“No-AG” Agreements are Anticompetitive, Says the FTC for a Second Time

By Kurt R. Karst –      

The Federal Trade Commission (“FTC”) is seeking leave to file a second amicus brief in private antitrust litigation espousing the Commission’s views that a branded drug company’s commitment, as part of a settlement agreement, not to launch an Authorized Generic (“AG”) to compete with a generic version of the product approved under an ANDA – a “no-AG” agreement – constitutes a “payment” under the Third Circuit’s recent decision in In re K-Dur Antitrust Litig., 686 F.3d 197 (3d Cir. 2012).  In K-Dur, the Third Circuit rejected the so-called “scope of the patent test” when considering whether patent settlement agreements violate the antitrust laws, and instead applied a “quick look rule of reason” under which “the finder of fact must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade, which could be rebutted by showing that the payment (1) was for a purpose other than delayed entry or (2) offers some pro-competitive benefit.”  K-Dur did not involve a “no-AG” agreement, but rather a cash payment, and is currently the subject to two Petitions for Writ of Certiorari (Supreme Court Docket Nos. 12-245 and 12-265).  

The FTC’s latest amicus brief was filed earlier this month with the U.S. District Court for the District of New Jersey in litigation brought against GlaxoSmithKline (“GSK”) and Teva Pharmaceutical Industries Ltd. and Teva Pharmaceuticals USA, Inc. (jointly, “Teva”) by direct purchasers of certain anti-epileptic drug products containing the active ingredient lamotrigine and marketed by GSK as LAMICTAL.  According to the Complaint, GSK and Teva allegedly “delayed generic competition in the markets for Lamictal Tablets and Lamictal Chewables . . . and improperly manipulated the Hatch-Waxman Act to impede, rather than promote, generic competition as intended by the statute.”  The direct purchasers allege that GSK and Teva violated Sections 1 and 2 of the Sherman Act when they entered into an agreement providing, among other thing, that GSK would not market an AG of Lamictal Tablets and Lamictal Chewables, and that such agreement was well beyond the exclusionary scope of a now-expired patent listed in the Orange Book for GSK’s lamotrigine drug products and constitutes a naked market allocation agreement.

GSK and Teva have each filed a Motion to Dismiss the case (see here and here), which the direct purchasers have opposed (see here).  Both defendants have also filed a Joint Motion to Stay the litigation pending resolution of the appeal of the K-Dur case to the U.S. Supreme Court.  The direct purchasers have also opposed that motion (see here).  One motion the direct purchasers are unlikely to oppose is the FTC’s motion to file its amicus brief.  According to the FTC:

[GSK and Teva] insist that the no-AG commitments cannot be payments under K-Dur.  They claim instead that (1) Teva received nothing more than the ability to market its generic product based on a “negotiated entry date,” a type of settlement permitted under K-Dur; and (2) exclusive licenses are not subject to antitrust scrutiny.

Both of Defendants’ claims are incorrect.  First, Teva received more than the right to enter on a negotiated entry date – it is undisputed that it also received commitments that GSK would not market AG versions of the two Lamictal products.  As such, they guaranteed that Teva would be protected from generic competition on each of its generic Lamictal products for at least six months.  In the unique context of the Hatch-Waxman Act, such commitments are often quite lucrative to the generic.  Thus, as with the cash payment in K-Dur, it is logical to conclude that each of these commitments could have acted as the quid pro quo for Teva to accept a later entry date than it otherwise would have.

Second, while in many contexts exclusive patent licenses may be procompetitive, they are not necessarily so, nor are they immune from antitrust scrutiny. . . .  In direct contravention of the Third Circuit’s holding in K-Dur, both of Defendants’ arguments rely on superficial labels rather than the actual substance of the agreements at issue.  Although GSK and Teva effected the no-AG commitments through exclusive licenses, the legal form of the agreements does not alter the “economic realities,” which is the required focus of the Third Circuit’s rule. 

The FTC’s proposed amicus brief is quite similar to the amicus brief the Commission proposed to file in private antitrust litigation concerning Wyeth Pharmaceuticals Inc.’s anti-depressant drug EFFEXOR XR (venlafaxine HCl) Extended-release Tablets.  As in the LAMICTAL case, one issue in the EFFEXOR case is whether a “no-AG” agreement constitutes a “payment” under the Third Circuit’s ruling in K-Dur.  The EFFEXOR case is also before the U.S. District Court for the District of New Jersey, but with a different judge.  Interestingly, just three days before the FTC filed its motion for leave to file its brief in the LAMICTAL case, Judge Joel A. Pisano denied the FTC’s motion for leave to file its  amicus brief in the EFFEXOR case.  In denying the FTC’s motion, Judge Pisano found that “the FTC has not expressed an interest that is not represented competently in this case,” and that “the extent to which the FTC is partial to a particular outcome weighs against granting the agency’s motion.”  Will Judge William H. Walls, who is presiding over the LAMICTAL litigation, come out the same way?  Stay tuned.