U.S. District Court holds that Actavis requires monetary payments for antitrust scrutiny to be applicable

by Nicole Daniel

On January 24, 2014 U.S. District Judge William H. Walls dismissed an antitrust class action against GlaxoSmithKline LLC (“GSK”) and Teva Pharmaceutical Industries Ltd. (“Teva”) regarding their agreement to postpone the production of a generic epilepsy and bipolar disorder drug since no reverse payment with cash was involved to keep the rival off the market. According to Actavis antitrust rules therefore were not applied to the case at hand.

In 2002 Teva filed an application to produce a generic version of the Lamictal drug to the U.S. Food and Drug Administration. GSK in turn sued Teva for infringing its patent. In 2005 the companies reached settlement under the following terms:

  • Teva was allowed to start selling its generic Lamictal drug before the patent expired, i.e. chewables 37 months and tablets six months before the expiration of the patent,
  • Teva agreed to withdraw the claim to challenge GSK’s patent (one of the patents had already been declared invalid by court) and
  • For an exclusivity period of 180 days GSK declared that it would not compete with Teva’s generic drug by releasing its own generic drug once Teva’s drug entered the market.

In February 2012 the plaintiffs Louisiana Wholesale Drug Company Inc. and King Drug Company of Florence Inc. filed suit against GSK and Teva regarding the aforesaid deal between them in 2005 and alleged that GSK tried to protect its patent on the Lamictal drug and its dominance on the Lamictal drug market.

In December 2012 Judge Walls dismissed the case holding that antitrust scrutiny only applied for deals that involve cash settlements where the competitor was being paid not to compete. Under the K-Dur decision it was held that cash settlements were presumptively anti-competitive. However, the exclusivity period in the present case did not amount to a reverse payment.

The plaintiffs appealed and in February 2013 the Third Circuit granted a defense motion to stay the case until a decision by the Supreme Court in the Actavis case. In the Actavis case the FTC appealed a ruling by the Eleventh Circuit which exonerated a deal Solvay Pharmaceuticals Inc. (“Solvay”) struck with some drug makers to prevent them from attempting to produce generic forms of their testosterone gel AndroGel. In the Actavis decision the quick-look test the Third Circuit spelled out in the K-Dur case was replaced with the rule of reason analysis, which is typically applied in antitrust cases.

A few weeks later the case against GSK and Teva was sent back to the district court after the new legal standard was articulated in the Actavis case. Judge Walls held Actavis requires antitrust scrutiny on patent settlements only if they contain reverse payments which must be monetary. Judge Walls disagreed with decisions by two other district judges (In re Lipitor Antitrust Litig. and in re Nexium (Esomeprazole) Antitrust Litig.) which held that Actavis also applied to non-monetary patent settlements. Furthermore, the Actavis ruling rendered specific forms of settlements explicitly exempt from antitrust review.  The same type of exempted settlement, i.e. permitting the generic to enter the patent holder’s market before the patent expires, was at issue in the present case.

Even if the appellate court might find that Actavis was not limited to settlements including the exchange of money Judge Wells concluded that the settlement satisfied the rule of reason spelt out in Actavis.

Judge Wells therefore affirmed its grant of GSK and Teva’s motion to dismiss the claim.

In the present case the settlement was explicitly exempted from antitrust scrutiny according to Actavis; however it has to be seen how other district courts decide on this issue where the settlement is not explicitly exempted. Furthermore an interesting issue is what the appellate court and other district courts will hold on the issue of whether reverse payment settlements have to be monetary or not.