Antitrust Law Daily Wrap Up, ANTITRUST—D. R.I.: Contraceptive purchasers’ antitrust claims over patent settlement dismissed, (Sep 5, 2014)

By Linda O’Brien, J.D., LL.M.

In a consolidated 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 reverse-payment agreements, the federal district court in Providence, Rhode Island has dismissed the plaintiffs’ federal antitrust claims in light of the U.S. Supreme Court’s recent Actavis decision (In re Loestrin 24 FE Antitrust Litigation, September 4, 2014, Smith, W.).

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 (the '394 patent), with claims that cover Loestrin 24. When Watson Pharmaceuticals, Inc. and Lupin Ltd. submitted applications to the U.S. Food and Drug Administration (FDA) for approval to sell generic versions of Loestrin 24, Warner filed suit, asserting infringement of the '394 patent. 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 that dispense 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 1 of the Sherman Act and state antitrust laws. The defendants moved for dismissal.

Rule of reason. The U.S. Supreme Court held in FTC v. Actavis, Inc., 133 S.Ct. 2223 (2013), that settlement payments in patent infringement suits made by a patent holder to alleged infringer in exchange for the infringer’s promise to delay production of the patented product may violate federal antitrust law, according to the court. In that decision, the Supreme Court set forth five considerations to guide an inquiry whether a settlement payment satisfies the rule of reason: (1) the potential for genuine adverse effects on competition; (2) justification of the settlement in light of litigation expenses saved; (3) the amount of the payment as an indicator of the patent holder’s market power; (4) the patent holder’s confidence in the strength of the patent; and (5) the justifications given for the payment.

In this case, the consideration paid by Warner to Watson and Lupin was primarily non-cash in nature – an agreement to delay the launch its authorized generic and not to license other generics and the grant of exclusive licenses to sell other Warner oral contraceptives. In rejecting the plaintiffs’ argument that the Actavis analysis should be extended to apply to non-cash settlement agreements, the court noted that the Actavis decision represented a significant change from previous approaches of appellate courts and its application should not be construed beyond the terms that the opinion describes. Additionally, the public policy value of patent settlements indicated that Actavis should apply solely to cash settlements and exclude non-cash settlements as to preserve a viable path for litigants to resolve their disputes.

Had the Supreme Court intended the rule of reason scrutiny to apply to non-cash settlements, it would have explicitly done so, the court observed. Although the plaintiffs have asserted facts showing illegal contracts in restraint of trade undertaken by the defendants, the court acknowledged that an estimate of the monetary value of the non-cash settlements would be difficult to ascertain without considerable discovery. Since the plaintiffs did not adequately allege payment in the form of cash by Warner in exchange for Watson’s and Lupin’s agreement to stay out of the market for Loestrin 24, they failed to state a claim upon which relief may be granted and the defendants’ motions to dismiss must be granted.

The case is No. 1:13-md-2472 (MDL No. 13-2472).

Attorneys: Donald A. Migliori (Motley Rice LLC), and Jeffrey M. Padwa, City Solicitor's Office, for City of Providence, Rhode Island. Jeffrey B. Pine (Jeffrey B. Pine, Esq. PC), Joseph H. Meltzer (Kessler Topaz Meltzer & Check, LLP), and Maria F. Deaton (Lynch & Pine, LLC) for American Sales Company, LLC. Elizabeth G. Arthur (Hilliard & Shadowen, LLC) for United Food and Commercial Workers Local 1776 & Participating Employers Health and Welfare Fund. Christopher Lometti (Cohen Milstein Sellers & Toll PLLC) for New York Hotel Trades Council & Hotel Association of New York City, Inc. Health Benefits Fund. Adam G. Kurtz (Pomerantz LLP) for Fraternal Order of Police, Fort Lauderdale Lodge 31, Insurance Trust Fund. John A. Tarantino (Adler Pollock & Sheehan PC) for Warner Chilcott Public Limited Co., Warner Chilcott Corp., and Warner Chilcott Company, Inc. Alison Hanstead (White & Case LLP) for Warner Chilcott (U.S.), LLC, Actavis, Inc., and Watson Pharmaceuticals, Inc.

Companies: American Sales Company, LLC; United Food and Commercial Workers Local 1776 & Participating Employers Health and Welfare Fund; New York Hotel Trades Council & Hotel Association of New York City, Inc. Health Benefits Fund; Fraternal Order of Police, Fort Lauderdale Lodge 31, Insurance Trust Fund; Warner Chilcott Public Limited Co.; Warner Chilcott Corp.; Warner Chilcott Company, Inc.; Warner Chilcott (U.S.), LLC; Actavis, Inc.; Watson Pharmaceuticals, Inc.

Cases: Antitrust RhodeIslandNews