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Misguided Sensipar Ruling Threatens Patent Settlements

A Nov. 30 decision by the U.S. District Court for the District of Delaware, In re: Sensipar Antitrust Litigation, contradicts controlling U.S. Supreme Court precedent and, if followed, could have significant implications for patent settlements well outside the pharmaceutical context in which it arises.[1]

Under the 2013 Supreme Court decision Federal Trade Commission v. Actavis Inc.,[2] a routine compromise of a damages claim in connection with a patent settlement should not raise antitrust concerns.

Yet under Sensipar, the hundreds or thousands of patent settlements that involve such compromises might now be recast by aggressive plaintiffs as reverse-payment settlements subject to antitrust litigation, regardless of the industry. The district court's decision is wrong, potentially dangerous and should be reversed.

In Actavis, as most antitrust practitioners know, the Supreme Court held that reverse payments might sometimes be subject to antitrust scrutiny.

However, the Supreme Court made clear that it did not intend to transform all routine compromises into reverse payments — an outcome that could have had the perverse result of effectively outlawing patent settlements — and in particular did not intend to apply antitrust scrutiny to routine compromises of a damages claim in connection with a patent dispute. The court said:

Some of [the authorities] say that when Company A sues Company B for patent infringement and demands, say, $100 million in damages, it is not uncommon for B (the defendant) to pay A (the plaintiff) some amount less than the full demand as part of the settlement — $40 million, for example. ... The cited authorities also indicate that if B has a counterclaim for damages against A, the original infringement plaintiff, A might end up paying B to settle B's counterclaim. ... Insofar as the dissent urges that settlements taking these commonplace forms have not been thought for that reason alone subject to antitrust liability, we agree, and do not intend to alter that understanding.[3]

Sensipar involved the exact fact pattern about which the Supreme Court hypothesized. A patent challenger launched its product at risk, with the patentee potentially incurring hundreds of millions of dollars in damages as a result.

The parties then settled, with the patent challenger paying the patentee $40 million in damages — the exact amount mentioned in Actavis — rather than potentially paying hundreds of millions of dollars had the patentee successfully proven infringement.[4] In other words, the parties entered into precisely the type of agreement the Supreme Court held should not be treated as a suspect reverse payment.

The antitrust plaintiffs in Sensipar then alleged that this compromise of a damages claim should be viewed as anti-competitive, though they primarily argued that such a compromise should be seen as an anti-competitive market division agreement and only in the alternative suggested that the compromise instead could be treated as a reverse payment under Actavis.[5]

The reason the plaintiffs originally sought to bring their claims outside of Actavis is obvious: If Actavis applied to the compromise of damages claim at issue, then the language in Actavis explicitly excluding a compromise of a damages claim from the definition of a reverse payment must also apply, which would surely defeat the plaintiffs' claim.

On a motion to dismiss, U.S. Magistrate Judge Jennifer Hall correctly understood the end-run that the plaintiffs were seeking to accomplish, held that Actavis did in fact apply, and correctly concluded that the plaintiffs' allegation based on a compromise of a damages claim was directly at odds with Supreme Court guidance and must be dismissed: "The main problem with Plaintiffs' 'implicit net payment' theory is that it was specifically disavowed in Actavis."[6]

Judge Hall thus recommended that the plaintiffs' claims be dismissed. The plaintiffs objected to this dismissal, arguing that the language in Actavis directly addressing this situation was irrelevant and that the court should instead consider overriding economic realities.[7]

The district court agreed with Judge Hall that Actavis applied to this fact pattern but deviated from the Supreme Court's instructions regarding a compromise of damages, instead concluding that any transfer of value was a plausible reverse payment on the pleadings, without taking into account the exact situation the Supreme Court said was not a reverse payment.

Specifically, the district court reasoned:

By dropping that appeal, and thereby giving up its claim to all but $40 million (and not even the full $393 million of revenues Teva had earned from its at-risk launch), Amgen was permitting Teva to retain at least some of the profits Teva had earned at Amgen's expense.[8]

On this basis, the district court overruled the Judge Hall's report and recommendation and denied the motion to dismiss with respect to the value exchanged in the compromise on damages.

In short, Sensipar gets it exactly wrong and should be reversed. But Sensipar is not just wrong; it is also dangerous. The Supreme Court explicitly carved out compromise of a damages claim from the definition of a reverse payment for a reason: Such compromises happen all the time in connection with patent settlements, to the point that the Supreme Court called these types of compromises familiar settlement forms that were traditional and commonplace. [9]

By allowing these familiar settlement forms to instead be reclassified as reverse payments, Sensipar risks condemning a broad swath of patent settlements, including countless settlements having nothing to do with pharmaceutical patent litigation under the Hatch-Waxman Act, in which reverse-payment settlement agreements typically arise.

For example, consider this hypothetical. A patentee named Pete's Petaflops has a patent over a type of computer chip, which it claims was infringed by a chip manufactured by Charlie's Computers. Charlie's Computers has been on the market with its potentially infringing chip for several years, and Pete's Petaflops has a potential damages claim of $100 million. The parties settle, however, with Charlie's Computers agreeing to modify its chip so that it will no longer infringe and to pay Pete's Petaflops $40 million in damages.

As the Supreme Court recognized, such settlements happen all the time — they are commonplace.[10] This settlement is completely unrelated to the Hatch-Waxman Act settlements at issue in Actavis, instead is of a type that might be seen every day in patent litigation and is almost verbatim identical to the compromise of a damages claim that Actavis held should not be suspect. So this type of settlement is OK, right?

Not under the reading that most antitrust plaintiffs are likely to give Sensipar. Under Sensipar, this routine compromise of the type discussed explicitly in Actavis might instead be reclassified as a $60 million reverse payment from the patentee to the patent challenger because the patentee has forgone $60 million in potential damages as part of a settlement in which the patent challenger agrees to respect the patent and to keep its infringing product off the market.

Moreover, all the familiar, traditional and commonplace[11] patent settlements involving a similar compromise would meet the same result. As the U.S. District Court for the Eastern District of New York noted pre-Actavis, such a rule would "discourage any rational party from settling a patent case because it would be an invitation to antitrust litigation."[12]

In short, if Sensipar were to be followed by other courts, and it should not be, then few patent cases could settle without being deemed to contain a reverse payment, leading to a flood of antitrust suits. Sensipar therefore poses a significant potential danger not only to the type of patent settlements Actavis thought might sometimes be suspect, but to a huge swath of patent settlements completely unlike those contemplated by Actavis.

Finally, Sensipar illustrates a larger problem with the application of Actavis to patent settlements: Lower courts have struggled with applying Actavis and identifying its boundaries. As a result, courts have reached some very odd results — of which Sensipar is only the latest.

While the Supreme Court thought that it was balancing antitrust and patent principles,[13] while leaving to the lower courts the precise contours of the analysis,[14] the court instead left the lower courts scratching their collective heads and casting about for principles that might make sense to apply.

Sensipar is an example of one court doing so in a way that is clearly contrary to Actavis — but even where courts have not so blatantly contradicted the Supreme Court's guidance, they have struggled. The Supreme Court would thus do well to readdress and clarify these issues.

 

[1] In re: Sensipar (Cinacalcet Hydrochloride Tablets) Antitrust Litigation , 2020 U.S. Dist. LEXIS 223786 (D. Del. Nov. 30, 2020).
[2] FTC v. Actavis, Inc. , 570 U.S. 136 (2013).
[3] Actavis, 570 U.S. at 151-52 (internal citations ommitted); see also In re Ciprofloxacin Hydrochloride Antitrust Litig. , 261 F. Supp. 2d 188, 252 (E.D.N.Y. 2003).
[4] Sensipar, 2020 U.S. Dist. LEXIS 223786, at *9, *18 ("Amgen gave up any right to seek damages (beyond the
$40 million) for the completed sales of Teva's ANDA product.").
[5] See id. at *11-15.
[6] R. & R. at 17, In re Sensipar (Cinacalcet Hydrochloride Tablets) Antitrust Litig., MDL No. 2895 (July 23, 2020), ECF No. 160.
[7] Purchaser Pls.' Obj. to R. & R. at 6, In re Sensipar (Cinacalcet Hydrochloride Tablets) Antitrust Litig., MDL No. 2895 (Aug. 12, 2020), ECF No. 93.
[8] Sensipar, 2020 U.S. Dist. LEXIS 223786, at *18.
[9] Id.
[10] Id.
[11] Id.
[12] Ciprofloxacin, 261 F. Supp. 2d at 252.
[13] Actavis, 570 U.S. at 148.
[14] Id. at 160.

 

This article was first published by Law360 on December 11, 2020.

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