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From Antitrust Law Daily, November 7, 2016

High Court refuses to consider limits on scope of Actavis decision

By Jeffrey May, J.D.

The U.S. Supreme Court has decided not to disturb a Third Circuit decision that refused to limit the High Court’s decision in FTC v. Actavis, Inc.—that "large" and "unexplained" reverse payments to an alleged patent challenger were not immune from antitrust attack—to cash payments. Today, the Supreme Court denied a petition for certiorari filed by drug makers SmithKline Beecham Corporation and Teva Pharmaceutical Industries Ltd., seeking review of a Third Circuit holding that a settlement agreement between the firms resolving a patent dispute over the prescription anti-seizure drug Lamictal was subject to antitrust scrutiny. In their petition, the companies questioned whether the decision of the U.S. Court of Appeals in Philadelphia that a patentee’s grant of an exclusive license as part of a patent settlement agreement should undergo antitrust scrutiny was consistent with Actavis. The federal antitrust agencies had urged the Court to reject the petition for review (SmithKline Beecham Corp. v. King Drug Company of Florence, Inc., Dkt. 15-1055).

In its November 2014 decision, the Third Circuit focused on whether Actavis covered, in addition to reverse cash payments, a settlement in which the patentee drug manufacturer agreed to relinquish its right to produce an "authorized generic" of the drug (no-AG agreement) to compete with a first-filing generic’s drug during the generic’s statutorily guaranteed 180 days of market exclusivity under the Hatch-Waxman Act as against the rest of the world. It decided that the Actavis holding could not be limited to reverse payments of cash. Rather, it held that a no-AG agreement, when it represented an unexplained large transfer of value from the patent holder to the alleged infringer, may be subject to antitrust scrutiny under the rule of reason.

U.S. views. The Department of Justice and the FTC urged the Court to deny review. In their brief, filed last month, the agencies framed the question as whether a reverse-payment agreement is immune from antitrust scrutiny if the consideration given by the brand-name manufacturer to the generic challenge is not a cash payment, but rather a promise to restrict its competition with the challenger after the challenger enters the market. According to the government, Actavis was not limited to cash payments and there was no sound reason for limiting it as the petitioning drug makers asked. Adopting such a distinction would give drug manufacturers the freedom to negotiate anticompetitive settlements so long as they involved non-cash reverse payments, in the government's view. This rule would "fly in the face of this Court’s repeated admonitions that the antitrust laws are ‘aimed at substance rather than form,’" it was noted. The government also suggested that the case was an unsuitable vehicle for the Court to consider the issue.

FTC action against no-AG agreements. Since the Third Circuit's decision, the FTC has filed its first case challenging a no-AG commitment as a form of reverse payment. In March, the agency announced its complaint against Endo Pharmaceuticals Inc. for allegedly orchestrating anticompetitive pay-for-delay agreements with potential generic competitors in order to block lower-cost generic alternatives to its two most important branded prescription drug products—opioid Opana ER and pain-relief patch Lidoderm. The suit was filed in the federal district court in Philadelphia. The court recently decided to sever the complaint into two separate actions, rejecting the FTC’s assertion that the claims were logically related because Endo entered into two similar reverse-payment agreements in pursuit of an "overarching plan to forestall generic competition to Opana ER and Lidoderm."

Attorneys: Jay P. Lefkowitz (Kirkland & Ellis LLP) for SmithKline Beecham Corp. Bruce E. Gerstein (Garwin Gerstein & Fisher, LLP) for King Drug Company of Florence, Inc.

Companies: SmithKline Beecham Corp.; King Drug Company of Florence, Inc.; Teva Pharmaceutical Industries Ltd.; Endo Pharmaceuticals, Inc.

MainStory: TopStory Antitrust

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