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Plausibly Alleging Non-monetary Settlements as Reverse Payments After Actavis

In In re Lipitor Antitrust Litigation, No. 12 Civ. 2389 (D.N.J.), U.S. District Judge Peter G. Sheridan has confirmed his prior ruling that under the Supreme Court’s decisions in TwomblyIqbal, and FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013), plaintiffs claiming an antitrust violation based on a non-monetary settlement must allege the value of the settlement to survive dismissal of their complaint.

In a previous post, we mentioned Lipitor  as a “reverse payment” case that was decided in the wake of Actavis. In Actavis, the Supreme Court ruled that reverse payments—in which a plaintiff, typically a brand-name drug maker, in a patent infringement action agrees to pay the alleged infringer, typically a generic drug manufacturer, to keep the generic maker’s product off the market for a period of time—can “sometimes violate the antitrust laws.” But the Court did not decide whether a settlement where no actual cash changes hands can qualify as a potentially unlawful reverse payment. As we noted, the Lipitor  court answered “yes” to that question.

Nevertheless, the Lipitor  court dismissed the complaint of the direct purchaser class plaintiffs because it determined that the complaint did not allege sufficient facts to plausibly allege that Pfizer had made a large and unexplained reverse payment as required by Actavis. Although the court agreed with plaintiffs that a non-monetary payment can qualify as a reverse payment, it reasoned that such a payment “must be converted to a reliable estimate of its monetary value so that it may be analyzed against the Actavis factors such as whether it is ‘large.’” The complaint failed to plead sufficient facts to perform this conversion and “estimate the value of the compromise of Pfizer’s damages.” The court cited caselaw and literature addressing the value of a patent infringement claim and the factors that might impact a settlement of such a claim, and noted the absence of factual allegations to this effect in the complaint. Without an allegation estimating the monetary value of the settlement, the complaint did not plausibly allege a large reverse payment under Actavis. Accordingly, the court dismissed the complaint.

The Lipitor  plaintiffs moved to amend the court’s decision to allow them leave to replead, principally on the theory that the decision had adopted a “new, heightened standard for what a plaintiff must plead” to allege a non-monetary reverse payment under Actavis. Thus, plaintiffs contended, the court’s ruling constituted a change in controlling law that warranted allowing them to amend their complaint. Plaintiffs restated their position that the valuation of payment should be deemed a factual question to be resolved by a jury, “not a proper basis for court resolution on a motion to dismiss prior to discovery.” They also cited In re Nexium Antitrust Litigation, 968 F. Supp. 2d 367 (D. Mass. 2013), as a case wherein another court had not required the plaintiffs to plead the amount of the reverse payment.

The Lipitor  defendants opposed the plaintiffs’ motion on various grounds. Most relevant to our purposes, they argued that the court’s holding—that a plaintiff must plausibly allege a large payment in some detail—did not constitute a new, heightened pleading standard, but rather merely applied Twombly and Actavis to the facts of the case. The defendants also cited remarks by the judge, made at an oral argument that occurred before the plaintiffs filed their earlier amended complaint, observing that merely characterizing the reverse payment as “significant” may not suffice under Twombly.

On March 17, 2015, the Lipitor  court denied plaintiffs’ motion to amend. In a brief order, the court wrote that plaintiffs “overstated” their characterization of the legal standard in the earlier ruling. Rather than announcing a new standard, the court said, its ruling simply applied ActavisTwombly, and Iqbal. In light of this latest order, there will be no further amendments to the complaint. Plaintiffs are now appealing the earlier dismissal of their complaint to the Third Circuit.

Regardless of whether the court imposed a heightened pleading standard, the upshot from the Lipitor  litigation continues to be that even if a court accepts the premise of a reverse non-monetary payment after Actavis, plaintiffs may have to allege facts to allow an estimate of the monetary value of that settlement. Plaintiffs’ failure to do so may result in dismissal of their antitrust claims, as was the case here.