District of New Jersey Finds Settlement Without Reverse Payment Is Not Subject To Anti-Trust Scrutiny

On January 24, 2014, in In re Lamictal Direct Purchaser Antitrust Litigation, No. 12-cv-995, 2014 U.S. Dist. LEXIS 9257 (D.N.J. Jan. 24, 2014), Senior District Judge William H. Walls dismissed a putative, antitrust-class action brought against GlaxoSmithKline LLC (“Glaxo”) and Teva Pharmaceutical Industries Ltd. (“Teva”) in response to their agreement postponing the production of lamotrigine, a generic version of the epilepsy drug Lamictal.  The decision, which applies the Supreme Court’s holding in FTC v. Actavis, 133 S. Ct. 2223 (June 17, 2013), explains that Actavis is only applicable in instances of reverse payments.

Glaxo sells Lamictal tablets and chewables.  Glaxo’s sales of the Lamictal products, which treat epilepsy and, to a lesser degree, bipolar disorder, exceeded $2 billion annually in 2008.  The active ingredient in the Lamictal products is lamotrigine and was covered by U.S. Patent No. 4,602,017 (ʼ017) until its expiration in July 2008.  In 2002, seeking to produce generic lamotrigine tablets and chewables, Teva filed its ANDA and was the first-to-file generic manufacturer.

In response, Glaxo filed suit, and on January 27, 2005, claim 1 of the ʼ017 patent was found invalid as anticipated by prior art.  Thereafter, the parties reached settlement, whereupon (1) Teva was permitted to enter the generic lamotrigine chewables market 37 months early, (2) Teva could sell generic lamotrigine tablets six months prior to the expiration of the ʼ017 patent, and (3) Glaxo agreed not to launch its own generic during Teva’s first-filer exclusivity period.

In response to the parties’ settlement, two wholesale drug distributers filed suit, alleging that the settlement violated federal antitrust law.  Judge Walls dismissed the direct buyers’ suit in December 2012, ruling that in the Third Circuit, pharmaceutical settlements were subject to antitrust scrutiny only in instances of pay-for-delay settlements.  The drug sellers appealed, and the Third Circuit stayed its consideration of the case pending the Supreme Court’s decision in Actavis.  After Actavis held that the rule-of-reason analysis that typically applies in antitrust cases also applies to pharmaceutical settlements, the Third Circuit remanded the action to the district court.

As a result, Judge Walls was tasked with determining whether “Actavis requires district courts to apply the rule-of-reason not only to reverse payment settlements but to all patent settlements with any anticompetitive potential.”  In re Lamictal, 2014 U.S. Dist. LEXIS 9257, at *17.  Judge Walls answered in the negative, explaining that “Actavis just does not go that far.”  Id. at *18.  In sum, Judge Walls explained that Actavis requires a three-part inquiry.  The first two questions ask whether a reverse settlement took place, and, if so, was it “large and unjustified”?  Only after answering both questions in the affirmative does the court then engage in a rule-of-reason analysis under antitrust law.

In reaching his decision, Judge Walls acknowledged that two district courts have reached contrary decisions.  For example, In re Lipitor explains that “nothing in Actavis strictly requires that the payment be in the form of money.”  In re Lipitor Antitrust Litig., No 3:12-cv-2389, 2013 U.S. Dist. LEXIS 126468, at *95 (D.N.J. Sept. 5, 2013).  Similarly, in In re Nexium, the court explained in dicta that “[n]owhere in Actavis did the Supreme Court explicitly require some sort of monetary transaction to take place for an agreement between a brand and generic manufacturer to constitute a reverse payment.”  In re Nexium Antitrust Litig., 12-md-2409, 2013 U.S. Dist. LEXIS 129696, at *61 (D. Mass. Sept. 11, 2013).  Judge Walls explained, however, that these decisions were either “unsupported by the words of Actavis or [were] inapposite,” and ordered that dismissal of the antitrust suit was warranted.  In re Lamictal, 2014 U.S. Dist. LEXIS 9257, at *27.

Given these contrary decisions – especially considering the conflicting holdings within the District of New Jersey – the question of whether pharmaceutical settlements fall under the purview of antitrust scrutiny without a reverse payment remains an open question.  One that will surely receive continued scrutiny in the wake of Actavis.