The US District Court for the Eastern District of Pennsylvania limited antitrust plaintiffs’ ability to use argument or evidence based upon invocation of privilege during reverse payment litigation. King Drug Co. of Florence, Inc. v. Cephalon, Inc., No. 2:06-cv-1797, 2016 U.S. Dist. LEXIS 7477 (E.D. Pa. Jan. 22, 2016) (Goldberg, J.).
Antitrust Plaintiffs brought Sherman Act claims against a brand-name pharmaceutical company (Cephalon) and four generic pharmaceutical companies claiming that payments by Cephalon to the generic companies pursuant to settlement agreements (reverse payment settlements) kept generic drugs off the market in violation of antitrust laws. The defendants countered that the settlement agreements are procompetitive business transactions. The settlements were reached in patent-litigation pursuant to Paragraph IV of the Hatch-Waxman Act. The defendants sought to protect legal advice and strategy surrounding the reverse payment settlements as privileged under the attorney-client communication or work-product doctrine designations. Accordingly, they filed a motion in limine to preclude argument or evidence based upon their invocation of the privilege.
The plaintiffs opposed the motion on the grounds that: (1) exploration of the business reasons behind the settlements necessarily implicate legal considerations and (2) statements made during opening arguments or during witness testimony could imply legal advice. On the first point, the plaintiffs argued that fairness dictated allowing discussion of both business and legal motivations for the reverse payment settlements. The court found this argument unpersuasive due to the lack of legal precedent. On the second point, the plaintiffs argued that statements that the brand company had a “strong patent” or that the negotiations between the brand and generic companies were in “good faith” necessarily imply consultation with counsel. The court found this argument to be premature, as a waiver of attorney-client privilege must be viewed in light of the factual circumstances in which the testimony is offered; no witnesses had been sworn and no opening statements had been made in the case. The court ordered that the plaintiffs may not call the jury’s attention to the defendants’ invocation of privilege nor ask questions of defense witnesses where it would be reasonable to assume the answer would call for the invocation of attorney-client privilege. Such use of arguments and evidence by the plaintiffs would allow the jury to unfairly draw an adverse inference on the defendants’ privilege designations. Notably, the court advised the parties that the defendants represented that they would not state or imply that the decisions to settle the Paragraph IV litigation were due to legal advice. The court cautioned the defendants that it would not permit a last-minute decision to reverse this position.
Practice Note
Counsel for pharmaceutical companies involved in reverse payment settlements should be mindful that courts will respect invocations of attorney-client privilege and work product doctrine regarding settlement legal considerations, as long as counsel does not reserve designations of key arguments or evidence as privileged at the last minute.
Use of Privilege Designations during Reverse Payment Settlement Litigation
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