United States: Sowing Uncertainty: Navigating Patent Disputes And Antitrust Scrutiny Post King Drug

On June 26, 2015, the Third Circuit issued an opinion in King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp., (Case No. 14-1243). King Drug. The opinion, which already has been extensively commented on and scrutinized, purports to follow the Supreme Court's holding in FTC v. Acatvis, Inc. Actavis holds that patent dispute settlements consisting of reverse cash payments from a brand drug manufacturer to a generic drug manufacturer are subject to rule of reason scrutiny. King Drug holds that, similarly, non-cash settlements in which a patentee drug manufacturer agrees to relinquish its right to produce an "authorized generic" of the drug (a "no-AG agreement") to compete with a first-filing generic drug's 180-day exclusivity period, are subject to antitrust scrutiny under a "rule of reason analysis."

Although the Third Circuit's holding in King Drug answers (at least within the Third Circuit) the much-debated question about whether Actavis should be strictly limited to settlements involving cash-payments, the opinion ultimately raises more questions than it answers. Both King Drug and Actavis create roadblocks to the structuring of settlements of patent disputes. Accordingly, the resolution of a substantial number of patent disputes may be subject to antitrust scrutiny, a result which may chill the voluntary resolution of such matters.

King Drug involved the drug Lamictal, which was produced by GlaxoSmithKline (GSK) to treat epilepsy and bipolar disorder. In 2002, Teva was the first company to file an abbreviated new drug application (ANDA) with the FDA to market the generic version of the drug – Lamotrigine. As required by the FDA, Teva's ANDA application alleged that GSK's patent on Lamictal was invalid or not infringed. To incentivize patent challenges like this, the Hatch-Waxman acts affords "first filers," such as Teva, a 180-day exclusivity period to market its generic drug if it succeeds in its invalidity claim. Soon thereafter, GSK sued Teva in federal court for infringing on its patent. After the parties tried the patent case in January 2005 in the United States District Court for the District of New Jersey before Judge John W. Bissell, Judge Bissell issued an opinion stating that GSK's main patent claim, for the invention of Lamotrigine, was invalid, and that it was "highly likely that Teva would prevail with respect to the remaining patent claims." In February 2005, however, before Judge Bissell could rule on the validity of GSK's remaining patent claims, GSK and Teva reached a settlement pursuant to which in return for Teva ending its challenge to the validity GSK's patent, GSK would allow Teva to market Lamotrigine by no later than June 1, 2005 – 37 months before GSK's patent was scheduled to expire on July 22, 2008. Moreover, GSK agreed to a no-AG agreement, pursuant to which it would not market its own authorized generic version of Lamictal until after January 2009, when Teva's 180-day exclusivity period was set to expire. Judge Bissell approved this settlement.

In February 2012, however, direct purchasers of Lamictal from GSK filed the King Drug action, alleging that GSK and Teva's settlement violated the Sherman Antitrust Act. Although the district court dismissed the King Drug plaintiffs' antitrust action because it found that, inter alia, Actavis only applied to reverse payments of cash (as opposed to GSK and Teva's no-AG agreement), the Third Circuit reversed, holding that no-AG agreements should be subject to antitrust scrutiny under the full rule of reason framework adopted in Actavis. Specifically, the Third Circuit opined that any commitments like no-AG agreements, flowing from a patent holder to an alleged infringer can be considered "an unusual, unexplained reverse transfer of considerable value" that the Supreme Court in Actavis held was subject to a rule of reason analysis. The Third Circuit drew no distinction between Actavis-type reverse settlements consisting of cash payments and King Drug-type reverse settlements that do not involve the transfer of cash, per se, but are costly to the patent holder and may be of "great monetary value" to the alleged patent infringer. Additionally, the Third Circuit rejected the argument that a no-AG agreement is simply an exclusive license – something that is specifically permitted under patent law – and therefore was not "unusual" under the Actavis framework. The court reasoned that just because a patent holder may have the right to grant a license, that "does not mean it also has the right to give a challenger a license along with a promise not to produce an authorized generic—i.e., a promise not to compete—in order to induce the challenger" to drop its patent challenge.

Assuming that other courts agree with the Third Circuit's holding that Actavis is not strictly limited to ANDA settlements involving cash payments and no-AG agreements are distinguishable from the exclusive licenses that patent law expressly permits, King Drug raises a genuine question as to whether it is possible for parties to structure an ANDA settlement in such a way as to avoid antitrust scrutiny.

The practical implications of King Drug, both from a litigation and counseling standpoint, are disturbing. The underlying resolution between Teva and GSK was court-approved, and obviated the need for future trial court work and a presumably complex appeal. Any expansion of the antitrust scrutiny invited by Actavis is potentially problematic. Looking at the problem in the broadest sense, there is no way to settle an intellectual property dispute and agree that one party has the rights asserted under patent, copyright or trademark law without an argument of collusion being at least theoretically possible. As a matter of course, in all of these types of cases, the infringer was in competition with the owner. If the infringer now agrees that the owner has rights, and limitations are placed on the infringer by virtue of an agreed upon license, or other arrangement, such agreement, in a very real sense, limits competition. Such limitations on competition are imposed by intellectual property law in any event. If there are valid trademark rights, there cannot be unfettered competition. Therefore, to analyze any intellectual property dispute under an antitrust analysis can lead to an erosion of the law of intellectual property, and the protections granted to such a holder.

Antitrust law is often a litigant's wishing well. The rules are complex and fact intensive, particularly in rule of reason cases (which is how such claims are to be judged under Actavis), and can be expensive. There is a natural tension between intellectual property rights, which are legal monopolies, and antitrust law which seeks to erase and limit concentrations of economic power. There is serious danger in allowing third-party antitrust challenges to voluntary resolutions of intellectual property disputes. In our view, while we understand the rationale of Actavis concerning why a reverse payment settlement might be ripe for scrutiny, King Drug illustrates why Actavis places intellectual property disputes on a slippery slope. The resolution of many intellectual property disputes now needs to be considered and vetted by antitrust counsel in addition to intellectual property counsel.

Traditional antitrust defenses, most specifically market definition and market power, will remain. However, given the uniqueness of many of the drugs (which is why these types of settlements are meaningful and valuable), it is difficult to imagine any early resolution of a pleaded antitrust matter that alleges a very specific "one product" market definition. If there were "reasonable substitutes," there is likely going to be a meaningful question over the very validity of the patent in the first place.

For the Courts to leave for the future some very meaningful questions about the intersection of two entirely disparate fields of legal inquiry, antitrust and intellectual property, is to potentially invite chaos and uncertainty. From a counseling standpoint, it will likely mean that many intellectual property disputes must be litigated to completion, and that counsel to settle those disputes must be done with only the most hesitation and trepidation. We certainly understand the goals the Supreme Court and Third Circuit were trying to advance, but they have done so at the expense of valid and well-recognized intellectual property precedent. Perhaps the Courts have created new business for lawyers, but they have sown much uncertainty for the business community in the process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.