The Supreme Court’s decision in FTC v. Actavis last June has incentivized a host of direct and indirect payer antitrust class action suits aimed at branded and generic drug manufacturers that settled their Hatch-Waxman patent litigation disputes that included “reverse payments.” While most of the targeted settlements involved true reverse payments — that is, payments from branded manufacturers to their generic competitors to keep generic versions of products off the market for a period of time — some are taking their cue from the FTC and are challenging patent litigation settlements on antitrust grounds even where no actual reverse payment was made. From the FTC’s and plaintiff’s bar perspective, it would appear that any settlement that doesn’t result in immediate generic entry is actionable on antitrust grounds. But, like so many other positions taken by the Government, does such a viewpoint make common or good policy sense?

Background

We reported on the history and background of the FTC’s decade-long campaign to stamp out reverse payment settlements in our posts titled “Pay-For-Delay and Design Defect Cases Take Center Stage at Supreme Court” and “Supreme Court Deals Blow to Reverse Payment Settlements.” When the Supreme Court ruled in Actavis that reverse payments were subject to a case-by-case “rule of reason” analysis in which the reviewing court would need to determine if the reverse payment was indeed anti-competitive, we knew (and predicted in our post titled “Niaspan Antitrust Suit Underscores High Stakes in Supreme Court Pay-for-Delay Decision” ) that two things would happen: first, that the plaintiff’s class action bar would use the Court’s ruling to attack every reverse payment settlement ever reached on behalf of direct and indirect payers on the grounds that the settlements were anti-competitive collusions among branded and generic manufacturers to prop up drug prices based on invalid patents; and, second, that the FTC would not only side with the plaintiff’s bar in every case, but would eventually argue that any settlement – even one not involving a reverse payment — that results in delayed generic entry is anti-competitive and illegal under the antitrust laws.

Here are just some of the recent developments in various “reverse payment” antitrust class action lawsuits over the past few weeks that bear out our prediction:

  • In Re: Lamictal Indirect Purchaser Antitrust Consumer Litigation, 2:12-CV-05120 (D.N.J.). GlaxoSmithKline (“GSK”) and Teva Pharmaecuticals had settled their Hatch-Waxman patent litigation and even avoided including a reverse payment to Teva. Notwithstanding the district the court’s ruling in December, 2012, that the absence of a reverse payment barred recovery under the antitrust laws, thus distinguishing the present case from the Third Circuit’s K-Dur decision — which had labeled all reverse payments as anti-competitive — the plaintiffs filed a motion for reconsideration and an amended complaint following Actavis. According to the plaintiffs, while Teva didn’t receive cash from GSK, the generic manufacturer did obtain exclusivity to market generic Lamictal tablets prior to expiration of Lamictal’s patent. GSK and Teva have moved to dismiss the amended complaint.
  • In Re: Nexium (Esomeprazole) Antitrust Litigation, 1:12-MDL-02409 (D. Mass.). A Massachusetts federal judge recently denied motions from Astra-Zeneca (“AZ”), Teva, Ranbaxy, Inc., and Dr. Reddy’s Laboratories, Ltd., to dismiss payer antitrust class action suits consolidated in a MDL. According to the plaintiffs, the patent settlements resulted in payments to the generic manufacturers and delayed entry of generic versions of Nexium, AZ’s multi-billion dollar heartburn drug.
  • Laborer’s International Union of North America Local 35 Health Care Fund v. Warner-Chilcott U.S. LLC, 2:13-CV-05375 (E.D. Pa.). Warner-Chilcott (“WC”) was recently hit with a second antitrust class action suit over Loestrin 24 Fe, an oral contraceptive drug for women. According to the complaint, WC knew that its patent for Loestrin was weak, but nevertheless launched patent infringement lawsuits against generic manufacturers Actavis (formerly Watson Laboratories) and Lupin Ltd., in order to get an automatic 30-month stay under the Hatch-Waxman Act. What made WC’s conduct particularly egregious, according to the plaintiffs, is that while it was cutting a deal to split Loestrin monopoly profits with Actavis and Lupin, the pharmaceutical giant unfairly used the stay to develop another oral contraceptive product with patent protection until 2029: “Having initially bought itself more time without generic competition, Warner Chilcott used that time to impair generic competition even beyond the the expiration of the [Loestrin] patent in July 2014. Currently, Warner Chilcott is engaged in a ‘product hop’, whereby it is converting prescriptions for Loestrin 24 Fe, which will face generic competition beginning in 2014, to prescriptions for a follow-on branded product . . . .” (Apparently, in the world view of the plaintiff’s attorneys, once a drug goes generic, the branded manufacturer should be precluded from developing and seeking patent protection for a drug in the same class).
  • Federal Trade Commission v. Boehringer Ingelheim Pharmaceutical Inc., 12-5393-CV (D.C. Cir.). In an appeal from an adverse 2012 federal court ruling, the FTC is arguing to the D.C. Circuit that Boehringer Ingelheim (“BI”) should be compelled to produce documents of financial analyses it prepared in connection with a patent litigation settlement that it reached with Barr. The FTC claims the documents are crucial to its investigation into whether BI provided Barr with a co-promotion agreement as “compensation” for delayed entry of a generic version of Aggrenox, BI’s stroke prevention drug. Although the district court had ordered production of most of the documents sought by the FTC, the agency insists that these last financial analyses are the most critical.
  • In Re: Effexor Antitrust Litigation, 3:11-CV-05479 (D.N.J.). In an amicus brief filed in connection with yet another payer antitrust class action suit, the FTC has taken the position that a settlement where the branded manufacturer (Wyeth, now Pfizer) provided a commitment to a generic manufacturer (Teva) not to market an authorized generic product, such a “No-AG” commitment was a form of reverse payment because it constituted compensation to the generic manufacturer. In other words, the FTC is arguing that because an AG competes with a generic first filer during the Hatch-Waxman 180-day period of exclusivity, a No-AG commitment serves the same function as a reverse payment cash transfer.

Observations

The above list is just the beginning of the litigation and headaches for both branded and generic manufacturers as they not only defend their past settlements, but try to resolve patent litigation going forward. Faced with almost certain litigation and FTC challenges to every settlement, the challenge for industry is to develop a cohesive strategy that will discourage the plaintiff’s bar and the FTC from going beyond what the Supreme Court Actavis majority intended, viz., to discourage true reverse payments on invalid or weak patents. And make no mistake: a cohesive strategy is necessary. How do we know? According to FTC Commissioner Julie Brill, “[Patents] are not ironclad property rights beyond the reach of antitrust,” she declared on September 14th in a speech before the International Bar Association. No, Commissioner Brill, that’s exactly the kind of property rights that are beyond the reach of antitrust and this right is enshrined at Article I, Section 8 of the U.S. Constitution. The whole point of obtaining a patent is to get a limited (20 years) monopoly and the Founding Fathers knew that such a right was necessary in order to promote innovation.

So, what’s the strategy? Well, as we reported in an earlier post, with respect to real reverse payment settlements, the only effective strategy will require that both the branded and generic manufacturer defendants prove the relative strength, if not the outright validity, of the original patent at issue. Under the Actavis rule of reason approach, where a true reverse payment was issued from a branded manufacturer to a generic manufacturer, there is an anti-competitive presumption that can be rebutted only through proof of the pro-competitive effect of the payment and settlement. That presumption will be difficult if not impossible to overcome. However, if manufacturers can demonstrate in an antitrust case the relative strength and validity of the original patent, manufacturers will be doing something that the plaintiff’s bar and FTC are neither prepared nor equipped to do — and which the plaintiff’s bar can least afford ($) to do. While it is true that the Court in Actavis noted that patent validity should not be the focus in an antitrust suit, failing to address the underlying patent will effectively render all reverse payment settlements unlawful. Although such a one-sided outcome might be ideal from the FTC’s and plaintiff’s bar perspective, such a rule clearly goes beyond the holding in Actavis. Unless manufacturers can litigate the validity of the underlying patent, making such litigation cumbersome and prohibitively expensive to plaintiff’s lawyers, industry will be unable to defend against true reverse payment antitrust litigation.

With respect to patent settlements that don’t involve true reverse payments, the best course now is to fight back and point out that Actavis was only concerned with applying a rule of reason test to settlements involving real reverse payments, and not every settlement that didn’t allow for immediate generic entry. It is clear to me that in attacking every patent litigation settlement, the FTC has bitten off more than it can intellectually chew and will find that most courts are unwilling to accept its premise that the antitrust laws, however laudable they may be, trump the Constitutional property right of patents in all cases..