The FTC has recently weighed in again on the evolving interpretation of the Supreme Court’s 2013 opinion in FTC v. Actavis, 133 S. Ct. 2223 (2013). The agency submitted an amicus brief to the Third Circuit in the appeal of the district court’s September 2015 grant of summary judgment in In re Wellbutrin XL Antitrust Litigation, — F. Supp. 3d —- (E.D. Pa. Sept. 23, 2015) (“Wellbutrin XL”).
In Wellbutrin XL, direct and indirect purchaser plaintiffs brought antitrust claims against GlaxoSmithKline (“GSK”), the manufacturer of the antidepressant drug Wellbutrin XL, and Biovail, which owns rights to related patents (collectively, “Biovail”), in connection with Biovail’s alleged “reverse payment” settlement of patent litigation with generic competitors that allegedly delayed the market entry of a generic version of the drug.
In its simplest form, a “reverse payment” settlement involves a payment from a brand-name drugmaker plaintiff to a generic competitor defendant to settle Hatch-Waxman Act patent infringement litigation in exchange for an agreement by that defendant not to launch a competing generic version of the drug until some time in the future. In its 2013 Actavis opinion, the Supreme Court held that such a “reverse payment” – if “large” and “unexplained” – may raise antitrust issues because it suggests that the brand-name company has doubts about the viability of its patents and is therefore paying the generic competitor to drop its challenge to those patents. Under the Hatch-Waxman scheme, this can prevent generic entry into the market altogether and preserve the branded company’s monopoly profits.
The agreement at issue in Wellbutrin XL differed from this prototypical reverse payment scenario because it did not, as a technical matter, settle the underlying patent litigation. Rather, in Wellbutrin XL, the generic defendant in the underlying patent action, Anchen, had already prevailed in the district court, had been involved in the “at risk” launch of 300-mg generic Wellbutrin XL while the matter was on appeal (i.e., at risk of a sizable damages judgment because the patent infringement action was not final), and planned to launch a 150 mg generic version of the drug in early 2007. The parties then agreed that Anchen would hold off on launching the generic 150 mg version for over a year unless the appeal was resolved in its favor before that time. The agreement also included a “no-AG” (i.e., no authorized generic) agreement under which GSK would not launch its own competing “authorized generic” during the 180-day “first-filer exclusivity” period granted to Anchen under the Hatch-Waxman scheme.
On summary judgment, the district court in Wellbutrin XL dismissed the antitrust claims, finding that no reasonable jury could find the challenged agreement to be unlawful, and the plaintiffs appealed that ruling to the Third Circuit. In its brief, while officially taking no position on the merits of the case, the FTC points out what it characterizes as “fundamental legal errors” in the district court’s analysis. Perhaps most importantly, the FTC contends that the district court applied an “untenably narrow” reading of Actavis, finding that it applied only when a reverse payment causes a generic challenger to abandon its patent challenge altogether. According to the FTC, Actavis teaches that a reverse payment may be anticompetitive and raise antitrust concerns whenever it induces the generic company to stay out of the branded drug’s monopoly market, regardless of whether the underlying patent litigation continues. In Wellbutrin XL, the FTC claims, the generic competitor could have launched “at risk” following its district court victory, but agreed to delay market entry in exchange for a no-AG agreement from Biovail valued at $200 million. In finding Actavis inapplicable simply because the underlying litigation was not ended, the district court improperly “elevated nominal factual distinctions over economic reality.”
A closer look at the case reveals a more nuanced picture, however. The district court observed that the settlement at issue did not present the same antitrust concerns as those motivating the Actavis decision. However, the court recognized that an overly formalistic reading of Actavis risked creating an “easily exploited loophole,” and proceeded to analyze the settlement under the rule-of-reason, as Actavis instructs. The court stated, however, that the parties’ preservation of the underlying patent litigation is a “factor to be considered” in the analysis, suggesting that the court applied a modified version of the rule-of-reason test. It is not clear that this approach is inappropriate, though, since the rule-of-reason test is notoriously fact-specific, and the Actavis opinion expressly recognized that the proof required would vary with the circumstances.
Wellbutrin XL involves a complex settlement agreement with many interconnected components, reached in an equally complicated factual context. For example, Anchen faced regulatory obstacles to launching, an uncertain prospect of prevailing on appeal, plus potential liability for “at risk” launch in a separate patent infringement action brought by a third party – the defense of which was complicated by potential estoppel issues because Anchen’s CEO was the inventor on the patent-in-suit. The settlement with Biovail included patent licenses that removed an important obstacle to the generic launch. The FTC’s brief glosses over much of this complexity. In the FTC’s view, however, there is a potential antitrust violation (though perhaps not private-party standing) when there is an unexplained reverse payment – here in the form of a no-AG agreement – and delayed entry, suggesting the sharing of monopoly profits in exchange for an agreement to preserve that monopoly, at least for a time. Any procompetitive benefits must be linked to the reverse payment to be considered.
The FTC’s brief raises critical questions regarding the meaning of Actavis and its application to Hatch-Waxman settlement agreements that depart from the “classic” reverse-payment structure. The Third Circuit’s resolution of these issues in the Wellbutrin XL appeal may be a significant step in further defining the contours of Actavis and helping parties to craft settlement agreements that actually achieve settlement, rather than more litigation.