The issue of reverse payment settlements (or pay-for-delay settlements) in pharmaceutical patent infringement suits could potentially work its ways back up to the Supreme Court. The Court recently settled a deeply divided circuit split over the legality of such settlements in FTC v. Actavis, 133 S.Ct. 2223 (2013). In Actavis, the Court held that reverse payments should be analyzed using the rule-of-reason approach, wherein a court balances the settlement’s competitive benefits against its anticompetitive effects to determine whether the settlement should be prohibited. But the Court’s arguably mushy analysis left the “contours” of the rule-of-reason test “to the lower courts to etch,” leaving many questions unanswered.

One such question is whether Actavis applies to reverse settlements that do not involve an exchange of money. On January 24, 2014, Judge Walls of the U.S. District of New Jersey dismissed (for a second time) claims that a reverse settlement agreement between GlaxoSmithKline PLC (GSK) and Teva Pharmaceutical Industries Ltd. (Teva) violated antitrust laws in In re Lamictal Direct Purchaser Antitrust Litigation, No. 12-cv-995 (D.N.J. Jan. 24, 2014) [PDF]. In the first dismissal, Judge Walls based his ruling on his conclusion that the term “reverse payment,” as used by the Third Circuit, did not encompass the settlement at issue in that case, essentially holding that the GSK settlement was not a reverse payment at all. After the plaintiffs appealed the decision and Actavis was published, the Third Circuit remanded the case back to the district court to reconsider its dismissal in light of Actavis, indicating that the Supreme Court’s ruling should be considered in the lower court’s analysis.

Now, however, the district court has dismissed the claims again, based on an all-too-similar conclusion that Actavis does not apply — this time, because there was no monetary payment to Teva. Though the court did not deny that this form of settlement might indeed be a form of reverse payment settlement, the court held that Actavis itself applies only to patent settlements containing an unjustified payment of money from the brand-name manufacturer to the generic manufacturer. This ruling effectually created (at least) two classes of reverse payment settlements, with a presumption that a reverse payment settlement that does not include money payments is not anticompetitive (i.e., not subject to a true rule-of-reason analysis).

The majority in Actavis never expressly predicates the use of rule-of-reason analysis on an exchange of money. While Judge Walls may be correct in his assessment that “both the majority and the dissenting opinions reek with discussions of payment of money,” the majority never goes so far as to say that there is a presumption of legality in certain situations. In fact, citing the venerable Professor Areeda, the majority noted that “[t]here is always something of a sliding scale in appraising reasonableness.” In terms of rule-of-reason analysis, this infers that while the requirements for offers of proof may vary depending on the case, proof is still required. A better interpretation of Actavis would require rule-of-reason analysis, though perhaps with a heightened burden on the plaintiff to prove that the anticompetitive effects of the settlement outweighs it procompetitive benefits (or a reduced burden on the defendant to offer proof of procompetitive benefits).

Furthermore, this opinion stands in direct contradiction to a decision by Judge Sheridan, who sits in the same district as Walls. In an earlier case involving an alleged reverse payment settlement, Judge Sheridan denied the manufacturers’ motion to dismiss, holding that “nothing in Actavis strictly requires that the payment be in the form of money.” Moreover, the Third Circuit provided some indication that the court should have given due consideration to the application of the Supreme Court’s decision in Actavis in its remand order.

More troubling than the GSK court’s apparent disregard of the significance of the remand order from the Third Circuit, and the directly contradictory stance taken by another court in the same district, the potential for creative lawyering could bring significant uncertainty to the antitrust analysis of reverse payments, nullify what little direction the Supreme Court provided in Actavis, and deepen the legal quagmire at the border between patent and antitrust law. Should the plaintiffs decide to appeal Walls’ decision again, the appeal would give the Third Circuit an opportunity to weigh in and resolve the intra-district disagreement. But, if different circuits resolve similar disputes differently, reverse payments may return to the Supreme Court in the near future.

–Shannon Han


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