Last term, the Supreme Court in FTC v. Actavis overruled several Circuit Courts of Appeal by holding that so-called “reverse payment settlement agreements” (RPSAs) in Abbreviated New Drug Application (ANDA) litigation were not presumptively legal under antitrust law so long as the licensed rights were within the “scope of the patent” exclusivity. The Court opined that some agreements might be antitrust violations without regard to the extent of patent protection (or even without regard to issues of patent validity and enforceability)—for example, when “disproportionately large” reverse payments were involved.
Ever since the Federal Trade Commission won this partial victory (having in the past contended that RPSAs were per se illegal), the FTC and private litigants have been trying to extend antitrust scrutiny beyond the bounds of the limits set by the court. The most common such attack has been on RPSAs having non-monetary components, such as so-called “authorized generics,” where the branded drug maker agrees not to introduce its own generic version into the marketplace, or where the branded drug maker agrees to permit a particular generic manufacturer to provide or purchase active pharmaceutical ingredients to be used in generic versions of the branded drug. These efforts have met with varying degrees of success, with some district courts permitting these arrangements to be subjected to antitrust scrutiny and others rejecting the extension of the court’s precedent. The most recent instance has been in a New Jersey action by a number of direct and indirect purchaser plaintiffs over Pfizer’s Lipitor drug (atorvastatin calcium); in this case, the district court granted the branded (Pfizer Inc., Pfizer Manufacturing Ireland and Warner-Lambert Co.) and generic (Ranbaxy Inc., Ranbaxy Pharmaceuticals Inc. and Ranbaxy Laboratories Ltd.) defendants’ motion to dismiss for failure to state a cause of action.
The RPSA at issue was particularly complex, involving three separate ANDA litigations as well as more than two dozen other actions in foreign jurisdictions, and involving Pfizer drugs Accupril and Caduet as well as Lipitor. The settlement agreement was a “non-monetary” reverse payment, containing terms that absolved Ranbaxy from damages ordered in one of the terminated Accupril litigations. The agreement also delayed generic entry into the Lipitor market until Nov. 30, 2011; the parties agreed to the same market entry date for Caduet and Accupril. In addition, Ranbaxy paid Pfizer $1 million in damages for its earlier “at-risk” launch of generic Accupril. Finally, Pfizer agreed to be Ranbaxy’s active pharmaceutical ingredient supplier for Lipitor, and Ranbaxy changed its formulation from putatively non-infringing amorphous atorvastatin to putatively infringing crystalline atorvastatin calcium.
The plaintiffs contended that the RPSA was a purposeful antitrust violation because it delayed entry of Ranbaxy’s generic atorvastatin calcium in part because Ranbaxy switched from the non-infringing amorphous form to the infringing crystalline form of atorvastatin calcium. In addition, the plaintiffs argued that Pfizer provided financial incentives for the RPSA by forgoing the lion’s share of its damages from Ranbaxy’s generic launch of Accupril. The district court identified “the heart of the issue” as being whether the agreement between the branded and generic drug companies was a RPSA and, if so, whether the agreement warranted antitrust scrutiny under the Actavis standards.
The district court decided that plaintiffs had failed to put forth sufficient evidence that the agreement was an RPSA warranting antitrust scrutiny. The court agreed that a “payment” could be anything sufficient to discharge a debt or obligation and was not limited to cash payments, and the court further found no consistent or persuasive authority that the Actavis decision required a payment of money between the parties.
However, the court found that there must be a way to “convert” whatever was exchanged between the parties into a monetary equivalent in order to apply the Supreme Court’s Actavis precedent. While the district court recognized that the Supreme Court’s “general concern” in Actavis was whether there were “genuine adverse effects on competition” (not limited to merely monetary arrangements), the court also recognized that the factual requirements needed to state a proper claim are more extensive for non-monetary consideration between the parties. Specifically, the court asserted that plaintiffs would need to establish a value for the non-monetary payments alleged in support of the complaint.
Here, the complaint alleged no facts relating to the amount of the damages Ranbaxy was at risk for incurring in the Accupril II case, and merely assumed these damages to be on the order of the $200-million bond Pfizer posted in support of its injunction for Ranbaxy’s “at-risk” sales or the difference in gross sales ($525 million vs. $70 million).
The court found neither of these assumptions to be plausible, citing as unmet considerations evidence of each party’s assessment of its own risk, including the probability of prevailing in the ANDA litigation, the profits expected when only the branded, or a combination of only the branded and the first ANDA filer were on the market, the amount of patent lifetime remaining in view of the agreed-to generic entry date and litigation costs for each party, as well as industry-specific damages measurements.
This case illustrates the consequence of the Supreme Court’s jurisprudential decision to permit the contours of its Actavis decision to be “worked out” in district and appellate courts below. While a perfectly proper exercise of the court’s supervisory powers over the circuit courts, this way of changing the law has produced and will continue to produce uncertainties that can be expected to seriously harm competition and innovation, two of the supposed reasons why the court decided to reenter the patent law arena with such vigor. Rarely have the court’s decisions had the potential for such harm to the American economy and global competitiveness, particularly in a field where the U.S. has been a leader for a generation.