by Daniel Powers

The Federal Trade Commission’s (FTC) battle against “reverse-payment” settlements continues.  In an amicus brief recently submitted in the case of In re Effexor XR Antitrust Litigation, the FTC advanced a broad interpretation of the Supreme Court’s decision in FTC v. Actavis that looks beyond the labels applied to agreements between brand pharmaceutical manufacturers and the specific type of consideration provided to induce delayed generic entry. The FTC also outlines a two-step inquiry it contends is the appropriate manner of analyzing the potential antitrust concerns raised by such agreements.

The FTC has long targeted “reverse payment” settlements. A reverse payment settlement restricts the generic pharmaceutical from entering the market until a future date (even if that date is before the patent at issue expires) and includes a transfer of value from the brand to the generic firm, typically in the form of payments arising from an ancillary agreement for services or products provided by the generic. The Supreme Court’s decision in Actavis, while rejecting the FTC’s view that “reverse payment” agreements were per se illegal, nevertheless held that such agreements were not immune from antitrust scrutiny.  The Court held that such agreements “can sometimes violate the antitrust laws,” and that the rule of reason is the legal standard that courts must apply when determining whether such a particular agreement violates the antitrust laws.

In the Effexor XR case, plaintiffs have challenged a patent settlement agreement between pharmaceutical manufacturers Wyeth and Teva Pharmaceuticals. They claim that Teva agreed to delay introduction of its generic version of Wyeth’s drug Effexor XR, and that Wyeth agreed not to market an authorized generic version of Effexor XR for a period of time. There was no cash payment between the defendants and for this reason they have argued that Actavis is not applicable.

The FTC’s brief rejects the view that Actavis is limited to cash payments only.  It contends that the defendants’ interpretation puts form over substance and would allow a ready means for manufacturers to circumvent the Actavis ruling. The FTC argues that Actavis instead reflects an approach focused on a two-part inquiry. Courts, the FTC says, must first examine whether the alleged payment (whatever form it takes) was something that the generic challenger could have obtained had it won the underlying patent infringement litigation. If not, then the courts must inquire whether the payment is a vehicle for the parties to share monopoly profits by avoiding competition.

Taking this “generic” approach to Actavis, the FTC contends that the absence of a cash payment is not determinative and that Wyeth’s commitment not to market an authorized generic version of Effexor XR “presents the same antitrust concern as the reverse payments the Supreme Court considered in Actavis.” It remains to be seen how the district court will rule, but the FTC’s amicus brief signals that the Commission will continue to scrutinize settlement agreements and will resist attempts to limit the application of Actavis narrowly to its facts.