Pay-for-Delay Drugmakers Seek Supreme Court Review — Without Any Circuit Split

Actavis Told Courts to Apply the “Rule of Reason” to Reverse Payments

The Supreme Court’s 5-3 decision in FTC v. Actavis (2013) held that pay-for-delay agreements — in which branded drug companies make reverse payments to generic drug companies to induce them to delay coming to market — should be governed by the antitrust “rule of reason.”  The antitrust “rule of reason” is a century-old structured test, allowing a jury to decide whether, on balance, an agreement unreasonably restrains trade or not.  In a pay-for-delay case, Plaintiffs offer evidence about the anticompetitive harm of the reverse payment, the drug companies can respond by offering procompetitive justifications for the reverse payment, and then the jury decides the case under the rule of reason test.

The Lamictal Case’s Reverse Payment

When Actavis was decided, several cases challenging pay-for-delay agreements were already pending.  One was the Lamictal case against GlaxoSmithKline and Teva, filed in 2012.  Lamictal is the brand name for lamotrigine, an FDA-approved anticonvulsant and mood stabilizer.  The Lamictal case alleges that, back in 2005, GSK paid Teva not to come to market with generic Lamictal until 2008.  But instead of paying Teva in cash, GSK’s reverse payments to Teva included a large noncash payment that has been popular among brand and generic drug companies looking for a way to structure a reverse payment:  GSK promised Teva that GSK would not launch an authorized generic version of Lamictal for 6 months after Teva entered the market with generic Lamictal.

You can find out more about authorized generic versions of brand drugs from the Federal Trade Commission’s 2011 report.

Generic drug companies hate it when brand companies launch authorized generic versions of the brand drug.  The brand can easily launch one any time it likes, and it competes with the generic version of the drug, taking half of the generic drug company’s sales (and therefore profits) and lowering generic prices.  Knowing this, brand drug companies use the threat of launching an authorized generic to present an offer that many generic companies can’t seem to refuse:  “delay entering the market and we won’t launch an authorized generic; otherwise, enter the market now and suffer the loss of half of your sales and profits to our authorized generic.”

On a billion dollar brand drug, the brand’s promise not to launch an authorized generic for 6 months can mean $200-400 million in extra revenues to the generic drug company, and a corresponding revenue sacrifice by the brand drug company.

The District Court Dismissed, But the Third Circuit Unanimously Reversed

The district court in Lamictal decided that a reverse payment had to be in cash to be a potential antitrust violation, and dismissed the case, once before the Supreme Court’s Actavis decision and once after.

In 2014, a unanimous panel of the United States Court of Appeals for the Third Circuit reversed the district court’s decision and remanded for discovery and trial in the district court.  Faruqi & Faruqi filed an amicus curiae brief to the Third Circuit, representing a drug wholesaler.

The Third Circuit decided that a brand company’s promise not to launch an authorized generic functioned no differently than a reverse payment in cash, and so should be treated the same.  This is the conclusion reached by the First Circuit Court of Appeals this year and several district courts as well.  In fact, there is not a single court that has decided to the contrary.

Certiorari Petition

Nevertheless, on February 9, 2016, GSK and Teva filed a petition for certiorari, asking the Supreme Court to review and reverse the Third Circuit’s unanimous panel decision.  They argue that a promise not to launch an authorized generic is really an “exclusive license” or the functional equivalent of one, and that such licenses are immune from antitrust scrutiny under the Patent Act, 35 U.S.C. § 261.  This argument has not just been rejected by every single court to have considered it, but it ignores that exclusive licenses have never been immunized under the antitrust laws.  They get, at the very least, the same “rule of reason” scrutiny that the Supreme Court in Actavis decided applies to pay-for-delay agreements.

Because the purpose of Supreme Court review under the certiorari process is to seek resolution of conflicting appellate court decisions, GSK and Teva’s petition seeking certiorari will almost certainly be denied.  An opposition to the certiorari petition was filed on May 2, 2016, and will likely be considered at the Court’s June conferences.

Peter Kohn is a partner at Faruqi & Faruqi, LLP and chair of its antitrust department.  Following remand by the Third Circuit, Faruqi & Faruqi filed a case in the district court, on behalf of a drug wholesaler seeking to represent all direct purchasers of Lamictal.

About Faruqi & Faruqi, LLP

Faruqi & Faruqi focuses on complex civil litigation, including securities, antitrust, wage and hour, and consumer class actions as well as shareholder derivative and merger and transactional litigation. The firm is headquartered in New York, and maintains offices in California, Delaware and Pennsylvania. Since its founding in 1995, Faruqi & Faruqi has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, consumers and employees.

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Posted by Peter Kohn

Partner at Faruqi & Faruqi, LLP
Pennsylvania Office
Tel: (215) 277-5770
Fax: (215) 277-5771
Email: pkohn@faruqilaw.com
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