Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Pa.: Actavis rule of reason standard applied in Provigil pay-for-delay suit, (Dec 15, 2015)

By Greg Hammond, J.D.

In an action in which purchasers of the prescription drug Provigil alleged that the drug’s manufacturer and four generic drug manufacturers engaged in pay-for-delay agreements, purchasers of Provigil could not proceed with a per se antitrust liability theory based on allegations that the generic defendants knew the underlying patent at issue was procured by fraud. In granting the generic defendants’ motion to strike the plaintiffs’ fraudulent patent theory, the federal district court in Philadelphia determined that the plaintiffs’ per se theory of liability was contrary to the law set out in FTC v. Actavis, Inc., 133 S. Ct. 2223, 2013-1 Trade Cases ¶78,419, and that the claims against the generic defendants must be proven under the Actavis rule of reason (King Drug Company of Florence, Inc. v. Cephalon, Inc., December 14, 2015, Goldberg, M.).

Direct purchasers of the sleeping disorder medication modafinil—sold under the brand name Provigil—along with end payors and a generic competitor, filed a series of class action suits against pharmaceutical manufacturer Cephalon, Inc. and four generic drug manufacturers—Barr, Mylan, Teva, and Ranbaxy. The plaintiffs claimed that the pharmaceutical defendants entered into four Hatch-Waxman reverse-payment settlement agreements that unlawfully delayed the market entry of generic Provigil in violation of the Sherman Act.

The generic defendants moved to strike the plaintiffs’ fraudulent patent theory from their pretrial memorandum, arguing that the memorandum impermissibly includes a theory of per se antitrust liability which stems from the generic defendants’ alleged knowledge that Cephalon’s patent was procured by fraud.

Per se liability theory. Plaintiffs’ per se theory of liability, which was based on the generic defendants’ purported knowledge of fraud, relied on the generic defendants’ earlier court filings and an order in the underlying patent infringement litigation. The court, however, determined that this theory of liability would essentially create a “Hobson’s choice”—the necessity of accepting one of two or more equally objectionable alternatives—for generic pharmaceutical companies. In particular, the court determined that to accept the plaintiffs’ per se theory would require generic companies to choose between: (1) declining to raise potential defenses to patent infringement challenges for fear that, if the parties eventually settle, those defenses would later be used to establish a per se violation of the antitrust laws; or (2) raise the defenses and litigate the case to conclusion without considering settlement. Such a result, according to the court, would significantly undermine the public policies encouraging patent challenges, as well as settlement.

Actavis rule of reason. Next, the court noted that it has previously held that a Walker Process monopolization claim cannot be maintained against the generic defendants. It was undisputed that the generic defendants had no involvement in the procurement of the patent, according to the court, nor did they somehow conspire to enforce the patent by initiating the infringement lawsuit. Instead, the generic defendants settled a lawsuit where they may have had knowledge of facts indicating that fraud may have occurred, but that knowledge had not yet been confirmed by a judgment, the court stated. Consequently the court found that Actavis’ rule of reason analysis is the appropriate framework for Apotex, Inc.’s monopolization claims against the generic defendants.

“Knowledge of fraud.” Nevertheless, the court determined that facts indicating that the generic defendants knew of Cephalon’s fraud were relevant to the plaintiffs’ Actavis reverse payment case because they speak to the parties’ belief about the strength of the patent and its ability to inhibit competition. Consequently, the generic defendants’ knowledge of the patent’s weakness could be introduced at trial in support of the plaintiffs’ claims under the rule of reason, the court concluded.

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 Co. of Florence, Inc. and J M Smith Corp. Joseph H. Meltzer (Kessler Topaz Meltzer & Check, LLP), Kevin B. Love (Hanzman Criden & Love, PA) and Lawrence Kendall Satterfield (Finkelstein Thompson LLP) for Vista Healthplan, Inc. and Pennsylvania Turnpike Commission. Brian J. Sodikoff (Katten Muchin Rosenmann LLP) and Edward A. Diver (Langer Grogan & Diver PC) for Apotex, Inc. Kevin Vanwart (Kirkland & Ellis LLP) for Cephalon, Inc. C. Fairley Spillman (Akin Gump Strauss Hauer & Feld LLP) and Daniel P. Margolskee (Cravath Swaine & Moore LLP) for Mylan Laboratories, Inc.

Companies: King Drug Company of Florence, Inc.; J M Smith Corp.; Cephalon, Inc.; Vista Healthplan, Inc.; Apotex, Inc.; Barr Pharmaceuticals, Inc.; Mylan Laboratories, Inc.; Mylan Pharmaceuticals, Inc.; Teva Pharmaceutical Industries, Ltd.; Teva Pharmaceuticals USA, Inc.; Ranbaxy Laboratories, Ltd.; Ranbaxy Pharmaceuticals, Inc.; Pennsylvania Turnpike Commission

Cases: Antitrust PennsylvaniaNews