Antitrust Law Daily Wrap Up, ANTITRUST NEWS: FTC amicus brief urges reversal of finding that “no authorized generic” drug commitments did not constitute reverse payments, (May 2, 2014)

By Linda O’Brien, J.D., LL.M.

The FTC filed an amicus brief with the U.S. Court of Appeals in Philadelphia on April 28, contending that the dismissal of an antitrust challenge to a non-monetary settlement of patent infringement litigation between drug companies was erroneous and should be reversed (In re Lamictal Direct Purchaser Antitrust, Case No. 14-1243). The federal district court in Newark, New Jersey found that agreements between branded and generic drug makers that include the branded firm’s commitment not to introduce an “authorized generic” cannot violate the antitrust laws under FTC v. Actavis, Inc., 133 S.Ct. 2224 (2013) because they do not involve the payment of money.

In Actavis, the U.S. Supreme Court held that “reverse-payment” patent settlements—agreements in which a brand-name drug manufacturer pays a would-be competitor to abandon its patent challenge and agrees not to sell its generic drug product for a number of years—are not immune from antitrust scrutiny and are to be evaluated using traditional antitrust factors.

In Lamictal, the private plaintiffs alleged that branded drug firm GlaxoSmithKline (GSK) paid Teva Pharmaceuticals to delay its generic entry in exchange for GSK’s promise not to compete with authorized generic versions of the drug Lamictal. The district court dismissed the case, distinguishing the Actavis ruling on the grounds that the branded-drug company there had compensated the generic firm in cash to induce it not to enter the market for a defined period, while in the case of Lamictal, the branded company had extended compensation not in cash, but in the form of a valuable agreement not to compete.

The FTC brief explained that the no-authorized-generic commitment in Lamictal raised the same antitrust concern that the Supreme Court identified in Actavis. A no-authorized-generic commitment meant that the brand-name drug firm, as part of a patent settlement, agreed that it would not launch its own authorized-generic alternative when the first generic company begins to compete. An FTC empirical study on the competitive effects of authorized generics found that when a brand company does not launch an authorized generic during the exclusivity period reserved for the first-filing generic under the Hatch-Waxman Act, it substantially increases the first generic company’s revenues and consumers pay higher prices for the generic product.

The no-authorized-generic commitment gave the generic company something it could not have obtained had it won its patent litigation—protection against competition from an authorized generic during the exclusivity period. It was also a vehicle for the branded company to share with the generic the monopoly profits preserved by the generic company’s agreement to drop its patent challenge and stay off the market, according to the brief.

The FTC’s brief stated that the Actavis decision does not distinguish among many forms of compensation that can lead to a potentially problematic reverse-payment settlement. If the Third Circuit does not reverse the district court decision, the brief urged, its narrow reading of Actavis “would undermine the Supreme Court’s decision in that case and encourage parties to structure potentially anticompetitive reverse-payment settlements simply by avoiding the use of cash.”

The decision in Actavis reaffirmed that traditional antitrust principles apply to agreements between a brand-name drug firm and its potential generic competitor and that settlements between potential competitors that take the form of reciprocal agreements not to compete also raise antitrust concerns, the brief explained.

The Commission vote approving filing of the brief was 4-0-1, with Commissioner Terrell McSweeny not participating.

Companies: GlaxoSmithKline, LLC; Teva Pharmaceuticals

News: Antitrust