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Third Circuit Issues Another Key Ruling in Pay-for-Delay Case

The U.S. Third Circuit Court of Appeals overturned a federal district court's decision to dismiss a pay-for-delay case against GlaxoSmithKline PLC ("GSK") brought by Louisiana Wholesale Drug Co. and King Drug Co. The question before the Third Circuit was whether non-cash considerations given to generic producers could cause brand drug producers to face antitrust suits.1 The Third Circuit held that the Supreme Court's ruling in FTC v. Actavis (570 U.S. 756 (2013)) may apply to "other kinds of consideration a brand offered a generic to settle a Hatch-Waxman dispute."2 Specifically, the Third Circuit ruled that "a settlement in which the patentee drug manufacturer agrees to relinquish its right to produce an 'authorized generic' of the drug ('no-AG agreement')" is covered under Actavis.3

Under the Hatch-Waxman Act (or the Drug Price Competition and Patent Term Restoration Act of 1984), first-filing generic drug companies are guaranteed 180 days of market exclusivity before a brand company's patent expires. Plaintiffs in this case allege "that GSK paid off Teva to delay launching a generic version of Lamictal until a day before GSK's patents were set to expire by promising not to launch its own authorized generic during Teva's 180-day exclusivity window."4 The district court ruled that the no-AG agreement was not enough to bring an antitrust suit against GSK, but the Third Circuit disagreed because such an agreement "may represent an unusual, unexplained reverse transfer of considerable value from the patentee to the alleged infringer and may therefore give rise to the inference that it is a payment to eliminate the risk of competition."5 The circuit court added that it does not agree with the lower court that Actavis' holding is limited to cash payments.

The Third Circuit relied on studies by the Federal Trade Commission that showed GSK's "180-day window can be worth hundreds of millions of dollars."6 The no-AG agreement is similar to a cash payment in this case because GSK allowed Teva access to the generic market of Lamictal for a period of time in which it experienced no competition. Through the no-AG agreement, GSK lost money immediately, just not as transparently as with a cash payment. Nonetheless, plaintiffs "charged that the pay-to-delay unfairly maintained higher prices than if Teva had simply sold a lower-cost generic version."7 The no-AG agreement was part of a settlement in which "Teva would end its challenge to GSK's patent in exchange for early entry into the $50 million annual lamotrigine chewables market."8 Hence, after Teva's brief market entrance, GSK would once again be the only producer of Lamictal.

This is a major victory for direct purchasers of pharmaceutical drugs. "Companies have increasingly shied away from straightforward cash payments," and this decision could bring other anti-competitive practices under scrutiny. Scott Hemphill, a Columbia Law Professor, said a "cash-only rule" would be "absurd" and that the Third Circuit's decision "allows full enforcement of the antitrust laws."9

The legal team at SFMS has substantial experience litigating antitrust matters, especially in the pharmaceutical industry. If you have any questions regarding this subject or this posting, please contact Valerie Chang ([email protected]) or Michael Ols ([email protected]). We can also be reached toll-free at (866) 540-5505.

Shepherd Finkelman Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS is also an active member of Integrated Advisory Group (, which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at













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