The First Circuit Agrees that Non-Cash Reverse Payments Are Subject to Antitrust Scrutiny. Does the Loestrin Decision Point to Battles to Come?

Recently, the First Circuit became the second federal appellate court interpreting the Supreme Court's landmark decision in FTC v. Actavis, Inc.[1] to hold that non-cash "reverse payments" between pioneer and generic pharmaceutical manufacturers risk antitrust liability. Like the Third Circuit in King Drug,[2] the First Circuit's decision in In re Loestrin 24 FE Antitrust Litigation held that a pioneer drug manufacturer's agreement not to market an authorized generic product during a generic challenger's 180-day exclusivity period to settle litigation under the Hatch-Waxman Act is subject to rule of reason scrutiny under the Sherman Act.[3] In reversing the District Court's holding that Actavis does not apply to non-cash reverse payments, Loestrin continues the trend towards expanded liability for settling parties. However, Loestrin's extensive discussion of the pleading standard applicable to Actavis' "large and unjustified payment" factor points toward future battles over the plausibility of complaints alleging non-cash reverse payments.

The dispute in Loestrin centers around Watson Pharmaceuticals, Inc.'s ("Watson") challenge to the validity of Warner Chilcott's ("Warner") patents covering the active ingredient of its drug, Loestrin 24 FE ("Loestrin"), an oral contraceptive, and Watson's plans to market its own generic version of Loestrin. To increase generic pharmaceutical competition, the Hatch-Waxman Act[4] (the "Act") provides generic manufacturers with unique incentives to challenge the patent protection accorded to pioneer drugs. Instead of requiring detailed studies demonstrating efficacy and safety, the Act permits generic challengers to "piggy-back" on the pioneer drug manufacturer's studies using an abbreviated new drug application (an "ANDA") so long as the generic challenger demonstrates bioequivalence.[5] And, most importantly, the FDA grants the first successful ANDA filer a 180-day exclusivity period during which time other generic challengers are not permitted to market the drug.[6] The 180-day exclusivity period can be extraordinarily valuable to the generic challenger. However, in order to market a generic drug, a generic challenger must first overcome the pioneer manufacturer's patent monopoly.

The most common form of Hatch-Waxman challenge is known as a Paragraph IV certification. Under Paragraph IV, the generic manufacturer certifies that the pioneer's patents are "invalid or will not be infringed by the manufacture, use, or sale of the [generic] drug."[7] In almost all cases, a Paragraph IV certification provokes patent infringement litigation by the...