Antitrust Law Daily FTC’s AndroGel ‘pay-for-delay’ claims reinstated but monopoly claims didn’t warrant remedy
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Wednesday, September 30, 2020

FTC’s AndroGel ‘pay-for-delay’ claims reinstated but monopoly claims didn’t warrant remedy

By Jody Coultas, J.D.

Award of $448M in disgorgement was error because district courts lack the power to order disgorgement under Sec. 13(b) of the FTC Act.

The U.S. Court of Appeals in Philadelphia has reversed a $448 million disgorgement remedy awarded to the FTC in a suit alleging that Abbvie Inc., Abbott Laboratories, and Besins Healthcare, Inc. engaged in sham litigation and monopolization of the testosterone replacement therapy AndroGel. The FTC alleged that the defendants filed sham patent infringement suits against Teva Pharmaceuticals USA, Inc. and Perrigo Company, and that AbbVie, Abbott, and Unimed entered into an anticompetitive reverse-payment agreement with Teva. The FTC also accused the defendants of trying to monopolize and restrain trade over AndroGel. The Third Circuit concluded that disgorgement was not an available remedy under Section 13(b) of the FTC Act. Also, the district court erred by rejecting the FTC’s reverse-payment or "pay-for-delay" theory and in concluding that the defendants’ litigation against Teva was a sham. However, the lower court did not err in concluding the Perrigo litigation was a sham and that the defendants had monopoly power in the relevant market. Further, the FTC did not show that the monopolization entitled it to any remedy (FTC v. Abbvie, Inc., September 30, 2020, Hardiman, T.).

In 2014, a divided FTC voted to file a federal district court complaint against AbbVie, Besins Healthcare, and Teva Pharmaceuticals USA, Inc., challenging conduct allegedly intended to delay generic competition for the drug AndroGel. According to the agency, the "narrow" patent on branded AndroGel covered only a formulation of isopropyl myristate or IPM, a "penetration enhancer" that speeds the delivery of the drug’s active ingredient, testosterone, through the skin and into the bloodstream. The FTC claimed that AbbVie and Besins Healthcare filed patent litigation against Teva and Perrigo, even though the testosterone gel products that these potential rivals were developing did not contain IPM. Teva and Perrigo developed testosterone gel formulations containing penetration enhancers (isopropyl palmitate and isostearic acid) not claimed in the so-called '894 Patent. The FTC alleged that the patent litigation was sham litigation designed to preserve monopoly power in the United States with respect to AndroGel. The FTC also alleged that AbbVie had entered into a pay-for-delay settlement with Teva of their underlying patent infringement litigation.

The restraint-of-trade count was dismissed in 2015. In 2018, the federal district court in Philadelphia found that the defendants possessed monopoly power, illegally and willfully maintained that monopoly power through the filing of sham litigation, which delayed the entry of much less expensive competitive generic products into the market. Abbvie was ordered to pay $448 million in monetary relief to consumers who were overcharged for AndroGel as a result of AbbVie’s conduct. However, the court declined to consider any "but-for" entry date of a generic manufacturer when calculating defendants’ illegal financial gains, and denied the FTC’s request for injunctive relief. The FTC said that the court order represented the largest ever monetary award in a litigated FTC antitrust case.

Despite the record-setting award, the FTC asked the Third Circuit to review the 2015 district court’s ruling dismissing the restraint-of-trade count to the extent it was premised on the settlement agreements that resolved Abbott Products, Inc. v. Teva Pharmaceuticals USA, Inc., Civil Action No. 11-384 (D. Del.). Also, the FTC appealed the lower court’s denial of the FTC’s motion for reconsideration, the denial of an injunction, and the amount of monetary relief. AbbVie and Besins Healthcare, Inc. also appealed the award of monetary relief.

Reverse-payment theory. After concluding at the outset that it, rather than the Federal Circuit, had jurisdiction, the Third Circuit ruled that the district court erred by rejecting the reverse-payment theory. A reverse payment’s legality depends mainly on its economic substance, rather than form. Also, a plaintiff must "allege facts sufficient to support the legal conclusion that the settlement at issue involves a large and unjustified reverse payment." Here, the FTC plausibly alleged an anticompetitive reverse payment.

Teva agreed to end a patent challenge and refrain from competing with AndroGel in exchange for AbbVie authorizing Teva to sell a generic version of TriCor. The payment was plausibly "large," as the supply of TriCor was "extremely valuable" to Teva. Also, the payment was plausibly "unjustified." Further, it was plausible that the anticompetitive effects of AbbVie’s settlement with Teva outweighed any procompetitive virtues of the TriCor deal given that AbbVie’s sacrifice $100 million in TriCor sales was a small fraction of the billions of dollars in AndroGel revenue it protected by deferring competition.

The court rejected arguments from AbbVie and Besins that remand to allow the FTC to proceed on the reverse-payment theory would be futile.

Sham litigation. The FTC claimed that AbbVie and Besins Healthcare filed patent litigation against Teva and Perrigo, even though the testosterone gel products that these potential rivals were developing were not similar as they did not contain isopropyl myristate or IPM. Teva and Perrigo developed testosterone gel formulations containing penetration enhancers (isopropyl palmitate and isostearic acid) not claimed in the so-called '894 Patent. The FTC alleged that the patent litigation was sham litigation designed to preserve monopoly power in the United States with respect to AndroGel. The district court concluded that AbbVie and Besins’ suit against Teva was objectively baseless.

The appellate court reversed the finding that AbbVie and Besins’ litigation against Teva was a sham but agreed with the district court that the Perrigo litigation was a sham for purposes of Noerr-Pennington immunity. There was insufficient evidence to show that no reasonable litigant in AbbVie and Besins’ position would believe it had a chance of winning. Specifically, AbbVie and Besins could reasonably have argued that one skilled in the art could not reasonably be expected to have drafted a claim that would have literally encompassed isopropyl palmitate. However, no reasonable litigant would believe it had a chance of winning its suit against Perrigo. Perrigo’s first paragraph IV notice asserted that because its gel used the penetration enhancer isostearic acid instead of isopropyl myristate, the gel did not literally infringe the ’894 patent. Also, the district court did not err in concluding the suit concealed an attempt to interfere directly with its business relationships, through the use of the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon.

Monopoly power. The lower court did not err in concluding AbbVie and Besins had monopoly power in the relevant market, the Third Circuit held. The court found that the product market at issue was the market for all transdermal testosterone replacement therapies (TTRT) within the U.S. AbbVie and Besins argued on appeal that the court "defined the relevant antitrust market in terms no expert had endorsed." Also, the mere fact that the record contained evidence tending to show substantial cross-elasticity between topical TRTs and injectables did not mean the court clearly erred. AbbVie employees conceded at trial that AndroGel does not compete against injectables, so it was at least "permissible" for the court to exclude injectables from the product market. Also, while the FTC’s expert conceded some cross-elasticity between AndroGel and injectables, he did not concede significant cross-elasticity, which was required to find clear error.

Further, the court rejected AbbVie and Besins’ arguments that the lower court committed legal error by misapplying the legal standard as to the existence of market power and barriers to entry. The court did not give merely consider market share data, but also considered consumer demand for AndroGel, the durability of AndroGel’s market share, the size and strength of AndroGel’s competitors, and AndroGel’s pricing trends and practices. Further, the court did not ignore new entrants; it explained the three brand-name TTRT products that entered the market between 2011 and 2014 were not meaningful competitors to AndroGel because of their modest market shares.

Remedies. The Third Circuit reversed the $448 million disgorgement order because district courts lack the power to order disgorgement under Section 13(b) of the FTC Act. The court noted that the context of Section 13(b) and the FTC Act’s broader statutory scheme support "a necessary and inescapable inference" that a district court’s jurisdiction in equity under Section 13(b) is limited to ordering injunctive relief.

However, the district court did not abuse its discretion in denying injunctive relief. Even resolving doubts in the FTC’s favor, it was well within its discretion to conclude the FTC had shown a mere possibility that AbbVie and Besins are likely to engage in further sham litigation.

The case is Nos. 18-2621, 18-2748, and 18-2758.

Attorneys: Mark S. Hegedus, Matthew M. Hoffman, and Joel R. Marcus for the FTC. Brittany Amadi, Catherine M.A. Carroll, Leon B. Greenfield, Seth P. Waxman, and William F. Lee (Wilmer Cutler Pickering Hale and Dorr LLP); Elaine J. Goldenberg, Adam R. Lawton, Stuart N. Senator, and Jeffrey I. Weinberger (Munger Tolles & Olson LLP); and Paul H. Saint-Antoine and John S. Yi (Faegre Drinker Biddle & Reath) for AbbVie Inc, Abbott Laboratories, and Unimed Pharmaceuticals LLC. Melinda F. Levitt and Gregory E. Neppl (Foley & Lardner) for Besins Healthcare, Inc.

Companies: Abbvie Inc.; Abbott Laboratories; Unimed Pharmaceuticals, LLC; Besins Healthcare, Inc.

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