The American Antitrust Institute (AAI) notched another legal victory in its efforts to combat anticompetitive “reverse-payment” settlement agreements. In reversing the dismissal of complaints challenging settlements involving the brand name drugs Lipitor and Effexor, the Third Circuit followed the recommendations set forth in a pair of amicus briefs filed by AAI with 48 professors, and rejected a heightened pleading standard for reverse-payment claims. Effexor brief here. Lipitor brief here.
In the Lipitor case, plaintiffs alleged that brand manufacturer Pfizer entered an anticompetitive reverse-payment settlement with generic challenger Ranbaxy whereby Pfizer dropped its promising litigation against Ranbaxy over a different drug, Accupril, in exchange for Ranbaxy delaying the launch of its generic equivalent to Lipitor. Plaintiffs argued that Pfizer’s agreement to forgive its damages claims in Accupril was a reverse payment worth hundreds of millions of dollars.
The district court dismissed plaintiffs’ reverse-payment claim on the ground that they did not adequately plead a “large” reverse payment in accordance with the showing required by Actavis. In order to plausibly claim that the reverse payment here was “large,” the district court held that plaintiffs would first have to provide “reliable” monetary estimates of the value of the dropped litigation, including details as to likely damages, probability of success, an estimation of lost profits and other factors.
In the Effexor case, plaintiffs alleged that brand manufacturer Wyeth had entered an unlawful reverse-payment settlement with generic challenger Teva whereby Teva agreed to delay its generic version of Effexor XR in exchange for Wyeth’s agreement not to launch an “authorized generic” version of the drug. Plaintiffs alleged that the “no AG” promise was worth over $500 million to Teva, but the district court dismissed plaintiffs’ complaint on the ground that it failed to provide a “reliable foundation” that the payment was “large.” In particular, the district court faulted plaintiffs for relying on “general assumptions” about penetration rates and pricing impacts of generic entry, and failing to plausibly allege that Wyeth would have introduced an authorized generic but for the no-AG agreement.
In its amicus briefs, AAI argued that the district court had improperly demanded the type of evidence that is typically introduced at summary judgment or trial, and had erroneously required plaintiffs to negate justifications that defendants have the burden of establishing. The briefs argued that it was inappropriate to require that level of evidence at the motion-to-dismiss stage and that the district court’s standard was inconsistent with the Third Circuit’s ruling in King Drug and the Supreme Court’s Actavis decision, both of which involved less detailed allegations than the complaints in Lipitor and Effexor.
The Third Circuit agreed, citing AAI’s amicus brief twice in its opinion. The court held that the district court’s heightened pleading standard was inconsistent with Twombly, Iqbal, King Drug, and Actavis. It credited AAI for pointing out that that the district court appeared to require plaintiffs to produce evidence at the pleading stage and used AAI’s brief to support the argument that requiring a heightened level of specificity “would make settlement agreements like th[ese] nearly impossible to challenge because the details of the agreements are closely guarded by the parties entering into them.”
Importantly, the Third Circuit added that a plaintiff need not engage in “special valuation” measures nor provide “detailed economic analysis” to plausibly allege that a reverse payment other than cash is “large.” Moreover, while a reverse payment must exceed saved litigation costs to be actionable, the court noted that “finely calibrated litigation cost estimates” are unnecessary. And, the court emphasized that plaintiffs are not required to plead the “net” reverse payment in excess of independent benefits obtained by the brand manufacturer from the settlement. That is because “Actavis does not require antitrust plaintiffs to come up with possible explanations for the reverse payment and then rebut those explanations in response to a motion to dismiss.”
The Third Circuit also:
- reversed the district court’s holding that the Effexor defendants’ submission of the settlement agreement to the FTC (as required by law) and the FTC’s failure to challenge it immunized the agreement from antitrust challenge;
- rejected the Effexor defendants’ argument that the patent court’s approval of the settlement in a consent decree immunized it from antitrust challenge under the Noerr-Pennington doctrine; and
- reversed the district court’s dismissal of the Lipitor plaintiffs’ Walker Process and sham litigation claims.
AAI’s amicus briefs were written by AAI Advisory Board Members Michael Carrier and Steve Shadowen.