Last month, the United States Court of Appeals for the Third Circuit overturned a district court’s dismissal of an antitrust suit challenging a Hatch-Waxman Act settlement that GlaxoSmithKline PLC (Glaxo) signed with Teva Pharmaceutical Industries Ltd. (Teva), over the epilepsy drug Lamictal.1

At issue was the agreement made between Glaxo and Teva that, in exchange for Teva delaying entry of its generic version of Lamictal, Glaxo would agree to not enter the generic market itself with an “authorized generic (AG)” of its own. Plaintiffs, direct purchasers of brand-name Lamictal, challenged the so called “no-AG” agreement as violating Sections 1 and 2 of the Sherman Act for generating an anti-competitive market place. The end result of the agreement was that, for the 180-day exclusivity period afforded to Teva as the first Abbreviated New Drug Application (ANDA) filer, Teva would be the only generic. They would not have to split any profits with any generic competitor, including any potential generic authorized by, or even produced by, Glaxo. Thus, only the Glaxo brand and the Teva generic would be available for the 180 exclusivity day period.

The Third Circuit sided with the plaintiffs, agreeing that the Glaxo-Teva agreement failed a rule of reason analysis and violated the antitrust laws.2 The Third Circuit held that the agreement represented “an unusual, unexplained transfer of value from the patent holder to the alleged infringer that cannot be adequately justified – whether as compensation for litigation expenses or otherwise,” and violated the antitrust rule of reason analysis.3 Thus, it appears that regardless of the type of compensation, “pay-for-delay” agreements will be more closely scrutinized by the courts as the breadth of the holding in Actavis is applied to various settlement arrangements.

One point of note in King Drug, however, may be how much weight the Third Circuit placed on the fact that Glaxo’s patent was most likely going to be found invalid.4 While it is not clear that a no-AG agreement, if made earlier in the patent validity litigation, would have still run afoul of the rule of reason analysis, the Third Circuit perhaps felt confident that the agreement was made to save an invalid patent.5 It will be interesting to see in other “pay-for delay” settlements, if the timing of the agreement plays any role in the final analysis under the rule of reason.