United States: FTC And Teva Reach Global Settlement Of Reverse-Payment Charges

Last Updated: March 29 2019
Article by C. Scott Lent, Peter J. Levitas and Seth J. Wiener

For years the US Federal Trade Commission (FTC) has been challenging so-called "reverse payment" agreements, where brand and generic pharmaceutical companies settle patent infringement claims with some alleged form of payment from the brand to the generic and some alleged amount of delay in generic entry. The FTC has filed three challenges against generic pharmaceutical manufacturer Teva Pharmaceuticals Industries Ltd. or its now-subsidiaries in the last 10 years.1 On February 19, the FTC and Teva reached a global settlement of the FTC's outstanding claims against Teva in these three cases.

I. Background—The Three FTC Cases Against Teva

A. FTC v. Actavis

In 2006 generic manufacturer Watson Pharmaceuticals entered a settlement with branded manufacturer Solvay Pharmaceuticals regarding Watson's generic AndroGel®, a prescription testosterone replacement drug. The parties agreed to an entry date for Watson's generic AndroGel and a payment associated with the settlement, and on the same day entered into a co-promotion agreement and a back-up supply manufacturing agreement for the drug. The FTC challenged the settlement and the separate agreements. It claimed that the patent settlement illegally delayed Watson's market entry and that the additional agreements were illegal side-agreements used to provide additional compensation for the delayed generic entry.2

The district court dismissed the complaint and the Eleventh Circuit affirmed the dismissal on the grounds that the agreements fell "within the scope of the exclusionary potential of the patent."3 In 2016, after Teva acquired the Watson business (which at the time was owned by Allergan and operated under the name Actavis), the US Supreme Court reversed and held that reverse payment agreements are to be scrutinized under the rule-of-reason, even if within the scope of the patent.4 The case was remanded, and trial against Solvay (now operating under the name AbbVie) and Actavis was scheduled to begin on March 4, 2019.5  

B. FTC v. AbbVie

In a separate AndroGel-related case, the FTC claimed that AbbVie6 and Besins Healthcare, which co-owned a patent used in branded AndroGel, had brought "sham" patent infringement litigation in 2011 against Teva and Perrigo Company. Both Teva and Perrigo were seeking FDA approval for their respective generic products,7 and both counterclaimed arguing that their respective products were "clearly outside the literal scope" of the patent at issue.8

Teva eventually agreed to settle the claims brought against it by AbbVie and Besins, abandon its "sham litigation" counterclaim, and not launch its generic AndroGel for an undisclosed period. In exchange, Teva received an authorized generic licensing deal for cholesterol drug TriCor®, another AbbVie branded product for which Teva had a generic in development.9 The FTC brought an action against AbbVie, Besins, and Teva, alleging that these agreements in combination constituted an illegal restraint of trade and an unfair method of competition under Section 5 of the FTC Act. The FTC argued that the arrangement "only makes sense as a means to induce Teva to drop its patent challenge and refrain from competing with AndroGel for several years."10

In 2015 the district court granted the motion to dismiss the restraint of trade claim. The court rejected the FTC's allegation that the TriCor agreement constituted a reverse payment and found that the agreement actually promotes competition by allowing Teva to enter the market early.11 With respect to the "sham litigation" claim, in 2018 the district court ruled that AbbVie and Besins had "illegally and willfully maintained [their AndroGel] monopoly power through the filing of sham litigation."12 The FTC subsequently appealed the 2015 decision to the Third Circuit,13 where it remains pending.

C. FTC v. Allergan plc

The third FTC challenge involves Lidoderm®, a topical pain relief lidocaine patch manufactured by Endo Pharmaceuticals. The FTC alleged that Watson Laboratories and Watson Pharmaceuticals,14which were developing generic Lidoderm, settled patent challenges against Endo before the Watson entities launched their generic product.15 The FTC alleged that, under the terms of the settlement, Endo agreed not to market its own authorized generic (a "no-AG" agreement) for a limited time period and Endo provided Watson Pharmaceuticals' subsidiary Anda $96 million of Lidoderm patches at no cost.16

The FTC challenged the agreements in 2016, and settled with Endo in 2017.17 The FTC has indicated that the proposed settlement with Teva would "effectively end this litigation,"18 and dismissed the claims with prejudice two days after announcing the global settlement.19

II. The "Global" Settlement Terms

The FTC's recently announced settlement will resolve all claims against Teva in the three pending cases described above. The stipulated terms of the global settlement build on a 2015 settlement between Teva and the FTC. The FTC had alleged that Cephalon (which Teva acquired in 2012) had entered an unlawful agreement to delay entry of a generic competitor to Cephalon's sleep-disorder drug Provigil®. To settle the allegations, Teva agreed to pay $1.2 billion in disgorgement and for the next 10 years not enter into any settlements in which a branded manufacturer paid a generic manufacturer "not to research, develop, manufacture, market or sell" the relevant generic drug "for any period of time."20 This prohibition includes so-called "side deals," in which the branded manufacturer enters into separate business transactions with the generic manufacturer contemporaneous with or contingent on a patent infringement settlement.21

In the joint motion proposing the global settlement, the parties describe the proposed global settlement as one that "expands the general conduct prohibition in the Original Order [(i.e., the 2015 Cephalon settlement)]" to encompass "alleged reverse-payment agreements similar to those challenged in [Actavis, AbbVie, and Allergan]."22 The proposed global settlement thus includes a prohibition on "side deals" and in addition would "prohibit Cephalon or Teva from entering into agreements that include a 'No-AG Commitment,' which is a commitment by the brand company not to sell its own authorized generic version of the brand product for some period of time."23

The terms of the global settlement make a few other substantive changes to the existing obligations on Teva.24 In particular, the global settlement modifies some of the existing "carve outs" to the definition of a "payment." Under the proposed global settlement, an agreement by the branded manufacturer to offer exclusivity to the generic manufacturer now counts as a payment,25 but certain supply or materials agreements may not if the agreement (i) meets specified pricing conditions, (ii) is the only settlement agreement between branded and generic parties entered into during an Exclusion Period,26 and (iii) is submitted, along with certain other specified information, to the Monitor for review.27 Finally, the term of the global settlement is 10 years from the date of entry,28 which extends the period in which Teva must restrict its settlement activity.

If the proposed global settlement is accepted by the Cephalon court, all pending claims against Teva will be dismissed. However, the Commission has indicated that it plans to continue its appeal of the 2015 AbbVie decision regarding its claims against the branded manufacturers.29

III. Lessons from the Proposed Global Teva Settlement

The proposed global settlement may assist the FTC in its efforts to limit the use of reverse patent settlements in three ways.

First, this settlement creates an enforcement precedent prohibiting a number of brand-generic business agreements about which the FTC has long expressed concern and thus sends a signal to others in the industry that the FTC is willing to litigate if it finds similar conduct. Perhaps most important, the settlement includes "no-AG" agreements within the ambit of prohibited conduct, which has long been an enforcement priority for the FTC. This is a significant policy goal of the FTC and this proposed settlement ensures that Teva will not engage in such conduct for the next 10 years. The global settlement also highlights the FTC's view that a "payment" in the context of reverse patent settlements should be very broadly defined. Outside of a handful of enumerated carve-outs, nearly any exchange of value contingent on the settlement of a patent infringement suit or close in time to such a settlement could be considered a payment under the terms of the global settlement. Finally, this settlement allows the FTC to send another signal to the industry regarding side deals. This is a useful benchmark for the FTC, particularly in the context of AbbVie, where the FTC lost the motion to dismiss against Teva when the court ruled that the TriCor agreement was pro-competitive and not a side-deal constituting a reverse payment. The FTC thus secured a concession here on an issue that it had lost in court, in a related case.

Second, the settlement may have broader market effects because by expanding and extending the 2015 settlement agreement, it removes Teva as a potential reverse payment settlement partner. As described by the FTC, this proposed settlement "prevent[s] the world's largest manufacturer of generic drugs . . . from entering into the two most pernicious and common forms of reverse payments" for another decade.30

Third, settling these cases means that for the first time in a decade the FTC is close to clearing its pipeline of active reverse patent settlement cases. This may allow the FTC to move resources to other matters, including, if it chooses, other reverse payment investigations and litigations. However, it would not be surprising if the FTC begins to shift its focus to other pharmaceutical issues. In the years after FTC v. Actavis many of the open issues surrounding reverse payment settlements have been litigated, and the Teva global settlement, along with a number of other recent developments, has helped to clarify the outlines of settlement structures that may face challenge and those that are less risky. As a result, it appears that pharma companies have entered into fewer reverse payment settlements,31 which may allow the FTC to allocate additional resources to other high-profile pharmaceutical industry issues, such as potential issues relating to the use of REMS programs,32 Citizens Petitions,33 or other alleged misconduct by pharmaceutical manufacturers that might potentially limit the competitive impact of generic alternatives. Even so, the FTC will no doubt continue to monitor reverse payment settlements and remain active in this space for the foreseeable future.

Footnote

1 FTC v. Actavis, Inc., 1:09-cv-00955 (N.D. Ga.); FTC v. AbbVie, Inc., 2:14-cv-05151 (E.D. Pa.); FTC v. Allergan plc, 17-cv-00312 (N.D. Cal.). The FTC brought each of these challenges against the branded manufacturer and against other generic manufactures.

2 Complaint, FTC v. Watson Pharmaceuticals, Inc., CV 09-00598 at ¶¶ 5, 81-85 (C.D. Cal. Jan. 27, 2009). The case was subsequently transferred to the Northern District of Georgia.

3 FTC v. Watson Pharmaceuticals, Inc., 677 F.3d 1298, 1312 (11th Cir. 2012).

4 FTC v. Actavis, Inc., 570 U.S. 136, 158-60 (2013). For more information, please see our advisories here  and here.

5 AbbVie settled with the FTC on February 28. That settlement includes prohibitions on compensation through business transactions or agreements concurrent with or contingent on settlement of the patent litigation as well as agreements by the branded manufacturer not to compete with an authorized generic manufacturer for a set duration. See  Joint Motion for Entry of Stipulated Revised Order, FTC v. Actavis, Inc., 1:09-cv-00955 (N.D. Ga. Feb. 28, 2019).

6 The claims against AbbVie also involved its predecessor, Abbot Laboratories, and subsidiary, Unimed Pharmaceuticals, LLC (referred to collectively in this section as "AbbVie").

7 Complaint, FTC v. AbbVie Inc., 2:14-cv-05151 at ¶¶ 1-5 (E.D. Pa. Sept. 25, 2014).

8 See id. at ¶¶6, 8.

9 See id. at ¶¶113-17.

10  See id. at ¶¶9, 154-559. 15 U.S.C. § 45(a). The FTC also alleged a monopolization offense against AbbVie in a separate count. See  Complaint, AbbVie at ¶¶152-53.

11 FTC v. AbbVie Inc., 107 F. Supp. 3d 428, 436, 438 (E.D. Pa 2015). The district court determined that without Teva, the restraint of trade claim failed. The district court also dismissed the monopolization claim against AbbVie to the extent it was based on settlement with Teva. Id

12 Findings of Fact and Conclusions of Law, FTC v. AbbVie Inc., 2:14-cv-05151 at *77 (E.D. Pa. June 29, 2018). The FTC also won a disgorgement award of $448 million. Id. at *101.

13 Notice of Appeal, FTC v. AbbVie Inc., 2:14-cv-05151(E.D. Pa. July 20, 2018).

14 At the time, the Watson entities were part of the same company. Now Watson Laboratories is a Teva Pharmaceutical Industries Ltd. subsidiary and Watson Pharmaceuticals is Allergan Finance LLC, an Allergan plc subsidiary.

15 Complaint, FTC v. Allergan plc, 3:17-cv-00312 at ¶¶ 2-3 (N.D. Cal. Jan. 23, 2017).

16 See id. at ¶ 3.

17 The FTC initially challenged the settlement in 2016, but after Endo and brand partner Teikoku settled, the FTC refiled the complaint in 2017 against only the generic manufacturers. See  Press Release, Federal Trade Commission, Endo Pharmaceuticals Inc. Agrees to Abandon Anticompetitive Pay-for-Delay Agreements to Settle FTC Charges; FTC Refiles Suits Against Generic Defendants (Jan. 23, 2017).

18 Press Release, Federal Trade Commission, FTC Enters Global Settlement to Resolve Reverse-Payment Charges against Teva (Feb. 19, 2019), (hereinafter "Teva Settlement Release").

19  Notice of Voluntary Dismissal with Prejudice, FTC v. Allergan plc, 3:17-cv-00312 (N.D. Cal. Feb. 22, 2019).

20 Stipulated Order for Permanent Injunction and Equitable Monetary Relief, FTC v. Cephalon, Inc., 2:08-cv-02141 at *4-*5, *9-*10 (E.D. Pa. June 17, 2015).

21 See id. at *4-*5.

22 Joint Motion for Entry of Stipulated Revised Order, FTC v. Cephalon, Inc., 2:08-cv-02141 at *2 (E.D. Pa. Feb. 19, 2019).

23 Id.

24 See {Proposed} Stipulated Revised Order for Permanent Injunction and Equitable Monetary Relief, FTC v. Cephalon, Inc., 2:08-cv-02141 at *8-*9, *17-*18 (E.D. Pa. Feb. 19, 2019).

25 Compare Stipulated Order at *4-*5 and {Proposed} Stipulated Revised Order at *8-*9.

26 Defined as "the 60-day period starting 40 days before executing a Brand/Generic Settlement Agreement and ending 30 days after executing the Brand/Generic Settlement Agreement." {Proposed} Stipulated Revised Order at *4.

27 Compare Stipulated Order at *4-*5 and {Proposed} Stipulated Revised Order at *8-*12.

28  {Proposed} Stipulated Revised Order at *26.

29 See  Teva Settlement Release.

30 See id.

31  The Medicare Prescription Drug, Improvement, and Modernization Act requires pharmaceutical companies to file all reverse payment settlements with the FTC Premerger Notification Office. According to the most recent FTC data available, reverse payment filings have decreased since the Actavis  decision. See  Bureau of Competition, Federal Trade Commission, Overview of Agreements Filed in FY 2015, A Report by the Bureau of Competition (Nov. 1, 2017).

32 See  Press Release, Federal Trade Commission, FTC Submits Statement to HHS on Its Blueprint to Lower Drug Prices (July 17, 2018).

33 See  Press Release, Federal Trade Commission, FTC Submits Comment on FDA Guidance Aimed at Deterring Abuse of Citizen Petition Process (Dec. 4, 2018). For more information, please see our Advisory.

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