The Federal Trade Commission Slams Impax/Endo Reverse Payment Settlement

On March 28, 2019, the Federal Trade Commission (the "Commission") issued a landmark opinion in the agency's case against Impax Laboratories Inc. regarding its patent settlement with Endo Pharmaceuticals Inc., marking the first time that the Commission has weighed in on the proper application of the Supreme Court's Actavis antitrust evaluation framework for "reverse payment" settlements.[I] Highlighting multiple Actavis "red flags," the Commission concluded that the settlement raised the precise antitrust concerns that led the Supreme Court to subject these types of agreements to antitrust scrutiny, which provided guidance to lower courts confronting these challenging and nuanced issues in future cases.

Factual Background

Endo received FDA approval and launched Opana ER in 2006. In 2007, Impax filed the first ANDA and paragraph IV certification for generic Opana ER. Under the provisions of the Hatch-Waxman Act, Endo sued Impax for statutory patent infringement, automatically staying FDA approval of Impax's ANDA for 30 months. After expiration of the stay in May 2010, the FDA tentatively approved Impax's ANDA. Endo's patent litigation against Impax continued, and the trial commenced June 3, 2010.

During the trial, the parties entered into two separate agreements, which settled the case.[2] In one agreement (the SLA), Impax agreed not to market generic Opana ER until January 2013, and Endo agreed: (1) not to sell an authorized generic during Impax's 180-day first-filer exclusivity period ("No-AG Commitment"); (2) to make a cash payment to Impax if the sales volume of Opana ER dipped below a certain level before January 2013 ("Endo Credit");[3] and (3) to license its current and future patents covering Opana ER to Impax and not to sue Impax for infringement of those patents. In the other agreement (the DCA), Endo agreed to make a $10 million payment to Impax within five days, plus up to $30 million in additional "Milestone Payments" for collaboration regarding the development and marketing of a potential Parkinson's disease treatment (and allocated profits if the drug was successfully marketed). Impax received final approval to market Opana ER days after Impax and Endo entered into these agreements.

Legal Standard

Reverse payment settlements are examined under the rule of reason, and the burden shifts between the plaintiff and the defendant. Because the Actavis Court explicitly left the task of structuring the rule of reason inquiry in the reverse payment context to lower courts,[4] Impax Labs allowed the Commission to weigh in on the proper analysis for the first time, and it took advantage of that opportunity to provide clear guidance for future cases.[5]

Under the rule of reason, the plaintiff first has the burden to prove that "the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market."[6] If the "plaintiff demonstrates anticompetitive harm, [then] the burden shifts to the defendant to show a procompetitive rationale for the restraint."[7] "If the defendant does so, the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could reasonably be achieved through less anticompetitive means." [8] If the plaintiff succeeds, the analysis ends, and the plaintiff prevails. If the plaintiff fails to meet this final burden, "the adjudicator proceeds to weigh the harms and benefits against each other to judge whether the challenged behavior is, on balance, reasonable."[9]

The Administrative Law Judge ("ALJ") Decision

The ALJ who tried the case for the Commission concluded that the No-AG Commitment plus the Endo Credit constituted a large and unjustified reverse payment, which when combined with Endo's market power constituted anticompetitive harm.[10] The ALJ also recognized that Impax's entry prior to patent expiration constituted a procompetitive benefit.[11] The ALJ weighed the procompetitive benefits (early entry) with the anticompetitive harm (which he concluded was "largely theoretical" because it was "unlikely" that Impax would have launched at-risk), and concluded that the settlement was not an unreasonable restraint of trade.[12]

The Commission Decision

Reviewing the ALJ's decision de novo, in a 5-0 decision written by Commissioner Noah Phillips, the Commission overturned the ALJ decision and found that the settlement constituted an unreasonable restraint of trade.

Anticompetitive Harm

In its analysis of whether the FTC Staff had demonstrated anticompetitive harm, the Commission first recognized that a large, unjustified payment made in exchange for deferring entry into the market or for abandoning a patent suit raises an inference of anticompetitive harm.[13] Such a payment may "provide strong evidence that the patentee seeks to induce the generic challenger to abandon its claim," as a reverse payment "would be an irrational act unless the patentee believed that generic production would cut into its...