The Third Circuit Court of Appeals in In re: Lipitor Antitrust Litig., 868 F.3d 231 (3d Cir. 2017) & 855 F.3d 126 (3d Cir. 2017), has held that the district court erred in dismissing class action claims. The case involved Hatch-Waxman Act claims by consumers that the companies holding the patents for Lipitor and Effexor XR engaged in monopolistic procurement and enforcement litigation against generic manufacturers to prevent competition. The claims arise under antitrust law, not patent law, so they properly remained in the Third Circuit Court of Appeals rather than being decided in the Federal Circuit Court of Appeals.
The allegations of fraudulent procurement and enforcement of patents did not arise under patent law, the Third Circuit held, denying motions to transfer the Hatch-Waxman cases from it to the Federal Circuit. 855 F.3d 126, 134 (3d Cir. 2017). The purpose of the regulatory framework, it noted, was to encourage generic drug competition, ensure public safety, and provide incentives to manufacture of generic drugs. Congress sought to encourage generic drug manufacturers to challenge weak patents by enacting the Drug Price Competition and Patent Term Restoration Act (known as the Hatch-Waxman Act).
The Act requires name-brand drug manufacturers to submit a New Drug Application to the FDA. If the application is approved, a generic manufacturer can then submit an Abbreviated New Drug Application with a certification that it does not violate the initial manufacturer’s patents. If the generic has the same active ingredients and is the biological equivalent of the name-brand drug, it does not have to undergo the rigorous testing required of the name-brand drug.
There is no patent violation if in fact the patent has expired, is invalid, or will for some other reason not be infringed by the generic. If the name-brand manufacturer disagrees, it can file a patent infringement lawsuit against the generic manufacturer; the FDA will then not approve the generic for at least 30 months. The first generic manufacturer to file the Abbreviated New Drug Application has a six-month exclusive period to produce the generic drug before other competitors can market their versions of the drug.
But an unexpected hazard of that system is that it can encourage collusion between the name- brand and generic manufacturers. In F.T.C. v. Actavis, Inc., 133 S. Ct. 2223, 2227, 186 L. Ed. 2d 343 (2013), the Supreme Court held that payments from patentees to infringers through “reverse payment settlement agreements” are subject to antitrust claims. In a reverse payment settlement agreement, the name brand manufacturer pays the generic manufacturer not to produce the drug, thus allowing the name brand to continue to charge the highest price for the drug. This creates an antitrust conspiracy, because the generic manufacturer is receiving money for not competing.
In the Third Circuit cases, this is what the consumers said happened: the manufacturers of Lipitor and Effexor XR had paid the generic manufacturers not to compete with the name brand products. The Third Circuit first held that the antitrust allegations arose under competition law, not patent law. Even though patent law would have to be considered, the case did not have to be transferred to a different court, thereby causing further delay. But the court of appeals held the record did not clearly show federal diversity jurisdiction, requiring the trial court to determine whether the federal courts have jurisdiction. On remand, the trial court dismissed the complaints in the cases against both the Lipitor manufacturer and the Effexor XR manufacturer.
The Third Circuit reversed the district court again, and held that the Lipitor plaintiffs plausibly pled a claim that the companies engaged in unlawful reverse payment settlement agreements. 868 F.3d 231, 253, 258 (3d Cir. 2017). The alleged unlawful reverse payment settlement agreement came about when the company manufacturing Lipitor pays off the generic manufacturer who lacks a valid claim for damages. When the patent holder and generic manufacturer make the deal to prevent competition, that violates antitrust law. So the issue is once again before the trial court, as per Attorney Cincinatti OH that locals have been trusting for years.
Thanks to author Paul Croushore JD, LLM for his insight into the Supreme Court and Litigation.