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Close Victory for Defendants in First Post-Actavis Trial Begins to Answer Reverse Payment Questions

On Friday December 5, 2014, a jury in federal district court in Boston found that AstraZeneca did not violate antitrust law and illegally delay the introduction of a generic version of its Nexium® drug with co-defendant Ranbaxy. The victory was a close one, however, as the jury did find most of the elements of an illegal reverse payment according to this court's interpretation of the Supreme Court's Actavis opinion. This key post-Actavis case suggests some litigation strategies companies with such agreements should consider, but does not answer all the questions about the antitrust analysis of reverse payments.

These cases arise when the patent-owning producer of a branded drug sues the generic producer for infringement, and settles the case by compensating the generic producer to delay its market entry to a date arguably later than if the patent were held to be invalid. In Actavis, the Court rejected both the defendant parties' position that such settlement agreements were per se lawful and the plaintiff Federal Trade Commission's (FTC) position that they should be judged under an abbreviated version of antitrust's rule of reason. Instead, the Court instructed district courts to apply a full rule of reason analysis — but provided little guidance on the elements of such an analysis.

As detailed in our earlier alert, some of the courts that struggled with Actavis interpreted its admonitions to apply only to cash consideration. Other courts held that the Court meant to cover both cash and non-cash payments but that plaintiffs must provide some way for courts to value any non-cash settlement elements so as to apply the Court’s prohibitions of "large and unjustified" payments. For instance in October inIn re Effexor XR Antitrust Litigation, the court held the branded company's promise to delay introduction of its own generic could be an illegal "payment" but still dismissed the case because plaintiffs failed to allege facts sufficient to value that payment. Similarly later that month, the court in In re Lipitor Antitrust Litigation examined several forms of potential reverse payment, including forgiveness of unrelated patent damages, but still dismissed the antitrust claims because the plaintiffs failed to allege how to estimate the value of that consideration. The FTC has remained active in these issues, often filing amicus briefs in private litigation, and in September 2014 challenging a branded company's license grant to a generic company in exchange for a promise to delay the generic launch.

In re Nexium Antitrust Litigation, filed in Massachusetts, was the first post-Actaviscase to survive motions to dismiss and get to trial. This class action on behalf of both direct and indirect purchasers alleged that AstraZeneca had settled infringement actions with three generic producers, all of whom agreed to refrain from selling generic versions of Nexium® until some but not all of the patents had expired. In return, AstraZeneca forgave contingent liabilities for two of the generics from their production of other products that potentially infringed other patents. For the third generic producer, AstraZeneca agreed not to market an authorized generic version of its own Nexium® for six months and paid it $1B to be a manufacturer of Nexium®.

By the time the six-week trial ended, only AstraZeneca and one of the generic defendants, Ranbaxy, were left. The judge had earlier ruled that the non-cash elements of AstraZeneca's consideration could be considered an illegal payment. On the verdict form, the jury found that AstraZeneca did exercise power in the relevant market; that its settlement of patent litigation included a "large and unjustified payment" to Ranbaxy; and that such settlement was unreasonably anticompetitive. The jury found, however, that that settlement did not prevent Ranbaxy or some other generic producer from entering before May 2014. Instead, that delay was caused by Ranbaxy's inability to produce the generic version prior to that date and the unlikelihood of negotiating an agreement with another generic manufacturer to take its place as the first producer of a generic version of Nexium®.

Certainly, this case will not be the last word on the antitrust analysis of reverse payments. Still, as the first post-Actaviscase to reach a jury verdict, it contains lessons for both potential plaintiffs and defendants. First, while this court and the majority of commentators agree that Actavis should be applied to non-cash payments, the question remains open and debated. Second, the substantive issues covered in the verdict form — exercise of market power, a "large and unjustified" payment, and a finding that such payment is anticompetitive — are consistent with the view of Actavis of many commentators. As a result, the form could become a template for future cases. Third, while the validity of the patent in the underlying infringement settlement might not be directly admissible in response to the antitrust challenge, knowledge of the technical and business realities remains necessary to try or defend these cases. Finally, even if, like here, all those elements of a violation are found, plaintiffs must still complete the story and explain why that payment and not some other factor actually caused the generic's delay. It will be interesting and important to see whether theNexium plaintiffs file a motion for judgment as a matter of law, and how it is resolved, considering the clear views of the judge in this case.

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© 2020 Schiff Hardin LLPNational Law Review, Volume IV, Number 344
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