United States: Reverse Payments, Actavis, and the Lower Courts at Sea, Part 2: The Brewing Conflict Over Non-Cash Settlements

Our first post in this series was titled "What Is a Reverse Payment?" As the recent cases discussed in today's post show, the courts are struggling with a fundamental component of that question: What, for that matter, is a payment?

Among the issues left unresolved by the Supreme Court's Actavis opinion is the question of whether a reverse payment settlement can run afoul of antitrust laws when no actual cash changes hands. Instead, these arrangements might include a promise by the brand name manufacturer to delay the introduction of an authorized generic, a settlement of unrelated litigation on terms beneficial to the generic manufacturer, or a licensing agreement whereby the generic manufacturer gains rights to market the brand name product overseas. These can be of tremendous value to the generic manufacturer, but they are different from the "pay[ment of] many millions of dollars" that was the focus of Justice Breyer's opinion for the Actavis majority.

According to the FTC, the potentially anticompetitive effect of these settlements is no different: in return for some form of consideration, the generic manufacturer agrees to delay its entry of a product that would drive down prices paid by consumers. But the Actavis Court did not state explicitly whether non-cash settlements are included in its holding, and the district courts that have struggled with the question—including three in the past month alone—have reached inconsistent results.

The "'Payment' Means Cash" Opinions

On one side are the judges who note that both the majority and the dissenting opinions in Actavis "reek with discussion of payment of money." The first of these, Judge Walls of the District of New Jersey, acknowledged this past January in the Lamictal[1] litigation that a non-monetary settlement is at least "within the gestalt of Actavis." However, because both the facts in Actavis and the words in its opinions revolved around cash payments, he concluded that "good jurisprudence" counseled him not to "extend the holding of Actavis to . . . non-monetary facts."

The FTC, a strident opponent of reverse payment settlements, filed an amicus brief with the Third Circuit urging reversal of the Lamictal decision. Oral argument on the appeal will likely take place in late 2014 or early 2015.

The District of Rhode Island recently followed Judge Walls' lead in the Loestrin 24[2] case, characterizing the Supreme Court's focus on cash payments as a "fixation." It also noted that the factors the Actavis Court instructed lower courts to use in evaluating reverse payment settlements all require an assessment of the value of the consideration in the context of the facts of the settlement. A non-cash settlement "is almost impossible to measure" against those factors. The court went on to say that it was loath to extend Actavis beyond its facts and language, since that case already represents such a "significant change in direction."

The Rhode Island court explained that it was not without "reservations" about the holding and that its decision was a "close call." Echoing Chief Justice Roberts' dissenting opinion, the court bemoaned the difficulty created for lower courts by the Actavis decision.

The "Non-Monetary Payments are Payments Too" Opinions

By sheer numbers, the "payment means cash" opinions are in the slight minority at this early stage. Courts for the District of Massachusetts and the Eastern District of Pennsylvania, along with Judge Walls' colleague, Judge Sheridan of the District of New Jersey, have issued opinions stating that Actavis is not limited to cases involving monetary payments. Two of those decisions, in the Niaspan[3] and Lipitor[4] cases, relied on the broad gloss given to the word "payment" by Black's Law Dictionary and court opinions from other contexts.

Meanwhile, these courts point out that nowhere in the Actavis decision did the Court exclude non-monetary settlements from its reach; indeed, the Lipitor court noted, "it is clear that the Supreme Court focuses on the antitrust intent of the settling parties rather than the manner of payment." Furthermore, in litigation relating to the acid reflux drug Nexium[5] the District of Massachusetts suggested that to restrict the Actavis holding to monetary payments would fail to align the law with "modern-day realities," citing the FTC's statements that non-monetary settlements are just as much a part of the perceived "pay-for-delay" scourge as cash payments.

A Heavy Burden

Still, the plaintiff's road in a case involving non-monetary settlements will not be an easy one, even in a district where such settlements are recognized as falling under Actavis. The Lipitor court, despite finding that non-cash settlements can trigger antitrust liability, dismissed the complaint with prejudice. It found that the plaintiffs had failed to satisfy the "plausibility" pleading requirement imposed by Iqbal and Twombly, as overlain on the new Actavis regime. The court reasoned that a complaint must provide a reliable estimate of the monetary value of the non-monetary settlement in order to engage in the proportionality analysis—i.e. the question of whether the settlement amount is too "large"—required by Actavis. Since plaintiffs had not attempted to provide such an estimate, the complaint had to be dismissed.

Diligent plaintiffs will have to include in their pleadings some reasonably compelling methodology by which to value non-monetary reverse payment settlements. That is, assuming such settlements are found by the appellate courts to fall under Actavis at all. Stay tuned.


[1] In re Lamictal Direct Purchaser Antitrust Litig., No. 12-cv-995, 2014 U.S. Dist. LEXIS 9257 (D.N.J. Jan. 24, 2014). The settlement at issue in the Lamictal litigation provided the generic manufacturer with the assurance, essentially, that when its products came to market they would not face competition from the brand manufacturer's authorized generic for a certain period of time.

[2] In re Loestrin 24 FE Antitrust Litig., No. 13-md-2472, 2014 U.S. Dist. LEXIS 123322 (D.R.I. Sept. 4, 2014). The settlements at issue in Loestrin 24 included promises by the brand manufacturer to delay launch of an authorized generic and not to license other generics for a certain period; a grant of licensing rights for branded products to the generic manufacturer; and licenses and co-promotion agreements with respect to branded drugs that were unrelated to the underlying patent litigation.

[3] In re Niaspan Antitrust Litig., No. 13-md-2460, 2014 U.S. Dist. LEXIS 124818 (E.D. Pa. Sept. 5, 2014). In Niaspan, the disputed settlement included a delay of authorized generics; a royalty payment to the generic manufacturer for sales of Niaspan and a separate drug; a co-promotion agreement; and a cash payment that was ostensibly made in exchange for the generic manufacturer's agreement to develop manufacturing processes for Niaspan and another drug, and to act as a back-up supplier for those products.

[4] In re Lipitor Antitrust Litig., No. 12-cv-02389, 2014 U.S. Dist. LEXIS 127877 (D.N.J. Sept. 12, 2014). The settlement agreement at issue in the Lipitor case included the settlement of overseas litigation and litigation concerning a separate product on terms that the antitrust plaintiffs claimed were so forgiving to the generic manufacturer as to constitute a "sweetheart" deal. The generic manufacturer was also awarded overseas licensing rights to the disputed product.

[5] In re Nexium (Esomeprazole) Antitrust Litig., 968 F. Supp. 2d 367 (D. Mass. 2013). In relevant part, the settlement at issue in the Nexium case involved a "no authorized generic" promise by the brand name manufacturer.

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