Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Teva agrees to $1.2B settlement in FTC suit over Provigil agreements, (May 28, 2015)

By Jeffrey May, J.D.

Cephalon, Inc. and its parent company, Teva Pharmaceutical Industries Ltd., have agreed to settle a long-running “pay-for-delay” action brought by the FTC over alleged efforts to block generic competition for the blockbuster sleep-disorder drug Provigil. The “landmark” settlement requires the companies to pay $1.2 billion into a fund to compensate Provigil purchasers and prohibits them from engaging in the conduct challenged by the agency. Neither Cephalon nor Teva admitted to wrongdoing (FTC v. Cephalon, Inc., FTC File No. 061 0182, Civil Action No. 2:08-cv-2141-MSG).

The settlement comes as trial in the case was set to begin June 1. In 2008, the FTC brought the action against Cephalon, alleging that the pharmaceutical company unlawfully responded to the threat of generic competition to its Provigil monopoly by buying-off all four of its potential competitors. The agency alleged that Cephalon paid generic drug makers to refrain from selling generic versions of Provigil and to drop their patent invalidity contentions under “pay-for-delay” patent litigation settlements, also known as “reverse-payment” settlement agreements. Private plaintiffs also challenged the conduct, and two settlements have been reached in those proceedings.

The federal district court in Philadelphia denied summary judgment in the case in January 2015. The FTC pointed out how the court found sufficient evidence to establish that “side agreements between Cephalon and the [g]eneric [d]efendants were a means of disguising payments for delay and/or inducing the [g]eneric [d]efendants to stay off of the market.” In April, the court ruled that the FTC could seek disgorgement of Cephalon’s past profits for the years 2007 through 2012.

Injunctive relief. The proposed court order would bar Teva from entering into the type of reverse payments that Cephalon used to protect Provigil. According to a Commission statement, these types of agreements commonly raise antitrust concerns—business transactions contemporaneous with the patent settlement that are designed to compensate the generic firm for its agreement to delay, or refrain from, competing.

In addition, the settlement would prohibit agreements in which the branded drug manufacturer makes a monetary payment or otherwise compensates the settling generic and (1) makes that transfer of value expressly contingent on settlement of existing patent litigation, or (2) the transfer occurs 30 days before or after the patent settlement. It was noted that certain arrangements are excluded from the ban, such as settlements without payments from the brand to the generic resulting in an entry date before patent expiration or settlements with payments reflecting reasonable avoided litigation costs. Compensation for saved future litigation expenses is currently set at $7,000,000 and will be adjusted annually for inflation.

Equitable monetary relief. The settlement also is intended to deprive Cephalon of “ill-gotten profits.” FTC Chairwoman Edith Ramirez said at a press conference announcing the settlement that monetary relief was a key tool to deterring pay-for-delay activity and that the agency will not hesitate to use all remedies available to it. She expressed her hope that the settlement will cause pharmaceutical companies to “think twice” about entering into these types of deals.

The proposed court order requires Cephalon to pay $1.2 billion into a settlement fund, providing redress to purchasers who overpaid for Provigil as a result of the challenged conduct. To avoid the possibility of duplicative recovery by private parties who have sued Cephalon for the same conduct, the settlement fund will be offset by the amount of the damage awards or settlements in those private cases. One such settlement involving direct purchasers valued at $512 million was announced in April. Any remaining funds will go to the U.S. Treasury.

In a separate statement, Commissioners Maureen K. Ohlhausen and Joshua D. Wright voiced their support for disgorgement in this case but reiterated their call for Commission guidance on the pursuit of this remedy in competition cases. The two Republican commissioners suggested that the use of disgorgement would likely meet the factors set forth in the now-withdrawn 2003 Commission policy statement on disgorgement in competition cases. There was a strong showing on the first and “most important” factor, according to Ohlhausen and Wright. There was reason to believe that Cephalon should have known that it was violating the antitrust laws when it entered into the pay-for-delay agreements at issue. Second, there appeared to be a reasonable basis for calculating the disgorgement amount. Third, the framework of the proposed settlement fund appeared to prevent duplicative recovery by private plaintiffs.

Attorneys: Markus Meier for FTC. Eric J. Mahr (Wilmer Cutler Pickering Hale and Dorr LLP) for Cephalon, Inc.

Companies: Cephalon, Inc.; Teva Pharmaceutical Industries Ltd.

News: Antitrust FederalTradeCommissionNews