In a decision characterized (somewhat remarkably) by the Circuit Court as being one of first impression, the Second Circuit affirmed dismissal with prejudice of an antitrust allegation by a class of plaintiffs* against Forest Laboratories and several generic drug companies** for settlement agreements in ANDA litigation, in CVS Pharmacy Inc. v. Forest Laboratories Inc.

The litigation arose over the generic drugmakers' ANDA filings involving Forest Laboratories' Bystolic (nebivolol hydrochloride) product, which is a beta blocker used for treating high blood pressure:

The patent asserted in the litigation was U.S. Patent No. 6,545,040 (expired December 17, 2021), claim 1 thereof reciting:

1. A composition consisting of the compound [2R,αS,2′S,α′S]-α,α′-[iminobismethylene]bis[6-fluoro-3,4-dihydro-2H-1-benzopyran-2-methanol] having the formula:
or a pharmaceutically acceptable acid addition salt thereof.

The parties settled the ANDA litigations, with settlement terms including delayed generic entry (until 3 months before patent expiry) and payments to generics for "goods and services" "such as ingredient supply and product development" (which the antitrust plaintiffs alleged were pretextual).

Plaintiffs, consisting of direct purchasers, retail purchasers, and end-payor purchasers alleged violation of Sherman Act Sections 1 and 2, Clayton Act Section 16, and state antitrust and unfair competition laws. The District Court granted defendants' motion to dismiss under Fed. R. Civ. Proc. 12(b)(6), first without prejudice (permitting the complaint to be refiled) and then with prejudice when the procedural defects identified by the District Court under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), Ashcroft v. Iqbal, 556 U.S. 662 (2009), were not rectified. This appeal followed, wherein the Second Circuit affirmed dismissal with prejudice. The opinion notes that the FTC filed an amicus brief but did not file an action against Forest and the generic defendants.

The Court's basis for affirming dismissal of the complaint was that plaintiffs did not plausibly allege 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 opinion relies upon the Supreme Court's decision in FTC v. Actavis which mandates that courts apply the antitrust "rule of reason" to reverse payment settlement agreements that "depends upon its size, its scale in relation to the payor's anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification," including "fair value for goods and services exchanged as part of a bona fide commercial relationship." The reverse payments in the settlement agreements at issue ranged from $200,000 and $2,000,000, and each settling defendant was granted a "non-exclusive, royalty-free license to market its version of generic Bystolic beginning on September 17, 2021" (but with provisions that, if any of the seven entered the market earlier then the others were permitted to do so). In addition, the settlements contained various supply agreements for goods and services (termed the "Commercial Transactions"), which plaintiffs argued were "side agreements" having large ($15 million) values.

Appellate review was de novo, under Second Circuit law; as set forth in the opinion under Iqbal the facts alleged must support a "facially plausible claim" that would permit a court "to draw the reasonable inference that the defendant is liable for the misconduct alleged." "Mere possibility" isn't enough, nor are allegations that are "merely consistent with" liability if they don't plausibly suggest liability under Twombly; further "labels and conclusions" are insufficient nor are "naked assertions" unsupported by "further factual enhancements."

The Court focused on Twombly's plausibility requirement, the opinion noting that this standard does not permit a court to dismiss an antitrust complaint based on a "plausible version of the events merely because the court finds a different version more plausible" under Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d 162, 185 (2d Cir. 2012), because "plausibility" is a lower standard than "probability."

The opinion provides a succinct synopsis of Supreme Court's Actavis decision: "the Supreme Court made clear that reverse-payment settlements are not per se or presumptively illegal--rather, they may violate the antitrust laws only 'sometimes' . . . [requiring courts to] navigate the 'tension between the antitrust laws' objective of enhancing competition by preventing unlawful monopolies and patent laws' objective of incentivizing innovation by granting legal patent monopolies,'" citing New York ex rel. Schneiderman v. Actavis PLC, 787 F.3d 638, 659 (2d Cir. 2015).

Here, the Second Circuit found parallels between the circumstances and provisions in Actavis and in this case -- "an agreed-upon date [of market entry] earlier than the expiry of [the branded company's patents]" and payment to the generic companies ("millions of dollars") as compensation for services. The Supreme Court calculus the Second Circuit considered particularly applicable in this case involved the rule of reason wherein: (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." Further, the opinion sets forth the Court's analysis of the rubrics the Second Circuit relied upon from Actavis: first, that the rule of reason is applied because reverse payment agreements have the "potential for genuine adverse effects on competition" and second that these agreements only violate the antitrust laws "sometimes" and thus "[t]he 'relevant antitrust question' is why the reverse payment was made," i.e., to cause anticompetitive harm, which is assessed using the analytical framework set forth by the Supreme Court in Actavis ("large," based on absolute size and relationship to avoided litigation costs, and "unjustified" or unexplained reverse payments based on "traditional settlement considerations" such as "fair value"), in the context of a general preference for settling lawsuits.

The Second Circuit agreed with the District Court that plaintiffs did not "plausibly allege" that the settlements were unjustified and raised an antitrust violation, and had "properly applied the general pleading principles established in Twombly [and] Iqbal." Regarding the justification standard, the Court held that "[t]here 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," the plaintiffs rather relying ("mostly") on "speculation and supposition," terming them "atmospheric allegations" (heretofore rather more often the province of the FTC's rhetoric).

Importantly, the Court asserts that "Actavis does not stand for the proposition that parties must reach the most procompetitive settlements possible," citing King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp., 791 F.3d 388, 408–09 (3d Cir. 2015), nor does the Court's decision "compel antitrust scrutiny of a settlement regardless of whether its terms could reasonably be interpreted as a large and unjustified reverse payment," citing In re Actos End Payor Antitrust Litig., No. 13-cv-9244, 2015 WL 5610752, at *15 (S.D.N.Y. Sept. 22, 2015).

The opinion recites as "overarching" the following reasons supporting dismissal in the terms of the Commercial Transactions that the Court opines reflect bona fide business considerations:

• The size of payments is not sufficiently contextualized or compared to enable [the Court] 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.

The opinion then illustrates how each of the six Commercial Agreements satisfy a sufficient combination of these considerations for the Court to affirm the District Court's decision to dismiss plaintiff's complaint with prejudice (calling one set of plaintiff's allegations "at once complicated and threadbare").

Despite active support by the FTC, plaintiffs here failed to establish sufficient likelihood of an antitrust violation arising from any of the ANDA settlements at issue illustrating the burden such plaintiffs face and the dependence of that burden on the factual underpinnings of the settlement agreements at issue.

* Plaintiffs included CVS Pharmacy, Inc.; Rite Aid Corporation and affiliates; J M Smith Corporation and affiliates; KPH Healthcare Services, Inc. and Kinney Drugs, Inc., Mayor and City Council of Baltimore, UFCW local 1500 Welfare Fund, Teamsters Western Region & Localv177 Health Care Plan, Fraternal Order Of Police Miami Lodge 20, Insurance Trust Fund, Law Enforcement Health Benefits, Inc., Teamsters Local No. 1150 Prescription Drug Benefit Plan, Teamsters Local 237 Welfare Fund and Teamsters; Local 237 Retirees Benefit Fund, Albertsons Companies, Inc., H-E-B L.P., The Kroger Co., Walgreen Co.

** Defendants included Forest Laboratories Inc. (innovator) and Allergan, Inc. and affiliates; Abbvie Inc.; Watson Pharma, Inc. and affiliates; Actavis, Inc.; Teva Pharmaceuticals USA, Inc.; Torrent Pharmaceuticals Ltd. and affiliates; Amerigen Pharmaceuticals Ltd and affiliates; Glenmark Generics Inc., USA and affiliates; Hetero Labs Ltd. and affiliates; Andchemie Health Specialties Private Ltd.; Alkem Laboratories Ltd.; Ascend Laboratories, LLC; and ANI Pharmaceuticals, Inc. (generic drugmakers), wherein Alkem, Amerigen, Glenmark, Indchemie, Hetero, Torrent and Watson were all first-filers.

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