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Case: 24-1585, 09/24/2024, DktEntry: 37.1, Page 1 of 36
Nos. 24-1585 (lead), 24-1601, 24-1636, 24-1639, 24-1659, 24-1662,
24-1671, 24-1697, 24-1704, 24-1708, 24-1763, 24-1764, 24-1766, 241831, 24-1832, 24-1833, and 24-1849 (consolidated)
IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
–––––––––––––––––––––––––––––––––––––––––––––
UNITED HEALTHCARE SERVICES, INC.,
Plaintiff-Appellant,
v.
GILEAD SCIENCES, INC., et al.,
Defendants-Appellees.
Case No. 24-1585
–––––––––––––––––––––––––––––––––––––––––––––
On Appeal from the United States District Court
for the Norther District of California,
No. 3:19-cv-02573 (Hon. Edward M. Chen)
–––––––––––––––––––––––––––––––––––––––––––––
BRIEF FOR THE FEDERAL TRADE COMMISSION
AS AMICUS CURIAE IN SUPPORT OF NEITHER PARTY
–––––––––––––––––––––––––––––––––––––––––––––
Of Counsel:
BRADLEY S. ALBERT
Assistant Director,
Bureau of Competition
DANIEL W. BUTRYMOWICZ
RANDALL M. WEINSTEN
Attorneys
FEDERAL TRADE COMMISSION
Washington, D.C. 20580
ANISHA S. DASGUPTA
General Counsel
MARK S. HEGEDUS
MATTHEW M. HOFFMAN
Attorneys
FEDERAL TRADE COMMISSION
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
(202) 326-2115
mhegedus@ftc.gov
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(caption, cont’d)
–––––––––––––––––––––––––––––––––––––––––––––
BLUE CROSS AND BLUE SHIELD OF FLORIDA, INC., et al.,
Plaintiffs-Appellants,
v.
GILEAD SCIENCES, INC., et al.,
Defendants-Appellees.
Case No. 24-1601
–––––––––––––––––––––––––––––––––––––––––––––
FRATERNAL ORDER OF POLICE, MIAMI LODGE 20 INSURANCE
TRUST FUND, et al.,
Plaintiffs-Appellants,
v.
GILEAD SCIENCES, INC., et al.,
Defendants-Appellees.
Case No. 24-1636
–––––––––––––––––––––––––––––––––––––––––––––
UNITED HEALTHCARE SERVICES, INC.,
Plaintiff-Appellant,
v.
GILEAD SCIENCES, INC., et al.,
Defendants-Appellees.
Case No. 24-1639
–––––––––––––––––––––––––––––––––––––––––––––
HUMANA INC.
Plaintiff-Appellant,
v.
TEVA PHARMACEUTICALS USA, INC.,
Defendant-Appellee.
Case No. 24-1659
–––––––––––––––––––––––––––––––––––––––––––––
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(caption, cont’d)
–––––––––––––––––––––––––––––––––––––––––––––
HUMANA INC.
Plaintiff-Appellant,
v.
GILEAD SCIENCES, INC., et al.,
Defendants-Appellees.
Case No. 24-1662
–––––––––––––––––––––––––––––––––––––––––––––
BLUE CROSS AND BLUE SHIELD OF FLORIDA, INC., et al.,
Plaintiffs-Appellants,
v.
GILEAD SCIENCES, INC., et al.,
Defendants-Appellees.
Case No. 24-1671
–––––––––––––––––––––––––––––––––––––––––––––
BLUE CROSS AND BLUE SHIELD OF FLORIDA, INC., et al.,
Plaintiffs-Appellants,
v.
TEVA PHARMACEUTICALS USA, INC.
Defendant-Appellee.
Case No. 24-1697
–––––––––––––––––––––––––––––––––––––––––––––
CENTENE CORPORATION,
Plaintiff-Appellant,
v.
GILEAD SCIENCES, INC., et al.,
Defendants-Appellees.
Case No. 24-1704
–––––––––––––––––––––––––––––––––––––––––––––
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(caption, cont’d)
–––––––––––––––––––––––––––––––––––––––––––––
TRIPLE-S SALUD, INC.,
Plaintiff-Appellant,
v.
TEVA PHARMACEUTICALS USA, INC.,
Defendant-Appellee.
Case No. 24-1708
–––––––––––––––––––––––––––––––––––––––––––––
HEALTH CARE SERVICE CORPORATION,
Plaintiff-Appellant,
v.
GILEAD SCIENCES, INC., et al.,
Defendants-Appellees.
Case No. 24-1763
–––––––––––––––––––––––––––––––––––––––––––––
TRIPLE-S SALUD, INC.
Plaintiff-Appellant,
v.
GILEAD SCIENCES, INC., et al.,
Defendants-Appellees.
Case No. 24-1764
–––––––––––––––––––––––––––––––––––––––––––––
CENTENE CORPORATION,
Plaintiff-Appellant,
v.
TEVA PHARMACEUTICALS USA, INC.
Defendant-Appellee.
Case No. 24-1766
–––––––––––––––––––––––––––––––––––––––––––––
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(caption, cont’d)
–––––––––––––––––––––––––––––––––––––––––––––
KAISER FOUNDATION HEALTH PLAN, INC.,
Plaintiff-Appellant,
v.
GILEAD SCIENCES, INC., et al.,
Defendants-Appellees.
Case No. 24-1831
–––––––––––––––––––––––––––––––––––––––––––––
BLUE CROSS AND BLUE SHIELD OF KANSAS CITY,
Plaintiff-Appellant,
v.
GILEAD SCIENCES, INC., et al.,
Defendants-Appellees.
Case No. 24-1832
–––––––––––––––––––––––––––––––––––––––––––––
KAISER FOUNDATION HEALTH PLAN, INC.,
Plaintiff-Appellant,
v.
TEVA PHARMACEUTICALS USA, INC.,
Defendant-Appellee.
Case No. 24-1833
–––––––––––––––––––––––––––––––––––––––––––––
BLUE CROSS AND BLUE SHIELD OF KANSAS CITY,
Plaintiff-Appellant,
v.
TEVA PHARMACEUICALS USA, INC.
Defendant-Appellee.
Case No. 24-1849
–––––––––––––––––––––––––––––––––––––––––––––
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TABLE OF CONTENTS
TABLE OF AUTHORITIES ........................................................................ ii
INTRODUCTION AND INTERESTS OF AMICUS CURIAE ................. 1
STATEMENT ............................................................................................... 4
A. Regulation of Brand and Generic Drugs Under the
Hatch-Waxman Act ............................................................................... 4
B. Reverse Payments Can Be Antitrust Violations ................................. 6
C. Proceedings in This Case .................................................................... 11
ARGUMENT .............................................................................................. 13
I.
The Brand Company’s Saved Litigation Costs Are the
Relevant Benchmark for Determining Whether a
Reverse Payment Was Large.............................................................. 14
II. Patent Merits Are Not Relevant to the Rule-of-Reason
Analysis That Determines Whether a Reverse Payment
is Unlawful........................................................................................... 20
CONCLUSION ........................................................................................... 27
i
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TABLE OF AUTHORITIES
CASES
Am. Sales Co., LLC v. AstraZeneca LP (In re
Nexium (Esomeprazole) Antitrust Litig.),
842 F.3d 34 (1st Cir. 2016) .................................................. 10, 11, 24, 26
Atl. Richfield Co. v. USA Petroleum Co.,
495 U.S. 328 (1990) ................................................................................ 25
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,
429 U.S. 477 (1977) ................................................................................ 10
Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S,
566 U.S. 399 (2012) .................................................................................. 3
FTC v. AbbVie, Inc.,
976 F.3d 327 (3d Cir. 2020) ............................................................... 2, 16
FTC v. Actavis, Inc. (In re Androgel Antitrust
Litig. (No. II)), No. 1:09-cv-955,
2018 WL 2984873 (N.D. Ga. June 14, 2018) ........................................ 22
FTC v. Actavis, Inc.,
570 U.S. 136 (2013) ........................... 1, 6, 7, 8, 14, 15, 16, 17, 18, 19, 20
Impax Labs., Inc. v. FTC,
994 F.3d 484 (5th Cir. 2021) .................................................... 2, 9, 14, 23
In re Cipro Cases I & II,
348 P.3d 845 (Cal. 2015) ........................................................................ 23
In re Lipitor Antitrust Litig,,
868 F.3d 231 (3d Cir. 2017) ................................................................... 16
In re Namenda Indirect Purchaser Antitrust
Litig., No. 1:15-cv-6549,
2022 WL 3362429 (S.D.N.Y. Aug. 15, 2022) ......................................... 19
In re Wellbutrin XL Antitrust Litig.,
868 F.3d 132 (3d Cir. 2017) ............................................................. 10, 24
In re Xyrem (Sodium Oxybate) Antitrust Litig.,
555 F. Supp. 3d 829 (N.D. Cal. 2021) ................................................... 17
ii
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Joblove v. Barr Labs., Inc. (In re Tamoxifen
Citrate Antitrust Litig.),
466 F.3d 187 (2d Cir. 2006) ..................................................................... 6
King Drug Co. of Florence v. Cephalon, Inc.,
88 F. Supp. 3d 402 (E.D. Pa. 2015) ..................................................... 2, 9
King Drug Co. of Florence, Inc. v. SmithKline
Beecham Corp.,
791 F.3d 388 (3d Cir. 2015) ................................................. 3, 8, 9, 15, 24
Ohio v. Am. Express Co.,
585 U.S. 529 (2018) .................................................................................. 8
Rochester Drug. Co-Op., Inc. v. Warner Chilcott
Co. (In re Loestrin 24 Fe Antitrust Litig.),
814 F.3d 538 (1st Cir. 2016) .................................................................... 8
STATUTES
15 U.S.C. § 1 ................................................................................................. 7
15 U.S.C. § 45 ............................................................................................... 1
21 U.S.C. § 355 ........................................................................... 2, 4, 5, 6, 11
Pub. L. No. 108-173 ..................................................................................... 2
OTHER AUTHORITIES
FTC, Authorized Generic Drugs: Short-Term
Effects and Long-Term Impact (2011) .................................................... 3
FTC, Pay-for-Delay: How Drug Company Pay-Offs
Cost Consumers Billions (2010)............................................................... 3
C. Scott Hemphill, Paying for Delay,
81 N.Y.U. L.R. 1553 (2006) .................................................................... 16
iii
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INTRODUCTION AND INTERESTS OF AMICUS CURIAE
In FTC v. Actavis, Inc., 570 U.S. 136 (2013), the Supreme Court
held that “reverse-payment” agreements may violate the antitrust laws.
In a reverse-payment agreement, a patentholder (usually a brand
pharmaceutical company) compensates an alleged infringer (usually a
generic competitor) in exchange for the latter’s agreement to drop its
litigation challenges to the patent. In effect, the patentholder shares
some of its monopoly profits with its potential competitor to eliminate
the possibility of price-lowering competition. Although several other
circuits have addressed the Actavis framework, this is the first case in
which this Court has been called upon to assess the legality of an
alleged reverse-payment agreement. The Federal Trade Commission
submits this brief both to set forth the legal standards that govern
reverse-payment claims under Actavis and to address several errors
committed by the district court in applying those standards.
As an independent agency of the United States charged with
preventing unfair methods of competition, see 15 U.S.C. § 45(a), the
Commission has a strong interest in the correct application of the law
relating to reverse-payment agreements. The Commission has long used
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its law enforcement authority to address anticompetitive
pharmaceutical patent settlements through administrative proceedings
and federal court suits, including the Actavis litigation. 1 The
Commission also regularly files amicus curiae briefs in pharmaceutical
antitrust cases, including during the district court proceedings of one of
the cases now on appeal.
Congress has recognized that pharmaceutical settlements
implicate the Commission’s competition mission and expertise. Since
2003, Congress has required certain agreements between drugmakers
to be filed with the Commission, including agreements to settle patent
litigation, so that the Commission can evaluate whether those
agreements may violate the antitrust laws. See Pub. L. No. 108-173,
§§ 1111-1118 (codified at 21 U.S.C. § 355 note). The Commission
reviews and publishes data regarding these agreements. More
generally, the Commission has issued several empirical studies
addressing the competitive effects of generic substitution for brand-
See, e.g., Impax Labs., Inc. v. FTC, 994 F.3d 484 (5th Cir. 2021); FTC
v. AbbVie, Inc., 976 F.3d 327, 351-59 (3d Cir. 2020); King Drug Co. of
Florence v. Cephalon, Inc., 88 F. Supp. 3d 402 (E.D. Pa. 2015).
1
2
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name drugs. 2 The Supreme Court and other federal courts have relied
on those studies. 3
In this case, Appellants allege that Gilead Pharmaceuticals and
Teva Pharmaceuticals entered into unlawful reverse-payment
agreements relating to two HIV drugs. A jury returned a special verdict
for the defendants, finding that Appellants failed to prove either
(1) that Gilead had sufficient market power or (2) that the settlements
included large and unjustified reverse payments. The Commission takes
no position on market power; it writes to explain that the district court
committed two significant legal errors when analyzing the reversepayment issue. First, the district court wrongly held that defendants
could argue that the payment in question was not “large” in comparison
to Gilead’s monopoly profits. In fact, the proper benchmark is the
litigation expense the brand avoided by settling. Second, the district
court incorrectly held that the strength of Gilead’s patent could justify a
E.g., FTC, Authorized Generic Drugs: Short-Term Effects and LongTerm Impact (2011); FTC, Pay-for-Delay: How Drug Company Pay-Offs
Cost Consumers Billions (2010).
2
See, e.g., Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 566 U.S.
399, 408 (2012); King Drug Co. of Florence, Inc. v. SmithKline Beecham
Corp., 791 F.3d 388, 404 n.21 (3d Cir. 2015).
3
3
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reverse payment. Under Actavis, patent strength is legally irrelevant to
whether an antitrust violation occurred. These errors, if adopted by
other courts, could significantly harm efforts by government and private
parties to redress reverse-payment agreements. Thus, if the Court
reaches the reverse-payment issues, it should correct these errors to
ensure proper application of the law in future reverse-payment cases.
STATEMENT
A.
Regulation of Brand and Generic Drugs Under the
Hatch-Waxman Act
Reverse-payment agreements may occur in patent litigation
arising from the Drug Price Competition and Patent Term Restoration
Act of 1984, commonly known as the Hatch Waxman Act. Under that
scheme, the manufacturer of a new drug (i.e., the “brand” company)
must file a New Drug Application (“NDA”) with the Food and Drug
Administration, demonstrating that the drug is safe and effective. 21
U.S.C. § 355(b). The brand company must list certain patents relating
to that drug, along with their expiration dates, in an FDA publication
known as the Orange Book. The NDA must be approved before the
brand can market the drug.
4
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After an NDA for a drug is approved, another company may file an
Abbreviated New Drug Application (“ANDA”), seeking to market a
generic version of the drug. Id. § 355(j). An ANDA is a streamlined
process that does not require proof of safety or efficacy. Instead, the
ANDA applicant must show that the generic drug is “bioequivalent” to
the brand, i.e., that it contains the same active ingredient in the same
amounts and works in the body the same way. Id. § 355(j)(2)(A). Generic
drugs are as safe and effective as their brand name counterparts but
are usually much less expensive Accordingly, third party payors (e.g.,
health insurers) encourage pharmacists to substitute generics for
brand-name drugs, and all states permit such substitution. In theory,
once generics enter the market, they should typically capture the vast
majority of the brand’s sales, with consumers then getting the same
medication at much lower prices.
If an ANDA applicant seeks to market a generic drug before
expiration of a patent listed in the Orange Book for the brand-name
reference drug, it must include a “Paragraph IV” certification in its
ANDA asserting that the patent is invalid or that the generic product
will not infringe Id. § 355(j)(2)(A)(vii)(IV). Such a certification is deemed
5
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a technical act of infringement, which enables the brand company to file
suit.
As an incentive to encourage generic development, the first
company to file an ANDA containing a Paragraph IV certification for a
drug receives a 180-day period of generic exclusivity; the FDA will not
approve other generics until 180 days after the first ANDA filer begins
commercial marketing of its generic. Id. § 355(j)(5)(B)(iv). This right can
be extraordinarily valuable—sometimes worth as much as “several
hundred million dollars.” Actavis, 570 U.S. at 155.
B.
Reverse Payments Can Be Antitrust Violations
In patent litigation between a brand and a generic company under
the Hatch-Waxman scheme, the profits the generic company stands to
earn if it wins the infringement suit and launches its product are
normally much less than those the brand stands to lose from generic
entry. See, e.g., Joblove v. Barr Labs., Inc. (In re Tamoxifen Citrate
Antitrust Litig.), 466 F.3d 187, 209 (2d Cir. 2006). Thus, both the brand
and generic manufacturers may benefit, at the expense of consumers, if
the parties settle the lawsuit with the brand company paying
compensation to the generic in exchange for the generic’s agreement to
6
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stop contesting the patent and stay out of the market. Such an
arrangement is called a “reverse payment” because it involves the
plaintiff (the brand) paying the defendant (the generic), rather than the
other way around. In effect, the brand company preserves its monopoly
by sharing monopoly profits with the generic.
In Actavis, the Supreme Court held that a “large and unjustified”
reverse payment “can bring with it the risk of significant
anticompetitive effects.” Actavis, 570 U.S. at 158. Accordingly, reversepayment agreements may violate the Sherman Act’s prohibition on
restraints of trade. See 15 U.S.C. § 1. The anticompetitive concern with
a reverse payment is that it may “seek[] to prevent the risk of
competition.” Actavis, 570 U.S. at 158. The disputed patent “may or
may not be valid, and may or may not be infringed.” Id. at 147. But a
reverse payment can avoid a judicial decision on those questions and
instead “maintain supracompetitive prices to be shared among the
patentee and the challenger rather than face what might have been a
competitive market.” Id. at 157. The result is that “[t]he patentee and
the challenger gain; the consumer loses.” Id. at 154.
7
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Courts applying the Actavis framework have recognized that a
reverse payment need not take the form of a straight transfer of money.
Any arrangement that conveys monetary value to a generic can be a
reverse payment. Rochester Drug. Co-Op., Inc. v. Warner Chilcott Co.
(In re Loestrin 24 Fe Antitrust Litig.), 814 F.3d 538, 549-51 (1st Cir.
2016) (concluding that “Actavis should reach non-monetary reverse
payments” and citing numerous cases); King Drug of Florence, Inc. v.
SmithKline Beechham Corp., 791 F.3d 388, 403 (3d Cir. 2015) (“We do
not believe Actavis’s holding can be limited to reverse payments of
cash.”). For example, an agreement by a brand company not to launch
its own authorized generic to compete with the generic company’s
product may be of “great monetary value” and is “likely to present the
same types of problems as reverse payments of cash.” Id.
Actavis held that the legality of reverse-payment agreements
should be evaluated under antitrust law’s “rule of reason.” Actavis, 570
U.S. at 158-60. To determine whether a challenged restraint violates
the rule of reason, courts apply a three-step burden-shifting framework.
Ohio v. Am. Express Co., 585 U.S. 529, 541 (2018). At the first step, the
plaintiff must show that the agreement has substantial anticompetitive
8
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effect. Id. For a reverse-payment agreement, this requires proof that (1)
the brand company has market power (i.e., the ability to raise prices
above those that would be charged in a competitive market), and (2) the
agreement involved a payment from the brand to the generic that was
“large and unjustified.” Impax Labs, Inc. v. FTC, 994 F.3d 484, 492-94
(5th Cir. 2021); see also King Drug, 791 F.3d at 412. If the plaintiff
makes this showing, the burden shifts to the defendant to show that the
restraint produces procompetitive benefits. If that showing is made, the
burden shifts to the plaintiff to show that any procompetitive effects
could be obtained by less restrictive means. Ohio, 585 U.S. at 541-42;
Impax, 994 F.3d at 492; King Drug, 791 F.3d at 412. Where the plaintiff
fails to show a less restrictive alternative, “the court must balance the
anticompetitive and procompetitive effects of the restraint,” and “[i]f the
anticompetitive harms outweigh the procompetitive benefits, then the
agreement is illegal.” Impax, 994 F.3d at 492.
Private antitrust plaintiffs must clear an additional hurdle to
prevail in a reverse-payment suit. In addition to showing that the
reverse payment violated the antitrust laws, private plaintiffs must
show that the reverse payment caused them an antitrust injury—i.e.,
9
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an injury of the type the antitrust laws were intended to prevent that
flows from the violation. In re Wellbutrin XL Antitrust Litig., 868 F.3d
132, 163-65 (3d Cir. 2017); Am. Sales Co., LLC v. AstraZeneca LP (In re
Nexium (Esomeprazole) Antitrust Litig.), 842 F.3d 34, 60 (1st Cir. 2016);
see generally Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477,
486, 489 (1977). Although this requirement is referred to “antitrust
standing,” it is an element of the antitrust merits rather than a
jurisdictional consideration related to Article III standing. Wellbutrin,
868 F.3d at 163-64. In the context of a reverse-payment claim brought
by drug purchasers, the antitrust standing inquiry usually turns on
whether the generic would have launched its drug at an earlier date but
for the reverse payment, thus lowering prices and saving the
purchasers money. See Nexium, 842 F.3d at 60 (plaintiff seeking
damages “must show actual, quantifiable damages by reason of the
antitrust violation”).
Government enforcers like the FTC, by contrast, “stand in
different shoes.” Id. The government “is empowered to directly enforce
the substantive antitrust laws” and its interest is “to ‘prevent and
restrain’ violations of the antitrust laws along with the attendant social
10
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costs such violations can cause.” Id. Thus the government, unlike a
private plaintiff, need not show that a reverse payment caused a
specific quantifiable injury.
C.
Proceedings in This Case
Appellants in this case are classes of direct and indirect drug
purchasers who allege that Gilead and Teva entered into unlawful
reverse-payment agreements. Gilead holds NDAs for the drugs Truvada
and Atripla—both blockbuster drugs used in the treatment of HIV. The
products were protected by patents that expired on various dates
between 2017 and 2021. Teva filed ANDAs to market generic versions
of both drugs in 2009, and was the first generic company to do so.
Ordinarily, as the first filer, Teva would have been entitled to the 180day period of generic exclusivity if it prevailed in patent litigation, but
Appellants contend that, under the terms of the Hatch-Waxman Act
Teva forfeited this right. See 21 U.S.C. § 355(j)(5)(D) (providing that
forfeiture of 180-day generic exclusivity period occurs where, inter alia,
generic applicant fails to obtain tentative approval for its product from
FDA within 30 months).
11
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Gilead sued Teva for patent infringement. The parties settled in
2014, after a bench trial but before the court ruled on the merits. The
settlement agreement allowed Teva to launch generic versions of
Truvada and Atripla six months before any other generic manufacturer
licensed by Gilead. Appellants contend that this contractual period of
generic exclusivity was highly lucrative to Teva—and amounted to a
large and unjustified reverse payment—given that Teva had forfeited
the statutory 180-day generic exclusivity period authorized by the
Hatch-Waxman Act.
Following a trial, a jury returned a special verdict finding for
Gilead and Teva on two independent grounds. First, the jury found that
Appellants did not “prove that Gilead had market power within the
relevant market(s) that included Truvada and/or Atripla.” ECF 2057 at
2. Second, although the verdict form instructed the jury to skip the
remaining questions if it found no market power, the jury proceeded to
answer the next question and found that Appellants did not prove that
the “patent settlement agreement between Gilead and Teva included a
‘reverse payment’ from Gilead to Teva so that Teva would delay its
entry into the market and Gilead could thereby avoid the risk of generic
12
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competition.” Id. The jury did not reach the antitrust injury questions
on the verdict form, which asked whether Appellants had proven that
the defendants’ conduct caused entry of generic Truvada or generic
Atripla to be delayed, thereby causing any one or more of the …
plaintiffs to pay some amount more for the drug than they would have
paid if generic entry had not been delayed.” Id. at 3.
Appellants moved for a new trial (ECF 2088), but the district
court denied the motion, holding that sufficient evidence supported the
jury’s answers to both questions. ECF 2129.
ARGUMENT
The Commission takes no position on the jury’s finding that
Appellants failed to prove Gilead had sufficient market power, which
would be a sufficient basis for the judgment. But at various points in
the case, the district court misapplied the law regarding reverse
payments in a way that could impede future law enforcement efforts by
the FTC and other government antitrust enforcers. If the Court reaches
the question of whether the agreement between Gilead and Teva
included a reverse payment to delay Teva’s market entry, it should
correct these errors.
13
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I.
THE BRAND COMPANY’S SAVED LITIGATION COSTS ARE THE
RELEVANT BENCHMARK FOR DETERMINING WHETHER A
REVERSE PAYMENT WAS LARGE.
Under Actavis, a plaintiff must present evidence that a reverse
payment was “large and unjustified” at the first step of the rule-ofreason analysis. Actavis, 570 U.S. at 158; see also Impax, 994 F.3d at
493-94. The benchmark for determining whether a reverse payment is
large is “its scale in relation to the [brand’s] anticipated future litigation
costs.” Actavis, 570 U.S. at 159. 4 In this case, Appellants moved in
limine to exclude evidence and arguments regarding benchmarks other
than avoided litigation costs. The district court denied the motion,
allowing the defendants to introduce evidence and make arguments
that the payment was not “large” in comparison to the brand’s
monopoly profits and/or the size of the relevant market. ECF 1716 at
12-14. The district court’s ruling misapplied Actavis and is contrary to
the decisions of other courts of appeals.
If the payment, or part of it, was legitimately for “compensation for
… services that the generic has promised to perform,” see Actavis, 570
U.S. at 156, then that portion may be excluded when assessing whether
the payment was “large.” In this case, however, there is no claim that
the payment was justified as compensation for services.
4
14
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Actavis makes clear that the focus of the inquiry is on the
payment’s size relative to avoided litigation costs. The Supreme Court
was concerned that the brand might be using “a share of its monopoly
profits” to “induce the generic challenger to abandon its claim.” Actavis,
570 U.S. at 154. The Court explained that this concern is not present
when the payment “amount[s] to no more than a rough approximation
of the litigation expenses saved through the settlement.” Actavis, 570
U.S. at 156 (“Where a reverse payment reflects traditional settlement
considerations, such as avoided litigation costs … there is not the same
concern that a patentee is using its monopoly profits to avoid the risk of
patent invalidation or a finding of noninfringement.”).
If the brand is paying more than saved litigation costs (and the
payment is not explained by something else the brand is purchasing),
that additional money replaces profits the generic misses out on by not
competing. As a result, the generic “presumably agrees to an [] entry
date that is later than it would have otherwise accepted.” King Drug
Co., 791 F.3d at 405.
Nowhere in Actavis does the Supreme Court identify the brand’s
monopoly profits or the size of the overall market as a benchmark for
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“large.” Instead, the Court observed that “patentees sometimes pay a
generic challenger a sum even larger than what the generic would gain
in profits if it won the [patent] litigation and entered the market.”
Actavis, 570 U.S. at 154. And it then cited an academic article
explaining that the generic’s expected profits are usually only a small
portion of the brand’s pre-competition monopoly profits. See C. Scott
Hemphill, Paying for Delay, 81 N.Y.U. L.R. 1553, 1580-81 (2006). That
is, even a very small slice of the brand’s monopoly profits may be
enough to induce a generic to abandon its patent challenge and delay
market entry.
Other courts applying the Actavis framework have properly
recognized that the inquiry focuses on the brand’s avoided litigation
costs rather than on monopoly or market profits. For example, in FTC v.
AbbVie, Inc., 976 F.3d 327 (3d Cir. 2020), the Third Circuit held that
the FTC plausibly alleged that a reverse payment was “large” where it
conferred “extremely valuable” rights to the generic that “far exceeded
the litigation costs [the parties] saved by settling.” Id. at 356.; see also
In re Lipitor Antitrust Litig,, 868 F.3d 231, 253-54 (3d Cir. 2017)
(plaintiffs plausibly alleged that reverse payment was large where it far
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exceeded saved litigation costs); In re Xyrem (Sodium Oxybate)
Antitrust Litig., 555 F. Supp. 3d 829, 865 (N.D. Cal. 2021) (“Payments
may be sufficiently ‘large’ because they allegedly are ‘extremely
valuable’ and exceed litigation costs saved through settlement.”).
In reaching a contrary conclusion, the district court relied on
language from Actavis stating that a reverse payment may not be
unlawful if it “reflect[s] compensation for other services that the generic
has promised to perform” or there are “other justifications.” ECF 1716
at 12-13 (quoting Actavis, 570 U.S. at 156). But these factors do not go
to whether the reverse payment is “large.” 5 Rather, the Court discussed
these factors in a paragraph addressing whether a payment is
“unjustified.” Actavis, 570 U.S. at 156. The fact that a defendant may be
able to justify a large reverse payment has no bearing on what
benchmark should be used to assess whether the payment is in fact
“large.” And nothing about the passages the district court quoted from
Actavis suggests that the size of the payment can be judged against the
brand’s monopoly profits.
Moreover, as noted above, there is no claim in this case that the
payment was justified as compensation for services.
5
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The district court also held that using avoided litigation costs as
the relevant benchmark “essentially assumes that Gilead’s monopoly
profits were not based on a lawful monopoly arising from the patent but
rather based on an unlawful monopoly because the patent is either
invalid or not infringed.” ECF 1716 at 13-14. But analyzing the size of
the payment in accordance with the factors identified by the Supreme
Court involves no judgment as to the validity or infringement of the
patent. 6 Indeed, the problem with using monopoly profits as a
benchmark for “large” is not that doing so would impugn those profits
as illegitimate; it is that the comparison sheds no light on whether the
size of the payment could induce the generic not to compete.
The district court also misread the Supreme Court’s observation in
Actavis that “the owner of a particularly valuable patent might contend
that even a small risk of invalidity justifies a large payment.” Actavis,
570 U.S. at 157. The district court read this language as “suggest[ing]”
that the brand’s profits may be considered in assessing “whether the
size of a reverse payment is large.” ECF 1716 at 14. In fact, the
Patent validity is also irrelevant to the antitrust rule-of-reason
analysis, as discussed in Part II.
6
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Supreme Court was making the opposite point. The next two sentences
in Actavis state: “But, be that as it may, the payment (if otherwise
unexplained) likely seeks to prevent the risk of competition. And … that
consequence constitutes the relevant anticompetitive harm.” Actavis,
570 U.S. at 157. In other words, a large and unexplained reverse
payment raises anticompetitive concerns even when it protects a
valuable patent facing only “a small risk of invalidity,” Actavis, 570 U.S.
at 157. The district court’s interpretation that having a valuable patent
with large monopoly profits entitles a brand company to lawfully make
a larger reverse payment thus misapprehends the Supreme Court’s
meaning.
Finally, the district court erred in relying upon an unreported
district court case holding without explanation or analysis that
defendants in a reverse payment case could introduce evidence that the
value of their drug franchise was a legitimate benchmark for evaluating
whether a payment was large. ECF 1716 at 13. In re Namenda Indirect
Purchaser Antitrust Litig., No. 1:15-cv-6549, 2022 WL 3362429, at *2
(S.D.N.Y. Aug. 15, 2022). Like the district court’s reasoning here, this
conclusion is inconsistent with what Actavis actually says. This Court
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should follow Actavis and the Third Circuit and hold that saved
litigation costs are the appropriate benchmark for determining whether
a reverse payment is large.
II.
PATENT MERITS ARE NOT RELEVANT TO THE RULE-OFREASON ANALYSIS THAT DETERMINES WHETHER A REVERSE
PAYMENT IS UNLAWFUL.
Actavis makes clear that whether a reverse-payment agreement
violates the antitrust laws does not depend on the strength of the
brand’s patent (i.e., whether the patent is likely to be held invalid in
patent litigation). The Court held that “it is normally not necessary to
litigate patent validity to answer the antitrust question.” Actavis, 570
U.S. at 157. It explained that “a small risk of invalidity” does not justify
a large payment, because the payment still “likely seeks to prevent the
risk of competition,” which “constitutes the relevant anticompetitive
harm.” Id.
The district court strayed from these principles. It allowed the
defendants to argue to the jury that, in assessing anticompetitive effects
under the rule of reason: “if there were a payment, if that payment did
not result in delayed entry by Teva, the Defense wins this case.” ECF
2046 at 3287-88. The defendants then argued at length as to why
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Gilead’s patents would have been upheld regardless of the payment. See
ECF 2046 at 3305-25. Later, in denying Appellants’ motion for a new
trial, the district court accepted the defendants’ arguments that “even if
there were some kind of payment to Teva, there was no payment for
delay (i.e., no quid pro quo) because there was evidence that Gilead’s
patents were strong and the strength of Gilead’s patents explained the
entry date” provided for in the settlement agreement. ECF 2129 at 19.
The court also specifically rejected Appellants’ arguments that the
patent merits are relevant only to causation, holding that “even though
a large and unexplained reverse payment allows a jury to infer pay-fordelay, that does not mean that a defendant is barred from arguing no
pay-for-delay because the patent owned by defendant was strong.
Defendants made such a showing here and supported it with
substantial evidence” Id. at 20.
This analysis reflects two basic errors. First, the district court
improperly held that evidence of the patent merits could support the
jury’s conclusion that the Gilead-Teva settlement did not include a
reverse payment. Second, the court conflated the question of whether an
antitrust violation occurred—that is, whether an unlawful reverse
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payment was made—with the entirely separate question of whether any
violation caused the plaintiffs’ antitrust injury.
The strength of a patent is irrelevant to whether a reverse
payment has anticompetitive effects—which are instead established by
proving a large and unjustified payment. 7 The harm from a reverse
payment is that it forestalls any possibility that the generic will win the
patent case and be allowed to compete. As the Actavis district court
explained on remand: “[T]he actual validity of the patent is irrelevant to
the question of whether the reverse payments violated the antitrust
laws. Paying the generics to stay out of the market for the purpose of
avoiding the risk of competition is an antitrust harm, regardless of
whether or not the patent is actually valid and infringed.” FTC v.
Actavis, Inc. (In re Androgel Antitrust Litig. (No. II)), No. 1:09-cv-955,
2018 WL 2984873, at *11 (N.D. Ga. June 14, 2018).
The Supreme Court’s exclusion of patent merits from the rule-ofreason analysis reflects the practical reality that “the impact of an
As discussed above in Section I, whether a reverse payment is large
turns on the size of the payment relative to avoided litigation costs, and
whether it is justified turns on the reason for making a large payment—
for example, if the payment represents compensation for services
rendered.
7
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agreement on competition is assessed at the time it was adopted.”
Impax, 994 F.3d at 496. When a reverse-payment agreement is adopted,
the outcome of the patent litigation is uncertain, but the presence of a
large and unjustified reverse payment shows that the parties perceived
a risk of competition and were working to reduce it. As the Supreme
Court of California has explained (interpreting Actavis and applying the
state law analog to the Sherman Act), “[i]f a brand is willing to pay a
generic more than the costs of continued litigation, and more than the
value of any collateral benefits, in order to settle and keep the generic
out of the market, there is cause to believe some portion of the
consideration is payment for exclusion beyond the point that would
have resulted, on average, from simply litigating the case to its
conclusion.” In re Cipro Cases I & II, 348 P.3d 845, 867 (Cal. 2015).
“Otherwise, the brand would have had little incentive to settle at such a
high price.” Id.
Conversely, a generic company that receives a large and
unjustified payment “presumably agrees to an [] entry date that is later
than it would have otherwise accepted” since the generic is presumably
agreeing to an entry date later than it when it would be entitled to
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enter if it won the lawsuit. King Drug, 791 F.3d at 405. Regardless of
whether the parties viewed the patent as “strong” or “weak,” a large
and unjustified reverse payment only serves to reduce the potential for
competition compared to what the parties believed it otherwise would
have been.
The district court’s misstatement about the relevance of the
patent merits appears to have stemmed at least partly from its
conflation of, on the one hand, the rule-of-reason analysis applicable
when determining the existence of an antitrust violation—and, on the
other hand, the causation and antitrust injury analyses applicable in
suits brought by private plaintiffs. To establish that a reverse payment
caused antitrust injury, a private plaintiff may need to show that the
payment actually caused the generic to enter the market (and introduce
price competition) later than it otherwise would have. This may entail
an assessment of whether the generic would have prevailed in the
patent case. See, e.g., Wellbutrin, 868 F.3d at 164-65. But the question
of whether a private plaintiff can show an antitrust injury is distinct
from whether an antitrust violation (i.e., large and unjustified reverse
payment) has occurred. See Nexium, 842 F.3d at 60; see also Atl.
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Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 344 (1990) (“[P]roof of
a[n antitrust] violation and of antitrust injury are distinct matters that
must be shown independently.”). It is important to address these issues
separately because the antitrust injury requirement applies only to
private plaintiffs, not to the government.
Here, the district court did not separate the question of antitrust
injury—i.e., whether the payment caused delay by inducing Teva to
enter the market with generics at a later date than it would have done
absent the agreement—from the question of whether there was a
reverse payment that violated the antitrust laws. See ECF 2129 at 19.
The district court acknowledged that it “under[stood]” this legal
distinction,” but did “not see a need for this distinction to be made” in
this case because Appellants needed to show antitrust injury and
damages in addition to proving a violation. ECF 1861 at 63. That was
legal error.
As the First Circuit explained in correcting a similar error, the
conclusion that a reverse payment did not actually delay the generic’s
entry establishes that, “notwithstanding the existence of an antitrust
violation, the plaintiffs failed to establish an antitrust injury that
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entitled them to monetary relief.” Nexium, 842 F.3d at 60 (emphasis
added). In this case, the jury never reached the antitrust injury
question because it found that no violation had occurred. Since patent
merits are at most relevant to antitrust injury, it was error for the court
to allow an argument that the patent would have been upheld as part of
the rule-of-reason analysis. This distinction is not merely academic:
Because government antitrust enforcers do not need to prove antitrust
injury, conflating the two standards can improperly increase the
government’s burden in a public antitrust case and hinder effective
government enforcement.
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CONCLUSION
If the Court reaches the reverse-payment issues, it should correct
the district court’s errors.
Respectfully submitted,
Of Counsel:
BRADLEY S. ALBERT
Assistant Director,
Bureau of Competition
DANIEL W. BUTRYMOWICZ
RANDALL M. WEINSTEN
Attorneys
FEDERAL TRADE COMMISSION
Washington, D.C. 20580
ANISHA S. DASGUPTA
General Counsel
/s/ Mark S. Hegedus
MARK S. HEGEDUS
MATTHEW M. HOFFMAN
Attorneys
FEDERAL TRADE COMMISSION
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
(202) 326-2115
mhegedus@ftc.gov
September 24, 2024
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CERTIFICATES
I certify that the foregoing brief complies with Federal Rule of
Appellate Procedure 29(a)(5), in that it contains 5,101 words.
I further certify that on September 24, 2024, I filed the foregoing
brief with the Court’s appellate CM/ECF system. Counsel for all parties
are registered users of the Court’s appellate CM/ECF system.
September 24, 2024
/s/ Mark S. Hegedus
Mark S. Hegedus
Attorney
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.