ORAL ARGUMENT SCHEDULED FOR MAY 1, 2023

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

ORAL ARGUMENT SCHEDULED FOR MAY 1, 2023

Page 1 of 34

No. 22-5137

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

–––––––––––––––––––––––––––––––––––––––––––––

FEDERAL TRADE COMMISSION,

Plaintiff-Appellant,

v.

ENDO PHARMACEUTICALS INC., ET AL.,

Defendants-Appellees.

–––––––––––––––––––––––––––––––––––––––––––––

On Appeal from the United States District Court

for the District of Columbia

No. 1:21-cv-217

Hon. Royce C. Lamberth

–––––––––––––––––––––––––––––––––––––––––––––

REPLY BRIEF OF THE FEDERAL TRADE COMMISSION

–––––––––––––––––––––––––––––––––––––––––––––

ANISHA S. DASGUPTA

General Counsel

JOEL MARCUS

Deputy General Counsel

BRADLEY S. ALBERT

DANIEL W. BUTRYMOWICZ

KARA L. MONAHAN

ERIC M. SPRAGUE

Of Counsel

MARK S. HEGEDUS

Attorney

FEDERAL TRADE COMMISSION

600 Pennsylvania Avenue, NW

Washington, D.C. 20580

(202) 326-2115

mhegedus@ftc.gov

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 2 of 34

TABLE OF CONTENTS

Glossary.....................................................................................................................iv

Introduction and Summary ........................................................................................1

Argument....................................................................................................................3

I.

The Complaint Plausibly Alleged that the 2010 License Allowed

Impax to Sell Oxymorphone ER “Risk Free” Without an

Exclusive License from Endo. ............................................................................3

A. The Companies’ Own Statements and Actions Support the

Complaint Allegations. ...............................................................................4

B.

Because Endo Could Not Exclude Impax From the Market,

Endo Did Not Have a Patent Right to Provide an Exclusive

License. .......................................................................................................9

II. The Patent Act Does Not Immunize the 2017 Agreement from

Antitrust Scrutiny..............................................................................................13

A. The Patent Act Does Not Create a Blanket Exemption from

Antitrust Review. ......................................................................................14

B.

Antitrust Review Does Not “Imperil” Exclusive Licensing. ................... 18

III. The Complaint Plausibly Alleged Competitive Harm and

Anticompetitive Intent, Which are Largely Uncontested. ................................24

IV. The District Court Should Assess its Personal Jurisdiction over

Endo International plc in the First Instance. .....................................................26

Conclusion ...............................................................................................................28

i

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 3 of 34

TABLE OF AUTHORITIES

* Cases and other authorities principally relied upon are marked with asterisks.

CASES

1-800 Contacts, Inc. v. FTC,

1 F.4th 102 (2d Cir. 2021)....................................................................................17

FTC v. Actavis,

570 U.S. 136 (2013) ...................................................................... 2, 16, 17, 19, 23

FTC v. Ind. Fed’n of Dentists, Inc.,

476 U.S. 447 (1986) .............................................................................................19

Ill. Tool Works Inc. v. Indep. Ink, Inc.,

547 U.S. 28 (2006) ...............................................................................................19

Impax Labs., Inc. v. FTC,

994 F.3d 484 (5th Cir. 2021)............................................................................5, 19

In the Matter of Impax Labs.,

2019 WL 1552939 (FTC Mar. 28, 2019)...............................................................5

Int’l Audiotek Network, Inc. v. AT&T Co.,

62 F.3d 69 (2d Cir. 1995).......................................................................................7

King Drug Co. of Florence, Inc. v. SmithKline Beecham Corp.,

791 F.3d 388 (3d Cir. 2015).................................................................................15

Lewis v. Mutond,

918 F.3d 142 (D.C. Cir. 2019) .............................................................................26

Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Oklahoma,

468 U.S. 85 (1984) ...............................................................................................20

New Hampshire v. Maine,

532 U.S. 742, 749 (2001) .......................................................................................6

Owens v. BNP Paribas, S.A.,

897 F.3d 266 (D.C. Cir. 2018) ...............................................................................4

Palmer v. BRG of Georgia, Inc.,

498 U.S. 46 (1990) ...............................................................................................13

Rail-Trailer Co. v. ACF Indus., Inc.,

358 F.2d 15 (7th Cir. 1966)..................................................................................10

ii

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 4 of 34

SEC v. Brennan,

230 F.3d 65 (2d. Cir. 2000)..................................................................................26

United States v. Bestfoods,

524 U.S. 51 (1998) ...............................................................................................26

United States v. Line Material Co.,

333 U.S. 287 (1948) .............................................................................................18

United States v. Singer Mfg.,

374 U.S. 174 (1963) .............................................................................................18

United States v. Studiengesellschaft Kohle, m.b.H.,

670 F.2d 1122 (D.C. Cir. 1981) .................................................. 10, 11, 14, 20, 22

United States v. United States Gypsum Co.,

438 U.S 442 (1978) ..............................................................................................25

United States. v. New Wrinkle, Inc.,

342 U.S. 371 (1952) ...................................................................................... 15, 18

Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP,

540 U.S. 398 (2004) ...................................................................................... 22, 23

Williamson Oil Co. v. Philip Morris USA,

346 F.3d 1287 (11th Cir. 2003) ...........................................................................25

STATUTES

35 U.S.C. § 262 ........................................................................................................12

OTHER AUTHORITIES

18 Moore’s Federal Practice—Civil § 134.30

(online ed. 2023) ....................................................................................................6

2 Milgrim on Licensing § 15.08 (2022) ...................................................................15

Dep’t of Justice & Fed. Trade Comm’n,

Antitrust Guidelines for the Licensing of Intellectual Property (2017)...............22

Herbert Hovenkamp, Antitrust and the Patent System: A Reexamination,

76 Ohio St. L.J. 467 (2015)..................................................................................16

Phillip Areeda & Herbert Hovenkamp, Antitrust Law: An

Analysis of Antitrust Principles and Their Application

(online ed. 2023) ........................................................................................... 18, 21

iii

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 5 of 34

GLOSSARY

ANDA

Abbreviated New Drug Application

ECF

ECF entry in proceeding below, FTC v.

Endo Pharmaceuticals Inc., et al.,

No. 1:21-cv-217 (D.D.C.)

Endo

Endo Pharmaceuticals Inc. and Endo

International plc

ER

Extended Release

FDA

Food and Drug Administration

FTC

Federal Trade Commission

Impax

Impax Laboratories, LLC and Amneal

Pharmaceuticals, Inc.

JA

Joint Appendix

iv

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 6 of 34

INTRODUCTION AND SUMMARY

The FTC showed in its opening brief that its Complaint plausibly alleged

that Impax had a right to sell oxymorphone ER under a license granted by Endo,

that Endo was willing and able to enter the market with its own product, but that

the two companies instead agreed to split monopoly profits rather than competing

for shares of a less profitable market. The Complaint alleged that the agreement

not to compete had the anticompetitive effect of propping up the price of

oxymorphone ER at the expense of consumers.

Impax and Endo admit that they agreed to split monopoly profits rather than

competing; indeed, they proudly assert their supposed entitlement to do so. The

gist of their position is that the Patent Act gives them an absolute right to maintain

a monopoly and agree not to compete. They characterize their agreement as a

routine exclusive patent license and contend that the Court’s acceptance of the

FTC’s position would threaten every exclusive license in existence.

The main flaw in that argument is that the arrangement challenged in this

case—the 2017 Agreement—is not an ordinary exclusive license, but an effective

payment from Impax to Endo in exchange for Endo’s promise not to compete.

Although formally styled a license, the 2017 Agreement purported to give Impax a

right it already had. In 2010, Endo granted Impax the right—the 2010 License—to

make oxymorphone ER, putting Impax beyond the exclusionary scope of Endo’s

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 7 of 34

then-existing and future patents. The companies themselves described the 2010

License as having granted Impax a “risk-free” right to sell the drug. The FTC’s

Complaint therefore plausibly alleged that the 2017 Agreement was in reality a

straightforward agreement not to compete.

The companies’ comeback amounts to a dispute of fact. They claim that a

2016 lawsuit threatened Impax’s right to sell oxymorphone ER under the 2010

License, so it was therefore reasonable to convert the 2010 License into an

exclusive license in return for a royalty payment. That type of fact-bound

reasoning provides no excuse for dismissing a complaint. Beyond that, the

companies’ position is impossible to square with their argument in another lawsuit

that the 2010 License was “risk-free” and with the fact that Endo’s 2016 case did

not seek to bar Impax from selling oxymorphone ER. And even if Impax’s rights

were at risk, agreements between potential competitors that purport to resolve legal

uncertainty about the right to compete are still assessed under the rule of reason.

The Supreme Court has recognized for more than a century that patent rights

coexist with antitrust law, and “both [are] relevant in determining the ‘scope of the

patent monopoly’—and consequently antitrust immunity—that is conferred by a

patent.” FTC v. Actavis, 570 U.S. 136, 148 (2013).

Antitrust scrutiny of the 2017 Agreement will not “imperil” all exclusive

licenses or force patentees and their licensees to compete. Many licenses are

2

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 8 of 34

between vertical parties that are not potential competitors. And many patentees

may lack monopoly power in the antitrust sense, so many exclusive licenses pose

no antitrust concerns. Here, however, the 2017 Agreement is a horizontal license

between potential competitors that eliminated what had been fierce competition

and preserved monopoly profits. In this situation, antitrust liability would not force

parties to compete, but prevent them from colluding.

ARGUMENT

Endo and Impax are competitors who are charged with forgoing competition

in order to preserve and share monopoly profits. In defense of the district court’s

dismissal of the complaint, they largely dispute the facts alleged, often relying on

extra-complaint materials, or they simply ignore the allegations that conflict with

their preferred storyline. They also contend that their agreement is immune from

antitrust scrutiny because it is an exclusive license authorized by the Patent Act.

That position is wrong as a matter of clearly established law.

I.

THE COMPLAINT PLAUSIBLY ALLEGED THAT THE 2010 LICENSE

ALLOWED IMPAX TO SELL OXYMORPHONE ER “RISK FREE”

WITHOUT AN EXCLUSIVE LICENSE FROM ENDO.

A core theory of the FTC’s case, supported by well-pleaded factual

allegations, is that Endo gave Impax a right to sell oxymorphone ER in 2010 as

part of an arms-length negotiation between potential competitors, so in 2017 Endo

had no patent-based right to exclude Impax. In other words, the exclusionary

3

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 9 of 34

potential of Endo’s patent no longer extended to Impax. The agreement between

the companies in 2017 therefore amounted to a simple case of preserving and

sharing monopoly profits. Nothing in the companies’ briefs shows that the

Complaint allegations failed to state a claim.

A.

The Companies’ Own Statements and Actions Support the

Complaint Allegations.

The Complaint alleged that the 2010 License “provided Impax with a license

to all then-issued patents and any Endo-owned or controlled patents that could

cover the manufacture, sale, or marketing of Impax’s generic version of Opana

ER,” which “ensured that Impax could sell an oxymorphone ER product as soon as

January 2013, even if Endo later obtained additional patents that covered Opana

ER.” ECF 2, ¶ 29 [JA___]. Endo (EB at 29-32) and Impax (IB at 37-38) disparage

this allegation as a legal conclusion which need not be accepted as true. But the

allegation rests in part on the companies’ own representations, recited in the

Complaint, to other tribunals. Those alleged representations support a plausible

inference that Endo and Impax themselves regarded the 2010 deal as a risk-free

license to all of Endo’s patents. Both the allegations and the inference must be

accepted as true. See Owens v. BNP Paribas, S.A., 897 F.3d 266, 272 (D.C. Cir.

2018).

As set forth in the FTC’s Complaint here (cited as ECF 2), the 2010 License

was subject to a private class-action antitrust lawsuit. See In re Opana ER Antitrust

4

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 10 of 34

Litig., No. 1:14-cv-10150 (N.D. Ill. filed Dec. 12, 2014) (In re Opana). Endo

described the 2010 License in its answer to the class complaint as giving Impax

“‘freedom to operate’ under future Endo patents covering Opana ER enabling

‘Impax [to] launch risk-free years before’ the last Opana ER patent expires.” ECF

2, ¶ 30 [JA___] (quoting In re Opana, ECF 211 at 133-34). Similarly, when the

FTC challenged the 2010 License in an administrative proceeding, Impax called it

a “‘broad patent license’ that protected Impax ‘not just against the patents that

were in suit at the time but against later acquired patents, at least as to Opana ER.’”

ECF 2, ¶ 30 [JA___] (quoting Impax’s counsel, In the Matter of Impax, FTC

Docket No. 9373, Initial Pretrial Conference Tr. at 59 (Feb. 16, 2017)).1 Those

descriptions amply support the inference that the 2010 License gave Impax a right

to be on the market.

Endo tries to escape the implications of the “risk-free” license by calling that

description the FTC’s own characterization (EB at 32 n.17), but the term “riskfree” comes directly from Endo’s own statements to a federal court. Impax

attempts a similar distancing by describing FTC’s use of the term “risk-free” as

Impax labels “ironic” the Complaint’s reliance on the 2010 License given that

the FTC had previously challenged portions of that agreement. IB at 19 n.3. The

problem with the 2010 License was not the license itself but the accompanying

payments to Impax for delaying its entry, which facilitated Endo’s product hop.

See In the Matter of Impax Labs., 2019 WL 1552939, at *22 (FTC Mar. 28, 2019);

Impax Labs., Inc. v. FTC, 994 F.3d 484, 497-99 (5th Cir. 2021).

1

5

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 11 of 34

“breezy,” IB at 38. The companies cannot disavow their own descriptions so

easily. Indeed, Endo and Impax won the private antitrust lawsuit (as they proudly

note, EB at 5 n.4; IB at 5 n.1, 43) after the jury determined that Impax’s right to be

on the market “risk free” was a procompetitive benefit that outweighed the

anticompetitive harms. See EB at 5 n.4. They should not now be permitted to win

this case on the exact opposite theory that the license did not make Impax a

freestanding competitor. “The doctrine of judicial estoppel prevents a party from

asserting a claim in a legal proceeding that is inconsistent with a claim taken by

that party (or by one in privity with that party) in a previous proceeding.” 18

Moore’s Federal Practice—Civil § 134.30 (online ed. 2023); accord New

Hampshire v. Maine, 532 U.S. 742, 749 (2001).

While the foregoing amply supports the plausibility of the Complaint’s

allegation that Impax had a right to compete, the terms of the 2010 License

underscore the conclusion. Section 4.1(a) grants Impax a “royalty-free” license to

Endo’s “existing” and “pending” “licensed patents” until the last of them expires.

ECF 51-2 at 10 [JA___]. (The last patent expires in 2029. ECF 2, ¶ 47 [JA___].)

Section 4.1(b) contains a “Covenant Not to Sue” running from Endo to Impax

during the License Term. ECF 51-2 at 10-11 [JA___]. Section 4.1(d) contains the

agreement to “negotiate in good faith an amendment” to the 2010 License as it

applies to Future Patents. Id. at 12 [JA___]. Although Section 8.2 defines acts that

6

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 12 of 34

allow termination of the 2010 License, those acts do not include Impax’s alleged or

actual failure to negotiate under Section 4.1(d). Id. at 17-18 [JA___]. Ignoring their

own description of these provisions, ECF 2, ¶¶ 29-30 [JA___], both Endo and

Impax assert that a court is “not constrained to accept allegations of the complaint

in respect of the construction of” an agreement. EB at 16 and IB at 42 (both

quoting Int’l Audiotek Network, Inc. v. AT&T Co., 62 F.3d 69, 72 (2d Cir. 1995)).

They neglect to add, however, that on a motion to dismiss a court “will strive to

resolve any contractual ambiguities in [non-movant’s] favor.” Intl’l Audiotek

Network, Inc., 62 F.3d at 72.

Impax cannot show the absence of a disputed allegation of fact by asserting

that the 2016 contract litigation placed its “ability to compete … in serious doubt”

because a ruling in Endo’s favor might have resulted in an injunction against

Impax’s selling oxymorphone ER and exposure to treble damages. IB at 37-38.

That claim is simply a disputed fact scenario. The Complaint alleged, and the

companies do not dispute, that Endo did not ask the district court to enjoin Impax

from selling the drug. ECF 2, ¶ 87 [JA___]. And though the companies speculate

that Impax may have lost the litigation, it may well have prevailed.

The same goes for Impax’s attempt to cast doubt on whether it would have

remained in the market had the 2016 litigation not settled. IB at 37-38. Such a factbased claim may be addressed on the merits. But Impax’s actions do not reflect the

7

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 13 of 34

legal and financial peril it now claims to have faced. After the district court denied

Impax’s motion to dismiss, Impax continued selling oxymorphone ER, relying on

the 2010 License. ECF 2, ¶ 30 [JA___]. That conduct supports the inference that

Impax did not perceive a great risk and was not deterred by the lawsuit. Indeed, as

the FTC alleged, Impax did not even initiate the settlement discussions; Endo did.

ECF 2, ¶ 90 [JA___]; IB at 8.

Nor did Endo act as though the 2016 litigation significantly threatened

Impax’s ability to compete. As alleged in the Complaint, four months after it filed

the 2016 lawsuit, Endo characterized the 2010 License as a “freedom to operate,”

“risk-free” license. ECF 2, ¶ 30 [JA___]; p.5 supra.2 Endo’s contemporaneous

characterizations of the 2010 License fatally undercuts its current position that the

2016 litigation rendered the Complaint’s allegations implausible.

Finally, the companies may not defend the dismissal of the Complaint by

invoking extra-Complaint factual matter. For example, Endo challenges the

Complaint’s allegation that Impax had the right to sell oxymorphone ER under the

2010 License as implausible on the theory that Endo terminated the License in the

Even during the pendency of this appeal, Endo has maintained this

characterization of the 2010 License: “Freedom to operate means you’re not

worried that a couple of years from now, you’re going to get ordered back off the

market … .” In re Opana, June 30, 2022, Closing Argument Tr. at 2727-28, ECF

1037 at 22-23 (N.D. Ill. Jul. 11, 2022).

2

8

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 14 of 34

2016 litigation. For one thing, the argument at best raises a factual dispute about

the effect of the 2016 case. More fundamentally, Endo improperly invokes its own

complaint in the 2016 litigation as established fact, seeking to include that

advocacy document in the appellate record. EB at 7, 30. Material outside the

FTC’s Complaint cannot be considered in the posture of this case.

It is highly doubtful that Endo would succeed in the argument anyway. As

described above, the termination clause of the 2010 License lists three

circumstances that permitted termination, and they do not include a failure to

renegotiate the terms of the License, the core of the 2016 dispute.

B.

Because Endo Could Not Exclude Impax From the Market,

Endo Did Not Have a Patent Right to Provide an Exclusive

License.

A major theme of the companies’ briefs is that the 2017 Agreement is an

ordinary exclusive patent license, under which Endo could lawfully collect a

royalty in exchange for allowing Impax to use the patent. As we showed in our

opening brief (FTC at 32-36), the Complaint plausibly alleged that Endo could not

grant Impax a license justifying profit-splitting in 2017 because Impax already had

a license as of 2010 allowing it to sell oxymorphone ER without infringement. In

other words, by 2017, Impax was outside the exclusionary scope of Endo’s patent

rights. That factual scenario makes the companies’ extensive reliance on this

Court’s decision in United States v. Studiengesellschaft Kohle, m.b.H., 670 F.2d

9

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 15 of 34

1122 (D.C. Cir. 1981), wholly misplaced. They invoke the Court’s general

approval of exclusive licenses. E.g. EB at 18; IB at 1. But the Court recognized

that a patent license “waives [the patentee’s] right to judicial relief for what, but for

the license, would be an infringement.” 670 F.2d at 1127. Here, however, the

Complaint plausibly alleges that Impax’s sales post-2010 were not an

infringement, so the predicate for a valid patent license recognized in

Studiengesellschaft is missing. 3

Endo and Impax do not address this legal principle. Instead, they fall back

on the district court’s conclusion that the Complaint had not alleged that Endo

waived its patent rights. EB at 28-29; IB at 41-42. But the Complaint did not need

to use the precise term “waived”; rather, as shown, that conclusion flows from the

plausible allegation that the 2010 License gave Impax the right to be on the market

without infringing Endo’s patents.

The companies also misplace heavy reliance on the Seventh Circuit’s

decision in Rail-Trailer Co. v. ACF Industries, Inc., 358 F.2d 15 (7th Cir. 1966),

which they claim supports the idea that the 2010 License did not impair Endo’s

Impax understood Endo’s patent rights the same way. In the 2016 litigation,

Impax maintained that “a party ‘cannot have infringed [plaintiff’s] patent under

which it was licensed.” Endo Pharms., Inc. v. Impax Labs., Inc., No. 2:16-cv02526, Brief in Support of Impax Laboratories, Inc.’s Motion to Dismiss Amended

Complaint, ECF 22-1 at 36 (D. N.J. Aug. 29, 2016).

3

10

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 16 of 34

right to grant Impax a license in 2017. EB at 33-34; IB at 24-25.4 They read the

case as saying that a patentee without the right to exclude a person can still grant

that person an exclusive license, EB at 33-34; IB at 24, and they fault the FTC for

distinguishing the case on the ground that it involved the rights of joint patentees,

EB at 34; IB at 24.

The companies ignore the significance of that distinction. As is typical, the

2010 License granted Impax the right to practice Endo’s patents and promised that

Endo would not sue Impax for doing so. See p.6 supra. Without these provisions,

Endo could have sued Impax for infringement and forced Impax from the market.

By contrast, the “licensee” in Rail-Trailer, the joint patentee ACF, needed no

similar provisions in its contract with its co-patentee Rail-Trailer. ACF’s status as a

co-patentee already gave it the right to practice the patent without risk of being

sued for infringement by Rail-Trailer. Rail-Trailer, 358 F.2d at 16. While the

agreement in Rail-Trailer was called an exclusive license, it was not a license in

the sense that Rail-Trailer could have excluded ACF, but waived that right by

granting a license. Accordingly, the Seventh Circuit did not address what happens

to a patentee’s right to exclude when it grants a license and thus tells us nothing

In Impax’s telling, Rail-Trailer is pivotal to understanding this Court’s decision

in Studiengesellschaft. E.g. IB at 20-21. Hardly. The Court cited Rail-Trailer once

in a string cite supporting the generic point that patentees can grant exclusive

licenses. See Studiengesellschaft, 670 F.2d at 1131.

4

11

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 17 of 34

about Endo’s right to exclude Impax. And while the court did note that exclusive

licenses as such are permitted under the antitrust laws, it also focused on the “right

of joint owners of a patent to contractually modify their interests in the jointly

owned patent” under 35 U.S.C. § 262. Rail-Trailer, 358 F.2d at 17. Neither the

2010 License nor the 2017 Agreement involves that Patent Act right.

Taken to its logical conclusion, the companies’ interpretation of Rail-Trailer

would have untenable implications for antitrust law. It would allow any patentee to

agree not to compete by “exclusively licensing” the patent to a competitor and

sharing joint profits through royalties—even if the competitor’s product did not

even arguably infringe the patent. Under the companies’ theory, a patent would

become a “get out of jail free card” for horizontal collusion even without any

exclusionary potential. It is not plausible that Rail-Trailer established such a rule,

and the case must instead be interpreted within its joint-patentee context.

Like the district court (ECF 74 at 22), Endo treats its breach-of-contract

lawsuit as tantamount to a ruling that Impax had breached the 2010 License, which

somehow restored Endo’s right to exclude. EB at 30, 33. The New Jersey District

Court, however, ruled neither that Impax breached nor that the 2010 License was

no longer valid. Endo’s allegation of a breach was not sufficient to resurrect

Endo’s right to exclude Impax, from which its ability to grant an exclusive license

is derived.

12

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 18 of 34

Finally, the companies fail in their attempt to distinguish Palmer v. BRG of

Georgia, Inc., 498 U.S. 46 (1990), which condemned an agreement by two

competitors not to compete using their intellectual property rights. The companies

assert that in Palmer, the competitors had independent rights to market their

intellectual property, whereas here Impax’s license is based on Endo’s intellectual

property. IB at 25; EB at 25. But as discussed at length in our opening brief and

above, the Complaint plausibly alleges that Impax had an independent right to be

on the market under the 2010 License that “ensured” it could sell oxymorphone ER

“risk free.” ECF 2, ¶ 30 [JA___]. The 2017 Agreement thus closely resembles the

agreement condemned by the Supreme Court in Palmer.

II.

THE PATENT ACT DOES NOT IMMUNIZE THE 2017 AGREEMENT

FROM ANTITRUST SCRUTINY.

The district court ruled that the 2017 Agreement operates as an exclusive

license because the agreement, in substance if not form, eliminates Endo’s

incentives to compete against Impax because Endo’s entry relieves Impax of the

duty to pay royalties. ECF 74 at 13. Based on that ruling, Endo and Impax argue

that, because the Patent Act specifically authorizes exclusive licenses, the 2017

Agreement is immunized from antitrust review and the Complaint does not state a

claim. EB at 26-28; IB at 14-18.

For all the reasons set forth above and in our opening brief, the 2017

Agreement, while styled as a license, was in effect an agreement to split monopoly

13

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 19 of 34

profits by paying Endo not to compete. But even if the 2017 Agreement could

properly be deemed an exclusive license under the Patent Act, that status does not

automatically immunize the license from antitrust scrutiny. The 2017 Agreement

remains subject to antitrust review under the rule of reason no matter how it is

described.

A.

The Patent Act Does Not Create a Blanket Exemption from

Antitrust Review.

The Patent Act’s authorization of exclusive licenses does not render such

licenses per se lawful under the antitrust laws. The Court should reject Endo’s and

Impax’s syllogism that (1) because patents confer a monopoly, and (2) because the

Patent Act authorizes Endo to transfer its patent monopoly to Impax exclusively, it

follows that (3) the 2017 Agreement falls within the scope of Endo’s patent rights

and escapes antitrust scrutiny as a matter of law. Factually the syllogism is

wrong—the 2010 License put Impax beyond the scope of Endo’s patent rights. It’s

also incorrect as a matter of law.

Endo states: “Where, as here, the challenged conduct does not go beyond

what the Patent Act expressly authorizes, that conduct cannot trigger antitrust

scrutiny.” EB at 16-17. Endo cites Studiengesellschaft, 670 F.2d at 1127-28, for

this proposition, although such a holding appears nowhere in the opinion. Indeed,

this Court subjected the exclusive license challenged there to rule-of-reason

scrutiny. Id. at 1130-37. Impax states that the 2017 Agreement “fit[s] comfortably

14

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 20 of 34

within the Congressionally ordained patent monopoly.” IB at 14, 15-24. The

companies’ claims rest on a string of anodyne quotations, EB at 18; IB at 15, that

when examined closely neither support the companies’ position nor reflect the

Supreme Court’s consistent approach to analyzing patent settlements. The

quotations simply describe the general attributes of a patent, and they stand for

nothing more than the proposition that the granting of an exclusive license,

standing alone, does not violate the antitrust laws. “Exercise by the patentee of its

statutorily granted exclusive right to make, use and sell by way of granting an

exclusive license is a natural and permissible utilization of the rights granted and

does not have antitrust implications as such.” 2 Milgrim on Licensing § 15.08

(2022) (emphasis added).

When it comes to exclusive licenses used for anticompetitive schemes, the

Supreme Court explained long ago that “[p]atents give no protection from the

prohibitions of the Sherman Act … when the licenses are used … in [a] scheme to

restrain [trade].” United States. v. New Wrinkle, Inc., 342 U.S. 371, 378 (1952).

Invoking that principle, the Third Circuit has recognized that exclusive licenses

“cannot avoid antitrust scrutiny where they are used in anticompetitive ways.”

King Drug Co. of Florence, Inc. v. SmithKline Beecham Corp., 791 F.3d 388, 407

(3d Cir. 2015). Endo’s own authorities support this conclusion. Endo relies on

Professor Hovenkamp’s explanation that “exclusion by patent enforcement during

15

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 21 of 34

[the patent] term cannot be unlawful under the antitrust laws,” and neither can

“exclusive and nonexclusive production licenses.” EB at 18 (quoting Herbert

Hovenkamp, Antitrust and the Patent System: A Reexamination, 76 Ohio St. L.J.

467, 481 (2015)). Immediately following the quoted passage, however,

Hovenkamp explains that the protection of the Patent Act extends only to

enforcing the patent itself and not to conduct that is anticompetitive under the

antitrust laws: “On the other hand, the Patent Act does not authorize product price

fixing, market divisions unrelated to the production licenses, predatory pricing in

patent goods, anticompetitive acquisitions, resale price maintenance of patented

goods, ties in the presence of market power, exclusive dealing” or sham

infringements suits. Id. at 481.

The companies’ position is exactly the one rejected by the Supreme Court in

Actavis. There, the court of appeals had affirmed a district court’s dismissal of an

FTC antitrust complaint challenging a patent settlement by which a generic drug

company contesting a brand-name drug company’s patent dropped its challenge in

exchange for a large payment from the brand and a license to enter the market

before the end of the patent term. The lower courts had ruled that a patent

settlement was “immune from antitrust attack so long as its anticompetitive effects

fall within the exclusionary potential of the patent.” Actavis, 570 U.S. at 141, 14647. The Supreme Court rejected that approach, holding instead that “patent and

16

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 22 of 34

antitrust policies are both relevant in determining the ‘scope of the patent

monopoly’—and consequently antitrust law immunity—that is conferred by a

patent.” Id. at 148. The Court explained that “[w]hether a particular restraint lies

beyond the limits of the patent monopoly is a conclusion that flows from” an

analysis of “traditional antitrust factors such as likely anticompetitive effects,

redeeming virtues, market power, and potentially offsetting legal considerations

present in the circumstances, such as those related to patents.” Id. at 148-49

(cleaned up).

Impax dismisses Actavis as “irrelevant to this case” because of its specific

factual context. IB at 28-31. In particular, it contends that “special features” of the

statutory regime at issue make the case limited to its facts. Id. at 29. That simplistic

assessment overlooks the Supreme Court’s reliance on decades of precedent

subjecting patent settlements to antitrust analysis and examining not just the scope

of patent rights, but also the anticompetitive effects caused by their exercise. See

Actavis, 570 U.S. at 147-51. None of those cases involved factual scenarios similar

to those at issue in Actavis, but the Court found them relevant to determining

whether the reverse-payment patent litigation settlement at issue there could

violate the antitrust laws. Id. Other courts as well as a leading commentator have

likewise recognized that Actavis applies outside of its specific context. See 1-800

Contacts, Inc. v. FTC, 1 F.4th 102, 113 (2d Cir. 2021) (applying Actavis’s

17

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 23 of 34

approach in a non-reverse payment case); Phillip Areeda & Herbert Hovenkamp,

Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 2046c

(online ed. 2023) (Actavis applies regardless of whether a patent settlement

involves a reverse payment).

Impax likewise errs in its claim that the cases on which Actavis relied are

irrelevant here. IB at 26-27 (discussing United States v. Singer Mfg., 374 U.S. 174

(1963), United States v. Line Material Co., 333 U.S. 287 (1948), and New Wrinkle,

Inc., 342 U.S. 371). According to Impax, those cases shed no light on the legality

of the 2017 Agreement because they involved “multiple-patentee agreements,”

whereas the 2017 Agreement involves only a single patent. IB at 26-27. That

position is obviously wrong: Actavis itself involved a single-patent settlement

agreement, yet the Supreme Court drew upon all of those earlier cases to conclude

that the agreement was subject to antitrust scrutiny. Impax ignores the common

thread of the cases: economic actors with market power and an independent ability

to compete cannot use patent rights to agree to eliminate competition free of

antitrust scrutiny.

B.

Antitrust Review Does Not “Imperil” Exclusive Licensing.

The companies hyperbolically declare that antitrust review of exclusive

licenses such as the 2017 Agreement will “eliminate the traditional boundary

between the legitimate exercise of patent rights and antitrust enforcement,” EB at

18

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 24 of 34

20, and “imperil countless exclusive license agreements,” IB at 36. Impax exclaims

that antitrust review would force “a patentee-licensor to compete with its licensee”

and prevent a patentee and licensee from “chang[ing] the terms of their license

from a non-exclusive license to an (allegedly) exclusive license.” IB at 2. None of

these things will happen by applying the antitrust laws to exclusive licenses, as

courts have done for decades.

Antitrust analysis of exclusive licenses occurs under the rule of reason.

Actavis, 570 U.S. at 159-60. That analysis requires the FTC (or any plaintiff) to

plausibly allege both market power and “the potential for genuine adverse effects

on competition.” FTC v. Ind. Fed’n of Dentists, Inc., 476 U.S. 447, 460 (1986); see

also Impax Labs., Inc., 994 F.3d at 492-93. Endo calls such scrutiny

“unprecedented,” EB at 20, but as the Supreme Court observed in Actavis, “there is

nothing novel” about it. 570 U.S. at 151.

To begin with, many exclusive licenses face little risk of antitrust scrutiny

because the “monopoly” conveyed by the patent does not necessarily confer

market power in the antitrust sense. See Ill. Tool Works Inc. v. Indep. Ink, Inc., 547

U.S. 28, 45 (2006). Without a plausible allegation of market power in a relevant

market, see Actavis, 570 U.S. at 149, 159, an antitrust challenge would generally

19

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 25 of 34

fail (or never be brought).5 Here, of course, the Complaint alleged that Endo and

Impax were the only authorized sellers of oxymorphone ER, and the 2017

Agreement gave Impax a monopoly over these sales. FTC at 26-31, ECF 2, ¶¶ 110118 [JA___]. The companies admit that charge. EB at 16-19; IB at 16.

An antitrust plaintiff must also plausibly allege anticompetitive effects. As

we explained in our opening brief, many exclusive licenses cause no harm to

competition because the patentee and the licensee are in a non-competitive vertical

relationship. FTC at 37-38. For example, a patentee may decide not to

commercialize the invention itself, but to partner with a manufacturer who does not

compete with the patentee and would otherwise not be able to manufacture and sell

the product without the license. That is what happened in Studiengesellschaft, 670

F.2d at 1124. The Court there observed that an exclusive license protects a

licensee’s investment to exploit the patent and “serves the interests of both the

patentee and the public by facilitating more rapid and widespread use of new

inventions.” Id. at 1135. In that situation, the license has no anticompetitive effect.

Id.

An exception might arise if the exclusive license were used as part of a naked

price-fixing agreement or other per se violation. Nat’l Collegiate Athletic Ass’n v.

Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85, 109-10 (1984).

5

20

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 26 of 34

The risk of anticompetitive effects is much greater, however, when the

patentee and licensee have a horizontal relationship. See FTC at 38. “An

arrangement is said to be ‘horizontal’ when its participants are (1) either actual or

potential rivals at the time the agreement is made; and (2) the agreement eliminates

some avenue of rivalry among them.” Areeda & Hovenkamp, supra, ¶ 1901. In

such an arrangement, the patentee may be seeking not just to commercialize its

invention but to extinguish competition that might otherwise have existed. For

example, Endo and Impax have a history of intense competition in this very drug

market; conversely, Endo did not need Impax to commercialize the patent. Unlike

the patentee and licensee in Studiengesellschaft, Endo and Impax were potential

horizontal competitors because the 2010 License allowed Endo to also sell

oxymorphone ER (and as alleged, Endo took substantial steps toward doing so).

FTC at 26-27. The 2017 Agreement eliminated that potential competition and

created a monopoly.

The companies appear to deliberately elide the critical difference between

vertical and horizontal licenses. Impax, for example, casually deems the 2017

Agreement a “garden variety” exclusive license. IB at 11. But a garden variety

exclusive license neither involves competitors in the same industry for the same

drug nor preserves monopoly profits that otherwise would be competed away. See

Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for the Licensing of

21

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 27 of 34

Intellectual Property, at 2, 6-7 (2017). Similarly, Impax’s disregard of the essential

economic difference between a horizontal and vertical license is obvious in its

discussion of Studiengesellschaft: the case involved a vertical license, but Impax

claims that it “operate[d] in a horizontal fashion, as the licensee entirely

supplant[ed] the patentee’s ability to make and sell the invention.” IB at 34 (citing

Studiengesellschaft, 670 F.2d at 1131).

The economic difference between vertical and horizontal licenses refutes the

companies’ concerns about “forced competition” or parties being unable to convert

their licenses from non-exclusive to exclusive. When a patentee grants a license to

a company that is not an actual or potential competitor (i.e., a vertical license), as

occurred in Studiengesellschaft, the licensee effectively serves as the patentee’s

agent and brings the patented product to market in exchange for a royalty. Because

the licensee is not a competitor, its exercise of the patentee’s rights benefits the

market by expanding output. Competition is generally not threatened if the initial

non-exclusive license is later converted to an exclusive one because the patentee

and licensee still are not competitors.

But where the patentee and the licensee are actual or potential competitors

(i.e., a horizontal license), any exclusive license may directly threaten competition.

When one competitor pays another to exit or stay out of a market, that is collusion,

“the supreme evil of antitrust.” Verizon Commc’ns, Inc. v. Law Offices of Curtis V.

22

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 28 of 34

Trinko, LLP, 540 U.S. 398, 408 (2004). The companies are not required to

compete, but if they act in concert to preserve and share monopoly profits that

otherwise would be lost to competition, a court may at least assess that

arrangement under the rule of reason.

The pre-existing competitive relationship between Endo and Impax explains

why the 2017 Agreement is suspect and why converting the non-exclusive

oxymorphone ER license to an exclusive one merits antitrust scrutiny. For

example, if a brand and generic are in patent litigation (as Endo and Impax were

before the 2010 License), they may not settle the uncertainty about whether the

generic has a right to compete by agreeing that the generic will be the exclusive

seller in exchange for a substantial royalty to the brand. See Actavis, 570 U.S. at

147-48. The parties could lawfully settle their patent litigation with a royalty-free

license to enter partway through the remaining life of the patent; that arrangement

would reflect the parties’ views about the strength of the patent. See id. at 158.

When the generic’s entry date arrives, however, the parties do not have carte

blanche to then “convert” the license to an exclusive one that allows the generic to

take over the monopoly in return for a royalty during the remainder of the patent

term. That type of monopoly arrangement should properly draw antitrust scrutiny,

since the patentee and licensee have now created, through agreement, a monopoly

for the entirety of the patent term. Endo and Impax’s view that there is no

23

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 29 of 34

competition issue posed by “converting” a non-exclusive license to an exclusive

one in this way would create a giant loophole in the antitrust laws.

III.

THE COMPLAINT PLAUSIBLY ALLEGED COMPETITIVE HARM AND

ANTICOMPETITIVE INTENT, WHICH ARE LARGELY UNCONTESTED.

As shown in our opening brief, the Complaint plausibly alleged that (1)

Endo and Impax are potential (and formerly actual) competitors, FTC at 26-27; (2)

the 2017 Agreement caused the loss of price competition between them, costing

consumers millions of dollars annually, FTC at 27-28; and (3) the 2017 Agreement

removed Endo’s incentives to innovate, FTC at 29. Endo and Impax make no effort

to show that these allegations of harm are not plausible. Instead, they basically

accept them as true but write them off as immaterial because of their view that

exclusive licenses are per se legal. Endo contends that the harm allegations “have

nothing to do with the issues before this Court … because the challenged conduct

is specifically authorized by the Patent Act.” EB at 35. Impax asserts that “[p]atent

law would require dismissal regardless of whether the 2017 Settlement had all of

the ‘anticompetitive effects’ and purposes alleged by the FTC.” IB at 37. We

demonstrated at pages 13-18 above the emptiness of the companies’ position that

the 2017 Agreement is not subject to antitrust scrutiny no matter its effect on

competition.

Endo leaves things right there. Impax offers its own set of alternative facts—

first, that if Endo would have prevailed in its 2016 litigation against Impax

24

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 30 of 34

consumers would have been the same or worse off; and second, that the 2017

Agreement increased Endo’s incentives to enter the market. IB at 38-41. Even if

such speculation could be a defense on the merits, empty hypothesizing has no

place in the context of a motion to dismiss. It is worth noting, though, that the

district court found that the economic cost to Endo of entering the market in

competition with Impax far exceeds Endo’s economic incentive to enter. ECF 74 at

13. And that just illustrates the competitive problem at the heart of this case: as the

Complaint alleges, both Endo and Impax are better off splitting monopoly profits

than either would be in a competitive market. ECF 2, ¶¶ 104-109 [JA___].

Indeed, the Complaint alleged that the 2017 Agreement was the culmination

of a years-long effort by Endo and Impax to create and maintain a monopoly in the

oxymorphone ER market. FTC at 30-31. Impax tries to write off these allegations

as impermissible “historical evidence” or prior bad acts “propensity reasoning.” IB

at 43 (quoting Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287, 1317-18

(11th Cir. 2003)). At this point in the case, however, all inferences must be drawn

in favor of sustaining the Complaint, and the historical background shows the

companies’ intent and purpose which “play an important role in divining the actual

nature and effect of the alleged anticompetitive conduct.” United States v. United

States Gypsum Co., 438 U.S 442, 436 n.13 (1978).

25

USCA Case #22-5137

IV.

Document #1990095

Filed: 03/14/2023

Page 31 of 34

THE DISTRICT COURT SHOULD ASSESS ITS PERSONAL JURISDICTION

OVER ENDO INTERNATIONAL PLC IN THE FIRST INSTANCE.

Endo briefly challenges personal jurisdiction over its foreign-based parent,

Endo International. EB at 36-37.6 If the Court reverses the district court’s dismissal

of the Complaint and remands, it should direct the district court to consider the

question in the first instance. See Lewis v. Mutond, 918 F.3d 142, 148 (D.C. Cir.

2019).

Should the Court wish to address the issue, Endo International can be

reached. Endo is wrong that under United States v. Bestfoods, 524 U.S. 51, 61

(1998), Endo International’s status as an indirect parent of Endo Pharmaceuticals

does not suffice to confer personal jurisdiction. EB at 37. The Supreme Court held

in Bestfoods that a parent corporation can be liable for the acts of a subsidiary

when the parent’s officers acted on behalf of the subsidiary. Bestfoods, 524 U.S. at

70. The Complaint alleged that corporate officers of Endo International directed

conduct central to Endo’s plan to launch a generic of Opana ER, an issue directly

relevant to the Complaint allegations. ECF 2, ¶¶ 73-82, 91 [JA___]. When Endo

Endo has declined to address the implications of its pending bankruptcy petition

on the Court’s jurisdiction. EB at 1 n.1 For its part, Impax agrees with the FTC that

this Court has jurisdiction, but incorrectly states that the governmental unit

exception to the bankruptcy stay applies because the FTC is not seeking monetary

relief. IB at 44-45. The exception, however, “permits the entry of a money

judgment so long as the proceeding in which such a judgment is entered is one to

enforce the governmental unit’s police or regulatory power.” SEC v. Brennan, 230

F.3d 65, 71 (2d Cir. 2000) (emphasis in original).

6

26

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 32 of 34

was preparing to relaunch a generic version of Opana ER, it used the property of

Par Pharmaceuticals, which is owned by Endo International. See id., ¶¶ 14, 75-78

[JA___]. Because Endo Pharmaceuticals does not own Par, but Endo International

does, officers of the parent must have directed Par’s actions on the subsidiary’s

behalf.

27

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 33 of 34

CONCLUSION

For the foregoing reasons and those stated in our opening brief, the Court

should reverse the district court’s dismissal of the Complaint and remand the case

for determination on the merits.

Respectfully submitted,

ANISHA S. DASGUPTA

General Counsel

JOEL MARCUS

Deputy General Counsel

March 14, 2023

/s/ Mark S. Hegedus

MARK S. HEGEDUS

Attorney

FEDERAL TRADE COMMISSION

600 Pennsylvania Avenue, N.W.

Washington, D.C. 20580

BRADLEY S. ALBERT

DANIEL W. BUTRYMOWICZ

KARA L. MONAHAN

ERIC M. SPRAGUE

Of Counsel

28

USCA Case #22-5137

Document #1990095

Filed: 03/14/2023

Page 34 of 34

CERTIFICATE OF COMPLIANCE AND SERVICE

I certify that the foregoing brief complies with Federal Rule of Appellate

Procedure 32(a)(7), in that it contains 6,496 words.

I further certify that on March 14, 2023, the foregoing brief was filed and

served via the Court’s CM/ECF system.

March 14, 2023

/s/ Mark S. Hegedus

Mark S. Hegedus

Attorney

Federal Trade Commission

600 Pennsylvania Avenue, N.W.

Washington, D.C. 20580