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FTC Brings its First Post-Actavis Suit re: Pharmaceutical Patent Litigation

The Federal Trade Commission has brought its first suit alleging anticompetitive conduct in connection with the prosecution and settlement of pharmaceutical patent litigation since the Supreme Court’s June 2013 decision in FTC v. Actavis. Although two commissioners dissented from the decision to issue the complaint (Ohlhausen and Wright), the action reveals that the Commission’s interest in scrutinizing settlements between innovator pharmaceutical companies and generic companies remains high. In particular, this action appears to signal an expansion of the Commission’s enforcement to settlements involving non-cash consideration as “payment” for delayed entry under Actavis and a strategy to couple that challenge with an allegation of sham litigation.

ANDROGEL I (AKA ACTAVIS)

In June 2013, the Supreme Court issued its first-ever decision in a case involving so called “reverse payments” between innovator pharmaceutical companies and generic pharmaceutical companies. The majority opinion by Justice Stephen Breyer in FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013), established that settlement agreements involving payments from an innovator to a generic company in excess of saved litigation costs are not presumptively illegal but are instead subject to a “rule of reason” analysis. Justice Breyer explicitly left it to the lower courts to define the contours of the rule of reason analysis in this context.

In Actavis, the innovator companies had settled patent litigation over the topical testosterone gel, AndroGel, by allegedly agreeing to pay three generic companies millions of dollars for marketing and other services that the generics agreed to perform. The Eleventh Circuit affirmed the Northern District of Georgia’s dismissal of the FTC’s complaint for failure to state a claim, finding that “absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.” FTC v. Watson Pharms., Inc., 677 F.3d 1298, 1312 (11th Cir. 2012). The Supreme Court reversed and remanded, and the case is now proceeding in the Northern District of Georgia with fact and expert discovery in advance of a September 2015 deadline for filing summary judgment motions.

ANDROGEL II

Actavis involved a challenge to agreements between the AndroGel innovators and Actavis, Paddock, and Par. On September 8, 2014, the Commission filed a complaint in the Eastern District of Pennsylvania (Kelly, J.) against the AndroGel innovators and a different generic company (Teva Pharmaceuticals USA, Inc.). The Commission’s most recent complaint asserts two claims under Section 5 of the FTC Act, 15 U.S.C. §45(a): monopolization against the innovator defendants based on alleged sham patent litigation and restraint of trade against all defendants based on the alleged anticompetitive settlement agreement.

The Commission alleges that, during prosecution of a patent application involving formulations of AndroGel, the patentees overcame a rejection of the application as obvious over prior art by limiting the patent to a specific type of “penetration enhancer.” As a result, the innovators knew, according to the Commission, that the formulations of Teva and Perrigo that allegedly designed around the patent by using different penetration enhancers, did not infringe the patent. The Commission thus alleges that the patent infringement suits against Teva and Perrigo were “sham litigations.” The Commission then alleges that the agreement to settle the Teva patent litigation constituted an illegal reverse payment because, according to the Commission, Teva agreed not to delay the marketing of its version of AndroGel in exchange for an allegedly “large and unjustified” payment. According to the Commission, the alleged payment took the form of an authorized generic supply agreement for an unrelated product (TriCor). The Commission seeks injunctive, declaratory and “other equitable relief... (including restitution or disgorgement).”

POINTS FOR CONSIDERATION

A few points bear emphasis:

  • The Commission remain svery interested in establishing that non-cash consideration qualifies as a “payment” under Actavis. The Commission’s choice of a court in the Third Circuit—where dismissal of the claims in In re Lamictal Antitrust Litigation on the ground that the “no authorized generic” agreement is not a “payment” under Actavis, is currently on appeal—suggests that the Commission believes that the courts will ultimately agree with the Commission’s position that non-cash consideration subjects a settlement to antitrust scrutiny.

  • The fact that the first post-Actavis case brought by the Commission includes allegations of sham litigation based on an allegedly weak formulation patent appears to suggest that the Commission has seized on Justice Breyer’s reference to “the patent-related policy of eliminating unwarranted patent grants.” Actavis, 133 S. Ct. at 2233.

  • It appears that the FTC is trying to create a pathway to prevail under Actavis even if the alleged payment arises from a bona fide agreement involving fair value for services rendered. The Commission appears ready to argue that whether the business agreement makes independent business sense is irrelevant because, according to the Commission’s argument, there never should have been litigation—or a settlement—in the first place. 

© 2019 Covington & Burling LLP

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About this Author

Thomas O. Barnett, Covington Burling, Litigation Attorney
Partner

Thomas Barnett is a partner in the Washington, DC office and co-chair of the firm's Antitrust & Competition Law Practice Group. Mr. Barnett served as Assistant Attorney General in charge of the Justice Department’s Antitrust Division. He headed the Antitrust Division from 2005 to 2008, having previously served in the Division as Deputy Assistant Attorney General for Civil Enforcement from 2004 to 2005. He specializes in global antitrust and competition law practice and works closely with the firm’s white collar practice on criminal antitrust enforcement and...

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Deborah Garza, Litigation attorney, Covington
Partner

Deborah Garza co-chairs the firm's global Antitrust and Competition Law Practice Group. Ms. Garza has been a trusted advisor to firms from several members of the Fortune 10 to mid- and small-cap companies on strategic transactions, civil investigations, criminal investigations and litigation. She also regularly counsels companies on day-to-day compliance and other advisory matters, leveraging more than 35 years of experience in government leadership positions as well as private practice.

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John Graubert, Regulatory and public policy lawyer, Covington
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John Graubert has more than 30 years of experience in a wide range of complex antitrust and consumer law matters. Mr. Graubert came to the firm after serving for ten years as Principal Deputy General Counsel of the Federal Trade Commission. Mr. Graubert is chair of the firm’s Advertising and Consumer Protection practice group, an Adjunct Professor at the Georgetown University Law Center, and a vice-chair of the Federal Civil Enforcement Committee of the ABA Antitrust Section.

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Timothy Hester, Covington, litigation attorney
Partner

Timothy Hester is a partner who concentrates in the field of antitrust litigation and antitrust counseling matters.  In recent years, he has handled a series of major antitrust litigation projects in the pharmaceutical industry, including the defense of antitrust suits raising claims of unlawful patent settlements, sham litigation and wrongful patent acquisitions.  These include the representation of AstraZeneca in In re Nexium Antitrust Litigation, the representation of Purdue Pharma in In re OxyContin Antitrust Litigation, and the representation of...

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Andrew Lazerow, Antitrust lawyer, Covington
Partner

Andrew Lazerow defends domestic and international clients in some of their most important antitrust litigation, including class actions and competitor disputes. In addition to his litigation practice, Mr. Lazerow regularly advises innovator pharmaceutical clients on various types of business issues, including potential settlements of Hatch-Waxman ANDA patent litigation, product life-cycle management, and REMS.

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