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From Antitrust Law Daily, January 29, 2015

Fact issues preclude summary judgment in action over delayed generic competition of Provigil

By Linda O’Brien, J.D., LL.M.

In an action against the brand and generic pharmaceutical manufacturers of a sleeping disorder medication over the settlement agreements entered into by the drug companies to resolve patent infringement litigation, direct purchaser and end payor plaintiffs presented sufficient evidence to show the anticompetitive effects of those agreement, including a large reverse payment, under the rule of reason analysis, the federal district court in Philadelphia has ruled. Thus, the defendant drug companies’ motions for summary judgment were denied (King Drug Company of Florence, Inc. v. Cephalon, Inc., January 28, 2015, Goldberg, M.).

Generic drug manufacturers, pharmaceutical distributors, retailers, and health plan providers that purchased a sleeping disorder medication (modafinil) sold under the brand name Provigil, filed a series of class action suits against pharmaceutical manufacturer, Cephalon, Inc., and four generic drug manufacturers for anticompetitive conduct and monopolization by delaying generic competition to Provigil in violation Sections 1 and 2 of the Sherman Act. The plaintiffs alleged the manufacturers engaged in restraint of trade by entering into reverse payment settlements to resolve patent infringement suits, thereby delaying generic competition for Provigil. The defendants moved for summary judgment based on the standards set forth in the U.S. Supreme Court decision in FTC v. Actavis, Inc., 133 S.Ct. 2223 (2013), 2013-1 Trade Cases ¶78,419.

Reverse payment. The court determined that the plaintiffs met the Actavis standard for presenting evidence of anticompetitive effects under a rule of reason analysis, which included a large reverse payment, and the burden shifted to the defendants to justify the reverse payment as procompetitive.

The defendants’ argument that the plaintiffs must first meet a threshold burden of showing that Cephalon made a large and unjustified reverse payment to the generic drug makers at the time of settlement was rejected. The court noted that the Actavis opinion clarified that a rule of reason analysis must be applied to antitrust cases challenging a reverse payment settlement. Under the rule of reason analysis, the plaintiff bears the initial burden of showing that the settlement produced anticompetitive effects within the relevant product and geographic markets.

The plaintiffs contended that a reverse payment was sufficiently large if it exceeded the saved litigation costs, and a reasonable jury could find that the payment was large enough to induce a generic challenger to abandon its patent claim. They presented evidence that the total amounts paid by Cephalon to each generic defendant greatly exceeded the saved litigation expenses, thereby satisfying the “large” standard. Moreover, the plaintiffs’ expert evidence created a genuine dispute as to whether the reverse payment was large enough to induce the generic manufacturers to stay off the market.

Procompetitive justification. There existed a genuine dispute of material fact that the defendant drug companies’ procompetitive justifications were pretextual. The defendants contended that the payments Cephalon made to the generic defendants were for the avoidance of litigation expenses and fair value for services provided. In response, the plaintiffs cited: 1. Cephalon’s internal communications suggesting its knowledge of its patent’s weaknesses; 2. the services articulated in the settlements were unnecessary and unwanted; and 3. Cephalon’s failure to conduct due diligence prior to licensing the generic defendants’ intellectual property. In the court’s view, the plaintiffs presented sufficient evidence to rebut the defendants’ procompetitive justifications and raised a genuine factual dispute as to whether the payments were reasonably necessary to achieve the procompetitive benefits.

The case is No. 2:06-cv-1797.

Attorneys: Andrew William Kelly (Odom & Des Roches LLP), Bruce E. Gerstein (Garwin Gerstein And Fisher LLP), and Daniel Berger (Berger & Montague, PC) for King Drug Company of Florence, Inc. Monica L. Rebuck (Hangley Aronchich Segal) and Scott E. Perwin (Kenny Nachwalter, PA) for Walgreen Co. Emily R. Whelan (Wilmer Cutler Pickering Hale & Dorr LLP) for Cephalon, Inc. C. Fairley Spillman (Akin Gump Strauss Hauer & Feld LLP) for Mylan Laboratories, Inc. Gregory L. Skidmore (Kirkland Ellis LLP) for Teva Pharmaceutical Industries, Ltd., and Teva Pharmaceuticals USA, Inc. Christopher K. Diamond (Venable LLP) for Ranbaxy Laboratories, Ltd.

Companies: King Drug Company of Florence, Inc.; J M Smith Corp.; Meijer, Inc.; Rochester Drug Cooperative, Inc.; Walgreen Co.; Cephalon, Inc.; Mylan Laboratories, Inc.; Teva Pharmaceutical Industries, Ltd.; Teva Pharmaceuticals USA, Inc.; Ranbaxy Laboratories, Ltd.

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