Third Circuit Clarifies Pleading Standard in Pay-For-Delay Suits
A Third Circuit opinion in the In re: Lipitor Antitrust Litigation reinstated the pay-for-delay lawsuit accusing pharmaceutical companies Pfizer Inc. and Ranbaxy Laboratories Inc., of delaying generic competition for Lipitor and Effexor XR. Buyers of Lipitor and Effexor XR may proceed with their antitrust claims for alleged patent fraud and anti-competitive reverse payment schemes.
The appeals panel found that drug buyers adequately pleaded – at the dismissal stage – the companies’ patent dispute settlement agreements unlawfully delayed generic competition. The suits in the multidistrict litigation plausibly alleged varying tactics to artificially inflate the costs of the drugs.
The panel reversed the District Court’s dismissal of the cases – which was partly due to the failure to give an adequate estimate of the amounts of the so-called reverse payments from brand to generic drug companies in the settlements. The Third Circuit found that the plaintiffs were not required to estimate those amounts in the motion to dismiss stage under the United States Supreme Court holding in FTC v. Actavis, which held that pay-for-delay agreements are subject to antitrust scrutiny.
The decision clarifies what is required to survive a motion to dismiss in pay-for-delay cases. The Third Circuit opinion states that the Supreme Court in Actavis did not set a high pleading standard for pay-for-delay plaintiffs, as the defendant drug companies argued – and the District Court held. The Actavis Court did not specifically outline the “parameters of reverse payment antitrust claims,” stated the Third Circuit opinion. Although in the Actavis case the FTC gave an account of the payments that were expected to flow from the brand-drug company to the generic from the settlement of a patent dispute, the Supreme Court did not require those valuations.
The allegations by the Lipitor and Effexor XR buyers exceeded in detail those that previously passed muster, and were sufficient to allege a large reverse payment that had the power to distort competition. More detailed calculations were not required at the motion to dismiss stage and could come later. There is no special valuation requirement of the alleged reverse payment to plausibly plead a claim under Actavis. Further, a reverse payment does not have to be in the form of cash to be subject to antitrust scrutiny under Actavis.
The Third Circuit’s ruling also confirmed that the defendant pharmaceutical company has the burden of proof to explain and justify a reverse payment in pay-for-delay cases. Under Actavis, plaintiffs in pay-for-delay cases are not required to rebut proffered legitimate reasons for reverse payments.