FTC charges Endo Pharmaceuticals with antitrust violations for pay for delay patent settlements

By Gene Quinn
April 1, 2016

Federal Trade Commission

US Federal Trade Commission, Washington DC.

On March 30, 2016, the Federal Trade Commission filed a complaint in the United States Federal District Court for the Eastern District of Pennsylvania alleging that Endo Pharmaceuticals Inc. and several other drug companies violated antitrust laws by using pay for delay settlements to block consumers’ access to lower-cost generic versions of Opana ER and Lidoderm. According to the FTC, this enforcement action is the first FTC case challenging an agreement not to market an authorized generic – often called a “no-AG commitment” – a form of reverse payment.

This enforcement action by the FTC comes thanks to a June 2013 ruling from the United States Supreme Court in FTC v. Actavis, Inc.  In a nutshell, writing for the majority, Justice Breyer explained that there is no valid reason for the FTC to be denied the opportunity to pursue reverse payments as an antitrust violation.  Breyer, who was joined by Justices Kennedy, Ginsberg, Kagan, and Sotomayor, determined that reviewing courts should apply the rule of reason when determining whether reverse payments violate antitrust law. See Supremes Say Reverse Payments May be an Antitrust Violation. Prior to the ruling in FTC v. Actavis, it was widely believed that the FTC did not have authority to challenge reverse payments as settlements of patent disputes. See Pharma Reverse Payments Are Not an Antitrust Violation.

“Settlements between drug firms that include ‘no-AG commitments’ harm consumers twice – first by delaying the entry of generic drugs and then by preventing additional generic competition in the market following generic entry,” said FTC Chairwoman Edith Ramirez. “This lawsuit reflects the FTC’s commitment to stopping pay for delay agreements that inflate the prices of prescription drugs and harm competition, regardless of the form they take.”

The FTC’s complaint alleges that Endo engaged in a pay for delay scheme by paying the first generic companies that filed for FDA approval – Impax Laboratories, Inc. and Watson Laboratories, Inc. – to eliminate the risk of competition for Opana ER (an extended-release opioid used to relieve moderate to severe pain) and Lidoderm (a topical patch used to relieve pain associated with post-herpetic neuralgia, a complication of shingles), in violation of the Federal Trade Commission Act.

Under federal law, the first generic applicant to challenge a branded pharmaceutical’s patent, referred to as the first filer, may be entitled to 180 days of exclusivity as against any other generic applicant upon final FDA approval. But a branded drug manufacturer is permitted to market an authorized generic version of its own brand product at any time, including during the 180 days after the first generic competitor enters the market. According to the FTC, a no-AG commitment can be extremely valuable to the first-filer generic, because it ensures that this company will capture all generic sales and be able to charge higher prices during the exclusivity period.

The FTC is asking the district court to declare that the defendants’ pay for delay conduct violates the antitrust laws, and further seeking an order that the companies disgorge their ill-gotten gains. Of course, the FTC asks for a permanent bar to prevent the companies from engaging in similar anticompetitive behavior in the future.

On a side note, while I am not about to justify anticompetitive behavior, I do personally find it amusing in a very hypocritical way that the FTC is asking for a permanent injunction to forever prevent anticompetitive behavior. Why would the FTC need a permanent injunction? A patent owner who has successfully demonstrated that a patent, which is a wasting asset, cannot get a permanent injunction to order the infringer to cease and desist all current and future infringing activity. Those who complain that permanent injunctions for patent owners are unfair and unjust say that patent owners simply need to start all over again with a fresh lawsuit if infringement continues. So if that rule makes sense for patent owners how could it not make sense as a limitation on the assertion of government power? After all, the FTC has been among the agencies that have been suspicious of patent owners enforcing their rights. They can be suspicious, I guess, but to then turn around and request a permanent injunction themselves strikes me as enormously hypocritical.

In any event, the FTC complaint makes the following factual allegations about this pay for delay settlement:

  • In 2010, Endo and Impax illegally agreed that until January 2013, Endo would not compete by marketing an authorized generic version of Endo’s Opana ER. In exchange, Endo paid Impax more than $112 million, including $10 million under a development and co-promotion agreement signed during the same time period. Endo used this period of delay to transition patients to a new formulation of Opana ER, thereby maintaining its monopoly power even after Impax’s generic entry. In 2010, Opana ER sales in the United States exceeded $250 million.
  • In May 2012, Endo and its partners, Teikoku Seiyaku Co. Ltd. and Teikoku Pharma USA, Inc., illegally agreed with Watson Laboratories, Inc. that until September 2013, Watson would not compete with Endo and Teikoku by marketing a generic version of Endo’s Lidoderm patch. In exchange, Endo paid Watson hundreds of millions of dollars, including $96 million of free branded Lidoderm product that Endo and Teikoku gave to Watson. As a result, Endo illegally maintained its monopoly over Lidoderm. In 2012, Lidoderm sales in the United States approached $1 billion.
  • Endo and Watson illegally agreed that, for 7½ months after September 2013 (including the 180-day first-filer exclusivity period for which Watson was eligible), Endo would not compete by marketing an authorized generic version of Lidoderm. This agreement left Watson as the only generic version of Lidoderm on the market, substantially reducing competition and increasing prices for generic lidocaine patches. As a result, Watson made hundreds of millions of dollars more in generic Lidoderm sales.

The complaint also names Allergan plc, the parent company of Watson, and Endo International plc, the parent company of Endo Pharmaceuticals Inc.

With the complaint, the Commission also filed a stipulated order for permanent injunction against Teikoku Seiyaku Co., Ltd. and Teikoku Pharma USA, Inc., settling charges for those two defendants. Under the stipulated order, the Teikoku entities are prohibited for 20 years from engaging in certain types of reverse-payment agreements, including settlements containing no-AG commitments like those alleged in the complaint, which on its face is extraordinarily heavy-handed given that the Supreme Court has not said that all reverse payment agreements are per se antitrust violations. The agreed-upon order preserves Teikoku’s ability to enter other types of settlement agreements in which the value transferred is unlikely to present antitrust concerns, such as those providing payment for saved future litigation expenses.

The Commission vote to file the complaint was 3-1, with Commissioner Maureen K. Ohlhausen voting no and issuing a dissenting statement in connection with this vote. In her dissent Commissioner Ohlhausen explained that she did think there was an antitrust violation but disagreed with seeking disgorgement from the defendants.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 6 Comments comments.

  1. Paul F. Morgan April 2, 2016 12:48 pm

    Re: “Prior to the ruling in FTC v. Actavis, it was widely believed that the FTC did not have authority to challenge reverse payments as settlements of patent disputes.”
    That was widely hoped by some, but not all, drug companies. But right from the beginning the FTC had loudly and publicly warned, at the AIPLA annual meeting and elsewhere, that they considered it a classic agreement in restraint of trade or monopolization maintenance Sherman Act violation, which maintained high public drug costs, that the FTC intended to aggressively fight it, and they did. Drug companies were encouraged by winning a couple of Circuit court decisions, but they had ample continuous warning that they were risking antitrust suit enforcement. Plus, risking eventual treble damages civil AT suits. Nor were payments by patent owners to defendants to settle patent litigation ever a normal part of normal patent litigation.

  2. Anon April 3, 2016 8:32 am

    I agree with you generally Paul, except your last statement of “Nor were payments by patent owners to defendants to settle patent litigation ever a normal part of normal patent litigation. That statement is simply not true.

    It just is not and cannot be true – on its face.

    If it were, then we would not have cause for the FTC to be pursuing its “right from the beginning [__] loudly and publicly warned.”

  3. Paul F. Morgan April 3, 2016 9:44 am

    Anon, it was and is indisputably NOT normal for patent owners in other [especially non-drug] patent infringement suits to pay defendants so that defendants would stop challenging patent validity.* [Especially where the patent owner also had a market monopoly.] Thus the FTC had no prior reason to actively attack these very unusual patent litigation settlement agreements until they were initiated by certain drug companies just a few years ago.
    Also note Sup. Ct. decisions that have said that there is public interest in challenging patent validity, and eliminating licensee estoppel.

    *I am not aware of ANY such non-drug cases – can you cite any? Even though something like 97% of all patent suits are settled before trial, every patent litigation settlement I have ever heard of in over 40 years has involved a license or settlement payment to the patent owner from the defendant.

  4. Anon April 3, 2016 11:54 am

    Paul,

    I did not take your initial comment to be directed to anything other than the normal avenues with drug patents.There was nothing in your comment to indicate such, so your now attempting to broaden the statement is a “moving of the goalposts” as you will.

    If you want to change your original comment to something along the lines outside of pharma, you of course may do so. But to protest as you do is just a bit disingenuous, and does not address my reply to your original comment. The plain fact of the matter remains that for pharma, such was a normal part of patent litigation tactics. Any attempt at spin, is, well, just spin.

  5. xtian April 4, 2016 12:58 pm

    @anon – Looking at recent history (since 2006), I agree with Paul’s statement that reverse payments (since 2006) were, and are now, not a normal part of brand/generic settlements induced by ANDA litigation. Note the mentioned supreme court 2013 Actavis case was based on events that occurred back in 2006.

    What’s missing in this article is the mention of the 9 patents listed in the Orange book for Opana ER. At least two of these patents have a term to ~2029.

    NB. “But a branded drug manufacturer is permitted to market an authorized generic version of its own brand product at any time.” Two possible interpretations of this statement: i) a branded drug manufacture is permitted to license its patents to any third party it chooses, who may sell its version of the product at a cost cheaper than the brand; ii) a brand can lower its product at any time.

  6. xtian April 4, 2016 1:05 pm

    “Settlements between drug firms that include ‘no-AG commitments’ harm consumers twice – first by delaying the entry of generic drugs and then by preventing additional generic competition in the market following generic entry,” said FTC Chairwoman Edith Ramirez. “This lawsuit reflects the FTC’s commitment to stopping pay for delay agreements that inflate the prices of prescription drugs and harm competition, regardless of the form they take.”

    Is the FTC saying that a Brand cannot exclusively license its patents? Isn’t that what is going on here? Brand and 1st generic settle with a “authorized generic” ( a license). Brand tells 1st generic that it won’t do an “authorized generic.” In other words, the license to 1st generic is exclusive.