United States Court of Appeals - FDAnews

Case No. 19-60394

IN THE

United States Court of Appeals FOR THE FIFTH CIRCUIT

~ IMPAX LABORATORIES, INCORPORATED, a corporation,

Petitioner

—v.—

FEDERAL TRADE COMMISSION,

Respondent

ON PETITION FOR REVIEW FROM

THE FEDERAL TRADE COMMISSION, NO. 9373

BRIEF OF THE ASSOCIATION FOR ACCESSIBLE MEDICINES AS AMICUS CURIAE IN SUPPORT OF

PETITIONER

Jonathan D. Janow BUCHANAN INGERSOLL & ROONEY PC 1700 K Street, N.W., Suite 300 Washington, DC 20006 (202) 452-6057 Counsel for Amicus Curiae Association for Accessible Medicines

October 11, 2019

Case: 19-60394 Document: 00515155179 Page: 1 Date Filed: 10/10/2019

CERTIFICATE OF INTERESTED PERSONS

The undersigned counsel of record certifies that the following listed persons

and entities as described in the fourth sentence of Rule 28.2.1 have an interest in

the outcome of this case. These representations are made so that the judges of this

court may evaluate possible disqualification or recusal.

Petitioner Impax Laboratories, Inc. Attorneys for Petitioner Jay P. Lefkowitz Thomas S. Burnett Kirkland & Ellis, LLP Respondent Federal Trade Commission Attorneys for Respondent Bradley Grossman Alden F. Abbott Joel Marcus Amicus Curiae Association for Accessible Medicines Attorneys for Amicus Curiae Jonathan D. Janow Buchanan Ingersoll & Rooney PC Date: October 11, 2019 BUCHANAN INGERSOLL & ROONEY PC

/s/ Jonathan D. Janow Jonathan D. Janow Counsel for Amicus Curiae Association for Accessible Medicines


ii

TABLE OF CONTENTS Page

TABLE OF AUTHORITIES ................................................................................... iii

INTEREST OF AMICUS CURIAE ............................................................................ 1

SUMMARY OF THE ARGUMENT ........................................................................ 4

ARGUMENT ............................................................................................................. 9

I. PHARMACEUTICAL PATENT SETTLEMENTS CAN ACHIEVE OVERWHELMINGLY PROCOMPETITIVE RESULTS AND SECURE PATIENT ACCESS TO MORE AFFORDABLE MEDICINES. ............................................................................................. 9

II. THE COMMISSION’S DECISION UNDERMINES THE FUNDAMENTAL COMPETITIVE BALANCING AT THE HEART OF THE RULE OF REASON ................................................... 14

A. The Commission’s Threshold for Sufficient Anticompetitive Harm at Step One of the Rule of Reason Impermissibly Negates Its Burden of Evidentiary Proof ....................................... 14

B. The Commission Improperly Refused Even to Consider the Real World Results of the Settlement ............................................ 19

C. The Commission Transparently Deleted the Requirement to Prove a Viable Less Restrictive Settlement Alternative to Avoid the Competitive Balancing at the Heart of the Rule of Reason. ........................................................................................... 24

CONCLUSION ........................................................................................................ 27

CERTIFICATE OF SERVICE ................................................................................ 29

CERTIFICATE OF COMPLIANCE ....................................................................... 30


iii

TABLE OF AUTHORITIES

Page(s) Cases Apani Sw., Inc. v. Coca-Cola Enters., Inc.,

300 F.3d 620 (5th Cir. 2002) ................................................................................ 6

Bd. of Trade v. United States, 246 U.S. 231 (1918) ............................................................................................ 27

Benson v. St. Joseph Reg’l Health Ctr., 575 F.3d 542 (5th Cir. 2009) .............................................................................. 17

Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007) ............................................................................... 22

California Dental Ass’n v. FTC, 526 U.S. 756 (1999) ........................................................................................ 6, 15

Capital Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs., 996 F.2d 537 (2d Cir. 1993) ............................................................................... 19

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984) .............................................................................................. 3

FTC v. Actavis, 570 U.S. 136 (2013) .....................................................................................passim

Hornsby Oil Co. v. Champion Spark Plug Co., 714 F.2d 1384 (5th Cir. 1983) ............................................................................ 18

In re Impax Labs., Inc., 2018 FTC LEXIS 82, at *345 (F.T.C. May 18, 2018) ...............................passim

King Drug Co. of Florence, Inc. v. SmithKline Beecham Corp., 791 F.3d 388 (3d Cir. 2015) ............................................................................. 6, 9

King Drug Co. of Florence v. Cephalon, Inc., 2015 U.S. Dist. LEXIS 135264 (E.D. Pa. Oct. 5, 2015) ........................ 12, 13, 21

Ky. Fried Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 369 (5th Cir. 1977) ........................................................................ 15, 17


iv

Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) ........................................................................................ 3, 22

In re Lipitor Antitrust Litig., 868 F.3d 231 (3d Cir. 2017) ............................................................................... 18

Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290 (2d Cir. 2008) (Sotomayor, J., concurring) .................................. 20

Marucci Sports v. NCAA, 751 F.3d 368 (5th Cir. 2014) ............................................................ 14, 17, 22, 27

N. Am. Soccer League, LLC v. U.S. Soccer Fed’n, Inc., 883 F.3d 32 (2d Cir. 2018) ................................................................................. 25

Nat’l Collegiate Athletic Ass’n v. Bd. of Regents, 468 U.S. 85 (1984) .............................................................................................. 27

New York v. Actavis PLC, 787 F.3d 638 (2d Cir. 2015) ............................................................................... 21

O’Bannon v. NCAA, 802 F.3d 1049 (9th Cir. 2015) ...................................................................... 24, 28

Ohio v. Am. Express Co., 138 S. Ct 2274 (2018) ........................................................................... 3, 7, 14, 19

Ohio Willow Wood Co. v. Thermo-Ply, Inc., 629 F.3d 1374 (Fed. Cir. 2011) (Moore, J., concurring) .................................... 11

Robertson v. Nat’l Basketball Ass’n, 556 F.2d 682 (2d Cir. 1977) ........................................................................... 8, 20

Roy B. Taylor Sales, Inc. v. Hollymatic Corp., 28 F.3d 1379 (5th Cir. 1994) .............................................................................. 17

Sandoz Inc. v. Amgen Inc., 137 S. Ct. 1664 (2017) .......................................................................................... 9

In re Solodyn (Minocycline Hydrochloride) Antitrust Litig., 2018 U.S. Dist. LEXIS 18979 (D. Mass. Feb. 6, 2018) ..................................... 12


v

Sullivan v. Nat’l Football League, 34 F.3d 1091 (1st Cir. 1994) ............................................................................... 24

In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir. 2006), cert. denied, 551 U.S. 1144 (2007) ..................... 10

Tunica Web Advert. v. Tunica Casino Operators Ass’n, 496 F.3d 403 (5th Cir. 2007) .................................................................... 7, 15, 17

United States v. Brown Univ., 5 F.3d 658 (3d Cir. 1993) ............................................................................. 24, 25

Viazis v. Am. Ass’n of Orthodontists, 182 F. Supp. 2d 552 (E.D. Tex. 2001) ................................................................ 26

W. Tex. Utils. Co. v. Tex. Elec. Serv. Co., 470 F. Supp. 798 (N.D. Tex. 1979) ........................................9, 10, 13, 20, 21, 22

In re Wellbutrin XL Antitrust Litig., 133 F. Supp. 3d 734 (E.D. Pa. 2015) ...................................................... 17, 19, 21

In re Wellbutrin XL Antitrust Litig., 868 F.3d 132 (3d Cir. 2018) ................................................................... 16, 18, 20

White v. Nat’l Football League, 836 F. Supp. 1458 (D. Minn. 1993), aff’d, 41 F.3d 402 (8th Cir. 1994) ...... 20-21

In re Zetia (Ezetimibe) Antitrust Litig., 2019 U.S. Dist. LEXIS 134791 (E.D. Va. Aug. 9, 2019) .................................. 18

Rules

Fed. R. App. P. 29(a) ................................................................................................. 1

Other Authorities

1 Julian O. von Kalinowski et al., Antitrust Laws and Trade Regulation §12.02[1] (2d ed. 2017) ...................................................................................... 24

Bret M. Dickey & Daniel L. Rubinfeld, Would the Per Se Illegal Treatment of Reverse Payment Settlements Inhibit Generic Drug Investment?, 8 J. COMP. L. & ECON. 615, 622 (2012) .................................................................... 11


vi

District Court Case Outcomes – Statistics and Graphs, THE PARAGRAPH FOUR REPORT, https://paragraphfour.com (follow “Forums” tab; then “General Reports, Statistics, and Graphs”; then “District Court Case Outcomes – Statistics and Graphs”) ..................................................................... 2

Gregory Glass, Legal Defenses and Outcomes in Paragraph IV Patent Litigation, 10 J. GENERIC MEDS. 4, 8 (2013) ...................................................... 10

Herman, Note, The Stay Dilemma: Examining Brand and Generic Incentives for Delaying the Resolution of Pharmaceutical Patent Litigation, 111 COLUM. L. REV. 1788, 1795, n.41 (2011) ........................................................... 11

IMS Inst. for Healthcare Informatics, Impact of Patent Settlements on Drug Costs: Estimate of Savings (June 2013), http://162.44.221.25/ files/web/ IMSH%20Institute/Healthcare%20Briefs/Impact_of_Patent_ Settlements_on%20Drug_Costs.pdf ..................................................................... 2

Lex-Machina, Hatch-Waxman/ANDA Litigation Report 2017, available at https://www.globalpatentgroup.com/wp-content/uploads/2017/11/ LexMachina-2017 - HatchWaxman-Report.pdf ................................................. 10

Malathi Nayak, Costs Soar for Trade Secrets, Pharma Patent Suits, Survey Finds (Sep. 10, 2019), available at https://news.bloomberglaw.com/ip-law/costs-soar-for-trade-secrets-pharma-patent-suits-survey-finds ................... 11

Opinion of the Commission, Docket No. 9373, Federal Trade Commission, March 28, 2019 ....................................................................passim


http://162.44.221.25/%20files/web/%20IMSH%20Institute/Healthcare%20Briefs/Impact_of_Patent_%20Settlements_on%20Drug_Costs.pdf



https://www.globalpatentgroup.com/wp-content/uploads/2017/11/

1

INTEREST OF AMICUS CURIAE1

The Association for Accessible Medicines (“AAM”), a nonprofit, voluntary

association, is the leading trade association representing manufacturers of generic

and biosimilar prescription medicines, bulk active pharmaceutical ingredients, and

other goods and services for the generic and biosimilar pharmaceutical industry.

AAM’s core mission is to improve the lives of patients by advancing timely

access to safe, effective, and affordable FDA-approved generic and biosimilar

medicines. AAM’s members develop affordable generic and biosimilar medicines

and often engage in patent challenges under the Hatch-Waxman Act and the

Biologics Price Competition and Innovation Act (“BPCIA”), the pursuit of which

has led to ever-increasing competition and lower prices for patients. AAM’s

members frequently enter into patent litigation settlements with brand-name

pharmaceutical companies to resolve these patent challenges because the efficiency

and certainty of such settlements—often made in the face of ever-expanding brand-

preserving strategies and patent portfolios—delivers lower-cost generic and

biosimilar medicines to patients as quickly and cost-effectively as possible.

1 All parties consent to submission of this brief. FED. R. APP. P. 29(a). Undersigned certifies no counsel for any party authored this brief in whole or in part; no party or party’s counsel contributed money for the brief; and no person other than AAM, its members, and its counsel contributed money for this brief.


2

Patent settlements under the Hatch-Waxman Act and BPCIA have taken

years—if not decades—off patent monopolies for numerous pharmaceuticals.2

This procompetitive result—patients having access to more affordable generic and

biosimilar medicines long before they would otherwise be available—is frequently

not achieved (or even achievable) in litigation. Brand-name manufacturers

routinely prevail over generics in patent litigation,3 and they often pursue

additional patents that further complicate the real-world prospects of even an

ultimately successful patent challenge.

The present case involves precisely such a procompetitive settlement.

Impax received a license from Endo that allowed it to bring its lower-priced

version of Opana ER to patients in January 2013, ten years earlier than otherwise

possible. Critically, this broad license is the only reason that generic Opana ER is

available today—numerous other generic companies litigated and lost challenges

2 A study by the IMS Institute for Healthcare Informatics found that settlement led to generic drugs being introduced, on average, 81 months (6.75 years) prior to patent expiry. IMS Inst. for Healthcare Informatics, Impact of Patent Settlements on Drug Costs: Estimate of Savings (June 2013), http://162.44.221.25/files/web/IMSH%20Institute/Healthcare%20Briefs/Impact_of_Patent_Settlements_on%20Drug_Costs.pdf. 3 When a patent case proceeds to trial, brand-name manufacturers prevail nearly 60% of the time on at least one claim. See District Court Case Outcomes – Statistics and Graphs, THE PARAGRAPH FOUR REPORT, https://paragraphfour.com (follow “Forums” tab; then “General Reports, Statistics, and Graphs”; then “District Court Case Outcomes – Statistics and Graphs”).


3

on Endo’s patents. Impax’s broad license—which it could not have obtained even

if it had continued litigating and won—has therefore been not just procompetitive

and beneficial for patients, but essential to any competition at all. In fact, Impax

has been the sole company providing access to any version of Opana ER—branded

or generic—since 2017.

As the Supreme Court has recognized, settlements with such actual, real-

world procompetitive results are permissible and beneficial. In FTC v. Actavis,

Inc., 570 U.S. 136 (2013), the Supreme Court rejected the Federal Trade

Commission’s (the “Commission” or “FTC”) position that such settlements are

inherently or presumptively anticompetitive, holding instead that an antitrust

plaintiff “must prove its case.” Id. at 159. Importantly, that standard requires an

assessment of real-world evidence, including “conduct[ing] a fact-specific

assessment of . . . ‘the [restraint]’s actual effect’ on competition,” with a “goal . . .

to ‘distinguis[h] between restraints with anticompetitive effect that are harmful to

the consumer and restraints stimulating competition that are in the consumer’s best

interest.’” Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018) (emphasis

added) (alterations in original) (first quoting Copperweld Corp. v. Indep. Tube

Corp., 467 U.S. 752, 768 (1984), then quoting Leegin Creative Leather Prods.,

Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007)).


4

AAM’s members have a strong interest in ensuring the Actavis decision is

properly applied to objectively procompetitive settlements. Because the

Commission’s decision rewrites Actavis and the rule of reason, it should be

reversed.

SUMMARY OF ARGUMENT

Strong and timely generic and biosimilar competition has been the most

successful method for lowering drug prices in America. Indeed, generic drugs—

which account for approximately 90% of all drugs dispensed in the United

States—cost substantially less than brand-name drugs, with discounts off the brand

price averaging between 80 to 85%. These discounts lead to extraordinary

savings—generics save American patients and taxpayers approximately $5 billion

per week.

Without the ability to settle patent cases, these cost savings could be

thwarted by the need to litigate large patent portfolios all the way through trial.

Indeed, brand-name pharmaceutical companies increasingly protect their products

by filing many patent applications that can have a combined patent term exceeding

twenty years. Often, these patents cannot be overcome by generic and biosimilar

challengers in a single patent litigation. For example, Humira®—the prescription

drug with the highest revenues in the world—is now protected by a portfolio of

more than 136 patents. Many generics and biosimilars see these large patent


5

portfolios and are disincentivized to challenge any patents—much less all patents.

Patent settlements are frequently the only procompetitive, economical way to cut

through these portfolios—if every patent had to be litigated all the way to final

judgment, generic and biosimilar manufacturers would be deterred from even

trying to launch a competing product before patent expiration.

Patent settlements result in additional procompetitive benefits. They allow

generic and biosimilar manufacturers to focus resources on products instead of

litigation. Without the certainty afforded by such settlements, patients will

increasingly foot the bill for higher priced brand-name products. Recognizing the

procompetitive benefits made possible by such settlements, the Supreme Court in

Actavis concluded that antitrust challenges to patent settlements must be assessed

under the rule of reason.

The Commission’s decision, however, impermissibly rewrites the rule of

reason to elevate hypothetical speculation over facts and theories over real-world

proof—all to avoid engagement in its core competitive balancing. In overturning

an Administrative Law Judge’s (“ALJ”) determinations made after an evidentiary

trial that “the evidence proves that the Endo-Impax Settlement was, on balance

procompetitive,” In re Impax Labs., Inc., No. 9373, 2018 FTC LEXIS 82, at *345

(F.T.C. May 18, 2018) (“Initial Decision”) (emphasis added), the Commission


6

crafted a novel and one-sided test where its burdens—and the defendant’s basic

ability to proffer evidence of real-world procompetitive benefits—are jettisoned.

That result effectively undoes Actavis’s mandate. Indeed, Actavis expressly

rejected the Commission’s presumptively-unlawful quick-look approach in favor

of a traditional rule of reason analysis. Actavis, 570 U.S. at 159; King Drug Co. of

Florence, Inc. v. SmithKline Beecham Corp., 791 F.3d 388, 403, 411 (3d Cir.

2015) (rejecting view that Actavis was a “redefinition of the ‘rule of reason’ itself,”

the “contours” of which are “well-mapped”). The Commission’s newly-crafted

rule goes one step further by restricting the defendants’ ability to even “show

empirical evidence of procompetitive effects.” Actavis, 570 U.S. at 159 (emphasis

added) (citing California Dental Ass’n v. FTC, 526 U.S. 756, 775 n.12 (1999)).

That impermissibly puts even nakedly procompetitive settlements in the crosshairs.

As described below, the Commission’s stacking of the deck flies in the face

of decades of rule of reason jurisprudence. At bottom, “[p]roof that the

defendant’s activities, on balance, adversely affected competition” is required for

the Commission to prevail under the rule of reason. Apani Sw., Inc. v. Coca-Cola

Enters., Inc., 300 F.3d 620, 627 (5th Cir. 2002) (emphasis added). “[A]ssumption

alone will not do.” California Dental, 526 U.S. at 775 n.12. The Commission’s

elevation of hypothetical speculation over actual proof constitutes reversible error

for at least three reasons.


7

First, by defining sufficient anticompetitive harm as any “plausible risk”

that the generic “could” have entered the market, see Opinion of the Commission,

Docket No. 9373, Federal Trade Commission, March 28, 2019 (“FTC Op.”) at 24

(public redacted version), the Commission relieved itself of its burden to prove “a

substantial anticompetitive effect that harms consumers in the relevant market.”

Am. Express, 138 S. Ct at 2284; see also Tunica Web Advert. v. Tunica Casino

Operators Ass’n, Inc., 496 F.3d 403, 412 (5th Cir. 2007) (“Under the rule of

reason, an agreement will be found unlawful only if the plaintiff shows that it

actually had an adverse effect on competition.” (emphasis added)). To be sure, the

Court in Actavis recognized that a patent’s exclusionary power is inherently

uncertain because the patent-holder could lose the patent litigation and a settlement

eliminating that risk of competition could create relevant anticompetitive harm.

570 U.S at 147. But it did not hold that any settlement removing a mere

theoretical possibility of competition—however remote—automatically suffices to

prove substantial actual harm at the first prong of the rule of reason. See id. at 159.

To do so would be to create the very quick-look presumption of unlawfulness that

the Supreme Court rejected. The Commission itself conceded that real-world

impediments to generic launch could cut off the relevant “risk of competition”—

and any liability for anticompetitive harm—at step one of the rule of reason. FTC

Op. at 23-24. And indeed, if the generic would or could not have launched even


8

absent the settlement, then the settlement could not possibly have harmed

competition. Again, the Commission conceded this point, but it then proceeded to

dilute its burden. That fundamental error should be corrected.

Second, the Commission excised any meaningful consideration of the real-

world procompetitive results from the analysis. Instead of properly evaluating the

settlement agreement and its resulting effects as whole, see Robertson v. Nat’l

Basketball Ass’n, 556 F.2d 682, 686 (2d Cir. 1977), the Commission unduly

narrowed this phase of the inquiry to avoid having to weigh those results at all.

According to the Commission, Impax’s success in guaranteeing at least ten years

of sustained generic competition in the face of Endo’s successfully-expanded

patent portfolio is entirely irrelevant. That mangles the rule of reason beyond

recognition and renders the result all but a foregone conclusion.

Third, the Commission effectively removed its burden to prove that a real,

lesser-restrictive settlement option was viable. As it did with its initial burden, the

Commission fashioned a wholly theoretical benchmark—apparently premised on

“[b]asic common sense” and “imagin[ing]” what might have been, FTC Op. at 41-

42—without the need to demonstrate the viability of the proffered alternative

through evidence in the record. But the Commission did not stop there. Having

easily met its “common sense” burden—and indeed, having declared its common

sense to be a “strong showing,” FTC Op. at 41—the Commission then flipped the


9

burden to Impax to demonstrate that a less restrictive settlement was impossible.

Having so gerrymandered the analysis to avoid any real burden of evidentiary

proof, the Commission then absolved itself of any need to balance anticompetitive

harms against procompetitive benefits.

The Commission’s transparent attempts to rig the analysis to a fait accompli

and avoid engaging in the fundamental competitive balancing under the rule of

reason should be rejected. Procompetitive settlements that accelerate access to

more affordable life-saving drugs should not result in antitrust liability. The

Commission’s order should be reversed.

ARGUMENT

I. PHARMACEUTICAL PATENT SETTLEMENTS CAN ACHIEVE OVERWHELMINGLY PROCOMPETITIVE RESULTS AND SECURE PATIENT ACCESS TO MORE AFFORDABLE MEDICINES.

The Hatch-Waxman Act was designed to “balance the goal of making

available more low cost generic drugs . . . with the value of patent monopolies in

incentivizing beneficial pharmaceutical advancement.” In re Wellbutrin XL

Antitrust Litig., 133 F. Supp. 3d 734, 751-52 (E.D. Pa. 2015) (quoting SmithKline

Beecham Corp., 791 F.3d at 394)). Similarly, the BPCIA was designed to provide

a similar balance for biologics, which are “type[s] of drugs derived from natural,

biological sources such as animals or microorganisms.” Sandoz Inc. v. Amgen Inc.,

137 S. Ct. 1664, 1670 (2017). Both Acts expressly contemplate litigation as the


10

mechanism to catalyze the desired competitive balance. See id. at 1670-71; see

also In re Wellbutrin, 133 F. Supp. 3d at 752.

The outcome of such litigation, however, is decidedly uncertain for the

generic or biosimilar challenger. At least one study estimates that a generic

company loses patent litigation approximately 70% of the time at trial. See, e.g.,

Lex-Machina, Hatch-Waxman/ANDA Litigation Report 2017, available at

https://www.globalpatentgroup.com/wp-content/uploads/2017/11/LexMachina-

2017 - HatchWaxman-Report.pdf; Gregory Glass, Legal Defenses and Outcomes

in Paragraph IV Patent Litigation, 10 J. GENERIC MEDS. 4, 8 (2013). And when

generic and biosimilar manufactures lose their patent challenges, as they often do,

they are kept off of the market for the full term of the branded patent monopolies.4

This forces patients to pay far higher prices for the lifesaving medicines they need,

costing Americans (and America) billions.

Not only are the outcomes uncertain for generic and biosimilar companies,

the actual cost of their litigation efforts continues to soar. A recent report estimates

that the median cost of pharmaceutical patent cases rose 67% from 2015 to 2019,

4 By way of example, while Barr Laboratories settled its Tamoxifen litigation for an entry date nine years before patent expiration, the generic companies that chose to litigate their cases to conclusion lost and were kept off the market until the patents expired. See In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187, 190, 193-95 (2d Cir. 2006), cert. denied, 551 U.S. 1144 (2007).


https://www.globalpatentgroup.com/wp-content/uploads/2017/11/LexMachina-2017

https://www.globalpatentgroup.com/wp-content/uploads/2017/11/LexMachina-2017

11

and the cost of litigating Hatch-Waxman cases rose from $3 million in 2015 to

$3.5 million in 2019.5 See Bloomberg Law, Malathi Nayak, Costs Soar for Trade

Secrets, Pharma Patent Suits, Survey Finds (Sep. 10, 2019), available at

https://news.bloomberglaw.com/ip-law/costs-soar-for-trade-secrets-pharma-patent-

suits-survey-finds. Indeed, given the inherent uncertainty about the scope of

antitrust liability for settling these cases, “[m]ore pharmaceutical patent cases are

heading to trial, and costing more money.” Id.

These rising costs paint an ominous picture. Generic and biosimilar

manufacturers have finite resources and simply cannot litigate all patent cases to

finality. See, e.g., Bret M. Dickey & Daniel L. Rubinfeld, Would the Per Se Illegal

Treatment of Reverse Payment Settlements Inhibit Generic Drug Investment?, 8 J.

COMP. L. & ECON. 615, 622 (2012). If their ability to settle patent cases is

restricted in the way the Commission now proposes such that generic and

biosimilar manufacturers could not accept even terms guaranteeing substantially

5 Indeed, the Federal Circuit has found that “[t]he costs of patent litigation are enormous with an average patent case costing upwards of $3 million for each side.” Ohio Willow Wood Co. v. Thermo-Ply, Inc., 629 F.3d 1374, 1376–77 (Fed. Cir. 2011) (Moore, J., concurring). And “[o]ne study found that the cost of litigation in this specific context—a generic challenging a brand name pharmaceutical patent—was about $10 million per suit.” Actavis, 570 U.S. 136, 170 (2013) (Roberts, C.J., dissenting) (citing Herman, Note, The Stay Dilemma: Examining Brand and Generic Incentives for Delaying the Resolution of Pharmaceutical Patent Litigation, 111 COLUM. L. REV. 1788, 1795 n.41 (2011)).


12

procompetitive outcomes, they would not pursue the same number of patent

challenges at the outset. That ultimately means fewer ANDA and biosimilar

filings, fewer patent challenges and fewer generics and biosimilars on the market.

For these reasons, most Hatch-Waxman and BPCIA patent settlements are

overwhelmingly procompetitive, enabling generic and biosimilar entry long before

it otherwise would have occurred and reducing the cost and uncertainty associated

with litigating every patent case to conclusion.6 Not only do these settlements

result in entry before patent expiration (a procompetitive result not frequently

achieved in litigation), as shown by the instant case, these settlements can often

achieve procompetitive outcomes that would not otherwise be possible in the

settled litigation.

The settlement here contained a broad license that protected Impax from

subsequent Endo patents, not simply the patent-at-issue in the litigation. This 6 Indeed, several courts in the wake of Actavis have recognized that, at least as to generic manufacturers, these factors are relevant to the rule-of-reason inquiry because the litigation risks unique to generics contextualize and highlight the real-world benefits of the settlement. See, e.g., In re Solodyn (Minocycline Hydrochloride) Antitrust Litig., No. 14-md-02503, 2018 U.S. Dist. LEXIS 18979, at *25 (D. Mass. Feb. 6, 2018) (evidence of early entry under patent monopoly and litigation risks are relevant to procompetitive inquiry under Actavis rule-of-reason); King Drug Co. of Florence, Inc. v. Cephalon, Inc., No. 2:06-cv-1797, 2015 U.S. Dist. LEXIS 135264, at *50 (E.D. Pa. Oct. 5, 2015) (evidence regarding settlements in general and “the adverse effects that litigation may have on businesses can provide the [factfinder] with context” relevant to the rule of reason analysis as applied to reverse settlement payments).


13

procompetitive aspect of the settlement—which Impax could not have achieved

absent the settlement, even if it had continued litigating and won—was particularly

important to the ALJ, who noted that “[t]he real-world effect of the [settlement] is

that there is a product on the market and available to consumers today that would

not be there had Impax not had the foresight to negotiate licenses to future

patents.” Initial Decision at *180. Indeed, this aspect of the settlement allowed

Impax to sell its affordable generic to patients uninterrupted since January 2013.

Other generic manufacturers that did not settle cannot market until at least 2023.

This objective patient gain from Impax’s settlement is an obvious and

overwhelming procompetitive benefit. See, e.g., Cephalon, Inc., 2015 U.S. Dist.

LEXIS 135264, at *48 n.11 (concluding that resolution of generic manufacturers’

risk of losing patent litigation, owing damages for at-risk launch, or “uncertainty

regarding the possibility of future patents” constitute relevant procompetitive

justifications). And because the license included several critical patents not at

issue in the Impax-Endo litigation, such a procompetitive result would not have

been possible even if Impax won. See, e.g., In re Wellbutrin, 133 F. Supp. 3d at

758-59 (“There are no genuine issues of material fact as to the procompetitive

nature of GSK’s justifications; both the Andrx sublicenses and the supply

provision offered the generic manufacturers—and thus the consumers—something

they could not have received through successful litigation alone.”).


14

Any rule that turns a blind eye to these overwhelmingly procompetitive

results will necessarily curtail objectively beneficial settlement agreements and

ultimately harm patients.

II. THE COMMISSION’S DECISION UNDERMINES THE FUNDAMENTAL COMPETITIVE BALANCING AT THE HEART OF THE RULE OF REASON.

The Commission’s decision and legal framework attempt to avoid the rule of

reason at every turn. Indeed, the Commission went to great lengths to ensure that

it never had to squarely engage in competitive balancing. Instead, the Commission

chose to rely on bare plausibility and theoretical risk. And, on at least two

occasions, the Commission refused to actually consider the real-world

procompetitive results of the settlement. As described below, the Commission’s

analysis is fundamentally at odds with Actavis.

A. The Commission’s Threshold for Sufficient Anticompetitive Harm at Step One of the Rule of Reason Impermissibly Negates its Burden of Evidentiary Proof.

The first step of the rule of reason requires an antitrust plaintiff to “prove

that the challenged restraint has a substantial anticompetitive effect that harms

consumers.” Ohio, 138 S. Ct at 2284 (emphasis added). The threshold at this

initial stage is necessarily an evidentiary one, see id. at 2288-90, requiring a

plaintiff to demonstrate an actual substantial adverse effect on competition.

Marucci Sports, LLC v. NCAA, 751 F.3d 368, 374 (5th Cir. 2014) (“The rule of


15

reason . . . requires that the plaintiff show that the defendants activities injured

competition.” (emphasis added)); see also Tunica, 496 F.3d at 412 (“Under the rule

of reason, an agreement will be found unlawful only if the plaintiff shows that it

actually had an adverse effect on competition.” (emphasis added)); Ky. Fried

Chicken Corp. v. Diversified Packaging Corp., 549 F.2d 369, 380 (5th Cir. 1977)

(rejecting claim under rule of reason where plaintiff “presented no evidence at all

of the actual competitive effect” of the challenged restraint (emphasis added)).

Critically, this evidentiary requirement of actual proof of anticompetitive

effects distinguishes the first stage of the rule of reason from the first stage of the

“quick look” approach rejected in Actavis. See California Dental, 526 U.S. at 774-

75 & n.12 (rejecting quick look approach and concluding that “the absence of any

empirical evidence on this point indicates that the question was not answered,

merely avoided by implicit burden-shifting”; distinguishing between “question[s]

susceptible to empirical but not a priori analysis” and critiquing lower “court’s

aversion to empirical evidence at the moment of implicit burden-shifting”); see

also Actavis, 570 U.S. at 159 (“In California Dental, we held (unanimously) that

abandonment of the ‘rule of reason’ in favor of presumptive rules (or a ‘quick-

look’ approach) is appropriate only where ‘an observer with even a rudimentary

understanding of economics could conclude that the arrangements in question

would have an anticompetitive effect on customers and markets.’ We do not


16

believe that reverse payment settlements, in the context we here discuss, meet this

criterion.” (internal citation omitted)). This is because “assumption alone will not

do” for the rule of reason. California Dental, 526 U.S. at 775 n.12; cf. Actavis, 570

U.S. at 159 (“The existence and degree of any anticompetitive consequence may

also vary as among industries. These complexities lead us to conclude that the

FTC must prove its case as in other rule-of-reason cases.”).

The Commission’s approach did away with those fundamental evidentiary

burdens. In its place, the Commission substituted a bare “plausibility” threshold,

concluding that it need only conceive of some “plausible risk”—which the

Commission defines as anything more than zero—that the generic manufacturer

“could” have entered the market earlier than its licensed entry date. FTC Op. at

23-24 & n.26. The Commission did concede that real-world impediments7 to

earlier competition should sever liability at this stage of the analysis such “that no

liability should lie.” FTC Op. at 23-24. But it improperly held that such a result

can obtain only where there is definitive certainty that earlier generic entry would 7 The Commission’s example of FDA disapproval of the generic firm’s ANDA as an impediment to launch is of course only but one of many potential factual circumstances that might impact a finding of substantial anticompetitive effects. As here, additional blocking patents, litigation timing and success, and a host of other factors might play a factor in the likelihood of a generic or biosimilar manufacturer successfully entering the market before licensed entry date achieved in settlement. See In re Wellbutrin XL Antitrust Litig., 868 F.3d 132, 166-68 (3d Cir. 2018).


17

not have occurred, absent the settlement, with any possibility of competition more

than zero a sufficiently “plausible risk” to carry its burden. FTC Op. at 24. The

Commission then shunted any consideration of the details to the final balancing

stage of the rule of reason—a step that the Commission conveniently concluded

was unnecessary. FTC Op. at 24 (“How likely [Impax] was to launch, when, and

precisely how much competition was eliminated are difficult questions . . . .

Because we resolve this case before reaching the weighing of anticompetitive

harms and procompetitive benefits, we need not do so.”). This was an express

rejection of the rule of reason mandated by Actavis.

The Commission’s novel standard also morphs the initial burden of proof

into a presumption of harm. And that is legally incorrect—this Court has

repeatedly “stated that ‘[s]peculation about anticompetitive effects is not enough.’”

Marucci Sports, 751 F.3d 376 (quoting Roy B. Taylor Sales, Inc. v. Hollymatic

Corp., 28 F.3d 1379, 1385 (5th Cir. 1994)). And while “[a]ntitrust claims need not

be established by euclidean proof . . . they cannot be merely fantasized.” Ky.

Fried, 549 F.2d at 380; see also Benson v. St. Joseph Reg’l Health Ctr., 575 F.3d

542, 549 (5th Cir. 2009) (“A violation requires proof that the practice ‘actually had

an adverse effect on competition.’”) (quoting Tunica, 496 F.3d at 412)). It is this

first-stage evidentiary showing of harm that is later balanced against the


18

procompetitive benefits flowing from challenged agreement. See Hornsby Oil Co.

v. Champion Spark Plug Co., 714 F.2d 1384, 1392 (5th Cir. 1983).

Without requisite evidence of likely substantial competitive harm, the ALJ

was correct to observe that “[u]nder the facts of the instant case, the magnitude or

extent of such harm [from the risk of competition] is largely theoretical” based on

no more than “an inference that Impax’s entry date . . . would have been earlier

had the reverse payment not induced the settlement.” Initial Decision at *341

(emphasis added). That alone was plainly insufficient to meet the Commission’s

burden at this stage of the litigation. See In re Zetia (Ezetimibe) Antitrust Litig.,

No. 2:18-md-2836, 2019 U.S. Dist. LEXIS 134791, at *36 (E.D. Va. Aug. 9, 2019)

(recognizing the distinction between legal standards of plausibility at pleading

stage and probability after evidence has put forward (citing In re Lipitor Antitrust

Litig., 868 F.3d 231, 260 (3d Cir. 2017))).

That is because such inferences arising from Actavis’s rationale are “far

from dispositive” in assessing anticompetitive harm where the record directly

undermines the inference. In re Wellbutrin XL Antitrust Litig., 868 F.3d at 166-68

(concluding that although plaintiffs offered two scenarios creating potential

avenues to earlier generic competition “the record supports neither”). Here, “the

fact is that such earlier entry was unlikely.” Initial Decision at *341 (emphasis

added). What was likely, however, was that “Endo would have successfully


19

asserted after-acquired patents to enjoin Impax, as it had against all other sellers of

Opana ER.” Initial Decision at *342.

The Commission’s effort to avoid those problematic facts should be rejected.

This Court should reverse the Commission’s presumptive unlawful approach and

reaffirm the longstanding requirement that an antitrust plaintiff must prove its case.

Failure to do so will significantly harm generic and biosimilar competition and

force scores of potential competitors to litigate to finality.

B. The Commission Improperly Refused Even to Consider the Real World Results of the Settlement.

The rule of reason places only one burden on the defendant: to demonstrate

procompetitive benefits that might balance out the anticompetitive effects

established by the plaintiff. See Am. Express, 138 S. Ct. at 2284; see also Capital

Imaging Assocs., PC v. Mohawk Valley Med. Assocs., 996 F.2d 537, 543 (2d Cir.

1993) (“After the plaintiff satisfies its threshold burden of proof under the rule of

reason, the burden shifts to the defendant to offer evidence of the pro-competitive

‘redeeming virtues’ of their combination.” (citation omitted)).

Despite ample evidence of procompetitive benefits—a decade of sustained

competition in the face of a multi-patent portfolio—the Commission proclaimed

that Impax did not satisfy even this modest burden. According to the Commission,

Impax failed to show a single cognizable procompetitive benefit because it

allegedly did not directly “link” the proffered benefits to the purported payment.


20

FTC Op. at 37, 39 (holding plaintiff “must adduce facts linking procompetitive

benefits within a settlement to a payment for delayed entry”). In other words, even

if the agreement as a whole resulted in substantial procompetitive benefits (as the

ALJ conclusively found), the Commission would simply ignore them.

This cramped reading of the rule of reason is fundamental legal error that

should be reversed. Indeed, agreements are traditionally evaluated “as a whole”

under the rule of reason. Robertson, 556 F.2d at 686 (dismissing antitrust

challenge to two settlement provisions because “[t]he settlement agreement here

must be looked at as a whole”). This is because “the competitive effects of an

individual restraint are intertwined with the effects of the remainder of the

venture.” Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 317

(2d Cir. 2008) (Sotomayor, J., concurring); W. Tex. Utils. Co. v. Tex. Elec. Serv.

Co., 470 F. Supp. 798, 831 (N.D. Tex. 1979) (“The key inquiry . . . is whether or

not the challenged agreement . . . merely regulates and promotes competition or

suppresses it.” (emphasis added)). This makes sense. Agreements like the

settlement at issue here are “negotiated as a whole, agreed to as a whole, and [go]

into effect as a whole.” In re Wellbutrin XL Antitrust Litig., 133 F. Supp. 3d 734,

753-54, aff’d, 868 F.3d 132 (3d Cir. 2018). Courts therefore routinely decline to

engage in a piecemeal analysis of an agreement’s individual provisions lest they

miss the forest for the trees. See White v. Nat’l Football League, 836 F. Supp.


21

1458, 1488 (D. Minn. 1993), aff’d, 41 F.3d 402 (8th Cir. 1994) (overruling

“objections to various individual provisions” of an agreement and noting that “the

court must analyze the amended Settlement Agreement as a whole”); In re

Wellbutrin, 133 F. Supp. 3d at 753 (“The Court will also evaluate the settlement as

a whole, and not in a piecemeal, provision-by-provision approach.”).

Applying the proper legal standard, it is undisputed that the Impax-Endo

agreement—correctly viewed as a whole—was procompetitive:

The January 2013 entry date provided in the [settlement], together with the broad patent license provisions, enabled a generic Opana ER to enter the market eight months before Endo’s original Opana ER patents expired, and sixteen years before Endo’s after-acquired patents expired, and [Impax] to continue selling generic Opana ER up to the present day without threat of patent infringement litigation relating to original Opana ER.

Initial Decision at *341-42. The ALJ found that the licenses that Impax obtained

in the settlement were critical because it was “likely that Endo would have

successfully asserted after-acquired patents to enjoin Impax, as it had against all

other sellers of Opana ER.”8 Initial Decision at *342. Impax remains the only

8 The settlement thus also blunted the competitive impact flowing from Endo’s efforts to engage in the “evergreening” and “product hopping” practices in which brand manufacturers attempt to subvert the prompt generic and biosimilar entry envisioned under the Hatch-Waxman Act and the BPCIA. See, e.g., New York v. Actavis PLC, 787 F.3d 638, 658-599 (2d Cir. 2015); Cephalon, Inc., 2015 U.S. Dist. LEXIS 135264, at *48 n.11 (concluding that resolution of generic


22

manufacturer on the market with an “available oxymorphone ER product.” Initial

Decision at *342-43 n.37. Thus “[t]he real-world effect of the [settlement] is that

there is a product on the market and available to consumers today that would not

be there had Impax not had the foresight to negotiate licenses to future patents.”

Initial Decision at *180.

The Commission provided no sound basis to justify its departure from the

traditional rule-of-reason analysis. Marucci Sports, 751 F.3d at 374 (“The rule of

reason is designed to help courts differentiate between ‘restraints with

anticompetitive effect that are harmful to the consumer and restraints stimulating

competition that are in the consumer’s best interest.’” (quoting Leegin, 551 U.S. at

886))). To the contrary, as in other rule-of-reason cases, relevant

“[p]rocompetitive benefits are [any] that ‘enhance consumer welfare and

competition in the marketplace’ and are ‘consistent with the procompetitive

aspirations of antitrust law.’” In re Wellbutrin, 133 F. Supp. 3d at 758 (quoting

Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 309 (3d Cir. 2007)).

But even if the Commission’s narrower conception of a “restraint” was

appropriate, there would still be a logical “link” between the procompetitive

manufacturers’ risk of losing patent litigation and the “uncertainty regarding the possibility of future patents” constitute relevant procompetitive benefits).


23

benefits found by the ALJ and the “commitment to stay out of the market until the

licensed entry date” identified by the Commission. FTC Op. at 34. That is

because those substantial competitive benefits are attendant to—and flow directly

from—the patent licenses in the settlement. See Actavis, 570 U.S. at 154

(“[S]ettlement on terms permitting the patent challenger to enter the market before

the patent expires would also bring about competition, again to the consumer’s

benefit.”).

Put another way, the uninterrupted competition identified by the ALJ—

which he found was unlikely to have existed at all absent settlement—exists as a

logical complement to the purportedly delayed license date complained of by the

Commission. They are necessarily linked and are two sides of the same licensing

coin. And as Impax has maintained throughout—and the ALJ found—the

settlement allowed Impax to launch Opana ER earlier than otherwise would have

been possible and ensured sustained access. See Initial Decision at *316-17, *327-

28, *337-38.

Faced with this inherent linkage, the Commission rejiggered the burdens of

proof yet again. It declared that the crucial procompetitive benefits flowing from

Impax’s broad freedom to operate licenses were not cognizable because Impax had

not demonstrated that “a less-anticompetitive settlement was unattainable.” FTC

Op. at 37 (“[T]he appropriate question is whether Endo and Impax could have


24

reached a similar licensing agreement without a reverse payment for delayed

generic entry.”). But again, that improperly flips the burden of proof. As

discussed below, it is the Commission—not Impax—that bears the burden to prove

the existence of a viable less-restrictive alternative. See Section C infra. The

Commission’s reworking of the rule of reason finds no support in the law.

C. The Commission Transparently Deleted the Requirement to Prove a Viable Less Restrictive Settlement Alternative to Avoid the Competitive Balancing at the Heart of the Rule of Reason.

Once Impax demonstrated the settlement brought about obvious

procompetitive benefits, the Commission had the opportunity (and burden) to

negate their import. To do so, the Commission needed to prove by a

preponderance of the evidence that one or more less restrictive alternatives would

achieve those same procompetitive benefits, and make a “strong evidentiary

showing that its alternatives are viable.” O’Bannon v. NCAA, 802 F.3d 1049, 1074

(9th Cir. 2015); United States v. Brown Univ., 5 F.3d 658, 679 (3d Cir. 1993);

accord Sullivan v. Nat’l Football League, 34 F.3d 1091, 1103 (1st Cir. 1994); see

also 1 Julian O. von Kalinowski, et al., Antitrust Laws and Trade Regulation

§12.02[1] (2d ed. 2017) (“Once the defendant has shown that restraint has

generated or is likely to generate procompetitive effects, the burden shifts back to

the plaintiff to demonstrate that those effects could have been achieved by less

restrictive means.”). At bottom, that showing requires that “the procompetitive


25

effects could have been achieved by a reasonably available restraint that has a

reduced anticompetitive impact.” Id.; N. Am. Soccer League, LLC v. U.S. Soccer

Fed’n, Inc., 883 F.3d 32, 45 (2d Cir. 2018) (“[A]ntitrust plaintiffs cannot just point

to earlier standards as less restrictive alternatives without additionally showing the

equivalent viability of the alternatives proffered.”).

Applying this standard here, the Commission needed to prove Impax could

have settled its patent litigation with the same broad license facilitating entry and

obtained an earlier date of licensed entry. But rather than relying on an

evidentiary showing to meet its burden, the Commission once again revised the

rule of reason and rested on ipse dixit, declaring the availability of a less restrictive

settlement to be “a matter of ‘basic common sense.’” FTC Op. at 41 (citation

omitted). Indeed, the Commission only needed to find it “hard to imagine” that an

earlier entry date would not have been offered in a different settlement. FTC Op.

at 42.

The Commission then went a step further, declaring its common sense to be

such a “strong showing” that it should flip the burden back to Impax to

demonstrate that a less restrictive settlement was “impossible.” FTC Op. at 41

(emphasis added). Needless to say, this is contrary to the requirement that an

antitrust plaintiff show “by a preponderance of the evidence” that “a reasonable

less restrictive alternative exists.” Brown Univ., 5 F.3d at 679. Simply put,


26

“common sense . . . is not proof . . . demonstrat[ing] an unreasonable restraint on

trade.” Viazis v. Am. Ass’n of Orthodontists, 182 F. Supp. 2d 552, 572 (E.D. Tex.

2001).

What the Commission brushed aside to favor its “common sense”

speculation are the very evidentiary facts the ALJ credited as dispositive on this

prong: (1) Impax had twice proposed nonpayment settlements with earlier entries,

which Endo rejected; and (2) the Commission failed to show that any nonpayment

settlement would have included the broad freedom to operate license—the only

reason why patients were first able to obtain generic Opana ER. See Initial

Decision at *343-44. Recognizing these clear bars to finding a viable less

restrictive settlement achieving the same procompetitive benefits, the ALJ

appropriately turned to “weigh the anticompetitive and procompetitive effects” of

the settlement “to determine whether, on balance, the agreement is

anticompetitive.” Initial Decision at *344.

The result of that balancing was overwhelmingly clear. The anticompetitive

harms asserted were “largely theoretical.” Initial Decision at *341. In contrast, the

ALJ identified numerous “real world procompetitive benefits” of the settlement:

(1) generic Opana ER entered the market eight months before expiration of Endo’s

original patent monopoly and sixteen years before its after-acquired ones; (2)

Impax has marketed this generic for over five years without interruption or the


27

threat of patent infringement; and (3) Impax’s generic has been the only

oxymorphone ER product on the market since 2017. On balance, the ALJ

concluded that “[t]hese actual consumer benefits outweigh the theoretical

anticompetitive harm demonstrated in this case.” Initial Decision at *343.

There can be no doubt that it was this competitive balancing (and its

straightforward outcome) that the Commission tied itself in knots to avoid. But, as

the Supreme Court long ago recognized, this balancing is the very heart of the

antitrust inquiry:

The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts.

Bd. of Trade v. United States, 246 U.S. 231, 238 (1918). Indeed, as this Court has

explained, the “inquiry should ultimately focus upon ‘form[ing] a judgment about

the competitive significance of the restraint.’” Marucci Sports, 751 F.3d at 374

(quoting Nat’l Collegiate Athletic Ass’n v. Bd. of Regents, 468 U.S. 85, 103

(1984)). Under this ultimate inquiry, the Endo-Impax settlement plainly promotes

competition; it does not suppress it.


28

CONCLUSION

The Commission’s new approach would ensure that its future challenges to

patent settlements will never “be [so] tested in the crucible of the Rule of Reason.”

O’Bannon, 802 F.3d at 1079. Objectively procompetitive settlements would be

subject to antitrust liability and patients would ultimately suffer. That outcome is

unwarranted. The law does not require the rule of reason to be blind to the actual

results of a challenged agreement. The Commission’s order should be reversed.

Dated: October 11, 2019 Respectfully submitted, /s/ Jonathan D. Janow Jonathan D. Janow BUCHANAN INGERSOLL & ROONEY PC 1700 K Street, N.W., Suite 300 Washington, DC 20006 (202) 452-6057 [email protected]

Counsel for Amicus Curiae Association for Accessible Medicines


29

CERTIFICATE OF SERVICE

I hereby certify that on October 11, 2019, I electronically filed this

document with the Clerk of Court of the United States Court of Appeals for the

Fifth Circuit through the appellate CM/ECF filing system. I further certify that all

participants in the case are registered CM/ECF users and that service will be

accomplished by the appellate CM/ECF system.

October 11, 2019 /s/ Jonathan D. Janow Jonathan D. Janow BUCHANAN INGERSOLL & ROONEY PC 1700 K Street, N.W., Suite 300 Washington, DC 20006 (202) 452-6057 [email protected]

Counsel for Amicus Curiae Association for Accessible Medicines


30

CERTIFICATE OF COMPLIANCE

This brief complies with the type-volume limitation of Federal Rule of

Appellate Procedure 32(a)(7)(B) because it contains 6,443 words, excluding the

parts of the brief exempted by Rule 32(a)(7)(B)(iii).

This brief complies with the typeface requirements of Federal Rule of

Appellate Procedure 32(a)(5)(A) and the type style requirements of Rule 32(a)(6)

because it has been prepared in a proportionally-spaced typeface using Microsoft

Word in Times New Roman, Font size 14.

October 11, 2019 /s/ Jonathan D. Janow Jonathan D. Janow BUCHANAN INGERSOLL & ROONEY PC


United States Court of Appeals FIFTH CIRCUIT

OFFICE OF THE CLERK LYLE W. CAYCE

CLERK

TEL. 504-310-7700

600 S. MAESTRI PLACE,

Suite 115

NEW ORLEANS, LA 70130

October 11, 2019

Mr. Jonathan D. Janow Buchanan Ingersoll & Rooney, P.C. 1700 K Street, N.W. Suite 300 Washington, DC 20006-3807 No. 19-60394 Impax Laboratories, Inc. v. FTC USDC No. 9373 Dear Mr. Janow, The following pertains to your brief electronically filed on October 10, 2019. We filed your brief. However, you must make the following corrections within the next 14 days. You need to correct or add: Caption on the brief does not agree with the caption of the case in compliance with FED. R. APP. P. 32(a)(2)(C). Caption must exactly match the Court's Official Caption (See Official Caption below) You must electronically file a "Form for Appearance of Counsel" within 14 days from this date. You must name each party you represent, see FED. R. APP. P. 12(b) and 5TH CIR. R. 12 & 46.3. The form is available from the Fifth Circuit's website, www.ca5.uscourts.gov. If you fail to electronically file the form, the brief will be stricken and returned unfiled. Note: Once you have prepared your sufficient brief, you must electronically file your 'Proposed Sufficient Brief' by selecting from the Briefs category the event, Proposed Sufficient Brief, via the electronic filing system. Please do not send paper copies of the brief until requested to do so by the clerk's office. The brief is not sufficient until final review by the clerk's office. If the brief is in compliance, paper copies will be requested and you will receive a notice of docket activity advising you that the sufficient brief filing has been accepted and no further corrections are necessary. The certificate of service/proof of service on your proposed sufficient brief MUST be dated on the actual date that service is being made. Also, if your brief is


sealed, this event automatically seals/restricts any attached documents, therefore you may still use this event to submit a sufficient brief. Sincerely, LYLE W. CAYCE, Clerk

By: _________________________ Shea E. Pertuit, Deputy Clerk 504-310-7666 cc: Mr. Cory L. Andrews Mr. Bradley Grossman Ms. Heather Hippsley Mr. Jay P. Lefkowitz Mr. Richard Abbott Samp




CLERK

TEL. 504-310-7700


Suite 115


October 11, 2019

Mr. Jonathan D. Janow Buchanan Ingersoll & Rooney, P.C. 1700 K Street, N.W. Suite 300 Washington, DC 20006-3807 No. 19-60394 Impax Laboratories, Inc. v. FTC USDC No. 9373 Dear Mr. Janow, You must submit the 7 paper copies of your brief required by 5th Cir. R. 31.1 within 5 days of the date of this notice pursuant to 5th Cir. ECF Filing Standard E.1. Failure to timely provide the appropriate number of copies may result in the dismissal of your appeal pursuant to 5th Cir. R. 42.3. Exception: As of July 2, 2018, Anders briefs only require 2 paper copies. If your brief was insufficient and required corrections, the paper copies of your brief must not contain a header noting "RESTRICTED". Therefore, please be sure that you print your paper copies from this notice of docket activity and not the proposed sufficient brief filed event so that it will contain the proper filing header. Alternatively, you may print the sufficient brief directly from your original file without any header. Sincerely, LYLE W. CAYCE, Clerk

By: _________________________ Shea E. Pertuit, Deputy Clerk 504-310-7666 cc: Mr. Cory L. Andrews Mr. John Mark Gidley Mr. Bradley Grossman Ms. Heather Hippsley Mr. Jay P. Lefkowitz


Mr. Richard Abbott Samp


19-60394

IN THE

United States Court of Appeals FOR THE FIFTH CIRCUIT

IMPAX LABORATORIES, INCORPORATED, a corporation,

Petitioner,

—v.—

FEDERAL TRADE COMMISSION, Respondent.

ON PETITION FOR REVIEW FROM THE FEDERAL TRADE COMMISSION, NO. 9373

BRIEF OF AMICI CURIAE ANTITRUST ECONOMISTS IN SUPPORT OF PETITIONER

J. Mark Gidley WHITE & CASE LLP 701 Thirteenth Street, NW Washington, DC 20005 Tel: (202) 626-3600 Email: [email protected]

Jack E. Pace III Bryan D. Gant WHITE & CASE LLP 1221 Avenue of the Americas New York, NY 10020 Tel: (212) 819-8200 Email: [email protected]

[email protected] Counsel for Amici Curiae Antitrust Economists


i


Impax Laboratories, Inc. v. Federal Trade Commission, No. 19-60394

The undersigned counsel of record certifies that the following listed persons and entities as described in the fourth sentence of Local Rule 28.2.1 have an interest in the outcome of this case. These representations are made in order that the judges of this Court may evaluate possible disqualification or recusal.

Petitioner: Impax Laboratories, LLC (formerly Impax Laboratories, Inc.)1

Respondent: Federal Trade Commission

Amici: The amici identified in Addendum A are interested in the development of the law at issue, but not “financially interested in the outcome of the litigation” under Local Rule 28.2.1.

Counsel:

For Petitioners: Jay P. Lefkowitz and Thomas S. Burnett of Kirkland & Ellis LLP

For Respondent: Bradley D. Grossman and other Officials from the Federal Trade Commission

For Amici: J. Mark Gidley, Jack E. Pace III, and Bryan D. Gant of White & Case LLP

/s/ J. Mark Gidley J. Mark Gidley Counsel for Amici Curiae Antitrust Economists

1 Impax Laboratories, LLC has further identified the following additional affiliated companies and persons with ownership interests in Impax Laboratories, LLC: “Impax Laboratories, LLC is a wholly-owned subsidiary of Amneal Pharmaceuticals LLC. Amneal Pharmaceuticals, Inc., a publicly traded company, owns a greater-than-10% interest in Amneal Pharmaceuticals LLC. Fosun International Limited, which is traded on the Hong Kong Stock Exchange and holds shares through one or more affiliates, owns 17% of Amneal Pharmaceuticals, Inc.’s Class A stock (but only 7% of its total common stock). T. Rowe Price Associates, Inc. and funds associated with TPG Global, LLC own 14% and 12%, respectively, of Amneal Pharmaceuticals, Inc.’s Class A stock. Tushar Patel owns approximately 18% of Amneal Pharmaceuticals, Inc.’s stock. Gautam Patel owns approximately 10% of Amneal Pharmaceuticals, Inc.’s stock.”


ii

TABLE OF CONTENTS CERTIFICATE OF INTERESTED PERSONS ................................................... i

TABLE OF AUTHORITIES ................................................................................ iii

STATEMENT OF INTEREST OF THE AMICI CURIAE ................................ 1

SUMMARY OF THE ARGUMENT ..................................................................... 1

ARGUMENT ............................................................................................................ 4

I. A Reverse Payment Must Include a “Large,” “Unexplained” Patentee Sacrifice, Not Merely a Generic Benefit ................................................... 4

A Generic Benefit, Standing Alone, Cannot Suggest the Type of “Unusual” Agreement at Issue in Actavis ............................................. 5

Actavis Instead Requires a Patentee Profit Sacrifice to Suggest the Possibility of Anticompetitive Effects .................................................. 7

II. It Is Necessary to Subtract Saved Litigation Costs and Then Ask Whether Any Remaining Payment Was Large ..................................... 15

CONCLUSION ....................................................................................................... 17

CERTIFICATE OF IDENTICAL COMPLIANCE OF BRIEFS .................... 19

CERTIFICATE OF PERFORMANCE OF VIRUS CHECK ........................... 20

CERTIFICATE OF SERVICE ............................................................................ 21

CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATION, TYPEFACE REQUIREMENTS, AND TYPE STYLE REQUIREMENTS ................................................................................................. 22

CERTIFICATION OF REDACTION OF PERSONAL IDENTIFIERS ........ 23

ADDENDUM A: List of Amici Curiae ................................................................ 24


iii

TABLE OF AUTHORITIES

Page(s)

CASES

Am. Motor Inns v. Holiday Inns, 521 F.2d 1230 (3d Cir. 1975) ............................................................................. 15

Am. Sec. Vanlines, Inc. v. Gallagher, 782 F.2d 1056 (D.C. Cir. 1986) ............................................................................ 7

Brooke Grp. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993) .............................................................................................. 8

Cal. Dental Ass’n v. FTC, 526 U.S. 756 (1999) .............................................................................................. 4

Capital Imaging Assocs., P.C. v. Mohawk Valley Medical Assocs., 996 F.2d 537 (2d Cir. 1993) ................................................................................. 4

Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104 (1986) .............................................................................................. 8

In re Cipro Cases I & II, 61 Cal. 4th 116 (Cal. 2015)................................................................................. 15

Dalton v. McCourt Elec., LLC, 12-cv-3568, 2013 U.S. Dist. LEXIS 176582 (E.D. Pa. Dec. 17, 2013) .................................. 11

Duffy Tool & Stamping, L.L.C. v. NLRB, 233 F.3d 995 (7th Cir. 2000) ................................................................................ 6

FTC v. Actavis, Inc., 570 U.S. 136 (2013) .....................................................................................passim

FTC v. Watson Pharm., 677 F. 3d 1298 (11th Cir. 2012) ........................................................................... 9

Ironworkers Dist. Council v. Andreotti, C.A.-9714-VCG, 2015 Del. Ch. LEXIS 135 (Del. Ch. Ct. May 8, 2015) ................................................................................. 16


iv

In re Joint E. & S. Dist. Asbestos Litig., 14 F.3d 726 (2d Cir. 1993) ................................................................................... 5

Judkins v. HT Window Fashion Corp., 529 F.3d 1334 (Fed. Cir. 2008) ............................................................................ 5

King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp. (In re Lamictal Antitrust Litig.), 791 F.3d 388 (3d Cir. 2015) ............. 2, 7, 12, 15

In re Lipitor Antitrust Litig., 46 F. Supp. 3d 523 (D.N.J. 2014) ....................................................................... 14

In re Loestrin 24 Fe Antitrust Litig., 261 F. Supp. 3d 307 (D.R.I. 2017) ................................................................... 3, 7

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) .............................................................................................. 8

Monsanto Co v. Spray-Rite Service Corp., 465 U.S. 752 (1984) .............................................................................................. 4

In re Nexium (Esomeprazole) Antitrust Litig., 842 F.3d 34 (1st Cir. 2016) ................................................................................. 10

Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018) .......................................................................................... 4

Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005) .......................................................................... 13

In re Solodyn (Minocycline Hydrochloride) Antitrust Litig., No. 14-md-02503, 2018 U.S. Dist. LEXIS 11921 (D. Mass. Jan. 25, 2018) ..................................................................................... 10

Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518 (5th Cir. 1999) ................................................................................ 8

Theatre Enters. v. Paramount Film Distrib. Corp., 346 U.S. 537 (1954) .............................................................................................. 4


v

United Food & Commercial Workers Local 1776 & Participating Employers Health & Welfare Fund v. Teikoku Pharma USA, Inc. (In re Lidoderm Antitrust Litigation), 296 F. Supp. 3d 1142 (N.D. Cal. 2017) .............................................................. 11

United States v. De La Mata, 535 F.3d 1267 (11th Cir. 2008) ............................................................................ 5

United States v. Weimart, 819 F.3d 351 (7th Cir. 2016) .............................................................................. 11

In re Wellbutrin XL Antitrust Litig., 133 F. Supp. 3d 734 (E.D. Pa. 2015) .................................................................. 13

In re Wellbutrin XL Antitrust Litig., 868 F.3d 132 (3d Cir. 2017) ............................................................................... 10

Williams v. First Nat’l Bank of Pauls Valley, 216 U.S. 582 (1910) .............................................................................................. 7

Wygant v. Jackson Bd. of Educ., 476 U.S. 267 (1986) .............................................................................................. 6

MISCELLANEOUS

ABA Model Jury Instructions in Civil Antitrust Cases (2016) ................................. 4

Alex J. Hurder, The Lawyer’s Dilemma: To Be or Not to Be a Problem-Solving Negotiator, 14 Clinical L. Rev. 253 (2007) ............................. 6

Carl Shapiro, Antitrust Limits to Patent Settlements, 34 RAND J. Econ. 391 (2003) ................................................................................................. 14

Craig A. McEwen, Managing Corporate Disputing: Overcoming Barriers to the Effective Use of Mediation for Reducing the Cost and Time of Litigation, 14 Ohio St. J. on Disp. Resol. 1 (1998) ........................ 16

John Burwell Garvey & Charles B. Craver, Skills and Values: Alternative Dispute Resolution: Negotiation, Mediation, Collaborative Law and Arbitration (2013) .......................................................... 5


vi

Michaela Keet, Heather Heavin, & Shawna Sparrow, Indirect and Invisible Organizational Costs: Making Informed Decisions about Litigation and Settlement, 50 Cardozo J. of Conflict Resol. 49 (2018) .................................................................................................................. 16

Roger Fisher, William Ury, & Bruce Patton, Getting to Yes: Negotiating Agreement Without Giving In (3d ed. 2011) ..................................... 6


1

STATEMENT OF INTEREST OF THE AMICI CURIAE2

Amici curiae are economists and consultants who specialize in the economics

of the pharmaceutical industry. A list of the amici curiae is attached as Addendum

A. Amici have written extensively in the field of economics, including competition,

antitrust economics, and policy. They seek to bring to the Court’s attention

economic analysis relevant to assessing the treatment under the antitrust laws of

terms reached as part of a settlement that resolves patent infringement litigation.

SUMMARY OF THE ARGUMENT

To the extent the Federal Trade Commission’s decision in this case ignores

fundamental economic principles found in the Supreme Court’s decision in FTC v.

Actavis, Inc., 570 U.S. 136 (2013), and also in the antitrust laws more generally,

Amici urge reversal of the Commission’s decision.

The Commission must identify an actual “reverse payment” to support

its reverse payment claim. Both economic theory and antitrust law make clear that

a reverse payment under Actavis must represent not only a benefit to the generic

challenger but also a sacrifice by the patentee. It is inappropriate to focus only on

the former and ignore the requirement that the patentee have made a sacrifice.

2 This brief is filed with the written consent of all parties. No party to this case—or party’s counsel—authored this brief in whole or in part or contributed money that was intended to fund preparing or submitting this brief. Only the amici curiae or their counsel contributed money that was intended to fund preparing or submitting this brief.


2

Whether in the settlement context or otherwise, nearly all agreements are

mutually beneficial to the parties that enter them—as the desire for such benefits is

the typical reason parties enter agreements. Thus it is hardly unusual, and

economically unremarkable, that a generic challenger might benefit from entering

agreements with a patentee in connection with a settlement. It is thus not possible

to determine whether there was a reverse payment—much less one that was large

and unexplained—by assessing the alleged payments solely based on the benefit

received by the generic challenger.

Instead, what makes a “reverse payment” settlement “unusual,” and thus

subject to rule of reason review under Actavis, is that the patentee (the brand

company) does not benefit, at least in the short term, but rather makes a large and

unexplained short-term profit sacrifice in connection with such agreements with

generic challengers. See, e.g., Actavis, 570 U.S. at 154 (discussing the “shar[ing] of

[the patentee’s] monopoly profits”). Actavis holds that such an initial sacrifice by

the patentee can suggest the possibility that the patentee might then have recouped

that sacrifice by anticompetitive means, and thus raises the potential for antitrust

scrutiny. Id. at 140, 156-58; King Drug Co. of Florence, Inc. v. Smithkline Beecham

Corp. (In re Lamictal Antitrust Litig.), 791 F.3d 388, 405 (3d Cir. 2015), cert.

denied, 137 S. Ct. 446 (2016) (asking whether “the source of the benefit to the

claimed infringer is something costly to the patentee”); In re Loestrin 24 Fe Antitrust


3

Litig., 261 F. Supp. 3d 307, 332 (D.R.I. 2017) (“The text of Actavis suggests that the

Court should consider both [the perspective of the patentee and alleged infringer] in

considering an alleged unlawful reverse payment.”).

A patentee sacrifice is thus an integral part of any reverse payment, and

therefore to any reverse payment claim under Actavis.

The Commission must determine whether the claimed payment here was

“large” and “unexplained” after subtracting the litigation costs the patentee

saved by settling. Actavis held that payments that are less than a patentee’s saved

litigation costs should not be subject to antitrust scrutiny. See Actavis, 570 U.S. at

156, 159. The reason is simple economics: When the patentee pays the generic

challenger what the patentee otherwise would have incurred through continuing the

patent litigation, it has made no sacrifice. For example, a party that would have

incurred costs of $10 million to try a patent case but instead pays its opponent $9

million to settle has not sacrificed $9 million—it has saved $1 million. For the same

reason, if the same party pays its opponent $10.1 million to avoid incurring litigation

costs of $10 million, the question is not whether $10.1 million is a large and

unexplained payment, but rather whether $100,000 is a large and unexplained

payment under Actavis, as $10 million of the payment is “explained” by saved

litigation costs. A reverse payment that gives rise to antitrust scrutiny under Actavis

thus must be large and unexplained after subtracting saved litigation costs.


4

ARGUMENT

I. A Reverse Payment Must Include a “Large,” “Unexplained” Patentee Sacrifice, Not Merely a Generic Benefit

Actavis depends on finding that the patentee made a “large” and

“unexplained” reverse payment to the generic patent challenger—an “unusual”

agreement “quite different” from “traditional” forms of settlement. Actavis, 570

U.S. at 147, 152. Because the purpose of the rule of reason in antitrust law is to

assess the competitive impact of a course of conduct, without such a large,

unexplained reverse payment there is nothing to assess under the rule of reason.3

But what makes a reverse payment economically “unusual” and thus potentially

subject to antitrust scrutiny?

3 Under the rule of reason, “the plaintiff has the initial burden to prove that the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market.” Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018) (citing Julian Kalinowski, Antitrust Laws And Trade Regulation §12.02[1] (2d ed. 2017); Phillip Areeda & Herbert Hovenkamp, Fundamentals of Antitrust Law §15.02[B] (4th ed. 2017)); see also Cal. Dental Ass’n v. FTC, 526 U.S. 756, 771 (1999) (burden to show procompetitive benefits did not shift to defendants absent plaintiff making prima facie case of anticompetitive effects); Capital Imaging Assocs., P.C. v. Mohawk Valley Medical Assocs., 996 F.2d 537, 543 (2d Cir. 1993) (same).

This burden cannot be met without first establishing the existence of the challenged conduct—in this case a large, unexplained reverse payment. See, e.g., Monsanto Co v. Spray-Rite Service Corp., 465 U.S. 752, 765 (1984) (beginning analysis by asking whether there was an agreement and what it covered); Theatre Enters. v. Paramount Film Distrib. Corp., 346 U.S. 537, 540-42 (1954) (same); ABA Model Jury Instructions in Civil Antitrust Cases at C-3 (2016) (plaintiff must first show existence of challenged conduct). Unless such a payment has been shown, the rule of reason therefore has no role to play in the analysis.


5

A Generic Benefit, Standing Alone, Cannot Suggest the Type of “Unusual” Agreement at Issue in Actavis

The answer cannot solely be that such a payment provides the generic

challenger with value. Settlements—like all agreements—typically benefit both

sides, so the mere fact that an agreement provided a benefit to at least one side of the

agreement is unremarkable and hardly “unusual” from either a legal or an economic

perspective. See United States v. De La Mata, 535 F.3d 1267, 1270 (11th Cir. 2008)

(settlement of forfeiture claim mutually beneficial, including because of saved

litigation costs); In re Joint E. & S. Dist. Asbestos Litig., 14 F.3d 726, 729 (2d Cir.

1993) (stated purpose of class to “facilitate the formation of a settlement that will

mutually benefit both [parties]”); Judkins v. HT Window Fashion Corp., 529 F.3d

1334, 1340 (Fed. Cir. 2008) (“[T]he fact that both [parties] took from the settlement

something of value points to a constructive, mutually beneficial resolution to a

legitimate dispute.”). Indeed, Actavis itself makes clear that settling parties are not

restricted from entering into agreements that provide a benefit to the generic

challenger, such as “entry date only” settlements that permit a generic challenger to

enter the market before expiration of the challenged patent. Actavis, 570 U.S. at 158.

One well-respected way for adverse parties to reach agreement is to find some

way to make settlement mutually beneficial, such as by “expanding the pie” to

introduce additional value for both sides. John Burwell Garvey & Charles B. Craver,


6

Skills and Values: Alternative Dispute Resolution: Negotiation, Mediation,

Collaborative Law and Arbitration 35-36 (2013) (“Too many bargainers make the

mistake of assuming that the parties have a fixed amount of goods to be divided—

i.e., identical value systems and analogous utility functions that generate zero-sum

transactions,” but that in fact “parties probably value the various items quite

differently,” allowing them to “look for exchanges that can simultaneously benefit

both sides” by “expand[ing] the overall pie”); Roger Fisher, William Ury, & Bruce

Patton, Getting to Yes: Negotiating Agreement Without Giving In 75 (3d ed. 2011)

(urging parties to expand the pie to obtain mutually-beneficial results); Alex J.

Hurder, The Lawyer’s Dilemma: To Be or Not to Be a Problem-Solving Negotiator,

14 Clinical L. Rev. 253, 255 (2007) (same); Duffy Tool & Stamping, L.L.C. v. NLRB,

233 F.3d 995, 998 (7th Cir. 2000) (Posner, J.) (“A negotiation is more likely to be

successful when there are several issues to be resolved . . . rather than just one,

because it is easier in the former case to strike a deal that will make both parties feel

they are getting more from peace than from war.”).

Actavis recognized the importance of traditional compromise, and did not seek

to make such compromise in connection with a patent settlement unlawful or suspect

under the antitrust laws. 570 U.S. at 152; see also id. at 146 (acknowledging “public

policy favoring settlement of disputes”); id. at 154 (“We recognize the value of

settlements….”); see also Wygant v. Jackson Bd. of Educ., 476 U.S. 267, 305 (1986)


7

(“general policy in favor of settlements”); accord Williams v. First Nat’l Bank of

Pauls Valley, 216 U.S. 582, 595 (1910) (“Compromises of disputed claims are

favored by the courts; and, presumptively, the parties to the compromise in question

possessed the right to thus adjust their differences.”) (citations omitted); Am. Sec.

Vanlines, Inc. v. Gallagher, 782 F.2d 1056, 1060 (D.C. Cir. 1986) (“Few public

policies are as well established as the principle that courts should favor voluntary

settlements of litigation by the parties to a dispute.”). Thus, an agreement cannot be

“unusual” under Actavis merely because it benefits a generic challenger.

Actavis Instead Requires a Patentee Profit Sacrifice to Suggest the Possibility of Anticompetitive Effects

Instead, what makes a reverse payment subject to antitrust scrutiny under

Actavis is that the agreement facially appears to benefit only one side—the generic

challenger—while requiring a profit sacrifice by the patentee, thus raising the

question of why the patentee willingly would make such a sacrifice. See Actavis,

570 U.S. at 154 (discussing the “shar[ing]” of the patentee’s “monopoly profits”

through a reverse payment); Lamictal, 791 F.3d at 405 (asking whether “the source

of the benefit to the claimed infringer is something costly to the patentee”); Loestrin,

261 F. Supp. 3d at 332 (“The text of Actavis suggests that the Court should consider

both [the perspective of the patentee and alleged infringer] in considering an alleged

unlawful reverse payment.”).


8

Actavis sought to use this sacrifice to suggest the potential for anticompetitive

effect, holding that such a payment may “amount[] to a purchase by the patentee of

the exclusive right to sell its product” by delaying the generic challenger’s entry into

the market in return for the payment. Actavis, 570 U.S. at 154. This aligns with the

Supreme Court’s comment, in another legal context, that predatory pricing

represents an “investment in below-cost prices.” Brooke Grp. v. Brown &

Williamson Tobacco Corp., 509 U.S. 209, 224-26 (1993); see also Matsushita Elec.

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594-95 (1986) (“predatory pricing

schemes require conspirators to suffer losses in order eventually to realize their

illegal gains”); Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 117 (1986)

(“pricing below an appropriate measure of cost for the purpose of eliminating

competitors in the short run and reducing competition in the long run”).

Actavis, like Brooke Group, thus looks for large and unexplained payments

that a plaintiff can then try to argue would only make sense if “recouped” by

anticompetitive means. Compare Actavis, 570 U.S. at 147 (patent, if valid and

infringed, might have “permitted [the patentee] to charge drug prices sufficient to

recoup the reverse settlement payments”) (emphasis added), with Stearns Airport

Equip. Co. v. FMC Corp., 170 F.3d 518, 528 (5th Cir. 1999) (“If there is no

likelihood of recoupment, it would seem improbable that a scheme would be

launched.”). It takes no great understanding of economics, however, to recognize


9

that a patentee cannot “recoup” a profit sacrifice without first making a profit

sacrifice. Thus, before a plaintiff can attempt to argue that a patent settlement may

have had anticompetitive effect, that plaintiff must first show that the patentee made

a large and unexplained sacrifice that would only make sense if it could then be

recouped by anticompetitive means.

Demonstration of a profit sacrifice by the patentee is also required to

overcome the presumption that a patent settlement is simply the lawful exercise of

the challenged patent, and thus not subject to antitrust scrutiny. If a challenged

patent is valid and infringed, then a settlement agreement merely enforcing that

patent should be permissible under the antitrust laws—and prior to Actavis, courts

thus held that merely settling within the scope of these patent rights was not suspect.

See, e.g., FTC v. Watson Pharm., 677 F.3d 1298, 1315 (11th Cir. 2012) (applying

the “scope of the patent” test in light of this). Actavis purports to avoid this problem

by suggesting that in some cases a court could use the patentee’s conduct to suggest

something regarding the likely expected outcome of the patent suit, and perhaps even

the strength of the patent, stating that an “unexplained large reverse payment itself

would normally suggest that the patentee has serious doubts about the patent’s

survival,” and could be a “workable surrogate for a patent’s weakness.” Actavis,

570 U.S. at 157-58 (emphasis added); id. at 154 (reverse payment “signal[s] to other

potential challengers that the patentee lacks confidence in its patent”). Such a


10

“surrogate” requires a patentee profit sacrifice, because it is only a large and

unexplained sacrifice by the patentee that plaintiffs could conceivably use to suggest

the “patentee ha[d] serious doubts about the patent’s survival.” 4 Id. at 157-58. Thus,

such a sacrifice is necessary to suggest the potential for antitrust scrutiny.

Such a sacrifice is also required for plaintiffs to suggest the possibility that a

patentee may have market power, as Actavis purports might potentially be possible

in at least certain reverse payment cases.5 Actavis held that “where a reverse

payment threatens to work unjustified anticompetitive harm, the patentee likely

possesses the [market] power to bring that harm about in practice.” See Actavis, 570

U.S. at 157. The focus here likewise is on the patentee’s sacrifice, as the Supreme

Court in Actavis noted that a patentee “without [market] power [is] [un]likely to pay

‘large sums’ to induce ‘others to stay out of its market.’” Id.

4 Any suggestion of patent weakness in Actavis is just a suggestion, based only on observations of patentee conduct, and should not be understood as sufficient to establish that the patent actually was weak or that the patent settlement resulted in anticompetitive effect. See generally In re Wellbutrin XL Antitrust Litig., 868 F.3d 132, 164 (3d Cir. 2017); In re Nexium (Esomeprazole) Antitrust Litig., 842 F.3d 34, 60 (1st Cir. 2016). 5 As with patent weakness, any suggestion of market power in Actavis is likewise just a suggestion based on patentee conduct, and should not be understood as sufficient to establish that the patentee actually had market power. See In re Solodyn (Minocycline Hydrochloride) Antitrust Litig., No. 14-md-02503, 2018 U.S. Dist. LEXIS 11921, at *24 (D. Mass. Jan. 25, 2018) (allegation of a reverse payment is “not necessarily sufficient to demonstrate market power at the summary judgment stage”).


11

By contrast, the sole fact that a generic challenger is willing to accept a benefit

tells a court virtually nothing about these issues. At most, a court might be able to

look to the fact that the generic challenger demanded a large payment as evidence

that the generic challenger viewed the patent as potentially vulnerable—though even

this assumes the generic challenger had a reasonable assessment of the strength of

the patentee’s arguments in the underlying patent case and that the generic

challenger was not bluffing. See, e.g., United States v. Weimart, 819 F.3d 351, 369

(7th Cir. 2016) (“Bargaining ‘hard’ can include bluffs about negotiating positions.”);

Dalton v. McCourt Elec., LLC, 12-cv-3568, 2013 U.S. Dist. LEXIS 176582, at *12

n.2 (E.D. Pa. Dec. 17, 2013) (“In the hurly-burly of negotiation, depending on the

style of the lawyer, it is not uncommon to encounter posturing, brinkmanship,

bluster, puffing, bluffing, braggadocio, and some sharp elbows.”); United Food &

Commercial Workers Local 1776 & Participating Employers Health & Welfare

Fund v. Teikoku Pharma USA, Inc. (In re Lidoderm Antitrust Litigation), 296 F.

Supp. 3d 1142, 1180 (N.D. Cal. 2017) (“access to imperfect information or

overconfidence based on that imperfect information . . . can impact settlements or

willingness to enter settlements”). But Actavis asks if the “patentee ha[d] serious

doubts about the patent’s survival,” and it is only the patentee’s willingness to make

a large, unexplained reverse payment that a plaintiff can use to provide any

suggestion of any such potential doubts. See id. at 157-58 (emphasis added).


12

Thus, showing that the generic challenger received a benefit—while of course

necessary in order to show a “payment,” as there can be no payment without a

payee—is therefore of only limited economic or legal utility in assessing the

competitive effect of a challenged settlement agreement. Instead, the Commission

needed to show that Endo Pharmaceuticals, Inc. (“Endo”)—the patentee—made a

large, unexplained sacrifice, and not simply that Impax Laboratories, Inc.

(“Impax”)—the generic challenger—received a benefit.

Doing so requires evaluating the terms of the settlement from the patentee’s

perspective. For example, if the patentee agreed not to launch an authorized generic,

it is necessary to evaluate the profit the patentee sacrificed by not launching an

authorized generic, not just the benefit to the generic challenger from such an

agreement. If the patentee would not have launched an authorized generic in the

absence of the settlement, then it sacrificed nothing and the agreement not to launch

an authorized generic cannot be considered a payment. See, e.g., Lamictal, 791 F.3d

at 405 (asking whether an alleged exclusive license was “costly to the patentee”).

It is also important for the settlement terms to be evaluated on an ex ante basis

(i.e., prospectively from the time of entering the agreement, not afterwards) when

determining whether there was a reverse payment, and the size of the payment. For

example, to the extent a settlement involves payments that are contingent on

uncertain events and/or outcomes, such payments must be evaluated based on the


13

expected value of the payments at the time of the settlement, not the ex post value

of the payments. Similarly, any side agreement must be evaluated on an ex ante

basis to determine if it involves a fair exchange of value. See In re Wellbutrin XL

Antitrust Litig., 133 F. Supp. 3d 734, 753 (E.D. Pa. 2015) ((“In conducting the rule

of reason analysis, the Court will evaluate the Wellbutrin Settlement's

reasonableness at the time it was entered into.”) (citing Polk Bros., Inc. v. Forest

City Enters., 776 F.2d 185, 189 (7th Cir. 1985); SCM Corp v. Xerox Corp., 645 F.2d

1195, 1207 (2d Cir. 1981)); Schering-Plough Corp. v. FTC, 402 F.3d 1056, 1071

(11th Cir. 2005) (“The Commission’s finding that the ‘Upsher licenses were worth

nothing to Schering’ overlooks the very nature of the pharmaceutical industry where

licenses are very often granted on drugs that never see the market. Likewise, the

essence of research and development is the need to encourage and foster new

innovations, which necessarily involves exploring licensing options and selecting

which products to pursue.”). For example, the failure of a co-development

agreement to produce a successful drug does not mean that ex ante the only value

exchanged was any payments made between the parties. Pharmaceutical

development does not come with any guarantees of success, but it is well-established

that the reasonableness of an agreement must be assessed as of the time the

agreement is entered, and not based on ex post re-evaluations. See id.


14

Moreover, the mere presence of payments going to the generic challenger

from the patentee as part of a side agreement does not, in and of itself, provide

evidence of a reverse payment. It is necessary to demonstrate that those payments

are outsized relative to reasonable estimates of the ex ante value of products and

services received in return. In addition, to the extent the payments are “outsized,” it

is the excess amount paid, not the full amount paid, that must be evaluated to

determine whether there was a large and unexplained reverse payment. See In re

Lipitor Antitrust Litig., 46 F. Supp. 3d 523 (D.N.J. 2014) (payment must remain

large “once the subtraction of legal fees and other services provided by generics

occurs”) rev’d on other grounds 868 F.3d 231 (3d Cir. 2017); Carl Shapiro, Antitrust

Limits to Patent Settlements, 34 RAND J. Econ. 391, 408 (2003) (“If the

patentholder is receiving more in value, as seen through its own eyes, than it is giving

up, the patentholder is making no net payment to the challenger, and there is no basis

for presuming that the settlement delays entry in comparison with litigation.”).

The Commission therefore needed to take into account the benefits to Endo in

determining whether there was any reverse payment, and whether such a payment

was large and unexplained. Nor does it help to say that Endo could have achieved

these benefits from a “less restrictive alternative” of entering the agreement outside

of settlement. The question at this juncture is whether Endo made a reverse payment

in the first place. Absent proof of such a reverse payment, there is no need to


15

consider procompetitive benefits, nor is there an obligation to structure transactions

in the most procompetitive manner possible. See Lamictal, 791 F.3d at 409 (“Actavis

does not stand for the proposition that parties must reach the most procompetitive

settlements possible.”); In re Cipro Cases I & II, 61 Cal. 4th 116, 150 n.10 (Cal.

2015) (“There is no statutory right to have parties enter the agreement most favorable

to competition, only a prohibition against entering agreements that harm

competition.”); Am. Motor Inns v. Holiday Inns, 521 F.2d 1230, 1249 (3d Cir. 1975)

(businesses are not “guarantors that the imaginations of lawyers could not conjure

up some method of achieving the business purpose in question that would result in

a somewhat lesser restriction of trade”). 6

II. It Is Necessary to Subtract Saved Litigation Costs and Then Ask Whether Any Remaining Payment Was Large

Actavis held that to raise antitrust concern a reverse payment must at least be

larger than the patentee’s future saved litigation costs. See Actavis, 570 U.S. at 156,

159. The economic reason for this is simple: Where a patentee pays the generic

challenger what it would otherwise expect to incur through litigation, it has made no

sacrifice—and thus has not provided a “workable surrogate for patent weakness” or

potential anticompetitive effect as Actavis requires—because it has simply paid its

6 The amici take no position on whether an appropriate analysis of the terms of the patent settlement between Endo and Impax would have shown that Endo actually made a profit sacrifice—and thus a reverse payment—here.


16

opponents what it would otherwise have lost to the litigation process.7 See id. at

157. For example, a patentee who would have expected to incur litigation costs of

$10 million, and instead pays its adversary $9 million, has not sacrificed $9 million,

it has saved $1 million.

A reverse payment thus must remain large and unexplained even after

subtracting the patentee’s future saved litigation costs, as it is only this remaining

portion above saved litigation costs that can potentially represent a “sacrifice” by the

patentee. For example, if a patentee would have spent $10 million on litigation but

pays its adversary $10.1 million, the relevant “payment” is not $10.1 million but

rather $100,000, because $10 million is “explained” by saved litigation costs and

therefore cannot be a sacrifice—only the remaining $100,000 can be. Thus, the

7 For this reason, saved litigation costs do not simply include the “hard costs” of paying lawyers and experts, but also the soft costs of business uncertainty, time and distraction of business managers and employees, and the inability to properly manage for the future while litigation remains pending. See, e.g., Ironworkers Dist. Council v. Andreotti, C.A.-9714-VCG, 2015 Del. Ch. LEXIS 135, at *80 (Del. Ch. Ct. May 8, 2015) (corporation could rightly consider the time, expense, and business impact of litigation, including the “significant distraction and impairment of morale for directors, officers, and employees of the Company”); Michaela Keet, Heather Heavin, & Shawna Sparrow, Indirect and Invisible Organizational Costs: Making Informed Decisions about Litigation and Settlement, 50 Cardozo J. of Conflict Resol. 49, 51 (2018) (“a cost-benefit analysis of whether to litigate or settle must account for indirect organizational costs as well as direct legal expenses”); Craig A. McEwen, Managing Corporate Disputing: Overcoming Barriers to the Effective Use of Mediation for Reducing the Cost and Time of Litigation, 14 Ohio St. J. on Disp. Resol. 1, 1–28 (1998) (exploring indirect costs). However, the Commission appears to have only considered hard costs.


17

question becomes whether $100,000 is itself a large and unexplained reverse

payment under Actavis.

In assessing that question, Actavis makes clear that a payment must be

sufficiently sizable to suggest the potential that the patentee made a sacrifice in

exchange for generic delay, to suggest that it had “serious doubts about the patent’s

survival,” to serve as a “workable surrogate for patent weakness,” and to perhaps

even suggest market power. See Actavis, 570 U.S. at 157-58. Any payment above

saved litigation costs must therefore be sufficient to satisfy these requirements under

Actavis.

CONCLUSION

It is necessary to consider the patent settlement agreements from the

perspective of the patentee in order to determine whether there was a reverse

payment. It is also necessary to account for saved litigation costs, and to assess

whether any payment was large over and above such savings. To the extent the

Commission failed in either regard, it ignored the economic underpinnings of

Actavis and Amici economists urge the Court to reverse the Commission’s decision.


18

Respectfully submitted,

/s/ J. Mark Gidley J. Mark Gidley WHITE & CASE LLP 701 Thirteenth Street, N.W. Washington, DC 20005 Tel: (202) 626-3600 Email: [email protected] Jack E. Pace III Bryan D. Gant WHITE & CASE LLP 1221 Avenue of the Americas New York, NY 10020 Tel: (212) 819-8200 Email: [email protected]

[email protected] Counsel for Amici Curiae Antitrust Economists


19

CERTIFICATE OF IDENTICAL COMPLIANCE OF BRIEFS

I, J. Mark Gidley, hereby certify that the text of the electronically filed brief

is identical to the text of the original copies that will be dispatched to the Clerk

of the Court of the United States Court of Appeals for the Fifth Circuit upon

approval of the Clerk of the Court to file such original copies.

Dated: October 10, 2019 By: /s/ J. Mark Gidley J. Mark Gidley WHITE & CASE LLP 701 Thirteenth Street, N.W. Washington, DC 20005 Tel: (202) 626-3600 Email: [email protected]

Counsel for Amici Curiae Antitrust Economists


20

CERTIFICATE OF PERFORMANCE OF VIRUS CHECK

I, J. Mark Gidley, hereby certify that on October 10, 2019, I caused a virus

check to be performed on the electronically filed copy of this brief using the

following virus software: Symantec Endpoint Protection, Version 14. No virus was

detected.




21


I, J. Mark Gidley, hereby certify that on this 10th day of October, 2019, a true

and correct copy of the foregoing Brief was served upon all counsel of record via

ECF pursuant to 5th Cir. R. 25.2.5. I also caused an electronic copy of this brief to

be served on the following counsel for the parties:

Bradley D. Grossman Federal Trade Commission

600 Pennsylvania Avenue, NW Washington, DC (202) 326-2994

Jay P. Lefkowitz, P.C. Kirkland & Ellis, LLP 601 Lexington Avenue

New York, NY (212) 446-4800

Dated: October 10, 2019 By: /s/ J. Mark Gidley

J. Mark Gidley WHITE & CASE LLP 701 Thirteenth Street, N.W. Washington, DC 20005 Tel: (202) 626-3600 Email: [email protected]



22

CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMITATION, TYPEFACE REQUIREMENTS, AND TYPE STYLE

REQUIREMENTS

1. This Brief complies with the type-volume limitation of Fed. R. App. P.

32(a)(7)(B) because it contains 4,414 words, excluding the parts of the Brief

exempted by Fed. R. App. 32(f).

2. This Brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because it has

been prepared in a proportionally-spaced typeface using Microsoft Word in 14-point

Times New Roman.




23

CERTIFICATION OF REDACTION OF PERSONAL IDENTIFIERS

I, J. Mark Gidley, hereby certify pursuant to 5th Cir. R. 25.2.13 that the

foregoing Brief does not contain any personal data identifiers that require partial

redaction under the Federal Rules.




24

ADDENDUM A: LIST OF AMICI CURIAE

Dr. Bruce Stangle Analysis Group, Inc. Dr. Pierre Cremieux Analysis Group, Inc. Paul Greenberg Analysis Group, Inc. Ted Davis Analysis Group, Inc. Sally Woodhouse Cornerstone Research Zoya Marriott Cornerstone Research Maria Salgado Cornerstone Research Sean Nicholson Cornell University Laurence Baker Stanford University Iain Cockburn Boston University Doug Zona Square Z Research LLC Mike Akemann Berkeley Research Group, LLC




CLERK

TEL. 504-310-7700


Suite 115


October 11, 2019

Mr. John Mark Gidley White & Case, L.L.P. 701 13th Street, N.W. Washington, DC 20005 No. 19-60394 Impax Laboratories, Inc. v. FTC USDC No. 9373 Dear Mr. Gidley, You must electronically file a "Form for Appearance of Counsel" within 14 days from this date. You must name each party you represent, see FED. R. APP. P. 12(b) and 5TH CIR. R. 12 & 46.3. The form is available from the Fifth Circuit's website, www.ca5.uscourts.gov. If you fail to electronically file the form, the brief will be stricken and returned unfiled. You must submit the 7 paper copies of your brief required by 5th Cir. R. 31.1 within 5 days of the date of this notice pursuant to 5th Cir. ECF Filing Standard E.1. Failure to timely provide the appropriate number of copies may result in the dismissal of your appeal pursuant to 5th Cir. R. 42.3. Exception: As of July 2, 2018, Anders briefs only require 2 paper copies. If your brief was insufficient and required corrections, the paper copies of your brief must not contain a header noting "RESTRICTED". Therefore, please be sure that you print your paper copies from this notice of docket activity and not the proposed sufficient brief filed event so that it will contain the proper filing header. Alternatively, you may print the sufficient brief directly from your original file without any header.


Sincerely, LYLE W. CAYCE, Clerk

By: _________________________ Shea E. Pertuit, Deputy Clerk 504-310-7666 cc: Mr. Cory L. Andrews Mr. Bradley Grossman Ms. Heather Hippsley Mr. Jonathan D. Janow Mr. Jay P. Lefkowitz Mr. Richard Abbott Samp


No. 19-60394____________________

IN THE UNITED STATES COURT OF APPEALSFOR THE FIFTH CIRCUIT

____________________

IMPAX LABORATORIES LLC,

Petitioner,v.

FEDERAL TRADE COMMISSION,

Respondent.____________________

On Petition for Review fromThe Federal Trade Commission

No. 9373____________________

BRIEF OF WASHINGTON LEGAL FOUNDATIONAS AMICUS CURIAE IN SUPPORT OF PETITIONER,

URGING REVERSAL

Richard A. SampCory L. AndrewsWashington Legal Foundation2009 Massachusetts Avenue, NWWashington, DC 20036202-588-0302

October 10, 2019 [email protected]



No. 19-60394

IMPAX LABORATORIES LLC,Petitioner,

v.

FEDERAL TRADE COMMISSION,Respondent.

The undersigned counsel of record certifies that all interested persons andentities described in the fourth sentence of Rule 28.2.1 who have an interest in theoutcome of this case are listed in the Certificate of Interested Persons inPetitioner’s brief, except for the following listed persons and entities. Theserepresentations are made in order that the judges of this Court may evaluatepossible disqualification.

1. The Washington Legal Foundation (WLF), an amicus curiae. WLF is anonprofit corporation organized under § 501(c)(3) of the Internal Revenue Code. WLF has no parent corporation, nor has it issued any stock owned by a publiclyheld company.

2. Richard A. Samp and Cory L. Andrews are counsel for WLF in thismatter.

Richard A. SampCory L. AndrewsWashington Legal Foundation2009 Massachusetts Avenue, NWWashington, DC 20036202-588-0302

/s/ Richard A. SampRichard A. SampCounsel for Washington Legal Foundation


TABLE OF CONTENTSPage

CERTIFICATE OF INTERESTED PERSONS . . . . . . . . . . . . . . . . . . . . . . . . . . . i

TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

INTRODUCTION AND INTEREST OF AMICUS CURIAE . . . . . . . . . . . . . . . . 1

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

I. ACTAVIS REQUIRES COURTS REVIEWING PATENT-LITIGATION

SETTLEMENTS TO BALANCE THE GOALS OF PATENT LAW AND ANTITRUST

LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

A. Actavis Rejected The FTC’s Claim That “Reverse Payment”Settlements Are Presumptively Anticompetitive . . . . . . . . . . . . . . . 11

B. The Rule-of-Reason Analysis Mandated By Actavis RequiresReviewing Courts To Examine All Relevant Factors ToDetermine Whether an Agreement Harms Competition . . . . . . . . . . 13

II. THE FTC IMPOSED ANTITRUST LIABILITY WITHOUT CONDUCTING THE

RULE-OF-REASON ANALYSIS REQUIRED BY ACTAVIS . . . . . . . . . . . . . . . . . 15

A. The FTC Failed To Show That The Endo-Impax SettlementHarmed Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

B. The FTC Erred By Refusing To Consider The ProcompetitiveBenefits Of The Endo-Impax Settlement . . . . . . . . . . . . . . . . . . . . . 19

ii


Page

C. The FTC Failed To Show That The Settlement’s ProcompetitiveBenefits Could Have Been Achieved By A Means Less HarmfulTo Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

III. ACTAVIS DID NOT AUTHORIZE ANTITRUST SCRUTINY FOR NON-CASH

“NO-AG” AGREEMENTS OF THE SORT AT ISSUE HERE . . . . . . . . . . . . . . . 24

IV. THE FTC’S DECISION EFFECTIVELY OUTLAWS ANY SETTLEMENTS THAT

PROVIDE SUBSTANTIAL BENEFIT FOR GENERIC DRUG

MANUFACTURERS—THEREBY RENDERING SETTLEMENTS EXCEEDINGLY

DIFFICULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

iii


TABLE OF AUTHORITIESPage(s)

Cases:

Asahi Glass Co. v. Pentech Pharms., Inc., 289 F. Supp. 2d 986 (N.D. Ill. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Calif. Dental Ass’n v. FTC, 526 U.S. 756 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

E. Bement & Sons v. Nat’l Harrow Co., 186 U.S. 70 (1902) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

FTC v. Actavis, Inc., 570 U.S. 136 (2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

In re K-Dur Antitrust Litigation, 686 F.3d 2012 (3d Cir. 2012), vacated, 570 U.S. 913 (2013) . . . . . . . . . . . . . . . 7

In re Nexium Antitrust Litig., 842 F.3d 34 (1st Cir. 2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

In re: Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir. 2006), cert denied, 551 U.S. 1144 (2007). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Kimble v. Marvel Entertainment Group, LLC, 135 S. Ct. 2401 (2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Leegin Creative Leather Products, Inc. v. PSKS, Inc. , 551 U.S. 877 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

North Texas Specialty Physicians v. FTC, 528 F.3d 346 (5th Cir. 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

iv


Page(s)

Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Ohio v. American Express Co., 138 S. Ct. 2274 (2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 14

Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005), cert denied, 548 U.S. 919 (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 17

Simpson v. Union Oil Co., 377 U.S. 13 (1964) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Standard Oil Co. (Indiana) v. United States, 283 U.S. 163 (1931) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

United States v. Line Material Co., 333 U.S. 287 (1948) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Statutes and Constitutional Provisions:

Federal Trade Commission Act § 5, 15 U.S.C. § 45 . . . . . . . . . . . . . . . . . . . . . . . . 5

Hatch-Waxman Act, Pub. L. No. 98-417 (1984) . . . . . . . . . . . . . . . . . . . . 1, 26, 29

Sherman Act, 15 U.S.C. § 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 20, 25

35 U.S.C. § 261 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 25

Miscellaneous:

Kevin McDonald, “Because I Said So: On the Competitive Rationale of FTC v. Actavis,” 28 ANTITRUST 36 (2013) . . . . . . . . . . . . . . . . . . . . . . . . . . 29

v


INTRODUCTION AND INTEREST OF AMICUS CURIAE

The Washington Legal Foundation (WLF) is a non-profit public-interest law

firm and policy center with supporters in all 50 States.1 WLF promotes and

defends free enterprise, individual rights, a limited and accountable government,

and the rule of law. WLF has filed briefs in numerous federal court cases

involving the intersection of patent rights and antitrust law. See, e.g., FTC v.

Actavis, 570 U.S. 136 (2013); Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th

Cir. 2004), cert. denied, 548 U.S. 919 (2006).

The FTC’s decision represents a major expansion of antitrust law and

directly conflicts with Actavis. WLF is concerned that the decision not only will

make it exceedingly difficult for parties to settle drug-patent disputes but will

seriously erode drug companies’ incentives to develop and market innovative, life-

saving products.

Developing innovative drugs both saves lives and saves consumers billions

of dollars each year. Congress recognized these pro-competitive aspects of new

drug development when it adopted the patent laws and the Hatch-Waxman Act.

Those laws offer large financial benefits to companies that risk the huge sums

1 Under Fed.R.App.P. 29(a)(4)(E), WLF states that no counsel for a partyauthored this brief in whole or in part; and that no person or entity, other than WLFand its counsel, contributed monetarily to the preparation and submission of thisbrief. All parties have consented to the filing of the brief.


necessary to run the Food and Drug Administration (FDA) regulatory gauntlet and

that eventually succeed in winning marketing approval for innovative medical

products.

The decision below ignored the substantial benefits to competition derived

from enforcing the patent laws. Instead, the FTC focused solely on the short-term

benefits to consumers brought about by introducing generic competition before an

innovative drug’s patents are set to expire. The Commission concluded that

virtually every litigation-related action by a brand-name drug company to protect

its patent is subject to searching scrutiny under the antitrust law. Yet the

Commission never even acknowledged that such scrutiny inevitably devalues

patents and thus undermines Congress’s efforts to promote competition-enhancing

drug development.

Such one-sided emphasis on antitrust-law enforcement runs directly counter

to the Supreme Court’s decision in Actavis. Actavis emphasized the need to

“balance” the antitrust and patent laws. It held that transfers of value from a brand-

name drug company to a generic company in connection with a patent-litigation

settlement “sometimes” should be subject to antitrust scrutiny and “sometimes”

not. And for those cases in which antitrust scrutiny is warranted, Actavis rejected

the FTC’s arguments that “reverse payment” settlements are presumptively

2


unlawful and that reviewing courts should proceed via a “quick look” approach.

Rather, FTC challenges to patent settlements must proceed under a rule-of-reason

approach that weighs all the circumstances of the case.

The FTC gave lip service to the rule of reason, but its analysis mirrored the

“quick look” approach rejected by Actavis. The Commission simply presumed,

without examining the evidence, that the challenged patent settlement had

substantial anticompetitive effects. Worse still, it held that the procompetitive

effects of the patent settlement, when considered as a whole, were not relevant to

the rule-of-reason analysis; it held that the only relevant procompetitive effects

were those that arose directly from the settlement provisions (the “No-AG

Agreement” and the “Endo Credit”) challenged by the FTC. The FTC’s revisionist

application of the rule of reason conflicts with Actavis and requires reversal.

STATEMENT OF THE CASE

In 2006, Endo Pharmaceuticals, Inc. received FDA approval for and

launched Opana ER, an extended release formulation of oxymorphone, an opioid

used to treat pain. In 2007, Petitioner Impax Laboratories LLC filed with FDA an

Abbreviated New Drug Application (ANDA), seeking approval to market a generic

version of Opana ER. Because the ANDA certified that Endo’s patents were

invalid and would not be infringed by Impax’s marketing plans, the ANDA filing

3


counted as an infringing act, essentially forcing Endo to sue for patent

infringement.

After years of contentious litigation, Endo and Impax signed a settlement

agreement in June 2010. The principal settlement terms: (1) Endo granted Impax a

license to market its generic product in January 2013, eight months before the last

of three Endo patents was set to expire; it also granted Impax a license covering

any patents that Endo might later obtain for Opana ER; (2) Endo agreed not to

market its own generic version of Opana ER for the first 180 days after Impax

began marketing (the “No Authorized Generic” or “No-AG” Agreement); (3) in the

event that Endo ceased marketing the original formulation of Opana ER before

2013 (as Impax feared it might), thereby reducing demand for Impax’s product,

Impax would be entitled to certain credits (the “Endo Credit”); and (4) Impax

agreed to drop its challenge to Endo’s patents and not to market its generic product

before 2013.

These principal settlement terms did not entail the payment of cash from one

party to the other.2 Attorneys at the FTC nonetheless characterized the settlement

2 The parties also entered into a separate Development and Co-PromotionAgreement (DCA), under which they agreed to cooperate in the development of anew drug for the treatment of Parkinson’s disease. Under the DCA, Endo was tomake certain cash payments to Impax. Following a trial, the FTC’s AdministrativeLaw Judge determined that Endo received full value for the money it paid under

4


as a “reverse payment” settlement (i.e., one in which payments flowed from the

patentee to the alleged infringer) and charged that the agreement violated Section 5

of the Federal Trade Commission Act.

The case against Impax proceeded to trial before an ALJ. The ALJ

dismissed the complaint, concluding that the evidence at trial failed to prove that

the settlement caused any anticompetitive harm. In particular, he found it

“unlikely” that generic competition would have begun before January 2013 (the

date that Impax began marketing) even if the parties had not settled. He also found

that the settlement provided “real and substantial procompetitive benefits to

consumers” that outweighed any anticompetitive effect.

Complaint Counsel appealed to the Commission, which reversed the ALJ’s

decision and held that Impax violated the antitrust laws by entering into the

settlement agreement. Under Actavis, the Commission stated, anticompetitive

harm can be established by demonstrating that an agreement eliminates “the risk of

competition”; the plaintiff need not prove that generic competition “would actually

or probably have occurred earlier” but for the challenged agreement. Comm. Op.

at 23. It determined that: (1) as of June 2010, Impax was legally permitted to

the DCA. The Commission did not challenge that finding, and the DCA played norole in the FTC’s determination that the settlement violated antitrust laws.

5


launch its generic product while litigation continued, albeit a launch would have

placed it “at risk” of a later award of potentially bankrupting infringement

damages; and therefore (2) there was a “plausible risk” that Impax would have

entered the market before January 2013 but for the settlement agreement. Id. at 24.

The Commission also held that Impax failed to show any procompetitive

rationale for the agreement. Id. at 31-39. While conceding that various provisions

of the settlement were likely procompetitive, it held that those provisions were

irrelevant to the rule-of-reason analysis because Impax failed adequately to link the

procompetitive effects to “the challenged restraint,” which the Commission

identified as “the use of a reverse payment to eliminate the risk of generic entry

before January 2013.” Id. at 32. The Commission held in the alternative that even

if Impax had demonstrated relevant procompetitive benefits, Complaint Counsel

demonstrated that Impax could have obtained the same benefits “by settling

without a reverse payment for delayed entry—which is a practical, less restrictive

alternative.” Id. at 40.

SUMMARY OF ARGUMENT

In establishing a patent system, Congress recognized the value of temporary

restraints on trade for the purpose of providing financial incentives designed to

spur innovation and thereby promote competition over the longer term. While

6


even temporary restraints on competition cut against the goals of antitrust law in

many contexts, Congress mandated that courts should strive to maintain a balance

between patent law and antitrust law, and that antitrust law should not be used to

shortchange the rights of patent holders. Simpson v. Union Oil Co., 377 U.S. 13,

14 (1964).

In its Actavis decision, the Supreme Court sought to maintain that balance in

the context of drug-patent litigation settlements between brand-name and generic

drug companies. It sought to steer a middle ground between the “presumption of

unreasonable restraint” approach espoused by the FTC and adopted by the Third

Circuit,3 under which settlements involving payments from a patentee to the

alleged infringer were rebuttably presumed to violate antitrust laws, and the “scope

of the patent” test adopted by other federal appeals courts,4 under which such

“reverse payment” settlements were not subject to antitrust scrutiny so long as their

anticompetitive effects did not extend beyond the exclusionary potential of the

underlying patents. Actavis, 570 U.S. at 158-60.

The Supreme Court held that when a generic drug company agrees, in

3 In re K-Dur Antitrust Litigation, 686 F.3d 2012 (3d Cir. 2012), vacated,570 U.S. 913 (2013).

4 See, e.g., In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187 (2d Cir.2006).

7


connection with a patent litigation settlement, to postpone efforts to market a

generic version of the patented drug, the agreement is subject to antitrust scrutiny

if the settlement includes a “large” and “unjustified” payment from the brand-name

drug company to the generic company. Id. at 158.5 But the Court rejected the

FTC’s position that “reverse payment settlement agreements are presumptively

unlawful and that courts reviewing such agreements should proceed via a ‘quick

look’ approach rather than applying a ‘rule of reason.’” Id. at 158-59. It explained

that “the likelihood of reverse payment bringing about anticompetitive effects”

depends on a wide variety of “complexities” and thus that “the FTC must prove its

case as in other rule-of-reason cases.” Id. at 159.

Under the rule of reason, “the plaintiff has the initial burden to prove that the

challenged restraint has a substantial anticompetitive effect that harms consumers

in the relevant market.” Ohio v. American Express Co., 138 S. Ct. 2274, 2284

(2018). The decision below must be reversed because the FTC failed to make that

initial showing. Indeed, the FTC did not even attempt to show that consumers

5 The Court focused its attention on settlements in which an alleged infringerwith no claims for damages “walks away with money,” id. at 152; it did notdirectly address settlements (as here) in which the defendant benefitted from thesettlement but did not receive cash. The Court said that “cash” payments arehighly unusual and may suggest an anticompetitive intent; it said that suchpayments to an alleged infringer that owns no patents of its own are “virtuallyunheard of outside of pharmaceuticals.” Id. at 155.

8


were harmed. Rather, the FTC held that it could meet its evidentiary burden

merely by demonstrating that the settlement agreement reduced the risk of

competition, regardless whether competition was actually likely to increase in the

absence of a settlement. That holding is inconsistent with Actavis’s rule-of-reason

mandate; the FTC is simply attempting to reintroduce its rejected “quick look”

approach under a new name.

The FTC also erred in failing to consider the numerous procompetitive

features of the settlement agreement identified by Impax. The FTC conceded that

the settlement had numerous procompetitive features—e.g., the patent licenses that

gave consumers access to a generic drug they would not have had in the absence of

the licenses. The FTC contended that those features were irrelevant to its antitrust

analysis because they supposedly were not directly linked to the two challenged

settlement provisions—the No-AG Agreement and the Endo Credit. That

contention is nonsensical. When parties agree to settle a lawsuit following

negotiations, they do so in reliance on all features of the settlement agreement.

The FTC has no basis for concluding that the settlement features to which it objects

would have remained in place in the absence of the features that (the FTC

concedes) promoted competition.

Moreover, the No-AG Agreement simply is not the sort of settlement

9


provision Actavis had in mind when it authorized antitrust scrutiny of “large” and

“unjustified” payments to an alleged infringer. A No-AG Agreement is not a cash

transaction; it is a patent holder’s grant of an exclusive license to market a generic

form of its patented product. There is nothing “unjustified” about exclusive

licenses; they are expressly authorized by federal patent law. See 35 U.S.C. § 261.

The grant of an exclusive license, an action whose effect is to restrict competition

as compared to a non-exclusive license, has long been upheld by the Supreme

Court as an integral part of a patent holder’s right to utilize its patent so as to

maximize profits.

The likely result of the FTC’s approach: settlements of drug patent litigation

will become exceedingly difficult. That result is inconsistent with Actavis, which

recognized the pro-competitive desirability of such settlements and sought to

preserve the ability of drug-patent litigants to settle their disputes.

10


ARGUMENT

I. ACTAVIS REQUIRES COURTS REVIEWING PATENT-LITIGATION SETTLEMENTS

TO BALANCE THE GOALS OF PATENT LAW AND ANTITRUST LAW

A. Actavis Rejected The FTC’s Claim That “Reverse Payment”Settlements Are Presumptively Anticompetitive

In Actavis, the Supreme Court addressed an FTC antitrust challenge to a

patent-litigation settlement under which the patent holder, Solvay Pharmaceuticals,

allegedly had agreed to make hundreds of millions of dollars in cash payments to

several generic drug companies in return for those companies’ agreeing not to

market generic versions of the patented drug for another nine years. The drug

companies argued that the settlement should be immune from antitrust scrutiny

because the settlement was within the scope of the patent; i.e., the patent at issue

was not scheduled to expire until 2021, while the agreement permitted the generic

companies to begin marketing in August 2015—65 months sooner. The FTC

argued, on the other hand, that the “large and unjustified” cash payments from

Solvay indicated that Solvay was paying potential competitors not to enter the

market, and therefore that the agreement should be presumed to constitute an

illegal conspiracy in restraint of trade, subject to the defendants’ right to attempt to

demonstrate that the agreement actually promoted competition.

The Supreme Court rejected both arguments and instead adopted a

11


compromise position that attempted to balance the competing demands of antitrust

law and patent law. It concluded that litigation settlements in which the brand-

name company transfers something of value to the generic company can

“sometimes” be subject to antitrust scrutiny and can “sometimes” violate the

antitrust laws. Actavis, 570 U.S. at 141. The Court repeatedly stated that courts

hearing antitrust challenges to patent settlement agreements must seek to “balance”

the often-conflicting principles of antitrust and patent law. See, e.g., id. at 148

(describing decision in United States v. Line Material Co., 333 U.S. 287 (1948), as

an effort to “strike [a] balance” between “the lawful restraint of trade of the patent

monopoly and the illegal restraint prohibited broadly by the Sherman Act.”); ibid

(stating that “patent and antitrust policies are both relevant in determining the

‘scope of the patent monopoly’—and consequently antitrust immunity—that is

conferred by a patent.”). The Court held that “a reverse payment, where large and

unjustified, can bring with it the risk of significant anticompetitive effects” and

thus subject a patent settlement to antitrust scrutiny—particularly when “parties

may well find ways to settle patent disputes without use of reverse payments.” Id.

at 158.6

6 The Court said that while “large and unexplained” cash payments aresubject to antitrust scrutiny, antitrust immunity is granted to patent settlements inwhich a transfer of value to the alleged infringer takes other forms. For example,

12


The Supreme Court also rejected the FTC’s assertion that reverse-payment

settlements are “presumptively unlawful” and that “courts reviewing such

agreements should proceed via a ‘quick look’ approach, rather than applying a

‘rule of reason.’” Id. at 158-59. The Court explained that “abandonment of the

‘rule of reason’ in favor of presumptive rules (or a ‘quick look’ approach) is

appropriate only where an observer with even a rudimentary understanding of

economics would conclude that the arrangements in question would have an

anticompetitive effect on customers and markets.” Id. at 159 (citation omitted).

B. The Rule-of-Reason Analysis Mandated By Actavis RequiresReviewing Courts To Examine All Relevant Factors To DetermineWhether an Agreement Harms Competition

Actavis explained that a rule-of-reason analysis was required because “the

likelihood of a reverse payment bringing about anticompetitive effects” depended

on a large number of factors, including the nature of the industry in question. 570

U.S. at 159. The Court declined to dictate “the structuring of the present rule-of-

reason antitrust litigation,” leaving that task to lower courts in the first instance.

the Court held that no antitrust scrutiny is warranted if the generic company dropsits patent invalidity claim in return for a license to market its product in advance ofthe patent’s expiration—even if, as will often be the case, the early-entry license isworth many millions of dollars to the generic company. Ibid. Nor is scrutinywarranted if the patent holder “pays” the alleged infringer by settling damageclaims for considerably less than originally sought in a lawsuit, no matter howlikely the patent holder might have been to prevail on those claims. Id. at 151-52.

13


Id. at 160. But it made clear it was requiring the FTC to “prove its case as in other

rule-of-reason cases.” Id. at 159 (emphasis added).

The Supreme Court has prescribed a three-step, burden-shifting framework

for conducting a rule-of-reason analysis:

Under this framework, the plaintiff has the initial burden to prove thatthe challenged restraint has a substantial anticompetitive effect thatharms consumers in the relevant market. If the plaintiff carries itsburden, then the burden shifts to the defendant to show a procompetitiverationale for the restraint. If the defendant makes this showing, then theburden shifts back to the plaintiff to demonstrate that the procompetitiveefficiencies could be reasonably achieved through less anticompetitivemeans.

American Express, 138 S. Ct. at 2284 (citations omitted). Thus, the FTC bears the

initial burden of demonstrating both that Impax’s conduct had “a substantial

anticompetitive effect” and that consumers were harmed.

The Court has repeatedly cautioned against applying presumptions regarding

anticompetitive effects, limiting them to cases where sufficient experience has

shown that the challenged conduct “always or almost always tends to restrict

competition and decrease output.” Northwest Wholesale Stationers, Inc. v. Pacific

Stationery & Printing Co., 472 U.S. 284, 289-90 (1985). “[T]he plausibility of

competing claims about the effects of the [conduct at issue] rules out the

indulgently abbreviated review.” Calif. Dental Ass’n v. FTC, 526 U.S. 756, 778

14


(1999). Under the rule of reason, “the accepted standard for testing whether a

practice restrains trade in violation of” the antitrust laws, “the factfinder weighs all

the circumstances of a case in deciding whether a restrictive practice should be

prohibited as imposing an unreasonable restraint on competition.” Leegin Creative

Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 885 (2007) (citation omitted)

(emphasis added).

II. THE FTC IMPOSED ANTITRUST LIABILITY WITHOUT CONDUCTING THE

RULE-OF-REASON ANALYSIS REQUIRED BY ACTAVIS

A. The FTC Failed To Show That The Endo-Impax Settlement HarmedCompetition

After conducting a trial, the ALJ dismissed the complaint, concluding that

the evidence at trial failed to prove that the settlement caused any anticompetitive

harm. In particular, he found it “unlikely” that generic competition would have

begun before January 2013 (the date that Impax began marketing) even if the

parties had not entered into the settlement agreement. He noted that in the absence

of a settlement, the patent-infringement litigation (including review by the Federal

Circuit) probably would not have concluded by January 2013.7 Thus, the

7 This Court is well-positioned to judge for itself the unlikelihood thatbetween June 2010 and January 1, 2013, all of the following would have occurred: (1) the trial court conducts a trial; (2) the trier of fact issues a verdict; (3) theparties file post-trial motions; (4) the trial court rules on those motions: (5) thelosing party appeals; (6) the parties file appellate briefs; (7) the appeals court hears

15


marketing of a generic form of Opana ER could have begun earlier than the date

specified in the settlement agreement only if Impax: (1) declined to settle; and (2)

began marketing “at risk” while the litigation continued. That is, Impax would

have had to assume the risk of a bankrupting damages award if the courts held that

Endo’s patent was valid and infringed—a risk that very few generic drug

companies are willing to assume. The ALJ determined, based on the evidence at

trial, that Impax would not have launched “at risk”—and thus that the settlement

agreement did not have a substantial anticompetitive effect that harmed consumers.

In reversing the ALJ, the Commission did not directly challenge the ALJ’s

factual findings. Rather, it modified the evidentiary burden normally applicable in

a rule-of-reason case so as to relieve itself of the burden of demonstrating that the

settlement agreement was likely to cause actual harm to consumers. Under what

amounted to a “quick look” analysis, the Commission held that anticompetitive

harm can be established by demonstrating that an agreement eliminates “the risk of

competition”; the plaintiff need not prove that generic competition “would actually

or probably have occurred earlier” but for the challenged agreement. Comm. Op.

at 23. Because it found a “plausible risk” that Impax would have launched “at

oral argument; and (8) the appeals court issues a written decision and rules on anyrehearing petitions.

16


risk” before January 2013 but for the settlement agreement (even though it did not

dispute the ALJ’s finding that an at-risk launch was unlikely), the Commission

held that Complaint Counsel met its burden of proving a substantial anticom-

petitive effect that harms consumers in the relevant market. Id. at 24.

The FTC’s highly relaxed evidentiary standard finds no support in rule-of-

reason case law.8 That case law requires proof of likelihood of harm by a

preponderance of the evidence, not a mere “risk” of harm without regard to the

likelihood of occurrence. See, e.g.., In re Nexium Antitrust Litig., 842 F.3d 34, 63

(1st Cir. 2016) (plaintiff failed to demonstrate anticompetitive harm by alleging

possibility that generic drug company would launch at risk; the plaintiff cannot

demonstrate causation in the absence of evidence of patent invalidity because “a

valid patent independently precludes competition apart from any agreement and an

‘at risk’ launch is unlawful absent a later finding of patent invalidity or non-

infringement.”) (citation omitted). Under the FTC’s standard, it should prevail

even if the likelihood of an at-risk launch was no more than 1 in 20.

The FTC seeks to justify its reduced evidentiary burden in patent-settlement

8 On review of FTC decisions, this Court reviews issues of law de novo. Although courts afford some degree of deference to FTC factual findings, thecourts examine the Commission’s factual findings “more closely when they differfrom those of the ALJ.” Schering-Plough Corp. v. FTC, 402 F.3d 1056, 1062(11th Cir. 2005) (collecting cases).

17


cases by pointing to language in Actavis that large and unexplained reverse

payments “likely seek to prevent the risk of competition.” Id. at 23 (quoting

Actavis, 570 U.S. at 157). But the FTC has wrenched that language out of context.

The Supreme Court majority was explaining why antitrust scrutiny should apply to

such payments (in response to three dissenting justices who argued against any

antitrust scrutiny of restraints that fall within the scope of the patent), not

establishing a new and more plaintiff-friendly standard for meeting evidentiary

burdens in rule-of-reason cases. Indeed, the five-justice majority went on to

emphasize that it was not instructing lower courts on how to conduct their rule-of-

reason analysis on remand. Actavis, 570 U.S. at 160. And it expressly held that

“the FTC must prove its case as in other rule-of-reason cases.” Id. at 159

(emphasis added).

Nor did the No-AG Agreement reduce competition after January 2013.

Indeed, as the FTC recognized, Endo likely never intended to market an

“authorized generic” version of Opana ER; rather, its plan all along was to

introduce a reformulated version of Opana ER, to cease marketing “old” Opana

ER, and to convince consumers to purchase the reformulated version instead.

Marketing a generic version of the first drug would have undermined that strategy.

In sum, the judgment below should be reversed because the FTC failed to

18


prove that the Endo-Impax settlement caused any anticompetitive harm.

B. The FTC Erred By Refusing To Consider The ProcompetitiveBenefits Of The Endo-Impax Settlement

After finding anticompetitive harm based on an erroneous evidentiary

standard, the FTC compounded its error by refusing to consider the numerous

procompetitive benefits of the settlement agreement identified by Impax. The FTC

did not dispute the existence of those benefits; rather, it held that those benefits

were irrelevant to the rule-of-reason analysis. The FTC stated that it challenged

two specific provisions of the agreement—the No-AG Agreement and the Endo

Credit—and that Impax bore the burden of demonstrating procompetitive benefits

arising directly from those provisions, not from the agreement as a whole. FTC

Op. at 32 (stating that “Impax does not make any argument that the No-AG

Commitment or Endo Credit ... have themselves protected Impax from the threat of

patent litigation or that it needed to accept these payments in order to enjoy the

procompetitive benefits of the patent license”). Not surprisingly, the Commission

cited no federal-court case law in support of its novel interpretation of Impax’s

evidentiary burden under the rule of reason.

In examining patent-litigation agreements for potential antitrust infractions,

the Supreme Court has routinely examined the entire agreement’s impact on

19


competition, not simply the impact of a single challenged provision. For example,

Standard Oil Co. (Indiana) v. United States, 283 U.S. 163 (1931), involved an

antitrust challenge to agreements among holders of competing patents not to sue

one another and to pool fixed-rate royalties earned on their patents. The Court

subjected the agreements to a rule-of-reason analysis, holding that

the primary defendants own competing processes for manufacturing anunpatented product which is sold in interstate commerce; and agreementsconcerning such processes are likely to engender the evils to which theSherman Act was directed. ... We must, therefore, examine the evidenceto ascertain the operation and effect of the challenged contracts.

Id. at 175. But after examining the agreements as a whole, Justice Brandeis

(writing for a unanimous Court) found no antitrust violation because “[n]o

monopoly, or restriction on competition, in the business of licensing patented

cracking processes resulted from the execution of these agreements.” Ibid. The

Court did not separately examine individual provisions in the agreements (for

example, the provision mandating the pooling of fixed royalties) to determine

whether those provisions were designed to eliminate a “risk of competition.”

Nothing in Actavis suggests that the Court intended to abandon the focus-on-

the-entire-agreement rule-of-reason analysis adopted in Standard Oil. Indeed,

Actavis favorably cited Standard Oil as an example of the Court properly

“accommodat[ing] patent and antitrust policies.” Actavis, 570 U.S. at 151.

20


The FTC’s refusal to consider procompetitive aspects of the Endo-Impax

agreement makes little sense as a matter of logic. The parties attempted to

negotiate a settlement over the course of several years. Impax repeatedly sought a

license to market generic Opana ER before 2013, and Endo repeatedly responded

that it would never grant such a license. When they finally reached a settlement in

June 2010, one can reasonably conclude that the parties did so in reliance on every

negotiated provision. There is no reason to assume (as does the FTC) that the two

provisions to which the FTC objects were negotiated totally independently of all

other settlement provisions, including the provisions with procompetitive effects.

Accordingly, those other provisions are highly relevant to the rule-of-reason

analysis. See North Texas Specialty Physicians v. FTC, 528 F.3d 346, 369 (5th

Cir. 2008) (procompetitive effects proffered by the defendant are relevant to the

antitrust analysis if they are “connected to” the challenged conduct). When parties

settle patent litigation, all settlement provisions that relate to use of the patent will,

by definition, be “connected to” one another.

The numerous procompetitive benefits of the Endo-Impax settlement include

the following:

* As recognized in Actavis, settlement of litigation is always procompetitive;

* Enforcing the patent laws is procompetitive because those laws encourage

21


the development of innovative drugs that save lives and save consumersbillions of dollars each year;

* The settlement permitted generic competition (with its attendant lowerprices) nearly a year before the expiration of the last of Endo’s three patentsthat existed at the time of the settlement;

* The settlement licensed Impax to continue selling Opana ER even if Endolater acquired new patents for the drug. At the time of settlement, Impaxsuspected (correctly) that Endo would soon obtain additional patents, andthose patents were held valid in litigation instigated by other genericmanufacturers. Thus, in the absence of the settlement, no company wouldnow be authorized to market a generic version of Opana ER, and the productwould be unavailable to consumers.

In sum, even if the FTC had demonstrated anticompetitive harm, Impax met

its evidentiary burden of demonstrating that the settlement agreement had

procompetitive effects. The FTC erred in refusing to consider those effects as part

of its rule-of-reason analysis.

C. The FTC Failed To Show That The Settlement’s ProcompetitiveBenefits Could Have Been Achieved By A Means Less Harmful ToCompetition

The final stage in rule-of-reason burden-shifting requires the plaintiff to

demonstrate that the procompetitive efficiencies identified by the plaintiff could

reasonably be achieved through less anticompetitive means. The FTC’s analysis of

this third stage is also deficient.

The FTC’s proffered less-anticompetitive alternative is a settlement: (1) that

22


does not include the No-AG Agreement and the Endo Credit; and (2) in which

Endo grants Impax a license to market a generic product on some date before 2013.

Comm. Op. 39-42. There is a major problem with that alternative: all the evidence

at trial indicates that Endo repeatedly rejected Impax’s requests for pre-2013 entry.

Based on that evidence, the ALJ made a factual finding that earlier entry was not

an available settlement alternative. No problem, says the FTC; its evidence

suggests that no-payment settlements are feasible in at least some cases. So the

FTC unilaterally reversed the burden of proof: it imposed on Impax the burden of

proving that a no-payment settlement with an earlier entry date was “impossible.”

Id. at 41. The FTC cited no case law in support of its burden-shifting ruling, which

openly defies repeated Supreme Court rulings that places the burden on the

antitrust plaintiff to demonstrate a less anticompetitive alternative.

Moreover, the FTC’s argument makes little sense on its own terms. Simply

because the FTC’s experience suggests that some pharmaceutical-patent litigation

can be settled with no benefits flowing to the generic company says nothing about

whether such a settlement was possible in this case. And the existence of no-

payment settlements says nothing about whether the alleged infringer in those

cases was able to negotiate an earlier entry date in return for forgoing other

benefits.

23


III. ACTAVIS DID NOT AUTHORIZE ANTITRUST SCRUTINY FOR NON-CASH “NO-AG” AGREEMENTS OF THE SORT AT ISSUE HERE

The Court should reverse because, under a properly constructed rule-of-

reason analysis, Impax’s conduct did not violate the antitrust laws. But reversal is

also required for a more fundamental reason: the antitrust laws are inapplicable to

patent-litigation settlements of this sort. The No-AG Agreement is simply not the

sort of settlement provision Actavis had in mind when it authorized antitrust

scrutiny of “large” and “unjustified” payments to an alleged infringer.

As noted above, Actavis focused principally on reverse payments in the form

of “cash.” See 570 U.S. at 151, 152, 154, 158. One can reasonably assume that the

Court was equally concerned about reverse payments taking the form of cash-

equivalents—e.g., stock, bonds, or gold bullion. But the Court explicitly exempted

from antitrust scrutiny certain types of settlement benefits that flow to the

infringer. See Note 6, supra (e.g., Actavis states that no antitrust scrutiny is

warranted if the generic company drops its patent invalidity claim in return for a

license to market its product in advance of the patent’s expiration—even if, as will

often be the case, the early-entry license is worth many millions of dollars to the

generic company).

No-AG Agreements should be similarly exempt. Actavis exempted

24


“traditional” forms of settlement from antitrust scrutiny, 570 U.S. at 154, and the

granting of licenses to alleged infringers is a very common feature of patent-

infringement settlements. A No-AG Agreement is not a cash transaction; it is a

patent holder’s grant of an exclusive license to market a generic form of its

patented product.

There is nothing “unjustified” about exclusive licenses; they are expressly

authorized by federal patent law. See 35 U.S.C. § 261. The grant of an exclusive

license, an action whose effect is to restrict competition as compared to a non-

exclusive license, has long been upheld by the Supreme Court as an integral part of

a patent holder’s right to utilize its patent so as to maximize profits. See, e.g., E.

Bement & Sons v. Nat’l Harrow Co., 186 U.S. 70, 82 (1902); Kimble v. Marvel

Entertainment, LLC, 135 S. Ct. 2401, 2408, 2413 (2015) (broadly endorsing right

of patentees to enter into licensing agreements while acknowledging, “The patent

laws—unlike the Sherman Act—do not aim to maximize competition (to a large

extent, the opposite).”).

Actavis stated that “patent and antitrust policies are both relevant in

determining the ‘scope of the patent monopoly’—and consequently antitrust

immunity—that is conferred by a patent.” 576 U.S. at 148. Given the well-

established pedigree of exclusive patent licenses, their inclusion in settlement

25


agreements easily qualifies as the type of “traditional settlement form” that Actavis

deemed protected by patent law against antitrust scrutiny.

IV. THE FTC’S DECISION EFFECTIVELY OUTLAWS ANY SETTLEMENTS THAT

P R O V I D E S U B S T A N T I A L B E N E F I T F O R G E N E R I C D R U G

MANUFACTURERS—THEREBY RENDERING SETTLEMENTS EXCEEDINGLY

DIFFICULT

Actavis was decided based on the assumption that it would still be possible

for litigants to settle pharmaceutical patent-infringement litigation in a manner that

complies with the antitrust laws. Yet in light of the FTC’s attempted expansion of

what constitutes anticompetitive harm and its refusal to consider procompetitive

effects of litigation settlements, it becomes exceedingly difficult for such litigation

to settle.

The immense obstacles to settlement under the FTC’s antitrust standards are

the result of unique litigation dynamics created by the Hatch-Waxman Act, Pub. L.

No. 98-417. Unlike the defendants in patent-infringement litigation that arises in

other contexts, a generic drug company that initiates infringement litigation (by

filing a “Paragraph IV certification” with FDA and thereby essentially forcing a

brand-name company to file an infringement lawsuit) cannot be held liable for

damages because it has not marketed any infringing products.9 Of course, no

9 In contrast, patent-infringement litigation arising in other contextsgenerally involves defendants who are alleged to be committing more concrete

26


litigant will agree to a settlement unless he perceives that it is advantageous.

Accordingly, if a patentee cannot transfer anything of “considerable value” to a

generic drug company without facing antitrust scrutiny, and if there only rarely are

potential damages that a patentee could offer to forgo, there will be very few

settlements of drug-patent litigation because a patentee will be unable to offer

lawful settlement terms that a generic drug company would find sufficiently

attractive to induce it to abandon the huge financial rewards that Hatch-Waxman

offers to drug-patent challengers.

As Judge Posner has cogently observed:

[A]ny settlement agreement can be characterized as involving“compensation” to the defendant, who would not settle unless he hadsomething to show for the settlement. If any settlement agreement isthus to be classified as involving a forbidden “reverse payment,” weshall have no more patent settlements.

Asahi Glass Co. v. Pentech Pharms., Inc., 289 F. Supp. 2d 986, 994 (N.D. Ill.

2003). The FTC’s advocacy of antitrust criteria that would halt most future drug-

patent litigation settlements cannot be squared with Actavis, given that decision’s

stated intent to create a standard under which settlements could still flourish.

Actavis recognized “a general legal policy favoring the settlement of disputes” and

infringing acts. Such defendants face severe, potentially-bankrupting damagesawards if the trial court sustains the infringement claim.

27


“the value of settlements.” Actavis, 570 U.S. at 153.

There exist potential settlement terms that make it attractive for any party to

settle litigation. Moreover, there are numerous disadvantages to any decision to

continue with patent litigation—its outcome is always uncertain, and its costs (both

in terms of dollars and the diversion of executives’ attention away from

competitive, money-making activities) are enormous. But settlements can occur

only if patent litigants are given the tools required to reach a point at which both

parties are satisfied with the settlement terms.

Arriving at terms that satisfy both parties will often be impossible if the only

permissible settlement tool is an early-entry agreement along the lines endorsed by

the FTC. For example, let us assume that the sole item being negotiated in

settlement talks is the precise early-entry date and that parties are six month apart

in terms of what each party considers an acceptable date. The virtual impossibility

of bridging that gap and arriving at a settlement arises because for every day that

the early-entry date moves backward in time, the potential losses to the brand-name

company are many times larger than the potential gains to the generic company.

Under those circumstances, even huge financial concessions by the brand-name

company (concessions (as here) it is unlikely to be willing to make) will not

achieve a settlement because they will confer very little financial benefit on the

28


generic. See Kevin McDonald, “Because I Said So: On the Competitive Rationale

of FTC v. Actavis,” 28 ANTITRUST 36, 37 (2013). If, as Actavis indicated, the

means to settle patent litigation should be readily available, parties must be

provided assurance that no antitrust liability is warranted if (on balance) the

settlement is pro-competitive—even if the settlement can be characterized as one

involving a “reverse payment.” In the absence of that assurance, generic drug

companies will have considerably fewer incentives to file Paragraph IV

certifications in the first place, the precise opposite of the effect intended by

Congress when it adopted the Hatch-Waxman Act.

CONCLUSION

The Court should reverse the FTC’s decision.

Respectfully submitted,

/s/ Richard A. Samp Richard A. SampCory L. AndrewsWashington Legal Foundation2009 Massachusetts Ave., NWWashington, DC 20036Tel.: 202-588-0302Fax: 202-588-0386

Dated: October 10, 2019 [email protected]

29



I hereby certify that on October 10, 2019, I electronically filed the brief of

amicus curiae Washington Legal Foundation with the Clerk of the Court of the

U.S. Court of Appeals for the Fifth Circuit by using the appellate CM/ECF system.

I certify that all participants in the case are registered CM/ECF users and that

service will be accomplished by the appellate CM/ECF system.

/s/ Richard A. SampRichard A. Samp


CERTIFICATE OF COMPLIANCE

I am an attorney for amicus curiae Washington Legal Foundation (WLF).

Pursuant to Fed.R.App.P. 32(a)(7)©, I hereby certify that the foregoing brief of

WLF is in 14-point, proportionately spaced Times New Roman type. According to

the word processing system used to prepare this brief (WordPerfect X5), the word

count of the brief is 6,393, not including the certificate of interested parties, table

of contents, table of authorities, certificate of service, and this certificate of

compliance.

/s/ Richard A. Samp Richard A. Samp

Dated: October 10, 2019




CLERK

TEL. 504-310-7700


Suite 115


October 11, 2019

Mr. Cory L. Andrews Washington Legal Foundation 2009 Massachusetts Avenue, N.W. Washington, DC 20036-0000 Mr. Richard Abbott Samp Washington Legal Foundation 2009 Massachusetts Avenue, N.W. Washington, DC 20036-0000 No. 19-60394 Impax Laboratories, Inc. v. FTC USDC No. 9373 Dear Counsel, The following pertains to your brief electronically filed on October 10, 2019. We filed your brief. However, you must make the following corrections within the next 14 days. You need to correct or add: Caption on the brief does not agree with the caption of the case in compliance with FED. R. APP. P. 32(a)(2)(C). Caption must exactly match the Court's Official Caption (See Official Caption below) You must electronically file a "Form for Appearance of Counsel" within 14 days from this date. You must name each party you represent, see FED. R. APP. P. 12(b) and 5TH CIR. R. 12 & 46.3. The form is available from the Fifth Circuit's website, www.ca5.uscourts.gov. If you fail to electronically file the form, the brief will be stricken and returned unfiled. Note: Once you have prepared your sufficient brief, you must electronically file your 'Proposed Sufficient Brief' by selecting from the Briefs category the event, Proposed Sufficient Brief, via the electronic filing system. Please do not send paper copies of the brief until requested to do so by the clerk's office. The brief is not sufficient until final review by the clerk's office. If the brief is in compliance, paper copies will be requested and


you will receive a notice of docket activity advising you that the sufficient brief filing has been accepted and no further corrections are necessary. The certificate of service/proof of service on your proposed sufficient brief MUST be dated on the actual date that service is being made. Also, if your brief is sealed, this event automatically seals/restricts any attached documents, therefore you may still use this event to submit a sufficient brief. Sincerely, LYLE W. CAYCE, Clerk

By: _________________________ Shea E. Pertuit, Deputy Clerk 504-310-7666 cc: Mr. Alden F. Abbott Mr. Donald S. Clark Mr. Bradley Grossman Ms. Heather Hippsley Mr. Jay P. Lefkowitz Mr. Joseph J. Simons


United States Court of Appeals - FDAnews

Documents

Transcript of United States Court of Appeals - FDAnews