The U.S. Court of Appeals for the Third Circuit has overturned the dismissal of two antitrust suits over “reverse settlements” in which patent holders sought to delay the sale of generic versions of blockbuster drugs.
Challenges to those deals, popularly called “pay for delay,” must meet the standard of “ordinary plausibility,” the panel said in an opinion applying the U.S. Supreme Court’s 2013 ruling in Federal Trade Commission v. Actavis, which ruled that payments from patent holders to infringers through reverse payment settlement agreements are subject to antitrust scrutiny.
The Third Circuit, in a precedential opinion in a pair of consolidated cases, revived suits against drugmakers Pfizer and Ranbaxy over their deal concerning cholesterol-reducing drug Lipitor and against Wyeth and Teva relating to antidepressant Effexor XR. In so ruling, the appeals court upset decisions of the district court.
The plaintiffs, which include labor unions and pharmacy operators, made sufficiently plausible claims that the defendants entered into reverse payment settlement agreements and that procurement and enforcement of the Lipitor patents were fraudulent, the appeals court said.
In the Lipitor case, Pfizer brought suit in June 2008 to stop efforts by Ranbaxy to produce a generic version of Lipitor. Soon thereafter, the two companies reached a global agreement settling the Lipitor claims as well as a similar case concerning a drug called Accupril, used for hypertension and congestive heart failure. Ranbaxy agreed to pay Pfizer $1 million in the Accupril suit, and it also postponed its introduction of its generic version of Lipitor until 20 months after Pfizer’s patent on that drug expired.
After Pfizer moved to dismiss the Lipitor case, U.S. District Judge Peter Sheridan stayed proceedings while awaiting the Supreme Court’s decision in Actavis. In September 2013, after the Actavis ruling was issued, Sheridan dismissed all Lipitor claims other than those relating to the reverse payment settlement. In September 2014, Sheridan dismissed the allegations relating to the reverse payment settlement agreement between Pfizer and Ranbaxy.
On appeal, plaintiffs said Sheridan had held them to a higher pleading standard than the Supreme Court’s holdings in Bell Atlantic v. Twombly, from 2007, and Ashcroft v. Iqbal, from 2009, which require a showing of plausibility. Chief Judge D. Brooks Smith and Judges Thomas Ambro and D. Michael Fisher agreed that Sheridan wrongly applied a heightened standard. The appeals court said the reverse payment here was “large enough to permit a plausible inference that Pfizer possessed the power to bring about an unjustified anticompetitive harm through its patents and had serious doubts about the ability of those patents to lawfully prevent competition.”
In the Effexor XR litigation, Teva and Wyeth agreed in October 2005 to settle a patent infringement suit under terms calling for Teva to pay royalties to Wyeth for its generic Effexor and postpone that product’s introduction date.
In October 2014, Sheridan granted a motion for partial dismissal of the Effexor antitrust litigation. The plaintiffs appealed, and the Third Circuit concluded that the plaintiffs plausibly pleaded an unlawful reverse payment settlement agreement. Their claims sufficiently allege that Pfizer agreed to release the Accupril charges against Ranbaxy, which were likely to succeed and were worth millions of dollars, in exchange for Ranbaxy’s delay of its introduction for generic Lipitor.
The ruling is significant because it demonstrates that reverse payment settlement terms that do not take the form of cash payment are subject to antitrust challenges, said Michael Carrier, an authority on antitrust law at Rutgers Law School-Camden. Although the Actavis decision is likely to drive down the number of reverse payment settlements in the future, the ruling “will allow cases to survive a motion to dismiss,” he said. “This has not been addressed in other circuits. It’s the first time a court has specifically focused on the pleading standard. I think it’s completely appropriate,” said Carrier, who filed an amicus brief on behalf of a group of 48 law, economic and business professors and the American Antitrust Institute.
“I think this is a strong opinion. I really can’t see it being overturned,” Carrier said.
The decision shows “you don’t need to show a cash payment in order to establish liability in such cases,” adds Lisa Rodriguez of Schnader, Harrison, Segal & Lewis in Cherry Hill who was liaison counsel to a potential class of end-payors.
A Pfizer spokeswoman, Allyanna Anglim, issued a statement on behalf of the company.
“We are disappointed with the Court’s decision and will evaluate our legal options. We believe that plaintiffs’ claims were appropriately dismissed by the District Court and that the procurement and enforcement of our patents — including settlements we and our subsidiary Wyeth agreed to — were proper, lawful and in line with the Supreme Court’s decision in FTC v. Actavis,” the statement said. “We will continue to vigorously protect and defend our intellectual property, which is vital to developing new medicines that save and enhance patient lives. Lipitor and Effexor XR represent important innovations in treatment and have benefited millions of patients across the country.”
A spokeswoman for Teva, Denise Bradley, declined to comment on the ruling. Ranbaxy did not respond to a request for comment on the ruling.
Appellants in the Lipitor and Effexor cases included Rite Aid, Walgreen’s, Kroger, Safeway and several labor unions.