United States: Reverse Payment Patent Settlements in the Pharmaceutical Industry: A Year in Review

This past year has seen renewed challenges to reverse payment settlement agreements in the pharmaceutical industry. Since the Supreme Court's Actavis decision in mid-2013, potentially anti-competitive agreements are reportedly down, enforcement continues and more plaintiffs are seeing success as private class actions move forward at both the class  certification and summary judgment stages. 

This trend is expected to continue into 2018 amid a greater number of patent settlements but fewer (or none) with any potential reverse payments. Despite the trend that the industry is reducing (or halting) its use of reverse payment settlements, we expect: (1) new litigation will begin and ongoing litigation will continue as it relates to pre-Actavis settlement agreements; and (2) new litigation centered on post-Actavis settlements will be much less prevalent in 2018 and on a going-forward basis.

U.S. Federal Trade Commission Enforcement Efforts

The Federal Trade Commission's (FTC) relentless pursuit of reverse payment settlements continued in 2017 with ongoing litigation and a report showing that allegedly anti-competitive reverse payment settlements were down for the second consecutive year after the Supreme Court's seminal Actavis decision.1  The FTC's decades-long efforts appear to finally be resonating both within the industry and in the federal courts – even Chairwoman Maureen Ohlhausen recently stated that "it may be that we have finally started to turn the corner" on reverse payment settlements. As it stands, the FTC continues to vigorously litigate:

  • FTC v. Actavis, Inc.: AndroGel: The FTC challenged the patent settlement between Solvay Pharmaceuticals, Inc. (Solvay) and three generic manufacturers, including Watson Pharmaceuticals, Inc. (later acquired by Actavis, Inc.), regarding Solvay's branded testosterone-replacement therapy drug AndroGel. The FTC alleged that simultaneously with the settlement, Solvay entered into side deals designed to funnel value to the generic manufacturers in exchange for their agreement to delay their generic AndroGel entry. After the district court dismissed the case and the 11th Circuit affirmed, the Supreme Court held that the Rule of Reason applied to reverse payment settlements. On remand, discovery is ongoing.
  • Endo Pharmaceuticals, Inc. & Allergan plc: Lidoderm: On January 23, 2017, the FTC filed a complaint against Endo Pharmaceuticals, Inc. and several generic manufacturers alleging that Endo's agreement not to market an authorized generic Lidoderm product during the 180- day first-to-file exclusivity period is a non-cash payment to induce delayed generic entry (a 'no-authorized generic' or 'no-AG' agreement). On February 2, 2017, Endo settled the FTC charges by entering a stipulated order prohibiting it from entering similar agreements, including no-AG terms, and leaves the FTC to monitor Endo's compliance.
  • Endo Pharmaceuticals, Inc. & Impax Laboratories, Inc.: Opana ER: On January 19, 2017, the FTC chose to file an administrative complaint through the Commission's internal process against Impax Laboratories, Inc., claiming that Impax agreed to delay its launch of generic Opana ER in exchange for a no-AG commitment (and an agreement to pay cash to Impax if Impax did not earn its expected profits) and a meritless side deal valued at $40 million from Endo. At the time of the complaint, the FTC alleged that Impax had received over US$112 million in value. After a brief discovery period, the Administrative Law Judge conducted a 12-day trial from October 24 to November 14, 2017, and post-trial briefing will continue into January 2018.

In addition to the FTC's litigation efforts, the Commission has released its findings based on patent settlement agreements filed with the agency in fiscal year 2015 pursuant to the Medicare Modernization Act. The November 1, 2017  report shows that while the number of final patent settlements reached a record high in 2017, the number of potential pay-for-delay agreements has dropped by more than 50% since the Actavis decision in 2013.3 According to the FTC, by excluding any settlement that includes a reasonable payment for litigation fees, only five agreements out of the 170 filed in 2015 – that's 3% – would have a potential anti-competitive effect, compared to 25 potential pay-for-delay agreements at the height in 2011 and 15 in 2013.4

Based on the agency's enforcement efforts and the real risk of private class actions surviving motions to dismiss and even class certification hurdles, the report indicates that the industry has taken note and the trend is expected to continue in 2018. 

Private Class Action Litigation: Dismissal, Class Certification And Summary Judgment

Defendants facing allegations of antitrust violations avoiding reverse payment settlements face three critical, and increasingly difficult, hurdles to absolving liability: (1) in the wake of Actavis, district courts tend to deny a defendants' motions to dismiss; (2) some courts are certifying classes of both direct and indirect purchasers; and (3) summary judgment results are mixed, which can lead to an uncertain trial or a challenging settlement.

First, after Actavis, plaintiffs have found it easier to survive motions to dismiss. In 2017 alone, several cases have been allowed to move into full discovery.5 For example, in In re Loestrin 24 Fe Antitrust Litigation, the court denied Warner Chilcott plc's motion to dismiss claims that it had compensated three generics up to US$315 million combined in various cash and non-cash value, including a no-AG commitment and various side deals, in exchange for delaying entry for five years.6 The court allowed the claims to move forward into discovery. In a pre-Actavis world, plaintiffs faced a high bar to survive motions to dismiss unscathed, but clearing this hurdle has since become somewhat routine.

Second, some courts in 2017 granted class certification to both direct and indirect purchasers, which changes the leverage in settlement negotiations and increases any potential damages claims. For example, two classes of direct purchasers and end-payors alleged that Medicis Pharmaceutical Corporation's pattern of settlements provided millions of dollars in value to several generic manufacturers to delay entry for three years, during which Medicis successfully transitioned the market to new dosages of its Solodyn  franchise.7 The District of Massachusetts granted both motions for class certification under Rule 23(b)(3). As momentum increases for future class certification grants, it may induce the industry to further reduce its risk by avoiding settlements that may invite challenge.

Third, defendants are facing mixed results at summary judgment, which may complicate settlement discussions and trial proceedings. Defendants in In re Lidoderm Antitrust Litigation were denied summary judgment, and, in fact, the court granted partial summary judgment for plaintiffs, holding that the relevant market was limited to the market for the branded and generic 5% lidocaine patch at issue in the settlement.9 Some defendants, though, have found success through highly fact-specific analysis and challenges to plaintiffs' claimed antitrust injuries. In In re Wellbutrin XL Antitrust Litigation, the Third Circuit recently affirmed the district court's grant of summary judgment in favor of GlaxoSmithKline (GSK), because the plaintiffs could not show that their injuries were caused by the reverse payment settlements, primarily because plaintiffs could not demonstrate that a generic manufacturer could launch without offending one of the critical patents at issue.10   

What To Expect In 2018

These insights from a 2017 retrospective indicate that the trend is likely to push forward into 2018. Specifically, we expect parties to reverse payment settlements to continue to face threats of new litigation or ongoing litigation in the coming year, particularly on pre-Actavis settlements where the alleged compensation is in non-cash value such as no-AG commitments or other arrangements. Similarly, as the federal courts have provided guidance to the pharmaceutical industry on what settlements may be made without violating the antitrust laws, we expect new litigation based on post-Actavis settlements to be much less prevalent in 2018. 

Read the 2018 Antitrust Annual Report.

Footnotes

1. See, e.g., Overview of FTC Actions in Pharmaceutical Products and Distribution, Health Care Division, Bureau of Competition, Federal Trade Commission, Sept. 2017, available at https://www.ftc.gov/system/files/attachments/ competition-policy-guidance/overview_pharma_ september_2017.pdf. 

2. See, e.g., Maureen K. Ohlhausen, Acting Chairwoman, Federal Trade Commission, The First Wealth is Health: Protecting Competition in Healthcare Markets, Remarks at the 2017 ABA Fall Forum, at 3, Nov. 16, 2017, available at https://www.ftc.gov/system/files/documents/ public_statements/1275573/mko_fall_forum_2017.pdf.

3. See Agreements Filed with the Federal Trade Commission Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003: Overview of Agreements Filed in FY 2015: A Report by the Bureau of Competition, Nov.  1, 2017, available at https://www.ftc.gov/system/ files/documents/reports/agreements-filed-federal- trade-commission-under-medicare-prescription- drug-improvement-modernization/overview_of_ fy_2015_mma_agreements 4.   Id. at 3.

5. See also, e.g., In re Actos End-Payor Antitrust Litig., 848 F.3d 89 (2nd Cir. 2017) (denying motion to dismiss as to claims related to Teva's pursuit of a generic Actos product, because the brand's false description of its patents to the FDA caused FDA's action to delay Teva's entry and later led to a reverse payment settlement); In re Asacol Antitrust  Litig., 233 F. Supp. 3d 247 (D. Mass. Feb. 10, 2017) (allowing class plaintiffs' reversepayments claims to survive, but dismissing claims that the brand manufacturer had executed ahard switch or a product hop to continue its monopolistic scheme). 

6. In re Loestrin 24 Fe Antitrust Litig., 2017 U.S. Dist. LEXIS 150422 (D.R.I. Aug. 8, 2017).

7. In re Solodyn (Minocycline Hydrochloride) Antitrust Litig., 2017 U.S. Dist. LEXIS 170676 (D. Mass. Oct. 16, 2017). The alleged compensation to three of the generic manufacturers was alleged to have been a coordinated 'at risk' launch of the generic's product in a limited quantity, then an agreement by Medicis not to sue the generic for  damages related to the launch. Id. at *13.

8. Id. 

9. United Food and Commercial Workers Local 1776 v. Teikoku Pharma USA, 2017 U.S. Dist. LEXIS 182940 (N.D. Cal. Nov. 3, 2017).

10. In re Wellbutrin XL Antitrust Litig., 868 F.3d 132 (3rd Cir. 2017). The Court also affirmed that GSK did not engage in sham patent litigation. Id.

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