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FTC Files Amicus Brief in First Circuit Seeking to Clarify Analysis in Post-Actavis Cases

Direct and indirect purchasers of Nexium recently appealed District of Massachusetts Judge William Young’s denial of a request for a new trial in In re: Nexium to the First Circuit.  As we previously reportedIn re: Nexium was the first reverse payment case to go to trial following the Supreme Court’s Actavis opinion, which holds that settlements entered into pursuant to the Hatch-Waxman Act are not immune from antitrust scrutiny.  While the jury in In re: Nexium concluded that under a rule of reason standard the reverse payment agreement was unreasonably anticompetitive, Judge Young ultimately concluded that the plaintiffs failed to establish they suffered an injury or that an antitrust violation occurred because the jury was not convinced that the parties would have agreed to an earlier entry date but for the reverse payment.

Plaintiffs now argue on appeal that a new trial should have been ordered based on “fundamental flaws” made by the district court in managing this class action.  Specifically, the plaintiffs point to several alleged errors including the judge’s misunderstanding of the theory behind the case when he ruled on summary judgment, the court’s refusal to revisit that ruling, the court’s failure to allow the jury to hear curative evidence, and last minute changes to the verdict form.  The appeal also focuses on the level of proof the court required to show an injury, which the plaintiffs contend was improper because the court required the plaintiffs show what would have happened absent the defendants’ wrongdoing to an impossible level of certainty.

Recently, the FTC filed an amicus brief arguing that the district court “conflated two distinct analyses: the existence of an antitrust violation, which requires a general showing of harm to the competitive process, and the question of antitrust standing, which requires a specific showing by a private plaintiff that, among other things, it suffered an injury-in-fact caused by the violation.”  The FTC contends that this distinction is particularly important in the context of reverse payment agreements because they may “harm the competitive process by removing the risk of potential but uncertain competition” and “[t]hat harm occurs regardless of whether a specific purchaser ultimately proves that it suffered injury-in-fact.”  This issue is of particular concern to the FTC which, unlike a private litigant, is not required to prove antitrust standing, only that an antitrust violation has occurred or is likely to occur as a result of the underlying conduct at issue.

The FTC claims that the district court in In re: Nexium mistakenly concluded that injury-in-fact was a necessary element of proving an underlying antitrust violation when it held that the plaintiffs could not establish an antitrust violation without showing that the reverse payment caused an actual overcharge.  Clearing up this confusion is particularly important in the reverse payment context, according to the FTC, because Actavis held that the relevant anticompetitive harm in this context is “prevent[ing] the risk of competition.”  The FTC also disputes the plaintiffs’ characterization of the anticompetitive harm at play – i.e., the delay of generic competition – noting that “the Actavis opinion never uses the word ‘delay’ to describe the anticompetitive harm of a reverse payment.”  Instead, the FTC reads the Actavis opinion to hold that “[t]he anticompetitive effect of an unlawful reverse payment … occurs at the moment the agreement is entered into[,]” and any injury, such as an overcharge, would occur subsequent to the antitrust violation. This argument would seem to eliminate the need for a court to consider, in the context of a government action, the nature of the injury alleged to have occurred as a result of the settlement agreement.

Pointing to the D.C. Circuit’s en banc decision in United States v. Microsoft Corp., the FTC further argues that the district court’s decision is incorrect because an antitrust violation may be shown through “conduct that is reasonably capable of contributing significantly to a defendant’s continued monopoly power” viewed through the lens of the time at which the defendant engages in such anticompetitive conduct.  Thus, the FTC contends that the district court’s decision in In re: Nexium requires a plaintiff, to meet an impossible standard -- at least in the context of proving that an antitrust violation has occurred -- through the showing of specific harm that would not have occurred but-for the defendant’s conduct when Microsoft holds that “neither plaintiffs nor the court can confidently reconstruct a product’s hypothetical … development in a world absent the defendant’s exclusionary conduct.”

The FTC declined to express any views on the facts of this particular case or the merits of the plaintiffs’ appeal.  According to the FTC, its amicus filing is intended to ensure other courts correctly distinguish what is necessary to prove harm to competition as opposed to antitrust standing in the reverse payment context.  We’ll continue to monitor this case as it progresses through the First Circuit.