On September 8, 2014, the Federal Trade Commission (“FTC”) filed a complaint in the U.S. District Court for the Eastern District of Pennsylvania alleging that several major pharmaceutical companies with entering into an anticompetitive agreement that effectively blocks U.S. consumers’ access to lower-cost versions of the blockbuster drug AndroGel.
Background on Reverse Payment
The agreement at issue is referred to as a reverse payment patent settlement or as a “pay-for-delay” agreement. These agreements occur after a brand-name drug manufacturer sues a generic manufacturer for patent infringement. In an effort to settling the patent infringement litigation, the companies enter a pay-for-delay agreement, whereby the generic firm controlling the generic drug that seeks to enter the market, accepts a payment to stay out of the market for a certain period of time. Over the years, there has been a lot of debate on whether these agreements should be considered illegal per se. The FTC took the position that the agreements are illegal, while others believe the agreement could be procompetitive under certain circumstances.
On June 17, 2013, the FTC was given the green light to continue to challenge settlement agreements arising out of Hatch-Waxman patent litigation. In FTC v. Actavis, 570 U.S. 756 (2013), the Supreme Court held in a 5-to-3 decision that reverse payment settlements in Hatch-Waxman cases are subject to antitrust scrutiny. The decision resolved a circuit split and debate among antitrust lawyers on whether the settlement agreements were per se unlawful. While the Supreme Court rejected the FTC’s position that reverse-payment settlements were presumptively illegal, it ruled that they are subject to scrutiny under the rule of reason.
The FTC was given enough room in the Actavis decision to scrutinize settlement agreements that unreasonably delay entry of generic products. The FTC analyzes the specific facts of each case to determine whether the proposed reverse-payment agreement is permissible under a rule-of-reason analysis. For the lower courts, it means that the judges will be required to weigh the anticompetitive effects against the procompetitive justifications of the agreement in question. The rule-of-reason analysis requires the court to inquire as to whether the proposed settlement approximates the fair value for services.
The FTC’s complaint alleges that AbbVie Inc. and its partner Besins Healthcare Inc. filed baseless patent infringement lawsuits against potential generic competitors to delay the introduction of lower priced versions of the testosterone replacement drug AndroGel. While the lawsuits were pending, AbbVie entered into an anticompetitive pay-for-delay settlement agreement with Teva Pharmaceuticals USA, Inc. to further delay generic drug competition.
The FTC is seeking a court judgment declaring that the defendants’ conduct violates the FTC Act, ordering the companies to disgorge their ill-gotten gains, and permanently barring them from engaging in similar anticompetitive behavior in the future.
AndroGel is a topical pharmaceutical gel product approved for testosterone replacement therapy in men with low testosterone. It has annual U.S. sales of more than $1 billion.
The FTC’s lawsuit centers on two main allegations of anticompetitive conduct:
- AbbVie and Besins filed baseless patent infringement lawsuits against generic drug marketers Teva and Perrigo Company to delay FDA approval of a generic version of AndroGel and extend the monopoly profits for the branded version. The complaint charges AbbVie and Besins with monopolization.
- After countersuing AbbVie and Besins and alleging that the infringement suit was baseless, Teva subsequently accepted illegal payments from AbbVie to drop its patent challenge and refrain from bringing its competing testosterone gel product to market. The complaint charges AbbVie and Teva with illegally restraining trade.
At issue in the alleged sham patent infringement suit is an ingredient in branded AndroGel, called isopropyl myristate (“IPM”). IPM is known as a “penetration enhancer” because it speeds the delivery of the drug’s active ingredient, testosterone, through the skin and into the bloodstream. The patent on branded AndroGel covers only a formulation using IPM as the penetration enhancer.
Although Teva and Perrigo developed testosterone gel products that did not contain IPM and used different penetration enhancers than AndroGel, AbbVie and Besins sued Teva and Perrigo for patent infringement. Under federal law, these lawsuits triggered an automatic 30-month stay of the FDA’s authority to approve Teva’s and Perrigo’s applications to market their testosterone gel products, regardless of the merits of the infringement claims.
The FTC alleges that AbbVie and Besins had no reasonable basis to contend that Teva’s and Perrigo’s penetration enhancers were equivalent to IPM or that it was covered by the narrow AndroGel formulation patent. As alleged in the FTC complaint, the actual motivation for filing the infringement suits was to extend the large profits AbbVie and Besins were making from AndroGel sales in the U.S. market. The FTC’s complaint also stated that AbbVie’s predecessor company publicly declined to bring the same suit against Perrigo just two years earlier, when Perrigo first sought FDA approval of its generic AndroGel product.
When AbbVie and Besins sued Teva, Teva asserted an antitrust counterclaim that the infringement suit constituted sham litigation. The FTC’s complaint, however, alleges that Teva recognized that it would be more profitable to agree with AbbVie to share the monopoly profits from AndroGel than to compete and to continue to litigate the matter in court. Under the pay for delay agreement, Teva abandoned its countersuit and agreed to refrain from launching its lower-cost AndroGel alternative until a specified date. In exchange, AbbVie paid Teva in the form of an authorized generic deal for an unrelated product – a cholesterol drug called Tricor, with annual U.S. sales of more than $1 billion in 2011. The FTC alleges that this payment was highly profitable for Teva and that it made no independent business sense for AbbVie.
Not surprisingly, the case is controversial even within the FTC. The Commission vote to sue was not unanimous as it was a 3-2 vote. Clearly, two of the Commissioners did not agree with the other three. Despite their differences, we expect the FTC staff to continue to bring these cases and scrutinize Hatch Waxman patent settlement agreements that unreasonably delay generic entry. Obviously, this creates increased uncertainty for parties contemplating reverse-payment settlements that end patent infringement litigation. The FTC and the courts will continue to balance whether the procompetitive justifications of these agreements outweigh any anticompetitive effects. Here, the FTC’s majority conducted the balancing test and believe that its complaint supports that this pay for delay agreement is illegal. The Eastern District of Pennsylvania will now have its opportunity to conduct a similar balancing test.