In the first "reverse payment" trial since the U.S. Supreme Court’s Actavisdecision held that "reverse payment" settlements potentially could be found anticompetitive under a rule of reason analysis, a federal jury in Massachusetts has returned a verdict in favor of the pharmaceutical companies, concluding the settlement did not harm competition. The December 5 decision came in In Re Nexium (Esomeprazole) Antitrust Litigation.
Direct and indirect purchasers of the drug Nexium sued AstraZeneca, the manufacturer of Nexium, and three manufacturers (Ranbaxy Inc., Teva Pharmaceuticals, and Dr. Reddy’s Laboratories) that had announced intentions to sell generic versions of Nexium. The plaintiffs alleged that these manufacturers entered into unlawful "reverse payment" agreements, allegedly in violation of the Sherman Act, when they made settlement agreements resolving Hatch-Waxman patent litigation.
In a "reverse payment" settlement, a branded-drug manufacturer settles a challenge to its patent by providing compensation to a generic challenger. In exchange, a generic manufacturer typically agrees to drop its patent challenge and enter the market as a licensee at some later time before the patent expires. For years, the majority of appellate courts had held that, since all Hatch-Waxman settlements convey consideration to the generic challenger, those settlements did not reduce lawful competition as long as they foreclosed only potentially infringing competition, that is, as long as they were within the scope of the patent. In Actavis, the Supreme Court rejected the scope of the patent test, holding that such a settlement with an "unexplained large reverse payment" may violate the antitrust laws under a "rule of reason" balancing test. The Court provided little guidance (some would say none) as to how that rule of reason analysis was to be carried out.
In Nexium, the 2008 settlement between Ranbaxy and AstraZeneca provided that Ranbaxy would become the exclusive authorized generic distributor for the first six months after the expiry of certain Nexium patents in May 2014. Plaintiffs alleged that this "no AG" (no authorized generic) clause was a pay-off for delay, allegedly worth hundreds of millions of dollars. Ranbaxy and AstraZeneca also entered into manufacturing and distribution agreements, which plaintiffs alleged also constituted part of the alleged unlawful payment to Ranbaxy.
AstraZeneca’s settlements with Teva and Dr. Reddy’s granted licenses for the respective companies to sell generic Nexium starting in May 2014, assuming their products received FDA approval. Plaintiffs alleged that Teva and Dr. Reddy’s also received payments through the simultaneous settlement of unrelated patent litigation. When resolving summary judgment motions, the Court determined that Dr. Reddy’s had not received a reverse payment. The Court deemed triable the allegation that Teva received a payment, and those issues dominated the early portions of the trial.
Dr. Reddy’s settled the antitrust claims immediately before trial began through settlements that did not require the payment of any money to the plaintiff classes (a "zero dollar" settlement). Dr. Reddy’s agreed to let plaintiffs call some of its personnel as witnesses, but the plaintiffs never did so. Teva settled during trial, after conspiracy claims linking the Teva and Ranbaxy settlements were dismissed on a directed verdict. The terms of the Teva settlement have not yet been disclosed.
At trial, the plaintiffs argued that AstraZeneca’s agreements with Ranbaxy, consistent with the Supreme Court’s Actavis decision, contained an "unexplained large reverse payment" designed to delay generic entry. Plaintiffs asserted that, but for the settlement agreement, a cheaper, generic Nexium would have entered the market sooner than would occur pursuant to the settlement agreement. Plaintiffs also claimed that they were overcharged for Nexium as a result of the settlement between AstraZeneca and Ranbaxy. Since Ranbaxy has not yet received FDA approval to market its generic Nexium product, and since the Court had previously ruled that there was insufficient evidence that Ranbaxy could have obtained FDA approval at some earlier date, plaintiffs’ causation argument was complicated. Plaintiffs alleged that absent the alleged payment, AstraZeneca would have licensed Ranbaxy (and Teva) to enter at an earlier date; that Teva would have paid Ranbaxy to forfeit the 180-day exclusivity that the Hatch-Waxman Act awards to the first generic to file for FDA approval, and that Teva (which also does not have FDA approval for its product) would have accelerated its efforts to obtain FDA approval.
Defendants responded that the plaintiffs’ case rested entirely on speculation. One point of emphasis was that no company could have produced a generic Nexium product sooner because no generic manufacturer has received even tentative FDA approval. Thus, according to the defendants, the settlement did not cause any delay in the generics’ launches of their generic Nexium products.
The jury found that AstraZeneca possessed the necessary market power over Nexium and that the settlement contained a "large and unjustified" payment" as required by the Supreme Court in Actavis. The jury also found that the settlement was "unreasonably anticompetitive" and that its anticompetitive nature was not outweighed by any procompetitive justifications. However, the jury ultimately concluded that regardless of the "anticompetitive" settlement, AstraZeneca would not have granted Ranbaxy an earlier entry date than the one it did. Accordingly, the settlement could not have harmed the drug’s purchasers.
While courts are still wrangling with how to interpret Actavis – and this case indicates that the wrangling is far from over – it offers some initial lessons for companies who have settled Hatch-Waxman cases or contemplate doing so. First, jurors are able to parse out the unique issues within "reverse payment" cases. Here, jurors concluded that the payment was "large and unjustified" and that the settlement was "unreasonably anticompetitive." Nonetheless the jury decided for defendants on a critical causation issue. Second, this case also demonstrates that causation will continue to be a central issue in "reverse payment" cases. Here, the antitrust plaintiffs faced the uncomfortable fact that the May 2014 license date for all the generics came and went without generic entry or even FDA approval of a generic Nexium. Nexium thus underscores that plaintiffs in all "reverse payment" cases bear the burden of proving not just a payment, but also what would have happened in the absence of a payment, and that burden can be quite heavy. Here, even though the jury did find the existence of a payment from the brand to the first-to-file generic, the jury was not swayed by the assertions of plaintiffs and their experts that any payment "must have" caused a delay.
Nexium is just the first of many post-Actavis "reverse payment" cases making their way through the courts. Without the unique facts at issue in the Nexium case, the outcome of those other cases should tell us much more about how courts and juries view patent settlements in the post-Actavis world.