Forest Laboratories, the brand manufacturer of the high-blood-pressure drug Bystolic, settled patent-infringement litigation that it brought against seven manufacturers of generic versions of Bystolic. Contemporaneously with each
settlement, pursuant to which the generic manufacturers agreed to forgo the launch of their products for several years, Forest separately entered into business transactions whereby it paid the generic manufacturers for goods and services.
Plaintiffs, who are purchasers of Bystolic and its generic equivalents, sued Forest and the generic manufacturers under state and federal antitrust laws, alleging unlawful “reverse” settlement payments to delay the market entry of generic
Bystolic. In Federal Trade Commission v. Actavis, Inc., the Supreme Court held that reverse payments can “sometimes” violate the antitrust laws if they are large and “unjustified” but that they do not do so when they represent fair value for goods or services exchanged as part of a bona fide commercial relationship. 570 U.S. 136, 141, 153–58 (2013).
The United States District Court for the Southern District of New York twice dismissed the case for failure to state a claim. In its opinion filed on May 13, 2024, the United States Court of Appeals for the Second Circuit stated, “We agree with the district court that Plaintiffs fail to plausibly allege, as Actavis requires, that any of Forest’s reverse payments were unjustified or unexplained, instead of constituting fair value for goods and services obtained as a result of arms-length dealings.”
The Rule Of Reason
The rule of reason, which ultimately requires plaintiffs to show that an agreement is in fact unreasonable and anticompetitive, ordinarily entails three steps: (1) the plaintiff has the initial burden to show that the challenged restraint of trade has actual anticompetitive effects; (2) if the plaintiff makes out a prima facie case, the burden shifts to the defendant to demonstrate the restraint’s procompetitive benefits or justifications; and (3) if the defendant does so, the burden shifts back to the plaintiff to establish that there were less restrictive means for obtaining the procompetitive benefits. Reverse payments are subject to the rule-of-reason analysis.
Plaintiffs alleged that Defendants engaged in a broad anticompetitive scheme whereby Forest, pursuant to separate “side deals” with its counterparties, made unlawful reverse payments in order to keep generic Bystolic out of the
market. According to Plaintiffs, Forest used the six Commercial Transactions to pretextually pay the Generic Defendants for products or services it did not truly need. These overpayments, Plaintiffs claimed, shielded brand Bystolic from competing with its generic equivalents and enabled Forest to share monopoly profits with the Generic Defendants. Plaintiffs posited that, were it not for Forest’s unlawful reverse payments, generic Bystolic would have entered the market sooner–either by the generic manufacturers settling on terms allowing for market entry even earlier, by prevailing in the infringement litigation against Forest, or by launching their products at their own risk (i.e., with patent litigation pending). And with generic Bystolic available, Plaintiffs contended, consumers would not have had to pay the supra-competitive prices that Forest set for brand Bystolic. Plaintiffs argued that this scheme violated the antitrust laws as the Supreme Court construed them in Actavis.
The federal appellate court stated, “There is no allegation plausibly showing that any of the six Commercial
Transactions reflected anything other than “fair value” for goods and services obtained as a result of good-faith business dealings–one of the “traditional settlement considerations” squarely privileged under Actavis … Plaintiffs mostly rely on speculation and supposition in contending otherwise. Neither the terms of the Commercial Transactions, nor Plaintiffs’ specific allegations concerning those agreements, nor their atmospheric allegations regarding Forest’s settlement of the Nebivolol Patent Litigation (whether considered alone or together) constitute a plausible basis to infer that Forest paid its counterparties to avoid generic competition, i.e., “purely so [they] will give up the patent fight” and stay out of the market.”
“Although the six Commercial Transactions are discussed one by one below, the following reasons for dismissal are overarching:
- The terms of the Commercial Transactions reflect bona fide business considerations.
- The size of payments is not sufficiently contextualized or compared to enable us to infer that the payments are plausibly unjustified.
- Forest’s need for alternative supplies of active pharmaceutical ingredients (“API”) or finished pharmaceutical products was consistent with what Forest previously disclosed to investors.
- A lack of public disclosures about business plans or investments does not necessarily bear upon whether those ventures are truly legitimate or genuine.
- It is sensible for counterparties to enter into condensed term sheets with the expectation of subsequently negotiating definitive agreements that are more detailed.
- Payments for developmental or commercial milestones, or research-and-development expenses, bespeak rational commercial incentives.
- Provisions in the Commercial Transactions that are designed to ensure price competition do not fit with Forest’s alleged intention to funnel secret overpayments to the Generic Defendants.
- Agreements between Forest and other counterparties need not be identical to Forest’s agreements with the Generic Defendants, or even closely resemble them.
- The agreements’ provisions trump allegations of unsupported speculation about nefarious motives.”
Source In re Bystolic Antitrust Litigation, 23-410 (L).
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