Opinion Holds That Non-Monetary Reverse Payments Trigger Actavis Antitrust Scrutiny, Creating Split Within D.N.J.

An opinion issued on October 6, 2014, by Judge Sheridan of the United States District Court for the District of New Jersey further muddied the legal waters as to what type of “reverse payments” made by makers of brand-name pharmaceuticals to their generic competitors to settle patent litigation are subject to antitrust scrutiny under the Supreme Court’s decision in FTC v. Actavis. Judge Sheridan held that Actavis applies to non-monetary payments, such as a promise by the brand-name manufacturer in exchange for which the generic agrees to delay entry. Importantly, however, a non-monetary payment must be capable of being reliably converted to a monetary value so that it can be evaluated against the Actavis factors. Judge Sheridan’s holding runs counter to Judge Walls’s decision earlier this year in In re Lamictal Direct Purchaser Antitrust Litigation, which limited Actavis to reverse payments involving an exchange of cash and was the subject of a prior blog post.

In In re Effexor XR Antitrust Litigation, a class of direct purchasers alleged that defendant Wyeth made a reverse payment to defendant Teva to induce Teva to delay launching its generic version of Effexor by two years. This reverse payment was essentially an agreement not to compete, the plaintiffs alleged, as Wyeth promised Teva that it would not market its own generic version of Effexor during Teva’s 180-day exclusive sales period (which Teva had earned by being the first to seek FDA approval of such a generic) in exchange for Teva’s delay. The plaintiffs estimated that Wyeth’s promise was worth $500 million to Teva, based on the fact that Teva would face no price competition during its 180-day exclusivity period.

Judge Sheridan reasoned that while “it is true that Actavis never indicated that a reverse payment had to be a cash payment . . . it is also true that Actavis emphasized cash payments.” Thus, although Wyeth’s non-cash promise could be considered under Actavis, Judge Sheridan held, it had to be translated into a reliable cash equivalent such that the Actavis factors could be applied. Because he found the monetary value ascribed to the promise by the plaintiffs to be “vague and amorphous,” Judge Sheridan concluded that the Complaint did not adequately plead precisely what the “payment” was, that it was actually “reverse,” or that it was sufficiently “large” under Actavis. He also cast doubt on the notion that Wyeth’s promise was made with an intent to violate the antitrust laws given that the settlement had been submitted to the FTC. Accordingly, the defendants’ motion to dismiss the Actavis claims was granted.

Varying interpretations of just how far Actavis extends have created a divide that is not only inter-District in nature but, with the competing opinions in Effexor and Lamictal, is now unsettled within this District as well. This split will no doubt have to be resolved by the Third Circuit. In the meantime, brand-name pharmaceutical makers beware: reverse payments, whether monetary or not, can trigger antitrust scrutiny under Actavis.

Kevin R. Reich is an Associate in the Gibbons Business & Commercial Litigation Department.
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