The Federal Trade Commission carried out an (in)famous crusade against reverse payment (more provocatively, "pay for delay") settlements in ANDA litigation for almost a decade before eventually having the Supreme Court see things their way (to some extent) in FTC v Actavis. The Commission has not lost its enthusiasm for such interventions in drug patenting matters but without (so far) overwhelming success. This pattern is illustrated in the Third Circuit's recent decision in Federal Trade Commission v. AbbVie Inc.
The Commission's interest arose over Androgel, which the opinion characterizes as a "blockbuster testosterone replacement therapy that generated billions of dollars in sales," the latter characteristic no doubt playing a large part in attracting the FTC's investigation. The Commission brought suit against AbbVie and related companies under 15 U.S.C. § 53(b) (Section 13(b) of the Federal Trade Commission Act), which provides FTC jurisdiction over false advertisements with provisions for injunctions and restraining orders:
Power of Commission; jurisdiction of courts
Whenever the Commission has reason to believe—
(1) that any person, partnership, or corporation is engaged in, or is about to engage in, the dissemination or the causing of the dissemination of any advertisement in violation of section 52 of this title, and
(2) that the enjoining thereof pending the issuance of a complaint by the Commission under section 45 of this title, and until such complaint is dismissed by the Commission or set aside by the court on review, or the order of the Commission to cease and desist made thereon has become final within the meaning of section 45 of this title, would be to the interest of the public,
the Commission by any of its attorneys designated by it for such purpose may bring suit in a district court of the United States or in the United States court of any Territory, to enjoin the dissemination or the causing of the dissemination of such advertisement. Upon proper showing a temporary injunction or restraining order shall be granted without bond. Any suit may be brought where such person, partnership, or corporation resides or transacts business, or wherever venue is proper under section 1391 of title 28. In addition, the court may, if the court determines that the interests of justice require that any other person, partnership, or corporation should be a party in such suit, cause such other person, partnership, or corporation to be added as a party without regard to whether venue is otherwise proper in the district in which the suit is brought. In any suit under this section, process may be served on any person, partnership, or corporation wherever it may be found.
The basis of the allegations were that defendants filed "sham" patent infringement suits (which seems to be the allegation the FTC makes against any patent infringement or ANDA lawsuit brought by a drug company) against generic drug companies, followed by entering into an "anticompetitive reverse-payment agreement" with one such company (Teva Pharmaceuticals). (Indeed, Perrigo Co., one of the generic competitors, made that allegation before the District Court.)
The various parties settled, concomitant with payments from Abbott/AbbVie for "avoided litigation expenses" (a category sanctioned by the Supreme Court's Actavis opinion) and an agreement of a date certain, prior to patent expiration, when the generic competitor could market its Androgel generic drug. In Teva's case, the Androgel settlement was paired with settlement over another generic drug (brand name TriCor) which permitted Teva to take advantage of a 180-day exclusivity period as first filer, with Abbott being the supplier and being entitled to "the costs of production, an additional percentage of that cost, and a royalty." (This agreement formed the basis for FTC's allegation of an illegal reverse payment.)
FTC's complaint recited two counts:
• Count 1 (Monopolization): that AbbVie and Besins willfully maintained a monopoly through a course of anticompetitive conduct, including sham patent litigation against Teva and Perrigo.
• Count 2 (Restraint of Trade): that AbbVie restrained trade by entering into an anticompetitive reverse payment agreement with Teva.
As explained by the Third Circuit, the District Court dismissed FTC's complaint as to the reverse payment liability theory but permitted the case to move forward on the sham patent allegation. Thereafter, the District Court held for FTC on both prongs of the sham litigation theory (i.e., that AbbVie had monopoly power in the relevant market and the sham litigation was willfully acquired or maintained by that litigation) and entered judgment requiring AbbVie (and co-defendant Besins) to disgorge $448 million in "ill-gotten profits" but declined to enter an injunction. This appeal (by FTC, AbbVie and Besins) followed.
The Third Circuit held that the District Court erred in rejecting the reverse-payment theory and concluding that litigation against Teva was a sham. The District Court did not err, according to the Third Circuit, in concluding that litigation against another generic company, Perrigo, was a sham, that defendants had monopoly power in the relevant market, or in denying FTC's request for an injunction. The Court also held that the FTC had overstepped its authority in seeking disgorgement, because Section 13(b) of the FTC Act contained no provision authorizing this remedy, thus forestalling any remedy against defendants unless the district court found antitrust liability on the reverse payment theory on remand.
With regard to the reverse payment allegation, the Court set forth its understanding of the fact pattern supporting such an allegation:
"Company A sues Company B for patent infringement. The two companies settle under terms that require (1) Company B, the claimed infringer, not to produce the patented product until the patent's term expires, and (2) Company A, the patentee, to pay B many millions of dollars" citing Actavis.
The Court's basis of finding anticompetitive behavior under these circumstances was that "Company B might have prevailed by proving Company A's patent invalid. Even if the patent were valid, Company B might prevail by showing it did not infringe. In either case, generic drugs would have entered the market before Company A's patent was set to expire, and consumers would have benefited from lower drug prices."
The lack of a bright line set forth in Actavis by the Supreme Court (which also involved Androgel) was the basis for the Court's reversing and remanding the District Court's grant of defendants' motion to dismiss. And the opinion asserted that the Third Circuit's decision here was consistent with other cases decide by the Court, including King Drug Co. of Florence, Inc. v. SmithKline Beecham Corp., 791 F.3d 388 (3d Cir. 2015) (no authorized generic), In re Wellbutrin XL Antitrust Litig. Indirect Purchaser Class, 868 F.3d 132 (3d Cir. 2017), and In re Lipitor Antitrust Litig., 868 F.3d 231 (3d Cir. 2017) (settling a related claim for much less than it was objectively worth on one drug and a "no authorized generic" agreement on another). From these cases the Third Circuit recognized two principles set forth in this opinion:
• First, a reverse payment's legality depends mainly on its economic substance, not its form.
• The second principle . . . is that the law of pleading applies to reverse-payment theories. [Specifically, i]f a plaintiff plausibly alleges that an agreement's anticompetitive effects outweigh its procompetitive virtues, the district court must accept that allegation and allow the plaintiff to take discovery.
The Third Circuit's application of these principles led it to reverse the District Court's dismissal of FTC's reverse payment theory in their complaint, because "FTC plausibly alleged an anticompetitive reverse payment." Although filing the putatively sham lawsuits engaged the 30-month delay in FDA approval provided by the Hatch-Waxman Act, FTC alleged the AbbVie and Besins were fearful that Teva would prevail and thus "turned to other ways to preserve their monopoly." Under the terms of this agreement, the Third Circuit held that the "payment" to Teva (specifically, being permitted to bring its TriCor generic on the market) was "plausibly 'large'" due to inter alia its 180-day exclusivity as first filer. (As it turns out, according to the opinion, Teva's actual sales were much higher than predicted and "far exceed[ed] the litigation costs that [any of the parties] saved by settling"; this analysis adds not a little hindsight to a determination that is usually grounded in the parties' expectations in determining whether there was antitrust intention in the agreement). These agreements were also "plausibly 'unjustified," in the Third Circuit's view, on the basis that FTC alleged the TriCor arrangement "'cannot be explained as an independent business deal from Abbott's perspective'" (presuming that FTC has any basis for determining Abbott's perspective). Thereafter the opinion cites a litany of such putatively "highly unusual" aspects of the agreements. Finally, the opinion asserts that "it is plausible that the anticompetitive effects of AbbVie's settlement with Teva outweighed any procompetitive virtues of the TriCor deal" (which is a calculation FTC is entitled to assert as part of an antitrust allegation), citing similar considerations in its King Drug opinion. The Third Circuit critiqued the District Court's grounds for finding that FTC had not plead an antitrust violation, finding it wanting at least as being inconsistent with King Drug in limiting its determination to the absence of a large cash payment from AbbVie/Besins to Teva. And the Third Circuit found the District Court's lack of consideration of the supply arrangement between Teva and AbbVie/Besins for antitrust purposes to be inconsistent with its Lipitor decision, if only because a proper determination of such an agreement's compliance with antitrust principles requires "'factual assessments, economic calculations, and expert analysis that are inappropriate at the pleading stage.'" The opinion was also critical of the District Court finding that the agreement was procompetitive as a matter of law, but the Third Circuit was careful not to come to any decision on whether the District Court had "correctly concluded the TriCor deal was procompetitive," leaving the question of where the balance will be struck on pro- and anticompetitive effects of these agreements to be decided on remand.
The basis of the Third Circuit's decisions that AbbVie's assertion of its patents in ANDA litigation was (Perrigo) or was not (Teva) a sham were grounded in the Noerr-Pennington doctrine (i.e., that antitrust liability was not raised when a party petitioned the government for redress), recognizing the standard for exceptions to this immunity. Specifically, the opinion noted that the Supreme Court has recognized two prongs for determining an exception:
First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized under Noerr, and an antitrust claim premised on the sham exception must fail. Only if challenged litigation is objectively meritless may a court examine the litigant's subjective motivation. Under this second part of our definition of sham, the court should focus on whether the baseless lawsuit conceals an attempt to interfere directly with the business relationships of a competitor through the use of the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon. This two-tiered process requires the plaintiff to disprove the challenged lawsuit's legal viability before the court will entertain evidence of the suit's economic viability (emphasis in opinion.)
The Court noted that the statutory nature of an ANDA litigation mitigates against a determination that a litigation is a sham (although the 30-month stay mitigates in a generic company's favor as being "a collateral injury" as an "anticompetitive weapon" an NDA holder can use regardless of whether there is a good faith basis that the generic drug infringes any Orange Book-listed patent). Regarding the District Court's basis for deciding the Teva litigation was not objectively baseless, the opinion found that it was not objectively baseless for AbbVie to assert infringement under the doctrine of equivalents based on the amendment's "tangential relationship" to prosecution history estoppel with regard to the penetration enhancers specified by AbbVie/Besins' patents and Teva's accused infringing formulation.
On the other hand, this tangential relationship rationale did not convince the Third Circuit in the Perrigo litigation, because there "[n]o reasonable litigant in AbbVie and Besins's position would believe it had a chance of winning on these arguments." The opinion rejected AbbVie/Besins's argument that the voluntary nature of the amendment avoids prosecution history estoppel, correctly noting that the Federal Circuit has rejected the argument that voluntary amendments have any less effect in supporting the estoppel than involuntary ones (i.e., ones made for reasons of patentability), citing Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 344 F.3d 1359 (Fed. Cir. 2003). Nor was it effective for AbbVie/Besins to argue that such amendments were made to expedite prosecution, citing Biogen, Inc. v. Berlex Labs., Inc., 318 F.3d 1132 (Fed. Cir. 2003) (and providing a cautionary tale for prosecutors who make such statements routinely, at least with regard to the estoppel-producing effects of such amendments).
Having satisfied the objectively baseless prong of the sham litigation test, the opinion then reviewed whether AbbVie/Besins's suit met the subjective motivation prong. In this regard the Third Circuit reviewed with approval the logical syllogism used by the District Court:
(1) A lawsuit is objectively baseless if "no reasonable litigant could realistically expect success on the merits," . . . (2) and a litigant who files an objectively baseless lawsuit must have had some subjective motivation for suing; (3) but because the lawsuit was objectively baseless, the litigant's subjective motivation could not have been success on the merits, unless the litigant was unreasonable; (4) thus, a reasonable litigant's subjective motivation for filing an objectively baseless lawsuit must be something besides success on the merits.
As applied to this case, the District Court:
[F]irst held that AbbVie and Besins's lawsuits were objectively baseless. It then reasoned that because AbbVie and Besins's decisionmakers were all very experienced patent attorneys who had reviewed Perrigo's paragraph IV notices and consulted outside counsel, they knew the lawsuits were baseless. Finally, it reasoned that because the decisionmakers knew the lawsuits were baseless, they must have been motivated by something other than success on the merits.
(although there appears to be a circularity in this reasoning that approaches the tautological). The opinion also credited the Hatch-Waxman-mandated 30-month stay as being sufficient motivation to satisfy (under the right circumstances) the subjectively baseless prong of the test.
The discussion in the opinion of monopoly power was unremarkable, in view of the interactions between the regulatory regime and the Orange Book patents listed in support of AbbVie/Besins's NDA ("a generic drug has significant capital, technical, regulatory, and legal barriers to overcome"). Also relevant was AbbVie's commercial behavior regarding price in the marketplace, specifically the ability to raise prices consistently despite the existence of cheaper (albeit somewhat less desirable) alternatives, i.e., injectable formulations.
It was the Third Circuit's decision on remedies that was (for now) most significant, absolving (for now) AbbVie from disgorging almost $500 million as a penalty. The error, according to the Third Circuit, was that the section of the FTC Act relied upon by the Commission in bringing suit does not give FTC the authority to order such disgorgement. The Court based its decision on a review of the legal authority underlying FTC's enforcement capabilities and finding no indication that Congress gave FTC the authority under Section 13(b) it claims in this case. And the wording of Section 13(b) was unambiguous to the Court in limiting FTC to seeking injunctive relief only in cases where an antitrust violation is imminent or ongoing, neither circumstance arising here. While the opinion conceded that courts in sister circuits have permitted FTC to pursue and obtain disgorgement under Section 13(b) this court founds such outcomes not to be supported by the plain meaning of the statute nor an understanding of the operation of the Section in the context of the statute as a whole.
Finally, the Third Circuit affirmed the District Court's denial of the injunctions sought by FTC as not being an abuse of discretion. The standard for granting FTC an injunction relied upon by the Court is that "there is 'cognizable danger of recurrent violation, something more than the mere possibility which serves to keep the case alive,'" citing United States v. W.T. Grant Co., 345 U.S. 629, 633 (1953). Those circumstances did not exist here given the nature of the underlying litigation, according to the Third Circuit.
While the case is remanded, giving FTC another opportunity to obtain an injunction, and proceedings on remand will include trial on whether Counts 1 and 2, one judgment that survived appeal was the District Court's finding that AbbVie/Besins were liable for monopolization under Count 1 for bringing a sham litigation against Perrigo. What penalty FTC can successfully extract from these defendants will be determined on remand and could form the basis for a settlement, especially should the possibility of a successful disgorgement request on grounds other than Section 13(b) be made by FTC.
Federal Trade Commission v. AbbVie Inc. (3d Cir. 2020)
Panel: Circuit Judges Hardiman, Porter, and Phipps
Opinion by Circuit Judge Hardiman
