February 6, 2023

Volume XIII, Number 37


February 06, 2023

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Heartburn for Drug Manufacturers: "Reverse Payment" That Did Not Include a Monetary Payment Held Actionable Under the Antitrust Laws

On July 17, 2013, the Supreme Court of the United States resolved a decade of conflicting circuit court decisions in FTC v. Actavis, Inc.,[i] ruling that "reverse-payment" settlements of Hatch-Waxman Act patent infringement lawsuits "can sometimes violate the antitrust laws," and for that reason are to be analyzed under the rules of reason.[ii] As Chief Justice Roberts pointed out in his dissent – with the majority opinion’s explicit agreement – many questions were left unresolved as to how lower courts would apply the rule of reason test to reverse payment settlements.[iii]

In one of the first reported decisions directly addressing Actavis, Judge William G. Young of the District Court of Massachusetts, after "waiting with bated breath for the Supreme Court’s decision" in In re Nexium Litigation,[iv] applied the rule of reason in a reverse payment case that did not involve any monetary payment. Specifically, the court denied branded and generic drug manufacturer motions to dismiss a multi-districted antitrust class action on the ground that, even without a monetary payment, a patent infringement settlement nevertheless can be actionable under the Sherman Antitrust Act. The court reached this conclusion because the complaint alleged that in exchange for the generic’s delayed entry into the market, the branded drug manufacturer agreed to grant one of the generic manufacturers an exclusive license to distribute the branded product, and also agreed not to distribute its own generic products during the generic manufacturer’s 180-day exclusive sales period.

Background: The Hatch-Waxman Act Lawsuits

In In re Nexium Antitrust Litigation, two groups of purchasers – wholesale drug distributors and health and welfare benefit funds (collectively, the "plaintiffs") – sued AstraZeneca AB (the manufacturer of Nexium, a patented heartburn medication) as well as three generic drug manufacturers, including, in particular, Ranbaxy Pharmaceuticals, Inc., for signing allegedly anticompetitive settlement agreements. The three generics had applied to the Federal Drug Administration for approval to sell a generic version of Nexium. The FDA applications filed by the generic manufacturers all stated that the patents protecting Nexium were invalid or would not be infringed by their generic versions, known as a "paragraph IV" certification. Pursuant to the Hatch-Waxman Act (the Act),[v] a "paragraph IV" certification is a form of patent infringement; accordingly, AstraZeneca sued the generic manufacturers for infringement.

Ranbaxy was the first manufacturer to apply to the FDA for approval to sell a generic version of Nexium. By filing first, pursuant to the Act, Roxbury became entitled to 180 days of market exclusivity to sell its generic version of Nexium.[vi] Significantly, the Act’s exclusivity provision did not preclude AstraZeneca from selling a competing generic version of Nexium (known as an "authorized generic") during the 180-day period.

The Ranbaxy Settlement Agreement

On April 14, 2008, Ranbaxy and AstraZeneca entered into a settlement agreement, effective upon the court entering a consent judgment. AstraZeneca agreed not to market an authorized generic during Ranbaxy’s 180-day exclusivity period and designated Ranbaxy as its exclusive distributor of Nexium, as well as its authorized generic distributor for two other drugs. In exchange, Ranbaxy agreed to delay the launch of its generic Nexium until May 27, 2014, six years after the April 14, 2008 settlement agreement, and five years before the last of AstraZeneca’s Nexium patents expired on November 3, 2019.[vii]

According to plaintiffs, the benefit of not sharing the market with an AstraZeneca generic during the 180-day exclusivity period was worth at least one billion dollars to Ranbaxy. AstraZeneca, in turn (according to the complaint), received a benefit from the settlement by not having to litigate the validity of its patents with Ranbaxy.

The District Court Decision

Application of the Rule of Reason.

Judge Young applied the First Circuit’s three-factor rule of reason test in denying the motions to dismiss: whether (1) "the alleged agreement involved the exercise of power in a relevant economic market," (2) "this exercise had anticompetitive consequences" and (3) "those detriments outweighed efficiencies or other economic benefits."[viii]

Defendants asserted that Nexium and its related generics did not constitute a proper relevant market because there were several other drugs available to treat heartburn. Judge Young rejected this argument, declaring that "the fact that other drugs may be used to treat heartburn and related conditions is immaterial to the present inquiry," because plaintiffs adequately had alleged that "Nexium does not exhibit significant, positive cross-elasticity of demand with respect to price."[ix] This allegation had to be accepted as true for purposes of a motion to dismiss the complaint. The court also noted that plaintiffs had claimed that there was direct evidence of market power by alleging that "AstraZeneca, in its position as a monopolist, has been able to charge supracompetitive prices for brand Nexium."[x]

The Supreme Court’s decision in Actavis was directly addressed in the district court’s discussion of the second rule of reason factor. Defendants had argued that plaintiffs could make no showing of anticompetitive effects, because it "is far too speculative" to assert that the generics would have entered into the market prior to the expiration of the Nexium patents but for the settlement agreements. While noting that "[t]here is support in the case law for the proposition that allegations waxing poetic on the probability of successful patent invalidity ... will not suffice to raise a triable antitrust issue," Judge Young rejected the argument, in relevant part because the alleged "$1,000,000,000" payment to Ranbaxy "seems like an outsize accommodation from a company to whom Ranbaxy was purportedly liable for patent infringement."[xi]

The court also declared that an improper "payment" could constitute non-monetary exchanges as well as a monetary payment, such as that involved in Actavis. According to Judge Young, the Supreme Court in Actavis did not "explicitly require some sort of monetary transaction," and allowing for non-monetary transactions to serve as the basis for a reverse-payment claim "serves the purpose of aligning the law with modern-day realities."[xii]

Finally, the district court noted that the "lone conceivable benefit of reverse payment agreements – namely, the settlement of patent disputes – cannot overcome the anticompetitive consequences discussed earlier," again citing Actavis.[xiii]

Noerr-Pennington Immunity

Defendants also made an interesting argument, unaddressed in Actavis, that because the settlement agreements with the generic manufacturers were entered as consent judgments, "any anticompetitive harms that flow from such agreements are properly attributable to governmental—not private—action." Because few cases addressed the "question of whether a judge’s entry of a consent judgment falls squarely within the scope of Noerr–Pennington," Judge Young relied on a "13-year-old law review article" for his "analytical approach" to determine the issue, asking "Is the private conduct a valid effort to influence government?"[xiv] He declared that parties entering into consent judgments "merely to memorialize a bargained-for agreement that could have otherwise been resolved without judicial intervention, ought not benefit from the exemption allowed by Noerr–Pennington."[xv] This was true because a court’s role in such situations is merely perfunctory. A court does not play "an independent role in drafting the terms in the consent judgments," and it was unclear in this instance "whether the judge could be fairly said to have endorsed the terms of the settlement agreements" merely by entering the judgments.[xvi]


A number of rule of reason questions remained after Actavis, including in In re Nexium Litigation whether a court would consider a non-monetary patent litigation settlement to be subject to the Actavis, and how the rule-of-reason would be applied in such a case, i.e., how a court would weigh pro-competitive benefits of a settlement agreement as compared to its alleged anticompetitive results in such a situation. The decision in In re Nexium Antitrust Litigation is an indication that defendants face real challenges in winning early dismissal of such cases. Unless the "payment" on its face clearly amounts to no more than anticipated litigation costs, courts will be hard pressed to dismiss on the pleadings if they follow Judge Young’s reasoning.

[i] 133 S. Ct. 2223 (2013). See J. Elliott, Supreme Court Rules That Reverse-Payment Patent Litigation Settlements are Subject to Judicial Review Under the Antitrust Rule of ReasonGreenberg Traurig Antitrust Quarterly, Summer 2013.

[ii] Id. at 2237 – 38.

[iii] Id. at 2237 (deciding to "leave to the lower courts the structuring of the present rule-of-reason antitrust litigation").

[iv] In re Nexium (Esomeprazole) Antitrust Litig., Civ. A. No. 12-md-2409, 2013 WL 4832176, at *1 (D. Mass. Sept. 11, 2013).

[v] The formal name of the Hatch-Waxman Act is the Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585 (codified as amended at 15, 21, 28, and 35 U.S.C.).

[vi] 21 U.S.C. §355(j)(5)(B)(iv).

[vii] 2013 WL 4832176, at *6-7. Ranbaxy also stipulated that several of AstraZeneca’s patents were enforceable, valid and would be infringed by Ranbaxy’s generic Nexium. Id.

[viii] 2013 WL 4832176, at *11, quoting Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of R.I., 373 F.3d 57, 61 (1st Cir. 2004).

[ix] Id. at 12 (noting that the "Supreme Court has held that a properly constituted market may indeed be comprised of a single product," citing Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 481–82 (1992)).

[x] Id. at 13.

[xi] Id. at 16.

[xii] Id. at 13.

[xiii] Id. at *16.

[xiv] Raymond Ku, Antitrust Immunity, the First Amendment and Settlements: Defining the Boundaries of the Right to Petition, 33 Ind. L. Rev. 385, 404 (2000).

[xv] 2013 WL 4832176, at *19.

[xvi] Id.

©2023 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume III, Number 322

About this Author


John J. Elliott is an attorney in the Litigation Practice of the firm's New York office. John has wide-ranging experience in a variety of litigation areas, including consumer class actions, commercial, antitrust and intellectual property. He has taken cases to verdict in both state and federal courts, and appears regularly before state and federal trial and appellate courts, and alternative dispute resolution panels.

Areas of Concentration

  • Complex commercial litigation & arbitration

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