In Re: Solodyn Antitrust Litigation: Lessons from a "big Stakes" Reverse Payment Pharmaceutical Trial

• Jurisdiction: United States,Federal
• Citation: Vol. 29 No. 1
• Publication year: 2019
• Author: By Kenneth R. O'Rourke
• topic: Antitrust and Competition,Commercial Litigation,Intellectual Property,Civil Procedure

IN RE: SOLODYN ANTITRUST LITIGATION: LESSONS FROM A "BIG STAKES" REVERSE PAYMENT PHARMACEUTICAL TRIAL

By Kenneth R. O'Rourke¹

PANELISTS

• For the Plaintiffs: Richard A. Arnold & Anna T. Neill—Kenny Nachwalter PA
• For the Defendant: J. Doug Baldridge & Lisa Jose Fales—Venable LLP
• Moderator: Kenneth R. O'Rourke—O'Melveny & Myers LLP

I. INTRODUCTION AND OVERVIEW

In 2014, Impax Laboratories, Inc., was sued for allegedly conspiring with Medicis Pharmaceutical Corp. to delay launching a generic version of Medicis' branded acne drug, Solodyn. Antitrust cases were filed by direct purchaser plaintiffs, including wholesale pharmacies such as Kroeger, and by end-payor plaintiffs, including health plans and benefit plans that paid the price of members' Solodyn prescriptions. The Judicial Panel on Multidistrict Litigation consolidated the class actions and direct action cases, and transferred them to the United States District Court for the District of Massachusetts.²

The consolidated case was tried for 10 days before Judge Denise J. Casper in March 2018. On March 29, 2018, in the midst of the trial, the cases settled, and Judge Casper discharged the jury before a verdict was reached.

Had the case gone to the jury, it would have been only the second jury verdict in such a so-called "pay-for-delay" or "reverse payment" action since the U.S. Supreme Court clarified the standards for these types of claims in 2013.

Trial counsel for certain direct purchaser plaintiffs and for defendant Impax shared their experiences trying the case with the Golden State Institute in November 2018 during a panel discussion moderated by Kenneth O'Rourke.

MR. O'ROURKE:

Good morning. My name is Ken O'Rourke. I'm with O'Melveny & Myers. I have the privilege of moderating the discussion about our next big stakes 2018 antitrust trial. This case is quite different from the last one. The industry is pharmaceuticals. The type of case is sometimes called "pay-for-delay." When you hear someone call these cases pay-for-delay, it is a plaintiff's lawyer. Defense lawyers contend these cases stem from procompetitive reverse payment settlements.

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These cases are becoming more common. They are going to trial more often. While pharmaceutical reverse payment cases have been around for more than a dozen years, it was not until 2013 when the Supreme Court decided FTC v. Actavis³ that we received Supreme Court direction on what the standard is for proving these cases. Long story short, it is the rule-of-reason. In these cases, that rule often can mean most anything to anybody. It certainly makes the litigation and trial more interesting.

The trial that we are focused on involved a drug called Solodyn. Solodyn is an acne medicine—a high value, popular acne medicine. This case was brought by buyers of Solodyn—both a class of buyers and separately by large wholesale pharmacies, Kroeger, for example, which has pharmacies in 35 states. Kroeger's is a large purchaser of drugs, including Solodyn.

Plaintiffs—the buyers—allege there was an anti-competitive reverse payment or a pay-for-delay deal between Medicis, the brand maker of the drug, and several generic drug makers. The core allegation is there was a pay-off to the generics to keep them out of the market for years, so that while they're out of the market, Medicis, the branded company, can enjoy monopoly profits.

We know from common experience when there is a new brand drug in the market, prices for that drug are often quite high. Then, when generic companies finally enter the market, prices often crater. The allegation is that the delay in the entry by these generics caused harm, financial harm to the buyers; that is, to consumers and to everyone else in the drug distribution chain.

With this brief background, I'll introduce our panelists. We are fortunate to have the trial lawyers who litigated these cases.⁴

Doug Baldridge is with the Venable law firm. His partner is Lisa Jose Fales. They were trial lawyers for the defense, for Impax. Impax, at the time, was a Hayward, California, based generic pharmaceutical maker that has since merged into another company, but at the time it was one of the generic makers of Solodyn.

Richard Arnold was a trial lawyer for direct purchasers, for the large independent buyers. Anna Neill is his partner. They are both from the Kenny, Nachwalter firm in Miami.

We are first going to have a short tutorial on the law and facts of this case, and then we have questions for each of the trial lawyers. Lisa, will you tell us more about reverse payment settlements and why they are so often the subject of antitrust lawsuits.

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A. Development of The Legal Standard

MS. FALES: You bet.

Good morning. I will tell you that as defense counsel we call these early entry settlements. I think Ken did a nice job explaining where these cases come from. They involve underlying patent litigation, hotly contested, that is then settled between a brand drug company and a generic pharmaceutical company.

There is something of value, typically a payment, that flows from the brand to the generic; hence, the concept of a reverse payment. Plaintiff's view is that that payment delays the entry of the generic drug that's covered by the brand's patent. Defense argues that, in fact, these settlements are procompetitive because they eliminate litigation risk and uncertainty that's inherent in every patent infringement case and ensure early entry by the generic.

When there is a settlement of the litigation, generics typically get a license from the brand for years of early entry. You're going to hear from Anna in a few minutes that in this case Impax got a license that allowed it to enter the market six and a half years earlier than the expiration of the brand's patent. That's entry with certainty. And, the license covered not only the patent that was at issue in the underlying patent litigation, but any subsequent patents that the brand company procured.

That's where this case comes from. In terms of the law, Ken touched on the FTC v. Actavis case. That is a seminal case in this area. Supreme Court case, summer of 2013, and it literally changed the legal landscape for the antitrust analytical framework under which these patent litigation settlements are considered.

Prior to Actavis, most of the courts used the scope of the patent test. And what the scope of the patent test says is, look, as long as the drugs covered in the underlying patent litigation settlement agreement are within the scope of the brand's patent—both the patent's claims on the drugs and by time—the settlement is not unlawful. The Third Circuit took a different view. The Third Circuit applied a "quick look" approach. If there is a so-called reverse payment, that is prima facie evidence of an unlawful restraint of trade.

The case went up to the Supreme Court. The Supreme Court rejected both of the standards used by the lower courts. We're not going with scope of the patent, we're not going with "quick look." Instead, the Court said we're going to use a traditional rule-of-reason analysis. We are going to apply to these patent litigation settlement agreements a traditional rule-of-reason analysis.

And interestingly the Supreme Court said, you lower courts figure out in your infinite wisdom how to apply the traditional rule-of-reason analysis to these incredibly complicated cases which have, of course, the underlying patents in them and, as well, other things you are going to hear about in our discussion.

What is essential in the Actavis ruling is that the first step before you even get to the traditional rule-of-reason analysis is that—and the burden of proof issue is contested—the plaintiffs have to establish that there was a large and unjustified or unexplained payment.

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As I said, there is a different viewpoint on just about everything in these cases, but in particular there is a difference on who bears the burden of proof. Our judge—Judge Denise Casper, who was superb—said that the plaintiffs have to prove whether or not there was a large payment from the brand company, the holder of the patent, to the generic to settle, and then the burden shifts to the defense to establish whether the payment was justified or explained.

So, what you're going to hear about today is the concept of large and unjustified, as well as other critical issues in our case and the court's struggle with trying to apply the Actavis decision.

This morning, Doug, Richard and I had coffee, and the one thing we all agreed on is that there is a paucity of the Supreme Court giving the lower courts any direction on how to structure the rule-of-reason—and no definition for what constitutes "large." So, that's a critical and central part of these cases, and you are going to hear particularly about it in the Solodyn trial.

MR. ARNOLD: There must have been something in that coffee. I don't remember agreeing to that.

MR. O'ROURKE: Well, we can say the Supreme Court did lawyers a favor by leaving it open as to exactly how the rule-of-reason operates as applied to these cases. The Court has given counsel on both sides the opportunity to convince their judge how to try the case and the procedures for doing so.

Let's turn back to the facts of the Solodyn case. Anna, tell us more about the case. Give us the who, what, where, when and why.

B. Factual Background

MS. NEILL: Sure. I'll just say before I get started, that was a great introduction, Lisa. And, I think we tend to disagree on almost everything except that Judge Casper was superb. She was fantastic.

This case is based on the underlying patent case, on a patent known as the '838 patent that covered the acne drug, Solodyn. The patent was owned by the brand company, Medicis. That patent issued back in 1999, with an expiration date in 2018.

About seven, eight years after that patent issued, Impax, a generic company, filed an Abbreviated New Drug Application (or ANDA) to bring a generic version of the Solodyn drug to the market.

And, at that time Impax wanted...