In a recent article, “Antitrust Enforcement in Health Care Gets Mixed Reviews,” published in The Legal on September 12, we examined how federal enforcement of the antitrust laws may interact with the continued rollout of the Affordable Care Act (ACA). The ACA seeks to create savings by requiring greater collaboration among health care providers, and transparency in the pricing of health care products and services; but not at the expense of undue market concentration or other anticompetitive effects. In a speech September 13, senior Republican Federal Trade Commission Commissioner Maureen Ohlhausen noted that, while there is increased call for efficiency and integration under the ACA, “the act does not call for consolidations as an end in itself, and there is certainly no legal immunity for antitrust law under the act or its implementing regulations.” The FTC and U.S. Department of Justice will continue to vigorously oppose what they consider to be anticompetitive mergers, collusion among health care providers, and other agreements that they believe to be anticompetitive.

The federal agencies, collectively, are just one player in the antitrust world. Most lawsuits are brought by private parties: consumers suing drug companies and other health care providers, and health care competitors suing each other for alleged unreasonable restraints of competition. The U.S. Court of Appeals for the Third Circuit has a well-deserved reputation for careful and sophisticated analysis of antitrust issues and, for reasons explained below, the circuit is becoming a favorite venue for plaintiffs in health care antitrust suits. As a result, the antitrust health care docket in the Third Circuit is already extremely active and will grow more so going forward.

Suits Challenging Reverse Payment Settlements

The U.S. Supreme Court’s decision in FTC v. Actavis, 133 S.Ct. 2223 (2013), was a major antitrust win for the FTC in challenging so-called reverse payment settlements. The Supreme Court resolved a split among the circuits and held that an agreement by a branded drug manufacturer to pay a generic drug manufacturer to delay entry into the market (pay-for-delay) should be assessed under the rule of reason. Prior to Actavis, several circuits had ruled that these settlements were immune from antitrust scrutiny so long as the settlements protected the branded drug manufacturer’s monopoly within the “scope of the patent.” The Third Circuit, however, had found such reverse payments to be presumptively anticompetitive. The Supreme Court took neither approach, but rather a middle ground, and held that such agreements are subject to antitrust review under the rule of reason. The court stated that an unusually large reverse payment from the branded drug holder to the alleged infringer might indicate an unreasonable restraint of trade, i.e., a payoff made to the generic for staying out of the market. Many commentators (and the dissent in Actavis) opined that the decision would unleash a torrent of complex litigation.

The interest in reverse payment settlements extends not only to the FTC, but also to consumers. By filing a class action lawsuit, consumers can seek treble damages for the alleged overcharges resulting from a reverse payment settlement. As expected, the Third Circuit has been a favored venue for plaintiffs proceeding on such a theory since the court had been the most receptive to the possible anticompetitive nature of reverse payment settlements. On September 16, a class action, Laborers’ International Union of North America Local 35 Health Care Fund v. Warner Chilcott US LLC, No. 2:2013cv05375, was filed in the U.S. District Court for the Eastern District of Pennsylvania against Warner Chilcott, alleging that it unfairly raised the price of its oral contraceptive Loestrin and eliminated competition by paying generic drugmakers Actavis Inc. and Lupin to drop their patent challenges. According to the suit, the branded drug companies paid the potential generic competitors to drop their patent challenge because they knew the patents were faulty and would not be upheld. By delaying the entry of the generics, the branded companies were able to continue to sell the drug to consumers at higher prices. According to the lawsuit, the consumers were overcharged because generics did not enter the market and the settlement was a means by which the branded drug companies and potential generics divided up the spoils of their anticompetitive agreement.

On September 18, the Teamsters Union brought suit against drug manufacturers alleging an anticompetitive pay-for-delay settlement concerning the drug Niaspan. The basic allegations were the same as those in the Warner Chilcott lawsuit: consumers were overcharged because the branded drug company paid off the generic to stay out of the market. At the same time this suit was being filed, a federal multidistrict litigation panel consolidated before U.S. District Judge Jan E. Dubois of the Eastern District of Pennsylvania eight previous lawsuits accusing drugmakers of entering into illegal agreements to delay a generic version of Niaspan. The defendants in these cases had sought consolidation in the Southern District of New York with the plaintiffs arguing for consolidation in Philadelphia. The plaintiffs prevailed. The plaintiffs did not overtly state that they sought venue in the Third Circuit because of the Third Circuit’s previous finding that such payments are presumptively anticompetitive, but it is likely that that consideration was a factor. Also, a multidistrict litigation panel hearing was held recently concerning reverse payment settlements involving another drug, with some parties seeking to have cases arising from those payments consolidated in the Eastern District of Pennsylvania as well. Not all reverse payment cases will land in the Third Circuit, but plaintiffs will often seek out this venue.

Also of note, the Plumbers and Pipefitters Local 178 filed an earlier reverse payment lawsuit August 30 against the branded drug manufacturer of an acne product and potential generic competitors. This suit also seeks treble damages for an alleged anticompetitive scheme to exclude generics from the market for a prescription drug for the treatment of acne.

These are not the only drug-related antitrust suits pending in the Third Circuit — only a sampling of the most significant cases filed in the last several weeks. The district courts within the Third Circuit, and ultimately the Third Circuit itself, will take a leading role in deciding some of the unanswered questions raised in Actavis. For example, the settlement in Actavis and many, but not all, reverse payment settlements involve the payment of money to the generic to withdraw its patent challenge. But, what if instead of money, the branded drug manufacturer offers the generic a distributorship or some other non-cash, but monetary equivalent payment? Applying the rule of reason to these settlements will require the balancing of many factors: Was the settlement sum reasonable given the strength of patent held by the patent holder? Was the payment for other legitimate services such as distribution? Are there other justifications for the payment? The Supreme Court said in Actavis: “We therefore leave to the lower courts the structuring of the present rule-of-reason antitrust litigation.” Some industry observers have called the Actavis decision an antitrust lawyers’ full employment act It appears a good deal of the employment will take place right here in the Third Circuit.

Monopolization

Challenges to reverse payment settlements are the hot topic in health care competition law, but there are significant suits in other areas. The ACA encourages cost reduction through collaboration among health care providers. This may lead to mergers and other acquisitions that are reviewed by the federal government. But, lack of a federal challenge to a merger is not the end of a possible attack on companies with large or dominant market shares. Mergers can leave the resulting company with significant market power. Being a dominant firm alone, however, is not an antitrust violation. In Verizon v. Trinko, 540 U.S. 398 (2004), the U.S. Supreme Court stated, “The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct.” Nevertheless, firms with dominant market power may find themselves sued for alleged abuse of that dominant power by marketing actions such as bundling products, exclusive dealing, most favored nations clause and other alleged anticompetitive activities. Several such suits have recently been brought in lower courts within the Third Circuit, including matters involving hospital mergers, mergers among companies supplying data to pharmaceutical companies and prescription benefits plans. The Third Circuit may seem more receptive to plaintiffs for such suits in light of the circuit’s decision in LePage’s v. 3M, 324 F.3d 141 (3d Cir. 2003). LePage’s brought an antitrust action asserting that 3M used its monopoly power related to its Scotch tape brand to attempt to monopolize the private label portion of the transparent-tape market. The Third Circuit upheld the jury verdict, finding that 3M violated Section 2 of the Sherman Act by offering bundled rebates across six of its product lines, which LePage’s, with fewer products, could not match. The Third Circuit is widely believed to be more receptive than other circuits to allegations of monopolization conduct or attempts to monopolize.

Nurses’ Pay Collusion Suit

Of course, not all antirust cases are filed in the Third Circuit. Given the large number of people employed in the health care industry in the Delaware Valley, a nurses’ class action suit is of interest. Nurses in Detroit filed a class action alleging that eight Detroit area hospitals conspired with one another to keep registered nurses’ wages low by exchanging among themselves compensation related information. There have already been numerous settlements in the case. The district court just granted class certification to the nurses in the remaining litigation.

growing area of interest

The FTC and the DOJ have promised to be active in the health care antitrust arena — particularly as the new health care law takes effect. But private litigants will also be very active, especially in the areas of reverse payment settlements. The application of antitrust principles to the health care industry is an area of growing interest and much of the action will be taking place first in district courts and then the Third Circuit. •

Robert E. Connolly is of counsel at DLA Piper’s Philadelphia office, focusing on antitrust and unfair competition matters. He was previously with the DOJ’s Antitrust Division, including 20 years as the chief of the division’s Middle Atlantic Office. He can be reached at 215-656-3318 or robert.connolly@dlapiper.com. Adam D. Brown is an associate at the firm’s Philadelphia office, where he focuses his practice on complex commercial litigation, including antitrust and unfair competition.