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What’s Ahead in 2021 for Reverse-Payment Settlement Litigation

Jan. 8, 2021, 9:01 AM

Reverse-payment or “pay-for-delay” lawsuits arise when parties settle patent litigation under the Hatch-Waxman Act with an alleged agreement under which a brand-name drug patent holder compensates a generic drug maker to end or avoid litigation.

In its decision in FTC v. Actavis, the U.S. Supreme Court made clear that a “large and unjustified” payment as part of a Hatch-Waxman settlement risks competitive harm to the market, and that such settlements are subject to rule-of-reason analysis.

Litigation concerning reverse-payment settlements remains active. In the coming year, we expect to see material developments regarding treatment of non-monetary settlements of underlying patent litigation, as courts continue to grapple with what constitutes a “large and unjustified” payment. Likewise, we expect further insights regarding the admissibility of expert opinions concerning the likelihood of success of the underlying patent litigation.

The year 2021 is also likely to see some of the first challenges brought to reverse-payment settlements under a new California law that targets such agreements.

Non-Monetary Settlements

In September 2020, the Third Circuit reviewed the Federal Trade Commission’s challenge to a settlement between AbbVie and Teva, which included an agreement that AbbVie, as the brand manufacturer of testosterone gel called AndroGel, provide Teva a license to sell a generic version of a separate drug.

Reversing the district court, the Third Circuit held that the FTC plausibly alleged a reverse-payment arrangement, notwithstanding the absence of a monetary payment. Now revived, those claims will proceed in the district court on remand into 2021.

The Third Circuit’s ruling may also inform another suit pending in the Eastern District of Pennsylvania, in which wholesaler plaintiffs are pursuing a similar theory.

On a motion for summary judgment, the District of Massachusetts recently rejected manufacturer defendants’ argument that the absence of an explicit “no-AG [authorized generic] commitment” definitively precluded finding a violation of the antitrust laws under Actavis, reasoning that “if a brand company agrees to sacrifice some of its profits and transfer them to a generic as part of a settlement agreement, the Court may infer that the unexplained payment was given in exchange for the generic delaying entry.”

Denying summary judgment, the court found there was a dispute of fact as to whether the manufacturer sacrificed profits by declining to launch an authorized generic. These issues are expected to be further addressed at trial in the coming year.

The Seventh Circuit is also expected to hear an appeal from a ruling by the Northern District of Illinois dismissing alleged claims that AbbVie restrained competition in the domestic Humira market in part by allegedly providing licenses to enter the European market on a given date as consideration for delaying domestic entry of competing biosimilars.

In addition, a plaintiff brand manufacturer has appealed a District of Delaware ruling that a manufacturer’s “no-AG commitment” was enforceable after the manufacturer sought to escape its terms and sell its own AG.

Expert Testimony on Merits of the Underlying Patent Suit

The new year is also likely to see further development regarding when courts permit expert testimony concerning the likelihood of success of the underlying suit that resulted in the challenged settlement.

One side or the other may argue that such testimony is relevant to a factfinder’s assessment of whether the consideration in a reverse-payment settlement is reasonable in light of the underlying litigation’s posture.

For example, In re Zetia (Ezetimibe) Antitrust Litigation, the plaintiffs seek to introduce a patent lawyer’s opinion that, at the time of settlement, the generic company had a 65%-75% chance of prevailing. The brand-name and generic defendants counter that such testimony would be too speculative. The court is expected to rule on this issue in 2021.

A similar issue was presented recently in In re Intuniv. There, the district court held that plaintiffs’ expert could testify regarding his opinion that Actavis would have been likely to succeed in the underlying suit, but the expert could not testify as to any percentage of likelihood.

California’s New Restriction on Reverse-Payment Settlements

In October 2019, California became the first state to enact a law that specifically addresses reverse-payment settlements.

With certain exceptions, the statute provides that “an agreement resolving or settling, on a final or interim basis, a patent infringement claim, in connection with the sale of a pharmaceutical product, shall be presumed to have anticompetitive effects” if a “nonreference drug filer receives anything of value from another company asserting patent infringement” and “the nonreference drug filer agrees to limit or forego research, development, manufacturing, marketing, or sales of the nonreference drug filer’s product for any period of time.”

The Association for Accessible Medicines (AAM) sought to enjoin enforcement of the new law, asserting that it is preempted by the Hatch-Waxman Act and is unconstitutional. AAM’s challenge failed.

The district court found no likelihood of success regarding AAM’s preemption argument on the merits and found its as-applied constitutional claims to be unripe.

On appeal, the Ninth Circuit held that AAM lacked standing to challenge the law because no AAM members had alleged an intent to enter into a reverse-payment settlement, or economic injury from forgoing such settlements. While that case has since been dismissed, further challenges to the statute in 2021 and beyond remain likely.

The new legislation also opens the door to additional litigation concerning reverse-payment settlements in California. California could emerge as a popular forum for challenges to reverse-payment settlements, prompting questions regarding the scope of the law.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

Melissa R. Ginsberg is counsel in Patterson Belknap’s Litigation department where her practice includes complex commercial disputes and antitrust matters. She is an editor of the firm’s Antitrust Update Blog.

Amy N. Vegari (Ph.D.) is counsel in Patterson Belknap’s Litigation department where her practice includes complex commercial disputes and antitrust matters. She is an editor of the firm’s Antitrust Update Blog.

Andrew I. Haddad and Jonathan Hermann are associates in Patterson Belknap’s Litigation department.

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