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From Antitrust Law Daily, January 4, 2018

Rejection of pharmacists’ claims against Pfizer, Ranbaxy for Lipitor reverse payment scheme upheld

By E. Darius Sturmer, J.D.

California pharmacists’ claims that drug manufacturers Pfizer Inc. and Ranbaxy Inc. committed a per se violation of the state’s Cartwright Act by entering into a reverse-payment settlement agreement that delayed Ranbaxy’s release of a generic form of Pfizer’s cholesterol-lowering Lipitor were properly dismissed, the U.S. Court of Appeals in Philadelphia has ruled. "Under California antitrust law, a reverse settlement may not be attacked on a per se basis," the court explained. Dismissal of the pharmacists’ complaint was therefore affirmed, as were the lower court’s findings that it could exercise jurisdiction over the suit but not over a foreign co-defendant (In re: Lipitor Antitrust Litigation, January 3, 2018, per curiam).

Diversity jurisdiction. This ruling in the long-running Lipitor litigation focused on a distinct group—a group of pharmacists collectively referred to as RP Healthcare—within the larger litigation. At the outset, the appellate court noted that the federal judiciary had jurisdiction over the matter, despite the fact that the plaintiffs had asserted only state law claims, because complete diversity existed between the parties. Although the plaintiffs’ original remand motion—erroneously denied on other grounds—should have been granted for lack of jurisdiction, by the time of that final judgment the group had voluntarily dismissed "what appeared to be each of the remaining non-diverse defendants," so as to establish complete diversity. The district court’s subsequent holding that it could retain jurisdiction on that basis was correct, the appellate court said.

Alleged reverse payment settlement. According to RP, the anticompetitive scheme around Lipitor stemmed from Ranbaxy’s release of a generic version of another of Pfizer’s patented drugs, Accupril, which caused Pfizer a $450 million loss in sales in one year. Pfizer sued Ranbaxy for patent infringement and was found likely to prevail, with Ranbaxy potentially liable for substantial damages in lost profits. Despite this, the parties reached a settlement agreement whereby Ranbaxy agreed to pay Pfizer $1 million—much less than its potential liability under Pfizer’s lawsuit. RP alleged that the generic Accupril settlement on terms favorable to Ranbaxy was an anticompetitive inducement to ensure a delay in Ranbaxy’s release of a generic version of Lipitor.

Lower court holding. The district court dismissed the complaint on the basis that if the settlement could be characterized as an unlawful reverse payment, the plaintiffs had not sufficiently alleged that the payment was "large" and "unjustified," having failed to calculate the reasonable value of the alleged reverse payment.

That holding was later reversed on appeal as to the other groups of purchasers that were part of the consolidated litigation over the delay of generic Lipitor, on the reasoning that "in reverse settlement cases ‘[t]he Supreme Court did not require the advanced valuations … required by the District Court.’" The court noted that in FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013), the Supreme Court had ruled that reverse payment settlement agreements could give rise to antitrust liability, as the reverse payments could be anticompetitive if based on a desire to maintain and to share patent-generated monopoly profits. This could be established where a payment was large and unjustified by traditional settlement considerations, the district court noted.

Per se illegality. RP Healthcare’s insistence that it was pursuing a per se antitrust violation rather than the sort of reverse settlement claim considered under the rule of reason in Actavis, however, was fatal to its particular claim, the appellate court decided. The California Supreme Court, applying the reasoning of Actavis to a Cartwright Act claim in In re Cipro Cases I & II, 61 Cal. 4th 116 (2015), had concluded that reverse settlements had to be "scrutinized under a structured rule of reason analysis."

An argument by RP Healthcare that the agreement between Pfizer and Ranbaxy was not a reverse settlement governed by the Cipro decision was rejected. "The settlement agreement’s basic attributes, which cannot be ignored, revealed that it was," the court stated. The pharmacists could not escape Cipro’s reach with a challenge that the relevant patent had expired—thus distinguishing the settlement from those wherein activity was regulated within the patent period—because Lipitor was still covered by at least five other patents well outside the period contemplated by the Pfizer-Ranbaxy agreement.

Personal jurisdiction. Finally, the appellate court affirmed the dismissal of one defendant, Daiichi Sankyo Co., Ltd., under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction. Daiichi is a Japanese corporation with no offices, facilities, employees, appointed agent, or business license in California, the court noted. RP’s singular assertion that Daiichi conditioned its purchase of stock from Ranbaxy upon its entry into the agreement with Pfizer would not support a California court’s exercise of personal jurisdiction, the appellate court concluded. Even if the allegations were true, such an agreement would not show that the company "purposefully availed itself of the privilege of conducting activities within" California.

The case is No. 14-4632.

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