`No. 20-2402
`
`
`IN THE UNITED STATES COURT OF APPEALS
`FOR THE SEVENTH CIRCUIT
`–––––––––––––––––––––––––––––––––––––––––––––
`UFCW LOCAL 1500 WELFARE FUND, ET AL.,
`Plaintiffs-Appellants,
`
`v.
`
`ABBVIE, INC., ET AL.,
`Defendants-Appellees.
`–––––––––––––––––––––––––––––––––––––––––––––
`On Appeal from the United States District Court
`for the Northern District of Illinois
`No. 1:19-cv-01873
`Hon. Manish S. Shah
`–––––––––––––––––––––––––––––––––––––––––––––
`BRIEF OF AMICUS CURIAE THE FEDERAL TRADE COMMISSION
`IN SUPPORT OF NO PARTY
`–––––––––––––––––––––––––––––––––––––––––––––
`IAN R. CONNER
`ALDEN F. ABBOTT
`Director
`General Counsel
`
`
`GAIL LEVINE
`JOEL MARCUS
`Deputy Director
`Deputy General Counsel
`
`
`MARKUS H. MEIER
`BRADLEY DAX GROSSMAN
`Assistant Director
`Attorney
`
`Office of the General Counsel
`BRADLEY S. ALBERT
`
`KARA L. MONAHAN
`FEDERAL TRADE COMMISSION
`600 Pennsylvania Avenue, N.W.
`Deputy Assistant Directors
`Washington, D.C. 20580
`
`TIMOTHY KAMAL-GRAYSON
`(202) 326-2994
`Attorney
`
`Bureau of Competition
`
`
`
`
`
`
`Case: 20-2402 Document: 61 Filed: 10/13/2020 Pages: 26
`
`TABLE OF CONTENTS
`
` Introduction and Summary ........................................................................................... 1
`
`Interest of Amicus Curiae ............................................................................................. 3
`Statement ....................................................................................................................... 5
`A. Principles For Analyzing Reverse-Payment Settlements ............................ 5
`B. The Marketplace and Regulatory Framework for Biologics ........................ 9
`C. Proceedings Below ....................................................................................... 11
`Argument ..................................................................................................................... 12
`I. Under Actavis, The Legality Of A Patent Settlement Turns On The
`Presence Of A Large Reverse Payment And The Reasons For It, Not
`“Early” Entry ....................................................................................................... 13
`II. Policies Favoring Litigation Settlement Cannot Make Lawful A Large
`And Unjustified Reverse Payment ...................................................................... 18
`Conclusion .................................................................................................................... 20
`
`
`
`
`
`
`
`
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`Case: 20-2402 Document: 61 Filed: 10/13/2020 Pages: 26
`
`
`TABLE OF AUTHORITIES
`
`Cases
`
`Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 566 U.S. 399 (2012)....................... 4
`
`FTC v. AbbVie Inc.,
`No. 18-2621, 2020 WL 5807873 (3d Cir. Sep. 30, 2020) ........................... 8, 9, 17, 18
`
`
`FTC v. Actavis, Inc.,
`570 U.S. 136 (2013) ................................. 1, 3, 5, 6, 7, 8, 12, 13, 14, 15, 16, 17, 18, 19
`
`
`FTC v. Indiana Fed’n of Dentists, 476 U.S. 447 (1986) .............................................. 14
`
`FTC v. Watson Pharm., Inc., 677 F.3d 1298 (11th Cir. 2012) ...................................... 6
`
`In re Aggrenox Antirust Litig., 94 F. Supp. 3d 224 (D. Conn. 2015) ............................ 7
`
`In re Androgel Antitrust Litig. (No. II),
`No. 1:09-cv-955-TWT, 2018 WL 2984873 (N.D. Ga. June 14, 2018) ........................ 4
`
`
`In re Cipro Cases I & II, 348 P.3d 845 (Cal. 2015) ................................................. 5, 18
`
`In re Impax Labs., Inc., No. 9373, 2019 WL 1552939 (F.T.C. Mar. 28, 2019) ....... 4, 19
`
`In re Lipitor Antitrust Litigation, 868 F.3d 231 (3d Cir. 2017)........................ 8, 12, 16
`
`King Drug Co. of Florence v. Cephalon, Inc.,
`88 F. Supp. 3d 402 (E.D. Pa. 2015) ........................................................................ 4, 7
`
`
`King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp.,
`791 F.3d 388 (3d Cir. 2015) ............................................................................ 4, 6, 7, 8
`
`
`Statutes
`
`42 U.S.C. § 262 ............................................................................................................. 10
`
`Biologics Price Competition and Innovation Act (BPCIA),
`Pub. L. No. 111-148, §§ 7001-7003, 124 Stat. 119, 804-21 (2010) .......................... 10
`
`
`Hatch-Waxman Act, Pub. L. No. 98-417, 98 Stat. 1585 (1984) .................................. 10
`
`
`
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`Case: 20-2402 Document: 61 Filed: 10/13/2020 Pages: 26
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`
`Other Authorities
`
`Fed. Trade Comm’n, Authorized Generic Drugs: Short-Term Effects and Long-Term
`Impact (2011), http://www.ftc.gov/os/2011/08/2011genericdrugreport.pdf .............. 4
`
`
`Fed. Trade Comm’n, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers
`Billions (2010), https://www.ftc.gov/sites/default/files/documents/reports/pay-
`delay-how-drug-company-pay-offs-cost-consumers-billions-federal-trade-
`commission-staff-study/100112payfordelayrpt.pdf ................................................... 4
`
`
`Food & Drug Admin., Implementation of the Biologics Price Competition and
`Innovation Act of 2009 (Feb. 12, 2016), https://www.fda.gov/drugs/guidance-
`compliance-regulatory-information/implementation-biologics-price-competition-
`and-innovation-act-2009 .......................................................................................... 10
`
`
`Joint Statement of the Food & Drug Administration and the Federal Trade
`Commission Regarding a Collaboration to Advance Competition in the Biologic
`Marketplace (Feb. 3, 2020),
`https://www.ftc.gov/system/files/documents/public_statements/1565273/v190003fd
`aftcbiologicsstatement.pdf ..................................................................................... 4, 9
`
`
`Statement of the Federal Trade Comm’n to the Dep’t of Health and Human Servs.
`Regarding the HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket
`Costs at 8 (July 16, 2018),
`https://www.ftc.gov/system/files/documents/advocacy_documents/statement-
`federal-trade-commission-department-health-human-services-regarding-hhs-
`blueprint-
`lower/v180008_commission_comment_to_hhs_re_blueprint_for_lower_drug_prices
`_and_costs.pdf ............................................................................................................ 9
`
`
`Rules
`
`Fed. R. Civ. P. 29(a) ....................................................................................................... 5
`
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`INTRODUCTION AND SUMMARY
`
`
`
`Generic drug competition saves consumers hundreds of billions of dollars
`
`each year. To encourage such competition, Congress has established mechanisms to
`
`enable generic manufacturers to challenge patents associated with a brand-name
`
`drug. But antitrust problems can arise when parties settle these patent disputes
`
`with the patentee paying its would-be competitor to drop its challenge and stay off
`
`the market. These agreements are known as “reverse-payment” settlements
`
`because “a party with no claim for damages … walks away with money simply so it
`
`will stay away from the patentee’s market.” FTC v. Actavis, Inc., 570 U.S. 136, 152
`
`(2013). The antitrust concern with these settlements is that the brand
`
`manufacturer and its potential competitors may have agreed to preserve and share
`
`the brand’s monopoly profits rather than compete. The drugmakers come out
`
`ahead, but consumers suffer because they are forced to continue paying higher, non-
`
`competitive prices.
`
`In Actavis, the Supreme Court held that reverse-payment settlements create
`
`a “risk of significant anticompetitive effects” and must be analyzed under the
`
`antitrust rule of reason. Id. at 158-59. The potential anticompetitive harm from
`
`this type of agreement is that the payment “prevent[s] the risk of competition” and
`
`may allow the parties to “maintain supracompetitive prices to be shared among the
`
`patentee and the challenger rather than face what might have been a competitive
`
`market.” Id. at 157.
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`Case: 20-2402 Document: 61 Filed: 10/13/2020 Pages: 26
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`Plaintiffs here allege—among other claims—that AbbVie, maker of the anti-
`
`inflammatory biologic drug Humira, paid its would-be biosimilar rivals to stop
`
`challenging AbbVie’s patents and to refrain from selling their products in the
`
`United States for at least five years. The alleged payment consisted of AbbVie’s
`
`agreement to grant patent licenses permitting lucrative competition in Europe. The
`
`district court dismissed the complaint in its entirety, concluding that its reverse-
`
`payment charges (and the other counts) failed to state a claim.
`
`The Federal Trade Commission submits this amicus brief to assist the Court
`
`in evaluating the district court’s decision to dismiss the reverse-payment counts.
`
`Although we take no position on the ultimate merits of this case or whether the
`
`allegations are sufficient to state a claim, we are concerned that the district court’s
`
`analysis is inconsistent with Actavis in two critical ways that could impede
`
`enforcement of the antitrust laws if left uncorrected.
`
`
`
`First, the court placed undue weight on the fact that the challenged
`
`settlements allowed “early” competition before AbbVie’s patents expired. In parts of
`
`the opinion, the district court appeared to conclude that “early” entry automatically
`
`meant that the settlements could not have contained reverse payments. Op. 44-45.
`
`Elsewhere, the court seemed to reason that even if the settlements contained
`
`reverse payments, their provision for entry dates before the expiration of AbbVie’s
`
`patents made them procompetitive as a matter of law. Op. 46-47. Either approach
`
`conflicts with Actavis, which overruled a line of decisions (known as the “scope-of-
`
`the-patent” test) holding that a reverse-payment settlement is exempt from
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`antitrust scrutiny solely because it involves entry before patent expiration. 570
`
`U.S. at 147-48. Here, the district court’s analysis—with its emphasis on the
`
`settlements’ “early” entry dates—resembles the scope-of-the-patent test rejected by
`
`Actavis.
`
`Instead, the Actavis inquiry focuses on whether a patent-holder has offered
`
`the challenger “a share of its monopoly profits” in exchange for the challenger’s
`
`agreement to stop contesting the patents and stay out of the market for some
`
`period. Id. at 141, 153-54. Because those patents “may or may not be valid, and
`
`may or may not be infringed,” reverse-payment settlements harm consumers if they
`
`amount to an agreement to share monopoly profits to eliminate the risk of earlier
`
`competition. Id. at 147. Accordingly, when parties settle with a reverse payment,
`
`the proper question under Actavis is why the parties did so. If the “basic reason” for
`
`the payment “is a desire to maintain and to share patent-generated monopoly
`
`profits,” then the antitrust laws are likely to condemn it. Id. at 158.
`
`Second, the district court opined that dismissing the complaint will help
`
`“encourag[e] patent litigants to settle worldwide patent disputes.” Op. 46. Be that
`
`as it may, Actavis held that the public interest in promoting settlement “should not
`
`determine the result” in cases involving unjustified reverse payments that purchase
`
`additional monopoly time. 570 U.S. at 153-54.
`
`INTEREST OF AMICUS CURIAE
`
`The FTC is an independent federal agency charged with promoting a
`
`competitive marketplace and protecting consumer interests. As exemplified by its
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`role as petitioner in Actavis, the Commission has primary responsibility for federal
`
`antitrust enforcement in the pharmaceutical industry.
`
`The Commission has used its law enforcement authority to challenge
`
`anticompetitive patent settlements administratively and in federal district courts.1
`
`In addition, the Commission has issued empirical studies addressing the
`
`competitive effects of generic substitution for brand-name drugs.2 The Supreme
`
`Court and other federal courts have relied on those studies. See, e.g., Caraco
`
`Pharm. Labs., Ltd. v. Novo Nordisk A/S, 566 U.S. 399, 408 (2012); King Drug Co. of
`
`Florence, Inc. v. Smithkline Beecham Corp., 791 F.3d 388, 404 n.21 (3d Cir. 2015).
`
`The FTC also obtains and reviews patent settlement agreements between
`
`drugmakers and works with the Food and Drug Administration to deter
`
`anticompetitive behavior in the burgeoning marketplace for biological medicines
`
`and follow-on biosimilar products.3
`
`
`1 See, e.g., In re Impax Labs., Inc., No. 9373, 2019 WL 1552939 (F.T.C. Mar. 28,
`2019), appeal pending, No. 19-60394 (5th Cir.); King Drug Co. of Florence v.
`Cephalon, Inc., 88 F. Supp. 3d 402 (E.D. Pa. 2015); In re Androgel Antitrust Litig.
`(No. II), No. 1:09-cv-955-TWT, 2018 WL 2984873, at *1 (N.D. Ga. June 14, 2018).
`2 See Fed. Trade Comm’n, Authorized Generic Drugs: Short-Term Effects and Long-
`Term Impact (2011), http://www.ftc.gov/os/2011/08/2011genericdrugreport.pdf; Fed.
`Trade Comm’n, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers
`Billions (2010), https://www.ftc.gov/sites/default/files/documents/reports/pay-delay-
`how-drug-company-pay-offs-cost-consumers-billions-federal-trade-commission-staff-
`study/100112payfordelayrpt.pdf.
`3 See, e.g., Joint Statement of the Food & Drug Administration and the Federal
`Trade Commission Regarding a Collaboration to Advance Competition in the
`Biologic Marketplace (Feb. 3, 2020) (“FDA-FTC Statement”),
`https://www.ftc.gov/system/files/documents/public_statements/1565273/v190003fdaf
`tcbiologicsstatement.pdf.
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`Because the Commission has a strong interest in ensuring the proper
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`application of Actavis, we respectfully submit this brief under Fed. R. Civ. P. 29(a).
`
`We do not advocate for any particular result in this case, but write simply to correct
`
`two legal errors in the district court’s treatment of Actavis.
`
`STATEMENT
`
`Principles For Analyzing Reverse-Payment Settlements
`A.
`In most cases, drug companies may settle their patent disputes free of
`
`antitrust concerns by agreeing upon a date when the generic will enter the market
`
`“without the patentee paying the challenger to stay out prior to that point.”
`
`Actavis, 570 U.S. at 158. Absent a reverse payment, the settlement’s entry date
`
`presumably reflects the parties’ “approximation of the expected level of competition
`
`that would have obtained had the parties litigated.” In re Cipro Cases I & II, 348
`
`P.3d 845, 865 (Cal. 2015).
`
`It is another story when a drug patentee pays a would-be rival a share of its
`
`monopoly profits to drop its patent challenge and keep away from the market until
`
`a specific date. Unless the payment has some other, legitimate rationale—such as
`
`the patentee’s saved litigation costs or compensation for bona fide services
`
`performed by the generic—it “would normally suggest that the patentee has serious
`
`doubts about the patent’s survival.” Actavis, 570 U.S. at 157. That “in turn
`
`suggests that the payment’s objective is to maintain surpracompetitive prices to be
`
`shared among the patentee and the challenger rather than face what might have
`
`been a competitive market—the very anticompetitive consequence that underlies
`
`the claim of antitrust unlawfulness.” Id. The brand-name manufacturer is, in
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`effect, “leverag[ing] some part of its patent power … its supracompetitive profits” to
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`eliminate the “risk of competition” prior to the licensed entry date. Smithkline
`
`Beecham, 791 F.3d at 406.
`
`In Actavis, the Supreme Court held that reverse-payment patent settlements
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`can violate the antitrust laws even if they allow competition before the brand’s
`
`patents expire. 570 U.S. at 159-60. The FTC’s complaint in that case had alleged
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`that a brand manufacturer settled a challenge to its patent through agreements to
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`pay generic rivals to stay off the market for nine years, and disguised those
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`payments as compensation for services the generics would perform. Id. at 145. The
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`settlement nonetheless allowed the generics to enter the market 65 months before
`
`the patent expired. Id. The district court dismissed the complaint, and the
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`Eleventh Circuit affirmed. It reasoned that because the settlement allowed entry
`
`before patent expiration, it was “immune from antitrust attack” since the
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`anticompetitive effects were all within “the scope of the exclusionary potential of the
`
`patent.” FTC v. Watson Pharm., Inc., 677 F.3d 1298, 1312 (11th Cir. 2012).
`
`The Supreme Court reversed. The Court rejected the “scope-of-the-patent”
`
`test applied by the court of appeals and its resulting immunity for settlement
`
`agreements that allow entry before patent expiration. Actavis, 570 U.S. at 146-48.
`
`The Court explained that a reverse payment “in effect amounts to a purchase by the
`
`patentee of the exclusive right to sell its product, a right it already claims but would
`
`lose if the patent litigation were to continue and the patent were held invalid or not
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`infringed by the generic product.” Id. at 153-54. The payment “simply keeps prices
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`at patentee-set levels” while “dividing that return between the challenged patentee
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`and the patent challenger.” Id. at 154. As a result of this sharing of the rewards
`
`from avoiding competition, “[t]he patentee and the challenger gain” but “the
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`consumer loses.” Id.
`
`The Court thus held that the FTC had stated a viable antitrust claim even
`
`though the settlement at issue allowed generics to compete more than five years
`
`before the brand’s patent expired. Id. at 145. “Notwithstanding such ‘early entry,’
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`the antitrust problem was that … entry might have been earlier, and/or the risk of
`
`competition not eliminated, had the reverse payment not been tendered.”
`
`Smithkline Beecham, 791 F.3d at 408. After Actavis, many federal courts have
`
`ruled that reverse-payment settlements may have been anticompetitive even
`
`though they allowed generics to launch years before the patents expired. See, e.g.,
`
`id. at 397 (37 months before expiration); In re Aggrenox Antirust Litig., 94 F. Supp.
`
`3d 224, 236 (D. Conn. 2015) (18 months); King Drug Co. of Florence, Inc. v.
`
`Cephalon, Inc., 88 F. Supp. 3d 402, 407, 419 (E.D. Pa. 2015) (three years).
`
`Reverse payments may be either in cash or in-kind. In the earliest reverse
`
`payments, brand companies simply paid cash in exchange for the generic’s
`
`abandonment of its patent challenge. Over time, as the FTC and courts began to
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`scrutinize these settlements, parties found more sophisticated and less obvious
`
`ways to transfer value in exchange for staying off the market. The settlement in
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`Actavis, for example, featured lucrative side deals in which the brand made
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`payments that “[t]he companies described … as compensation for other services the
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`generics promised to perform,” but which the FTC claimed “had little value.” 570
`
`U.S. at 145. Another common provision in these agreements involved the brand’s
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`commitment not to launch its own authorized generic (or “AG”) to compete with,
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`and take revenue from, the first generic once it enters. See Smithkline Beecham,
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`791 F.3d at 403-05.
`
`A brand-name patentee may also make a reverse payment by giving its
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`would-be generic rival some other type of noncash concession or consideration. For
`
`instance, in In re Lipitor Antitrust Litigation, 868 F.3d 231 (3d Cir. 2017), a generic
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`manufacturer allegedly agreed to defer launch of generic Lipitor for over three years
`
`in exchange for a brand manufacturer’s release of a damages claim worth hundreds
`
`of millions of dollars in a lawsuit over a different drug. Id. at 243-44, 253. The
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`Third Circuit held that the plaintiffs alleged sufficient facts to show that the
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`damages release plausibly served as a quid pro quo for the Lipitor patent
`
`settlement. Id. at 254-57.
`
`Most recently, in FTC v. AbbVie Inc., No. 18-2621, 2020 WL 5807873 (3d Cir.
`
`Sep. 30, 2020), AbbVie allegedly induced a rival to defer launching a generic version
`
`of AndroGel with a reverse payment in the form of an agreement to supply another
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`AbbVie product, TriCor. For the generic company, the TriCor deal was worth
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`“nearly $175 million over a four-year period,” more than its projected earnings from
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`selling generic AndroGel. Id. at *18. The Third Circuit reversed the district court’s
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`dismissal of the complaint’s charge of an unlawful reverse payment. The lower
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`court had wrongly refused to accept as true the allegation that the AndroGel and
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`TriCor deals were “linked” and that the supply agreement made economic sense
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`only if it were a vehicle for AbbVie to compensate the generic for refraining from
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`competition with brand-name AndroGel. Id. at *17-20. The Third Circuit stressed
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`that “a reverse payment’s legality depends mainly on its economic substance, not its
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`form,” id. at *17, and that to analyze the two deals separately would “elevate[] form
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`over substance,” id. at *19.
`
`The Marketplace and Regulatory Framework for Biologics
`B.
`Biological medicines—drugs derived from living organisms—can treat many
`
`otherwise untreatable conditions, but they come at a steep price: at a cost of up to
`
`$200,000 per patient per year, they account for 37 percent of all prescription
`
`spending.4 A few biologics have faced competition from biosimilars, a generic
`
`analog for biological drugs, which are typically priced 15 to 35 percent lower than
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`those of the original “reference” biologic.5
`
`To foster biologic competition, Congress enacted the Biologics Price
`
`Competition and Innovation Act (BPCIA), Pub. L. No. 111-148, §§ 7001-7003, 124
`
`
`4 FDA-FTC Statement, supra note 3, at 1; Statement of the Federal Trade Comm’n to
`the Dep’t of Health and Human Servs. Regarding the HHS Blueprint to Lower Drug
`Prices and Reduce Out-of-Pocket Costs at 8 (July 16, 2018) (“FTC Blueprint
`Statement”),
`https://www.ftc.gov/system/files/documents/advocacy_documents/statement-federal-
`trade-commission-department-health-human-services-regarding-hhs-blueprint-
`lower/v180008_commission_comment_to_hhs_re_blueprint_for_lower_drug_prices_a
`nd_costs.pdf.
`5 FDA-FTC Statement, supra note 3, at 2-3; FTC Blueprint Statement, supra note 4,
`at 11-12 & n.54.
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`Stat. 119, 804-21 (2010).6 The BPCIA creates a streamlined pathway for regulatory
`
`approval of products demonstrated to be biosimilar to or interchangeable with a
`
`biologic. Four years after the FDA approves a biologic, a rival manufacturer may
`
`file an abbreviated biologic license application (ABLA) to market a biosimilar once
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`the reference biologic has been approved for 12 years, 42 U.S.C. § 262(k)(7),
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`262(k)(2)(A).7
`
`The statute also establishes a five-step process (often called the “patent
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`dance”) in which the biologic manufacturer and the would-be competitor attempt to
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`resolve or refine any patent disputes. See 42 U.S.C. § 262(l). At the end of this
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`process, the ABLA filer and the biologic manufacturer exchange a list of patents
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`that will be subject to litigation. 42 U.S.C. § 262(l)(5). Within 30 days, the biologic
`
`manufacturer must sue to test the patents that appear on either party’s list. 42
`
`U.S.C. § 262(l)(6). The FDA may approve a new biosimilar or interchangeable
`
`product while patent litigation is pending, but the applicant must notify the biologic
`
`manufacturer 180 days before introducing its product. 42 U.S.C. § 262(l)(8)(A).
`
`
`6 The BPCIA is similar in concept to the Hatch-Waxman Act, Pub. L. No. 98-417, 98
`Stat. 1585 (1984), which governs the process for bringing generic conventional drugs
`to market. See Food & Drug Admin., Implementation of the Biologics Price
`Competition and Innovation Act of 2009 (Feb. 12, 2016),
`https://www.fda.gov/drugs/guidance-compliance-regulatory-
`information/implementation-biologics-price-competition-and-innovation-act-2009.
`7 The applicant needn’t prove anew that the biosimilar is safe or effective so long as
`it shows that the product is “highly similar to the reference product
`notwithstanding minor differences in clinically inactive components,” and has “no
`clinically meaningful differences … [from] the reference product in terms of the
`safety, purity, and potency of the product.” 42 U.S.C. § 262(i)(2).
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`Proceedings Below
`C.
`AbbVie’s biologic Humira has been the highest-earning drug in the United
`
`States for the last six years, at a cost of up to $50,000 per patient per year. D. Ct.
`
`ECF No. 109 ¶¶ 2, 84. Several potential biosimilar competitors filed ABLAs and
`
`challenged AbbVie’s patents, after which AbbVie sued. The parties allegedly agreed
`
`to settle the disputes, with AbbVie letting the competitors enter the European
`
`market almost immediately and the domestic market in 2023. Id. ¶¶ 151, 157-84,
`
`203.
`
`The complaint charges that AbbVie violated the antitrust laws in three ways.
`
`First, AbbVie allegedly obtained a “thicket” or “minefield” of over 100 deficient
`
`patents and, despite the weakness of its patents, embroiled its rivals in protracted
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`litigation designed to deter them from launching. Id. ¶¶ 4, 296-98. Second, AbbVie
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`allegedly entered into “market division” agreements with its rivals whereby AbbVie
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`maintained its domestic monopoly in return for forfeiting its European one. Id.
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`¶¶ 9, 280-83. Third, the European licenses allegedly functioned as large and
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`unjustified reverse payments by AbbVie to keep rivals out of the domestic market.
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`Id. ¶¶ 203, 263-64. The net result, plaintiffs charge, is that “AbbVie has
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`maintained its Humira monopoly in the U.S., where patients and customers are, in
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`effect, subsidizing lower prices charged for biosimilars in Europe.” Id. ¶ 206.
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`
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`The district court dismissed the complaint for failure to state a claim. With
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`respect to the reverse-payment claim, the court purported to accept the truth of the
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`complaint’s charge that the European licenses amounted to a “large” “transfer of
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`value” to AbbVie’s biosimilar competitors in exchange for an “AbbVie-friendly” U.S.
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`
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`Case: 20-2402 Document: 61 Filed: 10/13/2020 Pages: 26
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`entry date. Op. 45-46. But it stated that “the package of global patent settlements”
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`was not “an Actavis-like unlawful reverse-payment” since it merely “provided one
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`early entry date for the European market and a different early entry date for the
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`U.S. market—both permissible under Actavis.” Op. 45. Moreover, in the court’s
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`view, the settlements’ effect “was to increase, not restrain competition by bringing
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`competitors into the market when patents otherwise prohibited the competition.”
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`Op. 46. As a result, “consumers won and the market for Humira (and its generics)
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`became more competitive.” Op. 47. The court also opined that the settlements
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`served a “broader” systemic interest in “encouraging patent litigants to settle
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`worldwide patent disputes.” Op. 46.
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`ARGUMENT
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`The district court’s analysis is flawed in two ways. First, the court seemingly
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`held that because the settlements allowed biosimilars to compete on a global basis
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`before AbbVie’s patents expired, the agreements did not feature “Actavis-like”
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`reverse payments and in fact “increase[d]” competition. See Op. 44-48. That is not
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`the proper approach under Actavis, and indeed it resembles the scope-of-the-patent
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`test, which the Supreme Court rejected. Instead, Actavis required the district court
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`to ask whether plaintiffs sufficiently alleged that (1) AbbVie made a large payment
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`to the biosimilars to induce them to stay off the domestic market, and (2) this
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`payment cannot be explained or justified as something other than the parties’ desire
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`to share U.S. monopoly profits. 570 U.S. at 153-54, 156-59; Lipitor, 868 F.3d at 255-
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`57. “Early” entry dates do not in and of themselves answer either question.
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`Case: 20-2402 Document: 61 Filed: 10/13/2020 Pages: 26
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`Second, the district court erred to the degree it dismissed the complaint
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`based on the policy determination that doing so would encourage the settlement of
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`worldwide patent disputes. Actavis held that such a policy benefit does not save an
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`unjustified reverse-payment settlement from antitrust condemnation. 570 U.S. at
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`153-54.
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`We note that these errors do not by themselves mandate reversal or
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`demonstrate that the complaint states a plausible antitrust claim. Our purpose is
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`simply to provide this Court with guidance on the legal principles underlying
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`Actavis. We take no position on whether the complaint sufficiently pleads a viable
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`claim.
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`I.
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`UNDER ACTAVIS, THE LEGALITY OF A PATENT SETTLEMENT TURNS ON THE
`PRESENCE OF A LARGE REVERSE PAYMENT AND THE REASONS FOR IT, NOT
`“EARLY” ENTRY
`The district court erred by seemingly dismissing the complaint on the ground
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`that the settlements allowed “early” competition before AbbVie’s patents expired.
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`The proper inquiry under Actavis is (1) whether the parties settled with a reverse
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`payment to eliminate the risk of earlier competition, and (2) whether the payment
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`has a legitimate justification apart from the parties’ desire to share monopoly
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`profits. 570 U.S. at 153-54, 156-59.
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`The court at first seemed to accept as true plaintiffs’ charge that “AbbVie
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`paid the biosimilar manufacturers” by “allow[ing] the biosimilars to enter the
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`European market” in exchange for “settl[ing] the infringement litigation with an
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`AbbVie-friendly U.S. early entry date,” arrangements worth “hundreds of millions
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`of dollars” to the biosimilars and “billions” in “lucrative monopoly time in the U.S.”
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`Case: 20-2402 Document: 61 Filed: 10/13/2020 Pages: 26
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`to AbbVie. Op. 44-45 & n.17.8 From there, however, the court went on to reason
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`that the quid pro quo between AbbVie and the biosimilars was “not an Actavis-like
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`unlawful reverse-payment” because the settlements merely allowed “early”
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`competition in the U.S. and Europe—“both permissible under Actavis.” Op. 45.
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`According to the court, such “early” competition meant that the settlements were
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`procompetitive—and therefore justified—as a matter of law. “The effect of the
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`payment was to increase, not restrain competition by bringing competitors into the
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`market when patents otherwise prohibited the competition.” Op. 46.
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`The district court’s focus on “early” entry evokes the very scope-of-the-patent
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`test rejected in Actavis. Actavis held that, when the complaint plausibly alleges a
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`large and unjustified reverse payment, settlements may violate the antitrust laws
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`even if they allow “early” competition before the patents expire. 570 U.S. at 145-48,
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`153-54. The Court recognized that settling with an “early” entry date is
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`unproblematic only when it comes “without the patentee paying the challenger to
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`stay out prior to that point.” Id. at 157-58; see supra pp. 5-7. But when the
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`patentee offers “a share of its monopoly profits that would otherwise be lost in the
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`competitive market,” even an “early” entry settlement “has the ‘potential for
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`genuine adverse effects on competition.’” 570 U.S. at 153-54 (quoting FTC v.
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`Indiana Fed’n of Dentists, 476 U.S. 447, 460-61 (1986)).
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`8 At the same time, the court observed that the complaint was marred by “potential
`inconsistencies” that “undermine[] the inference that th[e] European entry dates
`were w