Recently, a federal judge in the U.S. District Court for the District of New Jersey held that only patent settlements involving a reverse monetary payment will be subject to antitrust scrutiny under the framework articulated by the Supreme Court last year in FTC v. Actavis. In affirming its earlier ruling dismissing the direct purchaser complaint, the court held that nothing in Actavis altered the conclusion it had reached previously under the U.S. Court of Appeals for the Third Circuit’s ruling in In re K-Dur Antitrust Litigation that the settlement did not, in fact, contain a reverse “payment” because there was no transfer of money between the parties. This most recent development in the ongoing debate regarding these agreements is significant not only because it is the latest effort by the courts to clarify and develop the framework put in place under Actavis but also because it constitutes a departure from other recent district court rulings that have suggested that Actavis may apply to non-monetary forms of compensation.


The agreements at issue in the case settled patent litigation between GlaxoSmithKline (GSK) and Teva Pharmaceuticals (Teva) related to GSK’s drug, Lamictal, which is used to treat epilepsy and bipolar disorder and is available in chewable and tablet forms. Under the terms of the agreement, Teva was permitted to sell generic chewables approximately 37 months prior to expiration of the relevant patent and generic tablets approximately six months prior to patent expiration. GSK also granted Teva an exclusive license to the relevant Lamictal patent, which was exclusive even as to GSK during Teva’s first-filer exclusivity period. The result of this provision was that GSK would not compete with Teva through marketing of an Authorized Generic version of Lamictal in either chewable or tablet formulations during that period of time.

The opinion

In the ruling, Judge William H. Walls held that Actavis articulated what was effectively a three-part test — “two steps to determine when to apply the rule of reason, followed by an application of the rule of reason” to the particular circumstances. First, the court must determine whether there is a reverse payment. Second, the court must determine whether that reverse payment is large and unjustified. Third, the court must apply the rule of reason, guided by the five considerations set forth by the Supreme Court in Actavis.

According to Judge Walls, the first step of the analysis — whether an agreement involves a reverse payment — “hinges on what the parties exchanged in the settlement and must include money.” Although stopping short of arguing that the ruling in Actavis explicitly decided the issue, Judge Walls identified numerous portions of the majority opinion referencing monetary payments and stated that “[b]oth the majority and dissenting opinions reek with discussion of payment of money.” The opinion mentions, in particular, Chief Justice John Roberts’ dissent inActavis, which Judge Walls characterized as including a critique of “the majority precisely because it drew a line between monetary and non-monetary payments.” Thus, according to Judge Walls, even Chief Justice Roberts in dissent read the majority opinion as only addressing monetary reverse payments. 

Interestingly, Judge Walls also relied upon the reasonableness of the agreement at issue — in particular, the fact that Teva was allowed early entry, that there was no monetary payment, and the brief duration of the exclusive license as to GSK — as further evidence that it was “not of the sort that requires Actavis scrutiny.” Thus, the particular factual circumstances presented in the settlement agreement at issue in Lamictal may have also played a role in Judge Walls’ view as to the need for antitrust scrutiny of settlements involving non-monetary forms of compensation. 

Other recent decisions

In the opinion, Judge Walls also addresses other recent rulings regarding pharmaceutical patent settlements, specifically In re Lipitor and In re Nexium, which have suggested other interpretations of Actavis. In Lipitor, another federal district court in New Jersey granted plaintiffs leave to amend their complaint in light of Actavis to include allegations of non-monetary forms of payment. In allowing the amendments, Judge Peter G. Sheridan declined to decide the substantive question as to the scope of Actavis, but noted that “nothing in Actavis strictly requires that the payment be in the form of money … .” According to Judge Walls, this was unpersuasive because the ruling did not in fact decide the issue and thus was “more like a request for further briefing than a decision.”

Judge Walls also distinguished as dictum a case from federal district court in Massachusetts, Nexium, where Judge William G. Young, similar to Judge Sheridan, held that “[n]owhere in Actavis did the Supreme Court explicitly require some sort of monetary payment … to constitute a reverse payment.” Moreover, according to Judge Young, “[a]dopting a broader interpretation of the word ‘payment’… serves the purpose of aligning the law with modern-day realities.” In addition to being dicta because a cash payment was also alleged in the case, Judge Walls noted that in Nexium the court had also found that scrutiny was appropriate because each of the settlements was “either ‘outsize’ or ‘entirely disconnected’ from the dispute over the Nexium patents,” which was not the case in Lamictal


We are still in the early days of trial courts answering the Supreme Court’s call in Actavis for them to tailor the specific rule of reason analysis “so as to avoid, on the one hand, the use of antitrust theories too abbreviated to permit proper antitrust analysis, and, on the other, consideration of every possible fact or theory irrespective of the minimal light it may shed.” The split reflected in these cases confirms that not only is this is not the last word on the issue of the definition of “reverse payment” but also more broadly serves to highlight that debate regarding this and other key threshold issues in this space remains fierce and subject to rapid developments.