1st Circuit Joins 3rd Circuit: Non-Cash Reverse Payments Subject to Antitrust Scrutiny

by Patterson Belknap Webb & Tyler LLP
Contact

Courts continue to evaluate the degree to which “reverse payments” are permitted post-Actavis.  In the latest of these decisions, issued on February 22, 2016, the First Circuit held that non-cash payments may run afoul of the antitrust laws.  See In re: Loestrin Fe Antitrust Litigation, Nos. 14-2071, 15-1250 (1st Cir. Feb. 22, 2016).

In Actavis, the Supreme Court held that unexplained large payments from a patent-holder to an alleged infringer to settle litigation of the validity or infringement of the patent (“reverse payments”) can sometimes violate the antitrust laws.  Since then, courts have been tasked with evaluating when such payments prove to be antitrust violations.  In Loestrin, the First Circuit joined the Third Circuit in finding that non-cash reverse payments are subject to antitrust scrutiny.  See King Drug Company of Florence, Inc. v. Smithkline Beecham Corp. d/b/a GlaxoSmithKline, No. 14-1243 (3d Cir. June 26, 2015) (“We do not believe Actavis’s holding can be limited to reverse payments of cash.”).

The Facts

The dispute in Loestrin arose from two settlement agreements resolving litigation concerning the patent that covers the oral contraceptive Loestrin 24 Fe (“Loestrin 24”).  The first litigation arose when Watson Pharmaceuticals, Inc. informed Warner Chilcott that it would introduce a generic version of Loestrin 24, following which Warner sued Watson for patent infringement.  The parties eventually reached a settlement, in which they agreed that Watson would delay entry of its generic version and, in exchange, Watson entered into promotional deals with Warner and received promises that Warner would not introduce its own generic version of Loestrin 24.  The second litigation arose when Lupin Pharmaceuticals, Inc. similarly announced it would introduce a generic version of Loestrin 24.  Again, Warner brought a patent infringement suit against Lupin.  And, again, the parties reached a settlement agreement in which Lupin agreed to wait to introduce its generic Loestrin 24 in exchange for, among other things, Warner’s agreement to enter into favorable side deals with Lupin.

Two putative classes of plaintiffs brought antitrust claims alleging that the settlement agreements are illegal under Actavis.  The District Court held that Actavis only applies to reverse payments that are in pure cash form, and dismissed the plaintiffs’ claims.  (We wrote about that decision here.)

The First Circuit’s Decision

The First Circuit determined “that the district court erred in determining that non-monetary reverse payments do not fall under Actavis’s scope.”  More specifically, it held that “antitrust scrutiny attaches not only to pure cash reverse payments, but to other forms of reverse payment that induce the generic to abandon a patent challenge, which unreasonably eliminates competition at the expense of consumers.”

The First Circuit explained that Actavis itself did not involve only cash payments:  rather, in Actavis, there were allegations that the reverse payments included a side deal in which the generic manufacturers agreed to promote the brand name drug in exchange for significant payments.  In the First Circuit’s view, “[t]his fact alone demonstrates that the Supreme Court recognized that a disguised above-market deal, in which a brand manufacturer effectively overpays a generic manufacturer for services rendered, may qualify as a reverse payment subject to antitrust scrutiny.”  The First Circuit elaborated that although Actavis “does contain references to money,” the “key word used throughout the opinion is ‘payment,’ which connotes a much broader category of consideration than cash alone.”  Moreover, the First Circuit noted that a narrow construction of Actavis would “give drug manufacturers carte blanche to negotiate anticompetitive settlements so long as they involve non-cash reverse payments.”

Nonetheless, the First Circuit emphasized that “the value of a reverse payment is a key component in determining whether it is unlawful.”  It explained that “[a]lthough the value of non-cash reverse payments may be much more difficult to compute than that of their cash counterparts,” antitrust litigation frequently requires difficult and complex inquiries.

What’s Next?

The only two circuit courts to address this question have now held that Actavis applies to non-cash reverse payments; the majority of district courts have reached the same conclusion.  In the wake of the First Circuit’s decision, it seems likely that most courts will follow the First and Third Circuits in evaluating non-cash reverse payments under the rule of reason.

Still, plaintiffs who wish to allege that non-cash reverse payments violate the antitrust laws may face challenges in crafting their complaint:  the First Circuit warned that such plaintiffs must “plead information sufficient to estimate the value of the [payment], at least to the extent of determining whether it is large and unjustified.”  (internal quotation marks omitted).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Patterson Belknap Webb & Tyler LLP | Attorney Advertising

Written by:

Patterson Belknap Webb & Tyler LLP
Contact
more
less

Patterson Belknap Webb & Tyler LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.