United States District Court, N.D. Georgia, Atlanta Division
IN RE ANDROGEL ANTITRUST LITIGATION (NO. II)
v.
ACTAVIS, INC., et al., Defendants. FEDERAL TRADE COMMISSION, Plaintiff, Civil Action No. 1:09-CV-955-TWT
OPINION AND ORDER
THOMAS
W. THRASH, JR. UNITED STATES DISTRICT JUDGE.
This is
an antitrust action brought by the Federal Trade Commission
and private antitrust actions transferred to this Court by
the Judicial Panel on Multidistrict Litigation. They are
before the Court on the Defendant Solvay's Motion for
Summary Judgment on the FTC's Claims [FTC Doc. 620],
Solvay's Motion for Summary Judgment as to the
Par/Paddock Settlement [FTC Doc. 621, MDL Doc. 1551], the
Defendants Actavis and Actavis Holdco's Motion for
Summary Judgment [FTC Doc. 625, MDL Doc. 1556], Solvay's
Motion for Summary Judgment for Lack of Antitrust Injury
Against the Private Plaintiffs [MDL Doc. 1550], Solvay's
Motion for Summary Judgment as to Retailer's Damages
Claims on AndroGel 1.62% Purchases [MDL Doc. 1552], the
Defendants Par and Paddock's Motion for Summary Judgment
[MDL Doc. 1559], the Defendants Actavis, Inc. and
Solvay's Motion to Exclude Plaintiffs' Proposed
Patent Law Expert Jack C. Goldstein, Esq. [FTC Doc. 622, MDL
Doc. 1553], and the Defendants Solvay, Par, and Paddock's
Motion to Exclude in Part Plaintiffs' Expert James R.
Bruno [FTC Doc. 630, MDL Doc. 1562].
For the
reasons set forth below, Solvay's Motion for Summary
Judgment on the FTC's Claims [FTC Doc. 620] is DENIED,
Solvay's Motion for Summary Judgment as to the
Par/Paddock Settlement [FTC Doc. 621, MDL Doc. 1551] is
DENIED, Actavis and Actavis Holdco's Motion for Summary
Judgment [FTC Doc. 625, MDL Doc. 1556] is DENIED,
Solvay's Motion for Summary Judgment for Lack of
Antitrust Injury Against the Private Plaintiffs [MDL Doc.
1550] is DENIED, Solvay's Motion for Summary Judgment as
to Retailer's Damages Claims on AndroGel 1.62% Purchases
[MDL Doc. 1552] is GRANTED, the Defendants Par and
Paddock's Motion for Summary Judgment [MDL Doc. 1559] is
DENIED, Actavis, Inc. and Solvay's Motion to Exclude
Plaintiffs' Proposed Patent Law Expert Jack C. Goldstein,
Esq. [FTC Doc. 622, MDL Doc. 1553] is DENIED, and Solvay,
Par, and Paddock's Motion to Exclude in Part
Plaintiffs' Expert James R. Bruno [FTC Doc. 630, MDL Doc.
1562] is GRANTED in part and DENIED in part.
I.
Background
In the
early nineties, Besins Healthcare, S.A. developed the
pharmaceutical formulation for AndroGel, a prescription
topical gel used to treat low testosterone in men. In August
1995, Besins granted Solvay Pharmaceuticals, Inc., a license
to sell AndroGel in the United States.[1] Besins also
agreed to manufacture AndroGel and supply it to Solvay once
Solvay received FDA approval to sell the drug.
At this
point, it is important to understand how new drugs enter the
market in the United States. In order to sell a new drug in
the United States, a pharmaceutical firm must file a New Drug
Application (“NDA”) with the Food and Drug
Administration.[2] The NDA must contain a complete report
about the drug, including safety and efficacy studies, the
composition of the drug, a description of how the drug is
produced, and proposed labeling.[3] The process to approve new
proprietary drugs - known as “brand name” drugs -
is both time consuming and costly.
Although
the possibility for large profits after FDA approval is often
an incentive for pharmaceutical companies to pursue the NDA
process for brand name drugs, the cost associated with it may
also serve as a significant barrier to entry by generic
formulations of the same drug. These high barriers limit
competition, which in turn may hurt consumers. This concern
led Congress to enact the Hatch-Waxman Act in
1984.[4] The Hatch-Waxman Act enables companies
that want to market and sell a generic version of a
brand-name drug to avoid filing an NDA. As long as the
generic and the brand-name drug are effectively the same
thing, generic manufacturers can file a substantially shorter
Abbreviated New Drug Application (“ANDA”). This
reduces costs for generics manufacturers, which may allow
them to charge much lower prices than brand name drugs,
therefore benefitting consumers.
In
order to prevent generic manufacturers from completely
cutting into the profitability of brand name drugs, thereby
reducing the incentive for brand name manufacturers to go
through the cost and risk of the NDA process, federal law
provides two ways for brand name pharmaceutical manufacturers
to protect their investment. First, the FDA can grant brand
name manufacturers periods of “exclusivity, ”
which means that the FDA will not approve another application
to sell the same drug until the exclusivity period (usually
three or five years) ends. Second, brand name manufacturers
can patent their new drug. Just like any other patent, drug
patents grant brand name manufacturers a legal monopoly for a
limited period of time. If there are any patents that cover
the brand name drug, a generic manufacturer's ANDA must
contain an additional certification. The ANDA must certify
that (1) the patent has not been listed with the FDA, (2) the
patent has expired, (3) the patent will expire on a certain
date, or (4) the patent is invalid or will not be infringed
by the generic drug.[5] The last certification is known as a
Paragraph IV certification. For any ANDA with a Paragraph IV
certification, the applicant must also notify the patent
holder of the ANDA.[6] If the patent holder decides to file an
infringement suit after receiving notice of the Paragraph IV
certification, the FDA is then prohibited from approving the
generic for market entry for up to thirty months while the
litigation proceeds.
In
April 1999, Solvay filed an NDA for AndroGel. It was approved
by the FDA in February 2000, and Solvay received three years
of exclusivity. Solvay was also issued a patent on AndroGel,
U.S. Patent No. 6, 503, 894 (‘894 patent). Although
AndroGel was not the only available method of testosterone
replacement therapy, other methods were not as effective or
as popular as AndroGel. The protection afforded Solvay by the
exclusivity period and Solvay's patent helped AndroGel to
quickly become the most popular form of testosterone
replacement therapy. From 2000 to 2007, sales of AndroGel in
the United States were over $1.8 billion.
In the
meantime, other pharmaceutical companies were developing
generic versions of AndroGel. Once Solvay's new drug
product exclusivity expired in February 2003, the FDA was
authorized to approve generic versions of AndroGel. In May
2003, two companies each submitted ANDAs with Paragraph IV
certifications for generic AndroGel. Actavis,
Inc.[7]
submitted the first ANDA, and Paddock Laboratories, Inc.
submitted the second. Both companies also sent notice of
their ANDAs to Solvay and Besins. In July 2003, Paddock
reached an agreement with Par Pharmaceuticals. Par agreed to
share any litigation costs with Paddock, and to sell
Paddock's generic AndroGel. In return, Paddock agreed to
share profits with Par.
Solvay
responded to the ANDAs by asserting its rights under the
‘894 patent. In August 2003, Solvay's subsidiary,
Unimed Pharmaceuticals, Inc., filed patent infringement
actions against Watson and Paddock (the
“Generics”) in this Court.[8] Solvay alleged
infringement based on the filing of the ANDAs.[9]Because Solvay
filed infringement actions against the Generics within the
forty-five day window of receiving notice, the FDA stayed
approval of their ANDAs for thirty months.
For the
next few years, Solvay and the Generics litigated the
infringement actions. Both followed a similar schedule. From
late 2003 to the middle of 2005, the parties engaged in
discovery, scheduling, and other initial litigation matters.
By August 2005, the parties had filed motions for claim
construction. By December 2005, the Generics had filed
motions for summary judgment on the validity of the
‘894 patent as well as claims construction briefs. All
of the motions were fully briefed and ready for decision in
early 2006.
While
the motions were pending, Actavis and Paddock moved toward
entering the market with generic AndroGel. In January 2006,
the thirty month stay ended, and the FDA approved
Actavis' ANDA. The FDA, however, continued to stay
approval of Paddock's ANDA. The first firm to file an
ANDA with a Paragraph IV certification receives generic
exclusivity upon FDA approval, which is similar to brand-name
exclusivity, but shorter. Generic exclusivity means that the
FDA will not approve a subsequent ANDA for the same drug
until 180 days after the earlier of (1) the date the first
filer begins commercial marketing of its generic drug, or (2)
the date a district court enters judgment that the patent is
invalid or not infringed, whichever date is
earlier.[10]Because Actavis was the first to file an
ANDA for generic AndroGel, it received generic exclusivity
over Paddock. In February 2006, Actavis prepared a report
predicting that it would sell generic AndroGel by January
2007 and that the price would be 75 percent less than brand
name AndroGel. In the same month, Par prepared a report
predicting that Actavis would sell generic AndroGel as early
as March 2006 and that Par and Paddock would follow in
September 2006.
But
before the Court decided the pending motions in the
infringement actions, and before anyone entered the market
with generic AndroGel, Solvay and the Generics settled the
cases. Under the September 13, 2006 settlement between Solvay
and Actavis, Solvay agreed to voluntarily dismiss the
infringement action, and Actavis agreed not to market generic
AndroGel until the earlier of August 31, 2015 or the date
another company marketed generic AndroGel.[11] And under the
September 13, 2006 settlement between Solvay and Par/Paddock,
Solvay agreed to a consent judgment dismissing the
infringement action, and Par/Paddock agreed not to market
generic AndroGel until the earliest of August 31, 2015 (but
only if Actavis did not assert its 180 day generic
exclusivity period), the date another company launched
generic AndroGel, or February 28, 2016.[12]
On the
same day as the settlements, Solvay also entered into
business promotion agreements with Actavis, Par, and Paddock.
Under the agreement between Solvay and Actavis, Solvay agreed
to share profits of AndroGel with Actavis, and Actavis agreed
to promote AndroGel to urologists.[13] Under the agreement
between Solvay and Par, Solvay agreed to share profits of
AndroGel with Par, and Par agreed to promote AndroGel to
primary care physicians.[14] And under the agreement between
Solvay and Paddock, Solvay agreed to share profits of
AndroGel with Paddock, and Paddock agreed to serve as a
backup supplier of AndroGel.[15]
Together,
these types of settlements are called “reverse
payment” settlements, and they have recently become
popular in pharmaceutical litigation. Reverse payment
settlements are so called because they are the reverse of
traditional patent infringement settlements. In a traditional
settlement, the party with the claim - in this case, the
brand name manufacturer - receives a payment from the
defendant - in this case the generic - either equal to or
less than the value of its claim.[16] But in a reverse
settlement, “a party with no claim for damages
(something that is usually true of a paragraph IV litigation
defendant) walks away with money simply so it will stay away
from the patentee's market.”[17]
The
reverse payment settlements prompted an investigation by the
Federal Trade Commission for violations of antitrust laws.
That investigation was completed in 2008. In 2009, the FTC
and a number of private parties filed these antitrust actions
against Solvay, Actavis, Par, and Paddock. All of the actions
were filed in other federal district courts and then
transferred to this Court either by change of venue or by
order of the United States Judicial Panel on Multidistrict
Litigation. On February 22, 2010, applying settled Eleventh
Circuit precedent, this Court dismissed the FTC action for
failure to state a claim.[18] On appeal, the Eleventh
Circuit affirmed.[19] However, the Supreme Court granted
certiorari, and eventually reversed and remanded the cases in
2013.[20]
So,
after five years, everything started all over.[21] The
Plaintiffs are divided into three groups: the FTC, the Direct
Purchaser Class Plaintiffs, and the Retailers.[22] The Direct
Purchaser Class Plaintiffs and the Retailers constitute the
Private Plaintiffs. All of the Plaintiffs allege that the
Defendants violated federal antitrust law.[23] The
Defendants now move for summary judgment on various grounds.
II.
Legal Standards
A.
Daubert Motions
Federal
Rule of Evidence 702 governs the admission of expert opinion
testimony. Pursuant to that rule, before admitting expert
testimony a court must consider: (1) whether the expert is
competent to testify regarding the matters he intends to
address; (2) whether the methodology used to reach his
conclusions is sufficiently reliable; and (3) whether the
testimony is relevant, in that it assists the jury to
understand the evidence or determine a fact in
issue.[24]In ruling on the admissibility of expert
testimony, “[t]he focus must be ‘solely' on
the expert's ‘principles and methodology, not on
the conclusions that they generate.'”[25] If the expert
predicates his testimony on an assumption that is belied by
the evidence, the expert's testimony is properly
excluded.[26] The party offering the expert's
testimony has the burden to prove it is admissible by a
preponderance of the evidence.[27]
B.
Summary Judgment
Summary
judgment is appropriate only when the pleadings, depositions,
and affidavits submitted by the parties show no genuine issue
of material fact exists and that the movant is entitled to
judgment as a matter of law.[28] The court should view the
evidence and any inferences that may be drawn in the light
most favorable to the nonmovant.[29] The party seeking summary
judgment must first identify grounds to show the absence of a
genuine issue of material fact.[30] The burden then shifts to
the nonmovant, who must go beyond the pleadings and present
affirmative evidence to show that a genuine issue of material
fact does exist.[31] “A mere ‘scintilla' of
evidence supporting the opposing party's position will
not suffice; there must be a sufficient showing that the jury
could reasonably find for that party.”[32]
III.
Discussion
The FTC
and the Private Plaintiffs allege that the Defendants
violated federal antitrust law by entering into the reverse
settlement agreements. Section 1 of the Sherman Act states
that “[e]very contract, combination in the form of
trust or otherwise, or conspiracy, in restraint of trade or
commerce among the several States, or with foreign nations,
is declared to be illegal.”[33]Section 2 of the Sherman
Act likewise prohibits agreements to monopolize
trade.[34] And Section 5 of the Federal Trade
Commission Act states that “unfair methods of
competition” are illegal, [35] a prohibition which has
long been held to encompass the violations of the Sherman
Act.[36] Thus, the different claims can be
analyzed together.
A.
Daubert Motions
1.
Jack Goldstein
Solvay
and Actavis move to exclude the testimony of Jack Goldstein.
The Private Plaintiffs will call Goldstein to testify at
trial as to how a reasonable and competent patent attorney
would have advised litigants in Solvay's or the
Generics' positions at the time they settled the
underlying patent litigation on (1) the likelihood of success
in the litigation; (2) the likely timing of the
litigation's resolution if the parties had not settled;
and (3) each of the parties' likely litigation costs had
they not settled.[37] The Defendants argue that Goldstein is
not qualified to give these opinions, and that his
methodology is unreliable. Both arguments are without merit.
The
Defendants challenge Goldstein's qualifications, arguing
that he does not have the requisite firsthand experience to
properly assess the likely outcome, cost, or timing of the
litigation. But the Defendants mistakenly argue that in order
to testify about these issues, Goldstein needs to have
recent, repeated, and specialized experience litigating
patent cases arguing the specific legal and factual issues
that were at issue in the underlying patent litigation.
Goldstein does not need such specialized experience at all.
“It is not necessary that the witness be recognized as
a leading authority in the field in question . . . . Gaps in
an expert witness's qualifications or knowledge generally
go to the weight of the witness's testimony-not its
admissibility.”[38] Further, Goldstein is testifying as
to what a reasonable and competent patent attorney would have
thought at the time of the settlements. The question,
therefore, is whether Goldstein has experience as a
reasonable and competent patent attorney.[39]
There
can be no doubt that the answer to that question is yes.
Goldstein has had a long and distinguished career in the
field of patent law. He has studied, interacted with, and
litigated patent issues for fifty years.[40] After earning
his law and engineering degrees, Goldstein began his legal
career as a clerk for a judge on the U.S. Court of Customs
and Patent Appeals, one of the predecessor courts to the
Federal Circuit.[41] He then went on to work for a law firm
specializing in intellectual property for almost thirty
years, during which time he also taught patent and copyright
law as an adjunct professor at South Texas College of Law in
Houston.[42] After leaving the firm in 1997,
Goldstein became president of an intellectual property
holding company, during which time he enforced the
company's IP rights through patent litigation multiple
times.[43] Goldstein now serves as a mediator,
arbitrator, counsel, and expert in intellectual property
matters.[44] In addition, he serves or has served in
numerous national intellectual property law professional
groups, including as President of the American Intellectual
Property Law Association.[45] The experience the Court lists
here is only a fraction of that listed on Goldstein's
curriculum vitae. Goldstein clearly
“possess[es] skill or knowledge greater than the
average layman, ”[46] and is qualified to testify as to
what a reasonable and competent attorney would have
considered the likely outcome, length, and cost of pursuing
the underlying litigation to a complete and final end.
The
Defendants also seek to exclude Goldstein's testimony on
the grounds that his methodology is unreliable. First, the
Defendants argue that Goldstein had no methodology at all for
his opinion that a reasonable and competent patent attorney
would have advised Solvay that it had a 20% chance of winning
the litigation. This is incorrect. Goldstein began his
analysis by using two studies available at the time of the
settlement to assess what the average outcomes were in patent
cases involving a generic defendant.[47] Using these studies, it
is Goldstein's opinion that on average a brand
manufacturer plaintiff would have about a 25-30% chance of
winning a Hatch-Waxman patent infringement
case.[48] Goldstein then examined the merits of
the underlying patent litigation in this case to determine
whether Solvay's position was stronger or weaker than the
average Hatch-Waxman plaintiff.[49] Goldstein found that it
was weaker than the average, although not by a lot. Goldstein
estimated that a reasonable and competent patent attorney
would have discounted Solvay's chances of success by
about 10%, meaning that it would have had between a 15-20%
chance of succeeding in the underlying
litigation.[50] Goldstein clearly has a methodology,
even if the Defendants believe it to be a weak one.
Similarly,
Goldstein's opinions on the merits, cost, and timing of
the litigation are reliable enough to be put to a jury.
Although the Defendants argue that his views on the law are
unreliable because they are incorrect, that is something on
which reasonable and competent patent attorneys can disagree.
Indeed, the only people who can say with true 100% certainty
what the law is are the Justices of the United States Supreme
Court. Further, while using survey data and the Court's
statements to estimate cost and timing are not foolproof,
they are reliable enough for reasonable jurors to consider.
The Defendants' arguments basically boil down to the fact
that they disagree with Goldstein's opinions, not their
reliability. Such arguments are better addressed through the
traditional means of “vigorous cross-examination,
presentation of contrary evidence, and careful instruction on
the burden of proof.”[51] For these reasons, the
Defendants' motion to exclude Goldstein's testimony
is denied.
2.
James Bruno
The
Defendants also seek to exclude testimony of the
Plaintiffs' expert James Bruno. In particular, the
Defendants seek to exclude Bruno's opinions and testimony
on the valuation of the Backup Manufacturing Agreement
(“BMA”) between Solvay and Par/Paddock, including
whether Solvay's compensation to Par/Paddock was fair
value for services or constituted a large and unjustified
payment. The Court agrees, and the Plaintiffs concede, that
Bruno does not offer a quantitative valuation of the
BMA.[52] As such, Bruno does not and cannot offer
testimony as to a specific monetary value for the BMA. To the
extent that other experts assign one to the BMA based on
Bruno's testimony, such testimony would be inappropriate
and should be excluded.
However,
the Defendants are incorrect in saying that all of
Bruno's testimony regarding the BMA should be excluded.
Although Bruno does not offer a specific monetary value to
the BMA, such testimony is not necessary to show
that a payment is “large and unjustified” under
Actavis. As discussed later in this Opinion, the key
inquiry in determining whether the reverse payment
settlements violated the antitrust laws is whether they were
entered into for the purpose of avoiding the risk of
competition. Bruno's other testimony regarding the BMA,
including his opinions that the BMA was out of step with
industry practice and the Generics' regular business
practices, is certainly relevant to answering that
question.[53] Thus, while Bruno's testimony cannot
support a specific, monetary valuation for the purpose of
mathematically comparing the value of services, his testimony
is relevant to answering what the “value” of the
settlement was to the Defendants, whether its value was
actually in the services provided, or in avoiding the risk of
competition. On those grounds, Bruno's testimony would be
helpful to the jury, and is allowed.
B.
Antitrust Conspiracy
Turning
now to the summary judgment motions, Actavis first moves for
summary judgment on the theory that the Plaintiffs have
failed to demonstrate that Actavis conspired to restrain
trade.[54] Under the Sherman Act, Section 1 claims
and Section 2 conspiracy to monopolize claims “require
the same threshold showing - the existence of an agreement to
restrain trade.”[55] A written contract satisfies this
requirement “only if it embodies an agreement to
unlawfully restrain trade.”[56]
Actavis
argues that the settlement agreements do not meet this
standard because “they evince no agreement or
understanding by [Actavis] to ‘delay its entry' in
exchange for a share of Solvay's monopoly profits . .
.”[57] Actavis cites a number of cases that
find that the mere existence of a contract between two
parties is not sufficient to establish a conspiracy between
them.[58] In those cases, however, the contracts
were merely indirect evidence of a conspiracy from
which the factfinder could infer an agreement to violate the
antitrust laws. Finding a conspiracy on such indirect
evidence raises the concern that “contractual partners
would potentially be on the hook for any future conduct the
other party engages in under color of the
contract.”[59]
But
that concern is not present in cases with direct
evidence, such as this one. “Direct evidence of a
conspiracy ‘obviates the need' for evidence that
excludes the possibility of independent
action.”[60] In this case, the settlement agreements
specifically address the conduct the Plaintiffs argue is
unlawful. The parties negotiated and agreed that in exchange
for dropping the patent litigation, providing some services,
and delaying generic introduction until 2015, the Generics
would receive compensation.[61] Whether that common objective
- dropping the patent litigation in exchange for compensation
- was an illegal restraint of trade is a separate question.
But if it was, then the settlements are clear, direct
evidence of an agreement to unlawfully restrain
trade.[62] Not only is there enough evidence for a
jury to find that there was an agreement, it is doubtful that
a reasonable jury could find otherwise. Therefore,
Actavis' motion for summary judgment on the issue of
conspiracy is denied.
C.
Anticompetitive Effect
Having
disposed of Actavis' conspiracy argument, the Court now
turns to what has been the central issue in this case all
along: whether the reverse settlement agreements were
unlawful.[63] The antitrust laws prohibit conduct that
is “unreasonable and
anticompetitive.”[64] “A restraint is unreasonable if
it has an adverse impact on competition and cannot be
justified as a pro-competitive measure.”[65] Usually this
is determined by balancing the effects under the test known
as the “rule of reason.” “[T]he rule of
reason standard hinges the ultimate legality of a restraint
on whether the plaintiff has demonstrated an anticompetitive
effect which is not offset by a need to achieve a
procompetitive benefit or justification.”[66] Sometimes,
however, conduct is so blatantly anticompetitive that courts
have found it to be illegal per se.[67]
When
this case was before the Supreme Court on appeal, the FTC and
the Defendants took starkly opposing views on the question of
the settlements' effect on competition. The Defendants
argued that the settlements were not anticompetitive because
they did not delay generic entry past the life of the
‘894 patent. In other words, as long as the ‘894
patent would have independently blocked generic entry, the
settlements could not possibly be anticompetitive. If
anything, the settlements should be considered procompetitive
by allowing entry earlier than the expiration of patented
exclusivity. The FTC, by contrast, took the view that reverse
payment settlements are by their very definition
anticompetitive, and should be subject to the per se
rule of illegality, because they explicitly and openly
involve sharing the profits of a monopoly to buy off
competitors and delay generic entry in order to restrict
competition.
The
Supreme Court took a middle road between these two extremes.
While recognizing that a valid patent certainly would have
excluded generics from the market, the Court noted that
“an invalidated patent carries with it no such
right. And even a valid patent confers no right to exclude
products or processes that do not actually
infringe.”[68] Thus, the existence of a patent does not
necessarily say anything about whether competition was
restricted.
At the
same time, the Court said abandoning the rule of reason in
favor of the FTC's per se approach was not
appropriate, because “the likelihood of a reverse
payment bringing about anticompetitive effects depends upon
its size, its scale in relation to the payor's
anticipated future litigation costs, its independence from
other services for which it might represent payment, and the
lack of any other convincing
justification.”[69] Instead, the Court held that when it
comes to scrutinizing reverse payment settlements, the
“FTC must prove its case as in other rule-of-reason
cases.”
The
parties disagree about what constitutes an anticompetitive
harm and what the Plaintiffs must demonstrate to prove it.
The Defendants argue that the relevant anticompetitive harm
is an actual harm to consumers in the form of higher
prices through the delay of generic entry into the market.
Thus, the Defendants argue the Plaintiffs must show that the
settlements actually caused a delay in the sale of
generic versions of AndroGel.[70] But as the FTC points out, the
Supreme Court made clear in Actavis that avoiding
even the possibility of competition, however small, is itself
an antitrust violation.[71] Rather than having to litigate the
merits of any underlying patent suits or establish a theory
of causation, the Supreme Court said that courts can look to
the “size of the payment . . . [to] be able to assess
its likely anticompetitive effects . . .
.”[72] Where the size of a reverse payment
“reflects traditional settlement considerations, such
as avoided litigation costs or fair value for services, there
is not the same concern that a patentee is using its monopoly
profits to avoid the risk of patent invalidation or a finding
of noninfringement.”[73] But where a payment is
“large and unjustified” by these traditional
settlement concerns, it is likely directed toward avoiding
the risk of competition. Thus, if the settlement payments are
shown to be larger than what could reasonably be expected to
cover such traditional settlement concerns as future
litigation costs or the value of services rendered, the
Plaintiffs will have satisfied their burden in showing that
the settlements violated the antitrust laws.[74]
In this
case, the Defendants entered into two separate settlement
agreements.[75] The first, between Solvay and Actavis,
provided that Solvay would drop its patent claims against
Actavis and pay Actavis 60 to 70% of AndroGel's profits
in exchange for co-promoting AndroGel and delaying generic
entry until 2015.[76] The second, between Solvay, Paddock, and
Par, likewise had Solvay drop its patent claims and pay $12
million to Par per year in exchange for a delay in generic
entry until 2015, as well as co-promotion and manufacturing
help from Paddock and Par.[77] Clearly, Solvay agreed to pay
the Generics significant sums of money. The only remaining
question, therefore, is whether these payments were
“large” relative to the services provided or the
cost of avoided litigation.
According
to the Plaintiffs, Solvay determined that it would be much
better off if the Generics delayed entering the market until
2015.[78] However, Solvay also figured out that
the Generics would see a loss in value of generic entry
compared to continuing the litigation if entry was delayed
that long.[79] This made it unlikely that the Generics
would agree to such a settlement without added
incentives.[80] Consequently, Solvay offered the
Co-Promotion Agreements (“CPAs”) and Backup
Manufacturing Agreement (“BMA”) in order to
entice the Generics to settle their claims.
The
Plaintiffs present significant evidence from the negotiation
of the settlements to suggest that the services were merely
an afterthought to the Defendants, the proverbial lipstick on
the pig that was the delay in generic entry.[81] But even if
taken at face value, the Plaintiffs' experts opine that
Solvay vastly overpaid for the services it was
receiving.[82] The Plaintiffs' experts also will
testify that the side agreements did not make much business
sense on their own.[83]
The
Defendants respond in two ways. First, they argue that the
FTC failed to show that the settlements actually
delayed entry.[84] That may well be true, but that is not
what the FTC needs to prove in order to show an antitrust
harm. As discussed above, the FTC only needs to prove that
the Defendants entered into the settlements in order to avoid
the risk of a competitive market.
The
Defendants' second argument focuses only on Solvay's
settlement with Par and Paddock. The Defendants argue that
the Plaintiffs have failed to show that the Par/Paddock
settlement was “large and unjustified” because
the Plaintiffs did not supply their own valuation of some of
the services in those contracts. While the Plaintiffs'
expert valued the CPA between Solvay and Par/Paddock, the
Defendants point out that the Plaintiffs' expert never
quantitatively valued the BMA, which the Defendants argue
must be considered jointly with the CPA. Without their own
valuation of the BMA, the Plaintiffs must rely on the defense
expert's valuation of the CPA in order to show that the
agreements were out of step with the value of the services
provided. This, the Defendants argue, inappropriately shifts
the burden onto them.
However,
comparative valuations of services are not a necessary
requirement to show that a reverse payment is “large
and unjustified.” Helpful, certainly, but not
necessary. The size of the payment is merely the Supreme
Court's proxy for reaching the ultimate question: whether
the agreement was entered into for the purpose of avoiding
the risk of competition. If a settlement was agreed to for
that purpose, it is “large and unjustified.”
As
discussed above, the Plaintiffs have provided evidence to
suggest that the BMA and CPA in the Par/Paddock settlement
were merely vehicles to facilitate payment to the Generics
for delaying entry. In addition to the size of the settlement
- $12 million per year - the Plaintiffs' experts opine
that the BMA was out of step with industry practice and the
Generics' regular business practices.[85] In
particular, the Plaintiffs' experts criticize the loose
oversight over Paddock, the lack of any assurance that
Paddock could meet Solvay's manufacturing needs,
Solvay's inability under the contract to cancel if
Paddock did not meet its manufacturing needs, and the fact
that Paddock was unable to manufacture AndroGel for the vast
majority of the agreement's term.[86] In addition,
there is evidence that the Defendants agreed to the reverse
payment amount before negotiating the specifics of any
services Par/Paddock were going to render.[87] A reasonable
jury could infer from such evidence that the BMA and CPA were
merely post-hoc justifications when the true purpose of the
settlement was to avoid the risk of competition. This
evidence is enough to shift the burden to the Defendants to
justify the payments as being procompetitive.
Solvay's
counsel suggested at oral argument that one way the
Defendants plan to justify the settlements as procompetitive
is to argue that the patents were valid and infringed; in
other words, the settlements were procompetitive because they
allowed generic entry earlier than the patent would have
allowed. There are two ways to make this argument. One way
would be to provide evidence that shows what Solvay
thought at the time about the strength of its
patents. The other is to argue that Solvay would have won the
underlying patent litigation.
While
the former is acceptable, the latter is problematic for two
reasons. First, as discussed above, the actual validity of
the patent is irrelevant to the question of whether the
reverse payments violated the antitrust laws. Paying the
Generics to stay out of the market for the purpose of
avoiding the risk of competition is an antitrust harm,
regardless of whether or not the patent is actually
valid and infringed.[88] Put another way, even if the patent was
valid and infringed, the Defendants took away the opportunity
to know that for sure by settling before the end of the
litigation. If they did so for the purpose of avoiding the
risk that a court would find otherwise, however small a risk
they considered it to be, that is an antitrust violation
under Actavis.[89]
Second,
for reasons explained more fully elsewhere in this Opinion,
even if the actual validity of the patent was relevant,
determining the ultimate outcome of the underlying patent
litigation is both fundamentally unknowable and procedurally
impossible. The underlying litigation was assigned to me.
There is no one who can say how I would have ruled on the
summary judgment motions, how I would have construed the
claims, and whether I would have found infringement. There is
no one who can say how the Federal Circuit would have ruled
upon any unknowable judgment that may have been rendered. In
Actavis, the Supreme Court said “it is normally not
necessary to litigate patent validity to answer the antitrust
question (unless, perhaps, to determine whether the patent
litigation is a sham...).”[90] I will accept the
Court's invitation to “structure [this] antitrust
litigation so as to avoid, on the one hand, the use of
antitrust theories too abbreviated to permit proper analysis,
and, on the other, consideration of every possible fact or
theory irrespective of the minimal light it may shed on the
basic question-that of the presence of significant
unjustified anticompetitive
consequences.”[91] Any evidence or argument on actual
outcome would be far too speculative to aid a jury in making
a reasoned decision. Thus, any arguments based on the actual
validity or invalidity of the patent, or about what would
have happened in the underlying patent litigation, are
inappropriate and will be disallowed regarding the antitrust
violation question.
In sum,
the Court finds that the Plaintiffs have provided enough
evidence for a reasonable jury to find that, by overvaluing
these side agreements in the settlement, the Defendants were
able to reach agreements that left them better off than any
party would have been had the Generics won the patent
litigation. A reasonable jury could find that the settlements
were structured so as to be more beneficial to everyone
involved than a competitive market; everyone, that is, except
the consumer. Settling for that purpose is an antitrust harm.
Of course, the Defendants may still justify the settlements
by demonstrating that the payments were for
“traditional settlement considerations, such as avoided
litigation costs or fair value for services,
”[92] but they may not justify the payments on
the grounds that the patent was valid and infringed because
such an argument is irrelevant and, in any case, impossible
to know without re-litigating to their conclusion the
underlying patent cases. I do not plan to do that. Because
the Plaintiffs have shown enough to satisfy their prima
facie burden, the Defendants' motions for summary
judgment on these issues are denied.
D.
Antitrust Standing
Unlike
the FTC, which only needs to prove an antitrust violation,
private plaintiffs asserting a private right of action under
the Clayton Act must also establish antitrust
standing.[93] This is separate from Article III
standing.[94] “Harm to the antitrust plaintiff
is sufficient to satisfy the constitutional standing
requirement of injury in fact, but the court must make a
further determination whether the plaintiff is a proper party
to bring a private antitrust action.”[95]
The
Eleventh Circuit employs a two-prong test for antitrust
standing. “First, the plaintiff must establish that it
has suffered an antitrust injury.”[96]This means the
plaintiff must have suffered an “injury of the type
that the antitrust laws were intended to prevent and that
flows from that which makes the defendants' acts
unlawful.”[97] “The injury should reflect the
anticompetitive effect . . . of the violation . . .
.”[98] “Second, the plaintiff must be an
‘efficient enforcer' of the antitrust
laws.”[99] The Defendants move for summary judgment
only on the first prong.
In this
case, the harm “that flows from that which makes the
defendants' acts unlawful” - the avoidance of the
risk of competition - is higher drug prices. The Private
Plaintiffs must therefore prove that they suffered an injury
in the form of higher drug prices because of the delay in
generic entry caused by the reverse payment settlements. The
Private Plaintiffs have offered, at various times, three
alternative theories for why the Generics would have entered
the market prior to 2015: (1) the Generics ultimately would
have prevailed in the underlying patent litigation; (2) the
Generics would have come to the market “at risk”
during the patent litigation; and (3) the parties would have
reached an alternative settlement with an earlier entry date
than 2015.
1.
Success on the Patent Merits and At-Risk Entry
During
oral argument, the Private Plaintiffs disavowed the argument
that they would have won the underlying patent litigation,
leaving only the latter two theories to show causation.
However, the Private Plaintiffs' at-risk theory of
causation still ultimately depends on showing that the
Generics would have won the underlying patent litigation. The
Wellbutrin district court stated this point clearly.
“The existence of a valid and uninfringed patent would
interfere with the plaintiffs' chain of causation: a
valid patent independently preclude[s] competition apart from
any agreement and an ‘at risk' launch is unlawful
absent a later finding of patent invalidity or
non-infringement.”[100] In other words, if the
patent was valid, any at-risk launch would have been unlawful
if it infringed on the patent, and the law will not allow the
Private Plaintiffs to use illegal behavior as a link in their
chain of causation.[101] At least three other courts have
reached similar results.[102] In order to show that the
Generics could have successfully - i.e., legally - launched
at-risk, the Private Plaintiffs would therefore need to show
that the patent would ultimately have been found either
invalid or uninfringed in the underlying patent litigation.
This
raises again the central problem raised by Actavis:
how to determine what the outcome of the underlying patent
litigation would have been in a way that is manageable. Do
the parties need to accomplish what Judge Carnes called the
“turducken task” of litigating “a patent
case within an antitrust case about the settlement of the
patent case?”[103] Alternatively, can they offer
experts to testify as to what would have happened in the
but-for world, neatly summarized into each party's
percent chance of winning?[104] Is it even possible to do
either?
It is
the Court's opinion that it is not. At least in relation
to this particular case, arguments which depend on
determining what the ultimate outcome of the underlying
patent litigation would have been are simply too procedurally
burdensome and speculative to serve as valid theories of
causation under Actavis. Consider for a moment the
particularly thorny issues that would be raised were the
Court to consider such a theory at trial. Would the Private
Plaintiffs be allowed to make any argument that was
potentially available to the Generics, or would they be
limited to the arguments the Generics had actually made up to
the point the parties settled? The Defendants at various
points in their papers assume the latter, but the underlying
litigation never came to a final, preclusive decision. It did
not even reach summary judgment. Who knows what arguments may
have been raised as the litigation went forward?
Further,
is the outcome of the underlying litigation a question of
fact or law, and who would decide what the outcome would have
been - the Court or the jury? If the latter, how could a jury
determine what the outcome of a bench trial would have been?
Unlike the issue of an antitrust violation, a jury cannot
estimate the likelihood of the Generics' success on the
patent merits by simply looking to the size of the reverse
payment as a proxy.[105] Instead, a jury would have to
answer that question by determining how the judge - in this
case, me - would have found on the merits. Thus, when
combined with the standard of proof in this case, this means
that to survive summary judgment, the Private Plaintiffs
would have to provide enough evidence to show that a
reasonable jury could find it more likely than not that a
judge would have found it more likely than not that the
Generics did not infringe or that the ‘894 patent was
invalid.[106]On top of that, a jury would have to
determine how the judge would have decided various legal
issues, including claim construction and summary judgment. If
that sounds ridiculously unwieldy, that's because it is.
And even if a jury could comprehend that standard, how would
the inevitable appeal be handled? Would the case be split,
with the antitrust issues going to the Eleventh Circuit, but
the patent issues going to the Federal Circuit? Clearly,
actually litigating the underlying merits would be a
procedural and administrative nightmare.
But let
us assume for a moment that the procedural issues could
somehow be worked out. At least with regard to this case, it
is impossible to say what the court would have actually done
in the underlying case. Any experts who testify otherwise,
like the expert relied upon in Wellbutrin,
[107] are coming up with probabilities out
of whole cloth. Unlike the antitrust issues, where we can
assume that the parties would have acted in their best
economic interest, such assumptions cannot necessarily be
made about courts and juries. One court is not the same as
another. Much of a patent case depends on how a claim is
construed, and no one can say how I would have construed the
claims at issue. Nor can one simply estimate what would have
happened based on other cases. Every patent case is
inherently different, with numerous variable affecting the
outcome. And the issue here is not what would have happened
in a generic case, but what would have happened in
this case.
By
contrast, most of the cases which have considered this
question and decided otherwise have differed from this case
in at least one of two ways. First, at least two of those
cases relied upon what this Court views was an improper
causation standard, finding that the plaintiffs only needed
to show that the generics could have won, not that
they would have won.[108] Obviously it is much easier
to provide substantive proof of what could have happened as
opposed to what would have happened. Second, the experts
offering testimony in those cases had at least some concrete
outcome in the underlying litigation on which to base their
opinions. For example, in the Lidoderm litigation,
the defendants had actually gone to trial on the case, but
settled before the judge issued his opinion.[109] Thus, the
expert was able to rely on statements made by the judge, as
well as his claim construction order.[110] And in
Wellbutrin, where there were two underlying patent
suits, the court in one of them had also entered claim
construction and summary judgment orders (the plaintiffs did
not argue the generic could have won the
other).[111] In this case, however, the Court never
entered a claim construction or summary judgment order in the
underlying patent litigation in this case, let alone actually
tried the issues. Any opinion that would purport to state how
a particular piece of litigation would turn out without any
evidence from the court in question on how it would rule can
only be characterized as pure speculation. Such attenuated
evidence cannot possibly serve as the basis of a reasonable
decision by a jury.
Although
this eliminates two of the Private Plaintiffs' theories
of causation, as well as a possible procompetitive
justification for the settlements, the Court feels it is
justified in light of Actavis, the other theories
available to the parties, and the desire for a logical
congruency of outcome. First, as noted earlier, Justice
Breyer explicitly states that:
[a]s in other areas of law, trial courts can structure
antitrust litigation so as to avoid, on the one hand, the use
of antitrust theories too abbreviated to permit proper
analysis, and, on the other, consideration of every possible
fact or theory irrespective of the minimal light it may shed
on the basic question-that of the presence of significant
unjustified anticompetitive consequences.[112]
Admittedly,
Justice Breyer was speaking only in the context of an
antitrust violation, not causation. But his concern for the
ability of trial courts to manage the cases before them
extends here.
Second,
not all theories of causation are now out of bounds for the
Private Plaintiffs. As discussed in more detail below, they
still have the ability to show that the Defendants would have
reached alternative, legal settlements that would have
allowed for earlier generic entry without the reverse
payments. Indeed, this theory is less attenuated than any
theory based on the outcome of the underlying patent
litigation because a factfinder can rely on the assumption
that the parties are economic actors who would have done what
was in their best financial interest.
Lastly,
precluding such a basis of causation avoids potentially
inconsistent outcomes. As discussed above, the FTC does not
need to prove causation to win its case. The Supreme Court
was clear, for better or worse, that it merely needs to prove
that the Defendants entered into the settlements for the
purpose of avoiding the risk, however small, of competition.
Consider the incongruity, then, if the FTC should win its
case on those grounds, while the Private Plaintiffs lose
because the Defendants are able to show the patent would have
been declared valid and infringed. How can the Defendants
both have a valid patent, and commit an antitrust violation?
Such an outcome makes no sense.
The
Court recognizes that this solution is not the most
appetizing, but it benefits from the sheer distastefulness of
the other options available. To quote Churchill, “[i]t
has been said that democracy is the worst form of Government
except all those other forms that have been tried from time
to time.”[113] The same is true here. The Court can
simply see no way of entertaining arguments that purport to
say what the outcome would have been in the underlying patent
litigation without relying on wholly speculative evidence or
untying a Gordian knot of procedural problems. With that in
mind, it is the Court's opinion that such arguments are
simply unworkable, and should not be considered further in
this litigation.
2.
Alternative ...