In a decision joining a wave of other courts, the US Court of Appeals for the First Circuit extended the Supreme Court of the United States’Actavis decision to non-cash reverse payments. The court overturned a district court decision dismissing antitrust claims by direct and indirect purchasers, and held that a pair of settlements related to the contraceptive Loestrin® 24 Fe (ethinyl estradiol, norethindrone and ferrous fumarate) could violate antitrust laws, despite the fact that neither settlement involved cash payments. In re Loestrin 24 Fe Antitrust Litigation, 814 F.3d 538, (1st Cir. 2016) (Torruella J.).

The Underlying ANDA Litigations

The plaintiffs in In re Loestrin challenged settlements in two separate Hatch-Waxman litigations over Loestrin 24 Fe, a contraceptive brand sold by Warner Chilcott (now Actavis). Chilcott sued Watson Pharmaceuticals and Lupin Pharmaceuticals in response to the companies’ filing abbreviated new drug applications (ANDAs) on Loestrin 24 Fe. Both cases settled before either defendant brought a generic Loestrin 24 Fe version to market. Importantly, neither settlement involved a direct cash payment from the brand to the generics, other than for attorneys’ fees. The settlements arranged for other forms of compensation, such as delaying the introduction of an authorized generic, licenses to sell other Warner Chilcott drugs or payments to the defendants for co-promotion of other drugs.

Loestrin Purchasers File Antitrust Claims

Direct and indirect purchasers challenged the settlements under Actavis and the defendants moved to dismiss. The US District Court for the District of Rhode Island dismissed the claims. The district court decided that the Supreme Court had been focused entirely on cash payments when deciding Actavis and that the difficulty of valuing non-cash payments counseled against extending the decision. The plaintiffs appealed.

Non-Cash Payments Are Subject to Rule of Reason Antitrust Analysis

On appeal, the First Circuit overturned the district court, adopting a more expansive reading of Actavis. Rather than attempting to analyze the five antitrust considerations that the Supreme Court enumerated in Actavis, the First Circuit focused on Actavis’ specific facts, as well as the decision’s language.

First, the First Circuit noted that Actavis itself involved more than just a cash payment. The settlement in that case also included a promotional agreement whereby the generic companies would promote the brand drug in exchange for multi-million dollar payments. The First Circuit took this as evidence that “the Supreme Court recognized that a disguised above-market deal. . . may qualify as a reverse payment subject to antitrust scrutiny. . . .”

With regard to Actavis’ language, the First Circuit noted that the district court erred when it described the decision as “fixated” on cash. Instead, the First Circuit decided that the key term in the decision was not “cash” or “money,” but instead was “payment.” The court held that payments could include something other than money and could be “any valuable thing” according to Black’s Law Dictionary. These references to payment, combined with the court’s view that antitrust law elevates substance over form, meant that even non-cash payments could be anticompetitive under the rule of reason.

Pleading an Actavis Claim

The court declined to rule on the defendants’ other ground for their motion to dismiss, that the plaintiffs had failed to adequately plead that the reverse payments in the settlement were large and unjustified. However, the court did provide guidance in dicta that precise figures and calculations were not necessary to survive a Rule 12(b)(6) motion, but that plaintiffs would need to allege “facts sufficient to support the legal conclusion that the settlement at issue involves a large and unjustified reverse payment under Actavis.”