In the case of FTC v. Actavis, Inc., 133 S.Ct. 2223 (2013), the U.S. Supreme Court held that reverse payment settlements may violate U.S. antitrust laws even if the agreement’s anticompetitive effects fell within the scope of the exclusionary potential of the patent-in-suit. Subsequent Federal court opinions have indicated that such potential violations are not limited to monetary reverse payments.1
The Actavis Court adopted a “rule of reason” approach to evaluate settlement agreements, and set forth five factors to examine in determining whether such agreements bring about anticompetitive consequences. These factors include financial and economic evidence concerning, among other things, the fair value of the consideration offered to generic firms that challenge the validity of their patents.
In the case of In re Nexium Antitrust Litigation (2014 WL 4370333) the U.S. District Court for the District of Massachusetts applied the Actavis factors in its evaluation of three settlement agreements. In each agreement, the generic challenger agreed to delay market entry their product. In its Summary Judgment opinion, the Nexium Court addressed the fair value and potential anticompetitive impact of the non-monetary consideration extended to these generic firms. The consideration included:
Ocean Tomo’s extensive Hatch-Waxman litigation experience as well as our experience valuing intangible assets and intellectual property make us uniquely qualified to assist pharmaceutical firms seeking to comply with FTC regulations and U.S. antitrust laws as they negotiate Hatch-Waxman-related agreements.
The financial and economic consulting services we offer both branded and generic firms depend, in part, on the procedural position of either the Hatch-Waxman litigation or the ensuing antitrust action(s). Figure 1 below illustrates our economic and financial services at three different stages of these legal proceedings.
According to the Actavis court, "[a] valid patent excludes all except its owners from the use of the protected process or patent.... But an invalidated patent carries with it no such right."2
Prior to a Paragraph IV Certification challenge, Ocean Tomo can assist branded as well as generic pharmaceutical firms in negotiating the financial and economic terms of licenses for the use of the subject matter of the patent-at-issue. Our professionals’ extensive experience evaluating relevant markets, projecting substitution rates, forecasting future market shares, and estimating price points and profit margins provides us with the expertise required to help craft such intricate financial and legal arrangements.
Branded pharmaceutical firms may wish to consider the benefits of such a pre-Paragraph IV license. For example, a pre-Paragraph IV agreement prevents public challenge concerning the validity of their patents. Also, Federal courts have held that third-party license agreements are evidence of the market’s recognition of the validity of the licensed patent(s). In addition, license agreements entered into outside the context of Hatch-Waxman settlements may help set precedent concerning validity independent of the reverse payments which Hatch-Waxman settlements often include.
Generic firms may also benefit from such arrangements. By taking a license on favorable terms rather than initiating costly and lengthy Hatch-Waxman proceedings, a generic firm can hasten its potential market entry while lowering legal costs. Additionally, by taking a negotiated license, the generic firm would be recognizing the patent-at-issue, and possibly discourage subsequent generic firms from contesting the patent’s validity.
Following a Paragraph IV Certification, the consideration exchanged by the parties to settle Hatch-Waxman litigation may come under scrutiny by the FTC as well as private plaintiffs (e.g., healthcare payers).
With the Paragraph IV Certification date known, Ocean Tomo can quantify the fair value of the consideration to be exchanged in connection with a settlement agreement. Our Valuation practice has extensive experience providing fairness opinions relating to the value of intangible assets, intellectual property, and other contractual rights and obligations. Should the settlement agreement encompass other litigation, our Expert Testimony Business Unit has the experience to quantify the reasonable royalty or other measure of damages. Ocean Tomo professionals have quantified the measure and amount of damages in hundreds of patent infringement cases, including several significant pharmaceutical matters.
Our fairness opinions may be presented to Federal courts in support of the parties’ request to approve settlement agreements, and may also be presented to the FTC.
After an antitrust action has been initiated by the FTC or a private plaintiff, Ocean Tomo can assist both brand and generic pharmaceutical firms in addressing certain economic and financial issues of the alleged antitrust violations, such as the following:
Where the antitrust issues involve analyses better suited for traditional economists, Ocean Tomo has partnered with independent professionals to address those issues. Where the relevant issues are within our areas of expertise, our Expert Testimony professionals call upon our education, training and substantial experience providing expert testimony in depositions and at trial.
1. See, In re Lipitor Antitrust Litigation, 2013 WL 4780496 (“nothing in Actavis strictly requires that the payment be in the form of money.”); In re Nexium (Esomeprazole) Antitrust Litigation, 2014 WL 4370333 (“unlawful reverse payments are not limited to monetary payments.”); but see, In re Lamictal Direct Purchaser Antitrust Litigation, 2014 WL 282755 (“Actavis requires scrutiny only of patent settlements that contain reverse payments.”); and In re Loestrin 24 Fe Antitrust Litigation, 2014 WL 4368924 (“Reading Actavis, this Court cannot help but find that it applies solely to monetary settlements”). 2. FTC v. Actavis, Inc., 133 S.Ct. 2223, 2231 (2013).