Erica Pascal Ph.D., J.D. partner DLA Piper’s Patent Litigation
Karen Kwok DLA Piper

The Agency Weighs In on What Constitutes “Payment” in the Recent Pay for Delay Case

In 2013, the FTC left its mark on the pharmaceutical industry when the Supreme Court ruled in FTC v. Actavis that settlement agreements for patent infringement suits between branded and generic drug companies are not immune from antitrust scrutiny. These settlement agreements, referred to colloquially as “pay for delay,” often negotiate the terms by which the generic drug will enter the market relative to the expiration of patents covering the drug. The Supreme Court held that a rule of reason analysis should apply to antitrust claims. For example, antitrust issues may arise where settlement involves a large and unjustified reverse payment and a “risk of significant anticompetitive effects.”

Since Actavis, direct and indirect purchasers of pharmaceuticals have brought antitrust claims against branded and generic drug companies. Purchasers allege they have been harmed by the settlements between these companies. They claim that settlement terms, such as delaying a generic’s launch while promising to keep competing generics off the market, result in higher marketplace prices. Ironically, generic and branded companies now find themselves on the same side of the issue, defending the validity and competitive nature of their settlement agreements.

Actavis left open questions as to what constitutes “payment” between the companies and whether the magnitude of particular payments is sufficient to trigger antitrust issues. District and appellate courts are addressing these questions, with different results.

While the exchange of money clearly falls within the ambit of “payment” under Actavis, the high court’s ruling did not directly address other forms of consideration for litigation settlement. Examples of non-monetary exchanges include agreement by the generic company to delay launch of its drug until an agreed-upon future date; a promise by the branded company not to launch an authorized generic version; and an agreement between the companies to allow the generic company to distribute and sell the branded form of the drug until the generic version launches.

Do any of these exchanges constitute reverse payment? Courts have reached different outcomes, and even within the same circuit results are not uniform. The District of New Jersey has held that a reverse payment is limited under Actavis to a monetary reverse payment. The same district court later ruled that non-monetary consideration could be construed as a reverse payment, at least as sufficient to survive the pleading requirements. The Eastern District of Pennsylvania has concluded it was “not prepared at this point to accept [the defendant’s] argument that only a large cash payment from the patentee to the generic is subject to antitrust analysis under Actavis.” The District of Rhode Island, however, concluded “Actavis should be applied only to cash settlements, or to their very close analogues.”  The most definitive case yet on this other side of the coin is the District of Massachusetts’s In re Nexium (Esomeprazole) decision. Although the court sits in the First Circuit with the District of Rhode Island and its case was decided after Loestrin, it affirmatively held that a promise to refrain from launching an authorized generic constitutes “payment” under Actavis. At least three additional cases await determination of whether a “no authorized generic” promise should be considered a reverse payment under Actavis.

In view of this uncertainty, the FTC has not sat quietly on the sidelines. It has actively interjected itself into a number of pending cases. In Lamictal, plaintiff wholesale purchasers of the drug appealed to the Third Circuit after the district court dismissed their claims. The FTC filed an amicus brief and request for oral argument. The Third Circuit granted the FTC ten minutes of oral argument. The FTC also filed amicus briefs in cases pending in the Eastern District of Pennsylvania and in the District of New Jersey. In the former, the court refused to consider the FTC’s brief.

In each of its filed briefs, the FTC has made strong statements against “no authorized generic” agreements, arguing they are “a vehicle for sharing monopoly profits.” The FTC contends that through these agreements the “brand-name drug company…forgoes the revenues it could otherwise make by selling an authorized generic” and “consumers, meanwhile, are forced to pay supra-competitive prices for the first filer’s generic product.” The FTC website features similarly strong claims, declaring, these “pay-for-delay” patent settlements effectively block all other generic drug competition for a growing number of branded drugs.”

In contrast, the FTC’s views on the negotiated date for market entry of the generic drug are much more permissive. In the FTC’s view, merely setting a launch date before the patent expiration suggests nothing “other than arms-length bargaining between adverse parties.” And in the recent In re Nexium trial, the jury found that the agreement between the branded company and the generic drug maker, setting a delayed launch date for the generic version of Nexium, was not an antitrust violation.

So where does the line get drawn between anti-competitive “payments” and arms-length negotiations? In the milieu of multiple plaintiffs, differing views within the jurisdictions and now the FTC’s activism, the line is likely to remain fuzzy for some time.

Dr. Erica Pascal, an IPT partner based in San Diego, focuses on patent litigation in the life sciences area. Reach her at [email protected]. Karen Kwok worked as a summer associate at DLA Piper and will join the firm in 2015. The article first appeared in the firm's "Intellectual Property and Technology News" newsletter. 


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