Pay-For-Delay Enforcement Heats Up in the Wake of In re K-Dur Antitrust Litigation

The Third Circuit’s decision in In re K-Dur Antitrust Litigation breathed new life into the FTC’s fight against pay-for-delay settlement agreements. Since that decision, the FTC has acted with renewed vigor and sought to attack these agreements on a number of different fronts.

A. FTC’s Attempt to Expand K-Dur Ruling

In the past three months, after the Third Circuit’s K-Dur decision, the FTC has sought to appear amicus curiae in two cases pending in the District of New Jersey.[1] See Lamictal Amicus Brief. The FTC has filed these motions in an attempt to convince the district courts to take an expansive interpretation of the Third Circuit’s K-Dur ruling.

1. Third Circuit’s K-Dur Ruling

In In re K-Dur Antitrust Litigation, the Third Circuit rejected the scope-of-the-patent test and adopted a “quick look” approach, finding pay-for-delay settlement agreements prima facie unlawful.[2] See Aug.10, 2012 Amicus Brief. The Third Circuit’s holding, however, was limited. Specifically, the Third Circuit stated that “the only settlements subject to antitrust scrutiny are those involving a reverse payment from the name brand manufacturer to the generic challenger.” And, “nothing in the rule of reason test [that the court adopted] limits the ability of the parties to reach settlements based on a negotiated entry date for marketing of the generic drug.” Accordingly, an argument can be made that to find a violation of antitrust law, the court must be persuaded that a payment (i.e., monetary transfer) was made.

2. Professional Drug Co. v. Wyeth Inc. and In re Lamictal Direct Purchaser Antitrust Litigation

The settlement agreements challenged in Professional Drug Co. v. Wyeth Inc. and In re Lamictal Direct Purchaser Antitrust Litigation did not involve a monetary transfer from the brand patent holder to the generic drug maker. Instead, the brand patent holder negotiated a settlement under which the generic drug maker agreed to delay entry of its generic product for a fixed period of time in exchange for the brand patent holder’s promise not to compete with the generic’s product by introducing an authorized generic product into the market. These types of agreements are typically known as “no-authorized generic” commitments.
In briefing in support of motions to dismiss, the defendants in both cases argued that the pay-for-delay claim should be dismissed under K-Dur precisely because their settlements did not involve a monetary transfer. But the plaintiffs urged the court to adopt a broader view. The plaintiffs argued that the “quick look” rule should apply whenever the patent holder provides the challenger with economic value in any form, including value in the form of a no-authorized generic commitment.

3. FTC’s Attempt to Appear Amicus Curiae

The FTC filed its motions for leave to appear amicus curiae in an attempt to bolster and expound on the plaintiffs’ position. In its proposed amicus briefs, the FTC stressed that a promise not to compete is indeed a “payment,” given the economic realities it entails. Those economic realities, according to the FTC, were underscored by its 2011 Authorized Generic Report.[3] That report found that no-authorized generic promises are “common form[s] of compensation to generics” to induce delayed entry and substantially increase a generic’s revenue by shielding it from competition by an authorized generic.

FTC Chairman Jon Leibowitz, in commenting on the report, stressed the agency’s concern with no-authorized generic commitments:

[T]he clearest and most disturbing finding is that some brand companies may be using the threat of launching an authorized generic as a powerful inducement for generic companies to delay bringing their drugs to the market. When companies employ this tactic it is a double whammy for consumers. Consumers have to pay the high brand prices while the generic delays its entry and, once generic entry does occur, consumers pay higher prices without the benefits of competition from the authorized generic.[4] See FTC Report.

The FTC’s filing of the amicus briefs marks the first time in which it has argued that no-authorized generic commitments constitute an antitrust violation and may signal a broader enforcement strategy on behalf of the agency. But the FTC must overcome the fact that it has appeared to condone no-authorized generic agreements in the past. It must also demonstrate that a rule based on “economic realities,” as opposed to one based on a bright line monetary payment, is workable.

What is evident, though, is that the agency remains undeterred in its new strategy to expand pay-for-delay rulings to no-authorized generic commitments. This was most clearly expressed by the FTC’s decision to file an amicus in In re Lamictal even after the court denied its motion in Wyeth.[5] See. Aug.3, 2012 Order.

B. FTC’s Petition for Certiorari in FTC v. Watson Pharmaceuticals, Inc.

The Third Circuit is not the only arena in which the FTC continues its battle against pay-for-delay agreements. On October 4, 2012, the FTC, through the Solicitor General, petitioned for certiorari in FTC v. Watson Pharmaceuticals, Inc.[6] The petition seeks to overturn the Eleventh Circuit’s dismissal of the FTC’s challenge to a reverse payment settlement agreement between Solvay Pharmaceuticals, Inc., and several generic manufacturers over a drug called Androgel. See Certiorari Petition.

The FTC’s petition is the third petition in front of the Supreme Court. The two other petitions were brought by the brand patent holder and generic drug manufacturer in K-Dur. The FTC argued that its Androgel petition is a more preferable vehicle for the Court to decide the case than the petitions from the Third Circuit because it “is brought by an agency charged by Congress with challenging unfair methods of competition.”

The Court will now have to decide whether it will address the issue, and if it does, whether it will hear both cases or hear just one. Eagerly awaiting the court’s decision will be the FTC, the state attorneys general, and the drug manufacturers.

C. Conclusion

In re K-Dur Litigation prompted a series of events that will further shape the appropriate antitrust treatment of pay-for-delay settlement agreements. It is now clearer than ever that the FTC will continue to challenge pay-for-delay agreements (in the broadest sense) until the Supreme Court resolves the issue. In a recent speech made by FTC Chairman Jon Leibowitz, he asserted that if certiorari is not granted in Watson, “we’ll simply be forced to bring pay-for-delay cases in the Third Circuit for years to come”—a circuit in which the vast majority of pharmaceutical companies that engaged in pay-for-delay settlements are headquartered.[7] See Leibowitz Remarks.

Sources

[1] Federal Trade Commission Brief as Amicus Curiae, In re Lamictal Direct Purchaser Antitrust Litig., No. 2:12-cv-00995 (D.N.J. Oct. 5, 2012), ECF No. 89; Federal Trade Commission Brief as Amicus Curiae, Professional Drug Co. v. Wyeth Inc., No. 3:11-cv-05497 (D.N.J. Aug. 10, 2012), ECF No. 173.
[2] In re K-Dur Antitrust Litig., 686 F.3d 197 (3d Cir. 2012), petition for cert. filed, 81 U.S.L.W. 3090 (U.S. Aug. 24, 2012).
[3] Fed. Trade Comm’n, Authorized Generic Drugs: Short-Term Effects and Long-Term Impact (Aug. 2011).
[4] Fed Trade Comm’n, FTC Report Examines How Authorized Generics Affect the Pharmaceutical Market, FTC.org (Aug. 31, 2011), http://www.ftc.gov/opa/2011/08/genericdrugs.shtm.
[5] Order, Professional Drug Co. v. Wyeth Inc., No. 3:11-cv-05497 (D.N.J. Oct. 3, 2012), ECF No. 187.
[6] Petition for a Writ of Certiorari, FTC v. Watson Pharmaceuticals, Inc., No. 12-416 (U.S. Oct. 4, 2012).
[7] Jon Leibowitz, Chairman, Fed. Trade Comm’n, Remarks Prepared for Delivery at the Sixth Annual Georgetown Law Global Antitrust Enforcement Symposium (Sept. 19, 2012).