Court Holds Only Reverse Payment of Money Requires Actavis Antitrust Scrutiny

Recent years have seen a significant number of antitrust challenges to so-called “reverse payment” pharmaceutical patent litigation settlements between brand name manufacturers and their generic competitors. The Supreme Court’s decision in FTC v. Actavis resolved a split among the courts of appeal, and held that settlements in which “large and unjustified” reverse payments are made are subject to antitrust scrutiny in the form of a traditional “rule of reason” analysis. In the wake of Actavis, the lower courts have begun to grapple with the question of what, if any, application Actavis has to the disposition of antitrust challenges to patent settlements that do not include a large payment of cash by the brand producer to the generic, but may include other forms of non-monetary consideration.

One such case was decided on January 24, 2014, by Judge Walls of the United States District Court for the District of New Jersey. In In re Lamictal Direct Purchaser Antitrust Litigation, the court carefully parsed the Supreme Court’s Actavis opinion and concluded that antitrust scrutiny of a patent settlement pursuant to Actavis is appropriate only when the settlement includes a reverse payment of money. In so holding, the district court rejected arguments by both the plaintiffs and the Federal Trade Commission (via an amicus brief filed in another case) that other forms of valuable consideration given to the generic producer, such as the brand producer’s agreement to delay the release of an “authorized generic,” qualified as “reverse payments,” thus triggering Actavis scrutiny. The court found no support for this expansive reading of Actavis, noting that all settlement agreements necessarily involve an exchange of consideration, but that the Supreme Court’s focus in Actavis was limited to the payment of large sums of money. Accordingly, the court re-affirmed its prior dismissal of plaintiff’s complaint, which originally had been dismissed prior to Actavis.

The Lamictal court acknowledged that its decision parted ways with at least dicta found in other recent district court decisions addressing this issue, which the Lamictal court found unpersuasive. See In re Nexium Antitrust Litig. and In re Lipitor Antitrust Litig. Thus, this is only the beginning of the process of defining the limits of Actavis, as the issue is no doubt headed to the Third Circuit. For now, it appears at least plausible that brand name pharmaceutical producers can limit Actavis antitrust exposure, while still incentivizing the generic to settle, by providing those incentives in the form of non-cash consideration. The settling parties would be well advised, however, to tread lightly until the courts of appeal, and possibly eventually the Supreme Court, have clarified the parameters of Actavis.

Guy V. Amoresano is a Director in the Gibbons Business & Commercial Litigation Department. This blog post originally appeared on Gibbons Business Litigation Alert on February 6, 2014.
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