Health Law Daily ‘No AG’ agreements not a violation of Sherman Antitrust Act per se
Wednesday, August 21, 2019

‘No AG’ agreements not a violation of Sherman Antitrust Act per se

By Jeffrey H. Brochin, J.D.

The "rule of reason" approach applies to reviews of Reverse Payment Settlement Agreements entered into between pharmaceutical drug manufacturers.

A federal district court in New York has granted the motion filed by Novartis Pharmaceuticals Corporation and Novartis AG, (Novartis) and Par Pharmaceutical Inc. (Par) to have the per se claim of an antitrust action filed by plaintiffs dismissed. The court ruled that parties to a patent infringement dispute may resolve the dispute through an agreement which may include as consideration, a promise that the brand manufacturer will not market its own authorized generic. Such ‘no AG’ agreements are not presumptively unlawful, and reviewing courts should apply the ‘rule of reason’ approach and reject the quick-look ‘per se’ claim (In Re Novartis and Par Antitrust LitigationAugust 15, 2019, Hellerstein, A.).

Infringement dispute resolved. Exforge is a prescription drug developed by Novartis for the treatment of hypertension, and its ingredient, valsartan, was covered by Novartis’ ‘578 Patent. Around 2011, rather than sue Par for patent infringement, Novartis and Par entered into an agreement under which Par would not compete in the market for fixed combinations of amlodipine and valsartan until September 30, 2014, and Novartis would not launch its own authorized generic version of Exforge (i.e. ‘no AG agreement’) until March 30, 2015.

Anti-trust allegations. Plaintiffs, a group of direct purchaser plaintiffs (DPPs) and end payor plaintiffs (EPPs), filed a civil antitrust action alleging that the no AG agreement entered into between Novartis and Par constituted anticompetitive conduct that delayed the entry of generic competition for Exforge in violation of the Sherman Anti-trust Act (the Act). Among their claims, was the assertion that the no AG reverse payment agreement between Novartis and Par was a market division that is per se illegal under Section 1 of the Act, and, they also alleged "rule of reason" violations. For the reasons stated below, the court granted the motion to dismiss the per se claim.

Per se versus rule of reason. The per se standard of antitrust review was created to streamline antitrust claims in situations where the agreement has "such a predictable and pernicious anticompetitive effect, and such limited potential for procompetitive benefit" that courts may predict with confidence that the conduct is unreasonably anticompetitive every time it arises. The "rule of reason" standard of review is applied when the per se, quick look approach is not deemed appropriate. The Supreme Court explained its basis for adopting a rule of reason rather than a per se or presumptive rule, observing that the likelihood of a reverse payment agreement 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. The existence and degree of any anticompetitive consequence may also vary as among industries.

No basis for applying per se rule. The court noted that the alleged conduct unfolded in the context of and depended on an intricate statutory regime, and that therefore the Supreme Court’s criteria for reviewing pursuant to the rule of reason applied. The DPPs cited cases in support of geographic market division, rather than a time-bound temporal division as in the instant case, and the court could find no basis for extending the per se rule to the circumstances, nor for treating a no-AG reverse payment agreement as an output restriction or price-fixing agreement. The court also noted that the Supreme Court has explicitly rejected the position that reverse payment settlement agreements are presumptively unlawful and that courts reviewing such agreements should proceed via a 'quick look' approach, rather than applying a rule of reason.

Based on the foregoing, the court granted the motion of Novartis and Par top dismiss the per se claim.

The case is No. 18 Civ. 4361 (AKH).

Attorneys: Bruce E. Gerstein (Garwin Gerstein & Fisher LLP) for Drogueria Betances, LLC. Scott Eliot Perwin (Kenny Nachwalter, P.A) for Walgreen Co. Evan R. Chesler (Cravath, Swaine & Moore LLP) for Novartis Pharmaceuticals Corp. and Novartis AG. Benjamin M. Greenblum (Williams & Connolly LLP) for Par Pharmaceutical, Inc.

Companies: Drogueria Betances, LLC; Walgreen Co; Novartis Pharmaceuticals Corp.; Par Pharmaceutical, Inc.; Novartis AG

MainStory: TopStory CaseDecisions FDCActNews AntitrustNews DrugBiologicNews GenericDrugNews PrescriptionDrugNews NewYorkNews

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