US court says ‘pay-for-delay’ settlements do not need to involve cash

The US Court of Appeals for the Third Circuit has ruled that so-called ‘pay-for-delay’ settlements do not need to involve cash payments to be considered anticompetitive.

‘Pay-for-delay’ settlements, or reverse payments, are when a pharmaceutical company pays a generic drug maker to keep its version of a branded product off the market for a predetermined amount of time.

In 2013’s FTC v Actavis, the US Supreme Court found that “unexplained large payments” from a brand to an alleged infringer to settle a patent dispute “can sometimes violate the antitrust laws”.

In the current case, pharma company King Drug Company and the Louisiana Wholesale Drug Co had appealed against a decision by the US District Court for the District of New Jersey to dismiss their case against GlaxoSmithKline (GSK) and Teva.

The appellants, direct purchasers of GSK’s epilepsy medicine Lamictal (lamotrigine), had sued GSK and Teva for allegedly being anticompetitive when the companies agreed that Teva would end its challenge of GSK’s patent covering Lamictal, in exchange for early entry into the lamotrigine chewables market.

GSK also agreed that it would not produce its own “authorised generic” version of Lamictal tablets. According to the judgment, the Lamictal market is alleged to be worth $2 billion a year.

The appellants argued that this was a ‘pay-for-delay’ settlement, because GSK’s commitment not to market an authorised generic (AG) of Lamictal, or its “no-AG agreement”, eliminated the risk of competition in the lamotrigine market for longer than the patent would have allowed.

In a decision issued last Friday, June 26, circuit judges Thomas Ambro, Anthony Scirica and Jane Roth agreed that the no-AG agreement falls under the rule laid out in Actavis, as it may “represent an unusual, unexplained reverse transfer of considerable value from the patentee to the alleged infringer and may therefore give rise to the inference that it is a payment to eliminate the risk of competition”.

The judges remanded the case back to the district court for further proceedings.

A spokesperson for GSK told LSIPR that the company was disappointed by the decision.

“Settlements like this one are procompetitive because they allow parties to resolve expensive, business-disrupting litigation and permit competition. On remand, GSK is confident this settlement will be upheld as procompetitive and consistent with federal and state antitrust laws," the spokesperson said.

Teva declined to comment.

King Drug Company and the Louisiana Wholesale Drug Co could not be reached for comment.