Third Circuit Sides With FTC On Antitrust Scrutiny of Drug Patent Deals

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By Dana A. Elfin

June 26-- In a long-awaited antitrust ruling, a federal appeals court held June 26 that patent litigation settlements between brand-name and generic drug manufacturers that include agreements by a branded drugmaker not to launch an authorized generic are subject to antitrust scrutiny.

The ruling by the U.S. Court of Appeals for the Third Circuit is a win not only for the drug purchaser plaintiffs in the case but also for the Federal Trade Commission, which has argued in multiple reverse payment cases that patent litigation settlements between branded and generic drug companies that include noncash payments--such as a commitment by the branded maker not to launch authorized generics--can violate the antitrust laws.

In a comment provided to Bloomberg BNA, Debbie Feinstein, director of the FTC's Bureau of Competition, said June 26 the appeals court's ruling “will help to ensure that 'pay-for-delay’ patent settlements between branded and generic pharmaceutical companies do not escape antitrust scrutiny, whether the payment is made in cash, or involves some other form of compensation.”

The possibility of an authorized generic entering the market can have a powerful impact on a generic company's sales, as a branded company's authorized generic can compete with a first-filing generic company during that first-filer's 180 days of generic exclusivity under the Hatch-Waxman Act.

Importance of Ruling

Antitrust law professors told Bloomberg BNA June 26 that the opinion is likely to have far-reaching effects on how the pharmaceutical industry structures patent litigation settlements going forward.

Michael Carrier, professor of law at Rutgers University School of Law in Camden, N.J., called the ruling “the most important decision since the Supreme Court's Actavis ruling.” The Third Circuit's opinion is the first appellate ruling on the issue after the high court's 2013 ruling in Actavis.

District courts have been split on the issue and were awaiting guidance at the appellate level.

In FTC v. Actavis, Inc., 133 S. Ct. 2223, 2013 BL 158126 (2013), the Supreme Court held that large and unjustified payments made by the brand-name drug patent holder to the alleged generic patent infringer to settle litigation will subject the settlement to antitrust scrutiny under the rule of reason . But the high court didn't specifically address whether noncash or in-kind forms of payment also would be subject to antitrust scrutiny.

The Third Circuit's ruling clearly recognizes that anticompetitive payments can take forms other than cash, Carrier told Bloomberg BNA, adding that the ruling “will have a significant effect going forward.”

Herbert Hovenkamp, professor at the University of Iowa School of Law, echoed Carrier's comments about the ruling's importance.

“In my view, this [ruling] is significant because it means that the courts can look to any form of consideration as a payment, not simply a direct payment of cash,” Hovenkamp told Bloomberg BNA. “Many of these agreements are structured in complicated ways, with side deals that provide consideration other than cash. Now these will have to be evaluated as well.”

Vacating Lower Court Ruling

In the Third Circuit's opinion, authored by Chief Judge Anthony Scirica, the appeals court vacated and remanded a ruling from the U.S. District Court for the District of New Jersey which held that a patent infringement settlement between GlaxoSmithKline (GSK) and Teva Pharmaceutical Industries Ltd. that didn't involve a cash payment wasn't a “reverse payment” subject to scrutiny under the Sherman Act . Plaintiffs including Louisiana Wholesale Drug Co., a drug wholesaler, challenged the settlement which it claimed delayed market entry of a generic version of the epilepsy drug Lamictal (lamotrigine).

The question at the heart of the appeal was whether noncash or in-kind agreements are immune from antitrust scrutiny following the 2013 Actavis ruling.

Reversing the district court, the Third Circuit said it believes a no authorized generic, or no-AG agreement, “falls under Actavis’s rule because it may represent an unusual, unexplained reverse transfer of considerable value from the patentee to the alleged infringer and may therefore give rise to the inference that it is a payment to eliminate the risk of competition.”

But the appeals court also threw drug company defendants a potential life-line, stating that “nothing in this opinion precludes a defendant from prevailing on a motion to dismiss or motion for summary judgment if, for example, there is no dispute that, under the rule of reason, the procompetitive benefits of a reverse payment outweigh the payment’s alleged anticompetitive harm.”

The appellant drug purchasers are represented by Garwin Gerstein& Fisher, and Cohn, Lifland, Pearlman, Herrmann & Knopf. SmithKline Beecham/GlaxoSmithKline is represented by firms including Lowenstein Sandler and Pepper Hamilton. Teva is represented by Kirkland & Ellis, and Lite, DePalma, Greenberg.

To contact the reporter on this story: Dana A. Elfin in Washington at

To contact the editor responsible for this story: Brian Broderick at

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