The FTC’s Amicus Brief in the Wellbutrin XL Antitrust Litigation Attempts to Define the Contours of Summary Judgment Analysis in Pay-for-Delay Cases

The Federal Trade Commission (“FTC”) recently offered its views on the application of antitrust law to pay-for-delay agreements settling pharmaceutical patent litigation in the context of summary judgment.  In March 2016, the FTC filed an amicus curiae brief in the Wellbutrin XL Antitrust Litigation in the Third Circuit.  The FTC argued that the district court improperly applied the rule-of-reason principles articulated by the Supreme Court in FTC v. Actavis, 133 S. Ct. 2223 (2013) (“Actavis”).

In Wellbutrin XL, direct and indirect purchaser plaintiffs allege that inclusion of a No-Authorized Generic promise in a settlement of patent litigation over extended release Wellbutrin — an antidepressant — violated the Sherman Act.  In February 2007, GlaxoSmithKline (“GSK”), the brand manufacturer, and Biovail, the patent holder, entered into agreements in which generic manufacturers Anchen and Teva promised not to launch generic versions of 150 mg Wellbutrin until May 2008, or the resolution of an appeal, whichever occurred first.  In exchange, GSK agreed not to sell an authorized generic version of Wellbutrin during Teva’s 180-day exclusivity period (granted for being the first generic to file a certification with the FDA challenging Biovail’s patents).  The agreements also contained a provision permitting the parties to disavow the settlement if the FTC objected within a defined period of time.

Judge Mary A. McLaughlin, of the United States District Court of the Eastern District of Pennsylvania, granted summary judgment in favor of defendants, holding that no reasonable jury could find that the settlement constituted an unlawful reverse payment.  The district court ruled that Actavis was inapplicable because the agreements allowed the patent litigations to continue.  According to the court, the settlement maintained the risk that the patents could be found invalid or infringed.  The court also determined, under the rule of reason, that a reasonable jury could not find the settlement resulted in anticompetitive effects because plaintiffs failed to prove the settlement actually delayed generic entry.  The court further found that the anticompetitive effects of the settlement outweighed procompetitive justifications.  Finally, the court concluded that the provision related to FTC review of the settlement created a “veto power” and constituted a procompetitive benefit.

In its amicus brief in the Third Circuit, the FTC argues that the district court erred for multiple reasons.  First, the FTC explains that the district court misapprehended the showing needed to raise scrutiny under Actavis.  Specifically, the conclusion that Actavis is inapplicable where termination of the underlying patent litigation is not an aspect of the reverse payment “turns on an untenably narrow view of the competitive concern identified by the Supreme Court.”  In Actavis, the Supreme Court found that a settlement of a patent litigation that included a large, unexplained reverse payment — where the patent holder-plaintiff agreed to pay the generic-defendant — is subject to inquiry under the rule of reason.  The Supreme Court’s analysis focused on defendants’ reasons for the reverse payment.  If the reason is to delay generic entry and share patent-generated monopoly profits, then the payment likely violates antitrust laws in the absence of other justifications.

According to the FTC, the district court’s reasoning in Wellbutrin XL — that a settlement does not raise antitrust concerns if the patent litigation continues — improperly ignores the core concern of Actavis: “that a monopolist and a potential competitor would collude to avoid competing for some period of time and share the resulting monopoly profits.”  In overlooking the underlying reasoning in Actavis, the district court “elevated nominal factual distinctions over economic reality.”

Second, the FTC maintained that the district court erred in requiring a showing of actual delayed generic entry to establish an antitrust violation under the rule of reason.  The rule of reason is a balancing test used by juries to determine whether an agreement is an unreasonable restraint of trade in violation of the Sherman Act.  Under this test, plaintiffs must first present evidence of anticompetitive effects.  The burden then shifts to defendants to offer procompetitive justifications for the restraint.  Finally, the burden shifts back to plaintiffs to show that the restraint is unnecessary to achieve any procompetitive justifications.

The FTC argued that plaintiffs in Wellbutrin XL need not have proffered evidence of injury — in the form of actual delay — to prove anticompetitive effects under the rule of reason.  Instead, plaintiffs only had to present evidence that the reverse payment “represents a sharing of the brand’s monopoly profits to ‘prevent the risk of competition.’”  While proof of injury is a requirement that a private plaintiff must ultimately prove to establish its entitlement to damages under the Clayton Act, it is analytically distinct from the anticompetitive effects element under the rule of reason.

Third, the FTC argued that the district court misapplied the rule of reason by accepting defendants’ procompetitive justifications without an explanation of how the reverse payment promoted these purported benefits.  There must be a connection between the reverse payment and the procompetitive justification.  In crediting defendants’ procompetitive justifications, the district court relied upon a number of provisions in the settlement agreements.  The FTC argued that “[n]one of the purported procompetitive benefits the district court identified can explain the payment as anything other than an inducement . . . to share GSK’s monopoly profits instead of competing prior to May 2008.”

Fourth, the FTC asserted that the district court should not have cited as a procompetitive benefit the provision that allowed the parties to abandon their agreement if the FTC objected to the settlement.  This provision was not a grant of veto power to the FTC, as “it is well established that government inaction does not indicate agency approval.”   Moreover, the statute which requires that all settlements of pharmaceutical patent litigations be submitted to the FTC for review explicitly states that the FTC’s failure to take action on a settlement will not bar any other action.  Accordingly, the FTC concluded that “[t]he district court committed serious legal error when it turned the [FTC’s review of the settlement] into an escape hatch for defendants to evade antitrust scrutiny.”

Briefing on the appeal is expected to be completed shortly.  Faruqi & Faruqi, LLP represents Direct Purchaser Plaintiffs in the Wellbutrin XL litigation.

About Faruqi & Faruqi, LLP

Faruqi & Faruqi, LLP 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, LLP has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, direct purchasers, consumers and employees.

To schedule a free consultation with our attorneys and to learn more about your legal rights, call our offices today at (877) 247-4292.

About Andrew Coyle

Andrew is an associate in the firm’s New York office and his practice is focused on antitrust litigation. Prior to joining the firm, Andrew worked as a clerk in New York County Supreme Court and the Southern District of New York.  Please feel free to contact Andrew regarding any questions concerning this blog post or any questions related to F&F’s practice areas.

Logo Twitter Facebook LinkedIn Google+