2019 witnessed a number of developments in challenges to reverse-payment settlements. In its first decision on a pay-for-delay settlement since the Supreme Court’s seminal 2013 decision in FTC v. Actavis, the FTC took an aggressive approach to evaluating a plausible restraint on trade and analyzing proffered procompetitive benefits, reversing the ALJ who heard the case. In the Southern District of New York, an attempt by direct purchasers to plead a conspiracy arising out patent-infringement settlements without an alleged reverse payment failed. And, in the class certification context, district courts grappled with Rule 23(b)(3)’s predominance requirement. These notable cases in antitrust actions concerning the pharmaceutical industry are discussed below.
Reverse-payment or “pay for delay” cases arise when parties settle patent litigation under the Hatch-Waxman Act with an alleged agreement by the brand-name patent holder to provide some form of consideration to the allegedly infringing generic manufacturer inducing delayed introduction of its generic drug. In Actavis, the Supreme Court held that “large and unjustified” reverse payments risk anticompetitive effects, and pronounced that such settlement agreements must be analyzed under the Rule of Reason, considering such factors as: size of the payment, scale of the payment as compared to the patentee’s potential litigation cost; relationship of the payment to any other services agreed upon in the settlement, and any other justifications for the settlement. If the plaintiff makes a showing that the defendant’s conduct prevented the risk of competition, the defendant has the burden of showing procompetitive justifications for the deal.
Since Actavis, reverse payment lawsuits have been brought in which the alleged consideration was not the payment of money, but instead involved:
- Cash or legal fees;
- Global settlement of litigation involving multiple other patents or drugs;
- Agreement by the brand manufacturer not to market an authorized generic (“No AG agreements”);
- Co-promotion agreements; or
- Back-up manufacture or supply agreements.
FTC Weighs In: In re Impax
Applying Actavis for the first time, the Commissioners of the FTC ruled by a unanimous vote in March that a settlement of Hatch-Waxman litigation between Endo and Impax involved an illegal reverse payment in violation of Section 5 of the FTC Act. Reversing the ALJ’s 162-page decision, which followed a 12-day trial, the FTC found that the terms of the settlement agreement constituted payment by Endo for Impax’s delayed launch of its generic Opana ER (an opioid), without countervailing procompetitive benefit. The case is now being briefed before the Fifth Circuit, where the parameters of Actavis will be hotly contested.
The settlement agreement at issue included: Impax’s agreement to delay launch of its generic Opana ER for 2.5 years; a no-AG agreement by Endo; a contingent payment to Impax in the event the market for Opana ER declined (the “Endo credit”); payment by Endo for Impax’s development and co-promotion of a Parkinson’s disease mediation; a license of Endo’s current and future patents on Opana ER, as well as a covenant not to sue for infringement of those patents. Although the ALJ found that those settlement terms constituted a reverse payment from Endo to Impax, the ALJ held that the procompetitive benefits of the settlement outweighed any anticompetitive harms. Specifically, the ALJ found that Endo’s patent licenses and covenant not to sue resulted in a generic Opana ER coming on the market nine months before Endo’s patent expired, giving consumers access to a generic version of the drug.
Reversing, the FTC found that the Endo agreement restrained trade because there was “a plausible risk” that, absent the agreement, Impax would have entered the market earlier than the date agreed upon with Endo. The FTC declined to consider “[h]ow likely it was to launch, when, and precisely how much competition was eliminated,” holding that Actavis requires only a finding that the settlement prevented “the risk of competition.” According to Impax in its briefing on appeal, such an analysis “ignores the possibility that the brand manufacturer might win the [underlying patent] case,” “incorrectly defin[ing] the baseline level of competition as the earliest possible date the generic could have entered the market, without regard to the relevant patent.”
The FTC also reversed the ALJ’s finding that the settlement was procompetitive, concluding that a purported procompetitive benefit must be linked to the restraint of trade—that is, according to the FTC, to the reverse payment itself. Impax contends otherwise on appeal, arguing (1) that the alleged restraint is not merely the alleged reverse payment but rather the entire settlement it is a part of, and (2) that Actavis’s rule-of-reason analysis requires consideration of the procompetitive benefits of the challenged deal as a whole—not just the benefits of the reverse payment at issue.
This appeal is one to watch in 2020.
New “Non-Reverse-Payment” Theory: In re ACTOS Direct Purchaser Antitrust Litigation (SDNY)
In October, Judge Abrams granted defendants’ motion to dismiss claims by direct purchaser plaintiffs (DPPs), which attempted a novel twist on antitrust challenges in the context of Hatch-Waxman litigation. The court had already dismissed with prejudice the end-payor plaintiffs’ reverse-payment theory, which alleged (1) that brand manufacturer Takeda had misrepresented its patents to the FDA to require generic manufacturers to file Paragraph IV certifications that triggered Hatch-Waxman infringement litigation, and (2) that Takeda’s agreements resolving that litigation with generics included unlawful reverse payments. The Second Circuit largely affirmed the dismissal in 2017, finding that the reverse-payment theory required that the generics knew that Takeda’s representations to the FDA were false—an allegation plaintiffs failed to plead.
Given that context, DPPs abandoned their reverse-payment theory. Instead they alleged that it was enough that the generic first-filers knew that Takeda misrepresented its patents to the FDA, such that their Paragraph IV certifications were not required and the attendant 180-day exclusivity period they received was “undeserved.” By settling the litigation and agreeing to delay their exclusivity period, DPPs argued, the generics worked with Takeda to create an oligopoly for the ACTOS drug that allowed manufacturers to charge supra-competitive prices.
The court rejected this theory, holding that the generics had a business justification for the settlement, since they were “faced with the choice of whether to settle Takeda’s claims of infringement of the method-of-use claims, or keep litigating and potentially lose.” The court found that the settlement was lawful under the principles of Actavis, which “requires only that the parties to a patent litigation refrain from unlawfully restricting competition, not that they maximize competition.” While dismissing the claim against the generics, the court did allow DPPs to proceed against Takeda on a monopolization theory, which argues that Takeda’s alleged misrepresentations to the FDA constituted anticompetitive conduct that delayed the entry of the lower-priced generics. Takeda has filed a motion for interlocutory appeal of the court’s finding that Takeda's representations to the FDA violated of the Hatch-Waxman Act.
Come back tomorrow for our discussion of class certification issues in antitrust actions concerning pharmaceutical products!