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Wellbutrin motion & brief as filed.pdf
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 2 of 35
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Hon. Mary A. McLaughlin
BRIEF AMICI CURIAE OF THE AMERICAN ANTITRUST INSTITUTE
AND CONSUMERS UNION
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 3 of 35
TABLE OF CONTENTS
TABLE OF AUTHORITIES . iii
STATEMENT OF INTEREST OF AMICI CURIAE . 1
ARGUMENT . 4
I. THE HATCH-WAXMAN ACT DOES NOT PREVENT BRANDS FROM
LAUNCHING AUTHORIZED GENERICS, AND BRANDS’
AGREEMENTS NOT TO DO SO CAN BE WORTH HUNDREDS OF
MILLIONS OF DOLLARS TO GENERICS. . 7
II. ACTAVIS' ANTITRUST FRAMEWORK APPLIES TO ALL
PAYMENTS FROM BRANDS TO GENERICS. . 12
III. GSK AND TEVA ALLOCATED THE MARKET BY EXCHANGING
RECIPROCAL NON-COMPETITION PLEDGES. . 15
IV. GSK’S NO-AUTHORIZED-GENERIC PLEDGE PROVIDED VALUE
TO TEVA THAT IT COULD NOT HAVE RECEIVED BY WINNING
THE PATENT CASE. . 19
V. THE LABEL “EXCLUSIVE LICENSE” ADDS NOTHING TO THE
ANALYSIS. . 24
CONCLUSION . 27
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 4 of 35
TABLE OF AUTHORITIES
Continental T.V., Inc. v. GTE Sylvania Inc.
, 433 U.S. 36 (1977) . 13 Eastman Kodak Co. v. Image Tech. Servs., Inc
., 504 U.S. 451(1992) . 13 Engine Specialties, Inc. v. Bombardier, Ltd.
, 605 F.2d 1 (1st Cir. 1979) . 16 FTC v. Actavis, Inc.
, 133 S. Ct. 2223 (2013) . passim Garot Anderson Agencies, Inc. v. Blue Cross & Blue Shield United
, 1993 WL 78756 (N.D. Ill. Feb. 26, 1993) . 16 In re Ciprofloxacin Hydrochloride Litigation
, 544 F.3d 1323 (Fed. Cir. 2008), abrogated by FTC v. Actavis
, 133 S. Ct. 2223
In re K–Dur Antitrust Litigation,
686 F.3d 197 (3d Cir. 2012), vacated, 133 S. Ct. 2849 (2013) . 4 In re Lipitor Antitrust Litigation
, 2013 WL 4780496 (D.N.J. Sept. 5, 2013) . 14 In re Nexium Antitrust Litigation
, 2013 WL 4832176 (D. Mass. Sept. 11, 2013) . 14 Palmer v. BRG of Georgia, Inc.
, 498 U.S. 47 (1998) . 16, 18 Teva Pharm. Indus. Ltd. v. Crawford
, 410 F.3d 51 (D.C. Cir. 2005) . 8
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 5 of 35
United States v. Addyston Pipe & Steel Co.
, 175 U.S. 211 (1899) . 16 United States v. Dentsply Int'l, Inc.
, 399 F.3d 181 (3d Cir. 2005) . 14 United States v. Microsoft
, 253 F.3d 34 (D.C. Cir. 2001) . 18 United States v. Topco Associates, Inc.
, 405 U.S. 596 (1972) . 16 ZF Meritor, LLC v. Eaton Corp.
, 696 F.3d 254 (3d Cir. 2012) . 14
21 U.S.C. § 355(j)(2)(A)(vii)(IV) . 8 21 U.S.C. § 355(j)(5)(B)(iv) . 8 Patent Act, 35 U.S.C. § 261 . 25
Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law (3d ed. 2012)…….15, 26 Drug Price Competition and Patent Term Restoration Act of 1984,
Pub. L. No. 98-417, 98 Stat. 1585 (1984)………………………………………7
FTC Bureau of Competition, Agreements Filed with the Federal Trade
Commission under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003: Overview of Agreements Filed in FY 2012
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 6 of 35
FTC, Authorized Generic Drugs: Short-Term Effects and Long-Term Impact
H.R. Rep. No. 98-857, pt. 1, at 17 (1984) . 7 Statement of Chairman Jon Leibowitz on the Release of the Commission’s Interim
Report on Authorized Generics
, June 2009 . 10
C. Scott Hemphill, The Aggregate Approach to Antitrust: Using New Data and
Agency Rules to Preserve Drug Competition
109 Colum. L. Rev. 629 (2009) . 9 U.S. Dep’t of Justice & FTC, Antitrust Enforcement and Intellectual Property
Rights: Promoting Innovation and Competition (2007) . 27
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 7 of 35
STATEMENT OF INTEREST OF AMICI CURIAE
The American Antitrust Institute (“AAI”) is an independent and non-profit
education, research, and advocacy organization devoted to advancing the role of
competition in the economy, protecting consumers, and sustaining the vitality of
the antitrust laws. The AAI is managed by its Board of Directors, with the
guidance of an Advisory Board that consists of more than 125 prominent antitrust
lawyers, law professors, economists, and business leaders.1 The AAI has been an
active participant in the “reverse payment” controversy over the past decade,
having filed nine amicus curiae
briefs on the issue, including one favorably cited
by the Supreme Court in FTC v. Actavis, Inc.
, 133 S. Ct. 2223 (2013).
Consumers Union is the public policy and advocacy division of Consumer
Reports. It is an independent nonprofit organization whose mission is to work for
a fair, just, and safe marketplace for all consumers, and to empower consumers to
protect themselves. Since its founding in 1936, it has advocated for consumers on
a variety of issues, including health care policy and competition policy. Consumer
Reports is the world’s largest independent product-testing organization. It has over
8 million subscribers to its magazine, website, and other publications. Both
1 No person other than amici curiae
or their counsel authored this brief in whole or in part
or made a monetary contribution intended to fund its preparation or submission. A majority of the AAI’s Board of Directors has approved this filing for the AAI; individual views of members of the Advisory Board may differ from the AAI’s positions. Eric Cramer, who is counsel to Plaintiffs, sits on the Board of Directors of the AAI. Mr. Cramer was recused from this matter and played no role in the Directors’ deliberations or the preparation or drafting of the brief.
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 8 of 35
through its advocacy and through its publications, Consumer Reports has long
supported policies that promote the availability and affordability of generic drugs,
including appropriate antitrust enforcement against anticompetitive reverse-
AAI and Consumers Union are represented here by, in addition to
practitioner co-counsel, Michael A. Carrier, who is a Distinguished Professor at
Rutgers University School of Law and Co-Director of the Rutgers Institute for
Information Policy and Law. Professor Carrier has spent his career analyzing the
intersection of the intellectual property and antitrust laws and has written
extensively on these topics, authoring nine articles on drug-patent settlements and
co-authoring the AAI’s amicus curiae
brief in Actavis
offer this brief because reverse-payment settlements, by which brands
pay generics to delay entering the market, are one of the most harmful forms of
anticompetitive business conduct occurring in today’s economy. These
agreements cost consumers billions of dollars and lead to patients splitting pills in
Reverse payments today take myriad forms, including above-market-value
business deals like those at issue in Actavis
, the forgiveness of debt, and many
other types of transfers of substantial economic value. Roughly half
anticompetitive transfers today take the form of agreements by which brands
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 9 of 35
promise not to introduce their own versions of generic drugs during the 180-day
marketing exclusivity period that the Hatch-Waxman Act provides to the first
generic manufacturer that challenges the patent. Such “authorized generics”
dramatically reduce generic profits, so a brand’s promise not to introduce one
provides substantial economic value to the generic.
These no-authorized-generic agreements, made by the brand in exchange for
the generic’s agreement to delay entry into the brand’s market, are simply a
variation on a type of unlawful market-allocation agreement with which courts are
very familiar. The two manufacturers make reciprocal agreements not to compete
in the other’s allocated portion of the market: the brand agrees not to launch an
authorized generic that would compete against the generic firm, and the generic
firm agrees to delay launching its product that would compete against the brand.
The Court in Actavis
found that a large payment from the brand to the
generic, in exchange for the latter’s delaying entry, could have “significant
anticompetitive effects” and violate the antitrust laws. Actavis
, 133 S. Ct. at 2237.
This watershed ruling would be reduced to a dead letter if courts were to allow
brand and generic firms to achieve the same anticompetitive ends by merely
changing the form of the payment. As we explain in detail below, the
anticompetitive effects do not change – and the antitrust analysis should not
change – merely because the generic delays entry in exchange for payment in the
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 10 of 35
form of a reciprocal non-competition pledge rather than, as in Actavis
, payment in
the form of an above-market-value business deal.
As a leading antitrust organization and a leading consumer advocacy
organization that have long been involved in promoting generic drug competition,
and in consultation with Professor Carrier, who is a leading academic expert on
drug-patent settlements, AAI and Consumers Union respectfully submit this amici
, the Supreme Court for the first time considered the antitrust
legality of agreements by which brands pay generics to delay entering the market.
The Court forcefully held that such agreements could be “unjustified,” 133 S. Ct.
at 2235-36, have the “potential for genuine adverse effects on competition,” id.
2234, and could “violate the antitrust laws,” id.
Several appellate courts (though not the Third Circuit, see In re K–Dur
686 F.3d 197 (3d Cir. 2012), vacated, 133 S. Ct. 2849 (2013)),
had held just the opposite, finding that the agreements were immune from the
antitrust laws as long as their anticompetitive effects fell within the nominal scope
of the patent. The Supreme Court, in contrast, made clear that the “scope of the
patent” test was not appropriate because it “would be incongruous to determine
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 11 of 35
antitrust legality by measuring the settlement’s anticompetitive effects solely
against patent law policy.” Actavis
, 133 S. Ct. at 2231.
The essence of the Court’s analysis in Actavis
is that a payment from the
brand to the generic, in exchange for the latter’s agreement to delay entry into the
market, can be anticompetitive. Id.
at 2237. Defendant GSK2 here tries to neuter
this landmark decision, asserting that the Court’s antitrust analysis applies only if
As we explain in detail below, GSK’s formalistic argument restricting the
type of payment encompassed by the Court’s analysis in Actavis
misses the mark.
First, the Hatch-Waxman Act does not prevent brand firms from launching an
“authorized generic” product during the first-filing generic’s 180 days of
exclusivity. And the brand’s agreement not to launch an authorized generic during
that period can transfer tens or hundreds of millions of dollars to the generic
manufacturer. Brands are increasingly making these types of payments in
exchange for generic firms’ reciprocal agreements to drop patent challenges and
Second, both Actavis
’ language and fundamental antitrust law prevent GSK
from distinguishing Actavis
based on the form of payment that the brand makes in
2 For ease of reference, Amici
refer to “GSK” rather than to GlaxoSmithKline plc,
Valeant Pharmaceuticals International, Inc., Biovail Corporation, and their related entities.
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 12 of 35
exchange for the generic’s delayed entry. A payment by means of a no-authorized-
generic agreement, no less than by means of an above-market-value business deal
(by which the brand overpays for unrelated services provided by the generic), can
have significant anticompetitive effects. Antitrust law and Actavis
analysis are based not on the form of the payment, but on the payment’s economic
Third, GSK and the generics with the 180-day exclusivity (Anchen and its
business partner Teva, hereafter referred to collectively as “Teva”) allocated the
market between themselves by exchanging non-competition pledges. Teva agreed
to delay entry, and in exchange, GSK agreed not to launch an authorized generic
during Teva’s 180-day exclusivity period. In all material respects, this transaction
has the same economic structure and effect as the agreement in Actavis
held that the payment there – an above-market-value
business deal – was suspect because it transferred value to the generic that it could
not have obtained even if it had won the patent case. Similarly, in this case, Teva
could not have blocked GSK from entering with an authorized generic even if Teva
had won the patent case. In both Actavis
and this case, the brand firm bought an
additional delay in generic entry, beyond any delay legitimately reflecting a
compromise on disputed patent rights, by granting to the generic valuable
consideration that even a patent win could not have delivered.
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 13 of 35
Lastly, GSK cannot avoid antitrust scrutiny by invoking the label “exclusive
license.” GSK did not merely grant to Teva the right to enter free from
competition from an authorized generic (what GSK is calling an exclusive license);
it granted that right in exchange for Teva’s reciprocal agreement to drop the patent
challenge and delay entry. Thus, a proper antitrust analysis must consider the
“exclusive license” not in abstract isolation, but in its real economic context as one
part of the two drug firms’ reciprocal agreements not to compete.
THE HATCH-WAXMAN ACT DOES NOT PREVENT BRANDS
FROM LAUNCHING AUTHORIZED GENERICS, AND BRANDS’
AGREEMENTS NOT TO DO SO CAN BE WORTH HUNDREDS OF
MILLIONS OF DOLLARS TO GENERICS
Pharmaceutical patent settlements involving authorized generics must be
considered in the context of the Hatch-Waxman Act, which Congress enacted in
1984 to increase generic competition and foster innovation in the pharmaceutical
industry. Drug Price Competition and Patent Term Restoration Act of 1984, Pub.
L. No. 98-417, 98 Stat. 1585 (1984). Before Hatch-Waxman, a generic
manufacturer was required to engage in lengthy and expensive clinical trials that
largely replicated the trials conducted by the brand firm and that the generic firm
could not begin during the patent term. As a result, roughly 150 drugs had no
generic equivalent even after the brands’ patent terms had expired. H.R. Rep. No.
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 14 of 35
The Hatch-Waxman Act created a new legal framework, with a more
expedited FDA approval process, by which generic firms could enter the market
during the patent term. A central element of this framework was the “Paragraph
IV certification,” by which a generic firm certifies that the patents covering the
brand drug are “invalid or will not be infringed” by the generic. 21 U.S.C. §
355(j)(2)(A)(vii)(IV). To encourage the filing of Paragraph-IV certifications, the
drafters of the Hatch-Waxman Act created a 180-day period of marketing
exclusivity reserved for the first generic to make such a filing. 21 U.S.C. §
As the Court explained in Actavis
, this exclusivity period “has proved
valuable” and “indeed . . . can be worth several hundred million dollars” to the
generic. 133 S. Ct. at 2235.
Importantly, however, although the exclusivity period
is designed to encourage generic entry, the brand firm is free to introduce its own
generic version during the period. See Teva Pharm. Indus. Ltd. v. Crawford
F.3d 51 (D.C. Cir. 2005). This version, known as an “authorized generic,” is
approved by the U.S. Food and Drug Administration (FDA) as a brand drug, but is
marketed as a generic. FTC, Authorized Generic Drugs: Short-Term Effects and
Long-Term Impact, at i (2011) (“Authorized Generic Report”). Although the
authorized generic is chemically identical to the brand drug, the brand firm lowers
the price to sell it in the generics sector of the market.
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 15 of 35
In the 15 years during which anticompetitive reverse-payment settlements
have been occurring, the form of payment has dramatically evolved. Early
agreements involved the brand paying cash to the generic, as in In re Ciprofloxacin
, 544 F.3d 1323 (Fed. Cir. 2008), abrogated by FTC v.
, 133 S. Ct. 2223 (2013) (cash payment of more than $398 million). But
more recent settlements are more complicated, with the brand overpaying for
services provided by the generic (such as supplying materials or promoting
products) or the generic underpaying for the brand’s product line or service
offerings. See, e.g.
, C. Scott Hemphill, The Aggregate Approach to Antitrust:
Using New Data and Agency Rules to Preserve Drug Competition
, 109 Colum. L.
In one recent variation, the one involved in this case, the brand pays the
first-filing generic by agreeing not to launch an authorized generic to compete
against it during its 180-day exclusivity period. A comprehensive study conducted
by the Federal Trade Commission (“FTC”) found that of 39 agreements involving
a no-authorized-generic promise and delayed entry between 2004 and 2010, 15
took place in 2010 alone. FTC, Authorized Generic Report, at 145.
This number continues to increase. In its most recent report, the FTC found
that 19 of 40 potential reverse-payment agreements reported in Fiscal Year 2012
involved no-authorized-generic pacts. FTC Bureau of Competition, Agreements
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 16 of 35
Filed with the Federal Trade Commission under the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003: Overview of Agreements Filed in
FY 2012, at 1 (2013), http://www.ftc.gov/os/2013/01/130117mmareport.pdf. This
was a “record number” that was “significantly greater” than that in previous years.
In his statement accompanying the release of the FTC’s earlier Interim
Report on Authorized Generics, Chairman Jon Leibowitz noted the essential
equivalence of cash payments and no-authorized-generic promises:
Because the impact of an authorized generic on first-filer revenue is so sizable, the ability to promise not to launch an AG [authorized generic] is a huge bargaining chip the brand company can use in settlement negotiations with a first-filer generic. It used to be that a brand might say to a generic, “if you go away for several years, I’ll give you $200 million.” Now, the brand might say to the generic, “if I launch an AG, you will be penalized $200 million, so why don’t you go away for a few years and I won’t launch an AG.”
Statement of Chairman Jon Leibowitz on the Release of the Commission’s Interim
Report on Authorized Generics
, June 2009,
Competition from an authorized generic has a significant adverse impact on
the first-filing generic’s sales and profits. The FTC’s comprehensive study showed
that the first-filing generic loses significant market share when it competes with an
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 17 of 35
authorized generic during the exclusivity period, and suffers revenue reductions of
40% to 52% on average. FTC, Authorized Generic Report, at 57, 58-59. These
effects result from “increased pricing pressure” from authorized generics as well as
reduced quantities. Id.
at 59. Even after the exclusivity period, these effects
continue, with revenues of the first-filing generic 53% to 62% lower in the 30
months following exclusivity. Id.
For these reasons, a brand’s promise not to introduce an authorized generic
during the 180-day exclusivity period is enormously valuable to the first-filing
generic. That promise grants to the first-filing generic a hiatus from competition
that neither the Patent Act nor the Hatch-Waxman Act provides. This restraint on
competition can deliver hundreds of millions of dollars in extra profits to the first-
filing generic – all at the expense of consumers.
On the other side of the coin, brands that launch an authorized generic
during the 180-day exclusivity period increase their own profits by 6% to 21%. Id.
at 62. Brands recognize that authorized generics “can generate incremental
revenue when a branded product loses exclusivity.” Id.
at 68. And even after the
end of the 180-day period, the brand continues to benefit. Id.
Giving up these benefits during and after the exclusivity period makes sense
only if the brand gets something in return. That something is the first-filing
generic’s reciprocal agreement to delay entry into the market. The brand’s no-
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 18 of 35
authorized-generic pledge and the generic’s agreement to delay entry into the
market are reciprocal non-competition agreements.
We show next that GSK cannot distinguish Actavis
on the ground that the
brand’s payment there was an above-market-value business deal, while the brand’s
payment here is a reciprocal pledge not to compete.
ACTAVIS’ ANTITRUST FRAMEWORK APPLIES TO ALL
PAYMENTS FROM BRANDS TO GENERICS
GSK asserts that the Court in Actavis
“repeatedly tied its concerns about
anticompetitive effects to substantial cash payments made by brand-name
manufacturers.” GSK Br. at 1. In fact, however, Actavis
itself did not involve the
payment of straight cash – the FTC alleged there that the brand overpaid the
generics for services that were not worth the amount paid. Id
. at 2229.
Indeed, the Actavis
majority opinion never uses the word “cash.” True, the
majority twice uses the phrase “millions of dollars” – once in describing a
hypothetical example of a payment from “A” to “B,” id
. at 2227; and once in
describing the overpayment from the brand in that case to the generics, id
. at 2229.
But the Court also twice uses that same phrase in referring to the very thing that
GSK secured for Teva here
: “[T]his 180–day period of exclusivity can prove
valuable, possibly ‘worth several hundred million dollars.’” Id
. at 2229 (citation
omitted). And again: “[T]he special advantage of 180 days of an exclusive right to
sell a generic version of the brand-name product . . . can be worth several hundred
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 19 of 35
million dollars.” Id
. at 2235 (citation omitted). Indeed, emphasizing that
substance, not form, matters, the Court noted that in challenging the above-market-
value business deal, the FTC “alleges that, in substance
, the plaintiff agreed to pay
the defendants many millions of dollars . . . .” Id
. at 2231 (emphasis added).
Can GSK really argue, with a straight face, that Actavis
scrutiny where, instead of overpaying for services, the brand pays the generic with
Kreugerands or real estate, or gives the generic a lucrative business deal for free, or
agrees not to compete with the generic in some other market, or agrees to preserve
the generic’s 180-day exclusivity “worth several hundred million dollars”?
Suppose that in Actavis
the brand, rather than substantially over
services provided by
the generics, had instead provided services to
the generics for
which they substantially under
paid. Under GSK’s form-over-substance logic,
these two forms of payment – with identical economic effect – would receive
radically different antitrust treatment. GSK has no basis to impute such silly
What matters for antitrust analysis is not a transaction’s form, but its
economic substance. The Supreme Court and the Third Circuit have consistently
required that antitrust analysis “be based upon demonstrable economic effect rather
than . . . upon formalistic line drawing.” Continental T.V., Inc. v. GTE Sylvania
, 433 U.S. 36, 58-59 (1977); see also Eastman Kodak Co. v. Image Tech.
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 20 of 35
., 504 U.S. 451, 466-67 (1992) (“formalistic distinctions” are “generally
disfavored in antitrust law”); ZF Meritor, LLC v. Eaton Corp.
, 696 F.3d 254, 283
(3d Cir. 2012) (actual market impact, not formalism, matters); United States v.
Dentsply Int’l, Inc.
, 399 F.3d 181, 189 (3d Cir. 2005) (“economic realities rather
than a formalistic approach must govern review of antitrust activity”).
For that reason, both of the courts that have considered no-authorized-
generic agreements post-Actavis
have held that they may be unlawful under the
mandated rule-of-reason analysis. See In re Nexium Antitrust Litigation
, 2013 WL
4832176, at *15 (D. Mass. Sept. 11, 2013) (“Nowhere in Actavis
did the Supreme
Court explicitly require some sort of monetary transaction to take place for an
agreement between a brand and generic manufacturer to constitute a reverse
payment,” and “[a]dopting a broader interpretation of the word ‘payment’ . . .
serves the purpose of aligning the law with modern-day realities”); In re Lipitor
, 2013 WL 4780496, at *26 (D.N.J. Sept. 5, 2013) (concluding
that amendment to complaint would not be futile because “nothing in Actavis
strictly requires that the payment be in the form of money”).
Court made clear that lower courts have an important role to
play in “structuring” the antitrust litigation. Actavis
, 133 S. Ct. at 2238. This case
calls upon this Court to continue the structuring recently begun by the Nexium
courts by making clear that whether a payment invokes antitrust scrutiny
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 21 of 35
depends not on its form, but on its economic substance. And there
can be no doubt that here, as in Actavis
, the antitrust plaintiffs have alleged that “in
substance, the [brand] agreed to pay the [generic] many millions of dollars.” Id.
We address that economic substance next.
III. GSK AND TEVA ALLOCATED THE MARKET BY EXCHANGING
RECIPROCAL NON-COMPETITION PLEDGES
No “demonstrable economic effect” separates this case from Actavis
Colluding firms have two basic ways to unlawfully allocate a market and split the
resulting ill-gotten profits. The first way, as in Actavis
, is for the two firms to
agree to allocate the entire market to one of them, with the firm that receives the
market paying the other firm a share of the excess profits that the agreement
unlawfully extracts from consumers. A second way is for the two firms to allocate
a part of the market to each of them, with their reciprocal agreements not to
compete in each other’s part of the market serving as a payment from each to the
other. Each conspiring firm keeps the excess profits that unlawfully accrue to it
from the sales it makes in its allocated part of the market.3
3 Market division among competitors is considered perhaps the most pernicious from of
anticompetitive business behavior since it completely eliminates all
competition between the parties on all
grounds. Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 2031 (3d ed. 2012).
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 22 of 35
Both ways of unlawfully allocating a market (1) create or preserve prices
above competitive market levels and (2) provide a means for the conspirators to
share the extra profits unlawfully extracted from consumers. Consequently, courts
have readily concluded that it is irrelevant whether the conspirators allocate the
entire market to one of them, in exchange for payment in the form of cash or
something else of value, or the conspirators allocate the market between
themselves, with their exchange of consideration consisting of reciprocal non-
competition pledges. In the words of the leading case, twice cited in Actavis
S. Ct. at 2227, 2230, “[s]uch agreements are anticompetitive regardless of whether
the parties split a market within which both do business or whether they merely
reserve one market for one and another for the other.” Palmer v. BRG of Georgia,
, 498 U.S. 47, 49-50 (1998).4
4 Courts have long recognized the severe harms presented by market division. See, e.g.,
United States v. Topco Associates, Inc.
, 405 U.S. 596, 608 (1972) (“an agreement between competitors at the same level of the market structure to allocate territories in order to minimize competition” is plainly anticompetitive); United States v. Addyston Pipe & Steel Co.
, 175 U.S. 211, 241 (1899) (“If dealers in any commodity agreed among themselves that any particular territory . . . should be furnished with such commodity by certain members only of the combination, and the others would abstain from business in that territory, would not such an agreement be regarded as one in restraint of interstate trade?”); Engine Specialties, Inc. v. Bombardier, Ltd.
, 605 F.2d 1, 11 (1st Cir. 1979) (“Bombardier is free of Agrati’s competition in both sales and manufacturing in North America and Agrati is free of Bombardier’s competition in manufacturing outside North America. This, we think, rises to the level of a territorial allocation of markets.”); Garot Anderson Agencies, Inc. v. Blue Cross & Blue Shield United
, 1993 WL 78756, at *13 (N.D. Ill. Feb. 26, 1993) (“Assuming Blue Cross entered an agreement whereby it agreed to stay out of the Illinois health insurance market, but Health Care did not reciprocally agree to stay out of the Wisconsin health insurance market, the net effect is an anticompetitive effect on the Illinois health insurance market.”).
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 23 of 35
Here, Teva agreed to delay its entry into the market, pushing back not only
the 180-day period for itself but also entry by other generics. In exchange, GSK
agreed not to introduce a generic version of its product that would have competed
against Teva during its 180-day exclusivity period. The agreement thus has a
sinister symmetry: Teva’s delayed-entry pledge transformed a period of two-
product rivalry for the Wellbutrin XL molecule into an extended monopoly period
for GSK, while the no-authorized-generic pledge transformed the 180-day period
from a three-product rivalry into a two-product rivalry (with a monopoly for Teva
GSK and Teva thus allocated the market in time
by means of reciprocal non-
compete pledges. Like all anticompetitive market allocation agreements, this
increased their joint profits at consumers’ expense.5
5 As noted by the FTC: “Material produced in connection with the FTC’s study of
authorized generics confirms that a brand-name company may agree to refrain from offering a competing AG to maximize the net present value of both the brand-name and generic products.” FTC, Authorized Generics Report, at 141.
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 24 of 35
The exchange of non-compete pledges can be illustrated graphically:
Reciprocal Non-Compete Pledges in a No-Authorized-Generic Agreement
The deferred-entry pledge prevented Teva from entering the market earlier,
allocating the entire market to GSK for an extended period of time. And the no-
authorized-generic pledge prevented GSK from entering the generics sector during
the 180-day exclusivity period, allocating the entire generics sector to Teva during
that time. Absent these reciprocal anticompetitive pledges, the entire time period
depicted above could have been a period of substantial competition, with GSK
selling the brand product, and both GSK and Teva selling generics.6 Instead, the
6 Of course, in determining the lawfulness of the agreement, it does not matter that it was
uncertain whether the generic would have entered earlier, or whether GSK would have launched an authorized generic. It is unlawful to allocate a market with a potential competitor as well as with an actual competitor. See, e.g., Palmer v. BRG of Georgia, Inc., 498 U.S. 47, 49-50 (1998); cf. United States v. Microsoft, 253 F.3d 34, 79 (D.C. Cir. 2001) (“the exclusion of nascent threats is the type of conduct that is reasonably capable of contributing significantly to a defendant’s continued monopoly power”). The Court in Actavis made unmistakably clear that a non-compete agreement is anticompetitive if it avoids “even a small risk of [patent] invalidity” because it thereby “prevent[s] the risk of competition” – which is “the relevant anticompetitive harm.” Actavis, 133 S. Ct. at 2236; see also id. (“maintain[ing] supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market . . . [is] the very anticompetitive consequence that underlies the claim of antitrust unlawfulness”).
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 25 of 35
reciprocal pledges neatly and illegally led to an extended period of brand-only
sales, followed by 180 days of sales of the brand and only one generic.
GSK and Teva agreed to limit competition during each other’s allocated
time period, with GSK’s reciprocal non-compete pledge serving as a payment to
Teva in exchange for its delayed entry. Consumers picked up the tab, paying
higher prices than they otherwise would have during both of the time periods
depicted above: GSK collected and kept the supracompetitive profits generated
during the first period, while Teva collected and kept the supracompetitive profits
These economic facts are definitive. The agreement here has the identical
economic substance as the agreement in Actavis. Just as in Actavis, “the true point
of the payments was to compensate the generics for agreeing not to compete
against [GSK] until .” Actavis, 133 S. Ct. at 2229.
IV. GSK’S NO-AUTHORIZED-GENERIC PLEDGE PROVIDED VALUE
TO TEVA THAT IT COULD NOT HAVE RECEIVED BY WINNING
THE PATENT CASE
GSK argues that prohibiting all consideration from the brand to the generic –
including a simple split of the patent term – would outlaw all settlements. GSK Br.
at 13-14. This argument is a red herring. It willfully ignores that what makes the
payments here and in Actavis suspect is that they provide something of value
beyond what the generic could have received by winning the patent litigation. In
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 26 of 35
other words, the brand is not merely compromising its disputed patent rights.
Instead, it is supplementing the exclusionary force of its disputed patent with
extraneous, non-patent-derived economic power.
Pursuant to reverse-payment settlements, brands pay generics to drop patent
challenges and delay entering the market. Central to the Actavis Court’s
understanding of why the payment in that case was suspect was that the generic
was receiving consideration it could not have obtained by winning the patent case.
The Court noted, for example, that the brand and generic can simply divide
the remaining patent term. The greater the likelihood that the patent is valid and
infringed, the later in the period generic entry would occur. For example, if there
are 10 years remaining in the patent term, and the parties conclude that there is a
60% likelihood that the patent is valid, the parties could agree that generic entry
would occur in 6 years. Such an agreement by the brand firm provides the generic
firm nothing more than it could have received had it won the patent case, and this
type of consideration generally poses no antitrust concern. Actavis, 133 S. Ct. at
It is when the brand seeks to pay the generic for additional delay that
antitrust concerns arise. Continuing the example above, the brand might pay the
generic to delay entering the market from Year 6 until Year 9. The quid pro quo
for the payment is the generic’s agreement to stay out of the market beyond Year 6
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 27 of 35
– i.e., beyond the date that otherwise reflects the parties’ assessment of the patent’s
strength and the likely outcome of the patent litigation.
The problem with these payments is that they give the generic something
valuable that it could not have obtained even if it had won its patent challenge and
entered the market. Even if a court ruled that the patent was invalid or not
infringed, there is no reasonable scenario under which the brand firm would also
pay the generic firm. By paying the generic what it could not obtain even if it won
the patent case, the brand entices the generic to delay entry beyond the date that the
parties’ views of the patent’s strength would otherwise have yielded. A brand’s
payment – consideration in the form of something of value that the generic could
not have obtained by winning the patent case – results in a longer delay in generic
entry beyond what would have otherwise occurred. This “pay for delay” is the
anticompetitive agreement that Actavis holds is subject to the antitrust laws.
Actavis makes this clear. The transaction in Actavis was “unusual” in that it
did not reflect a mere compromise on the generic entry date, permitting the generic
to enter some time before the patent expired. Actavis, 133 S. Ct. at 2231. Instead,
the brand’s payment to the generic was something that it could not have received
even if it had won the patent case: “the [patent] plaintiff agreed to pay the
defendants many millions of dollars to stay out of its market, even though the
defendants did not have any claim that the plaintiff was liable to them for
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 28 of 35
damages.” Id.; see also id. at 2233 (“In reverse payment settlements, in contrast, a
party with no claim for damages . . . walks away with money simply so it will stay
away from the patentee’s market.”). Agreements of this nature “tend to have
significant adverse effects on competition.” Id. at 2231.
The same is true here. Even by winning the patent case Teva could not
thereby obtain the right to prevent GSK from entering with an authorized generic
during the 180-day exclusivity period. GSK would be perfectly free to launch its
own authorized generic. And by doing so, GSK would have reduced Teva’s
revenues significantly (by roughly 50%, assuming effects similar to those
discussed in the FTC report). GSK’s payment to Teva in the form of agreeing to
forgo an authorized generic, in exchange for Teva’s reciprocal agreement to delay
entry, has exactly the same “significant adverse effects on competition” as the
Likewise, the Actavis Court’s analysis of each of the five anticompetitive
aspects of brand payments, discussed in Part IIB of its opinion, is also squarely
First, the antitrust plaintiff in Actavis alleged that the “payment in return for
staying out of the market . . . simply keeps prices at patentee-set levels, potentially
producing the full patent-related $500 million monopoly return while dividing that
return between the challenged patentee and the patent challenger. The patentee
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 29 of 35
and the challenger gain; the consumer loses.” Id. at 2234-35. Just so here. Teva
delayed entry into the market in exchange for GSK’s payment in the form of a
reciprocal agreement not to enter with an authorized generic. That payment
“provide[s] strong evidence that the patentee seeks to induce the generic challenger
to abandon its claim with a share of its monopoly profits that would otherwise be
lost in the competitive market.” Id. at 2235.
Second, just like the above-market-value business deals in Actavis, GSK’s
promise not to launch an authorized generic bestowed supracompetitive profits on
the generic far in excess of “litigation costs or fair value for services.” Id. at 2236.
Third, GSK’s promise not to launch an authorized generic, and Teva’s
acceptance of that promise in exchange for delayed entry, reflect “higher-than-
competitive profits – a strong indication of market power.” Id. If existing
competition were constraining prices to marginal cost, delayed entry would have
been of no value to GSK, and a no-authorized-generic pledge would have been of
no value to Teva. The reciprocal non-competition pledges make sense precisely
because they allow both GSK and Teva to obtain supracompetitive prices.
Fourth, if “otherwise unexplained,” a payment by means of an above-
market-value business deal “likely seeks to prevent the risk of competition. And,
as we have said, that consequence constitutes the relevant anticompetitive harm.”
Id. The same is true of a payment by means of a reciprocal non-compete pledge.
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 30 of 35
Teva received that non-compete pledge in exchange for dropping its patent
challenge, which could have opened the market up to competition. If left
unexplained, the natural inference is that GSK’s agreement to forgo an authorized
generic “likely [sought] to prevent the risk of competition.” Id.
Fifth, just like the patent litigants in Actavis, GSK and Teva could have
settled the case by splitting the patent term “without the patentee paying the
challenger to stay out prior to that point.” Id. at 2237. Although GSK and Teva
might have had reasons for requiring that GSK not launch an authorized generic,
“the relevant antitrust question is: What are those reasons?” Id. If, as alleged here,
the reason was to allocate the market and divide the supracompetitive profits, “the
antitrust laws are likely to forbid the arrangement.” Id.
In sum, just as in Actavis, the “large and unjustified payment” – GSK’s
reciprocal non-competition pledge – “can bring with it the risk of significant
anticompetitive effects.” Id. GSK’s extensive exalting of form over substance
THE LABEL “EXCLUSIVE LICENSE” ADDS NOTHING TO THE
GSK asserts that “at most” it granted a so-called “exclusive license” (the no-
authorized-generic pledge) to Teva, that the license was a “perfectly legitimate
form of consideration,” and that the Patent Act, 35 U.S.C. § 261, expressly
permits such licenses. GSK Br. at 14-15. Not so.
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 31 of 35
GSK did not “at most” grant an exclusive license that was a “perfectly
legitimate form of consideration” to Teva. GSK granted that “license” in exchange
for Teva’s agreeing to defer entry into the market. In short, Amici are not
concerned about the fact that GSK gave Teva a license; Amici are concerned that
GSK gave the license in exchange for Teva withdrawing its patent challenge and
deferring entry into the market. It is not GSK’s mere grant of a license that draws
antitrust scrutiny, but its grant of that license in exchange for deferred entry.
The Actavis Court repeatedly emphasized that antitrust analysis focuses not
on a transaction’s form, but on its economic context and its purpose and effect.
Specifically, “to refer . . . simply to what the holder of a valid patent could do does
not by itself answer the antitrust question.” Actavis, 133 S. Ct. at 2230-31. The
key economic fact here, as in Actavis, is that the generic manufacturer had been
actively attempting to enter the market without any license at all (and, with respect
to one dosage strength, did so), by asserting that the patent was invalid and not
infringed. As Actavis made clear: “The patent here may or may not be valid, and
may or may not be infringed . . . . The paragraph IV litigation in this case put the
patent’s validity at issue, as well as its actual preclusive scope.” Id. at 2231; see
also id. at 2232 (“both within the settlement context and without, the Court has
struck down overly restrictive patent licensing agreements”); id. at 2231 (it
“would be incongruous to determine antitrust legality by measuring the
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 32 of 35
settlement’s anticompetitive effects solely against patent law policy, rather than by
measuring them against procompetitive antitrust policies as well”); 12 Phillip E.
Areeda & Herbert Hovenkamp, Antitrust Law ¶ 2046 at 330 (3d ed. 2012) (“the
Patent Act expressly permits exclusive licenses, but this fact alone does not render
them immune from antitrust scrutiny”).
Teva was an active, potent competitor who asserted a right to enter the
market license-free. Regardless of whether GSK otherwise had a right to grant or
withhold a license from Teva, Teva could not have obtained the absence of an
authorized generic from the market even by winning the patent litigation. Teva
was an aggressive competitor, and GSK eliminated that competitive threat by
providing to Teva a reciprocal hiatus from competition that Teva could not have
obtained in the patent litigation. These indisputable facts must inform the antitrust
Of course, nothing in Actavis prevents GSK from trying to justify the so-
called “exclusive license.” GSK can try to show “that legitimate justifications are
present, thereby explaining the presence of the challenged term and showing the
lawfulness of that term under the rule of reason.” Actavis, 133 S. Ct. at 2236. The
usual justification for a legitimate exclusive license is that the patentee has
concluded that the licensee has certain distribution-efficiency advantages over the
patentee and other potential distributors and can therefore most profitably
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 33 of 35
distribute the product for the patentee. See, e.g., U.S. Dep’t of Justice & FTC,
Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and
onrpt0704.pdf. GSK may have difficulty explaining here, among other things, why
GSK suddenly realized Teva’s superior distribution skills in 2007, years after the
brand product was first marketed, just after Teva entered the market at risk with its
300mg generic Wellbutrin XL, and just as Teva was preparing to compete against
the brand with a 150mg generic Wellbutrin XL, and why GSK also apparently
believed that Teva’s superior distribution skills would then lapse after only 180
The point is this: GSK is entitled under the Actavis rule-of-reason analysis to
try to justify the no-authorized-generic pledge as a legitimate exclusive license.
They are not entitled to invoke the label “exclusive license” as a talisman to
preclude antitrust inquiry into whether GSK granted that no-authorized-generic
pledge in exchange for Teva’s reciprocal agreement to defer entry.
When antitrust scrutiny of reverse-payment agreements burst onto the scene
15 years ago, brands were paying cash to generics to delay entering the market.
Times have changed. Settling parties are now cleverly stashing the payments in
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 34 of 35
more obscure corners such as the above-market-value business deals in Actavis and
the reciprocal no-authorized-generic pledge here.
None of this should dissuade courts from calling a payment what it is. When
a brand sacrifices its right to enter with an authorized generic, it confers on the
first-filing generic more profits and more market share than it otherwise would
have obtained. That is a payment of substantial value. And it is value that the
first-filing generic could not have obtained even by winning its patent litigation.
Above-market-value business deals and no-authorized-generic promises may
not appear as blatant as cash payments. But their anticompetitive bite is just as
strong. And even though settling parties are engaging in ever-more-sophisticated
versions of “three-drug monte,” courts must keep their eye on the ball. Whether
that ball is cash, an above-market-value deal, or a no-authorized-generic pledge,
the effect is the same: a bounty of substantial value to the generic that it could not
have obtained through litigation and that the brand bestows in exchange for
delayed generic entry. And while the settling parties each gain from this
arrangement, it is consumers who pick up the tab.
Case 2:08-cv-02431-MAM Document 511-2 Filed 09/26/13 Page 35 of 35
Case 2:08-cv-02431-MAM Document 511-3 Filed 09/26/13 Page 1 of 1
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Hon. Mary A. McLaughlin
Upon consideration of the Motion of the American Antitrust Institute and
Consumers Union for Leave to File Brief as Amici Curiae, any opposition thereto,
and the applicable law, it is this _____ day of September, 2013,
ORDERED, that the Motion of the American Antitrust Institute and
Consumers Union for Leave to File Brief as Amici Curiae is GRANTED; and it is
ORDERED, that the Clerk of the Court accept for filing within ___ day(s) of
the date of this Order, the Brief Amici Curiae of the American Antiturst Institute
and Consumers Union; and it is further
ORDERED, that the Clerk of the Court distribute a copy of this Order to all
United States District Court Judge
Case 2:08-cv-02431-MAM Document 511-4 Filed 09/26/13 Page 1 of 1
CERTIFICATE OF SERVICE
I, Steve D. Shadowen, hereby certify that I caused to be electronically filed
the foregoing Motion of The American Antitrust Institute and Consumers Union
for Leave to File Brief as Amici Curiae; Memorandum in Support of Motion of
The American Antitrust Institute and Consumers Union for Leave to File Brief as
Amici Curiae; Brief Amici Curiae of the American Antitrust Institute and
Consumers Union; and Proposed Order with the Clerk of Court via CM/ECF.
Those attorneys who are registered with the Court’s electronic filing system may
access this filing through the Court’s system, and notice of this filing will be sent
to these parties by operation of the Court’s electronic filing system.
Product Datasheet Overview Product name Description Specificity This antibody has a Kd of 3 nM for haloperidol and an IC50 value of 260 nM for the reduced haloperidol metabolite(+/-)-4-(4-chlorophenyl)-a-(4-fluorphenyl)-4-hydroxy-1-peperidinebutanol). Tested applications Immunogen Haloperidol conjugated through the tertiary alcohol at the 4’ position of the piperidine ring
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