On March 24, 2022, Judge Royce C. Lamberth of the U.S. District Court for the District of Columbia dismissed the Federal Trade Commission’s (the “Commission”) complaint against Endo Pharmaceuticals Inc. (“Endo”), Impax Laboratories, LLC (“Impax”) and Impax’s owner, Amneal Pharmaceuticals, Inc. (“Amneal”), regarding Endo’s oxymorphone extended-release product, Opana ER.

This case was the second enforcement action that the Commission brought against the companies regarding Opana ER. The first action had been brought as an administrative complaint and held that Endo and Impax (a potential competitor with a generic formulation of Opana ER) had entered into an anticompetitive “reverse payment” settlement agreement in 2010 (before the Supreme Court decision in FTC v. Actavis[1] was decided).[2]

The relevant facts of the second action are as follows.

Endo began selling a solid pill form of Opana ER (“Original Opana ER”) after FDA approval in 2006 until May 2012.[3]

Impax filed an Abbreviated New Drug Application (“ANDA”) for a generic version of Original Opana ER in 2007. Impax included a “Paragraph IV” certification, which certifies that the patents covering Original Opana ER were not infringed by the generic version, were invalid, and/or were unenforceable.[4] Under patent law, the filing of a Paragraph IV certification is an act of patent infringement which allows the patent holder to sue for infringement.[5] Endo filed suit alleging that Impax’s generic product would infringe both of its patents. [6]

Shortly after the start of Endo’s patent infringement trial against Impax in 2010, the parties entered into a settlement agreement under which Endo provided Impax with a license to its Opana ER drugs until January 2013, as well as a license over any future patents (“2010 Settlement Agreement”). In exchange, Endo paid Impax more than $112 million.[7] This payment by the patent holder (Endo) to the alleged patent infringer (Impax) for abandoning its attempt to prove Endo’s patents were invalid was suspect, and ultimately was found to be anticompetitive.[8]

Following the 2010 Settlement Agreement, Endo obtained new patents on Opana. Multiple potential generic entrants sought to invalidate those patents and failed – meaning that Endo’s new patents were upheld as valid and enforceable, and thus only Impax was authorized to sell a generic version of Original Opana ER until November 2029.[9]

However, under the terms of the 2010 settlement agreement, Impax was required to negotiate a fair payment in good faith for the use of the additional patents – but Impax refused to pay Endo.[10] Thus, Endo sought to terminate Impax’s license covering the new patents and brought suit in the District of New Jersey for breach of the 2010 Settlement Agreement and for the infringement of the new patents.[11] Endo contended that Impax had breached its obligation to negotiate in good faith regarding royalties covering the new patents.[12] Impax moved for dismissal arguing that the 2010 Settlement provided Impax a royalty-free license to the new patents.[13]

On August 5, 2017, Endo and Impax agreed to amend the 2010 Settlement Agreement to set a royalty for Endo’s Additional Patents at a certain percentage of Impax’s gross profits on the sale of its generic Original Opana ER (“2017 Settlement Agreement”).[14]

Before entering into the 2017 Settlement Agreement, Endo publicly announced that it was in the process of withdrawing its reformulated crush resistant Opana ER at the FDA’s request.[15]

On January 25, 2021, the Commission sued Endo, Impax and Impax’s owner Amneal, alleging that the 2017 Settlement Agreement between Endo and Impax was an anticompetitive non-compete agreement because it eliminated competition in the market for oxymorphone ER.[16] The complaint noted that when Endo was forced to pull its Opana products off the market, Impax’s generic extended-release version was alone in the market. [17] Rather than reformulating its drug, Endo entered into an agreement with Impax to refrain from re-entering the market, thereby eliminating Endo’s potential competition as an entrant.[18] The Commission alleged that the purpose and effect of the 2017 Settlement Agreement was to ensure Impax’s monopoly, eliminating any potential for oxymorphone ER competition, thereby allowing Endo and Impax to share in the monopoly profits.[19] Specifically, the complaint alleged that Endo and Impax violated Sections 1 and 2 of the Sherman Act, and Section 5 of the FTC Act, by entering into an exclusive licensing agreement which constituted an unlawful horizontal non-compete agreement. For these alleged violations the Commission sought declaratory and injunctive relief, as well as disgorgement.[20]

The Commission vote to file the complaint was 3-2, with Commissioners Noah Joshua Phillips and Christine S. Wilson voting against the filing.[21]

The DC District Court opinion

Granting a motion to dismiss the complaint, the District Court held that Endo had done nothing more than use the rights afforded to it under patent law, and the exercise of these rights did not constitute a violation of antitrust law.

The court acknowledged the tension between patent law and antitrust law, noting that “the very object of these [patent] laws is monopoly.”[22] According to Judge Lamberth, to hold a patent is to have the right to exclude others, to “exclusively maintain a patent monopoly; to ‘suppress the invention while continuing to prevent all others from using it’; to license one party exclusively and charge a royalty; to refuse to license; or to grant many licenses.” [23] But, according to the District Court, holding a patent does not grant one carte blanche to violate the antitrust laws; it is when the patent holder seeks to expand its patent monopoly beyond the rights granted by the patent laws that the conduct can violate the antitrust laws.[24]

The court then looked back to the Supreme Court’s Actavis determination that reverse payment patent infringement settlements were subject to the antitrust laws, as having explored one such intersection of patent and antitrust law. The court noted that “[a] valid patent arms its owner with a powerful set of rights, including the right to exclude all other competitors from the market – activity that could violate antitrust law if the patentee was not protected by the patent laws; but an invalidated patent carries with it no such-right.”[25] The Supreme Court had held in Actavis that reverse payment settlements were subject to antitrust scrutiny because they “put an end” to litigation without answering the question about patent validity, which potentially stifled competition.[26]

In considering the requirements for granting a motion to dismiss, the District Court considered the facts alleged by the Commission to be true. It concluded that the Commission had plausibly alleged an exclusive licensing agreement (which defendants disputed, arguing that Endo could reenter the market at any time) because Impax paid Endo for the exclusive right to its patents on Opana ER.[27]

The court then applied the Supreme Court’s reasoning in Actavis to determine if the exclusive licensing agreement violated the antitrust laws. Specifically, the District Court considered the following factors, identified by the Supreme Court in Actavis: (1) the validity of the patents in question; (2) whether the patent statute specifically provides a right to restrain competition in the manner challenged; (3) whether competition is impeded to a greater degree by the restraint at issue than other restraints previously approved of as reasonable; (4) whether the patent license is overly restrictive; (5) whether the patent-holder dominated the industry, and curtailed the manufacture and supply of an unpatented product; and (6) whether the settlement was traditional or unusual.

As to the first factor (the validity of the patents), considering one of the concerns raised by the Supreme Court in Actavis, Endo’s patents had been repeatedly tested legally. Indeed, the Federal Circuit had found them to be valid. For the second factor (whether the patent statute specifically gives a right to restrain competition in the manner challenged), the court ruled that the Patent Act explicitly authorizes patentholders to maintain their monopolies and in particular, to issue exclusive licenses like the one that Endo had issued to Impax under consideration.[28]

Regarding the third Actavis factor (whether competition is impeded to a greater degree by the restraint at issue than other restraints previously approved of as reasonable), the District Court determined that the Commission had not alleged any facets of the Endo-Impax agreement that extended beyond the scope of a traditional exclusive license. The court cited to a Seventh Circuit decision that had approved an exclusive patent license that even had excluded the patentholder from competing,[29] and pointed to a Supreme Court holding that patent holders can charge any royalty, even one that results in a supra competitive price to consumers.[30]

The court declared that the settlement agreement was not overly restrictive because it did not set a minimum resale price (fourth Actavis factor), and determined that Endo had not attempted to expand its monopoly beyond the scope of the monopoly its patents gave (fifth Actavis factor). In that regard, the court pointed out that the agreement at issue was “traditional in form,” in that there actually had been no reverse payment (sixth Actavis factor).[31] It stressed that the Supreme Court had commented in Actavis that settlements taking commonplace forms “have not been thought ... subject to antitrust liability.”[32]

Finally, the court addressed the Commission’s argument (not made in its complaint) that Endo had waived its right to sue Impax for patent infringement after it licensed its current and future patents on Opana to Impax. Rejecting this argument, the court noted that Endo had accused Impax of breaching their agreement (by not negotiating a fair royalty to use Endo’s later-obtained patents), and Endo retained its right to enforce its agreement with Impax. The court explained that at least one Circuit has allowed licensing agreements between parties that could not legally exclude each other, and the District Court had found no cases holding the opposite.[33] Even if Endo had waived its right to exclude Impax, it did not waive its right to exclude other companies or itself from the market, and the court pointed out that an exclusive license does exactly that.[34]

In brief, the District Court concluded that Endo had a valid patent monopoly, and thus Endo had a right to grant Impax an exclusive license to its patents. Therefore, the Commission had not adequately alleged an antitrust violation.

Conclusions and implications for the entry of generics

The District Court in its decision in this case took pains to emphasize that the conduct complained of was no more than what was explicitly authorized by the Patent Act – and was not like the reverse payment settlement in Actavis. Crucially, (and rather unusually for a pharmaceutical patent case), the Federal Circuit had in fact upheld the validity of Endo’s patents twice. This was not a case in which a patentholder had settled with a challenger to avoid a determination of the validity of its patents. To be sure, the 2010 settlement between Endo and Impax was exactly that (and was held to be anticompetitive). But the 2017 settlement was reached after the U.S. District Court for the Southern District of New York and the U.S. District Court for the District of Delaware had both upheld the validity of Endo’s patents against other challengers; and the Federal Circuit affirmed these decisions in 2018 and 2019.

Certainly, Endo tried to avoid competition when it reformulated Opana to allegedly be more crush-resistant and withdrew its prior version (for which many ANDAs had been filed) from the market. Those efforts were inadvertently thwarted by the FDA when it asked Endo to withdraw the reformulated Opana from the market due to safety concerns. And it would be reasonable to assume that Endo sought to regain control of its monopoly when it obtained additional patents between 2012 and 2014, after licensing its older patents to potential generic competitors. But in this case, the court ruled it had done so lawfully. Endo had licensed its future patents to Impax, subject to a provision requiring some negotiation over their value, and it sought to enforce that provision when it sued Impax. It successfully obtained a royalty agreement from Impax, and never had to (and was not permitted to) manufacture the drug again.[35]

The District Court’s decision in Impax will have no bearing on cases in which settlements are reached, patents remain unchallenged, and the payment flows in the wrong direction. In those cases, Actavis will still be the appropriate model. And given the alacrity of pharmaceutical patent holders to settle to avoid scrutiny of their patents, the Actavis standards will likely have to be applied.