United States: The Use Of Expert Opinions In ‘Reverse-Payment' Settlement Cases Under Actavis

King Drug Company of Florence, Inc., et al. v. Cephalon, Inc., et al.,
(E.D. Pa. November 5, 2015)

Applying its previous rulings in related litigation and interpreting FTC v. Actavis, 570 U.S. 756 (2013), the U.S. District Court for the Eastern District of Pennsylvania was tasked with determining whether to preclude expert testimony pursuant to Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993) in antitrust lawsuits involving "reverse-payment" settlements. King Drug Company of Florence, Inc., et al. v. Cephalon, Inc., et al., Case No. 06-1797, 2015 WL 6750899 (E.D. Pa. Nov. 5, 2015) (Goldberg, D.J.).

Factual and Procedural Background

Defendant Cephalon was granted U.S. Pat. No. 5,618,845 in 1997 for the modafinil formulation in Provigil®. In January 2002, Cephalon was granted a reissue patent on Provigil, U.S. Pat. No. RE 37,516 (RE'516 patent). In December 2002, generic manufacturers (the Generic Defendants) each filed an abbreviated new drug application (ANDA) for generic Provigil, all of which included Paragraph IV certifications that Cephalon's patent was either invalid or not infringed.

In 2003, Cephalon sued the Generic Defendants for infringement (Paragraph IV litigation), which settled between 2005 and 2006. Under the settlement, Cephalon paid the Generic Defendants millions of dollars to stay off market until 2012. This type of settlement is referred to as a reverse-payment or pay-for-delay settlement, and was recently analyzed by the Supreme Court of the United States in Actavis. Direct purchasers and end payors of Provigil, along with generic competitor Apotex, Inc., sued Cephalon and the Generic Defendants alleging these reverse-payment settlements violate antitrust laws (consolidated as the In re Modafinil Litigation). Apotex also alleged the Paragraph IV litigation was a sham, violating the Sherman Act.

In addition to the antitrust claims, Apotex sued Cephalon seeking a declaratory judgment on validity, unenforceability and infringement. Following two bench trials, the court found the RE '516 patent 1) invalid; 2) unenforceable; and 3) not infringed by Apotex's generic product.

Motions to Preclude Expert Testimony

Cephalon identified numerous experts who may testify at the antitrust trial and the In re Modafinil Litigation plaintiffs raised a number of challenges to these experts under Daubert.

Under the rule-of-reason analysis of Actavis, plaintiffs bear the initial burden of demonstrating anticompetitive effects, including evidence of large reverse payments. Defendants then have the burden to show procompetitive effects, including justifications for the reverse payments (e.g., fair value for services and avoided litigation costs). Plaintiffs can rebut these justifications by showing the reverse payments were not reasonably necessary to achieve the procompetitive effects and were instead aimed at delaying generic entry. The direct purchasers and end payors argued that Cephalon's experts' opinions should be excluded because they do not fit any issue the jury will consider under the Actavis standards. All Plaintiffs also challenged the validity and infringement experts for reliability and fit, alleging inconsistencies between the experts' opinions and this court's prior rulings in the Apotex case. Apotex also challenged the experts' opinions on the reasonableness of the validity, enforceability and infringement arguments raised by Defendants in the Paragraph IV litigation and their decision to settle, arguing that these opinions present impermissible legal opinions that usurp the roles of the judge and jury.

Cephalon argued the testimony will not be offered to prove issues it is estopped from litigating, such as validity, enforceability and infringement, but rather to assist the jury in determining whether the settlements were reasonable and procompetitive under Actavis. Cephalon also argued the testimony would show the motivation for settling the Paragraph IV litigation was to avoid litigation uncertainty, as opposed to having any anticompetitive purpose. Finally, Cephalon offered these opinions to show it had a reasonable basis to bring infringement claims against the Generic Defendants in response to Apotex's sham litigation claim.

Opinions Regarding Strength of Patent Positions

The court first addressed Plaintiffs' challenge to expert testimony offered to establish the strength of Defendants' patent positions in the Paragraph IV litigation, which Plaintiffs argued is irrelevant under Actavis. The court noted, however, Plaintiffs seek to introduce evidence regarding the weakness of the RE '516 patent in order to establish Defendants had anticompetitive motivations in entering into settlement agreements, which Plaintiffs argued is relevant to the Actavis rule of reason analysis. The court found Plaintiffs' positions inconsistent, and concluded that "if Plaintiffs pursue a theory that a weak patent is probative of antitrust motivations in settling the Paragraph IV litigation, [it] will allow Defendants to respond and attempt to rebut this evidence." Evidence regarding the strength or weakness of a patent "speaks directly to the issue of why the settlement agreements were executed" and "may assist the jury in answering [the question as to the reasons for the reverse payment settlement], as it can provide circumstantial evidence of the settling parties' intentions."

Opinions Regarding Validity

Next, the court addressed Plaintiffs' challenge to the validity experts' testimony that the RE '516 patent is valid. Plaintiffs argued this testimony conflicts with the court's prior rulings in the Apotex litigation and must be excluded. Cephalon argued this testimony is not offered to prove the RE '516 patent is valid, but rather "to show that, ex ante, a company in Cephalon's position could have reasonably believed that the RE '516 patent was strong and expected to prevail in the Paragraph IV litigation." Finding these opinions to directly contradict the rulings in the Apotex trial, the court held the validity experts' opinions as to the validity of the RE '516 patent do not fit the facts of this case and are not admissible. "Such testimony would likely be confusing to the jury and would not assist them in deciding the facts at issue in the antitrust trial, as the validity of the patent has been decided and is no longer in contention."

Opinions Regarding Infringement

Turning to the infringement opinions, the court held that "Cephalon's experts [cannot] opine that the Generic Defendants' products presently infringe the RE '516 patent," since that "testimony would not fit the facts of this case and has the potential to confuse the jury." The infringement experts are limited to the "infringement opinions and arguments raised by the parties at the time of the Paragraph IV litigation on an ex ante basis."

The court then addressed challenges to specific infringement experts' opinions on drug testing, claim construction and the doctrine of equivalents. The court excluded the drug testing expert's opinions as unreliable, just as it did in the Apotex litigation, since the substantial variations in the results were so severe it rendered them inadmissible. The court found the claim construction opinions permissible, despite conflicting with the court's prior claim construction ruling, since "that evidence [helped] to explain, on an ex ante basis, what Cephalon could have reasonably believed about the claim construction of the RE '516 patent." The court also allowed the doctrine of equivalents expert opinion. Despite Cephalon not advancing that argument during the Paragraph IV litigation, it does not mean Cephalon never considered it at the time of the reverse-payment settlements, and "testimony regarding arguments made during the Paragraph IV litigation and the information available to the parties at that time regarding infringement would not offend Daubert's fit requirement."

Opinions Regarding "Reasonableness"

Finally, the court addressed the "reasonableness" expert testimony. The experts in this category—all lawyers—opined on the reasonableness of the validity, enforceability and infringement arguments raised by Defendants during the Paragraph IV litigation and Defendants' decision to settle. Plaintiffs challenged these experts for making statements that conflicted with the court's prior findings in the Apotex trial. The court reiterated the experts cannot opine the RE '516 is currently valid or to adopt legal standards that directly conflict with the conclusions of law established in the Apotex litigation.

Apotex separately challenged these experts for presenting what it argued is impermissible legal opinions—"opinions presented by lawyers who are simply applying patent law to the underlying facts of the Paragraph IV litigation, such that their conclusions usurp the roles of the judge and jury." Cephalon argued the experts did not present a legal opinion, but rather gave opinions as to the customs and practices of the industry, as well as factors the Defendants considered in deciding whether to settle the Paragraph IV litigation.

For the Actavis claims, while the court acknowledged evidence offered to show strength of patent positions in the Paragraph IV litigation is allowed, it held that including opinions that those arguments were reasonable and opinions as to whether it was reasonable to expect success on the merits would be excluded as impermissible legal opinions. "The proposed experts are attorneys who are evaluating the merits of a legal argument by applying the facts to the law, which invades the jury's role." The court also found opinions by an attorney expert as to whether he would have counseled a Defendant to settle the Paragraph IV litigation are also excluded as prejudicial and confusing to the jury.

With respect to Apotex's sham litigation claim against Cephalon, the court concluded the reasonableness opinions were not helpful to the jury. "Whether Cephalon presented reasonable claims during the underlying litigation, such that it could have realistically expected success on the merits is an element Apotex must prove to the jury in order to establish sham litigation." The court held that opinions that merely tell the jury which conclusion to reach on an essential element would clearly usurp the role of the jury, and must be excluded.

The Use of Expert Opinions in 'Reverse-Payment' Settlement Cases Under Actavis

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