Antitrust: Settlement of unrelated claim may be an unlawful reverse payment

The Supreme Court in FTC v Actavis created a new species of antitrust liability when it held that reverse payments from a branded company to an ANDA filer, as part of a Hatch-Waxman settlement agreement, may be unlawful where the “basic reason is a desire to maintain and to share patent-generated monopoly profits.” 133 S. Ct. 2223, 2237 (2013).  Although the Actavis case itself involved a cash payment, subsequent courts have held that Actavis supports liability for non-cash payments that confer an unearned benefit on the ANDA filer, such as “no-AG” clauses under which a branded company agrees not to introduce an authorized generic during a first-filer’s 180-day exclusivity.  King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp., 791 F.3d 388,404 (3d Cir. 2015).

The Third Circuit recently expanded the list of suspect payments under Actavis to include a branded company’s release of litigation claims against an ANDA filer that were unrelated to the specific ANDA at issue in the settlement agreement, in exchange for the ANDA filer’s promise to postpone the launch of its generic.  In re: Lipitor Antitrust Litigation, No. 14-4202 (3rd Cir. Aug. 21, 2017), at 54.

In 2002, Ranbaxy was first to file an ANDA to sell a generic version of Pfizer’s Lipitor.  Pfizer sued Ranbaxy based on two Orange Book patents.  The district court found that both patents were valid and infringed.  The Federal Circuit affirmed the district court’s decision as to the earlier-expiring patent, but held that the asserted claim of the later-expiring patent was invalid.  On remand, the district court enjoined approval of Ranbaxy’s ANDA until expiration of the earlier-expiring patent.

While the Lipitor litigation was pending, Pfizer also sued Ranbaxy for infringing a patent on the branded drug Accupril.  Ranbaxy launched its generic Accupril shortly after its ANDA was approved in 2004.  Pfizer promptly sued Ranbaxy for infringing its Accupril patent, and in its motion for a preliminary injunction informed the court that “Ranbaxy’s generic sales decimated its Accupril sales.  According to Pfizer, its Accupril sales dropped from $525 million in 2004, to $71 million in 2005.  The district court granted Pfizer’s motion for an injunction, and the Federal Circuit affirmed.  Pfizer posted a $200 million injunction bond and “expressed confidence that it would succeed in obtaining a substantial money judgment from Ranbaxy.”

Pfizer then filed another suit against Ranbaxy, in March 2008, based on its generic Lipitor, this time asserting two new patents.

Three months later, Pfizer and Ranbaxy executed a global litigation settlement “regarding scores of patent litigations around the world, including the Lipitor and Accupril disputes.”  This settlement agreement resolved all the Lipitor disputes between Ranbaxy and Pfizer, and ended the Accupril litigation with prejudice.  In exchange for Pfizer’s dismissal of the Accupril litigation, Ranbaxy agreed to pay Pfizer $1 million and delay the launch of its generic Lipitor until 5 months after the expiration of the later-expiring patent from the initial Lipitor litigation.

Several plaintiffs filed suit challenging the settlement agreement as an unlawful reverse payment under Actavis.  The plaintiffs alleged that Pfizer’s release of its Accupril patent infringement claims was a large, unjustified payment in exchange for keeping generic Lipitor off the market.

The District Court for the District of New Jersey dismissed the claims on the basis that the plaintiffs failed to plead a “reliable” estimate of the value of the dropped Accupril claims.  The district court believed that a reliable estimate “necessitated a series of calculations: a valuation of Pfizer’s damages in the Accupril litigation incorporating both Pfizer’s probability of success in that action and an estimation of Pfizer’s lost profits; a discounting of Pfizer’s damages based on its saved litigation costs and Pfizer’s litigation risks; and an accounting of various other provisions within the settlement agreement . . .”

The Third Circuit reversed, holding that nothing in the Actavis decision required such a meticulous accounting at the pleading stage. The plaintiffs “sufficiently allege[d] that Pfizer agreed to release the Accupril claims against Ranbaxy, which were likely to succeed and worth hundreds of millions of dollars, in exchange for Ranbaxy’s delay in the release of its generic version of Lipitor.”

The take home lesson from Lipitor is that an unlawful reverse payment may be found “hiding” in settlement agreements that resolve several lawsuits at the same time.