Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Non-cash pay-for-delay agreements do not avoid antitrust scrutiny: FTC amicus brief, (Jun 19, 2015)

By Greg Hammond, J.D.

The FTC has filed an amicus brief in the U.S. Court of Appeals in Boston, requesting that the court reverse a lower court’s decision, finding that an alleged non-cash payment from a brand drug manufacturer to a generic drug manufacturer, in order to delay entering a generic version of the branded drug, avoids antitrust scrutiny because the payment was not in cash. The Commission believes that the Supreme Court’s Actavis decision never excluded non-cash payments from antitrust scrutiny, the agency said today in announcing the amicus brief (American Sales Co. v. Warner-Chilcott Co., LLC, June 6, 2015).

Pharmaceutical company Warner Chilcott manufacturers 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 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 federal district court in Providence, Rhode Island, dismissed the federal antitrust claims in light of the U.S. Supreme Court’s Actavis decision, finding that because 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 could be granted. American Sales Co. appealed.

The district court “concluded that an anticompetitive patent-settlement agreement avoids scrutiny under traditional antirust rules unless the reverse payment at the center of the agreement takes the form of cash,” the FTC stated in its brief. “That holding contradicts the central logic of Actavis and makes no economic sense.”

First, the Commission argued that (1) Actavis never held or even suggested that antitrust scrutiny extends only to cash-based reverse-payments, and (2) non-cash reverse payments can have all of the same anticompetitive effects that properly subject such payments to antitrust scrutiny. Second, the FTC suggested that the lower court’s logic violates the basic precept that antitrust liability principles turn on economic substance, not form. “Its rationale would perversely allow parties settling patent litigation to avoid antitrust liability simply by sharing their enhanced monopoly profits in some form other than cash,” the brief stated.

Finally, the Commission asserts that a settlement with a no-authorized-generic commitment can violate antitrust laws whether characterized as a reverse payment or alternatively as a reciprocal agreement not to compete. “As Actavis confirms, mutual non-compete agreements involving patents, including this one, are subject to rule-of-reason scrutiny.”

Consequently, the FTC urges the Fourth Circuit to reverse the lower court’s decision.

Companies: American Sales Co.; Warner-Chilcott Co., LLC

News: Antitrust FederalTradeCommissionNews