On May 2, 2014, the Federal Trade Commission (FTC) filed an amicus brief with the U.S. Court of Appeals for the Third Circuit requesting that the court reverse the district court’s decision in Lamictal Direct Purchaser Antitrust Litigation, finding that a “no authorized generic” agreement between branded and generic drug makers does not qualify as a “payment,” and is therefore not an antitrust violation.  Such agreements arise in patent settlements when a branded drug maker agrees to not issue its own authorized-generic alternative when the generic company begins to compete.

The FTC has taken the position that the “no authorized generic” agreements are akin to reverse payment settlements.  In FTC v. Actavis, Inc., the Supreme Court clarified that reverse payment settlements can violate the antitrust laws and are to be reviewed under the rule of reason.  In a reverse payment settlement, the branded drug maker pays the generic drug maker to drop its patent claim and not sell the generic drug.

In the Lamictal case, the issue in question was what constituted a payment and therefore, what types of settlements are considered to be subject to antitrust scrutiny.  On one hand, the FTC holds the position that a “no authorized generic” agreement is valuable compensation to the generic drug maker in exchange for abandoning a patent challenge.  The FTC is concerned that unless “no authorized generic” agreements are subject to antitrust laws, drug makers will simply avoid Actavis by structuring patent settlements to exclude cash payments.

The district court, on the other hand, found that a “no authorized generic” agreement is not a cash or other payment that would make the settlement subject to antitrust scrutiny.  One of the primary concerns of classifying this type of agreement as a payment is that nearly all patent settlements include valuable compensation for a party, so almost every patent settlement would raise concerns that the agreement is anticompetitive.