Masters v. GlaxoSmithKline

Facts

In April 2005, Masters filed a putative securities fraud class action against GlaxoKlineSmith, PLC (GKS), alleging that GKS was in violation of the Securities Exchange Act § 10(b)-5 in four ways: (1) by making incorrect statements and omissions about the viability of GKS’s patents for its drugs Paxil and Augmentin, and, with respect to those patents, participating in a bout of frivolous litigation (the “patent Claim”); (2) by repressing information regarding Paxil’s addictive nature and withdrawal effects (Paxil Withdrawal Claim); (3) overcharging Medicaid and Medicare for pharmacological products in violation of the Federal False Claims Act, causing numerous lawsuits to be brought against GSK (the “Overcharge Claim”); and (4) by misstating the safety and effectiveness of the use of Paxil in kids and teens (the Paxil Pediatric Claim”). GSK moved to dismiss, and the district court granted its motion as to all claims with the exception of the Paxil Pediatric Claim on statute of limitations grounds. § 10(b) and Rule 10(b)-5 claims limitations time frame is the earlier of: “(1) two years after the discovery of facts constituting the violation; or (2)5 years after such violation.” The former of these is also referred to as the “inquiry notice” period, and begins when “circumstances would suggest to an investor of ordinary intelligence the probability that she has been defrauded.” In regards to the Paxil Withdrawal Claim, GSK was sued over Paxil’s withdrawal effects in 2001, which was made public that same year and was included in GSK’s SEC filings. The complaint claimed the reason behind the decline in the price of GSK stock in 2001 was the lawsuits. That same year, GSK also labeled Paxil so as to warn about discontinuation effects. In regard to the Patent Claim, GSK announced in 2002 that it was having varied results in one patent case and had lost another and later that year, the Federal Trade Commission condemned GSK’s behavior in public, over pursuing the Paxil patent. The complaint claimed that between March 2002 – 2003 GSK stock value declined multiple times in responding to changes in the patents litigation. Lastly, in regard to the Overcharge Claim, the complaint recognizes that lawsuits were filed against GSK in 2001 and informing the public about said lawsuits caused GSK’s share price to drop that year. The litigation was settled in April of 03. Masters appealed, and the court of appeals granted review.