AAI Asks Third Circuit for Common Sense in the Wake of Actavis (In re Lamictal Direct Purchaser Antitrust Litigation)

The American Antitrust Institute, Consumers Union and 53 professors of law, economics and business have filed an amicus brief in the Third Circuit arguing that the “pay” in “pay-for-delay” includes arrangements in which a generic drug manufacturer agrees to delay entry in exchange for a promise by the brand not to launch an “authorized generic” version of the drug. The district court, which disagreed with three other district courts that considered the same question, held that only cash payments are subject to antitrust scrutiny under Actavis.

Renewing and elaborating on arguments raised in a previous submission by AAI and Consumers Union in the Eastern District of Pennsylvania, amici contend that the anticompetitive effects do not change, and Actavis’ requirement of antitrust scrutiny should not change, merely because payment takes the form of a non-competition pledge rather than cash.   A brand’s promise to forgo an authorized generic, which can cut the generic’s profits by 50%, conveys substantial economic value, and can be more pernicious than cash payments as consideration for delayed entry.  Amici argue that if drug companies can evade the logic of Actavis simply by artfully structuring settlements that are indistinguishable in economic substance from cash payments for delay, the Supreme Court’s ruling will be reduced to a dead letter.

The brief also criticizes the district court’s application of the rule of reason.  Amici argue that the district court largely defied the Supreme Court’s analysis by, among other things, (1) using the factors the Court invoked to require heightened scrutiny instead to justify reduced scrutiny; (2) counting as “early entry” the delayed entry alleged in the complaint; (3) misunderstanding the value of the no authorized generic period; (4) deeming procompetitive the elimination of risk that Actavis held is anticompetitive, and (5) replacing the factors articulated by Actavis with an unsupported hypothesis that the parties lacked harmful intent.

The brief was written by AAI Advisory Board Members Michael Carrier and Steve Shadowen.