“No-AG” Agreements are Not “Reverse Payments” Subject to Antitrust Scrutiny Says District Court in LAMICTAL Litigation

By Kurt R. Karst –      

Excitement over the U.S. Supreme Court’s recent decision to hear Federal Trade Commission v. Watson Pharmaceuticals, Inc. (Docket No. 12-416), a drug patent settlement agreement (a.k.a. “reverse payment” or “pay-for-delay agreement”) case involving ANDROGEL (testosterone gel) (see our previous post here), and anticipation that the Court might still decide to grant certiorari in Merck & Co., Inc. v. Louisiana Wholesale Drug Company, Inc. (Docket Nos. 12-245) and Upsher-Smith Laboratories, Inc. v. Louisiana Wholesale Drug Company, Inc. (Docket No. 12-265) concerning K-DUR (potassium chloride), seems to have largely crowded out the news of another decision on the topic of drug patent settlement agreements from the U.S. District Court for the District of New Jersey.  The New Jersey District Court resides in the Third Circuit.  In July 2012, the U.S. Court of Appeals for the Third Circuit rejected in In re K-Dur Antitrust Litig., 686 F.3d 197 (3d Cir. 2012), the so-called “scope of the patent test” when considering whether drug patent settlement agreements involving cash payments and early entry dates violate the antitrust laws, and instead applied a “quick look rule of reason” analysis.  Under that analysis, “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.”

As we previously reported, the New Jersey case was 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.  The direct purchaser plaintiffs 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 authorized generic version 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 each filed a Motion to Dismiss the case (see here and here) arguing that there was no reverse payment, but only a negotiated early entry date for marketing the generic LAMICTAL drug products.  The Federal Trade Commission (“FTC”), whose motion to file an amicus brief in the case was granted, took the position that a branded drug company’s commitment, as part of a drug patent settlement agreement, not to launch an authorized generic 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 K-Dur decision.

In an unpublished decision handed down just one day before the U.S. Supreme Court decided to hear the ANDROGEL drug patent settlement agreement case, Senior District Judge William H. Walls granted GSK’s and Teva’s Motions to Dismiss the case on the basis that a drug patent settlement agreement based on negotiated entry dates is not subject to antitrust scrutiny.  Judge Walls’ decision turned on the interpretation of what constitutes a “payment” under the Third Circuit’s K-Dur decision.  “The Court finds that the term ‘reverse payment’ is not sufficiently broad to encompass any benefit that may fall to Teva in a negotiated settlement.  The Third Circuit’s K-Dur opinion is directed towards settlements when a generic manufacturer is paid off with money, which is not the case here,” wrote Judge Walls.  His opinion went on to discuss four separates bases supporting his decision, including that “a careful reading of K-Dur shows that the Third Circuit contemplates a cash payment when it uses the term ‘reverse payment,’” the lack of any case in which a drug patent settlement agreement without a cash payment was subject to antitrust scrutiny, and that the lamotrigine agreement actually created generic competition sooner than otherwise would have occurred had Teva not challenged GSK’s patent.

The lamotrigine case is the second case in which the FTC has expressed concern that a “no-AG” agreement constitutes a “payment” under the Third Circuit’s K-Dur decision.  In August, the FTC sought leave to file an amicus brief in private antitrust litigation pending in the U.S. District Court for the District of New Jersey before Judge Joel A. Pisano concerning Wyeth Pharmaceuticals Inc.’s anti-depressant drug EFFEXOR XR (venlafaxine HCl) Extended-release Tablets.  Judge Pisano denied the FTC’s motion for leave to file its  amicus brief.  The case has been stayed pending the conclusion of the proceedings in the U.S. Supreme Court in In re K-Dur Antitrust Litig.