FTC Amicus Brief Urges Court of Appeals to Reverse District Court Finding That ‘No-Authorized Generic’ Commitments Are Not Reverse Payments Under Actavis Supreme Court Ruling

The Federal Trade Commission filed an amicus brief in the U.S. Court of Appeals for the Third Circuit, urging it to reverse a district court dismissal in the case of Lamictal Direct Purchaser Antitrust Litigation. The district court found that agreements between branded and generic drug makers that include the branded firm’s commitment not to introduce an “authorized generic” cannot violate the antitrust laws under FTC v. Actavis, Inc., 133 S. Ct. 2224 (2013) because they do not involve the payment of “cash.” The FTC’s brief explains why the District Court’s conclusion is erroneous.

In Actavis, the U.S. Supreme Court held that “reverse-payment” patent settlements – agreements in which a brand-name drug manufacturer pays a would-be competitor to abandon its patent challenge and agrees not to sell its generic drug product for a number of years – are not immune from antitrust scrutiny and are to be evaluated using traditional antitrust factors.

In the current matter, the district court dismissed the case, distinguishing the Actavis ruling on the grounds that the branded-drug company there had compensated the generic firm in cash to induce it not to enter the market for a defined period, while in the case of Lamictal, the branded company had extended compensation not in cash, but in the form of a valuable agreement not to compete.

The FTC brief explains that the no-authorized-generic (no-AG) commitment at issue raises the same antitrust concern that the Supreme Court identified in Actavis. A no-authorized-generic commitment means that the brand-name drug firm, as part of a patent settlement, agrees that it will not launch its own authorized-generic alternative when the first generic company begins to compete. An FTC empirical study of the competitive effects of authorized generics found that when a brand company does not launch an authorized generic during the exclusivity period reserved for the first-filing generic under the Hatch-Waxman Act, it substantially increases the first generic company’s revenues, and consumers pay higher prices for the generic product.

The no-AG commitment gives the generic company something it could not have obtained had it won its patent litigation – protection against competition from an authorized generic during the exclusivity period. It is also a vehicle for the branded company to share with the generic the monopoly profits preserved by the generic company’s agreement to drop its patent challenge and stay off the market.

The FTC’s brief states that the Actavis decision does not distinguish among many forms of compensation that can lead to a potentially problematic reverse-payment settlement. If the Third Circuit does not reverse the district court decision, the brief states, its narrow reading of Actavis “would undermine the Supreme Court’s decision in that case and encourage parties to structure potentially anticompetitive reverse-payment settlements simply by avoiding the use of cash.” 

The brief explains that FTC v. Actavis reaffirms that traditional antitrust principles apply to agreements between a brand-name drug firm and its potential generic competitor and that settlements between potential competitors that take the form of reciprocal agreements not to compete also raise antitrust concerns.

The FTC filed its brief in the case which is pending in the U.S. Court of Appeals for the Third Circuit (No. 14-1243). In the case, the private plaintiffs alleged that branded drug firm GlaxoSmithKline (GSK) paid Teva Pharmaceuticals to forgo generic entry in exchange for GSK’s promise not to compete with authorized generic versions of the drug Lamictal.           

The Commission vote approving filing of the brief was 4-0-1, with Commissioner Terrell McSweeny not participating. The brief was filed in the U.S. Court of Appeals for the Third Circuit. (FTC File No. P082105; the staff contact is Mark S. Hegedus, Office of General Counsel, 202-326-2115)

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., N.W., Room 7117, Washington, DC 20001. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.