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District Court Narrowly Defines the Relevant Market in Post-Actavis Pay-For-Delay Suit

On August 8, the District of Connecticut issued a noteworthy ruling on how to approach defining the relevant market definition in a pay-for-delay suit.  In In re Aggrenox Antitrust Litigation, 3:14-md-02516 (D. Conn.), three groups of purchasers allege that Boehringer Ingelheim unlawfully paid Barr Pharmaceuticals (a business unit of generic manufacturer, Teva) to delay entry of a generic of the blood-clot medication Aggrenox.  The district court held that the relevant market in pay-for-delay litigation is “determined by the nature of the challenged agreement,” and thus concluded that the only relevant market at issue in this suit is the market for Aggrenox and its generic equivalent and did not include drugs that therapeutically competed against Aggrenox.

The ruling comes in an unusual context: after defendants sought discovery regarding competing drugs, the Court issued an order for the defendants to show cause why the Court should not restrict the evidence in this case to solely the market for Aggrenox and its bioequivalent.  Concluding that the market should be defined that narrowly, the district court refused to permit discovery into, or evidence relating to, other drugs that therapeutically compete against Aggrenox, concluding that such discovery and evidence would be “irrelevant.”

The district court recognized Aggrenox as an “important case in the relatively new landscape of Actavis actions.”  Op. at p. 12.  And indeed this ruling may provide some indication how trial courts will approach the issue of defining the relevant market—and consequently the brand company’s market power—in pay-for-delay litigation following the Supreme Court’s ruling in FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013).

We have extensively covered Actavis and its progeny in previous posts.  In Actavis, the Supreme Court held that reverse payment settlements—in which name-brand drug manufacturers pay generic rivals to keep cheaper alternatives off the market—can “sometimes violate the antitrust laws” because their “anticompetitive consequences [can] at least sometimes prove unjustified.”  In reaching this conclusion, the Supreme Court rejected several possible analyses (e.g., a rule of presumptive illegality and “scope of the patent” test) in favor of a traditional antitrust “rule of reason” analysis.  But as we discussed here, the Actavis court did not flesh out the contours of this analysis, instead leaving the task to the lower courts to develop the antitrust jurisprudence of reverse payments.  Thus the Aggrenox decision comes in the midst of an uncertain period, in which lower courts are grappling with how to interpret Actavis’s directives and attempt to reconcile the competing policies of antitrust and patent law.

In issuing the Aggrenox ruling, the district court explained that it was seeking to “provide some of the missing structure” to the antitrust analysis that Actavis left unanswered.  The district court noted that Actavis identified several factors that should be considered in determining whether a reverse payment settlement is likely to produce anticompetitive effect, including the payment’s “size, its scale in relation to the payor’s anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification.”  Actavis, 133 S. Ct. at 2237.  Although Actavis did not expressly include determining the brand’s market power in that list of factors, the district court noted, that decision “allude[d] to the concept” of market power in laying out these factors, since “patents are only valuable as a result of whatever market power they confer” and thus “the size and circumstances of the reverse payment are suggestive of the market power conferred by the patent.”  Op. at pp. 3-4.

The district court opined that, “as a practical matter, the only ‘relevant’ market in this case, and in similar cases brought under FTC v. Actavis, will be the market in which the challenged settlement agreement allegedly acted as an anticompetitive constraint:  that is, in this case, it will be implicitly defined by the scope of the disputed patent.”  Op. at p. 5.  As a result, drugs that may therapeutically compete against the drug at issue are necessarily outside the scope of the relevant market.  Additionally, the court held, to the extent these drugs actually competed with Aggrenox, any substitution effect constraining the price for Aggrenox will already be “priced in” to this analysis, thus making sales and pricing data about other drugs “redundant.”  Op. at p. 8.

Although the district court noted that the existence of the patent would not necessarily indicate that defendants possessed market power, it would be “vanishingly unlikely” that a large reverse payment would be made where the defendants did not possess market power which it sought to protect by such a payment.  Id.  Accordingly, the district court held, a large reverse payment should be considered a “strong indicator of market power.”  Id.  While the district court carefully noted that a large reverse payment is not dispositive of antitrust liability, it also indicated that “reverse payments beg to be explained.”  Op. at p. 4.

In recognition of the ongoing uncertainty among the lower courts as to the appropriate way to implement Actavis, in the same order the district court exercised its discretion under 28 U.S.C. § 1292(b) to certify the issue for interlocutory appeal.  It is not yet clear whether the Second Circuit will accept the interlocutory appeal.  We will continue to monitor this and other pay-for-delay litigation to see how this rule-of-reason analysis continues to develop in the wake of Actavis.