On Monday, February 22nd, 2016, the First Circuit, in In re: Loestrin 24 Fe Antitrust Litigation, aligned with the Third Circuit in ruling that non cash reverse payment agreements, designed to delay the release and marketing of competing generic drugs, are subject to traditional rule of reason antitrust scrutiny.

Generic manufactures often enter the market with the belief that their product either does not infringe on a brand-name drug patent or that the brand-name patent is invalid. This usually results in the brand-name manufacturer suing the generic manufacturer. At this point, to limit costly litigation, the brand-name drug manufacturer and generic manufacturer will often enter into a reverse payment settlement agreement  in which the brand name manufacturer compensates the generic manufacturer, usually with a sum of money, for the remaining life of the patent. In exchange, the generic manufacturer agrees to refrain from bringing their generic product to market. Reverse payment settlement agreements are unique in that they involve the plaintiff compensating the defendant whereas typical settlements involve the defendant compensating the plaintiff.

The Loestrin decision resolves what was almost an emerging circuit split over an interpretation of the scope of the Supreme Court’s 2013 ruling in FTC v. Actavis. In Actavis, the Supreme Court notably ruled that cash consideration reverse payment agreements are subject to antitrust, rather than scope of the patent, scrutiny.

In 2015, the Third Circuit was the first Circuit to interpret Actavis. In King Drug Co. of Florence v. SmithKline Beecham Corp., the Third Circuit reversed a lower court’s dismissal of a class action suit and ruled that Actavis extended antitrust scrutiny beyond cash consideration settlements. Prior to the First Circuit’s hearing of the case, in September 2014, U.S. District Judge William E. Smith of the District of Rhode Island ruled that Actavis applied “only to cash settlements.” This left open the possibility of a circuit split between the First and Third Circuits as to the scope of Actavis. However, in reversing Judge Smith’s dismissal, the First Circuit aligned with the First Circuit and, in turn, brought some closure to the heated controversy over whether Actavis extends antitrust scrutiny beyond cash consideration settlements.

The fact that these rulings come from the First Circuit and the Third Circuit is particularly interesting as many pharmaceutical companies are headquartered within the jurisdiction of these courts.  Therefore, most of the reverse payment cases are litigated within these jurisdictions. Furthermore, the fact that the only two federal circuit courts to issue rulings have both come out the same way likely forecloses the possibility of Supreme Court review. Now, the debate will likely focus on construing the necessary pleading standard as articulated in Actavis.


—Zachary Crane





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