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`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`No. 20-2402
`
`
`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
`
`
`Appeal from the United States District Court
`for the Northern District of Illinois
`Case No. 19-cv-1873
`The Honorable Judge Manish S. Shah
`
`
`BRIEF FOR AMICI CURIAE STATES OF WASHINGTON, CALIFORNIA,
`COLORADO, CONNECTICUT, DELAWARE, IDAHO, ILLINOIS, MAINE,
`MARYLAND, MASSACHUSETTS, MICHIGAN, MINNESOTA, NEBRASKA,
`NEW MEXICO, NEW YORK, NORTH CAROLINA, OREGON, RHODE
`ISLAND, VIRGINIA, AND WISCONSIN
`SUPPORTING PLAINTIFFS-APPELLANTS AND REVERSAL
`
`
`Robert W. Ferguson
`Attorney General of Washington
`
`Nathaniel M. Hopkin
`Assistant Attorney General
`800 Fifth Avenue, Suite 2000
`Seattle, WA 98164
`(206) 464-7030
`nathaniel.hopkin@atg.wa.gov
`
`Counsel for amici curiae
`
`(Additional counsel listed on signature
`page)
`
`
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`
`
`TABLE OF CONTENTS
`
`Table of Authorities ....................................................................................................... ii
`
`Interest of Amici Curiae ................................................................................................ 1
`
`Summary of Argument .................................................................................................. 3
`
`Argument ....................................................................................................................... 5
`
`I. The District Court Misapplied Actavis to AbbVie’s Humira Agreements. .......... 5
`
`A. Agreements granting entry before patent expiration are not automatically
`free from antitrust scrutiny. ............................................................................ 5
`
`1. Courts have rejected claims that Actavis categorically exempts certain
`forms of settlement agreement from antitrust scrutiny. ........................... 8
`
`2. The district court’s approach will further embolden pharmaceutical
`companies to fashion illegal settlements to more creatively to evade
`scrutiny. ..................................................................................................... 12
`
`B. Procompetitive effects do not justify dismissal here because they depend on
`disputed facts and are not linked to the restraint alleged. .......................... 14
`
`1. The district court erred in concluding that procompetitive effects
`justified the challenged agreements at the pleading stage. .................... 14
`
`2. None of the procompetitive effects the district court identified offset the
`harm alleged. ............................................................................................. 16
`
`C. Contrary to the Supreme Court’s directive in Actavis, the decision below
`gave undue weight to the desirability of encouraging settlement and
`wrongly shifted the burden of proof to plaintiffs. ......................................... 19
`
`II. The Seventh Circuit Should Follow the Majority of Courts of Appeals and
`Apply the California Motor Transport Rule to Serial Sham Petitioning. ......... 20
`
`Conclusion .................................................................................................................... 24
`
`
`
`
`
`i
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`TABLE OF AUTHORITIES
`
`
`
`Cases
`
`1-800 Contacts, Inc.,
`166 F.T.C. 274 (2018) ................................................................................................. 6
`Ashcroft v. Iqbal,
`556 U.S. 662 (2009) .................................................................................................. 15
`Ass’n for Accessible Med. v. Becerra,
`No. 20-15014, 2020 WL 4251776 (9th Cir. July 24, 2020) ........................................ 1
`Bell Atlantic Corp. v. Twombly,
` 550 U.S. 544 (2007) ................................................................................................. 15
`Cal. Motor Transport Co. v. Trucking Unlimited,
`404 U.S. 508 (1972) ............................................................................................ 20, 21
`E.R.R. Presidents Conf. v. Noerr Motor Freight, Inc.,
`365 U.S. 127 (1961) .................................................................................................. 21
`FTC v. AbbVie Inc.,
`No. 18-2621, 2020 WL 5807873 (3d Cir. Sept. 30, 2020) ................................ passim
`FTC v. Actavis,
`570 U.S. 136 (2013) .......................................................................................... passim
`Hanover 3201 Realty, LLC v. Village Supermarkets, Inc.,
`806 F.3d 162 (3d Cir. 2015) ................................................................................ 21, 22
`In re Cipro Cases I & II,
`348 P.3d 845 (Cal. 2015)............................................................................................. 1
`In re Humira (Adalimumab) Antitrust Litig.,
`No. 19-cv-1873, 2020 WL 3051309 (N.D. Il. June 8, 2020) ............................. passim
`In re Lipitor Antitrust Litig.,
`868 F.3d 231 (3d Cir. 2017) .............................................................................. passim
`Livingston Downs Racing Ass'n Inc. v. Jefferson Downs Corp.,
`192 F. Supp. 2d 519 (M.D. La. 2001) ....................................................................... 21
`Ohio v. Am. Express Co.,
`138 S. Ct. 2274 (2018) .............................................................................................. 20
`Picone v. Shire PLC,
`No. 16-cv-12396, 2017 WL 4873506 (D. Mass Oct. 20, 2017) ..................... 7, 8, 9, 12
`Polygram Holding, Inc. v. FTC,
`416 F.3d 29 (D.C. Cir. 2005) ..................................................................................... 16
`Polygram Holding, Inc.,
`136 F.T.C. 310 (2003) ............................................................................................... 16
`PrimeTime 24 Joint Venture v. Nat’l Broad. Co.,
`219 F.3d 92 (2d Cir. 2000) ........................................................................................ 21
`Prof’l Real Estate Invs., Inc. v. Columbia Pictures Indus., Inc.,
`508 U.S. 49 (1993) .................................................................................................... 21
`
`ii
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`
`
`Sergeants Benevolent Ass’n Health & Welfare Fund v. Acta Vis, PLC,
`No. 15-cv-6549, 2016 WL 4992690 (S.D.N.Y. Sept. 13, 2016) .................................. 7
`Staley v. Gilead Sci., Inc.,
`446 F. Supp. 3d 578 (N.D. Cal. 2020) .............................................................. passim
`Total Renal Care, Inc. v. W. Nephrology & Metabolic Bone Disease, P.C.,
`No. 8-cv-00513, 2009 WL 2596493 (D. Colo. Aug. 21, 2009) ................................... 21
`U.S. Futures Exchange LLC v. Board of Trade of the City of Chicago, Inc.,
`953 F.3d 955 (7th Cir. 2020) .............................................................................. 22, 23
`United States v. Topco Assocs.,
`405 U.S. 596 (1972) ............................................................................................ 16, 17
`Waugh Chapel S., LLC v. United Food & Commercial Workers Union Local 27,
`728 F.3d 354 (4th Cir. 2013) .................................................................................... 21
`
`Statutes
`
`15 U.S.C. § 15c(a)(1) ...................................................................................................... 1
`
`Other Authorities
`
`AbbVie Inc., Annual Report (From 10-K) (Feb. 21, 2020),
`https://investors.abbvie.com/sec-filings?items_per_page=10&page=9 ................... 18
`AbbVie Inc., Quarterly Report (Form 10-Q) (Aug. 4, 2020),
`https://investors.abbvie.com/sec-filings?items_per_page=10&page=0 ................... 18
`Michael A. Carrier, Solving the Drug Settlement Problem: The Legislative Approach,
`41 Rutgers L.J. 83, (2009) ........................................................................................ 13
`Susan A. Creighton et al., Cheap Exclusion,
`72 Antitrust L.J. 975, (2005) .................................................................................... 22
`Robin C. Feldman & Prianka Misra, The Fatal Attraction of Pay-for-Delay,
`18 Chi.-Kent J. Intell. Prop. 249, (2019) .................................................................. 13
`Laura Karas, Gerard F. Anderson, & Robin Feldman, Pharmaceutical “Pay-for-
`Delay” Reexamined: A Dwindling Practice or a Persistent Problem?,
`71 Hastings L.J. 959, (2020) .................................................................................... 13
`
`Rules
`
`Fed. R. App. P. 29(a)(2) .................................................................................................. 1
`Fed. R. Civ. P. 12(b)(6) ............................................................................................. 3, 15
`
`
`iii
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`
`
`INTEREST OF AMICI CURIAE
`
`Amici are the States of Washington, California, Colorado, Connecticut,
`
`Delaware, Idaho, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota,
`
`Nebraska, New Mexico, New York, North Carolina, Oregon, Rhode Island, Virginia,
`
`and Wisconsin. Amici States file this brief under Fed. R. App. P. 29(a)(2). The
`
`States have a strong interest in this case both as healthcare consumers and
`
`government antitrust enforcers. The States spend millions annually on prescription
`
`drugs by reimbursing patients’ purchases through Medicaid and other programs.
`
`Patients, employers, and insurers within our jurisdictions spend billions of dollars
`
`on prescription drugs. Biologic drugs like Humira represent a large and growing
`
`share of that spending. Anticompetitive conduct that raises biologic drug prices and
`
`eliminates competitive choice substantially harms the States and their residents.
`
`The States also enforce federal and state antitrust laws.1 See 15 U.S.C.
`
`§ 15c(a)(1). The States have a long history of actively challenging anticompetitive
`
`conduct in the pharmaceutical industry, and have a strong interest in the
`
`development and proper application of the antitrust laws to conduct in this
`
`
`1 Amici States note here that dismissal of federal antitrust claims does not
`automatically require dismissal of state antitrust claims challenging the same
`conduct. Not all state antitrust statutes mirror federal antitrust law and some have
`been explicitly recognized as broader than federal law. E.g., In re Cipro Cases I & II,
`348 P.3d 845, 872 (Cal. 2015) (“The Cartwright Act is broader in range and deeper
`in reach than the Sherman Act.”) (cleaned up). Further, some states have enacted
`laws specifically addressing certain forms of anticompetitive conduct. For example,
`a California statute that became effective January 1, 2020, creates a presumption
`that certain reverse-payment agreements are anticompetitive and, where that
`presumption is not rebutted, imposes a civil penalty. See Ass’n for Accessible Med. v.
`Becerra, No. 20-15014, 2020 WL 4251776, at *1 & n.1 (9th Cir. July 24, 2020)
`(describing the statute).
`
`1
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
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`
`
`industry. The States offer this amicus brief to address the district court’s troubling
`
`misapplication of Actavis and the rule of reason to AbbVie’s agreements and to urge
`
`the Seventh Circuit against unduly narrowing the sham petitioning exception to
`
`Noerr-Pennington.
`
`
`
`2
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`
`
`SUMMARY OF ARGUMENT
`
`The district court relied on flawed analyses that—if affirmed—will embolden
`
`anticompetitive practices in the pharmaceutical industry and hamstring antitrust
`
`enforcers. 2 Its Actavis analysis contained three particularly troubling flaws.
`
`First, it held that any agreements granting market entry before patent
`
`expiration are automatically immune from antitrust scrutiny. This directly
`
`contradicts the Supreme Court’s teaching that patent settlements enjoy no
`
`presumption of legality. See FTC v. Actavis, 570 U.S. 136, 147–48 (2013). The
`
`decision below created such a presumption, and did so by resurrecting the
`
`discredited “scope of the patent” test. See In re Humira (Adalimumab) Antitrust
`
`Litig., No. 19-cv-1873, 2020 WL 3051309, at *20 (N.D. Il. June 8, 2020) (declaring
`
`that AbbVie’s Humira agreements at worst “preserved an anticompetitive status
`
`quo” created by AbbVie’s Humira patents).
`
`Second, it relied on unwarranted factual and legal assumptions about
`
`procompetitive effects. The district court announced, for example, that the
`
`challenged agreements “deliver value to consumers” and “increased competition.”
`
`Id. at *20–21. Relying upon disputed facts that contradict the complaint’s
`
`allegations is improper on a Fed. R. Civ. P. 12(b)(6) motion. Moreover, the
`
`challenged agreements caused harm by eliminating the possibility that AbbVie’s
`
`rivals could enter the U.S. market even earlier than their agreed-upon entry dates.
`
`
`2 Amici States’ brief does not address the other issues decided below, including
`issues pertaining to the alleged market allocation claim or antitrust injury. This
`brief should not be construed as agreeing or disagreeing with those decisions.
`
`3
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`
`
`Merely allowing them to enter the U.S. market before AbbVie’s disputed patents
`
`expired does not eliminate that harm. The district court also assumed without basis
`
`that allowing rivals to enter in Europe created cognizable procompetitive effects
`
`despite the complaint alleging harm only in the United States.
`
`Third, the district court gave undue weight to the public policy goal of
`
`“encouraging patent litigants to settle worldwide patent disputes.” In re Humira,
`
`2020 WL 3051309, at *21. Actavis specifically rejected the argument that any public
`
`policy favoring “the desirability of settlements” could trump the application of
`
`antitrust law to potentially harmful patent settlements. Actavis, 570 U.S. at 158.
`
`In short, the decision below represents a frontal assault on Actavis and
`
`enforcers’ long campaign against anticompetitive conduct in the pharmaceutical
`
`industry. Allowing errors like these to persist and gain traction would jeopardize
`
`effective antitrust enforcement in this industry while drug prices continue to soar.
`
`Amici States urge this Court to correct these errors and reverse the decision below
`
`dismissing the Plaintiffs-Appellants’ Sherman Act § 1 claims.
`
`Amici States also urge this Court to apply California Motor Transport rule to
`
`Plaintiffs-Appellants’ Section 2 claims. That more flexible, holistic analysis is the
`
`appropriate standard for serial sham petitioning cases like this one.
`
`
`
`
`
`
`
`
`
`4
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`
`
`ARGUMENT
`
`I. The District Court Misapplied Actavis to AbbVie’s Humira Agreements.
`
`A. Agreements granting entry before patent expiration are not
`automatically free from antitrust scrutiny.
`
`In the decision below, the district court acknowledged that AbbVie’s Humira
`
`settlements allegedly included large, unjustified payments from AbbVie to its rivals.
`
`In re Humira, 2020 WL 3051309, at *20. It found that AbbVie granted these rivals
`
`licenses to enter European markets in 2018, and acknowledged that risk-free entry
`
`was worth hundreds of millions of dollars to them. Id. In exchange, the rivals
`
`agreed to drop their challenges to AbbVie’s U.S. patents and delay entering the U.S.
`
`market until 2023. Id. These findings suffice to state prima facie case under Actavis.
`
`See Actavis, 570 U.S. at 158.
`
`Yet the district court incorrectly held that AbbVie’s Humira agreements were
`
`“specifically permitted by Actavis” as a matter of law and dismissed the Plaintiffs-
`
`Appellants’ Section 1 claims. See In re Humira, 2020 WL 3051309, at *21. On the
`
`district court’s reading, Actavis not only “approved of” agreements granting entry
`
`before patent expiration, In re Humira, 2020 WL 3051309, at *8, but fully removes
`
`them from antitrust review, notwithstanding the alleged purpose or effect of the
`
`agreements. Id. at *20.
`
`The argument that Actavis immunizes agreements granting entry before patent
`
`expiration from antitrust review does not withstand scrutiny. Actavis itself
`
`considered a reverse-payment agreement that allowed rivals to enter the market
`
`five years before the challenged patent expired and concluded that these
`
`5
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`
`
`agreements have the “potential for genuine adverse effects on competition.” Actavis,
`
`570 U.S. at 145, 153. It explained that the “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 infringed by the generic product.” Id. at 153–54. “Continued litigation, if it
`
`results in patent invalidation or a finding of noninfringement, could cost the
`
`patentee . . . revenues . . . that then would flow in large part to consumers in the
`
`form of lower prices.” Id. at 154. On the other hand, “payment in return for staying
`
`out of the market . . . keeps prices at patentee-set levels, potentially producing the
`
`full patent-related . . . monopoly return while dividing that return between the
`
`challenged patentee and the patent challenger.” Id. The result: the “patentee and
`
`the challenger gain; the consumer loses.” Id.
`
`Actavis thus rejected a near-immunity rule, instead analyzing the potential
`
`anticompetitive effects of settlement agreements. As the Federal Trade Commission
`
`recently explained, Actavis did not “state a general rule that removes settlement
`
`agreements from antitrust scrutiny.” 1-800 Contacts, Inc., 166 F.T.C. 274, 287
`
`(2018).3 Rather, Actavis clarified that “a reverse payment’s legality depends mainly
`
`on its economic substance, not its form.” FTC v. AbbVie Inc., No. 18-2621, 2020 WL
`
`5807873, at *17 (3d Cir. Sept. 30, 2020).
`
`
`3 Available at https://www.ftc.gov/system/files/documents/commission_decision_
`volumes/volume-166/vol166complete.pdf.
`
`6
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`
`
`The district court cites Actavis’s explanation that litigants could safely settle by
`
`allowing an alleged infringer to enter the market before the challenged patent
`
`expires. In re Humira, 2020 WL 3051309, at * 8 (“Actavis . . . approved of
`
`settlements where the only reverse payment is an agreement permitting the alleged
`
`infringer to ‘enter the patentee’s market prior to the patent’s expiration’”) (quoting
`
`Actavis, 570 U.S. at 158). But that language addressed agreements lacking a
`
`payment to the rival in exchange for delayed market entry. Actavis, 570 U.S. at 158.
`
`The Supreme Court was explaining that litigants could settle “without the patentee
`
`paying the challenger to stay out” before the agreed-to entry date. Id. Actavis “does
`
`not hold that an early entry date (relative to the patent expiration date) is
`
`automatically procompetitive.” Staley v. Gilead Sci., Inc., 446 F. Supp. 3d 578, 610
`
`(N.D. Cal. 2020). Courts must examine the “cumulative effect of the factual
`
`allegations” in the complaint, like the existence of a reverse payment in exchange
`
`for delayed entry as alleged here. Picone v. Shire PLC, No. 16-cv-12396, 2017 WL
`
`4873506, at *12 (D. Mass Oct. 20, 2017) (quoting Ocasio-Hernandez v. Fortuno-
`
`Burset, 640 F.3d 1, 14 (1st Cir. 2011)); see Sergeants Benevolent Ass’n Health &
`
`Welfare Fund v. Acta Vis, PLC No. 15-cv-6549, 2016 WL 4992690, at *13 (S.D.N.Y.
`
`Sept. 13, 2016) (explaining that “patent holders could still lawfully settle with an
`
`alleged infringer” after Actavis but that “courts must determine the anticompetitive
`
`effect of such settlements by considering traditional antitrust factors[.]”) (internal
`
`quotation marks omitted).
`
`7
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`
`
`The district court here did not conclude that the Humira agreements as alleged
`
`lacked anticompetitive effects. See In re Humira, 2020 WL 3051309, at *20–21
`
`(finding that the complaint alleged payment in exchange for delayed U.S. entry).
`
`Instead, it held that it could not consider the anticompetitive effects of the whole
`
`exchange based on its view that Actavis precludes antitrust review of agreements
`
`that grant entry before patent expiration. This approach turns Actavis on its head
`
`and threatens to nullify its core holding. By calling any combination of agreements
`
`granting market entry before expiration of disputed patents permissible and
`
`procompetitive, it assumes any restraints within that scope—like inducing a rival to
`
`withdraw efforts to enter the market even earlier—are acceptable. That same faulty
`
`logic was the basis for the scope of the patent test that Actavis overruled.
`
`1. Courts have rejected claims that Actavis categorically exempts
`certain forms of settlement agreement from antitrust scrutiny.
`
`The district court’s flawed analysis contrasts with recent decisions emphatically
`
`rejecting arguments that Actavis creates safe harbors for certain types of
`
`agreement. See, e.g., In re Lipitor Antitrust Litig., 868 F.3d 231 (3d Cir. 2017);
`
`Shire, 2017 WL 4873506; Staley, 446 F. Supp. 3d 578; AbbVie, 2020 WL 5807873.
`
`For example, in Lipitor, Pfizer released a damages claim against its generic rival in
`
`exchange for $1 million and the rival’s commitment to delay launching its generic
`
`version of Pfizer’s drug Lipitor. In re Lipitor, 868 F.3d at 253. The plaintiffs alleged
`
`that the damages claim was worth significantly more than $1 million—likely
`
`hundreds of millions of dollars. Id. The defendants argued that this settlement was
`
`“no more than the sort of commonplace settlement that the Supreme Court excluded
`
`8
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
`
`
`
`from antitrust scrutiny” in Actavis. Id. at 254. The Third Circuit disagreed,
`
`emphasizing that the defendant’s proposed safe harbor would permit parties to
`
`“shield their settlements from antitrust review” simply by adopting superficial
`
`changes such as a “token payment” by the generic rival. Id. at 258. That outcome
`
`“simply cannot be squared with Actavis.” Id. It further emphasized that the
`
`defendant’s attempt to label their agreement “commonplace” could not “withstand . .
`
`. plaintiffs’ plausible allegations and the reasonable inferences arising therefrom.”
`
`Id.; see also id. at 256 (“To plausibly allege an unjustified reverse payment, an
`
`antitrust plaintiff need only allege the absence of a ‘convincing justification’ for the
`
`payment.”). The Third Circuit thus reversed the district court’s dismissal and
`
`remanded for further proceedings. Id. at 274.
`
`Similarly, Shire considered allegations that Shire compensated its generic rivals
`
`with a promise not to launch its own authorized generic and by charging them a
`
`below-market royalty rate in exchange for delayed entry. Shire, 2017 WL 4873506,
`
`at *3. The Shire defendants moved to dismiss, arguing that the court could not
`
`consider the effects of the below-market royalty since it fit within the category of
`
`“permissible settlements.” Id. at *11. They relied on language in Actavis suggesting
`
`that a settlement granting entry before patent expiration, without a reverse
`
`payment, would not likely raise antitrust issues. In denying the defendants’ motion
`
`to dismiss, the Shire court observed that a below-market royalty rate could
`
`compensate a rival and thereby incentivize it to drop a patent challenge, which is
`
`the “sort of anticompetitive harm that concerned the Supreme Court” in Actavis. Id.
`
`9
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`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
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`
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`at *12. It then rejected the defendants’ characterization of Actavis as holding that “a
`
`below market royalty-rate is completely insulated from the Court’s consideration[.]”
`
`Id. Instead, the court explained that it was required to consider the effects of the
`
`whole agreement as alleged. Id. The court held that the complaint plausibly alleged
`
`competitive harm under Actavis. Id.
`
`In Staley, the district court permitted claims to proceed where the patent holder
`
`allegedly compensated a rival with most-favored-entry rights, again refusing to
`
`exempt a settlement from scrutiny based on its form. Staley, 446 F. Supp. 3d at 612.
`
`There, Gilead paid its generic rival Teva through two deals that gave Teva the right
`
`to move its market entry dates up if Gilead granted anyone else an earlier date. Id.
`
`at 590. Separate terms prevented Gilead from offering others entry dates less than
`
`six weeks (or in another agreement, six months) after Teva’s. Id.
`
`Gilead argued that the most-favored-entry terms could not constitute an
`
`anticompetitive reverse payment because those terms were “actually procompetitive
`
`in nature,” citing Actavis. Id. at 610. The district court rejected Gilead’s
`
`characterization of Actavis, noting that Actavis did not hold that early entry relative
`
`to patent expiration alone rendered an agreement “automatically procompetitive.”
`
`Id. at 610. In context, the most-favored-entry terms allegedly induced Teva to delay
`
`its entry into the market and dissuaded other generics from following in Teva’s
`
`wake, thus guaranteeing Gilead’s monopoly for the next few years. Id. at 610–12.
`
`The court held that those allegations sufficed to defeat a motion to dismiss. Id. at
`
`612.
`
`10
`
`

`

`Case: 20-2402 Document: 62 Filed: 10/13/2020 Pages: 31
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`
`
`Finally, AbbVie reversed dismissal of a reverse-payment claim by the Federal
`
`Trade Commission based on an agreement allowing a rival to enter the market for
`
`one drug, TriCor, in exchange for the rival’s agreement to delay entering the market
`
`for another, AndroGel. AbbVie allegedly agreed to authorize Teva to sell a generic
`
`version of TriCor and to supply that generic version to Teva. AbbVie, 2020 WL
`
`5807873, at *17. In exchange, Teva agreed to drop its challenge to AbbVie’s
`
`AndroGel patent and defer competing with AndroGel. Id.
`
`The Third Circuit reversed dismissal, finding that these allegations stated a
`
`plausible claim under Actavis. First, it held that the district court’s insistence on
`
`analyzing the TriCor and AndroGel agreements separately was error because it
`
`“elevate[d] form over substance” and “contradicts pleading law.” Id. at *19. Because
`
`the FTC had alleged the two agreements were linked, the district court “had to
`
`accept that allegation as true.” Id. Next, the Third Circuit rejected the district
`
`court’s conclusion that the agreements were not reverse payments because AbbVie
`
`was not paying Teva directly. Id. It explained that the TriCor agreement, as
`
`alleged, transferred value to Teva without a cognizable justification, which
`
`constitutes a reverse payment under Actavis and King Drug. Id.
`
`Finally, the Third Circuit criticized the district court’s conclusion that the
`
`AndroGel settlement was “procompetitive as a matter of law.” Id. It acknowledged
`
`that an agreement that simply “allows a generic company to enter a market before
`
`patent expiration” standing alone is likely to be procompetitive. Id. But that only
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`holds where the patent holder did not pay its rival to delay entry. Id. Because the
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`complaint alleged a payment for delayed entry, and because “pay-for-delay is
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`anticompetitive even if the delay does not continue past patent expiration,” the
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`court held it was error to conclude the agreements benefitted competition as a
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`matter of law. Id.
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`These cases lay bare the errors in the decision below. As the Third Circuit
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`explained, Actavis does not insulate agreements from antitrust scrutiny merely
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`because they resemble a so-called “commonplace” form of settlement on the surface,
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`nor can courts ignore allegations in the complaint when evaluating a motion to
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`dismiss. Lipitor, 868 F.3d at 257-58. Yet here, the district court declared AbbVie’s
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`Humira agreements were “permissible early entry settlement[s],” In re Humira,
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`2020 WL 3051309, at *21, and exempted them from further scrutiny despite
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`plausible allegations conflicting with that characterization. It thereby insulated
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`from consideration settlement terms that the court agreed transferred value from
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`AbbVie to its rivals in exchange for perpetuating AbbVie’s monopoly. Id. at *20–21;
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`cf. Shire, 2017 WL 4873506, at *12. And it reached that conclusion by assuming
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`that granting entry before patent expiration is automatically procompetitive,
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`contrary to Actavis, and by erroneously ignoring the allegations in the complaint.
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`2. The district court’s approach will further embolden pharmaceutical
`companies to fashion illegal settlements to more creatively evade
`scrutiny.
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`Pharmaceutical companies responded to years of enforcement efforts by the
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`States and other enforcers by fashioning new settlement forms to evade scrutiny
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`while continuing to compensate generic rivals with shared monopoly profits in
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`exchange for delaying competition. Today, large cash payments to a generic rival
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`are unusual. See Michael A. Carrier, Solving the Drug Settlement Problem: The
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`Legislative Approach, 41 Rutgers L.J. 83, 98 (2009). Instead, settlement terms are
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`more likely to include complex and difficult-to-detect exchanges. See Robin C.
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`Feldman & Prianka Misra, The Fatal Attraction of Pay-for-Delay, 18 Chi.-Kent J.
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`Intell. Prop. 249, 273 (2019). For example, the cases highlighted above considered
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`challenges to settlement agreements featuring “no-authorized-generic”
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`commitments, releases of large damages claims for nominal payment, below-market
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`royalties, most-favored entry terms, and a supply agreement for a separate product.
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`These and other potentially harmful forms of payment may both delay initial entry
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`and also discourage follow-on competitors, and continue to proliferate. See Laura
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`Karas, Gerard F. Anderson, & Robin Feldman, Pharmaceutical “Pay-for-Delay”
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`Reexamined: A Dwindling Practice or a Persistent Problem?, 71 Hastings L.J. 959,
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`965–66 (2020). Indeed “there is good reason to believe that anticompetitive pay-for-
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`delay agreements continue to be reached in the United States post-Actavis” and in
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`increasingly creative guise. Id. at 966.
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`It is therefore imperative that courts reject formalistic interpretations of Actavis.
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`Altering the form of an anticompetitive reverse-payment agreement does not lessen
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`its harmful impact. Categorically immunizing some settlements from antitrust
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`scrutiny will only encourage further artful collusion among drug companies without
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`generating any procompetitive benefits. If “companies could avoid liability for
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`anticompetitive reverse payments simply by structuring them as two separate
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`agreements . . . Actavis would become a penalty for bad corporate lawyering instead
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`of anticompetitive conduct.” AbbVie, 2020 WL 5807873, at *19. This court should
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`avoid this illogical result by applying the functional analysis Actavis demands and
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`reversing the decision below.
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`B. Procompetitive effects do not justify dismissal here because they
`depend on disputed facts and are not linked to the restraint alleged.
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`The district court committed a second analytical misstep by prematurely
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`concluding that AbbVie’s Humira settlements created procompetitive effects. The
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`effects it highlighted all derive from the market entry dates the agreements granted
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`AbbVie’s rivals. The district court identified no “avoided litigation costs or fair value
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`for services” that might justify AbbVie’s payments. See Actavis, 570 U.S. at 156.
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`Instead, it declared variously that the agreements “deliver value to consumers,”
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