Fifth Circuit Sides with FTC, AAI in Preserving Supreme Court’s Actavis Ruling (Impax v. FTC)

The Fifth Circuit has affirmed an FTC administrative decision finding generic drug manufacturer Impax liable for entering an illegal reverse-payment settlement with brand manufacturer Endo, adopting several positions advocated in AAI’s amicus brief.

The case began when Impax sought to launch a generic version of Endo’s Opana ER, a branded opioid pain medication. Endo sued Impax alleging that Impax’s planned entry would infringe Endo’s patents on Opana ER.  Under the Hatch-Waxman Act, Impax is permitted to seek to enter the market prior to the expiration of the patent term by filing an Abbreviated New Drug Application (ANDA) with the Food and Drug Administration (FDA), and certifying that Endo’s patents covering the brand drug are invalid or not infringed.  But by filing an infringement lawsuit, Endo obtains an automatic 30-month stay during which the FDA may not grant final approval of the ANDA and Impax may not enter the market.

Shortly after Impax received preliminary FDA approval and just before expiration of the 30-month stay, Impax and Endo settled their patent litigation with Endo agreeing to make a “reverse payment” to Impax in exchange for Impax agreeing to delay its entry into the Opana ER market.  The FTC challenged the settlement as a violation of Section 5 of the FTC Act.   After an administrative trial, an administrative law judge dismissed the FTC’s complaint.  Complaint Counsel then appealed, and in an opinion authored by Commissioner Phillips, a unanimous Commission reversed.

On appeal of the Commission decision to the Fifth Circuit, Impax conceded that it made a large and unjustified reverse payment, but it characterized the FTC’s burden in establishing a prima facie case under FTC v. Actavis as requiring the FTC to prove that Impax’s entry was delayed longer than it would have been had the patent litigation continued.

AAI, Public Knowledge, and Patients for Affordable Drugs  submitted an amicus brief asking the Fifth Circuit to affirm the FTC’s ruling.  The brief explained why Impax’s argument, if accepted, would amount to a radical rewrite of the Supreme Court’s watershed ruling in Actavis.  When drug companies settle infringement claims with reverse payments, Actavis identifies the relevant antitrust harm as eliminating a “risk of competition,” without regard to the strength of the underlying patents.  By asking the court to require the FTC to show the elimination of more risk than the strength of Endo’s patents warranted, Impax effectively sought to resurrect the “scope of the patent” test, which Actavis rejected.

The brief also explained why Impax’s claimed procompetitive justifications—that entry occurred earlier than if the patent infringement claim had been litigated and won, and that the agreement included a broad license covering future patents on Opana ER, which could not have been obtained in litigation—are non-cognizable.  Among other things, the proper benchmark is the date of entry without a payment, not the date of entry without any settlement at all.  And broad licenses covering after-acquired patents on brand drugs are routinely included in procompetitive settlements that do not include a payment for delayed entry.

In a carefully written, unanimous opinion authored by Judge Gregg Costa, the Fifth Circuit squarely rejected Impax’s arguments.  With regard to Impax’s patent-validity argument, the court correctly found that “[t]he fact that generic competition was possible, and that Endo was willing to pay a large amount to prevent that risk, is enough to infer anticompetitive effect.”  With regard to Impax’s argument that the agreement did not prove anticompetitive in hindsight, the court recognized that “it is a basic antitrust principle that the impact of an agreement on competition is assessed as of ‘the time it was adopted,’” and it held that “[t]hat approach also makes sense in reverse payment cases.”

The opinion is also notable and important for its recognition that an early-entry-date settlement, without a payment, is a less restrictive alternative to a reverse-payment settlement as a matter of economic logic.  The court found “more than enough evidence” to support the unanimous view of the Commissioners that a no-payment settlement was a viable less restrictive alternative to a reverse-payment settlement based on industry practice and witness credibility determinations, but also based on “economic analysis.”  The court recognized it is “fairly obvious” that “those large payments were the price for Impax’s delayed entry” insofar as a settlement with an earlier entry date would have allowed Endo to keep the more than $100 million it ended up paying Impax.

This aspect of the Court’s holding embraces a key point that AAI has emphasized in this and other reverse-payment briefs: namely that “the relevant baseline is the entry date that the parties would have agreed to in the absence of a reverse payment,” and “[d]eparture from the baseline (towards delay) is established by the large, unjustified payment itself.”

The AAI brief was written by Hilliard & Shadowen partner Rick Brunell, with assistance from AAI Vice President of Legal Advocacy Randy Stutz and AAI Research Fellow Taryn Smith.

AAI Advisory Member Michael Carrier, a leading authority on antitrust and intellectual property law, also submitted an amicus brief on behalf of 82 professors in support of the FTC, which was joined by numerous other AAI Advisory Board members.