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FTC Asserts That Its Failure to Object to a “Reverse Payment” Settlement Should Not Be Interpreted as Approval

On November 17, 2015, the FTC submitted an amicus brief to the Third Circuit Court of Appeals in In re Effexor XR Antitrust Litigation, where the district court had dismissed the plaintiffs’ claims of antitrust violations based on an alleged reverse payment under FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013). In its brief, the FTC argues that its failure to object to a pharmaceutical patent settlement should play no role whatsoever in evaluating the legality of alleged reverse payments, and urged the Third Circuit to reverse the district court’s decision to the extent it relied on such considerations.

A number of antitrust plaintiffs claimed that Wyeth Pharmaceuticals and Teva Pharmaceuticals had engaged in conduct that violated the Sherman Act with respect to Wyeth’s antidepressant Effexor. The plaintiffs alleged that Wyeth and Teva had engaged in an illegal scheme under FTC v. Actavis in settling patent litigation by, among other things, agreeing that Teva would wait for two years to launch a generic version of extended-release Effexor, and that Wyeth would not compete with Teva by marketing an authorized generic version during Teva’s 180-day exclusivity period. According to the plaintiffs, this constituted a reverse payment under Actavis worth approximately $500 million. Prior to approval of the settlement, a copy was provided to the FTC, which acknowledged receiving the settlement but declined to object.

The district court dismissed the plaintiffs’ claim, finding that while such an agreement could, in theory, constitute an impermissible reverse payment, the plaintiffs had failed to plead sufficient facts to establish the value of that payment, rendering their allegations insufficient to show that the claim was plausible under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). The district court also found that the purpose of Wyeth and Teva’s settlement was not “unexplained” for purposes of Actavis, as Wyeth and Teva had willingly submitted their settlement to the FTC, and that submission, plus the fact that the FTC declined to act, made it implausible that the settlement was for anticompetitive purposes.  See In re Effexor XR Antitrust Litig., Civ. A. No. 11-5479 (D.N.J. Oct. 6, 2014).  Plaintiffs appealed to the Third Circuit.

In its amicus brief, the FTC argues that the district court erred in considering the submission of the Wyeth–Teva settlement and the FTC’s lack of action, as “[i]f the district court’s ruling to the contrary were correct, resource limitations or other factors affecting agency enforcement discretion could perversely immunize anticompetitive agreements from antitrust scrutiny.” In its brief, the FTC notes that the submission of patent settlement agreements by pharmaceutical companies to the FTC and Department of Justice is required by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”). (Wyeth had also been required to submit any such settlements as the result of a prior consent order with the FTC). The FTC therefore argues that no conclusion about the Wyeth and Teva’s intent could be drawn based on the submission.

The FTC further claims that the mandatory submission of pharmaceutical settlement agreements under the MMA has resulted in the submission of nearly 200 such agreements annually, a number beyond that which the FTC is capable of investigating. The FTC argued that its failure to act on any given agreement should not be “turned … into an escape hatch for defendants to evade antitrust scrutiny,” and that the district court erred in treating it as such.

Although focused on the facts of Effexor, in its brief the FTC seems to be taking pains to make clear that its failure to object to a pharmaceutical patent settlement should not be construed to be approval. We will continue to monitor this case to see what position (if any) the Third Circuit takes on this issue, but for now litigants will need to be cautious about drawing any particular inference from the FTC’s inaction on any given settlement.