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From Antitrust Law Daily, February 23, 2016

Non-monetary reverse payments fall within Actavis

By Greg Hammond, J.D.

The U.S. Supreme Court’s decision in Actavis extends to non-cash payments, the U.S. Court of Appeals in Boston has concluded. Thus, an order dismissing a class action by direct purchasers and end-payors of the oral contraceptive Loestrin 24 Fe against three pharmaceutical manufacturers for allegedly conspiring to delay generic competition through the use of non-cash reverse-payment agreements, entered by the federal district court in Providence, Rhode Island, was reversed and remanded (In re Loestrin 24 Fe Antitrust Litigation, February 22, 2016, Torruella, J.).

Pharmaceutical company Warner Chilcott manufactures oral contraceptives under the brand name Loestrin 24 Fe. Warner holds one patent, U.S. Patent No. 5,552,394, with claims that cover Loestrin 24. When Watson Pharmaceuticals, Inc. and Lupin Ltd. submitted applications to the U.S. Food and Drug Administration for approval to sell generic versions of Loestrin 24, Warner filed a patent infringement suit. Warner subsequently entered into settlement agreements with the generic drug manufacturers to induce them to withdraw their patent challenges.

Two groups of plaintiffs—drug and grocery retailers that operate stores dispensing prescription drugs to the public and employee welfare benefit programs that reimbursed subscribers who purchased Loestrin 24—filed class actions against the three pharmaceutical companies, alleging violations of Section 1of the Sherman Act and state antitrust laws. The district court dismissed the claims, however, on the basis that the Supreme Court’s holding in FTC v. Actavis, Inc., 133 S. Ct. 2223, 2013-1 Trade Cases ¶78,419, was limited to reverse payments in pure cash form.

The appellate court concluded, however, that the lower court erred in determining that non-monetary reverse payments do not fall under the scope of Actavis. First, contrary to the lower court’s reasoning that the reverse payments alleged in Actavis involved only cash payments, the appellate court concluded that alleged reverse payments in Actavis involved side deals in which the generic manufacturers agreed to promote the brand name drug at issue in exchange for multi-million dollar payments from the brand manufacturer. This, according to the appellate court, demonstrated that the Supreme Court recognized that a disguised above-market deal, in which a brand manufacturer effectively overpays a generic manufacturer for services rendered, may qualify as a reverse payment subject to antitrust scrutiny and militates against limiting the Supreme Court’s decision to pure cash payments.

The lower court’s comment that the Supreme Court was “fixated” on cash was an overstatement, the appellate court also stated. The court in Actavis explained that, “in substance, the plaintiff agreed to pay the defendants many millions of dollars to stay out of its market.” This language, according to the appellate court, acknowledges that antitrust scrutiny attaches not only to pure cash reverse payments, but to other forms of reverse payment that induce the generic to abandon a patent challenge, which unreasonably eliminates competition at the expense of consumers. While Actavis does not contain references to money, the appellate court noted that the key word used throughout the opinion is “payment,” which “connotes a much broader category of consideration than cash alone.”

The case is No. 14-2071 and 15-1250.

Attorneys: Thomas M. Sobol (Hagens Berman Sobol Shapiro, LLP) for Direct-Purchaser appellants. Mark S. Hegedus, FTC. Steve D. Shadowen (Hilliard & Shadowen LLP) for End-Payor appellants. Robert A. Milne (White & Case LLP) for Warner Chilcott Company, LLC. Leiv Blad, Jr. (Morgan, Lewis & Bockius LLP) for Lupin Pharmaceuticals, Inc.

Companies: American Sales Company, LLC; Rochester Drug Co-operative, Inc.; Warner Chilcott Company, LLC; Warner Chilcott Public Ltd. Co.; Warner Chilcott Holdings Co. III, Ltd.; Warner Chilcott Corp., LLC; Warner Chilcott US, LLC; Warner Chilcott Sales US, LLC; Warner Chilcott Laboratories Ireland Ltd.; Warner Chilcott Co.; Actavis, Inc.; Watson Laboratories, Inc.; Lupin Ltd.; Lupin Pharmaceuticals, Inc.

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