Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Pa.: Suit over Nexium drug maker’s alleged pay-for-delay agreements remanded, (Oct 7, 2014)

By Linda O’Brien, J.D., LL.M.

An action by health insurance companies that purchased the brand drug Nexium against its manufacturer, AstraZeneca, and three generic drug manufacturers for allegedly entering into reverse payment agreements to block generic competition for Nexium was remanded on the grounds that the federal district court in Philadelphia lacked subject matter jurisdiction (Time Insurance Company v. Astrazeneca AB, October 1, 2014, McHugh, G.).

AstraZeneca manufactures the brand drug Nexium and holds several patents relating to the drug. After generic drug makers Ranbaxy Pharmaceuticals, Teva Pharmaceutical Industries, and Dr. Reddy’s Laboratories (DRL) challenged the Nexium patents and sought to market generic Nexium, AstraZeneca responded by filing patent infringement suits against them. Subsequently, AstraZeneca entered into settlement agreement with the generic manufacturers, ending the three suits and delaying the entry of generic Nexium into the market.

Time Insurance Company and other health insurance companies that paid for Nexium prescriptions purchased by their insureds filed suit in state court against AstraZeneca and the three generic drug manufacturers for alleged entering into reverse payment agreements to delay generic competition for Nexium in violation of state antitrust law. The defendants removed the action on the basis that resolution of the state law claims would involve litigation of the validity of the Nexium patents. The plaintiffs subsequently moved for remand.

Anticompetitive conduct. An antitrust plaintiff must demonstrate the existence of anticompetitive conduct by the defendant and that the conduct caused the plaintiff’s injuries. The court determined that, in light of the U.S. Supreme Court decision in FTC v. Actavis, Inc., 133 S.Ct. 2223 (2013), the plaintiffs could prove the existence of anticompetitive conduct without litigating the patent issue by relying on the nature of the settlements themselves. Although the defendants may assert the validity of the patents as a defense, the relevant inquiry was the motive behind the alleged anticompetitive conduct.

In this case, there were no direct payments, since the reverse payments took the form of outsized payments for other services and nullification of potential liabilities. In the court’s view, reverse payments deemed anticompetitive pursuant to Actavis could take forms other than cash payments. Therefore, the plaintiffs could establish the first essential element of their claims.

Causation of damages. According to the court, the plaintiffs needed to allege only a single theory that did not require the resolution of patent law in order to defeat removal. Although the complaint’s factual allegations about the patents were highly specific, their claims for relief were couched broadly and did not allege any precise theory beyond the existence of anticompetitive agreements that caused them to overpay by the foreclosure of the availability of lower priced generics. Moreover, without reaching the question of the validity of the patents, the risk that the generic drug manufacturers might enter the market and demonstrate a reasonable likelihood of success in voiding the patents had an economic consequence that the plaintiffs contended was blocked by the unlawful agreements that prevented competition. Such marketplace risk was what the plaintiffs expected to prove was the motivating factor for the reverse payments.

Substantiality. Finally, the court found that any finding as to the validity of the patents would not have a substantial enough impact of federal law to support federal question jurisdiction. In this case, a jury will be asked to evaluate the alleged anticompetitive conduct and the motivation behind it as a factual matter. A jury verdict would not undermine the development of a uniform body of patent law, since federal district courts maintain exclusive jurisdiction over actual patent cases which do not involve such hypothetical questions. Thus, a jury’s factual findings on causation would not invalidate the patents, serve as binding precedent, or affect the administration of federal patent law, the court concluded.

The case is No. 14-4149.

Attorneys: Barbara J. Hart (Lowey Dannenberg Cohen & Hart, PC) for Time Insurance Co., Union Security Insurance Co., John Alden Life Insurance Co., Bluecross Blueshield of Tennessee and Priority Health. Raymond McGarry (Wynn McGarry LLC) for AstraZeneca AB, AstraZeneca LP. Danielle R. Foley (Venable LLP) for Ranbaxy Laboratories Ltd., and Ranbaxy Inc. Jonathan D. Janow (Kirkland & Ellis) for Teva Pharmaceutical Industries, Ltd.

Companies: Time Insurance Co., Union Security Insurance Co., John Alden Life Insurance Co., BlueCross BlueShield of Tennessee; Priority Health; AstraZeneca AB; AstraZeneca LP; Ranbaxy Laboratories Ltd.; Ranbaxy Inc.; Teva Pharmaceutical Industries, Ltd.

Cases: Antitrust PennsylvaniaNews