By William Cavanaugh, Melissa R. Ginsberg & Amy N. Vegari
2019 witnessed a number of developments in challenges to reverse-payment settlements. In its first decision on a pay-for-delay settlement since the Supreme Court’s seminal 2013 decision in FTC v. Actavis, the FTC took an aggressive approach to evaluating a plausible restraint on trade and analyzing proffered procompetitive benefits, reversing the ALJ who heard the case. In the Southern District of New York, an attempt by direct purchasers to plead a conspiracy arising out patent-infringement settlements without an alleged reverse payment failed. And, in the class certification context, district courts grappled with Rule 23(b)(3)’s predominance requirement. These notable cases in antitrust actions concerning the pharmaceutical industry are discussed below.
Reverse-payment or “pay for delay” cases arise when parties settle patent litigation under the Hatch-Waxman Act with an alleged agreement by the brand-name patent holder to provide some form of consideration to the allegedly infringing generic manufacturer inducing delayed introduction of its generic drug. In Actavis, the Supreme Court held that “large and unjustified” reverse payments risk anticompetitive effects, and pronounced that such settlement agreements must be analyzed under the Rule of Reason, considering such factors as: size of the payment, scale of the payment as compared to the patentee’s potential litigation cost; relationship of the payment to any other services agreed upon in the settlement, and any other justifications for the settlement. If the plaintiff makes a showing that the defendant’s conduct prevented the risk of competition, the defendant has the burden of showing procompetitive justifications for the deal.
Since Actavis, reverse payment lawsuits have been brought in which the alleged consideration was not the payment of money, but instead involved:
- Cash or legal fees;
- Global settlement of litigation involving multiple other patents or drugs;
- Agreement by the brand manufacturer not to market an authorized generic (“No AG agreements”);
- Co-promotion agreements; or
- Back-up manufacture or supply agreements.