stage to support an inference of coordinated action and harm to competition.

The court also held that the complaint plausibly alleged a Section 2 Sherman Act claim. Section 2 prohibits monopolization or attempted monopolization through anticompetitive conduct. The defendants did not dispute that the complaint adequately alleged Vyera’s monopoly power in the relevant market. The court concluded that the allegations that Vyera blocked competitors’ access to Daraprim and pyrimethamine in order to maintain that monopoly were sufficient to proceed.

The court declined to dismiss the Sherman Act claims against Shkreli and Mulleady. It explained that individuals may be liable when they participate in antitrust violations, including by negotiating or carrying out agreements that advance a conspiracy. The complaint alleged that Shkreli and Mulleady designed, implemented, and negotiated the contracts that allegedly blocked generic competition.

Pennsylvania consumer-protection claim

The court granted dismissal of the claim under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. The plaintiffs relied on that statute’s provision covering fraudulent or deceptive conduct likely to create confusion or misunderstanding. The court concluded that the amended complaint did not adequately allege that the challenged anticompetitive conduct was fraudulent, deceptive, or likely to create confusion or misunderstanding. It declined to expand the statute’s language to cover the alleged conduct merely because the conduct might violate federal antitrust law.

Other challenges

The court rejected arguments seeking dismissal of certain state-law claims to the extent they sought monetary relief, explaining that the plaintiffs sought equitable monetary relief rather than damages. It also rejected the Individual Defendants’ challenge to the request for equitable monetary relief, finding that the complaint alleged they benefited from Vyera’s gains and gave them sufficient notice of the relief sought. The court rejected Shkreli’s statute-of-limitations argument because the complaint alleged his participation in the challenged conduct within the applicable four-year period and because the FTC’s Section 13(b) claims for equitable relief were not subject to a statute of limitations.

Disposition

Judge Denise Cote granted the defendants’ May 22, 2020 motions to dismiss as to the Pennsylvania UTPCPL claim. She denied the motions to dismiss as to all other claims. This was a pleading-stage ruling and did not determine whether the alleged antitrust violations would ultimately be proven.