Don’t Count Out Numerosity

03.15.2023

To obtain class certification, the Supreme Court of the United States requires a rigorous analysis under Rule 23.[1] Economists can provide information and analyses that assist the court in several parts of Rule 23, including:

• Numerosity refers to whether the class is so large that joinder of all members is impracticable. Through analysis of the data, economists can identify and quantify the number of unique entities that made purchases from defendants and belong to the proposed class.
• Typicality refers to whether class representatives’ claims or defenses are typical of the claims or defenses of the class. Economists can provide information comparing and contrasting the class representatives with the absent class members in areas such as purchase volumes.
• Predominance relates to whether questions of law or fact common to the class members predominate over any questions affecting only individual members. Economists can examine whether economic evidence and models show that all or nearly all class members were injured by the alleged conduct and if damages can be reliably calculated on a formulaic basis.  In other words, if all class members were to pursue litigation individually against the defendants, could each party use the same economic analysis to establish antitrust injury and damages?

Much of our work as economic experts in pharmaceutical class certification matters addresses predominance issues.  However, in February 2023, two pharmaceutical industry cases had opinions issued citing plaintiffs’ failure to meet numerosity standards.  In our experience as pharmaceutical antitrust experts, the issue of numerosity most frequently arises in direct purchaser matters.  We discuss a brief history of the numerosity standards and the potential implications of these recent decisions in pharmaceutical antitrust matters.

The Modafinil Standard

Since its issuance on September 13, 2016, the In Re Modafinil Antitrust Litigation opinion has been well-known for its assessment of the standards for plaintiffs in a proposed class action to meet Rule 23(a)(1)’s numerosity requirement.[2]  The Modafinil case involved “pay-for-delay” allegations involving the branded drug Provigil. Specifically, Cephalon, which marketed the branded drug, entered into settlements with four generic pharmaceutical manufacturers that allegedly resulted in a delay in the launch of generic versions of Provigil.[3] The proposed class consisted of 22 pharmaceutical wholesalers that purchased Provigil from Cephalon at purportedly supracompetitive prices.[4] While the district court concluded that the numerosity requirements had been met, the Third Circuit reversed the decision and provided six factors for assessing numerosity.  These are:

• Judicial economy,
• Class members’ ability and motivation to litigate as joined plaintiffs,
• Financial resources of class members,
• Geographic dispersion of class members,
• Ability to identify future claimants, and
• Whether the claims are for injunctive relief or damages.[5]

The first two factors were identified as the ones that are of primary importance.[6] The court noted that “the number of class members is the starting point of [the] numerosity analysis,” and while “no minimum number of plaintiffs is required to maintain a suit as a class action,” joinder is generally presumed to be impracticable when the potential number of class members exceeds forty.[7]

February 2023 Colchicine Decision

In the Value Drug Company v. Takeda Pharmaceuticals, U.S.A., Inc., et al. matter, the court denied class certification based on the plaintiff’s failure to meet its burden with respect to numerosity.[8]  Value Drug argued that it met the numerosity threshold based on the six factors identified under Modafinil.  For example, the plaintiff argued that “[e]very single Court that has addressed numerosity challenges to Classes like this one with more than 40 Class Members have found numerosity met where the Class exceeded 40” and that the Modafinil factors therefore do not apply.  Defendants argued that Value Drug had produced no evidentiary proof in the case at hand and provided only arguments, not evidence, of the Modafinil factors. 

The court applied “the rigorous scrutiny our Court of Appeals requires as to each aspect of the class certification process including whether joinder of up to a maximum of forty-nine entities is impracticable.”[9]  “While the number is not determinative, we conduct a ‘rigorous analysis’ if the proposed class exceeds forty and a ‘particularly rigorous analysis’ if the proposed class is below forty.”  The court analyzed each of the Modafinil factors and found that “[o]ur rigorous analysis of the evidence (especially the lack of evidence) confirms Value Drug has not shown…joinder would be impracticable.” The opinion further stated that that the plaintiff “does not adduce evidence of why the joinder of no more than forty-nine known-entity purchasers of colchicine is impracticable.”[10]

February 2023 Lamictal Decision

Also in February 2023, in the In re: Lamictal Direct Purchaser Antitrust Litigation, the court denied class certification based on plaintiffs’ failure to meet the numerosity standard.[11]  Class certification had previously been denied based on predominance grounds[12] (see our article published in Law360 for a discussion of economic issues raised in the court’s predominance opinion). Here, plaintiffs sought to certify a class of 32 direct brand purchasers and eight generic-only purchasers that Defendants’ purportedly had not claimed to be uninjured.[13]

The court concluded that the issue of whether generic-only purchasers were injured had already been litigated and class certification denied, and the only remaining issue to be resolved was whether the proposed class of 32 direct brand purchasers satisfied the numerosity requirement.[14]  Since the class included fewer than 40 members, the court conducted a “particularly rigorous” analysis of the impracticability of joinder based on the Modafinil factors.[15]

The court sided with defendants on the factors relating to judicial economy and class members’ ability and motivation to litigate as joined plaintiffs. With respect to judicial economy, the opinion stated that “[a]s Defendants note, the nature of the matter (two defendants competing on an individualized basis as to each plaintiff), and how it has proceeded to date (including the named Plaintiffs’ joint conduct), indicate that joinder is particularly feasible here” and concluded that Plaintiffs’ failed to counter these arguments.[16] On the issue of Plaintiffs’ ability and motivation to litigate as joined plaintiffs, the opinion noted that Plaintiffs had failed to show that individual suits were necessary or that the expense of litigation were sufficient to make litigation cost prohibitive given the plaintiffs’ damages claims.[17] The court also discounted “Plaintiffs purported concern of ‘possible retaliation’ because Plaintiffs have offered no proof to support this contention.”[18] 

The court also briefly analyzed the remaining factors, noting that the parties generally did not disagree on the issues and concluding that some weighed for joinder and others against.[19]  Taken together, the court concluded that “Plaintiffs have not proven by a preponderance of the evidence that the class members are so numerous as to render joinder impracticable.”[20]

Potential Implications for Economic Analysis

While economists are not always asked to study numerosity and the related Modafinil factors, economic analyses conducted at the class certification stage of pharmaceutical antitrust litigation can assist the court in assessing those factors.  For example, careful and rigorous preparation of the data and standardization of customers can provide helpful information on the number of class members at issue.[21]  Similarly, analyses of sales and purported damages to individual class members can potentially be helpful in assessing their incentive and ability to litigate.  This may be particularly true when defendants’ expert opines that plaintiffs’ economic analysis fails to demonstrate that numerous individual class members were injured and/or that their damages can be formulaically calculated.

Finally, information on the class representatives (typically not one of the “Big 3” wholesalers), procurement, and the pharmaceutical industry supply chain can provide helpful information and context on issues such as geographic dispersion, the potential extent of discovery (e.g., if terms of sale are individually negotiated), and the ability to identify future claimants (if any).  Counsel should work closely with their economic experts to assess the usefulness of these types of information and analyses to inform the court.

[1] See, for example, Comcast Corp. v. Behrend, No. 11-864 (Supreme Court of the United States, March 27, 2013), where it reaffirmed that district courts must undertake a “rigorous analysis” of whether a proposed class satisfies the requisite predominance criteria.

[2] In re Modafinil Antitrust Litigation, No. 15-3475 (U.S. Court of Appeals for the Third Circuit, September 13, 2016) (“Modafinil”).

[3] https://www.americanbar.org/groups/litigation/committees/class-actions/practice/2016/in-re-modafinil/.

[4] Modafinil., p. 17.

[5] https://www.americanbar.org/groups/litigation/committees/class-actions/practice/2016/in-re-modafinil/.

[6] Ibid.

[7] In re: Lamictal Direct Purchaser Antitrust Litigation, No. 12-995 (U.S. District Court, District of New Jersey, February 1, 2023), p. 7 citing Modafinil (“Lamictal Numerosity Opinion”).

[8] Value Drug Company v. Takeda Pharmaceuticals, U.S.A., Inc., et al., No. 21-3500 (U.S. District Court, Eastern District of Pennsylvania, February 28, 2023) (“Colchicine Opinion”).

[9] Colchicine Opinion, p. 1.

[10] Id., p. 2.

[11] Lamictal Numerosity Opinion, p. 1.

[12] In re: Lamictal Direct Purchaser Antitrust Litigation, No. 19-1655 (U.S. Court of Appeals for the Third Circuit, April 22, 2020).

[13] Lamictal Numerosity Opinion, p. 8.

[14] Id., p. 14.

[15] Id., p. 15.

[16] Id., p. 17.

[17] Id., pp. 17-20.

[18] Id., p. 19.

[19] Id., pp. 20-21.

[20] Id., p. 21.

[21] For a discussion our views on best practices for managing data in antitrust matters, see articles published in Law360 and in the ABA Economics Committee Newsletter.