Paying late is sometimes okay | McDermott Will and Emery

The U.S. Court of Appeals for the Second Circuit has upheld the dismissal of a lawsuit against pharmaceutical companies accused of violating antitrust laws by using reverse payments to delay the launch of a generic version of a patented drug. CVS Pharmacy, Inc. v. Forest Labs. Inc., Case No. 23-410; -418; -420; -423 (2 approx. May 13, 2024) (JacobsSack, Nardini, J.J.)

This case involves a medicine called Bystolic, which is a beta-blocker intended to treat high blood pressure. Numerous purchasers of Bystolic and its generic versions have brought state and federal antitrust claims against Forest Labs. and generic drug manufacturers. The buyers sued Forest Labs. “illegally paid generic drug manufacturers to delay their products from entering the market and to extend Forest Labs’ operations.” ability to derive monopoly profits. Buyers say Forest Labs. concealed these payments by pretexting to compensate generic drug manufacturers for goods and services offered by Forest Labs. he really didn’t need to. Buyers argue that without such “side deals”, generic versions of Bystolic would have entered the market earlier – whether through generic producers who prevailed in infringement proceedings, market entry at risk (i.ein which court proceedings are ongoing) or agreeing to a settlement allowing for earlier market entry.

Payments made by Forest Labs. are called “reverse payments” because, unlike a typical settlement, the patent owner pays the alleged patent infringer even though he has no claim for damages. As the Supreme Court explained in 2013 FTC v. Actavis that such payments should be assessed in accordance with the antitrust law’s principle of reasonableness, whereby courts balance anti-competitive effects with pro-competitive benefits. The Supreme Court clarified that while reverse payments may seem questionable, they are not automatically illegal. Instead, these payments may “sometimes” violate antitrust laws, but only if they are “large” and “unreasonable.” According to the Supreme Court, whether a reverse payment will pass antitrust proceedings “depends on its size, scale in relation to the expected future costs of the payer’s proceedings, its independence from other services for which it could constitute payment, as well as the lack of other convincing justification”, including the value fair value of goods and services exchanged under: true commercial relations.

Forest laboratories. and generic drug manufacturers moved to dismiss the purchasers’ claims for failure to present a claim. The District Court agreed to the request, finding that the buyers’ claims did not convincingly indicate a violation of antitrust law within the meaning of Art. Actavis. The buyers filed an appeal.

The Second Circuit upheld the dismissal order. Analyzing ActavisThe Court clarified that reverse payments are subject to reasonableness analysis and an appropriate investigation includes determining why the payment was made. The Court noted that payments must be analyzed in the context of a strong public policy favoring dispute resolution, meaning that payments violate antitrust law only if they are both large and unreasonable or inexplicable. In turn, whether a reverse payment is “unreasonable” depends on whether it “reflects traditional accounting considerations,” including the “fair value” of the products or services provided by the manufacturer of the generic product based on a legitimate commercial relationship with the brand at arm’s length. producer.

The Second Circuit individually analyzed the business transactions between Forest Labs. and generic drug manufacturers and concluded that there were no allegations convincingly showing that any of the transactions reflected anything other than the “fair value” of goods and services obtained through bona fide business transactions. The Court found, among other things, that:

• The terms of the contracts reflect true business reasons.
• The size of the payments was not given sufficient context or compared in sufficient context to reach the conclusion that the payments were convincingly unjustified.
• Forest laboratories. the need for an alternative supply of active pharmaceutical ingredients or finished pharmaceutical products was consistent with what Forest Labs stated. previously disclosed to investors.
• The lack of public disclosure about business plans or investments does not necessarily affect whether these ventures are actually legitimate and real.
• It is prudent for contractors to enter into abbreviated term sheets in anticipation of later negotiations on more detailed, final contracts.
• Payments for development or commercial milestones or research and development expenditures demonstrate reasonable commercial incentives.
• The provisions of the transaction intended to ensure price competition did not suit Forest Labs. alleged intention to provide secret overpayments to generic drug manufacturers.
• The provisions of the agreements are replete with allegations of baseless speculation about nefarious motives.

The Second Circuit found that none of the reverse payments were unlawful and therefore affirmed the district court’s dismissal decision.

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