FTC Amicus Brief Urges Appeals Court to Correct Legal Errors in District Court’s Antitrust Analysis of Reverse-Payment Agreement

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The Federal Trade Commission filed an amicus brief with the U.S. Court of Appeals for the Third Circuit urging the court to correct four legal errors in a district court’s antitrust analysis of an alleged reverse-payment agreement involving brand-name pharmaceutical company GlaxoSmithKline and generic pharmaceutical companies Teva Pharmaceuticals and Anchen Pharmaceuticals.

The amicus brief, filed in In re Wellbutrin XL Antitrust Litigation, explains that the district court incorrectly concluded that the rule-of-reason analysis prescribed by the Supreme Court’s 2013 decision, Federal Trade Commission v. Actavis, Inc., does not apply in this case, because, unlike in Actavis, the parties’ agreement allowed the underlying patent litigation to continue even though it precluded generic entry until the litigation was resolved. The relevant antitrust harm identified in Actavis is the brand-name company’s sharing of monopoly profits with the generic through a reverse payment to prevent the risk of competition. This harm arises whether the generic company drops its patent challenge entirely or simply agrees not to enter during the pendency of that challenge.

The district court also incorrectly held that to show an antitrust violation, the plaintiffs had to prove that the reverse-payment settlement resulted in delayed entry into the market for the antidepressant drug Wellbutrin XL. According to the amicus brief, the relevant consideration under Actavis is whether the nature of the restraint is likely to harm competition, and there is no rule-of-reason requirement to show delayed entry or an injury to a specific party.

The district court further erred when it credited the defendant’s justification for the agreement without requiring it to explain how the claimed procompetitive benefits were attributable to the reverse payment.

Finally, the amicus brief explains that the district court erroneously found the agreement lawful based in part on a provision that entitled the parties to abandon their deal if the FTC objected to it. Under the rule of reason, such provisions are not relevant, because they shed no light on the likely competitive effects of the alleged restraint.

The FTC vote approving the amicus brief filing was 4-0. It was filed with the U.S. Court of Appeals for the Third Circuit on March 11, 2016. (FTC File No P082105; the staff contact is Mark Hegedus, Office of the General Counsel, 202-326-2115.)

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