money ThinkstockPhotos-178441253Nearly two years ago the Supreme Court issued its opinion in FTC v. Actavis, 133 S. Ct. 2223 (2013), holding that a reverse payment made by a brand manufacturer to a generic manufacturer to resolve pending patent litigation could satisfy a violation of the Sherman Antitrust Act. In adopting a “rule of reason” test and rejecting the “scope of the patent” test adopted by several lower courts, the Supreme Court held that “[i]t would be incongruous to determine antitrust liability by measuring the settlement’s anticompetitive effects solely against patent law policy, and not against procompetitive antitrust policies as well.” Id. at 2231. Thus, “the antitrust question should be answered by considering traditional antitrust factors.” Id.

Unfortunately, as Chief Justice Roberts predicted when he wished “good luck to the district courts” in his dissent in Actavis, the Court’s majority opinion left more questions unanswered than answered. The majority declined to provide a structure for the rule-of-reason analysis, leaving it to the lower courts to establish the framework. That uncertainty is now making its way through district and circuit courts. 

Perhaps the biggest issue left undecided by the Supreme Court in Actavis is the definition of a “reverse payment.” Is it limited to cash-only payments, or do other arrangements that somehow provide value to the generic manufacturer, such as an agreement by the brand manufacturer to not launch an authorized generic (“no-AG agreements”), suffice?

The issue of whether a no-AG agreement constitutes a reverse payment is currently pending in three separate appeals in the Third Circuit, and another appeal in the First Circuit. The first of these decisions came in January 2014 in the Lamictal matter, where Judge William H. Walls held that a no-AG agreement was not a reverse payment because there was no exchange of money. In re Lamictal Direct Purchaser Antitrust Litig., 18 F. Supp. 3d 560 (D.N.J. 2014). That matter has been fully briefed and argued to the Third Circuit, and is awaiting an opinion. Following that decision, in September of last year, Judge William E. Smith of the United States District Court for the District of Rhode Island likewise held that the Supreme Court’s decision in Actavis applied only to monetary payments. In re Loestrin 24 FE Antitrust Litig., 45 F. Supp. 3d 180 (D.R.I. 2014). That matter is currently on appeal to the First Circuit.

Not all courts agree, however. On the opposite end of the spectrum, in September 2014, Judge Jan E. DuBois of the District of Connecticut ruled that the term “reverse payment” is not limited to cash payments and denied the defendants’ motion to dismiss on such grounds. In re Niaspan Antitrust Litig., 42 F. Supp. 3d 735, 751 (E.D. Pa. 2014). Judge DuBois relied on Judge Young’s earlier decision in the Nexium matter in which he declined to limit the principles of Actavis to monetary arrangements alone. Id. (citing In re Nexium Antitrust Litig., 968 F. Supp. 2d 367, 392 (D. Mass. 2013)). In December of last year, the Nexium matter was permitted to go to trial on such allegations, though the jury found in favor of the defendants after finding that despite the anticompetitive conduct, a generic version of the drug would not have come to market sooner.

Taking a somewhat different approach, Judge Sheridan of the District of New Jersey issued two separate opinions last fall concluding that nonmonetary payments could constitute reverse payments under Actavis, but the complaint must demonstrate a “reliable cash value of the non-monetary payment.” In re Lipitor Antitrust Litig., 46 F. Supp. 3d 523 (D.N.J. 2014); In re Effexor XR Antitrust Litig., 2014 U.S. Dist. LEXIS 142206 (D.N.J. Oct. 6, 2014). He dismissed the Lipitor matter entirely, and the Effexor matter in part, after finding a lack of such allegations in the respective complaints. Id. These decisions are also currently pending appeal in the Third Circuit.

Most recently, the Supreme Court of California employed the rule-of-reason test adopted by the Court in Actavis to state law antitrust claims. In re Cipro Cases I and II, 2015 Cal. LEXIS 2486 (May 7, 2015). In doing so, the California Supreme Court indicated that a reverse payment can be something other than cash. As it stated in a footnote, “courts . . . should not let creative variations in the form of consideration result in the purchase of freedom from competition escaping detection.” Id. at *46 n.11.

As is evidenced by the differing opinions in the district courts in the less than two years since the decision in Actavis, there are still many questions left unanswered – whether a no-AG agreement constitutes a reverse payment being only one of them. The district courts will likely also have to grapple with the task of determining what constitutes a large and unjustified reverse payment. See In re Aggrenox Antitrust Litig., No. 3:14-md-2516, 2015 U.S. Dist. LEXIS 35634 (D. Conn. March 23, 2015). These issues will likely continue to percolate in both district and circuit courts until, perhaps, the Supreme Court decides it needs to weigh in again. Perhaps Judge Smith said it best when he stated: “We are confronting this issue early in a law refinement process that will take some time to shake out; as Yogi Berra would say, ‘it ain’t over ’til it’s over.’ And it certainly ain’t over yet.” In re Loestrin Antitrust Litig., 45 F. Supp. 3d at 190.